DELIVERING ON OUR STRATEGY.
TIM BREEDON
GROUP CHIEF EXECUTIVE
We are successfully executing our strategy of growing the business, controlling operational costs and deploying our capital more effectively. Our results for 2010 demonstrate that we are able to deliver both improvements in cash generation and growth in sales. The Group achieved £728m of net cash generation in 2010, above that delivered in 2009 (£699m) and well ahead of the target set for the year. Meanwhile, worldwide sales of £1.8bn exceeded the figure achieved last year by 28%.
In Risk, we broadened our reach with several new or extended distribution partnerships for our protection and annuity products. We have also increased levels of direct sales and seen an increase in our market share of intermediated mortgage distribution. Our expertise in pricing and underwriting has enabled further growth in the scale and profitability of this business.
We have built a modern Savings business with a lower structural cost base. Increasing numbers of customers are placing their savings with Legal & General for increasing periods of time. As assets under administration grow, the business is also driving margin improvements.
WORLDWIDE SALES (APE)
£1.8bn
(2009: £1.4bn)
Legal & General Investment Management (LGIM) has grown to be amongst the top 30 fund management groups in the world measured by assets under management.
LGIM’s strategy is to build on its position as the largest manager of assets for UK pension funds and grow its low cost, high service, low investment risk model into other markets with successes already in the US, the Middle East and mainland Europe.
Our International businesses delivered more cash to the Group through increased dividends, and we made changes in the US to deploy capital more effectively through the execution of the first phase of our US capital management programme. Our joint venture in India is progressing well.
Our diversified distribution platform continues to thrive. Only 39% of UK new business was written through retail Independent Financial Advisers (IFAs) and within that segment we are increasing our focus on IFAs who have evolved their model to maximise the opportunities offered by the FSA Retail Distribution Review (RDR).
Bancassurance partners delivered 24% of new business in the UK where we continue to build relationships across the banking sector. Fee-based employee benefit consultants provided 32% of new business in the period and tied and direct distribution accounted for 5% of sales. Our distribution model remains well diversified and is a source of strength and differentiation for the Group.
BALANCE SHEET AND CAPITAL
FINAL DIVIDEND PAYABLE
£201m
(2009: £160m)
The Group continues to benefit from a robust balance sheet. The estimated Insurance Groups Directive (IGD) capital surplus increased to £3.7bn from £3.1bn after accrual of £201m for the 2010 final dividend. This increase was primarily due to net cash generated of £0.7bn coupled with the IGD benefit of the US capital management programme which amounted to £0.1bn. The IGD coverage ratio stood at 226% at the end of 2010 (2009: 224%).
REGULATORY CHANGES
By the end of next year, UK insurers will need to be ready for a new European capital regime under Solvency II. This will deliver a dramatically altered regulatory capital approach in the UK and Europe. The late delivery of the new regulations, and the lack of clarity surrounding them, will present the UK insurance industry with considerable challenges and we remain closely engaged with this process.
The introduction of automatic enrolment into pension schemes and the removal of the compulsion for individuals to annuitise at age 75 will significantly change the pensions landscape in the UK.
Additionally, the radical reform to the way people buy financial advice following the RDR will go live in the UK in 2012. Customers should benefit from improved transparency on charges and increased adviser professionalism.
The Court of Justice of the European Union has reached a decision that taking gender into account when assessing risk will be unlawful with effect from 21 December 2012.
We disagree with this ruling. We believe gender is an important factor in underwriting and in ensuring our products deliver the correct, risk-based pricing. However, we will do all we can to minimise the impact of this ruling on our business, and our customers.
MY ROLE AS CHAIRMAN OF THE ASSOCIATION OF BRITISH INSURERS (ABI)
In July 2010 I was asked to become ABI Chairman, having been a member of the Board since July 2007. Insurance is already at the heart of a successful and well-functioning society but there is much more our sector can do to assist individuals, families and businesses and to support the economic recovery.
During my term of office I aim to work with the ABI Board to ensure effective and workable regulation in the UK and Europe; to increase the trust of consumers in our industry and ensure wide availability of reliable products that meet the real needs of customers at a price they can afford; to protect and promote the competitiveness of the UK insurance industry and prove that the industry can develop workable and publicly desirable outcomes to build a stronger, more resilient society.
OUTLOOK
As a market leading manufacturer of risk, savings, and investment management products we see strong growth opportunities for the Group in 2011 and beyond.
In the UK, a combination of state retrenchment, an ageing population, increased household saving and continued de-risking activity by pension trustees will drive growth across protection, annuities, savings and LGIM. Overseas, we see opportunities to export our bancassurance based savings model into other emerging markets.
TIM BREEDON
GROUP CHIEF EXECUTIVE