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IL&P Group Holdings (283)

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Wednesday 17 November, 2010

IL&P Group Holdings

Interim Management Statement

RNS Number : 3022W
Irish Life & Permanent Grp HldgsPLC
17 November 2010


Irish Life & Permanent Group Holdings plc


Interim Management Statement


7.00am Wed 17 November 2010


Irish Life & Permanent plc (IL&P) issued the following update on the group's business. A conference call for analysts will be hosted by management at 9.00am today, the details of which are set out at the end of this statement.



Group Overview


The continued weakness in domestic demand and the disruption in debt markets have made for challenging operating conditions for the Group's businesses.


The Irish economy is recovering but more slowly than expected in 2010. The very strong performance of the export sector - both multi-national and domestic companies - has been offset by weakness in consumer confidence and by the effect of fiscal tightening. However unemployment is showing evidence of stabilising and, while house prices continue to fall, the pace of decline has slowed considerably.


Nonetheless the recovery in the life and investment business is well established and the banking business continues to progress its key priorities for funding, impairments and profitability. Overall we expect operating earnings* for the year to be significantly better than 2009.



Life & Pensions


New business

Total life and investment sales for the year are expected to be ahead of 2009. Given the expected overall sales mix the value of new business for the full year is expected to be similar to 2009.


While the Retail and Corporate divisions of Irish Life Assurance are both experiencing weaker demand, ILIM continues to record strong institutional inflows. The weaker life sales are reflected in the fall-off in recurring premium sales which are down by almost a quarter. In Retail this is due to reduced household disposable incomes and SME cash flows while the reduction in Corporate recurring premiums sales reflects the impact of salary reductions and lower numbers employed in corporate pension schemes.



The persistency experience in the Retail in-force book improved through the year and is expected to be in line within the provision provided in 2009. However whether the long term persistency assumption will be achieved for the full year will be sensitive to the final quarter experience and the impact of Budget measures in 2010 and into the future.


In the Corporate book the adverse persistency experience continued into the second half of the year and a change in assumptions will, as indicated at the Interim results, be required at year end. On the other hand Corporate risk experience (mainly morbidity) continued to be strongly positive.

In-force operating earnings for 2010 are expected to be well ahead of the prior year with overall experience variances positive (versus a negative of €70m in 2009) and negative persistency assumption changes being somewhat mitigated by positive changes to risk assumptions. Combined experience variances and assumption changes are expected to be circa €10m negative.


Short term investment fluctuations

The estimated impact of short-term investment fluctuations on the life business embedded value year to date is broadly neutral. The positive variance from unit fund growth ahead of embedded value assumptions is offset by property valuation reductions.


Shareholder liquidity support for unit-linked property funds was unwound earlier this year with the disposal of some €50m of Irish commercial property. In regard to overseas property commitments the arbitration process has ruled that we must conclude the Luxemburg property transaction while we have successfully unwound the 2012 Belgium property commitment.





The priority for the Group's banking business has been to improve its funding mix, in particular to grow its core stable funding, comprising retail deposits and long term funding. Good progress is being made on this objective but clearly has been disrupted by current debt market conditions.


Retail deposits continue to record good growth through the second half of the year with inflows expected to be at a similar level as the first half at between €700m and €800m. Corporate deposits reduced from €5.4bn to €4.8bn in the third quarter but have been stable since the end of September, and are expected to remain so being almost all sourced domestically.


The good progress made in the first half of the year in refinancing long term debt has been impacted by the deterioration in debt markets from May. Of the total term debt refinancing requirement of €6.4bn for the year €4.8bn has been refinanced by first half issuance under the ELG and an amount of €0.5bn in the third quarter by way of a sale of Irish originated mortgage assets.


ECB drawings are currently €11.7bn reflecting the deferral of the planned term issuance. Our current focus is to raise un-guaranteed term funding using our UK residential mortgage assets as security. These bilateral long-term repo transactions would reduce ECB funding. The market value of unencumbered ECB eligible securities is currently €5.5bn and will be added to as further loan pools are securitised.


Term debt maturities in 2011 are less than €2bn.


Net interest income

Net interest income - before the cost of the guarantee - is expected to be ahead of target given the mix of funding in the second half of the year. Guarantee costs are expected to be in line with previous guidance.




Credit quality

Early arrears cases (under 90 days) in the residential loan book have levelled off since May, evidence that the position is stabilising in line with the trend in unemployment. However arrears cases (over 90 days) in the Irish residential and commercial mortgage books continue to rise.


Arrears in consumer finance continue to decline in both the over 90 days and under 90 days categories.


The UK mortgage book is performing in line with expectations and its arrears experience continues to out-perform the UK buy-to-let sector overall.


Current estimates for full year impairment provisions for the bank are circa 10 -15% below the 2009 level.






The Group continues to focus on reducing its cost base. Operating costs in the Retail and Corporate Life divisions will reduce by a further 6% in 2010, down almost 20% from peak. Bank operating costs - before restructuring costs - are expected to fall by 4% this year following the 10% reduction in 2009.



In line with the result at the half year life operating profits* are expected to make a strong recovery for the year as a whole increasing in the order of 70%. The banking business result is expected to be broadly in line with the prior year absent any material developments.



The bank completed its PCAR assessment in September and its expected end year capital position will be in line with the projections included in that exercise.


The solvency position of Irish Life Assurance strengthened further in the third quarter. It has now completed the raising of loan capital of €100m, secured on the in-force book, and will also be implementing changes in the statutory reserving basis the effect of which will release circa €50m of additional capital at the year end.


Corporate Activity

The Group has been selected for the final stage of the auction process for EBS Building Society. Final offers have to be made before year end.



* Embedded Value basis







Conference Call & Contact Details


Kevin Murphy, Group CEO and David McCarthy, Group Finance Director, will host a conference call for analysts at 9.00am on Wednesday 17 November 2010.

To join the conference call, please dial in to the relevant number below 10 minutes before and ask for the Irish Life & Permanent call


Ireland             (01) 247 7824

UK                   (0) 20 7075 6551

Other               +353 1 247 7824


Pass code:      282009#


The conference call will also be available via the LIVE<GO> service on Bloomberg and Thomson Reuters


Conference Call Replay

Replay facility available until midnight 24 November 2010. The telephone numbers and access code are:


Ireland             (01) 431 1246

UK                   (0) 20 3364 5943

US                   1866 286 6997

Other               +353 1 431 1246


Pass code:      267370#



Contact details


David McCarthy, Finance Director                 Barry Walsh, Head of Investor Relations

Tel: +353 1 856 3050                                      Tel: +353 1 704 2678


Orla Brannigan, Investor Relations                 Ray Gordon, Gordon MRM

Tel: +353 1 704 1345                                      Tel: +353 1 665 0450







Disclaimer - Forward Looking Statements

This document may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the future financial condition, business performance and results of the Irish Life & Permanent group.  By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Irish Life & Permanent group including, amongst other things, Irish domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which the Irish Life & Permanent group and its affiliates operate.  As a result, the Irish Life & Permanent group's actual future financial conditions, business performance and results may differ materially from the plans, goals, and expectations expressed or implied in these forward-looking statements.

This information is provided by RNS
The company news service from the London Stock Exchange

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