2013 Full Year Results 19 March 2014 Agenda 1 Introduction Steve - PowerPoint PPT Presentation

2013 Full Year Results 19 March 2014

Agenda 1 Introduction Steve Groves, CEO Financial Results David Richardson, CFO 2014 and beyond Steve Groves, CEO Q & A

Introduction 2

Summary performance in 2013 3 Focus on pricing Outperformed in a discipline disrupted market • Trade off between sales and • PA Sales down 3% at profits £1,229m • NSA market down 18% • Operating profits £131m, Continue to execute +17% our strategy • New Business margin 7.0% • Economic capital up to • Leverage IP 159% • Expand customer access • Maiden dividend of 3.0pps

The UK Annuity Market in 2013 4 Total UK Annuity Sales (£’m) 2013 total annuity sales down 3,887 3,664 2013 External Non-Standard 3,391 3,215 3,095 3,075 annuity sales down 18% 2,922 2,676 2,633 2,565 Market declined quarter on 2,405 2,298 2,187 2,238 2,060 quarter in 2013 1,827 1,254 1,099 986 917 908 862 837 849 Q1 - 12 Q2 - 12 Q3 - 12 Q4 - 12 Q1 - 13 Q2 - 13 Q3 - 13 Q4 - 13 External NSA market Other annuity sales OMO & Non-Standard Proportions OMO proportion fell in H1 2013 65% but began to recover in H2: 60% evidence that advice gap is being 55% filled 50% 45% NSA OMO penetration showing 40% steady progression Q1 - 12 Q2 - 12 Q3 - 12 Q4 - 12 Q1 - 13 Q2 - 13 Q3 - 13 Q4 -13 OMO proportion of total annuity sales Non-standard proportion of total OMO sales Source: ABI market data

Our strategy remains consistent 5 Leverage • Major enhancement to longevity basis delivered during year • Continuous development of proprietary IP delivering improved pricing Intellectual property and risk selection Increase Customer • Improvements to automated underwriting system enabling greater access for web-based specialists Access • Development of DB scheme proposition to extend coverage • Disciplined capital allocation and improved margin Improve • Equity release bulk transactions of £287m at attractive risk adjusted yields shareholder returns • Continue to expand asset class universe

Financial performance 6

Financial highlights 7 2013 2012 Change (%) SPE (£’m) New Business Premiums 1,229 1,265 -3% IFRS (£’m) New Business Operating Profit 85.7 93.9 -9% In-force Operating Profit 34.3 14.3 +140% Return on Surplus Assets 11.4 4.0 +185% Total Operating Profit 131.4 112.1 +17% Proposed dividend (pence per share) 3.0 - 31 Dec 13 31 Dec 12 Capital (%) Economic Capital Ratio 159% 151%* AUM (£’bn) Total Assets Under Management 4.1 3.3 +24% * Pro-forma basis adjusting for capital raised as part of IPO

New Business Premiums 8 • Total retirement sales flat year on £’m 2013 2012 Change (%) year Retirement (ex. DB) 1,076 1,168 -8% – 2012 comparative significantly boosted by regulatory change Retirement DB 84 - n.m. – Established market leading position in underwritten DB de-risking market Total Retirement 1,160 1,168 -1% • Care premiums down 30% Care 66 94 -30% – Improvement since half year Protection 3 3 - – Market remains slow Total New Business 1,229 1,265 -3% Partnership’s total New Business Premiums £’m 1,264 1,229 888 589 418 318 218 124 2006 2007 2008 2009 2010 2011 2012 2013

Retirement Annuity premiums 9 Share of external NSA 400 50% market over 2013 31% 40% 300 (2012: 27%) £’million 30% 200 20% Partnership’s share 100 (excluding bulk DB) 10% unusually high in Q1 2013, 0 0% but Q2-Q4 normalised Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 PA (ex DB) PA DB PA Share 2013 year-on-year growth rates (excluding DB Bulk sales) 20% 10% 0% PA outperformed market in -10% Q1 to Q3 -20% Partnership Returns failed to meet -30% Enhanced Annuity Market Partnership’s criteria at -40% times during Q4 -50% Q1 Q2 Q3 Q4 Source: ABI market data; Partnership sales

Care Annuity premiums 10 30 Signs that Care market is improving, but fragile 25 20 £’million 15 10 5 0 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13

Total Operating Expenses 1 11 • £’m Disciplined management of expense base 90 • Full annualised impact of Plc costs to come 83 through in 2014 (c. £4m additional) 75 • Operating leverage set to return in 2015 and 68 beyond 60 53 Operating expense development £’m 45 50 83.9 +7% 45 +5% 38 +33% 40 67.5 35 30 30 23 25 42.4 43.4 40.5 20 38.5 15 15 29.0 10 8 5 0 0 H1-12 H2-12 H1-13 H2-13 2011 2012 2013 1 Operating expenses exclude non-recurring expenditure

New Business Operating Profit 12 £’m • Maintained pricing discipline 120 – Ongoing development of IP to sustain this 8.3% 7.4% 7.0% • H2 margin 8% compared to 6% in H1 100 – Targeted risk selection enabled by IP – Yield benefit from attractive ER investments 80 New Business Operating Profit development £’m 60 7.9% 7.0% 6.0% 8.0% 60 50 93.9 40 85.7 40 74.0 30 49.1 47.5 44.8 20 38.2 20 10 0 0 2011 2012 2013 H1-12 H2-12 H1-13 H2-13 New Business Operating Profit as a proportion of New Business Premiums

In-Force Operating Profit 13 • Underlying performance 1 as expected £’m Assumption & other changes – No significant experience variances 40 – Narrowing credit spreads reduced underlying profit in Underlying performance H2 34.3 35 • Remainder of in-force driven by realised expense 30 savings: – transfer of re-insured block onto in-house admin 25 system 21.0 – passed ratchet point in TPA agreement 20 – new custodian agreement 14.3 In-force Operating Profit development £’m 15 18 20 2.9 16.3 15.7 15 10 10.6 8.7 10.4 10 13.3 1.9 11.4 5 5 7.4 7 5.9 4.4 4.3 0 -5.8 0 -5 -2.4 -1.4 -10 -5 H1-12 H2-12 H1-13 H2-13 2011 2012 2013 1 Underlying performance represents planned surplus emerging and experience variance against best estimate assumptions.

Return On Surplus Assets 14 £’m • Return has grown as a result of growth in 13 3.1% 2.3% 3.3% level of surplus assets and higher yield 12 11 10 – 2013 surplus assets on average approximately double the value in 2012 9 8 – Surplus cash largely invested in gilts and credit, 7 attracting higher yield 6 11.4 5 • Expect yield to stabilise at c. 3% in 2014 4 3 4.0 2 2.8 1 0 2011 2012 2013 Yield on surplus assets

Profit components below Operating Profit 15 Change £’m 2013 2012 (%) Operating Profit 131.4 112.1 17.2% • Narrowing spreads on corporate bonds resulted in Investment Variance 8.7 (3.3) positive variance • Primarily relate to expenses associated with IPO Other Items (32.0) (6.9) • Investment in systems and process, including to support Solvency II compliance, continues PBIT 108.1 101.9 7.3% Interest Expense (25.4) (34.4) • All debt paid down in August 2013 post IPO IFRS PBT 82.7 67.5 24.1%

Capital position 16 31 Dec 12 1 £’m 31 Dec 13 Economic Capital Ratio Sensitivities Economic Capital: 159% Year ended 31 December 2013 Available 467 381  Credit spread widening: Required 294 252  100 bps 157%  200 bps 153% Surplus 173 129  Eurozone crisis 151% Coverage Ratio 159% 151%  Lehman crisis 145%  152% Longevity - 5% deterioration IGD:  Property - 10% price fall from carrying 151% Available 469 352 value (equivalent to 30% fall from current market price) Required 193 163 Sensitivities demonstrate Surplus 276 189 continued robust capital Coverage Ratio 243% 216% position 1 31 December 2012 capital position is pro-forma, reflecting the benefit of additional capital raised during the IPO.

Dividends 17 • The Board has adopted a progressive dividend policy • Recommended final dividend for 2013 of 3.0 pence per share • Approximately 1/3 : 2/3 split for interim and final dividends

Summary 18 • Market share gains in Q1-Q3 Outperformed in a disrupted • Lead the development of the emerging underwritten DB market market • Partnership retirement sales in 2013 broadly flat, compared to 18% fall in external NSA market • Ongoing IP advantage allows selection of better margin business Focus on pricing discipline • Controlling expenses and return on capital • Deploying operational spare capacity to maximise in-force profits and prepare for future growth • Subdued start to retirement annuity market in 2014 • Expect total Q1 sales to be lower than Q4 2013 Current trading • Focus continues to be on segments of the market offering the best returns • Underwritten DB activity is encouraging

2014 and beyond 19

Delivering our strategy in 2014 20 • Expanding the underwritten DB proposition Leverage Intellectual Property • Developing international options Increase Customer • FCA annuity review a positive development Access • Maintaining pricing discipline Improve Shareholder Returns • New asset classes Well positioned to capitalise on market recovery