Transcription
LBG INSURANCEFIXED INCOME INVESTOR PRESENTATION October 2020
Classification: PublicAGENDATITLE SLIDE IS INSENTENCE CASE.GREEN BACKGROUND.1. Strategy2. Performance3. Solvency00Month 00004. Q&APresenters Name1
Classification: PublicSTRATEGY2
Classification: PublicSimple group structure with multiple issuance pointsHoldCoLloyds Banking GroupMain EntitiesRatingsExample ProductsA3 / BBB / A Neg / Neg / NegP-2 / A-2 / F1Senior UnsecuredCapital-Ring-Fenced Sub-GroupNon-Ring-Fenced Sub-GroupInsurance Sub-GroupEquity Investments Sub-GroupLloyds Bank, Bank of ScotlandLloyds Bank Corporate MarketsScottish WidowsLloyds Equity InvestmentsAa3 / A / A Neg / Neg / NegP-1 / A-1 / F1A1 / A / A Sta / Neg / NegP-1 / A-1 / F1A2 / A / AASta / Neg / Neg- / A-1 / F-1--Senior UnsecuredCovered BondsABSCD, CPSenior UnsecuredCD, Yankee CD, CPCapital---L&A: 488bnAssets: 608bnL&A: 25bnAssets: 80bnL&A: N/AAssets: 160bnL&A: N/AAssets: 4bnEU sub: BerlinEU sub: FrankfurtEU sub: Luxembourg1 - 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 atH1 2020, except LBCM which is as at FY 19.3
Classification: PublicSimplified Insurance Group StructureInsurance Sub-GroupScottish Widows Group LtdScottish Widows LtdScottish WidowsEuropeHBOS Investment FundManagers LtdLloyds Bank GeneralInsurance Holdings LtdLloyds Bank GeneralInsurance LtdSt Andrews Insuranceplc4
Classification: PublicOur strategy is to Help Britain Prosper by helping our customers protecttoday and secure tomorrow5
Classification: PublicGroup business model is unique with distinctive competitive strengthsUK’s largest financial services providerOurpurposeHelping BritainProsper26mOur aimBest financial servicesprovider for customers,colleagues andshareholdersOurbusinessmodelDigitised, simple, lowrisk, customer focused,UK financial servicesprovidercustomers16.4mDigitally activecustomers - weremain the UK’slargest digital bankIn 2019, we helped350,000people save for theirfuture6
Classification: PublicUniquely positioned, integrated business, targeting growth in a number of attractivemarketsFranchiseDirectIntermediary Comprehensive insurance proposition, providing all financialneeds in one place Retirement &InvestmentGeneralInsuranceProtectionOver 10m 160bnCustomersAuA Strong position in a number of markets following restructuringsince 2015 and significant investment Clear strategy, focused on leveraging opportunities across theGroup while extending digital capabilities to deliver newpropositions and enhance engagement Provides capital synergies for Group, in addition to regulardividend upstreaming Well positioned for growth over medium term:Net income by product (%) 1,770m201929%21% 16% 12% 22% 1,656m201520%21% 7% 20%32%Workplace Planning and RetirementGI & ProtectionIndividual and BulksLife and Pensions Experience and otherSupported by unrivalled multi-brand and multi-channelmodel, including the largest UK digital bank Full service offering across fast growing and attractiveFinancial Planning & Resilience marketsLongstanding LP&I7
Classification: PublicSignificant progress since 2015, capturing growth in key marketsMarket position1ShareNew business CAGRShare ambitions(Dec 2019)Flow2015 - 2019FlowMarketWorkplace Pensions Wider access to Workplace14.5% 34% 17%15% by 202011.3% 14%0%15% by 202014.7% 14% 2%#1 Provider4.4% 45% 5%Top 3 medium term4.8% 12% 62%3.0% 8% 8%(#2)Individual AnnuitiesKey growthinitiativespensions market supported bysingle, integrated platform Individual annuities open marketproposition launched H2 ‘19(#4)Home Insurance(#1)Protection Increasing reach throughbranch network and newproducts (e.g. landlord) Individual protection platformlaunching 4Q 2020(outside top 5) Equity release productsBulk AnnuitiesMarket dependent(#6)Ind. Pensions &DrawdownIncreasing sharedistributed through specialistadvisers supporting growth ofbulk annuities business Exploring range of options(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 results8
Classification: PublicShort term Covid-19 impacts felt across the business Customer SupportNew Business Payment holidays on premiums and accelerated claimspayments for life and critical illness Life & pensions up 15% ifexclude auto-enrolmentimpact in 2019 Free additional personal belonging cover for NHSworkers and reduced medical evidence requirements toalleviate pressure on GPs Over 3,700 laptops distributed to staff to enable them tocontinue to serve customer needs Individual annuity marketimpacted by lower rates; bulkannuity flow decreased GI and Protection relativelyresilient but branch salesimpactedLife & Pensions PVNBP8,5688,947-8%7,880H1 19H2 19H1 20GI New GWP-13%6463H1 19H2 1956H1 20Market ImpactsSolvency Sensitivities to market movements have behaved asexpected SWG H1 Solvency Ratio of 140%; in-line with riskappetite Negative impact of rate falls on solvency throughincreased SCR and Risk Margin 250m dividend paid to Group in February beforechange in PRA guidance plus 185m special dividendrelated to gain on sale of assets to Schroders PersonalWealth joint venture Credit spread widening largely offset by MatchingAdjustment 87m of credit downgrade capital impact on high quality 17bn annuity portfolio 40% AA rated or higher; 1% sub IG Equity hedge provides protection9
Classification: Public but longer term, expect increased focus on unmet financial resilienceUnmet need for support in managingfinancial health50%63%of people feel they areunprepared for retirementwith 61% concernedthey will run out of moneyCovid-19 has increased focus on gaps in longterm planning Clear and growing need for adviceand guidance; increased appetitefor delivery through digitalchannelsfeel they cannotmanage and controllong-term finances 1 in 4people will suffer anillness that limits theirability to work. 82% ofUK adults have no formof critical illness coverHomogeneous desire acrosscustomer segments to managelong-term financial future in oneplaceHelping people make the most ofall their assets, up and intoretirementGreater focus on protection andresilience as a result of customer’scrisis experienceSource: FCA Financial Lives Survey, Just, FRS, ABI, ONS, Macmillan Cancer Research10
Classification: PublicContinued development of tech offering 20182018 No modern techDigital propositionfor insurance &investments Focus on digitisingthe retail bank2018 / 2019 Digital Workplacepensions launched Engage customersas a segment of one Scaled to over 250kregistered members 1.5m customersview their pensioneach month viainternet banking andover 9m via theirmobile app 250k people viewtheir pension eachmonth on theEmployee Hub portalRaising Awareness of “future you”Over 6m customers have access to their insuranceproducts alongside their bank account, viewing theseproducts 15m times a month, this was 0 in 2018Empowering customers to make decisions42% 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%)20202020 Scottish Widows apppilot launched withpositive initialfeedback Scaling ScottishWidows app andunlocking thefranchise Biometric log on Use of banking appsand internet bankingto service accountse.g. stockbroking Single customerauthenticationMoment of Truth/ Accessing my Pension moniesWorkplace customers can access their pension moniesdigitally – value up to 30k. Previously a 1 hour, 2 stepphone call can now be done at any time taking 2-10mins.11
Classification: PublicSchroders Personal Wealth – aiming to become a top 3 financial planning businessby end of 2023A unique proposition in an attractive market well positioned to be Top 3A clear ambition Innovative productoffering with widerange of best-inclass solutionsReferral channel allows forinflows from 1m LBGcustomers with a potentialwealth advice needTop 3 financial planningbusiness by end of 2023Measuring growth across four areas:Backed bytrusted brandsSignificantdistributionfootprint anddigital reachTapping into the growingmass affluent market backedby world-class investmentexpertise and technologyPotential inorganic expansionto accelerate growth in linewith our strategic prioritiesAssets underadministrationAdvisersFY19: 14.8bnFY19: c.307 FTENet newbusiness flowProfitabilityFY19: 374mFY19: 6.3m11. Profit after tax12
Classification: PublicPERFORMANCE13
Classification: PublicOverview of H1 2020 FinancialsLP&I New Business Income ( m)1,223340268258Insurance & Wealth UnderlyingProfit ( m)Total Underlying Income ( m)1,011 968 1,039 2H12017 2017 2018 2018 2019* 2019* 2020H1H2H1H2H1H2H12017 2017 2018 2018 2019* 2019* 2020Individual & bulk annuitiesProtectionLongstanding LP&I8,568 8,9477,483TotalProtectionWorkplace, planning & retirementLongstanding LP&IIndividual & bulk annuitiesLP&I Experience & Other ItemsInsurance & Wealth OperatingCosts ( m)PVNBP ( m)7,8806,9013795564844,984 4,967534487H1H2H1H2H1H2H12017 2017 2018 2018 2019* 2019* 2020Underlying Profit ( m)5394434594294704804476594073,523 3,206 3,754 3,385 3,5352,930379-660H1H2H1H2H1H2H12017 2017 2018 2018 2019* 2019* 2020H1H2H1H2H1H2H12017 2017 2018 2018 2019* 2019* 2020* 2019 restated to reflect the Group’s adoption of the Sterling Overnight Index Average (SONIA).H12017H22017H12018H22018Rest of GroupH12019H22019H12020Insurance14
Classification: PublicSOLVENCY15
Classification: PublicSubordinated Debt PositionSWG Consolidated Group Subordinated Debt Profile ( m) (3,4)InternalExternalScottish Widows Debt tyNotionalSW LtdTier 25.5%Apr-13Jun-23Jun-23 850mSW LtdTier 27.0%Apr-13Jun-43Jun-43 650mSWGTier 11,2L 7.75%Jul-11Jul-21Perp 595m600SWGTier 11,2L 5.5%Jul-11Jul-21Perp 524m400SWGTier 21L 5.0%Jul-11Jul-21Jul-41 75mSWGTier 22L 5.8%Dec-16Dec-21Perp 305mSWGTier 2L 3.15%Jun-15Sep-20Jun-25 560m160014001200100080020002020under Solvency II2 Convertible instruments2022External T231 Grandfathered202142023Internal T120242025 Internal T2Shown to 1st call date for illustrative purposes – this should not be interpreted as guidance for future intentionsInstruments classified as per Solvency II Grandfathering rules External instruments issued mainly from Scottish Widows Ltd(post Part VII) Stub CMF instrument called in November 2019 Internal instruments issued by Scottish Widows Group to LloydsBanking Group entities Continue to proactively manage relationship with investors 2020 internal instrument call date extended to 2025 Number of debt instruments have convertible features whichautomatically convert to equity when solvency ratio fallsSource: Scottish Widows Group Solvency & Financial Condition Report 2019, QRTs16
Classification: PublicSolvency Position Breakdown YE19150% Figures shown are for ScottishWidows Limited on a regulatory basisas shown in the SFCR Scottish Widows manages capital on ashareholder basis (i.e. excluding WithProfits impact) at the Scottish WidowsGroup level:Gross Risk Margin: 2.2bnTransitional: 1.6bnNet Risk Margin: 0.6bn 163% at YE 2019 post-dividend(170% pre dividend) 140% at HY 2020 (Reduction fromYE19 driven by impact ofsignificant interest rate falls andnew business strain).Clear solvency strategy in-line withGroup policy Risk appetite based on 1:10 event Group capital strategy to hold capitalcentrally – surplus capital typicallyreturned to Group No external pressure to meet fixedpayout ratioSource: Scottish Widows Group Solvency & Financial Condition Report 2019, QRTs17
Classification: PublicSolvency Position Breakdown YE19150TransitionalsMatchingAdjustmentYE 2019 ( bn)SWLSWGOwn Funds7.78.3SCR5.25.4150%155%RegulatoryRatio (postdividend)SWL Capital Generation – Capital generationover 2019 primarily from capital initiatives such asrecognition of the equity hedge within the internalmodel calculation.Source: Scottish Widows Group Solvency & Financial Condition Report 2019, QRTs18
Classification: PublicSolvency Position BreakdownTotals 7.7bn 15.5bn 9.6bn 0.7bn 5.2bn150%Between risk category diversification benefit of 28%Source: Risk Breakdowns from Scottish Widows Group Solvency & Financial Condition Report 2019, Section C19
Classification: Public2018 – 2019 SWG Solvency WalkAs the predominant entity within Insurance Group, SWL’s capital movements are materially consistent with SWGEligible OwnFundsSCROpening balance : 31 December 20188,5985,677M&A 1Regulatory & other model changes 2Operating impact : New business contribution 3Expected in-force contributionAssumption changes & experience variancesDebt costsMarket variancesMaterial miscellaneous items 4Other non-operating changes 5Capital management 9)139Closing balance : 31 December 20198,2705,352 mSource: Scottish Widows Group Solvency & Financial Condition Report 2019325(486)Notes1) Changes in the valuation of underlying investmentsubsidiaries, driven by transfer of assets toSchroders Personal Wealth and acquired ZurichFinancial Services business transferred by Part VIIto SWL in 2019.2) Impact of the PRA-approved 2019 Equity HedgeMajor Model Change and other model methodologychanges.3) End of year impact from writing new business in2019.4) Includes recalculation of Transitional Measures onTechnical Provisions and annual run-off, with-profitsand GI changes and other significant one-off items.5) Represents the change in Capital Tieringrestrictions over 2019 and the difference betweenForeseeable Dividends at YE18 and YE19.6) Dividends paid in 2019.20
Classification: Public2019 Risk & Capital Management UpdateZurich UKWorkplaceacquisitionThe acquisition is a key enabler to accelerate the Group’s development of its financial planning and retirementbusiness and completion of the Part VII transfer on July 1 2019, brought around 21bn of assets underadministration.ScottishWidowsEuropeScottish Widows Europe (“SWE”), was formed in 2018 to mitigate the risks arising from the UK’s exit from theEU. SWE is a subsidiary of SWL and the existing European business (previously held within SWL) wastransferred to SWE via an insurance business transfer scheme, under Part VII of the Financial Services andMarkets Act 2000, on 29 March 2019.Equity hedgeIn November 2018, Insurance implemented a hedge of equity risk. The hedge was executed by selling equityfutures and has since been rebalanced and rolled. Following regulatory approval as part of the 2019 Major ModelChange, the Equity Hedge resulted in a reduction in capital requirements of 580m at year end 2019.Joint VentureIn order to support the launch of the joint venture with Schroders, Scottish Widows Unit Trust Managers Limited(‘SWUTM’), a subsidiary undertaking of SWL, transferred the management of 12.5bn of wealth-related assets toa subsidiary of the joint venture company, Scottish Widows Schroder Personal Wealth ACD Limited (‘SPWACD’).In exchange for the transfer of the rights to manage the funds, SWUTM received 192m in cash consideration.MarketImpactsOver 2019, interest rates fell considerably, with the 15-year EIOPA rate hitting a low of 0.51% at the end ofAugust before rising again to 1% at the end of December. Whilst the recalculation of transitional benefits at 31December 2019 reduced the impacts of interest rate falls, solvency ratios were adversely impacted in aggregate.Further adverse market volatility over 2020 associated with Covid-19 has resulted in further reductions insolvency ratios.Source: Scottish Widows Group Solvency & Financial Condition Report 201921
Classification: PublicQ&A
Classification: PublicForward looking statements and basis of presentationThis document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, asamended, with respect to the business, strategy, plans and/or results of Lloyds Banking Group plc together with its subsidiaries (the Group) and its current goals and expectations relating to its futurefinancial condition and performance. Statements that are not historical facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward lookingstatements. Words such as ‘believes’, ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of these words and similar future orconditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. Examples of such forward looking statements include, but are notlimited to: projections or expectations of the Group’s future financial position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interestmargin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Group’s future financialperformance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of the Group or its management including in respect of statements about the futurebusiness and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographicdevelopments; statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying suchstatements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that couldcause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Group or on its behalf include,but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock marketsand currencies; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Group’s creditratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; the ability to achieve strategicobjectives; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; concentration of financial exposure; managementand monitoring of conduct risk; instability in the global financial markets, including Eurozone instability, instability as a result of uncertainty surrounding the exit by the UK from the European Union (EU) andas a result of such exit and the potential for other countries to exit the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instabilityincluding as a result of any UK general election; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyberand other attacks; natural, pandemic (including but not limited to the coronavirus disease (COVID-19) outbreak) and other disasters, adverse weather and similar contingencies outside the Group’s control;inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; risks relating toclimate change; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottishindependence; changes to regulatory capital or liquidity requirements and similar contingencies outside the Group’s control; the policies, decisions and actions of governmental or regulatory authorities orcourts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Group; theability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Group's directors, management or employees including industrial action;changes to the Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, marketdisruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions ofcompetitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competitionproceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Banking Group plc with the US Securities and Exchange Commission for a discussion ofcertain factors and risks together with examples of forward looking statements. Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with orfurnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and otherwritten materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to third parties, including financial analysts. Except as required by any applicable law orregulation, the forward looking statements contained in this document are made as of today's date, and the Group expressly disclaims any obligation or undertaking to release publicly any updates orrevisions to any forward looking statements contained in this document to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on whichany such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financialinstruments or any advice or recommendation with respect to such securities or financial instruments.23
wealth advice need Tapping into the growing mass affluent market backed by world-class investment expertise and technology Potential inorganic expansion to accelerate growth in line with our strategic priorities Measuring growth across four areas: Assets under administration FY19: 14.8bn Advisers FY19: c.307 FTE Net new business flow FY19: 374m
