REG - Legal & General Grp - L&G Full Year Results 2022 Part 2
08/03/2023 07:15
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RNS Number : 2123S Legal & General Group Plc 08 March 2023
Legal & General Group Plc
Full Year Results 2022
Part 2
IFRS Disclosures on performance and Release from operations
1.01 Operating profit(#)
2022 2021
For the year ended 31 December 2022 Notes £m £m
Legal & General Retirement Institutional (LGRI)(1) 1.03 1,257 1,154
Legal & General Capital (LGC) 1.04 509 461
Legal & General Investment Management (LGIM) 1.05 340 422
Retail 1.03 825 620
- Insurance(2) 341 268
- Retail Retirement(1) 484 352
Operating profit from divisions 2,931 2,657
Group debt costs(3) (214) (230)
Group investment projects and expenses (194) (165)
Operating profit 2,523 2,262
Investment and other variances 1.06 137 233
Losses attributable to non-controlling interests (1) (7)
Adjusted profit before tax attributable to equity holders 2,659 2,488
Tax expense attributable to equity holders 3.04 (369) (445)
Profit for the year 2.01 2,290 2,043
Total tax expense 2.01 440 589
Profit before tax 2.01 2,730 2,632
Profit attributable to equity holders 2,291 2,050
Earnings per share:
Basic (pence per share)(4) 1.07 38.33p 34.19p
Diluted (pence per share)(4) 1.07 36.49p 32.57p
1. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Prior year
comparatives have been restated to reflect this change in segmentation.
Further details are provided in Note 1.08.
2. Insurance operating profit includes £168m (2021: £(52)m) related to
the group's US Insurance business.
3. Group debt costs exclude interest on non-recourse financing.
4. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the group's key
performance indicators) provides additional analysis of the results reported
under IFRS, and the group believes it provides stakeholders with useful
information to enhance their understanding of the performance of the business
in the year.
Operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by
changes in market conditions or expectations and exceptional items. It
therefore reflects longer-term economic assumptions for the
group's insurance businesses and shareholder funds, including the traded
portfolio in LGC. For the group's direct investments,
operating profit reflects the expected long-term economic return for those
assets which are developed with the intention of sale, or the
IFRS profit before tax for the early stage and mature businesses. Variances
between actual and long-term expected investment return on
traded and real assets (including direct investments where applicable) are
excluded from operating profit, as well as economic assumption changes caused
by changes in market conditions or expectations (e.g. credit default and
inflation) and any difference between the actual allocated asset
mix and the target long-term asset mix on new pension risk transfer business.
Operating profit also excludes the yield associated with
assets held for future new pension risk transfer business from the valuation
discount rate on insurance contract liabilities. Exceptional
income and expenses which arise outside the normal course of business in the
year, such as merger and acquisition and start-up costs,
are also excluded from operating profit.
The group reports its results across the following business segments:
• LGRI represents worldwide pension risk transfer business including
longevity insurance.
• LGC represents shareholder assets invested in direct investments
primarily in the areas of specialist commercial real estate, clean energy,
housing and SME finance, as well as traded and treasury assets.
• LGIM represents institutional and retail investment management.
• Insurance primarily represents UK protection (both group and retail)
and Fintech business, as well as US retail protection business (US Insurance).
• Retail Retirement primarily represents retail
annuity and drawdown products, workplace savings and lifetime mortgage loans.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.02 Reconciliation of release from operations to operating profit(#) before
tax
Release from New business Net release Changes in valuation assump- Operating Operating
operations(1) surplus/ from tions profit/(loss) profit/(loss)
(strain) operations after tax before
tax
Expe- Non-cash items Other(2) Tax expense/
rience (credit)
variances
For the year ended
31 December 2022 £m £m £m £m £m £m £m £m £m £m
LGRI(3) 620 298 918 (15) 177 (2) - 1,078 179 1,257
LGC 404 - 404 - - - - 404 105 509
LGIM 293 - 293 - - - - 293 47 340
Retail 554 (4) 550 (45) 205 (16) (24) 670 155 825
- Insurance 308 (12) 296 (12) 7 (14) (24) 253 88 341
- Retail Retirement(3) 246 8 254 (33) 198 (2) - 417 67 484
Total from divisions 1,871 294 2,165 (60) 382 (18) (24) 2,445 486 2,931
Group debt costs (173) - (173) - - - - (173) (41) (214)
Group investment projects and expenses (73) - (73) - - - (79) (152) (42) (194)
Total 1,625 294 1,919 (60) 382 (18) (103) 2,120 403 2,523
1. Release from operations within Insurance includes £85m of dividends
from the US Insurance business.
2. Other within Insurance includes experience variances, changes in
valuation assumptions (including changes to assumed asset allocation) and
non-cash items relating to US Insurance.
3. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Further
details are provided in Note 1.08.
Release from operations for LGRI, and the UK protection and retail annuity
businesses within Retail represents the expected IFRS surplus generated in the
year from the difference between the prudent assumptions underlying the IFRS
liabilities and our best estimate of future experience. For workplace savings
within Retail Retirement, the release from operations represents the expected
annual management charges generated from the in-force business less expected
expenses. The Insurance release from operations also includes dividends
remitted from US Insurance business and IFRS profit after tax for the Fintech
business.
New business surplus/(strain) for LGRI, and the UK protection and retail
annuity businesses within Retail represents the initial profit or loss from
writing new business. This includes the costs associated with acquiring new
business and setting up prudent reserves, net of tax. Similarly for workplace
savings, this includes the cost of acquiring new business in the year less the
annual management charges generated by the assets under administration (AUA),
net of tax. The new business surplus and release from operations for LGRI and
Retail excludes any capital held in excess of the prudent reserves from the
liability calculation.
LGRI and Retail Retirement's annuity new business metrics are presented based
on a single target long-term asset portfolio. At certain year ends,
depending upon the quantum and timing of pension risk transfer (PRT) volumes,
the group may have sourced more or less of the high quality assets targeted to
support that business. At year end, the profit impact of the difference
between actual assets held (including alternative surplus
assets where suitable) and the long-term asset mix is reflected in investment
variance.
Net release from operations for LGRI and Retail is defined as release from
operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM
represents the operating profit (net of tax).
See Note 1.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.02 Reconciliation of release from operations to operating profit(#) before
tax (continued)
New business Net release Changes in Operating Operating
surplus/ from valuation profit/(loss) profit/(loss)
(strain) operations assump- after tax before
tions tax
Release from operations(1) Expe- Non-cash Other(2) Tax expense/
rience items (credit)
variances
For the year ended
31 December 2021 £m £m £m £m £m £m £m £m £m £m
LGRI(3) 512 193 705 40 212 27 - 984 170 1,154
LGC 379 - 379 - - - - 379 82 461
LGIM 342 - 342 - - - - 342 80 422
Retail 463 54 517 28 121 2 (138) 530 90 620
- Insurance 236 27 263 14 82 6 (138) 227 41 268
- Retail Retirement(3) 227 27 254 14 39 (4) - 303 49 352
Total from divisions 1,696 247 1,943 68 333 29 (138) 2,235 422 2,657
Group debt costs (186) - (186) - - - - (186) (44) (230)
Group investment projects and expenses (69) - (69) - - - (68) (137) (28) (165)
Total 1,441 247 1,688 68 333 29 (206) 1,912 350 2,262
1. Release from operations within Insurance includes £80m of dividends
from the US Insurance business.
2. Other within Insurance includes experience variances, changes in
valuation assumptions (including changes to assumed asset allocation) and
non-cash items relating to US Insurance.
3. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Prior year
comparatives have been restated to reflect this change in segmentation.
Further details are provided in Note 1.08.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.03 Analysis of LGRI and Retail operating profit
LGRI(1) Retail(1) LGRI(1) Retail(1)
2022 2022 2021 2021
For the year ended 31 December 2022 £m £m £m £m
Net release from operations 918 550 705 517
Experience variances
- Persistency (1) (7) 1 (5)
- Mortality/morbidity 37 17 24 29
- Expenses (15) (15) 6 (1)
- Project and development costs (16) (6) (11) (19)
- Other (20) (34) 20 24
Total experience variances (15) (45) 40 28
Changes in valuation assumptions
- Persistency - (10) - (5)
- Mortality/morbidity(2,3) 174 229 153 46
- Expenses - (13) - (1)
- Other(4) 3 (1) 59 81
Total changes in valuation assumptions 177 205 212 121
Movement in non-cash items (2) (16) 27 2
Other(5) - (24) - (138)
Operating profit after tax 1,078 670 984 530
Tax expense 179 155 170 90
Operating profit before tax 1,257 825 1,154 620
1. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Prior year
comparatives have been restated to reflect this change in segmentation.
Further details are provided in Note 1.08.
2. The positive impact of changes in Mortality/morbidity valuation
assumptions in Retail is driven by routine longevity assumption changes in
2022, for which an update to the base mortality assumption is the largest
component of the movement. We have adopted a modified CMI 2020 model, with no
weight given to 2020 data due to the uncertainty in the data created by
Covid-19.
3. In both 2022 and 2021, changes in valuation assumptions for
Mortality/morbidity in LGRI reflect updates to UK longevity trend and spouse
demography assumptions.
4. In 2021, the £81m positive Other changes in valuation assumptions in
Retail reflected the benefit of modelling improvements in UK retail
protection, including the introduction of an illiquidity premium in the
liability discount rate.
5. Other includes experience variances, changes in valuation assumptions
(including changes to assumed asset allocation) and non-cash items relating to
US Insurance, which also includes the benefits from reinsuring the in-force
universal life book of protection business.
1.04 LGC operating profit
2022 2021
£m £m
Direct investments(1) 400 350
Traded investment portfolio including treasury assets(2) 109 111
Total LGC operating profit 509 461
1. Direct investments represent LGC's portfolio of assets across
specialist commercial real estate, clean energy, housing and SME finance.
Direct investments include operating profit in relation to CALA Homes of
£172m (2021: £132m).
2. The traded investment portfolio holds a diversified set of exposures
across equities, fixed income, multi-asset funds and cash.
1.05 LGIM operating profit
2022 2021
£m £m
Asset management revenue (excluding 3rd party market data)(1) 944 980
Asset management transactional revenue(2) 26 32
Asset management expenses (excluding 3rd party market data)(1) (630) (590)
Total LGIM operating profit 340 422
1. Asset management revenue and expenses exclude income and costs of
£30m in relation to the provision of third party market data (2021: £32m).
2. Transactional revenue from external clients includes execution fees,
asset transition income, trigger fees, arrangement fees on property
transactions and performance fees.
1.06 Investment and other variances
2022 2021
£m £m
Investment variance related to protection liabilities(1) 841 111
Investment variance related to the traded investment portfolio and direct (408) 19
investments(2)
Other investment variance(3) (164) 211
Investment variance 269 341
M&A related and other variances(4) (132) (108)
Total investment and other variances 137 233
1. The positive investment variance in protection liabilities of £841m
reflects the formulaic impact of the increases in UK and US government bond
yields which have resulted in higher discount rates being used to calculate
the group's protection liabilities.
2. The negative investment variance in the traded investment portfolio
and direct investments of £408m largely reflects volatile global equity
market performance in the traded investment portfolio, as well as the
revaluation of some land assets and development projects as a result of higher
interest rates.
3. Other investment variance includes the IAS 19 movements in respect of
the group's defined benefit pension schemes.
4. M&A related and other variances include gains and losses,
expenses and intangible amortisation relating to acquisitions, disposals and
restructuring as well as business start-up costs.
Investment variance includes differences between actual and long-term expected
investment return on traded and real assets (including direct investments
developed with intention of sale), the impact of economic assumption changes
caused by changes in market conditions or expectations (e.g. credit default
and inflation), the impact of any difference between the actual allocated
asset mix and the target long-term asset mix on new pension risk transfer
business, and the yield associated with assets held for future new pension
risk transfer business from the valuation discount rate.
The long-term expected investment return is based on opening economic
assumptions applied to the assets under management at the start of the
reporting year. The assumptions underlying the calculation of the expected
returns for traded equity, commercial property and residential property are
based on market consensus forecasts and long-term historic average returns
expected to apply through the cycle.
The long-term expected investment returns are:
2022 2021
Equities 7% 7%
Commercial property 5% 5%
Residential property(1) 3.5% RPI + 50bps
1. In previous years the assumption RPI + 50bps was in line with average
historical returns. Due to the current spike in inflation and in order to keep
the rate aligned to average historical returns, it was updated to 3.5% in
2022.
Additionally, the LGC alternative asset portfolio comprises investments in
specialist commercial real estate, clean energy, housing and SME finance. The
long-term expected investment return across the portfolio is on average
between 10% and 12% (2021: 8% and 10%), in line with our stated investment
objectives. Rates of return specific to each asset are determined at the point
of underwriting and reviewed and updated annually. The expected investment
return includes assumptions on appropriate discount rates and inflation as
well as sector specific assumptions including retail and commercial property
yields and power prices.
1.07 Earnings per share
(a) Basic earnings per share
After tax Per share(1) After tax Per share(1)
2022 2022 2021 2021
£m p £m p
Profit for the year attributable to equity holders 2,291 38.72 2,050 34.58
Less: coupon payable in respect of restricted Tier 1 convertible notes net of (23) (0.39) (23) (0.39)
tax relief
Total basic earnings 2,268 38.33 2,027 34.19
1. Basic earnings per share is calculated by dividing profit after tax
by the weighted average number of ordinary shares in issue during the year,
excluding employee scheme treasury shares.
(b) Diluted earnings per share
After tax Weighted Per share(1)
average
number of
shares
2022 2022 2022
£m m p
Profit for the year attributable to equity holders 2,291 5,917 38.72
Net shares under options allocable for no further consideration - 55 (0.36)
Conversion of restricted Tier 1 notes - 307 (1.87)
Total diluted earnings 2,291 6,279 36.49
Weighted
average
number of
After tax shares Per share(1)
2021 2021 2021
£m m p
Profit for the year attributable to equity holders 2,050 5,929 34.58
Net shares under options allocable for no further consideration - 59 (0.34)
Conversion of restricted Tier 1 notes - 307 (1.67)
Total diluted earnings 2,050 6,295 32.57
1. For diluted earnings per share, the weighted average number of
ordinary shares in issue, excluding employee scheme treasury shares, is
adjusted to assume conversion of all potential ordinary shares, such as share
options granted to employees and conversion of restricted Tier 1 notes.
1.08 Segmental analysis
In 2021, the group operated five core businesses across four reportable
segments that are continuing operations, with Legal & General Retirement
Retail (LGRR) and Legal & General Retirement Institutional (LGRI) combined
into a single segment for reporting purposes, being Legal & General
Retirement.
From 1 January 2022, the group announced changes to the business unit
responsibilities within the Executive Committee. Andrew Kail became the Chief
Executive Officer of LGRI, succeeding Laura Mason who had previously moved to
become CEO of Legal & General Capital (LGC). Our two retail businesses,
LGRR and LGI, came together under the leadership of Bernie Hickman. Reportable
segments have therefore been aligned to the group's five core businesses.
Group expenses and debt costs continue to be reported separately. Transactions
between segments are on normal commercial terms, and are included within the
reported segments. To enable comparison, segmental information for the prior
year has been restated accordingly.
In the UK, annuity liabilities relating to LGRI and Retail Retirement are
backed by a single portfolio of assets, and once a transaction has been
completed the assets relating to any particular transaction are not tracked to
the related liabilities. Investment variance is allocated to the two
business segments based on the relative average size of the underlying
insurance contract liabilities across the year.
Reporting of assets and liabilities by reportable segment has not been
included, as this is not information that is provided to key decision makers
on a regular basis. The group's asset and liabilities are managed on a legal
entity rather than a segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where
relevant in order to better explain the drivers of the group's results.
(a) Profit/(loss) for the year
Group
expenses
Retail and debt
LGRI(1) LGC LGIM Retirement(1) Insurance costs Total
For the year ended 31 December 2022 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 1,257 509 340 484 341 (408) 2,523
Investment and other variances (21) (408) (81) (24) 841 (170) 137
Losses attributable to non-controlling interests - - - - - (1) (1)
Profit/(loss) before tax attributable to equity holders 1,236 101 259 460 1,182 (579) 2,659
Tax (expense)/credit attributable to equity holders (155) (30) (30) (41) (247) 134 (369)
Profit/(loss) for the year 1,081 71 229 419 935 (445) 2,290
Group
expenses
Retail and debt
LGRI(1) LGC LGIM Retirement(1) Insurance costs Total
For the year ended 31 December 2021 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 1,154 461 422 352 268 (395) 2,262
Investment and other variances 193 19 (11) 49 111 (128) 233
Losses attributable to non-controlling interests - - - - - (7) (7)
Profit/(loss) before tax attributable to equity holders 1,347 480 411 401 379 (530) 2,488
Tax (expense)/credit attributable to equity holders (213) (93) (79) (63) (59) 62 (445)
Profit/(loss) for the year 1,134 387 332 338 320 (468) 2,043
1. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Prior year
comparatives have been restated to reflect this change in segmentation.
# Operating profit for total continuing operations represents 'Adjusted
operating profit', an alternative performance measure defined in the glossary.
1.08 Segmental analysis (continued)
(b) Total income
Retail LGC and
LGRI(1) LGIM(2,3) Retirement(1) Insurance other(4) Total
For the year ended 31 December 2022 £m £m £m £m £m £m
Internal income - 178 - - (178) -
External income (9,874) (78,636) (4,017) 1,371 1,862 (89,294)
Total income (9,874) (78,458) (4,017) 1,371 1,684 (89,294)
Retail LGC and
LGRI(1) LGIM(2,3) Retirement(1) Insurance other(4) Total
For the year ended 31 December 2021 £m £m £m £m £m £m
Internal income - 179 - - (179) -
External income 4,842 35,738 1,117 2,029 1,724 45,450
Total income 4,842 35,917 1,117 2,029 1,545 45,450
1. From 1 January 2022, following changes to business unit
responsibilities within the Executive Committee, the group's reportable
segments have been updated to align with its five core businesses. Prior year
comparatives have been restated to reflect this change in segmentation.
2. LGIM internal income relates to investment management services
provided to other segments.
3. LGIM external income primarily includes fees from fund management and
investment returns on unit linked funds.
4. LGC and other includes LGC income, intra-segmental eliminations and
group consolidation adjustments.
IFRS Primary Financial Statements
2.01 Consolidated Income Statement
2022 2021
For the year ended 31 December 2022 Notes £m £m
Income
Gross written premiums 13,691 10,375
Outward reinsurance premiums (5,167) (3,446)
Net change in provision for unearned premiums 10 42
Net premiums earned 8,534 6,971
Fees from fund management and investment contracts 899 959
Investment return (100,365) 35,927
Other operational income 1,638 1,593
Total income 1.08 (89,294) 45,450
Expenses
Claims and change in insurance contract liabilities (13,573) 7,353
Reinsurance recoveries (2,864) (2,968)
Net claims and change in insurance contract liabilities (16,437) 4,385
Change in investment contract liabilities (80,043) 34,206
Acquisition costs 834 825
Finance costs 290 294
Other expenses 3,332 3,108
Total expenses (92,024) 42,818
Profit before tax 2,730 2,632
Tax expense attributable to policyholder returns (71) (144)
Profit before tax attributable to equity holders 2,659 2,488
Total tax expense (440) (589)
Tax expense attributable to policyholder returns 71 144
Tax expense attributable to equity holders 3.04 (369) (445)
Profit for the year 2,290 2,043
Attributable to:
Non-controlling interests (1) (7)
Equity holders 2,291 2,050
Dividend distributions to equity holders during the year 3.02 1,116 1,063
Dividend distributions to equity holders proposed after the year end 3.02 829 790
p p
Total basic earnings per share(1) 1.07 38.33 34.19
Total diluted earnings per share(1) 1.07 36.49 32.57
1. All earnings per share calculations are based on profit attributable
to equity holders of the company.
2.02 Consolidated Statement of Comprehensive Income
2022 2021
For the year ended 31 December 2022 £m £m
Profit for the year 2,290 2,043
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes (77) 53
Tax credit/(expense) on actuarial remeasurements on defined benefit pension 19 (7)
schemes
Total items that will not be reclassified subsequently to profit or loss (58) 46
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 77 (11)
Movement in cross-currency hedge 40 20
Tax expense on movement in cross-currency hedge (10) (7)
Movement in financial investments designated as available-for-sale 2 (3)
Total items that may be reclassified subsequently to profit or loss 109 (1)
Other comprehensive income after tax 51 45
Total comprehensive income for the year 2,341 2,088
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests (1) (7)
Equity holders 2,342 2,095
2.03 Consolidated Balance Sheet
2022 2021
As at 31 December 2022 Notes £m £m
Assets
Goodwill 71 68
Other intangible assets 441 365
Deferred acquisition costs 30 26
Investment in associates and joint ventures accounted for using the equity 554 375
method
Property, plant and equipment 326 316
Investment property 3.03 9,372 10,150
Financial investments 3.03 445,475 538,374
Reinsurers' share of contract liabilities 6,955 7,180
Deferred tax assets 3.04 180 2
Current tax assets 802 670
Receivables and other assets 13,286 8,625
Cash and cash equivalents 35,784 16,487
Total assets 513,276 582,638
Equity
Share capital 3.05 149 149
Share premium 3.05 1,018 1,012
Employee scheme treasury shares (144) (99)
Capital redemption and other reserves 318 196
Retained earnings 10,332 9,228
Attributable to owners of the parent 11,673 10,486
Restricted Tier 1 convertible notes 3.06 495 495
Non-controlling interests 3.07 (29) (38)
Total equity 12,139 10,943
Liabilities
Insurance contract liabilities 70,337 89,825
Investment contract liabilities 286,830 372,954
Core borrowings 3.08 4,338 4,256
Operational borrowings 3.09 1,219 932
Provisions 3.13 890 1,238
Deferred tax liabilities 3.04 428 251
Current tax liabilities 69 84
Payables and other financial liabilities 3.10 95,052 74,264
Other liabilities 723 925
Net asset value attributable to unit holders 41,251 26,966
Total liabilities 501,137 571,695
Total equity and liabilities 513,276 582,638
2.04 Consolidated Statement of Changes in Equity
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2022 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2022 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
Profit for the year - - - - 2,291 2,291 - (1) 2,290
Exchange differences on translation of overseas operations - - - 77 - 77 - - 77
Net movement in cross-currency hedge - - - 30 - 30 - - 30
Net actuarial remeasurements on defined benefit pension schemes - - - - (58) (58) - - (58)
Net movement in financial investments designated as available-for-sale - - - 2 - 2 - - 2
Total comprehensive income for the year - - - 109 2,233 2,342 - (1) 2,341
Options exercised under share option schemes - 6 - - - 6 - - 6
Shares purchased - - (59) - - (59) - - (59)
Shares vested - - 14 (41) - (27) - - (27)
Employee scheme treasury shares: - - - 54 - 54 - - 54
- Value of employee services
Share scheme transfers to retained earnings - - - - 10 10 - - 10
Dividends - - - - (1,116) (1,116) - - (1,116)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (23) (23) - - (23)
relief
Movement in third party interests - - - - - - - 10 10
As at 31 December 2022 149 1,018 (144) 318 10,332 11,673 495 (29) 12,139
1. Capital redemption and other reserves as at 31 December 2022 include
share-based payments £99m, foreign exchange £123m, capital redemption £17m,
hedging £78m and available-for-sale reserves £1m.
2.04 Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2021 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2021 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
Profit for the year - - - - 2,050 2,050 - (7) 2,043
Exchange differences on translation of overseas operations - - - (11) - (11) - - (11)
Net movement in cross-currency hedge - - - 13 - 13 - - 13
Net actuarial remeasurements on defined benefit pension schemes - - - - 46 46 - - 46
Net movement in financial investments designated as available-for-sale - - - (3) - (3) - - (3)
Total comprehensive income for the year - - - (1) 2,096 2,095 - (7) 2,088
Options exercised under share option schemes - 6 - - - 6 - - 6
Shares purchased - - (34) - - (34) - - (34)
Shares vested - - 10 (48) - (38) - - (38)
Employee scheme treasury shares: - - - 33 - 33 - - 33
- Value of employee services
Share scheme transfers to retained earnings - - - - 8 8 - - 8
Dividends - - - - (1,063) (1,063) - - (1,063)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (23) (23) - - (23)
relief
Currency translation differences - - - 14 (14) - - - -
As at 31 December 2021 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
1. Capital redemption and other reserves as at 31 December 2021 include
share-based payments £86m, foreign exchange £46m, capital redemption £17m,
hedging £48m and available-for-sale reserves £(1)m.
2.05 Consolidated Statement of Cash Flows
2022 2021
For the year ended 31 December 2022 Notes £m £m
Cash flows from operating activities
Profit for the year 2,290 2,043
Adjustments for non cash movements in net profit for the year
Net losses/(gains) on financial investments and investment property 109,405 (26,062)
Investment income (9,040) (9,865)
Interest expense 290 294
Tax expense 440 589
Other adjustments 113 137
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or 20,887 4,616
loss
Investments designated as available-for-sale 43 (21)
Other assets (4,672) 139
Net (decrease)/increase in operational liabilities
Insurance contracts (20,282) 726
Investment contracts (86,132) 29,409
Other liabilities (638) (11,161)
Cash generated from/(utilised in) operations 12,704 (9,156)
Interest paid (290) (301)
Interest received(1) 3,525 5,060
Rent received 404 373
Tax paid(2) (570) (564)
Dividends received 4,691 4,419
Net cash flows from operations 20,464 (169)
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets (187) (205)
Acquisition of operations, net of cash acquired (2) -
Disposal of subsidiaries and other operations, net of cash transferred - 217
Investment in joint ventures and associates (101) (56)
Disposal of joint ventures and associates 64 177
Net cash flows (utilised in)/generated from investing activities (226) 133
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year 3.02 (1,116) (1,063)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax 3.06 (28) (28)
Options exercised under share option schemes 3.05 6 6
Treasury shares purchased for employee share schemes (59) (34)
Payment of lease liabilities (44) (37)
Proceeds from borrowings 945 449
Repayment of borrowings (737) (798)
Net cash flows utilised in financing activities (1,033) (1,505)
Net increase/(decrease) in cash and cash equivalents 19,205 (1,541)
Exchange gains on cash and cash equivalents 92 8
Cash and cash equivalents at 1 January 16,487 18,020
Total cash and cash equivalents at 31 December 35,784 16,487
1. Interest received comprises of net interest received from financial
instruments at fair value through profit or loss and other financial
instruments.
2. Tax paid comprises UK corporation tax of £358m (2021: £368m),
withholding tax of £204m (2021: £188m) and overseas corporate tax of £8m
(2021: £8m).
IFRS Disclosure Notes
3.01 Basis of preparation
The preliminary announcement for the year ended 31 December 2022 does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information in this preliminary announcement has been
derived from the group financial statements within the group's 2022 Annual
Report and Accounts, which will be made available on the group's website on 15
March 2023. The group's 2021 Annual Report and Accounts have been filed with
the Registrar of Companies, and those for 2022 will be delivered in due
course. KPMG have reported on the 2022 and 2021 Annual Report and Accounts.
Both their reports were: (i) unqualified; (ii) did not include a reference to
any matters to which they drew attention by way of emphasis without qualifying
their report; and (iii) did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
The group financial statements have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and related
interpretations issued by the IFRS Interpretations Committee. Endorsement is
granted by the UK Endorsement Board. The group financial statements have been
prepared under the historical cost convention, as modified by the revaluation
of investment property, available-for-sale financial assets, and certain
financial assets and financial liabilities (including derivative instruments)
at fair value through profit or loss.
The group has selected accounting policies which state fairly its financial
position, financial performance and cash flows for a reporting period. The
accounting policies have been consistently applied to all years presented,
unless otherwise stated.
Financial assets and financial liabilities are disclosed gross in the
Consolidated Balance Sheet unless a legally enforceable right of offset exists
and there is an intention to settle recognised amounts on a net basis. Income
and expenses are not offset in the Consolidated Income Statement unless
required or permitted by any accounting standard or interpretations by the
IFRS Interpretations Committee.
Foreign currency transactions are translated into the functional currency
using the exchange rate prevailing at the date of the transactions. The
functional currency of the group's foreign operations is the currency of the
primary economic environment in which the entity operates. The assets and
liabilities of all of the group's foreign operations are translated into
sterling, the group's presentation currency, at the closing rate at the date
of the balance sheet. The income and expenses for the income statement are
translated at average exchange rates. On consolidation, exchange differences
arising from the translation of the net investment in foreign entities and of
borrowings and other currency instruments designated as hedges of such
investments, are taken to a separate component of shareholders' equity.
Critical accounting policies and the use of estimates
The preparation of the financial statements includes the use of estimates and
assumptions which affect items reported in the Consolidated Balance Sheet and
Income Statement and the disclosure of contingent assets and liabilities at
the date of the financial statements. Although these estimates are based on
management's best knowledge of current circumstances and future events and
actions, actual results may differ from those estimates, possibly
significantly. This is particularly relevant for the valuation of insurance
and investment contract liabilities, unquoted illiquid assets, investment
property, and the determination of defined benefit pension plan assumptions.
From a policy application perspective, the major areas of judgement are the
assessment of whether a contract transfers significant insurance risk to the
group, and whether the group controls underlying entities and should therefore
consolidate them. The basis of accounting for these areas, and the significant
judgements used in determining them, are outlined in the respective notes to
the group's 2022 Annual Report and Accounts.
Key technical terms and definitions
The report refers to various key performance indicators, accounting standards
and other technical terms. A comprehensive list of these definitions is
contained within the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income Statement
includes income tax borne by both policyholders and equity holders. This has
been split between tax attributable to policyholders' returns and equity
holders' profits. Policyholder tax comprises the tax suffered on policyholder
investment returns, while equity holder tax is corporation tax charged on
equity holder profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the profits that it
makes.
3.02 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1)
2022 2022 2021 2021
£m p £m p
Ordinary dividends paid and charged to equity in the year:
- Final 2020 dividend paid in June 2021 - - 754 12.64
- Interim 2021 dividend paid in September 2021 - - 309 5.18
- Final 2021 dividend paid in June 2022 792 13.27 - -
- Interim 2022 dividend paid in September 2022 324 5.44 - -
Total dividends 1,116 18.71 1,063 17.82
Ordinary share dividend proposed 829 13.93 790 13.27
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
Subsequent to 31 December 2022, the directors declared a final dividend for
2022 of 13.93 pence per ordinary share. This dividend will be paid on 5 June
2023. It will be accounted for as an appropriation of retained earnings in the
year ended 31 December 2023 and is not included as a liability in the
Consolidated Balance Sheet as at 31 December 2022.
3.03 Financial investments and investment property
2022 2021
£m £m
Equities(1) 167,335 213,049
Debt securities(2,3) 218,402 296,930
Derivative assets(4) 45,427 16,792
Loans(5) 14,311 11,603
Financial investments 445,475 538,374
Investment property 9,372 10,150
Total financial investments and investment property 454,847 548,524
1. Equity securities include investments in unit trusts of £16,524m (31
December 2021: £18,248m).
2. Debt securities include accrued interest of £1,635m (31 December
2021: £1,420m).
3. A detailed analysis of debt securities to which shareholders are
directly exposed is disclosed in Note 6.03.
4. Derivatives are used for efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, currency swaps and foreign
exchange forward contracts for asset and liability management. Derivative
assets are shown gross of derivative liabilities of £51,190m (31 December
2021: £15,718m).
5. Loans include £28m (31 December 2021: £92m) of loans valued at
amortised cost.
3.04 Tax
(a) Tax expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated
on profit before tax at the standard UK corporation tax rate as follows:
2022 2021
£m £m
Profit before tax attributable to equity holders 2,659 2,488
Tax calculated at 19.00% 505 473
Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higher rate of tax on profits taxed overseas(1) (84) (104)
Income not subject to tax (3) -
Non-deductible expenses (1) 6
Differences between taxable and accounting investment gains (9) (13)
Other taxes on property and foreign income 6 -
Unrecognised tax losses 17 1
Double tax relief(2) (20) -
Non-recurring reconciling items:
Adjustments in respect of prior years(3) (21) 24
Impact of the revaluation of deferred tax balances(4) (21) 58
Tax expense/(credit) attributable to equity holders 369 445
Equity holders' effective tax rate 13.9% 17.9%
1. The lower rate of tax on overseas profits is principally driven by
the 0% rate of taxation arising in our Bermudan reinsurance company, which
provides the group with regulatory capital flexibility for both our PRT
business and our US term insurance business. This also includes the impact of
our US operations which are taxed at 21%.
2. Double tax relief represents a UK tax credit available for overseas
withholding tax suffered on dividend income.
3. Adjustments in respect of prior years relate to revisions of prior
estimates.
4. The Finance Act 2021 increased the rate of corporation tax from 19%
to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the
year remained at 19%. The future enacted tax rate of 25% has been used in the
calculation of UK deferred tax assets and liabilities, as the rate of
corporation tax that is expected to apply when the majority of those deferred
tax balances reverse.
3.04 Tax (continued)
(b) Deferred tax
2022 2021
Deferred tax (liabilities)/assets £m £m
Deferred acquisition expenses(1) 116 95
Difference between the tax and accounting value of insurance contracts (986) (695)
- UK (132) (269)
- Overseas (854) (426)
Realised and unrealised gains on investments 144 (83)
Excess of depreciation over capital allowances 21 22
Accounting provisions and other 22 55
Trading losses(2) 463 348
Pension fund deficit (26) 9
Acquired intangibles (2) -
Net deferred tax (liabilities)/assets (248) (249)
Presented on the Consolidated Balance Sheet as:
- Deferred tax assets(3) 180 2
- Deferred tax liabilities (428) (251)
Net deferred tax (liabilities)/assets (248) (249)
1. Deferred tax assets arising on deferred acquisition expenses relates
solely to US balances as at 31 December 2022 and 2021.
2. Trading losses consist solely of US operating losses (2021: £346m).
The losses are not time restricted, and we expect to recover them over a
period of 15 to 20 years, commensurate with the lifecycle of the underlying
insurance contracts. In reaching this conclusion, we have considered past
results, the different basis under which US companies are taxed, temporary
differences that are expected to generate future profits against which the
deferred tax can be offset, management actions, and future profit forecasts.
The recoverability of deferred tax assets is routinely reviewed by management.
3. The deferred tax asset represents £168m of US unrealised losses on
investments (2021: £nil), £7m of UK unrealised losses on investments (2021:
£nil) and £5m of other deferred tax assets (2021: £nil). These are not
capable of being offset against any deferred tax liabilities or future trading
profits.
3.05 Share capital and share premium
2022 2021
Number of 2022 Number of 2021
Authorised share capital shares £m shares £m
At 31 December: ordinary shares of 2.5p each 9,200,000,000 230 9,200,000,000 230
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2022 5,970,415,817 149 1,012
Options exercised under share option schemes 2,837,683 - 6
As at 31 December 2022 5,973,253,500 149 1,018
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2021 5,967,358,713 149 1,006
Options exercised under share option schemes 3,057,104 - 6
As at 31 December 2021 5,970,415,817 149 1,012
There is one class of ordinary shares of 2.5p each. All shares issued carry
equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends
as declared and are entitled to one vote per share at shareholder meetings of
the company.
3.06 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625%
perpetual restricted Tier 1 contingent convertible notes. The notes are
callable at par between 24 March 2031 and 24 September 2031 (the First Reset
Date) inclusive and every 5 years after the First Reset Date. If not called,
the coupon from 24 September 2031 will be reset to the prevailing five year
benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon
payments is at the discretion of the issuer and mandatory cancellation is upon
the occurrence of certain conditions. The Tier 1 notes are therefore treated
as equity and coupon payments are recognised directly in equity when paid.
During the year coupon payments of £28m were made (2021: £28m). The notes
rank junior to all other liabilities and senior to equity attributable to
owners of the parent. On the occurrence of certain conversion trigger events
the notes are convertible into ordinary shares of the issuer at the prevailing
conversion price.
The notes are treated as restricted Tier 1 own funds for Solvency II purposes.
3.07 Non-controlling interests
Non-controlling interests represent third party interests in direct equity
investments, including private equity, which are consolidated in the group's
results.
As at 31 December 2022, non-controlling interests primarily represent third
party ownership in Thorpe Park Holdings, a mixed residential/commercial retail
space in which the group holds 50%.
3.08 Core borrowings
Carrying Coupon Carrying Coupon
amount rate Fair value amount rate Fair value
2022 2022 2022 2021 2021 2021
£m % £m £m % £m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2) 590 5.50 541 590 5.50 776
5.375% Sterling subordinated notes 2045 (Tier 2) 605 5.38 593 604 5.38 673
5.25% US Dollar subordinated notes 2047 (Tier 2) 712 5.25 665 635 5.25 694
5.55% US Dollar subordinated notes 2052 (Tier 2) 417 5.55 389 373 5.55 428
5.125% Sterling subordinated notes 2048 (Tier 2) 400 5.13 377 400 5.13 461
3.75% Sterling subordinated notes 2049 (Tier 2) 599 3.75 507 598 3.75 632
4.5% Sterling subordinated notes 2050 (Tier 2) 500 4.50 439 500 4.50 558
Client fund holdings of group debt (Tier 2)(1) (74) - (67) (44) - (51)
Total subordinated borrowings 3,749 - 3,444 3,656 - 4,171
Senior borrowings
Sterling medium term notes 2031-2041 609 5.87 649 609 5.87 846
Client fund holdings of group debt(1) (20) - (19) (9) - (11)
Total senior borrowings 589 - 630 600 - 835
Total core borrowings 4,338 - 4,074 4,256 - 5,006
1. £94m (2021: £53m) of the group's subordinated and senior borrowings
are held by Legal & General customers through unit linked products. These
borrowings are shown as a deduction from total core borrowings in the table
above.
The presented fair values of the group's core borrowings reflect quoted prices
in active markets and they have been classified as Level 1 in the fair value
hierarchy.
3.08 Core borrowings (continued)
Subordinated borrowings
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued £600m of 5.5% dated
subordinated notes. The notes are callable at par on 27 June 2044 and every
five years thereafter. If not called, the coupon from 27 June 2044 will be
reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These
notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued £600m of 5.375% dated
subordinated notes. The notes are callable at par on 27 October 2025 and every
five years thereafter. If not called, the coupon from 27 October 2025 will be
reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These
notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated
subordinated notes. The notes are callable at par on 21 March 2027 and every
five years thereafter. If not called, the coupon from 21 March 2027 will be
reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes
mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated
subordinated notes. The notes are callable at par on 24 April 2032 and every
five years thereafter. If not called, the coupon from 24 April 2032 will be
reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes
mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125%
dated subordinated notes. The notes are callable at par on 14 November 2028
and every five years thereafter. If not called, the coupon from 14 November
2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65%
p.a. These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued £600m of 3.75%
dated subordinated notes. The notes are callable at par on 26 November 2029
and every five years thereafter. If not called, the coupon from 26 November
2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05%
p.a. These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated
subordinated notes. The notes are callable at par on 1 November 2030 and every
five years thereafter. If not called, the coupon from 1 November 2030 will be
reset to the prevailing five year benchmark gilt yield plus 5.25% p.a. These
notes mature on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own funds for
Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior
unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and
5.875%. These notes have various maturity dates between 2031 and 2041.
3.09 Operational borrowings
Carrying Interest Carrying Interest
amount rate Fair value amount rate Fair value
2022 2022 2022 2021 2021 2021
£m % £m £m % £m
Short-term operational borrowings
Euro Commercial Paper 50 1.60 50 50 0.16 50
Bank loans and overdrafts 3 - 3 - - -
Non-recourse borrowings
Cardiff Interchange Limited credit facility 64 5.63 64 45 2.29 45
CALA revolving credit facility 24 5.50 24 100 1.96 100
Class B Surplus Notes 788 6.62 788 664 1.72 664
Affordable Homes revolving credit facility 19 4.38 19 56 2.08 56
Homes Modular revolving credit facility 15 6.62 15 9 3.27 9
Operational borrowings(1) 963 - 963 924 - 924
1. Unit linked borrowings with a carrying value of £256m (31 December
2021: £8m) are excluded from the analysis above as the risk is retained by
policyholders. Operational borrowings including unit linked borrowings are
£1,219m (31 December 2021: £932m).
Syndicated credit facility
As at 31 December 2022, the group had in place a £1.5bn (31 December 2021:
£1.0bn) syndicated committed revolving credit facility provided by a number
of its key relationship banks, maturing in August 2027. No amounts were
outstanding at 31 December 2022.
3.10 Payables and other financial liabilities
2022 2021
£m £m
Derivative liabilities 51,190 15,718
Repurchase agreements(1) 31,533 46,331
Other financial liabilities(2) 12,329 12,215
Total payables and other financial liabilities 95,052 74,264
Due within 12 months 41,064 53,250
Due after 12 months 53,988 21,014
1. Repurchase agreements are presented gross, however they and their
related assets (included within debt securities) are subject to master netting
arrangements. The significant majority of repurchase agreements are unit
linked.
2. Other financial liabilities includes trail commission, lease
liabilities, FX spots and the value of short positions taken out to cover
reverse repurchase agreements. The value of short positions as at 31 December
2022 was £4,960m (2021: £5,418m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2022 £m £m £m £m £m
Derivative liabilities 51,190 448 50,717 25 -
Repurchase agreements 31,533 - 31,533 - -
Other financial liabilities 12,329 4,533 644 39 7,113
Total payables and other financial liabilities 95,052 4,981 82,894 64 7,113
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2021 £m £m £m £m £m
Derivative liabilities 15,718 331 15,316 71 -
Repurchase agreements 46,331 - 46,331 - -
Other financial liabilities 12,215 5,438 55 - 6,722
Total payables and other financial liabilities 74,264 5,769 61,702 71 6,722
1. The carrying value of payables and other financial liabilities at
amortised cost approximates its fair value.
Significant transfers between levels
There have been no significant transfers of liabilities between Levels 1, 2
and 3 for the year ended 31 December 2022 (2021: no significant transfers).
3.11 Sensitivity analysis
Impact on Impact on
pre-tax Impact on pre-tax Impact on
group profit group equity group profit group equity
net of net of net of net of
reinsurance reinsurance reinsurance reinsurance
2022 2022 2021 2021
£m £m £m £m
Economic sensitivity
100bps increase in interest rates (98) (66) 55 188
100bps decrease in interest rates 44 16 (195) (317)
50bps increase in future inflation expectations (45) (33) (41) (60)
50bps decrease in future inflation expectations 82 65 39 58
Credit spreads widen by 100bps with no change in expected defaults (345) (352) (311) (234)
25% rise in equity markets 381 316 513 423
25% fall in equity markets (381) (316) (513) (423)
15% rise in property values 1,177 974 1,299 1,084
15% fall in property values (1,233) (1,022) (1,368) (1,144)
10bps increase in credit default assumptions (545) (465) (765) (651)
10bps decrease in credit default assumptions 546 465 754 642
Non-economic sensitivity
1% increase in annuitant mortality 141 122 166 146
1% decrease in annuitant mortality (139) (121) (170) (150)
5% increase in assurance mortality (398) (315) (451) (357)
10% increase in maintenance expenses (224) (185) (254) (208)
The table above shows the impacts on group pre-tax profit and equity, net of
reinsurance, under each sensitivity scenario. The group pre-tax profit and
equity impacts may arise from asset and / or liability movements under the
sensitivities. The current disclosure reflects management's view of key risks
in current economic conditions.
In calculating the alternative values, all other assumptions are left
unchanged. In practice, items of the group's experience may be correlated.
The sensitivity analyses do not take into account management actions that
could be taken to reduce the impacts. The group seeks to actively manage its
asset and liability position. A change in market conditions may lead to
changes in the asset allocation or charging structure which may have a more,
or less, significant impact on the value of the liabilities. The analysis also
ignores any second order effects of the assumption change, including the
potential impact on the group asset and liability position and any second
order tax effects.
The sensitivity of profit to changes in assumptions may not be linear. They
should not be extrapolated to changes of a much larger order.
The change in interest rate stresses assume a 100 basis point
increase/decrease in the gross redemption yield on fixed interest securities
together with the same change in the real yields on variable securities.
Valuation interest rates are assumed to move in line with market yields,
adjusted to allow for prudence calculated in a manner consistent with the base
results.
The inflation stresses adopted are a 0.5% per annum (p.a.) increase / decrease
in inflation, resulting in a 0.5% p.a. reduction / rise in real yield and no
change to the nominal yield. In addition, the expense inflation rate is
increased / decreased by 0.5% p.a.
In the sensitivity for credit spreads, corporate bond yields have increased by
100bps, gilt and approved security yields unchanged, and there has been no
adjustment to the default assumptions. All lifetime mortgages are excluded, as
their primary exposure is to property risk, and therefore captured under the
property stress above.
The equity stresses are a 25% rise and 25% fall in listed equity market
values.
The property stresses adopted are a 15% rise and 15% fall in property market
values including lifetime mortgages. Rental income is assumed to be
unchanged. Where property is being used to back liabilities, valuation
interest rates move with property yields, and so the value of the liabilities
will also move.
The credit default assumption is set based on the credit rating of individual
bonds and their outstanding term using Moody's global credit default rates.
The credit default stress assumes a +/-10bps stress to the current unapproved
credit default assumption, which will have an impact on the valuation interest
rates used to discount liabilities. Other credit default allowances are
unchanged. All lifetime mortgages are excluded, as their primary exposure is
to property risk, and therefore captured under the property stress above.
3.11 Sensitivity analysis (continued)
The annuitant mortality stresses are a 1% increase and 1% decrease in the
mortality rates for immediate and deferred annuitants with no change to the
mortality improvement rates.
The assurance mortality stress is a 5% increase in the mortality and morbidity
rates with no change to the mortality and morbidity improvement rates.
The maintenance expense stress is a 10% increase in all types of maintenance
expense in future years.
3.12 Foreign exchange rates
Principal rates of exchange used for translation
are:
Year end exchange rates 2022 2021
United States dollar 1.21 1.35
Euro 1.13 1.19
Average exchange rates 2022 2021
United States dollar 1.24 1.38
Euro 1.17 1.16
3.13 Provisions
(a) Analysis of provisions
2022 2021
Notes £m £m
Other provisions 3.13(b) 273 213
Retirement benefit obligations 3.13(c) 617 1,025
Total provisions 890 1,238
(b) Other provisions
Included within Other provisions are amounts relating to new and existing
M&A and restructuring transactions. These include costs that Legal &
General Investment Management (LGIM) is committed to incur on the extension of
its existing partnership with State Street announced in 2021, to increase the
use of Charles River technology across the front office and to deliver middle
office services going forward. Costs include the transfer of data and
operations to State Street, as well as the implementation of the new operating
model. The amounts included in the provision have been determined on a best
estimate basis by reference to a range of plausible scenarios, taking into
account the multi-year implementation period for the project. As at 31
December 2022, the outstanding provision was £111m (31 December 2021: £89m).
(c) Retirement benefit obligations
Fund and CALA Homes Fund and CALA Homes
Scheme and Overseas Scheme and Overseas
2022 2022 2021 2021
£m £m £m £m
Gross pension obligations included in provisions 612 5 1,020 5
Annuity obligations insured by LGAS (718) - (990) -
Gross defined benefit pension (surplus)/deficit (106) 5 30 5
Deferred tax on defined benefit pension (surplus)/deficit 27 (1) (8) (1)
Net defined benefit pension (surplus)/deficit (79) 4 22 4
The Legal & General Group UK Pension and Assurance Fund (Fund) and the
Legal & General Group UK Senior Pension Scheme (Scheme) account for the
majority of the UK and worldwide assets of, and contributions to, such
arrangements. The Fund and Scheme were closed to future accrual on 31 December
2015.
3.14 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is
based on certain assumptions. The variance between actual experience from that
assumed may result in those liabilities differing from the provisions made for
them. Liabilities may also arise in respect of claims relating to the
interpretation of policyholder contracts, or the circumstances in which
policyholders have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and requirements of
the PRA, FCA, ombudsman rulings, industry compensation schemes and court
judgments.
Various group companies receive claims and become involved in actual or
threatened litigation and regulatory issues from time to time. The relevant
members of the group ensure that they make prudent provision as and when
circumstances calling for such provision become clear, and that each has
adequate capital and reserves to meet reasonably foreseeable eventualities.
The provisions made are regularly reviewed. It is not possible to predict,
with certainty, the extent and the timing of the financial impact of these
claims, litigation or issues.
Group companies have given warranties, indemnities and guarantees as a normal
part of their business and operating activities or in relation to capital
market transactions or corporate disposals. Legal & General Group Plc has
provided indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension Protection
Fund compliant guarantees in respect of certain group companies' liabilities
under the group pension Fund and Scheme. Legal and General Assurance Society
Limited has provided indemnities, a liquidity and expense risk agreement, a
deed of support and a cash and securities liquidity facility in respect of the
liabilities of group companies to facilitate the group's matching adjustment
reorganisation pursuant to Solvency II.
3.15 Related party transactions
(a) Key management personnel transactions and compensation
All transactions between the group and its key management are on commercial
terms which are no more favourable than those available to employees in
general. There were no material transactions between key management and the
Legal & General group of companies during the year. Contributions to the
post-employment defined benefit plans were £105m (2021: £109m) for all
employees.
At 31 December 2022 and 31 December 2021 there were no loans outstanding to
officers of the company.
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
2022 2021
£m £m
Salaries 11 10
Share-based incentive awards 6 5
Key management personnel compensation 17 15
(b) Services provided to and by related parties
All transactions between the group and associates, joint ventures and other
related parties during the year are on commercial terms which are no more
favourable than those available to companies in general.
The group has the following material related party transactions during the
year:
- Annuity contracts issued by Legal and General Assurance Society Limited
(LGAS), a group company, for consideration of £61m (2021: £82m) have been
purchased by the group's UK defined benefit pension schemes, priced on an
arm's length basis;
- Assured Payment Policies (APPs) have been transacted between the group's
defined benefit pension schemes and LGAS including £83m of top-ups in 2022
under the existing contracts. An APP is an investment contract product sold by
LGRI which, issued to a pension scheme, provides the scheme with a fixed or
inflation-linked schedule of payments to match the scheme's expected
liabilities. As at 31 December 2022, LGAS recognised a liability related to
the APP transactions of £820m (2021: £1,214m) which is included in the
group's investment contract liabilities. The UK defined benefit pension
schemes hold transferable plan assets of the same amounts, which do not
eliminate on consolidation.
Loans and commitments to related parties are made in the normal course of
business. As at 31 December 2022, the group had:
- Loans outstanding from related parties of £58m (2021: £15m), with a
further commitment of £6m; and
- Total other commitments of £1,265m to related parties (2021: £1,158m), of
which £1,010m has been drawn at 31 December 2022 (2021: £726m).
Asset and premium flows
4.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2022 £bn £bn £bn £bn £bn £bn
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows(3) 95.8 16.0 13.5 90.0 2.5 217.8
External outflows(3) (102.6) (23.5) (9.3) (27.2) (2.1) (164.7)
Overlay net flows - - - (3.5) - (3.5)
External net flows(4) (6.8) (7.5) 4.2 59.3 0.4 49.6
PRT transfers(5) (0.2) (0.4) - (2.5) - (3.1)
Internal net flows(6) (1.1) (0.4) (0.2) (1.2) 3.0 0.1
Total net flows (8.1) (8.3) 4.0 55.6 3.4 46.6
Market movements (50.2) (33.1) (8.1) (173.9) (6.2) (271.5)
Other movements(7) 0.6 (0.6) - (0.9) - (0.9)
As at 31 December 2022 444.7 156.8 73.9 485.9 34.4 1,195.7
Assets attributable to:
External 1,103.4
Internal 92.3
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2021 £bn £bn £bn £bn £bn £bn
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows(3) 99.4 18.7 15.1 34.4 1.7 169.3
External outflows(3) (94.5) (15.8) (8.1) (25.5) (1.8) (145.7)
Overlay net flows - - - 11.0 - 11.0
External net flows(4) 4.9 2.9 7.0 19.9 (0.1) 34.6
PRT transfers(5) (0.6) (0.7) - (2.9) - (4.2)
Internal net flows(6) (1.0) (1.8) 0.2 (1.5) 2.0 (2.1)
Total net flows 3.3 0.4 7.2 15.5 1.9 28.3
Market movements 68.7 1.8 5.1 8.6 2.8 87.0
Other movements(7) 0.5 3.0 - 23.8 - 27.3
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
Assets attributable to:
External 1,306.3
Internal 115.2
1. Assets under management (AUM) includes assets on our Investment Only
Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £336.6bn (31
December 2021: £383.2bn) of derivative notionals associated with the
Solutions business.
3. External inflows and outflows include £3.9bn (31 December 2021:
£5.5bn) of external investments and £3.3bn (31 December 2021: £3.0bn) of
redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31 December
2022 was £69.1bn (31 December 2021: £71.2bn).
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to
LGRI.
6. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
4.02 LGIM total assets under management(1) half-yearly progression
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2022 £bn £bn £bn £bn £bn £bn
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows(3) 63.2 7.0 6.8 21.3 1.4 99.7
External outflows(3) (38.2) (4.2) (3.7) (12.5) (1.1) (59.7)
Overlay net flows - - - 25.6 - 25.6
External net flows(4) 25.0 2.8 3.1 34.4 0.3 65.6
PRT transfers(5) - - - (0.4) - (0.4)
Internal net flows(6) (0.4) 0.2 - (0.7) 0.4 (0.5)
Total net flows 24.6 3.0 3.1 33.3 0.7 64.7
Market movements (57.8) (25.2) (8.0) (102.4) (1.9) (195.3)
Other movements(7) 0.4 1.6 - (3.2) - (1.2)
As at 30 June 2022 469.6 178.2 73.1 532.8 36.0 1,289.7
External inflows 32.6 9.0 6.7 68.7 1.1 118.1
External outflows (64.4) (19.3) (5.6) (14.7) (1.0) (105.0)
Overlay net flows - - - (29.1) - (29.1)
External net flows(4) (31.8) (10.3) 1.1 24.9 0.1 (16.0)
PRT transfers(5) (0.2) (0.4) - (2.1) - (2.7)
Internal net flows(6) (0.7) (0.6) (0.2) (0.5) 2.6 0.6
Total net flows (32.7) (11.3) 0.9 22.3 2.7 (18.1)
Market movements 7.6 (7.9) (0.1) (71.5) (4.3) (76.2)
Other movements(7) 0.2 (2.2) - 2.3 - 0.3
As at 31 December 2022 444.7 156.8 73.9 485.9 34.4 1,195.7
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2021 £bn £bn £bn £bn £bn £bn
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows(3) 47.8 10.0 4.9 20.2 0.6 83.5
External outflows(3) (43.1) (7.7) (3.1) (8.0) (0.8) (62.7)
Overlay net flows - - - 6.6 - 6.6
External net flows(4) 4.7 2.3 1.8 18.8 (0.2) 27.4
PRT transfers(5) (0.4) (0.5) - (2.8) - (3.7)
Internal net flows(6) (0.3) (2.3) 0.1 (0.2) 1.0 (1.7)
Total net flows 4.0 (0.5) 1.9 15.8 0.8 22.0
Market movements 37.9 (4.3) 4.2 (19.2) 0.4 19.0
Other movements(7) (0.4) 1.3 - 6.0 - 6.9
As at 30 June 2021 471.4 190.1 71.8 559.8 33.7 1,326.8
External inflows(3) 51.6 8.7 10.2 14.2 1.1 85.8
External outflows(3) (51.4) (8.1) (5.0) (17.5) (1.0) (83.0)
Overlay net flows - - - 4.4 - 4.4
External net flows(4) 0.2 0.6 5.2 1.1 0.1 7.2
PRT transfers(5) (0.2) (0.2) - (0.1) - (0.5)
Internal net flows(6) (0.7) 0.5 0.1 (1.3) 1.0 (0.4)
Total net flows (0.7) 0.9 5.3 (0.3) 1.1 6.3
Market movements 30.8 6.1 0.9 27.8 2.4 68.0
Other movements(7) 0.9 1.7 - 17.8 - 20.4
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
1. Assets under management (AUM) includes assets on our Investment Only
Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £336.6bn (30 June
2022: £386.9bn; 31 December 2021: £383.2bn) of derivative notionals
associated with the Solutions business.
3. External inflows and outflows include £3.9bn (30 June 2022: £2.3bn;
31 December 2021: £5.5bn) of external investments and £3.3bn (30 June 2022:
£2.0bn; 31 December 2021: £3.0bn) of redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31 December
2022 was £69.1bn (30 June 2022: £68.8bn; 31 December 2021: £71.2bn).
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to
LGRI.
6. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
4.03 LGIM total external assets under management and net flows
Assets under management at Net flows for the six months ended(1)
31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June
2022 2022 2021 2021 2022 2022 2021 2021
£bn £bn £bn £bn £bn £bn £bn £bn
International(2) 363.6 377.0 377.3 344.8 (13.1) 34.5 14.5 15.0
UK Institutional
- Defined contribution 135.2 129.7 137.7 125.5 4.6 7.0 5.0 4.4
- Defined benefit 547.8 630.1 733.3 689.6 (10.0) 22.4 (13.9) 4.6
Wholesale(3) 48.3 45.5 49.1 45.5 2.2 1.4 1.2 1.3
ETF(4) 8.5 8.4 8.9 8.2 0.3 0.3 0.4 2.1
Total external 1,103.4 1,190.7 1,306.3 1,213.6 (16.0) 65.6 7.2 27.4
1. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to a higher
degree of variability.
2. International assets are shown on the basis of client domicile. Total
International AUM including assets managed internationally on behalf of UK
clients amounted to £441bn as at 31 December 2022 (31 December 2021:
£479bn).
3. Wholesale represents assets from the Retail Intermediary business and
£0.3bn of assets from Personal Investing customers that did not migrate to
Fidelity International Limited.
4. ETF reflects external AUM and Flows invested on the platform. Total
AUM managed on the platform is £10.2bn ($12.3bn) in 2022 (£10.1bn ($13.7bn)
in 2021) and Flows are £1.0bn ($1.3bn) (£2.9bn ($3.9bn) in 2021) which
include internal investment from other LGIM asset classes.
4.04 Reconciliation of assets under management to Consolidated Balance Sheet
2022 2021
£bn £bn
Assets under management(1) 1,196 1,421
Derivative notionals(1,2) (337) (383)
Third party assets(1,3) (412) (480)
Other(1,4) 44 7
Total financial investments, investment property and cash and cash equivalents 491 565
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others
which are not included on the group's Consolidated Balance Sheet.
4. Other includes assets that are managed by third parties on behalf of
the group, other assets and liabilities related to financial investments,
derivative assets and pooled funds.
4.05 Assets under administration
Workplace(1) Annuities(2) Workplace(1) Annuities(2)
2022 2022 2021 2021
£bn £bn £bn £bn
As at 1 January 65.7 89.9 50.8 87.0
Gross inflows 10.7 10.7 11.9 8.7
Gross outflows (3.4) - (3.4) -
Payments to pensioners - (5.0) - (4.6)
Net flows 7.3 5.7 8.5 4.1
Market and other movements (6.4) (23.2) 6.4 (1.2)
As at 31 December 66.6 72.4 65.7 89.9
1. Workplace assets under administration as at 31 December 2022 includes
£66.4bn (2021: £65.6bn) of assets under management included in Note 4.01.
2. Annuities assets under administration as at 31 December 2022 includes
£63.8bn (2021: £80.6bn) of assets under management included in Note 4.01.
4.06 Assets under administration half-yearly progression
Workplace Annuities Workplace Annuities
2022 2022 2021 2021
£bn £bn £bn £bn
As at 1 January 65.7 89.9 50.8 87.0
Gross inflows 6.1 5.0 7.5 3.7
Gross outflows (1.8) - (1.5) -
Payments to pensioners - (2.4) - (2.2)
Net flows 4.3 2.6 6.0 1.5
Market and other movements (6.9) (13.7) 3.4 (2.7)
As at 30 June 63.1 78.8 60.2 85.8
Gross inflows 4.6 5.7 4.4 5.0
Gross outflows (1.6) - (1.9) -
Payments to pensioners - (2.6) - (2.4)
Net flows 3.0 3.1 2.5 2.6
Market and other movements 0.5 (9.5) 3.0 1.5
As at 31 December 66.6 72.4 65.7 89.9
4.07 LGRI new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
UK(1) 7,319 3,604 3,715 6,240 3,275 2,965
US 1,763 1,170 593 789 682 107
Bermuda 459 318 141 147 147 -
Total LGRI new business 9,541 5,092 4,449 7,176 4,104 3,072
1. UK includes £93m (H1 22: £nil; H2 22: £93m) (H1 21: £925m; H2 21:
£nil) of Assured Payment Policies (APPs).
4.08 Retail new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Individual annuities 954 501 453 957 474 483
Lifetime mortgage loans and retirement interest only mortgages 632 294 338 848 434 414
Total Retail Retirement new business 1,586 795 791 1,805 908 897
UK Retail protection 171 86 85 200 95 105
UK Group protection 107 44 63 88 33 55
US protection(1) 104 56 48 91 48 43
Total Insurance new business 382 186 196 379 176 203
Total Retail new business 1,968 981 987 2,184 1,084 1,100
1. In local currency, US protection reflects new business of $129m for
2022 (H1 22: $62m; H2 22: $67m), and $124m for 2021 (H1 21: $59m; H2 21:
$65m).
4.09 Gross written premiums on insurance business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
UK Retail protection 1,485 745 740 1,444 730 714
UK Group protection 427 136 291 405 131 274
US protection(1) 1,222 648 574 1,053 541 512
Longevity insurance 309 155 154 307 155 152
Total gross written premiums on insurance business 3,443 1,684 1,759 3,209 1,557 1,652
1. In local currency, US protection reflects gross written premiums of
$1,512m for 2022 (H1 22: $746m; H2 22: $766m), and $1,449m for 2021 (H1 21:
$712m; H2 21: $737m).
Capital
5.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the Solvency II
Framework Directive, as adopted by the Prudential Regulation Authority (PRA)
in the UK, and measures and monitors its capital resources on this basis.
The Solvency II results are estimated and unaudited. Further explanation of
the underlying methodology and assumptions are set out in the sections below.
The group calculates its Solvency II capital requirements using a Partial
Internal Model.
The table below shows the group's Own Funds, Solvency Capital Requirement
(SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching
Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 31
December 2022.
(a) Capital position
As at 31 December 2022, and on the above basis, the group had a surplus of
£9,915m (31 December 2021: £8,185m) over its Solvency Capital Requirement,
corresponding to a Solvency II capital coverage ratio of 236% (31 December
2021: 187%). The Solvency II capital position is as follows:
2022 2021
£m £m
Unrestricted Tier 1 Own Funds 13,393 13,254
Restricted Tier 1 Own Funds(1) 495 495
Tier 2 Subordinated liabilities 3,448 3,995
Eligibility restrictions (110) (183)
Solvency II Own Funds(2,3) 17,226 17,561
Solvency Capital Requirement (7,311) (9,376)
Solvency II surplus 9,915 8,185
SCR Coverage ratio 236% 187%
1. Restricted Tier 1 Own Funds represent perpetual restricted Tier 1
contingent convertible notes.
2. Solvency II Own Funds do not include an accrual for the final
dividend of £829m (31 December 2021: £790m) declared after the balance sheet
date.
3. Solvency II Own Funds allow for a Risk Margin of £2,753m (31
December 2021: £5,488m) and TMTP of £2,136m (31 December 2021: £4,736m).
5.01 Group regulatory capital - Solvency II (continued)
(b) Methodology
Own Funds comprise the excess of the value of assets over the liabilities, as
valued on a Solvency II basis. Subordinated debt issued by the group is
considered to be part of available capital, rather than a liability, as it is
subordinate to policyholder claims. Own Funds include deductions in relation
to fungibility and transferability restrictions, to the extent that the
surplus Own Funds of a specific group entity cannot be freely transferred
around the group due to local legal or regulatory constraints.
Assets are valued at IFRS fair value with adjustments to remove intangibles
and deferred acquisition costs, and to value reassurers' share of technical
provisions on a basis consistent with the liabilities on the Solvency II
balance sheet.
Liabilities are valued on a best estimate market consistent basis, with the
application of a Solvency II Matching Adjustment for valuing annuity
liabilities. Own Funds incorporate changes to the Internal Model and Matching
Adjustment during 2022 and the impacts of a recalculation of the TMTP as at
end December 2022. The recalculated TMTP of £2,136m (31 December 2021:
£4,736m) is net of amortisation to 31 December 2022.
The liabilities include a Risk Margin of £2,753m (31 December 2021: £5,488m)
which represents an allowance for the cost of capital for a purchasing insurer
to take on the portfolio of liabilities and residual risks that are deemed to
be non-hedgeable under Solvency II. This is calculated using a cost of capital
of 6% as prescribed by the Solvency II regulations.
The Solvency Capital Requirement is the amount of capital required to cover
the 1-in-200 worst projected future outcome in the year following the
valuation, allowing for realistic management and policyholder actions and the
impact of the stress on the tax position of the group. This allows for
diversification between the different firms within the group and between the
risks to which they are exposed.
All material EEA insurance firms, including Legal and General Assurance
Society Limited (LGAS) and Legal and General Assurance (Pensions Management)
Limited, are incorporated into the group's Solvency II Internal Model
assessment of required capital, assuming diversification of the risks between
and within those firms. These firms, as well as the non-EEA insurance firm
(Legal & General Reinsurance Company Limited (L&G Re) based in
Bermuda) contribute over 90% of the group's SCR.
Insurance firms for which the capital requirements are less material are
valued on a Solvency II Standard Formula basis. Firms which are not regulated
but which carry material risks to the group's solvency are modelled in the
Internal Model on the basis of applying an appropriate stress to their net
asset value.
Legal & General America's insurance entities (LGA) are incorporated into
the calculation of group solvency using a Deduction & Aggregation
(D&A) basis. All risk exposure in these firms is valued on a local
statutory basis, with capital requirements set to a multiple of local
statutory Risk Based Capital (RBC) and further restrictions on the surplus
contribution to the group. The US regulatory regime is considered to be
equivalent to Solvency II by the European Commission. The contribution to
group SCR is 150% of the local Company Action Level RBC (CAL RBC). The
contribution to group's Own Funds is the SCR together with any surplus capital
in excess of 250% of CAL RBC.
Legal & General Reinsurance Company No.2 Limited (L&G Re 2) and Legal
& General America Reinsurance Limited (a new subsidiary incorporated in
2022) are also incorporated into the calculation of group solvency using a
D&A basis. All risk exposure in these firms is valued on a Bermudan
capital basis, with capital requirements set equal to the Bermudan capital
requirement and Own Funds contribution restricted by 20% of the capital. The
Bermuda regulatory regime is also considered to be equivalent to Solvency II
by the European Commission.
All non-insurance regulated firms are included using their current regulatory
surplus.
Allowance is made within the Solvency II balance sheet for the group's defined
benefit pension schemes using results on an IFRS basis. Within the SCR an
allowance is made by stressing the IFRS position using the same Internal Model
basis as for the insurance firms.
(c) Assumptions
The calculation of the Solvency II balance sheet and associated capital
requirements requires a number of assumptions, including:
i. Demographic assumptions required to project best estimate
liability cash flows are consistent with those underlying the group's IFRS
disclosures, but with the removal of any prudence margins.
ii. Future investment returns and discount rates to derive the present
value of best estimate liability cash flows are those defined by the PRA. The
risk-free rates used to discount UK Sterling cashflows are SONIA-based market
swap rates. For non-UK Sterling liabilities, the risk-free rates used to
discount cash flows include a credit risk adjustment that varies by currency.
iii. For annuities that are eligible, the liability discount rate
includes a Matching Adjustment. This Matching Adjustment varies between LGAS
and L&G Re and by the currency of the relevant liabilities. At 31 December
2022 the Matching Adjustment for UK Sterling was 141 basis points (31 December
2021: 104 basis points) after deducting an allowance for the fundamental
spread equivalent to 55 basis points (31 December 2021: 54 basis points).
iv. Assumptions regarding management actions and policyholder behaviour
across the full range of scenarios. The only management actions allowed for
are those that have been approved by the Board and are in place at the balance
sheet date.
v. Assumptions regarding the volatility of the risks to which the
group is exposed. Assumptions have been set using a combination of historic
market, demographic and operating experience data. In areas where data is not
considered robust, expert judgement has been used.
vi. Assumptions on the dependencies between risks, which are calibrated
using a combination of historic data and expert judgement.
5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change
Operational Surplus Generation (OSG) is the expected surplus generated from
the assets and liabilities in force at the start of the year. It is based on
assumed real world returns and best estimate non-market assumptions. It
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the year.
New Business Strain is the cost of acquiring business and setting up Technical
Provisions and SCR (net of any premium income), on actual new business written
over the year. It is based on economic conditions at the point of sale.
The table below shows the movement (net of tax) during the year ended 31
December 2022 in the group's Solvency II surplus.
2022 2022 2022
Own Funds SCR Surplus
£m £m £m
Opening position 17,561 (9,376) 8,185
Operational Surplus Generation(1) 1,409 396 1,805
New business strain 333 (685) (352)
Net surplus generation 1,742 (289) 1,453
Operating variances(2) (327)
Market movements(3) 1,720
M&A, portfolio and business transfers -
Subordinated liabilities -
Dividends paid(4) (1,116)
Total surplus movement (after dividends paid in the year) (335) 2,065 1,730
Closing position 17,226 (7,311) 9,915
1. Operational Surplus Generation includes a £358m release of Risk
Margin and £(342)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Market movements represent the impact of changes in investment market
conditions during the year and changes to future economic assumptions. The
movement during the year primarily reflects the impact of rising rates on the
valuation of the balance sheet, partially offset by weaker asset markets,
predominantly in equities, credit spread dispersion in sub-investment grade
assets, as well as a number of other, smaller variances.
4. Dividends paid are the amounts from the 2021 final dividend and the
2022 interim dividend.
5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change (continued)
The table below shows the movement (net of tax) during the year ended 31
December 2021 in the group's Solvency II surplus.
2021 2021 2021
Own Funds SCR Surplus
£m £m £m
Opening position 17,316 (9,880) 7,436
Operational Surplus Generation(1) 1,144 492 1,636
New business strain 330 (684) (354)
Net surplus generation 1,474 (192) 1,282
Operating variances(2) 26
Market movements(3) 727
M&A, portfolio and business transfers(4) 77
Subordinated liabilities(5) (300)
Dividends paid(6) (1,063)
Total surplus movement (after dividends paid in the year) 245 504 749
Closing position 17,561 (9,376) 8,185
1. Operational Surplus Generation includes a £612m release of Risk
Margin and £(433)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Market movements represent the impact of changes in investment market
conditions over the year and changes to future economic assumptions.
4. M&A, portfolio and business transfers include the impact of the
sale of the Personal Investment business.
5. Subordinated liabilities reflect the redemption of £300m debt issued
in 2009.
6. Dividends paid are the amounts from the 2020 final dividend and the
2021 interim dividend.
(e) Future Solvency II surplus generation - UK annuities
The table below shows a projection of future OSG expected from the £66.2bn
(2021: £85.7bn) UK annuity portfolio as at 31 December 2022. The projection
excludes any allowance for future new business.
The table shows the OSG from all of the group's divisions that are involved in
the management of the annuity business, i.e. Retail, Legal & General
Capital and Legal & General Investment Management. The impact of
management actions is excluded; we expect management actions to contribute up
to £200m each year.
Total
2022 2023 2024 2025 2026 2027-2031 2032-2040 2022-2040
£bn £bn £bn £bn £bn £bn £bn £bn
Annuity back book OSG(1) 0.7 0.6 0.6 0.6 0.5 2.3 4.7 10.0
L&G Other 0.2 0.2 0.2 0.2 0.1 0.6 0.7 2.2
Total OSG for UK Annuity back book 0.9 0.8 0.8 0.8 0.6 2.9 5.4 12.2
1. Annuity back book OSG does not include new business.
5.01 Group regulatory capital - Solvency II (continued)
(f) Reconciliation of IFRS Release from operations to Solvency II Operational
surplus generation
(i) The table below provides a reconciliation of the group's IFRS Release from
operations to Solvency II OSG:
2022 2021
£m £m
IFRS Release from operations 1,625 1,441
Expected release of IFRS prudential margins (577) (496)
Releases of IFRS specific reserves(1) (158) (162)
Solvency II investment margin(2,3) 198 213
Release of Solvency II Capital Requirement and Risk Margin less TMTP 717 640
amortisation
Solvency II Operational surplus generation(4) 1,805 1,636
1. Release of prudence from IFRS specific reserves which are not
included in Solvency II (e.g. long-term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined
Fundamental Spread and the prudent IFRS default assumption.
3. Expected market returns earned on LGRI's free assets in excess of
risk-free rates over 2022.
4. Solvency II OSG includes management actions which at the start of
2022 were reasonably expected to be implemented over the year.
(ii) The table below provides a reconciliation of the group's IFRS New
business surplus to Solvency II New business strain:
2022 2021
£m £m
IFRS New business surplus 294 247
Removal of requirement to set up prudential margins above best estimate on new 222 280
business
Set up of SCR on new business (685) (684)
Set up of Risk Margin on new business (183) (197)
Solvency II New business strain(1) (352) (354)
1. UK PRT PVNBP during 2022 was £6.5bn (2021: £6.1bn).
(g) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own Funds is given
below:
( ) ( ) ( ) 2022 2021
( ) ( ) ( ) £m £m
IFRS equity(1) 12,168 10,981
Remove DAC, goodwill and other intangible assets and associated liabilities (502) (406)
Add IFRS carrying value of subordinated borrowings(2) 3,823 3,700
Insurance contract valuation differences(3) 2,518 4,132
Difference in value of net deferred tax liabilities (608) (716)
Other (63) 53
Eligibility restrictions (110) (183)
Solvency II Own Funds(4) 17,226 17,561
1. IFRS equity represents equity attributable to owners of the parent
and restricted Tier 1 convertible debt note as per the Consolidated Balance
Sheet.
2. The IFRS carrying value of subordinated borrowings are treated as
available capital on the Solvency II balance sheet as the liabilities are
subordinate to policyholder claims.
3. Insurance contract valuation differences are differences in the
measurement of technical provisions between IFRS and Solvency II.
4. Solvency II Own Funds do not include an accrual for the final
dividend of £829m (31 December 2021: £790m) declared after the balance sheet
date.
5.01 Group regulatory capital - Solvency II (continued)
(h) Sensitivity analysis
The following sensitivities are provided to give an indication of how the
group's Solvency II surplus as at 31 December 2022 would have changed in a
variety of adverse events. These are all independent stresses to a single
risk. In practice, the balance sheet is impacted by combinations of stresses
and the combined impact can be larger than adding together the impacts of the
same stresses in isolation. It is expected that, particularly for market
risks, adverse stresses will happen together.
Impact on Impact on Impact on Impact on
net of tax net of tax net of tax net of tax
Solvency II Solvency II Solvency II Solvency II
capital coverage capital coverage
surplus ratio surplus ratio
2022 2022 2021 2021
£bn % £bn %
100bps increase in risk-free rates(1) 0.5 18 0.9 19
100bps decrease in risk-free rates(1,2) (0.6) (19) (1.3) (22)
Credit spreads widen by 100bps assuming an escalating addition to ratings(3,4) 0.3 13 0.6 13
Credit spreads narrow by 100bps assuming an escalating deduction from (0.4) (16) (0.6) (14)
ratings(3,4)
Credit spreads widen by 100bps assuming a flat addition to ratings(3) 0.3 14 0.7 14
Credit spreads of sub investment grade assets widen by 100bps assuming a level (0.3) (7) (0.4) (7)
addition to ratings(3,5)
Credit migration(6) (0.8) (10) (0.9) (10)
25% fall in equity markets(7) (0.4) (3) (0.5) (3)
15% fall in property markets(8) (0.9) (11) (0.8) (7)
50bps increase in future inflation expectations(1) (0.1) (3) - (2)
10% increase in maintenance expenses(9) (0.3) (4) (0.3) (3)
Substantially reduced Risk Margin(10) 0.5 7 0.6 7
1. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e.
there is no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond (and
similar) holdings, with no change in long-term default expectations, post
management actions. Restructured lifetime mortgages are excluded as the
underlying exposure is mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it
is three times, for BBB four times and so on, such that the weighted average
spread stress for the portfolio is 100 basis points. To give a 100bps increase
on the total portfolio, the spread stress increases in steps of 32bps, i.e.
32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below
the stress is 100bps. The spread widening on the total portfolio is 2bps as
the group holds less than 2% in bonds rated BB and below. The impact is
primarily an increase in SCR arising from the modelled cost of trading
downgraded bonds back to a higher rating in the stress scenarios in the SCR
calculation.
6. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends on a credit
rating (including corporate bonds, and sale and leaseback rental strips;
lifetime mortgage senior notes are excluded). Downgraded assets in our
annuities portfolio are assumed to be traded to their original credit rating,
so the impact is primarily a reduction in Own Funds from the loss of value on
downgrade. The impact of the sensitivity will depend upon the market levels of
spreads at the balance sheet date.
7. This relates primarily to equity exposure in LGC but will also
include equity-based mutual funds and other investments that receive an equity
stress (for example, certain investments in subsidiaries). Some assets have
factors that increase or decrease the stress relative to general equity levels
via a beta factor.
8. Assets stressed include residual values from sale and leaseback, the
full amount of lifetime mortgages and direct investments treated as property.
9. A 10% increase in the assumed unit costs and future costs of
investment management across all long-term insurance business.
10. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an
equivalent reduction in the Transitional Measure on Technical Provisions.
The above sensitivity analysis does not reflect all management actions which
could be taken to reduce the impacts. In practice, the group actively manages
its asset and liability positions to respond to market movements. Other than
in the interest rate and inflation stresses, we have not allowed for the
recalculation of TMTP. Allowance is made for the recalculation of the Loss
Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity
remains available post stress.
The impacts of these stresses are not linear therefore these results should
not be used to interpolate or extrapolate the impact of a smaller or larger
stress. The results of these tests are indicative of the market conditions
prevailing at the balance sheet date. The results would be different if
performed at an alternative reporting date.
5.01 Group regulatory capital - Solvency II (continued)
(i) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type. The split
is shown before the effects of diversification and tax.
2022 2021
% %
Interest rate ( ) 3 4
Equity ( ) 6 5
Property ( ) 12 8
Credit(1) 27 25
Currency ( ) 2 2
Inflation 5 7
Total Market risk(2) 55 51
Counterparty risk ( ) 2 4
Life mortality ( ) 3 2
Life longevity(3) 18 27
Life mass lapse ( ) 3 2
Life non-mass lapse 2 2
Life catastrophe ( ) 6 4
Expense ( ) 3 2
Total Insurance risk ( ) 35 39
Non-life underwriting - -
Operational risk ( ) 5 4
Miscellaneous(4) 3 2
Total SCR 100 100
1. Credit risk is one of the group's most significant exposures, arising
predominantly from the portfolio of bonds and bond-like assets backing the
group's annuity business.
2. In addition to credit risk the group also has significant exposure to
other market risks, primarily due to the investment holdings within the
shareholder funds but also the risk to fee income from assets backing unit
linked business.
3. Longevity risk is the group's most significant insurance risk
exposure, arising from the annuity book on which the majority of the longevity
risk on the back-book is retained. However, we expect this to reduce over time
as we continue to reinsure the majority of the exposure on the new business
written post the implementation of Solvency
II. Longevity SCR reduced significantly
over the year as a result of the increase in risk-free rates.
4. Miscellaneous includes LGA and L&G Re 2 on a Deduction and
Aggregation basis and the sectoral capital requirements for non-insurance
regulated firms.
5.02 Estimated Solvency II new business contribution
(a) New business by product(1)
Management estimates of the present value of new business premium (PVNBP) and
the margin for selected lines of business are provided below:
Contribution Contribution
from new from new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
2022 2022 2022 2021 2021 2021
£m £m % £m £m %
LGRI - UK annuity business 6,484 575 8.9 6,059 574 9.5
Retail Retirement - UK annuity business 954 60 6.3 957 61 6.4
UK Protection Total 1,512 82 5.4 1,883 149 7.9
- Retail Protection 1,073 51 4.7 1,476 120 8.1
- Group Protection 439 31 7.0 407 29 7.1
US Protection(5) 796 84 10.6 842 113 13.4
1. New business includes selected lines of business only.
2. PVNBP is net of quota share reinsurance single premium of £835m (31
December 2021: £181m) relating to LGRI new business.
3. The contribution from new business is defined as the present value at
the point of sale of expected future Solvency II surplus emerging from new
business written in the year using the risk discount rate applicable at the
end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US protection business reflects PVNBP of $985m (31
December 2021: $1,159m) and a contribution from new business of $104m (31
December 2021: $155m).
The decrease in the LGRI margin was driven by a shorter average duration for
schemes written in 2022 compared to the schemes written in 2021.
The UK Protection margin decrease was driven by changes in the expense ratio,
movements in product mix and changes in market conditions in 2022.
The US Protection business margin, whilst remaining strong, reduced compared
to 2021. The decrease was driven by product and premium rate changes.
5.02 Estimated Solvency II new business contribution
(continued)
(b) Assumptions
The key economic assumptions are as follows:
2022 2021
% %
Margin for Risk 4.4 4.1
Risk-free rate
- UK 3.6 0.9
- US 3.9 1.5
Risk discount rate (net of tax)
- UK 8.0 5.0
- US 8.3 5.6
Long-term rate of return on annuities 5.7 2.5
The future earnings are discounted using duration-based discount rates, which
is the sum of a duration-based risk-free rate and a flat margin for risk. The
risk-free rates have been based on a swap curve net of the PRA-specified
Credit Risk Adjustment. The risk-free rate shown above is a weighted average
based on the projected cash flows.
Other than updating for recent experience, all other economic and non-economic
assumptions and methodologies that would have a material impact on the margin
for these contracts are unchanged from those previously used by the group for
its European Embedded Value reporting, other than the cost of currency hedging
which has been updated to reflect current market conditions and hedging
activity in light of Solvency II. In particular:
• The assumed future pre-tax returns on fixed interest and RPI-linked
securities are set by reference to the portfolio yield on the relevant backing
assets held at market value at the end of the reporting period. The calculated
return takes account of derivatives and other credit instruments in the
investment portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account of the
credit rating and the outstanding term of the assets. The allowance for
corporate and other unapproved credit asset defaults within the new business
contribution is calculated explicitly for each bulk annuity scheme written,
and the weighted average deduction for business written in 2022 equates to a
level rate deduction from the expected returns for the overall annuities
portfolio of 19 basis points.
• Non-economic assumptions have been set at levels commensurate with
recent operating experience, including those for mortality, morbidity,
persistency and maintenance expenses (excluding development costs). An
allowance is made for future mortality improvement. For new business,
mortality assumptions may be modified to take certain scheme specific features
into account.
The profits on the new business are presented gross of tax.
5.02 Estimated Solvency II new business contribution
(continued)
(c) Methodology
Basis of preparation
Solvency II new business contribution reflects the portion of Solvency II
value added by new business written in the period. It has been calculated in a
manner consistent with principles and methodologies as set out in the group's
2022 Annual Report and Accounts.
Solvency II new business contribution has been calculated for the group's most
material insurance-related businesses, namely, LGRI, Retail Retirement and
Insurance.
Intra-group reinsurance arrangements are in place between US, UK and Bermudan
businesses and it is expected that these arrangements will be periodically
extended to cover recent new business. The US protection new business margin
assumes that the new business will continue to be reinsured in 2022 and looks
through the intra-group arrangements.
Description of methodology
The objective of the Solvency II new business contribution is to provide
shareholders with information on the long-term contribution of new business
written in 2022.
The Solvency II new business contribution has been calculated as the present
value of future shareholder profits arising from business written in 2022.
Cash flow projections are determined using best estimate assumptions for each
component of cash flow and for each policy group. Best estimate assumptions
including mortality, morbidity, persistency and expenses reflect recent
operating experience.
The PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the calculation of the
new business contribution for the financial period.
The new business margin is defined as new business contribution divided by the
PVNBP. The premium volumes used to calculate the PVNBP are the same as those
used to calculate new business contribution.
LGA is consolidated into the group solvency balance sheet on a US Statutory
solvency basis. Intra-group reinsurance arrangements are in place between US,
UK and Bermudan businesses and it is expected that these arrangements will be
periodically extended to cover future new business. The LGA new business
margin looks through the intra-group arrangements.
Projection assumptions
Cash flow projections are determined using best estimate assumptions for each
component of cash flow for each line of business. Future economic and
investment return assumptions are based on conditions at the end of the
financial period.
Detailed projection assumptions including mortality, morbidity, persistency
and expenses reflect recent operating experience and are normally reviewed
annually. Allowance is made for future improvements in annuitant mortality
based on experience and externally published data. Favourable changes in
operating experience are not anticipated until the improvement in experience
has been observed.
All costs relating to new business, even if incurred elsewhere in the group,
are allocated to the new business. The expense assumptions used for the cash
flow projections therefore include the full cost of servicing this business.
Tax
The projections take into account all tax which is expected to be paid, based
on best estimate assumptions, applying current legislation and practice
together with substantively enacted future changes.
Risk discount rate
The risk discount rate (RDR) is duration-based and is a combination of the
risk-free curve and a flat Margin for Risk.
The GBP risk-free rates have been based on a SONIA-based swap curve with no
Credit Risk Adjustment. The USD swap curve includes a credit risk adjustment
of 10 basis points (2021: credit risk adjustment of 10 basis points)
The Margin for Risk has been determined based on an assessment of the group's
Weighted Average Cost of Capital (WACC). This assessment incorporates a beta
for the group, which measures the correlation of movements in the group's
share price to movements in a relevant index. Beta values therefore allow for
the market's assessment of the risks inherent in the business relative to
other companies in the chosen index.
5.02 Estimated Solvency II new business contribution
(continued)
(c) Methodology (continued)
The WACC is derived from the group's cost of equity, cost of debt, and the
proportion of equity to debt in the group's capital structure measured using
market values. Each of these three parameters is forward looking, although
informed by historic information and appropriate judgements where necessary.
The cost of equity is calculated as the risk-free rate plus the equity risk
premium for the chosen index multiplied by the company's beta.
The cost of debt used in the WACC calculations takes account of the actual
locked-in rates for our senior and subordinated long-term debt. All debt
interest attracts tax relief at a time adjusted rate of 25% (31 December 2021:
24%).
Whilst the WACC approach is a relatively simple and transparent calculation to
apply, subjectivity remains within a number of the assumptions. Management
believes that the chosen margin, together with the levels of required capital
and the inherent strength of the group's regulatory reserves, is appropriate
to reflect the risks within the covered business.
(d) Reconciliation of PVNBP to gross written premium
2022 2021
Notes £bn £bn
PVNBP 5.02(a) 9.7 9.7
Effect of capitalisation factor ( ) (1.5) (2.1)
New business premiums from selected lines 8.2 7.6
Other(1) 3.3 1.8
Total LGRI and Retail new business 4.07,4.08 11.5 9.4
Annualisation impact of regular premium long-term business ( ) (0.2) (0.2)
IFRS gross written premiums from existing long-term insurance business ( ) 3.5 3.3
Deposit accounting for investment products (1.1) (2.1)
Total gross written premiums(2) 13.7 10.4
1. Other principally includes annuity sales in the US, lifetime mortgage
loans and retirement interest only mortgages, and quota share reinsurance
premiums.
2. Total gross written premiums include £118m (2021: £109m) of gross
written premiums relating to a residual reinsurance treaty following the
disposal of the General Insurance business in 2019.
Investments
6.01 Investment portfolio
Market Market
value value
2022 2021
£m £m
Worldwide total assets under management(1) 1,202,676 1,426,462
Client and policyholder assets (1,073,126) (1,309,772)
Investments to which shareholders are directly exposed 129,550 116,690
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
Analysed by investment class:
Other
Annuity(1) LGC(2) shareholder
investments investments investments Total Total
2022 2022 2022 2022 2021
Notes £m £m £m £m £m
Equities 95 2,576 400 3,071 3,185
Bonds 6.03 66,825 1,249 2,589 70,663 86,803
Derivative assets(3) 41,641 337 - 41,978 13,203
Property 6.04 5,037 607 - 5,644 5,710
Loans(4) 785 238 77 1,100 2,332
Financial investments 114,383 5,007 3,066 122,456 111,233
Cash and cash equivalents 2,631 1,418 785 4,834 3,596
Other assets(5) 110 2,133 17 2,260 1,861
Total investments 117,124 8,558 3,868 129,550 116,690
1. Annuity investments includes products held within the LGRI and Retail
Retirement portfolios including lifetime mortgage loans and retirement
interest only mortgages.
2. LGC investments includes £95m (2021: £nil) of Legal & General
Reinsurance Company Limited's assets managed by LGC, along with £122m (31
December 2021: £54m) of bonds and equities that belong to other shareholder
funds.
3. Derivative assets are shown gross of derivative liabilities of
£46.1bn (31 December 2021: £14.1bn). Exposures arise from use of derivatives
for efficient portfolio management, especially the use of interest rate swaps,
inflation swaps, currency swaps and foreign exchange forward contracts for
assets and liability management.
4. Loans include reverse repurchase agreements of £1,072m (31 December
2021: £2,240m).
5. Other assets include finance leases of £110m (31 December 2021:
£86m), associates and joint ventures of £554m (31 December 2021: £375m) and
the consolidated net asset value of the group's investments in CALA Homes and
other housing businesses.
6.02 Direct investments
(a) Total investments analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2)
investments securities Total investments securities Total
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Equities 1,704 1,367 3,071 1,248 1,937 3,185
Bonds(3) 22,070 48,593 70,663 24,237 62,566 86,803
Derivative assets - 41,978 41,978 - 13,203 13,203
Property(4) 5,644 - 5,644 5,710 - 5,710
Loans - 1,100 1,100 63 2,269 2,332
Financial investments 29,418 93,038 122,456 31,258 79,975 111,233
Cash and cash equivalents 56 4,778 4,834 114 3,482 3,596
Other assets 2,260 - 2,260 1,861 - 1,861
Total investments 31,734 97,816 129,550 33,233 83,457 116,690
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a
direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £4,844m (31 December 2021:
£6,857m).
4. A further breakdown of property is provided in Note 6.04.
6.02 Direct investments (continued)
(b) Direct investments analysed by asset portfolio
Annuity(1) Shareholder(2) Insurance(3) Total
2022 2022 2022 2022
£m £m £m £m
Equities 51 1,417 236 1,704
Bonds(4) 20,736 71 1,263 22,070
Property 5,037 607 - 5,644
Loans - - - -
Financial investments 25,824 2,095 1,499 29,418
Other assets, cash and cash equivalents 110 2,189 17 2,316
Total direct investments 25,934 4,284 1,516 31,734
Annuity(1) Shareholder(2) Insurance(3) Total
2021 2021 2021 2021
£m £m £m £m
Equities 12 1,124 112 1,248
Bonds(4) 23,029 3 1,205 24,237
Property 5,286 424 - 5,710
Loans - 63 - 63
Financial investments 28,327 1,614 1,317 31,258
Other assets, cash and cash equivalents 96 1,879 - 1,975
Total direct investments 28,423 3,493 1,317 33,233
1. Annuity investments includes products held within the LGRI and Retail
Retirement portfolios including lifetime mortgage loans & retirement
interest only mortgages.
2. Shareholder primarily includes the LGC direct investment portfolio
and £95m (2021: £nil) of Legal & General Reinsurance Company Limited's
assets managed by LGC, along with £122m (31 December 2021: £54m) of bonds
and equities that belong to other shareholder funds.
3. Insurance primarily includes assets backing the group's US protection
business.
4. Bonds include lifetime mortgage loans of £4,844m (31 December 2021:
£6,857m).
6.03 Bond portfolio summary
(a) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2022 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 1,718 5,548 805 111 7 3 8,192 12
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - - 83 66 3 - 152 -
- Senior - 1,179 2,300 998 2 - 4,479 6
- Covered 114 - - - - - 114 -
Financial Services:
- Tier 2 and other subordinated 32 94 52 20 7 4 209 -
- Senior 49 235 592 561 - - 1,437 2
Insurance:
- Tier 2 and other subordinated 53 138 23 53 - - 267 -
- Senior 6 186 342 407 - - 941 1
Consumer Services and Goods:
- Cyclical - 18 1,128 1,870 161 8 3,185 5
- Non-cyclical 310 830 2,431 3,300 166 - 7,037 10
- Healthcare - 611 916 754 4 - 2,285 3
Infrastructure:
- Social 170 800 3,402 1,079 70 - 5,521 8
- Economic 244 151 993 3,343 173 - 4,904 7
Technology and Telecoms 134 365 1,201 2,687 17 1 4,405 6
Industrials - 60 702 677 23 - 1,462 2
Utilities 531 582 4,648 4,971 27 - 10,759 15
Energy - - 322 801 42 - 1,165 2
Commodities - - 301 658 25 15 999 1
Oil and Gas - 483 805 302 67 52 1,709 3
Real estate - 24 1,865 1,850 90 2 3,831 6
Structured finance ABS / RMBS / CMBS / Other 683 851 565 585 21 8 2,713 4
Lifetime mortgage loans(1) 3,246 824 428 336 - 10 4,844 7
CDOs - 41 - 11 - - 52 -
Total £m 7,290 13,020 23,904 25,440 905 104 70,663 100
Total % 11 18 34 36 1 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by investments backing LGRI's
and Retail Retirement's annuity business. These account for £66,825m,
representing 95% of the total group portfolio.
6.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2021 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 2,008 10,348 1,302 360 9 - 14,027 16
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - - 56 36 3 - 95 -
- Senior 95 1,858 3,998 738 1 - 6,690 8
- Covered 138 - - - - - 138 -
Financial Services:
- Tier 2 and other subordinated - 111 60 72 - 8 251 -
- Senior 57 416 422 315 - - 1,210 1
Insurance:
- Tier 2 and other subordinated 61 192 32 62 - - 347 -
- Senior 4 196 460 535 - - 1,195 1
Consumer Services and Goods:
- Cyclical - 33 1,399 1,760 206 - 3,398 4
- Non-cyclical 350 1,003 2,737 3,836 346 - 8,272 10
- Healthcare - 690 837 889 5 - 2,421 3
Infrastructure:
- Social 215 780 5,001 900 79 - 6,975 8
- Economic 303 50 1,121 4,294 191 - 5,959 7
Technology and Telecoms 177 307 1,530 3,024 22 2 5,062 6
Industrials - 31 688 558 30 - 1,307 2
Utilities 27 206 5,666 5,947 30 - 11,876 14
Energy - - 385 840 16 - 1,241 1
Commodities - - 365 889 8 - 1,262 1
Oil and Gas - 546 971 387 271 - 2,175 3
Real estate - 16 1,802 1,587 122 - 3,527 4
Structured finance ABS / RMBS / CMBS / Other 450 860 445 668 28 - 2,451 3
Lifetime mortgage loans(1) 4,238 1,550 584 470 - 15 6,857 8
CDOs - - 54 13 - - 67 -
Total £m 8,123 19,193 29,915 28,180 1,367 25 86,803 100
Total % 9 22 35 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by investments backing LGRI's
and Retail Retirement's annuity business. These account for £81,812m,
representing 94% of the total group portfolio.
6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
Rest of
UK USA EU the World Total
As at 31 December 2022 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 5,209 1,754 614 615 8,192
Banks 1,089 1,899 721 1,037 4,746
Financial Services 399 539 520 188 1,646
Insurance 108 1,007 20 73 1,208
Consumer Services and Goods:
- Cyclical 549 2,130 298 208 3,185
- Non-cyclical 1,809 4,764 296 168 7,037
- Healthcare 234 1,986 64 1 2,285
Infrastructure:
- Social 4,610 704 150 57 5,521
- Economic 3,444 832 256 372 4,904
Technology and Telecoms 363 2,963 577 502 4,405
Industrials 192 823 292 155 1,462
Utilities 5,579 2,840 1,855 485 10,759
Energy 266 670 13 216 1,165
Commodities 35 415 113 436 999
Oil and Gas 158 508 642 401 1,709
Real estate 1,805 1,225 571 230 3,831
Structured finance ABS / RMBS / CMBS / Other 641 1,666 44 362 2,713
Lifetime mortgage loans 4,801 - 43 - 4,844
CDOs - - - 52 52
Total 31,291 26,725 7,089 5,558 70,663
6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile (continued)
Rest of
UK USA EU the World Total
As at 31 December 2021 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 9,829 1,892 1,244 1,062 14,027
Banks 2,253 1,799 1,956 915 6,923
Financial Services 425 429 517 90 1,461
Insurance 113 1,291 15 123 1,542
Consumer Services and Goods:
- Cyclical 473 2,213 442 270 3,398
- Non-cyclical 1,879 5,828 391 174 8,272
- Healthcare 284 2,054 82 1 2,421
Infrastructure:
- Social 6,141 628 154 52 6,975
- Economic 4,348 902 309 400 5,959
Technology and Telecoms 412 3,025 782 843 5,062
Industrials 190 681 354 82 1,307
Utilities 6,963 2,158 2,217 538 11,876
Energy 415 667 1 158 1,241
Commodities 20 537 175 530 1,262
Oil and Gas 196 626 785 568 2,175
Real estate 1,895 734 602 296 3,527
Structured finance ABS / RMBS / CMBS / Other 861 1,395 10 185 2,451
Lifetime mortgage loans 6,857 - - - 6,857
CDOs - - - 67 67
Total 43,554 26,859 10,036 6,354 86,803
6.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 31 December 2022 £m £m £m
AAA 3,741 3,549 7,290
AA 10,577 2,443 13,020
A 15,875 8,029 23,904
BBB 18,476 6,964 25,440
BB or below 529 376 905
Other 17 87 104
Total 49,215 21,448 70,663
Externally Internally
rated rated(1) Total
As at 31 December 2021 £m £m £m
AAA 3,506 4,617 8,123
AA 15,544 3,649 19,193
A 21,240 8,675 29,915
BBB 20,715 7,465 28,180
BB or below 950 417 1,367
Other 10 15 25
Total 61,965 24,838 86,803
1. Where external ratings are not available an internal rating has been
used where practicable to do so.
6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded securities
Direct
investments Traded Total
As at 31 December 2022 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 763 7,429 8,192
Banks 789 3,957 4,746
Financial Services 930 716 1,646
Insurance 111 1,097 1,208
Consumer Services and Goods:
- Cyclical 596 2,589 3,185
- Non-cyclical 605 6,432 7,037
- Healthcare 420 1,865 2,285
Infrastructure:
- Social 3,027 2,494 5,521
- Economic 3,600 1,304 4,904
Technology and Telecoms 123 4,282 4,405
Industrials 118 1,344 1,462
Utilities 1,938 8,821 10,759
Energy 355 810 1,165
Commodities 67 932 999
Oil and Gas 81 1,628 1,709
Real estate 2,445 1,386 3,831
Structured finance ABS / RMBS / CMBS / Other 1,258 1,455 2,713
Lifetime mortgage loans 4,844 - 4,844
CDOs - 52 52
Total 22,070 48,593 70,663
6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded securities
(continued)
Direct
investments Traded Total
As at 31 December 2021 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 1,037 12,990 14,027
Banks 665 6,258 6,923
Financial Services 432 1,029 1,461
Insurance 119 1,423 1,542
Consumer Services and Goods:
- Cyclical 498 2,900 3,398
- Non-cyclical 512 7,760 8,272
- Healthcare 357 2,064 2,421
Infrastructure:
- Social 3,699 3,276 6,975
- Economic 4,267 1,692 5,959
Technology and Telecoms 153 4,909 5,062
Industrials 60 1,247 1,307
Utilities 1,883 9,993 11,876
Energy 475 766 1,241
Commodities 55 1,207 1,262
Oil and Gas 56 2,119 2,175
Real estate 2,091 1,436 3,527
Structured finance ABS / RMBS / CMBS / Other 1,021 1,430 2,451
Lifetime mortgage loans 6,857 - 6,857
CDOs - 67 67
Total 24,237 62,566 86,803
6.04 Property analysis
Property exposure within Direct investments by status
Annuity Shareholder(1) Total
As at 31 December 2022 £m £m £m %
Fully let(2) 4,568 462 5,030 89
Development 469 83 552 10
Land - 62 62 1
Total 5,037 607 5,644 100
Annuity Shareholder(1) Total
As at 31 December 2021 £m £m £m %
Fully let(2) 4,746 - 4,746 83
Development 540 293 833 15
Land - 131 131 2
Total 5,286 424 5,710 100
1. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are accounted
for as inventory within Receivables and other assets on the group's
Consolidated Balance Sheet and measured at the lower of cost and net
realisable value. At 31 December 2022 the group held a total of £1,973m (31
December 2021: £2,044m) of such assets.
2. £4.5bn (31 December 2021: £4.7bn) fully let property were let to
corporate clients, out of which £4.0bn (31 December 2021: £4.5bn) were let
to investment grade tenants.
Alternative Performance Measures
An alternative performance measure (APM) is a financial measure of historic or
future financial performance, financial position, or cash flows, other than a
financial measure defined under IFRS or the regulations of Solvency II. APMs
offer investors and stakeholders additional information on the company's
performance and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's performance.
However, APMs should be viewed as complementary to, rather than as a
substitute for, the figures determined according to other regulations. The
APMs used by the group are listed in this section, along with their
definition/explanation, their closest IFRS measure and reference to the
reconciliations to those IFRS measures.
The APMs used by the group may not be the same as, or comparable to, those
used by other companies, both in similar and different industries. The
calculation of APMs is consistent with previous periods, unless otherwise
stated.
Adjusted operating profit
Definition
Adjusted operating profit is an APM that supports the internal performance
management and decision making of the group's operating businesses, and
accordingly underpins the remuneration outcomes of the executive directors and
senior management. The group considers this measure meaningful to stakeholders
as it enhances the understanding of the group's operating performance over
time by separately identifying non-operating items.
Adjusted operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations and exceptional items. It therefore reflects
longer-term economic assumptions for the group's insurance businesses and
shareholder funds, including the traded portfolio in LGC. For direct
investments, operating profit reflects the expected long-term economic return
for those assets which are developed with the intention of sale, or the IFRS
profit before tax for the early stage and mature businesses.
Variances between actual and long-term expected investment return on traded
and real assets (including direct investments) are excluded from adjusted
operating profit, as well as economic assumption changes caused by changes in
market conditions or expectations (e.g. credit default and inflation) and any
difference between the actual allocated asset mix and the target long-term
asset mix on new pension risk transfer business. Adjusted operating profit
also excludes the yield associated with assets held for future new pension
risk transfer business from the valuation discount rate on insurance contract
liabilities. Exceptional income and expenses which arise outside the normal
course of business in the year, such as merger and acquisition and start-up
costs, are also excluded from adjusted operating profit.
In certain disclosures, the group may use the term 'operating profit' as a
substitute for adjusted operating profit, but in all circumstances it carries
the same definition and meaning.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 1.01 Operating profit.
Return on Equity (ROE)
Definition
ROE measures the return earned by shareholders on shareholder capital retained
within the business.
ROE is calculated as IFRS profit after tax divided by average IFRS
shareholders' funds (by reference to opening and closing shareholders' funds
as provided in the IFRS consolidated statement of changes in equity for the
year).
Closest IFRS measure
Calculated using:
- Profit attributable to equity holders
- Equity attributable to owners of the parent
Reconciliation
Calculated using profit attributable to equity holders for the year of
£2,291m (2021: £2,050m) and average equity attributable to the owners of the
parent of £11,079m (31 December 2021: £9,994m), based on an opening balance
of £10,486m and a closing balance of £11,673m (2021: based on an opening
balance of £9,502m and a closing balance of £10,486m).
Assets under Management
Definition
Funds which are managed by our fund managers on behalf of investors. It
represents the total amount of money investors have trusted with our fund
managers to invest across our investment products.
Closest IFRS measures
- Financial investments
- Investment property
- Cash and cash equivalents
Reconciliation
Note 4.04 Reconciliation of assets under management to Consolidated Balance
Sheet.
Net release from operations
Definition
Release from operations plus new business surplus/(strain). Net release from
operations is also referred to as cash generation and includes the release of
prudent margins from the back book, together with the premium received less
the setup of prudent reserves and associated acquisition costs for new
business. Net release from operations is a component of adjusted operating
profit (after tax) and excludes predominantly the impact of experience
variances and changes in valuation assumptions.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Notes 1.01 Operating profit and 1.02 Reconciliation of release from operations
to operating profit before tax.
Adjusted profit before tax attributable to equity holders
Definition
The APM measures profit before tax attributable to shareholders incorporating
actual investment returns experienced during the year.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 1.01 Operating profit.
Glossary
* These items represent an alternative performance measure (APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
An APM is a financial measure of historic or future financial performance,
financial position, or cash flows, other than a financial measure defined
under IFRS or the regulations of Solvency II.
Annual premium
Premiums that are paid regularly over the duration of the contract such as
protection policies.
Annuity
Regular payments from an insurance company made for an agreed period of time
(usually up to the death of the recipient) in return for either a cash lump
sum or a series of premiums which the policyholder has paid to the insurance
company during their working lifetime.
Assets under administration (AUA)
Assets administered by Legal & General which are beneficially owned by
clients and are therefore not reported on the Consolidated Balance Sheet.
Services provided in respect of assets under administration are of an
administrative nature, including safekeeping, collecting investment income,
settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
An APP is a long-term contract under which the policyholder (a registered UK
pension scheme) pays a day-one premium and in return receives a contractually
fixed and/or inflation-linked set of payments over time from the insurer.
CAGR
Compound annual growth rate.
Cash generation
Cash generation is an alternative term for net release from operations.
CCF - Common Contractual Fund
An Irish-regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of achieving
cost savings, enhanced returns and operational efficiency through economies of
scale. A CCF is an unincorporated body established under a deed where
investors are "co-owners" of underlying assets which are held pro rata with
their investment. The CCF is authorised and regulated by the Central Bank of
Ireland.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA and the lowest Unrated. Ratings are
usually issued by a credit rating agency (e.g. Moody's or Standard &
Poor's) or a credit bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis, whereby the
assets and liabilities of certain entities are excluded from the group
consolidation. The net contribution from those entities to group Own Funds is
included as an asset on the group's Solvency II balance sheet. Regulatory
approval has been provided to recognise the (re)insurance subsidiaries in the
US and Bermuda on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a specified
monthly benefit on retirement that is predetermined by a formula based on the
employee's earnings history, tenure of service and age, rather than depending
directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are determined
by agreed levels of contributions paid into the fund by the member and
employer. They provide benefits based upon the money held in each individual's
plan specifically on behalf of each member. The amount in each plan at
retirement will depend upon the investment returns achieved as well as the
member and employer contributions.
Derivatives
Derivatives are not a separate asset class but are contracts usually giving a
commitment or right to buy or sell assets on specified conditions, for example
on a set date in the future and at a set price. The value of a derivative
contract can vary. Derivatives can generally be used with the aim of enhancing
the overall investment returns of a fund by taking on an increased risk, or
they can be used with the aim of reducing the amount of risk to which a fund
is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another
party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but exclude hedge funds.
Dividend cover
Dividend cover measures how many times over the net release from operations in
the year could have paid the full year dividend. For example, if the dividend
cover is 3, this means that the net release from operations was three times
the amount of dividend paid out.
Early stage business
A recently created company in the early stage of its life cycle (typically up
to 18 to 24 months since establishment), which has not broken even yet. This
usually means the entity is not fully operational yet, and the management team
is still being developed.
Earnings per share (EPS)
EPS is a common financial metric which can be used to measure the
profitability and strength of a company over time. It is the total
shareholder profit after tax divided by the number of shares outstanding. EPS
uses a weighted average number of shares outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's
Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the
value of assets over liabilities, as valued on a Solvency II basis, plus high
quality hybrid capital instruments, which are freely available (fungible and
transferable) to absorb losses wherever they occur across the group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which employees report
that they are happy working at Legal & General. It is measured as part of
our Voice surveys, which also include questions on commitment to the goals of
Legal & General and the overall success of the company.
ETF - Exchange-Traded Fund
LGIM's European Exchange-Traded Fund platform.
Euro Commercial paper
Short-term borrowings with maturities of up to 1 year typically issued for
working capital purposes.
Full year dividend
Full year dividend is the total dividend per share declared for the year
(including interim dividend but excluding, where appropriate, any special
dividend).
Fair value through profit or loss (FVTPL)
A financial asset or financial liability that is measured at fair value in the
Consolidated Balance Sheet reports gains and losses arising from movements in
fair value within the Consolidated Income Statement as part of the profit or
loss for the year.
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and principles,
established by accounting standard setters and used by the accounting
community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the general
insurance premiums underwritten in the reporting period, before any deductions
for reinsurance.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment fund, based in Ireland and aimed at European
investment funds looking for a simple, tax-efficient investment vehicle.
Insurance new business
New business arising from new policies written on retail protection products
and new deals and incremental business on group protection products.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and organisations
follow when completing financial statements. They are designed to enable
comparable reporting between companies, and they are the standards that all
publicly listed groups in the UK are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the
business can be measured effectively. The group Board reviews the KPIs
annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGIM
Legal & General Investment Management
LGRI
Legal & General Retirement Institutional.
LGRI new business
Single premiums arising from pension risk transfers and the notional size of
longevity insurance transactions, based on the present value of the fixed leg
cash flows discounted at the SONIA curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to
meet all liabilities, both current and future. This form of investing is most
prominent in final salary pension plans, whose liabilities can often reach
into billions of pounds for the largest of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and over. It is a
mortgage loan secured against the customer's house. Customers do not make any
monthly payments and continue to own and live in their house until they move
into long-term care or on death. A no negative equity guarantee exists such
that if the house value on repayment is insufficient to cover the outstanding
loan, any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the risk profile of
pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II
balance sheets. This adjustment reflects the fact that the profile of assets
held is sufficiently well-matched to the profile of the liabilities, that
those assets can be held to maturity, and that any excess return over
risk-free (that is not related to defaults) can be earned regardless of asset
value fluctuations after purchase.
Mature business
A company which has been operative for more than three to five years. It
generates regular revenue streams but the growth rate in its earnings is
expected to remain broadly flat in the future. At this point in its life
cycle, a complete and experienced management team is in place.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and
calculating liabilities for future policyholders of life and annuity products,
which contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions produced
and carbon emissions removed from the atmosphere.
New business surplus/strain
The net impact of writing new business on the IFRS position, including the
benefit/cost of acquiring new business and the setting up of reserves, for UK
non-profit annuities, workplace savings and protection, net of tax. This
metric provides an understanding of the impact of new contracts on the IFRS
profit for the year.
OEIC - Open Ended Investment Company
A type of investment fund domiciled in the United Kingdom that is structured
to invest in stocks and other securities, authorised and regulated by the
Financial Conduct Authority (FCA).
Overlay assets
Overlay assets are derivative assets that are managed alongside the physical
assets held by LGIM. These instruments include interest rate swaps, inflation
swaps, equity futures and options. These are typically used to hedge risks
associated with pension scheme assets during the derisking stage of the
pension life cycle.
Paris Agreement
The Paris Agreement is an agreement within the United Nations Framework
Convention on Climate Change effective 4 November 2016. The Agreement aims to
limit the increase in average global temperatures to well below 2°C,
preferably to 1.5°C, compared to pre-industrial levels.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run final salary
pension schemes to reduce their responsibilities by closing the schemes to new
members and passing the assets and obligations to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention, calculated as a
function of net flows and opening AUM.
For insurance, persistency is the rate at which policies are retained over
time and therefore continue to contribute premium income and assets under
management.
Platform
Online services used by intermediaries and consumers to view and administer
their investment portfolios. Platforms usually provide facilities for buying
and selling investments (including, in the UK products such as Individual
Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life
insurance) and for viewing an individual's entire portfolio to assess asset
allocation and risk exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the new business value at
the end of the financial period. The discounted value of longevity insurance
regular premiums and quota share reinsurance single premiums are calculated on
a net of reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the premiums
associated with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed, minus derivative
assets, loans, and cash and cash equivalents.
QIAIF - Qualifying Investor Alternative Investment Fund
An alternative investment fund regulated in Ireland targeted at sophisticated
and institutional investors, with minimum subscription and eligibility
requirements. Due to not being subject to many investment or borrowing
restrictions, QIAIFs present a high level of flexibility in their investment
strategy.
Real assets
Real assets encompass a wide variety of tangible debt and equity investments,
primarily real estate, infrastructure and energy. They have the ability to
serve as stable sources of long-term income in weak markets, while also
providing capital appreciation opportunities in strong markets.
Release from operations
The expected IFRS surplus generated in the period from the difference between
IFRS prudent assumptions and our best estimate of future experience for
in-force LGRI, Retail Retirement and UK Insurance businesses, the post-tax
operating profit on other UK businesses, including the medium term expected
investment return on LGC invested assets, and dividends remitted from US
insurance.
Retail Retirement new business
Single premiums arising from annuity sales and the volume of lifetime and
retirement interest-only mortgage lending.
Retirement Interest Only (RIO) mortgage
A RIO mortgage is a standard retirement mortgage available for non-commercial
borrowers above 55 years old. A RIO mortgage is very similar to a standard
interest-only mortgage, with two key differences:
- The loan is usually only paid off on death, move into long-term care or sale
of the house.
- The borrowers only have to prove they can afford the monthly interest
repayments and not the capital remaining at the end of the mortgage term.
No repayment solution is required as repayment defaults to sale of property.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk appetite
The aggregate level and types of risk a company is willing to assume in its
exposures and business activities in order to achieve its business objectives.
SICAV - Société d'Investissement à Capital Variable
A publicly traded open-ended investment fund structure offered in Europe and
regulated under European law.
SIF - Specialised Investment Fund
An investment vehicle regulated in Luxembourg targeted to well-informed
investors, providing a great degree of flexibility in organization, investment
policy and types of underlying assets in which it can invest.
Single premiums
Single premiums arise on the sale of new contracts where the terms of the
policy do not anticipate more than one premium being paid over its lifetime,
such as in individual and bulk annuity deals.
Solvency II
These are insurance regulations designed to harmonise EU insurance regulation.
Primarily this concerns the amount of capital that European insurance
companies must hold under a measure of capital and risk. Solvency II became
effective from 1 January 2016. The group complies with the requirements
established by the Solvency II Framework Directive, as adopted by the
Prudential Regulation Authority (PRA) in the UK, and measures and monitors its
capital resources on this basis.
Solvency II capital coverage ratio
The Eligible Own Funds on a regulatory basis divided by the group solvency
capital requirement. This represents the number of times the SCR is covered by
Eligible Own Funds.
The Solvency II coverage ratio incorporates the impacts of a recalculation of
the Transitional Measures for Technical Provisions in the Own Funds.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II
surplus emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
Solvency II Operational Surplus Generation (OSG)
The expected surplus generated from the assets and liabilities in-force at the
start of the year. It is based on assumed real world returns and best estimate
non-market assumptions. It includes the impact of management actions to the
extent that, at the start of the year, these were reasonably expected to be
implemented over the year.
Solvency II risk margin
An additional liability required in the Solvency II balance sheet, to ensure
the total value of technical provisions is equal to the current amount a
(re)insurer would have to pay if it were to transfer its insurance and
reinsurance obligations immediately to another (re)insurer. The value of the
risk margin represents the cost of providing an amount of Eligible Own Funds
equal to the Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over the
lifetime thereof.
Solvency II surplus
The excess of Eligible Own Funds on a regulatory basis over the SCR. This
represents the amount of capital available to the company in excess of that
required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a
1-in-200 year risk event.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different companies'
stocks and shares over time. It combines the share price appreciation and
dividends paid to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to bring them into
line with the pre-Solvency II equivalent as at 1 January 2016 when the
regulatory basis switched over, to smooth the introduction of the new regime.
This will decrease linearly over the 16 years following Solvency II
implementation but may be recalculated to allow for changes impacting the
relevant business, subject to agreement with the PRA.
Yield
A measure of the income received from an investment compared to the price paid
for the investment. It is usually expressed as a percentage.
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