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ISSUED6 November 2015
LV=
Introduction
Background
AKG's Company Profile & Financial Strength Reports are designed to meet the information needs of advisers in assessing the relative strengths of onshore UK life companies, friendly societies and similar providers. Two different styles of report are published by AKG - FULL reports and SHORT reports. A FULL report is produced for each of the leading provider companies in the market, which participate in the production of the reports. For each remaining provider company which is covered, a SHORT report is produced.
This is a FULL report.
Each report collates relevant information from a range of sources such as a company’s returns to the PRA, its Report & Accounts and material provided by the companies themselves, and incorporates expert independent assessment. For FULL report companies, the process is augmented by regular meetings and other communications with AKG.
PLEASE NOTE: This report should be read in conjunction with the supporting explanatory information which is available on-line at .www.akg.co.uk
About AKG
AKG is an independent organisation. Originally established as an actuarial consultancy AKG has, for over 20 years, specialised in the provision of assessment, ratings, information and market assistance to the financial services industry.
As the market has evolved over this period, the range of entities considered by AKG has expanded. Consequently AKG has brought additional skill sets into its operations. This has meant the inclusion of accounting, corporate finance, IT and market intelligence experience, alongside actuarial resources, to deliver an expanded professional capability.
Today AKG’s core purpose is in the provision of financial analysis and review services and in the delivery of key value added financial information to support the wider financial services sector and its customers.
Regular Reports
AKG publishes the following additional reports to assist Providers and Intermediaries:
AKG Offshore Profile & Financial Strength Reports - covering offshore life companies.
AKG Platform Profile & Financial Strength Reports - covering platform operators.
AKG UK Life Office With Profits Reports - providing further depth in the assessment of with profits funds.
For further details, please contact AKG: Tel: +44 (0)1306 876439 or email akg@akg.co.uk
© AKG Financial Analytics Ltd (AKG) 2015
This report is issued as at a certain date, and it remains AKG's current assessment with current ratings until it is superseded by a subsequently issued report or subsequently issued ratings (at which point the newly issued report or ratings should be used), or until AKG ceases to make such a report or ratings available.
The report contains assessment based on available information at the date as shown on the report’s cover and in its page footer. This includes prior regulatory data which may have an earlier date associated with it, but the report also takes into account all relevant events and information, available to and considered by AKG, which have occurred prior to this stated cover and footer date. Events and information subsequent to this date are not covered within it, but AKG continually monitors and reviews such events and information and where individually or in aggregate such events or information give rise to rating revision an updated report under an updated date is issued as soon as possible.
All rights reserved. This report is protected by copyright. This report and the data/information contained herein is provided on a single site multi user basis. It may therefore be utilised by a number of individuals within a location. If provided in paper form this may be as part of a physical library arrangement, but copying is prohibited under copyright. If provided in electronic form, this may be by means of a shared server environment, but copying or installation onto more than one computer is prohibited under copyright. Printing from electronic form is permitted for own (single location) use only and multiple printing for onward distribution is prohibited under copyright. Further distribution and uses of the report, either in its entirety or part thereof, may be permitted by separate agreement, under licence. Please contact AKG in this regard or with any questions: akg@akg.co.uk, Tel +44 (0) 1306 876439.
AKG has made every effort to ensure the accuracy of the content of this report and to ensure that the information contained is as current as possible at the date of issue, but AKG (inclusive of its directors, officers, staff and shareholders and any affiliated third parties) cannot accept any liability to any party in respect of, or resulting from, errors or omissions.
AKG information, comments and opinion, as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service.
© AKG Financial Analytics Ltd 6 November 2015
LV=
Main Company Page
Liverpool Victoria Friendly Society Ltd 3
Additional Companies Page
Liverpool Victoria Life Company Ltd 7
Index
Group Overview
Established in 1843, Liverpool Victoria Friendly Society Ltd (LVFS) has grown to become the UK's largest Friendly Society, with
group assets of £14.0bn and capital resources of £1.3bn as at 31 December 2014. The Society had widened its operations substantially
via new activities and acquisition. Acquiring Frizzells in 1996 and Landmark in 1997 broadened its scope to include general
insurance, banking and the provision of independent financial advice. In February 2001, the group acquired Permanent Insurance
Company Ltd from Equitable, renamed it Liverpool Victoria Life Company Ltd (LVLC) and in December 2001 used this structure to
acquire the Royal National Pension Fund for Nurses (RNPFN). In 2002, Bishopscourt, an IFA group specialising in affinity services,
was acquired. In November 2005, LVLC acquired a small portfolio of business from UIA Insurance (UK) Ltd. January 2007 saw the
Group acquire Britannia Road Rescue Services and in December 2007 the Group acquired the new business operations of Tomorrow
(previously GE Life) from Swiss Re and entered the unit linked pensions market. In October 2008, LV= acquired the Highway
Insurance Group, an organisation complementary to its existing general insurance operations. The group transferred much of the life
business of LVLC to LVFS in two tranches, December 2008 and December 2011. In recent years, the group has tightened its focus on
core businesses and currently operates through two Strategic Business Units (SBUs): Life & Heritage and General Insurance. The
Partnership SBU was dissolved in 2010 and the Banking operation has also been disposed of apart from remaining obligations and
liabilities of around £25m which have been transferred to LVFS. In 2011, the asset management arm, Liverpool Victoria Asset
Management Ltd (LVAM), was sold to Threadneedle Investments (now Columbia Threadneedle Investments) to whom it now
outsources its asset management, enabling the Society to focus on general insurance, protection and retirement solutions. All life and
pensions business is now written directly into the Society. Equity release is written by LV Equity Release Ltd. The group also
transacts motor, home and travel insurance through Liverpool Victoria Insurance Company Ltd. The group disposed of its Whole of
Market advice business in 2007. 2007 also saw the group carry out a major rebranding exercise, introducing the brand LV= and
reconfirming its commitment to mutuality. In May 2013, the Society issued £350m of subordinated debt, enabling it to improve capital
efficiency and support growth ambitions. Subject to the necessary approvals, the group will acquire most of the business of Teachers
Assurance in 2016. As a membership based organisation there is an explicit aim to put its members first and to ensure that they benefit
from everything it does. The Society set out a new mission in 2014, to "humanise insurance".
Corporate Structure (simplified)
Liverpool Victoria Friendly Society Ltd
Liverpool Victoria
Portfolio Managers LtdLiverpool Victoria
Life Company LtdLiverpool Victoria
General Insurance Group Ltd
Liverpool Victoria
Insurance Co. Ltd
LV Equity Release LtdLiverpool Victoria Financial Advice
Services Ltd
Highway Insurance Group Ltd
Ratings
Company
Supporting Ratings
OverallWith
Profits
Non
Profit
Unit
LinkedService
Image &
Strategy
Annual
Review
Financial Strength Ratings
Liverpool Victoria Friendly Society Ltd B+ ���� ���� ���� ����� ���� ����
Liverpool Victoria Life Company Ltd B+ � ���� ��� ����� ���� ����
Page
9
9
9
8
8
General Information
Distribution
Products
Service
Investment
Annual Review
Page 1© AKG Financial Analytics Ltd 6 November 2015
LV=
Summary Financial Data (for y/e: 31/12/14)
Key Financial Data
LT Admissible Assets
(by Company)
20132012 2014
£000's£000's £000's
Liverpool Victoria Friendly Society Ltd 7,865,670 8,835,113 10,290,531Liverpool Victoria Life Company Ltd 38,510 32,526 33,073
Total Assets 8,867,6397,904,180 10,323,604
Total Assets
Linked
Property
Equities
Fixed Interest
LT Admissible Assets
(by asset type)
Other
194,826
4,081,957
1,641,541
1,621,616
1,327,699
8,867,639
3,913,199
1,423,544
1,329,160
994,106
244,171
7,904,180
264,591
4,928,713
1,427,529
2,081,990
1,620,781
10,323,604
20132012 2014
£000's£000's £000's
Investment Reserves
Other liabilities
Linked
Accum'lg With Profits
Non Linked With Profits
Non Linked Non Profit
Total Liabilities/Margins
LT Liabs & Margins
(by type)
Surplus c/f
1,259,089
761,324
2,752,066
1,807,265
668,589
298,811
1,320,495
8,867,639
646,746
2,516,384
1,936,503
361,238
189,328
1,024,737
1,229,247
7,904,181
1,359,049
801,496
3,407,454
2,090,286
767,889
266,222
1,631,208
10,323,604
20132012 2014
£000's£000's £000's
Net Inflow Data
Net Inflow 20132012 2014
£000's£000's £000's(by Company)
Liverpool Victoria Friendly Society Ltd 382,064 379,237 398,591Liverpool Victoria Life Company Ltd -4,361 -2,352 -1,327
Net Inflow(-Outflow) 376,885377,703 397,264
Net Inflow(-Outflow)
Annuity Payments
Surrenders
Death/disability pmts
Premiums
Net Inflow
Maturities
211,439
1,096,194
86,542
146,007
275,321
376,885
1,154,240
89,957
177,888
262,974
245,719
377,703
198,672
1,150,684
90,874
136,938
326,935
397,264
20132012 2014
£000's£000's £000's(by payment type)
Net Inflow 20132012 2014
£000's£000's £000's(by business type)
-58,771-145,583 18,655UK Life
435,656523,285 378,609UK Pension
00 0Overseas
376,885377,703 397,264Net Inflow(-Outflow)
New Business Data
New Single Premiums
(by Company)
20132012 2014
£000's£000's £000's
Liverpool Victoria Friendly Society Ltd 1,012,293 869,709 911,296Liverpool Victoria Life Company Ltd 0 0 0
Total (Direct + External Reins) 869,7091,012,293 911,296
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
New Single Premiums
(by business type)
0
87,658
782,051
869,709
62,922
949,371
1,012,293
0 0
143,876
767,420
911,296
20132012 2014
£000's£000's £000's
New Regular Premiums
(by Company)
20132012 2014
£000's£000's £000's
Liverpool Victoria Friendly Society Ltd 34,109 35,725 41,210Liverpool Victoria Life Company Ltd 0 0 0
Total (Direct + External Reins) 35,72534,109 41,210
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
New Regular Premiums
(by business type)
0
30,950
4,775
35,725
34,038
71
34,109
0 0
35,292
5,918
41,210
20132012 2014
£000's£000's £000's
Total Long Term Business Assets within the group increased
by 16% in 2014 as the Society again saw an overall net
inflow. Within this, pensions business reported an inflow of
£379m and life a smaller inflow of £19m, reflecting their
respective strategic positioning. Premiums, mostly in LVFS,
increased by 5% whilst surrenders fell a further 6%. Annuity
payments rose by 19%, again reflecting the emphasis on this
business line, although Pension Freedoms has implications
here. Whilst with profits has historically been the dominant
business line, the increasing levels of both unit linked and non
profit business, coupled with maturities as the back book of
with profits business runs off, means that the relative balance
within the Society continues to change. Notwithstanding this,
the Society has seen increased with profits new business
volumes in recent years.
The transfer of much of the remaining business of LVLC into
LVFS in 2011 (following an earlier transfer in 2008), as well
as the with profits reinsurance recapture in 2010, has changed
the relative dynamics of the two companies significantly.
There is only a very small amount of business (long term
assets of £33m) remaining in LVLC, around 2,000 UIA
policies in runoff. All new business capability, including
protection business, now sits in LVFS. The new business
pattern, which emerged in 2008, remains very evident in the
above tables with the emphasis now on single premium
pension business, albeit reduced a little (down 2%) in 2014.
Protection business volumes also increased and remained
significant.
Teachers Provident Society Ltd, which is due to be acquired in
2016, had long term admissible assets of £0.76bn as at 31
December 2014.
Page 2© AKG Financial Analytics Ltd 6 November 2015
Liverpool Victoria Friendly Society Ltd
LV=
Corporate Data
Company Type Life Friendly Society
Ownership Mutual
Open to New Business? Yes
Year Established 1843
Head Office County Gates
Bournemouth
BH1 2NF
Tel: 01202 292333
Website www.lv.com
Key Personnel
Chairman M E Austen
Group Chief Executive M J Rogers
Group Finance Director P W Moore
Managing Director, Life and Pensions R A Rowney
Managing Director, Protection M I Rix
Managing Director, Retirement Solutions J T Perks
Managing Director, General Insurance J B O'Roarke
Chief Risk Officer S R Haynes
Chief Operating Officer, Life S Knight
Chief Information Officer R A Warner
Director, Life Finance and Commercial N J Austin
Chief Actuary J M Laidlaw
Actuarial Function Holder P M Downey
With Profits Actuary A R Walton
Company Background
Established in 1843, the Society is now the UK's largest
friendly society. Operating for many years as a traditional
home service insurance company, writing both Ordinary and
Industrial Branch business, it had substantially re-positioned
itself in recent years, with a much broader range of activities,
via a number of different subsidiaries. Some of these have or
are now being exited as part of a more tightened focus. It
stopped writing industrial business in 1999 and entered the
IFA market in 2000. The acquisition of the new business
operations of Tomorrow, late in 2007, and the transfer-in of
much of the business from LVLC changed the profile of the
Society, having previously almost exclusively written with
profits business.
B+Overall Financial Strength
The Society continues to make progress in its redefined and
refocused strategy. The group made a profit for the year,
albeit the life business was adversely impacted by the Pension
Freedoms changes announced in the 2014 Budget, to which it
has reacted positively. Capital resources, which were boosted
in 2013 by the subordinated debt issue, remained at a similar
level in 2014. An increased Capital Resources Requirement,
however, saw solvency coverages decrease. The Society saw
further growth with a continued net inflow and increased new
business volumes. Going forward, the key considerations
remain expense control allied to the requirement to balance
capital needs across the life, general and heritage businesses
consistent with the Society's medium and longer term growth
aspirations.
The acquisition of Teachers Assurance will bring additional
scale and help with the strategic intention of growing the life
part of the group's business.
Reinsurance
Approach
Whilst the Society historically made very limited use of
external reinsurance, this stance changed markedly following
the transfer-in of the protection business from LVLC in 2008.
In 2010, the Society recaptured the internal arrangement with
LVLC covering some of the liabilities [2009: £153m] on the
closed block of Series 1 With Profits Bonds. Furthermore, the
reinsurance treaty, previously the Society's largest, under
which all income protection business, not otherwise reinsured,
was reinsured to LVLC (premiums of £31.5m in 2011 and
£33.3m in 2010) was cancelled at the end of 2011.
In total, the Society paid reinsurance premiums totalling
£88.0m in 2014 [2013: £83.6m]. The Society now has
external reinsurance arrangements for its protection business,
accounting for reinsurance premiums totalling £47.4m, with
reserves ceded of £236.4m in 2014. This reinsurance is spread
across Gen Re, Hannover Life Re, Munich Re, Pacific Life Re
and RGA. There are also 2 annuity mortality swap treaties:
RNPFN - reserves of £29.7m and premiums of £22.7m with
Hannover Re and LVFS - impaired annuities reserves of
£66.3m and premiums of £84.6m with RGA.
Analysis of Reserves 201420132012
£000's£000's£000's
Gross reserves
Reinsurance ceded - external
Net mathematical reserves
6,980,025
297,424
6,682,602
7,488,218
7,116,671
8,832,880
365,478
8,467,402
Reinsurance ceded - internal
371,547
00 0
Non Profit Business
General
Whilst non profit business historically represented less than
0.5% of the Society's total reserves, given that virtually all
business had been written on a with profits basis, this
proportion has increased substantially following the
acquisition of Tomorrow and the ability to write enhanced and
impaired annuities, together with the transfers-in from LVLC.
Net non-profit reserves have increased from £10m in 2007 to
£3.4bn in 2014, and they now account for 40% of net retained
reserves.
LVLC has retained non profit liabilities of £17.7m [2013:
£18.4m].
Non Profit Reserves 201420132012
£000's£000's£000's
UK Life
UK Pensions
Overseas
Total net NP reserves
84,438
2,409,411
1,689
2,495,538
69,801
2,662,416
1,449
2,733,666
177,242
3,211,145
1,409
3,389,796
����
Non profit business in the Society is secure, given its
heightened focus and the level of with profits business
alongside it. Similarly, the small amount of non profit
business retained in LVLC is secure and enjoys the support of
the parent.
Non Profit Financial Strength
Page 3© AKG Financial Analytics Ltd 6 November 2015
Liverpool Victoria Friendly Society Ltd
LV=
Unit Linked Business
Approach
Prior to the acquisition of Tomorrow in 2007, the Society had
not written unit linked business. It now writes a reasonable
volume of unit linked pensions business. Unit linked reserves
were further increased following the transfers-in from LVLC.
The life unit linked reserves shown below are predominantly
in respect of RNPFN business (£126m). The RNPFN Fund
maintains one internal unit linked fund, the Managed Growth
Fund, currently in a net outflow position.
Investment management of the various funds is completely
outsourced to specialist investment managers. The asset
management undertaken by LV= Asset Management was
transferred to Columbia Threadneedle Investments in 2011,
who are given specific objectives and benchmarks on how to
run the funds. These funds include tracker funds and actively
managed equity funds covering the world's major markets.
Fund managers include: 7IM, Artemis, BlackRock, Fidelity,
Invesco Perpetual, Investec, JPMorgan, Jupiter, Liontrust,
M&G, Martin Currie, Newton and Schroder as well as
Columbia Threadneedle Investments.
LV='s flagship SIPP, the Flexible Transitions Account, also
offers: Discretionary Management (through Brewin Dolphin,
Cazenove Capital Management, Charles Stanley, Investec
Wealth & Investment, Quilter and Rathbones); access to
Cofunds, FundsNetwork and a Self Investment option.
Linked Reserves 201420132012
£000's£000's£000's
UK Life
UK Pensions
Overseas
Total net linked reserves
160,928
863,808
0
1,024,737
160,841
1,159,653
0
1,320,495
157,424
1,473,784
0
1,631,208
����
Unit linked business is now key to the overall proposition and
AKG expects appropriate support and attention to be given.
This line enjoys the comfort and support that the Society and
its level of free assets brings.
Unit Linked Financial Strength
With Profits Business
The Society has two with profits funds, its main Long Term
Business Fund, which has increased in size recently (with
profits reserves of £3.0bn) and the smaller declining RNPFN
fund (£485m).
Approach
With Profits Reserves 201420132012
£000's£000's£000's
UK Life
UK Pensions
Overseas
Total net WP reserves
1,589,820
1,570,756
1,751
3,162,328
1,597,657
1,463,033
1,820
3,062,510
1,686,732
1,758,056
1,610
3,446,398
Profit Sharing Philosophy
The Society distributes its surplus within both funds on a
100% basis to with profits policyholders, subject to
smoothing. A mutual bonus of £23.9m was paid in respect of
2014 [2013: £21.9m].
Asset Allocation
The Society's investment in equities and property (49.5% and
9.1% respectively as at December 2014) remained relatively
steady in its main fund, having been traditionally much
higher. The Society launched a number of with profits bond
variants in the last decade or so, including a with profits
income bond in 2003, the All-In-One Investment Bond in
2005 and its replacement the Flexible Guarantee Bond in 2009
(both of which have 3 fund variants). With profits annuities
are also available. The main with profits fund returned 11.4%
in 2014. The RNPFN fund had an EBR of 35.0% and
returned 11.2% in 2014.
2012 2013 2014Distribution of Surplus
£000's£000's£000's
108,355
0
99,849
0
111,461
0Other Transfers
To Policyholders
Realistic Balance Sheet 201420132012
£000's£000's£000's
Working capital
Risk capital margin
Realistic excess available
Working capital ratio
RCM as % of assets
Realistic xs available ratio
429,773
87,855
341,918
%7.7
%1.6
%6.1
458,918
84,557
374,360
%9.1
%1.7
%7.4
291,532
105,235
186,297
%4.0
%2.3
%6.3
The above Realistic Balance Sheet relates to the overall
position, including the RNPFN fund. Working capital in the
main with profits fund reduced in 2014, from £459m to
£430m, with the working capital ratio reducing to 8.9% [2013:
10.6%]. The closed RNPFN fund had increased working
capital of £107.0m before zeroisation, equivalent to a working
capital ratio of 14.2% [2013: 12.3%].
With Profits Financial Strength ����
In recent years, the Society has generally shown good with
profits performance, and it maintains a reasonable equity
backing ratio. Whilst the largest of the Friendly Societies, it
remains a relatively small fund when compared with the larger
life companies. Although other business lines now dominate
marketing activities, with profits business remains important.
The rating shown does not apply to the smaller RNPFN fund,
which is not as financially strong and has a rating of 3 stars.
Page 4© AKG Financial Analytics Ltd 6 November 2015
Liverpool Victoria Friendly Society Ltd
LV=
Key Financial Data (for y/e: 31/12/14)
Long Term Business
Admissible Assets
201420132012
£000's£000's£000's
7,865,670
1,327,740
994,106
244,171
1,423,544
3,876,109
8,835,113
1,604,509
1,327,699
194,826
1,641,541
4,066,538
10,290,531
2,066,150
1,620,781
264,591
1,427,529
4,911,480Fixed Interest
Equities
Property
Linked
Other
Total Assets
Overall assets increased by 16% during 2014 due to
investment performance and an increased net inflow. Other
than equities, investments in asset classes increased in 2014.
£000's £000's £000's
2012 2013 2014
Total Capital Resources
Tier one deductions
Other tier one capital
Tier one waivers
Core tier one capital
LT Capital Resources
Adjustments and deductions
Tier two capital
Total tier one capital
1,360,057
0
0
-26,866
1,333,191
-29,002
355,916
1,660,105
CR outside the fund 0
1,340,592
0
0
-21,785
1,318,807
356,291
-24,917
1,650,181
0
1,159,225
0
0
-20,664
1,138,561
9,732
-68,108
1,080,185
0
Capital resources, which had increased by 53% in 2013,
benefiting from the £350m subordinated debt issue, were at a
similar level in 2014.
£000's £000's £000's
2012 2013 2014
0
720,745186,381
0
186,381 720,745 688,580
0
688,580
Financial Engineering
Free Assets (Exc Fin Eng)
Available Capital Resources
Capital Resources Req't (CRR)
Free Assets (Published)
LT Free Assets
893,805 929,436 971,525
1,660,1051,650,1811,080,185
LT Free Asset Ratios
% % %
201420132012
FAR (Published) 6.78.22.4
8.22.4 6.7FAR (Exc Fin Eng)
LT CRR Coverage Ratios
CRRCR (Exc Fin Eng)
CRRCR (Published)
% % %
201420132012
170.9
170.9177.5
177.5
120.9
120.9
Capital resources were at a similar level in 2014, which meant
that a 4.5% increase in the CRR led to a reduction in solvency
coverages. 2012's figures were impacted by the exclusion of
£40m of temporarily inadmissible assets.
Investment Reserves
Other liabilities
Linked
Accum'lg With Profits
Non Linked With Profits
Non Linked Non Profit
Total Liabilities/Margins
2,090,286
3,389,796
1,359,049
1,631,208
801,496
10,290,531
1,807,265
2,733,666
1,259,089
1,320,495
761,324
8,835,113
2,495,538
1,936,503
1,229,247
1,024,737
646,746
7,865,671
Long Term Business
Liabilities & Margins
201420132012
£000's£000's£000's
Surplus c/f
762,341
256,355
353,367
179,535
663,142
290,132
With profits reserves shown above comprise 34% of total
liabilities, down from 60% in 2008, a clear indication of the
changing shape of the Society. This follows the transfers-in
from LVLC and the realigned product focus which has a
stronger bias towards non profit (protection and annuities)
and unit linked. The Non Linked With Profits total for 2014
includes gradually declining IB liabilities of £283.5m. There
is a GAO provision of £102.5m [2013: £82.7m].
£000's £000's £000's
2012 2013 2014Key Revenue Items
153,498
771,449
66,983
77,074
337,013
1,153,513
139,956
716,281
48,210
14,576
348,053
1,095,518
139,831
751,451
50,021
821,660
323,627
1,150,042
Expenses
Policy claims
Commissions
EXPENDITURE
Investment Increase
Investment Income
Premiums
INCOME
Transfer to P&L
Increase in fund
0
1,316,047
0
543,091
0
577,981
Premium income increased by 5.0% aided by increased new
business volumes. Commissions increased by a similar level
and expenses were relatively flat. Claims increased by 5% to
£751m, with increased deaths and, primarily, annuity
payments more than offsetting reduced surrenders and
maturities.
2012 2013 2014Expense Ratios
New business (% APE) 119.3 112.9 106.1
21.422.427.1Renewal (% reg premiums)
Renewal (% p.a. of mean fund) 0.78 0.59 0.52
The expense ratios improved in 2014 as the business grew by
more than the increase in associated costs.
Page 5© AKG Financial Analytics Ltd 6 November 2015
Liverpool Victoria Friendly Society Ltd
LV=
New Business Data (for y/e: 31/12/14)
Single Regular
£000's£000's
Investment
Bonds With Profits
Unitised WP
Unit Linked
With Profits
Unitised WP
Unit Linked
Endowment
Guaranteed Bonds
0
0
0
0
603
0
0
0
141,500
0
0
0
0
0
ISA / tax exempt 1,028 163
0
0
4,004
0
Miscellaneous
Annuities
Total Investment 142,528 4,770
0
0
0
0
120
0
0
0
7,039
7,313
5,319
0
10,852
0
0
0
Long Term Care
Critical Illness
IP Individual
Pension
OrdinaryTerm
Whole Life
Unit Linked
Unitised WP
With Profits
Protection
Miscellaneous
00
Total Protection 120 30,523
Pensions
With ProfitsIndividual
Unitised WP
Unit Linked
0
47
411,823
0
908
0
204,591
0
0
Miscellaneous
CPA
Bulk Transfer Annuities 00
CPA (Impaired Life) 200,794 0
Total Pensions 408,116 88
Group Business
Pension
Life
IP
Critical Illness
Miscellaneous
5,831
0
0
0
0
360,533
0
0
0
0
Total Group Business 360,533 5,831
TOTAL DIRECT BUSINESS 911,297 41,212
0 0
External Reins (excl above)
Overseas Direct (incl above)
Intra-Group Reins (excl above)
0
0
0
0
Industrial Branch (incl above) 00
New Single Premiums 201420132012
£000's£000's£000's
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
Growth Rate
143,876
767,420
0
911,296
%4.8
87,658
782,051
0
869,709
%-14.1
62,922
949,371
0
1,012,293
%16.9
Reins Accepted (Intra-Group) 00 0
0
200,000
400,000
600,000
800,000
1,000,000
2012 2013 2014
New Regular Premiums 201420132012
£000's£000's£000's
%3.5
34,109
0
71
34,038
%4.7
35,725
0
4,775
30,950
%15.4
41,210
0
5,918
35,292
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
Growth Rate
Reins Accepted (Intra-Group) 0 0 0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2012 2013 2014
The table opposite clearly shows the Society's focus on
Retirement and Protection, although there was another
increase in with profits bonds. 2014 saw new business
increase by 7.9% in APE terms.
Single premium pensions new business volumes reduced by
2% in total in 2014. Sales of enhanced annuities, where the
Society claims a top 5 market share fell by 38% to £201m,
whilst sales of standard annuities, including £43m of one year
fixed term annuities, increased by 30% to £205m. Group
pensions single premiums increased by 19% to £361m with
the Society maintaining a top 3 position in the drawdown
market.
Protection business APE increased by 15%, with the Society
also reporting an increase of 11% in 2014 to £217m on a
PVNBP basis. The Society claims top position in the advised
income protection market.
Single premium life business is almost entirely with profits
bonds - specifically the Flexible Guarantee Bond - which
continue to grow, up 65% to £141.5m.
Elsewhere in the group, equity release sales increased by 13%
with an APE of £10.5m, although overall market share
declined as LV= chose not to compete in certain sectors.
Page 6© AKG Financial Analytics Ltd 6 November 2015
Liverpool Victoria Life Company Ltd
LV=
Corporate Data
Company Type Life Insurer
Ownership Liverpool Victoria Friendly
Society Ltd
Open to New Business? No
Year Established 1958
Key Personnel
Chairman M J Rogers
Chief Executive R A Rowney
Group Finance Director P W Moore
Chief Risk Officer S R Haynes
Company Secretary R S Small
Company Background
Established as Medical Sickness & Life Assurance Society Ltd
to operate in the IFA market, the company was renamed
Permanent Insurance Company Ltd in 1982 when it acquired
the business of the Contingency Insurance Company Ltd and
Minster Insurance Company Ltd. Equitable Life bought a
controlling interest in 1995 (100% ownership in 1997), selling
the company to LVFS in February 2001, when it was renamed
Liverpool Victoria Life Company Ltd (LVLC). Until the
business transfer in 2008, LVLC was the protection specialist
within the Liverpool Victoria group, operating from its own
offices in Exeter.
In December 2001 the company acquired the business of the
Royal National Pension Fund for Nurses (RNPFN). At the
same time, it accepted reinsurance of around £300m of with
profits bonds from LVFS. It also exited the Group PHI
market, reinsuring this business, other than claims in payment,
to Unum. In November 2005, the company acquired a small
portfolio of business from UIA Insurance (UK) Ltd, as a result
of the group’s relationship with Unison, a key affinity partner.
The majority of the business of LVLC, including the ring
fenced RNPFN fund, was transferred into the Society in
December 2008, followed in December 2011 by the remainder
of the business, excluding the UIA business which remains in
LVLC. LVLC is now closed to all new business and all
reinsurance treaties with LVFS have been cancelled. Its main
purpose is to manage the run-off of the UIA business (1,847
policies in force at 31 December 2014).
In November 2009 the company sold all of its subsidiaries to
LVFS to simplify the group's legal structure and corporate
governance. LVLC's substantial reduction in size led to a
capital reduction in December 2010 of £530m, together with
settlement of £82m of subordinated loan debt and a transfer of
investments and cash totalling £164m. In November 2012, the
company further reduced its share capital by £9.9m, £5m of
which was paid as a dividend.
B+Overall Financial Strength
LVLC reported a pre-tax profit in 2014 of £1.7m [2013: loss
of £1.2m]. The company paid no dividends in 2014 [2013:
£nil]. Capital resources, which had reduced significantly in
2012 following the dividend payments of £90m and further
still in 2013, increased in 2014. This combined with a
reduction in the CRR led to an increase in the solvency
coverages, which are reasonable in the context of the run off
of the remaining UIA business, which also benefits from its
presence within the LV= Group.
Key Financial Data (for y/e: 31/12/14)
Long Term Business
Admissible Assets
201420132012
£000's£000's£000's
38,510
1,420
0
0
0
37,090
32,526
17,107
0
0
0
15,419
33,073
15,840
0
0
0
17,233Fixed Interest
Equities
Property
Linked
Other
Total Assets
£000's £000's £000's
2012 2013 2014
0
10,47811,753
0
11,753 10,478 11,909
0
11,909
Financial Engineering
Free Assets (Exc Fin Eng)
Available Capital Resources
Capital Resources Req't (CRR)
Free Assets (Published)
LT Free Assets
2,984 3,146 2,902
14,81113,62314,737
LT CRR Coverage Ratios
CRRCR (Exc Fin Eng)
CRRCR (Published)
% % %
201420132012
510.4
510.4433.0
433.0
493.9
493.9
Investment Reserves
Other liabilities
Linked
Accum'lg With Profits
Non Linked With Profits
Non Linked Non Profit
Total Liabilities/Margins
0
17,658
0
0
0
33,073
0
18,400
0
0
0
32,526
20,846
0
0
0
0
38,510
Long Term Business
Liabilities & Margins
201420132012
£000's£000's£000's
Surplus c/f
5,548
9,867
7,871
9,793
5,447
8,679
New Business Data
New Single Premiums 201420132012
£000's£000's£000's
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
Growth Rate
0
0
0
0
0
0
0
0
0
0
0
0
000Reins Accepted (Intra-Group)
New Regular Premiums 201420132012
£000's£000's£000's
0
0
0
0
0
0
0
0
0
0
0
0
Total (Direct + External Reins)
Overseas
UK Pensions
UK Life
Growth Rate
000Reins Accepted (Intra-Group)
Page 7© AKG Financial Analytics Ltd 6 November 2015
LV=
Distribution
Method
LV= continues to follow a multi-channel distribution strategy,
primarily via intermediaries (brokers and IFAs), but also
through direct to consumer business and through corporate
partnerships. These three distribution channels make up for
approximately 62%, 30% and 8% respectively of Group sales.
LV= also has a small team of financial advisers (tied agents)
operating in-house.
LV= is trying to broaden its footprint with IFAs nationally
with a focus on retirement income opportunities and from a
protection perspective there is also a principal focus on IFA
distribution. LV= is also working on initiatives to better
support and service orphaned and non-advised clients and
exploring opportunities to interact with EBCs and DB
schemes.
As part of a focus on its digital presence, LV= has invested in
the development of an online retirement income advice service
in conjunction with advisers, Wealth Wizards, and LV=
Retirement Wizard (on-line regulated advice) was launched in
July 2015, opening up the online distribution channel as
another option. LV= has since appointed a Head of
Automated Advice Strategy.
%%
Single PremiumRegular PremiumDistribution Split
77.9 97.6IFAs
2.6 2.1Tied Agents
19.5 0.3Direct
2014 saw a brand refresh and the introduction of a new
mission to "humanise insurance". For the Life & Pensions
business units the strategy is "to be the UK's best loved
protection and retirement specialist". In order to achieve this
position/status LV= states that it is focusing on differentiation
through the provision of "Product Expertise", the delivery of
"Service Excellence" and "Good Value".
From a pension freedoms perspective LV= would appear to be
reasonably well placed to respond to challenges and capitalise
on business opportunities. In line with the rest of the annuity
market it has suffered from a downturn in annuity business
volumes but these have been softened by an upturn in figures
for SIPP and income drawdown. LV= wants to maintain a
balanced portfolio of products across the group.
LV= has worked to ensure that it maintains a presence in the
IFA market via events whilst also persuing projects such as the
Heart of Retirement campaign and the Pension Passport pilot
work.
From a protection perspective LV= is focusing its energies on
enhancing its market position within areas in which it has
already established product expertise and IFA distribution
traction.
LV= has subsequently followed the launch of LV= Retirement
Wizard with the announcement in August 2015 that it had
taken a majority stake in Wealth Wizards, its partner for the
development of this service.
Image and Strategy ����
Products/Proposition
Overall Product Philosophy
In direct response to the 2014 Budget announcement about
pension freedoms changes, LV= extended cancellation and
guarantee periods on its annuities, launched a one-year Fixed
Term Annuity and a 'simplified' drawdown product. LV= also
introduced flexible access drawdown functionality for existing
drawdown clients from April 2015. LV= has subsequently
launched its Retirement Account, a blended retirement income
proposition/service which makes use of existing LV= product
solutions, alongside a new range of retirement income
planning tools, in order to target pension freedoms business
opportunities with financial advisers post-April 2015.
From a protection perspective the focus has been on working
with a leaner product range while making enhancements to
operations and servicing in this business unit. This sees LV=
majoring on its income protection proposition which was
added to in May 2014 with the launch of a Personal Sick Pay
IP policy.
LV= also remains committed to its with profits proposition
and has experienced an increase in interest for this, primarily
through its investment bond wrapper.
LV= has an equity release proposition within its product
portfolio which means that it can also target the use of housing
equity in retirement.
Products Currently Marketed
Investment Products
Regular Savings Plans
Unitised With Profits Bond
Protection Products
Flexible Protection Plan, incorporating:
- Critical Illness
- Income Protection
- Mortgage Protection
- Mortgage Payment Protection
- Term Assurance (inc. index linked term)
Family Income Assurance
Whole of Life Plans (including Guaranteed Acceptance)
Mortgage & Lifestyle Protection
Gift Inter Vivos
Pension Products
Personal Pensions
SIPPS (incl Drawdown)
With Profits Pension Annuity (incl. Enhanced)
Enhanced Annuity
Discretionary Personal Pensions (incl. Drawdown)
Deferred Annuity Plan
Trustee Investment Plan
Fixed Term Annuity
Product Awards and Benchmarks
LV= Retirement Solutions received the Gold Standard for
Individual Pensions and Retirement at the 2014 Gold Standard
Awards.
Page 8© AKG Financial Analytics Ltd 6 November 2015
LV=
Service �����
Approach
LV= states that one of its core aims is to deliver a strong and
reliable service proposition to clients and advisers.
e-Business
From a new business perspective advisers can produce quotes
and apply for a range of LV= products online at LV='s
Adviser Centre. Advisers can also access a suitability letter
builder for a range of LV= products. From an existing
business perspective advisers can carry out servicing activities
including accessing daily fund prices and product valuations
online.
LV= has worked on integration of its products from a quote,
apply and valuation perspective with back office systems
providers and quotation portals. It has back office systems
links in place with suppliers including IRESS Adviser Office,
Best Practice, Intelliflo, Plum Software and True Potential,
and portal links in place with suppliers including iPipeline,
Lifequote, Webline, TOMAS and Annuity Exchange.
LV= has invested in the development of a suite of retirement
income planning tools and services to work alongside its range
of pension products. These are designed to support the
advisers planning discussions with clients and to structure and
consolidate their servicing of retirement income business. The
LV= Retirement Pathfinder is a provider neutral retirement
scenario modelling tool. The LV= Retirement View is an
online service that supports LV='s new Retirement Account
proposition.
In the protection area LV= continues to try and create
operation and service efficiencies in a bid to increase the rate
of straight through processing. There has also been an
emphasis on developing the LV= front end systems and the
capability of the underwriting engine. The overarching aim
here is to make LV= easier to do business with. There is also
a range of online protection related tools available to advisers
including Trustbuilder, Relevant Life Calculator, Inheritance
Tax Calculator and Income Shortfall Calculator.
Service Standards & Awards
LV= received 5 Star 2014 Financial Adviser Service Awards
in both the Life & Pensions and Investments categories. In
2014 LV= won the Investment Life and Pensions Moneyfacts
Award for Service Beyond the Call of Duty. At the
Moneywise Customer Services Awards 2014 LV= won the
award for Most Trusted Insurer.
Outsourcing
In January 2004, the Society concluded a long term contract
with EDS Ltd to outsource the administration of its life
business, whilst retaining all customer contact. This business
was brought back in-house in 2007/8 in line with the Society's
views on service. Some administration of investment
products is outsourced to Outsourced Professional
Administration Limited (OPAL).
Investment
Overall Approach
A fundamental reappraisal of the group's strategy saw it
outsource the investment management function in 2011. The
mandate was awarded to Columbia Threadneedle Investments,
with the transfer of fund management completed during the
final quarter of 2011. LV= has put in place a governance
process to oversee the arrangement, including designing and
implementing asset allocations to reflect the risk tolerances
with the strategic business units, setting benchmarks and
monitoring performance. SLAs have been established and are
reviewed at the monthly Client Relationship Meeting. The
main With Profits Fund earned 11.4% in 2014 [2013: 11.1%].
Funds Under Management
The Group had total assets of £14.0bn at 31 December 2014,
up 13% [2013: £12.4bn]. Columbia Threadneedle
Investments had funds under management of £320.2bn at 30
June 2015. Teachers Assurance has funds under management
of around £1bn.
����Annual Review
2014 saw LV= make some good progress against the
background of a difficult year. The impact of the Budget
announcements meant that as well as a challenge for its
decumulation proposition, LV= was able to take something of
a front foot approach to meeting evolving customer needs. It
reacted quickly, extending its cancellation and guarantee
periods and launching a one year fixed term annuity. Other
developments included the launch of LV= Retirement Wizard,
the Retirement Account and Personal Sick Pay.
New business levels increased overall, reduced enhanced
annuities sales being more than offset by better performance in
other business lines, particularly equity release and protection,
with the latter benefitting from new product development in
the second half of 2014.
Group operating profit reduced by 18% to £86m contributing
to a reduced profit before tax and mutual bonus of £37m
[2013: £156m]. Operating profit for the general insurance
business was strong increasing from £81m to £92m. The life
business saw a £29m decrease in operating profit to a loss of
£11m, primarily due to the impact of the Budget on volumes
and margins for enhanced annuities, together with an adverse
impact from assumption changes. Operating profit in the
heritage business reduced to £13m [2013: £18m] reflecting the
lower impact from favourable model and valuation changes of
£12m [2013: £21m]. Solvency ratios, boosted significantly in
2013 by the subordinated debt issue, reduced but remained
reasonable. LV= had £1.3bn of capital resources as at 31
December 2014. The number of members and customers
increased from 5.5 to 5.7 million. Teachers Assurance has
around 70,000 members.
LV Equity Release Ltd reported a pre-tax profit of £10.1m
[2013: loss of £5.7m, primarily as a result of de-risking loan
restructuring]. No dividend was paid [2013: £nil].
Having announced the re-introduction of its Mutual Bonus
scheme in 2011, the group made increased payments of
£23.9m [2013: £21.9m] giving a total of £86m since its
introduction.
Page 9© AKG Financial Analytics Ltd 6 November 2015
Guide to AKG Ratings
Financial Strength Ratings - Introduction
The aim of AKG’s financial strength ratings is to assist advisers and others to assess the relative strengths of individual provider
companies. AKG’s concept of ‘financial strength’ starts with the fundamental issue of a company’s ability to meet all of its
guaranteed payments to policyholders, but extends beyond this by aiming to factor in the degree to which a policyholder’s
expectations are likely to be met - or even exceeded - in the long-term. For performance-related products, where the eventual
return generally depends largely upon a company’s success in consistently delivering superior investment performance, and in
containing expense charges, a company’s ability to meet expectations is likely to be heavily dependent upon whether or not it is
able to sustain its operations in the relevant market, and whether or not it can maintain, or improve, its competitive position.
As a result, AKG believes that, ideally, the evaluation of ‘financial strength’ should depend upon the type of product under
consideration. A particular company may be judged as very strong in the context of one particular product line, but it may be
weaker in another context. An illustration of this concept is a company that currently only markets unit linked business, but
which has a very small closed block of with profits business, written many years ago. Such a company may be judged as ‘good’
for unit linked business, whilst considered ‘poor’ in respect of with profits business.
Since the inception of AKG’s Company Profiles and Financial Strength Reports, AKG has consistently promoted and developed
the concept of providing financial strength ratings separately for each of the three major product categories - With Profits, Non
Profit and Unit Linked.
All AKG’s financial strength ratings should be used with care, since even the more detailed approach described above
represents something of a simplification. To illustrate this point, for example, the 'Non Profit' category covers a multiplicity of
different products. It is clear that slightly different criteria should be used for, say, short-term policies with fully guaranteed
terms (e.g. Guaranteed Bonds), than for longer-term policies with terms that can be varied at the company's discretion (e.g.
Renewable or Reviewable Term).
AKG assesses financial strength using consistent methodology and objective measures wherever possible, and based on the
detailed analysis of the company’s particular strengths and weaknesses. The objectives and criteria for each of the financial
strength ratings are summarised below:
With Profits Financial Strength Rating
The objective is to assess the overall strength of the company’s with profits funds. The initial concern is
the company's ability to meet its ongoing guaranteed, or promised, commitments, i.e. existing sum assured
and bonuses. However, the company's ability to continue to compete successfully in the with profits market
is also particularly relevant, given that closed funds are sometimes bad news for policyholders. In such
situations, overall expenses tend to increase as a proportion of the fund and investment performance may
well deteriorate. These, together with other factors, may make it difficult for companies in such situations
to maintain competitive bonus rates at future declarations, although existing declared bonuses are not
affected (other than possibly by MVRs).
The main criteria taken into account are: capital base and free asset position, with profits realistic balance
sheet position, the amount of with profits business in-force, parental strength (and likely attitude towards
supporting the company), and image and strategy.
NOTE: More detailed analysis of with profits companies is included in AKG’s UK Life Office With Profits
Report.
�
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
Non Profit Financial Strength Rating
The objective is to assess the company's ability to meet all guaranteed payments arising from such
contracts as term plans, annuities etc.
The main criteria taken into account are: free assets, structure (and size) of funds within the company,
parental strength (and likely attitude towards supporting the company), and image and strategy.
�
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
© AKG Financial Analytics Ltd 6 November 2015
Guide to AKG Ratings
Unit Linked Financial Strength Rating
Whilst this is essentially a non profit line, and the primary objective is to assess the company's ability to
meet all guaranteed payments arising, AKG also seeks to take into account the extent to which the
company is likely to be able to sustain its unit linked operations, and whether or not it is likely to be able to
maintain, or improve, its competitive position. Thus strategic issues are also relevant, because of their
bearing on the quality of investment management offered, and because of companies' rights to increase
charges etc.
The main criteria taken into account are: free assets, structure (and size) of funds within the company,
parental strength (and likely attitude towards supporting the company), typical fund performance
achievements, and image and strategy.
�
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
Overall Financial Strength Rating
The objective is to provide a simple broad-brush indication of the general financial strength of a company.
In addition to an assessment of the company’s ability to meet all of its guaranteed payments to
policyholders, AKG also aims to factor in the degree to which policyholders’ expectations are likely to be
met - or even exceeded - in the long-term. This involves an assessment of a company’s ability to survive in
its current form for the long term. The overall rating inherently reflects the mix of business in-force within
the company, since different types of policyholder have different expectations, and the company’s
particular strengths and weaknesses in respect of its key product areas.
The rating takes into account those of the following criteria which are relevant (depending upon the
company's mix of business in-force): capital base and free asset position, with profits realistic balance sheet
position, structure (and size) of funds within the company, parental strength (and likely attitude towards
supporting the company), typical fund performance achievements, and image and strategy.
Superior
Very strong
Strong
Satisfactory
Weak
Very Weak
A
B+
B
B-
C
D
Supporting Ratings - Introduction
Supporting ratings are provided only in full reports, and are assessed at the brand level. AKG assesses three key supporting
areas, using consistent methodology and objective measures wherever possible. The aim is to assist advisers and others to
consider the relative merits of the brands that they deal with. AKG's objectives and criteria for each of these ratings are
summarised below:
Service Rating
The objective is to assess the quality of the organisation's service to the intermediary market in respect of
the brand concerned.
Criteria taken into account include: performance in surveys, awards and benchmarking exercises (external
and internal), the organisation's philosophy, service charters, the extent of investments designed to improve
service, and feedback from intermediaries.�
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
Image and Strategy Rating
The objective is to assess the effectiveness of the means by which the organisation currently positions itself
to distribute its products for the brand concerned and the plans it has to maintain and/or develop its
position.
Criteria taken into account include: overall trends in the company’s market share position, brand visibility
and reputation, feedback from intermediaries and industry commentators, and AKG’s view of the
company’s general strategy.�
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
Annual Review Rating
This is an end of year view for the last year for which Report and Accounts, returns to the PRA, etc., are
available, together with comment on any significant post-balance sheet events. It is an assessment of how
the brand has fared against its peers, and how it is perceived externally.
Criteria taken into account include: increase/decrease in market shares, expense containment, publicity -
good or bad, press or market commentary, regulatory fines, and competitive position. �
�����
����
���
��
�
Not rated
Poor
Adequate
Good
Very good
Excellent
© AKG Financial Analytics Ltd 6 November 2015
AKG Financial Analytics Ltd
Anderton House, 92 South Street
Dorking, Surrey RH4 2EW
Tel No: +44 (0) 1306 876439
Fax No: +44 (0) 1306 885325
e-mail: akg@akg.co.uk
www.akg.co.uk
AKG is an independent organisation specialising in the provision of assessment, ratings, information and
consultancy to the financial services industry
© AKG Financial Analytics Ltd 2015
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