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2020 LBG Insurance Fixed Income Presentation

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2020 LBG Insurance Fixed Income Presentation LBG INSURANCE FIXED INCOME INVESTOR PRESENTATION • October 2020 Classification: Public AGENDA TITLE SLIDE IS IN 1. Strategy SENTENCE2. Performance CASE. GREEN3. Solvency BACKGROUND. 004. Q&A Month 0000 Presenters Name 1 Classification: Public STRATEGY 2 Classification: Public Simple group structure with multiple issuance points HoldCo Lloyds Banking Group Main Entities A3 / BBB+ / A+ P-2 / A-2 / F1 Ratings Neg / Neg / Neg Senior Unsecured Example Products - Capital Ring-Fenced Sub-Group Non-Ring-Fenced Sub-Group Insurance Sub-Group Equity Investments Sub-Group Lloyds Bank, Bank of Scotland Lloyds Bank Corporate Markets Scottish Widows Lloyds Equity Investments Aa3 / A+ / A+ A1 / A / A+ A2 / A / AA- P-1 / A-1 / F1 P-1 / A-1 / F1 - / A-1 / F-1 - - Neg / Neg / Neg Sta / Neg / Neg Sta / Neg / Neg Senior Unsecured Covered Bonds CD, CP Senior Unsecured CD, Yankee CD, CP Capital - - - ABS L&A: £488bn Assets: £608bn L&A: £25bn Assets: £80bn L&A: N/A Assets: £160bn L&A: N/A Assets: £4bn EU sub: Berlin EU sub: Frankfurt EU sub: Luxembourg 1 - Ratings shown as Moody’s/S&P/Fitch. 2 – Rating shown is for Scottish Widows Ltd Insurance Financial Strength Rating. 3 – Insurance assets includes Wealth. 4 – “L&A” refers to Loans & Advances to Customers and banks. 5 – L&A & Total Assets as at 3 H1 2020, except LBCM which is as at FY 19. Classification: Public Simplified Insurance Group Structure Insurance Sub-Group Scottish Widows Group Ltd HBOS Investment Fund Lloyds Bank General Scottish Widows Ltd Managers Ltd Insurance Holdings Ltd Lloyds Bank General St Andrews Insurance Scottish Widows Insurance Ltd plc Europe 4 Classification: Public Our strategy is to Help Britain Prosper by helping our customers protect today and secure tomorrow 5 Classification: Public Group business model is unique with distinctive competitive strengths UK’s largest financial services provider Our Helping Britain purpose Prosper 16.4m In 2019, we helped 26m Digitally active 350,000 customers - we Best financial services customers remain the UK’s people save for their provider for customers, largest digital bank future Our aim colleagues and shareholders Our Digitised, simple, low risk, customer focused, business UK financial services model provider 6 Classification: Public Uniquely positioned, integrated business, targeting growth in a number of attractive markets Franchise Direct Intermediary • Comprehensive insurance proposition, providing all financial needs in one place • Supported by unrivalled multi-brand and multi-channel model, including the largest UK digital bank Retirement & General Protection • Strong position in a number of markets following restructuring Investment Insurance since 2015 and significant investment Over 10m £160bn Customers AuA • Clear strategy, focused on leveraging opportunities across the Group while extending digital capabilities to deliver new Net income by product (%) propositions and enhance engagement £1,770m • Provides capital synergies for Group, in addition to regular 2019 29% 21% 16% 12% 22% dividend upstreaming £1,656m • Well positioned for growth over medium term: 2015 20% 21% 7% 20% 32% • Full service offering across fast growing and attractive Financial Planning & Resilience markets Workplace Planning and Retirement GI & Protection Individual and Bulks Life and Pensions Experience and other Longstanding LP&I 7 Classification: Public Significant progress since 2015, capturing growth in key markets Market position1 Share New business CAGR Share ambitions Key growth (Dec 2019) Flow 2015 - 2019 Flow initiatives Market • Wider access to Workplace Workplace Pensions 14.5% +34% +17% 15% by 2020 pensions market supported by single, integrated platform (#2) • Individual annuities open market Individual Annuities 15% by 2020 11.3% +14% 0% proposition launched H2 ‘19 (#4) • Increasing reach through Home Insurance 14.7% +14% +2% #1 Provider branch network and new products (e.g. landlord) (#1) • Individual protection platform Protection Top 3 medium term 4.4% +45% +5% launching 4Q 2020 (outside top 5) • Equity release products distributed through specialist Bulk Annuities +12% Market dependent 4.8% +62% advisers supporting growth of (#6) bulk annuities business Ind. Pensions & Increasing share • Exploring range of options Drawdown 3.0% +8% +8% (outside top 10) 1 – Market positions based on analysis of various data sources including Corporate Adviser, Ipsos MORI’s FRS, Lane, Clarke & Peacock report and published results 8 Classification: Public Short term Covid-19 impacts felt across the business… Customer Support New Business . Payment holidays on premiums and accelerated claims . Life & pensions up 15% if Life & Pensions PVNBP -8% payments for life and critical illness exclude auto-enrolment 8,568 8,947 impact in 2019 7,880 . Free additional personal belonging cover for NHS workers and reduced medical evidence requirements to . Individual annuity market alleviate pressure on GPs impacted by lower rates; bulk H1 19 H2 19 H1 20 annuity flow decreased GI New GWP . Over 3,700 laptops distributed to staff to enable them to -13% 64 63 continue to serve customer needs . GI and Protection relatively 56 resilient but branch sales impacted H1 19 H2 19 H1 20 Market Impacts Solvency . Sensitivities to market movements have behaved as . SWG H1 Solvency Ratio of 140%; in-line with risk expected appetite . Negative impact of rate falls on solvency through . £250m dividend paid to Group in February before increased SCR and Risk Margin change in PRA guidance plus £185m special dividend related to gain on sale of assets to Schroders Personal . Credit spread widening largely offset by Matching Wealth joint venture Adjustment . £87m of credit downgrade capital impact on high quality £17bn annuity portfolio . 40% AA rated or higher; <1% sub IG . Equity hedge provides protection 9 Classification: Public …but longer term, expect increased focus on unmet financial resilience Unmet need for support in managing Covid-19 has increased focus on gaps in long- financial health term planning Homogeneous desire across of people feel they are £ customer segments to manage unprepared for retirement long-term financial future in one with 61% concerned place 50% they will run out of money Clear and growing need for advice and guidance; increased appetite for delivery through digital feel they cannot channels manage and control 63% long-term finances £ Helping people make the most of all their assets, up and into retirement people will suffer an illness that limits their ability to work. 82% of Greater focus on protection and 1 in 4 UK adults have no form resilience as a result of customer’s of critical illness cover crisis experience Source: FCA Financial Lives Survey, Just, FRS, ABI, ONS, Macmillan Cancer Research 10 Classification: Public Continued development of tech offering <2018 2018 2018 / 2019 2020 2020+ • No modern tech • Digital Workplace • Engage customers • Scottish Widows app • Scaling Scottish Digital proposition pensions launched as a segment of one pilot launched with Widows app and for insurance & unlocking the • Scaled to over 250k • ~1.5m customers positive initial investments franchise registered members view their pension feedback • Focus on digitising each month via • Use of banking apps • >250k people view • Biometric log on the retail bank internet banking and and internet banking their pension each over 9m via their • Single customer to service accounts month on the mobile app authentication e.g. stockbroking Employee Hub portal Raising Awareness of “future you” Moment of Truth/ Accessing my Pension monies Over 6m customers have access to their insurance Workplace customers can access their pension monies products alongside their bank account, viewing these digitally – value up to £30k. Previously a 1 hour, 2 step products 15m times a month, this was 0 in 2018 phone call can now be done at any time taking 2-10 mins. Empowering customers to make decisions 42% conversion rate within Employee Hub Pension Transfer journey. Authenticated Pension transfer journey across all Banking Brands. Iterative customer feedback loops has improved conversion rate (24% to 42%) 11 Classification: Public Schroders Personal Wealth – aiming to become a top 3 financial planning business by end of 2023 A unique proposition… …in an attractive market …well positioned to be Top 3 A clear ambition… Innovative product Referral channel allows for offering with wide inflows from >1m LBG range of best-in- Top 3 financial planning customers with a potential class solutions business by end of 2023 wealth advice need Measuring growth across four areas: Backed by Tapping into the growing trusted brands mass affluent market backed Assets under by world-class investment administration Advisers expertise and technology FY19: £14.8bn FY19: c.307 FTE Significant Potential inorganic expansion Net new distribution to accelerate growth in line Profitability footprint and with our strategic priorities business flow FY19: £6.3m1 digital reach FY19: £374m 1. Profit after tax 12 Classification: Public PERFORMANCE 13 Classification: Public Overview of H1 2020 Financials LP&I New Business Income (£m) Total Underlying Income (£m) Insurance & Wealth Underlying 1,223 Profit (£m) 340 659 288 1,011 1,039 268 968 949 258 244 875 867 480 470 447 429 407 153 379 128 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 2017 2017 2018 2018 2019* 2019* 2020 2017 2017 2018 2018 2019* 2019* 2020 Total Longstanding LP&I H1 H2 H1 H2 H1 H2 H1 Individual & bulk annuities Protection Longstanding LP&I Protection Individual & bulk annuities 2017 2017 2018 2018 2019* 2019* 2020 Workplace, planning & retirement LP&I Experience & Other Items PVNBP (£m) Insurance & Wealth Operating Underlying Profit (£m) 8,568 8,947 Costs (£m) 7,483 7,880 6,901 556 534 539 480 659 484 487 429 470 447 443 459 407 4,984 4,967 3,754 3,523 3,385 3,535 3,206 2,930 379 -660 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 2017 2017 2018 2018 2019* 2019* 2020 2017 2017 2018 2018 2019* 2019* 2020 2017 2017 2018 2018 2019 2019 2020 Rest of Group Insurance * 2019 restated to reflect the Group’s adoption of the Sterling Overnight Index Average (SONIA).
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