REG - Legal & General Grp - L&G Full Year Results 2015 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 5
15/03/2016 07:07
- Part 5: For the preceding part double click ID:nRSO0690Sd
Ordinary share dividends paid in the period:
- Prior year final dividend 496 8.35 408 6.90
- Current year interim dividend 205 3.45 172 2.90
701 11.80 580 9.80
Ordinary share dividend proposed2 592 9.95 496 8.35
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 on the Consolidated Balance Sheet.
2.19 Share capital and share premium
2015 2014
Number of 2015 Number of 2014
Authorised share capital shares £m shares £m
At 31 December: ordinary shares of 2.5p each 9,200,000,000 230 9,200,000,000 230
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2015 5,942,070,229 149 969
Options exercised under share option schemes:
- Savings related share option scheme 6,718,251 - 7
As at 31 December 2015 5,948,788,480 149 976
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2014 5,917,066,636 148 959
Options exercised under share option schemes:
- Savings related share option scheme 25,003,593 1 10
As at 31 December 2014 5,942,070,229 149 969
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.
IFRS and Cash
Page 47
2.20 Core Borrowings
Carrying Fair Carrying Fair
amount value amount value
2015 2015 2014 2014
£m £m £m £m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1) 637 631 658 642
5.875% Sterling undated subordinated notes (Tier 2) 413 426 416 431
4.0% Euro subordinated notes 2025 (Tier 2) - - 472 482
10% Sterling subordinated notes 2041 (Tier 2) 310 398 310 424
5.5% Sterling subordinated notes 2064 (Tier 2) 589 570 588 666
5.375% Sterling subordinated notes 2045 (Tier 2) 602 611 - -
Client fund holdings of group debt1 (26) (27) (28) (31)
Total subordinated borrowings 2,525 2,609 2,416 2,614
Senior borrowings
Sterling medium term notes 2031-2041 609 779 609 800
Client fund holdings of group debt1 (42) (54) (48) (62)
Total senior borrowings 567 725 561 738
Total core borrowings 3,092 3,334 2,977 3,352
1. £68m (2014: £76m) 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 are
callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to
three month LIBOR plus 1.93% pa. For Solvency I purposes these securities are treated as tier 1 capital and for Solvency II
purposes these securities are treated as tier 1 own funds.
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 lower tier 2 capital for Solvency I
purposes and tier 2 own funds for Solvency II purposes.
4.0% Euro subordinated notes 2025
In 2005, Legal & General Group Plc issued E600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into
Sterling. On 8 June 2015, the group redeemed these notes at par. Prior to redemption, these notes were treated as lower
tier 2 capital for Solvency I purposes and 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 lower tier 2 capital for
Solvency I purposes and 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 lower tier 2 capital for
Solvency I purposes and tier 2 own funds for Solvency II purposes.
5.375% Sterling subordinated notes 2045
On 27 October 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 lower
tier 2 capital for Solvency I purposes and tier 2 own funds for Solvency II purposes.
IFRS and Cash
Page 48
2.21 Operational Borrowings
Carrying Fair Carrying Fair
amount value amount value
2015 2015 2014 2014
£m £m £m £m
Short term operational borrowings
Euro Commercial paper 15 15 73 73
Bank loans/other 2 2 13 13
Total short term operational borrowings 17 17 86 86
Non recourse borrowings
US Dollar Triple X securitisation 2037 302 258 286 240
Suffolk Life unit linked borrowings1 - - 120 120
LGV 6/LGV 7 Private Equity Fund Limited Partnership 98 98 136 136
Consolidated Property Limited Partnerships 184 184 148 148
Total non recourse borrowings 584 540 690 644
Group holding of operational borrowings2 (65) (56) (61) (52)
Total operational borrowings 536 501 715 678
1. In January 2016, the group announced that Suffolk Life Group Limited had been sold to Curtis Banks Group. As at 31 December 2015, the Suffolk Life unit linked borrowings have been transferred to held for sale, refer to Note 2.13.
2. Group investments in operational borrowings have been eliminated from the Consolidated Balance Sheet.
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 £17m
(2014: £86m). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts.
Non recourse borrowings
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of LGA issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve
requirements of part of the US term insurance written in 2005 and 2006. It is secured on the cash flows related to that
tranche of business.
Suffolk Life unit linked borrowings
All of these non recourse borrowings are in relation to commercial properties held within SIPP plans and the borrowings
solely relate to client investments.
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings are non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 31 December 2015, 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 2020. This facility replaced the syndicated facility totalling
£1.00bn, of which £0.04bn was due to mature in October 2017 and £0.96bn was due to mature in October 2018. No drawings were
made under either facility during 2015.
IFRS and Cash
Page 49
2.22 Insurance contract liabilities
(a) Analysis of insurance contract liabilities
Re- Re-
Gross insurance Gross insurance
2015 2015 2014 2014
Notes £m £m £m £m
Participating insurance contracts 2.22(b) 5,618 (1) 6,579 (1)
Non-participating insurance contracts 2.22(c) 49,470 (3,861) 49,589 (2,587)
General insurance contracts 284 (8) 287 (8)
Insurance contract liabilities 55,372 (3,870) 56,455 (2,596)
During the year, the group continued utilising prospective reinsurance arrangements which resulted in a profit of £503m (2014: £298m). This profit has been reflected in the Consolidated Income Statement for the year and arises from new reinsurance arrangements or the reinsurance of new business under existing arrangements.
(b) Movement in participating insurance contract liabilities
Re- Re-
Gross insurance Gross insurance
2015 2015 2014 2014
£m £m £m £m
As at 1 January 6,579 (1) 6,972 (1)
New liabilities in the year 52 - 61 -
Liabilities discharged in the year (977) - (1,159) -
Unwinding of discount rates 40 - 54 -
Effect of change in non-economic assumptions 5 - (5) -
Effect of change in economic assumptions 81 - 561 -
Disposals1 (171) - - -
Other 9 - 95 -
As at 31 December 5,618 (1) 6,579 (1)
1. Reflects the disposal of LGF and LGII during the year.
(c) Movement in non-participating insurance contract liabilities
Re- Re-
Gross insurance Gross insurance
2015 2015 2014 2014
£m £m £m £m
As at 1 January 49,589 (2,587) 39,975 (2,596)
New liabilities in the year 2,866 (768) 7,325 (446)
Liabilities discharged in the year (2,744) (39) (2,469) 259
Unwinding of discount rates 1,451 (93) 1,493 (145)
Effect of change in non-economic assumptions (384) 157 (569) 362
Effect of change in economic assumptions (1,335) (513) 3,844 (3)
Foreign exchange adjustments 27 (18) (10) (18)
As at 31 December 49,470 (3,861) 49,589 (2,587)
IFRS and Cash
Page 50
2.23 Investment contract liabilities
(a) Analysis of investment contract liabilities
Re- Re-
Gross insurance Gross insurance
2015 2015 2014 2014
Note £m £m £m £m
Participating investment contracts 4,912 - 7,667 14
Non-participating investment contracts 278,554 (250) 288,558 (324)
Investment contract liabilities 2.23(b) 283,466 (250) 296,225 (310)
(b) Movement in investment contract liabilities
Re- Re-
Gross insurance Gross insurance
2015 2015 2014 2014
£m £m £m £m
As at 1 January 296,225 (310) 286,247 (295)
Reserves in respect of new business 37,639 (598) 30,645 (334)
Amounts paid on surrenders and maturities during the year (46,557) 164 (53,311) 60
Investment return and related benefits 5,160 455 33,126 259
Management charges (303) - (309) -
Foreign exchange adjustments (162) - (177) -
Disposals1 (5,321) - - -
Transfer to held for sale (3,235) 39 - -
Other 20 - 4 -
As at 31 December 283,466 (250) 296,225 (310)
1. Reflects the disposal of LGF and LGII during the year.
IFRS and Cash
Page 51
2.24 IFRS sensitivity analysis
Impact on
pre-tax Impact on
group profit group equity
net of re- net of re-
insurance insurance
2015 2015
£m £m
Economic sensitivity
Long-term insurance
1% increase in interest rates 48 (36)
1% decrease in interest rates (168) (49)
1% increase in long term inflation expectations (38) (31)
Credit spread widens by 100bps with no change in expected defaults (102) (138)
10% decrease in listed equities (124) (103)
10% fall in property values (81) (65)
10bps increase in credit default assumption (324) (258)
10bps decrease in credit default assumption 366 292
Non-economic sensitivity
Long-term insurance
1% decrease in annuitant mortality (132) (105)
5% increase in assurance mortality (64) (49)
Default of largest external reinsurer (835) (666)
General insurance
Single storm event with 1 in 200 year probability (67) (54)
Subsidence event - worst claims ratio in last 30 years (72) (57)
The table shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario for the
group. The participating funds have been excluded in the above sensitivity analysis as the impact of the sensitivities on
IFRS profit and equity is offset by the movement in the unallocated divisible surplus (UDS). The shareholders' share of
with-profit bonus declared in the year is relatively insensitive to market movements due to the smoothing policies
applied.
The interest rate sensitivity assumes a 100bps change in the gross redemption yield on fixed interest securities together
with a 100bps change in the real yields on variable securities. For the UK with-profit funds, valuation interest rates are
assumed to move in line with market yields adjusted to allow for the impact of PRA regulations. The interest rate
sensitivities reflect the impact of the regulatory restrictions on the reinvestment rate used to value the liabilities of
the long term business. Modelling improvements have been made in the year which more accurately isolate the impacts of
discrete assumptions changes. No yield floors have been applied in the estimation of the stresses, despite the current low
interest rate environment.
Interest rate and inflation expectation have historically shown positive correlation and have therefore been presented next
to each other.
The inflation stress adopted is a 1% pa increase in inflation resulting in a 1% pa reduction in real yield and no change to
the nominal yield. In addition the expense inflation rate is increased by 1% pa.
In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields
are unchanged, and there has been no adjustment to the default assumptions.
The equity stress is a 10% fall in listed equity market values. The property stress adopted is a 10% fall in property
market value. Rental income is assumed to be unchanged; however the vacant possession value is stressed down by 10% in line
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