Mutual insurance, retirement and investment group LV=, the UK’s largest friendly society, announces its interim results for the six months ending 30 June 2016.
Strategic and operational highlights:
Richard Rowney, LV= Group Chief Executive, said: “In the first half of the year we have delivered increased sales in both our general insurance and life & pensions businesses. The Group operating profit of £33 million reflects lower operating profits in the general insurance business and a £19 million loss in the heritage business mainly driven by claims experience variances, offset by an increase in life operating profit.
“I’m particularly pleased with the performance of our life & pensions business where total sales have broken through the £1 billion mark with growth in all product lines. We continue to see a trend towards blended and hybrid products following the Government’s pension reforms as people increasingly exercise their ability to choose how they fund their retirement.
“The underlying trading performance of our general insurance business is good with 8% growth in premium income. Profitability in 2016 has been affected by the non-recurrence of a number of one-off factors that arose in 2015. The rating environment in general insurance remains mixed with rate increases in motor and a continuation of the soft market conditions in home. I am confident that our experienced and accomplished leadership team under Steve Treloar will continue to reinforce the position of our general insurance business as a market leader.
“Our capital position is satisfactory with a Solvency II capital coverage ratio at 30th June 2016 (including the expected impact of a recalculation of TMTP as at 30th June) of 126% (FY 2015 146%) although we continue to explore options to increase our Solvency II ratio. We are operating in a prolonged low interest rate environment with significant volatility and this has created challenging market conditions. We will remain disciplined in the management of the business, exercising strict controls over the allocation of capital to the right product areas.”
General Insurance financial highlights:
| H1 2016
|| H1 2015
|| Change (%)
| Premium income
|| £785 million
|| £729 million
| Operating profit
|| £22 million
|| £70 million
| Underwriting profit
|| £8 million
|| £53 million
| Combined ratio
General insurance has had a solid performance in the first six months with 8% growth in premiums to £785 million (H1 2015 £729 million), an operating profit of £22 million and a combined ratio of 98.5%. We have seen good growth in both motor and commercial while home insurance premiums are flat, reflecting the soft market conditions. With our disciplined approach to underwriting we will only grow where it makes financial sense to do so.
In the first half of 2015, the general insurance result benefited from a number of favourable one-offs that have not repeated this year. As we indicated at the time, the operating profit was boosted by exceptional levels of prior year reserve releases of £55 million compared to £13 million this year.
In 2016, we are seeing motor claims inflation at the top end of our expectations driven by increases in technology in cars which makes repair costs more expensive. As a consequence of the combination of reduced investment income and higher claims inflation we expect to see the strengthening of motor rates continue in the second half of the year.
Total policies in-force are up 4% in the first six months of the year to 4.9 million (FY 2015 4.7 million) and the proportion of non-motor policies now stands at 39% as we continue to rebalance our general insurance portfolio. We aim to maintain our position as one of Britain’s best loved insurers and our satisfaction rates remain very high with 85% of customers saying they are ‘very’ or ‘extremely’ satisfied.
Life and pensions business financial highlights:
| H1 2016
|| H1 2015
|| Change (%)
|| £28 million
|| £12 million
|New business contribution [iii]
|| £26 million
|| £19 million
|Life new business sales (PVNBP basis) [iv]
|| £1,009 million
|Retirement Solutions||£863 million||£720 million||20|
|Protection||£146 million||£144 million||1|
The life business had a very strong first six months of the year and the momentum built in 2015 has continued. Operating profit has more than doubled to £28 million (H1 2015 £12 million) and new business contribution before investment in new propositions is up 37% to £26 million (H1 2015 £19 million).
We have experienced continued strong growth in our Retirement Solutions business, with total new business premiums exceeding £860m in H1 2016, up 20% on H1 2015. This growth has been across all product lines with a 10% increase in pensions where demand for drawdown continues to increase following the 2015 pension freedoms, and a 39% increase in sales of our Flexible Guarantee products. Demand for specialist annuity products remains strong with sales of Fixed Term Annuities up 42%. The continued strong growth in our Retirement Solutions business has resulted in new business contribution increasing to £15m (H1 2015 £8m).
In 2015, we became the first provider to create a fully regulated online robo-advice service, LV= Retirement Wizard, for the at retirement market. We now have signed agreements in place with B&CE, Key Retirement Solutions, Reassure and Berkeley Burke for them to offer this service to their customers. We expect robo-advice to have an important role to play in closing the advice gap, and we look forward to working with more organisations to make affordable regulated advice available to their members and customers.
The acquisition of the Teachers Assurance business was completed on 1 June 2016 and we welcome these new members to the Group.
In Protection new business sales are up slightly at £146 million (H1 2015 £144 million) and this is a particularly pleasing result off the back of significant increases in 2015. The high levels of new business contribution experienced in 2015 were sustained through the first half of 2016 at £11 million (H1 2015 £11 million).
We continue to invest in digital initiatives to make it easier to do business with us. The rollout of our Fastway quote and apply system continues, this combines the benefits of technology with an expert human touch where it matters most. Feedback from IFAs has been very positive and it will be available to all intermediaries by the end of the year. We have also launched a mobile first life insurance solution – QuickCover – which enables the purchase of life cover via a smartphone or tablet.
Commenting on the outlook, Richard Rowney said: “We remain the UK’s most recommended insurer according to YouGov and earlier this year we were voted the most trusted by Moneywise. I believe that we can build on these strong foundations and I increasingly expect LV= to become the challenger brand in this industry, one that is famous for great customer service combined with clever investment in digital solutions that benefit our customers, members, IFAs and brokers alike.”
These numbers are unaudited.
 Operating profit excludes short-term investment fluctuations, amortisation of acquired intangibles and other one off costs and gains.
[ii] Figures exclude RNPFN and Teachers Ring-Fenced Funds and are based on the Standard Formula approach using the Volatility Adjustment and Transitional Measures on Technical Provisions (TMTP) as approved by the PRA. H1 2016 figures include the Matching Adjustment which was approved by the PRA in April 2016. The recalculation of TMTP as at 30 June 2016 is included within the H1 2016 ratio.
[iii] Overall new business contribution is before investment in new propositions.
[iv] Present Value of New Business Premiums (PVNBP) is the total of new single premium sales received in the year plus the discounted value, at the point of sale, of the regular premiums we expect to receive over the term of the new contract sold in the year. For Equity Release this represents the amount of loans provided.