2013 Full Year Results 19 March 2014 Agenda 1 Introduction Steve - - PowerPoint PPT Presentation

2013 Full Year Results

19 March 2014

Agenda

1

Introduction Steve Groves, CEO Financial Results David Richardson, CFO 2014 and beyond Steve Groves, CEO Q & A

2

Introduction

Summary performance in 2013

3

Outperformed in a disrupted market

• PA Sales down 3% at

£1,229m

• NSA market down 18%

Focus on pricing discipline

• Trade off between sales and

profits

Continue to execute

• ur strategy
• Leverage IP
• Expand customer access
• Operating profits £131m,

+17%

• New Business margin 7.0%
• Economic capital up to

159%

• Maiden dividend of 3.0pps

The UK Annuity Market in 2013

4

Source: ABI market data

908 986 1,099 1,254 917 837 862 849 2,187 2,405 2,565 2,633 2,298 2,238 2,060 1,827 3,095 3,391 3,664 3,887 3,215 3,075 2,922 2,676 Q1 - 12 Q2 - 12 Q3 - 12 Q4 - 12 Q1 - 13 Q2 - 13 Q3 - 13 Q4 - 13

Total UK Annuity Sales (£’m)

External NSA market Other annuity sales 40% 45% 50% 55% 60% 65% Q1 - 12 Q2 - 12 Q3 - 12 Q4 - 12 Q1 - 13 Q2 - 13 Q3 - 13 Q4 -13

OMO & Non-Standard Proportions

OMO proportion of total annuity sales Non-standard proportion of total OMO sales

2013 total annuity sales down 2013 External Non-Standard annuity sales down 18% Market declined quarter on quarter in 2013 OMO proportion fell in H1 2013 but began to recover in H2: evidence that advice gap is being filled NSA OMO penetration showing steady progression

Our strategy remains consistent

5

• Major enhancement to longevity basis delivered during year
• Continuous development of proprietary IP delivering improved pricing

and risk selection

Leverage Intellectual property

• Improvements to automated underwriting system enabling greater

access for web-based specialists

• Development of DB scheme proposition to extend coverage

Increase Customer Access

• Disciplined capital allocation and improved margin
• Equity release bulk transactions of £287m at attractive risk adjusted

yields

• Continue to expand asset class universe

Improve shareholder returns

6

Financial performance

2013 2012 Change (%) SPE (£’m) New Business Premiums 1,229 1,265

• 3%

IFRS (£’m) New Business Operating Profit 85.7 93.9

• 9%

In-force Operating Profit 34.3 14.3 +140% Return on Surplus Assets 11.4 4.0 +185% Total Operating Profit 131.4 112.1 +17% Proposed dividend (pence per share) 3.0

• 31 Dec 13

31 Dec 12 Capital (%) Economic Capital Ratio 159% 151%* AUM (£’bn) Total Assets Under Management 4.1 3.3 +24%

Financial highlights

* Pro-forma basis adjusting for capital raised as part of IPO

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New Business Premiums

• Total retirement sales flat year on

year

– 2012 comparative significantly boosted by regulatory change – Established market leading position in underwritten DB de-risking market

• Care premiums down 30%

– Improvement since half year – Market remains slow £’m 2013 2012 Change (%) Retirement (ex. DB) 1,076 1,168

• 8%

Retirement DB 84

• n.m.

Total Retirement 1,160 1,168

• 1%

Care 66 94

• 30%

Protection 3 3

• Total New Business

1,229 1,265

• 3%

124 218 318 418 589 888 1,264 1,229

2006 2007 2008 2009 2010 2011 2012 2013 Partnership’s total New Business Premiums £’m

8

Retirement Annuity premiums

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Source: ABI market data; Partnership sales

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% Q1 Q2 Q3 Q4 Partnership Enhanced Annuity Market

2013 year-on-year growth rates (excluding DB Bulk sales)

Share of external NSA market over 2013 31% (2012: 27%) Partnership’s share (excluding bulk DB) unusually high in Q1 2013, but Q2-Q4 normalised PA outperformed market in Q1 to Q3 Returns failed to meet Partnership’s criteria at times during Q4

0% 10% 20% 30% 40% 50% 100 200 300 400 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 PA (ex DB) PA DB PA Share

£’million

5 10 15 20 25 30 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13

£’million

Care Annuity premiums

10

Signs that Care market is improving, but fragile

Total Operating Expenses1

• Disciplined management of expense base
• Full annualised impact of Plc costs to come

through in 2014 (c. £4m additional)

• Operating leverage set to return in 2015 and

beyond 42.4 67.5 83.9

8 15 23 30 38 45 53 60 68 75 83 90 2011 2012 2013

£’m 29.0 38.5 40.5 43.4

+33% +5% +7% 5 10 15 20 25 30 35 40 45 50 H1-12 H2-12 H1-13 H2-13

Operating expense development

£’m

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1 Operating expenses exclude non-recurring expenditure

New Business Operating Profit

• Maintained pricing discipline

– Ongoing development of IP to sustain this

• H2 margin 8% compared to 6% in H1

– Targeted risk selection enabled by IP – Yield benefit from attractive ER investments

74.0 93.9 85.7

20 40 60 80 100 120 2011 2012 2013 8.3% 7.4% 7.0%

£’m

New Business Operating Profit as a proportion of New Business Premiums 44.8 49.1 38.2 47.5 10 20 30 40 50 60 H1-12 H2-12 H1-13 H2-13

New Business Operating Profit development

7.9% 7.0% 6.0% 8.0%

£’m

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In-Force Operating Profit

• Underlying performance1 as expected

– No significant experience variances – Narrowing credit spreads reduced underlying profit in H2

• Remainder of in-force driven by realised expense

savings:

– transfer of re-insured block onto in-house admin system – passed ratchet point in TPA agreement – new custodian agreement

4.3 11.4 13.3

• 2.4

2.9 21.0 1.9 14.3 34.3

• 5

5 10 15 20 25 30 35 40 2011 2012 2013

Underlying performance Assumption & other changes £’m

4.4 7 7.4 5.9

• 5.8

8.7 10.6 10.4

• 1.4

15.7 18 16.3

• 10
• 5

5 10 15 20 H1-12 H2-12 H1-13 H2-13

In-force Operating Profit development £’m

13

1 Underlying performance represents planned surplus emerging and experience variance against best estimate

assumptions.

Return On Surplus Assets

• Return has grown as a result of growth in

level of surplus assets and higher yield

– 2013 surplus assets on average approximately double the value in 2012 – Surplus cash largely invested in gilts and credit, attracting higher yield

• Expect yield to stabilise at c. 3% in 2014

2.8 4.0 11.4

1 2 3 4 5 6 7 8 9 10 11 12 13 2011 2012 2013 3.3% 2.3% 3.1%

£’m

Yield on surplus assets

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Profit components below Operating Profit

£’m 2013 2012 Change (%)

Operating Profit 131.4 112.1 17.2% Investment Variance 8.7 (3.3)

• Narrowing spreads on corporate bonds resulted in

positive variance Other Items (32.0) (6.9)

• Primarily relate to expenses associated with IPO
• Investment in systems and process, including to

support Solvency II compliance, continues PBIT 108.1 101.9 7.3% Interest Expense (25.4) (34.4)

• All debt paid down in August 2013 post IPO

IFRS PBT 82.7 67.5 24.1%

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Capital position

£’m 31 Dec 13 31 Dec 121 Economic Capital: Available 467 381 Required 294 252 Surplus 173 129 Coverage Ratio 159% 151% IGD: Available 469 352 Required 193 163 Surplus 276 189 Coverage Ratio 243% 216%

1 31 December 2012 capital position is pro-forma, reflecting the benefit of additional capital raised during the IPO.

Economic Capital Ratio Sensitivities

Year ended 31 December 2013

159%

• Credit spread widening:
• 100 bps

157%

• 200 bps

153%

• Eurozone crisis

151%

• Lehman crisis

145%

• Longevity - 5% deterioration

152%

• Property - 10% price fall from carrying

value (equivalent to 30% fall from current market price)

151%

Sensitivities demonstrate continued robust capital position

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• The Board has adopted a progressive dividend policy
• Recommended final dividend for 2013 of 3.0 pence per share
• Approximately 1/3 : 2/3 split for interim and final dividends

Dividends

17

• Market share gains in Q1-Q3
• Lead the development of the emerging underwritten DB market
• Partnership retirement sales in 2013 broadly flat, compared to

18% fall in external NSA market

Outperformed in a disrupted market

• Ongoing IP advantage allows selection of better margin business
• Controlling expenses
• Deploying operational spare capacity to maximise in-force profits

and prepare for future growth

Focus on pricing discipline and return on capital

• Subdued start to retirement annuity market in 2014
• Expect total Q1 sales to be lower than Q4 2013
• Focus continues to be on segments of the market offering the

best returns

• Underwritten DB activity is encouraging

Current trading

Summary

18

19

2014 and beyond

Delivering our strategy in 2014

20

• Expanding the underwritten DB proposition
• Developing international options

Leverage Intellectual Property

• FCA annuity review a positive development

Increase Customer Access

• Maintaining pricing discipline
• New asset classes

Improve Shareholder Returns

Well positioned to capitalise on market recovery

Retirement market: FCA’s thematic review

21

• Annuity market not working for some

consumers

• Virtually no market whatsoever for

people with smaller pension pots

• Significant barriers preventing

consumers from shopping around

• For enhanced annuitants, 91% could be

better off by an average of 8.3%

• Results of the study show that all

annuities sold to existing customers are expected to be more profitable to insurers than those sold in the open market

• Source: ABI data

0% 20% 40% 60% 80% 100% 2007 2008 2009 2010 2011 2012 2013

Internal vesting

NSA Standard

• Penetration of NSAs for internal

vesting remains below 10% in 2013

• Penetration in the external

market is >50%

• Opportunity for Partnership to

benefit those not shopping around is significant

Retirement market: strong growth prospects

22

• Challenging start to 2014
• Predicting the market in the short term

is difficult

– in recent weeks, there are signs that market activity has been improving – but it is too early to confirm that this will translate into higher sales in Q2

• Regulatory backdrop improving

– the disruption from Gender and RDR receding – FCA thematic review a positive step

• Underwritten DB de-risking opportunity

an additional source of future growth

• All drivers remain in place

– switch from DB to DC – increasing average DC pension funds – ageing population – regulatory drive for shopping around – political drive for increased pension savings

Near term Medium term

Our superior IP, disciplined approach to pricing and risk selection, and investment in our

• perations position Partnership well to capture a share of the growth to come

23

Q & A

24

Appendix

Market Consistent Embedded Value

• New Business earnings 8.2% of premiums, up from

7.5% at the half year (2012: 9.2%)

• Earnings from in-force book reflect increased size of

in-force book, offset by a reduction in the opening expected returns

• Experience variances are not material, with no

significant variances at individual component level

• The positive assumption change results from the

realised expense savings on the in-force book

• Other operating earnings primarily relate to earnings
• n surplus assets
• 2012 earnings increased by impact of re-

insurance recapture and inwards re-insurance

• f a material block of annuities from a third

party

• Non-operating earnings made up of:
• Economic variances
• Non-recurring expenditure

£’m 2013 2012 MCEV Earnings Gross of Tax New Business 100.5 116.7 In-force 9.5 7.2 Experience Variances (0.4) (0.3) Assumption Change 11.1 (0.9) Other Operating 9.9 24.5 Operating MCEV Earnings 130.6 147.2 Non-Operating (2.7) (7.2) MCEV Earnings (covered business) 127.9 140.0 31 Dec 13 31 Dec 121 Total MCEV 519.6 416.6

1 31 Dec 12 MCEV balance shown is pro-forma, allowing for impact of IPO

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Asset position at 31 December

AAA 15% AA 7% A 29% BBB 26% CTF 0% Equity Release 21% Cash 2%

31-Dec-13

AAA 19% AA 7% A 32% BBB 23% Below BBB 0% Equity Release 14% Cash 5%

31-Dec-12

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