REG - Legal & General Grp - L&G Full Year Results 2021 Part 3
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RNS Number : 1044E Legal & General Group Plc 09 March 2022
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Asset and premium
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4.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2021 £bn £bn £bn £bn £bn £bn
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(3) 4.9 2.9 7.0 19.9 (0.1) 34.6
Internal net flows(4) (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(5) - 1.1 - - - 1.1
Market and other movements(3) 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
Assets attributable to:
External 1,306.3
Internal 115.2
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December 2020 £bn £bn £bn £bn £bn £bn
As at 1 January 2020 403.6 177.2 59.0 525.6 30.8 1,196.2
External inflows 76.6 17.7 10.1 25.4 1.0 130.8
External outflows (84.7) (17.8) (5.8) (36.1) (1.4) (145.8)
Overlay net flows - - - 33.9 - 33.9
ETF net flows 1.5 - - - - 1.5
External net flows(3) (6.6) (0.1) 4.3 23.2 (0.4) 20.4
Internal net flows(4) (0.2) 2.6 (0.4) (0.3) 0.4 2.1
Total net flows (6.8) 2.5 3.9 22.9 - 22.5
Cash management movements(5) - 2.4 - - - 2.4
Market and other movements(3) 33.1 11.5 2.8 8.7 1.7 57.8
As at 31 December 2020 429.9 193.6 65.7 557.2 32.5 1,278.9
Assets attributable to:
External 1,162.6
Internal 116.3
1. Assets under management (AUM) includes assets on our Investment Only
Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £383.2bn (31 December
2020: £340.1bn) of derivative notionals associated with the Solutions
business.
3. External net flows exclude movements in short-term Solutions assets, as
their maturity dates are determined by client agreements and are subject to a
higher degree of variability. The total value of these assets at 31 December
2021 was £71.2bn (31 December 2020: £45.8bn) and the movement in these
assets is included in Market and other movements for Solutions assets.
4. Internal includes legacy assets from the Mature Savings business sold to
ReAssure in 2020.
5. Cash management movements include external holdings in money market funds
and other cash mandates held for clients' liquidity management
purposes.
6. Multi asset AUM as at 31 December 2020 has been restated to include £2.3bn
(31 December 2019: £1.0bn) of Target Date Return funds previously included
within Solutions.
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4.02 LGIM total assets under management(1) half-yearly progression
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December 2021 £bn £bn £bn £bn £bn £bn
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows 44.5 10.0 7.2 17.9 0.6 80.2
External outflows (41.9) (7.7) (4.0) (7.1) (0.8) (61.5)
Overlay net flows - - - 6.6 - 6.6
ETF net flows 2.1 - - - - 2.1
External net flows(3) 4.7 2.3 3.2 17.4 (0.2) 27.4
Internal net flows(4) (0.3) (2.3) 0.1 (0.2) 1.0 (1.7)
Total net flows 4.4 - 3.3 17.2 0.8 25.7
Cash management movements(5) - (0.4) - - - (0.4)
Market and other movements(3) 37.1 (3.1) 2.8 (14.6) 0.4 22.6
As at 30 June 2021 471.4 190.1 71.8 559.8 33.7 1,326.8
External inflows 49.4 8.7 7.9 16.5 1.1 83.6
External outflows (49.6) (8.1) (4.1) (18.4) (1.0) (81.2)
Overlay net flows - - - 4.4 - 4.4
ETF net flows 0.4 - - - - 0.4
External net flows(3) 0.2 0.6 3.8 2.5 0.1 7.2
Internal net flows(4) (0.7) 0.5 0.1 (1.3) 1.0 (0.4)
Total net flows (0.5) 1.1 3.9 1.2 1.1 6.8
Cash management movements(5) - 1.5 - - - 1.5
Market and other movements(3) 31.5 6.1 2.3 44.1 2.4 86.4
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
1. AUM includes assets on our Investment Only Platform, that are managed by
third parties, on which fees are earned.
2. Solutions include liability driven investments and £383.2bn (30 June 2021:
£345.3bn; 31 December 2020: £340.1bn) of derivative notionals associated
with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as
their maturity dates are determined by client agreements and are subject to a
higher degree of variability. The total value of these assets at 31 December
2021 was £71.2bn (30 June 2021: £51.5bn; 31 December 2020: £45.8bn) and the
movement in these assets is included in Market and other movements for
Solutions assets.
4. Internal includes legacy assets from the Mature Savings business sold to
ReAssure in 2020.
5. Cash management movements include external holdings in money market funds
and other cash mandates held for clients' liquidity management purposes.
6. Multi asset AUM as at 30 June 2021 has been restated to include £3.7bn (31
December 2020: £2.3bn) of Target Date Return funds previously included within
Solutions.
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4.02 LGIM total assets under management(1) half-yearly progression (continued)
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December 2020 £bn £bn £bn £bn £bn £bn
As at 1 January 2020 403.6 177.2 59.0 525.6 30.8 1,196.2
External inflows 27.7 9.5 4.4 10.8 0.6 53.0
External outflows (32.3) (9.0) (2.7) (22.7) (0.4) (67.1)
Overlay net flows - - - 20.1 - 20.1
ETF net flows 0.2 - - - - 0.2
External net flows(3) (4.4) 0.5 1.7 8.2 0.2 6.2
Internal net flows(4) - (0.2) (0.7) (0.1) 0.4 (0.6)
Total net flows (4.4) 0.3 1.0 8.1 0.6 5.6
Cash management movements(5) - 2.8 - - - 2.8
Market and other movements(3) (4.1) 9.2 (1.7) 31.9 0.7 36.0
As at 30 June 2020 395.1 189.5 58.3 565.6 32.1 1,240.6
External inflows 48.9 8.2 5.7 14.6 0.4 77.8
External outflows (52.4) (8.8) (3.1) (13.4) (1.0) (78.7)
Overlay net flows - - - 13.8 - 13.8
ETF net flows 1.3 - - - - 1.3
External net flows(3) (2.2) (0.6) 2.6 15.0 (0.6) 14.2
Internal net flows(4) (0.2) 2.8 0.3 (0.2) - 2.7
Total net flows (2.4) 2.2 2.9 14.8 (0.6) 16.9
Cash management movements(5) - (0.4) - - - (0.4)
Market and other movements(3) 37.2 2.3 4.5 (23.2) 1.0 21.8
As at 31 December 2020 429.9 193.6 65.7 557.2 32.5 1,278.9
1. Assets under management (AUM) includes assets on our Investment Only
Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £340.1bn of derivative
notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as
their maturity dates are determined by client agreements and are subject to a
higher degree of variability. The total value of these assets as at 31
December 2020 was £45.8bn and the movement in these assets is included in
Market and other movements for Solutions assets.
4. Internal net flows include flows in legacy assets from the Mature Savings
business sold to ReAssure in 2020.
5. Cash management movements include external holdings in money market funds
and other cash mandates held for clients' liquidity management
purposes.
6. Multi asset AUM as at 31 December 2020 has been restated to include £2.3bn
(30 June 2020: £1.2bn; 31 December 2019: £1.0bn) of Target Date Return funds
previously included within Solutions.
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4.03 LGIM total external assets under management and net flows
Assets under management at Net flows for the six months ended(2)
31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June
2021 2021 2020 2020 2021 2021 2020 2020
£bn £bn £bn £bn £bn £bn £bn £bn
International(1) 377.3 344.8 303.5 289.5 14.5 15.0 (1.0) (3.0)
UK Institutional
- Defined contribution 137.7 125.5 112.7 96.7 5.0 4.4 5.6 5.5
- Defined benefit 733.3 689.6 699.4 706.7 (13.9) 4.6 7.7 2.5
Retail(3) 49.1 45.5 41.6 38.5 1.2 1.3 0.6 1.0
ETF(4) 8.9 8.2 5.4 3.5 0.4 2.1 1.3 0.2
Total external 1,306.3 1,213.6 1,162.6 1,134.9 7.2 27.4 14.2 6.2
1. International assets are shown on the basis of client domicile. Total
International AUM including assets managed internationally on behalf of UK
clients amounted to £479bn as at 31 December 2021 (31 December 2020:
£388bn).
2. External net flows exclude movements in short-term solutions assets, with
maturity as determined by client agreements and are subject to a higher degree
of variability.
3. Retail represents assets from the Retail Intermediary business and £0.3bn
of assets from Personal Investing customers that did not migrate to Fidelity
International Limited.
4. ETF reflects external AUM and Flows invested on the platform. Total AUM
managed on the platform is £10.1bn in 2021 (£6.2bn in 2020) and Flows are
£2.9bn (£1.8bn in 2020) which include internal investment from other LGIM
asset classes.
4.04 Reconciliation of assets under management to Consolidated Balance Sheet
2021 2020
£bn £bn
Assets under management(1) 1,421 1,279
Derivative notionals(1,2) (383) (340)
Third party assets(1,3) (480) (419)
Other(1,4) 7 33
Total financial investments, investment property and cash and cash equivalents 565 553
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management measure
but are not for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others which are
not included on the group's Consolidated Balance Sheet.
4. Other includes assets that are managed by third parties on behalf of the
group, other assets and liabilities related to financial investments,
derivative assets and pooled funds.
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4.05 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities
2021 2021 2020 2020
£bn £bn £bn £bn
As at 1 January 50.8 87.0 40.3 75.9
Gross inflows 11.9 8.7 10.0 10.1
Gross outflows (3.4) - (2.2) -
Payments to pensioners - (4.6) - (4.3)
Net flows 8.5 4.1 7.8 5.8
Market and other movements 6.4 (1.2) 2.7 5.3
As at 31 December 65.7 89.9 50.8 87.0
1. Workplace assets under administration as at 31 December 2021 includes
£65.6bn (2020: £50.7bn) of assets under management included in Note 4.01.
2. Annuities assets under administration as at 31 December 2021 includes
£80.6bn (2020: £79.4bn) of assets under management included in Note 4.01.
4.06 Assets under administration half-yearly progression
Workplace Annuities Workplace Annuities
2021 2021 2020 2020
For the year ended 31 December 2021 £bn £bn £bn £bn
As at 1 January 50.8 87.0 40.3 75.9
Gross inflows 7.5 3.7 3.3 3.8
Gross outflows (1.5) - (0.9) -
Payments to pensioners - (2.2) - (2.1)
Net flows 6.0 1.5 2.4 1.7
Market and other movements 3.4 (2.7) (1.2) 3.1
As at 30 June 60.2 85.8 41.5 80.7
Gross inflows 4.4 5.0 6.7 6.3
Gross outflows (1.9) - (1.3) -
Payments to pensioners - (2.4) - (2.2)
Net flows 2.5 2.6 5.4 4.1
Market and other movements 3.0 1.5 3.9 2.2
As at 31 December 65.7 89.9 50.8 87.0
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4.07 LGR new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Pension risk transfer
- UK(1) 6,240 3,275 2,965 7,593 4,417 3,176
- US 789 682 107 1,250 1,002 248
- Bermuda 147 147 - - - -
Individual annuities 957 474 483 910 489 421
Lifetime & Retirement Interest Only mortgage advances 848 434 414 791 429 362
Total LGR new business 8,981 5,012 3,969 10,544 6,337 4,207
1. UK pension risk transfer includes a £925m (H1 21: £925m; H2 21: £nil)
(H1 20: £nil; H2 20: £397m) Assured Payment Policy (APP).
4.08 LGI new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
UK Retail protection 200 95 105 175 92 83
UK Group protection 88 33 55 117 52 65
US protection(1) 91 48 43 80 36 44
Total LGI new business 379 176 203 372 180 192
1. In local currency, US protection reflects new business of $124m for 2021
(H1 21: $59m; H2 21: $65m), and $103m for 2020 (H1 20: $56m; H2 20: $47m)
4.09 Gross written premiums on insurance business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
UK Retail protection 1,444 730 714 1,374 694 680
UK Group protection 405 131 274 382 137 245
US protection(1) 1,053 541 512 1,093 543 550
Longevity insurance 307 155 152 327 168 159
Total gross written premiums on insurance business 3,209 1,557 1,652 3,176 1,542 1,634
1. In local currency, US protection reflects gross written premiums of $1,449m
for 2021 (H1 21: $712m; H2 21: $737m), and $1,403m for 2020 (H1 20: $693m; H2
20: $710m).
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5.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the Solvency II
Framework Directive, as adopted by the Prudential Regulation Authority (PRA)
in the UK and measures and monitors its capital resources on this basis.
The Solvency II results are estimated and unaudited. Further explanation of
the underlying methodology and assumptions are set out in the sections below.
The group calculates its Solvency II capital requirements using a Partial
Internal Model. The vast majority of the risk to which the group is exposed is
assessed on the Partial Internal Model basis approved by the PRA. Capital
requirements for a few smaller entities are assessed using the Standard
Formula basis on materiality grounds. The group's US insurance businesses and
Legal & General Reinsurance Company No. 2 (L&G Re 2 - a new subsidiary
incorporated in 2021) are valued on a local statutory basis, following the
PRA's approval to use the Deduction and Aggregation method of including these
businesses in the group solvency calculation.
The table below shows the group Own Funds, Solvency Capital Requirement (SCR)
and Surplus Own Funds, based on the Partial Internal Model, Matching
Adjustment and Transitional Measures on Technical Provisions (TMTP)
(recalculated as at 31 December 2021). The TMTP incorporates impacts of 31
December 2021 economic conditions and changes during 2021 to the Internal
Model and Matching Adjustment. This is in line with the group's management of
the capital position on a dynamic TMTP basis.
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, which are on a proforma basis, include the impact
of the final salary pension schemes. The 2020 results have been adjusted to be
consistent with 2021.
(a) Capital position
As at 31 December 2021, and on the above basis, the group had a surplus of
£8,185m (31 December 2020: £7,436m) over its Solvency Capital Requirement,
corresponding to a Solvency II capital coverage ratio of 187% (31 December
2020: 175%). The Solvency II capital position is as follows:
2021 2020(1)
£m £m
Unrestricted Tier 1 Own Funds 13,254 12,478
Restricted Tier 1 Own Funds(2) 495 495
Tier 2 Subordinated liabilities(3) 3,995 4,531
Eligibility restrictions (183) (188)
Solvency II Own Funds(4,5) 17,561 17,316
Solvency Capital Requirement (9,376) (9,880)
Solvency II surplus 8,185 7,436
( )
SCR Coverage ratio 187% 175%
1. 2020 figures have been restated to include the contribution from the final
salary pension schemes, replacing the "shareholder view" from prior years'
disclosures.
2. Restricted Tier 1 Own Funds represent restricted Tier 1 contingent
convertible notes.
3. £300m of Tier 2 subordinated liabilities were redeemed in full on 23 July
2021.
4. Solvency II Own Funds do not include an accrual for the final dividend of
£790m (31 December 2020: £754m) declared after the balance sheet date.
5. Solvency II Own Funds allow for a Risk Margin of £5,488m (2020: £6,064m)
and TMTP of £4,736m (2020: £5,564m).
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5.01 Group regulatory capital - Solvency II (continued)
(b) Methodology
Own Funds comprise the excess of the value of assets over the liabilities, as
valued on a Solvency II basis. Subordinated debt issued by the group is
considered to be part of available capital, rather than a liability, as it is
subordinate to policyholder claims. Own Funds include deductions in relation
to fungibility and transferability restrictions, where the surplus Own Funds
of a specific group entity cannot be freely transferred around the group due
to local legal or regulatory constraints.
Assets are valued at IFRS fair value with adjustments to remove intangibles
and deferred acquisition costs, and to value reassurers' share of technical
provisions on a basis consistent with the liabilities on the Solvency II
balance sheet.
Liabilities are valued on a best estimate market consistent basis, with the
application of a Solvency II Matching Adjustment for valuing annuity
liabilities. Own Funds incorporate changes to the Internal Model and Matching
Adjustment during 2021 and the impacts of a recalculation of the TMTP as at
end December 2021. The recalculated TMTP of £4,736m (31 December 2020:
£5,564m) is net of amortisation to 31 December 2021.
The liabilities include a Risk Margin of £5,488m (31 December 2020: £6,064m)
which represents an allowance for the cost of capital for a purchasing insurer
to take on the portfolio of liabilities and residual risks that are deemed to
be non-hedgeable under Solvency II. This is calculated using a cost of capital
of 6% as prescribed by the Solvency II regulations.
The Solvency Capital Requirement is the amount of capital required to cover
the 1-in-200 worst projected future outcome in the year following the
valuation, allowing for realistic management and policyholder actions and the
impact of the stress on the tax position of the group. This allows for
diversification between the different firms within the group and between the
risks to which they are exposed.
All material EEA insurance firms, including Legal and General Assurance
Society Limited (LGAS) and Legal and General Assurance (Pensions Management)
Limited, are incorporated into the group's Solvency II Internal Model
assessment of required capital, assuming diversification of the risks between
and within those firms. These firms, as well as the non-EEA insurance firm
(Legal & General Reinsurance Company Limited (LGRe) based in Bermuda)
contribute over 95% of the group's SCR.
Insurance firms for which the capital requirements are less material are
valued on a Solvency II Standard Formula basis. Firms which are not regulated
but which carry material risks to the group's solvency are modelled in the
Internal Model on the basis of applying an appropriate stress to their net
asset value.
Legal & General America's Banner Life and its subsidiaries (LGA) are
incorporated into the calculation of group solvency using a Deduction and
Aggregation basis. All risk exposure in these firms is valued on a local
statutory basis, with capital requirements set to a multiple of local
statutory Risk Based Capital (RBC) and further restrictions on the surplus
contribution to the group. The US regulatory regime is considered to be
equivalent to Solvency II by the European Commission. The contribution to
group SCR is 150% of the local Company Action Level RBC (CAL RBC). The
contribution to group's Own Funds is the SCR together with any surplus capital
in excess of 250% of CAL RBC.
Legal & General Reinsurance No 2 Ltd (L&G Re 2) is incorporated into
the calculation of group solvency using a Deduction and Aggregation basis. All
risk exposure in the firm is valued on a local (Bermuda) capital basis, with
capital requirements set equal to the local capital requirement and Own Funds
contribution restricted by 20% of the capital. The Bermuda regulatory regime
is also considered to be equivalent to Solvency II by the European Commission.
All non-insurance regulated firms are included using their current regulatory
surplus.
Allowance is made within the Solvency II balance sheet for the group's defined
benefit pension schemes using results on an IFRS basis. Within the SCR an
allowance is made by stressing the IFRS position using the same Internal Model
basis as for the insurance firms.
(c) Assumptions
The calculation of the Solvency II balance sheet and associated capital
requirements requires a number of assumptions, including:
(i) demographic assumptions required to project best estimate liability
cash flows are consistent with those underlying the group's IFRS disclosures,
but with the removal of any prudence margins.
(ii) future investment returns and discount rates to derive the present
value of best estimate liability cash flows are those defined by the PRA. From
July 2021, the risk-free rates used to discount UK Sterling cashflows are
SONIA-based market swap rates (2020: Libor-based market swap rates with a
deduction of a credit risk adjustment of 11bps). For non-UK Sterling
liabilities, the risk-free rates used to discount cash flows include a credit
risk adjustment that varies by currency.
(iii) for annuities that are eligible, the liability discount rate includes a
Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and
by the currency of the relevant liabilities. At 31 December 2021 the Matching
Adjustment for UK GBP was 104 basis points (31 December 2020: 103 basis
points) after deducting an allowance for the fundamental spread equivalent to
54 basis points (31 December 2020: 55 basis points).
(iv) assumptions regarding management actions and policyholder behaviour
across the full range of scenarios. The only management actions allowed for
are those that have been approved by the Board and are in place at the balance
sheet date.
(v) assumptions regarding the volatility of the risks to which the group is
exposed. Assumptions have been set using a combination of historic market,
demographic and operating experience data. In areas where data is not
considered robust, expert judgement has been used.
(vi) assumptions on the dependencies between risks, which are calibrated using
a combination of historic data and expert judgement.
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5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change
Operational Surplus Generation is the expected surplus generated from the
assets and liabilities in-force at the start of the year. It is based on
assumed real world returns and best estimate non-market assumptions. It
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the year.
New Business Strain is the cost of acquiring business and setting up Technical
Provisions and SCR (net of any premium income), on actual new business written
over the year. It is based on economic conditions at the point of sale.
The table below shows the movement (net of tax) during the year ended 31
December 2021 in the group's Solvency II surplus.
2021 2021 2021
Own Funds SCR Surplus
£m £m £m
Opening Position 17,316 (9,880) 7,436
Operational Surplus Generation (Continuing Operations) 1,144 492 1,636
Operational Surplus Generation (Discontinued Operations) - - -
Total operational surplus generation 1,144 492 1,636
New business strain 330 (684) (354)
Net surplus generation 1,474 (192) 1,282
Operating variances(1) 26
Market movements(2) 727
M&A, portfolio and business transfers(3) 77
Subordinated liabilities(4) (300)
Dividends paid(5) (1,063)
Total surplus movement (after dividends paid in the period) 245 504 749
Closing Position 17,561 (9,376) 8,185
1. Operating variances include the impact of experience variances, changes to
valuation assumptions, methodology changes and other management actions
including changes in asset mix.
2. Market movements represent the impact of changes in investment market
conditions over the year and changes to future economic assumptions.
3. Includes the impact of the sale of the Personal Investment business.
4. Reflects the redemption of £300m debt issued in 2009.
5. Dividends paid are the amounts from the 2020 final dividend and the 2021
interim dividend.
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5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change (continued)
The table below shows the movement (net of tax) during the year ended 31
December 2020 in the group's Solvency II surplus.
2020 2020 2020
Own Funds SCR Surplus
£m £m £m
Opening Position 16,867 (9,439) 7,428
Operational Surplus Generation (Continuing Operations) 1,092 368 1,460
Operational Surplus Generation (Discontinued Operations) (9) 41 32
Total operational surplus generation 1,083 409 1,492
New business strain 417 (719) (302)
Net surplus generation 1,500 (310) 1,190
Operating variances(1) 521
Market movements(2) (1,395)
M&A, portfolio and business transfers(3) (255)
Subordinated liabilities(4) 995
Dividends paid(5) (1,048)
Total surplus movement (after dividends paid in the period) 449 (441) 8
Closing Position 17,316 (9,880) 7,436
1. Operating variances include the impact of experience variances, changes to
valuation assumptions, methodology changes and other management actions
including changes in asset mix.
2. Market movements represent the impact of changes in investment market
conditions over the year and changes to future economic assumptions.
3. Includes the impacts of the sale of the Mature Savings business, which
completed in H2 2020.
4. Includes restricted Tier 1 Own Funds from Perpetual contingent convertible
notes.
5. Dividends paid are the amounts from the 2019 final dividend and the 2020
interim dividend.
(e) Future Solvency II surplus generation - UK annuities
The table below shows a projection of future Operational Surplus Generation
(OSG) expected from the £85.7bn UK annuity portfolio as at 31 December 2021.
The projection excludes any allowance for future new business.
The table shows the Operational Surplus Generation from all of the group's
divisions that are involved in the management of the annuity business, i.e.
Legal & General Retirement, Legal & General Capital and Legal &
General Investment Management. The impact of management actions is excluded;
we expect management actions to contribute between £100m and £200m each
year.
Total
2021 2022 2023 2024 2025 2026-2030 2031-2040 2022-2040
£bn £bn £bn £bn £bn £bn £bn £bn
Annuity back book OSG(1) 0.7 0.7 0.7 0.6 0.5 1.9 4.9 9.3
L&G Other 0.2 0.3 0.3 0.3 0.3 1.4 2.1 4.7
Total OSG for UK Annuity back book 0.9 1.0 1.0 0.9 0.8 3.3 7.0 14.0
1. Annuity back book Operational Surplus Generation does not include new
business.
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5.01 Group regulatory capital - Solvency II (continued)
(f) Reconciliation of IFRS Release from operations to Solvency II Operational
surplus generation
(i) The table below provides a reconciliation of the group's IFRS Release from
operations to Solvency II Operational surplus generation.
2021 2020
£m £m
IFRS Release from operations 1,441 1,269
Expected release of IFRS prudential margins (496) (465)
Releases of IFRS specific reserves(1) (162) (163)
Solvency II investment margin(2,3) 213 344
Release of Solvency II Capital Requirement and Risk Margin less TMTP 640 507
amortisation
Solvency II Operational surplus generation(4) 1,636 1,492
1. Release of prudence from IFRS specific reserves which are not included in
Solvency II (e.g. long-term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined
Fundamental Spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk-free
rates over 2021.
4. Solvency II Operational Surplus Generation includes management actions
which at the start of 2021 were reasonably expected to be implemented over the
year.
(ii) The table below provides a reconciliation of the group's IFRS New
business surplus to Solvency II New business strain.
2021 2020
£m £m
IFRS New business surplus 247 270
Removal of requirement to set up prudential margins above best estimate on new 280 355
business
Set up of SCR on new business (684) (719)
Set up of Risk Margin on new business (197) (208)
Solvency II New business strain(1) (354) (302)
1. UK PRT new business volume during 2021 was £6.2bn (2020: £7.6bn).
(g) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own Funds is given
below:
( ) ( ) ( ) 2021 2020
( ) ( ) ( ) £m £m
IFRS equity(1) 10,981 9,997
Remove DAC, goodwill and other intangible assets and associated liabilities (406) (391)
Add IFRS carrying value of subordinated borrowings(2) 3,700 4,000
Insurance contract valuation differences(3) 4,132 4,495
Difference in value of net deferred tax liabilities (716) (638)
Other 53 41
Eligibility restrictions (183) (188)
Solvency II Own Funds(4) 17,561 17,316
1. IFRS equity represents equity attributable to owners of the parent and
restricted Tier 1 convertible notes as per the Consolidated Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet as the
liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS and
Solvency II.
4. Solvency II Own Funds do not include an accrual for the final dividend of
£790m (31 December 2020: £754m) declared after the balance sheet date.
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5.01 Group regulatory capital - Solvency II (continued)
(h) Sensitivity analysis
The following sensitivities are provided to give an indication of how the
group's Solvency II surplus as at 31 December 2021 would have changed in a
variety of adverse events. These are all independent stresses to a single
risk. In practice, the balance sheet is impacted by combinations of stresses
and the combined impact can be larger than adding together the impacts of the
same stresses in isolation. It is expected that, particularly for market
risks, adverse stresses will happen together.
Impact on Impact on Impact on Impact on
net of tax net of tax net of tax net of tax
Solvency II Solvency II Solvency II Solvency II
capital coverage capital coverage
surplus ratio surplus(1) ratio(1)
2021 2021 2020 2020
£bn % £bn %
50bps increase in risk-free rates(1) 0.5 10 0.6 11
100bps increase in risk-free rates(1) 0.9 19 1.0 20
50bps decrease in risk-free rates(1,2) (0.6) (10) (0.7) (11)
Credit spreads widen by 100bps assuming an escalating addition to ratings(3,4) 0.6 13 0.5 11
Credit spreads narrow by 100bps assuming an escalating deduction from (0.6) (14) (0.7) (12)
ratings(3,4)
Credit spreads widen by 100bps assuming a level addition to ratings(3) 0.7 14 0.7 13
Credit spreads of sub investment grade assets widen by 100bps assuming a level (0.4) (7) (0.4) (5)
addition to ratings(3,5)
Credit migration(6) (0.9) (10) (1.2) (12)
25% fall in equity markets(7) (0.5) (3) (0.5) (4)
15% fall in property markets(8) (0.8) (7) (0.6) (5)
50bps increase in future inflation expectations - (2) - (2)
10% increase in maintenance expenses(9) (0.3) (3) (0.3) (3)
Substantially reduced Risk Margin(10) 0.6 7 0.5 5
1. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e. there is
no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond (and similar)
holdings, with no change in long-term default expectations, post management
actions. Restructured lifetime mortgages are excluded as the underlying
exposure is mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it is
three times, for BBB four times and so on, such that the weighted average
spread stress for the portfolio is 100 basis points. To give a 100bps increase
on the total portfolio, the spread stress increases in steps of 32bps, i.e.
32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below the
stress is 100bps. The spread widening on the total portfolio is 2bps as the
group holds less than 2% in bonds rated BB and below. The impact is primarily
an increase in SCR arising from the modelled cost of trading downgraded bonds
back to a higher rating in the stress scenarios in the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends on a credit
rating (including corporate bonds, and sale and leaseback rental strips;
lifetime mortgage senior notes are excluded). Downgraded assets are assumed to
be traded to their original credit rating, so the impact is primarily a
reduction in Own Funds from the loss of value on downgrade. The impact of the
sensitivity will depend upon the market levels of spreads at the balance sheet
date.
7. This relates primarily to equity exposure in LGC but will also include
equity-based mutual funds and other investments that receive an equity stress
(for example, certain investments in subsidiaries). Some assets have factors
that increase or decrease the stress relative to general equity levels via a
beta factor.
8. Assets stressed include residual values from sale and leaseback, the full
amount of lifetime mortgages and direct investments treated as property.
9. A 10% increase in the assumed unit costs and future costs of investment
management across all long-term insurance business
10. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an
equivalent reduction in the Transitional Measure on Technical Provisions.
The above sensitivity analysis does not reflect all management actions which
could be taken to reduce the impacts. In practice, the group actively manages
its asset and liability positions to respond to market movements. Other than
in the interest rate and inflation 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.
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5.01 Group regulatory capital - Solvency II (continued)
(i) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type. The split
is shown before the effects of diversification and tax.
2021 2020(1)
% %
Interest rate ( ) 4 2
Equity ( ) 5 6
Property ( ) 8 8
Credit(2) 25 30
Currency ( ) 2 3
Inflation 7 7
Total Market risk(3) 51 56
Counterparty risk ( ) 4 1
Life mortality ( ) 2 3
Life longevity(4) 27 22
Life mass lapse ( ) 2 2
Life non-mass lapse 2 2
Life catastrophe ( ) 4 4
Expense ( ) 2 3
Total Insurance risk ( ) 39 36
Non-life underwriting - 1
Operational risk ( ) 4 4
Miscellaneous(5) 2 2
Total SCR 100 100
1. The 2020 SCR by risk type has been restated to include the contribution
from the final salary pension schemes, replacing the "shareholder view" from
prior years' disclosures.
2. Credit risk is one of the group's most significant exposures, arising
predominantly from the portfolio of bonds and bond-like assets backing the
group's annuity business.
3. In addition to credit risk the group also has significant exposure to other
market risks, primarily due to the investment holdings within the shareholder
funds but also the risk to fee income from assets backing unit-linked
business.
4. Longevity risk is the group's most significant insurance risk exposure,
arising from the annuity book on which the majority of the longevity risk on
the back book is retained.
5. Miscellaneous includes LGA and L&G Re 2 on a Deduction and Aggregation
basis and the sectoral capital requirements for non-insurance regulated firms.
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5.02 Estimated Solvency II new business contribution
(a) New business by product(1)
Management estimates of the present value of new business premium (PVNBP) and
the margin for selected lines of business are provided below:
Contribution Contribution
from new from new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
2021 2021 2021 2020 2020 2020
£m £m % £m £m %
LGR - UK annuity business 7,016 635 9.1 8,503 901 10.6
UK Protection Total 1,883 149 7.9 1,887 160 8.5
- Retail Protection 1,476 120 8.1 1,359 123 9.1
- Group Protection 407 29 7.1 528 37 7.0
US Protection(5) 842 113 13.4 829 94 11.2
1. Selected lines of business only.
2. PVNBP excludes quota share reinsurance single premium of £181m relating to
LGR new business.
3. The contribution from new business is defined as the present value at the
point of sale of expected future Solvency II surplus emerging from new
business written in the year using the risk discount rate applicable at the
end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US Protection reflects PVNBP of $1,159m (31 December
2020: $1,064m) and a contribution from new business of $155m (31 December
2020: $120m).
The decrease in LGR margin was driven by the shorter average duration for the
schemes written in 2021, compared to the schemes written in 2020.
For UK Protection the contribution from new business is supported by increased
Retail Protection volumes; the reduction in margin is largely due to pricing
action, movements in product mix and changes in market conditions in 2021.
The US Protection margin improved compared to the prior full year. The
increase is driven by business mix and modified reinsurance terms on digital
products.
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5.02 Estimated Solvency II new business contribution (continued)
(b) Assumptions
The key economic assumptions are as follows:
2021 2020
% %
Margin for Risk 4.1 3.9
Risk-free rate
- UK 0.9 0.5
- US 1.5 0.9
Risk discount rate (net of tax)
- UK 5.0 4.4
- US 5.6 4.8
Long-term rate of return on non-profit annuities in LGR 2.5 2.1
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. In particular:
· The assumed future pre-tax returns on fixed interest and RPI
linked securities are set by reference to the portfolio yield on the relevant
backing assets held at market value at the end of the reporting period. The
calculated return takes account of derivatives and other credit instruments in
the investment portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account of the
credit rating and the outstanding term of the assets. The allowance for
corporate and other unapproved credit asset defaults within the new business
contribution is calculated explicitly for each bulk annuity scheme written,
and the weighted average deduction for business written in 2021 equates to a
level rate deduction from the expected returns for the overall annuities
portfolio of 16.9 basis points.
· Non-economic assumptions have been set at levels commensurate
with recent operating experience, including those for mortality, morbidity,
persistency and maintenance expenses (excluding development costs). An
allowance is made for future mortality improvement. For new business,
mortality assumptions may be modified to take certain scheme specific features
into account.
The profits on the new business are presented gross of tax.
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5.02 Estimated Solvency II new business contribution (continued)
(c) Methodology
Basis of preparation
Solvency II new business contribution reflects the portion of Solvency II
value added by new business written in the period. It has been calculated in a
manner consistent with principles and methodologies as set out in the group's
2021 Annual Report and Accounts.
Solvency II new business contribution has been calculated for the group's most
material insurance-related businesses, namely, LGR, LGI and LGA.
Description of methodology
The objective of the Solvency II new business contribution is to provide
shareholders with information on the long-term contribution of new business
written in 2021.
The Solvency II new business contribution has been calculated as the present
value of future shareholder profits arising from business written in 2021.
Cash flow projections are determined using best estimate assumptions for each
component of cash flow and for each policy group. Best estimate assumptions
including mortality, morbidity, persistency and expenses reflect recent
operating experience.
The PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the calculation of the
new business contribution for the financial period.
The new business margin is defined as new business contribution divided by the
PVNBP. The premium volumes used to calculate the PVNBP are the same as those
used to calculate new business contribution.
LGA is consolidated into the group solvency balance sheet on a US Statutory
solvency basis. Intra-group reinsurance arrangements are in place between US,
UK and Bermudan businesses and it is expected that these arrangements will be
periodically extended to cover future new business. The LGA new business
margin looks through the intra-group arrangements.
Projection assumptions
Cash flow projections are determined using best estimate assumptions for each
component of cash flow for each line of business. Future economic and
investment return assumptions are based on conditions at the end of the
financial period.
Detailed projection assumptions including mortality, morbidity, persistency
and expenses reflect recent operating experience and are normally reviewed
annually. Allowance is made for future improvements in annuitant mortality
based on experience and externally published data. Favourable changes in
operating experience are not anticipated until the improvement in experience
has been observed.
All costs relating to new business, even if incurred elsewhere in the group,
are allocated to the new business. The expense assumptions used for the cash
flow projections therefore include the full cost of servicing this business.
Tax
The projections take into account all tax which is expected to be paid, based
on best estimate assumptions, applying current legislation and practice
together with substantively enacted future changes.
Risk discount rate
The risk discount rate (RDR) is duration-based and is a combination of the
risk-free curve and a flat Margin for Risk.
The GBP risk-free rates have been based on a SONIA-based swap curve with no
Credit Risk Adjustment (2020: Libor-based swap curve with a credit risk
adjustment of 11 basis points). The USD swap curve includes a credit risk
adjustment of 13 basis points (2020: credit risk adjustment of 13 basis
points)
The Margin for Risk has been determined based on an assessment of the group's
Weighted Average Cost of Capital (WACC). This assessment incorporates a beta
for the group, which measures the correlation of movements in the group's
share price to movements in a relevant index. Beta values therefore allow for
the market's assessment of the risks inherent in the business relative to
other companies in the chosen index.
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5.02 Estimated Solvency II new business contribution (continued)
(c) Methodology (continued)
The WACC is derived from the group's cost of equity, cost of debt, and the
proportion of equity to debt in the group's capital structure measured using
market values. Each of these three parameters is forward looking, although
informed by historic information and appropriate judgements where necessary.
The cost of equity is calculated as the risk-free rate plus the equity risk
premium for the chosen index multiplied by the company's beta.
The cost of debt used in the WACC calculations takes account of the actual
locked-in rates for our senior and subordinated long-term debt. All debt
interest attracts tax relief at a time adjusted rate of 24% (31 December 2020:
19%).
Whilst the WACC approach is a relatively simple and transparent calculation to
apply, subjectivity remains within a number of the assumptions. Management
believes that the chosen margin, together with the levels of required capital
and the inherent strength of the group's regulatory reserves, is appropriate
to reflect the risks within the covered business.
(d) Reconciliation of PVNBP to gross written premium
A reconciliation of PVNBP and gross written premium is given below:
2021 2020
Notes £bn £bn
PVNBP 5.02 (a) 9.7 11.2
Effect of capitalisation factor ( ) (2.1) (2.3)
New business premiums from selected lines( ) 7.6 8.9
Other(1) 1.8 2.0
Total LGR and LGI new business 4.07,4.08 9.4 10.9
Annualisation impact of regular premium long-term business ( ) (0.2) (0.2)
IFRS gross written premiums from existing long-term insurance business ( ) 3.3 3.0
Deposit accounting for investment products (2.1) (1.2)
Total gross written premiums(2) 10.4 12.5
1. Other principally includes annuity sales in the US, lifetime and retirement
interest only mortgage advances and £0.2bn quota share reinsurance premiums.
2. Total gross written premiums includes £109m (2020: £114m) of gross
written premiums relating to a residual reinsurance treaty following the
disposal of the General Insurance business in 2019.
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6.01 Investment portfolio
Market Market
value value
2021 2020
£m £m
Worldwide total assets under management(1) 1,426,462 1,285,489
Client and policyholder assets (1,309,772) (1,161,631)
Investments to which shareholders are directly exposed 116,690 123,858
1. Worldwide total assets under management include LGIM AUM and other group
assets not managed by LGIM.
Analysed by investment class:
Other
LGR LGC shareholder
investments investments investments Total Total
2021 2021 2021 2021 2020
Notes £m £m £m £m £m
Equities 80 2,845 260 3,185 3,086
Bonds 6.03 81,812 2,157 2,834 86,803 85,502
Derivative assets(2) 13,135 68 - 13,203 20,936
Property 6.04 5,286 424 - 5,710 4,672
Loans(3) 1,899 372 61 2,332 4,248
Financial investments 102,212 5,866 3,155 111,233 118,444
Cash and cash equivalents 1,983 984 629 3,596 3,616
Other assets(4) 96 1,765 - 1,861 1,798
Total investments 104,291 8,615 3,784 116,690 123,858
2. Derivative assets are shown gross of derivative liabilities of £14.1bn (31
December 2020: £21.2bn). Exposures arise from use of derivatives for
efficient portfolio management, especially the use of interest rate swaps,
inflation swaps, credit default swaps and foreign exchange forward contracts
for assets and liability management.
3. Loans include reverse repurchase agreements of £2,240m (31 December 2020:
£4,117m).
4. Other assets include finance leases of £86m (31 December 2020: £88m),
associates and joint ventures of £375m (31 December 2020: £288m) and the
consolidated net asset value of the group's investments in CALA Homes and
other housing businesses.
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6.02 Direct investments
(a) Analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2)
investments securities Total investments securities Total
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Equities 1,248 1,937 3,185 1,145 1,941 3,086
Bonds(3) 24,237 62,566 86,803 21,555 63,947 85,502
Derivative assets - 13,203 13,203 - 20,936 20,936
Property(4) 5,710 - 5,710 4,672 - 4,672
Loans 63 2,269 2,332 99 4,149 4,248
Financial investments 31,258 79,975 111,233 27,471 90,973 118,444
Cash and cash equivalents 114 3,482 3,596 42 3,574 3,616
Other assets 1,861 - 1,861 1,798 - 1,798
Total investments 33,233 83,457 116,690 29,311 94,547 123,858
1. Direct investments, which generally constitute an agreement with another
party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a
direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £6,857m (31 December 2020:
£6,036m).
4. A further breakdown of property is provided in Note 6.04.
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6.02 Direct investments (continued)
(b) Analysed by segment
LGR LGC(1) LGI Total
2021 2021 2021 2021
£m £m £m £m
Equities 12 1,124 112 1,248
Bonds(2) 23,029 3 1,205 24,237
Property 5,286 424 - 5,710
Loans - 63 - 63
Financial investments 28,327 1,614 1,317 31,258
Other assets, cash and cash equivalents 96 1,879 - 1,975
Total direct investments 28,423 3,493 1,317 33,233
LGR LGC(1) LGI Total
2020 2020 2020 2020
£m £m £m £m
Equities - 1,043 102 1,145
Bonds(2) 20,306 3 1,246 21,555
Property 4,319 353 - 4,672
Loans - 99 - 99
Financial investments 24,625 1,498 1,348 27,471
Other assets, cash and cash equivalents 106 1,730 4 1,840
Total direct investments 24,731 3,228 1,352 29,311
1. LGC includes £54m (2020: £47m) of equities that belong to other
shareholder funds.
2. Bonds include lifetime mortgage loans of £6,857m (2020: £6,036m).
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6.03 Bond portfolio summary
(a) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2021 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 2,008 10,348 1,302 360 9 - 14,027 16
Banks:
- Tier 2 and other subordinated - - 56 36 3 - 95 -
- Senior 95 1,858 3,998 738 1 - 6,690 8
- Covered 138 - - - - - 138 -
Financial Services:
- Tier 2 and other subordinated - 111 60 72 - 8 251 -
- Senior 57 416 422 315 - - 1,210 1
Insurance:
- Tier 2 and other subordinated 61 192 32 62 - - 347 -
- Senior 4 196 460 535 - - 1,195 1
Consumer Services and Goods:
- Cyclical - 33 1,399 1,760 206 - 3,398 4
- Non-cyclical 350 1,003 2,737 3,836 346 - 8,272 10
- Healthcare - 690 837 889 5 - 2,421 3
Infrastructure:
- Social 215 780 5,001 900 79 - 6,975 8
- Economic 303 50 1,121 4,294 191 - 5,959 7
Technology and Telecoms 177 307 1,530 3,024 22 2 5,062 6
Industrials - 31 688 558 30 - 1,307 2
Utilities 27 206 5,666 5,947 30 - 11,876 14
Energy - - 385 840 16 - 1,241 1
Commodities - - 365 889 8 - 1,262 1
Oil and Gas - 546 971 387 271 - 2,175 3
Real estate - 16 1,802 1,587 122 - 3,527 4
Structured finance ABS / RMBS / CMBS / Other 450 860 445 668 28 - 2,451 3
Lifetime mortgage loans(1) 4,238 1,550 584 470 - 15 6,857 8
CDOs - - 54 13 - - 67 -
Total £m 8,123 19,193 29,915 28,180 1,367 25 86,803 100
Total % 9 22 35 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are allocated in
accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These account
for £81,812m, representing 94% of the total group portfolio.
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6.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating (continued)
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2020 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 2,747 12,187 903 398 9 - 16,244 19
Banks:
- Tier 2 and other subordinated - - 61 43 3 - 107 -
- Senior - 1,182 3,314 678 1 - 5,175 6
- Covered 158 - - - - - 158 -
Financial Services:
- Tier 2 and other subordinated - 120 71 10 - 3 204 -
- Senior 55 488 202 323 9 - 1,077 1
Insurance:
- Tier 2 and other subordinated 65 161 8 59 - - 293 -
- Senior - 273 492 401 - - 1,166 1
Consumer Services and Goods:
- Cyclical - 24 1,158 1,771 288 - 3,241 4
- Non-cyclical 366 1,153 2,849 4,057 324 - 8,749 10
- Healthcare - 437 886 669 5 - 1,997 2
Infrastructure:
- Social 217 766 4,579 814 79 - 6,455 8
- Economic 328 61 784 4,006 290 - 5,469 7
Technology and Telecoms 193 229 1,633 3,080 31 1 5,167 6
Industrials - 16 709 759 26 - 1,510 2
Utilities - 207 6,034 5,526 27 - 11,794 14
Energy - - 429 784 19 - 1,232 1
Commodities - - 351 919 7 - 1,277 2
Oil and Gas - 773 958 467 276 - 2,474 3
Real estate - 8 1,622 1,675 93 - 3,398 4
Structured finance ABS / RMBS / CMBS / Other 429 772 400 578 27 1 2,207 3
Lifetime mortgage loans(1) 3,611 1,533 494 385 - 13 6,036 7
CDOs - 58 - 14 - - 72 -
Total £m 8,169 20,448 27,937 27,416 1,514 18 85,502 100
Total % 9 24 33 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are allocated in
accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These account
for £80,438m, representing 94% of the total group portfolio.
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6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
Rest of
UK US EU the World Total
As at 31 December 2021 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 9,829 1,892 1,244 1,062 14,027
Banks 2,253 1,799 1,956 915 6,923
Financial Services 425 429 517 90 1,461
Insurance 113 1,291 15 123 1,542
Consumer Services and Goods:
- Cyclical 473 2,213 442 270 3,398
- Non-cyclical 1,879 5,828 391 174 8,272
- Healthcare 284 2,054 82 1 2,421
Infrastructure:
- Social 6,141 628 154 52 6,975
- Economic 4,348 902 309 400 5,959
Technology and Telecoms 412 3,025 782 843 5,062
Industrials 190 681 354 82 1,307
Utilities 6,963 2,158 2,217 538 11,876
Energy 415 667 1 158 1,241
Commodities 20 537 175 530 1,262
Oil and Gas 196 626 785 568 2,175
Real estate 1,895 734 602 296 3,527
Structured finance ABS / RMBS / CMBS / Other 861 1,395 10 185 2,451
Lifetime mortgage loans 6,857 - - - 6,857
CDOs - - - 67 67
Total 43,554 26,859 10,036 6,354 86,803
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6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile (continued)
Rest of
UK US EU the World Total
As at 31 December 2020 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 11,797 2,425 1,176 846 16,244
Banks 1,687 1,907 1,463 383 5,440
Financial Services 391 298 525 67 1,281
Insurance 109 1,049 181 120 1,459
Consumer Services and Goods
- Cyclical 543 2,201 360 137 3,241
- Non-cyclical 1,789 6,403 389 168 8,749
- Healthcare 209 1,694 94 - 1,997
Infrastructure
- Social 5,809 487 112 47 6,455
- Economic 4,071 853 231 314 5,469
Technology and Telecoms 485 3,098 754 830 5,167
Industrials 191 927 330 62 1,510
Utilities 6,886 2,236 2,097 575 11,794
Energy 244 758 105 125 1,232
Commodities 3 596 165 513 1,277
Oil and Gas 232 642 832 768 2,474
Real estate 2,168 384 634 212 3,398
Structured finance ABS / RMBS / CMBS / Other 944 1,207 11 45 2,207
Lifetime mortgage loans 6,036 - - - 6,036
CDOs - - - 72 72
Total 43,594 27,165 9,459 5,284 85,502
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6.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 31 December 2021 £m £m £m
AAA 3,506 4,617 8,123
AA 15,544 3,649 19,193
A 21,240 8,675 29,915
BBB 20,715 7,465 28,180
BB or below 950 417 1,367
Other 10 15 25
Total 61,965 24,838 86,803
Externally Internally
rated rated(1) Total
As at 31 December 2020 £m £m £m
AAA 4,101 4,068 8,169
AA 17,101 3,347 20,448
A 21,235 6,702 27,937
BBB 21,307 6,109 27,416
BB or below 1,049 465 1,514
Other 4 14 18
Total 64,797 20,705 85,502
1. Where external ratings are not available an internal rating has been used
where practicable to do so.
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6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded
Direct
investments Traded Total
As at 31 December 2021 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 1,037 12,990 14,027
Banks 665 6,258 6,923
Financial Services 432 1,029 1,461
Insurance 119 1,423 1,542
Consumer Services and Goods:
- Cyclical 498 2,900 3,398
- Non-cyclical 512 7,760 8,272
- Healthcare 357 2,064 2,421
Infrastructure:
- Social 3,699 3,276 6,975
- Economic 4,267 1,692 5,959
Technology and Telecoms 153 4,909 5,062
Industrials 60 1,247 1,307
Utilities 1,883 9,993 11,876
Energy 475 766 1,241
Commodities 55 1,207 1,262
Oil and Gas 56 2,119 2,175
Real estate 2,091 1,436 3,527
Structured finance ABS / RMBS / CMBS / Other 1,021 1,430 2,451
Lifetime mortgage loans 6,857 - 6,857
CDOs - 67 67
Total 24,237 62,566 86,803
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6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded (continued)
Direct
investments Traded Total
As at 31 December 2020 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 889 15,355 16,244
Banks 644 4,796 5,440
Financial Services 310 971 1,281
Insurance 282 1,177 1,459
Consumer Services and Goods:
- Cyclical 351 2,890 3,241
- Non-cyclical 396 8,353 8,749
- Healthcare 363 1,634 1,997
Infrastructure:
- Social 3,283 3,172 6,455
- Economic 3,726 1,743 5,469
Technology and Telecoms 93 5,074 5,167
Industrials 64 1,446 1,510
Utilities 1,475 10,319 11,794
Energy 355 877 1,232
Commodities 59 1,218 1,277
Oil and Gas 58 2,416 2,474
Real estate 2,301 1,097 3,398
Structured finance ABS / RMBS / CMBS / Other 870 1,337 2,207
Lifetime mortgage loans 6,036 - 6,036
CDOs - 72 72
Total 21,555 63,947 85,502
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6.04 Property analysis
Property exposure within Direct investments by status
LGR(1) LGC(2) Total
As at 31 December 2021 £m £m £m %
Fully let 4,746 - 4,746 83
Development 540 293 833 15
Land - 131 131 2
Total 5,286 424 5,710 100
LGR(1) LGC(2) Total
As at 31 December 2020 £m £m £m %
Fully let 3,974 - 3,974 85
Development 345 224 569 12
Land - 129 129 3
Total 4,319 353 4,672 100
1. The fully let LGR property includes £4.5bn (31 December 2020: £3.8bn) let
to investment grade tenants.
2. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are accounted
for as inventory within Receivables and other assets on the group's
Consolidated Balance Sheet and measured at the lower of cost and net
realisable value. At 31 December 2021 the group held a total of £2,044m (31
December 2020: £2,179m) of such assets.
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Alternative Performance
Measures
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94
An alternative performance measure (APM) is a financial measure of historic or
future financial performance, financial position, or cash flows, other than a
financial measure defined under IFRS or the regulations of Solvency II. APMs
offer investors and stakeholders additional information on the company's
performance and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's performance.
However, APMs should be viewed as complementary to, rather than as a
substitute for, the figures determined according to other regulations. The
APMs used by the group are listed in this section, along with their
definition/explanation, their closest IFRS measure and reference to the
reconciliations to those IFRS measures.
The APMs used by the group may not be the same as, or comparable to, those
used by other companies, both in similar and different industries. The
calculation of APMs is consistent with previous periods, unless otherwise
stated.
Adjusted operating profit
Definition
Adjusted operating profit is an APM that supports the internal performance
management and decision making of the group's operating businesses, and
accordingly underpins the remuneration outcomes of the executive directors and
senior management. The group considers this measure meaningful to stakeholders
as it enhances the understanding of the group's operating performance over
time by separately identifying non-operating items.
Adjusted 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 adjusted 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. Adjusted 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 adjusted operating profit.
In certain disclosures, the group may use the term 'operating profit' as a
substitute for adjusted operating profit, but in all circumstances it carries
the same definition and meaning.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 1.01 Operating profit.
Return on Equity (ROE)
Definition
ROE measures the return earned by shareholders on shareholder capital retained
within the business.
ROE is calculated as IFRS profit after tax divided by average IFRS
shareholders' funds (by reference to opening and closing shareholders' funds
as provided in the IFRS consolidated statement of changes in equity for the
year).
Closest IFRS measure
Calculated using:
- Profit attributable to equity holders
- Equity attributable to owners of the parent
Reconciliation
Calculated using profit attributable to equity holders for the year of
£2,050m (31 December 2020: £1,607m) and average equity attributable to the
owners of the parent of £9,994m (31 December 2020: £9,270m), based on an
opening balance of £9,502m and a closing balance of £10,486m (2020: based on
an opening balance of £9,038m and a closing balance of £9,502m).
Assets under Management
Definition
Funds which are managed by our fund managers on behalf of investors. It
represents the total amount of money investors have trusted with our fund
managers to invest across our investment products.
Closest IFRS measures
- Financial investments
- Investment property
- Cash and cash equivalents
Reconciliation
Note 4.04 Reconciliation of assets under management to Consolidated Balance
Sheet.
Net release from operations
Definition
Release from operations plus new business surplus/(strain). Net release from
operations is also referred to as cash generation, and includes the release of
prudent margins from the back book, together with the premium received less
the setup of prudent reserves and associated acquisition costs for new
business. Net release from operations is a component of adjusted operating
profit (after tax), and excludes predominantly the impact of experience
variances and changes in valuation assumptions.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Notes 1.01 Operating profit and 1.02 Reconciliation of release from operations
to operating profit before tax.
Adjusted profit before tax attributable to equity holders
Definition
The APM measures profit before tax attributable to shareholders incorporating
actual investment returns experienced during the year and the pre-tax results
of discontinued operations.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 1.01 Operating profit.
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* These items represent an alternative performance measure (APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
An alternative performance measure is a financial measure of historic or
future financial performance, financial position, or cash flows, other than a
financial measure defined under IFRS or the regulations of Solvency II.
Annual premium
Premiums that are paid regularly over the duration of the contract such as
protection policies.
Annuity
Regular payments from an insurance company made for an agreed period of time
(usually up to the death of the recipient) in return for either a cash lump
sum or a series of premiums which the policyholder has paid to the insurance
company during their working lifetime.
Assets under administration (AUA)
Assets administered by Legal & General which are beneficially owned by
clients and are therefore not reported on the Consolidated Balance Sheet.
Services provided in respect of assets under administration are of an
administrative nature, including safekeeping, collecting investment income,
settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
An Assured Payment Policy (APP) is a long-term contract under which the
policyholder (a registered UK pension scheme) pays a day-one premium and in
return receives a contractually fixed and/or inflation-linked set of payments
over time from the insurer.
Back book acquisition
New business transacted with an insurance company which allows the business to
continue to utilise Solvency II transitional measures associated with the
business.
CAGR
Compound annual growth rate.
Cash generation
Cash generation is an alternative term for net release from operations.
CCF - Common Contractual Fund
An Irish regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of achieving
cost savings, enhanced returns and operational efficiency through economies of
scale. A CCF is an unincorporated body established under a deed where
investors are "co-owners" of underlying assets which are held pro rata with
their investment. The CCF is authorised and regulated by the Central Bank of
Ireland.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA and the lowest Unrated. Ratings are
usually issued by a credit rating agency (e.g. Moody's or Standard &
Poor's) or a credit bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis, whereby the
assets and liabilities of certain entities are excluded from the group
consolidation. The net contribution from those entities to group Own Funds is
included as an asset on the group's Solvency II balance sheet. Regulatory
approval has been provided to recognise the (re)insurance subsidiaries in the
US and Bermuda on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a specified
monthly benefit on retirement that is predetermined by a formula based on the
employee's earnings history, tenure of service and age, rather than depending
directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are determined
by agreed levels of contributions paid into the fund by the member and
employer. They provide benefits based upon the money held in each individual's
plan specifically on behalf of each member. The amount in each plan at
retirement will depend upon the investment returns achieved as well as the
member and employer contributions.
Derivatives
Derivatives are not a separate asset class but are contracts usually giving a
commitment or right to buy or sell assets on specified conditions, for example
on a set date in the future and at a set price. The value of a derivative
contract can vary. Derivatives can generally be used with the aim of enhancing
the overall investment returns of a fund by taking on an increased risk, or
they can be used with the aim of reducing the amount of risk to which a fund
is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another
party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but exclude hedge funds.
Dividend cover
Dividend cover measures how many times over the net release from operations in
the year could have paid the full year dividend. For example, if the dividend
cover is 3, this means that the net release from operations was three times
the amount of dividend paid out.
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Early stage business
A recently created company in the early stage of its life cycle (typically up
to 18 to 24 months since establishment), which has not broken even yet. This
usually means the entity is not fully operational yet, and the management team
is still being developed.
Earnings per share (EPS)
EPS is a common financial metric which can be used to measure the
profitability and strength of a company over time. It is the total
shareholder profit after tax divided by the number of shares outstanding. EPS
uses a weighted average number of shares outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's
Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the
value of assets over liabilities, as valued on a Solvency II basis, plus high
quality hybrid capital instruments, which are freely available (fungible and
transferable) to absorb losses wherever they occur across the group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which employees report
that they are happy working at Legal & General. It is measured as part of
our Voice surveys, which also include questions on commitment to the goals of
Legal & General and the overall success of the company.
ETF
LGIM's European Exchange Traded Fund platform.
Euro Commercial paper
Short-term borrowings with maturities of up to 1 year typically issued for
working capital purposes.
Full year dividend
Full year dividend is the total dividend per share declared for the year
(including interim dividend but excluding, where appropriate, any special
dividend).
FVTPL
Fair value through profit or loss. A financial asset or financial liability
that is measured at fair value in the Consolidated Balance Sheet reports gains
and losses arising from movements in fair value within the Consolidated Income
Statement as part of the profit or loss for the year.
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and principles,
established by accounting standard setters and used
by the accounting community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the general
insurance premiums underwritten in the reporting period, before any deductions
for reinsurance.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment fund, based in Ireland and aimed at European
investment funds looking for a simple, tax-efficient investment vehicle.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and organisations
follow when completing financial statements.
They are designed to enable comparable reporting between companies, and they
are the standards that all publicly listed
groups in the UK are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the
business can be measured effectively. The group Board reviews the KPIs
annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGI new business
New business arising from new policies written on retail protection products
and new deals and incremental business on group protection products.
LGIA
Legal & General Insurance America.
LGIM
Legal & General Investment Management
LGR
Legal & General Retirement, which includes Legal & General Retirement
Institutional (LGRI) and Legal & General Retirement Retail (LGRR).
LGR new business
Single premiums arising from annuity sales and back book acquisitions
(including individual annuity and pension risk transfer), the volume of
lifetime and retirement interest only mortgage lending and the notional size
of longevity insurance transactions, based on the present value of the fixed
leg cash flows discounted at the SONIA curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to
meet all liabilities, both current and future. This form of investing is most
prominent in final salary pension plans, whose liabilities can often reach
into billions of pounds for the largest of plans.
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Lifetime mortgages
An equity release product aimed at people aged 55 years and over. It is a
mortgage loan secured against the customer's house. Customers do not make any
monthly payments and continue to own and live in their house until they move
into long-term care or on death. A no negative equity guarantee exists such
that if the house value on repayment is insufficient to cover the outstanding
loan, any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the risk profile of
pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II
balance sheets. This adjustment reflects the fact that the profile of assets
held is sufficiently well-matched to the profile of the liabilities, that
those assets can be held to maturity, and that any excess return over
risk-free (that is not related to defaults) can be earned regardless of asset
value fluctuations after purchase.
Mature business
A company which has been operative for more than three to five years. It
generates regular revenue streams but the growth rate in its earnings is
expected to remain broadly flat in the future. At this point in its life
cycle, a complete and experienced management team is in place.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life and annuity products, which
contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions produced
and carbon emissions removed from the atmosphere.
New business surplus/strain
The net impact of writing new business on the IFRS position, including the
benefit/cost of acquiring new business and the setting up of reserves, for UK
non profit annuities, workplace savings, protection and savings, net of tax.
This metric provides an understanding of the impact of new contracts on the
IFRS profit for the year.
OEIC - Open Ended Investment Company
A type of investment fund domiciled in the United Kingdom that is structured
to invest in stocks and other securities, authorised and regulated by the
Financial Conduct Authority (FCA).
Overlay assets
Overlay assets are derivative assets that are managed alongside the physical
assets held by LGIM. These instruments include interest rate swaps, inflation
swaps, equity futures and options. These are typically used to hedge risks
associated with pension scheme assets during the derisking stage of the
pension life cycle.
Paris Agreement
The Paris Agreement is an agreement within the United Nations Framework
Convention on Climate Change effective 4 November 2016. The Agreement aims to
limit the increase in average global temperatures to well below 2°C,
preferably to 1.5°C, compared to pre-industrial levels.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run final salary
pension schemes to reduce their responsibilities by closing the schemes to new
members and passing the assets and obligations to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention, calculated as a
function of net flows and closing AUM.
Platform
Online services used by intermediaries and consumers to view and administer
their investment portfolios. Platforms usually provide facilities for buying
and selling investments (including, in the UK products such as Individual
Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life
insurance) and for viewing an individual's entire portfolio to assess asset
allocation and risk exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the new business value at
the end of the financial period. The discounted value of longevity insurance
regular premiums and quota share reinsurance single premiums are calculated on
a net of reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the premiums
associated with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed, minus derivative
assets, loans, and cash and cash equivalents
QIAIF - Qualifying Investor Alternative Investment Fund
An alternative investment fund regulated in Ireland targeted at sophisticated
and institutional investors, with minimum subscription and eligibility
requirements. Due to not being subject to many investment or borrowing
restrictions, QIAIFs present a high level of flexibility in their investment
strategy.
Real assets
Real assets encompass a wide variety of tangible debt and equity investments,
primarily real estate, infrastructure and energy. They have the ability to
serve as stable sources of long-term income in weak markets, while also
providing capital appreciation opportunities in strong markets.
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Release from operations
The expected IFRS surplus generated in the period from the difference between
IFRS prudent assumptions and our best estimate of future experience for
in-force LGR and UK Insurance businesses, the post-tax adjusted operating
profit on other UK businesses, including the medium term expected investment
return on LGC invested assets, and dividends remitted from LGIA.
Retirement Interest Only Mortgage (RIO)
A Retirement Interest Only (RIO) mortgage is a standard retirement mortgage
available for non-commercial borrowers above 55 years old. A RIO mortgage is
very similar to a standard interest-only mortgage, with two key differences:
- The loan is usually only paid off on death, move into long-term care or sale
of the house.
- The borrowers only have to prove they can afford the monthly interest
repayments and not the capital remaining at the end of the mortgage term.
No repayment solution is required as repayment defaults to sale of property.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk appetite
The aggregate level and types of risk a company is willing to assume in its
exposures and business activities in order
to achieve its business objectives.
SICAV - Société d'Investissement à Capital Variable
A publicly traded open-end investment fund structure offered in Europe and
regulated under European law.
SIF - Specialised Investment Fund
An investment vehicle regulated in Luxembourg targeted to well-informed
investors, providing a great degree of flexibility in organization, investment
policy and types of underlying assets in which it can invest.
Single premiums
Single premiums arise on the sale of new contracts where the terms of the
policy do not anticipate more than one premium being paid over its lifetime,
such as in individual and bulk annuity deals.
Solvency II
The Solvency II regulatory regime is a harmonised prudential framework for
insurance firms in the EEA. This single market approach is based on economic
principles that measure assets and liabilities to appropriately align
insurers' risk with the capital they hold to safeguard the policyholders'
interest.
Solvency II capital coverage ratio (SCR)
The Eligible Own Funds on a regulatory basis divided by the group solvency
capital requirement. This represents the number of times the SCR is covered by
Eligible Own Funds.
Solvency II capital coverage ratio (proforma basis)
The proforma basis Solvency II SCR coverage ratio incorporates the impacts of
a recalculation of the Transitional Measures for Technical Provisions and the
contributions of the group's defined benefit pension schemes in both Own Funds
and the SCR in the calculation of the SCR coverage ratio.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II
surplus emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
Solvency II Operational Surplus Generation
The expected surplus generated from the assets and liabilities in-force at the
start of the year. It is based on assumed real world returns and best estimate
non-market assumptions. It includes the impact of management actions to the
extent that, at the start of the year, these were reasonably expected to be
implemented over the year.
Solvency II risk margin
An additional liability required in the Solvency II balance sheet, to ensure
the total value of technical provisions is equal to the current amount a
(re)insurer would have to pay if it were to transfer its insurance and
reinsurance obligations immediately to another (re)insurer. The value of the
risk margin represents the cost of providing an amount of Eligible Own Funds
equal to the Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over the
lifetime thereof.
Solvency II surplus
The excess of Eligible Own Funds on a regulatory basis over the SCR. This
represents the amount of capital available to the company in excess of that
required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a
1-in-200 year risk event.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different companies'
stocks and shares over time. It combines the share price appreciation and
dividends paid to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to bring them into
line with the pre-Solvency II equivalent as at 1 January 2016 when the
regulatory basis switched over, to smooth the introduction of the new regime.
This will decrease linearly over the 16 years following Solvency II
implementation but may be recalculated to allow for changes impacting the
relevant business, subject to agreement with the PRA.
Yield
A measure of the income received from an investment compared to the price paid
for the investment. It is usually expressed as a percentage.
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