LV= Announces Pound 42 Million Half Year Operating Profit

BOURNEMOUTH, England, Aug. 7 -- Liverpool Victoria, a provider of financial services issued the following news release:

Mutual insurance, retirement and investment group LV= announces its interim results for the six months ending 30 June 2018. The full LV= interim results including financial statements can be found at https://www.lv.com/about-us/company-information/returns.

Strategic and operational highlights:

* Strong capital position maintained with positive contributions from both businesses

* Strong momentum in General Insurance personal lines business and strategic partnership with Allianz established and working well

* On track to complete operational separation of the General Insurance business by the end of 2019

* Improved Life business operating profit, with new business volumes (excluding discontinued lines) broadly stable

* Continued progress in reducing operating costs

* Importance of effective risk management emphasised through the appointment of Wayne Snow as Chief Risk Officer and board member

Financial highlights:

* Operating capital generation pound sterling45 million contributing 7% to the Capital Coverage Ratio (CCR)

* Solvency II Capital Surplus pound sterling 764 million, CCR 178% (Fiscal Year 2017: pound sterling 698 million, 180%)

* Life business PVNBP sales pound sterling983 million (HY 2017: pound sterling 1,035 million)[i]

* Life new business contribution pound sterling14 million (HY 2017: pound sterling 20 million, pound sterling 16 million excluding discontinued lines)[ii]

* General insurance gross written premiums up 1% to pound sterling827 million (HY 2017: pound sterling 817 million)

* General insurance combined ratio 95.7% (HY 2017: 93.6%)

* Operating profit pound sterling 42 million (HY 2017: pound sterling56 million)[iii]

* Group operating expenses down 1% to pound sterling172 million (HY 2017: pound sterling174 million)[iv]

* Operational Liquidity of pound sterling 888 million (Fiscal Year 2017: pound sterling947 million)

* Return on the main LV= with-profits fund of 2.01% in the first half of 2018 against benchmark of 1.44% (HY 2017: 3.74% against a benchmark of 3.66%)

* Returns on FGB products on average 1.45% compared to benchmark returns of 1.21% (HY 2017: 5.10% against benchmark of 4.03%)

Richard Rowney, LV= Group Chief Executive, said: "We have made steady progress in the first six months of the year with good underlying trading results partially masked by the impact of the 'Beast from the East' bringing severe weather across the UK in February and March. Tackling competitive trading conditions and a significant change agenda, the business continues to perform well with top-line growth in General Insurance and increased profits in Life.

"Our capital position continues to be strong and our Capital Coverage Ratio (CCR) stands at a healthy 178%, compared with 180% at the end of 2017. At this level it is well within our risk appetite and maintaining this relative position will continue to be an area of management focus in the future.

"In Life & Group, we delivered an increased operating profit of pound sterling 19 million (HY 2017: pound sterling 7 million). However new business sales are down 5% at pound sterling 983 million (HY 2017: pound sterling 1,035 million) reflecting the withdrawal from capital intensive product lines in Protection and a reduction in pensions sales which was expected following the high levels of defined benefit to defined contribution transfers in 2017.

"In common with most other home insurers our General Insurance business was adversely impacted by severe weather at the start of the year which resulted in pound sterling 17 million of net claims leading to an operating profit of pound sterling 23 million for the first six months (HY 2017: pound sterling 49 million). The underlying business continues to perform well with top line growth in both our Direct and Broker personal lines businesses.

"Our strategic partnership with Allianz, originally announced in August 2017, is progressing smoothly and we have recently begun the process of transferring the renewal rights for Allianz's personal lines business to LV=. I remain excited by the potential of the partnership and we continue to explore ways of working together.

"One of the foundations of our success over the years has been the strength of the LV= brand and this remains in good health. We are particularly pleased to have won Best Technology Innovation of the Year with our partner Wealth Wizards at the Pensions Awards in May for our ground-breaking Robo-paraplanner tool, which automates the financial advice process for advisers. We then followed this up in June by being named the Most Trusted Life Insurance Provider at the Moneywise Awards for the sixth consecutive year. In a sector plagued by a lack of trust this is fantastic recognition of our passion to do the right thing for customers that our people display day in day out."

Andy Parsons, LV= Group Finance Director, said: "The capital position strengthened significantly during the first half of 2018; helped by positive operating capital generation from the Life and GI businesses of pound sterling 45 million (+7% on CCR), including positive model and basis changes from a modelling improvement for our pensions business to better reflect policyholder behaviour post pension freedoms, and favourable economic conditions. As a result of the improved capital position we have decided to remove the benefit from the potential claw back of previously awarded mutual bonus (pound sterling 164 million) from our reported capital position at HY 2018, improving the quality of our reported capital.

"LV= reports using the Standard Formula approach to determine its regulatory capital, with Group surplus capital at 30 June 2018 of pound sterling 764 million (Fiscal Year 2017: pound sterling698 million) including the removal in H1 of the management action to claw back mutual bonus. This translates to a Capital Coverage Ratio at 30 June 2018 of 178% (Fiscal Year 2017: 180%). Eligible own funds include the positive benefit of TMTP[v] of pound sterling528 million. If a TMTP recalculation was performed at 30 June 2018, this would reduce the surplus by pound sterling107 million, resulting in a CCR of 167%.

"Overall operating profit of pound sterling 42 million (HY 2017: pound sterling56 million) includes an encouraging pound sterling 12 million increase in Life and Group operating profits, partly offsetting the pound sterling 26 million reduction in the General Insurance result due to the bad weather in Q1. Life and Group operating profits of pound sterling 19 million included pound sterling 14 million of new business contribution and pound sterling 19 million from model and basis changes, offset by strategic investment spend of pound sterling 15 million.

"Profit before tax of pound sterling42 million (HY 2017: pound sterling 56 million) benefits from favourable short term investment fluctuations of pound sterling 6 million (HY 2017: pound sterling 14 million) and the impact of the GI transaction with Allianz of pound sterling 7 million, partially offset by subordinated debt interest costs of pound sterling 12 million which are in line with prior year.

"Continued good cost control has resulted in a further pound sterling2 million reduction in operating costs across Life and GI. Increased strategic investment spend has been incurred as we continue to invest for the future, nearing completion of the Pioneer re-platforming programme in GI.

"Over the past two years we have also been focused on strengthening our liquidity position and at 30 June 2018 this stands at pound sterling 888 million (Fiscal Year 2017: pound sterling 947 million). Liquidity outflow of pound sterling 59 million (HY 2017: pound sterling42 million) includes inflows from our trading business of pound sterling 19 million offset by pound sterling 23 million full year debt coupon, pound sterling 18 million working capital changes and pound sterling 37 million of one-off items and strategic costs."

General Insurance financial highlights

To view the table, click here: https://www.lv.com/about-us/press/lv-announces-2018-half-year-profit

In the first six months of the year, the General Insurance business delivered underlying growth of 4%, excluding discontinued commercial business. Overall, premiums grew 1% to pound sterling827 million (HY 2017: pound sterling 817 million). Growth has been driven by the Direct business where premiums have increased by 3% following the successful launch of our Multicar product backed by a high profile advertising campaign at the start of the year. The Broker business has reduced slightly by 1% pending the transfer of the commercial lines to Allianz in the second half of the year.

The transfer in of the Allianz personal home and motor business started successfully in May with the launch of five new Broker products across 1,400 brokers, of which around 150 are potential new partners for LV= General Insurance.

Operating profit of pound sterling 23 million is lower than HY 2017 (pound sterling 49 million) including a reduced underwriting result of pound sterling26 million (HY 2017 pound sterling39 million), as a result of increased claims from the poor weather at the start of the year with Storm Eleanor and the 'Beast from the East' resulting in pound sterling 17 million of net claims. Investment returns were lower than last year by pound sterling 13 million, mainly due to market movements on hedges protecting the Solvency II balance sheet. Excluding the impact of the bad weather and reduced investment returns - which are viewed as one-offs - the underlying operating profit is pound sterling55 million. Prior year releases of pound sterling21 million are similar to those in 2017 HY (pound sterling23 million) and 2018 claims margin has been maintained in line with the revised methodology implemented at HY 2017. Overall this has resulted in a combined ratio of 95.7% (HY 2017: 93.6%).

The Civil Liability Bill, which if passed will introduce a new framework for setting the Ogden rate as well as tackle whiplash, has started its progress through the parliamentary process. We welcome the proposed changes and note the Ministry of Justice's view from last year that, if implemented at that time, it would have given a new rate in the range of 0% p.a. to +1% p.a. Pending this, we continue to reserve prudently at the current rate of -0.75% p.a. and stand by our commitment to pass 100% of any savings produced from such a change to our customers.

Our award winning service continues to attract and retain our customers with satisfaction levels remaining very high and our net promoter score is +69.4 (HY 2017: +64.4).

Life and pensions business financial highlights

To view the table, click here: https://www.lv.com/about-us/press/lv-announces-2018-half-year-profit

Overall Life new business premiums were down 5% at pound sterling983 million (HY 2017: pound sterling 1,035 million) on a PVNBP basis.

In Retirement, we have seen lower defined benefit to defined contribution transfers following record levels in 2017, with strong growth in equity release sales up 66% to pound sterling 88 million (HY 2017 pound sterling 53 million), more than offsetting a reduction in annuities and flexible guarantee bonds. We expect the new contract for investment funds with Vanguard, for ten low cost index funds in our pension investment portfolio, to stimulate growth in the second half of the year.

During 2017 we took a number of management actions to improve the sustainability of our Protection business with the closure of our whole-of-life offering and also our mortgage and lifestyle protection product. This is reflected in an overall 15% fall in sales to pound sterling152 million (HY 2017: pound sterling 178 million), with the mix of business also shifting towards term assurance. Individual income protection remains an attractive market and following management action, including a range of pricing changes, we expect to see growth in the second half of the year.

New business contribution has reduced to pound sterling 14 million (HY 2017: pound sterling 20 million) with Retirement marginally up to pound sterling 12 million and Protection down to pound sterling 2 million. The reduction in Protection is due to a combination of pound sterling 4 million from the exit from the higher margin but capital intensive 50+ product and pound sterling 3 million from a change to the business mix which saw an increased proportion of sales of lower margin term-life assurance.

Operating profit has increased by pound sterling 12 million to pound sterling 19 million driven by a strong performance in Retirement Solutions which has benefited from a number of one off basis changes to more accurately reflect our pensions experience.

Commenting on the outlook, Richard Rowney said: "We enter the second half of the year with both of our trading businesses in good health and a clear vision for the future. We will continue to maintain a tight grip on our costs while seeking to grow through a combination of good value products and the excellent customer service LV= is proudly famous for as we deliver on our vision of building a sustainable modern mutual."