Life Capital
In 2016 Life Capital made a strong contribution to the Group and delivered against its strategy.
“At Life Capital, we achieved a strong performance across all metrics.”
Thierry Léger
CEO, Life Capital
Strategy and priorities
Life Capital’s strategy is to create alternative access to attractive life and health risk pools and to profit from disruptive trends in the industry. By bringing together the closed books business with the open books business, Life Capital can leverage synergies of expertise and deeper pools of talent to drive growth and capture the complementary earnings of the various businesses. The ambition is to build a primary life and health powerhouse with attractive returns for shareholders through growth in both the open and closed books.
In closed books, the strategy of ReAssure (formerly Admin Re® UK) remains unchanged. ReAssure is a leading UK life and pension consolidator and continues to provide effective and efficient services to policyholders. Its strategy is to pursue selective growth with a focus on the UK market, which is the most active closed book market in Europe.
In the open books, elipsLife offers employee benefit solutions to partners through an intermediated B2B model, and provides brokers, clients and their policyholders with a seamless digital offering with a simpler, faster and better experience. Our iptiQ business enables individuals to address their protection needs and offers simple, transparent and digital propositions on a white labelled basis. Both businesses we believe are well positioned to capture growth opportunities in Europe and North America.
Technology is a key enabler for our strategy and Life Capital invests heavily in capabilities that provide a good customer experience and offer efficient platforms.
Life Capital had a successful first year and is delivering on its priorities. The ReAssure integration of Guardian is successfully on track. In its open book businesses, growth in Europe has accelerated, with elipsLife premium growth of 30% and iptiQ EMEA more than doubling its policy count. In the US, we established an operational platform for iptiQ, which launched in early 2017.
Life Capital results
| Download |
USD millions |
2015 |
2016 |
Change in % |
Revenues |
|
|
|
Premiums earned |
715 |
694 |
–3 |
Fee income from policyholders |
414 |
499 |
21 |
Net investment income – non-participating business |
939 |
1 256 |
34 |
Net realised investment gains/losses – non-participating business |
274 |
503 |
84 |
Net investment result – unit-linked and with-profit business |
772 |
5 367 |
– |
Other revenues |
1 |
1 |
– |
Total revenues |
3 115 |
8 320 |
167 |
|
|
|
|
Expenses |
|
|
|
Life and health benefits |
–1 068 |
–1 896 |
78 |
Return credited to policyholders |
–1 106 |
–5 060 |
– |
Acquisition costs |
–159 |
–63 |
–60 |
Operating expenses |
–365 |
–503 |
38 |
Total expenses before interest expenses |
–2 698 |
–7 522 |
179 |
|
|
|
|
Income before interest and income tax expense |
417 |
798 |
91 |
Interest expenses |
–16 |
–29 |
81 |
Income before income tax expense |
401 |
769 |
92 |
Income tax expense/benefit |
23 |
–131 |
|
Net income attributable to common shareholders |
424 |
638 |
50 |
Performance
During 2016 Life Capital reported net income of USD 638 million compared to USD 424 million in 2015. The increase was driven by investment performance, mainly from the Guardian portfolio, and solid underlying business performance. The comparative period of 2015 benefited from realised gains from sales of government bonds as part of the preparation for Solvency II.
The net operating margin in 2016 was 27.0% compared to 17.8% in the prior year.
Life Capital generated gross cash of USD 721 million in 2016 compared to USD 543 million in the prior-year period. Strong gross cash generated in the year was driven by management actions, despite the unfavourable impact of decreasing interest rates in the UK across the year.
Gross premiums written
Gross premiums written increased by 10.6% to USD 1.5 billion during 2016. The increase was driven by the inclusion of Guardian and growth in open life and health insurance businesses.
Investment result
The return on investments was 4.0% for 2016 compared to 4.7% for 2015, as the impact of a higher invested asset base in the current period alongside a reduction in net realised gains more than offset increased investment income arising from the Guardian investment portfolio.
Net investment income increased by USD 286 million to USD 942 million in 2016, due to net asset inflows from the Guardian acquisition.
Net realised gains decreased by USD 43 million to USD 221 million in 2016, as the prior period included significant gains from sales related to the repositioning of the portfolio ahead of Solvency II, while the current period included gains from the Guardian investment portfolio and reduced gains from sales.
Insurance-related investment results as well as foreign exchange remeasurement are not included in the figures above.
Operating expenses
Operating expenses were USD 503 million in 2016 compared to USD 365 million in 2015. The increase in expenses was mainly due to the cost of running and integrating the Guardian business.
Shareholders’ equity
Common shareholders’ equity increased by USD 2.3 billion to USD 7.3 billion compared to 31 December 2015. The increase was driven by a USD 1.6 billion capital contribution from the Group to partially fund the Guardian acquisition and an increase of USD 1.2 billion from unrealised gains. Life Capital paid a dividend of USD 350 million during the second quarter. The return on equity was 10.4% for 2016, compared to 7.5% for 2015. The year-on-year increase was mainly due to higher net income.
Outlook
Life Capital continues to pursue selective acquisition opportunities within the closed book market in EMEA and to grow its individual and group life and health business in Europe and the US. Life Capital seeks to optimise capital and asset management to maximise cash generation and return on equity. In the closed book business, the focus remains on achieving operational efficiencies by leveraging our operating platform, while in the open book business, the aim is to grow via innovation and the use of digital technology. Life Capital aims to generate significant cash while continuing to invest in its open book strategy.