REG - Legal & General Grp - L&G Full Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
08/03/2017 07:07
- Part 6: For the preceding part double click ID:nRSH8033Ye
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
This page left intentionally blank
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 movements3,7 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 inflows2,7 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 movements3,7 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 Prévoyance.
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
- More to follow, for following part double click ID:nRSH8033YgRecent news on Legal & General
See all newsREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
Announcement