2022 saw a continuation of the strong cost disciplines embedded within the business with targeted operating expenses remaining flat at £105m (2021: £105m), despite a backdrop of high inflation. This allowed the business to make a one-off payment of £750 in order to help LV= colleagues with the cost of living crisis.
Non-operational items, such as strategic investment and business restructuring costs have reduced to £80m (2021: £90m) and the overall year-on-year result before economic impacts has therefore improved. Control of non-operational spending was stated as a key area of focus in last year’s Annual Report and provides another example of management’s commitment to embedding strong cost disciplines within the business.
As a mutual, we do not consider the International Financial Reporting Standards (IFRS) results to be a key metric for our members, we therefore manage the business primarily on a Solvency II basis. Despite the economic and market turmoil, our Solvency II capital position remains strong, with a capital surplus of £391m (iii) (2021: £637m) and a Capital Coverage Ratio of 174% (2021: 187%), well within our risk appetite range of 140% - 200%. Operating capital generation of £91m (2021: £110m) includes £89m (2021: £87m) from our trading businesses.
The £246m decrease in capital surplus during the year is mainly driven by economic fluctuations. As well as impacting the value of the pension scheme and fund used to pay discretionary bonuses to eligible with-profits members, these have also restricted the capital benefits associated with our subordinated debt and deferred tax assets. This leaves our solvency position less reliant on lower-quality regulatory capital. IFRS results have also been impacted by external economic fluctuations, leading to a loss before tax and member bonuses of £265m (2021: £66m).
Despite the market volatility and economic turbulence, our Savings and Retirement business has proved resilient. New business sales totalled £1,097m (2021: £1,257m) on a PVNBP basis. Profitability of new business has been impacted by the reduction in SMF and pension new business sales with the trading profit generated by Savings and Retirement new business decreasing to £nil compared to a new business trading profit of £12m in 2021.
We continue to develop our Smoothed Managed Funds franchise, which offers clients protection from market volatility while facilitating access to potential growth upside. Throughout the year we made a number of enhancements including adding two funds to the SMF range and overall inflows totalled £280m.
Our Protection business has continued to grow with new business sales increasing by 8% to £357m (2021: £332m) on a PVNBP basis, outperforming the market and growing our market share in the segments we have chosen to compete in. As a result our new business trading profit increased to £14m (2021: £5m).