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Results for the 12 months ended 31 December 2007
Royal Liver Group (Royal Liver), one of the UK’s leading financial mutual societies, announces strong full year results delivering the Society back to an expense surplus position.
Highlights
• Solid full year performance demonstrating benefits of modernisation strategy
• Group net operating expenses fall to their lowest level for 7 years
• First enhancement of Asset Shares for With-profit members since 2002
• Robust balance sheet and capital position
• Strong performance from Progress and Caledonian Life, our leading protection products businesses
• The performance of our Distribution businesses reflect a restructuring at Park Row with Citadel delivering a promising first full year contribution ahead of expectations
• Encouraging start to 2008
Commenting on the full year results, Steve Burnett, Chief Executive of Royal Liver Group said:
"These results reflect the ongoing benefits of our modernisation strategy which has created a stronger, more focused Group. Delivering the Society back to an expense surplus position is a true achievement in the face of a constant battle to manage our inevitably declining legacy book and despite challenging market conditions. In addition, our new business areas continue to grow, with particular success in the protection market.
We have seen an excellent start to 2008 continuing the trends we saw in 2007. Although turbulent economic conditions will no doubt create challenges, we have confidence that Royal Liver is well positioned to make further progress in 2008."
For further information:
Royal Liver Group
Cara Bostock
Tel: 0151 600 4264
www.royallivergroup.com
HeadLand Consultancy
Chris Salt/Laura Hickman/Tom Gough
Tel: 0207 367 5222
Click here for a full copy of Royal Liver's 2007 Annual Report (PDF - 2.7MB)
Chief Executive’s Review
Results Overview
2007 was a landmark year for Royal Liver. Execution of the Group’s modernisation strategy enabled us to deliver another set of solid results, while we continued to explore strategic opportunities.
This performance was achieved against a backdrop of challenging market conditions and the approach from Royal London, which involved significant time, resource and careful consideration. This process, which lasted some eight months, enabled us to take a fresh and even more objective look at our standalone strategy and the way we conduct business. As a result, we have emerged stronger, more focused and confident with a clear set of objectives for the future.
Progress reported in our interim results in September has continued in the second half, and we ended the year being able to point to things being better than they were a year ago in each of our key business segments.
In the area of our legacy business portfolio, we continue to focus on the drive for new efficiencies, whilst not compromising customer service. Our two life assurance brands, Progress in the UK and Caledonian Life in the Republic of Ireland (ROI) both strengthened their positions in their respective markets. Park Row, our UK distribution business, is in the process of rebuilding itself with new adviser propositions and substantial investment in IT to support those propositions. Citadel, the distribution business in ROI, moved on substantially and is currently implementing a controlled and structured plan to grow through the acquisition of high quality firms of brokers.
Our modernisation strategy, with its focus on managing our cost base, while growing our distribution and manufacturing brands, has delivered a great deal in a short time. It has focused us on tackling our expense position and creating a relevant and robust business proposition. The final part of this strategy is managing the legacy and infrastructure costs in line with our declining book of legacy business. The declining numbers of policies in this area continues to challenge our expense base and we need to remain resolute in our determination to maintain a balanced expense position.
2008 will see further restructuring as we respond to the outcome of our review of the impact that the declining legacy book of business will have on our infrastructure requirements.
Operating Costs
In 2007 we continued our drive to reduce operating costs across the group with the objective of eradicating the expense over-run. At the end of the year, operating expenditure in the Society had fallen to £48.3million, its lowest for many years. Progress made over the past five years helped to deliver a small income surplus of £4.9m compared to an expenditure overrun of £28m in 2002.
Much of this reduction in costs has been driven from the transfer of the UK direct sales force and supporting infrastructure to Park Row and the closure of the managed sales force in the ROI.
To have reduced Royal Liver Group net operating expenses from £127.1m in 2002 to £81.5m in 2007 is a remarkable achievement and one which has come about through the efforts of everyone in the business. Our people’s commitment was rewarded with the highest payment ever made under our Performance Excellence Scheme.
With-profit Asset Shares
In 2007, as a result of improvements in the Balance Sheet of the Society we were able to enhance the asset shares of our With-profits Members through a distribution of surplus.
Business Overview: Progress, Caledonian Life, Park Row and Citadel
Our manufacturing businesses in the UK and Ireland continue to go from strength to strength. 2007 saw the Society continue to target its product manufacturing capability on a narrower range of competitive protection products in the UK and Republic of Ireland through its Progress and Caledonian Life brands whilst remaining open to new With-profits business through the sales of single premium bonds in the Republic of Ireland. 2007 was also the first year in which new business was distributed exclusively through the IFA and Broker sectors in the UK and ROI as a result of the closure of the Managed Sales Force in the Republic of Ireland in the final quarter of 2006.
In the UK, our Progress protection range has seen its profile grow further over the past year. Progress is now established as a provider of choice for many modern IFA businesses who look for leading edge technology and an efficient and proportionate underwriting approach in formulating their advice. Progress has had a strong start to 2008 with record levels of new business achieved in the first quarter and will focus on expanding its proposition in the UK and bringing more flexibility to its infrastructure during the coming year.
Caledonian Life remains strong in ROI, in the face of challenging global and national macro-economic and stock market conditions. 2007 was a successful year for Caledonian Life with sales figures buoyant, especially the With-profits Bond. The year also saw a number of key initiatives implemented, including the launch of a new mortgage protection serious illness product and the introduction of an on-line Broker’s resource centre. In 2008, Caledonian Life, will continue to develop its business relationships with the broker market in ROI through continuous incremental improvements, product development, and maintaining their competitive position with healthy margins.
New business premiums from products manufactured by the Society were slightly down on the prior year but the margins in new regular premium products from Progress and Caledonian Life contributed strongly to the Society’s overall performance. This was also driven by a number of other factors including the closure of the Managed Sales force in the ROI during 2006 and the cessation of sales of pensions term assurance in the UK from December 2006. These actions will deliver benefits in the future and we expect the improvements in volumes and margins in the first quarter of 2008, to continue for the remainder of the first half.
In line with most other National IFA distribution businesses throughout the UK, it was a challenging year for Park Row. Regulatory reviews and the ever increasing cost of compliance are having a significant impact on profitability in the IFA distribution sector. This was further compounded by an increase to the infrastructure and central cost owing to the integration of the Managed Sales Force in the second quarter of 2006.
In response to these challenges, the number of regional locations has been reduced from 24 to seven managed by six Regional Sales Executives with an emphasis on business quality and ensuring that appropriate regulatory principles are embedded throughout the adviser and sales support community. The number of registered advisers also fell from 372 to 279. This in turn led to a reduction in turnover from commission income although average productivity per adviser was able to be sustained and in some cases improved. These actions are part of a managed restructuring programme. However coupled with the 2007 costs of integrating Royal Liver's Managed Sales Force, Park Row finished the year making a loss, as expected.
New IT has been implemented at the start of 2008 and new adviser propositions have been developed to offer advisers more choice in how they operate. All of this should result in Park Row being well positioned to respond to the outcome of the FSA Retail Distribution Review and allow it to move into the future with renewed confidence that a sustainable distribution business will be built for the ultimate benefit of Royal Liver policyholders. Park Row’s Corporate & Private Clients division continues to perform well and received an industry award for IFA of the year for a third consecutive year. 2008 will be one of further consolidation for Park Row, which expects to see an increase in turnover and a sharp reduction in operating costs as our new technology and structure becomes effective.
In ROI, Citadel, our fledgling distribution arm, made excellent progress against its targets in its first full year of trading despite tough market conditions and higher than anticipated central costs. It increased the number of registered advisers to 60, up from 34, by the end of the year, in line with its business targets. It also successfully completed the acquisition of Hegarty Financial Management. It finished the year marginally ahead of its target loss position, which reflects the development phase of this embryonic business. The acquisition of Hegarty is the first major stage in positioning Citadel as a new model in Ireland. We expect Citadel to continue its acquisition strategy to achieve controlled growth during 2008.
Outlook
2008 will be another pivotal year of transition for Royal Liver building on the Group’s ability to manufacture competitive products for the UK and ROI markets, restructure and manage change in our distribution businesses and deliver sustained cost reduction and business growth.
In a year when Liverpool celebrates its status of European capital of culture and the Royal Liver Building celebrates its 100th anniversary of its foundation stone being laid, we are proud to make a contribution through our support of local community initiatives.
Looking forward, the market environment remains challenging but we are in better shape than ever before to face these challenges. The new financial year has got off to an excellent start and we are confident of making further good progress in 2008.
Notes to Editors
The Royal Liver Group consists of Royal Liver Assurance Limited an Incorporated Friendly Society, founded in Liverpool in 1850 for the mutual benefit and financial security of local families and its subsidiary companies of Park Row Group plc and Royal Liver Asset Managers in the UK and Citadel Financial Advice Limited in Ireland. The Royal Liver Group also includes Progress which is a trading name for Royal Liver Assurance Limited in the UK and Caledonian Life which is a trading name for Royal Liver Assurance Limited in Ireland.
Key facts (as at 31 December 2007)
3.2 million policies
1.7 million members
£3.5bn assets under management
Member of the Association of Mutual Insurers (AMI)
Royal Liver Assurance exists to service and maintain Royal Liver policies with a focus on delivering value back to policyholders. www.royalliverassurance.com
Park Row provides financial planning for individuals and businesses alike. Acquired in 2003, it acts as Royal Liver’s distribution arm in the UK. www.parkrow.co.uk
Progress is an online-only manufacturer and provider of protection products for IFAs, including Life, Income and Critical Illness Cover. www.ifa.royal-liver.com
Caledonian Life was formed in 2001 having held the Caledonian name for nearly 200 years in ROI. It manufactures and provides products such as mortgage and life cover, as well as bond investments. www.caledonianlife.ie
Citadel is Royal Liver’s broker business in ROI offering IFA advice. Launched in October 2006, it has quickly become a key provider of independent financial advice. www.citadel-fa.ie
The Delegation
The Society has had a delegation system since 1886 whereby the Members of Royal Liver elect fellow Members to act as the sole representative body. Today there are 216 delegates and they are authorised to take decisions on behalf of the Membership at General Meetings of the Society.
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Royal Liver Group 2007