OUR SHARED TOMORROW OUR SHARED TOMORROW Annual Report and Accounts for the year ended 31 December 2018 Royal London Group Group London Royal Annual Report and Accounts 2018 P5-RL18ARA The Royal London Mutual Insurance Society Limited royallondon.com Registered Number 99064 WE ARE ROYAL LONDON Founded in a London coffee shop in 1861,we’ve been helping people to help themselves ever since. We’re committed to delivering the best value for our customers and members. Our vision Our purpose We aim to become the We’re a member-owned business, so most trusted and recommended everything we do is about improving provider in our chosen markets the lives of our customers, members by creating the best customer and and wider society in the areas where member outcomes and experiences we have expertise Our culture and values Our culture defines how we do things at Royal London. Our values are woven into how we work together and how we develop our people We’re empowered We collaborate We’re trustworthy We achieve Our people have Working together, People can approach Our customers and the confidence and we help develop us any time – we pride members receive the authority to act – our people’s ourselves on mutual best service from a everyone has a voice expertise trust and respect committed team Our stakeholders We actively engage with all our stakeholders, who influence everything we do Our customers Society, government Independent financial Our people and members and regulators advisers and intermediaries Designed and produced by Wardour, London STRATEGIC REPORT STRATEGIC Strategic report As the UK’s largest mutual life insurance, pensions and investment GOVERNANCE CORPORATE company, we can take a different perspective: rewarding our members and customers, and being a force for good in society. Our highlights What’s inside FINANCIAL STATEMENTS Financial performance 08 £396m EEV operating profit before tax (2017: £329m) Building Taking on the Strengthening EMBEDDED VALUE EUROPEAN financial resilience long-term savings crisis responsible business Creating social return Throughout this year’s Annual Report & Accounts you will find these three logos £150m repeated on a regular basis. They’ll tell you more about the way we work for your benefit. ProfitShare after tax1 (2017: £142m) 16 25 202% & RESOLUTIONS OF AGM NOTICE Solvency II capital ratio2 (2017: 228%) £114bn Funds under management Mellor Country House Insight into Work (2017: £114bn) This local charity based in the north west Find out more about the different ways is just one recipient of a Royal London you can gain work experience at Royal Foundation grant in 2018. Discover their London, via a scheme which is open to all amazing work and how you helped. our members and their direct families. Non-financial performance ADDITIONAL INFORMATION Other sections % 01 Strategic report 47 Corporate governance 81 02 What we do 48 Our leadership during 2018 Employee engagement 04 Our structure and products 50 Directors’ report for the year survey response (2017: 80%) 06 Strategy in action: Mustard Seed Autism ended 31 December 2018 07 Chairman’s statement 52 Corporate governance statement 08 Our strategy 57 Board Committees’ Reports 10 Key performance indicators 72 2018 Directors’ remuneration report 11 Group Chief Executive’s statement 1.4m 16 Strategy in action: Mellor Country House 86 Financial statements Total number of members (2017: 1.2m) 17 Our stakeholders 86 Independent auditors’ report 25 Strategy in action: Work experience 26 Group Finance Director’s report 184 European Embedded Value 38 Risk management and internal control 40 The Group’s risk 198 Notice of AGM & resolutions £455,000 governance structures Foundation grants and Community 41 Principal risks and uncertainties 199 Additional information donations in 2018 (2017: £299,000) 45 Longer-term viability statement 199 Glossary 1 For an explanation of ProfitShare, see Glossary on page 199. 2 The Solvency II capital ratio is the total Own Funds of the Royal London Open Fund and Royal London Closed Funds divided by the Solvency Capital Requirement. It is before the restriction of the surplus in the Royal London Group Annual Report and Accounts 2018 01 Closed Funds. We call this the ‘investor view’. Strategic report – Our business model What we do Our business model is central to driving our strategy, which delivers both social and economic value. We make effective use of our resources and relationships to create long-term and sustainable value for all our stakeholders. At the heart of Royal London are our members and customers. INPUTS OUTPUTS ction Roya rote l Lo d P nd an on s A on s Social value si s \ People n et Raising awareness of relevant e M P d a issues to our policyholders te n a a i g \ Helping to secure financial futures d e e m \ Financial education m e r n e Service t t \ Responsible investment n I MEMBERS AND CUSTOMERS Investment Economic value \ Profit growth \ Capital management r L e e m \ Asset share and investment returns g u ac s y on \ ProfitShare Innovation C OUR DIVISIONS Intermediated Pensions and Protection Royal London Asset We work with independent financial Management (RLAM) advisers and intermediaries to bring our RLAM manages £114bn in funds protection and pension products, such as for Royal London’s policyholders our Diabetes product, to their clients in and external clients. the UK and Republic of Ireland. Legacy Consumer The Legacy division manages Non-advised direct to consumer Royal London’s operations protection and savings products, that are closed to new business, such as Over 50s life cover. including our closed life funds. 02 Royal London Group Annual Report and Accounts 2018 STRATEGIC REPORT STRATEGIC CORPORATE GOVERNANCE CORPORATE ABOUT OUR INPUTS Our inputs are our resources and relationships that are critical for our long-term FINANCIAL STATEMENTS and sustainable success. They feed into all four divisions of Royal London. People Service Investment Innovation Our 3,898 people are critical We’re proud of our To continue our success, We innovate to build new to delivering our vision. outstanding service we put resources into products and services, along As members, as well as reputation, and always improving and developing with continuing to enhance employees, it’s vital that aim to respond to and our core capabilities, as existing products that offer EUROPEAN EMBEDDED VALUE EUROPEAN they’re engaged and believe exceed changing customer well as our people. added value to customers and in Royal London to build and adviser needs. members, and protect their its future. interests over the long term. % % 81 +60.4 £300m+ 23 The overall Group response The percentage of customers The amount invested in 2018 Over 50s life assurance rate to our latest employee who would recommend in improving and developing 2018 market share engagement survey Royal London products/ technology and change (2017: 20%) (2017: 80%) services to others in 2018 products (2017:£180m) & RESOLUTIONS OF AGM NOTICE (2017: +58.8) more on p19 more on p24 more on p13 more on p29 ABOUT OUR OUTPUTS Our outputs are the values we create as a business, which benefit all our stakeholder groups: members, customers, suppliers, our people, government, society and advisers. ADDITIONAL INFORMATION Social value Economic value Royal London aims to have As a major UK investor, we Our ability to make a Effective capital a positive and growing work with the companies we meaningful social impact management strategies impact on society. We invest in to encourage them is dependent on us ensure we have a strong work hard to help our one to manage in a responsible remaining a successful capital base to safeguard million plus customers manner, for example business, with the our financial commitments and members save for a by focusing on their resources to invest in to our customers and successful later life, and to environmental footprint areas and issues that are members, to fund future protect their families from and developing their own key to our customers, profitable growth and to life’s storms and setbacks. positive social impact. members and society. deliver stability of income. 123 £3,739m Companies engaged on key issues arising in 2018 Total Embedded Value (2017: £3,560m) Royal London Group Annual Report and Accounts 2018 03 Strategic report – About us Our structure and products We operate in the pensions, protection and wealth management markets. We partner with advisers and their clients, and directly with our members and customers to deliver long-term growth and income. INTERMEDIARY Our Intermediary division distributes long-term savings and protection products via financial advisers to their clients. Long-term savings and protection Life cover Individual pensions Our Life cover provides An individual pension is a tax-efficient tailored protection for a way of saving for retirement. customer, or their loved ones, if they die or become % Workplace pensions terminally ill. of55 Child cover A workplace pension is a type of pension flexibility utilised that is set up by an employer, who will Critical Illness also contribute. Our Critical Illness cover pays out a lump sum or monthly At retirement income if a customer is diagnosed Our income drawdown product, with a critical illness or total Income Release, provides flexible access permanent disability, covered to retirement savings from age 55. by their plan. Income Protection Our Income Protection plans can help customers get an income if they’re off 2,305,000 work because of illness, injury or a total policies (2017: 2,068,428) terminal illness. CONSUMER We sell insurance and protection products directly to % consumers who can’t access or don’t want financial advice. 23over 50s market share Over 50s Term A guaranteed acceptance life insurance A life insurance and serious illness policy that covers the whole of the policy that pays a lump sum if death customer’s life and pays a lump sum or a specified serious illness occurs when death occurs.