Finance Director Review 15
Investment performance Capital management
Threadneedle Asset Management – 2012 was Capital is managed on both economic and
the first full calendar year with Threadneedle regulatory bases to ensure we have sufficient funds
managing LV=’s investments and this partnership to meet our business objectives, promises we
proved very successful with six of the seven major have made to our members and policyholders and
asset classes achieving or exceeding their market regulatory requirements. Capital is monitored and
standard benchmark. managed both at a group and entity level.
With-profits – The strongest performing fund We operate through three main companies
was the Liverpool Victoria Friendly Society (LVFS) l LVFS is the parent company of the group and the
with-profits fund with an absolute return of 9.9%. company where we write the majority of our life
Outperformance was mainly driven by stock insurance business. LVFS is also the sponsor of
selection within the equity markets. Threadneedle our staff pension funds.
delivered strong relative performance for our l Liverpool Victoria Insurance Company (LVIC)
with-profits members (some 1.5% points above and Highway Insurance Company (HICO) –
benchmark) ensuring that LV= remains near the top these are the companies which write our
of the industry performance tables. general insurance business.
Other Group Assets – Outside of the LVFS with- We seek to deploy capital where we believe the risk
profits fund the majority of the assets are invested is properly rewarded. Asset and liability matching
in bonds and gilts which performed in line with the is extensively used and risks are hedged where
market. The absolute return on these assets was we believe we would otherwise receive insufficient
7.5% which has proven very beneficial to both our return for the risk taken or to reduce volatility.
annuity book and general insurance business.
We report our capital position on a regulatory basis
using current European legislation which defines the
capital requirements an organisation must meet.
The two different bases reported below are:
l Peak 1 (a traditional valuation basis); and
l Peak 2 (more realistic for with-profits business)
Statements and Reviews
Capital resources
£m 2012 2011
Admissible Assets 7,865 7,186
Add back capital requirements of regulated related undertakings 254 242
Mathematical reserves (after distribution of surplus) (6,686) (6,123)
Regulatory current liabilities (353) (381)
Our Businesses
Available capital resources 1,080 924
Capital requirements of regulated related undertakings (254) (242)
Capital resources of RNPFN fund (179) (164)
Peak 1 Capital requirement (240) (218)
Peak 1 excess regulatory capital (excluding RNPFN) 407 300
With-Profits Insurance Capital Component (221) (65)
Peak 2 excess capital resources (excluding RNPFN) 186 235
Risk Management
During 2012 the main movements in regulatory capital were:
£m Peak 1 Peak 2
Excess capital at 31 December 2011 300 235
Opening adjustments (1) (60)
Expected changes 12 4
Corporate Governance
Economic variances 147 59
Basis changes (non-economic) 166 46
Claims experience variances (54) (1)
Expense variances (34) (48)
New business (129) (17)
Staff pension scheme (32) (32)
Mutual bonus - (21)
Other 32 40
Increase in Risk Capital Margin - (19)
Excess capital at 31 December 2012 407 186
Our Accounts