LV= announces £42 million half year operating profit

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 £19 million (HY 2017: £7 million). However new business sales are down 5% at £983 million (HY 2017: £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 £17 million of net claims leading to an operating profit of £23 million for the first six months (HY 2017: £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. 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.

The capital position strengthened significantly during the first half of 2018; helped by positive operating capital generation from the Life and GI businesses of £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 (£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 £764 million (FY 2017: £698 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% (FY 2017: 180%). Eligible own funds include the positive benefit of TMTP of £528 million. If a TMTP recalculation was performed at 30 June 2018, this would reduce the surplus by £107 million, resulting in a CCR of 167%.

Overall operating profit of £42 million (HY 2017: £56 million) includes an encouraging £12 million increase in Life and Group operating profits, partly offsetting the £26 million reduction in the General Insurance result due to the bad weather in Q1. Life and Group operating profits of £19 million included £14 million of new business contribution and £19 million from model and basis changes, offset by strategic investment spend of £15 million.

Profit before tax of £42 million (HY 2017: £56 million) benefits from favourable short term investment fluctuations of £6 million (HY 2017: £14 million) and the impact of the GI transaction with Allianz of £7 million, partially offset by subordinated debt interest costs of £12 million which are in line with prior year.

Continued good cost control has resulted in a further £2 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 £888 million (FY 2017: £947 million). Liquidity outflow of £59 million (HY 2017: £42 million) includes inflows from our trading business of £19 million offset by £23 million full year debt coupon, £18 million working capital changes and £37 million of one-off items and strategic costs.

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.