Just defers half-year dividend

As a pre-emptive measure to the potential regulatory changes, management has raised the prices on its retail and defined benefit de-risking products which will help reduce the capital strain on that business and improve returns, according to deputy chief executive David Richardson. The average loan-to-value on new lifetime mortgages have also been reduced for younger customers, where the ‘no negative equity’ guarantee carries greater risk. Management is also considering re-insuring part of the in-force book, which would reduce the group’s financial requirements, and says it also has the option to issue restricted tier 1 debt or further tier 2 debt if it needs more capital.

The group also seems a little more conservative when writing new mortgages: the average loan-to-value of new business was 28 per cent, compared with 31 per cent average for the overall portfolio. Still, judging by the first-half, demand for lifetime mortgages is still high, with new business sales up more than a third to £313m.

However, it was defined benefit de-risking that drove new business sales up more than half to £1.5bn. Sales of those products more than doubled to £718m. Individual annuity sales also continued to recover, rising 9 per cent to £427m, which management attributes to new rules requiring providers to show the best quote from the market encouraging customers to shop around. Care plans – where annuities are paid to a care provider – also recovered following uncertainty over potential government reforms of care fees, rising a modest 2 per cent to £34.8m.

Analysts at Numis forecast adjusted European embedded value of 243.2p at the December 2018 year-end, up from 228.4p the same time the prior year.