REG - Legal & General Grp - L&G Full Year Results 2021 Part 2
09/03/2022 07:17
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RNS Number : 1043E Legal & General Group Plc 09 March 2022
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 36
1.01 Operating profit(#)
For the year ended 31 December 2021 2021 2020
Notes £m £m
From continuing operations
Legal & General Retirement (LGR) 1.03 1,506 1,728
- LGR Institutional (LGRI) 1,154 1,331
- LGR Retail (LGRR)(1) 352 397
Legal & General Investment Management (LGIM)(1) 1.04 422 407
Legal & General Capital (LGC) 1.05 461 275
Legal & General Insurance (LGI) 1.03 268 189
- UK and Other 320 205
- US (LGIA) (52) (16)
Operating profit from divisions:
From continuing operations 2,657 2,599
From discontinued operations(2) - 34
Operating profit from divisions 2,657 2,633
Group debt costs(3) (230) (233)
Group investment projects and expenses (165) (155)
Covid-19 costs(4) - (27)
Operating profit 2,262 2,218
Investment and other variances 1.06 233 (394)
Losses attributable to non-controlling interests (7) (36)
Adjusted profit before tax attributable to equity holders 2,488 1,788
Tax expense attributable to equity holders 3.04 (445) (217)
Profit for the year 2.01 2,043 1,571
Less: Profit after tax from discontinued operations(2) 2.01 - (290)
Profit after tax from continuing operations 2.01 2,043 1,281
Total tax expense 2.01 589 218
Profit before tax 2.01 2,632 1,499
Profit attributable to equity holders 2,050 1,607
Earnings per share:
Basic (pence per share)(5) 1.07 34.19p 27.00p
Diluted (pence per share)(5) 1.07 32.57p 25.60p
1. LGRR includes the Workplace Savings business which was previously reported
in LGIM. Prior year comparatives have been restated to reflect the change in
reporting structure. Further details are provided in Note 1.08.
2. In 2020, discontinued operations included the results of the Mature Savings
division, the sale of which completed on 7 September 2020.
3. Group debt costs exclude interest on non-recourse financing.
4. Covid-19 costs reflected incremental operational expenses incurred as a
result of Covid-19.
5. All earnings per share calculations are based on profit attributable to
equity holders of the company.
This supplementary operating profit information (one of the group's key
performance indicators) provides additional analysis of the results reported
under IFRS, and the group believes it provides stakeholders with useful
information to enhance their understanding of the performance of the business
in the year.
Operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations and exceptional items. It therefore reflects
longer-term economic assumptions for the group's insurance businesses and
shareholder funds, including the traded portfolio in LGC. For direct
investments, operating profit reflects the expected long-term economic return
for those assets which are developed with the intention of sale, or the IFRS
profit before tax for the early stage and mature businesses. Variances between
actual and long-term expected investment return on traded and real assets
(including direct investments) are excluded from operating profit, as well as
economic assumption changes caused by changes in market conditions or
expectations (e.g. credit default and inflation) and any difference between
the actual allocated asset mix and the target long-term asset mix on new
pension risk transfer business. Operating profit also excludes the yield
associated with assets held for future new pension risk transfer business from
the valuation discount rate on insurance contract liabilities. Exceptional
income and expenses which arise outside the normal course of business in the
year, such as merger and acquisition and start-up costs, are also excluded
from operating profit.
The group reports its results across the following business segments:
· LGR represents worldwide pension risk transfer business including
longevity insurance (within LGRI), and retail retirement, workplace savings
and lifetime mortgage loans (within LGRR).
· LGIM represents institutional and retail investment management.
· LGC represents shareholder assets invested in direct investments
primarily in the areas of specialist commercial real estate, clean energy,
housing and SME finance, as well as traded and treasury assets.
· LGI primarily represents UK and US retail protection business, UK
group protection and Fintech business.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 37
1.02 Reconciliation of release from operations to operating profit(#) before
tax
Changes in Operating profit/ (loss) after tax Operating profit/ (loss) before
valuation assump- tions tax
New business surplus/ (strain) Net
release from operations
Release from operations(1) Exper- ience variances Non-cash items Other Tax expense/ (credit)
For the year ended
31 December 2021 £m £m £m £m £m £m £m £m £m £m
LGR 739 220 959 54 251 23 - 1,287 219 1,506
- LGRI 512 193 705 40 212 27 - 984 170 1,154
- LGRR(2) 227 27 254 14 39 (4) - 303 49 352
LGIM(2) 342 - 342 - - - - 342 80 422
LGC 379 - 379 - - - - 379 82 461
LGI 236 27 263 14 82 6 (138) 227 41 268
- UK and Other 131 27 158 14 82 6 - 260 60 320
- US (LGIA)(3) 105 - 105 - - - (138) (33) (19) (52)
Total from divisions 1,696 247 1,943 68 333 29 (138) 2,235 422 2,657
Group debt costs (186) - (186) - - - - (186) (44) (230)
Group investment projects and expenses (69) - (69) - - - (68) (137) (28) (165)
Total 1,441 247 1,688 68 333 29 (206) 1,912 350 2,262
1. Release from operations within US (LGIA) includes £80m of dividends from
the US.
2. LGRR includes the Workplace Savings business which was previously reported
in LGIM. Prior year comparatives have been restated to reflect the change in
reporting structure. Further details are provided in Note 1.08.
3. Other includes experience variances, changes in valuation assumptions and
non-cash items for LGIA.
Release from operations for LGR and LGI UK and Other represents the expected
IFRS surplus generated in the year from the difference between the prudent
assumptions underlying the IFRS liabilities and our best estimate of future
experience for in-force annuities and UK protection businesses. For Workplace
Savings, the release from operations represents the expected annual management
charges generated from the in-force business less the expected expenses. The
LGI release from operations also includes dividends remitted from LGIA.
New business surplus/(strain) for LGR and LGI UK and Other represents the
initial profit or loss from writing new business. This includes the costs
associated with acquiring new business and setting up prudent reserves in
respect of new business for UK annuities and protection, net of tax. Similarly
for Workplace Savings, this includes the cost of acquiring new business in the
year less the annual management charges generated by the assets under
administration (AUA), net of tax. The new business surplus and release from
operations for LGR and LGI excludes any capital held in excess of the prudent
reserves from the liability calculation.
LGR's new business metrics are presented based on a target long-term asset
portfolio. At certain year ends, depending upon the quantum and timing of
pension risk transfer (PRT) volumes, we may have sourced more or less of the
high quality assets targeted to support that business. At year end, the profit
impact of the difference between actual assets held (including alternative
surplus assets where suitable) and the long-term asset mix is reflected in
investment variance.
Net release from operations for LGR and LGI is defined as release from
operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM
represents the operating profit (net of tax).
See Note 1.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 38
1.02 Reconciliation of release from operations to operating profit(#) before
tax (continued)
Changes in Operating profit/ (loss) after tax Operating profit/ (loss) before
valuation assump- tions tax
New business surplus/ (strain) Net
release from operations
Release from operations(1) Exper- ience variances Non-cash items Other Tax expense/ (credit)
For the year ended
31 December 2020 £m £m £m £m £m £m £m £m £m £m
LGR 685 262 947 99 400 32 - 1,478 250 1,728
- LGRI 492 220 712 81 314 30 - 1,137 194 1,331
- LGRR(2) 193 42 235 18 86 2 - 341 56 397
LGIM(2) 327 - 327 - - - - 327 80 407
LGC 224 - 224 - - - - 224 51 275
LGI 250 8 258 (41) 58 (5) (115) 155 34 189
- UK and Other 146 8 154 (41) 58 (5) - 166 39 205
- US (LGIA)(3) 104 - 104 - - - (115) (11) (5) (16)
From continuing operations 1,486 270 1,756 58 458 27 (115) 2,184 415 2,599
From discontinued operations(4) 28 - 28 - - - - 28 6 34
Total from divisions 1,514 270 1,784 58 458 27 (115) 2,212 421 2,633
Group debt costs (189) - (189) - - - - (189) (44) (233)
Group investment projects and expenses (56) - (56) - - - (61) (117) (38) (155)
Covid-19 costs(5) - - - - - - (20) (20) (7) (27)
Total 1,269 270 1,539 58 458 27 (196) 1,886 332 2,218
1. Release from operations within US (LGIA) includes £84m of dividends from
the US.
2. LGRR includes the Workplace Savings business which was previously reported
in LGIM. Further details are provided in Note 1.08.
3. Other includes experience variances, changes in valuation assumptions and
non-cash items for LGIA.
4. Discontinued operations include the results of the Mature Savings division,
the sale of which completed on 7 September 2020.
5. Covid-19 costs reflect incremental operational expenses incurred as a
result of Covid-19.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 39
1.03 Analysis of LGR and LGI operating profit
For the year ended 31 December 2021
LGR(1) LGI LGR(1) LGI
2021 2021 2020 2020
£m £m £m £m
Net release from operations 959 263 947 258
Experience variances
- Persistency 1 (5) 7 3
- Mortality/morbidity(2) 40 13 104 (46)
- Expenses - 5 (18) (5)
- Project and development costs (19) (11) (9) (1)
- Other 32 12 15 8
Total experience variances 54 14 99 (41)
Changes in valuation assumptions
- Persistency - (5) - (1)
- Mortality/morbidity(3) 201 (2) 255 54
- Expenses - (1) - 2
- Other(4,5) 50 90 145 3
Total changes in valuation assumptions 251 82 400 58
Movement in non-cash items
- Acquisition expense tax relief - - - (3)
- Other(6) 23 6 32 (2)
Total movement in non-cash items 23 6 32 (5)
Other(2) - (138) - (115)
Operating profit after tax 1,287 227 1,478 155
Tax expense 219 41 250 34
Operating profit before tax 1,506 268 1,728 189
1. LGR includes the Workplace Savings business which was previously reported
in LGIM. Prior year comparatives have been restated to reflect the change in
reporting structure. Further details are provided in Note 1.08.
2. Mortality experience variances in 2020 were driven by increased claims
experience due to Covid-19, particularly impacting LGIA (reflected in Other)
where we retain the majority of the mortality risk. In 2021, total LGI
Covid-19 claims have exceeded the prior year reserves by £79m, and we have
further established a provision of £57m for Covid-19 mortality impacts
expected in 2022.
3. In 2021, mortality assumption changes for LGR reflect a one-off update to
the spouse demography assumption of £100m. We have not recognised an explicit
release from adopting CMI 2019 given the uncertainty in the data created by
Covid-19. In 2020, the assumption changes included a one-off release of £153m
(net of tax) from an update in the longevity trend assumption from adjusted
CMI 2017 to adjusted CMI 2018. Other positive longevity variances in both
years are driven by routine updates to our assumptions relating to base
mortality rates.
4. In 2020, the £145m positive Other changes in valuation assumptions in LGR
reflect both a reduction in the assumed late retirement factors applied to
deferred annuities and the impact of updating unit cost and investment
management expense assumptions.
5. In 2021, the £90m positive Other changes in valuation assumptions in LGI
reflect the benefit of modelling improvements in UK retail protection,
including the introduction of an illiquidity premium in the liability discount
rate.
6. LGR Other movement in non-cash items is driven by the net effect of the
capitalisation and unwind of future asset management profits on activity
managed by LGIM, and is a function of new business volumes and movements in
the main unit cost assumptions.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 40
1.04 LGIM operating profit
2021 2020
£m £m
Asset management revenue (excluding 3rd party market data)(1) 980 929
Asset management transactional revenue(2) 32 27
Asset management expenses (excluding 3rd party market data)(1) (590) (549)
Total LGIM operating profit(3) 422 407
1. Asset management revenue and expenses exclude income and costs of £32m in
relation to the provision of third party market data (2020: £27m).
2. Transactional revenue from external clients includes execution fees, asset
transition income, trigger fees, arrangement fees on property transactions and
performance fees.
3. The Workplace Savings business, which was previously reported in LGIM, has
been transferred to LGRR. Prior year comparatives have been restated to
reflect the change in reporting structure. Further details are provided in
Note 1.08.
1.05 LGC operating profit
2021 2020
£m £m
Direct investments(1) 350 112
Traded investment portfolio including treasury assets(2) 111 163
Total LGC operating profit 461 275
1. Direct investments represents LGC's portfolio of assets across specialist
commercial real estate, clean energy, housing and SME finance. Direct
investments include operating profit in relation to CALA of £132m (2020:
£7m).
2. The traded investment portfolio holds a diversified set of exposures across
equities, fixed income, multi-asset funds and cash.
1.06 Investment and other variances
2021 2020
£m £m
Investment variance related to protection liabilities 111 (459)
Investment variance related to the traded investment portfolio and direct 19 (299)
investments
Other investment variance(1) 211 67
Investment variance 341 (691)
M&A related and other variances(2) (108) 297
Total investment and other variances 233 (394)
1. Other investment variance includes variances in respect of the defined
benefit pension scheme, reflecting the impact of the acquisition of annuity
assets from LGR, and the difference between the IAS 19 and annuity discount
rates.
2. M&A related and other variances includes gains and losses, expenses and
intangible amortisation relating to acquisitions, disposals and restructuring.
2021 includes: the impact of the sale of a book of retail investment products
within the L&G Personal Investing business to Fidelity International
Limited, announced in October 2020; the costs associated with LGIM's
appointment of State Street to provide Charles River technology and middle
office services, including the recognition of a multi-year restructuring
provision; and the impact of impairing capitalised software intangibles as a
result of various restructuring exercises.
Investment variance includes differences between actual and long-term expected
investment return on traded and real assets (including direct investments),
economic assumption changes caused by changes in market conditions or
expectations (e.g. credit default and inflation), the impact of any difference
between the actual allocated asset mix and the target long-term asset mix on
new pension risk transfer business, and the yield associated with assets held
for future new pension risk transfer business from the valuation discount
rate.
The long-term expected investment return is based on opening economic
assumptions applied to the assets under management at the start of the
reporting year. The assumptions underlying the calculation of the expected
returns for traded equity, commercial property and residential property are
based on market consensus forecasts and long-term historic average returns
expected to apply through the cycle.
The long-term expected investment returns are:
2021 2020
Equities 7% 7%
Commercial property 5% 5%
Residential property RPI + 50bps RPI + 50bps
Additionally, other alternative assets within the LGC portfolio comprise
investments in housing, specialist commercial real estate, clean energy,
digital infrastructure and venture capital. The long-term expected investment
return is on average between 8% and 10%, in line with our stated investment
objectives. Rates of return specific to each asset are determined at the point
of underwriting and reviewed and updated annually. The expected investment
return includes assumptions on appropriate discount rates and inflation as
well as sector specific assumptions including retail and commercial property
yields and power prices.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 41
1.07 Earnings per share
(a) Basic earnings per share
After tax Per share(1) After tax Per share(1)
2021 2021 2020 2020
£m p £m p
Profit for the year attributable to equity holders 2,050 34.58 1,607 27.10
Less: coupon payable in respect of restricted Tier 1 convertible notes net of (23) (0.39) (6) (0.10)
tax relief
Total basic earnings 2,027 34.19 1,601 27.00
Less: earnings derived from discontinued operations - - (290) (4.89)
Basic earnings derived from continuing operations 2,027 34.19 1,311 22.11
1. Basic earnings per share is calculated by dividing profit after tax by the
weighted average number of ordinary shares in issue during the year, excluding
employee scheme treasury shares.
(b) Diluted earnings per share
After tax Weighted Per share(1)
average
number of
shares
2021 2021 2021
£m m p
Profit for the year attributable to equity holders 2,050 5,929 34.58
Net shares under options allocable for no further consideration - 59 (0.34)
Conversion of restricted Tier 1 notes - 307 (1.67)
Total diluted earnings 2,050 6,295 32.57
After tax Weighted Per share(1)
average
number of
shares
2020 2020 2020
£m m p
Profit for the year attributable to equity holders 1,607 5,930 27.10
Net shares under options allocable for no further consideration - 40 (0.18)
Conversion of restricted Tier 1 notes - 307 (1.32)
Total diluted earnings 1,607 6,277 25.60
Less: diluted earnings derived from discontinued operations (290) - (4.62)
Diluted earnings derived from continuing operations 1,317 6,277 20.98
1. For diluted earnings per share, the weighted average number of ordinary
shares in issue, excluding employee scheme treasury shares, is adjusted to
assume conversion of all potential ordinary shares, such as share options
granted to employees and conversion of restricted Tier 1 notes.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 42
1.08 Segmental analysis
In 2021, the group operated five core businesses across four reportable
segments that are continuing operations, with Legal & General Retirement
Retail (LGRR) and Legal & General Retirement Institutional (LGRI) combined
into a single segment for reporting purposes, being Legal & General
Retirement.
From 1 January 2022, the group has announced changes to the business unit
responsibilities within the Executive Committee. Andrew Kail will become the
Chief Executive Officer of LGRI, succeeding Laura Mason who has previously
moved to become CEO of Legal & General Capital (LGC). Our two retail
businesses, LGRR and LGI, will come together under the leadership of Bernie
Hickman. As noted on page 10, this will enable the creation of a single
interface for the group's UK retail customers.
As a result of these changes, from 1 January 2022 the group will align its
reportable segments to the five core businesses, comprising LGRI, LGRR, LGI,
LGIM, and LGC. Group central expenses and debt costs will continue to be
reported separately.
In 2021, management of the Workplace Savings business has transferred from
LGIM to LGRR, where it complements their retirement solutions offering and
retail customer focus. The change in reporting structure has no impact on the
profit or loss, or net assets, of the group. To enable comparison, segmental
information for prior year has been restated accordingly.
In 2020, continuing operations exclude the results of the Mature Savings
business, the sale of which was completed on 7 September 2020.
Reporting of assets and liabilities by reportable segment has not been
included, as this is not information that is provided to key decision makers
on a regular basis. The group's asset and liabilities are managed on a legal
entity rather than reportable segment basis, in line with regulatory
requirements.
Financial information on the reportable segments is further broken down where
relevant in order to better explain the drivers of the group's results.
(a) Profit/(loss) for the year
Group
expenses Total
and debt continuing
LGR(1) LGIM(1) LGC LGI costs(2) operations
For the year ended 31 December 2021 £m £m £m £m £m £m
Operating profit/(loss)(#) 1,506 422 461 268 (395) 2,262
Investment and other variances 242 (11) 19 111 (128) 233
Losses attributable to non-controlling interests - - - - (7) (7)
Profit/(loss) before tax attributable to equity holders 1,748 411 480 379 (530) 2,488
Tax (expense)/credit attributable to equity holders (276) (79) (93) (59) 62 (445)
Profit/(loss) for the year 1,472 332 387 320 (468) 2,043
Group
expenses Total
and debt continuing
LGR(1) LGIM(1) LGC LGI costs(2) operations
For the year ended 31 December 2020 £m £m £m £m £m £m
Operating profit/(loss)(#) 1,728 407 275 189 (415) 2,184
Investment and other variances 15 1 (299) (459) 24 (718)
Losses attributable to non-controlling interests - - - - (36) (36)
Profit/(loss) before tax attributable to equity holders 1,743 408 (24) (270) (427) 1,430
Tax (expense)/credit attributable to equity holders (228) (65) (8) 58 94 (149)
Profit/(loss) for the year 1,515 343 (32) (212) (333) 1,281
1. LGR includes the Workplace Savings business which was previously reported
in LGIM. Prior year comparatives have been restated to reflect the change in
reporting structure.
2. Group expenses and debt costs include £nil of incremental costs incurred
as a result of Covid-19 (2020: £27m).
# Operating profit for total continuing operations represents 'Adjusted
operating profit', an alternative performance measure defined in the glossary.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosures on performance and Release from
operations
Page 43
1.08 Segmental analysis (continued)
(b) Total income
LGC and Total continuing
LGR LGIM(1,2) LGI other(3) operations
For the year ended 31 December 2021 £m £m £m £m £m
Internal income - 179 - (179) -
External income 5,959 35,738 2,029 1,724 45,450
Total income 5,959 35,917 2,029 1,545 45,450
LGC and Total continuing
LGR LGIM(1,2) LGI other(3) operations
For the year ended 31 December 2020 £m £m £m £m £m
Internal income - 201 - (201) -
External income 15,057 20,878 1,799 12,497 50,231
Total income 15,057 21,079 1,799 12,296 50,231
1. LGIM internal income relates to investment management services provided to
other segments.
2. LGIM external income primarily includes fees from fund management and
investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations and group
consolidation adjustments.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Primary Financial
Statements
Page
44
2.01 Consolidated Income Statement
2021 2020
For the year ended 31 December 2021 Notes £m £m
Income
Gross written premiums 10,375 12,545
Outward reinsurance premiums (3,446) (3,187)
Net change in provision for unearned premiums 42 12
Net premiums earned 6,971 9,370
Fees from fund management and investment contracts 959 873
Investment return 35,927 39,168
Other operational income 1,593 820
Total income 1.08 45,450 50,231
Expenses
Claims and change in insurance contract liabilities 7,353 17,768
Reinsurance recoveries (2,968) (3,601)
Net claims and change in insurance contract liabilities 4,385 14,167
Change in investment contract liabilities 34,206 31,410
Acquisition costs 825 617
Finance costs 294 305
Other expenses 3,108 2,233
Total expenses 42,818 48,732
Profit before tax 2,632 1,499
Tax expense attributable to policyholder returns (144) (69)
Profit before tax attributable to equity holders 2,488 1,430
Total tax expense (589) (218)
Tax expense attributable to policyholder returns 144 69
Tax expense attributable to equity holders 3.04 (445) (149)
Profit after tax from continuing operations 1.08 2,043 1,281
Profit after tax from discontinued operations(1) - 290
Profit for the year 2,043 1,571
Attributable to:
Non-controlling interests (7) (36)
Equity holders 2,050 1,607
Dividend distributions to equity holders during the year 3.02 1,063 1,048
Dividend distributions to equity holders proposed after the year end 3.02 790 754
p p
Total basic earnings per share(2) 1.07 34.19 27.00
Total diluted earnings per share(2) 1.07 32.57 25.60
Basic earnings per share derived from continuing operations(2) 1.07 34.19 22.11
Diluted earnings per share derived from continuing operations(2) 1.07 32.57 20.98
1. In 2020, discontinued operations included the results of the Mature Savings
division, the sale of which completed on 7 September 2020.
2. All earnings per share calculations are based on profit attributable to
equity holders of the company.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Primary Financial
Statements
Page
45
2.02 Consolidated Statement of Comprehensive Income
2021 2020
For the year ended 31 December 2021 £m £m
Profit for the year 2,043 1,571
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes 53 (168)
Tax (expense)/credit on actuarial remeasurements on defined benefit pension (7) 48
schemes
Total items that will not be reclassified subsequently to profit or loss 46 (120)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations (11) 2
Movement in cross-currency hedge 20 7
Tax expense on movement in cross-currency hedge (7) (4)
Movement in financial investments designated as available-for-sale (3) 2
Total items that may be reclassified subsequently to profit or loss (1) 7
Other comprehensive income/(expense) after tax 45 (113)
Total comprehensive income for the year 2,088 1,458
Total comprehensive income for the year attributable to:
Continuing operations 2,088 1,168
Discontinued operations - 290
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests (7) (36)
Equity holders 2,095 1,494
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Primary Financial
Statements
Page
46
2.03 Consolidated Balance Sheet
2021 2020
As at 31 December 2021 Notes £m £m
Assets
Goodwill 68 68
Other intangible assets 365 329
Deferred acquisition costs 26 47
Investment in associates and joint ventures accounted for using the equity 375 288
method
Property, plant and equipment 316 274
Investment property 3.03 10,150 8,475
Financial investments 3.03 538,374 526,057
Reinsurers' share of contract liabilities 7,180 6,939
Deferred tax assets 3.04 2 5
Current tax assets 670 634
Receivables and other assets 8,625 9,429
Cash and cash equivalents 16,487 18,020
Total assets 582,638 570,565
Equity
Share capital 3.05 149 149
Share premium 3.05 1,012 1,006
Employee scheme treasury shares (99) (75)
Capital redemption and other reserves 196 198
Retained earnings 9,228 8,224
Attributable to owners of the parent 10,486 9,502
Restricted Tier 1 convertible notes 3.06 495 495
Non-controlling interests 3.07 (38) (31)
Total equity 10,943 9,966
Liabilities
Non-participating insurance contract liabilities 89,825 89,029
Non-participating investment contract liabilities 372,954 343,543
Core borrowings 3.08 4,256 4,558
Operational borrowings 3.09 932 1,055
Provisions 3.13 1,238 1,288
Deferred tax liabilities 3.04 251 207
Current tax liabilities 84 61
Payables and other financial liabilities 3.10 74,264 91,942
Other liabilities 925 756
Net asset value attributable to unit holders 26,966 28,160
Total liabilities 571,695 560,599
Total equity and liabilities 582,638 570,565
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Primary Financial
Statements
Page
47
2.04 Consolidated Statement of Changes in Equity
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2021 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2021 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
Profit for the year - - - - 2,050 2,050 - (7) 2,043
Exchange differences on translation of overseas operations - - - (11) - (11) - - (11)
Net movement in cross-currency hedge - - - 13 - 13 - - 13
Net actuarial remeasurements on defined benefit pension schemes - - - - 46 46 - - 46
Net movement in financial investments designated as available-for-sale - - - (3) - (3) - - (3)
Total comprehensive income for the year - - - (1) 2,096 2,095 - (7) 2,088
Options exercised under share option schemes - 6 - - - 6 - - 6
Shares purchased - - (34) - - (34) - - (34)
Shares vested - - 10 (48) - (38) - - (38)
Employee scheme treasury shares: - - - 33 - 33 - - 33
- Value of employee services
Share scheme transfers to retained earnings - - - - 8 8 - - 8
Dividends - - - - (1,063) (1,063) - - (1,063)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (23) (23) - - (23)
relief
Currency translation differences - - - 14 (14) - - - -
As at 31 December 2021 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
1. Capital redemption and other reserves as at 31 December 2021 include
share-based payments £86m, foreign exchange £46m, capital redemption £17m,
hedging £48m and available-for-sale reserves £(1)m.
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IFRS Primary Financial
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48
2.04 Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2020 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2020 149 1,000 (65) 205 7,749 9,038 - 55 9,093
Profit for the year - - - - 1,607 1,607 - (36) 1,571
Exchange differences on translation of overseas operations - - - 2 - 2 - - 2
Net movement in cross-currency hedge - - - 3 - 3 - - 3
Net actuarial remeasurements on defined benefit pension schemes - - - - (120) (120) - - (120)
Net movement in financial investments designated as available-for-sale - - - 2 - 2 - - 2
Total comprehensive income for the year - - - 7 1,487 1,494 - (36) 1,458
Options exercised under share option schemes - 6 - - - 6 - - 6
Shares purchased - - (23) - - (23) - - (23)
Shares vested - - 13 (27) - (14) - - (14)
Employee scheme treasury shares: - - - 43 - 43 - - 43
- Value of employee services
Share scheme transfers to retained earnings - - - - 12 12 - - 12
Dividends - - - - (1,048) (1,048) - - (1,048)
Restricted Tier 1 convertible notes - - - - - - 495 - 495
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (6) (6) - - (6)
relief
Movement in third party interests - - - - - - - (50) (50)
Currency translation differences - - - (30) 30 - - - -
As at 31 December 2020 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
1. Capital redemption and other reserves as at 31 December 2020 include
share-based payments £101m, foreign exchange £43m, capital redemption £17m,
hedging £35m and available-for-sale reserves £2m.
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IFRS Primary Financial
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2.05 Consolidated Statement of Cash Flows
2021 2020
For the year ended 31 December 2021 Notes £m £m
Cash flows from operating activities
Profit for the year 2,043 1,571
Adjustments for non cash movements in net profit for the year
Net gains on financial investments and investment property (26,062) (28,530)
Investment income (9,865) (9,761)
Interest expense 294 337
Tax expense 589 144
Other adjustments 137 (12)
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or 4,616 6,519
loss
Investments designated as available-for-sale (21) 1,072
Other assets 139 (2,445)
Net increase/(decrease) in operational liabilities
Insurance contracts 726 11,607
Investment contracts 29,409 20,855
Other liabilities (11,161) (5,900)
Cash utilised in operations (9,156) (4,543)
Interest paid (301) (301)
Interest received 5,060 5,190
Rent received 373 384
Tax paid(1) (564) (554)
Dividends received 4,419 4,125
Net cash flows from operations (169) 4,301
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets (205) (198)
Disposal of plant, equipment, intangibles and other assets - 34
Acquisition of operations, net of cash acquired - 1
Disposal of subsidiaries and other operations, net of cash transferred 217 (278)
Investment in joint ventures and associates (56) (16)
Disposal of joint ventures and associates 177 -
Net cash flows generated/(utilised) from investing activities 133 (457)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year 3.02 (1,063) (1,048)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax 3.06 (28) (7)
Options exercised under share option schemes 3.05 6 6
Treasury shares purchased for employee share schemes (34) (23)
Payment of lease liabilities (37) (37)
Proceeds from borrowings 449 1,086
Repayment of borrowings (798) (501)
Proceeds from issuance of restricted Tier 1 convertible notes, net of - 495
associated expenses
Net cash flows utilised in financing activities (1,505) (29)
Net (decrease)/increase in cash and cash equivalents (1,541) 3,815
Exchange gains/(losses) on cash and cash equivalents 8 (28)
Cash and cash equivalents at 1 January (before reallocation of held for sale 18,020 14,233
cash)
Total cash and cash equivalents at 31 December 16,487 18,020
1. Tax paid comprises UK corporation tax of £368m (2020: £417m), withholding
tax of £188m (2020: £137m) and overseas corporate tax of £8m (2020: £nil).
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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50
3.01 Basis of preparation
The preliminary announcement for the year ended 31 December 2021 does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information in this preliminary announcement has been
derived from the group financial statements within the group's 2021 Annual
Report and Accounts, which will be made available on the group's website on 16
March 2022. The group's 2020 Annual Report and Accounts have been filed with
the Registrar of Companies, and those for 2021 will be delivered in due
course. KPMG have reported on the 2021 and 2020 report and accounts. Both
their reports were (i) unqualified, (ii) did not include a reference to any
matters to which they drew attention by way of emphasis without qualifying
their report and (iii) did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
The group financial statements have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and related
interpretations issued by the IFRS Interpretations Committee. Endorsement is
granted by the UK Endorsement Board (UKEB). The group financial statements
have been prepared under the historical cost convention, as modified by the
revaluation of investment property, available-for-sale financial assets, and
certain financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
The group has selected accounting policies which state fairly its financial
position, financial performance and cash flows for a reporting period. The
accounting policies have been consistently applied to all years presented,
unless otherwise stated.
Financial assets and financial liabilities are disclosed gross in the
Consolidated Balance Sheet unless a legally enforceable right of offset exists
and there is an intention to settle recognised amounts on a net basis. Income
and expenses are not offset in the Consolidated Income Statement unless
required or permitted by any accounting standard or interpretations by the
IFRS Interpretations Committee.
Foreign currency transactions are translated into the functional currency
using the exchange rate prevailing at the date of the transactions. The
functional currency of the group's foreign operations is the currency of the
primary economic environment in which the entity operates. The assets and
liabilities of all of the group's foreign operations are translated into
sterling, the group's presentation currency, at the closing rate at the date
of the balance sheet. The income and expenses for the income statement are
translated at average exchange rates. On consolidation, exchange differences
arising from the translation of the net investment in foreign entities and of
borrowings and other currency instruments designated as hedges of such
investments, are taken to a separate component of shareholders' equity.
Critical accounting policies and the use of estimates
The preparation of the financial statements includes the use of estimates and
assumptions which affect items reported in the Consolidated Balance Sheet and
Income Statement and the disclosure of contingent assets and liabilities at
the date of the financial statements. Although these estimates are based on
management's best knowledge of current circumstances and future events and
actions, actual results may differ from those estimates, possibly
significantly. This is particularly relevant for the valuation of insurance
and investment contract liabilities, unquoted illiquid assets, investment
property, and the determination of defined benefit pension plan assumptions.
From a policy application perspective, the major areas of judgement are the
assessment of whether a contract transfers significant insurance risk to the
group, and whether the group controls underlying entities and should therefore
consolidate them. The basis of accounting for these areas, and the significant
judgements used in determining them, are outlined in the respective notes to
the group's 2021 Annual Report and Accounts.
Key technical terms and definitions
The report refers to various key performance indicators, accounting standards
and other technical terms. A comprehensive list of these definitions is
contained within the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income Statement
includes income tax borne by both policyholders and equity holders. This has
been split between tax attributable to policyholders' returns and equity
holders' profits. Policyholder tax comprises the tax suffered on policyholder
investment returns, while equity holder tax is corporation tax charged on
equity holder profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the profits that it
makes.
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Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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51
3.02 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1)
2021 2021 2020 2020
£m p £m p
Ordinary dividends paid and charged to equity in the year:
- Final 2019 dividend paid in June 2020 - - 754 12.64
- Interim 2020 dividend paid in September 2020 - - 294 4.93
- Final 2020 dividend paid in June 2021 754 12.64 - -
- Interim 2021 dividend paid in September 2021 309 5.18 - -
Total dividends 1,063 17.82 1,048 17.57
Ordinary share dividend proposed(2) 790 13.27 754 12.64
1. The dividend per share calculation is based on the number of equity shares
registered on the ex-dividend date.
2. Subsequent to 31 December 2021, the directors declared a final dividend for
2021 of 13.27 pence per ordinary share. This dividend will be paid on 1 June
2022. It will be accounted for as an appropriation of retained earnings in the
year ended 31 December 2022 and is not included as a liability in the
Consolidated Balance Sheet as at 31 December 2021.
3.03 Financial investments and investment property
2021 2020
£m £m
Equities(1) 213,049 189,089
Debt securities(2,3) 296,930 295,660
Derivative assets(4) 16,792 24,631
Loans(5) 11,603 16,677
Financial investments 538,374 526,057
Investment property 10,150 8,475
Total financial investments and investment property 548,524 534,532
1. Equity securities include investments in unit trusts of £18,248m (31
December 2020: £13,215m).
2. Debt securities include accrued interest of £1,420m (31 December 2020:
£1,434m).
3. A detailed analysis of debt securities to which shareholders are directly
exposed is disclosed in Note 6.03.
4. Derivatives are used for efficient portfolio management, especially the use
of interest rate swaps, inflation swaps, credit default swaps and foreign
exchange forward contracts for asset and liability management. Derivative
assets are shown gross of derivative liabilities of £15,718m (31 December
2020: £23,208m).
5. Loans include £92m (31 December 2020: £131m) of loans valued at amortised
cost.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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52
3.04 Tax
(a) Tax expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated
on profit before tax at the standard UK corporation tax rate as follows:
Continuing
Total operations Total
2021 2020 2020
£m £m £m
Profit before tax attributable to equity holders 2,488 1,430 1,788
Tax calculated at 19.00% 473 272 340
Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higher rate of tax on profits taxed overseas(1) (104) (111) (111)
Income not subject to tax - (1) (1)
Non-deductible expenses 6 11 11
Differences between taxable and accounting investment gains (13) (10) (10)
Foreign tax - 1 1
Unrecognised tax losses 1 14 14
Non-recurring reconciling items:
Adjustments in respect of prior years(2) 24 (42) (42)
Impact of the revaluation of deferred tax balances(3) 58 16 16
Other - (1) (1)
Tax expense/(credit) attributable to equity holders 445 149 217
Equity holders' effective tax rate 17.9% 10.4% 12.1%
1. The lower rate of tax on overseas profits is principally driven by the 0%
rate of taxation arising in our Bermudan reinsurance company, which provides
the group with regulatory capital flexibility for both our PRT business and
our US term insurance business. This also includes the impact of our US
operations which are taxed at 21%.
2. Adjustments in respect of prior years relate to revisions of prior
estimates.
3. The Finance Act 2021 increased the rate of corporation tax from 19% to 25%
from 1 April 2023. The prevailing rate of UK corporation tax for the year
remained at 19%. The future enacted tax rate of 25% has been used in the
calculation of UK deferred tax assets and liabilities, as the rate of
corporation tax that is expected to apply when the majority of those deferred
tax balances reverse.
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Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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53
3.04 Tax (continued)
(b) Deferred tax
2021 2020
Deferred tax (liabilities)/assets £m £m
Deferred acquisition expenses 95 85
- Overseas 95 85
Difference between the tax and accounting value of insurance contracts (695) (557)
- UK (269) (207)
- Overseas (426) (350)
Realised and unrealised gains on investments(3) (83) (113)
Excess of depreciation over capital allowances 22 18
Excess expenses - 1
Accounting provisions and other(3) 55 54
Trading losses(1) 348 289
Pension fund deficit 9 22
Acquired intangibles - (1)
Net deferred tax liabilities (249) (202)
Presented on the Consolidated Balance Sheet as:
- Deferred tax assets(2) 2 5
- Deferred tax liabilities (215) (168)
- Overseas net deferred tax liabilities (36) (39)
Net deferred tax liabilities (249) (202)
1. Trading losses include deferred tax on UK trade and US operating losses of
£2m (2020: £5m) and £346m (2020: £284m) respectively. Overseas net
deferred tax liabilities include a deferred tax asset of £346m (2020: £284m)
on accumulated losses in our US insurance business. These losses are not time
restricted, and we expect to recover them over a period of 15 to 20 years,
commensurate with the lifecycle of the underlying insurance contracts. In
reaching this conclusion, we have considered past results, the different basis
under which US companies are taxed, temporary differences that are expected to
generate future profits against which the deferred tax can be offset,
management actions, and future profit forecasts. The recoverability of
deferred tax assets is routinely reviewed by management.
2. The deferred tax asset recognised separately in the consolidated balance
sheet refers to deferred tax assets against which there are no appropriate
deferred tax liabilities to offset the asset. The closing amount of £2m
(2020: £5m) are restricted losses which cannot be offset against profits
arising elsewhere in the group.
3. The US deferred tax liability of £102m (2020: £40m) in respect of US bond
contracts has been reclassified from Accounting provisions and other to
Realised and unrealised gains on investments. The net impact on the total
balance is £nil.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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54
3.05 Share capital and share premium
2021 2020
Number of 2021 Number of 2020
Authorised share capital shares £m shares £m
At 31 December: ordinary shares of 2.5p each 9,200,000,000 230 9,200,000,000 230
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2021 5,967,358,713 149 1,006
Options exercised under share option schemes 3,057,104 - 6
As at 31 December 2021 5,970,415,817 149 1,012
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2020 5,965,349,607 149 1,000
Options exercised under share option schemes 2,009,106 - 6
As at 31 December 2020 5,967,358,713 149 1,006
There is one class of ordinary shares of 2.5p each. All shares issued carry
equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends
as declared and are entitled to one vote per share at shareholder meetings of
the company.
3.06 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625%
perpetual restricted Tier 1 contingent convertible notes. The notes are
callable at par between 24 March 2031 and 24 September 2031 (the First Reset
Date) inclusive and every 5 years after the First Reset Date. If not called,
the coupon from 24 September 2031 will be reset to the prevailing five year
benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon
payments is at the discretion of the issuer and mandatory cancellation is upon
the occurrence of certain conditions. The Tier 1 notes are therefore treated
as equity and coupon payments are recognised directly in equity when paid.
During the year coupon payments of £28m were made (2020: £7m). The notes
rank junior to all other liabilities and senior to equity attributable to
owners of the parent. On the occurrence of certain conversion trigger events
the notes are convertible into ordinary shares of the Issuer at the prevailing
conversion price.
The notes are treated as restricted Tier 1 own funds for Solvency II purposes.
3.07 Non-controlling interests
Non-controlling interests represent third party interests in direct equity
investments, including private equity, which are consolidated in the group's
results.
As at 31 December 2021, non-controlling interests primarily represent third
party ownership in Thorpe Park Holdings, a mixed residential/commercial retail
space in which the group holds 50%.
No other individual non-controlling interest is considered to be material on
the basis of the year end carrying value or share of profit or loss.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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55
3.08 Core borrowings
Carrying Coupon Carrying Coupon
amount rate Fair value amount rate Fair value
2021 2021 2021 2020 2020 2020
£m % £m £m % £m
Subordinated borrowings
10% Sterling subordinated notes 2041 (Tier 2)(1) - - - 313 10.00 329
5.5% Sterling subordinated notes 2064 (Tier 2) 590 5.50 776 589 5.50 813
5.375% Sterling subordinated notes 2045 (Tier 2) 604 5.38 673 604 5.38 714
5.25% US Dollar subordinated notes 2047 (Tier 2) 635 5.25 694 628 5.25 703
5.55% US Dollar subordinated notes 2052 (Tier 2) 373 5.55 428 369 5.55 411
5.125% Sterling subordinated notes 2048 (Tier 2) 400 5.13 461 400 5.13 484
3.75% Sterling subordinated notes 2049 (Tier 2) 598 3.75 632 598 3.75 662
4.5% Sterling subordinated notes 2050 (Tier 2) 500 4.50 558 499 4.50 587
Client fund holdings of group debt (Tier 2)(2) (44) - (51) (42) - (51)
Total subordinated borrowings 3,656 - 4,171 3,958 - 4,652
Senior borrowings
Sterling medium term notes 2031-2041 609 5.87 846 609 5.88 926
Client fund holdings of group debt(2) (9) - (11) (9) - (12)
Total senior borrowings 600 - 835 600 - 914
Total core borrowings 4,256 - 5,006 4,558 - 5,566
1. These notes were redeemed in full on 23 July 2021.
2. £53m (31 December 2020: £51m) of the group's subordinated and senior
borrowings are held by Legal & General customers through unit linked
products. These borrowings are shown as a deduction from total core borrowings
in the table above.
The presented fair values of the group's core borrowings reflect quoted prices
in active markets and they have been classified as Level 1 in the fair value
hierarchy.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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56
3.08 Core borrowings (continued)
Subordinated borrowings
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated
notes. These notes were called at par on 23 July 2021.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued £600m of 5.5% dated
subordinated notes. The notes are callable at par on 27 June 2044 and every
five years thereafter. If not called, the coupon from 27 June 2044 will be
reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These
notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued £600m of 5.375% dated
subordinated notes. The notes are callable at par on 27 October 2025 and every
five years thereafter. If not called, the coupon from 27 October 2025 will be
reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These
notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated
subordinated notes. The notes are callable at par on 21 March 2027 and every
five years thereafter. If not called, the coupon from 21 March 2027 will be
reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes
mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated
subordinated notes. The notes are callable at par on 24 April 2032 and every
five years thereafter. If not called, the coupon from 24 April 2032 will be
reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes
mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125%
dated subordinated notes. The notes are callable at par on 14 November 2028
and every five years thereafter. If not called, the coupon from 14 November
2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65%
p.a. These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued £600m of 3.75%
dated subordinated notes. The notes are callable at par on 26 November 2029
and every five years thereafter. If not called, the coupon from 26 November
2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05%
p.a. These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated
subordinated notes. The notes are callable at par on 1 November 2030 and every
five years thereafter. If not called, the coupon from 1 November 2030 will be
reset to the prevailing five year benchmark gilt yield plus 5.25% pa. These
notes mature on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own funds for
Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior
unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and
5.875%. These notes have various maturity dates between 2031 and 2041.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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57
3.09 Operational borrowings
Carrying Interest Carrying Interest
amount rate Fair value amount rate Fair value
2021 2021 2021 2020 2020 2020
£m % £m £m % £m
Short-term operational borrowings
Euro Commercial Paper 50 0.16 50 50 0.78 50
Bank loans and overdrafts - - - 54 - 54
Non-recourse borrowings
Cardiff Interchange Limited 45 2.29 45 - - -
Later Living portfolio - - - 72 2.77 72
CALA revolving credit facility 100 1.96 100 170 2.95 170
Class B Surplus Notes 664 1.72 664 639 2.45 639
Affordable Homes revolving credit facility 56 2.08 56 60 2.13 60
Homes Modular revolving credit facility 9 3.27 9 - - -
Operational borrowings(1) 924 - 924 1,045 - 1,045
1. Unit linked borrowings with a carrying value of £8m (31 December 2020:
£10m) are excluded from the analysis above as the risk is retained by
policyholders. Operational borrowings including unit linked borrowings are
£932m (31 December 2020: £1,055m).
Non-recourse borrowings
- Cardiff Interchange Limited entered into a debt facility agreement with
National Westminster Bank Plc. The facility is secured on the assets of
Cardiff Interchange Limited and LGCIL's shares in, and intercompany debt owed
by, Cardiff Interchange Limited.
- Loan facilities to Later Living portfolio had a charge on all assets of each
individual SPV company.
- CALA Group (Holdings) Limited's revolving credit facility is secured by way
of a bond and floating charge, and guarantees and fixed charges granted by
CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited,
and CALA Management Limited). A number of other bonds and floating charges,
fixed securities, debentures and share pledges over land and assets have been
granted by certain subsidiaries of CALA Group Limited in favour of the
lenders.
- The Class B Surplus Notes have been issued by a US subsidiary of the group
as part of a coinsurance structure for the purpose of US statutory
regulations. The notes were issued in exchange for bonds of the same value
from an unrelated party, included within financial investments on the group's
Consolidated Balance Sheet.
- The revolving credit facility to Affordable Homes is subject to agreed
covenants, the breach of which could result in a charge on the land and work
in progress of Legal & General Affordable Homes (Development 2) Limited.
- Legal & General Homes Modular Limited's revolving credit facility is
secured by way of fixed charges over development properties owned by the
company and a fixed charge over the shares in the company. There are also
fixed and floating charges over the other assets of the company.
The carrying value of operational borrowings approximates their fair value.
The presented fair values reflect observable market information and have been
classified as Level 2 in the fair value hierarchy with the exception of
Affordable Homes revolving credit facilities which have been classified as
Level 3.
Syndicated Credit Facility
As at 31 December 2021, the group had in place a £1bn syndicated committed
revolving credit facility provided by a number of its key relationship banks,
maturing in December 2024. No amounts were outstanding at 31 December 2021.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
Page
58
3.10 Payables and other financial liabilities
2021 2020
£m £m
Derivative liabilities 15,718 23,208
Repurchase agreements(1) 46,331 53,853
Other financial liabilities(2) 12,215 14,881
Total payables and other financial liabilities 74,264 91,942
Due within 12 months 53,250 65,316
Due after 12 months 21,014 26,626
1. Repurchase agreements are presented gross, however they and their related
assets (included within debt securities) are subject to master netting
arrangements. The significant majority of repurchase agreements are unit
linked.
2. Other financial liabilities includes trail commission, lease liabilities,
FX spots and the value of short positions taken out to cover reverse
repurchase agreements. The value of short positions as at 31 December 2021 was
£5,418m (2020: £5,147m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2021 £m £m £m £m £m
Derivative liabilities 15,718 331 15,316 71 -
Repurchase agreements 46,331 - 46,331 - -
Other financial liabilities 12,215 5,438 55 - 6,722
Total payables and other financial liabilities 74,264 5,769 61,702 71 6,722
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2020 £m £m £m £m £m
Derivative liabilities 23,208 300 22,826 82 -
Repurchase agreements 53,853 - 53,853 - -
Other financial liabilities(2) 14,881 7,438 29 11 7,403
Total payables and other financial liabilities 91,942 7,738 76,708 93 7,403
1. The carrying value of payables and other financial liabilities at amortised
cost approximates its fair value.
2. For 2020, £2,216m of Other financial liabilities have been reclassified
from Amortised cost to Level 1 in the Fair value hierarchy, such that they are
consistent with their treatment in the current year.
Significant transfers between levels
There have been no significant transfers of liabilities between Levels 1, 2
and 3 for the year ended 31 December 2021 (2020: no significant transfers).
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
Page
59
3.11 Sensitivity analysis
Impact on Impact on
pre-tax Impact on pre-tax Impact on
group profit group equity group profit group equity
net of re- net of re- net of re- net of re-
insurance insurance insurance insurance
2021 2021 2020 2020
£m £m £m £m
Economic sensitivity
100bps increase in interest rates(1) 55 188 260 350
50bps decrease in interest rates(1) (77) (139) (194) (227)
50bps increase in future inflation expectations (41) (60) (148) (119)
Credit spreads widen by 100bps with no change in expected defaults (311) (234) (304) (246)
25% rise in equity markets 513 423 482 399
25% fall in equity markets (513) (423) (482) (399)
15% rise in property values 1,299 1,084 1,111 903
15% fall in property values (1,368) (1,144) (1,187) (964)
10bps increase in credit default assumptions (765) (651) (856) (692)
10bps decrease in credit default assumptions 754 642 832 672
Non-economic sensitivity
1% increase in annuitant mortality 166 146 209 176
1% decrease in annuitant mortality (170) (150) (218) (183)
5% increase in assurance mortality (451) (357) (450) (356)
10% increase in maintenance expenses (254) (208) (254) (205)
1. Following improvements to the modelling of market risk sensitivities during
the current year, the 2020 impacts on pre-tax group profit net of reinsurance
under interest rates sensitivities have been restated to be on a basis
consistent with the 2021 results. These restatements do not impact any items
reported in the Consolidated Income Statement or Consolidated Balance Sheet.
The table above shows the impacts on group pre-tax profit and equity, net of
reinsurance, under each sensitivity scenario. The group pre-tax profit and
equity impacts may arise from asset and / or liability movements under the
sensitivities. The current disclosure reflects management's view of key risks
in current economic conditions.
In calculating the alternative values, all other assumptions are left
unchanged. In practice, items of the group's experience may be correlated.
The sensitivity analyses do not take into account management actions that
could be taken to reduce the impacts. The group seeks to actively manage its
asset and liability position. A change in market conditions may lead to
changes in the asset allocation or charging structure which may have a more,
or less, significant impact on the value of the liabilities. The analysis also
ignores any second order effects of the assumption change, including the
potential impact on the group asset and liability position and any second
order tax effects.
The sensitivity of profit to changes in assumptions may not be linear. They
should not be extrapolated to changes of a much larger order.
The change in interest rate stress assumes a 100 basis point increase and a 50
basis point decrease in the gross redemption yield on fixed interest
securities together with the same change in the real yields on variable
securities. Valuation interest rates are assumed to move in line with market
yields, adjusted to allow for prudence calculated in a manner consistent with
the base results.
The inflation stress adopted is a 0.5% per annum (pa) increase in inflation,
resulting in a 0.5% pa reduction in real yield and no change to the nominal
yield. In addition, the expense inflation rate is increased by 0.5% pa.
In the sensitivity for credit spreads, corporate bond yields have increased by
100bps, gilt and approved security yields unchanged, and there has been no
adjustment to the default assumptions. All lifetime mortgages are excluded, as
their primary exposure is to property risk, and therefore captured under the
property stress above.
The equity stresses are a 25% rise and 25% fall in listed equity market
values.
The property stresses adopted are a 15% rise and 15% fall in property market
values including lifetime mortgages. Rental income is assumed to be
unchanged. Where property is being used to back liabilities, valuation
interest rates move with property yields, and so the value of the liabilities
will also move.
The credit default assumption is set based on the credit rating of individual
bonds and their outstanding term using Moody's global credit default rates.
The credit default stress assumes a +/-10bps stress to the current unapproved
credit default assumption, which will have an impact on the valuation interest
rates used to discount liabilities. Other credit default allowances are
unchanged. All lifetime mortgages are excluded, as their primary exposure is
to property risk, and therefore captured under the property stress above.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
Page
60
3.11 Sensitivity analysis (continued)
The annuitant mortality stresses are a 1% increase and 1% decrease in the
mortality rates for immediate and deferred annuitants with no change to the
mortality improvement rates.
The assurance mortality stress is a 5% increase in the mortality and morbidity
rates with no change to the mortality and morbidity improvement rates.
The maintenance expense stress is a 10% increase in all types of maintenance
expense in future years.
The group is exposed to climate change through two broad categories:
· Transition risks from the move to a low-carbon economy and the
impact this has on both valuation of the group's assets and the broader
economic conditions; and
· Physical risks from the impact on asset holdings or changes to
insurance liabilities as a result of severe weather events and longer-term
shifts in climate.
Climate change impacts will emerge through risks that we are already exposed
to, with the key existing risk exposures covered by the economic and
non-economic sensitivities shown in this section. In addition, given the
uncertain nature of the risks from climate change, and the lack of historical
data to support decision making, a specific scenario testing approach over a
longer-term time horizon has been developed by the company to manage the risks
from climate change. To understand our exposures and how these risks may
emerge we have developed our climate scenario modelling capabilities. Possible
climate pathways and their impact are considered in the climate scenario
analysis detailed in the group's Climate Report for the year ended 31 December
2021.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
Page
61
3.12 Foreign exchange rates
Principal rates of exchange used for translation are:
Year end exchange rates 2021 2020
United States dollar 1.35 1.37
Euro 1.19 1.12
Average exchange rates 2021 2020
United States dollar 1.38 1.28
Euro 1.16 1.13
3.13 Provisions
(a) Analysis of provisions
2021 2020
Notes £m £m
Other provisions 3.13 (b) 213 123
Retirement benefit obligations 3.13 (c) 1,025 1,165
Total provisions 1,238 1,288
(b) Other provisions
Included within Other provisions are amounts relating to new and existing
M&A and restructuring transactions. In 2021, the group announced that
Legal & General Investment Management (LGIM) is extending its existing
partnership with State Street, to increase the use of Charles River technology
across the front office and to deliver middle office services going forward.
As a result of this announcement, in line with the requirements of IAS 37,
'Provisions, Contingent Liabilities and Contingent Assets', a provision was
recognised, which reflects the costs that LGIM is committed to incur in order
to implement the new arrangement. These costs include the transfer of data and
operations to State Street, as well as the implementation of the new operating
model. The amounts included in the provision have been determined on a best
estimate basis by reference to a range of plausible scenarios, taking into
account the multi-year implementation period for the project. As at 31
December 2021, the outstanding provision was £89m.
(c) Retirement benefit obligations
Fund and CALA Homes Fund and CALA Homes
Scheme and Overseas Scheme and Overseas
2021 2021 2020 2020
£m £m £m £m
Gross pension obligations included in provisions 1,020 5 1,138 27
Annuity obligations insured by LGAS (990) - (1,051) -
Gross defined benefit pension deficit 30 5 87 27
Deferred tax on defined benefit pension deficit (8) (1) (17) (5)
Net defined benefit pension deficit 22 4 70 22
The Legal & General Group UK Pension and Assurance Fund (Fund) and the
Legal & General Group UK Senior Pension Scheme (Scheme) account for the
majority of the UK and worldwide assets of, and contributions to, such
arrangements. The Fund and Scheme were closed to future accrual on 31 December
2015.
Legal & General Group Plc
Full Year Results 2021 Part 2
IFRS Disclosure
Notes
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62
3.14 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is
based on certain assumptions. The variance between actual experience from that
assumed may result in those liabilities differing from the provisions made for
them. Liabilities may also arise in respect of claims relating to the
interpretation of policyholder contracts, or the circumstances in which
policyholders have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and requirements of
the PRA, FCA, ombudsman rulings, industry compensation schemes and court
judgments.
Various group companies receive claims and become involved in actual or
threatened litigation and regulatory issues from time to time. The relevant
members of the group ensure that they make prudent provision as and when
circumstances calling for such provision become clear, and that each has
adequate capital and reserves to meet reasonably foreseeable eventualities.
The provisions made are regularly reviewed. It is not possible to predict,
with certainty, the extent and the timing of the financial impact of these
claims, litigation or issues.
Group companies have given warranties, indemnities and guarantees as a normal
part of their business and operating activities or in relation to capital
market transactions or corporate disposals. Legal & General Group Plc has
provided indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension Protection
Fund compliant guarantees in respect of certain group companies' liabilities
under the group pension Fund and Scheme. Legal and General Assurance Society
Limited has provided indemnities, a liquidity and expense risk agreement, a
deed of support and a cash and securities liquidity facility in respect of the
liabilities of group companies to facilitate the group's matching adjustment
reorganisation pursuant to Solvency II.
3.15 Related party transactions
(i) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal &
General group of companies during the period. All transactions between the
group and its key management are on commercial terms which are no more
favourable than those available to employees in general. Contributions to the
post-employment defined benefit plans were £109m (31 December 2020: £137m)
for all employees.
At 31 December 2021 and 31 December 2020 there were no loans outstanding to
officers of the company.
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
2021 2020
£m £m
Salaries 10 8
Share-based incentive awards 5 5
Key management personnel compensation 15 13
(ii) Services provided to and by related parties
All transactions between the group and associates, joint ventures and other
related parties during the period are on commercial terms which are no more
favourable than those available to companies in general.
Loans and commitments to related parties are made in the normal course of
business.
The group has entered into the following material related party transactions
during the year:
- Annuity contracts issued by Legal and General Assurance Society Limited for
consideration of £82m (2020: £50m) have been purchased by the group's UK
defined benefit pension schemes, priced on an arm's length basis;
- The Legal & General Group UK Pension and Assurance Fund (the Fund)
completed an Assured Payment Policy (APP) transaction with Legal and General
Assurance Society Limited (LGAS), a group company. An APP is an investment
contract product sold by LGR which, issued to a pension scheme, provides the
scheme with a fixed or inflation linked schedule of payments to match the
scheme's expected liabilities. In June 2021, £925m was paid by the Fund to
LGAS, and LGAS and the Fund recognised an investment contract liability and an
APP plan asset of the same amount, respectively.
As at 31 December 2021, LGAS recognised a liability related to this APP
transaction with the Fund of £882m which is included in the group's
non-participating investment contract liabilities. Following a similar
transaction in 2020 between the Legal & General Group UK Senior Pension
Scheme (the Scheme) and LGAS, a further £332m (2020: £396m) is included in
the group's non-participating investment contract liabilities as at 31
December 2021. The Fund and Scheme hold transferable plan assets of the same
amounts which do not eliminate on consolidation.
- Loans outstanding from related parties at 31 December 2021 of £15m (2020:
£89m), with a further commitment of £2m;
- The group has total other commitments of £1,158m to related parties (2020:
£1,207m), of which £726m has been drawn at 31 December 2021 (2020: £772m).
Legal & General Group Plc
Full Year Results 2021 Part 2
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