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REG - Legal & General Grp - L&G Full Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 1

Legal & GeneralAnnouncement

08/03/2017 07:07

RNS Number : 8033Y

Legal & General Group Plc

08 March 2017

Legal & General Full Year Results 2016 Part 2

IFRS and Release from Operations Page 25

Operating profit

For the year ended 31 December 2016

		2016	2015
	Notes	m	m


From continuing operations
Legal & General Retirement (LGR)	2.02	811	641
Legal & General Investment Management (LGIM)	2.03	366	355
Legal & General Capital (LGC)	2.05	257	233
Legal & General Insurance (LGI)	2.02	317	315
- UK and Other		232	232
- US		85	83
Savings	2.02	99	107
General Insurance	2.04	52	51


Operating profit from divisions		1,902	1,702
Group debt costs¹		(172)	(153)
Group investment projects and expenses²	2.06	(102)	(86)


Adjusted operating profit		1,628	1,463
Kingswood office closure costs		(66)	(8)


Operating profit		1,562	1,455
Investment and other variances	2.07	13	(119)
Gains on non-controlling interests		7	19


Profit before tax attributable to equity holders		1,582	1,355
Tax expense attributable to equity holders of the company	2.15	(317)	(261)


Profit for the year		1,265	1,094



Profit attributable to equity holders of the company		1,258	1,075



		p	p


Earnings per share³	2.10	21.22	18.16
Diluted earnings per share³	2.10	21.13	18.04


1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in 2016 include restructuring costs of 54m (2015: 42m).
3. All earnings per share calculations are based on profit attributable to equity holders of the company.

This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the year.

During 2016, Insurance and LGA segments (excluding General Insurance) were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents shareholder assets invested in direct investments, and traded and treasury assets.

LGI represents business in retail protection, group protection, networks, Legal & General Netherlands (LGN) and protection business written in the USA (LGA). LGI comparatives include Legal & General France (LGF), which was sold during 2015.

Savings represents business in platforms, SIPPs and mature savings including with-profits.

The General Insurance segment comprises short-term protection.

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to LGI from Savings, and Investment Discounts On Line Limited (the IDOL) has been transferred to LGR from LGI. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR 2015 operating profit by 2m, increase Savings 2015 operating profit by 8m and reduce LGI 2015 operating profit by 10m.

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects IFRS profit before tax) and LGA (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition, and start-up costs, are also excluded from operating profit.

IFRS and Release from Operations Page 26

2.01 Reconciliation of release from operations to operating profit before tax

The table below provides an analysis of the release from operations by each of the group's business segments, together with a reconciliation to operating profit before tax.

					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations¹	(strain)	operations	variances	tions	other	and other²	after tax	(credit)	tax
31 December 2016	m	m	m	m	m	m	m	m	m	m


LGR	433	159	592	34	40	6	-	672	139	811
LGIM	308	(22)	286	(1)	-	-	-	285	81	366
- LGIM excluding Workplace
Savings (admin only)	290	-	290	-	-	-	-	290	82	372
- Workplace Savings (admin
only)³	18	(22)	(4)	(1)	-	-	-	(5)	(1)	(6)
LGC	214	-	214	-	-	-	-	214	43	257
LGI	317	23	340	(11)	5	(29)	(79)	226	91	317
- UK and Other	254	23	277	(11)	5	(29)	(57)	185	47	232
- US	63	-	63	-	-	-	(22)	41	44	85
Savings	104	(5)	99	4	8	(32)	-	79	20	99
General Insurance	42	-	42	-	-	-	-	42	10	52


Total from divisions	1,418	155	1,573	26	53	(55)	(79)	1,518	384	1,902


Group debt costs	(138)	-	(138)	-	-	-	-	(138)	(34)	(172)
Group investment projects
and expenses	(24)	-	(24)	-	-	-	(59)	(83)	(19)	(102)


Adjusted total	1,256	155	1,411	26	53	(55)	(138)	1,297	331	1,628
Kingswood office closure costs⁴	-	-	-	-	-	-	(53)	(53)	(13)	(66)


Total	1,256	155	1,411	26	53	(55)	(191)	1,244	318	1,562


1. Release from operations includes dividends remitted from LGN of 70m (2015: 28m) within the LGI UK and Other line and US of 63m (2015: 54m).
2. International and other includes 43m (2015: 34m) of restructuring costs (54m before tax) (2015: 42m before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management profits.
4. The Kingswood office closure costs reflect expenditure in relation to rent and rates, as well as the write-off of previously capitalised expenditure.

Release from operations for LGR, LGIM, LGI and Savings represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings, protection and savings businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGN and LGA and operating profit after tax from the remaining LGI businesses. The Savings release from operations includes the shareholders' share of bonuses on with-profits business and operating profit after tax from the remaining Savings businesses.

New business surplus/strain for LGR, LGIM, LGI and Savings represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings, protection and savings, net of tax. The new business surplus and release from operations for LGR, LGIM, LGI and Savings exclude any capital held in excess of the prudent reserves from the liability calculation.

Net release from operations for LGR, LGIM, LGI and Savings is defined as release from operations less new business strain.

Release from operations and net release from operations for LGC and General Insurance represents the operating profit (net of tax).

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have been transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly.

See Note 2.02 for more detail on experience variances, changes to valuation assumptions and non-cash items.

IFRS and Release from Operations Page 27

2.01 Reconciliation of release from operations to operating profit before tax (continued)


					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations¹	(strain)	operations	variances	tions	other	and other²	after tax	(credit)	tax
31 December 2015	m	m	m	m	m	m	m	m	m	m


LGR⁴	374	45	419	13	114	(20)	-	526	115	641
LGIM	303	(22)	281	(1)	1	(2)	-	279	76	355
- LGIM excluding Workplace
Savings (admin only)	282	-	282	-	-	-	-	282	77	359
- Workplace Savings (admin³
only)	21	(22)	(1)	(1)	1	(2)	-	(3)	(1)	(4)
LGC	187	-	187	-	-	-	-	187	46	233
LGI⁴	328	25	353	(14)	(45)	(46)	(28)	220	95	315
- UK and Other	274	25	299	(14)	(45)	(46)	(11)	183	49	232
- US	54	-	54	-	-	-	(17)	37	46	83
Savings⁴	125	(9)	116	(9)	-	(23)	2	86	21	107
General Insurance	41	-	41	-	-	-	-	41	10	51


Total from divisions	1,358	39	1,397	(11)	70	(91)	(26)	1,339	363	1,702


Group debt costs	(122)	-	(122)	-	-	-	-	(122)	(31)	(153)
Group investment projects
and expenses	(19)	-	(19)	-	-	-	(50)	(69)	(17)	(86)


Adjusted total	1,217	39	1,256	(11)	70	(91)	(76)	1,148	315	1,463
Kingswood office closure costs	-	-	-	-	-	-	(6)	(6)	(2)	(8)


Total	1,217	39	1,256	(11)	70	(91)	(82)	1,142	313	1,455


1. Release from operations includes dividends remitted from LGF of 1m and LGN of 28m within the LGI UK and Other line and US of 54m.
2. International and other includes 34m of restructuring costs (42m before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management profits.
4. LGR includes the IDOL business which was previously reported in LGI, and LGI includes the advised sales and India businesses which were previously reflected in Savings. The impact of this reclassification has been to increase LGR 2015 release from operations by 2m, increase Savings 2015 release from operations by 6m and reduce LGI 2015 release from operations by 8m.

IFRS and Release from Operations Page 28

2.02 Analysis of LGR, LGI and Savings operating profit


	LGR	LGI	Savings	LGR	LGI	Savings
	2016	2016	2016	2015	2015	2015
	m	m	m	m	m	m


Net release from operations	592	340	99	419	353	116


Experience variances
Persistency	2	(2)	-	4	5	(2)
Mortality/morbidity¹	47	(34)	-	18	(16)	-
Expenses	(9)	4	7	-	2	3
Project and development costs	(21)	2	(4)	(20)	(2)	(2)
Other	15	19	1	11	(3)	(8)


Total experience variances	34	(11)	4	13	(14)	(9)


Changes to valuation assumptions
Persistency²	-	(52)	5	-	48	-
Mortality/morbidity³	40	4	-	97	(20)	-
Expenses⁴	-	53	-	17	27	(2)
Reinsurance modelling⁵	-	-	-	-	(93)	-
Other	-	-	3	-	(7)	2


Total valuation assumption changes	40	5	8	114	(45)	-


Movement in non-cash items
Deferred tax	-	-	1	-	-	2
Utilisation of brought forward trading losses	-	-	-	(25)	(6)	-
Acquisition expense tax relief ⁶	-	(27)	(3)	-	(30)	(4)
Deferred Acquisition Costs (DAC)⁷	-	-	(28)	-	-	(54)
Deferred Income Liabilities (DIL)⁷	-	-	9	-	-	39
Other	6	(2)	(11)	5	(10)	(6)


Total non-cash movement items	6	(29)	(32)	(20)	(46)	(23)


International and other⁸	-	(79)	-	-	(28)	2


Operating profit after tax	672	226	79	526	220	86


Tax gross up	139	91	20	115	95	21


Operating profit before tax	811	317	99	641	315	107


1. The LGR mortality/morbidity experience variance reflects higher than expected annuitant deaths experience over 2016. LGI mortality/morbidity experience variance in 2016 primarily reflects adverse claims experience on the group protection book of business.
2. The LGI persistency valuation assumption change in 2016 is the result of a review of prudence within the lapse assumption for level and decreasing term assurance products.
3. The mortality/morbidity valuation assumption change in LGR primarily reflects a change in the treatment to historic longevity insurance deals where future fees in excess of prudent estimates of longevity and expense experience are now included as an offset to IFRS reserves. The 2015 LGR mortality/morbidity change to valuation assumptions primarily reflected a change in mortality reserving assumptions in relation to unreported deaths of deferred annuitants.
4. The LGI expense valuation assumption change is the result of the reduction in unit costs following recent expense savings actions, together with a review of the prudence within renewal expenses on our protection products.
5. The reinsurance modelling for our UK protection business was enhanced in 2015. Recent reinsurance contracts have been written on a risk premium basis (as opposed to level premium) and the model change ensured that for these treaties, sufficient prudence was being held in later years. The one-off impact reduced operating profit by 93m in 2015. This also deferred a higher proportion of release from operations into the later years of these reinsurance contracts.
6. Net release from operations for LGI and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying expense as deferred tax amounts. The reconciling amounts arising from these items are included in the table above. Following the removal of new retail protection business from the 'I-E' tax regime, and the removal of commission from new insured savings business under the Retail Distribution Review at the end of 2012, no material amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net release from operations. The residual prior year acquisition expenses will run off predictably to 2018.
7. The DAC in Savings represents the amortisation charges offset by new acquisition costs deferred in the year. The DIL reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
8. LGI Other in 2016 reflects the difference between the dividend (release from operations) remitted from LGN and LGA of 70m and 63m respectively (2015: dividends remitted from LGN of 28m, LGF of 1m and LGA of 54m) and the LGN, LGA and India operating profit after tax (2015: LGN, LGF, LGA and India operating profit after tax).

IFRS and Release from Operations Page 29

2.03 LGIM

	2016	2015
	m	m


Investment management revenue	744	694
Investment management expenses	(372)	(335)
Workplace Savings (admin only) operating loss¹	(6)	(4)


Total LGIM operating profit	366	355


1. This represents Workplace Savings admin only and excludes fund management profits.

2.04 General Insurance operating profit and combined operating ratio


	2016	2015
	m	m


General Insurance operating profit¹	52	51


General Insurance combined operating ratio (%)²	89	89


1. The General Insurance operating profit includes the underwriting result and smoothed investment return.
2. The calculation of the General Insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.

2.05 LGC


	2016	2015
	m	m


Direct investments	121	69
Traded portfolio including treasury operations	136	164


Total LGC operating profit	257	233

2.06 Group investment projects and expenses


	2016	2015
	m	m


Group investment projects and central expenses	(48)	(44)
Restructuring costs¹	(54)	(42)


Total Group investment projects and expenses	(102)	(86)


1. Restructuring costs exclude the Kingswood office closure costs which have been presented separately.

2.07 Investment and other variances


	2016	2015
	m	m


Investment variance¹	147	(57)
M&A related²	(102)	(57)
Other³	(32)	(5)


Total Investment and other variances	13	(119)


1. 2016 investment variance is positive, primarily driven by foreign exchange gains on US dollar assets, the outperformance of equity markets to expectations and a lack of defaults on the group's bond portfolios, partially offset by the negative impact of interest rate changes during the period. The defined benefit pension scheme variance of 29m contained within this line (2015: (15)m) reflects the actuarial gains and losses, and valuation differences arising on annuity assets held by defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited. A segmental analysis of Investment and other variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2016 includes the 60m net loss resulting from the classification of Cofunds Plc as held for sale (64m loss) and the disposal of Suffolk Life (4m gain).(2015: includes the 25m net loss resulting from the disposal of subsidiary and joint venture investments during the year).
3. Other includes new business start-up costs and other non-investment related variance items.

IFRS and Release from Operations Page 30

Consolidated Income Statement

For the year ended 31 December 2016

		2016	2015
	Notes	m	m


Income
Gross written premiums		10,325	6,321
Outward reinsurance premiums		(1,573)	(1,603)
Net change in provision for unearned premiums		4	21


Net premiums earned		8,756	4,739
Fees from fund management and investment contracts		1,068	1,139
Investment return		67,824	5,947
Operational income		321	876


Total income	2.09	77,969	12,701


Expenses
Claims and change in insurance liabilities		17,896	5,080
Reinsurance recoveries		(2,745)	(2,466)


Net claims and change in insurance liabilities		15,151	2,614
Change in provisions for investment contract liabilities		58,578	5,615
Acquisition costs		793	838
Finance costs		198	186
Other expenses		1,569	1,893
Transfers (from)/to unallocated divisible surplus		(187)	141


Total expenses		76,102	11,287


Profit before tax		1,867	1,414
Tax expense attributable to policyholder returns		(285)	(59)


Profit before tax attributable to equity holders		1,582	1,355


Total tax expense		(602)	(320)
Tax expense attributable to policyholder returns		285	59


Tax expense attributable to equity holders	2.15	(317)	(261)


Profit for the year		1,265	1,094



Attributable to:
Non-controlling interests	2.24	7	19
Equity holders of the company		1,258	1,075



Dividend distributions to equity holders of the company during the year	2.17	830	701
Dividend distributions to equity holders of the company proposed after the year end	2.17	616	592





		p	p


Earnings per share¹	2.10	21.22	18.16


Diluted earnings per share¹	2.10	21.13	18.04


1. All earnings per share calculations are based on profit attributable to equity holders of the company.

IFRS and Release from Operations Page 31

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2016

	2016	2015
	m	m


Profit for the year	1,265	1,094

Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes	(138)	47
Tax on actuarial (losses)/gains on defined benefit pension schemes	17	(11)
Actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus	51	(17)
Tax on actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus	(6)	4


Total items that will not be reclassified to profit or loss subsequently	(76)	23


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	190	25
Net change in financial investments designated as available-for-sale	(4)	(64)
Tax on net change in financial investments designated as available-for-sale	1	22


Total items that may be reclassified to profit or loss subsequently	187	(17)


Other comprehensive income after tax	111	6


Total comprehensive income for the year	1,376	1,100


Total comprehensive income attributable to:
Non-controlling interests	7	19
Equity holders of the company	1,369	1,081

IFRS and Release from Operations Page 32

Consolidated Balance Sheet

As at 31 December 2016

		2016	2015
	Notes	m	m


Assets
Goodwill		11	83
Purchased interest in long term businesses and other intangible assets		155	292
Deferred acquisition costs		2,105	1,887
Investment in associates and joint ventures		283	220
Property, plant and equipment		76	92
Investment property	2.14/3.04	8,150	8,082
Financial investments	2.14/3.04	418,175	354,063
Reinsurers' share of contract liabilities		5,593	4,120
UK deferred tax asset	2.15	5	20
Current tax recoverable		297	236
Other assets		5,022	3,618
Assets of operations classified as held for sale	2.12	2,265	3,409
Cash and cash equivalents		25,717	20,677


Total assets		467,854	396,799



Equity
Share capital	2.18	149	149
Share premium	2.18	981	976
Employee scheme treasury shares		(30)	(30)
Capital redemption and other reserves		212	89
Retained earnings		5,633	5,220


Attributable to owners of the parent		6,945	6,404
Non-controlling interests	2.24	338	289


Total equity		7,283	6,693



Liabilities
Participating insurance contracts	2.21	5,794	5,618
Participating investment contracts	2.22	5,271	4,912
Unallocated divisible surplus		661	893
Value of in-force non-participating contracts		(206)	(184)


Participating contract liabilities		11,520	11,239



Non-participating insurance contracts	2.21	60,779	49,754
Non-participating investment contracts	2.22	321,177	278,554


Non-participating contract liabilities		381,956	328,308



Core borrowings	2.19	3,071	3,092
Operational borrowings	2.20	430	536
Provisions	2.27	1,328	1,171
UK deferred tax liabilities	2.15	291	137
Overseas deferred tax liabilities	2.15	522	436
Current tax liabilities		117	95
Payables and other financial liabilities	2.16	37,347	22,709
Other liabilities		594	737
Net asset value attributable to unit holders		21,573	18,277
Liabilities of operations classified as held for sale	2.12	1,822	3,369


Total liabilities		460,571	390,106


Total equity and liabilities		467,854	396,799

IFRS and Release from Operations Page 33

Consolidated Statement of Changes in Equity


			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
For the year ended 31 December 2016	m	m	m	m	m	m	m	m


As at 1 January 2016	149	976	(30)	89	5,220	6,404	289	6,693
Profit for the year	-	-	-	-	1,258	1,258	7	1,265
Exchange differences on translation of
overseas operations	-	-	-	190	-	190	-	190
Actuarial losses on defined benefit
pension schemes	-	-	-	-	(121)	(121)	-	(121)
Actuarial losses on defined benefit
pension schemes transferred to
unallocated divisible surplus	-	-	-	-	45	45	-	45
Net change in financial investments
designated as available-for-sale	-	-	-	(3)	-	(3)	-	(3)


Total comprehensive income/(expense)
for the year	-	-	-	187	1,182	1,369	7	1,376
Options exercised under share option
schemes:
- Savings related share option scheme	-	5	-	-	-	5	-	5
Shares purchased	-	-	(10)	-	-	(10)	-	(10)
Shares vested	-	-	10	(33)	-	(23)	-	(23)
Employee scheme treasury shares:
- Value of employee services	-	-	-	24	-	24	-	24
Share scheme transfers to retained earnings	-	-	-	-	6	6	-	6
Dividends	-	-	-	-	(830)	(830)	-	(830)
Movement in third party interests	-	-	-	-	-	-	42	42
Currency translation differences	-	-	-	(55)	55	-	-	-


As at 31 December 2016	149	981	(30)	212	5,633	6,945	338	7,283

1. Capital redemption and other reserves include Share-based payments 60m (2015: 69m), Foreign exchange 135m (2015: nil), Capital redemption 17m (2015: 17m), Available-for-sale reserves (1)m (2015: 2m) and Hedging reserves 1m (2015: 1m).

IFRS and Release from Operations Page 34

Consolidated Statement of Changes in Equity (continued)


			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
For the year ended 31 December 2015	m	m	m	m	m	m	m	m


As at 1 January 2015	149	969	(37)	117	4,830	6,028	275	6,303
Profit for the year	-	-	-	-	1,075	1,075	19	1,094
Exchange differences on translation of						-
overseas operations	-	-	-	25	-	25	-	25
Actuarial gains on defined benefit						-
pension schemes	-	-	-	-	36	36	-	36
Actuarial gains on defined benefit
pension schemes transferred to
unallocated divisible surplus	-	-	-	-	(13)	(13)	-	(13)
Net change in financial investments						-		-
designated as available-for-sale	-	-	-	(42)	-	(42)	-	(42)


Total comprehensive income/(expense)
for the year	-	-	-	(17)	1,098	1,081	19	1,100
Options exercised under share option scheme:
- Savings related share option scheme	-	7	-	-	-	7	-	7
Shares purchased	-	-	(3)	-	-	(3)	-	(3)
Shares vested	-	-	10	(23)	-	(13)	-	(13)
Employee scheme treasury shares:						-
- Value of employee services	-	-	-	26	-	26	-	26
Share scheme transfers to retained earnings	-	-	-	-	(21)	(21)	-	(21)
Dividends	-	-	-	-	(701)	(701)	-	(701)
Movement in third party interests	-	-	-	-	-	-	(5)	(5)
Currency translation differences	-	-	-	(14)	14	-	-	-


As at 31 December 2015	149	976	(30)	89	5,220	6,404	289	6,693


1. Capital redemption and other reserves include Share-based payments 69m, Foreign exchange nil, Capital redemption 17m, Available-for-sale reserves 2m and Hedging reserves 1m.

IFRS and Release from Operations Page 35

Consolidated Cash Flow Statement

For the year ended 31 December 2016

		2016	2015
	Notes	m	m


Cash flows from operating activities
Profit for the year		1,265	1,094
Adjustments for non cash movements in net profit for the year
Realised and unrealised (gains)/losses on financial investments and investment properties		(53,262)	4,077
Investment income		(9,390)	(9,760)
Interest expense		198	186
Tax expense		602	320
Other adjustments		(45)	(70)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss		(9,363)	1,007
Investments designated as available-for-sale		246	158
Other assets		(2,658)	(2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts		12,910	(1,083)
Transfer from unallocated divisible surplus		(232)	(90)
Investment contracts		39,747	(9,524)
Value of in-force non-participating contracts		(22)	24
Other liabilities		17,023	6,645


Cash used in operations		(2,981)	(9,610)
Interest paid		(198)	(186)
Interest received		4,863	5,286
Tax paid¹		(424)	(244)
Dividends received		4,676	3,931


Net cash flows from/(used in) operating activities		5,936	(823)


Cash flows from investing activities
Net acquisition of plant, equipment and intangibles		(45)	(24)
Acquisitions²		-	(5)
Disposal of subsidiaries³	2.11	(272)	(82)
Investment in joint ventures		(63)	(71)


Net cash flows from investing activities		(380)	(182)


Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the year	2.17	(830)	(701)
Proceeds from issue of ordinary share capital		5	7
Purchase of employee scheme shares (net)		-	(8)
Proceeds from borrowings		219	697
Repayment of borrowings		(342)	(527)


Net cash flows used in financing activities		(948)	(532)


Net increase/(decrease) in cash and cash equivalents		4,608	(1,537)
Exchange gains/(losses) on cash and cash equivalents		182	(106)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)		21,066	22,709


Cash and cash equivalents (before reallocation of held for sale cash)		25,856	21,066
Cash and cash equivalents classified as held for sale	2.12	(139)	(389)


Cash and cash equivalents at 31 December		25,717	20,677


1. Tax comprises UK corporation tax paid of 249m (2015: 128m), overseas corporate taxes of 16m (2015: 36m) and withholding tax of 159m (2015: 80m).
2. Net cash flows from acquisitions includes cash paid of nil (2015: 5m) less cash and cash equivalents acquired of nil (2015: nil).
3. Net cash flows from disposals includes cash received of 144m (2015: 242m) less cash and cash equivalents disposed of 416m (2015: 324m).

The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows. The closing cash position includes 944m (2015: 856m) relating to the with-profit fund policy-holders policyholders and 20,434m (2015: 16,116m) relating to unit-linked policyholders.

IFRS and Release from Operations Page 36

2.08 Basis of preparation

The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union, and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS and interpretations by the IFRS Interpretations Committee as issued by the IASB and as adopted by the European Union. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented.

Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group's foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for each income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.

Use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the determination of fair values of investment property and unquoted and illiquid financial investments and the estimation of deferred acquisition costs, tax balances and insurance and investment contract liabilities. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2016 Annual Report and Accounts.

Key technical terms and definitions

The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary of the group's 2016 Annual Report and Accounts.

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.

2.09 Segmental analysis

Reportable segments

The group has six reportable segments comprising LGR, LGIM, LGC, LGI, Savings and General Insurance. Central group expenses and debt costs are reported separately.

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents shareholder assets in direct investments, and traded and treasury assets.

LGI represents UK retail protection, group protection and network business, Legal & General Netherlands (LGN) and protection business written in the USA (LGA). LGI comparatives include Legal & General France (LGF), which was sold during 2015.

Savings represents business in platforms, SIPPs, mature savings and with-profits.

The General Insurance segment comprises short-term protection.

During 2016, the Insurance (excluding General Insurance) and LGA segments (excluding General Insurance) were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly.

Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.

IFRS and Release from Operations Page 37

2.09 Segmental analysis (continued)

(a) Profit/(loss) for the year


							Group
							expenses
						General	and debt
	LGR¹	LGIM	LGC	LGI¹	Savings¹	Insurance	costs	Total
For the year ended 31 December 2016	m	m	m	m	m	m	m	m


Operating profit/(loss)	811	366	257	317	99	52	(340)	1,562
Investment and other variances²	36	(32)	162	(123)	(51)	16	5	13
Gains attributable to non-controlling interests	-	-	-	-	-	-	7	7


Profit/(loss) before tax attributable to
equity holders	847	334	419	194	48	68	(328)	1,582
Tax (expense)/credit attributable to equity holders of the company	(149)	(68)	(52)	(71)	(22)	(13)	58	(317)


Profit/(loss) for the year	698	266	367	123	26	55	(270)	1,265



							Group
							expenses
						General	and debt
	LGR¹	LGIM	LGC	LGI¹	Savings¹	Insurance	costs	Total
For the year ended 31 December 2015	m	m	m	m	m	m	m	m


Operating profit/(loss)	641	355	233	315	107	51	(247)	1,455
Investment and other variances²	78	(20)	(116)	(44)	3	(8)	(12)	(119)
Gains attributable to non-controlling interests	-	-	-	-	-	-	19	19


Profit/(loss) before tax attributable to
equity holders	719	335	117	271	110	43	(240)	1,355
Tax (expense)/credit attributable to equity holders of the company	(131)	(74)	(9)	(93)	(16)	(8)	70	(261)


Profit/(loss) for the year	588	261	108	178	94	35	(170)	1,094


1. During 2016, changes have been made to the organisational structure. The advised sales and India businesses have been transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly. The impact of the reclassification has been to increase LGR 2015 operating profit by 2m and profit before tax by 1m, increase Savings 2015 operating profit by 8m and profit before tax by 8m, and reduce Insurance 2015 operating profit by 10m and profit before tax by 9m.
2. 2016 Investment and other variances - Savings includes the 60m net loss resulting from the disposal of subsidiaries during the period (2015: LGI and Savings include the 43m loss and 18m gain respectively resulting from the disposal of subsidiary and joint venture investments during the year).

IFRS and Release from Operations Page 38

2.09 Segmental analysis (continued)

(b) Income


						LGC
					General	and
	LGR¹	LGIM	LGI¹	Savings¹	Insurance	other²	Total
For the year ended 31 December 2016	m	m	m	m	m	m	m


Internal income	-	270	-	-	-	(270)	-
External income	13,851	49,856	2,237	4,362	326	7,337	77,969


Total income	13,851	50,126	2,237	4,362	326	7,067	77,969




						LGC
					General	and
	LGR¹	LGIM	LGI^1,3	Savings¹	Insurance	other²	Total
For the year ended 31 December 2015	m	m	m	m	m	m	m


Internal income	-	267	-	-	-	(267)	-
External income	2,554	5,514	2,516	2,473	349	(705)	12,701


Total income	2,554	5,781	2,516	2,473	349	(972)	12,701


1. During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR 2015 external income by 26m, reduce Savings 2015 external income by 5m and reduce LGI 2015 external income by 21m.
2. LGC and other includes LGC, inter-segmental eliminations and group consolidation adjustments.

IFRS and Release from Operations Page 39

2.10 Earnings per share

(a) Earnings per share


			Adjusted	Adjusted			Adjusted	Adjusted
	Profit	Earnings	profit	earnings	Profit	Earnings	profit	earnings
	after tax	per share¹	after tax	per share^1,2	after tax	per share¹	after tax	per share^1,2
	2016	2016	2016	2016	2015	2015	2015	2015
	m	p	m	p	m	p	m	p


Operating profit after tax	1,244	20.98	1,244	20.98	1,142	19.29	1,142	19.29
Investment and other variances	14	0.24	72	1.22	(67)	(1.13)	(42)	(0.71)


Earnings per share based on profit
attributable to equity holders	1,258	21.22	1,316	22.20	1,075	18.16	1,100	18.58


1. Earnings per share is calculated by dividing profit after tax derived from continuing operations by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.
2. Adjusted earnings per share has been calculated after excluding the net loss after tax, 58m, resulting from the disposal of Suffolk Life and the classification of Cofunds as held for sale (2015: excluding the 25m net loss after tax resulting from the disposal of subsidiary and joint venture investments).

(b) Diluted earnings per share

				Adjusted	Adjusted
	Number	Profit	Earnings	profit	earnings
	of shares	after tax	per share¹	after tax	per share^1,2
	2016	2016	2016	2016	2016
	m	m	p	m	p


Profit attributable to equity holders of the company	5,929	1,258	21.22	1,316	22.20
Net shares under options allocable for no further consideration	24	-	(0.09)	-	(0.09)


Diluted earnings per share	5,953	1,258	21.13	1,316	22.11



				Adjusted	Adjusted
	Number	Profit	Earnings	profit	earnings
	of shares	after tax	per share¹	after tax	per share^1,2
	2015	2015	2015	2015	2015
	m	m	p	m	p


Profit attributable to equity holders of the company	5,920	1,075	18.16	1,100	18.58
Net shares under options allocable for no further consideration	38	-	(0.12)	-	(0.12)


Diluted earnings per share	5,958	1,075	18.04	1,100	18.46




1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.
2. Adjusted earnings per share has been calculated after excluding the net loss after tax, 58m, resulting from the disposal of Suffolk Life and the classification of Cofunds as held for sale (2015: excluding the 25m net loss after tax resulting from the disposal of subsidiary and joint venture investments).

IFRS and Release from Operations Page 40

2.11 Disposals

During 2016, the group made the following disposals:

- Suffolk Life Group Limited was sold to Curtis Banks Group plc for 45m (excluding transaction costs). The carrying value of the investment was 40m, realising a profit on disposal of 5m (excluding transaction costs) reported in operational income in the Consolidated Income Statement. The disposal of Suffolk Life Group Limited was not classified as a discontinued operation as it does not represent a major line of business or geographical segment of the group.

- The investment in ABI Alpha Limited was sold to a management buyout led by CBPE Capital with cash proceeds for the group's investment of 29m. The carrying value of the investment was 23m, realising a profit on disposal of 6m reported in operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the with-profits fund.

- Air Energi is no longer controlled by the group following its merger with Swift WWR to create Airswift. The group now holds less than 50% of Airswift and therefore has classified the investment as an associate, included in financial investments. The investment has been revalued to fair value, increasing the carrying value of the investment by 13m which has been reported in operational income in the Consolidated Income Statement. The majority of the profit on merger is allocated to the with-profits fund.

- The investment in The Liberation Group was sold to Caledonia Investments Plc with cash proceeds for the group's investment of 70m. The carrying value of the investment was 68m, realising a profit on disposal of 2m reported in operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the with-profits fund.

- On 2 December 2016 the group transferred its portfolio of insurance and investment contracts originated by Legal & General Deutschland (LGD) to Canada Life Europe (CLAE) via a Part VII transfer. 120m of insurance liabilities together with the financial assets held to back them were transferred, and no consideration was received for the transfer. There has been no impact on profit.

IFRS and Release from Operations Page 41

2.12 Held for sale

In November, the group reached an agreement in principle with Chesnara plc (Chesnara) to sell Legal & General Netherland Levensvervekering Maatschappij N.V. (LGN) to Chesnara for 160million. On 1 January 2017, the group completed the disposal of Cofunds Limited(Cofunds) to Aegon for 147.5m, before transaction costs. The sale included the Investor Portfolio Service (IPS) platform as well as Cofunds' retail and institutional business. Accordingly, the assets and liabilities of LGN and Cofunds have been assessed separately as disposal groups and have been classified as held for sale as at 31 December 2016. An impairment loss arising on classification of Cofunds as held for sale of 64m is recognised in other expenses in the Consolidated Balance Sheet. Cofunds forms part of the Savings segment in note 2.09. Neither LGN nor Cofunds is considered to be a discontinued operation as neither represent a major line of business or geographical segment of the group.
In addition, two investment properties with a combined valuation of 91m have been classified as held for sale as we have entered into advanced sale negotiations.
	2016	2015¹
	m	m


Assets classified as held for sale
Purchased interest in long term business and other intangible assets	85	28
DAC	12	-
Property, plant and equipment	11	1
Investment property	95	1,140
Financial investments	1,861	1,801
Reinsurers' share of contract liabilities	1	39
Cash and cash equivalents	139	389
Other assets²	62	11


Total assets of the disposal groups	2,266	3,409


Liabilities classified as held for sale
Insurance contract liabilities	1,709	-
Investment contract liabilities	-	3,235
Operational borrowings	-	102
Tax liabilities	26	5
Payables and other financial liabilities	28	10
Other liabilities²	147	17


Total liabilities of the disposal groups	1,910	3,369


Total net assets of the disposal groups	356	40


1. At 2015, Suffolk Life Group Limited was classified as held for sale. 2. Included in other assets is 1m, and in other liabilities, 88m, which are balances with other group entities which are eliminated on the Consolidated Balance Sheet.

2.13 Post balance sheet events

On 1 January 2017 the group sold Cofunds Limited to Aegon. The sale includes the Investor Portfolio Services (IPS) platform as well as Cofunds' retail and institutional business. The assets and liabilities of Cofunds Limited have been assessed as a disposal group and have been classified as held for sale as at 31 December 2016.

IFRS and Release from Operations Page 42

2.14 Financial investments and investment property

	2016	2015
	m	m


Equities	191,025	166,892
Unit trusts	6,969	6,021
Debt securities¹	204,970	169,720
Accrued interest	1,528	1,456
Derivative assets²	13,121	9,509
Loans and receivables	562	465


Financial investments	418,175	354,063


Investment property³	8,150	8,082


Total financial investments and investment property	426,325	362,145


1. A detailed analysis of debt securities, which shareholders are directly exposed to, is disclosed in note 4.06.
2. Derivatives are used to ensure efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities and include 8,294m (2015: 5,795m) held on behalf of unit linked policyholders.
3. A detailed analysis of investment property, which shareholders are directly exposed to, is disclosed in note 4.07.

IFRS and Release from Operations Page 43

2.15 Tax

(a) Tax charge in the Consolidated Income Statement

The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:

	2016	2015
	m	m


Profit before tax attributable to equity holders	1,582	1,355
Tax calculated at 20.00% (2015: 20.25%)	316	274

Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax	(12)	(11)
Higher/(lower) rate of tax on profits taxed overseas	7	16
Non-deductible expenses/(additional allowances)	4	(8)
Differences between taxable and accounting investment gains	(11)	(3)

Non-recurring reconciling items:
Income not subject to tax	(1)	-
Non-deductible expenses¹	17	4
Differences between taxable and accounting investment gains²	(14)	(7)
Adjustments in respect of prior years	13	(5)
Impact of reduction in UK corporate tax rate to 17% from 2020 on deferred tax balances³	(2)	1


Tax attributable to equity holders	317	261


Equity holders' effective tax rate⁴	20.0%	19.3%


1. Includes costs relating to M&A activity which are non-deductible for tax purposes.
2. 14m relates to a deferred tax asset recognised on losses crystallised in the year.
3. Following the 2016 Finance Act, the rate of corporation tax will reduce progressively to 17% by 1 April 2020. The 19% rate will apply from 1 April 2017 and the 17% rate from 1 April 2020 onwards. The enacted rates of 20-17% have been used in the calculation of UK deferred tax assets and liabilities.
4. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders. Refer to note 2.08 for detail on the methodology of the split of policyholder and equity holders' tax.

IFRS and Release from Operations Page 44

2.15 Tax

(b) Deferred tax


	2016	2015
Deferred tax (liabilities)/assets	m	m


Deferred acquisition expenses	(429)	(359)
- UK	(45)	(51)
- Overseas	(384)	(308)
Difference between the tax and accounting value of insurance contracts	(286)	(324)
- UK	(123)	(83)
- Overseas	(163)	(241)
Realised and unrealised gains on investments	(255)	(154)
Excess of depreciation over capital allowances	15	18
Excess expenses¹	49	74
Accounting provisions and other	(51)	(19)
Trading losses²	80	165
Pension fund deficit	82	72
Purchased interest in long-term business	(13)	(26)

Net deferred tax liabilities	(808)	(553)



Presented on the Consolidated Balance Sheet as:

- UK deferred tax asset³
- UK deferred tax asset³	5	20
- UK deferred tax liability³	(291)	(137)
- Overseas deferred tax liability⁴	(522)	(436)


1. The reduction in the UK deferred tax asset on excess expenses reflects the unwind of the spread acquisition expenses.
2. Trading losses include UK trade and US operating losses of 5m (2015: 6m) and 75m (2015: 159m) respectively. The reduction in the deferred tax asset primarily reflects utilisation of brought forward US operating losses against US profits.
3. On the Consolidated Balance Sheet, the net UK deferred tax liability has been split between an asset of 5m and a liability of 291m where the relevant items cannot be offset.
4. Overseas deferred tax liability is wholly comprised of US balances as at 31 December 2016 (2015: US 424m; LGN 12m).

IFRS and Release from Operations Page 45

2.16 Payables and other financial liabilities

				2016	2015
				m	m


Derivative liabilities				9,014	8,047
Repurchase agreements¹				23,163	13,343
Other²				5,170	1,319


Payables and other financial liabilities				37,347	22,709


Due within 12 months				34,517	20,027
Due after 12 months				2,830	2,682


1. The repurchase agreements are presented gross, however they and their related assets are subject to master netting arrangements.
2. Other financial liabilities include obligations in respect of collateral received from derivative contracts of 2.7bn (2015: 0.1bn). Other also includes the present value of future commission costs which have contingent settlement provisions of 177m (2015: 175m).


Fair value hierarchy
					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2016	m	m	m	m	m


Derivative liabilities	9,014	884	8,130	-	-
Repurchase agreements	23,163	-	-	-	23,163
Other	5,170	806	8	177	4,179


Payables and other financial liabilities	37,347	1,690	8,138	177	27,342



					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2015	m	m	m	m	m


Derivative liabilities	8,047	1,451	6,596	-	-
Repurchase agreements	13,343	-	-	-	13,343
Other	1,319	5	12	175	1,127


Payables and other financial liabilities	22,709	1,456	6,608	175	14,470



Future commission costs are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the Consolidated Income Statement during the year. A reasonably possible alternative persistency assumption would have the effect of increasing the liability by 5m (2015: 6m).


Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the year ended 31 December 2016 (2015: no significant transfers between levels 1, 2 and 3).

IFRS and Release from Operations Page 46

2.17 Dividends

		Per		Per
	Dividend	share¹	Dividend	share¹
	2016	2016	2015	2015
	m	p	m	p


Ordinary share dividends paid in the year:
- Prior year final dividend	592	9.95	496	8.35
- Current year interim dividend	238	4.00	205	3.45


	830	13.95	701	11.80


Ordinary share dividend proposed²	616	10.35	592	9.95


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 in the Consolidated Balance Sheet.

2.18 Share capital

(i) Share capital and share premium

		2016			2015
		Number of	2016		Number of	2015
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 2016			5,948,788,480		149	976
Options exercised under share option schemes:
- Savings related share option scheme			5,867,986		-	5


As at 31 December 2016			5,954,656,466		149	981


					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


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 Release from Operations Page 47

2.19 Core Borrowings


	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	2016	2016	2015	2015
	m	m	m	m


Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)	615	609	637	631
5.875% Sterling undated subordinated notes (Tier 2)	411	418	413	426
10% Sterling subordinated notes 2041 (Tier 2)	310	403	310	398
5.5% Sterling subordinated notes 2064 (Tier 2)	589	603	589	570
5.375% Sterling subordinated notes 2045 (Tier 2)	602	627	602	611
Client fund holdings of group debt¹	(31)	(31)	(26)	(27)


Total subordinated borrowings	2,496	2,629	2,525	2,609


Senior borrowings
Sterling medium term notes 2031-2041	609	845	609	779
Client fund holdings of group debt¹	(34)	(34)	(42)	(54)


Total senior borrowings	575	811	567	725


Total core borrowings	3,071	3,440	3,092	3,334


1. 65m (2015: 68m) 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 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 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 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 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 tier 2 own funds for Solvency II purposes.

IFRS and Release from Operations Page 48

2.20 Operational borrowings

	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	2016	2016	2015	2015
	m	m	m	m


Short term operational borrowings
Euro Commercial paper	216	216	15	15
Bank loans and overdrafts	6	6	2	2


Total short term operational borrowings	222	222	17	17


Non recourse borrowings
US Dollar Triple X securitisation 2037	-	-	302	258
Suffolk Life unit linked borrowings¹	-	-	-	-
LGV 6/LGV 7 Private Equity Fund Limited Partnership	-	-	98	98
Consolidated Property Limited Partnerships	208	208	184	184


Total non recourse borrowings	208	208	584	540


Group holding of operational borrowings²	-	-	(65)	(56)


Total operational borrowings	430	430	536	501


1. On 25 May 2016, the group sold Suffolk Life Group Limited to Curtis Banks Group. At 2015, the Suffolk Life unit linked borrowings were transferred to held for sale, refer to note 2.12.
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 the non-unit linked short term operational borrowings of 216m (2015: 15m). 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 after 2005 and 2006. It was secured on the cash flows related to that tranche of business. On 15 June 2016, this securitisation was redeemed at par.

LGV 6/LGV 7 Private Equity Fund Limited Partnerships

These borrowings were non recourse bank borrowings.

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 31 December 2016, 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 2021. No amounts were outstanding at 31 December 2016.

IFRS and Release from Operations Page 49

2.21 Insurance contract liabilities

(a) Analysis of insurance contract liabilities


			Re-		Re-
		Gross	insurance	Gross	insurance
		2016	2016	2015	2015
	Notes	m	m	m	m


Participating insurance contracts	2.21(b)(iii)	5,794	(1)	5,618	(1)
Non-participating insurance contracts	2.21(c)(iv)	60,511	(5,297)	49,470	(3,861)
General insurance contracts	2.21(v)	268	(9)	284	(8)


Insurance contract liabilities		66,573	(5,307)	55,372	(3,870)




During the year, the group continued utilising prospective reinsurance arrangements which resulted in a profit of 535m (2015: 503m). 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
	2016	2016	2015	2015
	m	m	m	m


As at 1 January	5,618	(1)	6,579	(1)
New liabilities in the year	40	-	52	-
Liabilities discharged in the year	(749)	-	(977)	-
Unwinding of discount rates	27	-	40	-
Effect of change in non-economic assumptions	(3)	-	5	-
Effect of change in economic assumptions	642	-	81	-
Disposals¹	-	-	(171)	-
Modelling and methodology changes	202	-	-	-
Other	17	-	9	-


As at 31 December	5,794	(1)	5,618	(1)


1. Reflects the disposal of Legal & General France during 2015.


		Re-		Re-
	Gross	insurance	Gross	insurance
	2016	2016	2015	2015
	m	m	m	m


As at 1 January	49,470	(3,861)	49,589	(2,587)
New liabilities in the year	6,273	(613)	2,866	(768)
Liabilities discharged in the year	(2,890)	86	(2,744)	(39)
Unwinding of discount rates	1,574	(129)	1,451	(93)
Effect of change in non-economic assumptions	51	(43)	(384)	157
Effect of change in economic assumptions	6,870	(546)	(1,335)	(513)
Foreign exchange adjustments	795	(66)	27	(18)
Transfer of liabilities classified as held for sale	(1,709)	1	-	-
Modelling and methodology changes	61	(127)	-	-
Other	16	1	-	-


As at 31 December	60,511	(5,297)	49,470	(3,861)

IFRS and Release from Operations Page 50

2.22 Investment contract liabilities

(a) Analysis of investment contract liabilities


			Re-		Re-
		Gross	insurance	Gross	insurance
		2016	2016	2015	2015
	Note	m	m	m	m


Participating investment contracts		5,271	-	4,912	-
Non-participating investment contracts		321,177	(286)	278,554	(250)


Investment contract liabilities	2.22(b)	326,448	(286)	283,466	(250)

(b) Movement in investment contract liabilities


		Re-		Re-
	Gross	insurance	Gross	insurance
	2016	2016	2015	2015
	m	m	m	m


As at 1 January	283,466	(250)	296,225	(310)
Reserves in respect of new business	27,832	(27)	37,639	(598)
Amounts paid on surrenders and maturities during the year	(43,217)	35	(46,557)	164
Investment return and related benefits	58,622	(44)	5,160	455
Management charges	(251)	-	(303)	-
Foreign exchange adjustments	-	-	(162)	-
Disposals¹	-	-	(5,321)	-
Transfer to held for sale	-		(3,235)	39
Other	(4)	-	20	-


As at 31 December	326,448	(286)	283,466	(250)


1. Reflects the disposal of Legal & General France and Legal & General International (Ireland) during 2015.

IFRS and Release from Operations Page 51

2.23 IFRS sensitivity analysis

	Impact on		Impact on
	pre-tax	Impact on	pre-tax	Impact on
	group profit	group equity	group profit	group equity
	net of re-	net of re-	net of re-	net of re-
	insurance	insurance	insurance	insurance
	2016	2016	2015	2015
	m	m	m	m


Economic sensitivity
Long-term insurance
100bps point increase in interest rates	173	42	48	(36)
100bps point decrease in interest rates	(280)	(120)	(168)	(49)

100bps point increase in long term inflation expectations	(90)	(72)	(38)	(31)

Credit spread widens by 100bps with no change in expected defaults	(19)	(100)	(102)	(138)
10% decrease in listed equities	(127)	(164)	(124)	(103)
10% fall in property values	(116)	(102)	(81)	(65)

10bps increase in credit default assumption	(426)	(339)	(324)	(258)
10bps decrease in credit default assumption	437	348	366	292

Non-economic sensitivity
Long-term insurance
1% decrease in annuitant mortality	(200)	(202)	(132)	(105)
5% increase in assurance mortality	(62)	(47)	(64)	(49)
General insurance
Single storm event with 1 in 200 year probability	(62)	(50)	(67)	(54)
Subsidence event - worst claims ratio in last 30 years	(61)	(49)	(72)	(57)

The table shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario. 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. 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 100bps pa increase in inflation resulting in a 100bps pa reduction in real yield and no change to the nominal yield. In addition the expense inflation rate is increased by 100bps 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 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 any single event with claims in excess of 30m (2015: 30m) but less than 509m (2015: 496m) the ultimate cost to Legal & General Insurance Limited would be 30m plus 50% of the 5m XS 30m layer (2015: 30m plus 50% of the 5m XS 30m layer) plus the cost of the reinsurance reinstatement premium. The ultimate cost to the group is greater as a proportion of the catastrophe reinsurance cover is placed with Legal & General Assurance Society Limited, which is exposed to 75% of claims between 35m and 100m, 75% of claims between 100m and 250m and 45% of claims between 250m and 478m. The impact of a 1 in 500 year modelled windstorm and coastal flood event would exceed the upper limit of the catastrophe cover by approximately 280m (2015: 270m), with an estimated total cost to Legal & General Insurance Limited of 335m (2015: 330m) and to the group of 590m (2015: 563m).

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 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 Release from Operations Page 52

2.24 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results. The majority of the non-controlling interests in 2016 are in relation to investments in the Leisure Fund Unit Trust, the Performance Retail Unit Trust, the Legal & General UK Property Ungeared Fund Limited Partnership, and Thorpe Park Developments Limited.

2.25 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	At 31.12.16	At 31.12.15


United States Dollar	1.24	1.47
Euro	1.17	1.36



	01.01.16 -	01.01.15 -
Average exchange rates	31.12.16	31.12.15


United States Dollar	1.36	1.53
Euro	1.22	1.38

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 75m (2015: 93m) for all employees.

At 31 December 2016 and 31 December 2015 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:

	2016	2015
	m	m


Salaries	9	10
Social security costs	2	2
Post-employment benefits	-	1
Share-based incentive awards	5	5


Key management personnel compensation	16	18


Number of key management personnel	15	16

IFRS and Release from Operations Page 53

2.27 Provisions

(a) Analysis of provisions

			2016	2015
			m	m


Retirement benefit obligations			1,239	1,131
Other provisions			89	40


			1,328	1,171




(b) Retirement benefit obligations
	Fund and		Fund and
	Scheme	Overseas	Scheme	Overseas
	2016	2016	2015	2015
	m	m	m	m


Gross pension obligations included in provisions	(1,234)	(5)	(1,126)	(5)
Annuity obligations insured by Society	779	-	746	-


Gross defined benefit pension deficit	(455)	(5)	(380)	(5)
Deferred tax on defined benefit pension deficit	81	1	72	-


Net defined benefit pension deficit	(374)	(4)	(308)	(5)

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 31 December 2015. At 31 December 2016, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at 374m (2015: 308m). These amounts have been recognised in the financial statements with 236m charged against shareholder equity (2015: 194m) and 138m against the unallocated divisible surplus (2015: 114m).

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, litigation or issues.

In 1975, Legal & General Assurance Society Limited (the 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.

IFRS and Release from Operations Page 54

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Asset and premium flows Page 55

3.01 Legal & General investment management total assets


		Active
		fixed	Solu-	Real	Active	Total	Advisory	Total
For the year	Index	income	tions¹	assets	equities	AUM	assets	assets
ended 31 December 2016	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2016	274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6
External inflows⁷	35.2	10.8	19.9	1.4	-	67.3	-	67.3
External outflows⁷	(45.0)	(6.5)	(12.4)	(1.2)	(0.2)	(65.3)	-	(65.3)
Overlay/advisory net flows	-	-	27.2	-	-	27.2	(5.4)	21.8


External net flows³	(9.8)	4.3	34.7	0.2	(0.2)	29.2	(5.4)	23.8
Internal net flows	(0.3)	1.5	-	0.7	0.1	2.0	-	2.0


Total net flows	(10.1)	5.8	34.7	0.9	(0.1)	31.2	(5.4)	25.8
Cash management movements⁵	-	(0.7)	-	-	-	(0.7)	-	(0.7)
Market and other movements^3,7	55.6	22.9	39.0	0.4	(0.3)	117.6	2.7	120.3



At December 2016⁶	319.8	134.8	411.9	19.6	8.1	894.2	7.8	902.0

Assets attributable to:
External						796.7	7.8	804.5
Internal						97.5	-	97.5


Assets attributable to:
UK						716.8	-	716.8
International						177.4	7.8	185.2


		Active
		fixed	Solu-	Real	Active	Total	Advisory	Total
For the year ended	Index	income	tions¹	assets	equities	AUM	assets	assets
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 inflows^2,7	33.4	12.0	23.1	1.6	-	70.1		70.1
External outflows⁷	(38.8)	(4.3)	(6.6)	(0.9)	-	(50.6)		(50.6)
Overlay/advisory net flows	-	-	18.2	-	-	18.2	(4.6)	13.6


External net flows³	(5.4)	7.7	34.7	0.7	-	37.7	(4.6)	33.1
Internal net flows	(0.7)	(1.9)	-	0.9	(0.4)	(2.1)	-	(2.1)
Disposal of LGF⁴	-	(2.3)	-	-	-	(2.3)	-	(2.3)


Total net flows	(6.1)	3.5	34.7	1.6	(0.4)	33.3	(4.6)	28.7

Cash management movements⁵	-	0.8	-	-	-	0.8	-	0.8
Market and other movements^3,7	5.6	(0.4)	10.2	2.2	0.7	18.3	0.3	18.6


At 31 December 2015⁶	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


1. Solutions include liability driven investments, multi-asset funds and included 251.8bn at 31 December 2016 (31 December 2015: 226.2bn) of derivative notionals associated with the Solutions business.
2. In 2015 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.
3. 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 2016 was 52.6bn (31 December 2015: 59.9bn), and the movement in these assets is included in market and other movements for Solutions assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France) S.A. to APICIL Prvoyance.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
6. Total assets under management have been reconciled to the financial investments and investment property held on the Consolidated Balance Sheet in note 3.04.
7. Switches between asset classes are included in the gross inflows and outflows, and moved out of Market and other movements. 2015 has been restated for full comparative purposes.

Asset and premium flows Page 56

3.02 Legal & General investment management total assets half yearly progression

		Active
		fixed	Solu-	Real	Active	Total	Advisory	Total
For the year ended	Index	income	tions¹	assets	equities	AUM	assets	assets
31 December 2016	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2016	274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6
External inflows⁴	17.6	4.8	9.3	0.8	-	32.5	-	32.5
External outflows⁴	(20.0)	(2.2)	(6.6)	(0.7)	(0.1)	(29.6)	-	(29.6)
Overlay/ advisory net flows	-	-	6.7	-	-	6.7	(0.3)	6.4


External net flows²	(2.4)	2.6	9.4	0.1	(0.1)	9.6	(0.3)	9.3
Internal net flows	(0.4)	0.7	(0.1)	0.1	-	0.3	-	0.3


Total net flows	(2.8)	3.3	9.3	0.2	(0.1)	9.9	(0.3)	9.6
Cash management movements³	-	(0.6)	-	-	-	(0.6)	-	(0.6)
Market and other movements⁴	28.9	16.3	41.6	(0.1)	(0.6)	86.1	1.4	87.5


At 30 June 2016	300.4	125.8	389.1	18.4	7.8	841.5	11.6	853.1


External inflows⁴	17.6	6.0	10.6	0.6	-	34.8	-	34.8
External outflows⁴	(25.0)	(4.3)	(5.8)	(0.5)	(0.1)	(35.7)	-	(35.7)
Overlay / advisory net flows	-	-	20.5	-	-	20.5	(5.1)	15.4


External net flows²	(7.4)	1.7	25.3	0.1	(0.1)	19.6	(5.1)	14.5
Internal net flows	0.1	0.8	0.1	0.6	0.1	1.7	-	1.7


Total net flows	(7.3)	2.5	25.4	0.7	-	21.3	(5.1)	16.2
Cash management movements³	-	(0.1)	-	-	-	(0.1)	-	(0.1)
Market and other movements⁴	26.7	6.6	(2.6)	0.5	0.3	31.5	1.3	32.8


At 31 December 2016	319.8	134.8	411.9	19.6	8.1	894.2	7.8	902.0



1. Solutions include liability driven investments, multi-asset funds, and include 251.8bn at 31 December 2016 (30 June 2016: 244.0bn) of derivative notionals associated with the Solutions business.
2. 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 2016 was 52.6bn (30 June 2016: 71.0bn) and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Switches between asset classes are included in the gross inflows and outflows, and moved out of Market and other movements.

Asset and premium flows Page 57

3.02 Legal & General investment management total assets half yearly progression

		Active
		fixed	Solu-	Real	Active	Total	Advisory	Total
For the year ended	Index	income	tions¹	assets	equities	AUM	assets	assets
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 inflows⁷	15.9	5.3	8.9	0.8	-	30.9	-	30.9
External outflows⁷	(22.7)	(2.5)	(3.4)	(0.3)	-	(28.9)	-	(28.9)
Overlay/ advisory net flows	-	-	11.8	-	-	11.8	(3.5)	8.3


External net flows³	(6.8)	2.8	17.3	0.5	-	13.8	(3.5)	10.3
Internal net flows	(0.3)	(0.8)	-	0.4	(0.3)	(1.0)	-	(1.0)


Total net flows	(7.1)	2.0	17.3	0.9	(0.3)	12.8	(3.5)	9.3
	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Cash management movements⁵	-	1.7	-	-	-	1.7	-	1.7
Market and other movements^3,7	7.0	(0.2)	(2.4)	1.3	0.7	6.4	-	6.4

At 30 June 2015	274.7	106.4	308.2	16.7	8.6	714.6	11.3	725.9


External inflows⁷	17.5	6.7	14.2	0.8	-	39.2	-	39.2
External outflows⁷	(16.1)	(1.8)	(3.2)	(0.6)	-	(21.7)	-	(21.7)
Overlay/ advisory net flows	-	-	6.4	-	-	6.4	(1.1)	5.3


External net flows³	1.4	4.9	17.4	0.2	-	23.9	(1.1)	22.8
Internal net flows	(0.4)	(1.1)	-	0.5	(0.1)	(1.1)	-	(1.1)
Disposal of LGF⁴	-	(2.3)	-	-	-	(2.3)	-	(2.3)


Total net flows	1.0	1.5	17.4	0.7	(0.1)	20.5	(1.1)	19.4
Market and other
Cash management movements⁵	-	(0.9)	-	-	-	(0.9)	-	(0.9)
Market and other movements^3,7	(1.4)	(0.2)	12.6	0.9	-	11.9	0.3	12.2


At 31 December 2015⁶	274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6


1. Solutions include liability driven investments, multi-asset funds, and include 226.2bn at 31 December 2015 (30 June 2015: 208.1bn) of derivative notionals associated with the Solutions business.
2. 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.
3. 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 (30 June 2015: 48.2bn), and the movement in these assets is included in market and other movements for Solutions assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France) S.A. to APICIL Prvoyance.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
6. Total assets under management have been reconciled to the financial investments and investment property on the Consolidated Balance Sheet in note 3.04.
7. Switches between asset classes are included in the gross inflows and outflows, and moved out of Market and other movements. 2015 has been restated for full comparative purposes.

Asset and premium flows Page 58

3.02 Legal & General investment management total assets half yearly progression (continued)

	As at	As at	As at	As at
	31.12.16	30.06.16	31.12.15	30.06.15
	bn	bn	bn	bn


Total assets attributable to:¹
External	804.5	761.4	671.5	636.1
Internal	97.5	91.7	85.1	89.8


Total assets attributable to:¹
UK	716.8	689.6	623.7	598.8
International	185.2	163.5	132.9	127.1


1. Total assets at 31 December 2016 include 7.8bn of advisory assets (31 December 2015: 10.5bn).

3.03 Legal & General investment management total external assets under management net flows

	6	6	6	6
	months	months	months	months
	to	to	to	to
	31.12.16	30.06.16	31.12.15	30.06.15
	bn	bn	bn	bn


LGIM total external AUM net flows¹	19.5	9.6	23.9	13.8
Attributable to:
International	7.8	6.7	4.1	5.4

UK Institutional
- Defined contribution	1.2	0.8	1.9	1.0
- Defined benefit²	9.8	1.4	17.0	7.1

UK Retail	0.7	0.7	0.9	0.3


1. External net flows exclude movements in short term overlay assets, with maturity as determined by client agreements and cash management movements.
2. In the six months to 31 December 2015, 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.

3.04 Assets under management reconciliation to Consolidated Balance Sheet financial assets
	As at	As at
	30.12.16	31.12.15
	bn	bn


Assets under management	894.2	746.1
Derivative notionals¹	(251.8)	(226.2)
Third party assets²	(234.7)	(157.9)
Derivative liabilities	9.0	8.0
Other³	9.6	(7.9)


Total group financial investments and investment property	426.3	362.1


1. Derivative notionals are included in the assets under management but not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others, for which the group does not have the risks or rewards and thus are not incldued on the IFRS balance sheet.
3. Other includes assets that are managed by third parties on behalf of the group, cash and broker balances.

Asset and premium flows Page 59

3.05 Assets under administration

							LGIM


				Consol-
			Mature	idation				Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the year ended	Platforms^1,2	Life	Savings³	ment⁴	Savings	rlands	place	ments⁵	Annuities
31 December 2016	bn	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2016	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4
Gross inflows¹	24.2	0.5	0.8	(0.1)	25.4	0.2	4.4	6.7	7.3
Gross outflows	(25.5)	(0.3)	(3.8)	0.5	(29.1)	(0.2)	(1.1)	(6.7)
Payments to pensioners	-	-	-	-	-	-	-	-	(3.0)

Net flows	(1.3)	0.2	(3.0)	0.4	(3.7)	-	3.3	-	4.3
Market and other movements	8.0	-	4.1	(0.3)	11.8	0.2	2.8	2.8	6.7
Disposals⁶	-	(8.8)	-	1.8	(7.0)	-	-	-	-


At 31 December 2016	83.6	-	30.7	(4.9)	109.4	1.8	20.8	25.4	54.4


							LGIM


				Consol-		France
			Mature	idation		and		Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the year ended	Platforms^1,2	Life	Savings³	ment⁴	Savings	rlands	place	ments⁵	Annuities
31 December 2015	bn	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2015	71.9	7.7	36.0	(6.9)	108.7	4.4	11.1	21.3	44.2
Gross inflows¹	8.7	1.2	1.1	(0.5)	10.5	0.4	3.3	5.9	3.0
Gross outflows	(5.2)	(0.5)	(4.1)	0.8	(9.1)	(0.3)	(0.7)	(5.7)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(2.6)
Disposals⁷	-	-	(2.8)	-	(2.8)	(2.7)	-	-	-


Net flows	3.5	0.7	(5.8)	0.3	(1.4)	(2.6)	2.6	0.2	0.4
Market and other movements	1.5	0.2	(0.6)	(0.2)	1.0	(0.2)	1.0	1.1	(1.2)


At 31 December 2015	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4


1. Platforms gross inflows include Cofunds institutional net flows. Total 2016 Platforms comprise 83.6bn of which 39.4bn (31 December 2015: 37.5bn) are retail assets and 44.2bn (31 December 2015: 39.4bn) are assets held on behalf of institutional clients.
2. Platforms AUA comprise: ISAs 21.4bn (31 December 2015: 19.9bn); onshore bonds 2.8bn (31 December 2015: 3.0bn); offshore bonds 0.1bn (31 December 2015: 0.1bn); platform SIPPs 3.9bn (31 December 2015: 3.5bn) and non-wrapped funds 54.0bn (31 December 2015: 50.4bn).
3. Mature Retail Savings products include with-profits products, bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
5. Retail Investments include 2.4bn (31 December 2015: 2.0bn) of LGIM unit trust assets held on the Cofunds platform and 3.7bn (31 December 2015: 3.2bn) of LGIM unit trust assets held on the IPS platform.
6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. 2.8bn of assets relating to Legal & General International (Ireland) Limited, were sold to Canada Life Group on 1 July 2015. 2.7bn of assets relating to Legal & General Holdings (France) S.A. were sold on 31 December 2015 to APICIL Prvoyance.

Asset and premium flows Page 60

3.06 Assets under administration half-yearly progression

							LGIM


				Consol-
			Mature	idation				Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the year ended	Platforms^1,2	Life	Savings³	ment⁴	Savings	rlands	place	ments⁵	Annuities⁷
31 December 2016	bn	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2016	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4


Gross inflows¹	2.2	0.5	0.5	(0.2)	3.0	0.1	2.3	3.0	4.0
Gross outflows	(2.9)	(0.3)	(1.8)	0.3	(4.7)	(0.1)	(0.5)	(3.2)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.4)

Net flows	(0.7)	0.2	(1.3)	0.1	(1.7)	-	1.8	(0.2)	2.6
Market and other movements	1.3	-	1.1	-	2.4	0.2	0.8	0.9	5.0
Disposals⁶	-	(8.8)		1.8	(7.0)	-	-	-	-


At 30 June 2016	77.5	-	29.4	(4.9)	102.0	1.8	17.3	23.3	51.0


Gross inflows¹	22.0	-	0.3	0.1	22.4	0.1	2.1	3.7	3.3
Gross outflows	(22.6)	-	(2.0)	0.2	(24.4)	(0.1)	(0.6)	(3.5)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.6)

Net flows	(0.6)	-	(1.7)	0.3	(2.0)	-	1.5	0.2	1.7
Market and other movements	6.7	-	3.0	(0.3)	9.4	-	2.0	1.9	1.7


At 31 December 2016	83.6	-	30.7	(4.9)	109.4	1.8	20.8	25.4	54.4


1. Platforms gross inflows include Cofunds institutional net flows. Total 2016 Platforms comprise 39.4bn (30 June 2016: 37.2bn) of retail assets and 44.2bn (30 June 2016: 40.3bn) of assets held on behalf of institutional clients.
2. Platforms AUA comprise: ISAs 21.4bn (30 June 2016: 20.1bn); onshore bonds 2.8bn (30 June 2016: 2.8bn); offshore bonds 0.1bn (30 June 2016: 0.1bn); platform SIPPs 3.9bn (30 June 2016: 3.6bn) and non-wrapped funds 54.0bn (30 June 2016: 49.5bn).
3. Mature Retail Savings products include with-profits products, bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
5. At 31 December 2016 Retail Investments include 2.4bn (30 June 16: 1.8bn) of LGIM unit trust assets held on the Cofunds platform and 3.7bn (30 June 2016: 3.4bn) of LGIM unit trust assets held on the IPS platform.

6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. Annuities exclude LGRE and LGA assets.

Asset and premium flows Page 61

3.06 Assets under administration half-yearly progression

							LGIM

				Consol-		France
			Mature	idation		and		Retail
		Suffolk	Retail	adjust-	Total	Nether-	Work-	Invest-
For the year ended	Platforms^1,2	Life	Savings³	ment⁴	Savings	lands	place	ments⁵	Annuities
31 December 2015	bn	bn	bn	bn	bn	bn	bn	bn	bn


At 1 January 2015	71.9	7.7	36.0	(6.9)	108.7	4.4	11.1	21.3	44.2
Gross inflows¹	3.8	0.6	0.7	(0.2)	4.9	0.2	1.2	3.0	1.4
Gross outflows	(2.7)	(0.3)	(2.2)	0.4	(4.8)	(0.2)	(0.3)	(3.0)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.2)


Net flows	1.1	0.3	(1.5)	0.2	0.1	-	0.9	-	0.2
Market and other movements	1.6	0.3	0.3	(0.2)	2.0	(0.2)	1.1	1.2	(1.0)


At 30 June 2015	74.6	8.3	34.8	(6.9)	110.8	4.2	13.1	22.5	43.4


Gross inflows¹	4.9	0.6	0.4	(0.3)	5.6	0.2	2.1	2.9	1.6
Gross outflows	(2.5)	(0.2)	(1.9)	0.4	(4.2)	(0.1)	(0.4)	(2.7)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.4)
Disposals⁶	-	-	(2.8)	-	(2.8)	(2.7)	-	-	-


Net flows	2.4	0.4	(4.3)	0.1	(1.4)	(2.6)	1.7	0.2	0.2
Market and other movements	(0.1)	(0.1)	(0.9)	-	(1.1)	-	(0.1)	(0.1)	(0.2)


At 31 December 2015	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4


1. Platforms gross inflows include Cofunds institutional net flows. Total 2015 Platforms comprise 37.5bn (30 June 2015: 37.9bn) of retail assets and 39.4bn (30 June 2015: 36.7bn) of assets held on behalf of institutional clients.
2. Platforms AUA comprise ISAs: 19.9bn (June 2015: 20.0bn); onshore bonds 3.0bn (June 2015 3.2bn); offshore bonds 0.1bn (June 2015 0.1bn); platform SIPPs 3.5bn (June 2015 3.4bn) and non-wrapped funds 50.4bn (June 2015 46.7bn).
3. Mature Retail Savings products include with-profits products, bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life (until disposal) and Mature Retail Savings assets included in the Platforms column.
5. At 31 December 2015 Retail Investments included 2.0bn (June 2015: 1.8bn) of LGIM unit trust assets held on our Cofunds platform and 3.2bn (June 2015: 3.3bn) of LGIM unit trust assets held on our IPS platform.
6. 2.8bn of assets relating to Legal & General International (Ireland) Limited, were sold to Canada Life Group on 1 July 2015. 2.7bn of assets relating to Legal & General Holdings (France) S.A. were sold on 31 December 2015 to APICIL Prevoyance.

Asset and premium flows Page 62

3.07 LGR new business

	6	6	6	6
	months	months	months	months
	to	to	to	to
	31.12.16	30.06.16	31.12.15	30.06.15
	m	m	m	m


Backbook acquisitions	-	2,945	-	-
Pension risk transfer
- UK	2,698	640	831	1,146
- USA	302	45	295	-
- Netherlands	-	-	145	-
Individual Annuities	220	158	147	180
Lifetime Mortgage Advances	389	231	164	37
Longevity Insurance¹	900	-	-	-


Total LGR new business	4,509	4,019	1,582	1,363

1. Represents a reinsured longevity insurance deal transacted in December 2016. The figure quoted represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve. The first year's fixed cash flow is 25m.

3.08 Insurance new business

	6	6	6	6
	months	months	months	months
	to	to	to	to
	31.12.16	30.06.16	31.12.15	30.06.15
	m	m	m	m


UK Retail Protection	88	82	83	79
UK Group Protection	22	36	29	40
France Protection¹	-	-	-	30
Netherlands Protection	2	2	2	3
US Protection	34	28	29	41


Total Insurance new business	146	148	143	193

1. Legal & General Holdings (France) S.A. was sold on 31 December 2015 to APICIL Prvoyance.

3.09 Gross written premiums on Insurance business

	6	6	6	6
	months	months	months	months
	to	to	to	to
	31.12.16	30.06.16	31.12.15	30.06.15
	m	m	m	m


UK Retail Protection	597	582	567	545
UK Group Protection	100	233	101	229
General Insurance	170	156	173	164
France Protection	-	-	83	85
Netherlands Protection	27	25	22	24
US Protection	477	420	387	386
Longevity Insurance	160	161	162	164


Total gross written premiums on insurance business	1,531	1,577	1,495	1,597

This information is provided by RNS

The company news service from the London Stock Exchange

END

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