REG - Legal & General Grp - IFRS 17 investor and analyst event

Legal & GeneralAnnouncement

29/11/2022 14:00

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RNS Number : 9613H  Legal & General Group Plc  29 November 2022

 Legal & General Group Plc

 29 November 2022

Legal & General: IFRS 17 investor and analyst event

Legal & General Plc ("Legal & General" or the "Group") will provide an
update on IFRS 17 to investors and analysts, releasing a recorded video and
accompanying slides at 14:00 GMT followed by virtual Q&A at 14:45 GMT
today, Tuesday 29 November. Access to both is here: link
(https://group.legalandgeneral.com/en/investors)

IFRS 17 - a global standard due to be implemented by the sector on 1 January
2023 - is an accounting change which does not change our strategy, solvency or
dividends. The introduction of a CSM (Contractual Service Margin) and Risk
Adjustment (RA) creates a significant store of future value (£13-14bn) that
will result in more predictable and growing Insurance profits from a lower
base.

No change in commitment to delivering on our 2020-2024 capital generation and dividend ambitions

The Board's confidence in the Group achieving its 5 year ambitions is
unchanged. IFRS 17 does not change the underlying economics of our Insurance
contracts. It will not impact LGIM or LGC. It will impact the reporting of our
annuity and protection businesses (LGRI, Retail), changing the timing of
recognition of earnings from these products but not the quantum. It does not
change our:

·    Ability to generate cash and capital: We demonstrated at the
interims that we are on track to achieve our cumulative cash and capital
ambitions, even under a zero-growth scenario. We are aiming to generate
£8-9bn of cumulative capital generation between 2020-2024. As at HY22, we had
generated cumulative capital of £4.1bn. Neither cash nor capital generation
are impacted by IFRS 17, which is an accounting measure.

·     Strategy: The Group has established expertise in asset origination
(LGC) and asset management (LGIM), and in the provision of retirement and
protection solutions to corporates and individuals (LGRI and Retail). We
operate at scale and are strongly positioned to capitalise on significant
growth opportunities across our chosen markets and geographies.

·     Ability to invest in future growth: We demonstrated at the
interims that we have capacity to write £8-12bn of UK PRT and Retail
Annuities in 2022 and for the UK annuity portfolio still to be
self-sustaining. We are on course to generate £0.5bn of cumulative net
surplus over the dividend (2020-2022). IFRS17 will not change our ability to
invest in future growth or the margins on that business.

·   Solvency position: The Group's Solvency position is currently
estimated to be in a range of 220-225%, excluding any benefit from proposed
Solvency II reform (FY21: 187%). This provides a significant buffer and
attractive optionality to capitalise on our growth opportunities.

·    Creditworthiness: Our credit ratings are strong (Fitch: AA-, Moody's
Aa3, S&P AA-, AM Best: A+) 1  (#_ftn1) . Rating agencies have noted that
the introduction of IFRS 17 does not change the underlying economics of
insurers and is therefore unlikely to change creditworthiness.

·    Dividend-paying capacity or appetite: IFRS 17 does not change the
Board's view on the strength of the Group's cash and capital generation
profile. We are therefore today giving more specific dividend guidance which
underlines the Board's commitment to a progressive dividend, the Board having
carefully considered the Group's financial position and having had regard to
the general economic outlook for the UK and the other countries in which the
Group operates. The Group set out an ambition at its 2020 capital markets day
to grow the dividend at 3-6% per annum to FY24 2  (#_ftn2) . Whilst dividend
decisions are made annually, the Board's aim is to continue to grow the
dividend at 5% per annum to FY24. 3  (#_ftn3)

The CSM and RA are a significant store (£13-14bn) of predictable future value

IFRS 17 introduces the balance sheet concepts of a contractual service margin
(CSM) and risk adjustment (RA). These represent discounted, future value that
will unwind into profits over time. We expect the CSM to be an important
driver of Insurance earnings. Based on transition at 1 January 2022 we expect
to create a CSM and RA stock of around £13.5 billion - a significant store of
future value. We expect equity to reduce by around £5.5bn.  We expect return
on equity to increase under IFRS 17 due to the reduction in equity.

IFRS 17 also introduces a more stable and predictable profit profile through
the CSM release. For L&G, this benefit emerges through the deferral of new
business profit and demographic assumption changes to the CSM, which will then
be spread and released into profit consistently over the lifetime of the
contract. Historically, these two components have made a meaningful
contribution to Group operating profit from divisions.

Indicatively, the removal of these two components, with an adjustment to
reflect the higher anticipated release from the in-force book, would reduce
divisional operating profit by c20-25%. 4  (#_ftn4) We expect Insurance
earnings to grow in a more stable and predictable way from this new base.

We are confident in our ability to continue to write profitable new annuity
and protection business, and therefore to grow the CSM and related profits
over time. Indicatively, writing £10bn of UK PRT per annum would result in
6-7% CAGR in related operating profit over five years. This would be higher if
we wrote more than £10bn per annum. We continue to see compelling investment
opportunities across all our businesses, providing further scope to deliver
growth beyond this level.

Expectations for FY22 operating profit and capital generation unchanged

Consistent with the guidance provided at HY22, we expect to deliver resilient
FY22 operating profit growth in line with the 8% delivered in H1 (£1.16bn vs
£1.08bn) and FY22 capital generation of £1.8bn.

 

Notes to editors

About Legal & General

Established in 1836, Legal & General is one of the UK's leading financial
services groups and a major global investor, with around £1.3 trillion in
total assets under management (as at H1 2022) of which a third is
international. We also provide powerful asset origination capabilities.
Together, these underpin our leading retirement and protection solutions: we
are a leading international player in pension risk transfer, in UK and US life
insurance, and in UK workplace pensions and retirement income. Through
inclusive capitalism, we aim to build a better society by investing in
long-term assets that benefit everyone. As at 28 November 2022, Legal &
General has a market capitalisation of £15.3 billion.

Forward looking statements

This announcement may contain certain forward-looking statements relating to
Legal & General, its plans and its current goals and expectations relating
to future financial condition, performance, results, strategy and objectives.
Forward-looking statements often use words such as 'may', 'could', 'will',
'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek',
'continue' or other words of similar meaning. By their nature, forward-looking
statements involve risk and uncertainty because they are subject to future
events and circumstances which are beyond Legal & General's control,
including, among others, UK domestic and global economic and business
conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory and Governmental
authorities, the impact of competition, the timing impact of these events and
other uncertainties of future acquisitions or combinations within relevant
industries. Please see Legal & General's most recent Annual Report and
Accounts for further details of risks, uncertainties and other factors
relevant to the business and its securities (available at:
https://group.legalandgeneral.com/en). As a result, Legal & General's
actual future condition, performance and results may differ materially from
the plans, goals and expectations set out in these forward-looking statements
and persons reading this announcement should not place undue reliance on
forward-looking statements. These forward-looking statements are made only as
at the date on which such statements are made and Legal & General does not
undertake to update forward-looking statements contained in this announcement
or any other forward-looking statement it may make.

Further information

Investors:

Edward Houghton         Group Strategy and Investor Relations Director
          +44 (0)203 124 2091

Nim Ilankovan               Investor Relations
Director
+44 (0)203 124 2054

Blake Carr                     Investor Relations
Director
+1 240 397 0053

Media:

Graeme Wilson              Tulchan
Communications
+44 (0)207 353 4200

 1  (#_ftnref1) Ratings shown are Legal and General Assurance Society Limited
Financial strength rating

 2  (#_ftnref2) Dividends declared

 3  (#_ftnref3) Absent market shocks / events outside of our control

 4  (#_ftnref4) Based on average new business premiums and assumption changes
over last 3 years

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