REG - Legal & General Grp - IFRS 17 Transition Update

Legal & GeneralAnnouncement

05/07/2023 07:00

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RNS Number : 9750E  Legal & General Group Plc  05 July 2023

 Legal & General Group Plc

 5 July 2023

Legal & General: IFRS 17 Transition Update

Legal & General Plc ("Legal & General" or the "Group") today provides
investors and analysts with an update on our transition to IFRS 17. Access
slides here: link (https://group.legalandgeneral.com/en/investors)

No change to strategy, solvency or dividends

IFRS 17 - a global standard implemented by the sector on 1 January 2023 - is
an accounting change which does not affect our strategy, solvency or
dividends. The Board's confidence in the Group achieving its 5-year ambitions
remains unchanged. IFRS 17 does not change the underlying economics of our
insurance contracts. It does not impact LGIM or LGC. It only impacts the
reporting of our annuity and protection businesses (LGRI, Retail), changing
the timing of recognition of earnings from these products but not the quantum.

On track to achieve our ambitions

We remain on track to achieve our 5-year ambitions. Over 2020-2024, we expect
to generate £8-9bn of capital, to grow EPS faster than DPS 1 , and
cumulatively for net surplus generation to exceed dividends. As previously
stated, the Board's aim is to continue to grow the dividend at 5% per annum to
FY24.

IFRS 17 recognises a £14bn store of future value for shareholders

Under IFRS 17, L&G recognises a significant stock of value in the
Contractual Service Margin (CSM) and Risk Adjustment (RA). At 31(st) December
2022, this amounted to £13.6bn: future value that will unwind into profits as
experience plays out in line with expectations. Over the course of 2022, the
CSM has increased from £11.2bn to £12.1bn as the contribution from new
business and assumption changes has exceeded the release into profits.

LGRI accounts for c60% of this stock of value, and Retail for c40%. We have
provided guidance in the presentation to help analysts and investors model
IFRS 17 profits for these divisions.

FY22 IFRS 17 operating profit from divisions is estimated to be £2.1bn.
Consistent with previous guidance, the main drivers of the change from IFRS 4
are the removal of new business profits and assumption changes, which are now
added to the CSM and released over the lifetime of the contract.

Looking forwards, we expect the adoption of IFRS 17 to result in a more stable
and predictable operating profit profile for L&G through steady CSM and RA
releases. We expect the contribution to the CSM and RA from new insurance
business and assumption changes (which impact the CSM only) to continue to
exceed the run-off from our in-force insurance book. As a result, we expect
insurance earnings to grow over time.

Indicatively, writing £10bn of UK PRT per annum would result in 6-7% CAGR in
related operating profit over five years. We continue to see compelling
investment opportunities across all our businesses, providing scope to deliver
growth beyond this level.

Insurance Trading Update: strong progress in PRT, individual annuities & US protection

Year-to-date, LGRI has transacted on £6.8bn of PRT (UK: £6.7bn,
International: £0.1bn), with £5.0bn completed by the half year. There has
been a step-up in the number of pension schemes approaching the insurance
market, alongside an increase in £1bn+ transactions, with several more such
pension schemes intending to complete transactions this year. The pipeline for
2023 is the largest we have seen and we are on track for one of our busiest
years ever. We have secured PRT new business premiums year-to-date at margins
and capital strain that are in line with our long-term average.

In Retail, we have seen ongoing, higher demand for individual lifetime and
fixed term annuities due to improved rates on offer as a result of higher
interest rates, with total annuity new business premiums of c£575m at end
June, 27% higher than the prior year. US Protection new business is up 39% on
the prior year, with APE of c$86m. UK protection new business is down 13% on
the prior year, with APE of c£129m, predominantly due to fewer large Group
Protection schemes coming to market.

Solvency II: supported by strong capital generation

The Group estimates its Solvency coverage ratio as at 30 June 2023 to be
approximately 225%, principally reflecting the contribution from ongoing
operational surplus generation, and after paying the 2022 final dividend
(FY22: 236%).

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 £1.2 trillion in
total assets under management (as at FY22) 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 4 July 2023, Legal & General has a market
capitalisation of £13.7 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:

Natalie Whitty              Group Corporate Affairs Director
                              +44 (0)203 124 2878

Graeme Wilson
Teneo
 
            +44 (0)207 353 4200

 1  FY22 EPS will be restated under IFRS 17

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