FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
Reinsurance assets and liabilities Reinsurance assets decreased to £2,808m at 31 December 2021 (2020: £3,132m) as the reinsurance quota share treaties gradually run-off. Since the introduction of Solvency II in 2016, the Group has increased its use of reinsurance swaps rather than quota share treaties. Reinsurance liabilities relate to liability balances in respect of the Group’s longevity swap arrangements. Other assets Other assets decreased to £858m at 31 December 2021 (2020: £1,771m). These assets mainly comprise cash, and intangible assets. The Group holds significant amounts of assets in cash, so as to protect against liquidity stresses. During 2020 the Group significantly increased the amount of assets held in cash so as to safeguard against market volatility. The reduction in 2021 reflects a more stable operating environment and reduced market volatility. Insurance liabilities Insurance liabilities increased to £21,813m at 31 December 2021 (2020: £21,118m). The increase in liabilities arose from the new business premiums written during the year, which was offset by an increase to the valuation rate of interest over the period. Other financial liabilities Other financial liabilities decreased to £2,866m at 31 December 2021 (2020: £3,305m). These liabilities mainly relate to deposits received from reinsurers, together with derivative liabilities and cash collateral received. The reduction from the prior year relates to corresponding reduction in reinsurance assets as mentioned above and lower amounts of derivatives and collateral, given the reduced market volatility. Other liabilities Other liability balances decreased to £861m at 31 December 2021 (2020: £901m), due to reductions in the deferred tax liability and accruals. IFRS net assets The Group’s total equity at 31 December 2021 was £2,440m (2020: £2,490m). Total equity includes the Restricted Tier 1 notes of £322m (after issue costs) issued by the Group in September 2021, which refinanced £294m of higher coupon Restricted Tier 1 notes issued in 2019. Including the upfront cost of the refinancing, total equity attributable to ordinary shareholders decreased from £2,198m to £2,120m resulting in net asset value per ordinary share of 204p (2020: 212p). DIVIDENDS Reflecting our strong performance in 2021, improved capital position and confidence in our future performance, the Board is recommending a final dividend of 1.0p (£10m). In the near term, we expect to deploy the majority of capital we generate to support the new business available to us in the DB and GIfL markets, whilst supporting an on-going sustainable dividend, which we would expect to grow over time. From 2022 onwards, we intend to declare dividends twice annually with an interim dividend to be declared at our interim results in August and paid in September and the final dividend to be declared at the final results in March and paid in May. In future we would expect the interim dividend to be approximately one third of the prior year full year dividend and if this policy had applied for 2021 as a whole the equivalent dividend for the full year would have been 1.5p (£15m).
The following table provides a breakdown by credit rating of financial investments, including privately rated investments allocated to the appropriate rating. 31 December 2021 £m 31 December 2021 % 31 December 2020 £m 31 December 2020 % AAA 1 2,448 10 2,197 9 AA 1 and gilts 3,194 13 1,989 9 A 2 4,384 18 4,136 18 BBB 6,500 26 6,024 26 BB or below 388 1 408 2 Unrated/Other 414 2 255 1 Lifetime mortgages 7,423 30 8,261 35 Total 2 24,751 100 23,270 100 1 Includes units held in liquidity funds. 2 Includes investment in trust which holds ground rent generating assets which are included in investment properties in the IFRS consolidated statement of financial position. The sector analysis of the Group’s financial investments portfolio is shown below and continues to be well diversified across a variety of industry sectors. 31 December 2021 £m 31 December 2021 % 31 December 2020 £m 31 December 2020 % Basic materials 264 1.1 200 0.9 Communications and technology 1,430 5.8 1,189 5.1 Auto manufacturers 319 1.3 385 1.7 Consumer (staples including healthcare) 1,174 4.7 977 4.2 Consumer (cyclical) 187 0.7 113 0.5 Energy 633 2.6 463 2.0 Banks 1,192 4.8 1,422 6.1 Insurance 845 3.4 825 3.5 Financial – other 481 1.9 462 2.0 Real estate including REITs 661 2.7 771 3.3 Government 2,415 9.7 1,340 5.8 Industrial 920 3.7 840 3.6 Utilities 2,302 9.3 2,030 8.7 Commercial mortgages 678 2.7 592 3.0 Ground rents 1 263 1.1 115 – Infrastructure 1,474 6.0 1,220 5.2 Other 38 0.2 38 0.2 Corporate/government bond total 15,276 61.7 12,982 55.8 Lifetime mortgages 7,423 30.0 8,261 35.5 Liquidity funds 1,311 5.3 1,129 4.8 Derivatives and collateral 741 3.0 898 3.9 Total 1 24,751 100.0 23,270 100.0
ANDY PARSONS Group Chief Financial Officer
1 Includes investment in trust which holds ground rent generating assets which are included in investment properties in the IFRS consolidated statement of financial position.
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