REG - Legal & General Grp - L&G Full Year Results 2015 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
15/03/2016 07:07
- Part 6: For the preceding part double click ID:nRSO0690Se
with the market value stress. Where property is being used to back liabilities, the valuation interest rate used to place a
value on the liabilities moves with the implied change in property yields.
The annuitant mortality stress is a 1% reduction in the mortality rates for immediate and deferred annuitants with no
change to the mortality improvement rates. The assurance mortality stress represents an increase in mortality/morbidity
rates for assurance contracts by 5%.
The credit default stress assumes a +/-10bps stress to the current credit default assumption for unapproved corporate bonds
which will have an impact on the valuation interest rates used to discount liabilities. The credit default assumption is
set based on the credit rating of the individual bonds in the asset portfolio and their outstanding term using Moody's
global credit default rates.
For the sensitivity to the default of the group's largest external reinsurer, the reinsurer stress shown is equal to the
technical provisions ceded to the external reinsurer and represents the impact of the default of largest external reinsurer
at an entity level.
The above sensitivity analyses do not reflect management actions which could be taken to reduce the impacts. The group
seeks to actively manage its asset and liability position. A change in market conditions may lead to changes in the asset
allocation or charging structure which may have a more, or less, significant impact on the value of the liabilities. The
analyses also ignore any second order effects of the assumption change, including the potential impact on the group asset
and liability position and any second order tax effects. In calculating the alternative values, all other assumptions are
left unchanged, though in practice, items of the group's experience may be correlated. The sensitivity of the profit and
equity to changes in assumptions may not be linear. These results should not be extrapolated to changes of a much larger
order, which could be significantly more or less than the amounts shown above.
IFRS and Cash
Page 52
2.25 Foreign exchange rates
Principal rates of exchange used for translation are:
Period end exchange rates At 31.12.15 At 31.12.14
United States Dollar 1.47 1.56
Euro 1.36 1.29
01.01.15 - 01.01.14 -
Average exchange rates 31.12.15 31.12.14
United States Dollar 1.53 1.65
Euro 1.38 1.24
2.26 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 £93m (2014: £69m) for all employees.
At 31 December 2015 and 31 December 2014 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:
2015 2014
£m £m
Salaries 10 8
Social security costs 2 2
Post-employment benefits 1 2
Share-based incentive awards 5 4
Key management personnel compensation 18 16
Number of key management personnel 16 16
IFRS and Cash
Page 53
2.27 Provisions
(a) Analysis of provisions
2015 2014
£m £m
Retirement benefit obligations 1,131 1,217
Other provisions 40 30
1,171 1,247
(b) Retirement benefit obligations
Fund and Fund and
Scheme Overseas Scheme Overseas
2015 2015 2014 2014
£m £m £m £m
Gross pension obligations included in provisions (1,126) (5) (1,215) (2)
Annuity obligations insured by Society 746 - 723 -
Gross defined benefit pension deficit (380) (5) (492) (2)
Deferred tax on defined benefit pension deficit 72 - 98 -
Net defined benefit pension deficit (308) (5) (394) (2)
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 1 January 2016. At 31 December 2015, the combined after tax
deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £308m (2014:
£394m). These amounts have been recognised in the financial statements with £194m charged against shareholder equity (2014:
£248m) and £114m against the unallocated divisible surplus (2014: £146m).
IFRS and Cash
Page 54
2.28 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, litigations or issues. Legal & General (Portfolio Management Services)
Limited (PMS) is currently cooperating with an investigation by FCA into Structured Deposits products issued by PMS between
2006 and 2014. PMS has responded to FCA's requests for information and awaits FCA's feedback. This matter is at an early
stage, management and legal advisers will evaluate on an ongoing basis whether any provision should be recognised.
In 1975, 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. LGAS 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.
Asset and premium flows
Page 55
3.01 Legal & General investment management total assets
Active
fixed Solu- Active Total Advisory Total
For the year Index income1 tions2 Real assets1 equities AUM assets assets
ended 31 December 2015 £bn £bn £bn £bn £bn £bn £bn £bn
At 1 January 2015 274.8 102.9 293.3 14.5 8.2 693.7 14.8 708.5
External inflows3 33.4 11.1 16.3 1.4 - 62.2 62.2
External outflows (30.9) (4.3) (6.6) (0.9) - (42.7) (42.7)
Overlay/ advisory net flows - - 18.2 - - 18.2 (4.6) 13.6
External net flows4 2.5 6.8 27.9 0.5 - 37.7 (4.6) 33.1
Internal net flows (0.7) (1.9) - 0.9 (0.4) (2.1) - (2.1)
Disposal of LGF5 - (2.3) - - - (2.3) - (2.3)
Total net flows 1.8 2.6 27.9 1.4 (0.4) 33.3 (4.6) 28.7
Cash management movements6 - 0.8 - - - 0.8 - 0.8
Market and other movements4 (2.3) 0.5 17.0 2.4 0.7 18.3 0.3 18.6
At 31 December 2015 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
Assets attributable to:
External 661.0 10.5 671.5
Internal 85.1 - 85.1
Assets attributable to:
UK 623.7 - 623.7
International 122.4 10.5 132.9
Active
fixed Solu- Active Total Advisory Total
For the year ended Index income1 tions2 Real assets1 equities AUM assets assets
31 December 2014 £bn £bn £bn £bn £bn £bn £bn £bn
As at 1 January 2014 269.8 88.7 232.5 12.0 8.6 611.6 - 611.6
External inflows 23.7 5.5 8.5 1.4 0.1 39.2 39.2
External outflows (39.5) (3.8) (6.6) (0.5) (0.1) (50.5) (50.5)
Overlay/ advisory net flows - - 18.8 - - 18.8 (0.2) 18.6
External net flows4 (15.8) 1.7 20.7 0.9 - 7.5 (0.2) 7.3
Internal net flows (0.2) (0.7) 0.4 1.5 (0.1) 0.9 - 0.9
Total net flows (16.0) 1.0 21.1 2.4 (0.1) 8.4 (0.2) 8.2
Acquisition of GIA assets - - - - - - 13.4 13.4
Cash management movements6 - (1.6) - - - (1.6) - (1.6)
Market and other movements4 21.0 14.8 39.7 0.1 (0.3) 75.3 1.6 76.9
As at 31 December 2014 274.8 102.9 293.3 14.5 8.2 693.7 14.8 708.5
Assets attributable to:
External 603.7 14.8 618.5
Internal 90.0 - 90.0
Assets attributable to:
UK 579.7 - 579.7
International 114.0 14.8 128.8
1. Infrastructure debt investment has been reclassified from Active Fixed Income to Real Assets in 2015. 2014 has therefore been restated (1 January 2014 AUM: £0.7bn; internal net flows: £0.2bn; 31 December 2014 AUM: £0.9bn). The commercial loans business has also been reclassified and is now included in Real Assets (2014: £0.6bn).
2. Solutions include liability driven investments, multi-asset funds and included £226.2bn at 31 December 2015 (31 December 2014: £194.6bn) of derivative notionals associated with the Solutions business.
3. Solutions external inflows include £11.7bn of assets associated with the transfer of National Grid UK Pension Scheme after the purchase of their asset manager Aerion Fund Management.
4. External net flows exclude movements in short term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2015 was £59.9bn (31 December 2014: £46.5bn) and the movement in these assets is included in market and other movements for Solutions assets.
5. On 31 December 2015, the group sold Legal & General Holdings (France) S.A. to APICIL Prévoyance.
6. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
Asset and premium flows
Page 56
3.02 Legal & General investment management total assets quarterly progression
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