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Rothesay Life Limited 2014 Full Year Financial Results and Business Highlights

20 April 2014

Rothesay Life was established in 2007 and has become one of the leading providers of regulated insurance solutions in the UK market for pensions de-risking. Today the company announces its audited results and business highlights for the year ending 31st December 2014.

Financial Highlights

  • Group delivers very strong performance with £4.1bn of New Business Volume, including £1.4bn of new annuity transactions
  • Cumulative value of risk transfer deals underwritten passed £16bn
  • IFRS profit before tax up 33% to £244m, driven by high quality new bulk annuity business and the acquisition of MetLife Assurance Limited (MAL)
  • Economic capital of £1.6bn providing 204% coverage, a 24% coverage increase1
  • Benefit payment to policyholders of £700m in 2014, insuring benefits for 196,756 individual pension scheme members
  • Assets under management increased 44% from £8.9n to £12.8bn2
  • Market Consistent Embedded Value (MCEV) of £1.2bn3

Full details of our financial results and business highlights are available in our 2014 Annual Report and Accounts which can be found on our website:

Business Highlights

  • Successful acquisition and integration of MAL: In May 2014, the group completed the acquisition of MetLife Inc.’s £2.7bn UK bulk annuity business. Rothesay Life de-risked substantially all the investment risk and longevity risk in the business immediately on completion and finalised the integration within 2 months.
  • Strong new and repeat client business: The group originated total new business volume of £4.1bn including repeat transactions with a number of existing clients.
  • Focus on risk and capital management: Small economic variances demonstrate the effectiveness of the Group’s risk management approach and low-risk investment strategy. Combining this with an additional £2.8bn of longevity hedging and disciplined underwriting increased economic capital surplus by £321m to £802m.
  • Operational excellence maintained: The group now has 196,756 individual pension scheme members and over 97% of customer survey respondents rated our service as “excellent” or “good.”

Commenting on Rothesay Life’s results Addy Loudiadis, Chief Executive Officer, said:

“Rothesay Life has delivered another strong performance in 2014 as a result of our selectively pursuing growth opportunities which meet our strict return hurdles, meticulous risk management and cautious investment strategy, combined with continuous innovation to meet clients’ needs.”

She added: “The acquisition of MetLife Assurance added over £2.5bn of assets to the Group and demonstrated our ability to handle complex processes, in limited timeframes, without introducing unnecessary risk.

The bulk annuity and pension buyout markets have been strong and further demonstrate the robustness of this structural growth opportunity, with a notable trend toward full buyouts driven by affordability and demand from corporates to settle pension liabilities. While seeking to capitalise on these opportunities we will maintain our focus on value and risk, while applying our strategy to be patient, disciplined and creative in underwriting.”


Contact details
Rothesay Life
Addy Loudiadis or Tom Pearce 020 7770 5300

Temple Bar Advisory
Alex Child-Villiers or William Barker 020 7002 1080

CEO’s Report

The Group operates in a structurally high growth market and, despite record low interest rates, the bulk annuity and pension buyout business has been strong. Our strategy is to be patient, disciplined and creative in underwriting which is critical in a market where levels of competition can vary. We do not chase volume and instead focus on value and risk.

Alongside core organic growth we have continued to pursue strategic acquisition opportunities which meet or exceed our return hurdles and where our approach to derisking can generate excess value. In May we completed the successful purchase, integration and de-risking of MetLife Inc’s £2.7bn specialist bulk annuity business in the UK, MetLife Assurance Limited (‘MAL’).

The origination approach we have adopted has resulted in healthy margins from new business which have contributed to a significant growth in embedded value during 2014 to £1,215m. Combining careful underwriting with our sophisticated and high-tech approach to risk management has also allowed us to recycle capital to fund further growth and protect the balance sheet of our in-force business. The Group finished the year with £802m of economic capital surplus, a £321m increase during the year despite having acquired £4.1bn of additional business.

Group Performance

Group IFRS profits before tax for the year were £244.1m (2013: £183.5m), an increase of 33%. Profitability was primarily driven by high quality new bulk annuity business and the acquisition of MAL. Total operating profit before tax for the year (excluding market variances) was £277.1m. The small contribution attributable to economic variances (£0.6m) demonstrates the effectiveness of the Group’s thorough approach to risk management and our distinguishing low-risk investment strategy.

Proven Capability in Organic and Strategic Growth

During the year, we acquired £4.1bn of new business including over £1.4bn of new bulk annuity transactions. Changes in the requirements for individuals to purchase annuities at retirement announced in the April budget have altered the landscape for pension investment and resulted in some increase in competition, yet total market de-risking volumes were up significantly to a record £22.5bn and the barriers to entry remain high. I am delighted that the Group continued to demonstrate robust bulk annuity volumes and margins even against a backdrop of negative real interest rates and remain optimistic for strong future growth.

In May, the Group completed the acquisition of MAL in an all cash deal. Successful execution of this transaction required a number of areas of innovation to offer the vendor certainty and remove balance sheet volatility for Rothesay Life. We de-risked substantially all the investment risk and longevity risk in the business immediately on completion and finalised the integration within 2 months. The ability to handle a complex process in an expedited timeframe without introducing unacceptable risk is testament to the broad competences of the Group.

The Group now has 196,756 underlying insured policies (2013: 121,876) and makes annual pension payments of £700.6m (2013: £576.2m) to policyholders, making us one of the largest providers of annuity benefits in the UK.

Core Disciplines of Investment and Risk Management

During 2014, assets under management increased by £5.4bn to over £12.8bn (2013: £7.4bn). All assets are managed internally by a specialist team which implement a strategy distinct to the Group, aiming to mitigate credit risk and maximise the security and collateral we hold to back investments. This approach reduces our exposure to the performance of investment markets and, therefore, protects both shareholder returns and policyholder security.

During the year, Rothesay Life invested over £2bn in UK infrastructure including bridges, rail, airports and municipal transportation, many with explicit or implicit government support, and over £1bn in secured real estate. All of these investments offer Rothesay Life a low-risk asset base to back our annuity liabilities but also help bolster growth in the wider economy. Our strong capital position has afforded the Group the ability to be patient in investing premiums during the year to avoid chasing asset spreads tighter and ensure we maintain the high quality of the portfolio.

Focus on Risk Management

We manage the combined risks in the business dynamically using proprietary integrated asset, liability and capital infrastructure which offers us live economic and regulatory balance sheet positions. This high-tech approach allows us to react quickly to changing market conditions and to be agile where investment or origination opportunities arise.

We reinsure more than 70% of the life expectancy risk associated with the business and in 2014 we completed 7 reinsurance transactions covering £2.8bn of pension benefits. The arrangements we enter into cover only the longevity risk associated with the policies we write and the Group retains control of all investments.

Capital Management

The Group manages risk to its economic capital position. The economic capital requirement calculates our 1 year value-at-risk to a 99.8% confidence interval and offers a good measure of the effectiveness of the low-risk strategy. At 31 December 2014 the Group had economic capital of £1.6bn which was over double (206%) that necessary to cover the economic capital requirement, and an increase of 24% (2013: 182%). Given our low-risk balance sheet position, the statutory Insurance Groups Directive (‘IGD’) calculation remains the biting capital requirement where the Group had £366m of surplus and covered its Capital Resources Requirement (‘CRR’) by 177%.

During 2014 we have spent a significant amount of time and resources to prepare for Solvency II which is expected to be implemented from 1 January 2016. We anticipate greater clarity around a number of areas to be provided by the relevant regulatory bodies during 2015, although the work we have done to-date combined with the Group’s particularly strong economic capital position offers us confidence that our approach to risk management remains appropriate under the new regime.

I believe 2014 has further endorsed our ability to deliver attractive shareholder returns across the opportunity set in pensions and annuities. The Group is well positioned, both financially and operationally, to build on this achievement by pursuing further disciplined growth, whilst always ensuring continued policyholder security. I would like to thank our shareholders and my colleagues for their support and hard work as we look forward to another exciting year.

Addy Loudiadis
Chief Executive Officer
25 March 2015

About Rothesay Life

Rothesay Life was established in 2007 and has become one of the leading providers of regulated insurance solutions in the UK market for pensions de-risking, making payments of around £700m a year from over £16 billion of insurance contracts. In 2014, Rothesay Life received around £1.7 billion of bulk annuity premiums (2013: £1.6bn) and wrote seven deals over £100m, more than any other insurer in the sector. This strong growth has been achieved through the steady accumulation of pension scheme clients and significant strategic acquisitions.

Existing Rothesay Life clients include the pension schemes and members associated with such names as RSA, British Airways, Rank, Uniq, General Motors, the MNOPF (Merchant Navy Officers Pension Fund), InterContinental Hotels, Philips and GKN.

Rothesay Life is a secure long-term provider of pensions, focused on

  • a flexible and committed approach to execution;
  • ongoing risk management to maintain balance sheet strength; and
  • robust operational processes.

Rothesay Life is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

1. Economic capital represents management’s internal calculation of the capital resources available above best estimate liabilities to cover risk-based capital.
2. Post payments of benefits and dividends. The difference between the assets of £12bn and the £16.1bn of liabilities insured results from longevity swaps. These longevity swaps are structured as bulk annuities where the premium is paid in regular instalments over the life of the contract and are distinct from bulk annuities which have a single premium paid upfront.
3. As 2014 is first year MCEV has been published for external reporting, prior year comparatives have not been provided.