company profile & financial strength report · 06-11-2015 · akg's company profile &...

ISSUED6 November 2015

LV=

Introduction

Background

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Regular Reports

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© AKG Financial Analytics Ltd (AKG) 2015

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© 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


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.



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



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.



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





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.



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


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


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.


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





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


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


Overseas

UK Pensions

UK Life

Growth Rate

000Reins Accepted (Intra-Group)


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.


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.


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


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

Anderton House, 92 South Street

Dorking, Surrey RH4 2EW

Tel No: +44 (0) 1306 876439

Fax No: +44 (0) 1306 885325

e-mail: [email protected]

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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