1.4bn. 195m 3.8% 72m. 41m. 27m. Our performance. Group operating profit. Capital resources. With-profits investment performance

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1 195m Group operating profit 72m General insurance operating profit 41m Life operating profit 1.4bn Capital resources 3.8% With-profits investment performance 27m Mutual bonus Our performance Our businesses Our results Our numbers

2 2 Our performance 3 Our business model General Insurance Personal Commercial Protection Life Retirement In the early days, when we were known as Liverpool Victoria, people knew us mainly as a company that offered life insurance or a way to save for a rainy day. Our agents would go door-to-door collecting premiums and building relationships with customers and communities. Today many of these older policies are looked after in our heritage business. In 1996 we went into another form of insurance and bought Frizzell, a family-owned company that had a fantastic reputation offering car and home insurance, through long established partnerships. The business we are today really started to take shape 10 years ago. Since then we ve revitalised our brand and redefined what we do, by focusing on profitable lines of business, and significantly growing our customer numbers, member returns and employee engagement. Our reputation and appeal is market-leading. We re a vibrant and modern mutual offering a range of affordable and welldesigned products and services, on a bigger scale than ever before. Car Motorcycle Specialist Vehicles Britannia Rescue Home Travel Commercial Combined Manufacturer s Wholesaler s Business Leisure Commercial Motor Fleet Truck Hire & Reward Motor Trade Combined Motor Trade Road Risks Package Insurance Income Protection Term/Life Assurance Critical Illness Whole of Life 50 Plus Business Protection Self-invested and personal pension Income Drawdown Fixed Term Annuity Enhanced Annuity Flexible Guarantee Funds & Bonds Equity Release Our products and services fall into these categories: General insurance: insurance for tangible items people love like their vehicles, homes, pets and holidays. Life and pensions: protection and retirement products and investments, covering peoples lives and incomes. These are the products that make our customers members, and owners of the business. Heritage: savings and investment products that are no longer actively marketed, the majority of these are with-profits products. Pet Landlord Caravan Legal Services Pub Restaurant Office & Surgery Retail Hotel & Guest House Trades & Professions Property Owners Property Investors Protection Advice Service Pension Income Plus Annuity Heritage Retirement Advice Service LV= Retirement Wizard Flexible Savings Plan Non-insurance: legal services and online retirement advice. Residential Commercial Property Industrial Branch Whole of Life Ordinary Branch pensions

3 4 Our performance 5 Chief Executive s Review We remain focused on offering good value products and an excellent level of customer care for our customers and members Mike Rogers Chief Executive Against a backdrop of continued challenging market conditions we are really pleased to be able to report an operating profit of 195 million, an increase of 127% over the prior year. Our focus on service has once again been recognised in a number of external awards. We have been recognised as one of the very best insurers for customer satisfaction in the 2015 UK Institute of Customer Service Customer Satisfaction Index. We ve also held on to the YouGov accolade of being the UK s most recommended insurer which we first earned in Under his leadership LV= has climbed from the twelfth to third largest car insurer, achieving record levels of customer satisfaction and renewal rates. Coming from Aviva, Steve s in-depth knowledge of the GI market makes him the ideal person to build on the strong platform that John and the team have created. We have also created a new role of Customer & Member Director and Katie Wadey joined LV= in January She is responsible for delivering our objective of being a truly customer centric organisation. In General Insurance While the storms at the end of 2015 were catastrophic for those homeowners and businesses affected our overall claims costs benefitted from good weather for most of the year and our general insurance business achieved an operating profit of 72 million with a combined operating ratio of 96.1%. The motor marketplace has remained competitive but we have seen some rate recovery in the second half of the year and we expect that to continue throughout Motor insurance is by far the biggest part of our GI business representing 64% of the total policies in force. We will continue with our strategy to diversify our portfolio away from motor by growing customer numbers in home, SME and other categories. In the Life business The impact of the 2014 Budget continues to be felt in the retirement market. We have seen a marked change in buying behaviour with more pension savers shopping around for retirement income solutions. As we offer a wide range of products we are well placed to take advantage of these market trends. We are also seeing a move towards blended solutions, combining the flexibility of drawdown with the guarantees provided by specialist annuities. We continue to develop new products and services to position LV= at the forefront of the changing pensions environment. We retain our position as the leading provider of individual intermediated income protection and during the year we launched our first range of business protection insurance products. Designed to protect small and medium sized businesses against the financial impacts of death or critical illness, we offer key person, shareholder and partnership insurance plus loan protection. The pension freedoms have undoubtedly been a positive move but the complexity of decisions at retirement is overwhelming for most people. To help address the lack of affordable and accessible regulated advice we launched the first online regulated advice service for the retirement income market. In summary, we are a financially strong mutual with a well-known brand and our business model means we are well positioned for the future, with growth opportunities in both our trading businesses. We remain focused on offering good value products and an excellent level of customer care for our customers and members. *small and medium enterprises Recently, I have made two significant changes to the Executive Team. Steve Treloar has been appointed as Managing Director of General Insurance (GI) replacing John O Roarke whose contract has come to its end. John has fundamentally transformed the GI business from one that made a loss of 46 million, with premiums of 300 million in 2007 to one that has made a profit of 72 million with premiums of 1.5 billion in Katie s appointment demonstrates the importance that we place on our relationship with members. Katie Wadey We exceeded our financial targets in m operating profit 2014: 86m 195% capital cover ratio 2014: 171% 3.8% Benchmark: 2.7% LV= With-profits fund performance and outperformed our non-financial targets 1 st 2014: 2 nd 86% 2014: 85%. To be Britain s best loved insurer employee engagement UK high performing organisations: 81%

4 6 Our performance 7 Our financial results The results for 2015 were particularly pleasing, with both of our trading businesses contributing to overall operating profit despite challenging market conditions Results for 2015 m General insurance Life 41 (7) Heritage 88 9 Group (6) (8) Operating profit Pensions business IFRS adjustment (5) 1 Short-term investment fluctuations and related items (10) (2) Centrally managed costs (29) (21) Finance costs (24) (24) Amortisation of acquired intangibles (3) (3) Profit before tax Mutual bonus (27) (24) Income tax expense (6) (47) Pension scheme actuarial gain net of tax Transfer to/(from) the Unallocated divisible surplus 142 (15) Philip Moore Group Finance Director In 2015 we saw strong trading performance in both our general insurance and life businesses together with a significant contribution from our heritage business. Together the group delivered an operating profit in 2015 of 195 million, up from 86 million in This record level of operating profit was achieved despite continuing challenging market conditions. In our life business the retirement result is still being impacted by the 2014 budget changes leading to a shift in the buying behaviour of retirees. In our general insurance business continued pressure on margins and extensive flooding towards the end of the year impacted the underwriting result. Economic conditions have also proved a drag on our results with an increase in gilt yields driving down the value of debt securities. In addition we saw credit spreads widening and the FTSE finishing the year down 4.9% on the 2014 closing position at 6,242. Operating profit for the general insurance business of 72 million (2014: 92 million) was satisfactory given the challenges faced during the year. The underwriting result dropped to 44 million (2014: 51 million) following storms Desmond, Eva and Frank which resulted in claims of 36 million. Life new business volumes have grown significantly, particularly in protection, flexible guarantee bonds and pensions. The increase in contribution from this new business has helped drive an increase in operating profit to 41 million (2014: 7 million loss). Operating profit has also benefitted from favourable one-off model and valuation changes in the year. The heritage business operating profit of 88 million (2014: 9 million) is driven by model and valuation changes of 91 million. Our with-profits investment returns at 3.8% have outperformed the benchmark for the fourth year running and we have declared a mutual bonus of 27 million, which is 3 million more than last year. The transition to the Solvency II regime has been a key focus for the group for a number of years. The rigour applied to this preparatory work and the careful management of the group s capital position mean that we are confident that LV= will continue to operate successfully under the Solvency II rules during 2016 and in the longer-term. Our headline figures 195m Operating profit 124m Profit before tax 27m Mutual bonus 3.8% With-profits investment performance 14.5bn Total assets 854m Excess capital Our brand, reputation and focus on the customer mean that LV= is well placed to retain existing customers and attract new business. The combination of offering products which people want alongside market leading customer service mean that we can expect to see continued strong profit contributions being delivered across the group for the foreseeable future. Total contribution to the UK Exchequer in 2015 from LV= 270m 2014: 216m

5 8 Our performance 9 General Insurance Review We are the third largest private car insurer in the UK with around 12% market share John O Roarke Managing Director of General Insurance Looking ahead We believe that 2016 will bring more attractive trading conditions as private motor insurers push through further premium rate increases in order to offset claims cost inflation. Our general insurance business is well positioned to take advantage of these conditions with its reputation for excellence in customer service and fair pricing for both new and renewing customers. We expect further growth in policy numbers and aim to see improving returns for LV= members over the medium-term. In 2015 we achieved an excellent customer satisfaction score of 83% Customers who said they were very or extremely satisfied. 4/5 customers renewed their direct motor and home insurance with us last year (Motor Insurance 81% and Home Insurance 84%) Personal motor policies* 3,011k +48k Home policies** 850k +2k Operating profit 72m Number of in-force policies 4.7m Premium income 1.5bn Combined ratio 96.1% Investment returns 1.3% 2015 represented another year of solid progress for our general insurance business. Our financial results were satisfactory in the context of challenging market conditions but were impacted by the combined effects of sustained low investment returns and the severe flooding which affected the northern parts of the country in December. Despite active management of the investment portfolio during 2015, the continuing low interest rate environment meant that we were only able to generate a total return of 1.3% on our invested assets, compared to 2.0% in Our 2015 operating profit of 72 million was down 22% compared to 2014 due to the lower investment returns and the impact of 36 million of flood-related claims on underwriting profits. Our range of insurance products can be broadly split into two categories. Those aimed at individual insurance needs such as car, home and travel insurance and those developed for business owners such as shop or office insurance and fleet vehicle cover. Private motor insurance remains our most significant business line. Our strategy to lessen our dependence on motor continued apace in 2015 and more than half of the net growth in policy numbers came from other products. The UK is whiplash capital of the world We have been calling on the Government to introduce further reforms to address the significant increase in exaggerated and fraudulent whiplash claims. These claims add 90 onto the average car insurance premium and we want to see tougher controls on claims management companies. We were pleased to hear the Chancellor announce measures to end the right to cash compensation for minor whiplash injuries and raise the upper limit for the small claims court for personal injury claims from 1,000 to 5,000. Following his 2015 Autumn Statement we publicly promised to pass on any cost savings directly to our customers, once the reforms are implemented. Travel policies 110k +4k Pet policies 26k +1k Road Rescue policies 925k +108k * Includes Motorcycle and Classic car insurance ** Includes Caravan and Landlord insurance

6 10 Our performance 11 Life Review Our customer centric and agile culture helps differentiate us from the competition Looking ahead 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. By leading the market in this way we can continue to lobby the industry from an informed position, supporting our vision of being Britain s Best Loved Insurer by ensuring the best possible outcomes for our customers and members. 81% * Our 2015 customer satisfaction score. 99% of our life protection claims paid in 2015, totalling over 65 million Operating profit 41m + 48m Total life sales 1.8bn +22% Pensions sales 801m +26% Richard Rowney Managing Director of Life and Pensions Our life business focuses on two main areas, retirement solutions and protection, covering people s lives and incomes. The vast majority of our products are sold with advice from financial advisers. Overall the life business has delivered an operating profit of 41 million, up from a 7 million operating loss in New business volumes have grown significantly, particularly in pensions as consumers increasingly utilise our draw-down expertise. We have seen good growth in our specialist savings business with bond sales being particularly encouraging, and in protection we ve experienced strong growth across all our major product lines. Retirement The pension reforms announced in 2014, and implemented last year, gave people the opportunity to get more from their hard earned savings. But freedom of choice placed a burden on retirees as to which product or combination of products to choose. We secured a majority stake in Wealth Wizards Ltd in August to support the development of digital regulated advice solutions supporting our aim to make financial advice affordable and accessible to the mass market. Protection We continue to strongly campaign on the wide ranging benefits of income protection, which provides a safety net for consumers if they are unable to work because of an accident or sickness. We have taken steps to widen our proposition for small and medium business owners in the second half of 2015 by launching LV= Business Protection. We are increasingly being recognised as thought leaders within the industry and have worked closely with the Government and our regulators to help shape the industry and make decisions that are in the best interest of our customers and members. In 2015 I joined the expert panel on the Financial Advice Market Review to develop ways of making financial advice work better for everyone. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear. No one will have to buy an annuity. George Osborne March 2014 Budget Announcement Annuity sales 309m -20% Flexible guarantee bond sales 379m +148% Protection sales 272m +25% * Satisfaction is defined as % of customers rating us 4 or 5 when asked How has your recent contact with LV= left you feeling, where 1 is disappointed and 5 is delighted?

7 12 Our performance 13 Heritage Review Our heritage business looks after ordinary branch and industrial branch with-profits policies along with some non-profit business. It also includes with-profits and unit linked business acquired from the Royal National Pension Fund for Nurses ( RNPFN ). The main with-profits fund achieved an investment return of 3.8% for the year. This was a strong performance in the face of difficult market conditions, out-performing market benchmarks by 1.1%. This is the fourth year running that the fund has delivered returns above benchmark. The board have also agreed a mutual bonus for 2015 of 27 million. This will be distributed to eligible members policies and will typically add 1% to policy values. In the five years since the mutual bonus was introduced it has amounted to 113 million. Number of members with a with-profits policy 433,682 With-profits Asset class breakdown This chart shows how the assets from the with-profits fund were invested achieving the 3.8% return. 2.1bn The amount of money invested in the LV= with-profits fund UK Equity 31% Overseas Equity 14% UK Gilts 28% Bonds 10% Property 11% Alternative 3% Cash 3% 1% Added to the value of eligible members policies = 27m Mutual bonus for eligible members 3.8% investment return for the with-profits fund 140m Total bonuses added to members policies Favourable payouts relative to the market LV= with-profits policyholders continue to benefit from excellent returns on their investments, with equivalent annual rates of return for the policies listed below ranging from 4.0% to 9.1%, which includes the mutual bonus. Conventional with-profits Policy Duration Policy Description Payout Equivalent annual rate of return over the full term 25 years a Ordinary Branch 37, % Endowment 25 years b Industrial Branch Endowment 3, % a: Regular premium of 50 per month for a male aged 30 next birthday at entry, maturing 01/03/2016. b: Regular premium of 5 per four week period for a male aged 30 next birthday at entry, maturing 01/03/2016. Unitised with-profits regular premium policies Policy Duration Policy Description Payout Equivalent annual rate of return over the full term 10 years a Endowment 7, % 15 years a Endowment 14, % 10 years b Pension Policy 36, % 15 years b Pension Policy 61, % a: Regular premium of 50 per month for a male aged 30 next birthday at entry, maturing 01/03/2016. b: Regular premium of 200 per month for a male retiring at age 65 on 01/03/2016. Unitised with-profits bonds Policy Duration Policy Description 5 years a Flexible Guarantee Bond Cautious Series 2 As above, but without a guarantee 5 years a Flexible Guarantee Bond Balanced Series 2 As above, but without a guarantee 5 years a Flexible Guarantee Bond Managed Growth As above, but without a guarantee 10 years b With Profits Growth Bond Surrender value as at 1 March 2016 Surrender value a year ago 54,190 52, % 56,905 54, % 53,523 51, % 58,743 55, % 52,276 49, % 60,284 55, % 19,549 17, % Effective return over the year a: Single premium of 45,000, for a male aged 30 exact at entry, with a 5 year guarantee, surrendering 01/03/2016. b: Single premium of 10,000, for a male aged 30 exact at entry, surrendering 01/03/2016.

8 14 Our performance 15 Directors remuneration The numbers Our remuneration policy is designed to support the recruitment and retention of talented people who are able to achieve stretching targets and deliver greater benefits for our members. These tables show the remuneration of our board of directors, including the fees paid to the chairman and non-executives. You can read the whole Report on Directors Remuneration which is part of our Annual Report at LV.com/remuneration How much our executive directors earned in 2015 from our ongoing remuneration policy 000 Salary and fees Other Annual benefits 1 Pension 2 bonus 3 Long-term incentives 4 M Rogers , ,666 P Moore , R Rowney J O Roarke Total , ,655 1,110 4, , , ,823 In addition to this remuneration from our ongoing policy, J O Roarke also received a payment from the general insurance share-based long-term incentive plan totalling 10.1 million. For further details of this payment see page 105 of the Annual Report. Non-executive directors remuneration 000 Salary and fees Total M Austen D Neave J Edwards C Keers C Burton J Dean Total Total Non-executive directors receive no benefits or pension contributions and do not participate in variable incentive schemes 1. Benefits include car allowance, medical insurance, income protection cover and life cover. 2. This comprises the value of any payments by LV= into the defined contribution section of our pension scheme and any cash allowance paid in lieu of forgone contributions as appropriate. 3. This relates to the payment of the annual bonus for the year ended 31 December For M Rogers, P Moore and R Rowney an element of these full year amounts will be subject to deferral. 4. This relates to the vesting of the 2013 LTIP award. The performance period for this award ended on 31 December Two-thirds of the figures shown are deferred to be paid in equal tranches in April 2017 and April P Moore also received fees relating to external non-executive directorships totalling 85k. 6. Resigned on 24 September All our employees are paid at least the Living Wage Foundation rates of pay. In 2015, the average full time employee salary was 30,800 and the annual bonus payment averaged 11.8% of salary. Summarised income statement m Net earned premiums 2,024 2,140 Investment income Net (losses)/gains on investments (282) 832 Other income Total income 2,200 3,396 Net benefits and claims (1,476) (1,584) Net change in contract liabilities 47 (1,131) Finance costs (24) (24) Investment return allocated to external unit holders (36) Other operating and administrative expenses (623) (584) Total benefits, claims and expenses (2,076) (3,359) Profit before tax, mutual bonus and UDS transfer Summarised balance sheet m Assets Cash and cash equivalents 1, Financial assets Fair value through income 11,419 11,791 Other assets 1,934 1,468 Total assets 14,539 14,049 Liabilities Insurance contract liabilities 9,868 9,715 Investment contract liabilities 2,416 2,106 Other liabilities 1,154 1,269 Unallocated divisible surplus 1, Total liabilities 14,539 14,049 This summary financial information does not contain sufficient information to allow a full understanding of the results of the Group and Society, and of its policies and arrangements concerning directors remuneration. This is provided by the full Annual Report and Accounts. Members can see a copy of the Group s latest full Annual Report and Accounts, including the Independent Auditor s report at LV.com/annual-report. Alternatively a copy can be obtained, free of charge, from LV= Secretariat, County Gates, Bournemouth, Dorset, BH1 2NF, or by phoning Basis of preparation The financial information for the year ended 31 December 2015 has been extracted from the full Annual Report and Accounts and has been prepared based on the accounting policies set out in the 2015 Annual Report and Accounts.

9 16 Our performance Board committees We aim to ensure that we conduct our business to the highest possible standards. Nomination Committee With-profits Committee Monitor balance of board s skills and experience. Shortlist and recommend Compliance with the Principles and candidates for appointments. Practices of Financial Management. Review selection process. Protect the interests of the with-profits policyholders. pay policy. Monitor LTIP schemes. Determine executive Recommend annual bonus rates. Remuneration Committee Board Establish values, culture and ethics. Appointment and removal of directors. All financial and strategic matters. Mergers, acquisitions and disposals. Monitor board committees. Audit Committee Review internal control, financial reporting process and outputs. Assess the risk model. Review internal and external auditor effectiveness. Oversee investment strategy. Embed risk culture. Align business and risk strategy. Monitor performance of Focus on risk exposure. external fund managers. systems of Governance. Internal Model embedding and Monitor risk governance and framework. Investment Committee Risk Committee Number of meetings held during 2015 Board meetings 13 Audit committee 13 Risk committee 4 Investment committee 3 Remuneration committee 6 Nominations committee 2 With-profits committee 6 The terms of reference for each committee can be found at LV.com/boarddocs