2015

FY Results

2

Although the statements of fact in this presentation have been obtained from and are based upon sources that the Issuer believes to be reliable, the

Issuer does not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions and estimates included in this

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Disclaimer

Agenda 3

Group Results Overview

GI Results

Life Results

Capital

Operational Liquidity

Expenses & Commission

Best Loved

Outlook

4

Operating profit increased by £109m (+127%) to £195m reflecting strong performance in all SBU’s particularly in Life and

Heritage, which also benefitted from model and valuation basis changes.

Group

Price increases introduced in 2015 are holding despite competitive pressures. Severe flooding at the end of the year has

contributed to a reduction in underwriting result. The result benefited from favourable prior-year claims run-off of £93m

(2014: £109m).

The decrease in operating profit to £72m also reflects lower investment returns reflecting the less favourable and more

unpredictable market conditions.

General Insurance (GI)

Operating profit has increased to £41m reflecting higher new business volumes particularly in Protection, Flexible

Guarantee Bonds (FGB) and Pensions. This was partially offset by a fall in Annuity sales, specifically in Enhanced Annuities.

Model and valuation basis changes have also had a significant impact on operating profit of £23m (2014: £-14m)

Life

The 2015 improvement in the Heritage result is mainly due to favourable model and basis changes (£91m) relating to OB

Pensions.

Group operating profit includes unallocated group overheads and also the return on the group’s free capital.

Heritage & Group

Group Result Overview: Operating Profit

N.B. Flexible Guaranteed Bonds are now reported within Retirement and prior year figures have been restated accordingly

2015 2014 Change

FY FY

Underwriting result 44 51 (7)

Investment return 28 41 (13)

General Insurance 72 92 (20)

Life 41 (7) 48

Heritage 88 9 79

Group (6) (8) 2

Operating Profit 195 86 109

£m

5

The reduction in the tax charge during the year reflects lower gains made in policyholders’ fixed-interest investments

compared to 2014. This tax on investment gains in the with-profit business, which gets charged to policyholders’ asset

shares, fell from ￡34 million to ￡nil million. The balancing reduction in the tax charge mainly reflects reduced general

insurance profits.

Income Tax Expense

The gain in the year of £51m (2014: £19m) is mainly driven by an increase in the discount rate, partially offset by a

reduction in the value of plan assets driven by unfavourable market movements in the second half of the year.

Pension scheme actuarial gain net of tax

Group Result Overview: Transfer to UDS

Headline

The steep increase in Profit before Tax/Transfer to UDS is primarily driven by the increase in operating profit.

2015 2014 Change

FY FY

Operating Profit 195 86 109

Pensions business IFRS adjustment (5) 1 (6)

Short-term investment fluctuations and related items (10) (2) (8)

Centrally managed costs (incl amortisation) (32) (24) (8)

Finance costs (24) (24) 0

Profit before tax and mutual bonus 124 37 87

Mutual Bonus (27) (24) (3)

Income tax expense (6) (47) 41

Pension scheme actuarial gain net of tax 51 19 32

Transfer to/(from) the Unallocated Divisible Surplus 142 (15) 157

£m

Operating profit of £72 million was down 22% (2014: £92m) due to

the lower investment returns and the impact of £36 million of flood-

related claims.

Direct business recorded a record Operating profit of £91m driven

by a strong underwriting result, whilst the Broker business recorded

a £19m Operating loss due to December floods and storm claims

amounting to £23m.

Non-motor policies now at 36% (2014: 35%) reflects a significant

proportion of the net growth in policy numbers coming from non-

motor lines.

Both Direct at £837m and Broker at £635m saw an increase in

premium up 6% and 5% respectively on 2014.

Motor premium increase of 7% is mainly driven by price increases

beginning to hold in the market as in force polices only grew by 2%.

The impact of the rate increases achieved was eroded by an

acceleration in market claims inflation and the level of large value

claims.

Competition remained intense in Home with average premiums

falling and despite the growth in home policy numbers, premium

income of £175m decreased 4% on 2014. Additionally with the

adverse weather operating profit was £4m, down £24m on 2014.

Commercial lines saw the greatest growth in premium of 8% to

£245m, the eighth consecutive year of significant premium growth.

The December weather led to an operating loss of £9m in 2015

down £23m on 2014.

6

Business Lines

GI Results

GI Results

2015 2014 Change

FY FY

Motor 1,013 948 65

Home 175 182 (7)

Commercial Lines incl SME 245 227 18

Other 39 37 2

GWP (£m) 1,472 1,394 78

Motor policies in-force 3.0m 3.0m 0.0

Non-Motor policies in-force 1.7m 1.6m 0.1

Total policies in-force 4.7m 4.6m 0.1

Underwriting result 44 51 (7)

Investment return 28 41 (13)

Operating Profit (£m) 72 92 (20)

ROCE (pre tax) 9.5% 12.3%

Loss ratio 66.3% 71.8%

Expense ratio 29.8% 24.3%

Combined ratio 96.1% 96.1%

£m

Headlines

7

One of the key objectives is to grow the Life business to scale,

both business areas made excellent progress towards this with

strong growth in new business.

New business premiums (PVNBP) increased by £326m and

overall operating profit increased by £48m.

Model and valuation basis changes of £23m (2014: £-14m) have

also had a significant impact on operating profit.

Our Retirement Account proposition was launched in 2015 and a

majority stake in Wealth Wizards Ltd was secured to support the

development of digital regulated advice solutions “robo advice”.

Through this partnership we became the first provider to create a

fully regulated online advice service, LV= Retirement Wizard.

Although Annuity sales have decreased year on year new

business contribution has increased as a result of stronger

margins.

FGB volumes have grown by 148% reflecting customers preferring

the benefits of a guaranteed return later in life.

Headlines

Retirement Solutions

Life Results

New business contribution has more than doubled, reflecting

continued sales growth, high margins plus strong cost control.

We have widened our proposition for small and medium

business owners by launching LV= Business Protection.

A newly designed operating model is being developed to enable

increased automation, faster and cheaper innovation, and a

more intuitive new business platform.

Protection

Life Results

*PVNBP – Present Value of New Business Premiums

2015 2014 Change

FY FY

Pensions 801 636 165

Enhanced Annuities 116 205 (89)

Fixed Term Annuities 193 182 11

Annuities 309 387 (78)

Flexible guarantee bond 379 153 226

Equity Release 63 105 (42)

Retirement Solutions 1,552 1,281 271

Protection 272 217 55

Total Life 1,824 1,498 326

Pensions 6 1 5

Annuities 4 3 1

Flexible guarantee bond 9 3 6

Equity Release 7 8 (1)

Retirement Solutions 26 15 11

Protection 21 10 11

Total Life before Investment 47 25 22

Investment in new propositions (17) (11) (6)

Net New Business Contribution 30 14 16

Operating Profit/(Loss) 41 (7) 48

£m

New Business (PVNBP *)

New Business Contribution

8

The Group is complying with the Solvency II requirement with effect from 1st January 2016. LV= has adopted the Standard

Formula approach to determining its regulatory capital from 1st January 2016. The Group will work with the PRA to agree a

timeline to transition to the internal model approach at a future date.

In addition LV= has received PRA approval to utilise transitional relief and the volatility adjuster (VA) under the Solvency II

regime from 1 January 2016. The group is working with the PRA to agree the use of the matching adjustment at a future

date.

Whilst LV= will use the Solvency II standard formula approach to determine its regulatory capital position from 1 January

2016, it will continue to manage the group’s business primarily on an economic capital basis.

Work is underway to calculate the group’s capital position under Solvency II as at 1st January 2016. The group currently

expects that it will be reporting a surplus of approximately 35% over the standard formula (with VA) capital requirement. Work

is also underway on a number of capital optimisation initiatives which are aimed at increasing this surplus.

Solvency I headlines

306290

235186

0

200

400

600

800

1000

2009 2010 2011 2012 2013 2014 2015

£m

Pillar 1 Capital Surplus

Tier 1 Capital Surplus Tier 2 Capital

720 689 854

Capital

The Group capital position as at 31 December 2015

remained strong with excess capital on a Solvency I Pillar

1 (Peak 2) basis at £854m (FY 2014: £689m).

The increase in surplus is due to the impact of changes

made to the OB Pensions cash benefits basis,

amendments made to the reinsurance arrangement for

50+ policies, model and valuation changes and GI Loss

Portfolio Transfer.

Solvency II headlines

The amount of LVFS operational liquidity held at 31st

December 2015 was £507m (2014: £524m).

9

General Insurance Surplus Cash remitted

GI cash remitted to Group in 2015 in the form of

dividends is consistent with 2014.

Life

The Life business is similar to the prior year, with

investment in new business offsetting cash generated

from in-force business.

Increased new business sales of pensions and

protection products have increased the level of new

business cash consumption. However, this has been

offset by cash generated from sales of flexible

guarantee bonds and annuities, although the latter

being at lower levels than in 2014.

The movement on prior year mainly reflects the

assumption changes in the Heritage business.

Non - recurring items

Stock

Operational Liquidity

*Group items comprise centrally managed costs and also the net impact of cash

flows relating to the heritage with-profits business.

** Excludes intra-group capital investments and repayments.

2015 2014 Change

FY FY

General insurance surplus cash remitted 37 37 0

Life (10) (11) 1

Group items * (24) (24) 0

Tax paid (4) 9 (13)

LVFS (outflow)/inflow before non-recurring items,

debt interest and mutual bonus(1) 11 (12)

Non-recurring items 34 (1) 35

LVFS net inflow before debt interest and mutual

bonus33 10 23

Debt interest paid (23) (23) 0

Mutual bonus (27) (24) (3)

LVFS net outflow ** (17) (37) 20

£m

10

Total Group Expenses before commission have increased by 6% compared to last year, driven by higher accrued

performance incentives relating to the increase in the Group’s Operating Profit, and an increase in commission mainly due

to the increase in new business volumes in the Life business.

Excluding these items, underlying costs are stable year on year, reflecting the Groups continued focus on cost control and

improving productivity whilst managing growth.

Group

General Insurance costs have increased by 5% reflecting an increase in the divisional performance incentive schemes,

higher accrued performance incentives relating to the increase in the Group’s Operating Profit and an increase in project

costs mainly due to upgrading our policy system.

General Insurance

Life

Life expenses before commission have increased by 13% reflecting higher accrued performance incentives relating to the

increase in the Group’s Operating Profit and increased spend on projects to develop our Retirement proposition following

the Pensions reforms. Project expenditure is predominantly offset by savings across the Life business through cost control.

Expenses and Commission

2015 2014 Change

FY FY

General insurance 256 243 13

Life 122 108 14

Heritage 27 31 (4)

Central items and other 20 17 3

Amortisation of acquired intangibles 3 3 0

Total expenses pre-commission 428 402 26

Commission 195 182 13

Total expenses 623 584 39

£m

Our focus on being the UK’s ‘best loved’ insurer is another key objective validated by

being voted the UK’s most recommended insurer again, according to YouGov.

We are also currently the UK’s number one brand for Insurance and Investments,

according to the 2015 YouGov Brand Index Buzz Rankings.

Within the General Insurance business the customer satisfaction surveys carried out by

the Institute of Customer Service (ICS) showed that consumers ranked us one of the

best insurers in the UK for customer satisfaction, as well as winning the Customer Care

Award at The British Insurance Awards. Along with Direct Insurer of the Year at the

Insurance Times Awards.

The Life business have been delighted to be recognised by consumers and the industry

as the Most Trusted Life Insurer (MoneyWise). In addition we were proud to be awarded

Outstanding Achievement from the Financial Adviser Service Awards alongside a further

twenty five awards for our range of products and services.

Best Loved 11

12

The general insurance market remains competitive however we expect to see continued rate strengthening in motor

in order to offset claims cost inflation. Our General Insurance business is well placed to take advantage of this

with its reputation for excellence in customer service and fair pricing.

In the Life business growth is not expected to be sustained at 2015 levels. There appears to be no let-up in the

pace of regulatory change, the launch of the secondary annuity market and forecast tax changes are all areas that

will keep the life industry busy over the coming years. We do however believe that we are well positioned and have

laid strong foundations for future profitable growth. Our agility and understanding of the needs of our customers

has enabled us to move faster than the competition and we remain confident that we will see continued success

over the medium term. We continue to explore and embrace emerging trends such as robo-advice which we believe

can make financial services more accessible to the general public.

The developments required for the transition to the Solvency II regime have been a key focus for the group for the

last few years. We are confident that the LV= group will continue to operate sustainably under the Solvency II

regime during 2016 and in the longer-term, including moving to the Internal Model basis.

Our strong brand and increasing customer centric approach means that LV= is well placed to retain existing

customers and to attract new business. The combination of offering new products which people want, alongside

market leading customer service, means that we can expect to see continued strong profit contributions being

delivered across the group for the foreseeable future.

We remain focused on diversifying our General Insurance business through cross selling and improved aggregator

pricing, and growing our Life business to scale, particularly the Retirement business through robo-advice and our

blended retirement account. Both of which will support a sustainable business model for the future.

We remain focused on achieving positive capital and cash generation in Life, focusing on the Retirement business

moving towards less capital intensive products such as Pensions.

Outlook