Mutual insurance, retirement and investment group LV=, the UK's largest friendly society, announces its financial results for the year to 31 December 2015 and publishes its annual report.
Mike Rogers, LV= Group Chief Executive, said: "The challenging market conditions experienced in 2014 with depressed investment returns and pressure on home insurance rates, have continued in 2015. Against this backdrop LV= has performed very strongly and delivered an operating profit of £195 million, an increase of 127% over the prior-year.
"Today we have announced an increased mutual bonus of £27 million (2014: £24 million) taking the total allocated to eligible members over the last five years to £113 million. We exist to grow member value and it's very pleasing to be able to reward them as a result of our financial success.
"Our general insurance business results have been impacted by a range of factors in 2015. On the upside we started to see rates in the car insurance market harden in the second half of the year but much of this benefit was eroded by an increase in claims inflation. The underwriting result once again benefited from significant favourable prior-year reserve development of £93 million (2014: £109 million). While we expect to see continued positive reserve run-off in future years it will be at lower levels. In line with the rest of the industry our operating profit of £72 million was affected by the impact of the December storms. The business is in good shape and we're confident that the management actions taken during 2015 position it well to deliver profitable growth in 2016 and beyond.
"The impact of government pensions' reforms continues to be felt in the retirement market where we've seen a marked change in buying behaviour with more pensions savers shopping around for retirement income solutions. New business volumes have grown significantly and we continue to develop new products and services to position LV= at the forefront of the changing pensions environment.
"We retain our position as the leading provider of individual income protection and during 2015 entered the business protection market. Total new business sales of £272 million were up 25% on 2014 and protection remains an area where we see potential for future growth."
General insurance business
||£72 million||£92 million||(22)|
||£44 million||£51 million||(14)|
|Gross written premiums
2015 was another good year for our general insurance business in what remain challenging market conditions. Gross written premiums are up 6% to £1.47 billion with growth in both the broker and direct channels. While we began to see rates harden in the motor market in the second half of the year, rates in the home and SME markets continue to be soft.
Despite on-going pressure on top line and the impact of the December storms we achieved a strong combined operating ratio of 96.1%. Against this backdrop and with a sustained low interest rate environment we continue to believe that the general insurance market remains under-priced and will need further rate increases in 2016.
Record operating profits for our direct business of £91m were partly offset by an operating loss of £19m in our broker business largely driven by the weather claims in December where costs, across both divisions of £36m particularly impacted our commercial business. We remain committed to the broker market and are confident that the pricing and underwriting actions we took in 2015 will restore this business to profitability in 2016.
Policy count increased by over 100,000 and we now have more than 4.7 million policies in force (direct 3.3 million and broker 1.4 million). Our strategy to diversify our general insurance business continues and more than half of the net growth in policy numbers has come from non-motor lines.
Looking ahead to 2016 our priorities are continued growth in SME, targeted growth in home and motor where market conditions are favourable and further investment in technology to make it easier for brokers and clients to do business with us.
Life and pensions business
||£7 million (loss)
|Overall new business contribution 
|Retirement new business sales (PVNBP basis)
|Flexible Guarantee Bonds||£379 million
|Equity Release||£63 million
| Protection new business sales (PVNBP basis)
Our life and pensions business had a very successful year in 2015 turning an operating loss of £7 million in 2014 to a £41 million operating profit, partly as a result of favourable one-off model and valuation changes. Overall new business contribution before investment in new propositions has increased by 88% to £47 million (2014: £25 million) driven by strong interest in our protection, flexible guaranteed bonds and draw-down products.
In retirement we have seen good growth in blended solutions as consumers start to fully exercise their range of options following the pension freedom reforms announced in 2014. In response we were the first to launch a Retirement Account combining fixed term annuities and flexible guarantee funds in a single solution. To cater for the needs of people in defined benefit pension schemes who want to explore their income options at retirement we created Pension Compass, a range of tools that allow members to compare the new income options to the guaranteed benefits offered by their final salary arrangements.
As part of our aim to make financial advice affordable and accessible to the mass market we launched LV= Retirement Wizard, the UK's first fully regulated online advice solution with a low fixed cost and a money back guarantee. We are seeing a significant rise in interest for automated advice from a range of organisations seeking to white label this technology and we expect to announce a number of partnerships in 2016.
In protection we have seen strong growth in an overall flat market. New business contribution before investment in new propositions of £21 million is up 110% on the prior year (2014: £10 million). In September we launched our first range of business protection products. Designed to protect small and medium sized businesses against the financial impact of death or critical illness we are already seeing a steady increase in the number of advisers choosing LV= to protect their customers.
The outlook for our life and pensions business is positive as we continue our growth strategy. The building blocks are in place and the focus for 2016 will be on driving adoption of our Retirement Account, Pension Compass and Retirement Wizard solutions. We will also continue to invest in technology to make it easier to do business with us and in ongoing support for IFAs.
The heritage business consists of policies that are closed to new business or not actively marketed. Operating profit of £88 million (2014: £9 million) is driven by model and valuation changes of £91 million. Our with-profit returns at 3.8% have outperformed the benchmark (2.7%) for the fourth year running with outperformance in UK equities and a broadly in-line performance of UK gilts, which together form over half of the fund's assets.
LV= a decade of successful change
2016 marks ten years since LV= embarked on a transformation programme following the appointment of Mike Rogers as CEO in May 2006. Over that period the business portfolio has been restructured, a successful rebranding has been undertaken and there has been significant growth in customers, member returns and employee engagement.
|Year ending 31 December 2006
||Year ending 31 December 2015
||Broad business model incorporating life, general insurance, banking, IFA and asset management operations.
||Focused model with a composite structure providing diversification benefits.
|Gross earned premium
|Group operating profit
||£20.1 million loss
||£195 million profit
||63% (in 2007, the first year of the survey)
||Liverpool Victoria, single digit awareness
||LV=, 80% awareness
|Investment return on main with-profits fund
||The investment return on the main with-profits fund over 2006-2015 (before tax and policy charges): total return 92.5%, average annual return 6.8%
||Mutual bonus introduced in 2011, total allocated over the last five years £113 million