Strategic Report | Governance | Financial Statements | 21
Return on equity is the measure used by management to monitor the Group’s generation of underlying operating profit from its tangible net asset base. In 2023, Return on equity increased as Underlying operating profit after tax rose by 39%. Return on equity is based on Underlying operating profit, which is reconciled to IFRS profit on page 26, and Tangible net asset value, which is reconciled to IFRS total equity on page 24 in the Business Review. In 2022, losses incurred through interest rate hedging the Solvency II balance sheet drove the result. A revised interest rate hedging strategy and limited movements in the non-operating items has meant that the Group’s operating performance is the main driver the FY23 IFRS result. IFRS profit/(loss) before tax is the primary IFRS statutory KPI used by management to monitor the profit/(loss) before tax attributable to equity holders. Tangible net asset value represents the tangible net assets attributable to the shareholders. 2023 Tangible net asset value rose strongly due to the very strong operating performance and limited negative non-operating items in the profit & loss. Tangible net asset value is reconciled to IFRS total equity on page 24 in the Business Review. New business strain is a key measure of our pricing discipline, reflecting the amount of capital invested as a percentage of premium to write the new business volumes. It is assessed against our target of below 2.5% of premium. Continued outperformance driven by pricing discipline, risk selection and business mix. Solvency II capital is monitored as it is the regulatory capital measure. Therefore, its trajectory is a key focus for the Board in capital and business planning. It expresses the regulatory view of the available capital as a percentage of the required capital. In 2023, the capital coverage ratio was resilient and broadly stable, as the business grew sustainably through capital generated by its own in-force business, and risks were contained. IFRS equity is reconciled to Solvency II own funds on page 28 in the Business Review. Underlying organic capital generation provides good insight into the ongoing capital sustainability of the business. It is the amount of capital generated by the in-force business less the day to day running costs including expenses, finance costs and funding our ambitious growth plans. 2023 performance was driven by a lower pound amount of new business capital strain despite substantially higher Retirement Income sales. UOCG forms part of the movement in excess own funds on page 27 in the Business Review.
IFRS PROFIT/(LOSS) BEFORE TAX 3 £172 M
£172M
2023
£(494)M
2022
LINK TO STRATEGIC PRIORITIES
1.
5.
RETURN ON EQUITY 1,3 13.5 %
13.5%
2023
10.3%
2022
LINK TO STRATEGIC PRIORITIES
1.
5.
TANGIBLE NET ASSET VALUE PER SHARE 1,3 224 P
224P
2023
190P
2022
203P
2021
LINK TO STRATEGIC PRIORITIES
1.
5.
NEW BUSINESS STRAIN 1 0.9 %
0.9%
2023
1.9%
2022
1.5%
2021
LINK TO STRATEGIC PRIORITIES
1. 3.
5.
UNDERLYING ORGANIC CAPITAL GENERATION 1,2 £57 M
£57M
2023
£34M
2022
£51M
2021
LINK TO STRATEGIC PRIORITIES
1.
5.
SOLVENCY II CAPITAL COVERAGE RATIO 2
197%
2023
199%
2022
197 % (ESTIMATED)
164%
2021
LINK TO STRATEGIC PRIORITIES
5.
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