Royal Liver Group

Highlights
Royal Liver Group delivers strong results in a tough climate
• Continued tight control of management expenses – down £0.5 million from 2007
• Another strong performance from Progress, with increased new business premiums and increased market share to over 5% – new business premiums were up 19% on 2007
• Caledonian Life achieves new business allowances of £8.0 million in spite of new business premiums being down 42% on 2007
• Royal Liver Asset Managers return profit before tax on ordinary activities of £0.6 million
• Citadel completes a number of successful acquisitions
• Customer satisfaction levels 11% above industry benchmark

Commenting on the full year results, Steve Burnett, Chief Executive of Royal Liver Group said:
"2008 was a year of unprecedented turmoil and change in the financial markets and although the Society was not immune from these challenging conditions; our prudent and vigilant approach to managing our capital has meant that we were able to mitigate the worst of the impact.

The active management of the Group’s capital position has been our first priority and through the reshaping of our investment strategy, we have maintained solvency well ahead of regulatory requirements, with published results sharing reserves of £92 million on a statutory solvency basis.

2008 was a strong year operationally and we have continued to forge ahead with our modernisation strategy - creating a more relevant, focused and robust Group.
Mutuality remains our bedrock and we are confident that our values will put us in a strong position to emerge from the downturn with renewed vigour, in a much changed market that has lost trust in financial institutions that are solely focused on shareholder returns.”

For further information: Royal Liver Group - Richard Edwards
richard.edwards@royal-liver.com
Tel: +44 (0)151 600 4264
Chief Executive’s Review

Results Overview:
Operational
2008 was a landmark year for Royal Liver, with the implementation of a number of operational initiatives.

We started the Home Service review in January 2008, to look at ways to improve efficiency and drive down costs to benefit Members. Our findings showed that ending the home collection of premiums would deliver the greatest cost benefit to Members and ensure sustainability into the future.

As a result, we launched a pilot programme in the UK to explore the introduction of a Direct Debit system, making it easier for Members to pay their premiums. The pilot proved a success and was extended to cover all UK Industrial Branch policyholders – over 93% have so far elected to change to Direct Debit.

A pilot exercise has now begun in the Republic of Ireland (ROI) with early indications showing that it has again been a success.

This more modern method of collecting premiums is a major change for the Society and for our policyholders with Industrial Branch policies, but is forecast to realise operational cost savings of close to £8m per annum, thereby creating conditions where Member returns can be enhanced in the future.

We took part in the Association of British Insurers’ Customer Impact study for the first time and were pleased to receive a score of 86% for ‘Royal Liver cares about customers’, 10% above industry benchmark; we were also 11% above benchmark for customer satisfaction. Of the 12 factors, we were above industry benchmark on 10.

Despite the extreme market conditions our two life assurance brands, Progress and Caledonian Life have both turned in strong performances.

Our distribution units in Park Row and Citadel have been at the sharp end of the recession with clients looking for safe harbours for their investments. The demand for advice has been dramatically reduced which has resulted in losses for us in these areas.

We were once again at the vanguard of Responsible Business in 2008, launching our Merseyside Cultural Legacy Fund at the House of Commons, with the Community Foundation for Merseyside and gaining the support of Ministers, MPs and business leaders. The endowment will fund grass roots arts and culture organisations in Liverpool and will form part of the legacy of Capital of Culture.

Our Poetry of Place competition won a British Insurance Award, and we received an Accountancy Age Award for our Responsible Business programme. We also made the finals of the National Business, Chartered Institute of Management Accountants, Daily Post Business and Spirit of Merseyside Awards.

Society Operating Costs
During 2008, we continued to focus on cost-containment and reduction against a backdrop of rising prices in the first half of the year and an expanding work-load throughout. For the second successive year, the Society achieved a surplus (£4.6 million).

At the end of the year, operating expenses stood at £81million, having reduced steadily from £127.1million in 2002. Our plan of reducing the cost of running our business will continue to be an important feature of our strategy.

Investments
The key focus for 2008 was to ensure we were maximizing the reward for each unit of risk that we were taking; managing the Society’s capital base effectively. The work done to reconfigure the investment portfolio in order to deliver diversification across markets and asset classes, started in 2007, was continued during the year.

In 2007 we purchased derivative instruments to protect against increasing with-profits guarantee costs arising from equity market falls. This investment decision proved extremely timely given the dramatic falls in all equity markets during 2008. Such was the nature of the uncertainty in equity markets that we considered it prudent to purchase additional put options in September 2008 to give close to 100% protection against equity market falls. During the course of the year, and before the worst of the market falls in the final quarter of 2008, we disposed of some UK and Eurozone equities and the remainder of our holding of ROI equities and small-cap UK equities. In total, the equity disposals were close to £220 million. With the proceeds of the sales, we held higher cash balances and purchased some Government Gilts in order to reduce market risk and preserve capital in these highly uncertain times.

Over the course of 2008, partly for capital protection and partly as a consequence of falls in market values, the equity backing ratio of the fund (which includes alternative assets and commercial property) fell to just over 41%, its lowest in recent years, although the equity backing ratio for with-profits asset shares remained at approximately 50%, still one of the highest in the UK life industry.

It is pleasing to note that the strategic views on the strengths and weaknesses of our investment portfolio, which were translated into tactical investment actions during 2008, were correct and helped the Society to survive one of the worst investment years in living memory.

Business Overview: Progress, Caledonian Life, Park Row and Citadel
Our product manufacturing strategy did not change in 2008 and we were able to add close to 40,000 new ordinary branch members to the Society. We continued with our commitment to the delivery of quality, competitive products to the UK and ROI markets through the Progress brand in the UK and the Caledonian Life brand in the ROI.

In the UK, our Progress protection range has seen its profile grow further over the past year. The first half of 2008 saw business volumes reach record levels, although volumes then fell in the second half of the year as the UK economy moved into recession. Nevertheless, Progress managed to improve its market share overall in the competitive UK protection market to over 5% and was also able to record an increase in new business premiums. This suggests the growing strength of the brand amongst IFAs, who are the exclusive channel for the distribution of manufactured products in the UK.

The economic recession in the ROI economy, manifested in the general slowdown in the housing markets and the negative sentiment towards investment products, affected business volumes in Caledonian Life, particularly in the second half of the year.

However, margins in the Caledonian Life products improved during 2008, such that new business allowances reached £8.0 million, only just less than new business allowances received in 2007 despite a fall in volume of 42%.

In line with most other National IFA distribution businesses throughout the UK, 2008 was a very challenging year for Park Row. The economic downturn adversely impacted on core mortgage and protection business and there was a significant loss of confidence in savings and investment products.

Park Row lost a number of registered advisers during 2008, which, when added to the general economic woes in the sector, reduced Group turnover.

Branch and central operating costs were subject to significant scrutiny by the Park Row Board and Senior Management Team and a cost reduction process which commenced in the fourth quarter of 2007 delivered results in 2008. Branch costs fell from £4.1million in 2007 to £2.1million in 2008, whilst central costs fell from £7.1million in 2007 to £5.8million in 2008.

Cost reduction was the key success for Park Row in 2008, such that had turnover held up at or close to 2007 levels, the group would have been able to report a healthy operating profit. However, the operating loss for Park Row was £5.8 million.

The early part of 2009 has seen Park Row start to recruit new advisers, stemming the net outflows experienced in 2008. At the same time affinity relationships are being forged with small and medium sized accountancy firms in the UK, with the expectation that these will prove fruitful for Park Row’s higher qualified IFAs.

The Citadel Financial Services network grew steadily in 2008, although not at the pace originally envisaged at the start of the year. Registered and productive brokers reached 44 by the end of the year.

During 2008, Citadel completed the acquisition of six small, independent broker firms in order to diversify the source of revenue streams; effectively creating a wealth management division.

Trading conditions for the network and for the acquired brokers were extremely tough in 2008 as the Irish economy moved into recession. Turnover remained marginally lower than in 2007.

Operating costs across the group were fairly well contained, although largely being fixed in nature were not capable of being varied in-line with reduced economic activity (and turnover). As a result, operating losses for the citadel group reached close to £2.2 million.

Outlook
The focus for 2009 will be to manage and preserve our capital, positioning us as a strong mutual entity, ready to take advantage of opportunities arising in the current market place whenever recovery occurs.

Our mutuality has continued to play a part in our stability and as we emerge from 2008, it will form the foundations of how we move forward. While leading opinion formers are now beginning to recognise the benefits of member-owned models, really bringing mutuality to life will be a major focus for us, starting with a Governance Review, focusing on empowering our Delegates and Members through better engagement and processes.

Royal Liver will also continue to play a leading role in the Mutual Sector and CEO, Steve Burnett was appointed as the Chairman of the Association of Mutual Insurers in late 2008.

Notes to Editors
The Royal Liver Group consists of Royal Liver Assurance Limited - an Incorporated Friendly Society, founded in Liverpool in 1850 for the mutual benefit and financial security of local families - and its subsidiary companies of Park Row Group plc and Royal Liver Asset Managers in the UK and Citadel Financial Advice Limited in Ireland. The Royal Liver Group also includes Progress which is a trading name for Royal Liver Assurance Limited in the UK and Caledonian Life which is a trading name for Royal Liver Assurance Limited in Ireland.

Key facts (as at 31 December 2008)
3 million policies
1 million members
£3.2 billion assets under management
Member of the Association of Mutual Insurers (AMI)

Royal Liver Assurance exists to service and maintain Royal Liver policies with a focus on delivering value back to policyholders. www.royalliverassurance.com

Progress is an online-only manufacturer and provider of protection products for IFAs, including Life, Income and Critical Illness Cover. www.ifa.royal-liver.com

Caledonian Life was formed in 2001, building on the 200 year old Caledonian brand in the ROI. It manufactures and provides Protection and Protected Investment Products for independent brokers in the ROI. www.caledonianlife.ie

Park Row provides independent financial planning and advice for individuals and businesses alike. Acquired in 2003, it acts as Royal Liver’s distribution arm in the UK. www.parkrow.co.uk

Citadel is Royal Liver’s broker business in the ROI. Offering independent financial advice since October 2006.. www.citadel-fa.ie

The Delegation
The Society has had a Delegation system since 1886; the Members of Royal Liver elect fellow Members to act as the sole representative body. There are around 220 Delegates and they are authorised to take decisions on behalf of the Membership at General Meetings of the Society.