REG - Legal & General Grp - L&G Full Year Results 2016 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 5

Legal & GeneralAnnouncement

08/03/2017 07:08

- Part 5: For the preceding part double click  ID:nRSH8036Yd 

represents the capital available to cover the group's Economic or Solvency II Capital Requirement.
Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on an Economic Capital or
Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to
absorb losses wherever they occur across the group.  Eligible own funds (shareholder view basis) excludes the contribution
to the groups solvency capital requirement of with-profits fund and final salary pension schemes. 
 
Euro Commercial paper 
 
Short term borrowings with maturities of up to 1 year typically issued for working capital purposes. 
 
General insurance combined operating ratio 
 
The combined ratio is calculated as the sum of incurred losses and expenses divided by earned premium. 
 
Gross written premiums (GWP) 
 
GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the
reporting period, before any deductions for reinsurance. 
 
ICAV - Irish Collective Asset-Management Vehicle 
 
A legal structure investment funds, based in Ireland and aimed at European investment funds looking for a simple,
tax-efficient investment vehicle. 
 
IFRS profit before tax (PBT) 
 
PBT measures profit attributable to shareholders incorporating actual investment returns experienced during the year but
before the payment of tax. 
 
Key performance indicators (KPIs) 
 
These are measures by which the development, performance or position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where appropriate. 
 
Lifetime mortgages 
 
An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's
house. Customers do not make any monthly payments and continue to own and live in their house until they move into long
term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to
cover the outstanding loan, any shortfall is borne by the lender. 
 
Long dated debt 
 
Debt issued in either subordinated or senior format which forms part of the Group's core borrowings. 
 
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Matching adjustment 
 
An adjustment to the discount rate used for annuity liabilities in Economic Capital and Solvency II balance sheets. This
adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the
liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to
defaults) can be earned regardless of asset value fluctuations after purchase. 
 
Net release from operations* 
 
Net release from operations is defined as release from operations plus new business surplus/(strain). Net release from
operations was previously referred to as Net Cash and provides information on the underlying release of prudent margins
from the back book. 
 
New business surplus/(strain)* 
 
The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the
setting up of reserves, for UK non profit annuities, workplace savings, protection and savings, net of tax. This metric
provides an understanding of the impact of new contracts on the IFRS profit for the year. 
 
Operating profit* 
 
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 and changes in insurance risks such
as mortality and longevity for the group's insurance business and shareholder funds, except for LGA which excludes
unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed
assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of
business in the period, such as merger and acquisition and start-up costs are excluded from operating profit. 
 
Overlay assets 
 
Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include
interest rate swaps, inflation swaps, equity futures and options. These are typically used to hedge risks associated with
pension scheme assets during the derisking stage of the pension life cycle. 
 
Pension risk transfer (PRT) 
 
PRT represents bulk annuities bought by entities that run final salary pension schemes to reduce their responsibilities by
closing the schemes to new members and passing the assets and obligations to insurance providers. 
 
Present value of future new business premiums (PVNBP)* 
 
PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the
term of the contracts using the same economic and operating assumptions used for the new business value at the end of the
financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums
are calculated on a net of reinsurance basis to enable a more representative margin figure.  PVNBP therefore provides an
estimate of the present value of the premiums associated with new business written in the year. 
 
Recapitalisation Cost* 
 
An additional liability required in the L&G Economic Capital balance sheet, to allow for the cost of recapitalising the
balance sheet following a 1-in-200 year risk event, in order to maintain confidence that our future liabilities will be
met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the
group could raise debt and allows for diversification between all group entities. 
 
Real assets 
 
Real assets encompass a wide variety of tangible debt and equity investments, primarily real estate, infrastructure and
energy.  They have the ability to serve as stable sources of long term income in weak markets, while also providing capital
appreciation opportunities in strong markets. 
 
Release from operations* 
 
The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses,
the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses,
including the medium term expected investment return on LGC invested assets, and dividends remitted from LGA and Legal &
General Netherlands. 2015 included dividends remitted from Legal & General France, which was disposed of on 31 December
2015. Release from operations was previously referred to as pperational cash generation. 
 
Return on equity (ROE)* 
 
ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as
IFRS profit after tax divided by average IFRS shareholders' funds. 
 
Single premiums* 
 
Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium
being paid over its lifetime, such as in individual and bulk annuity deals. 
 
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Solvency II 
 
Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance
firms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to
appropriately align insurers' risk with the capital they hold to safeguard policyholder. 
 
Solvency II new business contribution 
 
Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in
the period using the risk discount rate applicable at the end of the reporting period. 
 
Solvency II Risk Margin 
 
An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is
equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance
obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of
Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the
insurance and reinsurance obligations over the lifetime thereof. 
 
Solvency II Surplus 
 
The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. This represents the amount of
capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event. 
 
Solvency Capital Requirement (SCR) 
 
The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event. 
 
SCR (shareholder view basis) 
 
In order to present a shareholder view of group SCR the Solvency capital requirement of LGAS With-profits fund and defined
benefit final salary pension scheme is excluded from SCR. 
 
SCR coverage ratio 
 
The Eligible Own Funds on a regulatory basis divided by the Solvency Capital Requirement (SCR). This represents the number
of times that the SCR is covered by Eligible Own Funds. 
 
SCR coverage ratio (proforma basis) 
 
The proforma basis solvency II coverage incorporates the estimated impacts of a recalculation of the Transitional Measures
for Technical Provisions recalculated based on end 2016 economic conditions, changes during 2016 to the Internal Model and
Matching Adjustment and management's updated Solvency I basis. The proforma basis does not reflect the regulatory capital
position as at 31 December 2016. This will be made public in May 2017. 
 
SCR coverage ratio (shareholder view basis)* 
 
In order to represent a shareholder view of group solvency position, the capital requirement in relation to the ring-fenced
LGAS With-profits fund and our defined benefit pension schemes is excluded from both Eligible Own Funds and the SCR in the
calculation of the SCR coverage ratio. The shareholder view basis does not reflect the regulatory capital position as at 31
December 2016. This will be made public in May 2017. 
 
Total shareholder return (TSR) 
 
TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share
price appreciation and dividends paid to show the total return to the shareholder. 
 
Transitional Measures on Technical Provisions (TMTP) 
 
This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at
1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease
linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the
relevant business, subject to agreement with the PRA. 
 
Unbundled DC solution 
 
When investment services and administration services are supplied by separate providers. Typically the sponsoring employer
will cover administration costs and scheme members the investment costs. 
 
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