REG - Legal & General Grp - L&G Full Year Results 2021 Part 1
09/03/2022 07:00
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RNS Number : 1064E Legal & General Group Plc 09 March 2022
2021 Results: Post tax profit exceeds £2bn for the first time, with EPS of 34p, up 19% on 2019, and ROE of 20%
Strong financial performance 1 (#_edn1)
· Profit after tax 2 (#_edn2) of £2,050m, up 28% (2020: £1,607m)
· EPS 3 (#_edn3) of 34.19p, up 72% on 2020 (19.84p) and up 19% on 2019
(28.66p)
· Return on equity of 20.5% (2020: 17.3%)
· Operating profit of £2,262m, up 11% (2020: £2,041m) 4 (#_edn4)
· Solvency II coverage ratio 5 (#_edn5) of 187% (2020: 175%)
· As at 7(th) March 2022 we estimate the coverage ratio was 198% 6
(#_edn6)
· Full year dividend of 18.45p, up 5% (2020: 17.57p), consistent with
our stated ambition
Growing contribution to our five-year (2020-2024) ambitions 7 (#_edn7)
· Cash generation of £1.7bn, up 12%. Capital generation of £1.6bn, up
12%
· On track to achieve our cumulative cash and capital ambitions of
£8.0-9.0bn by 2024
· On track to achieve our cumulative dividend ambition of £5.6-5.9bn
by 2024
Good new business volumes and strong net flows
· Global PRT new business premiums of £7.2bn (2020: £8.8bn)
· LGC alternative AUM up 10% to £3.4bn (2020: £3.1bn)
· LGIM AUM up 11% to £1.4tn, of which £479bn (34%) is International
· LGIM external net flows of £34.6bn, 85% from International clients,
up 70% (2020: £20.4bn)
· Individual annuity premiums up 5% to £957m (2020: £910m)
· Lifetime mortgage and retirement interest only advances up 7% to
£848m (2020: £791m)
· LGI UK & US retail protection annual premiums up 14% to £291m
(2020: £255m)
"In 2021, cash and capital generation and book value per share were all up
over 10% year on year, and we delivered EPS of 34.19p, DPS of 18.45p and a
return on equity of 20.5%. We have a track record of value creation and a
longstanding commitment to Inclusive Capitalism and ESHG. The expected
reform of Solvency II, the roll-out of the UK government's levelling up
programme, and our growing international businesses underscore our confidence
in our ability to continue delivering on a broad range of profitable growth
opportunities."
Sir Nigel Wilson, Group Chief Executive
Financial summary
£m 2021 2020 Growth %
Analysis of operating profit
Legal & General Retirement Institutional (LGRI) 1,154 1,229 (6)
Legal & General Capital (LGC) 461 275 68
Legal & General Investment Management (LGIM) 8 (#_edn8) 422 407 4
Legal & General Retirement Retail (LGRR)(8) 352 322 9
Legal & General Insurance (LGI) 268 189 42
Operating profit from continuing divisions 9 (#_edn9) 2,657 2,422 10
Mature Savings 10 (#_edn10) nil 34 n/a
Operating profit from divisions 2,657 2,456 8
Group debt costs (230) (233) 1
Group investment projects and expenses (165) (155) (6)
Exceptional COVID-19 related expenses 11 (#_edn11) nil (27) n/a
Operating profit excl. mortality reserve release 2,262 2,041 11
Mortality reserve release 12 (#_edn12) nil 177 n/a
Operating profit 13 (#_edn13) 2,262 2,218 2
Investment and other variances (incl. minority interests), excluding LGI 115 29 n/a
LGI investment variance 14 (#_edn14) 111 (459) n/a
Profit before tax attributable to equity holders 15 (#_edn15) 2,488 1,788 39
Profit after tax attributable to equity holders 2,050 1,607 28
Of which:
Mortality reserve releases (post-tax) nil 153
Mature Savings profit on disposal nil 271
Profit after tax excl. mortality reserve release and Mature Savings disposal 2,050 1,183 73
Reported EPS (p) 34.19 27.00 27
Of which:
Mortality reserve releases (post-tax) nil 2.58
Mature Savings profit on disposal nil 4.58
Adjusted EPS (p) 34.19 19.84 72
Book value per share (p) 174 158 10
Full year dividend per share (p) 18.45 17.57 5
Net release from continuing operations(9) 1,688 1,511 12
Net release from discontinued operations nil 28 n/a
2021 Financial performance
Income statement
Legal & General has delivered another strong set of results, with
operating profit excluding mortality releases up 11% to £2,262m (2020:
£2,041m), consistent with the "double-digit" guidance we provided at H1.
This marks a return to our long-term rate of growth, having been resilient
through the pandemic. Our diversified business model benefitted from the
post pandemic economic recovery and easing of restrictions over 2021 to
deliver strong earnings. All five businesses are well positioned to execute
on compelling structural market opportunities to deliver further profitable
growth.
LGRI delivered operating profit of £1,154m (2020: £1,229m), underpinned by
the performance of our growing annuity portfolio. We remained disciplined on
pricing and executed well, writing £7,176m 16 (#_edn16) of global PRT at
attractive Solvency II new business margins. Our ability to originate
alternative assets provides us with optionality and a strong competitive
advantage. We can use these assets to win new business at attractive margins
and / or to increase yields on our back-book.
LGC operating profit increased by 68% to £461m (2020: £275m) and is up 27%
on pre-COVID levels (2019: £363m). This growth is driven by strong
performance in our alternative asset portfolio, where operating profit
increased to £350m (2020: £112m) as a result of a bounce-back in the
housebuilding market and valuation increases from the continued maturing of
the underlying investments in our clean energy and venture capital portfolios.
LGIM delivered operating profit growth of 4% to £422m (2020: £407m),
reflecting increased revenues, which surpassed £1bn for the first time.
Revenue growth was driven by strong external net flows of £34.6bn (2020:
£20.4bn), and an increased focus on higher margin areas such as thematic
ETFs, Multi-asset and Real Assets. LGIM is continuing to grow
internationally, with 85% (£29.5bn) of external net flows originated outside
the UK. Assets under management increased by 11% to £1,421.5bn (2020:
£1,278.9bn), of which £479bn (34%) is International AUM. The cost income
ratio (58%) remains broadly flat as we continue to invest in and modernise the
business, whilst balancing this with careful cost control (2020: 57%).
LGRR operating profit increased 9% to £352m (2020: £322m), supported by the
ongoing release from the retail annuity portfolio. Individual annuities
delivered 5% growth in new business against 2020, and retirement lending
volumes 7% growth, as these markets continued to recover following the impact
of the COVID pandemic. Workplace Savings net flows were up £0.7bn to
£8.5bn (2020: £7.8bn), driven by continued client wins and increased
contributions.
LGI operating profit increased 42% to £268m (2020: £189m), reflecting strong
new business growth in UK retail protection supported by a benefit from
modelling refinements to the liability discount rate in the UK. This was
partially offset by adverse mortality claims in the US where experience
exceeded the provision set up in 2020. This trend has been consistently
reported across the US life sector. Our 2021 result includes a £57m
provision for potential COVID mortality impacts in 2022.
Profit before tax attributable to equity holders 17 (#_edn17) was £2,488m
(2020: £1,788m), reflecting positive investment variance of £233m (2020:
£(394)m). The positive investment variance in LGI (£111m) is from the
formulaic impact of rising interest rates on LGI reserves. However, the
negative investment variance of 2020 has not been fully reversed as
longer-duration interest rates have not moved meaningfully in 2021. We have
also seen strong portfolio performance in the annuity portfolio.
Balance sheet and asset portfolio
The Group's Solvency II operational surplus generation from continuing
operations was up 12% at £1,636m (2020: £1,460m). New business strain was
£(354)m (2020: £(302)m) which results in a net surplus generation of
£1,282m (2020: £1,190m). UK PRT volume has been written at a capital
strain of less than 4%.
The Group reported a Solvency II coverage ratio 18 (#_edn18) of 187% at the
end of 2021 (FY 2020: 175%) which, in addition to the contribution from net
surplus generation, reflects the impact of market movements, principally from
the non-economic impact of higher interest rates on the valuation of our
balance sheet 19 (#_edn19) , partially offset by payment of the 2020 final
and 2021 interim dividend (£1,063m) and the redemption of £300m of
subordinated debt.
Our IFRS return on equity of 20.5% reflects the impact of operating profit
growth and underlying positive investment performance (2020: 17.3%). 20
(#_edn20)
Our diversified, actively managed annuity portfolio has continued to perform
resiliently with no defaults. The annuity portfolio's direct investments
continue to perform strongly, with 99.8% of scheduled cash-flows paid year to
date, reflecting the high quality of our counterparty exposure.
Group Strategy
Legal & General has established expertise in asset origination (LGC) and
asset management (LGIM), and in the provision of retirement and protection
solutions to corporates and individuals (LGRI, LGRR and LGI). We operate at
scale and are strongly positioned to capitalise on significant growth
opportunities across our chosen markets through our five main divisions:
Division Provision Description
LGRI Retirement Solutions A leading international manager of institutional Pension Risk Transfer (PRT)
business
LGC Asset Origination An alternative asset origination platform generating attractive shareholder
returns
LGIM Asset Management A global £1.4tn asset manager with deep expertise in DB and DC pensions
LGRR Retirement Solutions* A leading provider of UK retail retirement solutions
LGI Protection Solutions* A market leading provider of UK protection and US brokerage term life
insurance
* Note: as of 1(st) January 2022, LGRR and LGI (our two retail businesses)
have been combined into one division, Legal & General Retail. Under the
leadership of Bernie Hickman, this division will cover the savings, protection
and retirement needs of our c12 million retail policyholders and workplace
members.
A powerful business model
We have a unique and highly synergistic business model, which continues to
drive our strong return on equity. Legal & General provides powerful
asset origination and management capabilities directly to clients. These
capabilities also underpin our leading retirement and protection solutions:
· LGRI is a market leader in UK PRT and a top ten player in the US PRT
market. It forms the majority of our £89.9bn annuity portfolio which
provides long-term, captive AUM to LGIM. As noted, the annuity portfolio is
continually being enhanced through the supply of alternative assets originated
by LGC.
· LGC invests across four main asset classes (Specialist Commercial
Real Estate, Clean Energy, Housing and SME Finance) to generate attractive
risk-adjusted shareholder returns and to create alternative assets with which
to back our annuity portfolio (LGRI and LGRR). LGC is also increasingly
attracting third party capital investment.
· LGIM is a leading global asset manager, ranking 11th in the world 21
(#_edn21) with £1.4tn of AUM of which £479bn, or 34%, are International
assets. LGIM is a leading provider of UK and US Defined Benefit (DB)
de-risking solutions. It is uniquely positioned to support DB clients across
the full range of pension endgame destinations, including PRT with LGRI. 84%
of LGRI's PRT transactions over the past three years were from existing LGIM
clients. 22 (#_edn22) LGIM is also the market leader in UK Defined
Contribution (DC) pension scheme clients - a market with significant growth
potential, with total UK DC assets expected to surpass £1tn by 2029. 23
(#_edn23)
· LGRR is a leading provider of UK retail retirement solutions,
offering annuities, income drawdown, pension pot consolidation, lifetime
mortgages (LTM) and LTM advice. To further complement LGRR's customer
retirement and savings proposition, the Workplace Savings administration
business was transferred from LGIM to LGRR at the beginning of 2021.
· LGI is a market leader in UK protection and US brokerage term life
insurance. The day one Solvency II surplus it generates partially offsets
new business strain in LGRI and LGRR. Further, LGI's US business facilitates
LGRI's US PRT transactions, which are written onto the existing US balance
sheet. LGI is a centre of internal excellence in technology and is working
closely with other divisions to drive further tech synergies. LGI also
manages a portfolio of successful, strategic Fintech businesses.
The synergies within and across our businesses drive profits and fuel future
growth. The bringing together of LGRR and LGI into a new Retail division
will enable us to better serve the needs of our retail customers and drive
further synergies.
The integrated nature of our business model means that we have relationships
with clients and customers that can and do last for decades. For example, an
Index or Liability Driven Investing DB corporate client in LGIM typically
becomes a PRT client after 14 years. LGRI will then typically have a
relationship with that client for another 30 to 40 years. Equally, LGRR and
LGIM may have a 30-40-year relationship with a customer during the DC
accumulation phase, and then extend that relationship for another 15-30 years
during the decumulation phase across a suite of decumulation products
including individual annuities, lifetime mortgages and drawdown.
The Group continues to build out, in a measured fashion, its international
retirement solutions franchise. We have made excellent progress in the US
over the last decade and will continue to build out our established businesses
(LGRI, LGIM, LGI) in that market. LGIM continues to make good progress against
its international expansion plans in Europe. Kerrigan Procter is
co-ordinating the Group's expansion plans in Asia.
A long-term commitment to Sustainability, ESG and Inclusive Capitalism
Our purpose is to improve the lives of customers, build a better society for
the long-term and create value for our shareholders. This inspires us to use
our assets in an economically, environmentally and socially useful way to
benefit society - what we call Inclusive Capitalism.
This philosophy underpins our approach to Sustainability and to ESG
(Environmental, Social, and Governance factors). 24 (#_edn24) We think about
Sustainability, and the long-term ESG impact of our business, in terms of:
1. How we invest proprietary assets. 25 (#_edn25) Our ambition is
to reduce our proprietary asset portfolio carbon emission intensity by half by
2030 and to net zero by 2050. In 2021 we reduced the carbon intensity of the
Group's balance sheet by 17.0% versus 2020, although this has been driven in
part by COVID-19 and market volatility impacts. 26 (#_edn26) We continue to
make environmentally and socially useful investments. As at FY 2021, we have
invested £1.4bn in clean energy and £8.1bn in social infrastructure. For
more information, please see our forthcoming Climate Report, which is in line
with recommendations by the Task Force on Climate-related Financial
Disclosures (TCFD).
2. How we influence as one of the world's largest asset managers with
£1.4 trillion AUM. We have £290bn AUM in ESG strategies and during 2021 we
cast over 60,000 stewardship votes as we continued to encourage investee
companies to behave responsibly. 27 (#_edn27) 28 (#_edn28) LGIM is rated
A+ for responsible investment strategy and active ownership from the UN
Principles for Responsible Investment, and ranked as one of the highest
performers among asset managers for its approach to climate change by both
ShareAction and InfluenceMap.
3. How our businesses operate. We are committed to supporting our
customers, employees, suppliers, shareholders and society at large. For
information on what we are doing to support our key stakeholders, see pages
15-17 of our Sustainability report. 29 (#_edn29) We have committed to
reducing the carbon emission intensity of our operating businesses. Our
ambition is to operate our offices and business travel with net zero emissions
from 2030, and for all our new homes to be net zero operational carbon from
2030. ESG criteria are included in executives' objectives and remuneration
targets.
Addressing climate change
Addressing Climate Change is one of Legal & General's six strategic growth
drivers 30 (#_edn30) and is increasingly embedded throughout the group,
supported by a rigorous governance framework and transparent metrics.
Climate change is the biggest challenge and the biggest investment opportunity
of our lifetimes. For context, it is estimated that $20 trillion of investment
is needed by 2025 alone to put the world on the path to achieving global net
zero emissions by 2050. 31 (#_edn31)
Our own commitment to addressing climate change is reflected increasingly in:
1) our own asset allocation and risk management frameworks, 2) in our balance
sheet investments, 3) in how we manage and steward money for external clients,
4) in our Real Asset, housing, regeneration and VC portfolios, and 5) in our
direct operational emissions. Our approach is set out in more detail in our
Climate Report which describes how we invest, influence and operate. This also
covers progress made to date and sets out the staging-posts we have set
ourselves on the journey to our goal of net zero by 2050, including the
adoption of science-based targets.
COP26, which took place in November last year, was another important milestone
in the global journey to net zero. We were involved in several ways, notably
through LGIM CEO Michelle Scrimgeour's role as co-chair of the COP26 Business
Leaders Group alongside the President for COP26, Rt Hon Alok Sharma MP, and
through LGIM's participation in the Glasgow Financial Alliance for Net Zero
(GFANZ). The principal challenge for governments, business and finance,
however, remains one of implementation.
Legal & General is a thought leader on Climate stewardship and has a
number of important policy roles. Sir Nigel Wilson has led the Workstream on
investment for the Insurance Sustainable Market Initiative for the Bank of
England/FCA's Climate Financial Risk Forum. Many senior Legal & General
employees, including Group CFO Jeff Davies and LGC CEO Laura Mason, provide
expertise in specialist areas including, for example, through HM Treasury and
the Bank of England's Productive Finance Committee, the Green Finance
Institute and the Green Buildings Council.
Levelling Up
The UK government's focus on levelling up creates an additional opportunity
for Legal & General to further expand the work Legal & General has
been doing in recent years to create new assets across housing, physical and
digital infrastructure, urban regeneration, SME finance and venture capital.
Partnerships with cities and universities, for example in Newcastle, Oxford
and Manchester enable the development of projects including the £200m Life
and Mind Building in Oxford and the £1.5bn IDManchester development. Our
Bruntwood SciTech joint venture has driven the expansion of Alderley Park, the
former Astra Zeneca research facility which is now home to over 200 life
science and technology companies and is actively developing a range of other
projects including the £210m Birmingham Health Innovation Campus scheduled to
open in 2023. Levelling up enables us to develop new asset classes; for
example, data centres, build to rent and affordable housing. Sir Nigel
Wilson is a member of the government's Levelling Up Council, and we expect
that the greater empowerment of city mayors and local government will enable
Legal & General to create new partnerships to develop multiple productive
assets across UK cities which are suitable investments for both our own
balance sheet and for our pension clients and customers.
People
At Legal & General our greatest strength is our people. We believe
strongly that moving our people around the business drives our collaborative
culture and fosters innovation and growth. To capitalise on the
opportunities ahead of us, and on the expertise of our leaders, we have made a
number of leadership changes.
As previously indicated, Chris Knight took over the role of Group Chief Risk
Officer from Simon Gadd in March 2021, having led LGRR through a strong period
of growth during his three years as CEO of the division. During Chris'
twelve years at Legal & General he has held a number of Group and
Divisional leadership roles. He has also served as the Group's Customer
Champion, representing retail customers' interests across the whole product
range; a perspective he is bringing to his CRO role.
After 8 years as Group Chief Risk Officer, Simon Gadd took on the new role of
Group Climate Change Director in May 2021. The role was created to develop
and oversee the implementation of a coherent group climate strategy, managing
both the risks and the opportunities it presents. He coordinates the wide
range of activities undertaken to address climate change across our businesses
to ensure they are aligned and consistent with delivering our climate goals
and strategy. He also chairs the Group Environment Committee.
Laura Mason, formerly CEO of LGRI, was appointed CEO of LGC, effective 1(st)
July 2021. This move saw Laura return to LGC where she was part of the
original leadership team involved in setting up the division. Laura is focused
on growing LGC's asset origination capabilities, and on attracting third party
capital.
Kerrigan Procter, formerly CEO of LGC, was appointed President of Asia for the
Group, effective 1(st) July 2021. Kerrigan's remit involves working hand in
hand with our divisions to develop their strategies for growth in Asia and
then implementing them in the region, with a particular focus on China.
Andrew Kail, formerly CEO of LGRR, was appointed CEO of LGRI, effective 1(st)
January 2022. Prior to joining Legal & General in 2021, Andrew was the
Head of PwC's Financial Services practice, and was Legal & General's Group
engagement audit partner for five years. Andrew spent thirty years with PwC
and, as a long-standing senior auditor and advisor, brings significant
financial services experience as well as expertise in regulation, risk and
technology.
Bernie Hickman became CEO of our new Retail division on 1(st) January 2022,
retaining responsibility for LGI and taking on responsibility for LGRR.
Bernie has led LGI for 5 years, during which time he has focused on driving
technology and efficiency improvements in the business and on identifying and
executing on new adjacent Fintech investment opportunities such as Salary
Finance and Smartr365.
John Godfrey, Group Corporate Affairs Director, will be taking on a new role
building on his public policy experience to coordinate and further strengthen
Legal & General's group-wide engagement with the Levelling-Up agenda.
Outlook
Medium-term growth: ambitious and deliverable
Our strategy has delivered strong returns for our shareholders over time. It
has demonstrated resilience through the pandemic, and strength as we come out
of it. We are confident we can continue to deliver profitable growth as we
execute on our strategy.
We set out our five-year ambitions at our Capital Markets event in November
2020. Cumulatively, over the period 2020-2024, our financial ambitions are
for 32 (#_edn32) :
1. Cash and capital generation significantly to exceed dividends (we
intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay
dividends of £5.6bn - £5.9bn). 33 (#_edn33)
2. Earnings per Share to grow faster than dividends, with the dividend
growing at low to mid-single digits from 2021.
3. Net capital surplus generation (i.e. including new business strain)
to exceed dividends.
We are on track to deliver against these ambitions. In 2021, we have achieved
12% growth in both cash and capital generation. Since the beginning of 2020 to
date, we have achieved £3.2bn of cash generation, £3.1bn of capital
generation and declared £2.1bn of dividends.
We aim to deliver long-term, profitable growth across the Group. Our asset
origination and asset management businesses, LGC and LGIM, operate in
attractive and profitable markets, and maintain a strong commitment to
ESG-aligned investing. With proven asset expertise in specialist commercial
real estate, clean energy, housing and SME finance, LGC provides unique asset
origination capabilities in sectors that have significant growth potential,
which produce yield-creating assets that drive our annuity business and which
appeal to third party investors. LGRI and LGRR provide highly predictable,
stable cash flows from their growing back-books. LGI is applying
technological innovation to sustain its UK leadership, to grow in the US and
to continue to expand into adjacent markets. The bringing together of LGRR
and LGI into a new Retail division will enable us to focus on serving the
savings, protection and retirement needs of our retail customers.
We remain confident in our strategy and in our ability to deliver resilient,
organic growth, supported by our strong competitive positioning in attractive
and growing markets. Our confidence in our dividend paying capacity is
underpinned by the Group's strong balance sheet, which has a £3.4bn IFRS
credit default reserve and Solvency II surplus regulatory capital of £8.2bn,
in addition to significant buffers to absorb a market downturn. We have a
proven operating model which is reinforced by robust risk management
practices.
Confident in achieving our ambitions
We remain confident in achieving our five-year (2020-2024) cumulative
financial ambitions. In 2021, we continued to build on the good start we
made in 2020, delivering double digit growth in both cash and capital
generation.
LGC and LGIM provide powerful asset origination and asset management
capabilities directly to clients. These same capabilities also underpin our
leading retirement and protection solutions. LGC intends to grow shareholder
alternative AUM to c£5bn, with a blended portfolio return of 10-12%, by
2025. It also aspires to grow third party AUM to £25-30bn and to grow LGC
operating profit to £600-700m by 2025. LGIM continues to focus on
attracting higher margin net flows and on diversifying and further
internationalising its business. The business remains confident of achieving
its ambition of growing cumulative profits in the range of 3-6%.
LGRI maintained pricing discipline in the face of greater competition in PRT
markets in 2021 and will continue to prioritise shareholder value creation.
Advisers such as WTW and LCP are bullish on the prospects for PRT in 2022 and
beyond. 34 (#_edn34) We are well placed to participate whilst maintaining
our pricing discipline. We continue to expect to write £40-50bn of UK PRT and
$10bn of International PRT over a five year period. A key competitive
advantage is in our ability to originate direct investments. This provides us
with significant optionality. We can use these direct investments to create
value in writing new annuity business, and/or by using them to increase
returns on the back-book.
In LGI, we continue to target mid-single digit growth in revenues across our
UK protection businesses, and to achieve double digit growth in US new
business sales. In LGRR, the longer-term outlook for individual annuities
and lifetime mortgages remains attractive, driven respectively by ongoing
growth in the DC market and by an increasing consumer requirement to look to
multiple sources of wealth to fund retirement. However, the lifetime
mortgage market is becoming more competitive and we will maintain pricing
discipline at the expense of volumes if required.
We are pleased with the progress we have made in 2021 and are confident in our
ability to deliver further profitable growth going forwards. We are
well-positioned to support the UK Government's two flagship policies of
"Levelling Up" and "Address Climate Change".
We will continue to maintain a defensive asset portfolio and a long-term
investment horizon, supporting all our stakeholders by delivering Inclusive
Capitalism through investments - both for our own portfolio and for clients -
in areas such as infrastructure, clean energy and affordable housing, and by
providing products to support individuals' financial resilience.
Business segment outlook
Legal & General Institutional Retirement (LGRI)
LGRI participates in the global pension risk transfer (PRT) market, focusing
on corporate defined benefit (DB) pension plans in the UK, the US, Canada,
Ireland and the Netherlands, which together have nearly £7 trillion of
pension liabilities due to ageing demographics.(( 35 (#_edn35) ))( )
We write direct business in the UK and US and are market leaders in the UK.
We are supported by LGIM's long-standing DB client relationships and
investment capabilities and LGC's asset origination capabilities, as well as
wide-ranging skills across the Group which enhance our asset strategy and
product innovation. During 2021, 58% of our UK transactions were with LGIM
clients, demonstrating the strength of our client relationships and the
competitive advantage provided by our unique position as the only firm
operating across the full pension de-risking journey.
The UK is our primary market and it is the most mature PRT market globally
with £2.3 trillion of UK DB pension liabilities, of which only c13% have been
transferred to insurance companies to date. 36 (#_edn36) This leaves a
sizeable opportunity for future market growth. Demand from companies and
pension plans for PRT remains robust. Market commentators believe the total
UK PRT market was just under £30bn in 2021 despite the relatively subdued
first half of the year. 37 (#_edn37) In terms of medium-term outlook, they
anticipate between £150bn-£250bn of UK PRT demand over the next five years,
again highlighting the size of the opportunity. 38 (#_edn38) We continue
to expect to write £40bn to £50bn of new UK PRT over 5 years, but will
remain disciplined in our pricing and deployment of capital. Over the last 4
years we have written £32bn of new UK PRT in line with these ambitions.
The US represents a further, significant market opportunity, with $3.7
trillion of DB liabilities, of which only c7% have transacted to date. 39
(#_edn39) Since our market entry in 2015, our US business has written more
than $6bn of PRT with 84 clients. We also actively quote on selective
Canadian, Irish and Dutch PRT opportunities and wrote our second Canadian deal
in 2021. We are the only insurer providing PRT directly to pension plans
across the UK and US. Our ambition is to write more than $10bn of
international PRT over the five years from 2020-2024.
During 2021 we maintained pricing discipline in the face of increased
competition in both the UK and US. Despite writing slightly lower volumes
than in 2020, new business profits were resilient due to our competitive
advantage in originating assets via LGC, lifetime mortgages via LGRR and
sourcing assets via LGIM. Going forwards, strong asset creation capability
across the Group provides us with optionality to maximise shareholder value,
either by deploying assets against new business - to improve pricing and
margins - or by applying them to increase the returns on the back-book.
As the annuity portfolio scales, the growing amount of capital generated by
the in-force book offsets both the capital investment required to fund new
business and the portfolio's contribution to a progressive Group dividend.
This is what we call self-sustainability. The UK annuity portfolio achieved
self-sustainability in both 2020 and 2021. Whilst we expect to achieve
self-sustainability again in 2022, driven by our growing operational surplus
generation, it is not something we necessarily aim to achieve in every year.
It will vary depending on new business volumes and asset yields. Our ambition
is, however, for net surplus generation to exceed dividends for the Group over
the period 2020-2024.
Legal & General Capital (LGC)
LGC, the Group's alternative asset origination platform, will continue to
deploy shareholder capital in a range of underserved areas of the UK's real
economy that are backed by long-term structural trends. LGC has three
fundamental objectives: 1) profit and value generation within LGC for
shareholders; 2) asset creation to back LGRI and LGRR's annuity liabilities
and meet demand from LGIM's third party clients; and 3) a focus on ESG,
securing long lasting value for society. LGC continues to make a substantial
contribution to shareholder value creation and is well positioned to drive
further meaningful growth as its businesses continue to scale and mature.
As communicated at the capital markets event last October, our ambition is to
build LGC's diversified alternative AUM to c£5bn by 2025 (2021: £3.4bn),
with an upgraded blended portfolio return target of 10-12% (previously
8-10%). In combination with the contribution from the Traded Portfolio,
LGC's ambition is to deliver operating profit of £600-700m in 2025.
Additionally, we plan to increase fee-generating third party capital to
£25-30bn (2021: £12.9bn). We expect our existing platforms (Pemberton,
Build-to-Rent, NTR) to continue to manage the majority of third-party AUM,
building on their impressive growth to-date, but this also includes
incremental opportunities in Clean Energy, Later Living and Data Centres.
Excluding assets originated to back our annuity liabilities, LGC expects to
invest and manage over £30bn of alternative AUM by 2025. As part of the
ambition, we will also target international opportunities, with a primary
focus on the US.
Supporting the UK government's two flagship policies, LGC's asset classes
include specialist commercial real estate, housing, clean energy, and SME
finance. Our alternative asset strategy is made up of sectors where our
investments change lives and drives Inclusive Capitalism. We are creating
much needed jobs, homes and infrastructure, driving growth, skills and
innovation, and contributing towards a cleaner, greener future:
· The specialist commercial real estate portfolio includes
capital-light urban regeneration (funded by LGRI or LGIM third parties),
digital infrastructure and science and technology-focused real estate.
Partnering with universities, local authorities and private sector experts, we
have invested across nineteen UK towns and cities, creating jobs, driving
economic growth and revitalising local communities.
· As a leading provider of homes, with a commitment to tackling the
affordability gap and the undersupply of housing (estimated to be around
345,000 homes required annually) across the UK, LGC's housing platform
continues to expand across all tenures, ages and demographics, leveraging both
traditional and modular construction in order to revolutionise and speed up
delivery for all. We are well positioned to scale in order to achieve our
long-term ambitions: 1) to deliver 10,000 multi-tenure homes per year
(including over 3,000 traditional build to sell homes, up to 3,000 affordable
and modular homes, and 1,000 suburban rental homes); and 2) to develop c5,200
build to rent homes in our urban pipeline and 5,100 later living homes in our
JV pipeline with NatWest Group Pension Fund. To ensure that the homes we
build are future-proofed and sustainable, we have committed that all our new
homes will be operationally carbon emission-free from 2030.
· In the clean energy sector, we are focused on investing
selectively into attractive growth equity and low carbon infrastructure
opportunities. We are confident that our considered and selective approach to
clean energy investing will continue to yield results in what can be a highly
competitive sector. Growth equity targets early-stage scale-up companies that
deliver innovative clean technologies required for a successful energy
transition. Low carbon infrastructure targets the renewable energy
infrastructure investments needed to accelerate progress towards a low-cost
and low-carbon economy.
· In SME Finance, we are continuing to support UK and European
innovation, investing in the real economy and technological innovation in two
SME Finance business areas: Alternative Finance - via our 40% stake in
Pemberton, an alternative credit manager - and Venture Capital - via our Fund
of Funds platform and via LGC's ownership of Accelerated Digital Ventures
(ADV), a direct investment platform. Our SME Finance businesses are well
positioned to scale in these highly attractive structural growth segments.
We also continue to work with LGIM to develop a viable solution for Defined
Contribution clients which will democratise access to the venture capital
asset class.
Legal & General Investment Management (LGIM)
LGIM is a globally recognised investment leader, benefiting from a combination
of scale and a diversified asset and client base, underpinned by clear
structural demand for our capabilities. As L&G's asset manager, LGIM
also plays a critical role in supporting our leading retirement and protection
solutions.
Our purpose is to create a better future through responsible investing and we
are a global leader in ESG. Our five-year growth ambition is driven by the
three pillars of our strategy to modernise, diversify and internationalise the
business. We seek: 1) to grow cumulative profits in the range of 3% to 6%,
absent market shocks; 2) to increase AUM in international and higher-margin
areas; and 3) to diversify AUM by client, channel and geography. We expect
to maintain a cost income ratio in the high 50 percent range in the near term
as we invest for growth, after which we expect it to trend downwards.
LGIM is one of the largest managers of corporate pension funds globally; we
are a UK leader in corporate DB pensions, the UK's number-one DC manager, and
ranked second for UK gross retail sales in 2021. 40 (#_edn40) We intend to
maintain our strong position in the UK, which has been the bedrock of our
success to date, while continuing to diversify our capabilities and broaden
our reach internationally.
Modernise: LGIM continues to invest in the business to achieve the resilience
and agility critical to future success. We are laying the foundations for
continued global growth by investing in our people, our operating platform and
our data capabilities, and by refining our organisational structure. During
2021 we rebuilt and fully brought in house LGIM's proprietary Climate Risk
model, Destination@Risk. This capability allows us to engage with clients to
help them understand the climate risks and opportunities across their
portfolios, enabling us to design solutions and funds to help them achieve
their climate objectives, such as Net Zero alignment.
Diversify: We are continuing to expand our investment offering, with a focus
on higher-margin product areas such as Real Assets, ETFs, Multi-asset and
Solutions. We see a sizeable opportunity in Real Assets - we are well known
for our UK Real Estate Equity expertise and, increasingly, are also providing
investors with access to our leading private-credit capabilities. As UK and
US DB schemes approach funding maturity, many clients will look for
self-sufficiency or buy-out options. Together with LGRI, we are well
positioned to deliver on these options through our 'endgame' Solutions
offering. We continue to demonstrate our leadership in ESG investing
through our award-winning Investment Stewardship team and, in addition to
offering a wide range of ESG-specific products, are driving further
integration of ESG into our mainstream investment portfolios to reflect
current and future client demand.
Internationalise: LGIM aims to be a disruptor in regions and countries where
our strengths align to client needs. Over the last five years LGIM's
International AUM has more than doubled to reach £479bn - 34% of LGIM's total
AUM. Our ambition is to continue growing International AUM profitably and at
pace in the US, Europe and Asia. In the US, we are deepening our strong
client relationships through innovation in DC and leadership in ESG. In
Europe, we are building on our successes in Germany and Italy, to expand
further into European markets and channels through our higher-margin thematic
ETFs and active fixed income strategies. In Asia, our strategy is to retain
and increase our share of wallet with existing clients and deepen our
footprint in existing markets - Japan, China, Hong Kong, Taiwan and Korea - by
showcasing and delivering investment solutions that address key market
trends.
Legal & General Retail
As of 1(st) January 2022, LGRR and LGI (our two retail businesses) have been
combined into one division, Legal & General Retail. Under the leadership
of Bernie Hickman, this division will cover the savings, protection and
retirement needs of our c12 million retail policyholders and workplace
members.
Retirement (LGRR)
Workplace savings is a core part of the Group's retail proposition. The
business is a growth area for the Group and we expect its target market to
continue to expand, driven by ageing demographics and welfare reforms. To
further complement LGRR's customer retirement and savings proposition, the
Workplace Savings administration business was transferred from LGIM to LGRR at
the beginning of 2021. This enables us to better assist the 4.4 million
Workplace members in planning their retirement whilst they are saving with us,
rather than when they come to retirement. This will drive better customer
outcomes and, at the same time, help us to retain more of our customers in
retirement.
There are currently c£500bn in UK Defined Contribution (DC) accumulation
assets and this is expected to broadly double by the end of the decade. 41
(#_edn41) As a market leading provider in Workplace Savings, we are well
placed to benefit from this expected increase in DC pension assets, and to
grow administration revenues for LGRR and fund management revenues for LGIM.
Prior to Covid-19, around £40bn of these DC assets were coming to maturity
each year, with the individual annuity market accounting for just over 10% of
these assets. The size of the individual annuity market dipped slightly
during the pandemic as people deferred making retirement decisions. We do
expect the market to recover as the DC market continues to grow, and as fewer
people reach retirement with defined benefit pensions and so seek the
longevity protection that an annuity provides. LGRR has a strong market
share in individual annuities, with a 21.4% market share at Q3 2021. 42
(#_edn42) We are building on the strength of that position by providing
other retirement income products and services, such as our recently launched
drawdown product, recognising that each customer will have different needs and
requirements.
The UK lifetime mortgage (LTM) market continues to represent a sizeable
opportunity, with UK housing equity in over 55s at £1.7 trillion across
approximately 5.5m houses. 43 (#_edn43) At present only c£5bn per year is
being released through the LTM market. While we maintain our focus on the
traditional LTM market and continue to offer greater flexibility and choice,
we continue to see interest from the "wealth" sector as those with higher
value properties increasingly see the benefit in lifetime mortgages when
planning the distribution of their estate to future generations.
Across all our businesses we continue to focus on our customers and the
technology that supports providing a more efficient but personalised service.
Insurance (LGI)
We anticipate continued premium growth across our UK and US Protection
businesses as technological innovation makes our products more accessible to
customers and supports further product and pricing enhancements.
In the UK, our market leading retail protection business is supported by the
strength of our distribution relationships, investment in our systems and
platforms, and product enhancements. These strengths, aided by the UK
housing stamp duty relief, contributed significantly to strong performance in
2021, with record new business of £200m, up 14% against 2020 (£175m). We
expect the total protection market to be slightly smaller in 2022. Our group
protection business has also performed well, increasing premium income by 6%.
During 2021 we launched a digital application portal which will drive
growth, particularly for smaller schemes. In line with our five-year
ambition, we are targeting mid-single digit growth in revenues across our UK
protection businesses.
In the US, we anticipate our on-going technology investments and new
partnerships will position us for premium growth as the market continues to
recover from the distribution and underwriting disruptions caused by
COVID-19. We are using technology to improve customer experience while
reducing cost and becoming the partner of choice for a wide range of
distribution partners. We are already the largest provider of term life
assurance in the brokerage channel, and our digital first approach is aiming
to achieve double digit growth in new business sales out to 2025.
We invest in Fintech start-ups and scale-ups that operate in adjacent markets
where we have the relationships, capital or expertise to accelerate their
growth and value creation. One such investment is Salary Finance, an
employee benefits platform business, in which we have a 48% holding. Salary
Finance remains one of the UK's fastest growing Fintechs and is well
positioned for growth in the UK, the US and beyond. Gross revenue grew to
£30m in 2021 44 (#_edn44) , an increase of 85% year on year and the fourth
year in a row with a near doubling in revenue growth. In addition, other key
investments like Smartr365 and Asanto are growing rapidly. We are targeting
double digit growth for our Fintech businesses.
Dividend
The Board has declared a final dividend of 13.27p, giving a full year dividend
of 18.45p, up 5% from the prior year (17.57p). This is consistent with our
stated ambition to grow the dividend at 3-6% per annum between 2021 and 2024.
Going forward, and as announced at HY21, the Board intends to adopt a
formulaic approach to the dividend whereby the interim dividend grows by the
same percentage as the total dividend for the prior year.
LGR - Institutional
FINANCIAL HIGHLIGHTS £m 2021 2020
Operating profit excluding mortality reserve release 1,154 1,229
Mortality reserve release nil 102
Operating Profit 1,154 1,331
Release from operations 512 492
New business surplus 193 220
Net release from operations 705 712
New business premiums £m
UK PRT 5,315 7,196
International PRT 936 1,250
Other PRT (longevity insurance, Assured Payment Policy) 925 397
Total new business 7,176 8,843
Operating profit of £1,154m
LGRI continues to deliver strong operating profit of £1,154m (2020:
£1,229m). Profit was underpinned by the performance of our growing annuity
portfolio and robust pension risk transfer (PRT) new business volumes.
As communicated at H1 2021, we have not recognised an explicit release from
adopting CMI 2019, given the uncertainty in the data created by the
pandemic. We anticipate any resulting additional prudence will be released
through experience variances over the next 2-3 years until we have more
certainty and clarity over the data. In H2 2020 we conservatively adopted an
adjusted version of the CMI 2018 mortality tables for LGRI's annuity book,
resulting in a £102m reserve release.
Release from operations increased 4% to £512m (2020: £492m), reflecting the
scale of the business as prudential margins unwind from LGRI's growing
£89.9bn annuity portfolio (2020: £87.0bn).
Net release from operations was £705m (2020: £712m) with new business
surplus of £193m (2020: £220m), reflecting successful execution, coupled
with a disciplined approach to new business.
During 2021 we wrote £5,315m of UK PRT which, combined with Assured Payment
Policy of £925m and £957m of individual annuities written in LGRR, delivered
a 9.1% UK Solvency II new business margin (2020: 10.6%, 2019: 7.9%). This is a
strong result: 2020 benefitted from wider credit spreads and good asset
sourcing during the pandemic, as well as longer duration schemes. UK PRT
volumes were written at a capital strain of less than 4%.
Gross longevity exposure was £89bn across LGRI and LGRR's annuity and
longevity insurance businesses. We have reinsured £39.4bn of longevity risk
with sixteen reinsurance counterparties, leaving a net exposure of £49.6bn.
The reinsurance market continues to grow and innovate, and we expect it to
continue to offer sufficient capacity to meet the demand from insurers.
Successful execution coupled with a disciplined approach for value
During 2021 LGRI underwrote £7,176m of business across 57 deals globally
(2020: £8,843m, 61 deals).
Legal & General has demonstrated successful execution, whilst remaining
focused on value creation, and continues to play a key role in the UK PRT
market. Despite a slow start to the year, the market is anticipated to close
at just below £30bn, the third largest on record. As in 2020, the market
saw a high number of smaller and mid-sized pension scheme transactions and a
handful of larger scheme transactions.
LGRI's brand, scale and asset origination capabilities - through synergies and
expertise within LGIM and LGC - are critical to our market leadership in the
UK PRT market. Long-term client relationships, typically created and
fostered by LGIM, have allowed us to help many pension plans achieve their
de-risking goals. In 2021 we demonstrated our market leadership and
solutions capabilities by writing a series of innovative transactions,
including:
· Small scheme solutions. With 69% of our transactions falling into
this category, we leveraged technological innovation to serve smaller pension
plans efficiently.
· A new umbrella agreement with a major UK corporation signed. Now 11
agreements in place to allow for efficient future execution.
· c£800m buy-in with TUI group UK Pension Trust. This transaction
marks the scheme's first PRT transaction with Legal & General.
· c£760m buy-in with Sanofi Pension scheme, securing benefits for
c2,900 retirees.
· c£650m buy-in with Mitchells & Butlers executive pension plan,
which marked the Plan's first pension risk transfer.
· A c£925m Assured Payment Policy for Legal & General's Group UK
Pension and Assurance Fund. The policy provides asset yield, interest rate
and inflation risk protection to the pension plan, paving a more secure path
to buyout over a planned timeframe.
· First conversion of an Assured Payment Policy (APP) to a buy-in. A
c£63m transaction agreed with AIB Group UK Pension Scheme, converted c20% of
the original APP transaction completed in December 2019. This was followed
by a second APP conversion in 2021 of c£38m with Legal & General Group UK
Senior Pension Scheme. These transactions reflect our commitment in helping
schemes along their de-risking journey, every step of the way, offering
flexible solutions and enabling them to seize de-risking opportunities as they
arise.
Looking forward to 2022, we have already won or are exclusive on c£1bn of
premium. We have a pipeline of c£20bn.
Solid US volumes in a competitive market
Despite a more competitive market in the US, LGRI delivered US new business
volume of $1,095m (2021: £789m; 2020: $1,614m; £1,250m). Market
commentators expect the US market in 2021 to be the biggest on record at
$38bn. 45 (#_edn45) However, most of the year-on-year growth is
attributable to the >$1bn segment, with the <$500m segment that we
currently participate in reducing by c$3bn.
As in the UK, our focus was on value creation. Despite the market
conditions, we wrote our second largest US PRT transaction at $293m and in
Bermuda we secured our second Canadian deal through a new strategic
partnership with a second Canadian insurer.
As the only insurer providing PRT directly to pension plans across the UK and
US, Legal & General is strongly positioned to offer international pension
de-risking solutions.
Total Annuity Asset Portfolio
FINANCIAL HIGHLIGHTS £m 2021 2020
Operating Profit 1,506 1,728
Investment and other variances 242 15
Profit before tax 1,748 1,743
Total annuity assets (£bn) 89.9 87.0
Of which: Direct investments (£bn) 28.4 24.7
Profit before tax was £1,748m, with investment variance contributing
positively due to the unwind of margins, arising as a result of no defaults,
and strong underlying performance, including trading profits from the
profitable disposal of some bespoke derivatives and other assets.
Annuity asset portfolio
The 'A minus' rated annuity asset portfolio of £89.9bn 46 (#_edn46) , which
backs the IFRS annuity liabilities in LGRI and LGRR, is well diversified by
sector and geography. Our ambition is to continue to collaborate with LGC,
LGRR and LGIM to strengthen our asset sourcing capabilities, including both
self-manufactured and public assets with a strong ESG focus. This core
competitive advantage provides LGRI and LGRR with long duration direct
investments with higher risk-adjusted returns and optionality in asset
deployment. We remain on track to achieve our portfolio decarbonisation
target of 18.5% by 2025.
Credit portfolio management
The fixed income portfolio of £81.8bn is comprised of £58.8bn of listed
bonds and £23.0bn of Direct Investments. Approximately two-thirds of the
portfolio is rated A or better, 33% rated BBB and 1% sub-investment grade.
The key objective of our annuity-focused, fixed income fund managers in LGIM
is to manage the portfolio to match liabilities, while minimising credit
downgrades and avoiding defaults. We constantly review our asset portfolio,
including sector allocations and asset classes, in order to manage portfolio
credit quality and to mitigate risks. We have vigorously stress-tested our
portfolio to build resilience against a range of scenarios. In addition, we
hold a £3.4bn IFRS credit default reserve.
We have kept lower-rated, cyclical exposures to a minimum and only 13% of our
BBB assets are BBB-. We actively manage our asset portfolio and continue to
take opportunities to improve credit quality at attractive pricing levels.
This two-pronged approach, comprising defensive positioning and active
management, has helped us to mitigate downgrade and default risk. Again, we
have had no defaults in 2021.
Direct Investment
Within the asset portfolio, we originated £4.6bn of new, high quality direct
investments during 2021 which, along with market movements, brought the direct
investment portfolio total to £28.4bn 47 (#_edn47) , including £6.9bn in
Lifetime mortgages. Consistent with the broader bond portfolio,
approximately two-thirds of the direct investment bond portfolio was rated 'A'
or above using robust and independent rating processes which take account of
long-term stress events on counterparties and the underlying collateral.
Our Direct Investment strategy is centred on ensuring the safety of
policyholders' benefits. We believe, and have proved, that we can protect
our policyholders and invest to deliver Inclusive Capitalism across our UK
towns and cities. By accessing the power of pensions, we can generate
positive societal impacts and drive economic growth.
During 2021 LGRI committed to fund its first L&G Affordable Homes
investment of £270m over 2021 to 2023, with £77m being funded in late 2021.
This partnership is forecasted to generate around £1.7bn of assets by
2025. In addition, we sourced £489m of Urban Build to Rent assets through
our partnership with LGIM and executed a US Corporate Real Estate external
mandate, whilst LGIMA builds capability, which led to £106m of assets being
sourced.
Legal & General Capital
FINANCIAL HIGHLIGHTS £m 2021 2020
Operating profit 461 275
- Alternative asset portfolio 350 112
- Traded investment portfolio & Treasury 111 163
Investment and other variances 19 (299)
Profit before tax attributable to equity holders 480 (24)
Net release from operations 303 224
ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate 625 694
Clean energy 224 182
Residential property 1,979 1,738
SME Finance 611 525
3,439 3,139
TRADED ASSET PORTFOLIO £m
Equities 1,853 1,770
Fixed income 54 138
Multi-asset 221 209
Cash(1) 1,427 1,809
3,555 3,926
LGC investment portfolio 6,994 7,065
Treasury assets at holding company 1,621 1,982
Total 8,615 9,047
1. Includes short-term liquid holdings.
Total operating profit of £461m increased 68% over 2021, beating capital
markets estimate
LGC operating profit increased 68% to £461m (2020: £275m). This growth
principally reflects increased profits from our alternative asset portfolio of
£350m (2020: £112m) as a result of a bounce-back in the housebuilding market
and the continued maturing of the underlying investments in our clean energy
and venture capital portfolios. Operating profit from the traded &
treasury portfolio decreased to £111m (2020: £163m), primarily driven by the
continued sell down of listed equities to fund the increasing expansion of the
alternative asset portfolio.
Profit before tax was £480m, driven by investment and other variances of
£19m, compared to £(299)m in 2020, which reflects the rebound in alternative
asset portfolio profits and equity market performance, partially offset by
early-stage development costs.
Our growing alternative asset portfolio achieved a net portfolio return of
8.5% (2020: (4.0)%). In line with our business model, we expect to deliver a
net portfolio return of 8-10%, growing to 10-12% by 2025, as our early-stage
businesses continue to mature.
Alternative asset portfolio grew 10% over 2021 to £3.4bn
LGC has continued to strengthen its capabilities across a diversified range of
alternative assets that are underpinned by our structural growth drivers. Our
alternative asset portfolio increased to £3,439m (2020: £3,139m) as we
deployed a further £0.4bn and made new undrawn commitments of £0.5bn across
our existing investment platforms. Through these investments we create
assets that generate returns for shareholders, create attractive
yield-generating Matching Adjustment-eligible assets for LGRI and LGRR and
supply attractive alternative assets to LGIM and other third party clients.
As we are maturing, we have also divested £0.4bn in assets, with the
capital to be recycled into exciting new sectors and projects which will help
to drive future growth potential.
Strong value creation in 2021
LGC provided five notable, value-creating proof-points in 2021, demonstrating
that our strategy is being executed effectively to generate significant
shareholder returns:
1. MediaCity - Land Securities Group acquired our 50% stake in
November. The purchase price received, together with the £40m of net
distributions received through the period of ownership since 2015, have
resulted in a total return of 1.6x on the initial investment. We plan to
recycle the capital back into Manchester through our University and Alderley
Park developments.
2. Inspired Villages Group - Announced in August 2021, we established
a 15-year joint venture (JV) with Natwest Group Pension Fund Limited
(NWPTL). As part of the new JV, LGC sold a 50% stake in Inspired Villages'
first 11 sites to NWPTL based on an enterprise value of over £300m, resulting
in a return of 1.3x on the initial investment. This investment will support
our future pipeline of 34 sites, which will deliver c5,100 homes, housing
c8,000 residents and create an estimated Gross Development Value of c£4bn.
The transaction is unique as it sees one of the largest UK pension funds
investing directly into UK private social infrastructure.
3. Pod Point - First backed by LGC in 2019, Pod Point listed on the
Main Market of the London Stock Exchange in November 2021 raising £120m of
gross proceeds to support the ambitious growth plans of this innovative UK
company and generating a return of 3.8x on LGC's initial investment.
4. Current Health - First backed by LGC in 2018 and LGRR in 2019, this
innovative Scottish "healthcare at home" company was acquired by Best Buy in
October, generating a 5.3x return on our initial investment.
5. Kao Data Centres - LGC secured accretive co-investment from the
£11bn infra fund HRL Morrison through its Infratil investment vehicle to
drive ambitious growth plans. Kao has exchanged on the acquisition of two UK
prime data centres with a long-term anchor lease from a large financial
services business, thereby becoming a multi-site data centre platform with
expansion capacity of c55MW.
Specialist commercial real estate: ongoing support of the levelling up agenda
Supporting the need to "Level Up" towns and cities across the UK, we continue
to invest in partnership with public and private sector experts, to drive
forward some of the largest urban transformation schemes, back digital
infrastructure and fund the next generation of science and innovation centres.
During 2021 our specialist commercial real estate portfolio decreased to
£625m (2020: £694m) as we realised exit strategies from some existing assets
including MediaCity. We are in the process of recycling this capital into
new and existing projects to support future growth potential.
Through Bruntwood SciTech, we have continued to develop world-leading
diagnostics infrastructure, growing our portfolio to over 2.5m sq ft. Home
to over 500 science and tech businesses, the Bruntwood SciTech network
includes nine sector-specialist campuses across the midlands and the North of
England. Its development pipeline of over 6m sq ft includes Birmingham
Health Innovation Campus, where construction of Birmingham's first
smart-enabled building, Enterprise Wharf, is now well underway, and - as
announced in June 2021 - a development partnership with the University of
Manchester to deliver ID (Innovation District) Manchester, a new £1.5bn
innovation district across 4m sq ft in the city centre which forms an
ambitious plan to make Manchester the heart of innovation in Europe.
As a part of our £4 billion partnership with Oxford University, and in
conjunction with LGRI and LGIM, we began construction in 2021 on the £200m
'Life and Mind Building' in Oxford; the largest building project ever
undertaken on behalf of the University. We also announced that we will fund
and deliver a new innovation district with the University, extending Oxford's
existing Begbroke Science Park across a 14-hectare site.
Our Clean Energy portfolio expanded into new sectors, increasing in value to
£224m (2020: £182m)
Supporting the Group's climate ambitions, we invest in early-stage innovative
clean technology companies and low carbon renewable energy infrastructure
needed to meet UK and global UN climate targets and Sustainable Development
Goals.
During 2021, our portfolio continued to make excellent progress in scaling up.
Pod Point, in which we hold a c14% stake post the IPO, is rapidly building
its business to meet increased consumer demand for electric vehicles. By
April 2021, Pod Point's partnership with Volkswagen and Tesco had provided
more than 500,000 free top-ups at Tesco stores across the UK and powered more
than 10 million miles of travel, helping to make electric vehicle charging
accessible for all drivers and accelerate the adoption of electric vehicles.
Pod Point has also expanded its partnership with Lidl to install rapid
chargers at 350 stores.
In October 2021, NTR and LGIM annonunced an exciting strategic partnership.
The partnership will provide institutional investors in the UK, Europe and
Asia access to the €1-trillion European energy transition in 2022 by
combining LGIM's 50-year experience in Real Assets and NTR's 20-year expertise
in renewables.
We recently announced a new investment in Sero Technologies, an energy
technology and service company, which creates tailored net zero enegy retrofit
plans for the residential sector. Residential retrofitting represents a
significant market opportunity to achieve the UK's legally mandated target of
net zero by 2050: almost every home will need to be improved or retrofitted
with some combination of enhanced energy efficiency and low carbon heating.
Housing: platform continues to grow as LGC targets multi tenure opportunities
LGC continues to scale up its ambitions across all housing tenures.
Diversified across affordability and life stage, LGC's investments meet the
UK's long-term social and economic need for quality housing for all
demographics. During 2021, our housing property portfolio grew to £1,979m
(2020: £1,738m) reflecting a bounceback in the housebuilding sector and
sustained long-term demand.
LGC's Build to Sell business, CALA, has performed exceptionally in 2021,
rebounding strongly from its position in 2020 when it was impacted by a pause
in construction and sales activity following the first COVID-19 lockdown.
Having grown to the 10th largest housebuilder in the UK by revenue, during
2021 CALA has delivered revenue of £1.24bn (2020: £713m) and operating
profit of £132m (2020: £6.9m) through the sale of more than 2,900 units,
significantly higher than 2020 and 2019 levels (2020: 1,835 units; 2019: 2,482
units). Reservations on private units currently stand at a record 60% of the
full year target, giving confidence in the full year outcome for 2022.
Our Affordable Homes business has continued to establish itself as one of the
UK's leading institutional developers and managers of affordable housing.
Delivering £26.4m of operating profit, our business continues to grow and
over 2021 we increased our total number of operational affordable homes by 997
to a total of 1,667. Our development and operation pipeline now stands at
over 7,000 homes, with a Gross Asset Value of around £1.2bn. During the
year we set up four additional Registered Providers to extend our funding
approach and, as part of that strategy, brought in a £270m commitment from
LGRI to support the growth of the business, which we expect to grow materially
over time.
Our Modular Housing business is making significant progress with projects and
partners, designing and manufacturing homes in an innovative way which will
transform the way homes are built. In 2021, Legal & General Modular
Homes' innovative approach to housing delivery has gained significant
momentum, commencing construction on sites in Selby, Bristol and Broadstairs
for the delivery of 440 homes. The business is currently seeking planning
permission to deliver a further c.400 homes across three sites, with
construction expected to commence early in 2022. We are creating some of the
most energy efficient homes in the country with all homes from 2020 onwards
achieving an Energy Performance Certificate (EPC) A rating, a standard met by
only around 1% of new and existing dwellings in England & Wales.
Our urban Build to Rent business joint venture with PGGM has continued to make
strong development progess across the UK's major towns and cities. Across
the Group, we now have a £1.9bn portfolio of c5,200 homes with 14 schemes in
operation or development, creating a strong pipeline of attractive, high
quality assets for LGRI and LGIM clients
Our Suburban Build to Rent business has put in a planning application for its
first site in North Horsham. This site is being developed in partnership
with LGC's other housing businesses, delivering 124 new homes for suburban
families, a selection of affordable housing, modular housing, CALA homes and
infrastructure including schools, sports and medical facilities. This
multi-tenure collaboration showcases the unique competitive advantage of our
housing property platform. SBTR also acquired a site in Peterborough,
building its pipeline to over 750 homes across the UK.
Growth in our Inspired Villages business continues at pace. Our Later Living
platform has made good planning and development progress. It has secured
planning permission for 141 homes in West Sussex and 194 homes in South
Oxfordshire. It has also broken ground on its first two operationally
net-zero carbon developments, bringing forward over 350 energy efficient
homes. To support continued growth, LGC entered a 15-year joint venture
partnership with NatWest Group Pension Fund in 2021 to invest £500m of equity
to build later living communities, which will be developed and operated by
Inspired Villages. The partnership aims to expand Inspired's portfolio to 34
villages supporting around 8,000 residents, with a particular focus on
creating net-zero carbon regulated energy schemes.
SME Finance AUM increased to £611m (2020: £525m)
Investing in the real economy and technological innovation through our
Alternative Finance and our Venture Capital platforms, we are continuing to
support growth businesses, delivering enhanced returns while boosting job
creation, innovation, and science and technology advancements.
In the Alternative Finance sector we support UK and European mid-market
lending through our investments in Pemberton, our asset manager specialising
in private debt, in which we hold a 40% stake. The Pemberton platform has
raised over €13.5bn (2020: €9.3bn) across four strategies, since we first
invested in 2014, with 170 investors globally. It has deployed €12.8bn
(2020: €8.3bn) across 114 companies, actively engaging with borrowers to
support sustainable growth.
Our Venture Capital Funds platform backs over 330 start-up businesses across
the UK and Europe through our fund-of-funds programme and via LGC's ownership
in direct investment platform Accelerated Digital Ventures (ADV).
The Venture Capital Fund-of-Funds programme saw strong performance over the
period, with NAV growing by 65% to £171m during 2021. 48 (#_edn48) Many
of the funds we invested in early in the programme are now maturing, with the
strongest companies securing new funding rounds at increased valuations.
Demonstrating the value of our patient investment approach, the portfolio has
now delivered a 23% IRR after fees, since inception in 2016.
We continue to work with LGIM to develop a viable solution for Defined
Contribution clients which will democratise access to the venture capital
asset class.
Legal & General Investment Management
FINANCIAL HIGHLIGHTS £m 2021 2020
Management fee revenue 980 929
Transactional revenue 32 27
Total revenue 1,012 956
Total costs (590) (549)
Operating profit 422 407
Investment and other variances (11) 1
Profit before tax 411 408
Net release from operations 342 327
Asset Management cost:income ratio (%) 58 57
NET FLOWS AND ASSETS £bn
External net flows 34.6 20.4
Internal net flows (2.1) 2.1
Total net flows 32.5 22.5
- Of which international(1) 29.5 (4.0)
Cash management flows 1.1 2.4
Persistency 49 (#_edn49) (%) 87 85
Average assets under management 1,336 1,222
Assets under management as at 31 December 1,421 1,279
Of which:
- International assets under management(2) 479 388
- UK DC assets under management 138 113
1. International asset net flows are shown on the
basis of client domicile.
2. International AUM includes assets from
internationally domiciled clients plus assets managed internationally on
behalf of UK clients.
Operating profit growth of 4% to £422m, with revenues surpassing £1bn
Operating profit increased by 4% to £422m (2020: £407m), reflecting
increased revenues from flows, favourable business mix and disciplined cost
management.
Assets under management increased by 11% to £1,421.5bn (2020: £1,278.9bn),
benefitting from strong external net flows of £34.6bn (2020: £20.4bn).
Revenues increased by 6% to £1,012m (2020: £956m), supported by growth in
higher-margin areas including thematic ETFs and Multi-asset. Our strengths
in ESG led to several ESG mandate wins in 2021, including transitioning over
£3bn of an institutional client's assets to a new range of Paris-aligned
benchmarks. We have continued to see good flows into our ESG products.
Overall revenue growth was lower than AUM growth, as average AUM (which drives
revenues) grew more modestly as a result of the sharp rise in interest rates
in the first half of the year.
The cost income ratio of 58% reflects our careful cost control as we continue
to invest in the business.
Strong international flows
International external net flows of £29.5bn constituted 85% of LGIM's total
external net flows.
LGIM saw £7.4bn of net flows from Japanese clients and we are now Japan's
8(th) largest asset manager. 50 (#_edn50) Europe saw flows of £13.6bn from
multiple clients across the region, with European institutional AUM reaching
€100bn. We also saw good flows in the US (£4.5bn), the rest of Asia
(£6.5bn) and ETFs (£2.5bn). Our US DB de-risking business had a very
strong year, with net flows of $9bn in 2021.
International AUM of £479bn is up 23% from 2020 (£388bn) and now constitutes
34% of total AUM. Our deep relationships with a number of leading
international clients underpin our conviction in our ability to grow
international AUM and earnings.
Ongoing strength in UK DC and Retail
The Defined Contribution (DC) business continues to attract new assets, with
external net flows of £9.4bn, supported by ongoing growth in LGRR's Workplace
pension business, which now has 4.4 million members. Total UK DC AUM is up
22% over 2021 with total AUM of £137.7bn (2020: £112.7bn). This success is
underpinned by LGIM's strong customer focus, as shown by a 91% persistency
rate among our DC customers. We continue to innovate in this market: for
example, we recently launched a Sustainable DC Property Fund in response to
growing demand from DC schemes to align with members' ESG values.
L&G also has one of the largest and fastest-growing UK Master Trusts,
which now has £17.1bn AUM, reflecting the increasing appeal of the structure
for DC plans wishing to outsource their governance, investment and
administration. Growth in our UK Master Trust business continues to support
growth in Multi-asset flows, since this is the default option for many of our
clients.
In UK Retail, we ranked second for gross fund sales in 2021. We also
launched our Model Portfolio Service (MPS), further extending our successful
Multi-asset proposition into the maturing advisory market. We believe our
scale and expertise can disrupt this market while helping clients meet their
objectives. The launch of our Global Thematic unit trust also makes our
thematic strategies available to a wider client base.
Growth in ETFs
2021 marked the third anniversary of the acquisition of the Canvas ETF
business in March 2018. Over this period, revenue has more than doubled.
The business has continued to grow at a strong pace, with $3.9bn of net flows
delivering annualised net new revenue of $11.9m (£8.4m) in 2021.
A focus on thematic ETFs has supported our strategy of growth into
higher-margin areas. This has been the key driver of the more than 50%
increase in ETF AUM over 2021 to $13.7bn. In 2021, LGIM launched thematic
ETFs to cover the emerging hydrogen economy and the digital payments
evolution, with both products being first to market in Europe. We also
expanded our fixed income range into higher-margin areas such as Europe's
first local-currency India government bond ETF. We now have c$1.3bn AUM in
fixed income ETFs at the end of 2021.
LGIM continues to be ranked second on both AUM and net flows in the European
thematic ETF market, with over 16% market share.
Breadth of investment management solutions
Asset movements(1) (£bn) Index Active strategies Multi-asset Solutions Real assets Total
AUM
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows 93.9 18.7 15.1 34.4 1.7 163.8
External outflows (91.5) (15.8) (8.1) (25.5) (1.8) (142.7)
Overlay net flows - - - 11.0 - 11.0
ETF net flows 2.5 - - - - 2.5
External net flows 4.9 2.9 7.0 19.9 (0.1) 34.6
Internal net flows (1.0) (1.8) 0.2 (1.5) 2.0 (2.1)
Total net flows 3.9 1.1 7.2 18.4 1.9 32.5
Cash management movements - 1.1 - - - 1.1
Market and other movements 68.6 3.0 5.1 29.5 2.8 109.0
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
1. Please see disclosure 4.01 for further details.
Solutions continued to deliver positive external net flows of £19.9bn (2020:
£23.2bn) driven by strong demand from UK and US DB clients as they continue
to de-risk. We manufacture Solutions products in both publicly and privately
traded asset classes and combine these together in integrated portfolios for
our DB clients. We are well positioned to capitalise on this continuing
trend. Together with our fiduciary business offering, and working closely
with LGRI's PRT business, we can tailor solutions to DB schemes at all stages
of their funding journey.
Multi-asset strategies continue to be in demand from DC schemes and retail
customers. External net flows into Multi-asset funds were £7.0bn (2020:
£4.3bn).
Index reported positive external net flows of £4.9bn (2020: £(6.6)bn) driven
by new international flows, partially offset by Index outflows in the UK and
US, reflecting the structural trend of DB schemes de-risking, and therefore
shifting from index to LDI strategies.
Active Strategies delivered external net flows of £2.9bn (2020: £(0.1)bn) as
a result of positive net inflows from US and UK DB clients.
Real Assets saw external net flows of £(0.1)bn (2020: £(0.4)bn), as the
market continues to assess the longer-term impact of COVID-19 on demand.
LGIM Real Assets is, however, well positioned and enjoyed notable successes in
2021 such as raising £365m for the Secure Income Assets Fund while
initiatives such as an innovative digital occupier engagement platform help
future-proof the portfolio. We expect future growth in flows to be supported
by our Build to Rent business, and by Private Credit, which offers clients
diversification of secure income and value protection solutions. In 2021, we
also announced a partnership with NTR, a leading renewable energy specialist,
to provide institutional investors in the UK, Europe and Asia access to the
€1 trillion European energy transition.
Investment performance
In Solutions and Index, clients rely on us to deliver their target returns
against defined benchmarks. For actively managed portfolios, investment
outperformance versus either benchmarks or peer groups is an important driver
of current and future client flows, and in 2021 LGIM's active teams delivered
strong performance across multiple asset classes. The below table uses our
regulated UCITS funds as a proxy for the performance returns(2) of our
mainstream investment strategies:
% of outperforming funds
1 year 3 year 5 year
Actively managed UCITS funds 61% 81% 76%
2. Net fund performance data versus key comparators (benchmark or
generic peer groups for bonds and equities as per the relevant prospectuses,
and benchmark per the relevant prospectus or custom peer group for
Multi-asset) sourced from Lipper for the LGIM UCITS. All data as at 31
December 2021.
Our success is also evident in the number of independent awards we won in 2021
for investment performance, including Investment Manager of the Year at the
European Pensions Awards, Professional Adviser's Best Multi-asset Group/Fund
for ESG, and Pensions Expert's LDI Manager of the Year.
Leading in responsible investing
LGIM continues to build on its credentials as a responsible investor and
remains committed to leading the asset management industry in addressing the
environmental and social challenges arising from a rapidly changing world.
As at 31 December 2021, LGIM managed £290.0bn (2020: £206.8bn) in
responsible investment strategies explicitly linked to ESG criteria for a
broad range of clients. 51 (#_edn51)
LGIM has a strong, unified sense of purpose: to create a better future through
responsible investing. To that end, we work to raise ESG standards on
important global issues, leveraging our position as one of the largest global
asset managers. LGIM is, for example, a founding signatory of the Net Zero
Asset Managers Initiative. Recent achievements include:
· Commitment to net zero:
1. LGIM has committed to work in partnership with our clients to align
70% of eligible assets to net-zero carbon emissions by 2030, and to reach
net-zero greenhouse gas emissions by 2050 or sooner across all eligible assets
under management, in the same way that L&G has already committed to with
its own balance sheet.
2. Our DC default funds - available to over four million members
across L&G Workplace Pensions and the L&G Mastertrust - have set
interim targets to support their 2050 net-zero ambitions.
3. LGIM Real Assets has committed to achieve net-zero carbon emissions
across its UK real estate portfolio by 2050.
· Product innovation: The size of the global ESG market, currently
$8 trillion, is expected to grow to $30 trillion by 2030. 52 (#_edn52) We
believe we are positioned to benefit from this flow of AUM thanks to our
authentic and differentiated proposition. We continue to build on our strong
heritage in using index and active ESG investing insights to develop
innovative new products, with 55% of our EU domiciled UCITS funds classified
as ESG-incorporated (articles 8 or 9) in the EU's first annual Sustainable
Finance Disclosure Regulation (SFDR) exercise. Recent examples of ESG
product innovation that place us at the forefront of growing client demand
include:
1. A low carbon transition index equity fund suite for UK pension
clients, designed by LGIM in partnership with a key consultant, to reduce
exposure to carbon emissions in alignment with 2050 net-zero goals, whilst
also being aligned to LGIM's market leading engagement and voting activities.
2. A multi-factor developed equity index fund with a strong focus on
climate, which adheres to the EU's Climate Transition Benchmark framework.
3. The launch of the ESG Paris-Aligned World Equity Index Fund,
offering broad (ESG) exposure to developed market equities, while also
integrating Paris-aligned reductions in carbon emissions and UN SDG
principles. This secured the support of some key institutional investors at
launch, including the London Borough of Newham Pension Fund which invested
approximately £520m.
4. The successful launch of a number of ESG ETFs, including a Green
Bond strategy, a Hydrogen Economy thematic ETF, and a range of Quality
Dividend ETFs with ESG exclusions.
· Stewardship with impact: LGIM has consistently received A+
rankings for responsible investment strategy and active ownership by the
UN-backed Principles for Responsible Investment (UN PRI), and in 2021 the
Financial Reporting Council (FRC) recognised LGIM as a successful signatory to
the UK Stewardship Code for our high standards of stewardship.
LGR - Retail
FINANCIAL HIGHLIGHTS £m 2021 2020
Operating profit excluding mortality reserve release 352 322
Mortality reserve release nil 75
Operating Profit 352 397
Release from operations 227 193
New business surplus 27 42
Net release from operations 254 235
Workplace Savings net flows (£bn) 53 (#_edn53) 8.5 7.8
Individual single premium annuities 957 910
Lifetime & Retirement Interest Only mortgage advances 848 791
Total new business 1,805 1,701
Operating profit excluding mortality reserve releases up 9% to £352m
LGRR operating profit increased 9% to £352m during 2021 (2020: £322m),
driven by the ongoing release from operations, positive mortality experience
due to the continued tragic impact of COVID-19, and routine updates to our
valuation assumptions.
As communicated at H1 21, we have not recognised an explicit release from
adopting CMI2019, given the uncertainty in the data created by the pandemic.
We anticipate any resulting additional prudence will be released through
experience variances over the next 2-3 years until we have more certainty and
clarity over the data. In H2 2020 we conservatively adopted an adjusted
version of the CMI 2018 mortality tables for LGRR's annuity book, resulting in
a £75m reserve release.
Release from operations was £227m (2020: £193m), an increase of 18%,
reflecting the unwind of prudential margins from the annuity portfolio and
increasing administration fees from the growth in workplace assets.
Net release from operations was £254m (2020: £235m) with new business
surplus of £27m (2020: £42m). The annuity new business surplus reduced from
the level seen last year due to competitive market pricing.
Resilient new business volumes in 2021
LGRR has helped customers weather the economic uncertainty following COVID-19,
delivering solutions to retirees through individual annuities and Lifetime
Mortgages (LTMs).
Individual annuity sales were up 5% to £957m in 2021 (2020: £910m), as
markets started to recover following the impact of the COVID pandemic last
year. Our relative performance remained strong: our operational service,
competitive pricing and focus on partners and intermediaries allowed us to
grow external market share to 38.4%.(( 54 (#_edn54) ))
Lifetime mortgage advances, including Retirement Interest Only mortgages, were
up 7% to £848m (2020: £791m) in an increasingly competitive market.
Throughout this period, we have maintained pricing and underwriting discipline
whilst increasing advances. At the end of 2021, LTMs were 8% of our total
annuity assets and our LTM new business portfolio had an average customer age
of 71 and a weighted average loan-to-value of c31% at point of sale.
Workplace Savings net flows were up £0.7bn to £8.5bn (2020: £7.8bn), driven
by continued client wins and increased contributions. Members on the
Workplace pension platform increased to 4.4 million in 2021. We are
continuing to focus on improving efficiency and scale as the business grows.
Legal & General Insurance
FINANCIAL HIGHLIGHTS £m 2021 2020
Operating profit 268 189
- UK 320 205
- US (LGIA) (52) (16)
Investment and other variances 111 (459)
Profit / (loss) before tax attributable to equity holders 379 (270)
Release from operations(1) 236 250
New business surplus / (strain) 27 8
Net release from operations 263 258
Solvency II New Business Value 262 254
LGI new business annual premiums 379 372
UK Retail Protection gross premiums 1,444 1,374
UK Group Protection gross premiums 405 382
US Protection (LGIA) gross premiums 1,053 1,093
Total gross premiums 2,902 2,849
1. Includes the annual dividend of $111m (2020: $109m) paid by LGIA to
the Group in March 2021.
Operating profit up £79m to £268m; higher mortality claims in the US
During 2021, LGI operating profit increased 42% to £268m (2020: £189m),
reflecting strong new business growth and modelling refinements to the
liability discount rate in UK retail protection.
This was partially offset by adverse US mortality experience. COVID-related
claims in the US reached approximately $189m, significantly exceeding the $82m
provision set up at year end 2020. This experience has extended into 2022 and
is consistent across the US life sector. In addition, adverse non-COVID
claims impacted the industry during the year. Our 2021 result includes a
£57m provision for potential COVID impacts in the US and UK in 2022.
Honouring our promises and responding quickly and compassionately to our
customers' needs is core to our values at Legal & General. LGI is
especially aware of the importance of our commitments to our customers: we
paid £2.1bn of protection claims during the year.
Profit before tax was predominantly impacted by the formulaic change in LGI's
discount rates. LGI's positive investment variance of £111m was driven
primarily by an increase in UK and US government bond yields at shorter
durations which have resulted in a higher discount rate used to calculate the
reserves. The negative impact seen in 2020 has only been partly reversed as
yields at longer durations have remained broadly flat year on year.
Solvency II New Business Value increased by £8m to £262m, up £15m to £269m
on a constant currency basis (2020: £254m). UK New Business Value of £149m
is supported by strong volumes in Retail Protection, but is £12m lower than
prior year (£160m) due to lower volumes in Group Protection, margin pressure
in Retail Protection caused by pricing action, and movements in product mix.
New Business Value for US Protection was $155m, up 29% on 2020 ($120m) driven
by sales growth of 20% and margin growth from favourable business mix.
Gross written premium at £2.9bn; good trading performance in the US and UK
UK Retail Protection gross premium income increased to £1,444m (2020:
£1,374m), with new business annual premiums of £200m (2020: £175m), up 14%
on prior year driven by strong customer demand following COVID-related
disruption in 2020. Protection sales were particularly strong during H1 with
both a strong housing market and the increased customer awareness of
protection needs during the pandemic driving up demand. We held a market
share of c.25% in Q3 2021 55 (#_edn55) , maintaining our position as the
leading provider of retail protection in the UK, whilst achieving a point of
sale decision rate of 83% for all our major product lines. Our new business
premium growth was supported by our innovation over the period, including
enhancements to our income protection and critical illness benefits that
broaden our scope in the market.
UK Group Protection gross premium income increased to £405m (2020: £382m),
with new business annual premiums of £88m (2020: £117m). As previously
guided, as a result of the renewal cycle for larger schemes, 2021 new business
volumes did not reach the record levels of 2020. However, retention was
strong resulting in premium income growth of 6% on 2020. Through improved
service and more refined pricing we are attracting a wider range of scheme
sizes and actively dealing with more advisers in the group protection market,
enabling us to gain market share and grow new business premiums. During H2
we launched an automated application portal which will further support growth
in the smaller scheme segment.
US Protection (LGIA) gross written premiums increased 3% (down 6% on a
sterling basis) to $1,449m (2020: $1,403m). New business annual premiums
increased 20% to $124m (2020: $103m), with strong new business margins of
13.4% (2020: 11.2%). LGIA ranked number one in the brokerage general agency
channel through Q3 2021 by both new premium and new policies issued. We
continue to develop our market-leading, digital new business platform
(Horizon) which is starting to deliver in line with expectation, and we expect
to drive further sales growth and to reduce unit costs over the coming
years. Two thirds of new business is now written onto our Horizon platform
and we expect this to increase in 2022.
Legal & General Mortgage Club facilitated £98bn of mortgages, up 26%
(2020: £77bn), driven by the buoyant housing market due to the extension of
the Stamp Duty holiday in H1. We remain the largest participant in the UK
intermediated mortgage market and are involved in around one in five of all UK
mortgage transactions. Our Surveying Services business facilitated 528k
surveys and valuations, compared to 440k surveys and valuations in the prior
year. Since buying a new house is often a catalyst for purchasing life
insurance, the Legal & General Mortgage Club is a supporting component of
our overall offering to customers.
Scaling up our Fintech businesses
LGI has continued with its strategy to invest in and scale up innovative
fintech businesses in adjacent markets. Our strategy of "digital first" has
proved to be resilient through the COVID period, driving further growth in
value and revenue. Salary Finance, an employee benefits platform, in which
we have a 48% holding, continues to grow rapidly, with the platform
now connected to 4.1 million employees across the UK and US. Gross revenue
grew to £30m, an increase of 85% year on year. This trend is expected to
continue with growing employee awareness and increasing platform engagement.
It remains one of the UK's fastest growing Fintechs and is well positioned for
growth in the UK, the US and beyond.
The strategy of platform ownership and influence has continued to serve us
well in the mortgage and home-financing "ecosystem". Our mortgage research
tools for affordability, criteria and product reach nearly 10,000 advisers in
the mortgage broking market. Within our Legal & General surveying
business, our work to digitise the market has proved invaluable for banks
through the lockdown period. Our digital valuation services have been used
by many of our key clients with over 119k completed since 2019. Elsewhere in
the ecosystem, our c40% investment in Smartr365, a complete end-to-end
mortgage platform used to unite mortgage advisers and their clients, has moved
from start up to scale up across the UK mortgage broking market. With
licence numbers having grown more than 7x since the start of the year, we now
have just over 3,300 licences signed up. We have received strong feedback on
the proposition which hugely simplifies the mortgage advice journey for
brokers and customers.
Subsidiary dividends to Group
£m 2021 2020
( ) ( )
( ) ( ) ( )
Subsidiary dividends remitted(1):
LGAS 902 935
LGIM 276 215
LGA 85 80
Other(2) 219 181
Total 1,482 1,411
Total excluding mortality release(3) 1,482 1,261
1. Represents cash that will be remitted from subsidiaries to Group in respect
of the year's financial performance.
2. Other includes Legal & General Home Financing, Legal & General
Capital Investments Limited, Legal & General Reinsurance, and Legal &
General Partnership Services Limited.
3. £150m dividend paid from Legal & General Assurance Society (LGAS) to
Group in 2020 due to mortality reserve releases in recent years.
The level of subsidiary dividends ensures coverage of external dividends
(2021: £1,099m; 2020: £1,048m), Group related costs, and investment in our
businesses, with excess liquidity being held within our regulated
subsidiaries.
Borrowings
The Group's outstanding core borrowings totalled £4.3bn at 31 December 2021
(FY 2020: £4.6bn). There is also a further £0.9bn (FY 2020: £1.0bn) of
operational borrowings including £0.9bn (FY 2020: £0.9bn) of non-recourse
borrowings.
Group debt costs of £230m (2020: £233m) reflect an average cost of debt of
5.0% per annum (2020: 5.0% per annum) on an average nominal value of debt
balances of £4.6bn (2020: £4.7bn).
£300m of 10% dated subordinated notes were called at par on 23 July 2021.
Taxation
Equity holders' Effective Tax Rate (%) 2021 2020
Equity holders' total Effective Tax Rate 17.9 12.1
Annualised rate of UK corporation tax 19.0 19.0
The effective tax rate reflects the impact of revaluing UK deferred tax assets
and liabilities at 25%, following the announcement of an increase in the
headline rate of UK corporation tax from 1 April 2023, and the different rates
of tax that apply to Legal & General's overseas operations. The effective
tax rate at FY 2020 was below the headline rate as a result of the impact of
losses arising in the period through investment variance.
The tax rate on operating profits, excluding the impact of investment
variance, was 15.5% (2020: 15.0%).
Solvency II
In previous years, the capital position was shown on a "shareholder view",
where the contribution from the final salary pension schemes was excluded from
the group position. The impact of excluding the contribution is now less
than 1% and so the results below include the impact of the final salary
pension schemes. The 2020 results have been adjusted to be consistent with
2021.
As at 31 December 2021, the Group had an estimated Solvency II surplus of
£8.2bn over its Solvency Capital Requirement, corresponding to a Solvency II
coverage ratio of 187% on a shareholder basis. As at 7(th) March 2022, we
estimate the coverage ratio was 198% 56 (#_edn56) , primarily driven by an
increase in interest rates.
2021 2020
Capital (£m)
Own Funds 17,561 17,316
Solvency Capital Requirement (SCR) (9,376) (9,880)
Solvency II surplus 8,185 7,436
SCR coverage ratio (%) 187 175
Solvency II Own Funds Solvency II SCR Solvency II Surplus
Analysis of movement from 1 January 2021 to 31 December 2021(1) (£m)
Operational surplus generation (continuing operations) 1,144 492 1,636
Operational surplus generation (discontinued operations)
Operational surplus generation 1,144 492 1,636
New business strain 330 (684) (354)
Net surplus generation 1,474 (192) 1,282
Operating variances( ) 26
Mergers, acquisitions and disposals 77
Market movements 727
Subordinated debt (300)
Dividends paid (1,063)
Total surplus movement (after dividends paid in the period) 245 504 749
1. Please see disclosure note 5.01(d) for further detail.
Operational surplus generation from continuing operations increased to
£1,636m (2020: £1,460m), after allowing for amortisation of the opening
Transitional Measures on Technical Provisions (TMTP) and release of Risk
Margin.
New business strain was £(354)m, primarily reflecting UK PRT volumes written
at a capital strain of c4%. This resulted in net surplus generation of
£1,282m (2020: £1,174m), which was in excess of the £1,063m of dividends
declared (and paid) during the year. Note: our ambition is for net surplus
generation to exceed dividends cumulatively over the period 2020-2024.
Operating variances include the impact of experience variances, changes to
assumptions, and management actions. The net impact of operating variances
over the period was neutral. Market movements of £727m reflect the impact
of rising rates on the valuation of our balance sheet, and improved asset
markets, predominantly in equities, as well as a number of other, smaller
variances.
Reconciliation of IFRS net release from operations to Solvency II net surplus
generation(1)
The table below gives a reconciliation of the Group's IFRS Release from
operations and Solvency II Operational surplus generation in 2021:
£bn
IFRS Release from operations 1,441
Expected release of IFRS prudential margins (496)
Release of IFRS specific reserves (162)
Solvency II investment margin 213
Release of Solvency II Capital Requirement and Risk Margin less TMTP 640
amortisation
Solvency II Operational Surplus Generation 1,636
The table below gives a reconciliation of the Group's IFRS New business
surplus to Solvency II New business strain in 2021:
£bn
IFRS New business surplus 247
Removal of requirement to set up prudential margins above best estimate on new 280
business
Set up of Solvency II Capital Requirement on new business (684)
Set up of Risk Margin on new business (197)
Solvency II New business strain (354)
1. Please see disclosure 5.01 (f) for further details.
Sensitivity analysis(2)
Impact on net of tax Solvency II capital surplus Impact on net of tax Solvency II coverage ratio
2021 2021
£bn %
100bps increase in risk free rates 0.9 19
50bps decrease in risk free rates (0.6) (10)
Credit spreads widen by 100bps assuming an escalating addition to ratings 0.6 13
Credit spreads narrow by 100bps assuming an escalating addition to ratings (0.6) (14)
Credit spreads widen by 100bps assuming a level addition to ratings 0.7 14
Credit spreads of sub-investment grade assets widen by 100bps assuming a level (0.4) (7)
addition to ratings
Credit migration (0.9) (10)
25% fall in equity markets (0.5) (3)
15% fall in property markets (0.8) (7)
50bps increase in future inflation expectations - (2)
Substantially reduced Risk Margin 0.6 7
2. Please see disclosure 5.01 (h) for further details.
The above analysis does not reflect all possible management actions which
could be taken to reduce the impact of each sensitivity due to the complex
nature of the modelling. In practice, the Group actively manages its asset
and liability positions to respond to market movements. Other than in the
interest rate stresses, we have not allowed for the recalculation of TMTP.
The impacts of these stresses are not linear therefore these results should
not be used to interpolate or extrapolate the impact of a smaller or larger
stress.
The results of these tests are indicative of the market conditions prevailing
at the balance sheet date. The results would be different if performed at an
alternative reporting date.
The impacts of credit spreads and risk-free rate sensitivities are primarily
non-economic arising from movements in balance sheet items that result from
changes in the discount rates used to calculate the value of assets and
liabilities. The credit migration stress, in the absence of defaults, delays
the emergence of operating surplus generation, but does not reduce the actual
quantum of future releases. Similarly, equity and property stresses only
result in losses if assets are sold at depressed values.
Solvency II new business contribution
Management estimates of the present value of new business (PVNBP) and the
margin as at 31 December 2021 are shown below(1):
PVNBP Contribution from Margin %
new business
UK annuity business (£m) 7,016 635 9.1
UK Protection Total (£m) 1,883 149 7.9
- Retail protection 1,476 120 8.1
- Group protection 407 29 7.1
US Protection (£m) 842 113 13.4
The key economic assumptions as at 31 December 2021 are as follows:
%
Margin for risk 4.1
Risk free rate
- UK 0.9
- US 1.5
Risk discount rate (net of tax)
- UK 5.0
- US 5.6
Long-term rate of return on non-profit annuities 2.5
1. Please see disclosure 5.02 for further details.
The future earnings are discounted using duration-based discount rates, which
is the sum of a duration-based risk free rate and a flat margin for risk. The
UK risk free rates have been based on a SONIA-based swap curve (2020:
Libor-based swap curve net of the PRA-specified Credit Risk Adjustment). The
risk free rate shown above is a weighted average based on the projected cash
flows.
Other than updating for recent experience, all other economic and non-economic
assumptions and methodologies that would have a material impact on the margin
for these contracts are unchanged from those previously used by the group for
its European Embedded Value reporting, other than the cost of currency hedging
which has been updated to reflect current market conditions and hedging
activity in light of Solvency II.
Principal risks and uncertainties
Legal & General runs a portfolio of risk-taking businesses; we accept risk
in the normal course of business and aim to deliver sustainable returns on
risk-based capital to our investors in excess of our cost of capital. We
manage the portfolio of risk that we accept to build a sustainable franchise
for the interests of all our stakeholders; we do not aim to eliminate that
risk. We have an appetite for risks that we understand and are rewarded for,
and which are consistent with delivery of our strategic objectives. Risk
management is embedded within the business. The Group's Principal Risks and
Uncertainties summarise key matters that may impact the delivery of Group's
strategy earnings or profitability.
RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION
Investment market performance and conditions in the broader economy may We cannot eliminate the downside impacts on our earnings, profitability or
adversely impact earnings, profitability or surplus capital. surplus capital from investment market volatility and adverse economic
conditions, although we seek to position our investment portfolios and wider
business plans for a range of plausible economic scenarios and investment
market conditions to ensure their resilience across a range of outcomes. This
The performance and liquidity of financial and property markets, interest rate includes setting risk limits on exposures to different asset classes and where
movements and inflation impact the value of investments we hold in hedging instruments exist, we seek to remove interest rate and inflation risk
shareholders' funds and to meet the obligations from insurance business; the on a financial reporting basis.
movement in certain investments directly impacts profitability. Interest rate
movements and inflation can also change the value of our obligations and
although we seek to match assets and liabilities, losses can still arise from
adverse markets. Falls in the risk free yield curve can also create a greater Our Own Risk & Solvency Assessment (ORSA) is integral to our risk
degree of inherent volatility to be managed in the Solvency II balance sheet, management approach, supporting assessment of the financial impacts of risks
potentially impacting capital requirements and surplus capital. Falls in associated with investment market volatility and adverse economic scenarios
investment values can reduce our investment management fee income. for our Solvency II balance sheet, capital sufficiency, and liquidity
requirements.
Whilst global and UK economic activity is returning to pre-pandemic levels,
there remains significant uncertainty to the impacts of inflation on the
sustainability of the recovery, particularly should current inflationary
pressures become deep seated or from misjudged central bank monetary policies
in response. Financial markets, as well as being impacted by the economic
outlook also continue to be susceptible to shocks and re-appraisal of asset
values from a range of other factors including geo-political crisis in eastern
Europe; a collapse in China's property sector; and the emergence of further
Covid-19 variants that may be resistant to current vaccines. Within the UK,
uncertainty persists in certain elements of commercial property markets, and
within our construction businesses supply chain and labour shortages are
evolving risks.
In dealing with issuers of debt and other types of counterparty, the group is We manage our exposure to downgrade and default risks within our bond
exposed to the risk of financial loss. portfolios, through setting selection criteria and exposure limits, and using
LGIM's global credit team's capabilities to ensure risks are effectively
controlled, where appropriate trading out to improve credit quality. In our
property lending businesses, our loan criteria take account of borrower
Systemic corporate sector failures, or a major sovereign debt event, could, in default and movements in the value of security. We manage our reinsurer
extreme scenarios, trigger defaults impacting the value of our bond exposures dealing only with those with a minimum A- rating at outset, setting
portfolios. Under Solvency II, a widespread widening of credit spreads and rating based exposure limits, and where appropriate taking collateral.
downgrades can also result in a reduction in our Solvency II balance sheet Similarly, we seek to limit aggregate exposure to banking, money market and
surplus, despite already setting aside significant capital for credit risk. We service providers. Whilst we manage risks to our Solvency II balance sheet, we
are also exposed to default risks in dealing with banking, money market and can never eliminate downgrade or default risks, although we seek to hold a
reinsurance counterparties, as well as settlement, custody and other bespoke strong balance sheet that we believe to be prudent for a range of adverse
business services. Default risk also arises where we undertake property scenarios.
lending, with exposure to loss if an accrued debt exceeds the value of
security taken.
Although the wider economy is recovering from the effects of global lockdowns,
a range of industries have been directly impacted by Covid-19 disease control
measures including the leisure, transport, travel and retail consumer cyclical
sectors, with the risk of downgrade and default remaining particularly as
governments withdraw economic support packages. A period of sustained
inflation with increases in interest rate suppressing economic activity in
sectors reliant on discretionary spending could compound the effects. Covid-19
related impacts for reinsurance counterparties also remains a risk factor,
albeit we assess strongly rated reinsurer default to be a more remote risk.
n
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
We fail to respond to the emerging threats from climate change for our We recognise that our scale brings a responsibility to act decisively in
investment portfolios and wider businesses. positioning our balance sheet to the threats from climate change. We continue
to embed the assessment of climate risks in our investment process, including
in the management of real assets, and broader risk management framework. At
the aggregate level we measure the carbon intensity targets of our investment
As a significant investor in financial markets, commercial real estate and portfolios, and along with specific investment exclusions for carbon intensive
housing, we are exposed to climate related transition risks, particularly industries, we have set overall reduction targets aligned with a 1.5°C
should abrupt shifts in the political and technological landscape impact the interpretation of the Paris Agreement, including setting near term science
value of those investment assets associated with higher levels of greenhouse based targets to support our long-term emission reduction goals. We also
gas emissions. Our interests in property assets may also expose us to physical closely monitor the political and regulatory landscape, and as part of our
climate change related risks, including flood risks. We are also exposed to climate strategy we engage with regulators and investee companies in support
the risk of adverse perceptions of the group and climate risk related of climate action.
litigation should our responses not align with environment, social and
governance (ESG) rating expectations.
Following COP26, we are still encouraged about the possibility of limiting
global temperature rises to 1.5°C. However, this will require societal change
on an unprecedented scale over the next decade. We are dependent on the
delivery of policy actions, and the climate reduction targets of the firms we
invest in. The actions that the world is taking will also to some extent
inform the actions that we can take.
Climate change and failure to transition to a low carbon economy remains a
significant risk that we believe has still to be fully priced in by financial
markets, with delays in responding to the threats increasing the risk of
sudden late policy action, leading to potentially large and unanticipated
shifts in asset valuations for impacted industries.
Reserves and our assessment of capital requirements may require revision as a We undertake significant analysis of the variables associated with writing
result of changes in experience, regulation or legislation. long-term insurance business to ensure that a suitable premium is charged for
the risks we take on, and that reserves continue to remain appropriate for
factors including mortality, lapse rates, valuation interest rates, and
expenses, as well as credit default in the assets backing our insurance
The pricing of long-term business requires the setting of assumptions for liabilities. We also seek to pre-fund and warehouse appropriate investment
long-term trends in factors such as mortality, lapse rates, valuation interest assets to support the pricing of long-term business.
rates, expenses and credit defaults as well as the availability of assets with
appropriate returns. Actual experience may require recalibration of these
assumptions, increasing the level of reserves and impacting reported
profitability. In seeking a comprehensive understanding of longevity we are evaluating how
Covid-19 will impact wider trends in life expectancy. In our protection
business, as part of our continuous evolution of our underwriting
capabilities, we are seeking to ensure we fairly assess Covid-19 as a risk
Management estimates are also required in the derivation of Solvency II factor and that our reserves remain appropriate. However, we cannot remove the
capital metrics. These include modelling simplifications to reflect that it is risk that adjustment to reserves may be required, although the selective use
not possible to perfectly model the external environment. of reinsurance acts to reduce the impacts to us of significant variations in
life expectancy and mortality.
Forced changes in reserves can also arise from regulatory or legislative
intervention impacting capital requirements and profitability. Although vaccines have had a significant effect in reducing mortality rates
from the most recent variant of Covid-19, uncertainty remains to future virus
mutations and their virulence, the long-term efficacy of vaccines and the
effects of 'long Covid' on morbidity. The deferral of some non-Covid-19
medical treatments during the course of the pandemic may also impact mortality
and morbidity rates in our UK and US markets.
Alongside Covid-19 related matters, other risk factors that may impact future
reserving requirements include a dramatic advance in medical science, beyond
that anticipated, requiring adjustment to our longevity assumptions; and the
emergence of new diseases and changes in immunology impacting mortality and
morbidity assumptions.
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
Changes in regulation or legislation may have a detrimental effect on our We are supportive of regulation in the markets in which we operate where it
strategy. ensures trust and confidence and can be a positive force on business. We seek
to actively participate with government and regulatory bodies to assist in the
evaluation of change so as to develop outcomes that meet the needs of all
stakeholders. Internally, we evaluate change as part of our formal risk
Legislation and government fiscal policy influence our product design, the assessment processes, with material matters being considered at the Group Risk
period of retention of products and required reserves for future liabilities. Committee and the Group Board.
Regulation defines the overall framework for the design, marketing, taxation
and distribution of our products, and the prudential capital that we hold.
Significant changes in legislation or regulation may increase our cost base,
reduce our future revenues and impact profitability or require us to hold more Our internal control framework seeks to ensure on-going compliance with
capital. relevant legislation and regulation. Residual risk remains, however, that
controls may fail or that historic financial services industry accepted
practices may be reappraised by regulators, resulting in sanctions against the
group.
The prominence of the risk increases where change is implemented without prior
engagement with the sector. The nature of long-term business can also result
in some changes in regulation, and the re-interpretation of regulation over
time, having a retrospective effect on in-force books of business, impacting Regulatory driven change remains a significant risk factor across our
future cash generation. businesses. Areas of future change include HM Treasury's consultation on
Solvency II and the Future Regulatory Framework post Brexit; and the UK's
financial conduct regulators proposal for a new Consumer Duty will place
obligations to evidence the delivery of good customer outcomes. Regulatory
focus also continues on operational resilience, the management of third
parties and the transition risks presented to the financial service sector
from climate change.
We are also monitoring potential for changes in UK fiscal policy arising from
the need to fund government borrowing in response to Covid-19; and the
likelihood of a global move towards a higher tax environment. We also continue
to prepare in readiness for IFRS 17, which will introduce a new suite of
financial reporting metrics. Within our property construction businesses, the
Building Safety Bill and the Environment Act 2021 will also introduce new
operating requirements.
New entrants may disrupt the markets in which we operate. We continuously monitor the factors that may impact the markets in which we
operate, including evolving domestic and international capital standards, and
are maintaining our focus on developing our digital platforms. We have a
number of direct investments in strategically important market segments to
There is already strong competition in our markets, and although we have had enhance delivery of our core businesses including workplace benefits,
considerable past success at building scale to offer low cost products, we insurtech, mortgages, health and care and equity funding. LGIM continue to
recognise that markets remain attractive to new entrants. It is possible that invest in technology to achieve the resilience and agility critical to future
alternative digitally enabled financial services providers emerge with lower success.
cost business models or innovative service propositions and disrupt the
current competitive landscape. We are also cognisant of competitors who may
have lower return on capital requirements or be unconstrained by Solvency II.
The need to adjust to living with Covid-19 has seen the acceleration of a
number of trends, including greater consumer engagement in digital business
models and on-line servicing tools. It has also seen businesses like ours
transform working practices, and we expect to continue to invest in
automation, using robotics to improve business efficiency. Our businesses are
well positioned for changes in the competitive landscape that may arise from
the roll out of defined benefit 'superfund' consolidation schemes, pension
dashboards and 'collective' pension scheme arrangements. We also continue to
be supportive of the opportunity for reform of the Solvency II capital regime
post Brexit.
A material failure in our business processes or IT security may result in Our risk governance model, seeks to ensure that business management are
unanticipated financial loss or reputation damage. actively engaged in maintaining an appropriate control environment, supported
by risk functions led by the Group Chief Risk Officer, with independent
assurance from Group Internal Audit.
We have constructed our framework of internal controls to minimise the risk of
unanticipated financial loss or damage to our reputation. However, no system
of internal control can completely eliminate the risk of error, financial Whilst we seek to maintain a control environment commensurate with our risk
loss, fraudulent actions or reputational damage. We are also inherently profile we recognise that residual risk will always remain across the spectrum
exposed to cyber threats including the risks of data theft and fraud. There is of our business operations and we aim to develop response plans so that when
also strong stakeholder expectation that our core business services are adverse events occur, appropriate actions are deployed.
resilient to operational disruption.
Although Covid-19 lockdowns in 2021 had some impact for our business
operations, the majority of our business services have operated normally, and
we expect to transition in 2022 to a hybrid office:home working environment
that will seek to maintain high standards of customer service and internal
control.
We remain, alert to evolving operational risks and continue to invest in our
system capabilities, including those for the management of cyber risks, to
ensure that our business processes are resilient. We are also cognisant of the
risks as we implement a new global operating model and IT platform for LGIM,
and have structured the migration in phases to minimise change risks.
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
The success of our operations is dependent on the ability to attract and We seek to ensure that key personnel dependencies do not arise, through
retain highly qualified professional people. employee training and development programmes, remuneration strategies and
succession planning. Our processes include the active identification and
development of talent within our workforce, and by highlighting our values and
social purpose, promoting Legal & General as a great place to work. We
The Group aims to recruit, develop and retain high quality individuals. We are also engage our people on new ways of working under our hybrid home:office
inherently exposed to the risk that key personnel or teams of expertise may model and are investing in technology and upgrading our buildings to support a
leave the Group, with an adverse effect on the Group's businesses. As we range of working styles.
increasingly focus on the digitalisation of our businesses, we are also
competing for data and digital skill sets with other business sectors as well
as our peers.
Competition for talent across the full range of capabilities and
qualifications is intense and demands that the Group offers competitive
compensation arrangements as well as opportunities for development and an
attractive work environment. People with skills in areas such as technology
and digital are particularly sought after across many business sectors,
including those in which we operate. We also recognise the risks posed by the
outlook for inflation in salary expectations across the wider employment
market. Market-wide approaches to hybrid working are still evolving, and
although we believe we are taking the right steps, there remains a risk that
our model does not align with the expectations of those we seek to attract or
retain.
Notes
A copy of this announcement can be found in "Results, Reports and
Presentations", under the "Investors" section of our shareholder website at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A presentation to analysts and investors will take place at 11:00am UK time
today at One Coleman Street, London, EC2R 5AA. There will also be a live
webcast of the presentation that can be accessed at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A replay of the presentation will be made available on this website by 11(th)
March 2022.
Date
Financial Calendar
Ex-dividend date (2021 final dividend) 21 April 2022
Record date 22 April 2022
Annual General Meeting 26 May 2022
Dividend payment date 01 June 2022
2022 interim results announcement 10 August 2022
Ex-dividend date (2022 interim dividend) 18 August 2022
Record date 19 August 2022
Dividend payment date 26 September 2022
Definitions
Definitions are included in the Glossary on pages 96 to 98 of this release
Forward-looking statements
This announcement may contain 'forward-looking statements' with respect to the
financial condition, performance and position, strategy, results of operations
and businesses of the Company and the Group that are based on current
expectations or beliefs, as well as assumptions about future events. These
forward-looking statements can be identified by the fact that they do not
relate only to historical or current facts. Forward-looking statements often
use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar
meaning. By their very nature, forward-looking statements are subject to
known and unknown risks and uncertainties and can be affected by other factors
that could cause actual results, and the Group's plans and objectives, to
differ materially from those expressed or implied in the forward-looking
statements. Recipients should not place reliance on, and are cautioned about
relying on, any forward-looking statements.
There are several factors which could cause actual results to differ
materially from those expressed or implied in forward-looking statements.
The factors that could cause actual results to differ materially from those
described in the forward-looking statements include (but are not limited to):
changes in global, political, economic, business, competitive and market
forces or conditions; future exchange and interest rates; changes in
environmental, social or physical risks; legislative, regulatory and policy
developments; risks arising out of health crises and pandemics; changes in tax
rates, future business combinations or dispositions; and other factors
specific to the Group. Any forward-looking statement contained in this
document is based on past or current trends and/or activities of the Group and
should not be taken as a representation that such trends or activities will
continue in the future. No statement in this document is intended to be a
profit forecast or to imply that the earnings of the Group for the current
year or future years will necessarily match or exceed the historical or
published earnings of the Group. Each forward-looking statement speaks only
as of the date of the particular statement. Except as required by any
applicable laws or regulations, the Group expressly disclaims any obligation
to revise or update any forward-looking statement contained within this
document, regardless of whether those statements are affected as a result of
new information, future events or otherwise.
Caution about climate information
This announcement contains climate and ESG disclosures which use a large
number of judgments, assumptions and estimates. These judgments, assumptions
and estimates are likely to change over time. In addition, the Group's
climate risk analysis and net zero strategy remain under development and the
data underlying the analysis and strategy remain subject to evolution. As a
result, certain climate and ESG disclosures made in this announcement are
likely to be amended, updated, recalculated or restated in future
announcements. This statement should be read together with the Cautionary
statement contained in the Group's 2021 Climate Report.
The information, statements and opinions contained in this announcement do not
constitute an offer to sell or buy or the solicitation of an offer to sell or
buy any securities or financial instruments nor do they constitute any advice
or recommendation with respect to such securities or other financial
instruments or any other matter.
Going concern statement
The group's business activities, together with the factors likely to affect
its future development, performance and position in the current economic
environment are set out in this Annual Report & Accounts. The financial
position of the group, its cash flows, liquidity position and borrowing
facilities are described in these consolidated financial statements. Principal
risks and uncertainties are detailed on pages 29 to 32.
The directors have made an assessment of the group's going concern,
considering both the current performance and the outlook for a period of at
least, but not limited to, 12 months from the date of approval of these
consolidated financial statements, which takes account of the current and
future impact of the Covid-19 pandemic, using the information available up to
the date of issue of this Annual Report & Accounts.
The group manages and monitors its capital and liquidity, and various stresses
are applied to those positions to understand potential impacts from market
downturns. Our key sensitivities and the impacts on our capital position from
a range of stresses is disclosed in section 5.01 of the Capital section of the
Full year report 2021. These stresses, including additional considerations
relating to Covid-19, do not give rise to any material uncertainties over the
ability of the group to continue as a going concern. Based upon the available
information, the directors consider that the group has the plans and resources
to manage its business risks successfully and that it remains financially
strong and well diversified.
Having reassessed the principal risks and uncertainties (both financial and
operational) in light of the current economic environment, as detailed on
pages 29 to 32, the directors are confident that the group and company will
have sufficient funds to continue to meet its liabilities as they fall due for
a period of, but not limited to, 12 months from the date of approval of the
financial statements and therefore have considered it appropriate to adopt the
going concern basis of accounting when preparing the financial statements.
Directors' responsibility statement
We confirm to the best of our knowledge that:
i. The Group financial statements within the full Annual Report and
Accounts, from which the financial information within this preliminary
announcement has been extracted, and which have been prepared in accordance
with UK-adopted IFRSs, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
ii. The preliminary announcement includes a fair review of the
development, performance and position of the Group, as well as the principal
risks and uncertainties faced by the Group; and
iii. The directors of Legal & General Group Plc are listed in the
Legal & General Group Plc website:
www.legalandgeneralgroup.com/about-us/our-management/group-board/
(http://www.legalandgeneralgroup.com/about-us/our-management/group-board/) .
By order of the Board
Sir Nigel Wilson
Stuart Jeffrey Davies
Group Chief Executive
Group Chief Financial Officer
8 March
2022
8 March 2022
Enquiries
Investors
+44 203 124 2091
Edward Houghton, Head of Investor Relations
investor.relations@group.landg.com
legalandgeneralgroup.com
+1 312 964 3034
Sujee Rajah, Investor Relations Director
investor.relations@group.landg.com
legalandgeneralgroup.com
+44 203 124 2054
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investor.relations@group.landg.com
legalandgeneralgroup.com
Media
+44 203 124 2090
John Godfrey, Group Corporate Affairs Director
legalandgeneralgroup.com
+44 207 353 4200
Graeme Wilson, Tulchan Communications
+44 7812 935 831
Guy Bates, Tulchan Communications
1 (#_ednref1) The Group uses a number of Alternative Performance Measures
(including operating profit, net release from operations, return on equity and
LGIM AUM) to enhance understanding of the Group's performance. These are
defined in the glossary, on pages 94 to 98 of this report.
2 (#_ednref2) Profit after tax attributable to equity holders.
3 (#_ednref3) EPS excludes 2019/2020 mortality reserve releases and the
financial impact of the Mature Savings disposal in 2020.
4 (#_ednref4) 2020 operating profit of £2,041m excludes one-off mortality
release of £177m.
5 (#_ednref5) Solvency II coverage ratio on a "proforma view". In previous
years, the capital position was shown on a "shareholder view", where the
contribution from the final salary pension schemes was excluded from the group
position. The impact of excluding the contribution is now less than 1% and so,
going forward we will just report on a proforma basis.
6 (#_ednref6) Coverage ratio before the payment of the 2021 final
dividend.
7 (#_ednref7) Cash generation defined as net release from operations and
Capital generation defined as Solvency II operational surplus generation.
Growth shown on continuing operations.
8 (#_ednref8) From 1 January 2021, the Workplace Savings administration
business has transferred to LGRR, where it complements LGRR's retirement
solutions offering and retail customer focus; LGIM continues to manage the
assets and earn the asset management profit from this business. 2020
financials have been restated accordingly.
9 (#_ednref9) Excludes Mature Savings.
10 (#_ednref10) The sale of the Mature Savings business completed on 7
September 2020.
11 (#_ednref11) COVID-19 costs reflect incremental operational expenses
incurred in 2020 as a result of COVID-19 and include the provision of IT spend
on remote working solutions.
12 (#_ednref12) One-off mortality reserve release for 2020 relates to an
update in the longevity trend assumption from adjusted CMI 2017 to adjusted
CMI 2018
13 (#_ednref13) Operating profit is an Alternative Performance Measure and
represents Group adjusted operating profit as defined on page 94.
14 (#_ednref14) LGI investment variance is the formulaic impact of rising
(positive) and falling (negative) interest rates on the discount rate (both UK
and US) used to calculate LGI reserves.
15 (#_ednref15) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 94.
16 (#_ednref16) £7.2bn of global PRT includes a £925m Assured Payment
Policy (An insurance policy that provides the pension scheme with protection
against investment-related risk) for Legal & General's Group UK Pension.
17 (#_ednref17) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 94.
18 (#_ednref18) Solvency II coverage ratio on a "proforma view".
Incorporates the impact of recalculating the Transitional Measures for
Technical Provisions (TMTP) as at 31 December 2021.
19 (#_ednref19) For example, UK 10 year Gilts at 0.97% at the end of the
period, having increased 77bps between 31 December 2020 and 30 December 2021.
20 (#_ednref20) Calculated using annualised profit for the year and
average equity attributable to the owners of the parent of £9,994m.
21 (#_ednref21) IPE, Top 500 Asset Managers 2021.
22 (#_ednref22) Three year average (2019-2021) measured by UK PRT new
business volumes. Three year average measured by UK PRT deal count from LGIM
clients is 68%.
23 (#_ednref23) Broadridge, UK Defined Contribution and Retirement Income
report 2020. 2020 UK DC Assets: £524bn.
24 (#_ednref24) For more information please refer to
www.legalandgeneralgroup.com/investors/esg-investors/
(http://www.legalandgeneralgroup.com/investors/esg-investors/)
25 (#_ednref25) Proprietary assets relate to Investments to which
shareholders are directly exposed (excluding client and policyholder assets,
derivatives, cash, cash equivalents and loans), as disclosed in Note 6.01.
26 (#_ednref26) This reduction is well ahead of the original -2% target over
the same period, although it has been driven in part by COVID-19 and market
volatility impacts. In particular, the impact of COVID-19 on 2020 emissions is
partially seen in the 2021 numbers, due to the carbon data lag within the
calculation, and we may see a partial reversal of this movement in future
years. For more information, see our forthcoming 2021 Climate report which
will be available on our website from 16(th) March 2022.
27 (#_ednref27) AUM in responsible investment strategies represents only
the AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement.
28 (#_ednref28) Represents voting instructions for main FTSE pooled index
funds.
29 (#_ednref29) Sustainability and Inclusive Capitalism 2020-21
(https://group.legalandgeneral.com/media/2qndovcd/ryxlg_sr20_interactive_pdf_19521-v2.pdf)
30 (#_ednref30) For more information on our six strategic growth drivers,
see pp10-11 of the forthcoming 2021 annual report and accounts
31 (#_ednref31) $130tn investment needed to 2050 in order to achieve zero
emissions, scaled pro-rata to 2025. BloombergNEF: New energy outlook
2021 https://about.bnef.com/new-energy-outlook/
(https://about.bnef.com/new-energy-outlook/)
32 (#_ednref32) The ambitions are based on the aggregate performance over a
five-year period. Performance may vary from year to year and individual
statements may not be met in each year on a standalone basis. Dividend
decisions are subject to final Board approval.
33 (#_ednref33) Cash generation is net release from operations, capital
generation is Solvency II operational surplus generation. Dividends on a
declared basis. On the basis of a flat final 2020 dividend, and 3-6% annual
growth thereafter.
34 (#_ednref34) WTW: Pension risk settlement: a review of 2021
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.wtwco.com%2Fen-GB%2FInsights%2F2022%2F01%2Fpension-risk-settlement-a-review-of-2021%3Futm_source%3DMarketo%26utm_medium%3Demail%26utm_content%3DMBN.RET.GBR.GBR.EN.20220111.Pensions-Briefing-Jan22.EBP7191A1%26utm_campaign%3DModernizing-Benefits_%26utm_term%3D%26mkt_tok%3DNzQyLUxaWS0yMzEAAAGB6BcvBcOai7lkPoi8fTA2GJIXLIXt109koraC_fOn2X-cR1lewzE1k68ZbdReVzMRsRlcOw0yG54ntrx5vqmHS2S6C970i0o6H19DS79RtI3VYw&data=04%7C01%7CJillian.Berry%40landg.com%7C1a7b0a480b784b1f9c0b08d9dc0d7b4d%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637782772720844072%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=31BTRaiaiGg3u4fa4lST5im4HI2l%2Fuyfh816XUEXtjc%3D&reserved=0)
& LCP: Rise of new market leaders and 'mega' transactions could be on the
cards for the de-risking market in 2022
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.lcp.uk.com%2Fmedia-centre%2F2022%2F01%2Frise-of-new-market-leaders-and-mega-transactions-could-be-on-the-cards-for-the-de-risking-market-in-2022%2F&data=04%7C01%7CJillian.Berry%40landg.com%7C1a7b0a480b784b1f9c0b08d9dc0d7b4d%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637782772720844072%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=vM%2F5WyWP6SXJ0SHn0Z9aqpFu4kj5US%2Fk2rJQ8cem79w%3D&reserved=0)
.
35 (#_ednref35) Legal & General 2020 Capital Markets Event, slide 26.
36 (#_ednref36) Pension Purple Book 2021, PPF; Hymans Robertson, 2022 Risk
Transfer Report.
37 (#_ednref37) WTW: Pension risk settlement: a review of 2021
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.wtwco.com%2Fen-GB%2FInsights%2F2022%2F01%2Fpension-risk-settlement-a-review-of-2021%3Futm_source%3DMarketo%26utm_medium%3Demail%26utm_content%3DMBN.RET.GBR.GBR.EN.20220111.Pensions-Briefing-Jan22.EBP7191A1%26utm_campaign%3DModernizing-Benefits_%26utm_term%3D%26mkt_tok%3DNzQyLUxaWS0yMzEAAAGB6BcvBcOai7lkPoi8fTA2GJIXLIXt109koraC_fOn2X-cR1lewzE1k68ZbdReVzMRsRlcOw0yG54ntrx5vqmHS2S6C970i0o6H19DS79RtI3VYw&data=04%7C01%7CJillian.Berry%40landg.com%7C1a7b0a480b784b1f9c0b08d9dc0d7b4d%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637782772720844072%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=31BTRaiaiGg3u4fa4lST5im4HI2l%2Fuyfh816XUEXtjc%3D&reserved=0)
38 (#_ednref38) Pension buy-ins/outs: Predictions for 2021 and beyond; LCP.
39 (#_ednref39) ICI Q3 retirement market data.
40 (#_ednref40) Pridham Report, 2021.
41 (#_ednref41) WTW FTSE 350 Defined Contribution Survey Pension Survey
2021.
42 (#_ednref42) ABI Q3 2021 Report.
43 (#_ednref43) Legal & General 2020 Capital Markets Event, slide 79.
44 (#_ednref44) Gross revenues includes revenue generated in the group's
joint venture with Virgin Money .
45 (#_ednref45) LIMRA, March 2021.
46 (#_ednref46) LGR's total annuity asset portfolio represents our UK and US
annuities businesses. See note 4.05 and note 6.01 for more detail.
47 (#_ednref47) Includes LGR direct investment bonds (£23,029m), direct
investment property (£5,286m), direct investments equity (£12m), and other
assets (£96m). Please see note 6.02b for more information.
48 (#_ednref48) 65% growth rate excludes new investment and distributions.
49 (#_ednref49) Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
50 (#_ednref50) Ranked eighth by AUM, Japanese industry publication Nenkin
joho (Pension News) 27 September 2021.
51 (#_ednref51) AUM in responsible investment strategies represents only
the AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria, in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement.
52 (#_ednref52) Broadridge Financial Solutions, November 2021.
(( 53 (#_ednref53) ))( )From 1 January 2021, the Workplace Savings
administration business was transferred from LGIM to LGRR, building out LGRR's
retail retirement proposition. Profits on the fund management services we
provide are included in LGIM's asset management operating profit.
(( 54 (#_ednref54) )) ABI Q3 2021 Report.
(( 55 (#_ednref55) ))( )ABI Q3 2021 Report.
(( 56 (#_ednref56) )) Coverage ratio before the payment of the 2021 final
dividend.
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