A year of extremes is probably the best characterisation of the year 2002 for Delta Lloyd Group. On the one hand, Delta Lloyd Group is showing its strength by adding a third distribution channel to the existing mix of Delta Lloyd for the intermediary channel and OHRA for the direct channel: a stake of 51% was acquired in the insurance activities of ABN AMRO.
A year of extremes is probably the best characterisation of the year 2002 for Delta Lloyd Group. On the one hand, Delta Lloyd Group is showing its strength by adding a third distribution channel to the existing mix of Delta Lloyd for the intermediary channel and OHRA for the direct channel: a stake of 51% was acquired in the insurance activities of ABN AMRO. Also, the first results were achieved in respect of synergy and cost control.
On the other hand, due to the poor developments in the financial markets, Delta Lloyd Group reports a drop in net results of 54% to € 138 million. Total revenue decreased slightly as a result of a lower return on investments. Premium income increased by 5% to € 4.3 billion, despite the current uncertain market.
The solvency of both the insurance and banking activities remains good. On account of prudent financial policy, this year's profit is almost completely added to net assets. It is difficult to say anything about the profitability for 2003, given the uncertain political and economic conditions.
Highlights:
- Pre-tax results : € 157.6 million (-/- 57%)
- Net result : € 137.7 million (-/- 54%)
- Total gross premium income : € 4.3 billion (+ 5%)
- Assets under management : € 36.3 billion (-/- 18%)
- Solvency Delta Lloyd Insurance operations remains good: 177
- BIS ratio Delta Lloyd Banking Division : 13.9
- Major expansion in the Netherlands through joint venture with ABN AMRO in the field of insurance business
- Integration with Bank Nagelmackers leads to sharp increase in revenue for banking and insurance activities in Belgium
Delta Lloyd Group in 2002
The year 2002 was clearly a year of extremes. The persistent adverse economy and the poor developments in the financial markets, combined with an unstable political climate in the Netherlands, led to a difficult year for the entire Dutch insurance sector. This applied to Delta Lloyd Group with a sharp fall in the results for 2002. Nevertheless total premium income was good; an increase of 5% to € 4.3 billion.
Market position strengthened with third distribution channel
The strategic position of Delta Lloyd Group was strengthened further in 2002. A joint venture with ABN AMRO was announced in November 2002 for the distribution of insurances via the Dutch network of ABN AMRO. Delta Lloyd Group takes a 51% stake in this joint venture in which ABN AMRO will place its insurance activities. Delta Lloyd Group will pay an amount of at least € 262.5 million, subject to realised positive revenues. It gives Delta Lloyd Group a strong third channel for selling insurances in the Netherlands. The Group now has three channels, namely, Delta Lloyd through independent intermediaries, OHRA directly to individual and commercial consumers and now ABN AMRO via the bank. Naturally, Delta Lloyd Group will respect the interests of its distribution partners with strict separation by channel, by brand and product supply.
Solvency remains good
The Group’s management kept the worrying developments in the financial markets under constant surveillance. Solvency, in particular, was followed closely. The solvency of the insurance activities can still be said to be good – even after two years of continuous negative stock market results; the rate of 177% of the legally required solvency and is above the minimum internal requirement of 150%. The BIS ratio for banking activities was, at 13.9, far above the legal minimum of 8.0. At the end of 2002, Standard & Poor's confirmed the AA rating (negative outlook) of Delta Lloyd Life and General Insurance.
Emphasis on synergy and cost control
Not only through acquisitions but also by emphasising our strong autonomous growth, we achieve our strategic objectives. A sourcing policy was defined last year in which a major step was made in the field of synergy. Delta Lloyd Group will concentrate in core activities in which it can distinguish itself as a financial services provider. Activities in which other parties may provide an added value will be outsourced – in stages –with specialised partners outside the organisation. This guarantees continuity and innovation for all activities. The first step has been made in outsourcing computer centres. Various suppliers have been invited to make proposals. The next step will be focused on general office services. Much was invested in a joint back office for individual general insurances, the General Insurance Service Centre (SSC). It is the Group’s intention that third parties too may use this centre in due time. The costs of the SSC have been charged to the results in a single amount, which results in an extra burden of € 30 million. The creation of a new Procurement organisation results in structural improvement of procurement across the entire organisation. The intensive focus on cost improvement had its effect for the whole group already in 2002. The trend for annually rising costs was halted thanks to higher premium income and by realising lower recurrent costs. This will be continued in the coming years.
Decrease in result
The cost improvements were inadequate to keep profits at a proper level. In the year under review, Delta Lloyd Group recorded a decrease in the net result of 54% to € 138 million. This drop in profits was mainly caused by disappointing results on the financial markets, which affected all parts of the Group. In addition, the result includes a few specific items. In this respect, an extra deposit was made into the pension fund (€ 31 million), extra contributions were made to provisions including guarantee contracts (€ 42 million) and the above investments in the new General Insurance Service Centre (€ 30 million) were charged to the results. Also, a one off gain was taken in connection with the surrender of a major pension contract (€ 47 million). Delta Lloyd Group believes that financial services are in the long run about customer trust. Therefore, care should be taken not to overreact on the current market situation and the related results. Emphasis should be on a structurally prudent policy for all stakeholders.
Revenue: upward trend
Divisions in the Group that are involved in investments and other related activities had lower income due to the negative stock market. But political developments played a role too. The discussion about the basic deduction for life annuities and the employee savings scheme caused uncertainty amongst customers. Nevertheless, most activities could improve their premium income. The total gross premium income rose by 5% to € 4,341 million. Premium income from life activities of the whole Group grew by 2% to € 2.744 million, the premium income from general insurance and care developed positively with increases of 8% and 11% respectively. Total revenue fell marginally to € 5.5 billion, due to a 27% drop in investment results to € 1,022 million.
The Group revenue consists of: 71% from life insurance, asset management and banking activities, 14% from care and 15% from general insurance. Some 22% of total revenue was realised abroad. The Group has 6,464 full-time employees. Total assets under management fell to € 36.3 billion, a drop of 18% on the prior year.
Profit added to capital
The negative developments on the stock markets have led, for the second consecutive year, to a drop in investments and therefore in the Group's shareholders' funds. Shareholders' funds fell during the year under review by 27% to more than € 1.7 billion. The revaluation reserve was positive at € 90 million at the end of 2002. In light of the remaining uncertain stock climate and the Group's aim of an enduring solid financial position, it was decided to add virtually all profits this year to the Shareholders' funds.
Executive Board
The Executive Board appointed two new members with effect from 1 January 2003. Rob Hillebrand and Paul Medendorp both have ample management experience within Delta Lloyd. Chris Tesselhoff will retire from the Executive Board on 1 April 2003 when he reaches retirement age. On balance, the Board will have been increased to four members. This is a logical step given the sharp growth of Delta Lloyd Group in the past five years.
Outlook 2003
Given the continuing uncertainty in economic developments, (international) politics and financial markets, it is not possible for Delta Lloyd Group to make a reliable prediction for its 2003 results. However, the Executive Board does expect cost levels to fall slightly in 2003 and premium income in Life, General and Care to develop favourably. The focus for the Life operations will be on pension business. A further increase in premium income is also expected in Belgium and Germany.
Other information Delta Lloyd Group
- € 0.2 million dividend will be paid on preference shares on 2002
- Issue or purchase of shares did not take place in 2002
- The group structure was not essentially changed compared with 2001
- This is an unaudited press release
- The ordinary shares of Delta Lloyd Group are fully owned by the international insurance group Aviva plc. In addition Stichting Nuts OHRA holds preference shares
- The same valuation principles apply to the financial summaries in this press release and to the annual accounts 2002. Therefore, the valuation principles have not changed compared with 2001.
Download the full results announcement in Adobe PDF.
For more information, please apply to David Brilleslijper, manager Corporate Communication Delta Lloyd Group, tel +31 20 594 44 88 or email: cc@deltalloyd.nl