Irish Life & Permanent today reported what it termed a significant improvement in its financial performance for the first half of this year [H1 2010] with a loss of  €10m compared with €51million over the same period in 2009, after  a rebound in the life and pensions business.

Kevin Murphy, group chief executive, said the key to the improved performance was a strong recovery in the businesses of Irish Life - -  the country’s largest Life & Pensions Company - - where operating profits rose 40% to €118m. He said a key factor here was a significant improvement in the company’s persistency experience after concerted action by the company over the past 12 months. Murphy highlighted that improving persistency would continue to be critical for the group going forward.

The group’s banking business, Permanent tsb bank, posted a financial performance that was similar to the performance for the same period the previous year.

The bank reduced provisions for bad loans by some 21% [€39m] – principally as a result of an improvement in the performance of the banks car finance and personal loan book in Ireland and in the UK mortgage loan book. The benefit of this reduction however was largely accounted for by the increased cost of the new State bank guarantee scheme.

Arrears in respect of Permanent tsb’s Irish mortgages continued to rise as expected during the cycle; increasing by some 28% during the period. The firm said it is working with customers facing difficulties meeting their repayments to agree new terms.

Speaking today, Murphy also confirmed that the group has submitted a proposal in respect of EBS Building Society. Murphy said that the country needs strong Irish based financial institutions to provide competition and choice for Irish consumers and that he believed a merger of Permanent tsb bank and EBS Building Society could help create a Third Force for Irish banking.

Looking forward Murphy said that the group was not complacent and that serious challenges would remain over the coming months. However he expressed confidence that the group was on a recovery path and that while there would be further losses recorded in the bank in the second half of the year, the life business should continue to perform well.

Results detail

Goodbody's Eamonn Hughes commented: "This morning, IL&P reported Operating Pre-tax Earnings of €10m compared to our -€92m estimate. Operating EPS was -1.1 cent compared to our -30.3 cent forecast. NAV/share at c€8.9 compared to our €8.8 forecast. Life Operating pretax earnings of €118m compared to our anticipated €91m. Profit from the Existing Business & Investment Return combined was €91m vs our €66m forecast, helped by positive variances (largely risk). More importantly, New Business profit was up 22% to €28m vs our estimated 9% rise to €25m. Core new life sales were down 7% (-7.5% anticipated), with Retail down 4% (-2% anticipated) and Corporate down 23% (-18% forecast, ex ILI), but with ILI better than anticipated. ILIM sales were up 98% (+53% anticipated and +60% in Q1).

The core new life business margin was 13% (had estimated 12.3%) and was 6.3% for ILIM (vs our 6.5% estimate). Below the line, short-term investment variances had a -€11m impact on Reported Life PTP (+€40m impact anticipated) and there was a -€7m economic assumption change impact. Solvency cover was 1.7x compared to 1.6x last December. Profits after tax in the non-life Associate of €2m compared to our breakeven estimate. Bank Operating Losses of €131m compared to our €177m loss estimate. Net interest income was €192m, down just 2% yoy (vs our -12% estimate), with the loan book at -4% (-5% yoy estimate). The net interest margin was 81bps, compared with our anticipated 80bps level. Gross new lending overall was €0.3bn (€0.4bn estimated), but the book decline was more muted.

Deposit growth was 5% annualised (vs 6% anticipated), bringing the Loan to Deposit ratio to 256% (250% expected, as per balance sheet, though they report 240%). Non interest income of -€23m, absorbing the cost of the government guarantees, was better than anticipated. Costs were €150m (€138m estimate). The bad debt charge of €150m compared with our €177m estimate. Finally, 67% of funding was deposits and long term debt, from 60% in December. ECB drawings were €8.1bn, with €8bn in the May IMS.IL&P indicates that it expects the bank to “continue to record losses” but that the life company “should continue its recovery”. Presently, we have IL&P recording a €149m lose at the operating level in FY10, but we would envisage upgrades on the back of what we have seen in this morning's H1 figures, both on the life side and in the bank."