Source - RNS
RNS Number : 1623K
LV=
19 September 2016
 

                                                                                   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIVERPOOL VICTORIA FRIENDLY SOCIETY LIMITED

 

 

_________________________________

 

 

INTERIM RESULTS ANNOUNCEMENT

INCLUDING INTERIM FINANCIAL STATEMENTS (UNAUDITED)

----------------

-_________________________________

 

 

FOR THE HALF YEAR ENDED 30 JUNE 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LV= Interim Results Announcement 2016

 

 

FINANCIAL HIGHLIGHTS

 

Sales

·      General insurance gross written premium income up 8% to £785m (HY 2015: £729m)

·      Life business and heritage sales measured at present value of new business premiums (PVNBP - see page 9) up 17% to £1,013m (HY 2015: £869m)

Profit

·      Group operating profit down to £33m (HY 2015: £79m)

·      General insurance operating profit down to £22m (HY 2015: £70m)

·      Life operating profit up to £28m (HY 2015: £12m)

·      Profit before tax for the group down to £1m (HY 2015: £49m)

Expenses

·      Group gross expenses pre-commission up 4% to £212m (HY 2015: £204m)

Capital

·      The Group Solvency II capital coverage ratio (including the expected impact of a recalculation of TMTP as at 30 June 2016) was 126% (FY 2015: 146%)

Operational liquidity

 

·      LVFS net outflow of £127m (HY 2015: £64m)

With-profits return

·      Return on the main LV= with-profits fund of 8.1% (FY 2015: 3.8%) against benchmark of 9.0% (FY 2015: 2.7%) for the first half of 2016

 

 

 

OPERATIONAL HIGHLIGHTS

 

·      Appointed Richard Rowney as Group Chief Executive.

·      Acquired the Teachers Assurance business on 1 June 2016.

·      Signed robo retirement advice deals with B&CE, Key Retirement Solutions, Reassure and Berkeley Burke.

·      Launched LV= Legal Services.

·      Launched digital initiatives to make it easier for IFAs to place protection business and a smartphone life insurance solution.

·      Remained YouGov's most recommended insurer for the second year.

·      Voted Most Trusted Insurer and Most Trusted Life Insurer at the Moneywise awards.

 

Group Chief Executive's statement:

 

In the first half of the year we have delivered increased sales in both our general insurance and life and pensions businesses. The group operating profit of £33m reflects lower operating profits in general insurance and a £19m operating loss in heritage, offset by an increase in life operating profit.

 

I'm particularly pleased with the performance of our life and pensions business where total sales have broken through the £1bn 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 but profitability in 2016 has been affected by the non-recurrence of a number of favourable one-off factors that arose in 2015. Against this background 8% growth in premiums to £785m (HY 2015: £729m), an operating profit of £22m and a combined ratio of 98.5% represents a solid performance. 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. 

 

The rating environment in general insurance remains mixed with rate increases in motor and a continuation of the soft market conditions in home. As a consequence of the combination of ongoing claims inflation and a continuation of the low interest rate environment we expect to see the strengthening of motor rates continue in the second half of the year.

 

Total policies in-force are up 4% to 4.9m (FY 2015: 4.7m) 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. Our renewal retention rates of 85% in home insurance and 80% in motor insurance reflect our competitive pricing and continued focus on customer service. 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.

 

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 £28m (HY 2015: £12m) and new business contribution before investment in new propositions is up 37% to £26m (HY 2015: £19m).

 

We have experienced continued strong growth in our retirement solutions business, with total new business premiums exceeding £860m in the first half of 2016, up 20% on HY 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%.

 

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.

 

In protection new business sales are up slightly at £146m (HY 2015: £144m) and this is a particularly pleasing result off the back of significant sales increases in 2015.

 

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.

 

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.



Group Finance Director's statement:

 

Operating profit for the general insurance business was £22m (HY 2015: £70m), and the underwriting result was £8m (HY 2015: £53m). These results were materially lower than the results reported for HY 2015. The decreases were primarily driven by the year-on-year impact of exceptional levels of favourable prior-year claims run-off reported at HY 2015 amounting to £55m. By comparison prior year run-off as at HY 2016 was much lower at £13m. Underlying losses in the current accident year have been driven by the continued acceleration in motor market claims inflation, although the impact of this strain on margins was partially mitigated by strong premium rate increases implemented at the end of 2015 and the early part of 2016. The reported combined ratio was 98.5% (HY 2015: 92.1%). The investment return was slightly reduced to £14m (HY 2015: £17m) reflecting market conditions.

 

In the life business operating profit has increased to £28m (HY 2015: £12m). Continued strong growth in our retirement solutions business has resulted in new business contribution before investment in new propositions increasing to £15m (HY 2015: £8m). The protection business has seen the high levels of sales and contribution experienced in 2015 sustained through the first half of 2016. The life operating profit result is also benefitting from a £12m favourable impact from changes in actuarial model and valuation assumptions, mainly driven by savings from reduced unit costs in the protection business.

 

A further contribution to the reduction in operating profit for the group is an operating loss of £19m (HY 2015: £nil) in the heritage business. This operating loss is mainly driven by claims experience variances.

 

Profit before tax for the LV= group of £1m (HY 2015: £49m) is impacted by short-term investment fluctuation losses of £11m (HY 2015: £5m gains), mainly due to the fall in yields and the widening of credit spreads, although hedges in place have protected the business from the full effect of the yield and credit movements. Centrally managed costs have reduced by £9m as we are no longer accruing for the general insurance long-term incentive scheme. Finance costs of £12m, relating to subordinated debt interest, are in-line with the previous year.

 

The acquisition of the Teachers Assurance business was completed on 1 June 2016. The results of the acquired Teachers business have been incorporated into the results of the group from the date of acquisition, adding approximately £750m to the group balance sheet. As well as the scale based strategic benefits generated for both LV= and Teachers members from this transaction, we have also recognised a £4m gain on acquisition. Full acquisition disclosures will be presented in the year-end financial statements.

 

Group gross expenses before commission have increased by £8m to £212m (HY 2015: £204m). The year-on-year increase is predominantly as a result of the introduction of the Flood Re. levy and increased consultancy fees related to Solvency II. Management continues to focus on underlying trading cost control.

 

The LV= group has a highly liquid balance sheet with over £1bn of cash, over £4bn of listed shares and over £7bn of listed debt securities. Liquidity outflow before non-recurring items, debt interest and mutual bonus reduced to £15m in the first half of the year (HY 2015: £36m), reflecting improved cash generation in the life business and a reduction in tax paid. The £87m outflow for non-recurring items includes the pay-out for the general insurance long-term incentive scheme, consideration paid as part of the Teachers business acquisition and the adverse impact of certain one-off model and valuation changes.

 

LV= successfully transitioned onto the Solvency II regime from 1 January 2016 and reports using the Standard Formula approach to determine its regulatory capital. The group received approval to use the Volatility Adjustment and Transitional Measure on Technical Provisions (TMTP) from 1 January 2016. Since that date the PRA approved LV='s application to use Matching Adjustment on part of our annuity business and also a recalculation of TMTP as at 30 June 2016. These changes are reflected in our HY 2016 Solvency II capital coverage ratio.

 

The capital position of the group at 30 June 2016 was satisfactory with a Solvency II capital coverage ratio, including the expected impact of a recalculation of TMTP as at 30 June 2016, of 126% (FY 2015: 146%). During the first half of 2016 the capital position has reduced, largely due to a c100bps fall in the risk free interest rates at longer durations, to which the group is particularly exposed, which has increased the group's technical provisions on a Solvency II basis, dampened by the impact of transition recalculation. Since 30 June 2016 there have been further falls in risk free interest rates, albeit not at the level seen in the first half of the year and adverse movements in other markets.

 

A key focus for the group is on reducing the balance sheet exposure to volatility in risk free interest rates and other market changes and strengthening the capital position.

 

The group is continuing to work closely with the PRA on the process to move onto an Internal Model, which is expected to reflect more appropriately the risk profile of the business. The group complied with all externally imposed capital requirements which it was subject to throughout the reporting period.

 

 

 

 

 


Sales











HY 2016

HY 2015

FY 2015

General insurance sales (Gross Written Premium by product)



£m

£m

£m

Motor (personal)




549

501

1,013

Commercial




133

125

245

Home




81

81

175

Other




22

22

39

Total general insurance business premium income




785

729

1,472








Life insurance and Heritage sales (PVNBP - see page 9)




£m

£m

£m

Pensions




506

458

986

Annuities




203

146

309

Flexible guarantee bond




115

83

194

Equity release




39

33

63

Protection




146

144

272

Heritage Savings and investments




4

5

9

Total life and heritage business sales




1,013

869

1,833















Profit











HY 2016

HY 2015

FY 2015

Operating Profit




£m

£m

£m

General insurance



22

70

72

Life



28

12

41

Heritage



(19)

-

88

Group



2

(3)

(6)

Operating Profit



33

79

195







Profit before tax



£m

£m

£m

Operating profit



33

79

195

Pensions business IFRS adjustment



(3)

(4)

(5)

Short-term investment fluctuations and related items *



(11)

5

(10)

Centrally managed costs



(9)

(18)

(29)

Gain arising on Teachers acquisition **


4

-

-

Finance costs



(12)

(12)

(24)

Amortisation of acquired intangibles



(1)

(1)

(3)

Profit before tax



1

49

124







* Short-term investment fluctuations and related items contains the favourable impact of tax charge deducted from policy asset shares and the RNPFN fund totalling £22m (HY 2015: £2m adverse impact from add-back of tax credits).

** The acquisition of the Teachers business was completed on 1 June 2016. As at the reporting date consideration of £26m had been paid in exchange for net assets with a fair value of £30m, generating an acquisition gain of £4m. Final consideration to be paid will be agreed in the second half of the year when all valuations have been completed. Full acquisition disclosure notes will be presented in the year-end financial statements.

 

 












Expenses











HY 2016

HY 2015

FY 2015





£m

£m

£m

General insurance




129

115

256

Life




58

53

122

Heritage




15

12

27

Central items and other




9

23

20

Amortisation of acquired intangibles




1

1

3

Gross expenses pre-commission




212

204

428

Commission




103

96

195

Expenses recoverable from reinsurers




(36)

-

-

Total expenses




279

300

623









Capital

 

The table below shows the estimated Eligible own funds, Solvency Capital Requirement (SCR) and surplus funds of the group. Figures exclude RNPFN and Teachers Ring-Fenced Funds. Calculations are based on the Standard Formula approach using the Volatility Adjustment and TMTP as approved by the PRA. HY 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 HY 2016 figures shown below.

 







HY 2016

FY 2015






£m

£m

Eligible own funds





1,175

1,220

Solvency Capital Requirement (SCR)





930

837

Surplus





245

383

SCR coverage ratio





126%

146%
















Operational liquidity











HY 2016

HY 2015

FY 2015

LVFS operational liquidity outflow




£m

£m

£m

Life




1

(8)

(10)

General insurance surplus cash remitted




3

3

37

Group items




(22)

(23)

(24)

Tax received/(paid)




3

(8)

(4)

LVFS outflow before non-recurring items, debt interest and mutual bonus

(15)

(36)

(1)

Non-recurring items




(87)

(5)

34

LVFS net (outflow)/inflow before debt interest and mutual bonus



(102)

(41)

33

Debt interest paid




(23)

(23)

(23)

Mutual bonus




(2)

-

(27)

LVFS net outflow




(127)

(64)

(17)








The amount of LVFS operational liquidity held at 30 June 2016 was £380m (FY 2015: £507m).








With-profits return











HY 2016

HY 2015

FY 2015





%

%

%

Return on the main LVFS with-profits fund




8.1

1.9

3.8

Market benchmark return *




9.0

1.4

2.7








* Benchmark performance is calculated using a blend of recognised metrics which reasonably represent the market level performance for the mix of assets included in the main LVFS WP fund.

General Insurance







 





HY 2016

HY 2015

FY 2015

 

Results for HY 2016




£m

£m

£m

 

Underwriting result



8

53

44

 

Investment return



14

17

28

 

Operating profit



22

70

72

 

Centrally managed costs



(1)

-

-

 

Amortisation of acquired intangibles



(1)

(1)

(2)

 

Profit before tax



20

69

70

 

 








Key financial metrics




HY 2016

HY 2015

FY 2015

Direct operating profit




£22m

£52m

£91m

Broker operating profit/(loss)




£3m

£18m

£(19)m

Operating profit (ceded) to reinsurers




£(3)m

£nil

£nil








Loss ratio




73.3%

67.7%

66.3%

Expense ratio




25.2%

24.4%

29.8%

Combined ratio




98.5%

92.1%

96.1%

Investment returns *




1.4%

1.5%

1.3%








Direct premium income




£451m

£417m

£837m

Broker premium income




£334m

£312m

£635m








Pre-tax return on capital




5.6%

18.1%

9.5%








Motor in-force policies




3.0m

2.9m

3.0m

Total in-force policies




4.9m

4.6m

4.7m








* quoted gross of expenses







 

Life











HY 2016

HY 2015

FY 2015

Results for HY 2016




£m

£m

£m

Operating profit



28

12

41

Pensions business IFRS adjustment



(3)

(4)

(5)

Short-term investment fluctuations



(27)

(2)

(27)

Centrally managed costs



-

-

(2)

Amortisation of acquired intangibles



-

-

(1)

(Loss) / profit before tax



(2)

6

6

 

Heritage











HY 2016

HY 2015

FY 2015

Results for HY 2016




£m

£m

£m

Operating (loss) / profit **



(19)

-

88

Short-term investment fluctuations and related items ***


3

7

11

Centrally managed costs


(1)

-

-

Gain arising on Teachers acquisition


4

-

-

(Loss) / profit before tax



(13)

7

99


 

** Operating profit for FY 2015 was driven by model and valuation changes of £91m, of this £69m related to the methodology used to value the liabilities for OB pension policies. This was adjusted during 2015 to reflect a change in the basis used to calculate the amount payable when the policyholder elects to take the proceeds from the policy as cash rather than as an annuity.

*** Short-term investment fluctuations and related items contains the favourable impact of tax charge deducted from policy asset shares and the RNPFN fund totalling £22m (HY 2015: £2m adverse impact from add-back of tax credits).


Life and Heritage











HY 2016

HY 2015

FY 2015

Key financial metrics




£m

£m

£m

New Business







a) Present value of new business premiums (PVNBP)*







Pensions **




506

458

986

Annuities***




203

146

309

Flexible guarantee bond **




115

83

194

Equity Release




39

33

63

Protection




146

144

272

Heritage Savings and investments




4

5

9

Total


1,013

869

1,833








b) Single premiums







Pensions **




459

411

893

Annuities




203

146

309

Flexible guarantee bond **




115

83

194

Equity Release




39

33

63

Heritage Savings and investments




3

3

4

Total


819

676

1,463








c) New regular premiums







Pensions




8

7

14

Protection




19

18

35

Heritage Savings and investments




-

1

1

Total


27

26

50








d) New business contribution







Pensions **




1

2

6

Annuities




4

-

4

Flexible guarantee bond **




9

2

9

Equity Release




1

4

7

Protection




11

11

21

Total new business contribution before investment in new propositions


26

19

47

Investment in new propositions




(5)

(6)

(17)

Net new business contribution




21

13

30


 

*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.

** Pensions customers can invest part of their pension pot into the Flexible guarantee fund. These sales were previously disclosed as Flexible guarantee bond sales. As the business has come into the pension product and is then subsequently re-invested in our flexible guarantee fund it is more appropriate that these are disclosed as Pensions sales. As such, prior periods have been restated between the Pensions and Flexible guarantee bond categories by the following amounts:

-       Flexible guarantee fund sales of £56m and £185m for HY 2015 and FY 2015 respectively.

***Annuities sales can be broken down as Enhanced £74m (HY 2015: £55m) and traditional fixed term £129m (HY 2015: £91m).

 


                                                                                   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIVERPOOL VICTORIA FRIENDLY SOCIETY LIMITED

 

 

_________________________________

 

 

INTERIM FINANCIAL STATEMENTS (UNAUDITED)

----------------

-_________________________________

 

 

FOR THE HALF YEAR ENDED 30 JUNE 2016




Group



HY 2016

HY 2015

FY 2015

Notes

£m

£m

£m

Gross earned premiums

2

1,422

1,129

2,408

Premiums ceded to reinsurers

2

(218)

(68)

(384)

Net earned premiums

2

1,204

1,061

2,024

Fee and commission income


11

8

18

Investment income

4

200

219

401

Net gains/(losses) on investments

5

720

(176)

(282)

Gain arising on Teachers acquisition


4

-

-

Other income


19

20

39

Total income


2,158

1,132

2,200











Gross benefits and claims

6

(944)

(854)

(1,814)

Claims ceded to reinsurers

6

139

37

338

Net benefits and claims

6

(805)

(817)

(1,476)






Gross change in contract liabilities

7

(1,229)

9

(63)

Change in long-term contract liabilities ceded to reinsurers

7

150

25

127

Change in non-participating value of in-force business

7

18

12

(17)

Net change in contract liabilities

7

(1,061)

46

47






Gross operating and administrative expenses

8

(315)

(300)

(623)

Expenses recoverable from reinsurers

8

36

-

-

Net operating and administrative expenses

8

(279)

(300)

(623)

Finance costs

9

(12)

(12)

(24)

Total other expenses


(291)

(312)

(647)

Total benefits, claims and expenses


(2,157)

(1,083)

(2,076)






Profit before tax, mutual bonus and UDS transfer


1

49

124






Mutual bonus

10

(2)

-

(27)

Income tax expense

11

(31)

(7)

(6)

Transfer from/(to) the Unallocated divisible surplus


32

(42)

(91)

Profit for the period

-

-

-






Other comprehensive income:





Items that will not be reclassified to profit or loss





Re-measurements of defined benefit pension schemes


51

45

51

Transfer to the Unallocated divisible surplus


(51)

(45)

(51)

Total comprehensive income for the period

-

-

-







As a Friendly Society, all net earnings are for the benefit of participating policyholders and are carried forward within the Unallocated divisible surplus.

                                                                                                               

The Group and the Society have not presented a Statement of Changes in Equity as there are no equity holders in either the Group or Society as the Society is a mutual organisation.




Group



HY 2016

FY 2015


Notes

£m

£m

Assets




Intangible assets

12

266

249

Pension benefit asset


166

87

Property and equipment

13

41

39

Investment properties


5

-

Corporation tax asset


-

10

Prepayments and accrued income


135

125

Deferred acquisition costs


103

99

Financial assets at fair value through income

15

13,168

11,419

Derivative financial instruments

16

321

97

Loans and other receivables


98

77

Reinsurance assets


1,044

890

Insurance receivables


418

261

Cash and cash equivalents


1,084

1,186

Total assets


16,849

14,539









Liabilities




Unallocated divisible surplus


1,120

1,101

Participating insurance contract liabilities

17

4,791

3,972

Participating investment contract liabilities

18

677

554

Non-participating value of in-force business


(339)

(321)



6,249

5,306

Non-participating insurance contract liabilities

17

6,630

5,896

Non-participating investment contract liabilities

18

2,260

1,862



8,890

7,758

Net asset value attributable to external unit holders


256

220

Pension benefit obligation


3

3

Provisions


9

10

Corporation tax liability


24

-

Deferred tax liability


71

42

Derivative financial instruments

16

316

144

Subordinated liabilities

19

357

356

Other financial liabilities


218

96

Insurance payables


181

286

Trade and other payables


275

318

Total liabilities


16,849

14,539






 


1. Basis of Preparation

 

The interim financial statements include the financial position and the results of operations of the Society and its subsidiaries (together the "Group") as at and for the six months ended 30 June 2016. The consolidated interim financial statements of the Group have been prepared in accordance with the recognition and measurement criteria of IFRS using the accounting policies that the Group expects to adopt for the 2016 year-end. The accounting policies adopted are consistent with those set out in the Group's Annual Report for the year ended 31 December 2015, except for new and amended standards applicable for the first time in the period as described below.

 

The reporting rules applicable for the Group do not require compliance with the requirements of IAS 34 'Interim Financial Statements' and these consolidated interim financial statements have not been prepared in compliance with the disclosure requirements of that standard.

 

New and amended standards adopted by the Group

 

Although no new standards have come into effect, amendments to IFRSs have been adopted by the EU for accounting periods beginning on or after 1 January 2016. These amendments have been adopted by the Group but do not have a material impact on the 2016 interim financial statements.

 

IAS 1, 'Presentation of financial statements', has been amended as part of the Disclosure Initiative. The amendments focus on materiality and aggregation, primary statement presentation requirements, structure of notes, and disclosure of accounting policies.

 

IFRS 7, 'Financial instruments: Disclosures', has been amended to clarify what constitutes 'Continuing involvement' in a financial asset. Where an entity has 'Continuing involvement' in a financial asset that has been transferred, the entity is required to make disclosures under the existing IFRS 7 disclosure requirements.

 

The financial information for the six months to 30 June 2016 and 2015 is unaudited. The IFRS financial information for the full year 2015 has been taken from the Group's 2015 Annual Report. The auditors have reported on the 2015 Annual Report and their report was unqualified and did not contain a statement under section 73 of the Friendly Societies Act 1992.

 

 

 


2. Net earned premiums







Group



HY 2016

HY 2015

FY 2015

Gross earned premiums


£m

£m

£m






Long-term insurance and investment contracts - participating business

Investments and savings

- single premium

306

139

379

Pensions and annuities

- single premium

5

4

6

Investments and savings

- regular premium

13

14

27

Pensions and annuities

- regular premium

6

6

11






Long-term insurance contracts - non participating business




Pensions and annuities

- single premium

247

178

375

Life and health protection

- regular premium

95

88

181






Long-term linked insurance contracts




Life and health protection

- regular premium

4

4

9






General insurance contracts




Motor


530

483

977

Commercial


133

125

245

Home


78

78

168

Other


41

43

86

Change in unearned premiums provision


(36)

(33)

(56)

Gross earned premiums


1,422

1,129

2,408






Premiums ceded to reinsurers




Long-term insurance premiums


(53)

(47)

(100)

General insurance business


(160)

(15)

(283)

Change in unearned premiums provision


(5)

(6)

(1)



(218)

(68)

(384)

Net earned premiums


1,204

1,061

2,024











Gross written premiums for non-participating investment contracts which are deposit accounted for and not included above

201

262

515


 

In the latter part of 2015 the Group entered into a Loss Portfolio Transfer agreement resulting in reinsurance of 20% of its general insurance business booked reserves as at 31 December 2015. This had an impact of £242m on premiums ceded to reinsurers. From 1 January 2016 the Group has been part of a Quota Share agreement resulting in reinsurance of 20% of its general insurance gross earned premiums. During the first half of 2016 this had an impact of £142m on premiums ceded to reinsurers.


3. New business premiums






Group



HY 2016

HY 2015

FY 2015

Gross new business premiums - long-term contracts

£m

£m

£m

Long-term insurance and investment contracts - participating business




Investments and savings

- single premium

306

139

379

Pensions and annuities

- single premium

5

4

6

Investments and savings

- regular premium

-

1

1






Long-term insurance contracts - non participating business




Pensions and annuities

- single premium

247

178

375

Life and health protection

- regular premium

16

16

30






Long-term linked insurance contracts




Life and health protection

- regular premium

3

2

5



577

340

796






Non-participating investment contracts




Pensions and annuities

- single premium

189

255

497

Pensions and annuities

- regular premium

5

7

9



771

602

1,302






Gross written premiums for non-participating investment contracts are deposit accounted for and not included within net earned premiums.

All gross new business premiums relate to individual business.

Recurrent single premium rebates from the Department for Works and Pensions are included as new business single premiums.

Where periodic premiums are received other than annually, the periodic new business premiums are stated on an annualised basis.








HY 2016

HY 2015

FY 2015

Group gross premiums earned - general insurance business

£m

£m

£m

Motor


496

454

929

Commercial


123

116

238

Home


84

85

170

Other


43

41

83



746

696

1,420

4. Investment income







Group



HY 2016

HY 2015

FY 2015



£m

£m

£m

Income from investments at fair value through income:




 - Interest income


140

167

292

 - Dividend income


51

47

96

Interest on loans and receivables


-

1

1

Interest on loans secured on residential property


8

4

11

Income on loans secured on commercial property


1

-

1



200

219

401

 

5. Net gains/(losses) on investments






Group



HY 2016

HY 2015

FY 2015



£m

£m

£m

Investments at fair value through income:





 - Debt securities


420

(158)

(185)

 - Equity securities


195

69

68

 - Derivatives at fair value through income


47

(41)

(27)

 - Loans and mortgages

58

(46)

(138)



720

(176)

(282)


 

Included within net gains/(losses) on investments are realised gains of £83m (HY 2015: £137m).


 

6. Net benefits and claims










Group






HY 2016

HY 2015

FY 2015






£m

£m

£m

Gross benefits and claims





Long-term insurance and participating investment contracts




Benefits and claims paid


414

392

797

Change in the provision for claims


6

6

(1)









General insurance contracts





Claims paid



527

482

972

Change in the provision for claims


(3)

(26)

46






944

854

1,814









Claims ceded to reinsurers




Long-term insurance and participating investment contracts




Benefits and claims paid



(41)

(38)

(73)









General insurance contracts





Claims paid



(104)

(2)

(4)

Change in the provision for claims


6

3

(261)






(139)

(37)

(338)






805

817

1,476









Net benefits and claims for non-participating investment contracts which are deposit accounted for and not included above

135

129

243


 

In the latter part of 2015 the Group entered into a Loss Portfolio Transfer agreement resulting in reinsurance of 20% of its general insurance business booked reserves as at 31 December 2015. This had an impact of £242m on the movement in reinsurers' share of claims liabilities. From 1 January 2016 the Group has been part of a Quota Share agreement whereby the reinsurer is liable for 20% of general insurance claims paid. During the first half of 2016 this had an impact of £105m on the movement in reinsurers' share of claims liabilities.


7. Net (increase) / decrease in long-term contract liabilities and non-participating value of in-force business



Group



HY 2016

HY 2015

FY 2015



£m

£m

£m

Gross (increase) / decrease in long-term contract liabilities





Increase in long-term insurance contract liabilities - participating


(616)

-

(110)

Increase in investment contract liabilities - participating


-

(1)

(2)

(Increase) / decrease in long-term insurance contract liabilities - non-participating

(494)

53

58

Increase in investment contract liabilities - non-participating


(93)

(37)

(36)

Increase in long-term linked insurance contract liabilities


(28)

(6)

-



(1,231)

9

(90)

Mutual bonus (disclosed separately in Note 10)


2

-

27



(1,229)

9

(63)






Increase in long-term contract liabilities ceded to reinsurers




Increase in long-term insurance contract liabilities


126

16

117

Increase in long-term linked insurance contract liabilities


24

9

10



150

25

127






Increase / (decrease) in non-participating value of in-force business


18

12

(17)






Net change in contract liabilities


(1,061)

46

47

 

 

8. Other operating and administrative expenses







Group



HY 2016

HY 2015

FY 2015



£m

£m

£m

Commission paid on acquisition of business


103

96

195

Movement in deferred acquisition costs


(4)

(1)

(2)

Amortisation and impairment of intangible assets


2

2

5

Depreciation on property and equipment


3

2

6

Investment management expenses and charges


11

11

22

Auditors' remuneration


1

1

3

Employee benefit expense


128

125

270

Internal staff costs capitalised as attributable costs of IT assets


(5)

(2)

(6)

Rent, rate and other facilities expense


9

10

19

Marketing and advertising


18

18

35

Other staff costs


18

13

31

IT costs


20

15

39

Fees


40

31

63

Other expenses


8

14

13

Claims handling cost recognised in Gross benefits and claims


(37)

(35)

(70)

Gross operating and administrative expenses


315

300

623

Expenses recoverable from reinsurers*


(36)

-

-

Net operating and administrative expenses


279

300

623







* Expenses recoverable from reinsurers represents 20% of the costs of the general insurance business which are borne by reinsurers as part of the new Quota Share agreement.

 

 

9. Finance costs


Group



HY 2016

HY 2015

FY 2015



£m

£m

£m

Interest payable on subordinated liabilities (see Note 19)


12

12

23

Other interest payable

-

-

1



12

12

24

 

10. Mutual bonus

 

No mutual bonus has been declared in respect of the half year ending 30 June 2016. In 2015 the Board declared a final mutual bonus amounting to a 1% enhancement to eligible policies' asset shares.  As at the year ended 31 December 2015 it was estimated that the amount allocated would be £27m and this was reported in the 2015 Annual Report. The actual amount allocated was £29m, with the additional £2m accounted for in the first half of 2016.


 

11. Income tax expense













Group




HY 2016

HY 2015

FY 2015



£m

£m

£m

Current tax charge:





Current year


32

11

8

Adjustment in respect of prior years

-

-

(2)

Total current tax


32

11

6






Deferred tax





Adjustment in respect of prior years

-

-

(1)

Temporary differences


(1)

(4)

1

Total deferred tax


(1)

(4)

-

Total income tax expense


31

7

6

 

12. Intangible assets










Goodwill

Other intangible assets

PVIF

Software and licence costs

Total


Group


£m

£m

£m

£m

£m


Cost:








At 1 January 2016


241

95

63

21

420

Acquired through business combinations


-

6

3

-

9

Additions


-

-

-

10

10

At 30 June 2016


241

101

66

31

439









Accumulated amortisation:








At 1 January 2016


21

85

63

2

171


Charge for the year

-

1

-

1

2

At 30 June 2016


21

86

63

3

173










Net book value at 30 June 2016


220

15

3

28

266










Cost:








At 1 January 2015


233

95

63

11

402


Acquired through business combinations


8

-

-

-

8


Additions


-

-

-

10

10

At 31 December 2015


241

95

63

21

420










Accumulated amortisation:








At 1 January 2015


21

82

63

-

166


Charge for the year


-

3

-

2

5


At 31 December 2015


21

85

63

2

171










Net book value at 31 December 2015


220

10

-

19

249


13. Property and equipment







 




Freehold and leasehold property

Leasehold property enhancements

Fixtures, fittings and IT equipment

Total

 

Group



£m

£m

£m

£m

 

Cost:







 

At 1 January 2016



39

15

22

76

 

Acquired through business combinations



4

-

-

4

 

Additions



-

-

1

1

 

At 30 June 2016



43

15

23

81

 








 

Accumulated depreciation:







 

At 1 January 2016



16

9

12

37

 

Provided in the year



1

1

1

3

 

At 30 June 2016



17

10

13

40

 








 

Net book value at 30 June 2016



26

5

10

41

 








 

Cost:







 

At 1 January 2015



20

15

17

52

 

Additions



21

-

5

26

 

Disposals



(2)

-

-

(2)

 

At 31 December 2015



39

15

22

76

 








 

Accumulated depreciation:







 

At 1 January 2015



17

7

9

33

 

Provided in the year



1

2

3

6

 

Disposals



(2)

-

-

(2)

 

At 31 December 2015



16

9

12

37

 








 

Net book value at 31 December 2015



23

6

10

39

 








 


Included within the Freehold and leasehold property category are assets held under finance leases with a net book value of £19m (2015: £20m).


 

14. Investments in group undertakings








HY 2016

FY 2015

Society



£m

£m

Shares in subsidiaries





Cost less provisions at 1 January



470

467

Additions



4

6

Acquisitions



26

8

Reduction in carrying value including write-offs



-

(11)




500

470






Loan stock in subsidiaries





Cost at 1 January



300

300




300

300

Shares and loan stock in subsidiaries at 30 June / 31 December


800

770







On 1 June 2016 the Society acquired the Teachers Provident Society Limited and its' subsidiaries for a cash consideration of £26m.

The £8m acquisition in 2015 related to the purchase of the Wealth Wizard Group of companies by the Society.

 

The Society has examined the carrying value of its subsidiaries as at 30 June 2016 and concluded that no provision for impairment was necessary for the period to 30 June 2016.


15. Financial assets at fair value through income






Group




HY 2016

FY 2015




£m

£m

Financial assets at fair value through income




Shares, other variable yield securities and units in unit trusts




- UK listed



4,324

3,564

- UK unlisted



124

125

- Overseas listed



445

504

- Overseas unlisted



61

64






Debt and other fixed income securities




- UK listed



4,659

4,246

- Overseas listed



2,701

2,210






Loans secured on residential property



661

593

Loans secured on commercial property



193

113




13,168

11,419






Assets held to cover linked liabilities included above

2,322

1,920

 

16. Derivative financial instruments










HY 2016




FY 2015



Contract/ notional amount

Fair value - asset

Fair value - liability


Contract/ notional amount

Fair value - asset

Fair value - liability

Group

£m

£m

£m


£m

£m

£m

Interest rate swaps

1,963

269

(32)


865

77

-

Gilt hedges

523

-

(92)


-

-

-

Cash flow swaps

1,157

-

(185)


1,260

-

(143)

Swaptions

1,403

36

-


109

1

-

Forward exchange contracts

1

-

-


-

-

-

Equity/index derivatives

340

16

(7)


316

19

(1)


5,387

321

(316)


2,550

97

(144)

 

17. Insurance contract liabilities















Analysis of insurance contract liabilities and reinsurance assets






HY 2016


FY 2015


Gross

Reinsurance

Net


Gross

Reinsurance

Net

Group

£m

£m

£m


£m

£m

£m









Participating insurance contract liabilities








Long-term insurance contract liabilities

4,791

-

4,791


3,972

-

3,972









Non-participating insurance contract liabilities








Long-term insurance contract liabilities

4,281

(553)

3,728


3,621

(412)

3,209

Long-term linked insurance contract liabilities

166

(104)

62


138

(80)

58

Long-term claims liabilities

49

-

49


40

-

40


4,496

(657)

3,839


3,799

(492)

3,307









General insurance unearned premiums

782

(7)

775


744

(12)

732

General insurance claims liabilities

1,352

(380)

972


1,353

(386)

967


2,134

(387)

1,747


2,097

(398)

1,699


6,630

(1,044)

5,586


5,896

(890)

5,006


 17. Insurance contract liabilities (continued)

 

 As part of the Teachers acquisition on 1 June 2016 the following insurance contract liabilities and reinsurance assets balances were acquired:


 






Gross

Reinsurance

Net

Teachers balances at acquisition





£m

£m

£m









Participating insurance contract liabilities








Long-term insurance contract liabilities





211

-

211









Non-participating insurance contract liabilities








Long-term insurance contract liabilities





166

(15)

151

Long-term claims liabilities





3

-

3






169

(15)

154









General insurance unearned premiums





2

-

2

General insurance claims liabilities





2

-

2






4

-

4






173

(15)

158


 

Following the acquisition the Teachers fund made cash distributions to members totalling £13m.


 

18. Investment contract liabilities








Group







HY 2016

FY 2015







£m

£m

Non-participating investment contract liabilities





2,260

1,862

Participating investment contract liabilities






677

554







2,937

2,416










The Teachers acquisition on 1 June 2016 added £239m to the value of non-participating investment contract liabilities and £128m to the value of participating investment contract liabilities at that date.

 

The change in contract liabilities as shown in the Statement of Comprehensive Income comprises principally the allocation of the net investment return to policyholders of investment contracts less allowances for taxes. Investment contracts are not reinsured.


 

19. Subordinated liabilities














Group







HY 2016

FY 2015







£m

£m

Subordinated note (GBP 350m)





347

347

Subordinated note (EUR 12m)




10

9







357

356










In 2013 the Society issued £350m of Fixed Rate Reset Subordinated Notes at par. The directly related costs of £4m incurred to issue the Notes have been capitalised as part of the carrying value and are being amortised using the effective interest basis over the period to the first call date in 2023. The effective interest rate of the £350m liability is 6.654%.

 

The Notes have a maturity date of 22 May 2043 but the issuer has the option to redeem the Notes at the first call date of 22 May 2023 and at five yearly intervals thereafter up to the maturity date.

 

Interest is payable on the Notes at a fixed rate of 6.5% per annum for the period until the first call date on 22 May 2023, payable annually in arrears on 22 May each year. If the Notes are not redeemed on 22 May 2023, the interest rate is reset on that date and at five yearly intervals thereafter at a rate equal to the five year gilt rate quoted on the day before the reset date plus an initial margin of 463 basis points and a step up margin of 100 basis points.

 

The €12m Subordinated Notes are issued by a subsidiary undertaking and are repayable in 2034. Interest on these Notes is payable at the three month euro deposit rate plus a margin of 365 basis points.

 

GLOSSARY






Non-GAAP measure

Why we use a non-GAAP measure

Definition

 

Profit before tax

 

Because LV= is a mutual, any 'left-over' profit it has is transferred to the Unallocated divisible surplus, leaving a final balance for profit each year of £nil. This would mean that if we applied the strict GAAP definition our profit before tax would simply be equal and opposite to our tax charge. We believe that this would be a confusing and meaningless figure for readers and we therefore try to provide an alternative measure for profit before tax which readers would recognise and which would allow meaningful comparisons with the profit before tax disclosed by other companies.

 

 

Our measure of profit before tax is defined as profit before tax, mutual bonus allocated, and transfer to Unallocated divisible surplus.

Operating profit

Our operating profit measure is the key performance measure for profitability for the LV= group, life and general insurance business and executive remuneration in these areas is linked to this metric. For the group this measure represents the longer-term return from all its businesses and the cost of ongoing central overheads such as support functions. For the general insurance business this measure represents the return from insurance activities, i.e. underwriting profit and investment returns.

 

Operating profit can be defined as profit before tax adjusted for Pensions business IFRS adjustment (see below), short-term investment fluctuations, which represent the difference between the long-term average return currently expected from assets and the actual investment return achieved on these assets in the current period, and also any centrally managed costs (see below), gain on acquisition, finance costs and amortisation or impairment of acquired intangibles.

 

Pensions business        IFRS adjustment

 

 

In order to provide comparable reporting across its pension products LV reports self-invested pension plan operating profit on a value-add basis.

 

 

The adjustment required to convert self-invested pension plan operating profit from a value-add basis to a pure IFRS (income-expenses) basis.

 

Centrally managed costs

LV reports some of its costs below operating profit.

 

These are the costs which are not associated with running the trading businesses of the group. These costs tend to be one off costs and are often connected to strategic initiatives of the group.

 

Operational liquidity

 

Certain liquid assets reported in the Statement of Financial Position are required to match reserves and therefore do not provide a true measure of the available liquidity of the group. (i.e) the 'free' funds available to meet its obligations as they fall due.

 

Operational liquidity is generated from movements in free assets in the year (including cash and cash equivalents and surplus assets within funds in excess of matched liabilities). Operational liquidity excludes amounts attributable to RNPFN, Teachers and also intra-group capital investments and repayments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number 110035. LVFS is a member of the ABI and ILAG.

 

Registered address: County Gates, Bournemouth BH1 2NF.                                                                                                        www.LV.com


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