LV announces 158 million profit in transformational year

Online Services:


LV= announces £158 million profit in transformational year


Mutual insurance, retirement and investment group LV= announces its financial results for the year to 31 December 2017 and publishes its annual report.

Strategic and operational highlights:

  • Completed landmark strategic partnership with Allianz.
  • Group capital position significantly improved.
  • Profitable growth reflecting strong underwriting discipline in General Insurance and an improved result in repositioned Life.
  • Improved efficiency across the business, including good progress on cost reduction programme and exit from certain capital intensive products in Life.
  • Continued investment in systems and digital initiatives including the implementation of a new quote, buy and policy admin system in General Insurance and the completion of the rollout of a new quote and apply system in Protection.
  • Continued focus on customer excellence, significantly improved ranking in KPMG Nunwood Customer Experience Excellence Report and named Insurance Provider of the Year at the Which Awards 2017.


Financial highlights:

  • Operating profit £158 million (FY 2016: £12 million loss(i)).
  • General Insurance gross written premiums £1.60 billion (FY 2016: £1.58 billion).
  • General Insurance operating profit up to £121 million (FY 2016: £113 million pre-Ogden, £26 million loss after the impact of the Ogden rate change).
  • Life business PVNBP(iii) sales up 9% to £2.02 billion (FY 2016: £1.85 billion(iii)).
  • Life operating profit up £24 million to £37 million (FY 2016: £13 million(i),(iv)).
  • Group gross expenses down £8 million to £431m (FY 2016: £439 million(v)).
  • Profit before tax for the group up to £122 million (FY 2016: £49 million loss).
  • The Group Solvency II capital coverage ratio up to 180% (FY 2016: 140%).
  • Operational Liquidity inflow of £62 million (FY 2016: £53 million outflow).
  • Return on the main LV= with-profits fund of 7.7% against benchmark of 8.6% (FY 2016: 14.5% against a benchmark of 15.5%).

2017 has been a transformative year for LV= and I am very proud of what we have achieved. We secured a landmark strategic partnership with Allianz, delivered the first stages of our £100 million investment to transform our General Insurance product and distribution capability and brought together our Protection, Retirement and Heritage business areas under a single leadership as we begin to evolve Life into a broader health, wealth and knowledge business.

At a headline level the Group’s operating profit was £158 million, up from a loss of £12 million in 2016 and the profit before tax was £122 million compared to a loss before tax of £49 million in 2016. This greatly improved financial performance was driven by the non-recurrence of the Ogden rate change which adversely impacted the 2016 results, plus positive contributions from both our General Insurance and Life businesses, the benefit of the sale of the commercial renewal rights to Allianz and favourable short-term investment fluctuations partially offset by the change in life valuation basis.

LV= has a strong reputation for looking after customers and we are delighted that this was recognised by KPMG Nunwood in their Customer Experience Excellence Report where we moved up 68 places to rank 32nd across all industries. Our investment in Wealth Wizards is performing well and it is currently working with a number of household names across banking, life insurers and employee benefit consultancies to bring affordable finance advice to more people. Looking to the future and building on our experience with Wealth Wizards, we have also launched LV= Tomorrow signalling our investment in innovation to build new revenue streams.

“Throughout 2017 we continued to take a number of actions to improve our capital position and also the performance of our business including the strategic partnership with Allianz and the implementation of a cost reduction programme to significantly reduce our cost base. Our capital coverage ratio has increased to 180% from 140% at the end of 2016, measured on a standard formula basis. This time last year I said that we were working to get the Group back within its capital risk appetite and we have done this.

Richard Rowney, LV= group chief executive, said:

General Insurance operating profit grew to £121 million benefiting from improved rates and favourable claims experience. Encouragingly this result, which included £103 million of underwriting profit, has been achieved while strengthening reserves against future shocks such as the change to the Ogden rate experienced in March 2017 and also with less reliance on prior year releases (£46 million, down £8 million compared to 2016).

Life operating profit improved significantly to £37 million from £13 million in 2016, helped by an £6 million increase in new business contribution from Retirement and Protection. The result was also impacted by £26 million favourable model and basis changes offset by £19 million adverse experience variances.

Our Group surplus capital has increased by £331 million to a very satisfactory £698 million. This includes the positive impact of the general insurance transaction with Allianz (£444 million), capital generated from the general insurance business over the year (£170 million) and the adverse impact of a TMTP recalculation at the year-end (£246 million).

Gross expenses are down by £8 million to £431 million including a 4% reduction in operating costs. Savings have largely been achieved through strong day-to-day cost management discipline, a 400 reduction in headcount with minimum redundancies and an on-going review of discretionary spend. We will retain a continued strong focus on costs going forward.

Andy Parsons, LV= group finance director, said:

General Insurance financial highlights:

FY2017FY 2016 Pre -OgdenChange(%)FY 2016 Post Ogden
Gross written premiums£1.60 million£1.58 million1£1.58 million
Underwriting profit / (loss)£103 million£70 million47£(69) million
Opreating profit / (loss)£121 million£113 million7£(26) million
Combined ratio91.80%94.10%N/A105.80%

Our General Insurance business has performed strongly in 2017 and delivered an operating profit of £121 million compared to a £26 million loss in 2016 (2016: £113 million profit pre-Ogden) and a record combined operating ratio of 91.8%. This level of performance reflects our strong underwriting discipline, improvements in our efficiency, and favorable run-off in prior year reserves, offset by an increase in cost to repair vehicles and higher expected settlements for severe injuries as a result of Ogden. The business also benefited from a reduction in claims frequency, driven in part by the absence of large catastrophe events in the UK.

Our direct business continued to grow in both car and home insurance due to strong sales and market leading retention levels. Overall premiums grew by 5% to £960 million (2016: £913 million) and total policies increased by 3% to 3.7 million.


In broker we delivered an improved operating profit of £30 million. We have reshaped our distribution mix by reducing our exposure to purely aggregator business and widening our reach through key partnerships with motor manufacturers, retail brands and digital channels.


Following the disproportionately large decrease in the Ogden discount rate announced in February 2017, we were pleased that the Government subsequently committed to reforming the rate. We have consistently argued for a system that ensures fair payments for those injured while also reducing the cost of car insurance at a time when premiums are at a record high. Reform will require legislation, we therefore welcome the recent publication of the Civil Liability Bill and hope it will be passed quickly. We stand by our commitment to pass on 100% of any savings if the legislation is passed but, until such time, we will continue to appropriately reserve based on the current rate.


At the end of December, we completed the planned sale of a 49% stake in our General Insurance businesses to Allianz Holdings PLC for a consideration of £500 million. This deal was originally announced in August 2017 and the strategic partnership between both businesses came into effect on 28 December 2017. The combination of LV=’s strong brand, long-standing reputation in personal insurance and excellent customer service with the financial strength, digital expertise and data analytics of Allianz means we are well placed to continue to deliver profitable growth in an ever changing market.

Life and pensions business financial highlights:

Operating profit (i,iv)£37 million£13 million185
News Business Contribution (vii)£37 million£31 million19
Life new business sales(iii)£2.02 million£1.85 million9
(PVNBP(ii) basics)£1.72 million£1.55 million11
Retirement Solutions(iii)£296 million£284 million4
Protection£3 million£8 million63

2017 saw further growth in our Life business as we continue to build both top and bottom line momentum.

Operating profit of £37 million increased by £24 million over 2016 and new business sales broke through the £2 billion threshold for the first time to £2.02 billion, measured as the Present Value of New Business Premiums. This represents a credible performance in a year of considerable change.


During the year we brought together our Protection, Retirement and Heritage businesses promoting John Perks to the role of managing director for the combined Life business. We have also successfully repositioned the Life business to be cash and capital generative. This has involved closing capital consumptive products such as protection 50 plus and our protection financial advice service. In December we signed a deal with RGA to reinsure around £1 billion of deferred annuity liabilities, de-risking the balance sheet. Looking forward we have a clear focus on income protection, safe drawdown and equity release as the areas of the market in which we intend to compete.


Double digit growth in the pensions’ portfolio was also aided by savers looking to transfer funds from Defined Benefit to Defined Contribution pension schemes. Income from our strategically important retirement advice service grew 25% year on year reflecting growth in our corporate solutions distribution and the signing of a number of deals with new partners to provide direct access to regulated advice to their customers.


Despite the closure of some product lines, Protection PVNBP sales grew 4% reflecting strong performance in term life and we completed the roll out of Fastway, our new quote and apply system, for IFAs which has helped increase sales volumes and control costs.


We achieved a good return on the main LV= with profits fund of 7.7% although this falls below the benchmark by 0.9% largely because of adverse performance on long-standing investments in property and alternatives.

We ended 2017 with a much improved capital position supported by strong trading performance in both our businesses. Despite challenging market conditions the Life business is well placed to build on its track record of profitable growth and the strategic partnership with Allianz allows us to continue to benefit from a growing personal lines insurance business while also leaving the Group better placed to invest in new digital opportunities and partnerships that we believe can be the growth drivers of the future.

Commenting on the outlook, Richard Rowney said:

The full LV= results can be found at:


These numbers are unaudited.

Certain statements in this press release may constitute "forward-looking statements". These statements reflect the Issuer's expectations and are subject to risks and uncertainties that may cause actual results to differ materially and may adversely affect the outcome and financial effects of the plans described herein. You are cautioned not to rely on such forward-looking statements. The Issuer disclaims any obligation to update their view of such risks and uncertainties or to publicly announce the result of any revisions to the forward-looking statements made herein, except where they would be required to do so under applicable law.

(i) 2016 Operating loss has been restated to include the Pensions IFRS adjustment of £3 million.

(ii) 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.

(iii) PVNBP excludes enhanced annuities which were discontinued in 2016 (2016: PVNBP £99 million).

(iv) During the year the Heritage business has been integrated into the Life business in order to align with the future strategic direction of the overall life business. The 2016 Life result has been restated by £35 million to reflect this change.

(v) Gross expenses are presented before commission and costs associated with the general insurance transaction. Movement in deferred acquisition costs has been included within commission costs, resulting in a £3 million increase to 2016 Gross expenses.

(vi) There was a £246 million reduction in surplus capital due to TMTP recalculation and economic variances. This adverse impact largely relates to the favourable change in economic conditions since the last TMTP recalculation on 31 August 2016, and the step-down of TMTP as at 1 January 2017.

(vii) Overall new business contribution is before investment in new propositions. New Business Contribution has been re-aligned with the IFRS valuation excluding cost of capital. Prior periods have been restated accordingly resulting in a reduction in the New Business Contribution before investment in new propositions of: 2016: £7 million. New business contribution excludes enhanced annuities which were discontinued in 2016 (2016: £(nil) million after restatement reduction of £2 million).