Resolution Limited
Results for the half year ended 30 June 2012
Integration and business optimisation at Friends Life delivering results
• Operational delivery on track to meet key performance targets:
- UK VNB of £67 million, exceeded whole of 2011, driven by operating synergies, migration to higher margin platforms and outsourcing arrangements
- Annualised synergies of £65 million achieved in the first half of 2012; on track to hit the published target
- Improved group new business IRR of 10% as UK business migrates to higher margin target platforms
- Material outsourcing contract and launch of in-house asset manager successfully delivered in Heritage business
- Friends Provident International (FPI) and Lombard impacted by challenging economic environment; FPI strategic review to rebalance value, volume and risk
• IFRS based operating profit before tax of £163 million (including £27 million of one-off items) (30 June 2011: £390 million, including £216 million of one-off items) reflecting lower expected investment returns on the in-force book, a disappointing performance in the international businesses partly offset by reduction in costs of new business
• MCEV operating profit before tax of £235 million (30 June 2011: £180 million) reflecting growth in profitable new business, partly offset by reduction in expected existing business contribution Confidence in underlying operations and improving cash generation allows increase in interim dividend
• Robust capital position:
- Estimated FLG IGCA surplus of £1.9 billion, representing a coverage ratio of 204% (before interim dividend)
- Significant progress to improve economic capital position with an estimated FLG economic capital surplus of £3.0 billion, representing a coverage ratio of 174% (before interim dividend)
• Focus on returning excess capital to shareholders continues; excess capital is defined as capital in excess of both working capital requirements and after ensuring that capital buffers are maintained in specific stress scenarios; £400 million prudence buffer held
• Although the capital position remains robust, the decision not to return £250 million to shareholders in July 2012 was based on the expected future capital requirements of the Group against a backdrop of heightened investment, economic and regulatory uncertainty
• Balance sheet has minimal exposure to higher risk sovereign debt and retains a highly rated corporate bond portfolio
• Underlying cash flow generation has improved despite challenging economic environment:
- Sustainable free surplus generation in the first half of £120 million, reflecting good progress in reducing UK new business strain, offset by lower investment returns and targeted investment costs
- Available shareholder cash of £619 million has also been impacted by lower returns but maintains a £400 million prudence buffer and underpins longer term confidence in the dividend
• Interim dividend raised by 5% to 7.05 pence per share, supported by underlying cash generation from operational improvements and a robust balance sheet
• The Company envisages moving to a progressive dividend and will consider doing so when sustainable cash generation meets its £400 million per annum distributable cash target
