REG - Legal & General Grp - L&G Half-year Report 2017 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 1

Legal & GeneralAnnouncement

09/08/2017 07:07

RNS Number : 4600N
Legal & General Group Plc
09 August 2017
Legal & General Group Plc
Half-year Results 2017 Part 2
IFRS and Release from Operations  Page 25
Operating profit
For the six months ended 30 June 2017
Full year
30.06.17
30.06.16
31.12.16
Notes
m 
m
m
From continuing operations
Legal & General Retirement (LGR)
2.02
566
405
809
Legal & General Investment Management (LGIM)
2.03
194
171
366
Legal & General Capital (LGC)
2.05
142
135
257
Legal & General Insurance (LGI)
2.02
151
151
319
- UK and Other
94
108
234
- US
57
43
85
General Insurance
2.04
15
31
52
Savings 
2.02
52
49
99
Operating profit from divisions
1,120
942
1,902
Group debt costs1
(92)
(86)
(172)
Group investment projects and expenses2
2.06
(40)
(34)
(102)
Kingswood office closure costs
-
(45)
(66)
Operating profit
988
777
1,562
Investment and other variances
2.07
169
50
13
Gains/(losses) on non-controlling interests
6
(1)
7
Profit before tax attributable to equity holders
1,163
826
1,582
Tax expense attributable to equity holders of the company
2.14
(211)
(159)
(317)
Profit for the period
952
667
1,265
Profit attributable to equity holders of the company
946
668
1,258
p
p
p
Earnings per share3
2.10
15.94
11.27
21.22
Diluted earnings per share3
2.10
15.88
11.23
21.13
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in H1 17 include restructuring costs of 12m (H1 16: 16m; FY 16: 54m).
3. 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 further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the year.
LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages. 
The LGIM segment represents institutional and retail investment management and workplace savings businesses. 
LGC represents shareholder assets invested in direct investments, and traded and treasury assets. 
LGI represents business in retail protection, group protection, networks, Legal & General Netherlands (LGN) (which was sold during April 2017) and protection business written in the USA (LGI US). 
Savings represents business in platforms, SIPPs and mature savings including with-profits.
The General Insurance segment comprises short-term protection.
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects IFRS profit before tax) and LGI US (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. 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. 
During 2017, changes have been made to the organisational structure. Investment Discounts On Line Limited (the IDOL) has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 operating profit by 1m (FY 16: reduce by 2m), and increase LGI (UK and Other) H1 16 operating profit by 1m (FY 16: increase by 2m).
During 2016, the Insurance (excluding General Insurance) and LGA segments were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.
IFRS and Release from Operations  Page 26
2.01 Reconciliation of release from operations to operating profit before tax
The table below provides an analysis of the release from operations by each of the group's business segments, together with a reconciliation to operating profit before tax. 
Changes
Operating
New
Net
in 
Operating
profit/
Release
business
release
Exper-
valuation
Non-cash
Inter-
profit/
Tax
(loss)
from
surplus/
from
ience
assump-
items and
national
(loss)
expense/
before
For the six months ended
operations1
(strain)
operations
variances
tions
other
and other2
after tax
(credit)
tax
30 June 2017
m
m
m
m
m
m
m
m
m
m
LGR3
256
51
307
59
104
(3)
-
467
99
566
LGIM
165
(11)
154
-
(2)
1
-
153
41
194
- LGIM excluding Workplace
 Savings (admin only)
153
-
153
-
-
-
-
153
41
194
- Workplace Savings (admin 
 only)4
12
(11)
1
-
(2)
1
-
-
-
-
LGC
119
-
119
-
-
-
-
119
23
142
LGI
166
3
169
(28)
23
(13)
(43)
108
43
151
- UK and Other3
86
3
89
(28)
23
(13)
4
75
19
94
- US
80
-
80
-
-
-
(47)
33
24
57
General Insurance
12
-
12
-
-
-
-
12
3
15
Savings
53
(2)
51
-
2
(11)
-
42
10
52
Total from divisions
771
41
812
31
127
(26)
(43)
901
219
1,120
Group debt costs
(74)
-
(74)
-
-
-
-
(74)
(18)
(92)
Group investment projects 
and expenses
(14)
-
(14)
-
-
-
(18)
(32)
(8)
(40)
Total
683
41
724
31
127
(26)
(61)
795
193
988
Attributable to:
Retained business
683
41
724
31
127
(26)
(64)
792
192
984
Disposed operations
-
-
-
-
-
-
3
3
1
4
1. Release from operations includes dividends remitted from LGN of nil (H1 16: 48m; FY 16: 70m) within the LGI (UK and Other) line and US dividends of 80m (H1 16: 61m; FY 16: 63m) within the LGI (US) line.
2. International and other includes 10m (H1 16: 13m; FY 16: 43m) of restructuring costs (12m before tax) (H1 16: 16m before tax; FY 16: 54m before tax) within the Group investment projects and expenses line.
3. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 release from operations by 1m (FY 16: reduce by 1m) and increase LGI (UK and Other) H1 16 release from operations by 1m (FY 16: increase by 1m).
4. This represents Workplace Savings admin only and excludes fund management profits.
Release from operations for LGR, LGIM, LGI and Savings represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings, protection and savings businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGN and LGI US and operating profit after tax from the remaining LGI businesses. The Savings release from operations includes the shareholders' share of bonuses on with-profits business and operating profit after tax from the other Savings businesses. 
New business surplus/strain for LGR, LGIM, LGI and Savings represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings, protection and savings, net of tax. The new business surplus and release from operations for LGR, LGIM, LGI and Savings exclude any capital held in excess of the prudent reserves from the liability calculation.
Net release from operations for LGR, LGIM, LGI and Savings is defined as release from operations less new business strain. 
Release from operations and net release from operations for LGC and General Insurance represents the operating profit (net of tax).
See Note 2.02 for more detail on experience variances, changes to valuation assumptions and non-cash items.
IFRS and Release from Operations  Page 27
2.01 Reconciliation of release from operations to operating profit before tax (continued)
Changes
Operating
New
Net
in 
Operating
profit/
Release
business
release
Exper-
valuation
Non-cash
Inter-
profit/
Tax
(loss)
from
surplus/
from
ience
assump-
items and
national
(loss)
expense/
before
For the six months ended
operations1
(strain)
operations
variances
tions
other
and other2
after tax
(credit)
tax
30 June 2016
m
m
m
m
m
m
m
m
m
m
LGR3
204
79
283
(11)
48
13
-
333
72
405
LGIM
145
(11)
134
1
-
(1)
-
134
37
171
- LGIM excluding Workplace
 Savings (admin only)
136
-
136
-
-
-
-
136
38
174
- Workplace Savings (admin 
 only)4
9
(11)
(2)
1
-
(1)
-
(2)
(1)
(3)
LGC
113
-
113
-
-
-
-
113
22
135
LGI
196
7
203
(16)
17
(13)
(87)
104
47
151
- UK and Other3
135
7
142
(16)
17
(13)
(44)
86
22
108
- US
61
-
61
-
-
-
(43)
18
25
43
General Insurance
25
-
25
-
-
-
-
25
6
31
Savings
51
(3)
48
-
5
(14)
-
39
10
49
Total from divisions
734
72
806
(26)
70
(15)
(87)
748
194
942
Group debt costs
(69)
-
(69)
-
-
-
-
(69)
(17)
(86)
Group investment projects 
and expenses
(10)
-
(10)
-
-
-
(17)
(27)
(7)
(34)
Kingswood office closure costs5
-
-
-
-
-
-
(36)
(36)
(9)
(45)
Total
655
72
727
(26)
70
(15)
(140)
616
161
777
Attributable to:
Retained business
609
72
681
(26)
70
(12)
(96)
617
161
778
Disposed operations
46
-
46
-
-
(3)
(44)
(1)
-
(1)
1. Operational cash generation includes dividends remitted from LGN of 48m within the LGI (UK and Other) line and LGI (US) of 61m. 
2. International and other includes 13m of restructuring costs (16m before tax) within the group investment projects and expenses line.
3. LGI (UK and Other) includes the IDOL business which was previously reported in LGR. Comparatives have been restated accordingly.
4. This represents Workplace Savings admin only and excludes fund management profits.
5. The Kingswood office closure costs reflect expenditure in relation to rent and rates, as well as the write-off of previously capitalised expenditure.
IFRS and Release from Operations  Page 28
2.01 Reconciliation of release from operations to operating profit before tax (continued)
Changes
Operating
New
Net
in 
Operating
profit/
Release 
business
release 
Exper-
valuation
Non-cash
Inter-
profit/
Tax
(loss)
from
surplus/
from
ience
assump-
items and
national
(loss)
expense/
before
For the year ended
operations1
(strain)
operations
variances
tions
other
and other2
after tax
(credit)
tax
31 December 2016
m
m
m
m
m
m
m
m
m
m
LGR
432
159
591
34
40
6
-
671
138
809
LGIM
308
(22)
286
(1)
-
-
-
285
81
366
- LGIM excluding Workplace
 Savings (admin only)
290
-
290
-
-
-
-
290
82
372
- Workplace Savings (admin3
 only)
18
(22)
(4)
(1)
-
-
-
(5)
(1)
(6)
LGC
214
-
214
-
-
-
-
214
43
257
LGI
318
23
341
(11)
5
(29)
(79)
227
92
319
- UK and Other
255
23
278
(11)
5
(29)
(57)
186
48
234
- US
63
-
63
-
-
-
(22)
41
44
85
General Insurance
42
-
42
-
-
-
-
42
10
52
Savings
104
(5)
99
4
8
(32)
-
79
20
99
Total from divisions
1,418
155
1,573
26
53
(55)
(79)
1,518
384
1,902
Group debt costs
(138)
-
(138)
-
-
-
-
(138)
(34)
(172)
Group investment projects
and expenses
(24)
-
(24)
-
-
-
(59)
(83)
(19)
(102)
Kingswood office closure costs4
-
-
-
-
-
-
(53)
(53)
(13)
(66)
Total
1,256
155
1,411
26
53
(55)
(191)
1,244
318
1,562
Attributable to:
Retained business
1,186
155
1,341
26
53
(50)
(133)
1,237
315
1,552
Disposed operations
70
-
70
-
-
(5)
(58)
7
3
10
1. Release from operations includes dividends remitted from LGN of 70m within the LGI (UK and Other) line and LGI (US) of 63m. 
2. International and other includes 43m of restructuring costs (54m before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management profits.
4. The Kingswood office closure costs reflect expenditure in relation to rent and rates, as well as the write-off of previously capitalised expenditure.
IFRS and Release from Operations  Page 29
2.02 Analysis of LGR, LGI and Savings operating profit
LGR
LGI
Savings
LGR
LGI
Savings
30.06.17
30.06.17
30.06.17
30.06.16
30.06.16
30.06.16
m
m
m
m
m
m
Net release from operations
307
169
51
283
203
48
Experience variances
 Persistency1
-
(13)
-
-
1
-
 Mortality/morbidity2
3
(16)
-
2
(15)
-
 Expenses 
(6)
2
1
(7)
3
2
 Project and development costs
(2)
(1)
(2)
(1)
(1)
-
 Other3
64
-
1
(5)
(4)
(2)
Total experience variances
59
(28)
-
(11)
(16)
-
Changes to valuation assumptions
 Persistency
-
-
-
-
-
5
 Mortality/morbidity4
104
25
-
48
2
-
 Expenses
-
-
-
-
25
-
 Other
-
(2)
2
-
(10)
-
Total changes in valuation assumptions
104
23
2
48
17
5
Movement in non-cash items
 Deferred tax
-
-
-
-
1
-
 Acquisition expense tax relief 5
-
(9)
(1)
-
(13)
(2)
 Deferred Acquisition Costs (DAC)6
-
-
(15)
-
-
(15)
 Deferred Income Liabilities (DIL)6
-
-
5
-
-
6
 Other
(3)
(4)
-
13
(1)
(3)
Total non-cash movement items and other
(3)
(13)
(11)
13
(13)
(14)
International and other7
-
(43)
-
-
(87)
-
Operating profit after tax
467
108
42
333
104
39
Tax gross up
99
43
10
72
47
10
Operating profit before tax
566
151
52
405
151
49
1. The H1 17 LGI persistency experience variance primarily reflects a higher number of group protection scheme renewals than anticipated, coupled with retail protection negative lapse experience and cancellations.
2. LGI mortality/morbidity experience variance in H1 17 primarily reflects adverse claims experience on the group protection book of business.
3. The H1 17 positive LGR other experience variance is primarily due to the 60m release of reserves from moving to finalised PRT scheme data, and a 16m model change to improve consistency between deferred and immediate annuity liability valuation models. This is partially offset by a 12m negative impact from prudent mortality experience assumptions during the period where full death data is not yet available.
4. The H1 17 LGR mortality/morbidity valuation assumption changes primarily reflect an update of the portfolio base mortality assumptions following the review of mortality rates seen over the last few years. The LGI mortality/morbidity valuation assumption changes reflects an improvement in individual protection mortality reserving basis modelling. The H1 16 mortality/morbidity valuation assumption change in LGR primarily reflects a change in the treatment to historic longevity insurance deals where future fees in excess of prudent estimates of longevity and expense experience are now included as an offset to IFRS reserves. 
5. Net release from operations for LGI and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying expense as deferred tax amounts. The reconciling amounts arising from these items are included in the table above. Following the removal of new retail protection business from the 'I-E' tax regime, and the removal of commission from new insured savings business under the Retail Distribution Review at the end of 2012, no material amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net release from operations. The residual prior year acquisition expenses will run off predictably to 2018.
6. The DAC in Savings represents the amortisation charges offset by new acquisition costs deferred in the year. The DIL reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
7. LGI Other in H1 17 reflects the difference between the dividend (release from operations) remitted from LGA of 80m (H1 2016: dividends remitted from LGN of 48m and LGA of 61m) and the LGA and India operating profit after tax (H1 16: LGN, LGA and India operating profit after tax).
IFRS and Release from Operations  Page 30
2.02 Analysis of LGR, LGI and Savings operating profit (continued)
LGR
LGI
Savings
Full year
Full year
Full year
31.12.16
31.12.16
31.12.16
m
m
m
Net release from operations
591
341
99
Experience variances
 Persistency 
2
(2)
-
 Mortality/morbidity1
47
(34)
-
 Expenses 
(9)
4
7
 Project and development costs
(21)
2
(4)
 Other
15
19
1
Total experience variances
34
(11)
4
Changes to valuation assumptions
 Persistency2
-
(52)
5
 Mortality/morbidity3
40
4
-
 Expenses4
-
53
-
 Other
-
-
3
Total valuation assumption changes
40
5
8
Movement in non-cash items
 Deferred tax
-
-
1
 Acquisition expense tax relief 5
-
(27)
(3)
 Deferred Acquisition Costs (DAC)6
-
-
(28)
 Deferred Income Liabilities (DIL)6
-
-
9
 Other
6
(2)
(11)
Total non-cash movement items
6
(29)
(32)
International and other7
-
(79)
-
Operating profit after tax
671
227
79
Tax gross up
138
92
20
Operating profit before tax
809
319
99
1. The LGR mortality/morbidity experience variance reflects higher than expected annuitant deaths experience over FY 16. LGI mortality/morbidity experience variance in FY 16 primarily reflects adverse claims experience on the group protection book of business.
2. The LGI persistency valuation assumption change in FY 16 is the result of a review of prudence within the lapse assumption for level and decreasing term assurance products. 
3. The mortality/morbidity valuation assumption change in LGR primarily reflects a change in the treatment to historic longevity insurance deals where future fees in excess of prudent estimates of longevity and expense experience are now included as an offset to IFRS reserves. 
4. The LGI expense valuation assumption change is the result of the reduction in unit costs following recent expense savings actions, together with a review of the prudence within renewal expenses on our protection products.
5. Net release from operations for LGI and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying expense as deferred tax amounts. The reconciling amounts arising from these items are included in the table above. Following the removal of new retail protection business from the 'I-E' tax regime, and the removal of commission from new insured savings business under the Retail Distribution Review at the end of 2012, no material amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net release from operations. The residual prior year acquisition expenses will run off predictably to 2018.
6. The DAC in Savings represents the amortisation charges offset by new acquisition costs deferred in the year. The DIL reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
7. LGI Other in FY 16 reflects the difference between the dividend (release from operations) remitted from LGN and LGI (US) of 70m and 63m respectively and the LGN, LGI (US) and India operating profit after tax.
IFRS and Release from Operations  Page 31
2.03 LGIM operating profit
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Investment management revenue (excluding 3rd party market data)1
382
332
700
Investment management transactional revenue2
12
16
30
Investment management expenses (excluding 3rd party market data)1
(200)
(174)
(358)
Workplace Savings (admin only) operating loss3
-
(3)
(6)
Total LGIM operating profit
194
171
366
1. Investment management revenue and expenses excludes income and costs of 8m in relation to provision of 3rd party market data (H1 16: 5m each; FY 16: 14m each).
2. Transactional revenue includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees for property funds.
3. This represents Workplace Savings admin only and excludes fund management profits.


2.04 General Insurance operating profit and combined operating ratio
Full year
30.06.17
30.06.16
31.12.16
m
m
m
General Insurance operating profit1
15
31
52
General Insurance combined operating ratio (%)2
95
85
89
1. The General Insurance operating profit includes the underwriting result and smoothed investment return.
2. The calculation of the General Insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.


2.05 LGC operating profit
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Direct investments
69
68
121
Traded portfolio including treasury operations
73
67
136
Total LGC operating profit
142
135
257


2.06 Group investment projects and central expenses
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Group investment projects and central expenses
(28)
(18)
(48)
Restructuring costs1
(12)
(16)
(54)
Total group investment projects and expenses
(40)
(34)
(102)
1. Restructuring costs exclude the Kingswood office closure costs which have been presented separately.
IFRS and Release from Operations  Page 32
2.07 Investment and other variances
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Investment variance1
198
58
147
M&A related2
6
(4)
(102)
Other3
(35)
(4)
(32)
Total investment and other variances
169
50
13
1. H1 17 investment variance is positive, primarily driven by the outperformance of UK equity markets to expectations. The defined benefit pension scheme variance of 111m contained within this line (H1 16: 31m; FY 16: 29m) primarily reflects the impact of the acquisition of annuities as an asset of the scheme from LGR, and the interest rate difference between the IAS 19 and annuity discount rates. A segmental analysis of Investment and other variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. H1 17 includes the 17m net gain resulting from the disposal of Legal & General Netherlands. (H1 16: includes the 4m net gain resulting from the disposal of subsidiaries during the period; FY 16: includes the 60m net loss resulting from the classification of Cofunds as held for sale (64m loss) and the disposal of Suffolk Life (4m gain)).
3. Other includes new business start-up costs and other non-investment related variance items.
IFRS and Release from Operations  Page 33
Consolidated Income Statement
For the six months ended 30 June 2017
Full year
30.06.17
30.06.16
31.12.16
Notes
m
m
m
Income
Gross written premiums
4.02
3,716
5,492
10,325
Outward reinsurance premiums
(866)
(719)
(1,573)
Net change in provision for unearned premiums
(11)
6
4
Net premiums earned
2,839
4,779
8,756
Fees from fund management and investment contracts
481
523
1,068
Investment return
15,457
36,978
67,824
Operational income
141
243
321
Total income
2.09
18,918
42,523
77,969
Expenses
Claims and change in insurance liabilities 
3,449
11,377
17,896
Reinsurance recoveries
(494)
(1,454)
(2,745)
Net claims and change in insurance liabilities
2,955
9,923
15,151
Change in provisions for investment contract liabilities
13,618
30,569
58,578
Acquisition costs
377
375
793
Finance costs
106
98
198
Other expenses
468
748
1,569
Transfers to/(from) unallocated divisible surplus
84
(174)
(187)
Total expenses
17,608
41,539
76,102
Profit before tax 
1,310
984
1,867
Tax expense attributable to policyholder returns
(147)
(158)
(285)
Profit before tax attributable to equity holders
1,163
826
1,582
Total tax expense
(358)
(317)
(602)
Tax expense attributable to policyholder returns
147
158
285
Tax expense attributable to equity holders
2.14
(211)
(159)
(317)
Profit for the period
2.09
952
667
1,265
Attributable to:
Non-controlling interests
2.20
6
(1)
7
Equity holders of the company
946
668
1,258
Dividend distributions to equity holders of the company during the period
2.16
616
592
830
Dividend distributions to equity holders of the company proposed after the period end
2.16
256
238
616
p 
p 
p 
Earnings per share1
2.10
15.94
11.27
21.22
Diluted earnings per share1
2.10
15.88
11.23
21.13
1. All earnings per share calculations are based on profit attributable to equity holders of the company.
IFRS and Release from Operations  Page 34
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2017
30.06.17
30.06.16
31.12.16
m
m
m
Profit for the period
952
667
1,265
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes
(89)
(62)
(138)
Tax on actuarial losses on defined benefit pension schemes
16
12
17
Actuarial gains on defined benefit pension schemes transferred to unallocated divisible surplus
33
23
51
Tax on actuarial gains on defined benefit pension schemes transferred to unallocated divisible surplus
(6)
(4)
(6)
Total items that will not be reclassified to profit or loss subsequently
(46)
(31)
(76)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
(44)
116
190
Movement in cross-currency hedge
20
-
-
Net change in financial investments designated as available-for-sale
28
66
(4)
Tax on net change in financial investments designated as available-for-sale
(10)
(23)
1
Total items that may be reclassified to profit or loss subsequently
(6)
159
187
Other comprehensive (expense)/income after tax
(52)
128
111
Total comprehensive income for the period
900
795
1,376
Total comprehensive income attributable to:
Non-controlling interests
6
(1)
7
Equity holders of the company
894
796
1,369
IFRS and Release from Operations  Page 35
Consolidated Balance Sheet
As at 30 June 2017
30.06.17
30.06.161
31.12.161
Notes
m
m
m
Assets
Goodwill
11
79
11
Purchased interest in long term businesses and other intangible assets
133
251
155
Deferred acquisition costs
2,032
2,007
2,105
Investment in associates and joint ventures
305
237
283
Property, plant and equipment
69
97
76
Investment property
2.13/3.04
8,714
8,227
8,150
Financial investments
2.13/3.04
435,861
403,237
428,544
Reinsurers' share of contract liabilities
5,300
4,955
5,593
Deferred tax asset
2.14
5
5
5
Current tax recoverable
358
271
297
Other assets
11,262
10,900
5,022
Assets of operations classified as held for sale
2.12
-
-
2,265
Cash and cash equivalents
15,805
12,842
15,348
Total assets
479,855
443,108
467,854
Equity
Share capital
2.17
149
149
149
Share premium
985
978
981
Employee scheme treasury shares
(40)
(32)
(30)
Capital redemption and other reserves
211
211
212
Retained earnings
5,910
5,285
5,633
Attributable to owners of the parent
7,215
6,591
6,945
Non-controlling interests
2.20
350
292
338
Total equity
7,565
6,883
7,283
Liabilities
Participating insurance contracts
5,579
5,864
5,794
Participating investment contracts
5,180
5,260
5,271
Unallocated divisible surplus
719
693
661
Value of in-force non-participating contracts
(145)
(135)
(206)
Participating contract liabilities
11,333
11,682
11,520
Non-participating insurance contracts
61,097
58,437
60,779
Non-participating investment contracts
325,059
300,605
321,177
Non-participating contract liabilities
386,156
359,042
381,956
Core borrowings
2.18
3,499
3,064
3,071
Operational borrowings
2.19
553
411
430
Provisions 
1,358
1,205
1,328
Deferred tax liabilities
2.14
840
729
813
Current tax liabilities
171
120
117
Payables and other financial liabilities
2.15
43,709
36,756
37,347
Other liabilities
509
617
594
Net asset value attributable to unit holders
24,162
22,599
21,573
Liabilities of operations classified as held for sale
2.12
-
-
1,822
Total liabilities
472,290
436,225
460,571
Total equity and liabilities
479,855
443,108
467,854
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
IFRS and Release from Operations  Page 36
Condensed Consolidated Statement of Changes in Equity
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained 
to owners
controlling
Total
capital
premium
shares
reserves1
earnings
of the parent
interests
equity
For the six months ended 30 June 2017
m
m
m
m
m
m
m
m
As at 1 January 2017
149
981
(30)
212
5,633
6,945
338
7,283
Total comprehensive (expense)/income
for the period
-
-
-
(6)
900
894
6
900
Options exercised under share option
schemes
-
4
-
-
-
4
-
4
Net movement in employee scheme 
treasury shares
-
-
(10)
(3)
1
(12)
-
(12)
Dividends
-
-
-
-
(616)
(616)
-
(616)
Movement in third party interests
-
-
-
-
-
-
6
6
Currency translation differences
-
-
-
8
(8)
-
-
-
As at 30 June 2017
149
985
(40)
211
5,910
7,215
350
7,565
1. Capital redemption and other reserves include Share-based payments 57m (H1 16: 64m; FY 16: 60m), Foreign exchange 99m (H1 16: 81m; FY 16: 135m), Capital redemption 17m (H1 16: 17m; FY 16: 17m), Available-for-sale reserves 17m (H1 16: 48m; FY 16: (1)m) and Hedging reserves 21m (H1 16: 1m; FY 16: 1m).
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained 
to owners
controlling
Total
capital
premium
shares
reserves
earnings
of the parent
interests
equity
For the six months ended 30 June 2016
m
m
m
m
m
m
m
m
As at 1 January 2016
149
976
(30)
89
5,220
6,404
289
6,693
Total comprehensive income/(expense)
for the period
-
-
-
159
637
796
(1)
795
Options exercised under share option
schemes
-
2
-
-
-
2
-
2
Net movement in employee scheme 
treasury shares
-
-
(2)
(5)
(12)
(19)
-
(19)
Dividends
-
-
-
-
(592)
(592)
-
(592)
Movement in third party interests
-
-
-
-
-
-
4
4
Currency translation differences
-
-
-
(32)
32
-
-
-
As at 30 June 2016
149
978
(32)
211
5,285
6,591
292
6,883
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained 
to owners
controlling
Total
capital
premium
shares
reserves
earnings
of the parent
interests
equity
For the year ended 31 December 2016
m
m
m
m
m
m
m
m
As at 1 January 2016
149
976
(30)
89
5,220
6,404
289
6,693
Total comprehensive income
for the year
-
-
-
187
1,182
1,369
7
1,376
Options exercised under share option scheme
-
5
-
--
-
5
-
5
Net movement in employee scheme 
treasury shares
-
-
-
(9)-
6
(3)
-
(3)
Dividends
-
-
-
-
(830)
(830)
-
(830)
Movement in third party interests
-
-
-
-
-
-
42
42
Currency translation differences
-
-
-
(55)
55
-
-
-
As at 31 December 2016
149
981
(30)
212-
5,633
6,945
338
7,283
IFRS and Release from Operations  Page 37
Consolidated Cash Flow Statement
For the six months ended 30 June 2017
Full year
30.06.17
30.06.161
31.12.161
Notes
m
m
m
Cash flows from operating activities
Profit for the period
952
667
1,265
Adjustments for non cash movements in net profit for the period
Realised and unrealised (gains) on financial investments and investment properties
(9,588)
(31,213)
(53,262)
Investment income
(5,396)
(5,164)
(9,390)
Interest expense
106
98
198
Tax expense
358
317
602
Other adjustments
33
(7)
(45)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss
418
485
(11,210)
Investments designated as available-for-sale
(4)
327
246
Other assets
(6,116)
(7,947)
(2,658)
Net increase/(decrease) in operational liabilities
Insurance contracts
259
8,921
12,910
Transfer to unallocated divisible surplus
57
(200)
(232)
Investment contracts
3,790
19,164
39,747
Value of in-force non-participating contracts
62
49
(22)
Other liabilities
10,517
10,674
17,023
Cash used in operations
(4,552)
(3,829)
(4,828)
Interest paid
(104)
(75)
(198)
Interest received
2,353
2,740
4,863
Tax paid2
(298)
(217)
(424)
Dividends received
2,851
2,622
4,676
Net cash flows from operating activities
250
1,241
4,089
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles
(30)
(29)
(45)
Disposal of subsidiaries3
2.11
286
(340)
(272)
Investment in joint ventures
-
(17)
(63)
Net cash flows from/(used in) investing activities
256
(386)
(380)
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the period
2.16
(616)
(589)
(830)
Proceeds from issue of ordinary share capital
3
3
5
Purchase of employee scheme shares (net)
9
2
-
Proceeds from borrowings
1,211
253
219
Repayment of borrowings
(619)
(315)
(342)
Net cash flows used in financing activities
(12)
(646)
(948)
Net increase in cash and cash equivalents
494
209
2,761
Exchange (losses)/gains on cash and cash equivalents
(37)
89
182
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)
15,348
12,544
12,544
Cash and cash equivalents (before reallocation of held for sale cash)
15,805
12,842
15,487
Cash and cash equivalents classified as held for sale
2.12
-
-
(139)
Cash and cash equivalents at 30 June/31 December
15,805
12,842
15,348
1. Following a review of certain short dated instruments held by the group, certain assets have been reclassified from Cash and Cash Equivalents to Financial Instruments as their tenure is greater than 3 months. These amounts totalled 6,114m at H1 16 and 10,369m at FY 16. There is a net nil impact on the Consolidated Income Statement. The reclassification has resulted in an adjustment to the Investments held for trading or designated as fair value through profit or loss in the Consolidated Cash Flow Statement of 2,408m at H1 16 and (1,847m) at FY 16.
2. Tax comprises UK corporation tax paid of 151m (H1 16: 108m; FY 16: 249m), overseas corporate taxes of 8m (H1 16: 5m; FY 16: 16m), and withholding tax of 139m (H1 16: 104m; FY 16: 159m).
3. Net cash flows from disposals includes cash received of 286m (H1 16: 74m; FY 16: 144m) less cash and cash equivalents disposed of nil (H1 16: 414m; FY 16: 416m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows. The closing cash position includes 679m (H1 16: 601m; FY 16: 731m) relating to the with-profit fund policyholders and 12,687m (H1 16: 10,201m; FY 16: 11,764m) relating to unit-linked policyholders.
IFRS and Release from Operations  Page 38
2.08 Basis of preparation
The group's financial information for the six months ended 30 June 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting'. The group's financial information has also been prepared in line with the accounting policies and methods of computation which the group expects to adopt for the 2017 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2016 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union. 
The preparation of the interim management report 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. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2016 financial statements except for the changes outlined in Note 2.02. 
 
The results for the six months ended 30 June 2017 are unaudited but have been reviewed by PricewaterhouseCoopers LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results from the full year 2016 have been taken from the group's 2016 Annual Report and Accounts, restated as described in footnote 1 of the Consolidated Cash Flow Statement. Therefore, these interim accounts should be read in conjunction with the 2016 Annual Report and Accounts that have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Commission for use in the European Union. PricewaterhouseCoopers LLP reported on the 2016 financial statements, and their report was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The group's 2016 Annual Report and Accounts has been filed with the Registrar of Companies. 
 
Key technical terms and definitions
The interim management report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary section of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures (APMs), including release from operations, net release from operations and operating profit, in the discussion of its business performance and financial position as the group believes that they provide a better indication of performance. Definitions of key APMs can be found in the glossary. 
Future accounting developments
Revenue from Contracts with Customers
IFRS 15, 'Revenue from Contracts with Customers', issued in May 2014, is effective, for annual periods beginning on or after 1 January 2018. This standard provides clear guidance over when and how much revenue should be recognised. It provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue for obligations as they are satisfied. An assessment is currently on-going to determine the impact upon the group, focussing in particular on our investment management business including the assessment of performance fees. The standard does not apply to business classified as insurance contracts. The group does not intend to early adopt this standard.
Insurance Contracts
IFRS 17, 'Insurance Contracts' was issued in May 2017 and is effective for annual periods beginning on or after 1 January 2021 (subject to EU endorsement). The standard provides a comprehensive approach for accounting for insurance contracts including their valuation, income statement presentation and disclosure. The group has mobilised a project to assess the financial and operational implications of the standard.
Financial Instruments
In July 2014, the IASB issued IFRS 9, 'Financial Instruments' which is effective for annual periods beginning on or after 1 January 2018. The ISAB subsequently issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which allows entities which meet certain requirements to defer their implementation of IFRS 9 (subject to EU endorsement) until adoption of IFRS 17 or 1 January 2021, whichever is the earlier. As disclosed in the 31 December 2016 financial statements, the group will qualify, and expects to apply this deferral of IFRS 9.
The impact of IFRS 9 on the group's nancial statements will depend on the interaction of the asset classication and measurement with the insurance contract measurement at the date of transition, particularly for liabilities which are measured using locked in discount rates. 
Leases
In January 2016, the IASB issued IFRS 16, 'Leases', effective for annual periods beginning on or after 1 January 2019, subject to EU endorsement. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts, bringing commitments in relation to operating leases (as currently defined in IAS 17, 'Leases') onto the balance sheet. The impact of the standard on lessor accounting is significantly smaller with the provisions remaining closely aligned to those in IAS 17 although the IASB have issued updated guidance on the definition of a lease. An assessment of the impacts of the standard on the group's financial statements will be completed in due course. The group does not intend to early adopt this standard.
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 shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.
For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.
IFRS and Release from Operations  Page 39
2.09 Segmental analysis
Reportable segments
The group has six reportable segments comprising LGR, LGIM, LGC, LGI, Savings and General Insurance. Central group expenses and debt costs are reported separately.
LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages. 
The LGIM segment represents institutional and retail investment management and workplace savings businesses. 
LGC represents shareholder assets in direct investments, and traded and treasury assets. 
LGI represents UK retail protection, group protection and network business, Legal & General Netherlands (LGN) (which was sold during April 2017) and protection business written in the USA (LGI US). 
Savings represents business in platforms, SIPPs, mature savings and with-profits.
The General Insurance segment comprises short-term protection.
During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 release from operations by 1m (FY 16: reduce by 1m) and increase LGI (UK and Other) H1 16 release from operations by 1m (FY 16: increase by 1m).
During 2016, the Insurance (excluding General Insurance) and LGA segments were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
IFRS and Release from Operations  Page 40
2.09 Segmental analysis (continued)
(a) Profit/(loss) for the period
Group
expenses
General
and debt
LGR
LGIM
LGC
LGI1
Insurance
Savings
costs
Total
For the six months ended 30 June 2017
m
m
m
m
m
m
m
m
Operating profit/(loss)
566
194
142
151
15
52
(132)
988
Investment and other variances1
38
(4)
52
7
6
(7)
77
169
Gains attributable to non-controlling interests
-
-
-
-
-
-
6
6
Profit/(loss) before tax attributable to 
equity holders
604
190
194
158
21
45
(49)
1,163
Tax (expense)/credit attributable to equity holders of the company
(108)
(40)
(25)
(41)
(4)
(9)
16
(211)
Profit/(loss) for the period
496
150
169
117
17
36
(33)
952
Group
expenses
General
and debt
LGR2
LGIM
LGC
LGI2
Insurance
Savings1
costs
Total
For the six months ended 30 June 2016
m
m
m
m
m
m
m
m
Operating profit/(loss)
405
171
135
151
31
49
(165)
777
Investment and other variances1
63
(8)
60
(100)
10
4
21
50
Loss attributable to non-controlling interests
-
-
-
-
-
-
(1)
(1)
Profit/(loss) before tax attributable to 
equity holders
468
163
195
51
41
53
(145)
826
Tax (expense)/credit attributable to equity holders of the company
(82)
(35)
(24)
(30)
(6)
(10)
28
(159)
Profit/(loss) for the period
386
128
171
21
35
43
(117)
667
Group
expenses
General
and debt
LGR2
LGIM
LGC
LGI2
Insurance
Savings1
costs
Total
For the year ended 31 December 2016
m
m
m
m
m
m
m
m
Operating profit/(loss)
809
366
257
319
52
99
(340)
1,562
Investment and other variances1
37
(32)
162
(124)
16
(51)
5
13
Gains attributable to non-controlling interests
-
-
-
-
-
-
7
7
Profit/(loss) before tax attributable to 
equity holders
846
334
419
195
68
48
(328)
1,582
Tax (expense)/credit attributable to equity holders of the company
(148)
(68)
(52)
(72)
(13)
(22)
58
(317)
Profit/(loss) for the period
698
266
367
123
55
26
(270)
1,265
1. H1 17 Investment and other variances - LGI includes the 17m net gain resulting from the disposal of subsidiaries during the period (H1 16: Savings includes the 4m net gain resulting from the disposal of subsidiaries during the period; FY 16: Savings includes the 60m net loss resulting from the disposal of subsidiaries during the year).
2. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been restated accordingly. The impact of this reclassification has been to reduce LGR H1 16 operating profit by 1m and profit before tax by 1m (FY 16: reduce LGR operating profit by 2m and profit before tax by 1m). LGI operating profit and profit before tax are showing corresponding increases.
IFRS and Release from Operations  Page 41
2.09 Segmental analysis (continued)
(b) Income
LGC
General 
and
LGR
LGIM1
LGI
Insurance
Savings
other2
Total
For the six months ended 30 June 2017
m
m
m
m
m
m
m
Internal income
-
78
-
-
-
(78)
-
External income
2,810
12,988
896
167
1,436
621
18,918
Total income
2,810
13,066
896
167
1,436
543
18,918
LGC
General 
and
LGR3
LGIM1,4
LGI
Insurance
Savings4
other2,4
Total
For the six months ended 30 June 2016
m
m
m
m
m
m
m
Internal income
-
66
-
-
-
(66)
-
External income
9,075
24,129
1,182
159
2,368
5,610
42,523
Total income
9,075
24,195
1,182
159
2,368
5,544
42,523
LGC
General 
and
LGR3
LGIM1,4
LGI
Insurance
Savings4
other2,4
Total
For the year ended 31 December 2016
m
m
m
m
m
m
m
Internal income
-
139
-
-
-
(139)
-
External income
13,831
49,812
2,257
326
4,406
7,337
77,969
Total income
13,831
49,951
2,257
326
4,406
7,198
77,969
1. LGIM internal revenue relates to investment management services provided to other segments.
2. LGC and other includes LGC, inter-segmental eliminations and group consolidation adjustments.
3. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 external income by 8m (FY 16: reduce by 20m) with corresponding increases in LGI external income.
4. An internal transaction (H1 16: 79m; FY 16: 175m) has been reclassified between LGIM, Savings and LGC and other internal and external income.
IFRS and Release from Operations  Page 42
2.10 Earnings per share
(a) Earning per share
Adjusted
Adjusted
Adjusted
Adjusted
Profit
Earnings
profit
earnings
Profit
Earnings
profit
earnings
after tax
per share1
after tax
per share1,2
after tax
per share1
after tax
per share1,2
30.06.17
30.06.17
30.06.17
30.06.17
30.06.16
30.06.16
30.06.16
30.06.16
m
p
m
p
m
p
m
p
Operating profit after tax
795
13.40
795
13.40
616
10.39
616
10.39
Investment and other variances
151
2.54
134
2.26
52
0.88
48
0.81
Earnings per share based on profit
attributable to equity holders
946
15.94
929
15.66
668
11.27
664
11.20
Adjusted
Adjusted
Profit
Earnings
profit
earnings
after tax
per share1
after tax
per share1,2
Full year
Full year
Full year
Full year
31.12.16
31.12.16
31.12.16
31.12.16
m
p
m
p
Operating profit after tax
1,244
20.98
1,244
20.98
Investment and other variances
14
0.24
72
1.22
Earnings per share based on profit
attributable to equity holders
1,258
21.22
1,316
22.20
1. Earnings per share is calculated by dividing profit after tax derived from continuing operations by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares. 
2. Adjusted earnings per share has been calculated after excluding the net current year profit after tax of 17m, resulting from the disposal of L&G Netherlands. (H1 16: excluding the net gain of 4m, resulting from the disposal of Suffolk Life; FY 16: excluding the net loss after tax of 58m, resulting from the disposal of Suffolk Life and the classification of Cofunds as held for sale).
IFRS and Release from Operations  Page 43
2.10 Earnings per share (continued)
(b) Diluted earnings per share
Adjusted
Adjusted
Number
Profit
Earnings
profit
earnings
of shares
after tax
per share1
after tax
per share1,2
30.06.17
30.06.17
30.06.17
30.06.17
30.06.17
m
m
p
m
p
Profit attributable to equity holders of the company
5,933
946
15.94
929
15.66
Net shares under options allocable for no further consideration
25
-
(0.06)
-
(0.06)
Diluted earnings per share
5,958
946
15.88
929
15.60
Adjusted
Adjusted
Number
Profit
Earnings
profit
earnings
of shares
after tax
per share1
after tax
per share1,2
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
m
m
p
m
p
Profit attributable to equity holders of the company
5,927
668
11.27
664
11.20
Net shares under options allocable for no further consideration
22
-
(0.04)
-
(0.04)
Diluted earnings per share
5,949
668
11.23
664
11.16
Adjusted
Adjusted
Number
Profit
Earnings
profit
earnings
of shares
after tax
per share1
after tax
per share1,2
Full year
Full year
Full year 
Full year
Full year
31.12.16
31.12.16
31.12.16
31.12.16
31.12.16
m
m
p
m
p
Profit attributable to equity holders of the company
5,929
1,258
21.22
1,316
22.20
Net shares under options allocable for no further consideration
24
-
(0.09)
-
(0.09)
Diluted earnings per share
5,953
1,258
21.13
1,316
22.11
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.
2. Adjusted earnings per share has been calculated after excluding the net current year profit after tax of 17m, resulting from the disposal of Netherlands (H1 16: excluding the net 4m gain resulting from the disposal of Suffolk Life; FY 16: excluding the net loss after tax of 58m, resulting from the disposal of Suffolk Life and the classification of Cofunds as held for sale).
IFRS and Release from Operations  Page 44
2.11 Disposals
During H1 17, the group made the following disposals:
-On 1 January 2017, the group completed the disposal of Cofunds Limited (Cofunds) to Aegon for 141m, net of transaction costs. The sale included the Investor Portfolio Service (IPS) platform as well as Cofunds' retail and institutional business. The group carrying value of the investment was 141m resulting in a net nil impact to the group. 
-On 6 April 2017, the group completed the sale of Legal & General Netherland Levensvervekering Maatschappij N.V. (LGN) to Chesnara plc (Chesnara) for 161.0m (137m). The group carrying value of the investment was 118m, resulting in a current year profit 17m, net of transaction costs 2m. A further 3m of transaction costs were incurred in the prior year.

2.12 Held for sale
In H1 17 no assets or liabilities have been classified as held for sale. 
The FY 16 balances related to planned disposals of Investment property, LGN and Cofunds, which were disposed of in 2017 (detailed in note 2.11).
30.06.17
30.06.16
31.12.16
m 
m 
m 
Assets classified as held for sale
Purchased interest in long term business and other intangible assets
-
-
85
DAC
-
-
12
Property, plant and equipment
-
-
11
Investment property
-
-
95
Financial investments 
-
-
1,861
Reinsurers' share of contract liabilities
-
-
1
Cash and cash equivalents
-
-
139
Other assets1
-
-
62
Total assets of the disposal groups
-
-
2,266
Liabilities classified as held for sale
Insurance contract liabilities
-
-
1,709
Tax liabilities
-
-
26
Payables and other financial liabilities
-
-
28
Other liabilities1
-
-
147
Total liabilities of the disposal groups
-
-
1,910
Total net assets of the disposal groups
-
-
356
1. Included in the FY 16 other assets is 1m, and in other liabilities, 88m, which are both balances with other group entities that are eliminated on the Consolidated Balance Sheet.
IFRS and Release from Operations  Page 45
2.13 Financial investments and investment property
30.06.17
30.06.161
31.12.161
m
m
m
Equities
194,754
176,194
191,025
Unit trusts
7,584
6,594
6,969
Debt securities2
219,989
203,114
215,331
Accrued interest
1,449
1,403
1,536
Derivative assets3
11,513
15,424
13,121
Loans and receivables
572
508
562
Financial investments
435,861
403,237
428,544
Investment property4
8,714
8,227
8,150
Total financial investments and investment property
444,575
411,464
436,694
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
2. A detailed analysis of debt securities, which shareholders are directly exposed to, is disclosed in note 4.06. 
3. Derivatives are used to ensure efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities and include 7,597m (H1 16: 9,543m; FY 16: 8,294m) held on behalf of unit linked policyholders.
4. A detailed analysis of investment property, which shareholders are directly exposed to, is disclosed in note 4.07. 
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the group's view of market assumptions in the absence of observable market information. The group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. 
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).
All of the group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg, which use mathematical modelling and multiple source validation in order to determine "consensus" prices, except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have classified them as level 2.
CDOs are valued using an external valuation based on observable market inputs, which include CDX and iTraxx index tranches and CDS spreads on underlying reference entities. This valuation is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2.
There have been no significant transfers between level 1 and level 2 for the period 30 June 2017 (30 June 2016: nil; 31 December 2016: nil).
The table on the following page presents the group's assets by IFRS 13 hierarchy levels.
IFRS and Release from Operations  Page 46
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total
Level 1
Level 2
Level 3
For the six months ended 30 June 2017
m
m
m
m
Shareholder
Equity securities
2,352
1,718
2
632
Debt securities
4,533
1,030
3,105
398
Accrued interest
24
6
15
3
Derivative assets
50
25
25
-
Investment property
200
-
-
200
Non profit non-unit linked
Equity securities
268
264
4
-
Debt securities
51,067
8,127
35,781
7,159
Accrued interest
469
40
417
12
Derivative assets
3,773
74
3,694
5
Investment property
2,687
-
-
2,687
With-profits
Equity securities
3,241
3,014
18
209
Debt securities
6,741
2,888
3,848
5
Accrued interest
56
18
38
-
Derivative assets
93
40
53
-
Investment property
740
-
-
740
Unit linked
Equity securities
196,477
192,628
3,370
479
Debt securities
157,648
105,951
51,690
7
Accrued interest
900
349
551
-
Derivative assets
7,597
607
6,990
-
Investment property
5,087
-
-
5,087
Total financial investments and investment property at fair value1
444,003
316,779
109,601
17,623
1. This table excludes loans and receivables of 572m, which are held at amortised cost.
IFRS and Release from Operations  Page 47
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total1
Level 11
Level 21
Level 3
For the six months ended 30 June 2016
m
m
m
m
Shareholder
Equity securities
2,331
2,025
-
306
Debt securities
5,255
2,317
2,581
357
Accrued interest
34
16
15
3
Derivative assets
62
6
56
-
Investment property
200
-
-
200
Non profit non-unit linked
Equity securities
56
52
4
-
Debt securities
47,675
7,124
37,108
3,443
Accrued interest
496
38
453
5
Derivative assets
5,661
325
5,326
10
Investment property
2,257
-
-
2,257
With-profits
Equity securities
3,607
3,382
1
224
Debt securities
7,122
3,696
3,416
10
Accrued interest
69
29
40
-
Derivative assets
158
40
118
-
Investment property
920
-
-
920
Unit linked
Equity securities
176,794
173,351
3,062
381
Debt securities
143,063
98,817
44,246
-
Accrued interest
803
295
508
-
Derivative assets
9,543
225
9,318
-
Investment property
4,850
-
-
4,850
Total financial investments and investment property at fair value2
410,956
291,738
106,252
12,966
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
2. This table excludes loans and receivables of 508m, which are held at amortised cost.
IFRS and Release from Operations  Page 48
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total1
Level 11
Level 21
Level 3
For the year ended 31 December 2016
m
m
m
m
Shareholder
Equity securities
1,928
1,478
1
449
Debt securities
4,945
1,513
3,046
386
Accrued interest
31
7
21
3
Derivative assets
82
59
23
-
Investment property
162
-
-
162
Non profit non-unit linked
Equity securities
393
389
4
-
Debt securities
49,380
8,351
37,067
3,962
Accrued interest
496
42
448
6
Derivative assets
4,611
115
4,474
22
Investment property
2,442
-
-
2,442
With-profits
Equity securities
3,432
3,216
9
207
Debt securities
6,827
3,467
3,349
11
Accrued interest
63
22
41
-
Derivative assets
134
31
103
-
Investment property
738
-
-
738
Unit linked
Equity securities
192,242
188,769
3,028
445
Debt securities
154,178
106,224
47,954
-
Accrued interest
946
333
613
-
Derivative assets
8,294
332
7,962
-
Investment property
4,808
-
-
4,808
Total financial investments and investment property at fair value2
436,132
314,348
108,143
13,641
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
2. This table excludes loans and receivables of 562m, which are held at amortised cost.
IFRS and Release from Operations  Page 49
2.13 Financial investments and investment property (continued)
(b) Assets measured at fair value based on level 3
Level 3 assets where internal models are used, represent a small proportion of assets to which shareholders are exposed. These comprise property, unquoted equities, untraded debt securities and securities where the broker methodology is unknown. Unquoted equities include suspended securities and investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips and lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the group has classified within level 3.
The group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the group's credit standing, liquidity and risk margins on unobservable inputs.
Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted in inactive markets for certain of the group's financial instruments. As a result, there is generally no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have been used had a ready market existed, and the differences could be material. As a result, such calculated fair value estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.
The group's policy is to re-assess the categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.
IFRS and Release from Operations  Page 50
2.13 Financial investments and investment property (continued)
(b) Assets measured at fair value based on level 3 (continued)
Other
Other
financial
financial
Equity
invest-
Investment
Equity
invest-
Investment
securities
ments1
property
Total
securities
ments1
property
Total
30.06.17
30.06.17
30.06.17
30.06.17
30.06.16
30.06.16
30.06.16
30.06.16
m
m
m
m
m
m
m
m
As at 1 January 
1,101
4,390
8,150
13,641
863
1,456
8,082
10,401
Total gains / (losses) for the period
recognised in profit:
- in other comprehensive income
-
7
-
7
-
15
-
15
- realised and unrealised
(losses) / gains2
(23)
234
217
428
9
269
(51)
227
Purchases / Additions
156
1,283
402
1,841
260
586
283
1,129
Sales / Disposals
(34)
(39)
(166)
(239)
(244)
(112)
(87)
(443)
Transfers into level 33
118
1,714
101
1,933
26
1,670
-
1,696
Transfers out of level 33
-
(5)
-
(5)
(3)
(56)
-
(59)
Other
2
5
10
17
-
-
-
-
As at 30 June
1,320
7,589
8,714
17,623
911
3,828-
8,227
12,966
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. The group holds regular discussions with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as a result of this process. In H1 17, transfers into level 3 include 874m of private placement and 795m of income strips, which were previously classified as level 2. In H1 16, transfers into level 3 included 1.6bn of commercial real estate loans, which were previously classified as level 2.
Other
financial
Equity
invest-
Investment
securities
ments1
property
Total
Full year
Full year
Full year
Full year
31.12.16
31.12.16
31.12.16
31.12.16
m
m
m
m
As at 1 January 
863
1,456
8,082
10,401
Total gains / (losses) for the year
recognised in profit:
- in other comprehensive income
-
5
-
5
- realised and unrealised
gains / (losses)2
40
350
(78)
312
Purchases / Additions
473
1,161
692
2,326
Sales / Disposals
(302)
(139)
(494)
(935)
Transfers into level 33
22
1,590
-
1,612
Transfers out of level 33
-
(33)
-
(33)
Transfers to held for sale
-
-
(53)
(53)
Other
5
-
1
6
As at 31 December
1,101
4,390
8,150
13,641
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. The group holds regular discussion with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as result of this process. In 2016, transfers into level 3 included 1.6bn of commercial real estate loans, which were previously classified as level 2.
IFRS and Release from Operations  Page 51
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets
Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the level 3 financial instruments carried at fair value as at the balance sheet date, the valuation basis, main assumptions used in the valuation of these instruments and reasonably possible increases or decreases in fair value based on reasonably possible alternative assumptions.
Reasonably possible 
alternative assumptions
Current
Increase
Decrease
fair
in fair
in fair
For the six months ended 30 June 2017
Main
value
value
value
Financial instruments and investment property
assumptions
m
m
m
Assets
Shareholder
- Unquoted investments in property vehicles1
Property yield
565
15
(15)
- Untraded and other debt securities2
Cash flows; expected defaults
401
4
(4)
- Unquoted and other securities2
Cash flows; expected defaults
67
3
(3)
- Investment property1
Property yield
200
23
(23)
Non profit non-linked
- Lifetime mortgage loans
Market spreads; LTVs
1,433
77
(83)
- Untraded and other debt securities2
Cash flows; expected defaults
3,602
102
(100)
- Commercial real estate loans
Cash flows; expected defaults
2,136
43
(43)
- Investment property1
Cash flows; property yield
2,687
138
(138)
- Other
Cash flows
5
-
-
With-profits
- Unquoted investments in property vehicles1
Property yield
209
13
(13)
- Untraded and other debt securities2
Cash flows; expected defaults
5
-
-
- Investment property1
Cash flows; Property yield
740
38
(38)
Unit linked
- Unquoted investments in property vehicles1
Cash flows; Property yield
92
6
(6)
- Suspended securities
Estimated recoverable amount
26
-
-
- Untraded and other debt securities3
Cash flows; expected defaults
7
-
-
- Unquoted and other securities2
Cash flows; expected defaults
361
18
(18)
- Investment property1
Cash flows; Property yield
5,087
256
(256)
Total
17,623
736
(740)
1. Unquoted investments in property vehicles and direct holdings in investment property are valued using valuations provided by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yields.
2. No reasonably possible increases or decreases in fair values have been given for securities where the broker valuation methodology is unknown.
3. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
IFRS and Release from Operations  Page 52
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)
Reasonably possible 
alternative assumptions
Current
Increase
Decrease
fair
in fair
in fair
For the six months ended 30 June 2016
Main
value
value
value
Financial instruments and investment property
assumptions
m
m
m
Assets
Shareholder
- Private equity investment vehicles1
Price earnings multiple
16
1
(1)
- Unquoted investments in property vehicles2
Property yield
283
1
(2)
- Asset backed securities
Cash flows; expected defaults
2
-
-
- Untraded and other debt securities3
Cash flows; expected defaults
358
2
(2)
- Unquoted and other securities3
Cash flows; expected defaults
7
-
-
- Investment property2
Property yield
200
10
(20)
Non profit non-linked
- Lifetime Mortgage loans
Market Spreads; LTV's
440
8
(7)
- Untraded and other debt securities3
Cash flows; expected defaults
1,197
-
-
- Commercial real estate loans
Cash flows; expected defaults
1,811
32
(32)
- Investment property2
Cash flows; Property yield
2,257
56
(113)
- Other
Cash flows
10
-
-
With-profits
- Private equity investment vehicles1
Price earnings multiple
17
-
-
- Unquoted investments in property vehicles2
Property yield
207
13
(25)
- Unquoted and other securities3
Cash flows; expected defaults
10
-
-
- Investment property2
Property yield
920
47
(92)
Unit linked
- Unquoted investments in property vehicles2
Property yield
369
19
(38)
- Private equity investment vehicles1
Price earnings multiple
1
-
-
- Suspended securities
Cash flows; expected defaults
11
-
-
- Investment property2
Property yield
4,850
247
(485)
Total
12,966
436
(817)
1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in investment property are valued using valuations provided by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yields.
3. No reasonably possible increases or decreases in fair values have been given for securities where the broker valuation methodology is unknown.
IFRS and Release from Operations  Page 53
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)
Reasonably possible 
alternative assumptions
Current
Increase
Decrease
fair
in fair
in fair
For the year ended 31 December 2016
Main
value
value
value
Financial instruments and investment property
assumptions
m
m
m
Assets
Shareholder
Unquoted investments in property vehicles1
Property yield
292
19
(19)
Untraded and other debt securities2
Cash flows; expected defaults
474
12
(12)
Unquoted and other securities2
Cash flows; expected defaults
72
2
(3)
Investment property1
Property yield
162
8
(9)
Non profit non-linked
Lifetime mortgage loans
Market spreads; LTVs
852
10
(18)
Untraded and other debt securities2
Cash flows; expected defaults
1,270
2
(2)
Commercial real estate loans
Cash flows; expected defaults
1,776
11
(16)
Investment property1
Property yield
2,442
127
(127)
Other
Cash flows 
92
-
-
With-profits
Private equity investment vehicles
Price earnings multiple
8
-
-
Unquoted investments in property vehicles1
Property yield
200
12
(12)
Untraded and other debt securities2
Cash flows; expected defaults
10
-
-
Investment property1
Property yield
738
38
(38)
Unit linked
Unquoted investments in property vehicles1
Property yield
87
5
(5)
Untraded and other debt securities2
Cash flows; expected defaults
23
-
-
Unquoted and other securities2
Cash flows; expected defaults
335
17
(17)
Investment property1
Property yield
4,808
235
(235)
Total
13,641
498
(513)
1. Unquoted investments in property vehicles and direct holdings in investment property are valued using valuations provided by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yields.
2. No reasonably possible increases or decreases in fair values have been given for securities where the broker valuation methodology is unknown.
IFRS and Release from Operations  Page 54
2.14 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Profit before tax attributable to equity holders
1,163
826
1,582
Tax calculated at 19.25% (H1 16: 20.00%; FY 16: 20.00%)
224
165
316
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax
(6)
(4)
(12)
Higher/(lower) rate of tax on profits taxed overseas
3
4
7
Non-deductible expenses
-
2
4
Differences between taxable and accounting investment gains
(4)
(2)
(11)
Non-recurring reconciling items:
Income not subject to tax1
(4)
(1)
(1)
Non-deductible expenses
1
-
17
Differences between taxable and accounting investment gains
-
(3)
(14)
Adjustments in respect of prior years
(3)
-
13
Impact of reduction in UK corporate tax rate to 17% from 2020 on deferred tax balances
-
(2)
(2)
Tax attributable to equity holders
211
159
317
Equity holders' effective tax rate2
18.1%
19.2%
20.0%
1. Includes gains relating to M&A activity which are non taxable.
2. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders. Refer to note 2.08 for detail on the methodology of the split of policyholder and equity holders' tax.
IFRS and Release from Operations  Page 55
2.14 Tax (continued)
(b) Deferred tax
30.06.17
30.06.16
31.12.16
Deferred tax (liabilities)/assets
m
m
m
Deferred acquisition expenses
(414)
(392)
(429)
 - UK
(43)
(48)
(45)
 - Overseas
(371)
(344)
(384)
Difference between the tax and accounting value of insurance contracts
(288)
(305)
(286)
 - UK
(134)
(125)
(123)
 - Overseas
(154)
(180)
(163)
Realised and unrealised gains on investments
(275)
(210)
(255)
Excess of depreciation over capital allowances
16
16
15
Excess expenses1
40
62
49
Accounting provisions and other
(51)
(29)
(51)
Trading losses2
63
88
80
Pension fund deficit
77
71
82
Purchased interest in long-term business
(3)
(25)
(13)
Net deferred tax liabilities
(835)
(724)
(808)
Analysed by:
- UK deferred tax asset
2
5
5
- Overseas deferred tax asset
3
-
-
- UK deferred tax liability
(316)
(206)
(291)
- Overseas deferred tax liability
(524)
(523)
(522)
Net deferred tax liabilities3
(835)
(724)
(808)
1. The reduction in the UK deferred tax asset on excess expenses reflects the unwind of the spread acquisition expenses.
2. Trading losses include UK trade and US operating losses of 8m (H1 16: 7m; FY 16: 5m) and 55m (H1 16: 81m; FY 16: 75m) respectively. The reduction in the deferred tax asset primarily reflects utilisation of brought forward US operating losses against US profits.
3. On the Consolidated Balance Sheet, the net deferred tax liability has been split between an asset of 5m and a liability of 840m where the relevant items cannot be offset.
IFRS and Release from Operations  Page 56
2.15 Payables and other financial liabilities
Full year
30.06.17
30.06.16
31.12.16
m
m
m
Derivative liabilities
7,376
15,473
9,014
Repurchase agreements1
28,076
17,295
23,163
Other
8,257
3,988
5,170
Payables and other financial liabilities
43,709
36,756
37,347
1. The repurchase agreements are presented gross, however they and their related assets are subject to master netting arrangements.
Fair value hierarchy
Amortised
Total
Level 1
Level 2
Level 3
cost
As at 30 June 2017
m
m
m
m
m
Derivative liabilities
7,376
482
6,894
-
-
Repurchase agreements
28,076
-
-
-
28,076
Other
8,257
2,550
15
179
5,513
Payables and other financial liabilities
43,709
3,032
6,909
179
33,589
Amortised
Total
Level 1
Level 2
Level 3
cost
As at 30 June 2016
m
m
m
m
m
Derivative liabilities
15,473
5,519
9,954
-
-
Repurchase agreements
17,295
-
-
-
17,295
Other
3,988
522
14
174
3,278
Payables and other financial liabilities
36,756
6,041
9,968
174
20,573
Amortised
Total
Level 1
Level 2
Level 3
cost
As at 31 December 2016
m
m
m
m
m
Derivative liabilities
9,014
884
8,130
-
-
Repurchase agreements
23,163
-
-
-
23,163
Other
5,170
806
8
177
4,179
Payables and other financial liabilities
37,347
1,690
8,138
177
27,342
Future commission costs are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the Consolidated Income Statement during the year. A reasonably possible alternative persistency assumption would have the effect of increasing the liability by 5m (H1 16: 4m; FY 16: 5m).
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2017 (30 June 2016 and 31 December 2016: no significant transfers between levels 1, 2 and 3).
IFRS and Release from Operations  Page 57
2.16 Dividends
Full year
Per1
Per1
Full year
Per1
Dividend
share
Dividend
share
Dividend
share
30.06.17
30.06.17
30.06.16
30.06.16
31.12.16
31.12.16
m
p
m 
p
m
p
Ordinary share dividends paid in the period:
- Prior year final dividend 
616
10.35
592
9.95
592
9.95
- Current year interim dividend
-
-
-
-
238
4.00
616
10.35
592
9.95
830
13.95
Ordinary share dividend proposed2
256
4.30
238
4.00
616
10.35
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. The dividend proposed is not included as a liability in the Consolidated Balance Sheet.

2.17 Share capital 
Number of
Number of
Number of
shares
shares
shares
Full year
30.06.17
30.06.16
31.12.16
As at 1 January
5,954,656,466
5,948,788,480
5,948,788,480
Options exercised under share option schemes:
- Savings related share option scheme
2,061,874
3,465,839
5,867,986
As at 30 June / 31 December
5,956,718,340
5,952,254,319
5,954,656,466
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 which are authorised and are no longer at the discretion of the company.
IFRS and Release from Operations  Page 58
2.18 Core Borrowings
Carrying
Fair
Carrying
Fair
Carrying
Fair 
amount
value
amount
value
amount
value
30.06.17
30.06.17
30.06.16
30.06.16
31.12.16
31.12.16
m
m
m
m
m
m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)
-
-
626
615
615
609
5.875% Sterling undated subordinated notes (Tier 2)
410
432
412
412
411
418
5.25% US Dollar subordinated notes 2047 (Tier 2)
658
700
-
-
-
-
5.55% US Dollar subordinated notes 2052 (Tier 2)
387
399
-
-
-
-
10% Sterling subordinated notes 2041 (Tier 2)
311
406
310
392
310
403
5.5% Sterling subordinated notes 2064 (Tier 2)
589
651
589
534
589
603
5.375% Sterling subordinated notes 2045 (Tier 2)
602
670
602
607
602
627
Client fund holdings of group debt1
(33)
(33)
(33)
(32)
(31)
(31)
Total subordinated borrowings
2,924
3,225
2,506
2,528
2,496
2,629
Senior borrowings
Sterling medium term notes 2031-2041
602
848
602
801
609
845
Client fund holdings of group debt1
(27)
(27)
(44)
(58)
(34)
(34)
Total senior borrowings
575
821
558
743
575
811
Total core borrowings
3,499
4,046
3,064
3,271
3,071
3,440
1. 60m (H1 16: 77m; FY 16: 65m) of the group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
All of the group's core borrowings are measured using amortised cost. The presented fair values of the group's core borrowings reflect quoted prices in active markets and they are classified as level 1 in the fair value hierarchy.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued 600m of 6.385% Sterling perpetual capital securities. These securities were called at par on 2 May 2017.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued 400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as tier 2 own funds for Solvency II purposes. 
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 USD mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047. They are treated as tier 2 own funds for Solvency II purposes.
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 USD mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052. They are treated as tier 2 own funds for Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued 300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041. They are treated as tier 2 own funds for Solvency II purposes.
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% pa. These notes mature on 27 June 2064. They are treated as tier 2 own funds for Solvency II purposes.
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% pa. These notes mature on 27 October 2045. They are treated as tier 2 own funds for Solvency II purposes.
IFRS and Release from Operations  Page 59
2.19 Operational borrowings
Carrying
Fair
Carrying
Fair
Carrying
Fair
amount
value
amount
value
amount
value
30.06.17
30.06.17
30.06.16
30.06.16
31.12.16
31.12.16
m
m
m
m
m
m
Short term operational borrowings
Euro Commercial paper
322
322
103
103
216
216
Bank loans and overdrafts
20
20
69
69
6
6
Total short term operational borrowings
342
342
172
172
222
222
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund Limited Partnership
-
-
42
42
-
-
Consolidated Property Limited Partnerships
211
211
197
197
208
208
Total non recourse borrowings
211
211
239
239
208
208
Total operational borrowings
553
553
411
411
430
430
The presented fair values of the group's operational borrowings reflect observable market information and have been classified as level 2 in the fair value hierarchy.
Short term operational borrowings
Short term assets available at the holding company level exceeded the amount of short term operational borrowings of 342m (H1 16: 172m; FY 16: 222m.). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts. 
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings were non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2017, the group had in place a 1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2021. 

2.20 Non-controlling interests
Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results. The majority of the non-controlling interests in 2017 are in relation to investments in the Leisure Fund Unit Trust, the Performance Retail Unit Trust, the Legal & General UK Property Ungeared Fund Limited Partnership, and Thorpe Park Developments Limited. 

2.21 Foreign exchange rates
Principal rates of exchange used for translation are:
Period end exchange rates
At 30.06.17
At 30.06.16
At 31.12.16
United States Dollar
1.30
1.34
1.24
Euro
1.14
1.20
1.17
01.01.17 - 
01.01.16 - 
01.01.16 - 
Average exchange rates
30.06.17
30.06.16
31.12.16
United States Dollar
1.26
1.43
1.36
Euro
1.16
1.28
1.22
IFRS and Release from Operations  Page 60
2.22 Related party transactions
There were no material transactions between key management and the Legal & General group of companies during the period. 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. Contributions to the post-employment defined benefit plans were 36m (H1 16: 34m; FY 16: 75m) for all employees.
At 30 June 2017, 30 June 2016 and 31 December 2016 there were no loans outstanding to officers of the company.
Key management personnel compensation
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
30.06.17
30.06.16
31.12.16
m
m
m
Salaries
2
2
9
Social security costs
1
1
2
Post-employment benefits
-
-
-
Share-based incentive awards
2
2
5
Key management personnel compensation
5
5
16
Number of key management personnel
16
16
15
The group has the following related party transactions: 
- Annuity contracts issued by Society for consideration of 161m (H1 16: 4m; FY 16: 3m) purchased by the group's UK defined benefit pension schemes during the period, priced on an arm's length basis;
- Investments in venture capital, property and financial investments held via collective investment vehicles. All transactions between the group and these collective investment vehicles are on commercial terms which are no more favourable than those available to companies in general. The net investments into associate investment vehicles totalled 10m during the period (H1 16: 27m; FY 16: 47m). The group received investment management fees of 1m during the period (H1 16: 1m; FY 16: 2m). Distributions from these investment vehicles to the group totalled 15m (H1 16: 6m; FY 16: 20m);
- Loans outstanding from CALA at 30 June 2017 total 68m (30 June 2016: 63m; 31 December 2016: 65m);
- The equity investment in Pemberton is now fully drawn at 18m. A commitment of 220m was previously made to Pemberton's inaugural European Mid-Market Debt Fund, of which 125m was drawn as at 30 June 2017. In addition, a 50m commitment was made to the Pemberton U.K. Mid-Market Direct Lending Fund, of which 25m has been drawn down to date;
- Loans outstanding from MediaCity at 30 June 2017 total 55m (H1 2016: 55m; FY 2016: 55m);
- Preference shares outstanding from Thorpe Park at 30 June 2017 total 30m (H1 16: 12m; FY 16: 18m);
- A 50/50 joint venture in Access Development Partnership, developing build to rent properties. LGC has a total commitment of 150m, of which 28m has been drawn down to date;
- A 46% investment in Accelerated Digital Ventures, a venture investment company, for a total commitment of 34m, of which 17m has been drawn to date;
- Further contingent capital commitments of 2m for NTR Asset Management Europe DAC, with a total commitment of 5m. A commitment of 103m to the NTR Wind 1 Limited fund, of which 80m has been drawn to date;
IFRS and Release from Operations  Page 61
2.23 Pension costs
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. The schemes were closed to future accrual on 31 December 2015. At 30 June 2017, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at 347m (30 June 2016: 306m; 31 December 2016: 374m). These amounts have been recognised in the financial statements with 219m charged against shareholder equity (30 June 2016: 193m; 31 December 2016: 236m) and 128m against the unallocated divisible surplus (30 June 2016: 113m; 31 December 2016: 138m).
2.24 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. 
In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or provision in respect of this matter. 
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. The Society 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.
IFRS and Release from Operations  Page 62
2.25 Independent review report to Legal & General Group Plc - IFRS
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Legal & General Group Plc's consolidated interim financial statements (the "interim financial statements") in the Interim Management Statement of Legal & General Group Plc for the 6 month period ended 30 June 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
 the Consolidated Balance Sheet as at 30 June 2017;
 the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;
 the Consolidated Cash Flow Statement for the period then ended;
 the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
 the explanatory notes to the interim financial statements (pages 25 to 61).
The interim financial statements included in the Interim Management Statement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2.08 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Management Statement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Management Statement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Management Statement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
IFRS and Release from Operations  Page 63
2.25 Independent review report to Legal & General Group Plc - IFRS (continued)
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Management Statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 August 2017
a) The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
IFRS and Release from Operations  Page 64
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