Overview of Business Performance - Investis

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Overview of Business Performance bank’s funding base comprised customer accounts and long-term debt. In addition the high quality and low risk nature of the group’s lending activities - overwhelmingly prime residential mortgages provide a pool of assets against which funding can be drawn through the ECB repurchase facility. At 31 December 2007 available ECB facilities totalled a17.2bln, (a20bln nominal collateralised asset pool), against which drawings of a5.3bln had been made. The balance of a11.9bln, which is available together with the other eligible assets which have not yet been collateralised, provide a secure underpinning of the groups’ funding requirements for 2008. In the latter part of 2007 in response to the increased cost of wholesale funding, the group increased mortgage and other credit interest rates on selected products in order to protect margins against increased wholesale funding rates. DIVISIONAL PERFORMANCE REVIEW Insurance and Investment Operating Review 2007 was an extremely buoyant year for life and investment business in Ireland, and all of the group’s divisions - Retail, Corporate Business and ILIM - performed extremely well. The life and investment business had two major points of focus during 2007- positioning Irish Life as the dominant pension solutions provider in Ireland and developing our life business to enable it capture the wealth management opportunity in Ireland, which has arisen through the growth in mass affl uence. In 2007 pensions sales were ahead 39% year-on-year and accounted for 59% of total group life sales in Irish Life Assurance. Progress has also been made on our wealth management objective. We have started to build the competencies and know how in our existing distribution channels to enable us to access a bigger share of this rapidly growing market, as well as establishing some new structures in the group, focused exclusively on the high net worth and mass affl uent sector, which will be responsible for developing new products and new distribution to fully exploit this opportunity. In the Retail Life division sales growth of 31% to a414m (2006: a317m) led to an increase in market share to in excess of 25% with all distribution channels and product lines performing well. In the Corporate Business division sales increased 33% and this division continues to be the dominant force in the corporate life and pensions arena. Driven by excellent fund management performance in both their passive and active funds, ILIM had a record sales year with gross investment infl ows of a3.4bln, a 79% increase on the funds infl ow of a1.9bln in 2006. APE 1 sales in the group’s principal life businesses are summarised below: 2007 2006 bm am % Retail Life 414 317 31 Corporate Life 220 165 33 Irish Life International 39 34 15 673 516 30 Investment (ILIM) 341 190 79 1,014 706 44 PVNBP 2 sales in the group’s principal life businesses are summarised below: 2007 2006 bm am % Retail Life 2,745 2,145 28 Corporate Life 1,355 998 36 Irish Life International 390 339 15 4,490 3,482 29 Investment (ILIM) 3,406 1,901 79 7,896 5,383 47 1 APE sales are calculated as annual value of regular premiums plus 10% of the value of single premiums 2 PVNBP sales are calculated as total single premiums plus the discounted value of regular premiums expected to be received over the term of the contracts Retail Life The group’s retail business concentrates on sales of life and pensions products to the retail market in Ireland. It is a market leader with a comprehensive product range spanning pensions, protection, investment and regular savings with a market share in excess of 25%. The Retail Life business follows a multi-channel distribution strategy with independent brokers, bancassurance (via permanent tsb), direct sales, franchises, institutional (other bank branches) and telephone / internet channels providing the business with unrivalled distribution reach and customer access points. This distribution reach ensures that the business is not overly dependant on one channel. The retail life assurance market was extremely buoyant in 2007 and sales in the Retail Life division increased 31% to a414m (2006: a317m). On a PVNBP basis, sales were ahead 28% to a2.7bln (2006: a2.1bln). The principal drivers of the sales performance were pensions (up 46%) and investments (up 23%). Both lines of business benefi ted from the group’s excellent investment performance and track record, with pensions also benefi ting from the introduction of a new self administered pension product and lump sum investments benefi ting from maturing SSIA accounts in 17
18 Overview of Business Performance the fi rst half of the year. Growth in protection sales were more subdued (up 2%) refl ecting the slowdown in the residential mortgage market during the year. Corporate Life The Corporate Life division is engaged in the sale of pension and risk schemes to employers and affi nity groups in Ireland. It has a leading position in this market with an estimated market share of 45%. Distribution is principally through pension consultants and brokers (including Cornmarket, a specialist affi nity broker in which the group has a 75% interest). Customer service levels are a key differentiator of providers in the market and the Corporate Life division has achieved competitive advantage through continued and sustained investment in both staff and technology in order to achieve signifi cant improvement in service levels and customer satisfaction. This focus on service level improvements will continue to be a feature of the division’s agenda into the future. The key driver of new business sales in Corporate Life is employment and salary growth in the Irish economy. 2007 saw continued strong growth in the Irish economy with increasing employment and continued good growth in salaries and wages. This provided an excellent economic backdrop for the group’s Corporate Life business with sales growing 33% to a220m (2006: a165m). On a PVNBP basis, sales were ahead 36% to a1.4bln (2006: a1.0bln). The sales performance was particularly driven by a high level of new defi ned contribution schemes (up 30%) and annuity sales (up 65%) which benefi ted from a large number of annuity purchases to buy out defi ned benefi t pension scheme liabilities. Investment Management Irish Life Investment Managers (ILIM) provides investment management services for the group’s life and pensions business in addition to managing large segregated funds. ILIM offers a wide range of active, consensus and multi manager funds with a key focus of the business being on product innovation. The business has grown rapidly in the past number of years and now ranks as the second largest fund manager in Ireland as measured by funds under management. The group’s investment management performance continued to be excellent in 2007 on both the active and passive side of the business. This led to record levels of fund infl ows with gross new infl ows of a3.4bln (including a645m arising from the acquisition of the EBS Summit Funds) compared to a1.9bln in 2006. Refl ecting the strong levels of gross new infl ows, total funds under management increased 11% to a35.4bln (2006: a31.8bln) notwithstanding the falls in global equity markets in the second half of the year. Insurance and Investment Financial Review The operating results of the group’s insurance and investment business, presented on an EV basis, for the year ended 31 December 2007 are set out below: 2007 2006 bm am New business contribution Contribution from in-force business Expected return 154 128 In-force 118 89 Net worth 29 26 Experience variances 10 14 Assumption changes 35 17 192 146 Operating profi t before tax 346 274 The operating profi t before tax for the year ended 2007 was a346m, a 26% uplift on 2006 (a274m). The key drivers of this performance were strong growth in the new business contribution, which was ahead 20% to a154m (2006: a128m), and good growth in the expected in-force return which grew 33% to a118m from a89m in 2006 refl ecting growth in the book. New Business Contribution & Margins The new business contribution increased 20% to a154m from a128m in 2006. This outcome was driven by a 30% increase in life new business sales (excluding ILIM) to a673m on an APE basis (compared to a516m in 2006) combined with a strong new business margin performance. On a PVNBP basis sales, excluding ILIM, were ahead 29% to a4.5bln (2006: a3.5bln). Overall new business margins, excluding ILIM, were 19.2%, compared to 20.6% reported in 2006. Including ILIM, new business margins were 15.3% compared to 18.1% in 2006, made up as follows: 2007 2006 % % Life 19.2 20.6 Investment (ILIM) 7.4 11.4 15.3 18.1 The continued strength in life margins (19.2%) in 2007 refl ects the high volume of new business sales. The reduction in margins from the exceptional levels achieved in 2006 (20.6%) refl ects a change in the product mix with a higher proportion of single premium investment sales being achieved in 2007 and a relatively lower proportion of higher margin protection business, combined with the impact of the increase in the opening risk discount rate from 6.5% to 7.4% which had a negative impact on 2007 margins. The reduction in margins in ILIM refl ect a larger proportion of high ticket low margin sales within the mix in 2007. When calculated on the basis of present value of new business premiums (“PVNBP”) new business margins,
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Overview of Business Performance - Investis

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