REG - Legal & General Grp - L&G Full Year Results 2015 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 5
15/03/2016 07:07
- Part 5: For the preceding part double click ID:nRSO0691Sd
2014 2014
Estimated LGIM discounted cash flow valuation p per share £bn
Look-through value of profits on covered business 6 0.4
Net asset value 8 0.5
Current value of LGIM in group embedded value 14 0.9
LGIM VIF 27 1.6
Alternative discounted value of LGIM future cash flows 41 2.5
1. UK intra-group distributions primarily reflect a £675m dividend paid from Society to group, and dividends of E35m from LGN and £5m from Nationwide Life paid to Society. Dividends of $76m from LGA and E2m from LGF were paid to group.
2. The transfer to non-covered business represents the IFRS profits arising in the year from the provision of investment management services by LGIM to the UK covered business, which have been included in the operating profit of the covered business on the look-through basis.
3. The other reserve movements primarily reflect the effect of reinsurance transactions between UK and US covered business, pension deficit movement, movement in the savings related share options scheme and an intragroup capital contribution.
4. Value of in-force business is shown net of cost of capital, which consists of £545m from UK covered business, £60m from Insurance overseas business and £11m from LGA.
5. The time value of the options and guarantees deduction included in value of in-force business is £43m.
6. Shareholder net worth of Insurance overseas business is made up of £90m of free surplus and £235m of required capital.
7. Shareholder net worth of LGA is made up of £161m of free surplus and £48m of required capital.
8. The number of shares in issue at 31 December 2014 was 5,942,070,229.
9. Excludes workplace savings results, which are reflected in the UK covered business.
Further analysis of the UK covered business can be found in Note 5.01.
European Embedded Value
87
5.01 UK covered business embedded value reconciliation
Shareholder net worth Total
Free Required Value of embedded
surplus capital Total in-force value
For the year ended 31 December 2015 £m £m £m £m £m
At 1 January 2015 887 2,632 3,519 6,118 9,637
Operating profit/(loss) after tax:
- New business contribution1 (175) 214 39 316 355
- Expected return on VIF - - - 346 346
- Expected transfer from VIF to SNW2 936 (182) 754 (754) -
- Expected return on SNW 76 131 207 - 207
Generation of embedded value 837 163 1,000 (92) 908
- Experience variances 162 (272) (110) 18 (92)
- Operating assumption changes3 686 86 772 (521) 251
- Development costs (21) - (21) - (21)
Variances 827 (186) 641 (503) 138
Operating profit/(loss) after tax 1,664 (23) 1,641 (595) 1,046
Non-operating profit/(loss) after tax:
- Economic variances 62 (71) (9) 184 175
- Effect of tax rate changes and other taxation impacts4 - - - 95 95
Non-operating profit/(loss) after tax 62 (71) (9) 279 270
Profit/(loss) for the year 1,726 (94) 1,632 (316) 1,316
Intra-group distributions5 (692) - (692) - (692)
Transfer to non-covered business6 (25) - (25) - (25)
Other reserve movements including pension deficit 56 - 56 - 56
Embedded value at 31 December 2015 1,952 2,538 4,490 5,802 10,292
1. The UK free surplus reduction of £175m to finance new business primarily reflects £214m additional required capital in relation to new business.
2. The increase in UK free surplus of £936m from the expected transfer from the in-force non profit business includes £754m of operational cash generation and a £182m reduction in required capital. The £1,117m operational cash generation from Insurance, Savings, LGR and LGIM reported in Note 2.01 also includes £28m of dividends from LGN, £1m dividend from LGF and £334m reflecting profit from non-covered business.
3.The release from Value of in-force to Shareholder net worth within Operating assumption changes is primarily driven by the extension of PS06/14 realistic reserving to unit linked business, to enable negative non-unit regulatory reserves for linked business.
4.This primarily reflects the implementation of the UK planned future reductions in the corporation tax rate to 18% on 1 April 2020.
5. Intra-group distributions primarily reflect a £700m dividend from Society to group and a £20m dividend from LGRe to group, partially offset by dividends of £28m from LGN to Society.
6. The transfer to non-covered business represents the IFRS profits arising in the year from the provision of investment management services by LGIM to the UK covered business, which have been included in the operating profit of the covered business on the look-through basis.
The value of in-force business of £5,802m is comprised of £5,484m of non profit business and £318m of with-profits business.
European Embedded Value
88
5.01 UK covered business embedded value reconciliation (continued)
Shareholder net worth Total
Free Required Value of embedded
surplus capital Total in-force value
For the year ended 31 December 2014 £m £m £m £m £m
At 1 January 2014 1,107 2,142 3,249 4,693 7,942
Operating profit/(loss) after tax:
- New business contribution1 (340) 343 3 607 610
- Intra-group transfer from with-profit to non profit fund - - - 80 80
- Expected return on VIF - - - 317 317
- Expected transfer from VIF to SNW2 901 (213) 688 (688) -
- Expected return on SNW 55 116 171 - 171
Generation of embedded value 616 246 862 316 1,178
- Experience variances 175 (83) 92 (6) 86
- Operating assumption changes 171 (109) 62 (36) 26
- Development costs (26) - (26) - (26)
Variances 320 (192) 128 (42) 86
Operating profit after tax 936 54 990 274 1,264
Non-operating profit/(loss) after tax:
- Economic variances (359) 219 (140) 851 711
- Effect of tax rate changes and other taxation impacts3 (12) - (12) 10 (2)
Non-operating profit/(loss) after tax (371) 219 (152) 861 709
Profit for the year 565 273 838 1,135 1,973
Intra-group distributions4 (641) - (641) - (641)
Transfer to non-covered business5 (26) - (26) - (26)
Other reserve movements including pension deficit6 (118) 217 99 290 389
Embedded value at 31 December 2014 887 2,632 3,519 6,118 9,637
1. The UK free surplus reduction of £340m to finance new business reflects £343m additional required capital in relation to new business.
2. The increase in UK free surplus of £901m from the expected transfer from the in-force covered business includes £688m of operational cash generation and a £213m reduction in required capital. The £1,026m operational cash generation from Insurance, Savings, LGR and LGIM per Note 2.01 also includes £29m dividend from LGN, £2m dividend from LGF and £307m primarily reflecting profit from non-covered business.
3. Reflects the implementation of the UK planned future reductions in the corporation tax rate to 20% on 1 April 2015.
4. Intra-group distributions primarily reflect £675m dividends paid from Society to group and dividends of E35m from LGN and £5m from Nationwide to Society.
5. The transfer to non-covered business represents the IFRS profits arising in the year from the provision of investment management services by LGIM to the UK covered business, which have been included in the operating profit of the covered business on the look-through basis.
6. The other reserve movements reflect the pension deficit movement, the effect of reinsurance transactions between UK and US covered business and an intra-group capital contribution.
The value of in-force business of £6,118m is comprised of £5,778m of non profit business and £340m of with-profits business.
European Embedded Value
89
5.02 Reconciliation of shareholder net worth
UK UK
covered covered
business Total business Total
2015 2015 2014 2014
£m £m £m £m
SNW of long-term operations (IFRS basis) 4,897 5,931 4,693 5,889
Other assets/(liabilities) (IFRS basis) - 473 - 139
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