REG - Legal & General Grp - L&G Full Year Results 2022 Part 1
08/03/2023 07:15
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RNS Number : 2163S Legal & General Group Plc 08 March 2023
2022 Results: Operating profit up 12% to £2.5bn, EPS up 12% to 38.3p, ROE of 21% and Solvency coverage of 236%
Strong financial performance 1 (#_edn1)
· Operating profit of £2,523m, up 12% (2021: £2,262m)
· Profit after tax 2 (#_edn2) of £2,291m, up 12% (2021: £2,050m)
· EPS of 38.33p, up 12% (2021: 34.19p)
· Return on equity of 20.7% (2021: 20.5%)
· Solvency II coverage ratio of 236% (2021: 187%)
· As at 3(rd) March 2023 we estimate the coverage ratio was 240% 3
(#_edn3)
· Full year dividend of 19.37p, up 5% (2021: 18.45p), consistent with
our ambition
On track to achieve our five-year (2020-2024) ambitions 4 (#_edn4)
· Cash generation of £1.9bn, up 14%. Capital generation of £1.8bn, up
10%
· Cumulative cash and capital generation on track with strong dividend
headroom. To date:
‒ Cash generation of £5.1bn and capital generation of £4.9bn
(£8.0-9.0bn by 2024)
‒ Dividends of £3.3bn (£5.6-5.9bn by 2024)
‒ Net surplus generation 5 (#_edn5) over dividends of £0.7bn
Good new business volumes and rapidly increasing international presence
· Global PRT new business premiums of £9.5bn (2021: £7.2bn), of which
23% international
· LGC alternative AUM up 21% to £4.2bn (2021: £3.4bn), of which 12%
international
· LGIM AUM of £1.2tn, of which £441bn (37%) international
· LGIM external net flows of £49.6bn (2021: £34.6bn), of which 43%
international
· Protection gross premiums up 8% to £3.1bn (2021: £2.9bn), of which
39% international
"We have delivered another strong result in 2022, ahead of market
expectations, with operating profit of £2.5bn and EPS of 38.3p, both up 12%,
cash generation of £1.9bn up 14%, capital generation of £1.8bn up 10%,
dividends up 5% to 19.37p and an ROE of 21%. Our diversified and highly
synergistic business model continues to deliver significant benefits. Our
balance sheet is strong and highly resilient, with a record solvency ratio of
236% and we have once again received 100% of cash flows due from our Direct
Investments. At a time when many households are being affected by the rising
cost of living, our commitment to inclusive capitalism is more important than
ever to help improve the lives of our customers, build a better society for
the long-term and create value for our shareholders."
Sir Nigel Wilson, Group Chief Executive
Financial summary
£m 2022 2021 Growth %
Analysis of operating profit
Legal & General Retirement Institutional (LGRI) 1,257 1,154 9
Legal & General Capital (LGC) 509 461 10
Legal & General Investment Management (LGIM) 340 422 (19)
Retail 6 (#_edn6) 825 620 33
Operating profit from divisions 2,931 2,657 10
Group debt costs (214) (230) 7
Group investment projects and expenses (194) (165) (18)
Operating profit 7 (#_edn7) 2,523 2,262 12
Investment and other variances (incl. minority interests) 136 226 n/a
Profit before tax attributable to equity holders 8 (#_edn8) 2,659 2,488 7
Profit after tax attributable to equity holders 2,291 2,050 12
Earnings per share (p) 38.33 34.19 12
Book value per share (p) 194 174 11
Full year dividend per share (p) 19.37 18.45 5
2022 Financial performance
Income statement
Legal & General's diversified business model has delivered a record set of
results and resilient balance sheet, with operating profit up 12% to £2,523m
(2021: £2,262m). All four divisions are well positioned to execute on
compelling structural market opportunities and collectively to deliver
profitable growth over the medium and long-term.
LGRI operating profit increased by 9% to £1,257m (2021: £1,154m) underpinned
by the growing scale of backbook earnings and the consistent performance of
our annuity portfolio. LGRI also maintained pricing discipline and executed
at higher volumes to address growing demand, writing £9,541m of global PRT
(2021: £7,176m) at attractive Solvency II new business margins (8.9%) 9
(#_edn9) , which is in line with our long-term average.
LGC operating profit increased by 10% to £509m (2021: £461m) driven by
strong performance in our alternative asset portfolio, where operating profit
increased to £400m (2021: £350m). Our diversified, multi-tenure housing
portfolio has delivered another set of strong results, driven by Cala.
Science and technology infrastructure investments through our Bruntwood
SciTech joint venture (JV) and Urban regeneration projects such as Sky Studios
in Borehamwood continue to generate attractive returns. Our Alternative
Finance business (Pemberton) also continues to perform strongly.
LGIM delivered lower operating profit of £340m (2021: £422m) primarily due
to the impact of market movements on assets under management, which decreased
by £225bn to £1,196bn since the start of the year. External net flows
remained strong, increasing by 43% to £49.6bn (2021: £34.6bn). 43% of
these flows were from international clients, and we have seen continued growth
in higher margin areas such as thematic ETFs and multi-asset. However, the
positive impact of these higher margin flows has been offset by Defined
Benefit flows, with clients selling higher fee-generating products to meet
collateral requirements. The impact of inflation and market movements,
alongside lower revenues, increased the cost income ratio to 65% (2021:
58%). We are carefully balancing cost control with selective ongoing
investment to modernise, diversify and internationalise LGIM.
Retail operating profit increased by 33% to £825m (2021: £620m). Our US
life insurance business saw a return to profit, driven by robust new business
volumes and the benefit from reinsuring the in-force universal life book.
After significant Covid mortality experience over Q1 2022, the market
continued to see elevated levels of mortality over the year, leading to claims
exceeding the provision raised at FY 2021. The retail retirement business
delivered strong new business volumes in addition to a significant prudence
release from updating base mortality assumptions, and our Fintech business
benefitted from valuation uplifts following successful fundraising in Salary
Finance and Smartr365 over 2022.
Group costs were elevated compared to prior year, driven by the IFRS 17
programme and related workstreams.
Profit before tax attributable to equity holders 10 (#_edn10) increased by 7%
to £2,659m (2021: £2,488m) reflecting a strong operating result and positive
investment variance of £137m (2021: £233m). The key drivers of this
positive investment variance are from the formulaic impact of rising interest
rates on insurance reserves, partially offset in LGC by global equity market
falls and the revaluation of some land assets and development projects as a
result of higher interest rates.
Balance sheet and asset portfolio
The Group's Solvency II operational surplus generation was up 10% at £1,805m
(2021: £1,636m). New business strain was £(352)m (2021: £(354)m)
resulting in net surplus generation of £1,453m (2021: £1,282m). UK PRT
volume was written at a capital strain of less than 4% and we achieved
self-sustainability on the UK annuity portfolio again, as we did in 2020 and
2021.
The Group reported a Solvency II coverage ratio 11 (#_edn11) of 236% at the
end of 2022 (FY 2021: 187%) which, in addition to the contribution from net
surplus generation, reflects the impact of market movements, principally from
the non-economic impact of higher interest rates on the valuation of our
balance sheet 12 (#_edn12) , partially offset by payment of the 2021 final
and 2022 interim dividend (£1,116m).
Our IFRS return on equity of 20.7% reflects the impact of operating profit
growth and positive investment variance (2021: 20.5%). 13 (#_edn13) Book
value per share has increased by 11% to 194p.
Our diversified, actively managed annuity portfolio has continued to perform
resiliently with no defaults. The annuity portfolio's direct investments
continue to perform strongly, with 100% of scheduled cash-flows paid in 2022,
reflecting the high quality of our counterparty exposure.
Group Strategy
Legal & General has established expertise in asset origination (LGC) and
asset management (LGIM), and in the provision of retirement and protection
solutions to corporates and individuals (LGRI and Retail). We operate at
scale and are strongly positioned to capitalise on significant growth
opportunities across our chosen markets through these four divisions:
Division Provision Description
LGRI Retirement Solutions A leading international manager of institutional Pension Risk Transfer (PRT)
business
LGC Asset Origination An alternative asset origination platform generating attractive shareholder
returns
LGIM Asset Management A global £1.2tn asset manager with deep expertise in DB and DC pensions
Retail Retirement & Protection Solutions A leading provider of UK retail retirement and protection solutions and US
term life insurance
A powerful business model
We have a unique and highly synergistic business model, which continues to
drive our strong return on equity. Legal & General provides powerful
asset origination and management capabilities directly to clients. These
capabilities also underpin our leading retirement and protection solutions:
· LGRI is a market leader in UK PRT and a top ten player in the US PRT
market, with annuity assets of £55bn. 14 (#_edn14) It provides long-term,
captive AUM to LGIM. As noted, the annuity portfolio is continually being
enhanced through the supply of alternative assets originated by LGC.
· LGC invests across four main asset classes (Specialist Commercial
Real Estate, Clean Energy, Housing and SME Finance) to generate attractive
risk-adjusted shareholder returns and to create alternative assets with which
to back our annuity portfolio. LGC is also increasingly attracting third
party capital investment directly, and through collaboration with LGIM, to
meet the growing client demand for alternative assets.
· LGIM is a leading global asset manager, ranking 11(th) in the
world 15 (#_edn15) with £1.2tn of AUM of which £441bn, or 37%, are
international assets. LGIM is a leading provider of UK and US Defined
Benefit (DB) de-risking solutions. It is uniquely positioned to support DB
clients across the full range of pension endgame destinations, including PRT
with LGRI. 77% of LGRI's PRT transactions over the past three years were
from existing LGIM clients. 16 (#_edn16) LGIM is also the market leader in
UK Defined Contribution (DC) pension scheme clients with DC AUM of £135bn -
the leading player in a market with significant growth potential, with total
UK DC assets expected to surpass £1.2tn by 2031. 17 (#_edn17)
· Retail is a leading provider of UK retail retirement and protection
solutions, and US term life insurance. The UK retail retirement business
offers Workplace Savings, annuities, income drawdown and lifetime mortgages
(LTM). Our UK and US insurance businesses generate day one surplus capital
which partially offsets annuity new business strain. Retail is also an
internal centre of excellence in technology, and manages a portfolio of
successful, strategic Fintech business investments.
The synergies within and across our businesses drive profits and fuel future
growth.
The integrated nature of our business model means we have relationships with
clients and customers that can and do last for decades. A corporate client
in LGIM typically becomes a PRT client after 14 years. LGRI will then
typically have a relationship with that client for another 30 to 40 years.
Equally, Retail Retirement and LGIM may have a 30-40 year relationship with a
customer during the DC accumulation phase, and then extend that relationship
for another 15-30 years during the decumulation phase across a suite of
decumulation products including individual annuities, lifetime mortgages and
drawdown.
The Group continues to build out, in a measured fashion, its international
retirement solutions franchise. We have made excellent progress in the US
over the last decade and will continue to grow our established businesses
(LGRI, LGIM, Retail) in that market. LGIM continues to make good progress
against its international expansion plans in the US, Europe and Asia.
Kerrigan Procter is co-ordinating the Group's expansion plans in Asia building
on the $150bn of regional assets already under management.
A long-term commitment to Sustainability and Inclusive Capitalism
Our purpose is to improve the lives of customers, build a better society for
the long-term and create value for our shareholders. This inspires us to use
our assets in an economically, environmentally and socially useful way to
benefit society - what we call Inclusive Capitalism. At a time when many in
society are facing increasing economic hardship, we believe Inclusive
Capitalism matters more than ever.
Our philosophy underpins our approach to sustainability. 18 (#_edn18) We
think about sustainability in terms of:
· How we invest proprietary assets. 19 (#_edn19) Our ambition is to
reduce our group investment portfolio economic carbon intensity by half by
2030 and to net zero carbon by 2050. In 2022, our group investment portfolio
economic carbon intensity fell by 5% versus 2021, through a combination of
market movements, partially offset by a muted emissions increase as business
activity increased. While the reduction of 23% from 2019 is ahead of our
2022 target, we may still see further volatility from future global events -
as experienced through the pandemic and the ongoing conflict in Ukraine - and
therefore remain focused on delivery of our mid-to-long-term decarbonisation
targets. We continue to make environmentally and socially useful
investments. As at FY 2022, we have invested £1.3bn in clean energy and
£8.3bn in social infrastructure. For more information, please see our
latest Climate Report, compliant with recommendations by the Task Force on
Climate-related Financial Disclosures (TCFD), and our latest Social Impact
Report, which describes our activity in investing for positive social,
economic and health outcomes. 20 (#_edn20)
· How we influence as one of the world's largest asset managers with
£1.2 trillion AUM. We have £332.2bn AUM in ESG strategies and in 2022 our
investment stewardship team engaged with around 900 companies, holding them to
account on the issues that matter most to our clients. 21 (#_edn21) (, 22
(#_edn22) ) LGIM is proud to have received a 5 star ranking from the UN
Principles for Responsible Investment (UN PRI) for investment stewardship and
policy, and to have scored over 75% in each section of the latest UN PRI
report. 23 (#_edn23) In addition to being among the highest rated managers
for engagement by FinanceMap, LGIM has also been highlighted by MajorityAction
for its approach to holding companies to account on climate change.
· How our businesses operate. We are committed to supporting our
customers, employees, suppliers, shareholders and society at large. In the
current economic environment, we recognise that support is more critical now
than ever. For information on how we are supporting our stakeholders, please
see our Social Impact report.(12) We have committed to reducing the carbon
emission intensity of our operating businesses. Our ambition is to operate
our offices and business travel with net zero emissions from 2030, and for all
our new homes to be net zero operational carbon from 2030. ESG criteria are
included in executives' objectives and remuneration schemes.
CEO retirement and succession plans
Sir Nigel Wilson has informed the Board of his decision to retire from
executive life. He joined Legal & General as Chief Financial Officer in
2009 and was appointed as Chief Executive in 2012.
Since Sir Nigel joined Legal & General, the Group has delivered a
consistently strong financial performance with a total shareholder return of
over 600% driven by significant growth in dividends, earnings per share and
ROE. During his time as Chief Executive, Sir Nigel has executed numerous
strategic initiatives to grow and re-focus the business, consistently
exceeding financial and operational targets while also ensuring Legal &
General has delivered Inclusive Capitalism with positive outcomes for
shareholders, customers and the broader economy.
The Board has commenced a rigorous process to appoint a successor, considering
both internal and external candidates. Sir Nigel has agreed to continue as
Chief Executive until the new Chief Executive starts and he will support a
smooth transition following their appointment. It is envisaged that this
process will take up to a year. In the meantime, Sir Nigel will continue to
focus on delivering the Group's strategy, supported by the executive team.
Current Trading Update
We have made a good start to the year:
· LGRI: There has been a step-up in the number of pension schemes
approaching the insurance market, with market movements in 2022 having
generally increased funding levels and accelerated the ability of many pension
schemes to de-risk. As a result, we currently have a strong global pipeline
across all of our key markets. We remain well placed to achieve our volume
ambitions.
· LGIM: We have started 2023 with further positive flows across
higher margin areas, including Defined contribution and Wholesale. Our
international progression continues, with positive flows in Japan and the US.
We continue to work with our UK Defined Benefit clients to support them in
repositioning their strategies in a higher interest rate environment.
· LGC: Our Housing portfolio has made a good start to the year
against a tougher backdrop. Cala has completed 200 sales with reservations
on private units at 41% of the target for the year. Whilst this is slightly
below last year's exceptional start to the year, it is in line with previous
years. Our most recent Build to Rent developments have also let far quicker
than expected. Pemberton has raised $1bn for its Working Capital Finance
strategy, and will invest in receivables, payables and inventory financing for
US and European large and mid-market companies. The Specialist commercial
real estate portfolio has also made a good start to the year with two planning
applications accepted for Ancora L&G in the US and progress made across
the Oxford portfolio, notably with developments in our Begbroke Science Park.
· Retail: In Retirement, we have seen a continuation of higher
demand for individual annuities due to higher rates on offer and an increased
demand for fixed term annuities, with total annuity volumes of c£196m at end
February, 43% higher than the prior year, and lifetime mortgage advances of
£40m. US Protection new business is up 32% on the prior year, with volumes
of c$28m. UK protection new business is down on prior year with total
volumes of c£40m, predominantly due to fewer large Group Protection schemes
coming to market.
Our solvency ratio as at 3(rd) March 2023 was 240%.
Outlook
Confident in achieving our ambitions; well-positioned to deliver long-term
profitable growth
Our strategy has delivered strong returns for our shareholders over time. It
demonstrated resilience through the pandemic and positions us well to navigate
- and even benefit from - the prevailing market environment. We are confident
we can continue to deliver profitable growth as we execute on our strategy.
We set out five-year ambitions at our Capital Markets event in November
2020. Cumulatively, over the period 2020-2024, our financial ambitions 24
(#_edn24) are for:
· Cash and capital generation (of £8.0bn - £9.0bn) significantly to
exceed dividends (of £5.6bn - £5.9bn) 25 (#_edn25)
· Earnings per share to grow faster than dividends, with the dividend
growing at 5% to FY 2024
· Net capital surplus generation (i.e., including new business strain)
to exceed dividends
We made further progress against these ambitions in 2022 and remain confident
in achieving them. In 2022, we have achieved 14% growth in cash generation
and 10% growth in capital generation. From the start of the ambition period
to FY 2022, we have achieved £5.1bn of cash generation and £4.9bn of
cumulative capital generation, and declared £3.3bn of dividends. Even zero
growth in cash and capital generation from now to 2024 would still see us meet
our ambition of generating £8.0 - £9.0bn in cumulative cash and capital.
Moreover, the jaws between net capital surplus generation and the dividend are
widening, providing attractive capital optionality. From the start of the
ambition period to FY 2022 we have generated £0.7bn of cumulative net surplus
over the dividend.
We aim to deliver long-term, profitable growth across the Group. Our annuity
portfolios generate highly predictable, stable cash flows from their growing
back-books, and we are well positioned to help meet the rapidly growing demand
for global PRT. Our asset origination and asset management businesses, LGC
and LGIM, operate in attractive and profitable markets, and maintain a strong
commitment to sustainable investing. LGC provides unique asset origination
capabilities in sectors that have significant growth potential and which
produce yield-creating assets that drive our annuity business and which appeal
to third party investors (e.g. specialist commercial real estate, clean
energy, housing and SME finance). LGIM offers a range of investment
solutions for institutional and wholesale clients and is expanding
geographically and into new channels. Retail is applying technological
innovation to sustain its UK leadership position, to grow in the US and to
continue to expand into adjacent markets.
We remain highly confident in our strategy and in our ability to deliver
resilient, organic growth, supported by our strong competitive positioning in
attractive and growing markets. Our confidence in our dividend paying
capacity is underpinned by the Group's strong balance sheet, which has
Solvency II surplus regulatory capital of £9.9bn, providing significant
capacity to absorb a market downturn. We have a proven operating model which
is reinforced by robust risk management practices.
We are pleased with the further progress we have made in 2022 and are
confident in our ability to deliver further profitable growth going
forwards. Our Inclusive Capitalism approach enables us to support the UK's
twin policy objectives of "Levelling Up" and "Addressing Climate Change".
We will continue to maintain a defensive and diversified asset portfolio and a
long-term investment horizon, supporting all our stakeholders by delivering
Inclusive Capitalism through investments - both for our own portfolio and for
clients - in areas such as infrastructure, clean energy and affordable
housing, and by providing products to support individuals' financial
resilience.
Business segment outlook
Legal & General Institutional Retirement (LGRI)
LGRI participates actively in the global pension risk transfer (PRT) market,
focusing on corporate defined benefit (DB) pension plans in the UK, the US,
Canada, Ireland and the Netherlands, which together have more than £6
trillion of pension liabilities.( )
We write direct business in both the UK and US and are top-tier providers in
both markets. We are supported by LGIM's long-standing client relationships
and investment capabilities as well as LGC's asset origination capabilities.
We are now beginning to leverage LGC investments in the US and continue to
enhance our asset strategy and product innovation, commercialising the
wide-ranging skills accessible across the Group. Our A minus rated global
annuity asset portfolio is well-managed and diversified across sector and
region (46% UK, 54% international). In 2022, 57% of our UK transactions were
with LGIM clients, demonstrating the continued strength of our client
relationships and the competitive advantage provided by our unique position as
the only firm operating across the full pension de-risking journey.
The UK is our primary market and is the most mature PRT market globally with
£1.4 trillion of UK DB pension liabilities, of which an estimated c14% has
been transferred to insurance companies to date. 26 (#_edn26) The
addressable market therefore remains significant. At the same time, demand
for PRT is growing as rising interest rates and widening credit spreads reduce
pension deficits and allow more funds to consider de-risking. Leading
advisers such as LCP are bullish on the prospects for PRT in 2023 and
beyond. 27 (#_edn27) We are strongly positioned to capitalise on this
opportunity.
Our stated ambition is to write circa £8-10bn of UK PRT per annum. We have
demonstrated that this level of new business is self-sustaining, i.e. the
growing amount of capital generated by our in-force UK annuity book more than
offsets both the capital investment required to fund new business and the
portfolio's contribution to our progressive Group dividend. The UK annuity
portfolio achieved self-sustainability in 2020, 2021 and 2022. Over this
period, Group net surplus generation has exceeded dividends by a total of
£0.7bn, equivalent to approximately two additional years of new business
strain.
We increasingly regard our ambition of writing £8-10bn of UK PRT per annum as
"business as usual" and have demonstrated that this level of new business is
self-sustaining. There may well be opportunity to bid on additional large,
or very large, PRT transactions over the coming years. We are well
positioned and have appetite to write this additional business, subject to it
delivering on our key new business metrics. We will consider any large
incremental transactions as "M&A"-type activity, funding it from our
strong stock of solvency capital as required.
The US represents another significant market opportunity, with $3.0 trillion
of DB liabilities, of which an estimated c9% have transacted to date. 28
(#_edn28) Since our market entry in 2015, our US business has completed 95
transactions and written $8.4bn of business. As in the UK, demand for PRT is
growing: we estimate the total US PRT market increased 39% to $53bn in 2022
(FY2021: $38bn). 29 (#_edn29) LGRI is the only insurer providing PRT
directly to pension plans in both the UK and US, and we actively quote on
select Canadian and Irish PRT opportunities as well. In the Netherlands,
proposed pension reform legislation could result in significant PRT business
coming to market over the next 3-4 years. We continue to actively monitor
the market with a view to potential participation.
Our ambition is to write at least $10bn of international PRT over the five
years from 2020-2024. We have written $5.5bn of International PRT from 2020 to
date, with premiums growing over this period by c30% per annum. We expect
sales to continue to grow and are confident of meeting our ambition.
Legal & General Capital (LGC)
LGC, the Group's alternative asset origination platform, will continue to
deploy shareholder capital in a range of underserved areas of the real economy
which are backed by long-term structural trends. LGC has three fundamental
objectives: 1) profit and value generation within LGC for shareholders; 2)
asset creation to back LGRI and Retail annuity liabilities and to meet demand
from like-minded investors; and 3) a focus on high-return sustainability and
ESG investments, securing long lasting value for shareholders and society.
LGC is making good progress in internationalising its business model,
announcing its first US investment projects with joint venture partner Ancora
in 2022.
As communicated at the LGC capital markets event in October 2021, our ambition
is to build LGC's diversified alternative AUM to c£5bn by 2025 (2022:
£4.2bn), with a blended portfolio return target of 10-12% (previously
8-10%). In combination with the contribution from the Traded Portfolio,
LGC's ambition is to deliver operating profit of £600-700m in 2025.
Additionally, we plan to increase third party capital to £25-30bn (2022:
£16.6bn). We expect our existing platforms (Pemberton, NTR) to underpin our
ambitions for third party AUM, building on their impressive growth to-date,
although we also anticipate growing contributions from Clean Energy, Later
Living, Data Centres and US science and technology infrastructure
opportunities via Ancora L&G, alongside wider internationalisation
efforts. Excluding assets originated to back our annuity liabilities, LGC
expects to invest and manage over £30bn of alternative AUM by 2025.
LGC's asset classes, which include specialist commercial real estate, housing,
clean energy and SME Finance, have all been selected given the long-term need
for capital in these sectors, and provide us with compelling opportunities to
create high-yielding assets.
· The Specialist Commercial Real Estate (SCRE) portfolio includes
urban regeneration (primarily funded by LGRI) and science and
technology-focused real estate in the UK through Bruntwood SciTech and more
recently in the US, through Ancora L&G. Partnering with universities,
local authorities and private sector experts, we have invested across
twenty-two towns and cities in the UK and two in the US, creating jobs,
driving economic growth and revitalising local communities. Our SCRE portfolio
also includes an increasing focus on Digital Infrastructure, which is critical
for both corporations and governments. State of the art data centres are
central to meeting this need, and data management is one of the fastest
growing sectors from a structural perspective. Our investment has given LGC
the opportunity to strategically diversify its portfolio whilst enabling
social and financial inclusion as we level up cities and unlock productivity
growth on a global basis.
· In the Clean Energy sector, we are focused on investing
selectively into attractive growth equity and low carbon infrastructure
opportunities. We are confident that our selective approach to clean energy
investing will continue to yield positive results. With a focus on meeting
increasing societal demand, growth equity investments include early-stage
scale-up companies that deliver innovative clean technologies, and low carbon
infrastructure investments target renewable energy sources.
· As a leading provider of UK homes, committed to tackling the
affordability gap and the undersupply of housing (estimated to be around
450,000 homes required annually), LGC's Housing platform continues to expand
across all tenures and demographics, and we are well positioned to scale in
support of our long-term ambitions. Whilst 2023 presents a more challenging
outlook for housing due to increases in cost to the consumer, our multi-tenure
approach provides opportunity to grow our portfolio. We will continue to
invest thoughtfully through the cycle, benefitting from our large stock of
patient capital waiting to be deployed.
· In SME Finance, we are continuing to support UK and European
innovation through two key platforms. Firstly, through our GP Investing
platform and aligned to our strategy to invest in socially and economically
useful enterprises, we continue to work alongside ambitious, ESG-oriented
alternative asset managers. Since 2020, Pemberton (where we hold a 40%
stake) has doubled its revenues from c€50m to c€100m in 2022, driven by
Direct Lending which continues to be core to Pemberton's strategy. And
secondly, through our Venture Capital Platform where we continue to invest in
the real economy and technological innovation. The Venture Capital platform
now supports over 600 companies through our investments.
Our alternative asset strategies represent Inclusive Capitalism at work -
generating long-term value for society and shareholders. Through our
investments, we are creating much needed jobs, homes, and infrastructure,
driving growth, skills and innovation, and contributing towards a cleaner and
greener future.
Legal & General Investment Management (LGIM)
LGIM is a global asset manager with a diversified asset and client base,
underpinned by clear structural demand for our capabilities. As the asset
manager for the Group, LGIM plays a core part in L&G's successful
synergistic business model, including creating a pipeline of fully-funded DB
pension schemes for LGRI, the origination and management of assets for the
annuity portfolio, and access to distribution for LGC's alternative asset
creation platform.
Our purpose is to create a better future through responsible investing, and we
are a global leader in ESG. LGIM is one of the largest managers of corporate
pension funds globally. We are a UK leader in Defined Benefit (DB) pensions,
the UK's number-one Defined Contribution (DC) manager and we manage assets for
4 of the 5 largest corporate pension schemes in the US. We intend to
maintain our strong position in the UK, which has been the bedrock of our
success to date, while continuing to broaden our reach internationally. We
will diversify our active, index and solutions capabilities, building on our
strength in fixed income and real assets, and on our heritage in ESG.
2022 was a profoundly challenging year for all asset managers. The market
environment shifted fundamentally, with interest rates up significantly,
inflation hitting double digits in many developed economies and global equity
markets falling substantially. As a consequence, LGIM's assets under
management declined over 2022, with closing AUM of £1,196bn compared to
average AUM for the year of £1,309bn, notwithstanding positive net flows of
£47bn. We remain confident, however, that LGIM will continue to make an
important profit and cash contribution to the Group, despite the lower opening
asset position in 2023.
The three pillars of our strategy are to modernise, diversify and
internationalise. We are investing in our people, our operating platform and
our data capabilities and are currently implementing a transformation of our
strategic operating model to build a globally scalable investment and middle
office platform and to deliver excellent client service. We are selectively
expanding our investment offering, with a focus on higher-margin product areas
such as Real Assets, ETFs, Multi-asset and Fixed Income, and we are
increasingly integrating ESG into our investment portfolios. LGIM aims to be
an innovator in those countries where our strengths align to client needs.
Our ambition is to continue to grow International AUM profitably and at pace
in the US, Europe and Asia. Over the last five years, LGIM's international
AUM has more than doubled to reach £441bn - 37% of the total.
Legal & General Retail Division (Retail)
Insurance
We will continue to leverage our technological innovation, operational
strength and scale efficiencies to offer market leading product offerings.
Our data and tech-led strategy makes our products more accessible to
customers and supports further product and pricing enhancements.
In the UK, our market leading retail protection business is supported by our
strong distribution relationships, investment in our systems and platforms,
and product enhancements, leading to robust delivery in 2022. In 2023, we
expect the retail protection market to be impacted by a softer housing market
and by affordability considerations for consumers. Our group protection
business has performed well, increasing premium income by 5% to £427m (2021:
£405m). Our medium-term ambition remains unchanged. We continue to target
mid-single digit growth in revenues across our UK protection businesses to
2025.
In the US, we anticipate our ongoing technology investments and new
partnerships will position us for premium growth. We are using technology to
improve customer experience while reducing cost to become the partner of
choice for a wide range of distribution partners. We are already the largest
provider of term life assurance in the brokerage channel 30 (#_edn30) , and
our digital first approach is aiming to achieve, on average, double digit
growth in new business sales to 2025.
Retirement
Workplace savings is a core part of the Group's retail proposition. The
business is a growth area for the Group and we expect the market to continue
to expand, driven by ageing demographics and welfare reforms. Our core focus
is on better assisting our 4.96 million Workplace members to plan for their
retirement whilst they are saving with us, as well as when they come to
retirement. This will drive better customer outcomes and, at the same time,
help us to retain more of our customers in retirement. Despite consumer
pressures, member contributions have remained strong over 2022 and we've not
yet observed any material changes in customer activity as a result of
increases in the cost of living.
There are currently c£600bn in UK Defined Contribution (DC) accumulation
assets and this is expected to more than double over the next ten years. 31
(#_edn31) As a market leading provider in Workplace Savings, we are well
placed to benefit from this expected increase in DC pension assets, and to
grow administration revenues for the Retail division and fund management
revenues for LGIM.
The amount of DC assets coming to maturity each year has increased to c£45bn
following the dip that was seen during the pandemic when customers deferred
making retirement decisions. Similarly, and as noted, the annuity market is
also showing signs of recovery as the interest rate rises make the cost of an
annuity cheaper. Retail Retirement has a strong market share in individual
annuities - 20.3% over 2022 32 (#_edn32) and an external market share of
36.3%(24) - and continues to explore and develop new product ideas to meet the
needs of people reaching retirement.
The UK lifetime mortgage (LTM) market continues to represent a sizeable
opportunity, with UK housing equity in over 55s at £2.6 trillion. 33
(#_edn33) This year c£6bn per year was released through the LTM market.
However, we anticipate a challenging market in 2023 given the prevailing
interest rate environment. We continue to remain disciplined on pricing to
deliver assets that add value to our portfolio to back our long-term annuity
liabilities.
Across all our Retail businesses we continue to focus on our customers, with a
particular focus on the technology that supports providing a more efficient
and more personalised service.
Fintech
There are a wide range of technology startups creating new financial services
businesses harnessing technology and data to deliver better customer outcomes
and successful business models. With our market insights, relationships and
expertise, we are well positioned to accelerate growth and scale up Fintechs
in adjacent markets, which can also assist us in accelerating our own
strategic growth areas.
We have been making strategic investments in adjacent market Fintechs for many
years including adding three new investments during 2022. Our current
portfolio of eight Fintechs has been growing fast, with valuation uplifts in
both Salary Finance and Smartr365 following successful rounding rounds over
2022. Over the coming years we expect continued growth in revenues and
customer numbers: We are targeting double digit growth to 2025 for our
Fintech businesses.
Dividend
The Board has approved a slight amendment to the Group's dividend policy to
reflect the fact that we will no longer be producing "Net release from
operations" under IFRS 17. Accordingly, and to reflect the importance of
solvency capital generation as a critical measure of dividend sustainability,
the dividend policy will substitute "Net release from operations" with
"Capital generation".
Henceforth the Group's dividend policy states: "We are a long-term business
and set our dividend annually, according to agreed principles. The Board's
intention for the future is to maintain its progressive dividend policy,
reflecting the Group's expected medium-term underlying business growth,
including measurement of Capital generation and Adjusted operating profit."
The Board has recommended a final dividend of 13.93p, giving a full year
dividend of 19.37p, up 5% from the prior year (18.45p). This is consistent
with our stated ambition to grow the dividend at 5% per annum to FY 2024. 34
(#_edn34)
LGR - Institutional
FINANCIAL HIGHLIGHTS £m 2022 2021
Operating Profit 1,257 1,154
Investment and other variances (21) 193
Profit before tax attributable to equity holders 1,236 1,347
Release from operations 620 512
New business surplus 298 193
Net release from operations 918 705
New business premiums £m
UK PRT 7,226 5,315
International PRT 2,222 936
Other PRT (longevity insurance, Assured Payment Policy) 93 925
Total new business 9,541 7,176
LGRI Annuity assets(1) (£bn) 55.0 67.4
1. In the UK, annuity assets across LGRI and Retail
are managed together. Estimated proportion of annuity assets belonging to LGRI
Operating profit of £1,257m
LGRI delivered strong operating profit of £1,257m, up 9% (2021: £1,154m).
Profit was underpinned by the scale of backbook earnings, performance of our
global annuity portfolio, robust pension risk transfer (PRT) new business
volumes and routine assumption changes. UK volumes increased 17% to £7.3bn
(2021: £6.2bn) and international volumes increased 137% to £2.2bn (2021:
£0.9bn).
We have prudently adopted a modified CMI 2020 model, releasing a modest
positive into the results. No weight was given to 2020 data, as this would
have led to unreasonable falls in life expectancy, given the significant
impact of Covid.
Release from operations increased 21% to £620m (2021: £512m), reflecting the
scale of the business as prudential margins unwind from LGRI's £55.0bn
annuity portfolio (2021: £67.4bn).
Net release from operations was £918m (2021: £705m) with new business
surplus of £298m (2021: £193m), reflecting successful execution of our
disciplined approach to writing new business, leveraging positive asset
sourcing and proactive use of reinsurance. During 2022, we wrote £7,319m of
UK PRT at a UK Solvency II new business margin of 8.9%, which is in line with
our long-term average (2021: 9.5%). UK PRT volumes were written at a capital
strain of less than 4%.
Gross longevity exposure was £69.7bn across LGRI's and Retail's annuity and
longevity insurance businesses. We have reinsured £32.3bn of longevity risk
with seventeen reinsurance counterparties, leaving a net exposure of £37.4bn.
The reinsurance market continues to grow and innovate, and we expect it to
continue to offer sufficient capacity to meet the demand from insurers.
Successful execution coupled with a disciplined approach for value
During 2022 LGRI underwrote £9,541m of business across 61 deals globally
(2021: £7,176m, 57 deals).
Legal & General wrote strong levels of PRT new business whilst remaining
focused on value creation.
LGRI's brand, scale and asset origination capabilities - through synergies and
expertise within LGIM and LGC - are critical to our market leadership in the
UK PRT market. Long-term client relationships, typically created and
fostered by LGIM, have allowed us to help many pension plans achieve their
de-risking goals. In 2022, we demonstrated our market leadership and
solutions capabilities by writing a series of innovative transactions,
including:
· A £4.3bn buy-in with the British Steel Pension Scheme (BSPS),
sponsored by Tata Steel UK, executed in two tranches (£2.2bn in May and
£2.1bn in December). These transactions bring L&G's total insured
amount to 60% of BSPS liabilities, up from 5% in 2021. The BSPS trustee
appointed LGIM in July 2022 to manage the combined assets of the scheme and
bring additional skills and expertise to the scheme as it targets full
buy-in 35 (#_edn35)
· c£430m buy-in with the Tioxide Pension Fund, securing the benefits
of around 2,700 retirees and deferred members
· c£400m buy-in with the TT Group (1993) Pension Scheme, securing the
benefits of circa 5,000 retirees and deferred members
· c£370 million buy-in with London Heathrow's BAA Pension Scheme,
securing the benefits of more than 1,400 retirees
Strong US volumes with significant growth
Capitalising on the growing market opportunity and affirming our competitive
position in the US, LGRI delivered $2,096m in 2022, almost double the US PRT
business originated in the prior year (2022: £1,763m; 2021: $1,095m;
£789m). As the US market continues to grow and mature, LGRI is strongly
positioned to leverage cross-divisional synergies to boost momentum in the
region.
As always, our focus is on shareholder value creation, and we maintain
disciplined pricing to ensure strong economic returns. This has been
fundamental to our success to date and positions us well as we begin to
undertake larger PRT transactions. In 2022, we wrote two of our largest ever
US PRT transactions, each greater than $500m, with strong economic returns.
In addition, we secured £459m of Canadian deals through our reinsurance
entity and continue to develop strategic partnerships in the region,
increasing our overall presence in North America.
As the only insurer providing PRT directly to pension plans across the UK and
US, Legal & General is also strongly positioned to offer international
pension de-risking solutions.
Legal & General Capital
FINANCIAL HIGHLIGHTS £m 2022 2021
Operating profit 509 461
- Alternative asset portfolio 400 350
- Traded investment portfolio & Treasury 109 111
Investment and other variances (408) 19
Profit before tax attributable to equity holders 101 480
Net release from operations 404 379
ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate 811 625
Clean energy 272 224
Housing 2,268 1,979
SME Finance 811 611
4,162 3,439
TRADED ASSET PORTFOLIO £m
Equities 1,335 1,853
Fixed income 103 54
Multi-asset 181 221
Cash(1) 1,067 1,427
2,686 3,555
LGC investment portfolio 6,848 6,994
Treasury assets at holding company 1,588 1,621
Total 8,436 8,615
1. Includes short-term liquid holdings.
Total operating profit of £509m increased 10% over 2022
LGC operating profit increased by 10% to £509m (2021: £461m). This growth
principally reflects increased profits from our alternative asset portfolio of
£400m (2021: £350m), driven by strong demand in the housebuilding market and
continued maturing of the portfolio.
Profit before tax attributable to equity holders was £101m, driven by
investment and other variances of £(408)m, largely due to adverse market
performance in traded equities, as well as the more minor revaluation of some
land assets and development projects reflecting higher interest rates.
Our growing alternative asset portfolio achieved a net portfolio return of
7.5% (2021: 8.5%).
Alternative asset portfolio grew 21% over 2022 to £4.2bn
LGC continues to strengthen its capabilities across a diversified range of
alternative assets that are underpinned by structural growth drivers. In
2022, our alternative asset portfolio increased to £4,162m (2021: £3,439m)
as we deployed a further £0.8bn, and made new undrawn commitments of £0.5bn
across our existing investment platforms. Through these investments, we
originate assets that generate strong returns for shareholders, create
attractive Matching Adjustment (MA)-eligible assets for our annuity portfolio,
and supply attractive alternative assets to third party clients. An example
of this is the new JV between LGIM and our NTR investment, where we
participated as one of the cornerstone investors for the Clean Power (Europe)
Fund.
Specialist Commercial Real Estate: developing real estate to support global
science and technology
Supporting the need to "Level Up" towns and cities across the UK, we continue
to invest alongside public and private sector partners, to drive forward some
of the largest urban transformation schemes, back digital infrastructure and
fund the next generation of science and innovation centres. Our £4bn
partnership with Oxford University made significant progress with construction
underway on 3 sites representing a combined Gross Development Value of
c£330m, with 5 more sites in the pipeline for future development.
Through Bruntwood SciTech, the UK's leading innovation, science and technology
focused platform, we have continued to develop world-leading diagnostic and
life sciences infrastructure. With a NAV increase of 36% to £321.1m in
their year-ending September 2022 and total assets under management of c£860m,
Bruntwood SciTech now operates in 11 locations across 7 cities, with a
portfolio of c2.4m sq ft.
Another milestone achievement in 2022 was our first investment in the US.
Our 50:50 partnership with US real estate developer and asset manager,
Ancora, is building out a real estate business dedicated to driving life
science, research and technology growth across the US. Ancora L&G will be
capitalised by LGC to deliver $4bn (£3.2bn) of existing pipeline and planned
acquisition and development activity over the next five years. To support
and accelerate future growth, the partnership will work with third party
co-investment partners, which, in time, will create a new income stream of
third party fees.
In 2022, we announced a seven year £4bn partnership with the West Midlands
Combined Authority (WMCA) to invest in regeneration, Net Zero neighbourhoods
and housing.
LGC continues to make progress in its digital infrastructure investments.
Kao Data, a wholesale colocation data centre platform, has continued to
develop its existing three sites, as well as to explore organic and inorganic
expansion opportunities.
LGC is also pursuing data centre development opportunities which, once
developed, can create opportunities for our annuity business.
Our investment in WiredScore, an early-stage real estate digital connectivity
accreditation business, has continued to grow and successfully completed a
fundraise which will be used to fund further expansion.
Clean Energy: expanding our investments in infrastructure and innovation
Supporting the Group's ambitions to address climate change and deliver
shareholder returns, we invest in early-stage innovative clean technology
companies and low carbon energy infrastructure needed to meet UK and global UN
climate targets and Sustainable Development Goals.
LGC continues to invest in new and innovative sectors including:
· Sero Technologies ('Sero'), an energy technology and services company
supporting the transition to Net Zero across the residential housing sector.
· SunRoof, a Swedish start-up revolutionising the capture and use of
renewable energy through its solar roof system.
· Vaarst, a leading provider of subsea 3D computer vision technologies;
supporting the offshore wind, wave & tidal, scientific, maritime security,
and civil engineering industries.
· Brill Power, a battery management system provider which improves
battery performance for energy storage.
We also announced an additional investment in Kensa Group, a UK manufacturer
and installer of ground source heat pumps. In the 24 months since LGC became
shareholders, the manufacturer has doubled the amount of ground source heat
pumps produced. In December, Kensa and Legal & General officially opened
the UK's largest production facility dedicated to ground source heat pumps
with a plan to rapidly increase output by a further 50%.
We have a substantial pipeline of new investment opportunities including
energy storage, electric vehicle technology and renewables, and, after an
active 2022, we expect to further expand our growth equity portfolio in 2023.
Housing: developing our multi-tenure UK residential platform
LGC continues to scale up in Housing and had a landmark year, delivering over
5,000 new homes across our portfolio with a focus on creating sustainable
homes. As energy prices increase, our research shows an acceleration in
consumer demand for energy efficient homes. Diversified across affordability
and life stage, LGC's Housing investments meet the UK's long-term social and
economic need for quality housing for all demographics while producing
long-term dependable shareholder returns. During 2022, our Housing portfolio
grew to £2,268m (2021: £1,979m).
LGC's Build to Sell business, Cala, delivered an excellent performance across
2022, achieving the financial targets set out at the FY 2021 results, with
pre-tax profit of £169m, up 27% (2021: £132.7m). Cala delivered revenue of
£1.36bn, up 10% (2021: £1.24bn) through the sale of 3,027 units (2021: 2,904
units). Buyers remain attracted to Cala's outstanding quality of design and
construction, whilst the supply shortage of new homes continues to support new
home delivery.
Our Affordable Homes business is well positioned to address a growing market
demand and has continued to establish itself as one of the UK's leading
institutional developers and managers of affordable housing. The business
delivered £37m of operating profit in 2022 (2021: £26m), increasing the
number of operational affordable homes by 1,365 to a total of 3,032 homes.
Its development and operation pipeline now stands at over 6,500 homes, with
a Gross Asset Value of £1.2bn.
Our Build to Rent businesses address another sub-section of the housing market
which is expected to see significant and sustained demand. Our Urban Build
to Rent joint venture with PGGM has continued to make strong development
progress across the UK's major towns and cities. We now have a £200m
portfolio of c2,500 Urban BTR homes with 7 schemes in operation or
development, creating a strong pipeline of attractive, high-quality assets for
LGIM clients.
Growth in our Inspired Villages retirement living business continues at pace,
driven by the partnership with Natwest Group Pension Fund. Our Later Living
platform has made good planning and development progress, and Inspired
Villages is on track to deliver over 5,000 homes over the life of the
partnership.
Our Modular Housing business has delivered houses on multiple sites and
continues to work towards profitability as it builds its pipeline.
SME Finance: Actively investing in the real economy and technological
innovation
In the Alternative Finance sector, through our GP Stakes Investment programme,
we continue to support UK and European mid-market lending through our
investment in Pemberton, an asset manager specialising in private debt, in
which we hold a 40% stake. The Pemberton platform has raised over €16.5bn
(2021: €13.5bn) across five strategies, since we first invested in 2014,
with 180 investors globally. Of this €16.5bn, €12.0bn is fee-earning AUM
(2021: €8.7bn) across 90 companies, delivering €99m in revenue (2021:
€74m). Since 2015 Pemberton has grown fee-earning assets by 58% CAGR and
revenues by 79% CAGR.
Our GP Investing platform has also recently announced a new investment in
Women-led Impact Asset Manager, ImpactA, with ambitions to act as a
cornerstone investor in their first fund, targeting sustainable infrastructure
in Emerging Markets. This will deliver transformational infrastructure
projects to support the climate transition and reduce inequalities.
Our Venture Capital Funds platform backs over 600 start-up businesses across
the UK and Europe through our fund-of-funds programme and via direct
investment.
LGC's Venture Capital Fund-of-Funds programme showed progress in 2022
notwithstanding market volatility, with NAV growing by 17% to £200m.
Demonstrating the value of our patient investment approach, the portfolio
has delivered an IRR of over 20% after fees since inception in 2016, with most
of the funds we invested in early in the programme now maturing.
Legal & General Investment Management
FINANCIAL HIGHLIGHTS £m 2022 2021
Management fee revenue 944 980
Transactional revenue 26 32
Total revenue 970 1,012
Total costs (630) (590)
Operating profit 340 422
Investment and other variances (81) (11)
Profit before tax 259 411
Net release from operations 293 342
Asset Management cost:income ratio (%) 65 58
NET FLOWS AND ASSETS £bn
External net flows 49.6 34.6
PRT Transfers (3.1) (4.2)
Internal net flows 0.1 (2.1)
Total net flows 46.6 28.3
- Of which international(1) 21.4 29.5
Persistency 36 (#_edn36) (%) 88 87
Average assets under management 1,309 1,336
Assets under management as at 31 December 1,196 1,421
Of which:
- International assets under management(2) 441 479
- UK DC assets under management 135 138
1. International asset net flows are shown on the
basis of client domicile.
2. International AUM includes assets from
internationally domiciled clients plus assets managed internationally on
behalf of UK clients.
Operating profit of £340m, reflecting higher interest rates and volatile
equity markets
Operating profit of £340m (2021: £422m) reflects the impact of higher
interest rates and volatile equity markets on assets under management, in
addition to higher inflation impacting the cost base.
Assets under management (AUM) decreased by 16% to £1,195.7bn (2021:
£1,421.5bn), despite strong external net flows of £49.6bn (2021: £34.6bn),
which represented 4% of external opening AUM. New inflows delivered £22m of
annualised net new revenue (ANNR) across higher-margin areas including
thematic ETFs and Multi-asset, however this was fully offset by decreasing
Defined-Benefit (DB) revenues as higher fee products were sold by clients to
meet Liability Driven Investing (LDI) collateral requirements.
Management fee revenue decreased by 4% to £944m (2021: £980m), though
transactional revenue was robust at £26m (2021: £32m), driven by execution
fees with increased hedging activity and performance fees.
While we will continue to invest into areas of potential growth and on the
infrastructure to support the business, against this challenging backdrop we
will maintain a disciplined approach to cost management. We took expense
actions over 2022, including on recruitment and variable compensation, to
combat the impact of higher expense inflation and market movements on revenue.
Deepening our global institutional pensions footprint with International AUM
of £441bn
Our focus on international growth generated strong international net flows of
£21.4bn, reflecting our deepening relationships with a number of leading
international clients and underpinning our conviction in our ability to grow
international AUM and earnings.
Our US DB de-risking business had a strong year, with net flows of $6.0bn
representing the strength of our capabilities and client/consultant
relationships in helping pension plans achieve their investment objectives.
Improved funding ratios due to higher interest rates and wider credit spreads
have increased demand for fixed income and customised liability hedging
strategies.
Our European expansion continued at pace by growing the number of
relationships with clients, consultants and intermediaries in our core markets
of Germany, Italy and Switzerland. We added senior distribution headcount
into our Frankfurt and Milan offices and prepared for the opening of our
Zurich office in March 2023.
LGIM saw £17.2bn of net flows from Japanese clients and we are now Japan's
7(th) largest asset manager. 37 (#_edn37) Asia (ex-Japan) saw flows of
£11.3bn from multiple clients across the region.
Overall, 37% of our AUM now comes from international sources, demonstrating
our internationalisation strategy is taking effect. Our goal is for half of
our AUM to be from international sources by the end of this decade.
Accelerating growth in Global Wholesale
In UK Wholesale, we ranked 2nd for both gross and net fund sales in 2022. We
continued to expand our Model Portfolio Service (MPS), further extending our
successful Multi-asset proposition into the maturing advisory market, and with
the addition of two new funds completing the build of our Future World ESG
Multi-Index range. We believe our scale and expertise can disrupt this
market while helping clients meet their investment objectives. The launch of
our Global Thematic unit trust also makes our thematic strategies available to
a wider client base. Our property fund for retail investors continues to be
one of the market leaders with over £1.5bn of AUM and our higher margin
Multi-asset funds now collectively have over £10.4bn in AUM from UK retail
investors.
Our ETF business continues to grow strongly following our acquisition of
Canvas in March 2018. Over this period, revenue has more than tripled. The
business has shown resilience in 2022, against a challenging backdrop, with
$1.3bn of external net flows delivering an annualised net new revenue of
$3.8m.
LGIM continues to be ranked second on AUM in the European thematic ETF
market. Our diversified range consisting of Equity Thematic, Fixed Income,
and Commodities ETFs has supported our strategy of growth into higher-margin
areas. We launched four new thematic ETFs over H2 22 covering emerging cyber
security, optical technology and photonics, global multi-theme and the
metaverse. We are expanding our retail footprint through a partnership with
Gerd Kommer Invest and plan to launch a co-branded ETF to provide broad
diversified multi-factor exposure to global equities.
Ongoing strength in UK
The Defined Contribution (DC) business continues to attract new assets, with
external net flows of £11.6bn, supported by the ongoing growth in Retail's
Workplace pension business, which now has 4.9 million members. Annualised
net new revenue was £15m and total UK DC AUM is £135bn (2021: £138bn).
This success is underpinned by LGIM's strong customer focus and innovative
product proposition, as shown by a 93% persistency rate among our DC
customers.
L&G also has one of the largest and fastest-growing UK Master Trusts,
which now has £19.8bn AUM, reflecting the increasing appeal of the structure
for DC plans wishing to outsource their governance, investment and
administration. Growth in our UK Master Trust business continues to support
growth in Multi-asset flows, since this is the default option for many of our
clients. Our ability to offer investors an integrated blend of high-quality
investment solutions, pensions administration and Master Trust governance for
a value bundled price maintains a significant source of competitive advantage
for LGIM's DC business.
LGIM supports UKDB clients with a variety of solutions to meet their needs,
including LDI, which aims to lower the volatility of DB pension schemes'
funding levels. In the second half of 2022, the gilt market experienced
unprecedented volatility, precipitated by the mini-Budget in September, amid a
global context of rising interest rates. As gilt yields spiked, schemes
using LDI were required to post higher levels of collateral. Throughout this
period, which ultimately prompted an intervention from the Bank of England, we
remained focused on managing risk to achieve our clients' long-term
objectives. Over the course of 2022, we experienced positive flows into LDI.
However, and as noted, overall DB revenue decreased as interest rate rises
caused assets under management to reduce and as clients sold higher
fee-generating products to meet collateral requests. We remain fully
committed to our full range of Solutions products.
Breadth of investment management solutions
Active Multi Real Total
Asset movements(1) (£bn) Index strategies asset Solutions assets AUM
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows 95.8 16.0 13.5 90.0 2.5 217.8
External outflows (102.6) (23.5) (9.3) (27.2) (2.1) (164.7)
Overlay net flows - - - (3.5) - (3.5)
External net flows (6.8) (7.5) 4.2 59.3 0.4 49.6
PRT transfers(2) (0.2) (0.4) - (2.5) - (3.1)
Internal net flows (1.1) (0.4) (0.2) (1.2) 3.0 0.1
Total net flows (8.1) (8.3) 4.0 55.6 3.4 46.6
Market movements (50.2) (33.1) (8.1) (173.9) (6.2) (271.5)
Other movements 0.6 (0.6) - (0.9) - (0.9)
As at 31 December 2022 444.7 156.8 73.9 485.9 34.4 1,195.7
1. Please see disclosure 4.01 for further details.
2. PRT transfers reflect outflows in respect of LGIM clients who have
moved to PRT with LGRI
We continue to see positive flows in Solutions - £59.3bn (2021: £19.9bn) -
driven by strong demand in the UK following the sharp rise in gilts, leading
to our clients increasing collateralisation levels on LDI products. We have
also seen growth in the US and APAC as DB clients continue to de-risk. We
manufacture Solutions in both publicly and privately traded asset classes and
combine these in integrated portfolios for our DB clients. We are well
positioned to capitalise on this continuing trend. Together with our
Fiduciary business offering, and working closely with LGRI's PRT business, we
can support DB schemes at all stages of their funding journey. In 2022 we
signed an agreement with the British Steel Pension Scheme to manage the
£9.9bn 38 (#_edn38) assets in its DB scheme. This approach is
competitively differentiated in the market and provides a template for similar
future deals.
Multi-asset strategies continue to be in demand from DC schemes and Wholesale
customers. External net flows into Multi-asset funds were £4.2bn (2021:
£7.0bn), and we have seen positive initial market sentiment following the
launch of our Future World Multi-Index range.
Index reported external net outflows of £6.8bn (2021: £4.9bn) with new
international flows into Japan (£17.3bn), Asia (£7.5bn), and continued
positive ETF flows momentum more than offset by Index outflows in the UK and
US, reflecting the structural trend of DB schemes de-risking as well as the
need to fund increased collateralisation levels in LDI.
Active Strategies reported external net outflows of £7.5bn (2021: £2.9bn)
reflecting positive net inflows from US clients, more than offset by net
outflows from UK DB clients as assets were sold down to fund LDI collateral
calls.
Real Assets saw total net flows of £3.4bn (2021: £1.9bn) driven by
additional Private Credit transactions to support LGRI's PRT proposition. We
expect future growth in flows to be supported by our Build to Rent business
and by Private Credit, which offers clients diversification of secure income
and value protection solutions, and which UK DB investors are now accessing
through our successful SIAF and STAFF private credit funds. 39 (#_edn39)
We are continuing to build on our partnership with NTR, a leading renewable
energy specialist, to provide institutional investors in the UK, Europe and
Asia access to the €1 trillion European energy transition. In 2022 we
launched our L&G Clean Power (Europe) fund with initial capital raising of
over €200m.
Investment performance
The market backdrop in 2022 has been very challenging. War in Ukraine has
led to widespread disruption in energy supplies and contributed to spiralling
inflation. This, in turn, has led to considerable volatility and weakness in
both fixed income and equity markets with key benchmark indices posting
double-digit negative total returns, leaving very little respite for
investors. As a result, short-term performance across some of our
Multi-asset strategies has been challenging, especially those seeking a "cash
plus" outcome.
The relative performance of our UK-managed Active Fixed Income strategies was
strong with 82% of strategies out-performing over 3 years and 83%(( 40
(#_edn40) )) over 5 years. Our US-managed Active Fixed Income strategies
have also performed well with 91% of strategies out-performing over 3 years
and 95% over 5 years. Within Private Markets, 67%(( 41 (#_edn41) )) of our
Real Estate Equity funds have outperformed over 3 years and our Private Credit
performance remains strong.
In Solutions and Index our investment success is driven by asset liability
matching, for example liability driven strategies, or by tracking indices
predefined by our clients. We continue to deliver against these target
returns consistently and successfully, as evidenced by increasing client
flows.
Our investment success is also evident in the number of independent awards we
have won over 2022 for investment performance, including the ESG award at the
City AM Awards 2022, Investment Manager of the Year and Passive Manager of the
Year at the European Pensions Awards 2022, and Residential Asset Manager of
the Year at the Property Week Resi awards.
Leading in responsible investing
LGIM continues to build on its credentials as a responsible investor and
remains committed to leading the asset management industry in addressing the
environmental and social challenges arising from a rapidly changing world.
As at 31st December 2022, LGIM managed £332.2bn (2021: £290.0bn) in
responsible investment strategies explicitly linked to ESG criteria for a
broad range of clients. 42 (#_edn42)
LGIM has a unified purpose: to create a better future through responsible
investing. To that end, and partnering with our clients, we work to raise
market standards and best practice on vital global issues, leveraging our
position as one of the largest global asset managers. LGIM is, for example,
a founding signatory of the Net Zero Asset Managers Initiative, and has a
global marketing partnership with Lewis Pugh, the UN Patron of the Oceans.
· Client Focus and Product innovation: Clients globally recognise and
value LGIM's authenticity in aligning Responsible Investment to the Group's
Inclusive Capitalism ethos. Over the past 12 months the proportion of LGIM's
assets under management in responsible investment strategies has risen from
20% to more than 27%. This reflects our partnerships with clients to refine
their existing strategies and launch new strategies aligned to their
responsible investment objectives. As an increasing number of clients
allocate assets to strategies either embedding or specifically targeting
environmental and/or social factors, we have also invested in data and
technology to provide them with clarity on the ESG characteristics of their
investments. Around 95% of all new products developed and mandates launched
at LGIM in 2022 have been ESG-related. Recent examples of ESG product
innovation that place us at the forefront of growing client demand include:
· Launch of the Clean Power Energy Fund
· The launch of a Global Diversified Credit fund aligned to the UN's
Sustainable Development Goals.
· The launch of Net Zero, Paris Aligned and climate transition funds
helping clients meet their own climate commitments
· The evolution of many of our SICAV fund range to include explicit
decarbonisation objectives
· The Sustainable DC Property Fund
· Stewardship with impact: At LGIM, we are committed to using our scale
and influence to raise market standards and best practice across climate,
nature, people and technology. As responsible investors, we aim to vote
every share that we hold, in line with our stewardship engagement and
policies, and publish our voting activities on our dedicated website. 43
(#_edn43) We rate around 17,000 companies through our proprietary scoring
system, the LGIM ESG Score, and we capture roughly 5,000 companies within our
flagship corporate engagement programme, the Climate Impact Pledge. In
addition to our own engagements, we are active collaborators with our peers
through global organisations such as the CA100+ and the IPDD (Investors Policy
Dialogue on Deforestation).
· Investment in Tumelo: In early 2022 we acquired a minority stake in
Tumelo, an ESG digital engagement platform, which enables pension scheme
members to express their preference on AGM proposals of companies they are
invested in. By providing this capability to our DC pension clients we are
driving greater consumer engagement and enabling LGIM to better understand
members' views and use these as an input to LGIM's engagement themes and
voting stance.
Retail Division
FINANCIAL HIGHLIGHTS £m 2022 2021
Operating profit 825 620
- UK Insurance(1) 173 320
- US Insurance 168 (52)
- Retail Retirement 484 352
Investment and other variances 817 160
Profit / (loss) before tax attributable to equity holders 1,642 780
Release from operations(2) 554 463
New business surplus / (strain) (4) 54
Net release from operations 550 517
Protection new business annual premiums 382 379
Individual annuities single premium 954 957
Workplace Savings net flows(3) (£bn) 7.3 8.5
Lifetime & Retirement Interest Only mortgage advances 632 848
Retail retirement annuity assets(4) (£bn) 17.4 22.5
UK Retail protection gross premiums 1,485 1,444
UK Group protection gross premiums 427 405
US protection gross premiums 1,222 1,053
Total protection gross premiums 3,134 2,902
Protection New Business Value 166 262
Annuities New Business Value 60 61
Solvency II New Business Value 226 323
1. UK Insurance includes Retail Protection, Group
Protection, Fintech and Mortgage Services.
2. Includes the annual dividend of $114m (2021: $111m)
paid by LGIA to the Group in March 2022.
3. This represents the Workplace Savings
administration business. Profits on the fund management services we provide
are included in LGIM's asset management operating profit.
4. In the UK, annuity assets across LGRI and Retail
are managed together. Estimated proportion of annuity assets belonging to
Retail retirement
Strong operating profit result of £825m, up 33%
US Insurance saw a return to profit in 2022, despite another year of
industry-wide adverse mortality in the US, driven by robust new business
volumes and the benefit from reinsuring the in-force universal life
business. After significant Covid mortality experience over Q1 22, the
market continued to see elevated levels of mortality over the year, leading to
claims exceeding the provision raised at FY 2021. A new prudent provision of
$40m (£32m) has been included in the results to allow for the uncertainty of
Covid and flu over the remainder of winter.
Retail retirement growth is driven by the growing release from operations in
the retail annuity portfolio, in addition to routine assumption changes.
Prudently updating the base mortality rate assumption annually in line with
experience is the biggest element, given we retain the majority of longevity
exposure on our retail annuity portfolio.
UK Insurance has benefitted from the ongoing release from operations in the UK
protection businesses, in addition to valuation uplifts in our Fintech
investments in Salary Finance and Smartr365 following successful funding
rounds over 2022. The 2021 UK Protection result included a one-off benefit
of £107m from the introduction of an illiquidity premium in the UK Protection
liability discount rate.
Profit before tax was predominantly impacted by the formulaic change in
discount rates, as experienced in previous periods. The positive investment
variance of £817m was driven primarily by an increase in UK and US government
bond yields which have resulted in a higher discount rate used to calculate
the Insurance reserves. The UK liability discount rate increased by 283bps
and US 10-year Treasury yields increased by 237bps.
Solvency II New Business Value decreased to £226m (2021: £323m) reflecting
the impact of higher interest rates and lower volumes in Retail protection
after a strong 2021. The Insurance business continues to generate Solvency
II surplus immediately when written and provides diversification benefits to
the Group.
Robust trading performance over 2022
UK Retail protection gross premium income increased to £1,485m (2021:
£1,444m), with new business annual premiums of £171m (2021: £200m) in a
smaller market(36) (2021 benefitted from a buoyant housing market). L&G
continues to lead the UK protection market with a market share of 23% 44
(#_edn44) , delivering a point-of-sale decision for more than 81% of our
customers.
UK Group protection new business annual premiums were £107m (2021: £88m)
with gross written premiums increasing 5% to £427m (2021: £405m). Our
online "quote and apply" platform for smaller schemes continues to perform
well, processing 600 new clients over the year (2021: 80) and we are seeing
strong growth in this part of the market. Group Protection supported 3,223
members of income protection schemes to return to work during 2022.
US protection (LGIA) gross written premiums increased 4% (up 16% on a sterling
basis, benefiting from FX movements) to $1,512m (2021: $1,449m), with new
business annual premiums up 4% to $129m (2021: $124m). LGIA ranked number
one in the brokerage general agency channel in the third quarter by new
policies issued and number two in new premium. We continue to develop our
market-leading, digital new business platform which now covers 80% of new
business.
Legal & General Mortgage Club facilitated a record £110bn of mortgages,
up 12% (2021: £98bn), driven by strong demand over the year, most notably in
the re-mortgage market. We remain the largest participant in the UK
intermediated mortgage market and are involved in around one in five of all UK
mortgage transactions. Our Surveying Services business facilitated over
512,000 surveys and valuations (2021: 528,000).
Individual annuity sales were £954m (2021: £957m) in what has been a
challenging market during 2022, with the volatile macro-economic environment
impacting the timing of retirement. Our performance has remained strong: our
operational service, competitive pricing and intermediary presence allowed us
to maintain a market share of 20.3% over 2022.(36)( ) Following the increase
in interest rates over the second half of the year, we saw demand for
individual annuities (particularly fixed term annuities) increase towards the
end of the year. We expect this to continue into 2023.
Lifetime mortgage advances, including Retirement Interest Only mortgages, were
£632m (2021: £848m). Throughout this period of rising interest rates, we
have maintained pricing and underwriting discipline.
Workplace Savings net flows were £7.3bn (2021: £8.5bn), driven by continued
client wins and increased contributions. Members on the Workplace pension
platform increased to 4.9 million at the end of 2022. We are continuing to
focus on improving efficiency and member experience as the business grows.
Scaling up our Fintech businesses
Retail has continued with its strategy to invest in and scale up innovative
fintech businesses in adjacent markets.
Salary Finance, an employee benefits platform in which we have a 48% holding
as at year end 2022, continues to grow rapidly, with the platform
now connected to over 4.6 million employees across the UK and US. Gross
revenue grew to £43.6m, an increase of just over 45% year on year. In order
to position itself for continued growth, Salary Finance received a substantial
injection of cash by successfully completing a funding round, in addition to
executing a transaction to sell Work Report to Experian.
Our 49% holding in Smartr365 - a complete end-to-end mortgage platform
designed to simplify the mortgage process for brokers, introducers, networks
and consumers - has continued to build scale, and also achieved a successful
funding round in 2022. We now have around 3,300 users on the platform and
continue to receive strong feedback on the proposition.
Three new investments were made this year: Onto, an all-inclusive electric car
subscription provider; Moneyhub, an open finance and payments platform; and
Generation Home, a mortgage provider. Onto's growth plans include
opportunities for a salary deduction workplace offering which L&G is
ideally placed to support given our multiple, workplace-focused businesses and
investments. Onto's business model also aligns well with our ambitions to
help the UK economy transition to net zero. Moneyhub is an open finance
platform which provides a single connection to thousands of financial
institutions across 37 countries enabling open banking and data solutions.
Their vision, which is to enhance the lifetime financial wellness of their
customers, is closely aligned to that of our Workplace Savings business.
Generation Home adds another important investment to our substantial presence
in the mortgage and home-finance "ecosystem", with opportunities to increase
loans for first-time buyers by allowing multiple buyers and income boosters.
Subsidiary dividends to Group
£m 2022 2021
( ) ( )
( ) ( ) ( )
Subsidiary dividends remitted(1):
LGAS 784 902
LGIM 279 276
LGA 97 85
Other(2) 394 219
Total 1,554 1,482
1. Represents cash that will be remitted from subsidiaries to Group in respect
of the year's financial performance.
2. Other includes Legal & General Home Financing, Legal & General
Capital Investments Limited, Legal & General Reinsurance, and Legal &
General Partnership Services Limited.
The level of subsidiary dividends ensures coverage of external dividends
(2022: £1,153m; 2021: £1,101m) and Group related costs, with excess
liquidity being held within our regulated subsidiaries.
Borrowings
The Group's outstanding core borrowings totalled £4.3bn at 31 December 2022
(FY 2021: £4.3bn). There is also a further £1.2bn (FY 2021: £0.9bn) of
operational borrowings including £0.9bn (FY 2021: £0.9bn) of non-recourse
borrowings.
Group debt costs of £214m (2021: £230m) reflect an average cost of debt of
4.8% per annum (2021: 5.0% per annum) on an average nominal value of debt
balances of £4.5bn (2021: £4.6bn).
Taxation
Equity holders' Effective Tax Rate (%) 2022 2021
Equity holders' total Effective Tax Rate 13.9 17.9
Annualised rate of UK corporation tax 19.0 19.0
The 2022 effective tax rate reflects the different rates of taxation that
apply to Legal & General's overseas operations, as well as applying the
future enacted UK tax rate of 25% (which applies from 1 April 2023) on
deferred tax movements in the period.
The tax rate on operating profits, excluding the impact of investment
variance, was 16.0% (2021: 15.5%).
Solvency II
As at 31 December 2022, the Group had an estimated Solvency II surplus of
£9.9bn over its Solvency Capital Requirement, corresponding to a Solvency II
coverage ratio of 236%.
2022 2021
Capital (£m)
Own Funds 17,226 17,561
Solvency Capital Requirement (SCR) (7,311) (9,376)
Solvency II surplus 9,915 8,185
SCR coverage ratio (%) 236 187
Solvency II Own Funds Solvency II SCR Solvency II Surplus
Analysis of movement from 1 January 2022 to 31 December 2022(1) (£m)
Operational surplus generation 1,409 396 1,805
New business strain 333 (685) (352)
Net surplus generation 1,742 (289) 1,453
Operating variances( ) (327)
Mergers, acquisitions and disposals -
Market movements 1,720
Subordinated debt -
Dividends paid (1,116)
Total surplus movement (after dividends paid in the period) (335) 2,065 1,730
1. Please see disclosure note 5.01(d) for further detail.
Operational surplus generation increased to £1,805m (2021: £1,636m), after
allowing for amortisation of the opening Transitional Measures on Technical
Provisions (TMTP) and release of Risk Margin.
New business strain was £(352)m, primarily reflecting UK PRT volumes written
at a capital strain of less than 4%. This resulted in net surplus generation
of £1,453m (2021: £1,282m), which was in excess of the £1,116m of dividends
paid during the year. Note: our ambition is for net surplus generation to
exceed dividends cumulatively over the period 2020-2024. From the start of
the ambition period to FY 2022 we have generated £0.7bn of cumulative net
surplus over the dividend.
Operating variances include the impact of experience variances, changes to
assumptions, and management actions. Market movements of £1,720m primarily
reflect the impact of rising rates on the valuation of our balance sheet,
partially offset by weaker asset markets, predominantly in equities, credit
spread dispersion in sub-investment grade assets, as well as a number of
other, smaller variances.
The movements shown above incorporate the impact of recalculating the TMTP as
at 31 December 2022.
Reconciliation of IFRS net release from operations to Solvency II net surplus
generation(1)
The table below gives a reconciliation of the Group's IFRS Release from
operations and Solvency II Operational surplus generation in 2022:
£bn
IFRS Release from operations 1,625
Expected release of IFRS prudential margins (577)
Release of IFRS specific reserves (158)
Solvency II investment margin 198
Release of Solvency II Capital Requirement and Risk Margin less TMTP 717
amortisation
Solvency II Operational Surplus Generation 1,805
The table below gives a reconciliation of the Group's IFRS New business
surplus to Solvency II New business strain in 2022:
£bn
IFRS New business surplus 294
Removal of requirement to set up prudential margins above best estimate on new 222
business
Set up of Solvency II Capital Requirement on new business (685)
Set up of Risk Margin on new business (183)
Solvency II New business strain (352)
1. Please see disclosure 1.02 and 5.01 (f) for further details.
Sensitivity analysis(2)
Impact on net of tax Solvency II capital surplus Impact on net of tax Solvency II coverage ratio
2022 2022
£bn %
100bps increase in risk free rates 0.5 18
100bps decrease in risk free rates (0.6) (19)
Credit spreads widen by 100bps assuming an escalating addition to ratings 0.3 13
Credit spreads narrow by 100bps assuming an escalating deduction from ratings (0.4) (16)
Credit spreads widen by 100bps assuming a flat addition to ratings 0.3 14
Credit spreads of sub-investment grade assets widen by 100bps assuming a level (0.3) (7)
addition to ratings
Credit migration (0.8) (10)
25% fall in equity markets (0.4) (3)
15% fall in property markets (0.9) (11)
50bps increase in future inflation expectations - (3)
Substantially reduced Risk Margin 0.5 7
2. Please see disclosure 5.01 (h) for further details.
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. Allowance is made for the recalculation of the Loss
Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity
remains available post stress.
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.
Solvency II new business contribution
Management estimates of the present value of new business (PVNBP) and the
margin as at 31 December 2022 are shown below(1):
PVNBP Contribution from Margin %
new business
LGRI - UK annuity business (£m) 6,484 575 8.9
Retail Retirement - UK annuity business 954 60 6.3
UK Protection Total (£m) 1,512 82 5.4
- Retail protection 1,073 51 4.7
- Group protection 439 31 7.0
US Protection (£m) 796 84 10.6
The key economic assumptions as at 31 December 2022 are as follows:
%
Margin for risk 4.4
Risk free rate
- UK 3.6
- US 3.9
Risk discount rate (net of tax)
- UK 8.0
- US 8.3
Long-term rate of return on non-profit annuities 5.7
1. Please see disclosure 5.02(b) for further details.
The future earnings are discounted using duration-based discount rates, which
is the sum of a duration-based risk free rate and a flat margin for risk. The
risk free rates have been based on a swap curve net of the PRA-specified
Credit Risk Adjustment. The risk free rate shown above is a weighted average
based on the projected cash flows.
Other than updating for recent experience, all other economic and non-economic
assumptions and methodologies that would have a material impact on the margin
for these contracts are unchanged from those previously used by the group for
its European Embedded Value reporting, other than the cost of currency hedging
which has been updated to reflect current market conditions and hedging
activity in light of Solvency II.
Principal risks and uncertainties
Legal & General runs a portfolio of risk-taking businesses; we accept risk
in the normal course of business and aim to deliver sustainable returns on
risk-based capital to our investors in excess of our cost of capital. We
manage the portfolio of risk that we accept to build a sustainable franchise
for the interests of all our stakeholders; we do not aim to eliminate that
risk. We have an appetite for risks that we understand and are rewarded for,
and which are consistent with delivery of our strategic objectives. Risk
management is embedded within the business. The Group's Principal Risks and
Uncertainties summarise key matters that may impact the delivery of Group's
strategy earnings or profitability.
RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION
Investment market performance and conditions in the broader economy may We cannot eliminate the downside impacts on our earnings, profitability or
adversely impact earnings, profitability, or surplus capital. surplus capital from investment market volatility and adverse economic
conditions, although we seek to position our investment portfolios and wider
business plans for a range of plausible economic scenarios and investment
market conditions to ensure their resilience across a range of outcomes. This
The performance and liquidity of financial and property markets, interest rate includes setting risk limits on exposures to different asset classes and where
movements and inflation impact the value of investments we hold in hedging instruments exist, we seek to remove interest rate and inflation risk
shareholders' funds to meet the obligations from insurance business; the on a financial reporting basis.
movement in certain investments directly impacts profitability. Interest rate
movements and inflation can also change the value of our obligations and
although we seek to match assets and liabilities, losses can still arise from
adverse markets. Falls in the risk-free yield curve can also create a greater Our Own Risk & Solvency Assessment is integral to our risk management
degree of inherent volatility to be managed in the Solvency II balance sheet, approach, supporting assessment of the financial impacts of risks associated
potentially impacting capital requirements and surplus capital. Falls in with investment market volatility and adverse economic scenarios for our
investment values can reduce our investment management fee income. Solvency II balance sheet, capital sufficiency, and liquidity requirements. We
seek to remain resilient to a wide range of modelled scenarios that go well
beyond consensus forecasts, accepting that some market movements, including
for example those observed in the recent UK mini-budget crisis, fall outside
the range of past experience.
Although global economic activity has broadly returned to pre-pandemic levels,
the immediate outlook remains uncertain with potential for a sustained period
of very low growth and elevated levels of inflation, particularly in the UK.
Financial markets, whilst experiencing volatility over 2022, have similarly
shown a recovery; however, asset values remain susceptible to reappraisal
should the current economic outlook deteriorate, as well as from a range of
geo-political factors including the ongoing war in Ukraine and potential
further ruptures in the US-China relationship. Over 2022 UK commercial
property markets saw a decline in valuations, and uncertainty persists in
certain sectors reflecting the broader economic outlook. Within our
construction businesses supply chain, cost inflation and labour shortages also
continue to present risk.
We manage our exposure to downgrade and default risks within our bond
portfolios, through setting selection criteria and exposure limits, and using
In dealing with issuers of debt and other types of counterparty, the group is LGIM's global credit team's capabilities to ensure risks are effectively
exposed to the risk of financial loss. controlled, where appropriate trading out to improve credit quality. In our
property lending businesses, our loan criteria take account of borrower
default and movements in the value of security. We manage our reinsurer
exposures with the vast majority of our reinsurers having a minimum A- rating.
Systemic corporate sector failures, or a major sovereign debt event, could, in setting rating-based exposure limits, and where appropriate taking collateral.
extreme scenarios, trigger defaults impacting the value of our bond Similarly, we seek to limit aggregate exposure to banking, money market and
portfolios. Under Solvency II, a widespread widening of credit spreads and service providers. Whilst we manage risks to our Solvency II balance sheet, we
downgrades can also result in a reduction in our Solvency II balance sheet can never eliminate downgrade or default risks, although we seek to hold a
surplus, despite already having set aside significant capital for credit risk. strong balance sheet that we believe to be prudent for a range of adverse
We are also exposed to default risks in dealing with banking, money market and scenarios.
reinsurance counterparties, as well as settlement, custody, and other bespoke
business services. Default risk also arises where we undertake property
lending, with exposure to loss if an accrued debt exceeds the value of
security taken. The risk of credit downgrades and default increases in periods of low economic
growth, and we are closely monitoring factors that may lead to a widening of
credit spreads including the outlook for interest rates. A sustained period of
elevated inflation, reducing real incomes, will particularly impact economic
activity in sectors reliant on discretionary spending. The UK residential
property market is also showing signs of slowing confidence, and we continue
to carefully monitor the medium to long term outlook.
RISKS AND
UNCERTAINTIES
TREND,
OUTLOOK AND MITIGATION
We fail to respond to the emerging threats from climate change from our We recognise that our scale brings a responsibility to act decisively in
investment portfolios and wider businesses. positioning our balance sheet to the threats from climate change. We continue
to embed the assessment of climate risks in our investment process. We measure
the carbon intensity targets of our investment portfolios, and along with
specific investment exclusions for carbon intensive sectors, we have set
As a significant investor in financial markets, commercial real estate and overall reduction targets aligned with the 1.5°C 'Paris' objective, including
housing, we are exposed to climate related transition risks, and the impact setting near term science-based targets to support our long-term emission
this has on asset valuation and the economy. Our interests in property assets reduction goals. Alongside managing exposures, we monitor the political and
may also expose us to physical climate change related risks, including flood regulatory landscape, and as part of our climate strategy we engage with
risks. We are also exposed to reputation and climate related litigation risks regulators and investee companies in support of climate action. As we change
should our responses to the threats from climate change be judged not to align how we invest, the products and services we offer, and how we operate, we are
with the expectations of environment, social and governance (ESG) groups. Our also mindful of the need to ensure that we have the right skills for the
risk management approach is also reliant upon the availability of verifiable future.
consistent and comparable emissions data.
Over the next decade, the change necessary to meet global carbon reduction
targets will require societal adjustments on an unprecedented scale. A failure
by governments to ensure an orderly transition to low carbon economies
increases the risk for sudden late policy action and large, unanticipated
shifts in the asset values of impacted industries. Whilst our transition plans
seek to minimise our overall exposure to this risk, their execution is
dependent on the delivery of the policy actions and the climate reduction
targets of the firms we invest in. The actions governments take will also to
some extent inform how we can deliver upon the commitments we have made, and
as the science of climate change evolves, we may need to adapt out actions.
Anti ESG sentiment, particularly within countries with a high dependency on
fossil fuel related industries, may also constrain global ambition in
addressing climate change as well as limiting investment opportunities.
Reserves and our assessment of capital requirements may require revision as a We undertake significant analysis of the variables associated with writing
result of changes in experience, regulation or legislation long-term insurance business to ensure that a suitable premium is charged for
the risks we take on, and that reserves continue to remain appropriate for
factors including mortality, lapse rates, valuation interest rates, and
expenses, as well as credit default in the assets backing our insurance
The pricing of long-term business requires the setting of assumptions for liabilities. We also aim to pre-fund and warehouse appropriate investment
long-term trends in factors such as mortality, lapse rates, valuation interest assets to support the pricing of long-term business.
rates, expenses and credit defaults as well as the availability of assets with
appropriate returns. Actual experience may require recalibration of these
assumptions, increasing the level of reserves and impacting reported
profitability. We seek to have a comprehensive understanding of longevity, mortality and
morbidity risks, and we continue to evaluate wider trends in life expectancy
as a result of Covid-19 and the associated impacts of the pandemic on
healthcare systems. However, we cannot remove the risk that adjustment to
Management estimates are also required in the derivation of Solvency II reserves may be required, although the selective use of reinsurance acts to
capital metrics. These include modelling simplifications to reflect that it is reduce the impacts to us of significant variations in life expectancy and
not possible to perfectly model the external environment. Forced changes in mortality.
reserves can also arise from regulatory or legislative intervention impacting
capital requirements and profitability.
Whilst the global vaccine rollout has had a significant effect in reducing
mortality rates from Covid 19, there remains a degree of risk to the emergence
of new variants of the disease. We also continue to see a slowing in the rate
of mortality improvement in both the UK and the US, reflecting the direct
impacts of Covid 19 related illness as well as potentially the deferral of
diagnostics and medical treatments for other conditions, and there remains
uncertainty to the impacts of "long covid".
Along with the emergence of new diseases and changes in immunology impacting
mortality and morbidity assumptions, other risk factors that may impact future
reserving requirements include a dramatic advance in medical science, beyond
that anticipated, requiring adjustment to our longevity assumptions. Whilst at
present we do not believe climate change to be material driver for mortality
and longevity risk in the medium term, we continue to keep this under review.
RISKS AND UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
Changes in regulation or legislation may have a detrimental effect on our We are supportive of regulation in the markets in which we operate where it
strategy. ensures trust and confidence and can be a positive force on business.
We seek to actively participate with government and regulatory bodies to
assist in the evaluation of change to develop outcomes that meet the needs of
Legislation and government fiscal policy influence our product design, the all stakeholders. Internally, we evaluate change as part of our formal risk
period of retention of products and required reserves for future liabilities. assessment processes, with material matters being considered at the Group Risk
Regulation defines the overall framework for the design, marketing, taxation Committee and the Group Board. Our internal control framework seeks to ensure
and distribution of our products, and the prudential capital that we hold. ongoing compliance with relevant legislation and regulation. Residual risk
Significant changes in legislation or regulation may increase our cost base, remains, however, that controls may fail or that historic financial services
reduce our future revenues, and impact profitability or require us to hold industry accepted practices may be reappraised by regulators, resulting in
more capital. sanctions against the group.
The prominence of the risk increases where change is implemented without prior Whilst we are supportive and welcoming of large parts of the regulatory
engagement with the sector. The nature of long-term business can also result agenda, regulatory-driven change remains a significant risk factor across our
in some changes in regulation, and the re-interpretation of regulation over businesses. Key areas of change include HM Treasury's consultation on Solvency
time, having a retrospective effect on in-force books of business, impacting II, with potential reforms to areas such as the risk margin and the matching
future cash generation. adjustment, albeit the outcome remains uncertain; the UK's financial conduct
regulator's new Consumer Duty, which places obligations on us to evidence the
delivery of good customer outcomes; and regulatory frameworks for the
governance of pensions dashboards services. Regulatory focus also continues on
the operational resilience of financial services firms; the management of
third parties; and approaches being taken in response to the threats from
climate change, including most recently proposed sustainability labelling for
investment funds.
We are also monitoring changes in UK fiscal policy and global minimum tax
environment; and within our property construction businesses, we are
implementing relevant requirements of the Building Safety Bill and the
Environment Act 2021.
New entrants or other players may disrupt the markets in which we operate We continuously monitor the factors that may impact the markets in which we
operate, including evolving domestic and internal capital standards, and are
maintaining our focus on developing our digital platforms. We are innovating
our Retail business with digital solutions that support our customer journeys;
There is already strong competition in our markets, and although we have had and within LGIM we continue the implementation of our strategic operating
considerable past success at building scale to offer low cost products, we model to create a globally scalable platform. Within LGRI, our continued
recognise that markets remain attractive to new entrants. It is possible that ability to source Direct Investments that provide strong risk-adjusted returns
alternative digitally enabled financial services providers emerge with lower is an important source of competitive advantage.
cost business models or innovative service propositions and disrupt the
current competitive landscape. We are also cognisant of competitors who may
have lower return on capital requirements or be unconstrained by Solvency II.
We observe a continued acceleration of a number of trends, including greater
consumer engagement in digital business models and on-line servicing tools.
The post pandemic operating environment has also seen businesses like ours
transform working practices, and we expect to continue to invest in
automation, using robotics and data science to improve business efficiency.
Our businesses are also well positioned for changes in the competitive
landscape that may arise from the roll out of defined benefit 'superfund'
consolidation schemes, pension dashboards and 'collective' pension scheme
arrangements. We will continue to strengthen the connections between LGRI,
LGIM and LGC to create assets that meet annuity liability profiles in
accordance with evolving Solvency II rules.
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
A material failure in our business processes or IT security may result in Our risk governance model, seeks to ensure that business management are
unanticipated financial loss or reputational damage actively engaged in maintaining an appropriate control environment, supported
by risk functions led by the Group Chief Risk Officer, with independent
assurance from Group Internal Audit.
We have constructed our framework of internal controls to minimise the risk of
unanticipated financial loss or damage to our reputation. However, no system
of internal control can completely eliminate the risk of error, financial Whilst we seek to maintain a control environment commensurate with our risk
loss, fraudulent actions, or reputational damage. We are also inherently profile, we recognise that residual risk will always remain across the
exposed to cyber threats including the risks of data theft and fraud. There is spectrum of our business operations and we aim to develop and maintain
also strong stakeholder expectation that our core business services are response plans so that when adverse events occur, appropriate actions are
resilient to operational disruption and that we protect customer data deployed.
throughout our operations.
Although Covid-19 related lockdowns in 2021 had some impact for our business
operations, our business services have returned to normal levels, where
required adjustment has been made to our control environment for hybrid
working models. We remain alert to evolving operational risks and continue to
invest in our IT and data capabilities, as well as those specifically for the
management of cyber risks, to ensure that our business processes are
resilient. We also remain cognisant of the risks as we implement a new global
operating model and IT platform for LGIM and have structured the migration in
phases to minimise change risks. While not a source of principal risk to the
group, the Group Risk Committee, together with the LGIM(H) board, is
conducting a "lessons-learned" review of the challenges experienced in
managing LDI solutions in September 2022.
The success of our operations is dependent on the ability to attract and We seek to ensure that key personnel dependencies do not arise, through
retain highly qualified professional people employee training and development programmes, remuneration strategies and
succession planning. Our processes include the active identification and
development of talent within our workforce, and by highlighting our values and
social purpose, promoting Legal & General as a great place to work. As
The Group aims to recruit, develop and retain high quality individuals. We are well as investing in our people, we are also transforming how we engage and
inherently exposed to the risk that key personnel or teams of expertise may develop capabilities, with new technologies and tools to support
leave the Group, with an adverse effect on the Group's businesses. As we globalisation, increase productivity and provide an exceptional employee
increasingly focus on the digitalisation of our businesses, we are also experience.
competing for data and digital skill sets with other business sectors as well
as our peers.
Competition for talent remains strong with skills in areas such as technology
and digital particularly sought after across many business sectors, including
those in which we operate. We also recognise the risks posed by the outlook
for inflation in salary expectations across the wider employment market, and
internally we have taken steps to help our employees through direct financial
support and by providing advice and resources to help them manage their
financial well-being.
Notes
A copy of this announcement can be found in "Results, Reports and
Presentations", under the "Investors" section of our shareholder website at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A presentation to analysts and investors will take place at 10:30am UK time
today at One Coleman Street, London, EC2R 5AA. There will also be a live
webcast of the presentation that can be accessed at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A replay of the presentation will be made available on this website by 10(th)
March 2023.
Date
Financial Calendar
Ex-dividend date (2021 final dividend) 27 April 2023
Record date 28 April 2023
Annual General Meeting 18 May 2023
Dividend payment date 05 June 2023
2022 interim results announcement 15 August 2023
Ex-dividend date (2022 interim dividend) 24 August 2023
Record date 25 August 2023
Dividend payment date 26 September 2023
Definitions
Definitions are included in the Glossary on pages 90 to 92 of this release
Forward-looking statements
This announcement may contain 'forward-looking statements' with respect to the
financial condition, performance and position, strategy, results of operations
and businesses of the Company and the Group that are based on current
expectations or beliefs, as well as assumptions about future events. These
forward-looking statements can be identified by the fact that they do not
relate only to historical or current facts. Forward-looking statements often
use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar
meaning. By their very nature, forward-looking statements are subject to
known and unknown risks and uncertainties and can be affected by other factors
that could cause actual results, and the Group's plans and objectives, to
differ materially from those expressed or implied in the forward-looking
statements. Recipients should not place undue reliance on, and are cautioned
about relying on, any forward-looking statements.
There are several factors which could cause actual results to differ
materially from those expressed or implied in forward-looking statements.
The factors that could cause actual results to differ materially from those
described in the forward-looking statements include (but are not limited to):
changes in global, political, economic, business, competitive and market
forces or conditions; future exchange and interest rates; changes in
environmental, social or physical risks; legislative, regulatory and policy
developments; risks arising out of health crises and pandemics; changes in tax
rates, future business combinations or dispositions; and other factors
specific to the Group. Please see the Group's latest Annual Report and
Accounts for further details of risks, uncertainties and other factors
relevant to the business (available from 16(th) March 2023:
https://group.legalandgeneral.com/en/investors/results-reports-and-presentations
(https://group.legalandgeneral.com/en/investors/results-reports-and-presentations)
). Any forward-looking statement contained in this document is based on past
or current trends and/or activities of the Group and should not be taken as a
representation that such trends or activities will continue in the future.
No statement in this document is intended to be a profit forecast or to imply
that the earnings of the Group for the current year or future years will
necessarily match or exceed the historical or published earnings of the Group.
Each forward-looking statement speaks only as of the date of the particular
statement. Except as required by any applicable laws or regulations, the
Group expressly disclaims any obligation to revise or update any
forward-looking statement contained within this document, regardless of
whether those statements are affected as a result of new information, future
events or otherwise.
Caution about climate information
This announcement contains climate and ESG disclosures which use a large
number of judgments, assumptions and estimates. These judgments, assumptions
and estimates are likely to change over time, in particular given the
uncertainty around the evolution and impact of climate change. In addition,
the Group's climate risk analysis and net zero strategy remain under
development and the data underlying the analysis and strategy remain subject
to evolution. As a result, certain climate and ESG disclosures made in this
announcement are likely to be amended, updated, recalculated or restated in
future announcements. This statement should be read together with the
Cautionary statement contained in the Group's latest Climate Report.
The information, statements and opinions contained in this announcement do not
constitute an offer to sell or buy or the solicitation of an offer to sell or
buy any securities or financial instruments nor do they constitute any advice
or recommendation with respect to such securities or other financial
instruments or any other matter.
Going concern statement
The group's business activities, together with the factors likely to affect
its future development, performance and position in the current economic
climate are set out in this Annual Report & Accounts. The financial
position of the group, its cash flows, liquidity position and borrowing
facilities are described in the Group Results. Principal risks and
uncertainties are detailed on pages 26 to 29.
The directors have made an assessment of the group's going concern status,
considering both the group's current performance and the group's outlook,
using the information available up to the date of issue of this Annual Report
& Accounts.
The group manages and monitors its capital and liquidity, and applies various
stresses, including high inflationary scenarios, to those positions to
understand potential impacts from market downturns. Our key sensitivities
and the impacts on our capital position from a range of stresses is disclosed
in section 5.01(h) of the Capital section of the Full year report 2022.
These stresses do not give rise to any material uncertainties over the
ability of the group to continue as a going concern. Based upon the
available information, the directors consider that the group has the plans and
resources to manage its business risks successfully and that it remains
financially strong and well diversified.
Having reassessed the principal risks and uncertainties (both financial and
operational) in light of the current economic environment, as detailed on
pages 26 to 29, the directors are confident that the group and company will
have sufficient funds to continue to meet their liabilities as they fall due
for a period of, but not limited to, 12 months from the date of approval of
the financial statements and therefore have considered it appropriate to adopt
the going concern basis of accounting when preparing the financial statements.
Directors' responsibility statement
We confirm to the best of our knowledge that:
i. The Group financial statements within the full Annual Report and
Accounts, from which the financial information within this preliminary
announcement has been extracted, and which have been prepared in accordance
with UK-adopted IFRSs, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
ii. The preliminary announcement includes a fair review of the
development, performance and position of the Group, as well as the principal
risks and uncertainties faced by the Group; and
iii. The directors of Legal & General Group Plc are listed in the
Legal & General Group Plc website:
www.legalandgeneralgroup.com/about-us/our-management/group-board/
(http://www.legalandgeneralgroup.com/about-us/our-management/group-board/) .
By order of the Board
Sir Nigel Wilson
Stuart Jeffrey Davies
Group Chief Executive
Group Chief Financial Officer
7 March
2023
7 March 2023
Enquiries
Investors
+44 203 124 2091
Edward Houghton, Group Strategy & Investor Relations Director
Investor.relations@group.landg.com (mailto:Investor.relations@group.landg.com)
+44 203 124 2054
Nim Ilankovan, Investor Relations Director
Investor.relations@group.landg.com (mailto:Investor.relations@group.landg.com)
+1 240 397 0053
Blake Carr, Investor Relations Director
Investor.relations@group.landg.com (mailto:Investor.relations@group.landg.com)
Media
+44 203 124 2090
John Godfrey, Group Corporate Affairs Director
+44 207 353 4200
Graeme Wilson, Teneo
+44 207 353 4200
Misha Bayliss, Teneo
1 (#_ednref1) The Group uses a number of Alternative Performance Measures
(including operating profit, net release from operations, return on equity and
LGIM AUM) to enhance understanding of the Group's performance. These are
defined in the glossary, on pages 89 to 92 of this report.
2 (#_ednref2) Profit after tax attributable to equity holders.
3 (#_ednref3) Coverage ratio before the payment of the 2022 final dividend.
4 (#_ednref4) Cash generation defined as net release from operations and
Capital generation defined as Solvency II operational surplus generation.
5 (#_ednref5) Net surplus generation defined as Solvency II operational
surplus generation less new business strain.
6 (#_ednref6) From 1 January 2022, our insurance (LGI) and retail retirement
(LGRR) businesses have come together to form Retail. The new division will
focus on the savings, protection and retirement needs of our c13m retail
policyholders and workplace members.
7 (#_ednref7) Operating profit is an Alternative Performance Measure and
represents Adjusted operating profit as defined on page 89.
8 (#_ednref8) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 89.
9 (#_ednref9) Solvency II margin represents UK pension risk transfer volume
only.
10 (#_ednref10) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 89.
11 (#_ednref11) Solvency II coverage ratio incorporates the impact of
recalculating the Transitional Measures for Technical Provisions (TMTP) as at
31 December 2022.
12 (#_ednref12) For example, UK 10 year Gilts at 3.67% at the end of the
period, having increased 270bps between 31 December 2021 and 31 December 2022.
13 (#_ednref13) Calculated using annualised profit for the year and average
equity attributable to the owners of the parent of £11,079.5m.
14 (#_ednref14) Total annuity assets of £72.4bn, with an estimated split of
£55bn LGRI, £17.4bn Retail retirement.
15 (#_ednref15) IPE, Top 500 Asset Managers 2022.
16 (#_ednref16) Three year average (2020- 2022) measured by UK PRT new
business volumes. Three year average measured by UK PRT deal count from LGIM
clients is 63%.
17 (#_ednref17) Broadridge, UK Defined Contribution and Retirement Income
report 2021. 2021 UK DC Assets: £515bn.
18 (#_ednref18) For more information please refer to
https://group.legalandgeneral.com/en/sustainability
(https://group.legalandgeneral.com/en/sustainability)
19 (#_ednref19) Proprietary assets relate to Investments to which
shareholders are directly exposed (excluding client and policyholder assets,
derivatives, cash, cash equivalents and loans), as disclosed in Note 6.01.
20 (#_ednref20) Our 2022 Climate Report and our 2022 Social Impact Report
will be released on 16(th) March 2023 and can be found here: Sustainability
reporting centre
(https://group.legalandgeneral.com/en/sustainability/sustainability-reporting-centre)
21 (#_ednref21) AUM in responsible investment strategies represents only the
AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement. Mandates which
only invest in government bonds are not included, however where LGIM manages a
mandate (for a third-party client) which is invested in a broad asset exposure
that includes, but is not limited to, government bonds, these mandates would
be included subject to that mandate having a deliberate and positive
expression of ESG criteria.
22 (#_ednref22) Represents voting instructions for main FTSE pooled index
funds.
23 (#_ednref23) PRI assessment report:
2021-assessment-report-for-legal--general-investment-management-holdings.pdf
(lgim.com)
(https://www.lgim.com/landg-assets/lgim/capabilities/investment-stewardship/2021-assessment-report-for-legal--general-investment-management-holdings.pdf)
24 (#_ednref24) The ambitions are based on the aggregate performance over a
five-year period. Performance may vary from year to year and individual
statements may not be met in each year on a standalone basis.
25 (#_ednref25) Capital generation is Solvency II operational surplus
generation. Dividends on a declared basis and originally on the basis of a
flat final 2020 dividend, and 3-6% annual growth thereafter. Note: dividends
have grown at 5% since HY21 and the Board stated publicly in November 2022 its
aim to "continue to grow the dividend at 5% per annum to FY 2024":
ifrs17-rns-final.pdf (legalandgeneral.com)
(https://group.legalandgeneral.com/media/5l4bwpre/ifrs17-rns-final.pdf) .
Dividend decisions are subject to final Board approval. Note: we previously
also had an ambition to generate cumulatively £8.0bn - £9.0bn cash over the
period. However, under IFRS 17 we will no longer be producing 'Net release
from operations' on which our cash generation metric is based. We have
therefore chosen to retire the cash generation ambition from FY 2022.
26 (#_ednref26) LCP pensions de-risking report 2022 and L&G estimates.
27 (#_ednref27) 2023 set to be a record-breaking year for de-risking after
the rollercoaster of 2022 | Lane Clark & Peacock LLP (lcp.uk.com)
(https://www.lcp.uk.com/media-centre/2023/01/2023-set-to-be-a-record-breaking-year-for-de-risking-after-the-rollercoaster-of-2022/)
28 (#_ednref28) LIMRA & ICI Q3 2022 retirement market data and L&G
estimates.
29 (#_ednref29) US PRT Pension Risk Transfer monitor:
https://www.lgra.com/knowledge-center/prt-monitors
(https://www.lgra.com/knowledge-center/prt-monitors)
30 (#_ednref30) Ranked number one in the brokerage channel in Q3 2022 by new
policies issued.
31 (#_ednref31) Broadridge, UK Defined Contribution and Retirement Income
report 2021.
32 (#_ednref32) ABI Q3 2022 Report. External annuities include all incoming
external transfers from either Personal Pension Arrangements or Occupational
Pension Schemes
33 (#_ednref33) Lifetime Mortgages | Legal & General
(legalandgeneral.com)
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.legalandgeneral.com%2Fadviser%2Fretirement%2Flater-life-mortgages%2Fgetting-started-with-lifetime-mortgages%2Finfographic%2F&data=05%7C01%7CNimalan.Ilankovan%40group.landg.com%7C983bc5adf6e54dd87be308da6be0cb42%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637940910474253569%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=NOkB%2BKI61UMf8WCx5%2Bp7XgYG19CySczWW5mM2JK8w5o%3D&reserved=0)
.
34 (#_ednref34) Note: the Board adopts a formulaic approach to the interim
dividend which grows by the same percentage as the total dividend for the
prior year.
35 (#_ednref35)
https://www.rns-pdf.londonstockexchange.com/rns/7101M_1-2023-1-13.pdf
(https://www.rns-pdf.londonstockexchange.com/rns/7101M_1-2023-1-13.pdf)
36 (#_ednref36) Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and opening AUM.
37 (#_ednref37) Ranked seventh by AUM, Japanese industry publication
(Pension News) March 2022.
38 (#_ednref38) £9.9bn of assets as at 31(st) March 2022.
39 (#_ednref39) SIAF = Secure Income Assets Fund. STAFF = Short Term
Alternative Finance Fund.
40 (#_ednref40) Net fund performance data versus key comparators (benchmark
or generic peer groups as per the relevant prospectuses, and benchmark per the
relevant prospectus or custom peer group for Active Strategies - Bonds)
sourced from Lipper for the LGIM UCITS. All data as at 31 December 2022.
41 (#_ednref41) Based on 2022 position.
42 (#_ednref42) AUM in responsible investment strategies represents only the
AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria, in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement. Mandates which
only invest in government bonds are not included, however where LGIM manages a
mandate (for a third-party client) which is invested in a broad asset exposure
that includes, but is not limited to, government bonds, these mandates would
be included subject to that mandate having a deliberate and positive
expression of ESG criteria.
43 (#_ednref43) https://www.lgim.com/uk/en/responsible-investing/
(https://www.lgim.com/uk/en/responsible-investing/)
44 (#_ednref44) ABI Q3 2022 Report.
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