AKG Financial Strength Assessment Report

ISSUED 27 OCTOBER 2020

PROVIDER SECTOR LV= FINANCIAL STRENGTH ASSESSMENT LV= PROVIDER SECTOR

ABOUT THIS FINANCIAL STRENGTH ASSESSMENT

This AKG report and the analysis and ratings contained within it provide assessment of financial strength and associated considerations. Financial Strength is focused on the ability of a company to deliver ongoing operational capability in the interest of its customers and in line with their fairly held expectations. AKG’s perspective in the assessment of financial strength is wholly that of a customer of a product or service. From that foundation, this analysis is specifically designed to inform financial advisers and assist in their required understanding of a company’s operational financial strength.

Given the underlying customer perspective, the financial strength of companies needs to be focused at an operational level (i.e. the elements and functions of an organisation which operate to specifically deliver and manage a proposition or service to the customer), specifically on the company that is effecting the product or service that a customer is selecting. This is important, because from the customer’s perspective it is that company that needs to survive in a form that maintains the requisite operational characteristics to meet their fairly held requirements. And it is thus at this level that the selection needs of the customers’ advisers must be met. This contrasts to credit rating, which will be undertaken at group or parent company level where investment or debt placement etc. is made.

Further details on how analysis is undertaken is provided at the end of this report and may also be obtained from AKG.

TABLE OF CONTENTS

Rating & Assessment Commentary ...... 3 Ratings ...... 3 Summary ...... 3 Commentary ...... 3 Group & Parental Context ...... 7 Background ...... 7 Group Structure (simplified) ...... 8 Company Analysis: Liverpool Victoria Financial Services Ltd ...... 9 Basic Information ...... 9 Operations ...... 10 Strategy ...... 12 Key Company Financial Data ...... 14 Company Analysis: Liverpool Victoria Life Company Ltd ...... 18 Basic Information ...... 18 Operations ...... 19 Strategy ...... 19

Company Analysis Company Key Company Financial Data ...... 20 Guide ...... 23 Introduction ...... 23 Rating Definitions ...... 23 About AKG ...... 26

CONTACT INFORMATION

AKG Financial Analytics Ltd, Anderton House, 92 South Street, Dorking, Surrey, RH4 2EW Tel: +44 (0) 1306 876439 Email: [email protected] Web: www.akg.co.uk Guide

LV= PROVIDER SECTOR

Rating & Assessment Commentary

RATINGS Commentary

Overall Financial Strength

B+ B+

PROVIDER SECTOR VERY STRONG PROVIDER SECTOR VERY STRONG Rating & Assessment & Assessment Rating LIVERPOOL VICTORIA FINANCIAL SERVICES LTD LIVERPOOL VICTORIA LIFE COMPANY LTD

Additional Financial Strength and Supporting Ratings

Non Profit Unit Linked With Profits Image & Business Financial Financial Financial Service Strategy Performance Strength Strength Strength

Liverpool Victoria Financial Services Ltd

Liverpool Victoria Life Company Ltd

Group & Parental Context & Parental Group

SUMMARY

 Liverpool Victoria, formerly the UK's largest Friendly Society, has total group assets of £15.4bn (Solvency II basis) and a group regulatory capital coverage ratio of 229% as at 31 December 2019  Proposal passed at May 2019 AGM to change the group governance from the Friendly Societies Act 1992, to the Companies Act 2006, which was completed in January 2020 and is expected to provide more freedom and flexibility to compete  Reasonably stable life trading profits and a strong capital position following the sale of general insurance to Allianz, completed in 2019  Cost control will be important, as it transitions to a smaller business Company Analysis Company  Core management roles have recently been refreshed and the structure aligned to the new shape of the remaining business  In October 2020, LV= announced that it was in exclusive talks with private equity firm Bain Capital

COMMENTARY

Financial Strength Ratings Alongside the sale of the remaining stake in the general insurance business, a key focus for the group in 2019 was to restructure the cost base to reflect the transformation into a standalone life company. Operating expenses are expected to increase in 2020 as LV= takes on the share of overheads that were previously allocated to the general insurance Guide business. The pandemic has not materially affected costs for 2020, and operational costs are projected to fall from 2020 through costs efficiencies. The decreasing expense profile is expected to contribute to operating capital surplus generation through the release of expense reserves offset by restructuring costs.

The capital position has remained strong throughout the year, with positive operating capital generated by the life and general insurance businesses and reasonably stable life trading profits of £43m [2018: £50m]. At the end of 2019, on an

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Investor view basis the group capital surplus was £944m [2018: £690m], with a capital coverage ratio of 244% (229%

including the impact of ring-fenced funds) [2018: 173% and 167%]. The closing capital surplus includes the positive benefit of £388m from TMTP. TMTP has reduced by £102m, made up of the annual amortisation of £38m and a £64m reduction following the industry-wide recalculation at the end of 2019 [2018 year end recalculation would have reduced TMTP by £113m]. The group's closing surplus included an upside of £437m from the sale of the remaining 51% stake in the general

Commentary insurance business: own funds benefited from the proceeds received and the group SCR reduced, reflecting the removal of general insurance risks net of diversification. Overall own funds were down by 3% year on year. While the capital coverage ratio decreased over the first half of 2020, coverage remained strong at 215% at the end of June 2020.

The group paid a mutual bonus of £27m in respect of 2019 [2018: £26m], bringing the total since its introduction in 2011 to £210m. Following the sale of the GI business, mutual bonus declarations from 2020 onwards will use some of the proceeds from the sale of the GI business for certain policy types, and consider how many eligible members are entitled

Rating & Assessment & Assessment Rating to receive it in any one year. In addition a new exit bonus will be added to future eligible policy pay-outs.

Over recent years the group has de-risked the balance sheet and strengthened the capital position through reinsurance arrangements and the sale of the general insurance business. During 2019 a number of actions were taken to further improve the efficient deployment of capital and reduce sensitivity of the group’s capital position to market movements.

This has included implementing internal hedges to manage the costs it is exposed to on its with-profits business, including smoothing, guarantees and expenses. Going forward, the group will continue to seek areas to further de-risk the balance sheet. LV=‘s overall strategy is to hedge the Solvency 2 post-TMTP surplus capital position, including SCR.

Control of expenses, in particular overheads, will be important as the group transitions to a focussed life, pensions and investment business and costs will need to be reduced.

Liverpool Victoria Financial Services Ltd Prior to its conversion, Liverpool Victoria Friendly Society Ltd (LVFS) was the UK's largest Friendly Society. Group & Parental Context & Parental Group

As a mutual, access to capital is not as readily available as it is to some of its proprietary rivals. LVFS recognised this and looked at other options, such as the raising of subordinated debt. The acquisition of Teachers Assurance brought with it an element of additional scale, and helped with the strategic intention of growing the life part of the Group's business and, more significantly, the sale to Allianz, which improved the capital position and enabled focus on the growth of the Life business, are positive developments here.

The conversion was overwhelmingly supported by members as indicated by the turnout and votes for the change, and were approved by the regulator. With effect from 2 January 2020, LVFS converted from a Friendly Society to a Company limited by guarantee, which resulted in LVFS being renamed as Liverpool Victoria Financial Services Ltd (LVFSL) and being subject to the Companies Act 2006 instead of the FS Act 1992. LVFSL will remain a mutual company and as such owned by its members who continue to have the right to vote on its governance and strategic direction. The main motivation for conversion is that it would expand the range of possible strategic initiatives available to LVFSL and remove some of the

Company Analysis Company competitive disadvantages that LVFS has experienced as a Friendly Society. For example, the conversion will enable LVFSL to enter into Schemes of Arrangement under Part 26 of the Companies Act 2006; enter into Part VII transfer schemes; accept inward reinsurance and to have flexibility over which accounting standard to adopt.

Non profit business in the company has a good level of security, given its strategic importance and the level of with profits business alongside it. Similarly, the small amount of non profit business retained in Liverpool Victoria Life Company Ltd (LVLC) enjoys the support of LVFSL.

Unit linked business is now key to the overall proposition and AKG expects appropriate support and attention to be given. This line enjoys the comfort and support that the company and its level of free assets bring.

In recent years, the Society has generally shown good with profits performance, and it maintains a reasonable equity backing ratio. Whilst the largest of the Friendly Societies, it remains a relatively small fund when compared with the larger Guide life companies. Although other business lines now dominate marketing activities, with profits business remains important.

The transfer of the business of Teachers Provident Society Ltd to LVFS and sale of goodwill, subsidiaries and non profit business improved the financial position of the Teachers Assurance Fund, although in part offset by the payment of £250 to each qualifying member for loss of membership rights and a similar rating for with profits business applies for this fund.

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The with profits rating shown does not apply to the smaller RNPFN fund, which is not as financially strong and has a rating

of 3 stars.

Liverpool Victoria Life Company Ltd LVLC is a small declining company. The solvency coverage is reasonable, with the minimum capital requirement biting, in

Commentary the context of the run off of the small block of remaining UIA business acquired in 2005. The company also benefits from its presence within the group.

Service Rating LV= states that one of its core aims is to deliver a strong and reliable service proposition to clients and advisers. LV= remains highly regarded both by intermediaries and consumers.

Rating & Assessment & Assessment Rating The award winning service continues to attract and retain customers. Continued focus on customers and members has again led to numerous awards across the business. LV= won the Moneywise Customer Service Awards for the ‘Most Trusted Life Insurance Provider’ for the seventh year in a row in 2019. In addition, LV= won the Moneyfacts award for Best Income Protection provider for the eleventh year in a row in 2020, as well as being Highly Commended in the Best Protection Service category. LV= was the third most recommended life insurer, as measured by YouGov brand index in 2020.

Satisfaction levels remain high with a customer net promoter score at +51 [2018: +53] and an adviser net promoter score of +40 [+30].

The company continues to be highly regarded for its service, as recognised in the Financial Adviser Service Awards and other external awards and metrics.

LV= switched to remote solutions as a result of the pandemic, and has prioritised existing business by identifying and Group & Parental Context & Parental Group ‘protecting’ key processes (including claims and payments). Processes have been adapted, including the use of virtual screenings, and the evidence required at application and claims stages. In the two months following the first COVID-19 claim, LV= paid over 150 Personal Sick Pay claims, including 19 for self-isolation, and to speed up this process all claims were assessed over the phone and paid within 2 days.

Image & Strategy Rating In February 2017, LV= launched a 'clear and simple blueprint' for the future of LV=. This established a common purpose of helping its customers, colleagues and communities to ‘Live Confident’.

In brand terms LV= has seen significant growth in the last decade, establishing it from a relatively modest position, to be one of the UK's leading financial services brands, both from general recognition and positive perception perspectives. This is now a significant strength, enabling development of adjacent product offerings and distribution approaches. The company is proud of the strength and heritage of the LV= brand (which is now licenses by the separated General Insurance business, Company Analysis Company with the continued investment it puts behind it), and the business retains the ambition to be ‘Britain’s Best Loved’ insurer.

Whether in the longer term the brand might change as a result of the split with the general insurance arm, to which the brand is licensed, but to which it may contribute more D2C value, remains to be seen. However, this should not present any significant issue to the life business.

Business Performance Rating There were two significant developments for LV= in 2019. Firstly, the decision to sell all of the remaining stake in the general insurance business to Allianz. Secondly, the vote by the members to approve the conversion of the business, from a friendly society to a company limited by guarantee. The conversion took place on 2 January 2020.

2019 was described as another challenging year, as the group experienced tough trading conditions and undertook this

Guide transformational separation of two complex businesses.

New business sales reduced by £472m to £1,323m on a PVNBP basis. Overall, Savings and Retirement generated £1.04bn [2018: £1.50bn], Protection generated £285m [2018: £296m] and Heritage customers invested £3m [2018: £4m] of additional premiums. The Savings and Retirement decrease is primarily due to the £342m (66%) drop in levels of defined benefit (DB) to defined contribution (DC) transfers to £174m, reflecting the transformation of the pensions market which

LV= PROVIDER SECTOR

has experienced a continued decline in pension transfers since the peak at the end of 2017. Competitor pressures

increased across both pensions and savings. Going forward LV= is now focusing on its underlying sustainable flows in pensions.

Elsewhere in Savings and Retirement, the fall in flexible guarantee bond volumes has been partially offset by increased

Commentary sales of annuities.

Protection sales have reduced slightly (4%) to £285m, as the business focuses on margins over volumes. Income protection volumes increased by 19% in 2019 to £86m, as the marketplace responded positively to the enhancements made to LV='s income protection product at the end of 2018 and the launch of the one year variant in June 2019. Term life sales have decreased by 9% to £157m, in line with the drive to maximise profit and remove some poor quality intermediary business. Critical illness sales of £42m had decreased by 19% as LV= has continued to focus its efforts on developing its

Rating & Assessment & Assessment Rating profit and enhancing its income protection proposition.

Group & Parental Context & Parental Group

Company Analysis Company

Guide

LV= PROVIDER SECTOR

Group & Parental Context

BACKGROUND

Established in 1843, Liverpool Victoria Friendly Society Ltd (LVFS) celebrated its 175th anniversary in 2018, and had grown to become the UK's largest Friendly Society. As at 31 December 2019, the group had assets of £15.4bn and a capital coverage ratio of 229%. The group now employs around 1,700 people and has over 1.28 million customers, 1.25 million of whom are members.

Rating & Assessment Commentary & Assessment Rating All life and pensions new business is now written directly into LVFSL. Equity release is written by LV Equity Release Ltd.

The Society had widened its operations substantially via new activities and acquisition. Acquiring Frizzells in 1996 and Landmark in 1997 broadened its scope to include general insurance, banking and the provision of independent financial advice. In February 2001, the group acquired Permanent Insurance Company Ltd from Equitable, renamed it Liverpool

Victoria Life Company Ltd (LVLC) and in December 2001 used this structure to acquire the Royal National Pension Fund for Nurses (RNPFN). In 2002, Bishopscourt, an IFA Group specialising in affinity services, was acquired. In November 2005, LVLC acquired a small portfolio of business from UIA Insurance (UK) Ltd. January 2007 saw the Group acquire Britannia Road Rescue Services and in December 2007 the Group acquired the new business operations of Tomorrow (previously GE Life) from Swiss Re and entered the unit linked pensions market. In October 2008, LV= acquired the Highway Insurance Group, an organisation complementary to its existing general insurance operations. The group transferred much of the life business of LVLC to LVFS in two tranches, December 2008 and December 2011.

2007 saw the group carry out a major rebranding exercise, introducing the brand LV= and reconfirming its commitment Group & Parental Context & Parental Group to mutuality. In May 2013, the Society issued £350m of subordinated debt, enabling it to improve capital efficiency and support growth ambitions.

LV= acquired a majority stake in Wealth Wizards Ltd in August 2015,and the group acquired most of the business of Teachers Assurance in June 2016.

At the same time, the Group has tightened its focus on core businesses. The loss-making Whole of Market advice business was disposed off in 2007. The Banking operation was also disposed of, concluding in 2010. In 2011, the asset management

arm, Liverpool Victoria Asset Management Ltd (LVAM), was sold to Threadneedle Investments (now Columbia Threadneedle Investments) to whom it now outsources its asset management, at the time enabling the Society to focus on general insurance, protection and savings and retirement.

2019 saw the exit from the General Insurance (GI) market. Motor, home and travel insurance was transacted through

Company Analysis Company Liverpool Victoria Insurance Company Ltd (LVIC), a subsidiary of Liverpool Victoria General Insurance Group Ltd. General Insurance has also been written through 3 other subsidiaries, LV Protection Ltd, Teachers Assurance Company Ltd, and LVIC's subsidiary, Highway Insurance Company Ltd. A transaction was entered into with Allianz Holdings plc that resulted in Allianz owning the entire stake in LV='s GI business. In December 2017, Allianz Holdings plc paid LV Capital plc (LVCAP - LV='s GI holding company) an initial £499.8m in exchange for a 49% stake in Liverpool Victoria General Insurance Group Ltd and its subsidiaries (LV=’s GI business) in a deal that valued this business at £1.02bn. LV= also acquired Allianz’s personal home and motor insurer’s renewal rights, while Allianz obtained LV=’s commercial insurer’s renewal rights. On 31 December 2019, Allianz paid £619m for the remaining 51% equity stake, in the second stage of the transaction, giving an increased total value of £1,119m. A brand license agreement ensures that the business under Allianz can continue to trade as LV= General Insurance. LV Protection Ltd and Teachers Assurance Company Ltd remain in the group, but are closed to new business.

There have been considerable changes to the board and management of the business in recent years. Richard Rowney

Guide stood down as Chief Executive in December 2019, and was replaced by Mark Hartigan. The Group Finance Director was also replaced. There are recently appointed Savings and Retirement, Protection and Heritage directors, aligning the customer experience to the three Lines of Business. The Chief Operations Officer role has gone, and a new Chief Administration Office function was established.

In October 2020, LV= announced that it was in exclusive talks with private equity firm Bain Capital.

LV= PROVIDER SECTOR

GROUP STRUCTURE (SIMPLIFIED)

Rating & Assessment Commentary & Assessment Rating

Group & Parental Context & Parental Group

Company Analysis Company

Guide

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

Company Analysis: Liverpool Victoria Financial Services Ltd

BASIC INFORMATION

Company Type Life Insurer

Ownership & Control Mutual Rating & Assessment Commentary & Assessment Rating Year Established 1843

Country of Registration

Head Office County Gates, Bournemouth, BH1 2NF

Contact www.lv.com/life-contact-us

Key Personnel Group & Parental Context & Parental Group Role Name

Chairman A R Cook

Group Chief Executive M P Hartigan

Chief Risk Officer A W Snow

Director of Finance C Walker

Director of Savings & Retirement C G Bolton

Director of Protection D J Kennedy

Director of Heritage L Harrison

Chief Administration Officer G Farrell

Chief Actuary P M Downey Company Analysis Company With Profits Actuary T J Abbey (Deloitte LLP)

Company Background Established in 1843, the Society was the UK's largest friendly society, prior to its conversion. Operating for many years as a traditional home service insurance company, writing both Ordinary and Industrial Branch business, it had re-positioned itself with a much broader range of activities, via a number of different subsidiaries. Some of these have since been exited as part of a more tightened focus. It stopped writing industrial business in 1999 and entered the IFA market in 2000. The acquisition of the new business operations of Tomorrow, late in 2007, and the transfers-in of the business from LVLC in 2008 and 2011 changed the profile of the Society, having previously almost exclusively written with profits business. The business of Teachers Provident Society Ltd was transferred into the Society, as part of the Heritage business, in June 2016, amounting to assets of around £750m. Guide With effect from 2 January 2020, LVFS converted from a Friendly Society to a Company limited by guarantee, which resulted in LVFS being renamed as Liverpool Victoria Financial Services Ltd.

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

OPERATIONS

Governance System and Structure The group’s board believes in adopting and promoting high standards of corporate governance and has adopted a governance structure based on the principles and provisions of the UK Corporate Governance Code (the 'Code'). LVFSL has complied with the Code, and from 2019 all directors will stand for reappointment annually. The board believes that its practices are consistent with the principles of the Code and are appropriate and suitable for the Society and its members.

Within its Systems of Governance, the key oversight functions are Risk, Compliance, Financial Crime, Actuarial and Internal

Rating & Assessment Commentary & Assessment Rating Audit. In setting up these functions, the board states that it has 'ensured that:

 They are free from influences that may compromise their ability to undertake duties in an objective, fair and independent manner  Each function operates under the ultimate responsibility of, and reporting to the Board  They have the necessary authority, resources and expertise, as well as unrestricted access to all relevant information necessary to carry out their responsibilities'.

The scope, authority and responsibility for each of the Three Lines of Defence is set out in a board-approved Risk Mandate, which is included as part of the Risk Strategy. The Mandate, in conjunction with the Risk Operating Model, confirms how each function achieves independence and how potential conflicts of interest are managed.

The LV= Member Panel is a group of around 40 members who represent a cross-section of membership and challenge

Group & Parental Context & Parental Group the Group's performance. They meet with the board, executives and senior leaders twice a year. The Member Panel Hub was established in 2016 so that the panel can stay in touch with news throughout the year and comment on developments and changes via posts and online forum.

The conversion to LVFSL enables LVFSL to operate under the Companies Act 2006 which is a more modern and regularly reviewed piece of legislation than the FS Act 1992, and provides greater clarity in respect of the operational and governance framework required, for example, the Companies Act 2006 codifies directors’ duties. However, LVFSL is bound by the same PRA and FCA rules and guidance regarding systems of governance, risk management, and standards

of customer conduct as LVFS prior to the conversion. Following conversion, the LVFSL Board retained the same members, the same structure and materially the same terms of reference as the Board of LVFS.

Risk Management The LVFSL Board is responsible for determining the risks which the group faces and ensuring that they are appropriately controlled. These include the risks to the business model and future performance, those which threaten the solvency Company Analysis Company and/or liquidity of the group and those which could have a detrimental impact upon members, customers or other stakeholders.

The Board discharges this responsibility through the implementation of a robust risk management framework (LV=RM) which includes the setting of a proportionate risk strategy, risk appetite and clear risk mandate and organisational design. The Risk Committee, on behalf of the Board, regularly monitors the operation and effectiveness of the LV=RM Framework to ensure that it continues to drive a suitably robust risk culture within LV=.

In 2019, the Risk Committee met in relation to:

 Reviewing and developing the board’s risk appetite

 Regular consideration of the group risk profile

Guide  Reviewing and contributing to the ORSA and related processes included stress and scenario testing  Reviewing the ongoing development of the product governance framework to ensure continued focus on customer outcomes  Reviewing and monitoring the risk maturity plans and risk event resolution projects to ensure that any impact to customers or members was addressed appropriately

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

 Overseeing the activities being conducted to separate the life and general insurance businesses ahead of completion

of the sale of the general insurance business to Allianz  Assessing compliance with the data protection regime which has been embedded across the business

As an insurance provider in a complex and highly regulated market, LV= is exposed to a wide range of risks from its past, present and future activity. The risk strategy is aligned with the LV= business strategy and aims to ensure that an effective approach to risk management is in place, in line with its business and financial goals. The risk strategy and associated LV=RM Framework is reviewed on at least an annual basis as part of the broader LV= strategic planning process and based upon changes in both the internal and external environment.

In July 2020, the LVFSL defined benefit pension scheme converted an existing longevity swap covering the majority of the scheme’s pensioners to a c. £800m buy-in with Phoenix Life. The initial longevity insurance agreement was entered into

Rating & Assessment Commentary & Assessment Rating in 2012 with ReAssure and reinsured by SwissRe. The buy-in transfers longevity and asset / ALM risks to Phoenix, whereas the swap had only transferred longevity risk. The transaction reduces the risk of increased future contributions from LVFSL into the scheme.

Administration LV= looks to drive its administrative offering in large part through the 'voice of the customer', which it states as a key consideration across all areas.

LV= has invested significantly in the development of digital propositions since 2015 to improve core operating systems within the General Insurance and Protection businesses as well as a later focus within Savings & Retirement.

As a key component of this work, LV= now uses quote and apply technology, Fastway, for financial advisers, offering a faster way for advisers to protect clients. To support its goal of providing good quality propositions at a fair price, LV= continued to develop Fastway, which combines the 'benefits of technology with the expertise of its people, providing a Group & Parental Context & Parental Group faster and more intuitive application journey and enables more clients to be covered quicker'. This technology can be used for LV=’s ‘personal’ Life Insurance, Life with Critical illness, Income Protection and Personal Sick Pay (PSP) product lines. 2020 saw the Family Income Benefit being added to the suite and improved functionality, including an Adviser Dashboard.

Other investments in technology saw the launch of LV= Doctor Services in 2017 which gives simple, fast and convenient access to a UK general practitioner or medical specialist. The LV= adviser centre is continually being developed and

provides a range of tools, calculators and support in order to achieve the goal of being easy to do business with. Customer centric improvements including further digitisation of online forms and enhanced use of the Origo options partnership have been made. A new Equity Release system was delivered and commissioned in to service in July 2020, the first fully digitally enabled system in LV=.

A pre-underwriting tool is available online, 24/7, which enables advisers to submit business outside of regular working

Company Analysis Company hours and receive instant decisions without having to call an underwriter. The tool can provide an indication of the final underwriting outcome, and can also be used for multiple conditions and confirming any necessary medical evidence. LV= operates a tele-interview booking system which enables customers to book an appointment online as part of the application process for the Flexible Protection Plan.

LV= operates with a large case team, to support the management of protection servicing for adviser’s high value clients, and has a Business Protection Specialist team, to help advisers with underwriting and application processes. Customer experience operates case ownership for high profile or sensitive cases. Equity Release hubs have been created to increase the level of strategic support for firms.

LV= has back office systems providers and quotation portals. It has back office systems links in place with suppliers including IRESS Adviser Office, Best Practice, Intelliflo, Plum Software and True Potential, and portal links in place with suppliers including iPipeline, Lifequote, Webline, Hub Financial Solutions and Annuity Exchange. Guide

Ongoing administration development makes use of a 'Systems Thinking' approach.

Benchmarks All parts of the business are very proud of the strength and heritage of the LV= brand and LV= was awarded a Brand Reputation score of 74.4 by the Reputation Institute in 2019. Being trusted and recommended by customers, members

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

and intermediaries underpins LV's ambition to be Britain's Best Loved Insurer, and the company was pleased was named

as 'Most Trusted Life Insurance provider' at the Moneywise Customer Service Awards for the seventh consecutive year. In recent years, it has been named YouGov’s ‘Most Recommended’ insurer. In September 2020, LV= retained the title of ‘Best Income Protection Provider’ at the Investment Life & Pensions Moneyfacts Awards for the eleventh year. At the Financial Adviser Service Awards in November 2019 LV= was again awarded five star ratings in both the Investments and the Life and Pensions categories.

The business also continues to win other awards and perform well in a number of other studies.

Outsourcing To ensure a consistent approach across the group, the group maintains an outsourcing and sourcing policy. This policy is reviewed on an annual basis and sets out detailed requirements on areas including: Rating & Assessment Commentary & Assessment Rating  Overall sourcing strategy  Supplier assessment criteria  Principles for identifying critical and important relationships, and  Contractual and operational requirements and ongoing supplier relationship management

Members’ funds are managed on the company's behalf, primarily by Columbia Threadneedle Investments. This allows LVFSL to focus on core expertise of risk-based insurance business while benefiting from the investment management expertise of the partners. The partnership arrangements are reviewed regularly to ensure the risk and return balance is appropriate for members.

A number of other functions are also outsourced, including infrastructure management & systems development, desktop services & telephony and outbound printing & inbound scanning services. Group & Parental Context & Parental Group In order to minimise dependency on a single supplier, LV= actively identifies and monitors key suppliers and has business continuity plans in place in the event that the outsourcer fails.

STRATEGY

Market Positioning LV= started 2020 as a company limited by guarantee and a standalone life, pensions and investments business.

LV= completed the first phase of its transaction for the general insurance business with Allianz in 2018, The deal with Allianz was structured in two phases, and at the end of 2019 Allianz acquired the remaining 51% of the general insurance business giving them a 100% share. The completion of operational separation of the general insurance business including Company Analysis Company the associated transfer of support services currently provided to them was a focus in 2019.

Currently customers’ money and investment income is held in one main fund, the 'LVFS Common Fund', which contains all LVFSL policies, including both non profit and with-profits business, which has two closed sub-funds: the RNPFN Fund a ring-fenced with profits fund including non-profit and unit-linked business; and the Teachers Assurance Fund, a ring- fenced with profits fund. LV= are required by regulations to continue to sell a meaningful level of with profits business, while demand for these products continues to fall, and reviews of how the fund is structured continue. LVFSL has granted a contingent loan facility to the RNPFN fund to be used in the event of a shortfall in the capital resources of that fund. The maximum level of capital support is reset every year in line with the terms of the RNPFN Scheme (the level which applied in 2019 was £52.5m).

Guide

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

The main strategic priority during 2019 was to carry out the work to build 'a fitter mutual for the future'. LV= set ambitions

in four areas:

 Members and society - including growth in membership and proposition enhancements  Financials - restructuring to realign cost base in 2020, with the objective to remain competitive and generate value for members  Employees - leadership team is focused on improving levels of engagement  Brand and marketplace - Strong relationships with advisers remain key for further growth, while LV= retains the ambition of having a top 5 position in its chosen markets

Across this, the business is driven by its purpose and consequently the needs of the mass affluent customers base, which it seeks to serve. This is sought in the approach to dealing with customers and their advisers (administration etc) but also Rating & Assessment Commentary & Assessment Rating in the very mix and design of the Society's propositions.

In every aspect the business is actively looking to improve its digital foundation and step off from this in the next phase of its development..

Proposition The principal activity is the provision of Savings & Retirement and Protection products and managing the Heritage products. The core products offered in Savings & Retirement are Fixed-Term Annuities, Self-Invested Personal Pensions (SIPPs), Equity Release Mortgages, Flexible Guarantee Bonds (including its smoothed managed funds) and ISAs. The core products offered in Protection are Life, Critical Illness and Income Protection Insurance. The proposition is targeted at the mass affluent segment, typically a low risk, adviser led customer base.

Heritage products include legacy with-profits business (both Ordinary Branch and Industrial Branch), the ring-fenced

Group & Parental Context & Parental Group RNPFN Fund, containing the business acquired from the Royal National Pension Fund for Nurses in 2001, and the ring- fenced TA Fund, containing the with-profits business acquired from Teachers Provident Society Ltd in 2016. The Heritage products are no longer actively marketed, although LV= continues to sell newer with-profits products via the Life business channels.

LV= flagship Self-Invested Personal Pension, the Flexible Transitions Account, can serve as a Personal Pension or Drawdown Pension solution for customers. It offers a wide range of investment options, including LV= core funds, including the Flexible Guarantee Fund and the Protected Retirement Plan. Investment can be made into Selected Partner

Funds via nominated DFMs (Brewin Dolphin, Brooks MacDonald, Cazenove Capital Management, Charles Stanley, Investec Wealth & Investment, LGT Vestra, Quilter Cheviot and Rathbones). The Flexible Transitions Account also offers access to The Aegon Platform, Fidelity's FundsNetwork and a Self Investment option.

LV=’s Protected Retirement Plan is a fixed term annuity, which aims to provide a secure income over a set term, with a guaranteed value at maturity. Annuities have become more of a focus, and the first half of 2020 saw the re-launch of short Company Analysis Company term fixed term annuities, with 3 & 4 year Fixed Term Annuities. LV= is looking at leveraging distribution through the Retirement Advice Service panel.

The LV= Retirement Account enables advisers to recommend and blend a combination of LV= product solutions through one overarching account.

2019 saw the repositioning of its flexible guaranteed products to create a suite of smoothed managed funds designed to cope with market fluctuations. The LV= Smoothed Managed Fund (SMF) range provides a key low volatility long term option, with optional guarantees for the retirement and saving proposition. It is accessible through pension, ISA (launched in 2019) and bond offerings. SMFs are a significant driver of profit, and seen as a growth area. The SMF range was relaunched in the first half of 2020, with greater emphasis on fund governance and mutual bonus. LV= aims to make SMF

available via a Trustee Investment Plan in the second half of 2020. Guide LV= offers Lifetime Mortgage - Lump Sum+ product lines in the equity release market. From 30 June 2020, it has withdrawn the Flexible Lifetime Mortgage product for new business, but will be launching a new Lifetime Mortgage Drawdown+ product later in 2020, doubling the accessible market for LV=. LV= is a member of the Equity Release Council (the Council) and, in adherence with the Council's standards, therefore offers additional features and safeguards

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

to LV=’s lifetime mortgage products. This includes offering a 'No Negative Equity Guarantee' and a guarantee that the

customer is safe to stay in their home for as long as they wish, provided all terms and conditions of the mortgage are met.

LV= offers a comprehensive range of Personal and Business Protection lines. The Personal Protection range includes Income Protection, Life Insurance, Life and Critical Illness, Personal Sick Pay, and Family Income Assurance, all of which are available as part of the Flexible Protection Plan (a menu plan). LV also offer a standalone Gift Inter Vivos product. The Business Protection range includes Key Person Cover, Share & Partnership Protection and Relevant Life Cover. Critical Illness cover was refreshed in the first half of 2020.

The return on the main with-profits fund was positive 14.5% in 2019 [2018; negative 4.2%], against a backdrop of rallying equities and commodity markets, while core government bond markets also recorded positive returns for the year. During the year, the Society revised the strategic asset allocation of the main with-profits fund and flexible guarantee funds with

Rating & Assessment Commentary & Assessment Rating the aim of improving returns to policyholders. The fund invests in a large amount of equities (£966m, 45% of the portfolio) and 2019 saw an increased investment return due to strong performing overseas equity markets. Investments in gilts and bonds amounted to £727m (35% of the portfolio) and included the two new asset classes, Global corporate bonds and US treasuries, with a combined 12% of the portfolio.

KEY COMPANY FINANCIAL DATA

Last 3 reporting periods up to 31 December 2019

Assets Liabilities Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

Group & Parental Context & Parental Group £m £m £m £m £m £m

Fixed interest 4,297 3,990 4,610 Technical provisions - non- 0 0 0 life Equities 860 757 564 Technical provisions - health 25 (9) (24) Collectives 3,068 2,942 2,910 (similar to life)

Property 3 0 0 Technical provisions - life 9,405 9,031 9,551

Linked 2,485 2,969 3,497 Technical provisions - linked 3,037 2,949 3,437

Derivatives 80 65 93 Other 995 906 966

Loans and mortgages 868 871 855 Total Liabilities 13,461 12,876 13,929

Reinsurance recoverables 1,731 1,175 1,116 Excess of assets over 1,242 1,259 1,387 Cash 71 97 77 liabilities

Company Analysis Company Other 1,239 1,269 1,593

Total Assets 14,703 14,135 15,316

The Society's assets increased by 8% to £15.3bn in 2019 [2018: £14.1bn]. The excess of assets over liabilities increased by 10% to £1.4bn.

Guide

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

Life & Health SLT Technical Provisions Life Expenses

Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Insurance with profit Health insurance 23 25 30 5,820 5,605 5,923 participation Insurance with profit 30 30 37 Linked insurance 3,037 2,949 3,437 participation

Other life insurance 3,584 3,426 3,628 Linked insurance 24 32 31

Annuities - from non-life Other life insurance 104 96 91 0 0 0 health Annuities - from non-life 0 0 0 Annuities - from non-life health 0 0 0 non-health Rating & Assessment Commentary & Assessment Rating Annuities - from non-life 0 0 0 Health insurance 25 (9) (24) non-health

Health reinsurance 0 0 0 Health reinsurance 0 0 0

Life reinsurance 0 0 0 Life reinsurance 0 0 0

Total life and health SLT Other expenses 46 16 60 12,466 11,971 12,963 technical provisions

Total life expenses 227 200 249

Technical provisions were split 46% with profits, 27% linked and 28% other life insurance as at 31 December 2019. A large proportion of with profits business is heritage, with most new business written on a linked or other life insurance basis, although some new business is still written on a with profits basis.

Group & Parental Context & Parental Group Solvency Capital Requirement (SCR) Own Funds Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Market risk 1,545 1,298 1,223 Tier 1 unrestricted 1,159 1,183 1,318

Counterparty default risk 30 34 29 Tier 1 restricted 0 0 0

Life underwriting risk 440 401 359 Tier 2 367 360 360

Health underwriting risk 92 92 92 Tier 3 0 0 0

Non-life underwriting risk 0 0 0 Eligible own funds 1,527 1,543 1,678

Diversification (359) (334) (306) Excess of own funds over 724 704 769 SCR Intangible asset risk 0 0 0 SCR coverage ratio (%) 190.2 183.9 185.0

Company Analysis Company Operational risk 40 37 39

Capital add-ons already set 0 0 0

Other items (984) (689) (571)

Solvency capital 803 839 865 requirement

LVFSL has operated on a Standard Formula basis for calculating its regulatory capital position since 1 January 2016. An internal model application was submitted in early 2017, however in light of the changes to the risk profile that were been introduced by the Strategic Partnership with Allianz and the longevity reinsurance deal with RGA at the end of 2017, the Society decided not to proceed with the application and to continue using the Standard Formula method.

Guide LVFSL' largest risk exposures relate to market risk (67%) and underwriting risk (28%) [2018: 60% and 35% respectively]. Market risk is primarily Equity (50%) and Spread (45%) [2018: 44% and 50% respectively]; whilst underwriting risk is further broken down as: Lapses (60%), Expenses (19%), Health (14%), Longevity (6%) and Other (1%) [2018: 62%, 18%, 13%, 5%, 2%, respectively].

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

At 31 December 2019, the LVFSL Solo capital surplus on a standard formula basis was £769m [2018: £704m] with a

coverage ratio of 185% [2018: 184%]. This includes the closed ring-fenced funds, which did not require capital support at the valuation date.

LVFSL's risk profile and capital position was materially affected in the year by the following actions: One-off impact from the sale of the GI business (increase in surplus capital of £205m, before TMTP recalculation); TMTP Amortisation and Recalculation (reduction in surplus capital of £102m); Economic impacts over 2019 (reduction in surplus capital of £65m, before TMTP recalculation).

Gross Life Premiums Written By Line of Gross Life Premiums Written By Country Business Dec 17 Dec 18 Dec 19

Dec 17 Dec 18 Dec 19 £m £m £m

Rating & Assessment Commentary & Assessment Rating £m £m £m Home country 1,491 1,244 1,071 Health insurance 58 62 62 Country 1 0 0 0 Insurance with profit 461 390 200 Country 2 0 0 0 participation

Country 3 0 0 0 Linked insurance 657 457 416 Country 4 0 0 0 Other life insurance 315 335 393 Country 5 0 0 0 Annuities - from non-life 0 0 0 health Other countries 0 0 0

Annuities - from non-life Total gross life premiums 0 0 0 1,491 1,244 1,071 non-health written

Health reinsurance 0 0 0

Group & Parental Context & Parental Group Life reinsurance 0 0 0

Total gross life premiums 1,491 1,244 1,071 written

Gross written premiums decreased by 14% in the year [2018: down by 17%], with the reduction in Savings and Retirement new business premiums being driven by the significant slowdown in defined benefit to defined contribution transfers

following renewed guidance to advisers from the FCA, which impacted the wider market. With profits business accounted for 19% of premiums [2018: 31%], reflecting the relative size of the heritage business and also investment into the Flexible Guaranteed Bond. With profits business was adversely impacted by pressure on investment into the smooth managed funds range, partly as a result of the reduced activity in the pensions market. The strategic asset allocation was updated during 2019 for the benefit of policyholders, and positive impacts of that were seen through early 2020, where LV= did not 'snap' to unsmoothed prices and fund performance stood up well. Company Analysis Company All business is written in the UK.

Profit Life Business Flows Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Profit (loss) before taxation 62 (29) 30 Net life premiums earned 399 998 806

Taxation (24) 31 (61) Net life claims incurred (994) (1,036) (1,119)

Profit (loss) after taxation 38 2 (31) Net flow of business (594) (38) (314)

Other comprehensive (26) (26) (27) income Guide Dividends 0 0 0

Retained profit (loss) 12 (24) (58)

Liverpool Victoria Financial Services Ltd PROVIDER SECTOR

LVFSL reported an IFRS profit before tax, mutual bonus and unallocated divisible surplus transfer for the year of £30m

[2018 loss: £29m].

The company distributes its surplus within its with profits funds on a 100% basis to with profits policyholders, subject to smoothing. A mutual bonus of £27m was paid in respect of 2019 [2018: £26m], bringing the total since its introduction in 2011 to £210m.

Life trading profit has replaced operating profit as the primary IFRS performance measure, to exclude the impacts of model and basis changes and experience variances. The consolidated group reported a life trading profit of £43m [2018: £50m], which included new business contribution of £14m [£19m] which was suppressed by the difficult trading conditions, while profit generated from in-force business was stable at £29m [£31m]. Experience variances and model & basis changes had an adverse impact of £67m [2018: £10m positive]. Strategic investment, group items and finance costs were slightly

Rating & Assessment Commentary & Assessment Rating increased on last year at £90m [£84m]. Short-term investment fluctuations and related items (STIF) saw a significant swing, with market movements resulting in £129m of favourable STIF [£66m adverse]. There was a significant increase in pre- tax profit from continuing operations to £15m [2018: £90m loss], plus an additional £34m from the share of performance of the, now sold, general insurance business [£110m]. This, plus the gain on sale of the remaining stake in the general insurance business of £216m, less costs directly related to the disposal (£46m gross), led to a net favourable impact of

discontinued business of £193m in the year [£50m]. Group & Parental Context & Parental Group

Company Analysis Company

Guide

Liverpool Victoria Life Company Ltd PROVIDER SECTOR

Company Analysis: Liverpool Victoria Life Company Ltd

BASIC INFORMATION

Company Type Life Insurer

Ownership & Control Liverpool Victoria Friendly Society Ltd Rating & Assessment Commentary & Assessment Rating Year Established 1958

Country of Registration

Head Office County Gates, Bournemouth, BH1 2NF

Contact www.lv.com/life-contact-us

Key Personnel Group & Parental Context & Parental Group Role Name

See Liverpool Victoria Friendly Society Ltd

Company Background Established as Medical Sickness & Life Assurance Society Ltd to operate in the intermediary market, the company was renamed Permanent Insurance Company Ltd in 1982 when it acquired the business of the Contingency Insurance Company Ltd and Minster Insurance Company Ltd. Equitable Life bought a controlling interest in 1995 (100% ownership in 1997), selling the company to LVFS in February 2001, when it was renamed LVLC. Until the business transfer in 2008, LVLC was the protection specialist within the Liverpool Victoria Group, operating from its own offices in Exeter.

In December 2001, the company acquired the business of the Royal National Pension Fund for Nurses (RNPFN). At the same time, it accepted reinsurance of around £300m of with profits bonds from LVFS. It also exited the Group PHI Company Analysis Company market, reinsuring this business, other than claims in payment, to Unum. In November 2005, the company acquired a small portfolio of business from UIA Insurance (UK) Ltd (UIA), as a result of the Group’s relationship with Unison, a key affinity partner.

The majority of the business of LVLC, including the ring fenced RNPFN fund, as well as various reinsurance contracts in respect of the transferred business, were transferred into LVFS in December 2008. At that time, LVFS ceded to LVLC all the PHI liabilities (not otherwise reinsured) at that date on its Income Protection (IP) and Critical Illness (CI) policies. In December 2011, LVFS recaptured the reinsurance held by LVLC for the CI and IP products and the remaining business was transferred to LVFS, excluding the UIA business, which remains in LVLC.

In November 2009 the company sold all of its subsidiaries to LVFS to simplify the Group's legal structure and corporate

governance. LVLC's substantial reduction in size led to a capital reduction in December 2010 of £530m, together with

Guide settlement of £82m of subordinated loan debt and a transfer of investments and cash totalling £164m. In November 2012, the company further reduced its share capital by £9.9m, £5m of which was paid as a dividend.

LVLC is now closed to all new business and all reinsurance treaties with LVFS have been cancelled. Its main purpose is to manage the run-off of the UIA business; 911 policies in force at 31 December 2019 [2018: 987].

Liverpool Victoria Life Company Ltd PROVIDER SECTOR

OPERATIONS

Governance System and Structure See LVFS

Risk Management See LVFS

Administration See LVFS Rating & Assessment Commentary & Assessment Rating Benchmarks See LVFS

Outsourcing

See LVFS

STRATEGY

Market Positioning LVLC’s main purpose is to manage the run-off of the UIA business acquired in 2005 which accounts for 99% of its insurance business. LVLC is also the reinsurer of Protection contracts consisting of term assurances and critical illness Group & Parental Context & Parental Group policies.

Proposition The products in LVLC are principally whole of life, with some endowments and term assurances, acquired from UIA in 2005. It also accepts a small volume of reinsurance business from external providers.

All business was written in the UK and given the nature of its business and relatively small size compared to other

companies within the group, LVLC does not cede any reinsurance to external reinsurers. All products are closed to new business.

Company Analysis Company

Guide

Liverpool Victoria Life Company Ltd PROVIDER SECTOR

KEY COMPANY FINANCIAL DATA

Last 3 reporting periods up to 31 December 2019

Assets Liabilities Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Fixed interest 17.7 17.4 17.5 Technical provisions - non- 0.0 0.0 0.0 life Equities 0.0 0.0 0.0 Technical provisions - health Rating & Assessment Commentary & Assessment Rating 0.0 0.0 0.0 Collectives 1.2 1.0 0.9 (similar to life)

Property 0.0 0.0 0.0 Technical provisions - life 14.6 13.6 13.1

Linked 0.0 0.0 0.0 Technical provisions - linked 0.0 0.0 0.0

Derivatives 0.0 0.0 0.0 Other 0.3 0.5 0.4

Loans and mortgages 0.0 0.0 0.0 Total Liabilities 15.0 14.1 13.5

Reinsurance recoverables 0.0 0.0 0.0 Excess of assets over 5.4 6.0 6.6 liabilities Cash 0.7 1.1 0.5

Other 0.9 0.7 1.1

Total Assets 20.4 20.2 20.1

Group & Parental Context & Parental Group Total assets reduced in 2019 as the UIA business runs off and are predominantly fixed interest in nature, 87% as at 31 December 2019 [2018: 86%].

97% of total liabilities related to life business [2018: 96%]. The average duration of these remaining liabilities is in the order of around 15 years.

Life & Health SLT Technical Provisions Life Expenses

Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Insurance with profit Health insurance 0.0 0.0 0.0 0.0 0.0 0.0 participation Insurance with profit 0.0 0.0 0.0 Linked insurance 0.0 0.0 0.0 participation Company Analysis Company Other life insurance 14.4 13.4 13.0 Linked insurance 0.0 0.0 0.0

Annuities - from non-life Other life insurance 0.0 0.1 0.0 0.0 0.0 0.0 health Annuities - from non-life 0.0 0.0 0.0 Annuities - from non-life health 0.0 0.0 0.0 non-health Annuities - from non-life 0.0 0.0 0.0 Health insurance 0.0 0.0 0.0 non-health

Health reinsurance 0.0 0.0 0.0 Health reinsurance 0.0 0.0 0.0

Life reinsurance 0.2 0.2 0.1 Life reinsurance 0.0 0.0 0.0

Total life and health SLT Other expenses 0.0 0.0 0.0 14.7 13.6 13.1 technical provisions

Total life expenses 0.0 0.1 0.0

Guide

99% [2018: 99%] of technical provisions related to Other life insurance as at 31 December 2019, with the balance being reinsurance accepted.

Liverpool Victoria Life Company Ltd PROVIDER SECTOR

Solvency Capital Requirement (SCR) Own Funds

Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Market risk 0.3 0.3 0.3 Tier 1 unrestricted 5.4 6.0 6.6

Counterparty default risk 0.1 0.0 0.0 Tier 1 restricted 0.0 0.0 0.0

Life underwriting risk 0.1 0.0 0.0 Tier 2 0.0 0.0 0.0

Health underwriting risk 0.0 0.0 0.0 Tier 3 0.0 0.0 0.0

Non-life underwriting risk 0.0 0.0 0.0 Eligible own funds 5.4 6.0 6.6

Diversification (0.1) 0.0 0.0 Excess of own funds over 5.0 5.6 6.2 SCR

Rating & Assessment Commentary & Assessment Rating Intangible asset risk 0.0 0.0 0.0 SCR coverage ratio (%) 1,184.1 1,441.5 1,865.2

Operational risk 0.1 0.1 0.1

Capital add-ons already set 0.0 0.0 0.0

Other items 0.0 0.0 0.0

Solvency capital 0.5 0.4 0.4 requirement

LVLC's risk exposures are market (80%), operational (17%) and credit counterparty (3%) [2018: 83%, 14%, and 3%, respectively]. Market risk is further broken down as interest rates - 67% and concentration - 33% [2018: 79% and 21%].

At 31 December 2019, the SCR of £0.4m was again lower than the Absolute Minimum Capital Requirement (AMCR) of

Group & Parental Context & Parental Group £3.2m [2018: £3.3m] that LVLC is required to hold, a position that is likely to continue going forward. With Own Funds increasing due to retained profits, the AMCR coverage ratio increased to 206% [2018: 184%].

Gross Life Premiums Written By Line of Gross Life Premiums Written By Country Business Dec 17 Dec 18 Dec 19

Dec 17 Dec 18 Dec 19 £m £m £m

£m £m £m Home country 0.5 0.4 0.4

Health insurance 0.0 0.0 0.0 Country 1 0.0 0.0 0.0 Insurance with profit 0.0 0.0 0.0 Country 2 0.0 0.0 0.0 participation Country 3 0.0 0.0 0.0 Linked insurance 0.0 0.0 0.0 Country 4 0.0 0.0 0.0 Other life insurance 0.1 0.1 0.1

Company Analysis Company Country 5 0.0 0.0 0.0 Annuities - from non-life 0.0 0.0 0.0 health Other countries 0.0 0.0 0.0

Annuities - from non-life Total gross life premiums 0.0 0.0 0.0 0.5 0.4 0.4 non-health written

Health reinsurance 0.4 0.4 0.4

Life reinsurance 0.0 0.0 0.0

Total gross life premiums 0.5 0.4 0.4 written

All business was written within the UK. The majority of premiums, 86% [2018: 83%] related to reinsurance accepted,

Guide which increased from £368k to £373k. These reinsurance premiums relate to protection contracts for critical illness and term assurance polices for two insurers. UIA premiums reduced from £73k to £62k, in line with the run off.

Liverpool Victoria Life Company Ltd PROVIDER SECTOR

Profit Life Business Flows

Dec 17 Dec 18 Dec 19 Dec 17 Dec 18 Dec 19

£m £m £m £m £m £m

Profit (loss) before taxation 0.46 0.47 0.76 Net life premiums earned 0.49 0.44 0.44

Taxation (0.09) (0.03) (0.26) Net life claims incurred (1.19) (0.97) (1.18)

Profit (loss) after taxation 0.37 0.43 0.50 Net flow of business (0.69) (0.53) (0.75)

Other comprehensive 0.00 0.00 0.00 income

Dividends 0.00 0.00 0.00

Retained profit (loss) 0.37 0.43 0.50

Rating & Assessment Commentary & Assessment Rating

The company reported an increased pre-tax profit of £757k in 2019 [2018: £465k]. No dividend was paid [2018: £nil].

Net premiums earned reduced by 1.4% from £441k to £435k in 2019, broadly unchanged With net claims increasing

from £974k to £1,183k, there was an increased net outflow of £748k [2018: £533k]. Group & Parental Context & Parental Group

Company Analysis Company

Guide

LV= PROVIDER SECTOR

Guide

INTRODUCTION

For over 20 years AKG has particularly focused on the financial strength requirements of financial advisers, who when acting on behalf of their clients, need to ascertain a company's ability to deliver sustained provision.

From this customer perspective, the financial strength of companies needs to be focused at an operational level, specifically on the company that is effecting the product or service that a customer is selecting. This is important, because from the

Rating & Assessment Commentary & Assessment Rating customer’s perspective it is that company (not some higher corporate entity) that needs to survive in a form that maintains the requisite operational characteristics to meet their fairly held requirements. And it is thus at this level that the selection needs of the customers’ advisers must be met.

It is also important to understand the sector approach (comparative peer groups) that is adopted in financial strength

assessment and rating process.

At AKG, this is again driven by the end customer perspective and the fact that assessment is designed solely for this purpose, i.e. as a component in helping customers’ advisers to select between comparable companies competing to deliver relevant products or services.

AKG’s focus and approach has remained consistent over the years since it commenced assessment and rating support for the market. However, coverage, format and presentation has rightly evolved over this period, in line with the needs and expectations of assessment and rating users in the market. And AKG considers further changes on a continual basis. Group & Parental Context & Parental Group

Further details including an explanation of what is included in the assessment reports and coverage can be found online at https://www.akg.co.uk/information/reports/provider.

AKG’s process for assessment and rating is to use a balanced scorecard of measures and comparative information, relevant to the companies contained within each peer group. This is gathered via Public Information only for non-participatory assessments and public information plus company interactions with companies for participatory assessments. Further details on AKG’s process can be found at https://www.akg.co.uk/information/reports.

This includes further information on the different participatory and non-participatory basis and for companies wishing to learn more about participatory assessment AKG is pleased to outline this and welcomes contact.

This is a participatory assessment. Company Analysis Company

RATING DEFINITIONS

Overall Financial Strength Rating The objective is to provide a simple indication of the general financial strength of a company from the perspective of those financial advisers who when acting on behalf of their clients need to ascertain a company's ability to deliver sustained operational provision of products or services.

The overall rating inherently reflects the mix of business within the company, since different types of customer or

policyholder have different requirements and expectations, and the company may have particular strengths and weaknesses in respect of its key product or service areas. However, it also takes account of comparison across the sector

Guide in which it is assessed.

The rating takes into account those of the following criteria which are relevant (depending upon the company's mix of business in-force): capital and asset position, expense position and profitability, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management

LV= PROVIDER SECTOR

strength and capability, strategic position and rationale, brand and image, typical fund performance achievements or

product / service features, its operating environment and ability to withstand external forces.

Rating Scale A B+ B B- C D

Superior Very Strong Strong Satisfactory Weak Very Weak Not applicable

With Profits Financial Strength Rating The objective is to provide a simple indication of the with profits financial strength of a company, where it currently offers with profits business or has existing with profits business within it. Rating & Assessment Commentary & Assessment Rating This is from the perspective of those financial advisers who when acting on behalf of their clients, for this product type, need to ascertain a company's ability to deliver sustained operational provision of with profits funds, products or propositions. Its comparison is with other companies within the assessment sector that offer or have with profits business.

The main criteria taken into account are: capital and asset position, expense position and profitability, the amount of with profits business in-force, parental strength (and likely attitude towards supporting the company), and image and strategy.

NOTE: More detailed analysis of with profits companies is included in AKG’s UK Life Office With Profits Reports.

Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Group & Parental Context & Parental Group

Unit Linked Financial Strength Rating The objective is to provide a simple indication of the unit linked financial strength of a company, where it currently offers unit linked business or has existing unit linked business within it. This is from the perspective of those financial advisers who when acting on behalf of their clients, for this product type, need to ascertain a company's ability to deliver sustained operational provision of unit linked products or propositions. Its comparison is with other companies within the assessment sector that offer or have unit linked business.

The main criteria taken into account are: capital and asset position, expense position and profitability, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management strength and capability, strategic position and rationale, brand and image, typical fund performance achievements or product / service features, its operating environment and ability to withstand external forces. Company Analysis Company Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Non Profit Financial Strength Rating The objective is to provide a simple indication of the non profit financial strength of a company, where it currently offers or has existing products and propositions such as term assurance and annuities. This focuses on the company’s ability to deliver sustained operational provision of such non profit products or propositions. Its comparison is with other companies

within the assessment sector that offer or have non profit business.

Guide The main criteria taken into account are: capital and asset position, expense position and profitability, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management strength and capability, strategic position and rationale, brand and image, product / service features, its operating environment and ability to withstand external forces.

LV= PROVIDER SECTOR

Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Service Rating The objective is to assess the quality of the organisation's service to the intermediary market in respect of the brand concerned.

Criteria taken into account include: performance in surveys, awards and benchmarking exercises (external and internal), the organisation's philosophy, service charters, the extent of investments designed to improve service, and feedback from

Rating & Assessment Commentary & Assessment Rating intermediaries.

Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Image & Strategy Rating The objective is to assess the effectiveness of the means by which the organisation currently positions itself to distribute its products for the brand concerned and the plans it has to maintain and/or develop its position.

Criteria taken into account include: overall trends in the company’s market share position, brand visibility and reputation, feedback from intermediaries and industry commentators, and AKG’s view of the company’s general strategy. Group & Parental Context & Parental Group

Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Business Performance Rating This review is an assessment of how the company and the brand has fared against its peers, and how it is perceived externally. Effectively this is how it has performed recently in the market. Whilst it will include performance indicators from the most recent available statutory reporting (report and accounts and SFCRs in the case of insurance companies, for example) it will also draw on other recent key performance elements before and after such disclosure, up to the point at which the assessment is undertaken. Company Analysis Company Criteria taken into account include: increase/decrease in market shares, expense containment, publicity good or bad, press or market commentary, regulatory fines, and competitive position.

Rating Scale

Excellent Very Good Good Adequate Poor Not Rated

Guide

LV= PROVIDER SECTOR

ABOUT AKG

AKG is an independent organisation. Originally established as an actuarial consultancy AKG has, for over 20 years, specialised in the provision of assessment, ratings, information and market assistance to the financial services industry.

As the market has evolved over this period, the range of entities considered by AKG has expanded. Consequently, AKG has brought additional skill sets into its operations. This has meant the inclusion of accounting, corporate finance, IT and market intelligence experience, alongside actuarial resources, to deliver an expanded professional capability.

Today AKG’s core purpose is in the provision of financial analysis and review services to support the wider financial services

Rating & Assessment Commentary & Assessment Rating sector and its customers.

Group & Parental Context & Parental Group

This report is issued as at a certain date, and it remains AKG's current assessment with current ratings until it is superseded by a subsequently issued report or subsequently issued ratings (at which point the newly issued report or ratings should be used), or until AKG ceases to make such a report or ratings available. Company Analysis Company The report contains assessment based on available information at the date as shown on the report’s cover and in its page footer. This includes prior regulatory data which may have an earlier date associated with it, but the report also takes into account all relevant events and information, available to and considered by AKG, which have occurred prior to this stated cover and footer date. Events and information subsequent to this date are not covered within it, but AKG continually monitors and reviews such events and information and where individually or in aggregate such events or information give rise to rating revision an updated report under an updated date is issued as soon as possible.

All rights reserved. This report is protected by copyright. This report and the data/information contained herein is provided on a single site multi user basis. It may therefore be utilised by a number of individuals within a location. If provided in paper form this may be as part of a physical library arrangement, but copying is prohibited under copyright. If provided in electronic form, this may be by means of a shared server environment, but copying or installation onto more than one computer is prohibited under copyright. Printing from electronic form is permitted for own (single location) use only and multiple printing for onward distribution is prohibited under copyright. Further distribution and uses of the report, either in its entirety or part thereof, may be permitted by separate agreement, under licence. Please contact AKG in this regard or with any questions:

[email protected], Tel +44 (0) 1306 876439. AKG has made every effort to ensure the accuracy of the content of this report and to ensure that the information contained is as current as possible at the date of issue, but AKG (inclusive of its directors, officers, staff and shareholders and any affiliated third parties) cannot accept any liability to any party in respect of, or resulting from, errors or omissions. AKG information, comments and opinion, Guide as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service.

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