Review of Results 2010
LTS AOP earnings benefited from higher fees generated from
positive net client cash flows particularly in Wealth Management,
rising funds under management and the strengthening of the rand and
Swedish krona against sterling. On a constant currency basis,
earnings were up 26%.
The Emerging Markets business accounts for 60% of the LTS IFRS
AOP earnings, 43% of LTS FUM, and 33% of LTS APE sales. This
compares to 70% of restated AOP, 41% of FUM, and 30% of APE sales
in 2009.
APE sales increased by 14% for the LTS division as a whole, with
the growth coming largely from the regular premium products in the
Retail businesses of Emerging Markets, and Wealth Management single
premium products, notably in the UK and Italy. A managed shift in
business mix in Nordic was executed with sales decreasing from
prior year levels. There was encouraging growth in both single and
recurring premiums in Retail Europe. Sales for the second half of
2010 were ahead of the first half for Emerging Markets and Retail
Europe, and evenly spread across the year in Nordic. Wealth
Management sales were slightly higher in the first half of the year
than the second given the usual seasonal weighting to the first
quarter of the year, and the benefit of the shortterm Italian tax
shield.
Mutual fund sales were up by £2,387 million, with strong
performance in Wealth Management and Emerging Markets particularly
in the second half of the year.
Long-Term Savings
| |
|
|
|
|
£m |
| 2010 |
Emerging Markets |
Nordic |
Retail Europe |
Wealth Management |
Total |
| Life assurance sales (APE) |
487 |
201 |
69 |
734 |
1,491 |
| PVNBP |
3,269 |
1,104 |
513 |
6,380 |
11,266 |
| Value of new business |
86 |
41 |
7 |
66 |
200 |
| Unit trust/mutual fund sales |
3,668 |
581 |
23 |
4,507 |
8,779 |
| NCCF (£bn) |
- |
0.7 |
0.4 |
3.9 |
5.0 |
| FUM (£bn) |
57 |
14 |
5 |
56 |
132 |
| Adjusted operating profit (IFRS basis,
pre-tax) |
539 |
110 |
51 |
197 |
897 |
| Operating MCEV earnings (covered
business, post-tax) |
344 |
45 |
66 |
112 |
567 |
| (VNB + Exp Var)/MCEV (covered
business) |
4.7% |
4.7% |
2.2% |
3.1% |
4.1% |
| |
|
|
|
|
£m |
| 2009 (as reported1) |
Emerging Markets |
Nordic |
Retail Europe |
Wealth Management |
Total |
| Life assurance sales (APE) |
393 |
235 |
67 |
617 |
1,312 |
| PVNBP |
2,834 |
1,150 |
537 |
5,042 |
9,563 |
| Value of new business |
65 |
44 |
(5) |
49 |
153 |
| Unit trust/mutual fund sales |
2,765 |
393 |
24 |
3,210 |
6,392 |
| NCCF (£bn) |
(1.6) |
1.0 |
0.5 |
2.5 |
2.4 |
| FUM (£bn) |
44 |
11 |
4 |
47 |
106 |
| Adjusted operating profit (IFRS basis,
pre-tax) |
446 |
62 |
22 |
106 |
636 |
| Operating MCEV earnings (covered
business, post-tax) |
212 |
81 |
(44) |
(4) |
245 |
| (VNB + Exp Var)/MCEV (covered
business) |
0.5% |
7.5% |
(5.1%) |
0.6% |
1.3% |
Across LTS as a whole, new business APE margins improved to 13%
for 2010 (2009: 12%). This reflects the focus on selling more
profitable products with better margins, notably in Nordic, and
increased sales of a higher margin product in the first half of the
year in Emerging Markets. The APE margin in Emerging Markets
increased from 16% to 18%. In Nordic, the APE margin has increased
from 19% to 21%, benefiting from the managed reduction of low
margin product sales such as Link regular. In Retail Europe, the
APE margin has improved considerably to 11% from a negative
position in the comparative period. Across Wealth Management, the
APE margin increased from 8% to 9%, with the UK increasing from 2%
to 3%, and International from 18% to 19%. The most significant
increase in APE margin was in respect of the Continental European
markets, which increased from 3% to 8% as result of the increase in
volumes in Italy. Sales of mutual funds, which make up the bulk of
Wealth Management's sales, are not included in the APE margin. The
IFRS operating margin rose to 38bps from 25bps for Wealth
Management as a whole. For LTS as a whole the PVNBP margin improved
to 1.8% (2009: 1.6%).
The market-consistent value of new business (VNB) improved for
all of our LTS businesses, with the exception of Nordic, where
although the underlying margins of the business improved, the
absolute value of new business fell as a result of the decline in
new business volumes (due to the cessation of sales of an
unprofitable recurring premium product) and changes in
assumptions.
The LTS net client cash flows more than doubled as improvements
in Wealth Management and Emerging Markets more than outweighed the
lower net flows in Nordic given lower sales volumes. Funds under
management for LTS at 31 December 2010 increased by 25% to £131.8
billion (31 December 2009: £105.5 billion) although there were
periods of substantial market movements during the year, with
notable falls in the second quarter and increases towards the end
of the year.
The rand started the year at 11.92 against sterling,
strengthening to 11.45 at 30 June 2010, and to 10.28 by 31 December
2010. The US dollar and Swedish krona also strengthened, although
to a lesser degree, appreciating 4% and 10% respectively in the
year. The average exchange rates to sterling over the year were
11.31 (2009: 13.17), 1.55 (2009: 1.57) and 11.14 (2009: 11.97) for
the rand, US dollar and Swedish krona respectively. The cumulative
effect of foreign exchange movements for LTS was an increase of £77
million on IFRS profitability.
