Using IFRS accounting standards, the firm suffered a loss after tax of £432m compared with a profit of £130m the previous year.
Its preliminary results, out today, state: “The principal cause of the loss has been the losses experienced in the investment markets. Being a mutual our results reflect the full impact of the investment performance of our with-profits funds, as compared to a proprietary company where, typically, the impact of the investment performance of with-profits funds is restricted to 10 per cent in the shareholder results.”
The Royal London with-profits fund fell 16 per cent over 2008, although its UK equity holdings, which account for almost 30 per cent of the fund, plunged 29.9 per cent.
The Scottish Life with-profits fund dropped a relatively conservative 4.6 per cent due to a far smaller exposure to equities.
Royal London saw its EEV operating profit jump 45 per cent from £147m in 2007 to £213m in 2008. This figure included a new business contribution of £52m, an increase of 6 per cent on 2007.
But the firm’s IGD capital surplus shrunk by half from £1.9bn in 2007 to £773m at December 31, 2008.
It states: “Whilst our IGD capital surplus has reduced, £685m of this reduction is due to goodwill and certain assets acquired as part of the Resolution transaction not being admissible for regulatory capital purposes, despite representing real value for the Group.”
Group chief executive Mike Yardley says: “Royal London’s operating profits and increased contributions from new business demonstrate the strength of our business model, even in the most challenging of market conditions.
“The last year has been a period of unprecedented turbulence in investment markets and of global economic slowdown. We are, of course, major investors in the equity, property and corporate bond markets and the investments of the Royal London with-profits fund have inevitably fallen significantly with the performance of these markets in 2008.
“Despite this, our capital position remains strong. The Resolution transaction strengthened Royal London’s position in the protection market in the UK and also our international operations.
“Although there will undoubtedly be further challenges to be overcome from turbulent economic conditions, Royal London is well placed to continue to grow profitably.”