Partnership Assurance Group plc Interim Results Presentation 2013 29 August 2013
Agenda 1 Introduction Steve Groves, Chief Executive Officer Financial Review David Richardson , Chief Financial Officer Business Outlook Steve Groves , Chief Executive Officer Q&A August 13
Introduction Steve Groves, Chief Executive 2 August 13
H1 2013 Highlights 3 • Delivered a successful IPO Retirement Sales £m • H1 Retirement Sales of £601m, up 16% versus a market decline of 9% 1 +16% 601.5 518.3 • Total New Business Premiums of £631m, up 12% • H1 Operating Profit of £59.3m, up 31% H1 2012 H1 2013 • Pricing discipline maintained: margins (pre-expenses) on Operating Profit £m target • Strong capital position: 150% Economic Capital Ratio +31% 59.3 • On track to meet full year operating profit expectations 45.4 H1 2012 H1 2013 Successful first half performance with sales well ahead of the market 1 Towers Watson Enhanced Annuity Survey, based on external enhanced annuity sales from 9 offices August 13
The At-Retirement Market 4 • Long term drivers of growth remain firmly in place Short term volatility: • Market sales of enhanced annuities (external) £m Sales of enhanced annuities impacted by short term 1,400 disruption in H1 2013 1,200 1,000 − Gender Directive accelerated activity into Q4/12 ahead of 800 600 implementation 400 Also boosted sales volumes in Q1/13 for Partnership 200 0 − Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Impact of RDR on advised sales 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 Source: Towers Watson Enhanced Annuity Survey Annuity sales process changed – charging structures (external enhanced annuity sales from 9 offices) taken a while to bed down Long term growth: Structural growth of UK Annuity Market £bn The more complex the sales process, the bigger the 25 impact 20 • Lead indicators suggest return to normal market activity 15 12.9 − Q3 quote activity to date in line with expected levels for this 10 9.5 time of year 8.8 5 8.1 • 4.5 ABI Code and FCA review of annuity pricing underpin long 0.8 0 term growth drivers 2006 2012 2016 Enhanced Standard Source: ABI data; Oliver Wyman research August 13
Financial Review David Richardson, Chief Financial Officer 5 August 13
Strong outperformance NBOP fall due to higher against market Financial Highlights 6 planned expenses in H1 13 & fall in Care volumes H1 13 H1 12 Change (%) SPE (£’m) New Business Premiums 631 565 +12% IFRS (£’m) New Business Operating Profit 38.2 44.8 -15% In-force Operating Profit 18.0 (1.4) NM Return on Surplus Assets 3.1 2.0 +55% Total Operating Profit 59.3 45.4 +31% Economies of scale from in-force business 30 Jun 13 31 Dec 12 Capital (%) Economic Capital Ratio 150% 151%* AUM (£’bn) Total Assets Under Management 3.7 3.3 +13% Robust capital position * Pro-forma basis adjusting for capital raised as part of IPO August 13
New Business Premiums 7 • Retirement premiums up 16% £m H1 13 H1 12 Change (%) − Sales growth ahead of market Retirement 601.5 518.3 +16% − Completed four buy-in/out DB transactions Care 28.1 45.5 -38% Protection 1.8 1.6 +13% • Care premiums down 38% − RDR and Government “cap” proposals Total 631.4 565.4 +12% impacted sales − Improving outlook for quote activity in H2 but Premium Split (SPE) H1 2013 lead times are typically 6 months Protection 0.3% Care • Total new business premiums up 12% 4.4% Retirement 95.3% August 13
Total Operating Expenses 1 8 • £’m Expenses developing as expected 45 5.1% 5.5% 6.4% • Vast majority allocated to new business (excluding non-recurring expenditure) 38 • Expenses for H1 2013 reflect continuation of investment made in second half 2012 30 – Staff costs reflecting increased investment for future growth – Investment in marketing & distribution 23 agreements 40.5 38.5 • Impact on overheads from Plc requirements 15 29.0 c. £5 m per annum to emerge in second half • Operating leverage expected over medium 8 term (2015 and beyond) 0 H1 2012 H2 2012 H1 2013 Total Operating Expenses as a proportion of New Business Premiums 1 Operating expenses exclude non-recurring expenditure August 13
New Business Operating Profit 9 £’m • Maintained pricing discipline – margins pre- 60 7.9% 7.0% expenses in line with expectations 6.0% 50 • As budgeted, margin impacted by increased overheads in H2 2012 and 2013 40 – Business geared up for new phase of growth 30 49.1 • Margin of 6% for H1 2013 also impacted by 44.8 seasonality of sales 20 38.2 – Margin expected to increase in H2 as volumes increase 10 0 H1 2012 H2 2012 H1 2013 New Business Operating Profit as a proportion of New Business Premiums August 13
In-Force Operating Profit 10 £’m Underlying performance 1 • Underlying performance 1 as expected 20 reflecting growth in in-force book 15 • Contribution from assumption changes in H1 18.0 2013 was c. £11m – Not expected to be repeated in H2 15.7 10 – Primarily driven by economies of scale on in- force business – Included benefit from transfer of a significant 5 block of annuities in H1 7.4 7.0 4.4 0 -1.4 H1 2012 H2 2012 H1 2013 -5 1 Underlying performance represents planned surplus emerging and experience variance against best estimate assumptions. August 13
Return On Surplus Assets 11 £’m • Return has grown in line with assets 4.0 2.8% 1.9% 2.0% • Commodity Trade Finance investment 3.0 commenced during Q2 2013 • Investment of surplus cash will improve yield 2.0 in H2 2013 3.1 2.0 1.0 2.0 0.0 H1 2012 H2 2012 H1 2013 Yield on surplus assets August 13
Profit Components Below Operating Profit 12 £’m H1 13 H1 12 Change (%) Operating Profit 59.3 45.4 +31% Small positive result reflects narrowing spreads & increase in • Investment risk free rates 3.1 (12.6) Variance Impacted by timing of bulk Equity Release transactions • IPO expenses, including vesting of existing share options • triggered by IPO (£25.4m) Other Items (29.1) (1.1) Spend on re-engineering financial processes to support • Solvency II and data requirements PBIT 33.3 31.5 +6% Reflects increased loans & debt on balance sheet post • capital injection in Q3 2012 Interest Expense (24.7) (14.1) Debt fully converted to equity/repaid post IPO • IFRS PBT 8.6 17.5 -51% August 13
Capital Position 13 31 Dec 12 1 £’m 30 Jun 13 Economic Capital Ratio Sensitivities Economic Capital: Half year ended 30 June 2013 150% Available 425 381 Credit spread widening: Required 284 252 100 bps 148% Surplus 141 129 200 bps 145% Coverage Ratio 150% 151% Eurozone crisis 142% Lehman crisis 135% IGD: Longevity - 5% deterioration 143% Property - 10% price fall 141% Available 412 352 Required 183 163 Surplus 229 189 Sensitivities demonstrate continued robust capital Coverage Ratio 225% 216% position 1 31 December 2012 capital position is pro-forma, reflecting the benefit of additional capital raised during the IPO. August 13
Key Takeaways & Financial Outlook 14 • Retirement sales performance strong – outperformed market • RDR, Gender Directive and government Care “cap” confusion resulted in Sales growth ahead of market temporary sales headwind • Long term drivers remain in place – medium term expectations of +16% annual growth for NSA market remain Strong Operating Profit growth • Increase in operating costs to equip business for future growth • In-force book growth and efficiency gains & • Economic capital ratio remains strong and resilient to shocks Robust capital position • Debt free since 21 August 2013 • Quote activity returning to normal Activity levels rising • Pipeline of DB schemes is strong – though timing uncertain • Operating profit on-track to meet expectations for full year • H2 New Business Premiums expected to be significantly higher than H1, but Outlook for full year full year volumes will be impacted by RDR disruption • New Business margin expected to improve in H2 • On track to declare dividend payment at FY preliminary results August 13
Business Outlook 15 Steve Groves, Chief Executive August 13
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