REG - Legal & General Grp - L&G Full Year Results 2015 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
15/03/2016 07:07
- Part 6: For the preceding part double click ID:nRSO0691Se
Shareholders' equity on the IFRS basis 4,897 6,404 4,693 6,028
Purchased interest in long term business (38) (39) (46) (49)
Deferred acquisition costs/deferred income liabilities (294) (1,435) (201) (1,255)
Deferred tax1 (117) 367 (16) 444
Other2 42 3 (911) (976)
Shareholder net worth on the EEV basis 4,490 5,300 3,519 4,192
1. Deferred tax represents all tax which is expected to be paid under legislation in force at the balance sheet date.2. Other primarily relates to the different treatment of annuities and the LGA Triple X securitisation between the EEV and IFRS basis, as well as profit transfer from the long-term fund to shareholder funds.
European Embedded Value
90
5.03 Profit/(loss) for the year
Covered business
Insurance Non-
UK overseas covered
business business LGA business Total
For the year ended 31 December 2015 Note £m £m £m £m £m
Business reported on an EEV basis:
Contribution from new business after cost of capital 5.04 432 13 84 - 529
Contribution from in-force business:
- expected return1 414 8 52 - 474
- experience variances2 (100) (11) 6 - (105)
- operating assumption changes3,4 306 6 (238) - 74
Development costs (25) - - - (25)
Contribution from shareholder net worth5 192 1 9 - 202
Operating profit/(loss) on covered business 1,219 17 (87) - 1,149
Business reported on an IFRS basis6 - - - 161 161
Total operating profit/(loss) 1,219 17 (87) 161 1,310
Economic variances7 245 7 (27) (44) 181
Other variances8 - (41) - - (41)
Gains on non-controlling interests - - - 19 19
Profit/(loss) before tax 1,464 (17) (114) 136 1,469
Tax (expense)/credit on profit from ordinary activities (243) (7) 40 (18) (228)
Effect of tax rate changes and other taxation impacts9 95 - - - 95
Profit/(loss) for the year 1,316 (24) (74) 118 1,336
Operating profit on covered business before tax
attributable to:
LGR 463
LGIM10 103
LGC 192
Insurance 311
Savings 150
Total 1,219
p
Earnings per share
Based on profit attributable to equity holders of the 22.25
company
Diluted earnings per share
Based on profit attributable to equity holders of the 22.10
company
1. The expected return on in-force for UK covered
business is based on the unwind of the risk discount
rate on the opening, adjusted base value of in-force
(VIF). The opening base VIF of the UK covered business
was £6,118m in 2015 (2014: £4,693m). This is multiplied
by the opening risk discount rate of 5.5% (2014: 6.8%)
and the result grossed up at the notional attributed tax
rate of 18% (2014: 20%) to give a return of £414m (2014:
£397m). The same approach has been applied for Insurance
overseas business.
2. UK covered business experience variances primarily
reflect the impact from reduction of annuities in
relation to reinsurance of bulk annuity transactions.
3. UK covered business operating assumption changes
primarily reflect a change in mortality reserving
assumptions in relation to unreported deaths of deferred
annuitants; and the impact of release of prudence margin
in the Sterling reserves, mainly in the Savings
business; partially offset by enhancements to
reinsurance modelling in our UK protection business,
where recent contracts have been written on a risk
premium basis (as opposed to level premium). The model
change ensures that, for these treaties, sufficient
prudence is being held in later years.
4. LGA operating assumption changes primarily reflect
the impact of more conservative long-term assumptions on
Post-Level Term mortality and shock lapse rates. This
completes the assumption review exercise initiated in
the US in 2014 after changes in industry-wide mortality
tables.
5. Contribution from shareholder net worth reflects the
investment returns on shareholder assets within covered
businesses.
6. Non-covered business operating profit primarily
reflects: LGIM business excluding workplace savings,
general insurance, LGC and group non-covered business,
which comprises group debt costs, investment projects
and group expenses, partly offset by investment returns
from non-covered shareholder assets.
7. The positive variance on UK covered business has
resulted from a number of factors including favourable
default experience, higher long term investment return
rate (mainly in LGR), and the impact of reducing gilt
holdings.
8. Other variances primarily reflects the recognition of
the loss arising from the disposal of LGF.
9. This primarily reflects the implementation of the UK
planned future reductions in the corporation tax rate to
18% on 1 April 2020.
10. LGIM figures represent the workplace savings
results. Other areas of LGIM are not included within
covered business.
European Embedded Value
91
5.03 Profit/(loss) for the year (continued)
Covered business
Insurance Non-
UK overseas covered
business business LGA business Total
For the year ended 31 December 2014 Note £m £m £m £m £m
Business reported on an EEV basis:
Contribution from new risks after cost of capital:
- contribution from new business 5.04 753 7 90 - 850
- intra-group transfer from with-profit to non profit 100 - - - 100
fund
Contribution from in-force business:
- expected return1 397 27 66 - 490
- experience variances2 32 (11) (23) - (2)
- operating assumption changes3 42 16 (241) - (183)
Development costs (32) - - - (32)
Contribution from shareholder net worth 184 7 3 - 194
Operating profit / (loss) on covered business 1,476 46 (105) - 1,417
Business reported on an IFRS basis4 - - - 164 164
Total operating profit / (loss) 1,476 46 (105) 164 1,581
Economic variances5 863 (18) (17) (38) 790
Gains on non-controlling interests - - - 7 7
Profit / (loss) before tax 2,339 28 (122) 133 2,378
Tax (expense)/credit on profit from ordinary activities (364) (8) 43 (31) (360)
Effect of tax rate changes and other taxation impacts6 (2) - - - (2)
Profit / (loss) for the year 1,973 20 (79) 102 2,016
Operating profit on covered business before tax
attributable to:
LGR 1,011
LGIM7 27
LGC 184
Insurance 232
Savings 22
Total 1,476
p
Earnings per share
Based on profit attributable to equity holders of the 34.07
company
Diluted earnings per share
Based on profit attributable to equity holders of the 33.73
company
1. The expected return on in-force for UK covered
business is based on the unwind of the risk discount
rate on the opening, adjusted base value of in-force
(VIF). The opening base VIF of the UK covered business
was £4,693m in 2014. This is adjusted for the effects of
opening model changes of £(30)m to give an adjusted
opening base VIF of £4,663m. This is then multiplied by
the opening risk discount rate of 6.8% and the result
grossed up at the notional attributed tax rate of 20% to
give a return of £397m. The same approach has been
applied for the Insurance overseas businesses.
2. UK covered business variance primarily reflects UK
cost of capital unwind and favourable mortality
experience for bulk annuities. LGA experience variance
primarily relates to adverse mortality experience within
term assurance and universal life products respectively.
3. UK covered business operating assumption change
primarily reflects mortality assumption changes for non
profit annuities. LGA operating assumption changes
primarily incorporates an adjustment to our mortality
assumptions to reflect the changes in industry-wide
mortality tables (which were issued in the second half
of 2014).
4. Non-covered business operating profit primarily
reflect LGIM business excluding workplace savings,
general insurance and LGC non-covered business.
5. The UK covered business positive variance has
resulted from a number of factors including lower risk
discount rate, favourable default experience and
enhanced yield on annuity assets, offset by a lower risk
free rate. Non-covered variance primarily reflects lower
equity return from shareholder funds.
6. Other taxation impacts reflects the change in the
treatment of deferred tax on in-force business to align
with IFRS by removing the effect of discounting.
7. LGIM figures represent the workplace savings results,
other areas of LGIM are not included in covered
business.
European Embedded Value
92
5.04 New business by product1
Present Contri-
value of Capital- bution
Annual annual isation Single from new
premiums premiums factor2 premiums PVNBP business3 Margin
For the year ended 31 December 2015 £m £m £m £m £m %
UK Insurance4 231 1,306 5.7 - 1,306 130 9.9
Overseas Insurance 40 313 7.8 384 697 13 1.9
Insurance 271 1,619 6.0 384 2,003 143 7.1
Savings 54 170 3.1 1,507 1,677 1 0.1
LGR5 n/a - n/a 2,721 2,721 266 9.8
LGIM6 1,068 4,148 3.9 1,219 5,367 35 0.6
LGA 70 692 9.9 - 692 84 12.1
Total new business 1,463 6,629 4.5 5,831 12,460 529 4.2
Cost of capital 49
Contribution from new business before cost of capital 578
1. Covered business only.
2. The capitalisation factor is the present value of annual premiums divided by the amount of annual premiums.
3. The contribution from new business is defined as the present value at the point of sale of assumed profits from new business written in the period and then rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.
4. The UK Insurance margin reflects the benefits of stronger commercial focus and disciplined expense control during 2015.
5. LGR for 2015 includes bulk annuities' single premiums and contribution from new business on a net of quota share reinsurance basis to provide a more representative margin figure.
6. LGIM figures represent the workplace savings results, other areas of LGIM are not included in covered business.
Present Contri-
value of Capital- bution
Annual annual isation Single from new
premiums premiums factor2 premiums PVNBP business3 Margin
For the year ended 31 December 2014 £m £m £m £m £m %
UK Insurance 230 1,336 5.8 - 1,336 112 8.4
Overseas Insurance 41 300 7.3 394 694 7 1.0
Insurance 271 1,636 6.0 394 2,030 119 5.9
Savings 63 171 2.7 1,678 1,849 9 0.5
LGR n/a - n/a 6,578 6,578 614 9.3
LGIM4 591 2,277 3.9 1,060 3,337 18 0.5
LGA 91 907 10.0 - 907 90 9.9
Total new business 1,016 4,991 4.9 9,710 14,701 850 5.8
Cost of capital 108
Contribution from new business before cost of capital 958
1. Covered business only.
2. The capitalisation factor is the present value of annual premiums divided by the amount of annual premiums.
3. The contribution from new business is defined as the present value at the point of sale of assumed profits from new business written in the period and then rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.
4. LGIM figures represent the workplace savings results, other areas of LGIM are not included in covered business.
European Embedded Value
93
5.05 Sensitivities
In accordance with the guidance issued by the European Insurance CFO Forum in October 2005, the table below shows the effect of alternative assumptions on the long term embedded value and new business contribution.
Effect on embedded value as at 31 December 2015
1% 1% 1%
lower higher 1% 1% higher
As risk risk lower higher equity/
pub- discount discount interest interest property
lished rate rate rate rate yields
£m £m £m £m £m £m
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