Royal London blames low profits on low interest rates

17 Aug 2012 | News - Comment now

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Royal London blames low profits on low interest rates

Britain’s largest mutual life and pensions group, Royal London, has seen its pre-tax profits fall by over a third in the first half of the year, and has ascribed the decline to low interest rates.

The company’s interim results reveal that its profit before tax was £86 million between January and June, down from £138 million in the same period of 2011.

Phil Loney, Royal London’s chief executive, claimed that ‘profits have been impacted by the adverse economic conditions and particularly the continuing low interest-rate environment, which reduces the pace at which revenues emerge from the policies held by our existing customers and members’.

Three items lie behind the weaker performance. First, the group’s asset management division has experienced a net outflow of £310 million since January. In the first six months of last year, by comparison, Royal London Asset Management won £583 million of net inflows.

Royal London attributed this loss to three clients cutting their exposure to fixed-interest assets.

Second, total new business in the firm’s life and pensions operations slipped 1 per cent to £1.78 billion. A major component of this was the 3 per cent new business drop, to £1.2 billion, at the group’s Scottish Life brand.

Third, new assets under administration at Royal London’s wrap platform, called Ascentric, decreased by 21 per cent to £587 million. The company pinned this on a market that has ‘slowed down considerably’ as advisers prepare for the Retail Distribution Review (RDR).

Loney was eager to highlight, though, that sales at Bright Grey and Scottish Provident, the group's protection-insurance subsidiaries, leapt 46 per cent to £221 million.

‘Particularly pleasing is the strong growth in our intermediary protection new business’, he said, ‘which has helped to replace business that we were previously receiving through the Santander contract which ceased in June 2011’.

Royal London is also planning to acquire the life assurance and asset management arms of the Co-operative Banking Group, which represent around two million policyholders and £20 billion of funds under management. The firm stated that talks ‘continue to progress well’ and ‘an announcement will be made in due course’.

Related topics: Interest rates, Pensions Retail Distribution Review, Royal London Asset Management, Royal London Group

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