Lloyds Banking Group plc (LLOY) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our third investor seminar. During these events, we provide more details on our strategic growth priorities. Today's session will focus on 2 areas of our group that have distinct opportunities but work closely together to deliver better outcomes for our customers, our mass affluent and our insurance, pensions and investment businesses. We're starting to deliver real momentum in both areas, and we believe we have a clear vision to build a differentiated proposition over the coming years. I'm joined today by Jo Harris, the CEO of our Mass Affluent business; and Chira Barua, the CEO of our Insurance Pensions & Investments or IP&I business. As per usual, I'll provide a few introductory remarks about the businesses and the opportunity we see before handing over to Jo and Chira. Following the presentation, we'll have plenty of time for your questions. So let me start on Slide 2. The key messages that I'd like you to take away from today's session are as follows: Firstly, we're 2 years into delivering our strategic priorities and are making strong progress across our Mass Affluent and IP&I businesses. In Mass Affluent, we're demonstrating that we can grow and deepen our relationships as we build a broader, more tailored offering whilst we're bringing more of our IP&I products to customers across multiple channels, including through increased connectivity with the rest of the group. Secondly, our success in both areas is driven by a number of factors. We're building upon a base of strong, trusted relationships and leveraging our digital leadership position to increase customer engagement. Importantly, there is also growing regulatory support in this area given the clear need to tackle the advice gap for customers. And finally, our strategic priorities translate into meaningful financial benefits, including a combined contribution of around GBP 0.4 billion to the target GBP 1.5 billion of additional revenues from strategic initiatives by 2026 as well as further revenue upside from the core franchise. These growth opportunities are accretive to the group's RoTE with a strong proportion of the revenue being other operating income, therefore, improving our diversification. Turning now to Slide 3, where I'll provide an overview of how both businesses fit within the wider Group. As you've heard from me previously, our consumer businesses are captured within our externally reported retail division with IP&I operating as a stand-alone reporting division. These areas work together closely with IP&I manufacturing products that are then distributed across our consumer franchise, allowing us to meet all of our customers' financial needs in one place. To recap, our Mass Affluent business reflects a higher value customer segment, where income or wealth is above GBP 75,000, addressing a gap in the market for this customer group. And in IP&I, we have significant presence in the wealth, retirement and insurance markets across the major channels of workplace, direct-to-consumer and supporting IFAs. These account for the vast majority of wealth distributed in the U.K. We are also focused on building deeper relationships with our retail banking customer base as a direct channel. As you'll hear later from Chira, our priority business areas are those focused on supporting customers in the accumulation and decumulation of wealth as well as protection. On Slide 4, I'll provide more detail on the opportunity we see across these areas. Whilst these businesses work together closely with IP&I in particular, being a key enabler of Mass Affluent growth, these businesses are at different stages and their opportunities are unique. In Mass Affluent more than 40% of U.K. adults in this segment have at least 1 product with the group. However, our share of their broader financial services needs is lower than the group average, particularly in areas such as investments and protection. Having established this business in 2022, we are focused on providing this underserved higher-value customer group with an enhanced digital-first offering across banking and investments that better reflects their specific needs. Our IP&I business is well established and a leading provider across multiple products and channels. Having modernized our technology estate, we're focusing on developing new innovative propositions for customers as well as maximizing the benefits of having this business operate alongside our banking franchise. Despite their different opportunities, the factors that provide us with the confidence that will be successful are similar. This includes the strength of our customer franchise, growing customer demand and the ability to lean into a shift to digital, given our scale, engagement levels and ongoing investment in technology and data. As I mentioned upfront, we're also observing a positive shift in the regulatory environment recognizing the need to be more effectively serve customers to meet the advice gap and better prepare their financial futures. To close on Slide 5, I'll briefly cover the significant financial contribution these businesses will make going forward. We're committed to delivering GBP 1.5 billion of additional revenues from strategic initiatives by 2026. In total, these businesses contributed around GBP 0.4 billion towards this or more than 25% of the total. This includes GBP 0.3 billion across our Mass Affluent initiatives. IP&I represents around half of the broader contribution, supporting the delivery of our Mass Affluent priorities as well as delivering around GBP 0.1 billion of revenues across our consumer and commercial pillars in areas such as workplace pensions. These revenues are capital-light in nature, given their weighting towards other income, thereby supporting broader group aims of improving capital efficiency and revenue diversification. Additionally, we see a further more significant revenue opportunity across these businesses from core franchise growth, such as the value generated from retaining Mass Affluent deposits and delivering our broader growth initiatives across IP&I. So with that in mind, I'll now hand over to firstly Jo and then Chira to take you through this in more detail. Jo, over to you.

Thank you, Charlie, and good afternoon, everyone. So I'll begin with an outline of our business today, and then I'll talk about why we have all the right ingredients to succeed in our new and exciting proposition. We have the largest Mass Affluent customer base in the U.K. with over 2.5 million customers and GBP 190 billion of banking balances. Our scale translates into a material contribution to the broader group performance with around GBP 3 billion of annual revenues, equating to just over 1/3 of retail divisional income. This segment also presents a significant growth opportunity. Mass Affluent customers have, on average, double the number of product needs versus mass market, a number of which are currently met outside of the group. Given the scale of our franchise as well as our broader IP&I business, which you'll hear about from Chira later, we are uniquely placed to capture this growth. Over the next few slides, I'll tell you how we're expanding in this market and delivering an integrated proposition focused on 3 key areas. We're building on our already strong banking offering to meet more of our customers' financial needs. Through expanding our personalized investment offering, we're capturing market share in an area where we're currently underweight. And we're bringing all our banking and investment products together via a market first and vertically integrated digital proposition specifically tailored towards Mass Affluent customers. And on Slide 8, I'll introduce this opportunity. So the U.K. mass affluent segment is highly attractive, representing roughly 25% of market assets. These customers have diverse, complex and evolving needs, which require a range of financial solutions and support across banking, investments and retirement. The market is competitive, and evolving at pace. No one player provides a fully integrated proposition, and therefore, customers use several different providers that only meet a subset of their needs. This fragmentation as well as the gap that currently exists around advice and guidance for Mass Affluent customers, creates pain points in managing finances, including narrow personalization and overlapping fees. The breadth of our capabilities means we are well placed to meet customers' needs through a single, vertically integrated proposition. On Slide 9, I'll explain how we've designed our strategy in conjunction with the broader group. We have a clear strategy to meet customer expectations across 3 key areas: a tailored banking proposition and enhanced investment offering and finally, delivering through a digitally led integrated proposition. Our new Mass Affluent proposition is complementary to our broader wealth business, increasing our focus within an area where we already have strong capabilities. Our successful private bank enables us to continue serving our affluent and high net worth clients. And we also provide more holistic wealth management through our joint venture, Schroders Personal Wealth and Cazenove Capital. Our offering is facilitated through leveraging our established product knowledge in the wealth space including specialist services such as estate planning, trusts and tax and combining this with our strong digital capabilities within mass market. This means we can meet our customers' financial needs at a low cost to serve. Over the coming slides, I'll go into our proposition in more detail. But first, let me take a look at our competitive positioning on Slide 10. So as mentioned, we already have a strong customer base. However, their assets currently held in the group are heavily weighted towards banking products, particularly deposits with only 20% coming from investments. This gives us an opportunity to deepen relationships, improve retention and meet more of our customers' financial needs. In addition to our well-defined strategy, we've set out a clear road map for delivery, and we're already up and running. Over the past 2 years, we've focused on building the foundations of the proposition before launching to the market following extensive customer research and learning from our competitors and global peers. Last year, we started to test and launch products, including our flagship Lloyds Bank 360 proposition to 50,000 customers. We're speaking to you at an exciting time in our journey as we are now ready to scale our Mass Affluent proposition to more customers. Looking further ahead, we have additional plans to evolve and personalize propositions, products and services in order to keep attracting new customers and recoup flows from competitors. Before I go into product specifics, let me give you a sense of how we're approaching these rollouts on Slide 11. Over the past year, we've made great strides in scaling our business through launching new products and propositions. These rollouts tend to start off via a soft launch to a small number of customers. And then over time, we make these available to more and more people, increasing engagement and delivering value. A good example of this is Ready-Made Investments, which was soft launched in quarter 1 last year, and is now available to all Mass Affluent customers as well as a good proportion of the mass market. The pace of these rollouts is enabling us to build strong business momentum and as the charts demonstrate ultimately delivering value for the group. I'll now go into more detail on the first element of our strategy, our tailored banking offering, starting on Slide 12. So given our existing franchise and scale, a key component of our investment has been focused on leveraging our already well-established banking capabilities and tailoring our comprehensive product suite towards Mass Affluent customers. We know that deepening these banking relationships presents a meaningful growth opportunity as Mass Affluent customers that have both deposits and lending products with the group contribute around 3x the amount of revenue than those who just hold the current accounts. At the same time, whilst these customers have, on average, double the number of product needs versus mass market, our market share across banking products in Mass Affluent is 3 percentage points lower. We, therefore, have the opportunity to achieve our natural share in this segment through ensuring our banking proposition is tailored to these customers throughout their life cycle. We're making strong progress in this area, recognizing a key value driver being how we support deposit performance. Whilst we've historically designed products for the mass market, we're adapting these for Mass Affluent through, for example, rewarding higher balances with tiered pricing, helping us to attract and retain more price-sensitive customers. We've also been developing our lending offering. Given that Mass Affluent individuals tend to have stronger credit performance and lower arrears, we're evolving our credit approach with a view to facilitating more lending to these customers. On Slide 13, I'll talk in more detail about the compelling propositions we've been delivering. Our Mass Affluent banking balances have grown by over 10% since the end of '21 and supported by digital and personalized propositions and importantly, offering strong value for money. We know that these customers particularly value the benefits that come with a packaged product, and we, therefore, relaunched our Silver Packaged Bank Account last year, resulting in nearly 140,000 new account openings. In addition, responding to strong deposit competition last year, we launched a tiered rate proposition on variable savings to reward higher balances. This supported greater retention versus our High Street bank peers. On the lending side, given the appeal of rewards for this customer group, we launched our Mastercard World Elite product, a credit card with cash back and travel benefits. We also implemented credit policy enhancements and bespoke lending criteria to recognize the lower credit risk of Mass Affluent customers. These include changes to LTI and LTV thresholds as well as reviewing how we consider variable income. This supported an additional GBP 1 billion of mortgage lending in '23 with opportunity for further growth following the recent launch of our new remortgage product. As we look ahead, we're focused on introducing more to our product suite this year, creating a clear differential that will serve in both attracting and retaining customers. Building on this is the introduction of an integrated investments offering into our portfolio, which I'll Now turn to on Slide 14. So we already have strong foundations and investments with established wealth management capabilities through SPW. We currently have an 8% market share of U.K. ISAs and with the direct-to-consumer investment market expected to grow 30% by 2026, there is scope to unlock growth where we are underrepresented. Once we recognize the drag that the current macro environment has on investments, particularly compared to savings, we're developing products and functionality to capture the opportunity when the market shifts. Working closely with Chira's team in IP&I, we're increasing the reach of our offering through digital first and personalized solutions to improve customers' understanding of their wealth and to provide support on opportunities to maximize returns. We're also widening our range of pensions to cater for customers at different life stages and partnering with external providers to broaden our proposition. Finally, we are really focused on closing the advice gap. We think it's critical that Mass Affluent customers have access to quality, low-cost advice. Our personalized digital advice includes support for customers on the most suitable investment products, bolstered by a human ancillary support model, if sort. This has been built within an FCA sandbox, and we're also actively engaging with the FCA on the future of advice and guidance, ensuring we stay at the forefront of regulatory change in this space. Let's take a closer look at our new investment products on Slide 15. We've made bold steps in D2C and in conjunction with IP&I, recently launched a new service called Ready-Made Investments. This is a simple proposition, which makes investing easier and more accessible tailored to each customer's risk appetite and fund size. Already, RMI has gained particularly strong traction with younger customers with around half making regular contributions. We also had the most successful share dealing incentive campaign in the market last year, which drove higher value customer portfolios. We're committed to building attractive digital offerings tailored to customers' investing experience including a new ready-made pensions proposition, which is in the process of being rolled out. To complement our compelling propositions, we've placed increased focus on providing clear digital advice and guidance, whether this be through additional digital advice tools or via our new investment needs finder, which is coming soon, we are committed to supporting customers on their investment journey. For those that meet the eligibility criteria, we also continue to work with SPW to provide holistic financial planning with over 50,000 referrals per year. In the high rate environment, market conditions to grow new AuA flows have been challenging. Despite this, we're on a positive trajectory with 5% growth in net flows since the end of '21. As we look ahead to the launch of larger ticket items this year, we feel confident in delivering substantially higher AuAs. Finally, let's look at a key enabler to delivering all of this our digital-first experience on Slide 16. We are a leading provider across our digital channels with the largest digital bank in the U.K. Mass Affluent customers have, on average, 30% higher digital engagement than mass market and therefore, being able to provide a digital-first experience is key to successful engagements. Last year, we became the first provider to integrate banking, investment and retirement needs via a new and innovative proposition called Lloyds Bank 360. Lloyds Bank 360 brings together products and services from across the bank in a simple way with a different look and feel and a modern visual identity. Bespoke features and benefits tailored to Mass Affluent customers include a financial coaching service, investment solutions, which are personalized to life stage and risk appetite as well as a save and invest tab within the app, which provides a single view of finances. Last year, we soft launched Lloyds Bank 360 to 50,000 customers and have already started to see value with 30% of customers who had a financial coaching session in Q4 subsequently opening a savings account with us. Based on feedback, we've been developing and incorporating new features into the proposition, and we're looking forward to a full customer rollout later this year. As well as Lloyds Bank 360, we have several other exciting products and propositions in the pipeline, which I'll cover on Slide 17. Building on the progress we made last year, and the new product spoken about today, we have further plans to enhance our Mass Affluent offering. We've already made good progress in the first quarter of '24 with further launches and have even more planned for the rest of this year and into '25. We're gaining momentum. We're working at pace and in an agile way to deliver additional features, tools and products to ensure we continue to meet the different needs and demands of our customers. And lastly, I'll close with the financial outlook on Slide 18. Based on our progress and plans, we are confident in the outlook for the Mass Affluent business. Our strategic growth is supported by less than 10% of the group's strategic investment through 2024. In return, we make a material contribution to the group's strategic revenue delivering around GBP 100 million of additional income per annum by the end of '24 and GBP 300 million per annum by 26%. However, this growth from strategic initiatives represents a subset of a much broader revenue growth opportunity for our business. There is significant financial upside available through retaining customers' banking balances, which will continue to provide income tailwinds linked to the rate environment. I say this in the context of the GBP 3 billion of annual revenues generated last year and that this growth is already materializing in some of the numbers I showed you earlier. A key driver for our success is the broader set of capabilities we have through IP&I in addition to the banking strengths I've spoken about. So with this in mind, thank you for listening, and I will now hand over to Chira to take you through the IP&I business in more detail.

Well, thank you, Jo. Good afternoon, everyone. Let me build on Jo's presentation to show you how IP&I supports not only growth in Mass Affluent but beyond. But before we get into details of our strategy, a few facts. We start the journey from a position of financial strength. We have more than GBP 200 billion of assets growing at double digits. And almost GBP 5 billion of deferred profits to draw down from every year. This reflects the contractual service margin and the risk adjustment on the IFRS 17. And then finally, a strong capital position that has allowed us to pay around GBP 1.5 billion in dividends to the group since 2019. And with the recent sale of a bulk annuity book, we now have the portfolio that we need to build the best consumer waterfront in the U.K. across insurance, pensions and investments. So over the next few slides, I'll walk you through the pillars on which we are building our growth strategy. But first, let me give you a quick recap of the IP&I business on Slide 21. IP&I's open book business comprises 3 key products: accumulation, which is building your wealth then you have decumulation, which is the retirement choices and then protection, which has both life and general insurance products within. Now on to channels, these products are distributed via a multichannel approach. We have intermediaries, which is the principal channel today and then through the bank and finally, directly to customers in the open market. We also have a sizable close book largely comprised of a long-standing business. That is very cash generative. In 2023, IP&I generated over GBP 1 billion of IFRS 17 income. And as you can see from the chart on the right, accumulation and decumulation accounted for just under half of that, protection was at the fifth and around 1/3 was from the legacy businesses. Let me now talk a bit about the foundations of our business on Slide 22. There are 3 things that I want to call out. Let's take scale first. Across all the 3 spaces that we operate, we have leading market shares in our flagship products. And by flagship, I'm talking workplace pensions, home insurance and individual annuities. But as you can see, there are a number of others where we punch well below our weight, and that's the opportunity. And the fact that more than 80% of these products are distributed through intermediaries, provides a massive D2C opportunity, which, of course, is significantly better economics while also providing great value to our customers. Second, it's a large consumer base of more than 10 million adults in IP&I alone, and then we have the bank. And then finally, there's a brand, which is probably the hardest thing to build in this industry. At Scottish Widows, the brand leads on consideration, trust and awareness. So in our strategy that you'll see in a bit, all that we are doing is using these foundations to drive 3 major pivots. Let me cover this in 3 points, starting with Slide 23. The first pivot in its simplest form is what I call analog to digital. Now there are parts of IP&I, especially in GI, where we have brilliant technology, but most of the products are still quite analog. If you take individual annuities business, for example, it's still largely paper-based and screaming for modernization. So the good news is that we've done a ton of investments in modernizing our architecture over the past 2.5, 3 years. And as you can see from the slide, we are well on our way in migrating our systems to our target architecture. These investments will allow the business to do 3 things: first, build and release features at pace. That's what you finally see in buyers as customers. Second, it allows us to drive efficiency and productivity at the back end. And here, we're talking automation and AI. Then the third is to build a customer service model that is distinctive and allows us to tap into the world of Gen AI to service our customers. Now let's go to our second pivot on Slide 24. We are today a very siloed product factory, and we'll change that. A 10% penetration of LBG customers is low by any global bancassurance standard and the fact that 95% of IP&I customers are single product holders makes the upside very attractive. We know those numbers have been low in the U.K. for more than a decade now. So you'd naturally ask what's new this time around. Three things that I'll call out. The first, and I think this is important, is technology. It's become much easier both to mine data and to offer customized digital propositions as opposed to offering the same through branches or a call center as was the act in the past. It's getting easier with every passing year. Second is customer behavior itself, the willingness of customers to take advice remotely or engage in a digital tool. It's fundamentally changed post COVID. And third, something that Charlie alluded to, there's an increased realization across all stakeholders, including regulators, that we must do more to close the massive advice and protection gaps today. A significant portion of customers today can't afford and hence don't take advice the vast majority who are sleep walking into retirement gaps, while 1 and 2 don't even have protection on their mortgages. Now let me turn to our final pivot on Slide 25. From product to proposition. Now shocking as it may sound, until this year, IP&I didn't have a mobile proposition either in the bank app or in a single dedicated wealth planning app. There's nothing that shows your pensions against your ISAs and share dealing accounts or a space that shows all your protection products together. We're changing that. The good news about going last is you can have the latest in technology and design, and that's what we are doing. There are 3 building principles we are weaving into our digital proposition. First, complete open architecture, pulling together your products across companies using open banking and open finance both. Second, simple and intuitive user interfaces and experiences. And third, gamification to simplify financial guidance and advice. Now we're rolling out this proposition in 2 ways. What you see on the left is the spaces or tabs in the bank app such as the Save and Invest tab that Jo talked about. This is how we'll put forward the IP&I end-to-end proposition in front of the bank's customers. Now in parallel, we are launching Your Tomorrow which is the Scottish Widows app that you see on the right in the open market for a 4 million workplace customers, a dedicated wealth and protection platform that we know customers are demanding today. So basically, the same IP planted across 2 powerful digital platforms to cover most of the U.K. market today. Initial customers there have been very positive, both for the Save and Invest tab that we launched in the Bank app but also for the Scottish Widows app, that we've already taken to a few workplace customers. So now that we've gone through the 3 pivots, let me give you some color on the 3 product areas in the business. Let's start with accumulation, which is building your wealth and that's on Slide 26. Workplace pensions is our flagship product in this space. We are #2 and have grown AuA by more than 50% since 2019. The fact that workplace assets fall more than 80% of U.K. households liquid assets, it makes it a very purposeful business. Now there are strong tailwinds in this business, but its annuity-like income streams. The first is a leverage that we can use from our commercial banking franchise. You would have heard John speak in November about the collaboration between IP&I and CIB. Our current penetration of workplace across key CIB clients is around 13%. We want to accelerate that. Second, as you know, contribution today for auto enrollment is around 8%, it is much lower than in other developed countries. And more importantly, it doesn't support the decent retirement for more. We at Lloyds have called for an increase to at least 12%. Now you can never be sure about timing, but when it does come, it will naturally benefit the business. The same applies for pension pot consolidation. Third, which is nearer term, the business has enjoyed a sort of inflation hedge benefiting from strong wage growth in recent years. We also believe that the launch of the Your tomorrow app will be a game changer in this space for workplace customers, makes it a much more dynamic proposition and brings together investment choices. Let's cover the choices on Slide 27. Now outside of workplace, we have a small rapidly growing D2C investment business, which is at the heart of the collaboration with Mass Affluent. As you've heard from Jo, we're making real progress here. We've launched products such as Ready-Made Investments with a buying journey, which is just a few clicks. We're having great traction with an 18 to 25 years Gen Z product to get Junior Britain investing. And there's a quickly CTF product with BlackRock. And finally, a ready made pensions product that is in the process of going live, as I speak now. I guess the best proof is the chart in the middle. Most people in the industry wouldn't be aware that Lloyds was #1 in new stocks and shares, I say accounts at the back end of '23. So that 28% market share that you see has come with an 8% share of assets as we draw in first timers, both young and old, with low ticket sizes. And that's the future potential of this business as we get follow-on investments in the coming years. Now while we celebrate the strong traction in D2C, the intermediary market is absolutely core to IP&I. It will remain the major driver of new business in the U.K. for some time to come. Through the acquisition of Embark in 2022, we have a 5% share in this market. We've launched a new tech platform at the back end of 2023 for this business. We feel we are in a good place to grow share here. Now let's move on to decumulation on Slide 28. That's when customers transition into retirement. With an aging population in the U.K., supporting retirement is core to our purpose. Our flagship product in the space is individual annuities. We were #2 in the market. And as you can see from the chart, rapidly building share. We gained more than 400 basis points last year, and it's an area we're investing in modernization. Customer demand should increase here over the years, both structurally from an increasing DC tail to pension funds and also from our growing workplace book. This is a business with strong IRR and contributes materially to the value booked and deferred profit, one that we can draw from in future years. In addition to individual annuities, there are 3 other areas where we're focusing on, which also leverages the capabilities of the wider bank. The first is about giving pensioners more choice on the retirement pathways. The U.K. has a lot to catch up with options available in the rest of the world, and that's what we'll bring to the market. Second is to look at the options to monetize property, an area we know well as a leading mortgage provider. And third is to facilitate smooth intergenerational wealth transfer with tools such as Digital Rails. So we've got a strong backlog in this space, and we're building games to inform customers around all the choices. Let's turn to Protection now on Slide 29. Insurance is a critical area that too few U.K. adults use currently other than in motor, just to reinvest that is the point the fact that half the homes with mortgages don't have a life cover is a massive gap in risk to the U.K. And that gap increases materially as you go down socioeconomic ranks. So from our perspective, it's also a part of the market where we need to enhance our offer to service existing customer needs. So what are we doing in this market? Three things. First, we lead with home insurance, where we leverage the bank's leading position in mortgages. We're back at #2 in the market, clawing back 500 basis points of share following a dip in '22 when we consciously reduced our presence as we thought the economics didn't stack up. We've built some great digital journeys in home insurance. Today, around 40% of claims are managed digitally using AI tools. And the plan is to take that number to 70 by end of next year. Second is a step-up in life insurance share. We're pulling 2 levers here. The first is the penetration within our banking customer base. I've already talked about how we'll use technology and a propositional approach to change the legacy bancassurance model. A 500 basis point increase in protection take-up rates and mortgages last year, just shows the impact a simple digital tool can have on the market. The acquisition of Cavendish Online, a specialist advice and guidance firm will also help. Second, in order to get to our ambition of being a top 3 provider in life insurance, the intermediary market is equally important, and we are investing heavily in a number of features, all that go live this year. This should help us move to the top of adviser panels. Finally, in the broader protection space, we also plan to bring in manufacturers of other insurance products such as pet, private medical insurance, travel to support customers' holistic insurance needs. And that's the screen you see on the left. Let us now get in the financials of the business on Slide 30. Now before commenting on our expectation of growth, let me give you a quick recap on IP&I's contribution to the group. Now investors have always valued the dividend as the best cash proxy out of the unit. And on that, we paid the group around GBP 1.5 billion of dividend since 2019. That's 500 basis points of market cap and around 70 basis points of CET1 for the group. We intend to continue this trend going forward, supported by strong underlying earnings growth and capital generation. On profit, this is the chart on the right, you will know IFRS 17 reversed the trend of increasing profit contribution. Our 2023 profits would have been roughly double in IFRS 4 terms. But we are confident of growing momentum going forward with strong earnings growth. Let's cover that on Slide 31. IP&I plays an important role in the GBP 1.5 billion strategic revenue ambition laid out by the group. However, our plan gives us the momentum to carry that income growth materially beyond. I've already laid out the areas of revenue growth that we are pursuing, but wanted to make 3 additional points. First, our front book growth across product should meaningfully outweigh the runoff of legacy books. Second, these revenues are mostly weighted towards OOI, a key focus of the group for diversifying its revenue streams. And finally, post the sale of the Bulk business, these growth areas will all be largely capital-light in nature. On to cost, while we expect cost to grow only marginally in this period, reflecting both investments and volumes, we plan to deliver a much leaner operating model that will be way more productive. Over the last few years of heavy investment on replatforming, we plan to see increased efficiency starting this year itself. So we're looking at positive jaws over the medium term. At the same time as growing earnings, we're also adding to the stock of deferred profits. As we mentioned, we started this year with a pot of GBP 4.7 billion, from which we draw down around 30% in OOI every year. Now in spite of that, we plan to add GBP 100 million to GBP 200 million in net terms to that pot every year. Now all of this will be with capital and equity broadly flat over the medium term as we pivot towards capital-light products. So taken together, this represents a compelling financial outlook for the IP&I business. And to remind everyone, this earnings and deferred profit growth will be delivered at returns that are accretive to the group's 2026 RoTE target. Many thanks for listening. And now let me hand it back to Charlie for closing remarks.

Thank you, Chira. So I hope you found this to be a useful session to summarize. We have clear opportunities in both businesses, and we're encouraged by the progress we're making, generating real business momentum. We expect further growth as we develop new propositions and meet more of our customers' needs in an integrated manner. As we do so, we'll unlock additional attractive revenue streams that support the diversification of our top line over the medium term. Thank you for listening. I'll now hand over to Douglas, who will facilitate the Q&A session. Douglas.

Thank you, Charlie, and good afternoon, everyone. Similar to the last 2 seminars, we have allocated about 45 minutes for today's Q&A session. [Operator Instructions]. Okay. So let's begin. Our first question today is from Rohith at Bank of America.

I'd like to explore 2 areas, please. The first of which is regulation. You talked a lot about the advice gap, but it seems like it's been getting increasingly hard to provide advice for quite a long time in the U.K. So do you see the regulatory environment easing? Or is it a digital element that's different? And with that digital element, how do you ensure an automated advice or guidance is relevant to the individual that's receiving that advice? That's the first question. Do you want the second one now?

Yes, please.

So the second is just on Mass Affluent and you've highlighted, I guess, actually across deposits, lending and investments that all of those markets are quite fragmented. And it seems that Mass Affluent is more fragmented than the mass market, both in your own experience and for the broader market. So if you could just help bring together what really is about the Mass Affluent proposition that's going to enable Lloyds to consolidate these 3 fragmented markets.

Yes, Charlie.

Yes, that probably make sense, Jo.

Okay. Lovely. Thank you very much, Rohith, for your questions. First of all, on regulation, we believe really strongly that we have a big part to play in closing the advice gap. And to your question about sort of the regulatory context, the regulator recognizes that there needs to be changed here as well. So I think a couple of things. First of all, there is currently a discussion going on around the advice and guidance boundary review led by the regulator. And we have been very active in responding to that and working with the broader industry to think about that. We've given a formal response to the regulator suggestions. But actually, we've gone further than that as well to say we really believe that getting a low-cost fair value advice proposition for those customers that aren't going to take that full holistic advice is critical. And we think that there is a way to do that. The digital advice proposition that's gone live recently, we have developed alongside the regulator in their sandbox because we recognize the need to get this right and make sure that, first of all, it's working for customers. It's working for the regulators and that it works for us in terms of how it all fits together and how we use digital along with the human support that I've mentioned that we think is key here. So I think just a combination of the regulator wanting to address this advice gap, recognizing that there are many customers losing out at the moment because they're not currently investing and also just going step by step in the sandbox, I think, is the way that we do this safely. And then just on your second question around the fragmentation. This is really what creates the opportunity for us. And I think there's a few things here that mean that we are very well placed. First of all, it's the breadth of our offering. If we think about the strength of the brands that we have, the trust that we have, the scale of our business, so 2.5 million Mass Affluent customers already that we can talk to, the ability to do this in a digital way using our data to make this far more personalized for customers. And then with the range of products, that's what we think makes the difference. And we've been doing this all the way through with a lot of customer research and testing. A couple of the examples that I gave in the slides earlier, the Save and Invest tab. So just to bring that to life, you go into the Lloyds Bank app, if you haven't seen it, and there is now this separate tab alongside where you can see all of your accounts and just showing customers their full financial picture in a different way, we've been really encouraged by what we've seen there. And that's now scaled to 16 million customers to the mass market customers as well. And already, we're seeing the levels of engagement, 4 million customers are going into that and we've seen a real uptick both in terms of the savings products that they're taking, but also we've seen a fivefold increase in the Ready-Made Investment product that Chira and team have created. That just shows that digital engagement and making it more personalized, gives us confidence that this is the right strategy.

Thank you, Jo. Chira, Charlie, is there anything you'd want to add to layer to that answer at all?

Just one build on what Jo said completely agree. I think, Rohith, we did through it in terms of digital proposition. The thing that we -- in our research, when we look at it, one thing we forget is for 90% of the people in the U.K. when you talk advise and guidance, it is very, very simple. I have GBP 2,000 that have landed in my account, what do I do with it? That is the guidance. It's not complicated advice that we tend to get out. And the regulatory enthusiasm, let's put it that way in the FCA sandbox that Jo talked about. So there's a huge amount of engagement in trying to serve for that simple needs of the 90%. So there's advice and guidance for the 10% as I say, which is much more complicated. But remember, we've got the distribution footprint to go and place product in front of the 90% with very simple digital advice. And I think that's a swing factor. Thank you.

Thank you. Let's take the next question now. The next question is from Kerry at Morgan Stanley.

I have 2, if I may. The ones on cross-selling in home insurance. So where are you currently in terms of mortgage production, including a home insurance product and where do you think this could go to? I think previously you said you were cross-selling home insurance with 1 in every 10 mortgages. So just if I could get an update on that? And then the second question is just to get a sense on what you're feeling about what consensus has for other income growth in terms of how that might be driving the disconnect to your greater than 15% RoTE guidance for 2026?

Excellent. Great. Chira, do you want to kick off with this one?

Let me take the first one, very good question. If you look at broader -- so we -- when we think about what you're saying is cross-sell in terms of the uptake rates that you talked about, so we are trying to get away from a product mentality and go into a much more buying experience for the customer because a critical event that ties all this together is home purchase. And in order, we are the leading mortgage adviser. So from that perspective, you're starting with home purchase and building all this together. So that's how we're doing it. It's one proposition. So I'll extend your question in a way it goes beyond home insurance into protection as well. So the take-up rates, I alluded it to in the -- in my opening remarks. So if you think about, say, home insurance, we've almost seen doubling of rates in the last kind of 12 to 18 months. And if you think about protection, which is life insurance specifically, take-up rates have increased by 500 basis points. Now where should it go? It should go to a national share. We've seen take up rates in other markets, which is round about 3x of where it is right now. Now it all depends right, on where we get to. We need to get the natural share. So the way I think about it is in protection, you've got a 5% share on mortgages, we have a 20% share. So there's massive upside in it in terms of uptake. But the good news is we are doing the tools. We are trying to build it as a customer journey and not product sales. And when we do all of it, we're seeing significant upticks right now, early days, but it should be significantly north of where it is right now.

Shall I take the other operating income question. So thank you for the question. Such an important part of the group strategy. Just a reset on the group numbers, of which these 2 businesses are hugely important for driving the other operating income, but it's a much bigger picture. As you know, we've committed in 2026 to a greater than 15% RoTE and greater than 200 basis points of capital generation. At the heart of that is a GBP 1.5 billion growth in strategic revenues of which we've said broadly 50% will be other operating income. If you look backwards in 2022, we grew the operating income about 7% or 8% year-on-year. There was a bit of noise in that data, as I remember, Douglas, but nonetheless, there were some one-offs. It showed good underlying growth. Last year, we grew other operating income by 10%. And if you look at how we -- what we need to continue to deliver to achieve the growth, it's a similar growth rate going forward. What's really important is we've seen progress across the businesses, our Corporate and Institutional business, our SME business and commercial banking businesses, IP&I and Mass Affluent and also our core retail businesses. So this isn't a one-trick pony. It's -- we need to make progress across the businesses, and that's what we think is important as the underlying foundations for the 2026 returns. So hopefully, that's clear. Thank you.

Thank you. The next question I'll take is actually a question that's come in direct actually from the buy side. How are you thinking about M&A to scale in the Mass Affluent wealth space? The sector has faced many headwinds recently consumer duty, redress, cyclical headwinds, multiple compression related and now looks reasonably good value. In addition, perhaps certain businesses could be rebranded to enable growth to resume. As well as the cross-selling opportunity if you acquired into advice. What are your latest thoughts on this?

Shall I take that one. Yes, thank you for the question. So when Charlie set this strategy out at the start, he was clear that this is predominantly an organic strategy. And that's very much the path that we're on, and that's what I've talked through today. We have a really good breadth of product and proposition offerings. We have great digital capability. And if I refer back to the October update that Jayne and Jas gave talking about the mobile first strategy. We have those capabilities already. Having said that, we will always look opportunistically if there is something that comes up that we think would give us a great capability build or get us there faster than we might do ourselves. So there is a lot moving in this market at the moment as the question suggests. We would take a look, but predominantly, this is an organic strategy.

Is there anything you'd want to add to that, Charlie?

No, I think that's right. I think as Ben said, I think it's Ben online and submitted the question. It is important that the valuations have changed. We will always look at the capability and acceleration of our strategy and also whether an acquisition is actually accretive given who we are and given the valuations. So you're right, there's a lot going on in this market. Ben, you probably have a really clear view a lot of the assets or businesses you'd look at aren't necessarily the ones that we'd want to grow strategically from. So this is whether you look at the insurance well for Mass Affluent space, there's not an obvious set of businesses that give you scale or assets to grow safely going forward. And that's not talking in code, but I think you'll understand what I'm saying. So definitely, we'll continue to look. What we're committed to is the organic growth and we're confident about the trajectory in that sense.

Excellent. Thank you. The next question is from the telephone lines again is from Raul Sinha at JPMorgan.

I guess the first question is a sort of broader question around product pricing. Just related to the concept, Chira talked about of moving away from a siloed product factory towards being a proposition provider. My question is how do you price products within this strategy, especially given the fact that the regulator seems to be scrutinizing individual product pricing decisions under a microscope many years down the line. So how do you make sure that as you move away from sort of focusing on individual products to an overall proposition, the cross-sell approach doesn't leave you vulnerable to various different interpretations down the line as we're seeing with some of the other products. And I guess the second question is just a follow-up to the previous question and what Charlie mentioned around the GBP 750 million of additional growth initiatives related non-NII income. Can I just double check that, that most of the GBP 300 million you're flagging here is still ahead of you in terms of growth. So there has been very little of the growth that's already been baked into the NII run rate so far within these 2 businesses or the GBP 300 million is all incremental from here?

Excellent. Thank you, Chira. It probably makes sense. Can you address the first one?

Yes. Thank you. Thanks, Raul. Let me take up and try to explain how we're thinking about pricing and using probably examples on home insurance and protection. And this is exactly the same conversations, Raul, by the way, the same discussions we're having with regulators. First of all, fundamentally, in a perfect market, pricing should be market cleared and we stick to that. That is the principal fundamental value. We gave away around about 400 basis points of share, right, last year. Purely based on pricing because we thought the way home insurance market was working was dysfunctional, right? And it's come back and we've shared and we've put capital back. So it always will be market led based on the fundamental thing that it should return cost of capital and be very transparent, and we'll show it with regulators around. The second, there's a new lens that has come in, right, so which is where I think you are leading to with consumer duty. There are a couple of things in there, right? So consumer duty says you need to be fair by the customer, which means that there shouldn't be discrimination one way or the other, negative discrimination is what they're thinking about. I don't think the regulators are worrying but positive. So negative discrimination, what we're trying to take to the regulators and the way we're doing pricing is on a much more transparent clear basis, so pricing by channel. So if you think about pricing by channel, there are certain channels where the cost of acquisition is significantly lower for me if you go for direct as opposed to those, which are significantly higher if I go through intermediaries. So we need to think through pricing from the channels and bring that transparency. The third one, which is on benefits. And it's an active engagement that we're having with our regulators. So it would be on the consumer duty, quite odd if Raul, you've been on our books for 15 years, and we know all about your risk across all of the products, and you get exactly the same pricing from someone who just tuned up and buying a single product. That is almost unfair from a consumer duty perspective. So actually, consumer duty when you think about it, actually allows you to reward people who have a broader envelope because your cost of acquisition for that customer is significantly lower. And these are active conversations we are having with regulators around pricing. So it's a bit more nuanced than the headline regulatory pressures that most people talk about. But I think overall, broadly, I think we are in a good place in terms of pricing.

Excellent. And do you want to talk about the growth initiatives? I'm sure Jo will probably have something on that as well. But perhaps Jo kicks off first.

Yes. Yes, that's fine. Yes, thanks for the question. In terms of -- is most of the growth ahead of us, in terms of income, yes, it is. So what we've been doing is we've been building the capability that we need. As I talked through earlier, we've been filling in a number of the products and proposition gaps that we've got. We've got Lloyds Bank 360 now launch, we're on a small scale. And so now it's all about scaling up. And so some of those numbers that I shared earlier, we delivered a good level of incremental income last year against strategic initiatives that grows this year. We're expecting GBP 100 million for this year, and we're confident in that. And then that grows to GBP 300 million as we go out to 2026. But I just wanted to give a broader view as well because I think the strategic initiatives are a critical part of this. But I just want to comment on the core franchise here as well because mass affluent is very important in that context. I shared that there's GBP 190 billion of balances within the mass affluent customer base. That is predominantly deposit led. And so in addition to those strategic initiatives, we want to maintain and grow those balances, even just maintaining them, because such a high proportion of them are hedge eligible, there is also a tailwind that we see through the hedge, which will come through that core franchise, which helps to grow that GBP 3 billion revenue figure I talked about. So that sort of separate to the very specific GBP 300 million of strategic initiatives. So hopefully, that just helps to break it down and give you a bit more information.

Thank you. Raul, now to that on the IP&I side. The first clarification that I would do is, you saw on the slide that Charlie alluded to showed GBP 100 million incremental opportunity in terms of strategic initiatives and IP&I, I just want to clarify, that is purely products distributed through the consumer and wholesale channels. The actual income opportunity in IP&I is significantly higher than that. So that's one thing just to clarify. I go back to Slide 24 in the presentation, and that's what you should hold us accountable to. When you have see the 10% penetration number, that number in different markets we've seen is anywhere from 30% to 50%, right, and best-in-class across the world. There's significant headroom in there. IP&I, 1.1, less than 1.1 in terms of product penetration within IP&I products. So in short, those 2 should tell you that the income is a tailwind and a significant part of it. Thank you.

Thank you. The next question is also going to come to yourself actually, Chira. The implied which -- again, is one that's come in directly, the implied return on equity for the insurance business looks as though it's currently below group targets. Do you calculate the ROE on a cash basis? And how do you see this moving?

That's absolutely technically on a spreadsheet is absolutely right, but let me walk you through the different ways in which we measure it, right? I'll take the numerator first in terms of the return on equity. So when you look at the IFRS returns, and I think I alluded it in the presentation, the first thing is when we had IFRS 4 and if I apply that same on, say, the GBP 190 million of profits, which was last year, it would double on the same capital base, same cash flow, same economics. So returns in an insurance business is not best, I think, calculated purely from an IFRS return numbers. So what we do is we'll definitely improve the earnings. That is what you saw in my last slide and materially. But we also strictly look at the cash that goes out from IP&I in form of a dividend and upstream it to the group. So the cash yield on the capital that we hold is the second thing that we look at and that the truest form of returns going up from insurance of the group shareholder, right? And that you'll see is significantly higher in certain cases. Then if you come to the denominator, yes, solvency capital and the broad equity component of Fed is an important thing. But just want to say there's 2 things. One, we are -- if you look at 2023, our solvency capital was at 175%. Our appetite is to run it at around about 150%. So there's kick-in there. And the second one, which is quite important, is that for the group shareholder, they have significant double leverage in terms of the capital that's needed to run the insurance business. So if you put a step back, so the actual returns are significantly higher than the headline returns that you're alluding to for the group shareholder. And as I've said in my presentation, what we're planning to do over the next 2.5 years, actually, is to drive returns for the group shareholder, which would be accretive to the 15% returns, 15% plus returns that the group has. But having said that, what we do in insurance is we look at these metrics on a stand-alone basis of IP&I. So the IP&I returns, the way we do it is a return based on capital, the amount of deferred profit growth that you have, the amount of cash you're taking out of the capital all these 3 should be absolutely best-in-class against our peers of the industry, the 4 or 5 big insurance majors. And then you've got the double leverage on top for the group. So for the group shareholder, hopefully, it will be a much better answer.

Thank you. Another question that's been submitted direct. How should we really think about your increased focus on bancassurance? What's really different this time?

When will we actually know it's successful.

Can I start with the last question first? Yes. There's a couple of things. And it's all over the presentation. If you think about -- so when we think bancassurance, bancassurance is very -- a traditional word when I at least think about bancassurance. So in the past, we always used to think about cross-sell of home insurance and life insurance to bank customers in the current account. I think it's much, much more broader than that. You saw my ISA market shares start when we put it up, and that is what Jo and I have been working together really hard on sync penetration. All that we did was with a very simple product, which is a Ready Made click goes into 16 ETFs that you can pick for and then put it in the ISA. We went and put it on the digital highway that is the bank app and that has 6 billion hits a year and just place product in there. And we have that ramp up in market share and it goes up to 28% market share in a quarter. And for a business that no one ever knows that Lloyds is strong in, and that's the kind of ramp-up. That's modern bancassurance. So there is lots of opportunities in the bancassurance space in the past, right, then we think about it. But going back to what has changed. Again, I'll call out the 3 things which are the most important, right, from the way it was done in the past. The first is technology. Technology in terms of mining the data so that you can put a product and we don't sell. We know when your moments of truth. We know when you're building up your cash to an equity that's going into a house. So it's right that I introduced a home insurance and a protection product at that time. So that's become quite brilliant. Then in terms of digital proposition, I talked about the last one, that's become much easier. And the third is the AI tools that you can actually use to look at something which we are talking with the regulator around to monitor all these processes be it the digital guidance and advice that Jo talked about. So there's a lot of technology right now, which is upfront, which allows you to do it much better that it was done in the '90s and early 2000s. The second one is customers, right? Customers can engage digitally. Bancassurance doesn't need to be sold in a brick-and-mortar environment pitching. Customers draw it down from the proposition that you lay out. So that's the second one, which has been quite effective around that. So from that perspective, it's a very different bancassurance model right now than it was in the past.

Okay. Thank you.

Douglas, maybe I should -- there was a second part of that question. When do we know we've been successful. I think we said this actually back in February '22 when we launched the strategy. We laid out some critical KPIs, and we'll continue to report on those. So depth of relationships in some of the Retail and Mass Affluent businesses. We were talking about the number of mortgage customers that do engage with us on a protection need or a home insurance need. We'll continue to lay those out, the AuA distributed to our Mass Affluent customers, and we'll make sure you have transparency around those. The real answer is we have what we think we can achieve by 2026. The reality is this opportunity to engage our customers differently and to leverage the fact that we have now 19 million mobile app users, logging on 30 times a month, doing payments 50, 60 times a month. That means every day of every month of every year for the next 5, 6 years, we have that opportunity to put in place in front of them the right need at the right time. So this is something that will take a bit more time than 2026 to scale, but you will have clarity around those targets and metrics by '26. And we'll then be able look at the next aspiration for this model.

Thank you, Charlie. Another question that's been submitted online, which I think is very much focused on the Mass Affluent space actually. How should we think about the cost profile of the business, given the need to invest in order to maintain your position versus competitors?

Yes. Thank you. So we've shared broadly how we're investing in the business, partly in building the new products and propositions, which much of that is done, particularly on the banking side of things. There is still more to do as we continue to build out propositions working closely with Chira in IP&I particularly as we get into some of the sort of the higher ticket items. So Ready Made pensions just going live now, sit later on this year. So there is that investment. And then also on the digital side of things, building this digital experience that we really think is going to engage customers differently where we can then use our data to personalize. But you will have seen from the presentation, we have an attractive cost-income ratio in this segment already of about 25%. We don't see that changing significantly. We are not looking to put significant physical cost into this. This is a digitally led strategy. And actually, most of the investment that we're making through the strategic initiatives we will have spent by the end of this year, and then we expect to start to see the growth in the income coming through.

Douglas, this is probably just helpful. I'm sure everyone's heard I said multiple times, but the broader cost story we've committed to as part of the strategy is that will create GBP 1.2 billion worth of gross cost savings during this period. That's what underpins the absolute cost target that William shared just a few weeks ago for 2024 and our cost-income ratio target for 2026. And our target there is less than 50% cost income ratio for the group. I know I'm not unbundling it for you from Mass Affluent. But that broader opportunity to build efficiency in the group is enabling us to maintain those targets and then recycle investment into these kind of areas that we're talking about today so we can engage customers with a better proposition, fulfill more needs and get the growth and the efficiency we need. So -- and we're feeling good about the GBP 1.2 billion. We are on track for delivering that. And we talked about what we've already delivered through 2023.

Thank you. Another question submitted online, which again, I think, is actually on the Mass Affluent area. How do you think about the competitive landscape and who does this well presently?

Good question. So genuinely, I don't think any one organization does this well. It is a very fragmented market. And I think at the moment, customers go to different organizations for different things. And that's really what is driving this strategy. I mean I think there are some really good sort of Mass Affluent banking propositions out there, some D2C. There are different players that you can go to as you start to think about retirement and a lot of the work that Chira is focused on. But the important thing that we're focused on here is this vertically integrated proposition, recognizing we have the scale of the customer base already. And if we can bring the breadth of the group together to cover that whole range of needs from the banking, the accumulation, the decumulation that I think allows us to do something very different. I think there's some interesting examples that we've looked at globally, there's some interesting stuff in North America, which just started to do this. There's some stuff in Asia. But I think there is a real opportunity to be the ones who make this a lot easier for customers and make it simple for them to understand their total financial situation and provide them with solutions.

Thank you. Is there anything else you'd want to add from a competitive environment on the insurance side, Chira?

Yes. This is -- so one of the things and Jo has alluded to this. Going across the world, there are very few propositions out there that bring your today, the transaction side of banking and your tomorrow, which is your building, retirement and protection altogether, there are some who do the accumulation bid phenomenally well. There are, of course, banks who do transactions phenomenally well. But no one's bringing this hold together, and Jo the 360 that you talked about, right? And that's very central. They're very few. You do not have the products to actually put in there, and that's where the range comes in. And we've never had a digital proposition that goes end-to-end. I think that's distinctive.

Yes. And I think the final thing I'd just add, we've spent a lot of time talking to customers. And we've put in the early days of developing 360, we put it in front of them and I said, actually. If Lloyds could provide something like this, we trust you to be able to provide this for us. So I think that gives us real confidence as well.

Jumping in. Just one more kind of macro view. I know we talked about this a number of times. My view, I think our view, but I'll say it as my view, as we've done the strategy is we know not all customers are going to want to engage with us in a joined up way. And we know that a number of customers will still want to go and find in their minds the kind of best-in-breed provider for their different banking, insurance, investments and even sub-banking, savings versus transactional accounting versus their credit card. What we're trying to build here is a business model for those that want a more joined up proposition at the right cost to serve, we will be the leader around that. And we already are the leader on virtually every underlying product that we're talking about with some of the opportunities that you've talked about, Chira, that we're investing in to get to that point. So when you operated our scale in a market like the U.K., which is a complex market, we see opportunities on both sides to still be the leader around individual products, and that's why some of the channels and the capabilities Chira's talking about and at the same time to really reinvent in a new environment from a cost to serve because of digital technologies with a conduct regulator that's willing to work with us, how do you serve this segment that is underserved. And that's both sides of the strategy will help us be successful over this next period of time.

Thank you, Charlie. Actually, linked to that is another question that's just come in when you talk about serving customers, there's been another question talking about how specifically we're looking to cooperate with the Commercial division from an insurance perspective.

No, thanks for that. So I'll highlight kind of 3 things, right? The first is, Workplace is a flagship product that we work very, very closely with the Commercial Banking business right from mid-market, all the way to high, to the big corporates and with financial institutions as well. 13%, that's what I showed you in the slide, 13% is the penetration that we have today of commercial customers who have their workplace with us. And if I'm looking at pipeline, if we are looking at our traction in the last 12 to 18 months, so that number should be significantly higher. So we work a lot in the workplace. The second is commercial banking also supplies us with the assets that we need in a unique source to fund the individual annuities book. So just in terms of where we are, we've sold the bulk annuities book, but we still have a significant individual annuities book, and we had 20% share there and building fast. So we look towards the commercial bank to give us as best in class, right, as if you will, in terms of credit participation in the market. So that's the second thing. Third, we're also in the initial stages. It's a backlog for the next 12 to 18 months with the mid-market and smaller size of the business in commercial to bring insurance products much more -- in a much more digital front. You'll hear from Elyn later in the year probably. And she is building a best-in-class digital proposition for SMEs. So once that's up, what we'll want to do is definitely tailor as many insurance products, both manufactured as distributed and bring it to that customer base. So those are the 3 ways. But it's very strong collaboration. It is very strong. And I think it's a distinctive advantage for us.

Excellent. Thanks, Chira. Another question submitted online, which again is coming to you, Chira. Can you tell us a bit more about your decision to exit the bulks market? How should we think about that? And are there any other businesses that you would consider selling?

So let me first take on -- thanks, let me take on the bulks one. So when we looked at the portfolio, the first thing we looked at is scale. If you do not have scale in a certain product, you can't compete and scale I'm putting it out roughly it's 10% of share. And if you think about bulks, we had anywhere between 1% to 3% share for the last 4, 5 years. So we definitely subscale. And you know that there are 4 or 5 players out there. One of which has bought our business right now. All of this operate at significantly higher scale, much better economics than us. So that was number one. Scale was a big consideration. The second thing was, it is a very capital-intensive business. Going back to the earnings question and the cash distribution that we talked about. If we had to scale up this business, we could have scaled up this business, it would have significant impacts on the cash that we could have upstream to the group because the capital stream is quite big. And in terms of returns, you get the returns in year 7, 8, which is a breakeven. It's a very private business. It's not suited. I mean, from my experience for bank shareholders. But that's the second. The third one is not really a customer business. It's an institutional business. And what you've heard from me across all the products today is that we are trying to build a very dynamic customer proposition. That is exactly what we're doing with Mass Affluent right now. So it didn't fit in. Those are the 3 things. And the value that we've got clearly says that they are a much better holder of the business. Is there anything else? No, there's nothing material in the portfolio. As I said, we have all the products that we need, where we have the scale or we're building scale, which is customer back and which can piggy back on the big bank channel that we talked about with the 6 billion hits. So I think we are in the right portfolio. I don't expect anything material. We're done and we're building the business going ahead.

Excellent. Thank you. The next question is going to be taken from the lines if we could go to Ed Firth at KBW.

A lot about, obviously, a one-stop shop approach. And I just wonder how you find that in terms of the challenges. I see the advantages, but I guess the whole -- one of the whole things about digital delivery of financial services is the sort of breakdown of the value chain. And people can pack on a single platform, all sorts of different providers who are good at this, good at that and good at other things. And I guess I do see some challenges if you're trying to provide everything as good as everybody. And so I just wonder how you thought about that. To what extent is it a cost saving you can deliver customers that will make your product better than everybody else's. I guess that's the first question. And I guess partly related to that, the bank is sort of the insurance business you've got, that's a sort of product of history rather than a product of design. And I wonder -- do you think you'd actually be buying life insurance businesses, if you didn't have -- do you think the competitive advantage is such other banks like Barclays and all other competitors should be looking to develop the same model because it is so significant. I guess that's the first question. And then the second question is slightly related. But I know just if you're looking at the U.S. in particular, companies like Apple are now starting to get into financial services and sort of embracing the customer by offering them savings products, various other sort of annuity products, et cetera. And it's not really happened yet in the U.K., but I wonder how you feel you would stack up against perhaps some of the nonbanking deliveries of sort of similar platforms.

Chira, perhaps you start off with the initial question and then maybe hand over to Charlie.

Yes. Thanks, Ed. Good question. We think about it all the time when you're wanting to offer a broad suite of products to the customer. We need to be very careful, only where you can have a distinct competitive advantage. And I think the simplest way that I at least and all of us look at it is their own scale. So if you have the scale, right, you will always have the investment capacity to offer something in a proposition which the customer wants. But many of times, we should not waste the time doing that, and it's much easier, as you say, with people who are distinctive. Let me give you an example on that. When we did our research, it came across that private medical insurance is probably one of the most -- from a shareholders' perspective, one of the most exciting businesses because you know that there's a massive demand and it's growing, and it's growing way more than any GDP metric or any economic metric. Now that's a complicated business, right? And you know that it's got a long chain stuff, we should not be getting into private health care, right? There are already 3 or 4 players out there. And what we've done is we have -- now it's sold, we are in negotiations with different providers right now. So that's something that we'll bring, which will not manufacture will just build into the platform, which is a bit like what you see Apple is doing. So we would want to be with Apple in that space. Exactly the same with pet insurance, right? Because we don't have the underwriting capabilities to do pet insurance. But our customers in Mass Affluent absolutely like pet insurance, and they would want. And what we're doing is we're going out and sourcing it. But there are certain things which are fundamental where your scale, underwriting life, right, that we have scale, underwriting a simple equity-linked ISA there we have scale. So those are the places that you'll hold and the other, whatever customer wants, right, and where we don't have scale, we should go out and source it from whoever is best in the market. I mean that's kind of the philosophies, Charlie, that we have taken.

I think that's right. It probably goes back to the point I made, which is we know not all customers are going to want to put an increasing share of their wallet with one provider, although there's opportunity for them to consolidate some of their relationships but we also know some really value that, and some want the simplicity and the joined up servicing experience or the joined up distribution experience, as Chira said, and without getting too complex, Chira and his slides talked a bit about for his Scottish Widows app. He's going to use open banking to be an aggregator of third-party relationships as well as potentially distribute third-party products where we need to for the best-in-class. So what we are able to do is meet all of those kinds of needs. Customers want to have multiple third parties, people, customers that want to have multiple financial services relationships but aggregate them through an app and those that want to have a portion, an increasing portion of their relationship with us. For the growth objectives that we have laid out and for a very sustainable, attractive business, we don't need 100% of our customers to consolidate 100% of their wallet with us. We actually need relatively marginal gains to get significant upside. And if you remember back to February 22, one of the metrics we talked about, we said we talked about a depth of relationship on the retail customers, and it declined from 2.7 to 2.4 products per year, I think, over the last decade. We're talking about pushing it back up 0.1%, 0.2% can make a significant difference. So I think just building on what you said Chira, that's the way I think about it. On Apple and the Big Tex, let's just talk about the Big Tex, more broadly, I think it's a really good point. I don't think it's a short-term issue for us at this stage. As you know, Apple, Google, Microsoft, Facebook, all have incredibly different approaches to their customers, the ecosystems and then financial services. So this is not a one size fits all. And as you know, today, we partner closely with some of those platforms and ecosystems to embed our products in their services. And your point about what Apple is doing in the U.S. to start to, if you like, manufacture a credit card, having started with Goldman Sachs and then a simple savings account. We're very aware and a light to those issues. My strong personal view is we have all the tools to both compete and/or collaborate where we need to I think it very much reminds me of the 1990s co-op petition, right? We know with these large technology platforms, we will both be embedding our services through them and competing and everything we've talked about here and then actually the broader retail discussion that we had with Jas and Jayne last year gives us the capabilities to do just that. So I think it's right for us to think about that strategically I think it really is more the back end of this decade before it becomes material in the U.K.

Thank you. If we could take another question from the lines now, Jason Napier from UBS.

Can you hear me okay?

Yes, perfectly, Jason. Thank you.

I just wonder whether you could talk a little bit, please, about distribution channels. If we get away from Mass Affluent selling to the large customer base that you have and I think about the intermediary channel, if you could talk about core proportion of revenues or profits that contributed at the moment and whether you expect to invest significantly in making that sort of more competitive and what products that might be? And how much of a growth opportunity that might present for the strategy.

Thank you. And I think that's one primarily for Chira.

Yes. Jason, good to hear for you. Let me take that up across channels. Let me start with the market. There are 2 things, which are kind of important on the intermediary side. The first is 80% to 85% of products today are distributed to intermediaries. That is why you have the 10% penetration on bank customers. That's why you have got an IP&I less than 1.1 product penetration within product because everyone's -- most of the products are sold through intermediary. So it's a very important channel. The other thing that I'm going to highlight is the economics. The economics are way starker in my role, which I've been about a year, so the most important stats that I've realized is in protection, for example, in life insurance, the value of exactly the same product to a shareholder is around about 7x or 8x higher if you distribute it through your own bank channels as opposed to intermediaries. It's very simple. It's an 80%, 20% economics. And obviously, 20% economic stays with the bank and ever a significant higher capital base. However, on scale, the intermediary channel, as I said, is going to be hugely important. Let me start with the 3 things that we are doing here. First, on the accumulation and wealth management side. We've talked about Embark is one of the important channels out there where we have 5% share. We spend a lot of investments last year, bringing the technology and the entire platform up. We've got significant market share ambitions out there. That's one thing where we are putting in a huge amount of focus. The second one is life insurance, which is protection. Again, a huge amount of releases, which are going out this year. So if you look at the protection landscape with life insurance today, we actually can't participate in about half of the market, and that is because we do not have the capabilities in the product income protection, for example, it's not a product that we can offer to intermediaries. It's a simple product, but we didn't have the digital capabilities. We built all of that. It's best in class. It's all been released this year. So hopefully, that gives us a significant uplift and the third is just if you think about mortgages, mortgages and Lloyds is more than 80% is distributed to intermediaries, which means as a market leader, we have a very strong relationship with mortgage intermediaries. So what we're doing is we're taking the entire IP&I product suite. And along with Jas and the team, so we're going ahead and starting a relationship on a much wider than a mortgage credit. These are the 3 things on intermediaries. So many of times, we focus on D2C and the digital brand, all the technology that we are investing in the platforms and the CRM that's exactly the same thing that we're offering to intermediaries as well. It's a critical part of the income growth that we have around all the street pivots that we've talked about.

Thank you. Just one final question, which has been submitted online. Can you tell us about the drivers of dividends to group? Historically, there hasn't seemingly been a correlation to earnings. And would you say it has been more driven by the balance sheet? How should we think about dividends going forward? Is there excess capital currently in the insurance business?

There's a lot of questions. So let me break it down. First of all, in terms of capital, I've talked about that. We've got 175% solvency ratio. We need to be at 150%. There is a significant amount of that growth. You would have seen around about 23% growth in the solvency ratio last year, pre-dividend. Most of the growth has come from Solvency U.K. And as you know, the Solvency U.K. is not over. We just had the initial stuff. There's lots of other things that we need to work through for the next 4, 5 months before we take a call. The business that we are growing is absolutely capital light. If you think about capital in the business, you'll have the long-standing capital come down gradually, and that's the capital that we're used to kind of build the front book businesses, it will be like. So from our perspective, will not hold capital. So anything broadly above 150% all in sequel should be going up to the group. So that's number one. The second thing is I think in the past, when you looked at capital distributions, when you talked about distributions and you looked at earnings, there was no correlation. A part of that was IFRS 4, where it was not really a cash metric. I think IFRS 17 it's much more aligned to earnings growth. So if our earnings growth increases, which is exactly how we told that, we also have significant dividend growth as well up to the group, which is what we'll try to do. So as earnings grow, you will see that translate into cash growth and then IFRS 17 world, much more than you've seen in the past. So you've got excess capital on the 175% right now. We're waiting for the final regulations and everything to come through, not growing a capital intense business post the sale of bulks earnings growth and that strong earnings growth definitely translated to more distributions in the next 2 to 3 years.

Thank you very much, Chira. That's actually completes all the questions that have been submitted. Perhaps, Charlie, if you perhaps have a couple of closing comments.

Great. Thank you, Douglas. So just for everyone who joined today, thank you again for joining the session and thank you for all the great questions. I love these sessions. I hope they are informative for you because it gives us a chance to get to the next level of detail to really talk about what we're doing and to unpack a little bit of the underlying businesses and our competitive strengths. So thank you for joining. Chira and Jo thank you very much for leading the discussions. The other reason I love these sessions is I'm not really allowed to talk too much. So you made it very easy on me. A couple of shameless sales pictures before we go, if that's all right. We have one seminar left to go, where we're going to provide an update on our SME business, and that's in June. So we'll be joined Elyn Corfield, who will provide that update. And then before then, obviously, William will be hosting our Q1 results in April. So we'll really look forward to seeing you then. Goodbye, and thanks very much.