REG - Legal & General Grp - L&G Full Year Results 2023 Part 2
06/03/2024 07:15
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RNS Number : 7173F Legal & General Group Plc 06 March 2024
L&G Full Year Results 2023 Part 2
IFRS Disclosures on performance
1.01 IFRS 17 and IFRS 9 restatement
The group has applied IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial Instruments' for the first time from 1 January 2023. These standards have brought significant changes to the accounting for insurance and reinsurance contracts and financial instruments respectively, and have had a material impact on the group's financial statements in the period of initial application.
IFRS 17, 'Insurance Contracts' was originally issued in May 2017 by the IASB,
and subsequent amendments were issued in June 2020. Endorsement for use in the
UK was granted in May 2022. The standard replaced IFRS 4, 'Insurance
Contracts', and has been applied retrospectively, in line with the
transitional options provided for in the standard. IFRS 17 provides a
comprehensive approach for accounting for insurance contracts including their
measurement, income statement presentation and disclosure.
IFRS 9, 'Financial Instruments' was issued in July 2014 by the IASB, effective
for annual periods beginning on or after 1 January 2018. The IASB subsequently
issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS
4 Insurance Contracts' which allowed entities that met certain requirements to
defer their implementation of IFRS 9 until adoption of IFRS 17, 'Insurance
Contracts' or 1 January 2021, whichever is the earlier. In June 2020, the IASB
agreed to extend the temporary exemption in IFRS 4 from applying IFRS 9 to
annual reporting periods beginning on or after 1 January 2023. The group
qualified for, and made use of this deferral option, and has therefore applied
IFRS 9 for the first time on 1 January 2023. The standard replaced IAS 39,
'Financial Instruments: Recognition and Measurement'. It includes new
principles around classification and measurement of financial instruments,
introduces an impairment model based on expected credit losses (replacing the
previous model based on incurred losses) and new requirements on hedge
accounting.
The new accounting policies adopted by the group for IFRS 17 and IFRS 9,
together with information relating to the transition to the new standards, are
included in the group's 2023 Annual Report and Accounts.
IFRS 17 and IFRS 9 have been applied retrospectively and prior period
comparative information has been restated, with all restatements clearly
labelled as such throughout this report.
Prior period comparative information reflecting the implementation of IFRS 17
and IFRS 9 was initially provided in the group's interim financial statements
for the period ending 30 June 2023. This information was unaudited. Since that
time, and in particular as a result of the detailed work and review undertaken
to finalise the numbers included in this report and in the group's 2023 Annual
Report and Accounts, which has now been audited, certain adjustments have been
identified which have now been reflected in the prior period comparatives.
This includes a £154m reclassification between Change in investment contract
liabilities and Other expenses in the Consolidated Income Statement, with no
impact on profit. In total, the impact of these adjustments on equity
attributable to owners of the parent was an increase of £19m as at 1 January
2022, and a decrease of £45m as at 31 December 2022.
As at the transition date of 1 January 2022, the impacts on the key line items
in the group's Consolidated Balance Sheet are set out below.
Balance sheet item 31 December Reclassification due to adoption of IFRS 9 and IFRS 17 Impact of the adoption of IFRS 9 Impact of the adoption of IFRS 17 1 January
2021 £m £m £m 2022
(as reported) (restated)
£m £m
Financial investments 538,374 (29) (716) - 537,629
Net insurance contract liabilities(1) (82,645) (199) - (6,133) (88,977)
Net deferred tax (liabilities)/assets (249) - 178 1,178 1,107
Other (444,994) 228 - (33) (444,799)
Equity attributable to owners of the parent 10,486 - (538) (4,988) 4,960
1. Net insurance contract liabilities reflect insurance contract assets
and liabilities, net of reinsurance contracts.
The adoption of the new accounting standards does not change the total profit
recognised over the life of the group's insurance contracts, nor the
underlying economics or cash generation of the group's businesses. It does not
change the group's strategy, solvency position nor dividend paying capacity or
appetite.
1.02 Operating profit(#)
Restated
2023 2022
For the year ended 31 December 2023 Notes £m £m
Legal & General Retirement Institutional (LGRI) 1.03 886 807
Legal & General Capital (LGC) 1.04 510 509
Legal & General Investment Management (LGIM) 1.05 274 340
Retail 1.03 408 415
- Insurance 138 165
- Retail Retirement 270 250
Operating profit from divisions 2,078 2,071
Group debt costs(1) (212) (214)
Group investment projects and expenses (199) (194)
Operating profit 1,667 1,663
Investment and other variances 1.06 (1,577) (794)
Losses attributable to non-controlling interests (14) (1)
Adjusted profit before tax attributable to equity holders 76 868
Tax credit/(expense) attributable to equity holders 3.04 367 (86)
Profit for the year 2.01 443 782
Total tax (credit)/expense 2.01 (248) 157
Profit before tax 2.01 195 939
Profit attributable to equity holders 457 783
Earnings per share:
Basic (pence per share)(2) 1.08 7.35 12.84
Diluted (pence per share)(2) 1.08 7.28 12.47
1. Group debt costs exclude interest on non-recourse financing.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary adjusted operating profit information (one of the group's
key performance indicators) provides additional analysis of the results
reported under IFRS, and the group believes that it provides stakeholders with
useful information to enhance their understanding of the performance of the
business in the year. While the calculation of adjusted operating profit has
been updated to reflect the accounting and presentational impacts of IFRS 17,
the key principles of what is measured by adjusted operating profit, as set
out below and except as noted, remain unchanged from the prior year.
Adjusted operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations and exceptional items. Key considerations in
relation to the calculation of adjusted operating profit for the group's
long-term insurance businesses and shareholder funds are set out below.
Exceptional income and expenses which arise outside the normal course of
business in the year, such as merger and acquisition and start-up costs, are
excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic assumptions for the
group's retirement and insurance businesses. Variances between actual and
long-term expected investment return on traded and real assets are excluded
from adjusted operating profit, as well as economic assumption changes caused
by changes in market conditions or expectations (e.g. credit default and
inflation) and any difference between the actual allocated asset mix and the
target long-term asset mix on new pension risk transfer business. Assets held
for future new pension risk transfer business are excluded from the asset
portfolio used to determine the discount rate for annuities on insurance
contract liabilities. The impact of investment management actions that
optimise the yield of the assets backing the back book of annuity contracts is
now included within adjusted operating profit; prior to the implementation of
IFRS17 the impact of such actions was not included in operating profit.
For the group's long-term insurance businesses, reinsurance mismatches are
also excluded from adjusted operating profit. Reinsurance mismatches arise
where the reinsurance offset rules in IFRS 17 do not reflect management's view
of the net of reinsurance transaction. In particular, during a year of
reinsurance renegotiation, reinsurance gains cannot be recognised to offset
any inception losses on the underlying contracts where they are recognised
before the new reinsurance agreement is signed. In these circumstances, the
onerous contract losses are reduced to reflect the net loss (if any) after
reinsurance, and future contractual service margin (CSM) amortisation is
reduced over the duration of the contracts.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.02 Operating profit(#) (continued)
Shareholder funds
Shareholder funds include both the group's traded investments portfolio and
certain direct investments for which adjusted operating profit is based on the
long-term economic return expected to be generated. For these direct
investments, as well as for the group's traded investments portfolio,
deviations from such long-term economic return are excluded from adjusted
operating profit. Direct investments for which adjusted operating profit is
reflected in this way include the following:
• Development assets, predominantly in the specialist commercial real
estate and housing sectors within the LGC alternative asset portfolio: these
are assets under construction and contracted to either be sold to other parts
of the group or for other commercial usage, and on which LGC accepts
development risks and expects to realise profits once construction is
complete.
• 'Scale-up' investments, predominantly in the alternative finance
sector within the LGC alternative asset portfolio as well as the fintech
business within Retail: these are investments in early-stage ventures in a
fast-growing phase of their life cycle, but which have not yet reached a
steady-state level of earnings.
Shareholder funds also includes other direct investments for which adjusted
operating profit reflects the IFRS profit before tax. Direct investments for
which adjusted operating profit is reflected in this way include the
following:
• 'Start-up' investments: these are companies in the beginning stages of
their business lifecycle (i.e. typically less than 24 months) and which
therefore have limited operating history available and typically are in a
pre-revenue stage.
• Mature assets: these are companies in their final stages of business
lifecycle. They are stable businesses and have sustainable streams of income,
but the growth rate in their earnings is expected to remain less pronounced in
the future.
1.03 Analysis of LGRI and Retail operating profit(#)
LGRI Retail LGRI Retail
2023 2023 2022 2022
£m £m £m £m
Amortisation of the CSM in the year(1) 591 446 497 424
Release of risk adjustment in the year 119 74 136 85
Experience variances (14) (17) 15 (92)
Development of losses on onerous contracts 1 (27) 1 (7)
Other expenses(2) (160) (121) (130) (113)
Insurance investment margin(3) 344 81 280 60
Investment contracts and non-insurance operating profit 5 (28) 8 58
Total LGRI and Retail operating profit 886 408 807 415
1. Contractual service margin (CSM) amortisation for Retail has been
reduced by £16m (2022: £17m) to exclude the impact of reinsurance
mismatches.
2. Other expenses are non-attributable expenses on both new business and
existing business. These are overhead costs which are not allowed for in the
CSM or the best estimate liability unit cost assumptions, and instead are
reported within the Consolidated Income Statement as part of the profit or
loss for the year.
3. Insurance investment margin comprises the expected investment return
on assets backing insurance contract liabilities, the unwind of the discount
rate on insurance contract liabilities and the optimisation of the assets
backing the annuity back book.
1.04 LGC operating profit(#)
2023 2022
£m £m
Direct investments(1) 371 400
Traded investment portfolio including treasury assets(2) 139 109
Total LGC operating profit 510 509
1. Direct investments represents LGC's portfolio of assets across
specialist commercial real estate, clean energy, housing and alternative
finance. Direct investments includes operating profit in relation to CALA
Homes of £106m (2022: £172m).
2. The traded investment portfolio holds a diversified set of exposures
across equities, bonds, derivative assets, loans and cash.
1.05 LGIM operating profit(#)
2023 2022
£m £m
Asset management revenue (excluding third-party market data)(1) 876 944
Asset management transactional revenue(2) 26 26
Asset management expenses (excluding third-party market data)(1) (628) (630)
Total LGIM operating profit 274 340
1. Asset management revenue and expenses exclude income and costs of
£26m in relation to the provision of third-party market data (2022: £30m).
2. Transactional revenue from external clients includes execution fees,
asset transition income, trigger fees, arrangement fees on property
transactions and performance fees.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.06 Investment and other variances
Restated
2023 2022
£m £m
LGRI and Retail
- Net impact of investment returns less than expectation and change in (584) (115)
liability discount rates(1)
- Other (16) -
Total LGRI and Retail (600) (115)
LGC investment variance (351) (428)
Other investment variance(2) (427) (119)
Investment variance (1,378) (662)
M&A related and other variances(3) (199) (132)
Total investment and other variances (1,577) (794)
1. Investment variance for LGRI and Retail includes a £318m expense
(2022: £167m expense) arising from rate differences on longevity assumption
changes in the period.
2. Other investment variance includes the £167m one-off settlement cost
associated with the buy-out of the group's UK defined benefit pension schemes
(see Note 3.14 (iii) for further information) along with the current service
costs and net interest expense up until that transaction. It also includes
costs that LGIM is committed to incur on the extension of its existing
partnership with State Street announced in 2021, to increase the use of
Charles River technology across the front office and to deliver middle office
services.
3. M&A related and other variances includes gains and losses,
expenses and intangible amortisation relating to acquisitions, disposals and
restructuring as well as business start-up costs. The total for the year ended
31 December 2023 includes £181m of costs incurred relating to the announced
intent to cease production within the Modular Homes business and impairment of
the group's investment in Onto.
Investment variance includes differences between actual and long-term expected
investment return on traded and real assets (including development assets and
scale-up equity direct investments within LGC and Retail's Insurance
business), the impact of economic assumption changes caused by changes in
market conditions or expectations (e.g. credit default and inflation), the
impact of any difference between the actual allocated asset mix and the target
long-term asset mix on new pension risk transfer business, and the yield
associated with assets held for future new pension risk transfer business.
Changes in non-financial assumptions, including longevity, recalibrate the CSM
at locked-in point-of-sale discount rates whilst the fulfilment cash flows are
measured at current discount rates, thereby creating a component of investment
variance between these different bases.
The long-term expected investment return is based on opening economic
assumptions applied to the assets at the start of the reporting year. The
assumptions underlying the calculation of the expected returns for traded
equity, commercial property and residential property are
based on market consensus forecasts and long-term historic average returns
expected to apply through the cycle.
The long-term expected investment returns are:
2023 2022
Equities 7% 7%
Commercial property 5% 5%
Residential property 3.5% 3.5%
For fixed interest securities measured at FVTPL, the expected investment
returns are based on average prospective yields for the actual assets held
less an adjustment for credit risk (assessed on a best estimate basis). Where
securities are measured at amortised cost or FVOCI, the expected investment
return comprises interest income on an effective interest rate basis.
For equity direct investments, the LGC alternative asset portfolio and
Retail's Insurance business comprise investments in housing, specialist
commercial real estate, clean energy, alternative finance and fintech. Where
used for the determination of adjusted operating profit, the long-term
expected investment return is on average between 10% and 12%, in line with our
stated investment objectives. Rates of return specific to each asset are
determined at the point of underwriting and reviewed and updated annually. The
expected investment return includes assumptions on appropriate discount rates
and inflation as well as sector specific assumptions including retail and
commercial property yields and power prices.
1.07 Risk adjustment (RA) and Contractual service margin (CSM) analysis
Net of reinsurance RA Net of reinsurance RA Net of reinsurance CSM Net of reinsurance CSM
LGRI Retail LGRI Retail
£m £m £m £m
As at 1 January 2023 649 883 7,448 4,490
CSM recognised for services provided/received - - (591) (462)
Release of risk adjustment (119) (74) - -
Changes in estimates which adjust the CSM 6 (26) 424 204
Changes in estimates that result in losses or reversal of losses on underlying - (1) - 8
onerous contracts
Contracts initially recognised in the year 161 32 865 320
Finance expenses from insurance contracts 114 105 220 134
Effect of movements in exchange rates (4) (28) (16) (50)
As at 31 December 2023 807 891 8,350 4,644
Net of reinsurance RA Net of reinsurance RA Net of reinsurance CSM Net of reinsurance CSM
LGRI Retail LGRI Retail
£m £m £m £m
As at 1 January 2022 1,230 1,271 6,946 4,170
CSM recognised for services provided/received - - (497) (441)
Release of risk adjustment (136) (85) - -
Changes in estimates which adjust the CSM (34) 3 197 264
Changes in estimates that result in losses or reversal of losses on underlying - (2) - -
onerous contracts
Contracts initially recognised in the year 80 28 613 287
Finance (income)/expenses from insurance contracts (498) (408) 165 105
Effect of movements in exchange rates 7 76 24 105
As at 31 December 2022 649 883 7,448 4,490
The amounts presented reflect the net CSM amortisation expected to be
recognised in operating profit in future periods from the business in-force at
the end of the year, excluding the adjustment for reinsurance mismatches
relating to protection business (described in Note 1.03). Actual CSM
amortisation in future periods will differ from that presented due to the
impacts of future new business, recalibrations of the CSM and changes in the
future coverage units. The total amount presented exceeds the carrying value
of the CSM as it incorporates the future accretion of interest.
1.08 Earnings per share
(i) Basic earnings per share
Restated Restated
After tax Per share(1) After tax Per share(1)
2023 2023 2022 2022
£m p £m p
Profit for the year attributable to equity holders 457 7.73 783 13.23
Less: coupon payable in respect of restricted Tier 1 convertible notes net of (22) (0.38) (23) (0.39)
tax relief
Total basic earnings 435 7.35 760 12.84
1. Basic earnings per share is calculated by dividing profit after tax
by the weighted average number of ordinary shares in issue during the year,
excluding employee scheme treasury shares.
(ii) Diluted earnings per share
After tax Weighted Per share(1)
average
number of
shares
For the year ended 31 December 2023 £m m p
Profit for the year attributable to equity holders 457 5,915 7.73
Net shares under options allocable for no further consideration - 59 (0.08)
Conversion of restricted Tier 1 notes - 307 (0.37)
Total diluted earnings 457 6,281 7.28
Restated Weighted Restated
After tax average Per share(1)
number of
shares
For the year ended 31 December 2022 £m m p
Profit for the year attributable to equity holders 783 5,917 13.23
Net shares under options allocable for no further consideration - 55 (0.12)
Conversion of restricted Tier 1 notes - 307 (0.64)
Total diluted earnings 783 6,279 12.47
1. For diluted earnings per share, the weighted average number of
ordinary shares in issue, excluding employee scheme treasury shares, is
adjusted to assume conversion of all potential ordinary shares, such as share
options granted to employees and conversion of restricted Tier 1 notes.
1.09 Segmental analysis
The group has five reportable segments, comprising LGRI, LGC, LGIM, Insurance
and Retail Retirement as set out in Note 1.02. Group expenses and debt costs
are reported separately. Transactions between segments are on normal
commercial terms and are included within the reported segments.
In the UK, annuity liabilities relating to LGRI and Retail Retirement are
backed by a single portfolio of assets, and once a transaction has been
completed the assets relating to any particular transaction are not tracked to
the related liabilities. Investment variance is allocated to the two
business segments based on the relative average size of the underlying
insurance contract liabilities for the year.
Reporting of assets and liabilities by reportable segment has not been
included, as this is not information that is provided to key decision makers
on a regular basis. The group's asset and liabilities are managed on a legal
entity rather than a segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where
relevant in order to better explain the drivers of the group's results.
(i) Profit/(loss) for the year
Group
expenses
Retail and debt
LGRI LGC LGIM Insurance Retirement costs Total
For the year ended 31 December 2023 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 886 510 274 138 270 (411) 1,667
Investment and other variances (449) (487) (76) (81) (119) (365) (1,577)
Losses attributable to non-controlling interests - - - - - (14) (14)
Profit/(loss) before tax attributable to equity holders 437 23 198 57 151 (790) 76
Tax credit/(expense) attributable to equity holders 244 18 (49) (40) 63 131 367
Profit/(loss) for the year 681 41 149 17 214 (659) 443
Group
expenses
Retail and debt
LGRI LGC LGIM Insurance Retirement costs Total
For the year ended 31 December 2022 (Restated) £m £m £m £m £m £m £m
Operating profit/(loss)(#) 807 509 340 165 250 (408) 1,663
Investment and other variances (137) (428) (81) 69 (47) (170) (794)
Losses attributable to non-controlling interests - - - - - (1) (1)
Profit/(loss) before tax attributable to equity holders 670 81 259 234 203 (579) 868
Tax (expense)/credit attributable to equity holders (121) (26) (30) (11) (32) 134 (86)
Profit/(loss) for the year 549 55 229 223 171 (445) 782
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
1.09 Segmental analysis (continued)
(ii) Revenue
Total revenue includes insurance revenue, fees from fund management and
investment contracts and other operational income from contracts with
customers. Further details on the components of insurance revenue are
disclosed in Note 3.11. Other operational income from contracts with customers
is a component of other operational income and excludes the share of
profit/loss from associates and joint ventures, as well as gains/losses on
disposal of subsidiaries, associates, joint ventures and other operations.
Retail LGC and
LGRI LGIM(1,2) Insurance Retirement other(3) Total
For the year ended 31 December 2023 £m £m £m £m £m £m
Internal revenue - 169 - - (169) -
External revenue 5,255 720 3,114 1,469 1,553 12,111
Total revenue 5,255 889 3,114 1,469 1,384 12,111
Retail LGC and
LGRI LGIM(1,2) Insurance Retirement other(3) Total
For the year ended 31 December 2022 (Restated) £m £m £m £m £m £m
Internal revenue - 178 - - (178) -
External revenue 4,492 801 3,086 1,335 1,452 11,166
Total revenue 4,492 979 3,086 1,335 1,274 11,166
1. LGIM internal income relates to investment management services
provided to other segments.
2. LGIM external income primarily includes fees from fund management.
3. LGC and other includes LGC income, inter-segmental eliminations and
group consolidation adjustments.
IFRS Primary Financial Statements
2.01 Consolidated Income Statement
Restated(1)
2023 2022
For the year ended 31 December 2023 Notes £m £m
Insurance revenue 3.11 9,624 8,683
Insurance service expenses 3.11 (8,373) (7,497)
Insurance service result before reinsurance contracts held 1,251 1,186
Net expense from reinsurance contracts held 3.11 (137) (145)
Insurance service result 3.11 1,114 1,041
Investment return 32,973 (98,352)
Finance (expense)/income from insurance contracts (5,830) 19,114
Finance income from reinsurance contracts 584 6
Change in investment contract liabilities (27,116) 79,889
Insurance and investment result 1,725 1,698
Other operational income 1,571 1,646
Fees from fund management and investment contracts 825 899
Acquisition costs (149) (103)
Other finance costs (347) (290)
Other expenses (3,430) (2,911)
Total other income and expenses (1,530) (759)
Profit before tax 195 939
Tax expense attributable to policyholder returns (119) (71)
Profit before tax attributable to equity holders 76 868
Total tax credit/(expense) 248 (157)
Tax expense attributable to policyholder returns 119 71
Tax credit/(expense) attributable to equity holders 3.04 367 (86)
Profit for the year 443 782
Attributable to:
Non-controlling interests (14) (1)
Equity holders 457 783
Dividend distributions to equity holders during the year 3.02 1,172 1,116
Dividend distributions to equity holders proposed after the year end 3.02 871 829
p p
Total basic earnings per share(2) 1.08 7.35 12.84
Total diluted earnings per share(2) 1.08 7.28 12.47
1. Prior year comparatives have been restated to reflect the
implementation of IFRS 17 and IFRS 9. They also reflect a small number of
adjustments to the (unaudited) prior period comparatives that were included in
the group's interim financial statements for the period ending 30 June 2023.
Further information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this report and in
the group's consolidated financial statements.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
2.02 Consolidated Statement of Comprehensive Income
Restated(1)
2023 2022
For the year ended 31 December 2023 £m £m
Profit for the year 443 782
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes (29) 26
Tax on actuarial remeasurements on defined benefit pension schemes 8 (6)
Total items that will not be reclassified subsequently to profit or loss (21) 20
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations (6) (21)
Movement in cross-currency hedge (37) 40
Tax on movement in cross-currency hedge 9 (10)
Movement in financial investments measured at FVOCI 75 (132)
Tax on movement in financial investments measured at FVOCI (18) 28
Insurance finance (expense)/income for insurance contracts applying the OCI (73) 1,753
option
Reinsurance finance income/(expense) for reinsurance contracts applying the 43 (1,030)
OCI option
Tax on movement in finance income/(expense) for insurance and reinsurance 6 (169)
contracts
Total items that may be reclassified subsequently to profit or loss (1) 459
Other comprehensive (expense)/income after tax (22) 479
Total comprehensive income for the year 421 1,261
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests (14) (1)
Equity holders 435 1,262
1. Prior year comparatives have been restated to reflect the
implementation of IFRS 17 and IFRS 9. They also reflect a small number of
adjustments to the (unaudited) prior period comparatives that were included in
the group's interim financial statements for the period ending 30 June 2023.
Further information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this report and in
the group's consolidated financial statements.
2.03 Consolidated Balance Sheet
Restated(1) Restated(1)
2023 2022 2021
As at 31 December 2023 Notes £m £m £m
Assets
Goodwill 73 71 68
Intangible assets 477 441 365
Investment in associates and joint ventures accounted for using the equity 616 554 375
method
Property, plant and equipment 433 326 316
Investment property 3.03 8,893 9,372 10,150
Financial investments 3.03 471,405 446,558 537,629
Reinsurance contract assets 3.11 7,306 4,713 4,652
Deferred tax assets 3.04 1,714 1,440 1,167
Current tax assets 885 802 670
Receivables and other assets 9,780 13,209 8,543
Cash and cash equivalents 20,513 35,784 16,487
Total assets 522,095 513,270 580,422
Equity
Share capital 3.05 149 149 149
Share premium 3.05 1,030 1,018 1,012
Employee scheme treasury shares (147) (144) (99)
Capital redemption and other reserves 326 337 (135)
Retained earnings 2,973 3,707 4,033
Attributable to owners of the parent 4,331 5,067 4,960
Restricted Tier 1 convertible notes 3.06 495 495 495
Non-controlling interests 3.07 (42) (29) (38)
Total equity 4,784 5,533 5,417
Liabilities
Insurance contract liabilities 3.11 91,446 78,214 93,627
Reinsurance contract liabilities 3.11 220 52 2
Investment contract liabilities 316,872 286,830 372,954
Core borrowings 3.08 4,280 4,338 4,256
Operational borrowings 3.09 1,840 1,219 932
Provisions 3.14 258 890 1,238
Deferred tax liabilities 3.04 107 206 60
Current tax liabilities 77 69 84
Payables and other financial liabilities 3.10 78,439 93,905 73,858
Other liabilities 680 763 1,028
Net asset value attributable to unit holders 23,092 41,251 26,966
Total liabilities 517,311 507,737 575,005
Total equity and liabilities 522,095 513,270 580,422
1. Prior year comparatives have been restated to reflect the
implementation of IFRS 17 and IFRS 9. They also reflect a small number of
adjustments to the (unaudited) prior period comparatives that were included in
the group's interim financial statements for the period ending 30 June 2023.
Further information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this report and in
the group's consolidated financial statements.
2.04 Consolidated Statement of Changes in Equity
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2023 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2023 149 1,018 (144) 337 3,707 5,067 495 (29) 5,533
Profit/(loss) for the year - - - - 457 457 - (14) 443
Exchange differences on translation of overseas operations - - - (6) - (6) - - (6)
Net movement in cross-currency hedge - - - (28) - (28) - - (28)
Net actuarial remeasurements on defined benefit pension schemes - - - - (21) (21) - - (21)
Net movement in financial investments measured at FVOCI - - - 57 - 57 - - 57
Net insurance finance expense - - - (24) - (24) - - (24)
Total comprehensive (expense)/income for the year - - - (1) 436 435 - (14) 421
Options exercised under share option schemes - 12 - - - 12 - - 12
Shares purchased - - (18) - - (18) - - (18)
Shares vested - - 15 (69) - (54) - - (54)
Employee scheme treasury shares: - - - 59 - 59 - - 59
- Value of employee services
Share scheme transfers to retained earnings - - - - 24 24 - - 24
Dividends - - - - (1,172) (1,172) - - (1,172)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (22) (22) - - (22)
relief
Movement in third party interests - - - - - - - 1 1
As at 31 December 2023 149 1,030 (147) 326 2,973 4,331 495 (42) 4,784
1. Capital redemption and other reserves as at 31 December 2023 include
share-based payments £89m, foreign exchange £41m, capital redemption £17m,
hedging £46m, insurance and reinsurance finance for contracts applying the
OCI option £176m and financial assets at FVOCI £(43)m.
2.04 Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
capital premium shares reserves(1) earnings of the parent notes interests equity
For the year ended 31 December 2022 £m £m £m £m £m £m £m £m £m
As at 1 January 2022 (as previously reported) 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
Impact of initial application of IFRS 17 - - - (334) (4,654) (4,988) - - (4,988)
Impact of initial application of IFRS 9 - - - 3 (541) (538) - - (538)
As at 1 January 2022 (Restated)(2) 149 1,012 (99) (135) 4,033 4,960 495 (38) 5,417
Profit/(loss) for the year - - - - 783 783 - (1) 782
Exchange differences on translation of overseas operations - - - (21) - (21) - - (21)
Net movement in cross-currency hedge - - - 30 - 30 - - 30
Net actuarial remeasurements on defined benefit pension schemes - - - - 20 20 - - 20
Net movement in financial investments measured at FVOCI - - - (104) - (104) - - (104)
Net insurance finance income - - - 554 - 554 - - 554
Total comprehensive income/(expense) for the year - - - 459 803 1,262 - (1) 1,261
Options exercised under share option schemes - 6 - - - 6 - - 6
Shares purchased - - (59) - - (59) - - (59)
Shares vested - - 14 (41) - (27) - - (27)
Employee scheme treasury shares: - - - 54 - 54 - - 54
- Value of employee services
Share scheme transfers to retained earnings - - - - 10 10 - - 10
Dividends - - - - (1,116) (1,116) - - (1,116)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (23) (23) - - (23)
relief
Movement in third party interests - - - - - - - 10 10
As at 31 December 2022 (Restated)(2) 149 1,018 (144) 337 3,707 5,067 495 (29) 5,533
1. Capital redemption and other reserves as at 31 December 2022 include
share-based payments £99m, foreign exchange £43m, capital redemption £17m,
hedging £78m, insurance and reinsurance finance for contracts applying the
OCI option £205m and financial assets at FVOCI £(105)m.
2. Prior year comparatives have been restated to reflect the
implementation of IFRS 17 and IFRS 9. They also reflect a small number of
adjustments to the (unaudited) prior period comparatives that were included in
the group's interim financial statements for the period ending 30 June 2023.
Further information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this report and in
the group's consolidated financial statements.
2.05 Consolidated Statement of Cash Flows
Restated(1)
2023 2022
For the year ended 31 December 2023 Notes £m £m
Cash flows from operating activities
Profit for the year 443 782
Adjustments for non-cash movements in net profit for the year
Net (gains)/losses on financial investments and investment property (21,567) 107,469
Investment income (11,406) (9,117)
Interest expense 347 290
Tax (credit)/expense (248) 157
Other adjustments 112 113
Net (increase)/decrease in operational assets
Investments mandatorily measured at FVTPL (7,478) 22,052
Investments measured at FVOCI (1,344) (1,025)
Investments measured at amortised cost (126) (93)
Other assets 3,218 (5,215)
Net increase/(decrease) in operational liabilities
Insurance contracts and reinsurance contracts held 11,153 (15,625)
Investment contracts 30,045 (86,132)
Other liabilities (26,682) (952)
Cash (utilised in)/generated from operations (23,533) 12,704
Interest paid (469) (290)
Interest received(2) 5,210 3,525
Rent received 437 404
Tax paid(3) (186) (570)
Dividends received 4,297 4,691
Net cash flows from operations (14,244) 20,464
Cash flows from investing activities
Acquisition of property, plant and equipment, intangibles and other assets (237) (187)
Acquisition of operations, net of cash acquired (9) (2)
Investment in joint ventures and associates (184) (101)
Disposal of joint ventures and associates 8 64
Net cash flows utilised in investing activities (422) (226)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year 3.02 (1,172) (1,116)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax 3.06 (28) (28)
Options exercised under share option schemes 3.05 12 6
Treasury shares purchased for employee share schemes (18) (59)
Payment of lease liabilities (32) (44)
Proceeds from borrowings 1,226 945
Repayment of borrowings (544) (737)
Net cash flows utilised in financing activities (556) (1,033)
Net (decrease)/increase in cash and cash equivalents (15,222) 19,205
Exchange (losses)/gains on cash and cash equivalents (49) 92
Cash and cash equivalents at 1 January 35,784 16,487
Total cash and cash equivalents at 31 December 20,513 35,784
1. Prior year comparatives have been restated to reflect the
implementation of IFRS 17 and IFRS 9. They also reflect a small number of
adjustments to the (unaudited) prior period comparatives that were included in
the group's interim financial statements for the period ending 30 June 2023.
Further information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this report and in
the group's consolidated financial statements.
2. Interest received comprises of net interest received from financial
instruments at fair value through profit or loss and other financial
instruments.
3. Tax paid comprises UK corporation tax of £nil (2022: £358m),
withholding tax of £179m (2022: £204m) and overseas corporate tax of £7m
(2022: £8m).
IFRS Disclosure Notes
3.01 Basis of preparation
The preliminary announcement for the year ended 31 December 2023 does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information in this preliminary announcement has been
derived from the group financial statements within the group's 2023 Annual
Report and Accounts (including financial information for 31 December 2022 as
restated for the adoption of IFRS 17 and IFRS 9), which will be made available
on the group's website on 13 March 2024. The group's 2022 Annual Report and
Accounts have been filed with the Registrar of Companies, and those for 2023
will be delivered in due course. KPMG have reported on the 2023 and 2022
Annual Report and Accounts. Both their reports were: (i) unqualified; (ii) did
not include a reference to any matters to which they drew attention by way of
emphasis without qualifying their report; and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
The group financial statements have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and related
interpretations issued by the IFRS Interpretations Committee. Endorsement is
granted by the UK Endorsement Board. The group financial statements have been
prepared under the historical cost convention, as modified by the revaluation
of investment property, certain financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss and
financial assets at fair value through other comprehensive income.
The group has selected accounting policies which state fairly its financial
position, financial performance and cash flows for a reporting period. The
accounting policies have been consistently applied to all years presented,
unless otherwise stated.
Financial assets and financial liabilities are disclosed gross in the
Consolidated Balance Sheet unless a legally enforceable right of offset exists
and there is an intention to settle recognised amounts on a net basis. Income
and expenses are not offset in the Consolidated Income Statement unless
required or permitted by any accounting standard or interpretations by the
IFRS Interpretations Committee.
Foreign currency transactions are translated into the functional currency
using the exchange rate prevailing at the date of the transactions. The
functional currency of the group's foreign operations is the currency of the
primary economic environment in which the entity operates. The assets and
liabilities of all of the group's foreign operations are translated into
sterling, the group's presentation currency, at the closing rate at the date
of the balance sheet. The income and expenses for the income statement are
translated at average exchange rates. On consolidation, exchange differences
arising from the translation of the net investment in foreign entities and of
borrowings and other currency instruments designated as hedges of such
investments, are taken to a separate component of shareholders' equity.
Critical accounting judgements and the use of estimates
The preparation of the financial statements includes the use of estimates and
assumptions which affect items reported in the Consolidated Balance Sheet and
Income Statement and the disclosure of contingent assets and liabilities at
the date of the financial statements. Although these estimates are based on
management's best knowledge of current circumstances and future events and
actions, actual results may differ from those estimates, possibly
significantly. This is particularly relevant for the valuation of insurance
contract liabilities, unquoted illiquid assets and investment property. From a
policy application perspective, the major areas of judgement are the
assessment of whether a contract transfers significant insurance risk to the
group, and whether the group controls underlying entities and should therefore
consolidate them. The basis of accounting for these areas, and the significant
judgements used in determining them, are outlined in the respective notes to
the group's 2023 Annual Report and Accounts.
Key technical terms and definitions
The report refers to various key performance indicators, accounting standards
and other technical terms. A comprehensive list of these definitions is
contained within the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income Statement
includes income tax borne by both policyholders and equity holders. This has
been split between tax attributable to policyholders' returns and equity
holders' profits. Policyholder tax comprises the tax suffered on policyholder
investment returns, while equity holder tax is corporation tax charged on
equity holder profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the profits that it
makes.
3.02 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1)
2023 2023 2022 2022
£m p £m p
Ordinary dividends paid and charged to equity in the year:
- Final 2021 dividend paid in June 2022 - - 792 13.27
- Interim 2022 dividend paid in September 2022 - - 324 5.44
- Final 2022 dividend paid in June 2023(2) 831 13.93 - -
- Interim 2023 dividend paid in September 2023 341 5.71 - -
Total dividends 1,172 19.64 1,116 18.71
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
2. The dividend proposed at 31 December 2022 was £829m based on the
current number of eligible equity shares at that date.
Subsequent to 31 December 2023, the directors declared a final dividend for
2023 of 14.63 pence per ordinary share. This dividend will be paid on 6 June
2024. It will be accounted for as an appropriation of retained earnings in the
year ended 31 December 2024 and is not included as a liability in the
Consolidated Balance Sheet as at 31 December 2023.
3.03 Financial investments and investment property
Restated
2023 2022
£m £m
Equities(1) 185,982 167,335
Debt securities(2,3) 233,980 219,512
Derivative assets(4) 41,140 45,427
Loans(5) 10,303 14,284
Financial investments 471,405 446,558
Investment property 8,893 9,372
Total financial investments and investment property 480,298 455,930
1. Equities include investments in unit trusts of £19,660m (31 December
2022: £16,524m).
2. Debt securities include accrued interest of £1,852m (31 December
2022: £1,635m) and include £8,032m (31 December 2022: £7,845m) of assets
valued at amortised cost.
3. A detailed analysis of debt securities to which shareholders are
directly exposed is disclosed in Note 6.03.
4. Derivatives are used for efficient portfolio management, particularly
the use of interest rate swaps, inflation swaps, currency swaps and foreign
exchange forward contracts for asset and liability management. Derivative
assets are shown gross of derivative liabilities of £43,821m (31 December
2022: £51,190m).
5. Loans include £13m (31 December 2022: £1m) of loans valued at
amortised cost.
3.04 Tax
(i) Tax (credit)/expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated
on profit before tax at the standard UK corporation tax rate as follows:
Restated
2023 2022
£m £m
Profit before tax attributable to equity holders 76 868
Tax calculated at 23.5%(1) 18 165
Adjusted for the effects of:
Recurring reconciling items:
Different rate of tax on profits and losses taxed overseas(2) (68) 12
Income not subject to tax (4) (3)
Non-deductible expenses 27 (2)
Differences between taxable and accounting investment gains (9) (9)
Other taxes on property and foreign income 4 6
Unrecognised tax losses 19 17
Double tax relief(3) (2) (20)
Non-recurring reconciling items:
Adjustments in respect of prior years(4) (11) (21)
Impact of the revaluation of deferred tax balances (1) (59)
Impact of law changes on deferred tax balances(5) (340) -
Tax (credit)/expense attributable to equity holders(6) (367) 86
Equity holders' effective tax rate(7) (483)% 10%
1. The Finance Act 2021 increased the rate of corporation tax from 19%
to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the
year has increased to 23.5% (2022: 19.0%). The enacted tax rate of 25% has
been used in the calculation of UK deferred tax assets and liabilities, as the
rate of corporation tax that is expected to apply when the majority of those
deferred tax balances reverse.
2. The lower rate of tax on overseas profits and losses is principally
driven by the 0% rate of taxation arising in our Bermudan reinsurance company,
which provides the group with regulatory capital flexibility for both our PRT
business and our US term insurance business. This also includes the impact of
our US operations which are taxed at 21%.
3. Double tax relief represents a UK tax credit available for overseas
withholding tax suffered on dividend income.
4. Adjustments in respect of prior years relate to revisions of prior
estimates.
5. The tax credit relates to the introduction of a new corporate income
tax regime in Bermuda, which was enacted in December 2023.
6. The tax credit for the year includes a material one-off tax credit
arising from the recognition of a deferred tax asset relating to the
introduction of a new Bermuda corporate income tax regime. The net tax credit
for the year excluding this one-off credit is £27m and reflects the varying
rates of tax that we pay on our businesses in different territories and the
mixture of profits and losses across those territories.
7. The equity holders' effective tax rate excluding the impact of
expenses arising from rate differences on longevity assumption changes, the
one-off settlement cost associated with the buy-out of the group's UK defined
benefit pension schemes and the one-off Bermuda tax credit is 11.9%.
During the year the UK Government enacted legislation to apply a global
minimum tax rate of 15% to multinational businesses headquartered in the UK as
well as a new domestic UK minimum tax rate of 15%, in line with the Model
Rules agreed by the Organisation for Economic Co-operation and Development
(OECD). These rules apply from 1 January 2024, and will apply to all of the
group's businesses globally.
During 2023 the Bermudan Government consulted on introducing a local corporate
income tax with effect from 1 January 2025, which would apply to our Bermudan
reinsurance businesses. This has been substantively enacted as at 31 December
2023 and deferred tax on temporary differences relating to the new regime have
been valued at 15%.
The group is expected to be liable to UK top-up tax in 2024 in respect of
profits arising in our global reinsurance hub in Bermuda. From 2025, we
anticipate that the group will be liable for local Bermudan corporate income
tax at 15%, instead of top-up tax under the global minimum tax rules, on
Bermudan profits. Further guidance on both the new UK and new Bermuda rules is
expected and will be kept under review for any further impact.
3.04 Tax (continued)
(ii) Deferred tax
Restated
2023 2022
Deferred tax assets/(liabilities) £m £m
Overseas deferred acquisition expenses(1) 121 116
Difference between the tax and accounting value of insurance contracts 736 458
- UK(2) 1,149 1,237
- Bermuda(3) 340 -
- US (753) (779)
Realised and unrealised gains on investments 72 145
Excess of depreciation over capital allowances 17 21
Accounting provisions and other 52 59
Trading losses 609 463
- UK 76 -
- US(4) 533 463
Pension fund deficit 3 (26)
Acquired intangibles (3) (2)
Net deferred tax asset 1,607 1,234
Presented on the Consolidated Balance Sheet as:
- Deferred tax assets 1,714 1,440
- Deferred tax liabilities(5) (107) (206)
Net deferred tax asset 1,607 1,234
1. Deferred tax assets arising on deferred acquisition expenses relate
solely to US balances.
2. The UK deferred tax asset reflects the impact of transition to IFRS
17 (see Note 1.01 for further details).
3. The Bermuda deferred tax asset relates to the introduction of a new
corporate income tax regime in Bermuda, which was enacted in December 2023
(see Note 3.04 (i)).
4. This deferred tax asset relates to US operating losses. The losses
are not time restricted, and we expect to recover them over a period of 15 to
20 years, commensurate with the lifecycle of the underlying insurance
contracts. In reaching this conclusion, we have considered past results, the
different basis under which US companies are taxed, temporary differences that
are expected to generate future profits against which the deferred tax can be
offset, management actions, and future profit forecasts. The recoverability of
deferred tax assets is routinely reviewed by management.
5. The deferred tax liability is comprised of balances of £107m
relating to the US (2022: £206m), that are not capable of being offset
against other deferred tax assets.
3.05 Share capital and share premium
Number of
Authorised share capital shares £m
As at 31 December 2023 and 31 December 2022: ordinary shares of 2.5p each 9,200,000,000 230
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2023 5,973,253,500 149 1,018
Options exercised under share option schemes 6,324,780 - 12
As at 31 December 2023 5,979,578,280 149 1,030
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2022 5,970,415,817 149 1,012
Options exercised under share option schemes 2,837,683 - 6
As at 31 December 2022 5,973,253,500 149 1,018
There is one class of ordinary shares of 2.5p each. All shares issued carry
equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends
as declared and are entitled to one vote per share at shareholder meetings of
the company.
3.06 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625%
perpetual restricted Tier 1 contingent convertible notes. The notes are
callable at par between 24 March 2031 and 24 September 2031 (the First Reset
Date) inclusive and every 5 years after the First Reset Date. If not called,
the coupon from 24 September 2031 will be reset to the prevailing five year
benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon
payments is at the discretion of the issuer and mandatory cancellation is upon
the occurrence of certain conditions. The Tier 1 notes are therefore treated
as equity and coupon payments are recognised directly in equity when paid.
During the year coupon payments of £28m were made (2022: £28m). The notes
rank junior to all other liabilities and senior to equity attributable to
owners of the parent. On the occurrence of certain conversion trigger events
the notes are convertible into ordinary shares of the issuer at the prevailing
conversion price.
The notes are treated as restricted Tier 1 own funds for Solvency II purposes.
3.07 Non-controlling interests
Non-controlling interests represent third party interests in direct equity
investments, including private equity, which are consolidated in the group's
results.
As at 31 December 2023, non-controlling interests primarily represent third
party ownership in Thorpe Park Holdings, a mixed residential/commercial retail
space in which the group holds 50%.
3.08 Core borrowings
Carrying Coupon Carrying Coupon
amount rate Fair value amount rate Fair value
2023 2023 2023 2022 2022 2022
£m % £m £m % £m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2) 590 5.50 600 590 5.50 541
5.375% Sterling subordinated notes 2045 (Tier 2) 605 5.38 603 605 5.38 593
5.25% US Dollar subordinated notes 2047 (Tier 2) 676 5.25 656 712 5.25 665
5.55% US Dollar subordinated notes 2052 (Tier 2) 396 5.55 382 417 5.55 389
5.125% Sterling subordinated notes 2048 (Tier 2) 401 5.13 395 400 5.13 377
3.75% Sterling subordinated notes 2049 (Tier 2) 599 3.75 545 599 3.75 507
4.5% Sterling subordinated notes 2050 (Tier 2) 501 4.50 467 500 4.50 439
Client fund holdings of group debt (Tier 2)(1) (80) - (77) (74) - (67)
Total subordinated borrowings 3,688 - 3,571 3,749 - 3,444
Senior borrowings
Sterling medium term notes 2031-2041 609 5.87 666 609 5.87 649
Client fund holdings of group debt(1) (17) - (17) (20) - (19)
Total senior borrowings 592 - 649 589 - 630
Total core borrowings 4,280 - 4,220 4,338 - 4,074
1. £97m (31 December 2022: £94m) of the group's subordinated and
senior borrowings are held by Legal & General customers through unit
linked products. These borrowings are shown as a deduction from total core
borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices
in active markets and they have been classified as Level 1 in the fair value
hierarchy.
Subordinated borrowings
5.5% Sterling subordinated notes 2064
On 27 June 2014, Legal & General Group Plc issued £600m of 5.5% dated
subordinated notes. The notes are callable at par on 27 June 2044 and every
five years thereafter. These notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
On 27 October 2015, Legal & General Group Plc issued £600m of 5.375%
dated subordinated notes. The notes are callable at par on 27 October 2025 and
every five years thereafter. These notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated
subordinated notes. The notes are callable at par on 21 March 2027 and every
five years thereafter. These notes mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated
subordinated notes. The notes are callable at par on 24 April 2032 and every
five years thereafter. These notes mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125%
dated subordinated notes. The notes are callable at par on 14 November 2028
and every five years thereafter. These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued £600m of 3.75%
dated subordinated notes. The notes are callable at par on 26 November 2029
and every five years thereafter. These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated
subordinated notes. The notes are callable at par on 1 November 2030 and every
five years thereafter. These notes mature on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own funds for
Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior
unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and
5.875%. These notes have various maturity dates between 2031 and 2041.
3.09 Operational borrowings
Carrying Interest Carrying Interest
amount rate Fair value amount rate Fair value
2023 2023 2023 2022 2022 2022
£m % £m £m % £m
Short-term operational borrowings
Euro Commercial Paper 49 4.73 49 50 1.60 50
Bank loans and overdrafts 12 - 12 3 - 3
Non-recourse borrowings
Cardiff Interchange Limited credit facility - - - 64 5.63 64
CALA revolving credit facility 149 7.15 149 24 5.50 24
Class B Surplus Notes(1) 1,176 8.27 1,176 788 6.62 788
Affordable Homes revolving credit facility 41 7.15 41 19 4.38 19
Homes Modular revolving credit facility 11 8.30 11 15 6.62 15
Suburban Build to Rent revolving credit facility 19 6.00 19 - - -
Total operational borrowings(2) 1,457 - 1,457 963 - 963
1. The Class B Surplus Notes have been issued by a US subsidiary of the
group as part of a coinsurance structure for the purpose of US statutory
regulations. The notes were issued in exchange for bonds of the same value
from an unrelated party, included within financial investments on the group's
Consolidated Balance Sheet.
2. Unit linked borrowings with a carrying value of £383m (31 December
2022: £256m) are excluded from the analysis above as the risk is retained by
policyholders. Operational borrowings including unit linked borrowings are
£1,840m (31 December 2022: £1,219m).
Syndicated credit facility
As at 31 December 2023, the group has in place a £1.5bn syndicated committed
revolving credit facility provided by a number of its key relationship banks,
maturing in August 2028. No amounts were outstanding at 31 December 2023.
3.10 Payables and other financial liabilities
2023 2022
£m £m
Derivative liabilities 43,821 51,190
Repurchase agreements(1) 25,452 31,533
Other financial liabilities(2) 9,166 11,182
Total payables and other financial liabilities 78,439 93,905
Due within 12 months 38,175 39,917
Due after 12 months 40,264 53,988
1. Repurchase agreements are presented gross, however they and their
related assets (included within debt securities) are subject to master netting
arrangements. The significant majority of repurchase agreements are unit
linked.
2. Other financial liabilities includes trail commission, lease
liabilities, FX spots and the value of short positions taken out to cover
reverse repurchase agreements. The value of short positions as at 31 December
2023 was £2,647m (31 December 2022: £4,960m). Other financial liabilities
have been restated for 31 December 2022.
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2023 £m £m £m £m £m
Derivative liabilities 43,821 627 43,147 47 -
Repurchase agreements 25,452 - 25,452 - -
Other financial liabilities 9,166 3,103 59 - 6,004
Total payables and other financial liabilities 78,439 3,730 68,658 47 6,004
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2022 £m £m £m £m £m
Derivative liabilities 51,190 448 50,717 25 -
Repurchase agreements 31,533 - 31,533 - -
Other financial liabilities(2) 11,182 4,319 253 - 6,610
Total payables and other financial liabilities 93,905 4,767 82,503 25 6,610
1. The carrying value of payables and other financial liabilities at
amortised cost approximates its fair value.
2. Other financial liabilities have been restated for 31 December 2022.
Significant transfers between levels
There have been no significant transfers of liabilities between Levels 1, 2
and 3 for the year ended 31 December 2023 (2022: no significant transfers).
3.11 Insurance contracts
(i) Insurance contract revenue and expenses
For the year ended 31 December 2023 Annuities Protection Total
£m £m £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided 943 225 1,168
- Expected incurred claims and other insurance service expenses 5,278 2,597 7,875
- Change in the risk adjustment for non-financial risk for the risk expired 371 16 387
Recovery of insurance acquisition cash flows 19 132 151
Premium experience variance relating to past and current service 1 42 43
Total insurance revenue 6,612 3,012 9,624
Total insurance service expenses (5,244) (3,129) (8,373)
Allocation of reinsurance premiums (2,847) (1,044) (3,891)
Amounts recoverable from reinsurers for incurred claims 2,415 1,339 3,754
Net (expense)/income from reinsurance contracts held (432) 295 (137)
Total insurance service result 936 178 1,114
For the year ended 31 December 2022 Annuities Protection Total
£m £m £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided 762 251 1,013
- Expected incurred claims and other insurance service expenses 4,585 2,558 7,143
- Change in the risk adjustment for non-financial risk for the risk expired 359 31 390
Recovery of insurance acquisition cash flows 14 123 137
Premium experience variance relating to past and current service 2 (2) -
Total insurance revenue 5,722 2,961 8,683
Total insurance service expenses (4,576) (2,921) (7,497)
Allocation of reinsurance premiums (2,323) (803) (3,126)
Amounts recoverable from reinsurers for incurred claims 2,052 929 2,981
Net (expense)/income from reinsurance contracts held (271) 126 (145)
Total insurance service result 875 166 1,041
(ii) Insurance and reinsurance contracts
Assets Liabilities Assets Liabilities
2023 2023 2022 2022
£m £m £m £m
Insurance contracts issued
Annuities
Insurance contract balances - 86,706 - 73,729
Assets for insurance contract acquisition cash flows(1) - (18) - (20)
Protection
Insurance contract balances - 4,782 - 4,533
Assets for insurance contract acquisition cash flows(1) - (24) - (28)
Total insurance contracts issued(2) - 91,446 - 78,214
Assets Liabilities Assets Liabilities
2023 2023 2022 2022
£m £m £m £m
Reinsurance contracts held
Annuities
Reinsurance contracts balances 4,758 - 2,495 -
Assets for reinsurance contract acquisition cash flows(1) 3 - 5 -
Protection
Reinsurance contracts balances 2,545 220 2,213 52
Assets for reinsurance contract acquisition cash flows(1) - - - -
Total reinsurance contracts held(2) 7,306 220 4,713 52
1. Assets for insurance and reinsurance acquisition cash flows are
presented within the carrying amount of the related insurance and reinsurance
contract liabilities.
2. £5,119m (2022: £5,122m) of the net insurance balance of £84,360m
(2022: £73,553m) is expected to run off within 12 months.
3.12 Sensitivity analysis
Impact on
Impact on post-tax Impact on
post-tax Impact on group profit group equity
group profit group equity arising from arising from Net impact on
arising from arising from insurance insurance post-tax Net impact on
financial assets financial assets contracts contracts group profit group equity
2023 2023 2023 2023 2023 2023
Economic sensitivity £m £m £m £m £m £m
Long-term insurance, other group assets and obligations
100bps increase in interest rates(1) (5,909) (6,151) 5,713 5,892 (196) (259)
100bps decrease in interest rates(1) 6,999 7,318 (6,919) (7,147) 80 171
50bps increase in future inflation expectations(1) 1,778 1,814 (1,831) (1,801) (53) 13
50bps decrease in future inflation expectations(1) (1,620) (1,652) 1,732 1,707 112 55
Credit spreads widen by 100bps with no change in expected defaults (4,193) (4,216) 4,041 4,206 (152) (10)
25% rise in equity markets 297 297 - - 297 297
25% fall in equity markets (297) (297) - - (297) (297)
15% rise in property values 1,155 1,155 (25) (25) 1,130 1,130
15% fall in property values (1,276) (1,276) 102 102 (1,174) (1,174)
10bps increase in credit default assumptions - - (494) (514) (494) (514)
10bps decrease in credit default assumptions - - 455 471 455 471
Impact on
Impact on post-tax Impact on
post-tax Impact on group profit group equity
group profit group equity arising from arising from Net impact on
arising from arising from insurance insurance post-tax Net impact on
financial assets financial assets contracts contracts group profit group equity
2022 2022 2022 2022 2022 2022
Economic sensitivity (Restated) £m £m £m £m £m £m
Long-term insurance, other group assets and obligations
100bps increase in interest rates (4,775) (4,802) 4,715 4,876 (60) 74
100bps decrease in interest rates 5,706 5,737 (5,626) (5,833) 80 (96)
50bps increase in future inflation expectations 1,345 1,346 (1,298) (1,270) 47 76
50bps decrease in future inflation expectations (1,233) (1,234) 1,232 1,207 (1) (27)
Credit spreads widen by 100bps with no change in expected defaults (3,990) (3,993) 3,735 3,885 (255) (108)
25% rise in equity markets 317 317 - - 317 317
25% fall in equity markets (317) (317) - - (317) (317)
15% rise in property values 1,032 1,032 53 53 1,085 1,085
15% fall in property values (1,113) (1,113) (3) (3) (1,116) (1,116)
10bps increase in credit default assumptions (12) (12) (449) (467) (461) (479)
10bps decrease in credit default assumptions 12 12 423 438 435 450
1. The group undertook a number of management actions in January 2024 in
order to reduce interest rate and inflation sensitivities. Incorporating the
impact of these management actions, the sensitivities for the Net impact on
post-tax group profit 2023 relating to +/-100bps interest rates are £(153)m
and £23m, and to +/-50bps inflation are £(28)m and £84m.
3.12 Sensitivity analysis (continued)
Impact on
Impact on post-tax Impact on
CSM group profit group equity
2023 2023 2023
Non-economic sensitivity £m £m £m
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance 352 (52) (52)
1% increase in annuitant mortality, net of reinsurance 181 (26) (26)
1% decrease in annuitant mortality, gross of reinsurance (357) 52 52
1% decrease in annuitant mortality, net of reinsurance (183) 27 27
5% increase in assurance mortality, gross of reinsurance (591) (395) (308)
5% increase in assurance mortality, net of reinsurance (307) (95) (81)
10% increase in maintenance expenses, gross of reinsurance (140) (3) 1
10% increase in maintenance expenses, net of reinsurance (137) (4) 1
Impact on
Impact on post-tax Impact on
CSM group profit group equity
2022 2022 2022
Non-economic sensitivity £m £m £m
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance 323 (70) (70)
1% increase in annuitant mortality, net of reinsurance 168 (32) (32)
1% decrease in annuitant mortality, gross of reinsurance (324) 70 70
1% decrease in annuitant mortality, net of reinsurance (168) 32 32
5% increase in assurance mortality, gross of reinsurance (628) (344) (228)
5% increase in assurance mortality, net of reinsurance (331) (63) (39)
10% increase in maintenance expenses, gross of reinsurance (126) - 6
10% increase in maintenance expenses, net of reinsurance (123) - 6
The economic sensitivity tables above show the impacts on group post tax
profit and equity, net of reinsurance, under each sensitivity scenario. The
impacts on group post tax profit and equity arising from financial assets and
insurance contracts are also shown separately in the tables. The economic
sensitivity impacts cover long-term insurance business and other group assets
and obligations.
The non-economic sensitivity tables above show the impacts on CSM, group post
tax profit and equity, gross and net of reinsurance, under each sensitivity
scenario. The non-economic sensitivity impacts cover long-term insurance
business only.
The group impacts may arise from asset and/or liability movements under the
sensitivities. The current disclosure reflects management's view of key risks
in current economic conditions.
The stresses are assumed to occur on the balance sheet date. Both CSM and
current year CSM release into profit are assumed to be affected when
non-financial assumptions are stressed.
In calculating the alternative values, all other assumptions are left
unchanged. In practice, impacts of the group's experience may be correlated.
The sensitivity analyses do not take into account management actions that
could be taken to reduce the impacts. The group seeks to actively manage its
asset and liability position. A change in market conditions may lead to
changes in the asset allocation or charging structure which may have a more,
or less, significant impact on the value of the liabilities. The analysis also
ignores any second order effects of the assumption change, including the
potential impact on the group asset and liability position and any second
order tax effects.
The sensitivity of profit and equity to changes in assumptions may not be
linear. They should not be extrapolated to changes of a much larger order.
The change in interest rate stresses assume a 100 basis point
increase/decrease in the gross redemption yield on fixed interest securities
together with the same change in the real yields on variable securities.
Interest rates used to discount liabilities are assumed to move in line with
market yields, adjusted to remove risks in the asset reference portfolios that
are not present in the liabilities calculated in a manner consistent with the
base results.
The inflation stresses adopted are a 0.5% per annum (p.a.) increase/decrease
in inflation, resulting in a 0.5% p.a. reduction/rise in real yield and no
change to the nominal yield. In addition, the expense inflation rate is
increased/decreased by 0.5% p.a. The expense inflation assumptions are
non-financial and therefore recalibrate the CSM under the stresses. These
recalibrations are reflected in the impacts shown.
In the sensitivity for credit spreads, corporate bond yields have increased by
100bps, government bond yields unchanged, and there has been no adjustment to
the default assumptions. All lifetime mortgages are excluded, as their primary
exposure is to property risk, and therefore captured under the property
stress.
The equity stresses are a 25% rise and 25% fall in listed equity market
values.
3.12 Sensitivity analysis (continued)
The property stresses adopted are a 15% rise and 15% fall in property market
values including lifetime mortgages. Where property is being used to back
liabilities, interest rates used to discount liabilities move with property
yields, and so the value of the liabilities will also move.
The credit default assumption is set based on the credit rating of individual
bonds and Moody's historical transition matrices. The credit default stress
assumes a +/-10bps stress to the current credit default assumptions, which
will have an impact on the interest rates used to discount liabilities.
Default allowances for assets deemed credit risk free are unchanged. All
lifetime mortgages are excluded, as their primary exposure is to property
risk, and therefore captured under the property stress.
The annuitant mortality stresses are a 1% increase and 1% decrease in the
mortality rates for immediate and deferred annuitants with no change to the
mortality improvement rates.
The assurance mortality stress is a 5% increase in the mortality and morbidity
rates with no change to the mortality and morbidity improvement rates.
The maintenance expense stress is a 10% increase in all types of maintenance
expenses in future years.
3.13 Foreign exchange rates
Principal rates of exchange used for translation
are:
Year end exchange rates 2023 2022
United States dollar 1.27 1.21
Euro 1.15 1.13
Average exchange rates 2023 2022
United States dollar 1.24 1.24
Euro 1.15 1.17
3.14 Provisions
(i) Analysis of provisions
2023 2022
Notes £m £m
Other provisions 3.14(ii) 244 273
Retirement benefit obligations 3.14(iii) 14 617
Total provisions 258 890
(ii) Other provisions
Other provisions include costs that Legal & General Investment Management
(LGIM) is committed to incur on the extension of its existing partnership with
State Street announced in 2021, to increase the use of Charles River
technology across the front office and to deliver middle office services going
forward. Costs include the transfer of data and operations to State Street, as
well as the implementation of the new operating model. The amounts included in
the provision have been determined on a best estimate basis by reference to a
range of plausible scenarios, taking into account the multi-year
implementation period for the project. As at 31 December 2023, the outstanding
provision was £108m (31 December 2022: £111m).
(iii) Retirement benefit obligations
Fund and CALA Homes Fund and CALA Homes
Scheme and Overseas Scheme and Overseas
2023 2023 2022 2022
£m £m £m £m
Gross pension obligations included in provisions - 14 612 5
Annuity obligations insured by LGAS - - (718) -
Gross defined benefit pension deficit/(surplus) - 14 (106) 5
Deferred tax on defined benefit pension deficit/(surplus) - (3) 27 (1)
Net defined benefit pension deficit/(surplus) - 11 (79) 4
The Trustees completed a buy-out of the Legal & General Group UK Pension
and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension
Scheme (Scheme) in November 2023, and the existing annuity policies were
exchanged for individual policies between LGAS and members. As a result, all
the group's obligations under the pension schemes have now been fully
extinguished, and the defined benefit obligation as at the settlement date of
£1,470m was therefore derecognised. On the same date, the group recognised
the direct liability to the pensioners within insurance contract liabilities.
The difference between the defined benefit obligation at this date and the
fair value of the insurance contract liabilities recognised under IFRS 17
resulted in £167m being recognised in the Consolidated Income Statement as
settlement costs. This reflects measurement differences between IFRS 17 and
IAS 19, principally comprising of the associated CSM and risk adjustment.
3.15 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is
based on certain assumptions. The variance between actual experience from that
assumed may result in those liabilities differing from the provisions made for
them. Liabilities may also arise in respect of claims relating to the
interpretation of policyholder contracts, or the circumstances in which
policyholders have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and requirements of
the PRA, FCA, ombudsman rulings, industry compensation schemes and court
judgments.
Various group companies receive claims and become involved in actual or
threatened litigation and regulatory issues from time to time. The relevant
members of the group ensure that they make prudent provision as and when
circumstances calling for such provision become clear, and that each has
adequate capital and reserves to meet reasonably foreseeable eventualities.
The provisions made are regularly reviewed. It is not possible to predict,
with certainty, the extent and the timing of the financial impact of these
claims, litigation or issues.
Group companies have given warranties, indemnities and guarantees as a normal
part of their business and operating activities or in relation to capital
market transactions or corporate disposals. Legal & General Group Plc has
provided indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities. Legal and General Assurance
Society Limited has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity facility in
respect of the liabilities of group companies to facilitate the group's
matching adjustment reorganisation pursuant to Solvency II.
3.16 Related party transactions
(i) Key management personnel transactions and compensation
All transactions between the group and its key management are on commercial
terms which are no more favourable than those available to employees in
general. There were no material transactions between key management and the
Legal & General group of companies during the year. Contributions to the
post-employment defined benefit plans were £134m (2022: £105m) for all
employees.
At 31 December 2023 and 31 December 2022 there were no loans outstanding to
officers of the company.
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
2023 2022
£m £m
Salaries 12 11
Share-based incentive awards 8 6
Key management personnel compensation 20 17
(ii) Services provided to and by related parties
All transactions between the group and associates, joint ventures and other
related parties during the year are on commercial terms which are no more
favourable than those available to companies in general.
The group has the following material related party transactions:
• A number of transactions between the group's UK defined benefit
pension schemes and Legal and General Assurance Society Limited (LGAS)
occurred during the year. These include the surrender of Assured Payment
Policies (APPs) and their conversion into annuities, as well as a buy-out of
the schemes completed by the Trustees, where existing annuity policies were
exchanged for individual policies between LGAS and members. Further details
are provided in Note 3.14; and
• Total payments by LGAS to the pension schemes for insured pension
benefits were £55m (2022: £56m).
Loans and commitments to related parties are made in the normal course of
business. As at 31 December 2023, the group had:
• Loans outstanding from related parties of £49m (2022: £58m), with a
further commitment of £7m (2022: £6m); and
• Total other commitments of £1,347m to related parties (2022:
£1,265m), of which £1,108m has been drawn (2022: £1,010m).
Asset flows and new business
4.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2023 £bn £bn £bn £bn £bn £bn
As at 1 January 2023 444.7 156.8 73.9 485.9 34.4 1,195.7
External inflows(3) 69.4 17.4 12.4 25.5 1.5 126.2
External outflows(3) (84.9) (17.2) (7.4) (23.4) (2.6) (135.5)
Overlay net flows - - - (29.1) - (29.1)
External net flows(4) (15.5) 0.2 5.0 (27.0) (1.1) (38.4)
PRT transfers(5) (0.4) (1.5) - (13.1) (0.2) (15.2)
Internal net flows(6) (0.8) - (0.2) 0.5 2.1 1.6
Total net flows (16.7) (1.3) 4.8 (39.6) 0.8 (52.0)
Market movements 55.3 10.4 5.6 (29.6) 0.3 42.0
Other movements(7) (1.6) 3.0 - (27.9) - (26.5)
As at 31 December 2023 481.7 168.9 84.3 388.8 35.5 1,159.2
Assets attributable to:
External 1,062.1
Internal 97.1
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2022 £bn £bn £bn £bn £bn £bn
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows(3) 95.8 16.0 13.5 90.0 2.5 217.8
External outflows(3) (102.6) (23.5) (9.3) (27.2) (2.1) (164.7)
Overlay net flows - - - (3.5) - (3.5)
External net flows(4) (6.8) (7.5) 4.2 59.3 0.4 49.6
PRT transfers(5) (0.2) (0.4) - (2.5) - (3.1)
Internal net flows(6) (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(7) 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
Assets attributable to:
External 1,103.4
Internal 92.3
1. Assets under management (AUM) includes assets on our Investment Only
Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £246.7bn (31
December 2022: £336.6bn) of derivative notionals associated with the
Solutions business.
3. External inflows and outflows include £5.3bn (31 December 2022:
£3.9bn) of external investments and £3.4bn (31 December 2022: £3.3bn) of
redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31 December
2023 was £66.9bn (31 December 2022: £69.1bn).
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to
LGRI.
6. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
4.02 LGIM total assets under management(1) half-yearly progression
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2023 £bn £bn £bn £bn £bn £bn
As at 1 January 2023 444.7 156.8 73.9 485.9 34.4 1,195.7
External inflows(3) 37.6 8.8 5.5 13.6 0.8 66.3
External outflows(3) (35.1) (9.2) (3.4) (10.6) (1.0) (59.3)
Overlay net flows - - - (19.3) - (19.3)
External net flows(4) 2.5 (0.4) 2.1 (16.3) (0.2) (12.3)
PRT transfers(5) (0.3) (0.3) - (4.5) - (5.1)
Internal net flows(6) (0.5) (3.1) (0.1) 0.1 1.7 (1.9)
Total net flows 1.7 (3.8) 2.0 (20.7) 1.5 (19.3)
Market movements 24.4 2.6 1.1 (32.4) (0.3) (4.6)
Other movements(7) (0.8) (1.7) - (11.2) - (13.7)
As at 30 June 2023 470.0 153.9 77.0 421.6 35.6 1,158.1
External inflows 31.8 8.6 6.9 11.9 0.7 59.9
External outflows (49.8) (8.0) (4.0) (12.8) (1.6) (76.2)
Overlay net flows - - - (9.8) - (9.8)
External net flows(4) (18.0) 0.6 2.9 (10.7) (0.9) (26.1)
PRT transfers(5) (0.1) (1.2) - (8.6) (0.2) (10.1)
Internal net flows(6) (0.3) 3.1 (0.1) 0.4 0.4 3.5
Total net flows (18.4) 2.5 2.8 (18.9) (0.7) (32.7)
Market movements 30.9 7.8 4.5 2.8 0.6 46.6
Other movements(7) (0.8) 4.7 - (16.7) - (12.8)
As at 31 December 2023 481.7 168.9 84.3 388.8 35.5 1,159.2
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December 2022 £bn £bn £bn £bn £bn £bn
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows(3) 63.2 7.0 6.8 21.3 1.4 99.7
External outflows(3) (38.2) (4.2) (3.7) (12.5) (1.1) (59.7)
Overlay net flows - - - 25.6 - 25.6
External net flows(4) 25.0 2.8 3.1 34.4 0.3 65.6
PRT transfers(5) - - - (0.4) - (0.4)
Internal net flows(6) (0.4) 0.2 - (0.7) 0.4 (0.5)
Total net flows 24.6 3.0 3.1 33.3 0.7 64.7
Market movements (57.8) (25.2) (8.0) (102.4) (1.9) (195.3)
Other movements(7) 0.4 1.6 - (3.2) - (1.2)
As at 30 June 2022 469.6 178.2 73.1 532.8 36.0 1,289.7
External inflows 32.6 9.0 6.7 68.7 1.1 118.1
External outflows (64.4) (19.3) (5.6) (14.7) (1.0) (105.0)
Overlay net flows - - - (29.1) - (29.1)
External net flows(4) (31.8) (10.3) 1.1 24.9 0.1 (16.0)
PRT transfers(5) (0.2) (0.4) - (2.1) - (2.7)
Internal net flows(6) (0.7) (0.6) (0.2) (0.5) 2.6 0.6
Total net flows (32.7) (11.3) 0.9 22.3 2.7 (18.1)
Market movements 7.6 (7.9) (0.1) (71.5) (4.3) (76.2)
Other movements(7) 0.2 (2.2) - 2.3 - 0.3
As at 31 December 2022 444.7 156.8 73.9 485.9 34.4 1,195.7
1. Assets under management (AUM) includes assets on our Investment Only
Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £246.7bn (31
December 2022: £336.6bn) of derivative notionals associated with the
Solutions business.
3. External inflows and outflows include £5.3bn (31 December 2022:
£3.9bn) of external investments and £3.4bn (31 December 2022: £3.3bn) of
redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31 December
2023 was £66.9bn (31 December 2022: £69.1bn).
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to
LGRI.
6. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
4.03 LGIM total external assets under management and net flows
Assets under management at Net flows for the six months ended(1)
31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June
2023 2023 2022 2022 2023 2023 2022 2022
£bn £bn £bn £bn £bn £bn £bn £bn
International(2) 377.7 371.8 363.6 377.0 (14.2) (2.7) (13.1) 34.5
UK Institutional
- Defined contribution 163.0 146.1 135.2 129.7 6.9 5.5 4.6 7.0
- Defined benefit 453.4 489.6 547.8 630.1 (22.0) (17.3) (10.0) 22.4
Wholesale(3) 56.6 51.2 48.3 45.5 2.2 1.3 2.2 1.4
ETF(4) 11.4 9.9 8.5 8.4 1.0 0.9 0.3 0.3
Total external 1,062.1 1,068.6 1,103.4 1,190.7 (26.1) (12.3) (16.0) 65.6
1. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to a higher
degree of variability.
2. International assets are shown on the basis of client domicile. Total
International AUM including assets managed internationally on behalf of UK
clients amounted to £465bn as at 31 December 2023 (31 December 2022:
£441bn).
3. Wholesale represents assets from the Retail Intermediary business and
£0.2bn of assets from Personal Investing customers that did not migrate to
Fidelity International Limited.
4. ETF reflects external AUM and Flows invested on the platform. Total
AUM managed on the platform is £13.5bn ($17.2bn) in 2023 (£10.2bn/$12.3bn in
2022) and flows are £2.2bn ($2.7bn) in 2023 (£1.0bn/$1.3bn in 2022) which
include internal investment from other LGIM asset classes.
4.04 Reconciliation of assets under management to Consolidated Balance Sheet
Restated
2023 2022
£bn £bn
Assets under management(1) 1,159 1,196
Derivative notionals(2) (247) (337)
Third party assets(3) (458) (412)
Other(4) 47 45
Total financial investments, investment property and cash and cash equivalents 501 492
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others
which are not included on the group's Consolidated Balance Sheet.
4. Other includes assets that are managed by third parties on behalf of
the group, other assets and liabilities related to financial investments,
derivative assets and pooled funds. It also includes measurement differences
between assets under management, which are on a market value basis, and total
investments on an IFRS basis.
4.05 Workplace Savings assets under administration(1)
2023 2022
£bn £bn
As at 1 January 66.6 65.7
Gross inflows 10.4 10.7
Gross outflows (4.1) (3.4)
Net flows 6.3 7.3
Market and other movements 7.0 (6.4)
As at 31 December 79.9 66.6
1. Workplace savings assets under administration as at 31 December 2023
includes £79.7bn (31 December 2022: £66.4bn) of assets under management
included in Note 4.01.
4.06 Workplace Savings assets under administration half-yearly progression
2023 2022
£bn £bn
As at 1 January 66.6 65.7
Gross inflows 4.9 6.1
Gross outflows (1.9) (1.8)
Net flows 3.0 4.3
Market and other movements 2.1 (6.9)
As at 30 June 71.7 63.1
Gross inflows 5.5 4.6
Gross outflows (2.2) (1.6)
Net flows 3.3 3.0
Market and other movements 4.9 0.5
As at 31 December 79.9 66.6
4.07 LGRI new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
UK(1,2) 12,048 7,182 4,866 7,319 3,604 3,715
US 1,463 1,337 126 1,763 1,170 593
Bermuda 208 208 - 459 318 141
Total LGRI new business 13,719 8,727 4,992 9,541 5,092 4,449
1. UK includes £nil (H1 23: £nil; H2 23: £nil) (H1 22: £nil; H2 22:
£93m) of Assured Payment Policies (APPs).
2. UK includes a transaction with the group's UK defined benefit pension
schemes as disclosed in Note 3.16 Related party transactions.
4.08 Retail new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
Individual annuities 1,431 856 575 954 501 453
Lifetime mortgage loans and retirement interest only mortgages 299 136 163 632 294 338
Total Retail Retirement new business 1,730 992 738 1,586 795 791
UK Retail protection 150 74 76 171 86 85
UK Group protection 121 68 53 107 44 63
US protection(1) 141 71 70 104 56 48
Total Insurance new business 412 213 199 382 186 196
Total Retail new business 2,142 1,205 937 1,968 981 987
1. In local currency, US protection reflects new business of $175m for
2023 (H1 23: $87m; H2 23: $88m), and $129m for 2022 (H1 22: $62m; H2 22:
$67m).
Capital
5.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the Solvency II
Framework Directive, as adopted by the Prudential Regulation Authority (PRA)
in the UK and measures and monitors its capital resources on this basis. The
Solvency II regulations were amended in the UK in December 2023 to introduce a
change to the calculation of Risk Margin. All other Solvency II regulations
remain unchanged.
The Solvency II results are estimated and unaudited. Further explanation of
the underlying methodology and assumptions are set out in the sections below.
The group calculates its Solvency II capital requirements using a Partial
Internal Model. The majority of the risk to which the group is exposed is
assessed on the Partial Internal Model basis approved by the PRA. Capital
requirements for a few smaller entities are assessed using the Standard
Formula basis on materiality grounds. The group's US insurance businesses and
Legal & General Reinsurance Company No. 2 are valued on a local statutory
basis, following the PRA's approval to use the Deduction and Aggregation
method of including these businesses in the group Solvency II calculation.
The table below shows the group Own Funds, Solvency Capital Requirement (SCR)
and Surplus Own Funds, based on the Partial Internal Model, Matching
Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 31
December 2023.
(i) Capital position
As at 31 December 2023, and on the above basis, the group had a surplus of
£9,167m (31 December 2022: £9,915m) over its Solvency Capital Requirement,
corresponding to a Solvency II capital coverage ratio of 224% (31 December
2022: 236%). The Solvency II capital position is as follows:
2023 2022
£m £m
Unrestricted Tier 1 Own Funds 12,845 13,393
Restricted Tier 1 Own Funds(1) 495 495
Tier 2 Subordinated liabilities 3,460 3,448
Eligibility restrictions (244) (110)
Solvency II Own Funds(2,3) 16,556 17,226
Solvency Capital Requirement (7,389) (7,311)
Solvency II surplus 9,167 9,915
SCR Coverage ratio 224% 236%
1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1
contingent convertible notes.
2. Solvency II Own Funds do not include an accrual for the final
dividend of £871m (31 December 2022: £829m) declared after the balance sheet
date.
3. Solvency II Own Funds allow for a Risk Margin of £1,191m (31
December 2022: £2,753m) and TMTP of £970m (31 December 2022: £2,136m).
5.01 Group regulatory capital - Solvency II (continued)
(ii) Methodology
Own Funds comprise the excess of the value of assets over the liabilities, as
valued on a Solvency II basis. Subordinated debt issued by the group is
considered to be part of available capital, rather than a liability, as it is
subordinate to policyholder claims. Own Funds include deductions in relation
to fungibility and transferability restrictions, to the extent that the
surplus Own Funds of a specific group entity cannot be freely transferred
around
the group due to local legal or regulatory constraints.
Assets are valued at IFRS fair value with adjustments to remove intangibles
and deferred acquisition costs, and to value reinsurers' share of
technical provisions on a basis consistent with the liabilities on the
Solvency II balance sheet.
Liabilities are valued on a best estimate market consistent basis, with the
application of a Solvency II Matching Adjustment for valuing annuity
liabilities. Own Funds incorporate changes to the Internal Model and Matching
Adjustment during 2023 and the impacts of a recalculation of the
TMTP as at end December 2023. The recalculated TMTP of £970m (31 December
2022: £2,136m) is net of amortisation to 31 December 2023.
The liabilities include a Risk Margin of £1,191m (31 December 2022: £2,753m)
which represents an allowance for the cost of capital for a
purchasing insurer to take on the portfolio of liabilities and residual risks
that are deemed to be non-hedgeable under Solvency II. This is calculated
using a cost of capital of 4% and includes a tapering factor of 90% (31
December 2022: 6% cost of capital, with no tapering factor).
The Solvency Capital Requirement is the amount of capital required to cover
the 1-in-200 worst projected future outcome in the year following the
valuation, allowing for realistic management and policyholder actions and the
impact of the stress on the tax position of the group. This allows for
diversification between the different firms within the group and between the
risks to which they are exposed.
All material EEA insurance firms, including Legal and General Assurance
Society Limited (LGAS) and Legal and General Assurance (Pensions
Management) Limited, are incorporated into the group's Solvency II Internal
Model assessment of required capital, assuming diversification of the
risks between and within those firms. These firms, as well as the non-EEA
insurance firm (Legal & General Reinsurance Company Limited (L&G Re)
based in Bermuda) contribute over 90% of the group's SCR.
Firms which are not regulated but which carry material risks to the group's
solvency are also modelled in the Internal Model, with an appropriate stress
being applied to their net asset value. There are a small number of insurance
firms for which the capital requirements are valued on a Solvency II Standard
Formula basis.
Legal & General America's insurance entities (LGA) and Legal and General
Reinsurance Company No.2 Limited (L&G Re 2) are incorporated into the
calculation of group solvency using a Deduction & Aggregation (D&A)
basis. All risk exposure in these firms is valued on local statutory bases.
For LGA (excluding Legal & General America Reinsurance Limited (LGAR)),
all risk exposure is valued on a US statutory basis, with capital requirements
set to a multiple of US statutory Risk Based Capital (RBC). The contribution
to group SCR is 150% of the local Company Action Level RBC (CAL RBC). The
contribution to group's Own Funds is the SCR together with any surplus capital
in excess of 250% of CAL RBC. The US regulatory regime is considered to be
equivalent to Solvency II by the European Commission.
For L&G Re 2 and LGAR, all risk exposure is valued on a Bermudan capital
basis, with capital requirements set equal to the Bermudan capital
requirements. The Own Funds contribution is restricted by 20% of the capital.
The Bermuda regulatory regime is also considered to be equivalent to Solvency
II by the European Commission.
All non-insurance regulated firms are included using their current regulatory
surplus.
(iii) Assumptions
The calculation of the Solvency II balance sheet and associated capital
requirements requires a number of assumptions, including:
i. Demographic assumptions required to project best estimate
liability cash flows are mostly consistent with those underlying the group's
IFRS disclosures where relevant, subject to minor exceptions.
ii. Future investment returns and discount rates to derive the present
value of best estimate liability cash flows are those defined by the
PRA. The risk-free rates used to discount UK Sterling and US Dollar cashflows
are SONIA- and SOFR-based market swap rates. For other liabilities, the
risk-free rates used to discount cash flows include a credit risk adjustment
that varies by currency.
iii. For annuities that are eligible, the liability discount rate
includes a Matching Adjustment. This Matching Adjustment varies between LGAS
and L&G Re and by the currency of the relevant liabilities. At 31 December
2023 the Matching Adjustment for UK Sterling was 122 basis
points (31 December 2022: 141 basis points) after deducting an allowance for
the fundamental spread equivalent to 53 basis points (31
December 2022: 55 basis points).
iv. Assumptions regarding management actions and policyholder behaviour
across the full range of scenarios. The only management
actions allowed for are those that have been approved by the Board and are in
place at the balance sheet date.
v. Assumptions regarding the volatility of the risks to which the
group is exposed. Assumptions have been set using a combination of
historic market, demographic and operating experience data. In areas where
data is not considered robust, expert judgement has been
used.
vi. Assumptions on the dependencies between risks, which are calibrated
using a combination of historic data and expert judgement.
5.01 Group regulatory capital - Solvency II (continued)
(iv) Analysis of change
Operational Surplus Generation is the expected surplus generated from the
assets and liabilities in-force at the start of the year. It is based on
assumed real world returns and best estimate non-market assumptions. It
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the year.
New business strain is the cost of acquiring business and setting up Technical
Provisions and SCR (net of any premium income), on actual new business written
over the year. It is based on economic conditions at the point of sale.
The table below shows the movement (net of tax) during the year ended 31
December 2023 in the group's Solvency II surplus.
2023 2023 2023
Own Funds SCR Surplus
£m £m £m
Opening Position 17,226 (7,311) 9,915
Operational Surplus Generation(1) 1,596 225 1,821
New business strain 551 (989) (438)
Net surplus generation 2,147 (764) 1,383
Operating variances(2) (307)
Mergers, acquisitions and disposals(3) (140)
Market movements(4) (512)
Dividends paid(5) (1,172)
Total surplus movement (after dividends paid in the year) (670) (78) (748)
Closing Position 16,556 (7,389) 9,167
1. Operational Surplus Generation includes a £208m release of Risk
Margin and £(206)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Mergers, acquisitions and disposals for the year ended 31 December
2023 includes costs incurred relating to the announced intent to cease
production within the Modular Homes business and impairment of the group's
investment in Onto, along with the associated change in SCR.
4. Market movements represent the impact of changes in investment market
conditions during the year and changes to future economic assumptions.
5. Dividends paid are the amounts from the 2022 final dividend and 2023
interim dividend.
The table below shows the movement (net of tax) during the year ended 31
December 2022 in the group's Solvency II surplus.
2022 2022 2022
Own Funds SCR Surplus
£m £m £m
Opening Position 17,561 (9,376) 8,185
Operational Surplus Generation(1) 1,409 396 1,805
New business strain 333 (685) (352)
Net surplus generation 1,742 (289) 1,453
Operating variances(2) (327)
Mergers, acquisitions and disposals -
Market movements(3) 1,720
Dividends paid(4) (1,116)
Total surplus movement (after dividends paid in the year) (335) 2,065 1,730
Closing Position 17,226 (7,311) 9,915
1. Operational Surplus Generation includes a £358m release of Risk
Margin and £(342)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Market movements represent the impact of changes in investment market
conditions over the year and changes to future economic assumptions.
4. Dividends paid are the amounts from the 2021 final dividend and the
2022 interim dividend.
5.01 Group regulatory capital - Solvency II (continued)
(v) Future Solvency II surplus generation - UK annuities
The table below shows a projection of future OSG expected from the £78.3bn
(2022: £70.1bn) UK annuity portfolio as at 31 December 2023. The projection
excludes any allowance for future new business. The table shows the OSG from
our UK annuity businesses in the Annuity back book OSG line, L&G Other
includes a contribution from LGC assets supporting the SCR and LGIM's asset
management fees for managing assets of the UK annuity portfolio. The impact of
management actions is excluded; we expect management actions to contribute up
to £0.2bn in each year of the projection.
2023 2024 2025 2026 2027 2028-2032 2033-2042
£bn £bn £bn £bn £bn £bn £bn
Annuity back book OSG(1) 0.7 0.6 0.6 0.6 0.6 2.5 4.2
L&G Other 0.1 0.1 0.1 0.1 0.1 0.3 0.5
Total OSG for UK Annuity back book 0.8 0.7 0.7 0.7 0.7 2.8 4.7
1. Annuity back book OSG does not include new business.
(vi) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own Funds is given
below:
Restated
( ) ( ) ( ) 2023 2022
( ) ( ) ( ) £m £m
IFRS equity(1) 4,826 5,562
CSM net of tax 10,462 9,593
IFRS equity plus CSM net of tax 15,288 15,155
Remove DAC, goodwill and other intangible assets and associated liabilities (525) (502)
Add IFRS carrying value of subordinated borrowings(2) 3,768 3,823
Insurance contract valuation differences(3) (622) 141
Financial investments valuation differences (845) (1,111)
Difference in value of net deferred tax liabilities (211) (145)
Other (53) (25)
Eligibility restrictions (244) (110)
Solvency II Own Funds(4) 16,556 17,226
1. IFRS equity represents equity attributable to owners of the parent
and restricted Tier 1 convertible debt note as per the Consolidated Balance
Sheet.
2. Treated as available capital on the Solvency II balance sheet as the
liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS
and Solvency II.
4. Solvency II Own Funds do not include an accrual for the final
dividend of £871m (31 December 2022: £829m) declared after the balance sheet
date.
5.01 Group regulatory capital - Solvency II (continued)
(vii) Sensitivity analysis
The following sensitivities are provided to give an indication of how the
group's Solvency II surplus as at 31 December 2023 would have changed in a
variety of adverse events. These are all independent stresses to a single
risk. In practice, the balance sheet is impacted by combinations of stresses
and the combined impact can be larger than adding together the impacts of the
same stresses in isolation. It is expected that, particularly for market
risks, adverse stresses will happen together.
Impact on Impact on Impact on Impact on
net of tax net of tax net of tax net of tax
Solvency II Solvency II Solvency II Solvency II
capital coverage capital coverage
surplus ratio surplus ratio
2023 2023 2022 2022
£bn % £bn %
100bps increase in risk-free rates(1) 0.1 10 0.5 18
100bps decrease in risk-free rates(1,2) (0.2) (11) (0.6) (19)
Credit spreads widen by 100bps assuming an escalating addition to ratings(3,4) 0.4 14 0.3 13
Credit spreads narrow by 100bps assuming an escalating deduction from (0.6) (18) (0.4) (16)
ratings(3,4)
Credit spreads widen by 100bps assuming a flat addition to ratings(3) 0.5 15 0.3 14
Credit spreads of sub investment grade assets widen by 100bps assuming a level (0.2) (7) (0.3) (7)
addition to ratings(3,5)
Credit migration(6) (0.7) (10) (0.8) (10)
25% fall in equity markets(7) (0.4) (3) (0.4) (3)
15% fall in property markets(8) (0.9) (10) (0.9) (11)
50bps increase in future inflation expectations(1) (0.1) (3) (0.1) (3)
10% increase in maintenance expenses(9) (0.3) (4) (0.3) (4)
1. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e.
there is no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond (and
similar) holdings, with no change in long-term default expectations.
Restructured lifetime mortgages are excluded as the underlying exposure is
mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it
is three times, for BBB four times and so on, such that the weighted average
spread stress for the portfolio is 100 basis points. To give a 100bps increase
on the total portfolio, the spread stress increases in steps of 32bps, i.e.
32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below
the stress is 100bps. The spread widening on the total portfolio is smaller
than 1bps as the group holds less than 1% in bonds rated BB and below. The
impact is primarily an increase in SCR arising from the modelled cost of
trading downgraded bonds back to a higher rating in the stress scenarios in
the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends on a credit
rating (including corporate bonds, and sale and leaseback rental strips;
lifetime mortgage senior notes are excluded). Downgraded assets in our
annuities portfolio are assumed to be traded to their original credit rating,
so the impact is primarily a reduction in Own Funds from the loss of value on
downgrade. The impact of the sensitivity will depend upon the market levels of
spreads at the balance sheet date.
7. This relates primarily to equity exposure in LGC but will also
include equity-based mutual funds and other investments that receive an equity
stress (for example, certain investments in subsidiaries). Some assets have
factors that increase or decrease the stress relative to general equity levels
via a beta factor.
8. Assets stressed include residual values from sale and leaseback, the
full amount of lifetime mortgages and direct investments treated as property.
9. A 10% increase in the assumed unit costs and future costs of
investment management across all long-term insurance business lines.
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.
5.01 Group regulatory capital - Solvency II (continued)
(viii) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type. The split
is shown before the effects of diversification and tax.
2023 2022
% %
Interest rate(1) 10 3
Equity ( ) 6 6
Property ( ) 12 12
Credit(2) 22 27
Currency ( ) 1 2
Inflation 4 5
Total Market risk(3) 55 55
Counterparty risk ( ) 2 2
Life mortality ( ) 3 3
Life longevity(4) 18 18
Life mass lapse ( ) 3 3
Life non-mass lapse 2 2
Life catastrophe ( ) 6 6
Expense ( ) 3 3
Total Insurance risk ( ) 35 35
Non-life underwriting - -
Operational risk ( ) 4 5
Miscellaneous(5) 4 3
Total SCR 100 100
1. Interest rate risk before diversification increased over the year,
mainly driven by a lengthening of interest rate exposure and a strengthening
in the interest rate stress calibration. However, rates exposure is
significantly smaller after allowing for diversification with other risks. The
material increase in interest rate risk also resulted in a decrease in other
market risks as a percentage of total.
2. Credit risk is one of the group's most significant exposures, arising
predominantly from the portfolio of bonds and bond-like assets backing the
group's annuity business.
3. In addition to credit risk the group also has significant exposure to
other market risks, primarily due to the investment holdings within the
shareholder funds but also the risk to fee income from
assets backing unit linked business.
4. Longevity risk is the group's most significant insurance risk
exposure, arising from the annuity book on which the majority of the longevity
risk on the back-book is retained. However, we expect
this to reduce over time as we continue to reinsure the majority of the
exposure on the new business written post the implementation of Solvency II.
5. Miscellaneous includes LGA and L&G Re 2 on a Deduction and
Aggregation basis and the sectoral capital requirements for non-insurance
regulated firms.
5.02 Estimated Solvency II new business contribution
(i) New business by product(1)
Management estimates of the present value of new business premium (PVNBP) and
the margin for selected lines of business are provided below:
Contribution Contribution
from new from new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
2023 2023 2023 2022 2022 2022
£m £m % £m £m %
LGRI - UK annuity business(5) 8,859 654 7.4 6,484 575 8.9
Retail Retirement - UK annuity business 1,431 100 7.0 954 60 6.3
UK Protection 1,337 37 2.8 1,512 82 5.4
US Protection(6) 1,123 128 11.4 796 84 10.6
1. Selected lines of business only.
2. PVNBP excludes a quota share reinsurance single premium of £3,189m
(31 December 2022: £835m) relating to LGRI new business.
3. The contribution from new business is defined as the present value at
the point of sale of expected future Solvency II surplus emerging from new
business written in the year using the risk discount rate applicable at the
end of the year. For 2023, the contribution from new business has been
calculated using the revised Risk Margin calculation introduced into the UK in
December 2023.
4. Margin is based on unrounded inputs.
5. LGRI UK annuity business includes a transaction with the group's UK
defined benefit pension schemes as disclosed in Note 3.16 Related party
transactions.
6. In local currency, US protection business reflects PVNBP of $1,397m
(31 December 2022: $985m) and a contribution from new business of $160m (31
December 2022: $104m).
5.02 Estimated Solvency II new business contribution (continued)
(ii) Assumptions
The key economic assumptions are as follows:
2023 2022
% %
Margin for Risk 4.2 4.4
Risk-free rate
- UK 3.3 3.6
- US 3.9 3.9
Risk discount rate (net of tax)
- UK 7.5 8.0
- US 8.1 8.3
Long-term rate of return on annuities 4.9 5.7
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 rate shown above is a weighted average based on the projected cash
flows.
Economic and non-economic assumptions are set to best estimates of their
real-world outcomes, including a risk premium for asset returns where
appropriate. In particular:
• The assumed future pre-tax returns on fixed interest and RPI linked
securities are set by reference to yield on the relevant backing assets, net
of an allowance for default risk which takes into account the credit rating
and the outstanding term of the assets. The weighted average deduction for
business written in 2023 equates to a level rate deduction from the expected
returns of 19 basis points. The calculated return takes account of derivatives
and other credit instruments in the investment portfolio.
• Non-economic assumptions have been set at levels commensurate with
recent operating experience, including those for mortality, morbidity,
persistency and maintenance expenses (excluding development costs). An
allowance is made for future mortality improvement. For new business,
mortality assumptions may be modified to take certain scheme specific features
into account.
The profits on the new business are presented gross of tax.
5.02 Estimated Solvency II new business contribution (continued)
(iii) Methodology
Basis of Preparation
Solvency II new business contribution reflects the portion of Solvency II
value added by new business written in the year. It has been calculated in a
manner consistent with principles and methodologies which were adopted in the
group's 2023 Annual Report and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for the group's most
material insurance-related businesses, namely, LGRI, Retail Retirement and
Insurance.
Intra-group reinsurance arrangements are in place between US, UK and Bermudan
businesses and it is expected that these arrangements will be periodically
extended to cover recent new business. The US protection new business margin
assumes that the new business will continue to be reinsured in 2023 and looks
through the intra-group arrangements.
Description of methodology
The objective of the Solvency II new business contribution is to provide
shareholders with information on the long-term contribution of new business
written in 2023.
The Solvency II new business contribution has been calculated as the present
value of future shareholder profits arising from business written in 2023.
Cash flow projections are determined using best estimate assumptions for each
component of cash flow and for each policy group. Best estimate assumptions
including mortality, morbidity, persistency and expenses reflect recent
operating experience. The Risk Margin included in the new business
contribution has been calculated under the Solvency UK rules that came into
effect in December 2023, using a 4% cost of capital and a 10% tapering factor.
The PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the calculation of the
new business contribution for the financial year.
The new business margin is defined as new business contribution divided by the
PVNBP. The premium volumes used to calculate the PVNBP are the same as those
used to calculate new business contribution.
LGA new business contribution is calculated on a US statutory basis.
Projection assumptions
Cash flow projections are determined using best estimate assumptions for each
component of cash flow for each line of business. Future economic and
investment return assumptions are based on conditions at the end of the
financial year.
Detailed projection assumptions including mortality, morbidity, persistency
and expenses reflect recent operating experience and are normally reviewed
annually. Allowance is made for future improvements in annuitant mortality
based on experience and externally published data. Favourable changes in
operating experience are not anticipated until the improvement in experience
has been observed.
All costs relating to new business, even if incurred elsewhere in the group,
are allocated to the new business. The expense assumptions used for the cash
flow projections therefore include the full cost of servicing this business.
Risk discount rate
The risk discount rate (RDR) is duration-based and is a combination of the
risk-free curve and a flat Margin for Risk.
The GBP risk-free rates have been based on a SONIA-based swap curve with no
Credit Risk Adjustment. The USD risk-free rates have been based on a
SOFR-based swap curve with no Credit Risk Adjustment.
The Margin for Risk has been determined based on an assessment of the group's
Weighted Average Cost of Capital (WACC). This assessment incorporates a beta
for the group, which measures the correlation of movements in the group's
share price to movements in a relevant index. Beta values therefore allow for
the market's assessment of the risks inherent in the business relative to
other companies in the chosen index.
5.02 Estimated Solvency II new business contribution (continued)
(iii) Methodology (continued)
The WACC is derived from the group's cost of equity, cost of debt, and the
proportion of equity to debt in the group's capital structure measured using
market values. Each of these three parameters is forward looking, although
informed by historic information and appropriate judgements where necessary.
The cost of equity is calculated as the risk-free rate plus the equity risk
premium for the chosen index multiplied by the company's beta.
The cost of debt used in the WACC calculations takes account of the actual
locked-in rates for our senior and subordinated long-term debt. All debt
interest attracts tax relief at a time adjusted rate of 25% (31 December 2022:
25%).
Whilst the WACC approach is a relatively simple and transparent calculation to
apply, subjectivity remains within a number of the assumptions. Management
believes that the chosen Margin for Risk, together with the levels of required
capital and the inherent strength of the group's regulatory reserves, is
appropriate to reflect the risks within the covered business.
(iv) Reconciliation of PVNBP to total LGRI and Retail new business
2023 2022
Notes £bn £bn
PVNBP 5.02 (i) 12.7 9.7
Effect of capitalisation factor ( ) (1.8) (1.5)
New business premiums from selected lines 10.9 8.2
Other(1) 5.0 3.3
Total LGRI and Retail new business 4.07, 4.08 15.9 11.5
1. Other principally includes annuity sales in the US £1.5bn (31
December 2022: £1.8bn), lifetime mortgage loans and retirement interest only
mortgages £0.3bn (31 December 2022: £0.6bn), and quota share reinsurance
premiums £3.2bn (31 December 2022: £0.8bn).
Investments
6.01 Investment portfolio
Restated
2023 2022
£m £m
Worldwide total assets under management(1) 1,168,269 1,202,676
Client and policyholder assets (1,032,713) (1,073,126)
Investments to which shareholders are directly exposed (market value) 135,556 129,550
Adjustment from market value to IFRS carrying value(2) 848 1,083
Investments to which shareholders are directly exposed (IFRS carrying value) 136,404 130,633
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
2. Adjustments reflect measurement differences for a portion of the
group's financial investments designated as amortised cost.
Analysed by investment class:
Restated
Other Restated Restated Other
Annuity(1) LGC(2) shareholder Annuity(1) LGC(2) shareholder Restated
investments investments investments Total investments investments investments Total
2023 2023 2023 2023 2022 2022 2022 2022
Notes £m £m £m £m £m £m £m £m
Equities 240 2,513 413 3,166 95 2,576 400 3,071
Bonds 6.03 76,836 1,493 3,001 81,330 67,936 1,229 2,608 71,773
Derivative assets(3) 37,878 141 - 38,019 41,641 337 - 41,978
Property 6.04 4,764 739 - 5,503 5,037 607 - 5,644
Loans(4) 1,239 325 48 1,612 785 238 50 1,073
Financial investments 120,957 5,211 3,462 129,630 115,494 4,987 3,058 123,539
Cash and cash equivalents 2,573 1,014 648 4,235 2,631 1,418 785 4,834
Other assets(5) 451 2,077 11 2,539 110 2,133 17 2,260
Total investments 123,981 8,302 4,121 136,404 118,235 8,538 3,860 130,633
1. Annuity investments includes products held within the LGRI and Retail
Retirement annuity portfolios and includes lifetime mortgage loans &
retirement interest only mortgages.
2. LGC investments includes £92m (31 December 2022: £95m) of Legal
& General Reinsurance Company Limited's assets managed by LGC, along with
£279m (31 December 2022: £122m) of bonds and equities that belong to other
shareholder funds.
3. Derivative assets are shown gross of derivative liabilities of
£40.5bn (31 December 2022: £46.1bn). Exposures arise from use of derivatives
for efficient portfolio management, particularly the use of interest rate
swaps, inflation swaps, currency swaps and foreign exchange forward contracts
for assets and liability management.
4. Loans include reverse repurchase agreements of £1,599m (31 December
2022: £1,072m).
5. Other assets include finance leases of £451m (31 December 2022:
£110m), associates and joint ventures of £616m (31 December 2022: £554m)
and the consolidated net asset value of the group's investments in CALA Homes
and other housing businesses.
6.02 Direct investments
(i) Total investments analysed by asset class
Restated Restated
Direct(1) Traded(2) Direct(1) Traded(2) Restated
investments securities Total investments securities Total
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
Equities 1,856 1,310 3,166 1,704 1,367 3,071
Bonds(3) 27,671 53,659 81,330 23,171 48,602 71,773
Derivative assets - 38,019 38,019 - 41,978 41,978
Property(4) 5,503 - 5,503 5,644 - 5,644
Loans 13 1,599 1,612 - 1,073 1,073
Financial investments 35,043 94,587 129,630 30,519 93,020 123,539
Cash and cash equivalents 163 4,072 4,235 56 4,778 4,834
Other assets 2,539 - 2,539 2,260 - 2,260
Total investments 37,745 98,659 136,404 32,835 97,798 130,633
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a
direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £5,766m (31 December 2022:
£4,844m).
4. A further breakdown of property is provided in Note 6.04.
6.02 Direct investments (continued)
(ii) Direct investments analysed by asset portfolio
Annuity(1) Shareholder(2) Insurance(3) Total
2023 2023 2023 2023
£m £m £m £m
Equities 62 1,545 249 1,856
Bonds(4) 25,756 265 1,650 27,671
Property 4,764 739 - 5,503
Loans - 13 - 13
Financial investments 30,582 2,562 1,899 35,043
Other assets, cash and cash equivalents 480 2,211 11 2,702
Total direct investments 31,062 4,773 1,910 37,745
Annuity(1) Shareholder(2) Insurance(3) Total
2022 2022 2022 2022
£m £m £m £m
Equities 51 1,417 236 1,704
Bonds(4) 21,840 51 1,280 23,171
Property 5,037 607 - 5,644
Loans - - - -
Financial investments 26,928 2,075 1,516 30,519
Other assets, cash and cash equivalents 110 2,189 17 2,316
Total direct investments (restated) 27,038 4,264 1,533 32,835
1. Annuity includes products held within the LGRI and Retail Retirement
annuity portfolios.
2. Shareholder primarily includes the LGC direct investment portfolio
and £92m (31 December 2022: £95m) of Legal & General Reinsurance Company
Limited's assets managed by LGC, along with £279m (31 December 2022: £122m)
of bonds and equities that belong to other shareholder funds.
3. Insurance primarily includes assets backing the group's US protection
business.
4. Bonds include lifetime mortgage loans of £5,766m (31 December 2022:
£4,844m).
6.03 Bond portfolio summary
(i) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2023 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 399 10,342 1,023 102 1 2 11,869 15
Banks:
- Tier 1 - - - 20 - 1 21 -
- Tier 2 and other subordinated - - 77 47 1 - 125 -
- Senior - 1,656 4,270 824 1 - 6,751 8
- Covered 106 - - - - - 106 -
Financial Services:
- Tier 2 and other subordinated - 74 57 17 7 3 158 -
- Senior 238 361 828 716 - 3 2,146 3
Insurance:
- Tier 1 - - - 9 - - 9 -
- Tier 2 and other subordinated 31 131 32 44 - - 238 -
- Senior 10 188 411 379 - - 988 1
Consumer Services and Goods:
- Cyclical - 46 1,174 1,843 25 21 3,109 4
- Non-cyclical 314 840 3,176 2,917 65 1 7,313 9
- Healthcare 12 697 1,060 668 4 - 2,441 3
Infrastructure:
- Social 163 822 4,333 1,135 71 - 6,524 8
- Economic 253 157 1,096 4,031 60 13 5,610 7
Technology and Telecoms 97 301 1,611 2,802 12 6 4,829 6
Industrials - 58 593 651 25 1 1,328 2
Utilities 541 751 4,771 4,384 17 - 10,464 13
Energy - 26 504 1,033 34 - 1,597 2
Commodities - - 210 630 24 21 885 1
Oil and Gas - 501 618 326 13 59 1,517 2
Real estate - 32 2,197 2,200 22 - 4,451 5
Structured finance ABS / RMBS / CMBS / Other 656 1,042 697 566 55 15 3,031 4
Lifetime mortgage loans(1) - 4,835 504 402 - 25 5,766 7
CDOs - 43 - 11 - - 54 -
Total £m 2,820 22,903 29,242 25,757 437 171 81,330 100
Total % 3 28 36 32 1 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by investments backing LGRI's
and Retail Retirement's annuity business. These account for £76,836m,
representing 94% of the total group portfolio.
6.03 Bond portfolio summary (continued)
(i) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2022 (Restated) £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 1,718 5,561 844 111 7 3 8,244 12
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - - 83 66 3 - 152 -
- Senior - 1,179 2,300 996 2 - 4,477 6
- Covered 114 - - - - - 114 -
Financial Services:
- Tier 2 and other subordinated 32 94 52 20 7 4 209 -
- Senior 49 246 592 561 - - 1,448 2
Insurance:
- Tier 2 and other subordinated 53 138 23 53 - - 267 -
- Senior 6 186 342 407 - - 941 1
Consumer Services and Goods:
- Cyclical - 18 1,129 1,871 161 8 3,187 5
- Non-cyclical 310 830 2,441 3,322 166 - 7,069 10
- Healthcare - 634 916 754 4 - 2,308 3
Infrastructure:
- Social 170 808 3,580 1,173 70 - 5,801 8
- Economic 288 151 999 3,606 173 - 5,217 7
Technology and Telecoms 134 365 1,201 2,687 17 1 4,405 6
Industrials - 60 702 679 23 - 1,464 2
Utilities 531 582 4,699 4,997 27 - 10,836 15
Energy - - 351 802 42 - 1,195 2
Commodities - - 301 658 25 15 999 1
Oil and Gas - 483 805 310 67 52 1,717 3
Real estate - 24 2,004 1,984 91 2 4,105 6
Structured finance ABS / RMBS / CMBS / Other 683 855 566 587 22 8 2,721 4
Lifetime mortgage loans(1) 3,246 824 428 336 - 10 4,844 7
CDOs - 41 - 11 - - 52 -
Total £m 7,334 13,079 24,358 25,991 907 104 71,773 100
Total % 10 18 34 36 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by investments backing LGRI's
and Retail Retirement's annuity business. These account for £67,936m,
representing 95% of the total group portfolio.
6.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile
Rest of
UK US EU the World Total
As at 31 December 2023 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 8,790 1,696 849 534 11,869
Banks 1,772 2,360 1,459 1,412 7,003
Financial Services 527 902 649 226 2,304
Insurance 64 1,015 75 81 1,235
Consumer Services and Goods:
- Cyclical 355 2,281 294 179 3,109
- Non-cyclical 1,891 4,697 379 346 7,313
- Healthcare 277 2,093 71 - 2,441
Infrastructure:
- Social 5,605 679 162 78 6,524
- Economic 3,968 909 267 466 5,610
Technology and Telecoms 448 3,226 566 589 4,829
Industrials 199 768 310 51 1,328
Utilities 4,654 3,334 1,951 525 10,464
Energy 335 887 23 352 1,597
Commodities 53 392 134 306 885
Oil and Gas 288 371 530 328 1,517
Real estate 1,955 1,658 539 299 4,451
Structured finance ABS / RMBS / CMBS / Other 768 1,744 62 457 3,031
Lifetime mortgage loans 5,324 - 442 - 5,766
CDOs - - - 54 54
Total 37,273 29,012 8,762 6,283 81,330
6.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile (continued)
Rest of
UK US EU the World Total
As at 31 December 2022 (Restated) £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 5,261 1,754 614 615 8,244
Banks 1,089 1,897 717 1,041 4,744
Financial Services 410 539 520 188 1,657
Insurance 108 1,007 20 73 1,208
Consumer Services and Goods:
- Cyclical 549 2,132 298 208 3,187
- Non-cyclical 1,830 4,775 296 168 7,069
- Healthcare 257 1,986 64 1 2,308
Infrastructure:
- Social 4,890 704 150 57 5,801
- Economic 3,756 833 256 372 5,217
Technology and Telecoms 363 2,963 577 502 4,405
Industrials 192 824 292 156 1,464
Utilities 5,656 2,840 1,855 485 10,836
Energy 294 671 13 217 1,195
Commodities 35 415 113 436 999
Oil and Gas 158 508 650 401 1,717
Real estate 2,011 1,228 636 230 4,105
Structured finance ABS / RMBS / CMBS / Other 641 1,674 44 362 2,721
Lifetime mortgage loans 4,801 - 43 - 4,844
CDOs - - - 52 52
Total 32,301 26,750 7,158 5,564 71,773
6.03 Bond portfolio summary (continued)
(iii) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 31 December 2023 £m £m £m
AAA 2,373 447 2,820
AA 16,323 6,580 22,903
A 18,365 10,877 29,242
BBB 18,458 7,299 25,757
BB or below 195 242 437
Other 20 151 171
Total 55,734 25,596 81,330
Externally Internally
rated rated(1) Total
As at 31 December 2022 (Restated) £m £m £m
AAA 3,741 3,593 7,334
AA 10,577 2,502 13,079
A 15,883 8,475 24,358
BBB 18,554 7,437 25,991
BB or below 529 378 907
Other 17 87 104
Total 49,301 22,472 71,773
1. Where external ratings are not available an internal rating has been
used where practicable to do so.
6.03 Bond portfolio summary (continued)
(iv) Sectors analysed by Direct investments and traded securities
Direct
investments Traded Total
As at 31 December 2023 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 1,257 10,612 11,869
Banks 1,228 5,775 7,003
Financial Services 1,481 823 2,304
Insurance 160 1,075 1,235
Consumer Services and Goods:
- Cyclical 550 2,559 3,109
- Non-cyclical 1,017 6,296 7,313
- Healthcare 517 1,924 2,441
Infrastructure:
- Social 3,836 2,688 6,524
- Economic 4,231 1,379 5,610
Technology and Telecoms 307 4,522 4,829
Industrials 127 1,201 1,328
Utilities 2,370 8,094 10,464
Energy 521 1,076 1,597
Commodities 145 740 885
Oil and Gas 102 1,415 1,517
Real estate 2,763 1,688 4,451
Structured finance ABS / RMBS / CMBS / Other 1,293 1,738 3,031
Lifetime mortgage loans 5,766 - 5,766
CDOs - 54 54
Total 27,671 53,659 81,330
6.03 Bond portfolio summary (continued)
(iv) Sectors analysed by Direct investments and traded securities (continued)
Direct
investments Traded Total
As at 31 December 2022 (Restated) £m £m £m
Sovereigns, Supras and Sub-Sovereigns 816 7,428 8,244
Banks 787 3,957 4,744
Financial Services 941 716 1,657
Insurance 111 1,097 1,208
Consumer Services and Goods:
- Cyclical 598 2,589 3,187
- Non-cyclical 637 6,432 7,069
- Healthcare 443 1,865 2,308
Infrastructure:
- Social 3,300 2,501 5,801
- Economic 3,913 1,304 5,217
Technology and Telecoms 123 4,282 4,405
Industrials 120 1,344 1,464
Utilities 2,012 8,824 10,836
Energy 385 810 1,195
Commodities 67 932 999
Oil and Gas 89 1,628 1,717
Real estate 2,719 1,386 4,105
Structured finance ABS / RMBS / CMBS / Other 1,266 1,455 2,721
Lifetime mortgage loans 4,844 - 4,844
CDOs - 52 52
Total 23,171 48,602 71,773
6.04 Property analysis
Property exposure within Direct investments by status
Annuity Shareholder(1) Total
As at 31 December 2023 £m £m £m %
Fully let(2) 4,304 601 4,905 89
Development 460 104 564 10
Land - 34 34 1
Total 4,764 739 5,503 100
Annuity Shareholder(1) Total
As at 31 December 2022 £m £m £m %
Fully let(2) 4,568 462 5,030 89
Development 469 83 552 10
Land - 62 62 1
Total 5,037 607 5,644 100
1. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are accounted
for as inventory within Receivables and other assets on the group's
Consolidated Balance Sheet and measured at the lower of cost and net
realisable value. At 31 December 2023, the group held a total £1,932m (31
December 2022: £1,973m) of such assets.
2. £4.2bn (31 December 2022: £4.5bn) fully let property were let to
corporate clients, out of which £3.7bn (31 December 2022: £4.0bn) were let
to investment grade tenants.
Alternative Performance Measures
An alternative performance measure (APM) is a financial measure of historic or
future financial performance, financial position, or cash flows, other than a
financial measure defined under IFRS or the regulations of Solvency II. APMs
offer investors and stakeholders additional information on the company's
performance and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's performance.
However, APMs should be viewed as complementary to, rather than as a
substitute for, the figures determined according to other regulations. The
APMs used by the group are listed in this Note, along with their
definition/explanation, their closest IFRS or Solvency II measure and, where
relevant, the reference to the reconciliations to those measures.
The adoption of IFRS 17 by the group has led to changes in both the definition
and/or result of several of the APMs, although the principles underlying them
have not changed.
The APMs used by the group may not be the same as, or comparable to, those
used by other companies, both in similar and different industries. The
calculation of APMs is consistent with previous periods, unless otherwise
stated.
APMs derived from IFRS measures
Adjusted operating profit
Adjusted operating profit is an APM that supports the internal performance
management and decision making of the group's operating businesses, and
accordingly underpins the remuneration outcomes of the executive directors and
senior management. The group considers this measure meaningful to stakeholders
as it enhances the understanding of the group's operating performance over
time by separately identifying non-operating items.
Adjusted operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations and exceptional items. Key considerations in
relation to the calculation of adjusted operating profit for the group's
long-term insurance businesses and shareholder funds are set out below.
Exceptional income and expenses which arise outside the normal course of
business in the year, such as merger and acquisition and start-up costs, are
excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic assumptions for the
group's retirement and insurance businesses. Variances between actual and
long-term expected investment return on traded and real assets are excluded
from adjusted operating profit, as well as economic assumption changes caused
by changes in market conditions or expectations (e.g. credit default and
inflation) and any difference between the actual allocated asset mix and the
target long-term asset mix on new pension risk transfer business. Assets held
for future new pension risk transfer business are excluded from the asset
portfolio used to determine the discount rate for annuities on insurance
contract liabilities. The impact of investment management actions that
optimise the yield of the assets backing the back book of annuity contracts is
now included within adjusted operating profit.
For the group's long-term insurance businesses, reinsurance mismatches are
also excluded from adjusted operating profit. Reinsurance mismatches arise
where the reinsurance offset rules in IFRS 17 do not reflect management's view
of the net of reinsurance transaction. In particular, during a period of
reinsurance renegotiation, reinsurance gains cannot be recognised to offset
any inception losses on the underlying contracts where they are recognised
before the new reinsurance agreement is signed. In these circumstances, the
onerous contract losses are reduced to reflect the net loss (if any) after
reinsurance, and future contractual service margin (CSM) amortisation is
reduced over the duration of the contracts.
Application of IFRS 17 has changed the timing of the recognition of profit
from insurance contracts. This includes spreading both the day one profit
arising on new business and the impact of assumption changes into the
contractual service margin. Accordingly, the application of IFRS 17 reduced
the reported 2022 operating profit from divisions by £0.9bn in comparison
with the result presented under IFRS4.
Shareholder funds
Shareholder funds include both the group's traded investments portfolio and
certain direct investments for which adjusted operating profit is based on the
long-term economic return expected to be generated. For these direct
investments, as well as for the group's traded investments portfolio,
deviations from such long-term economic return are excluded from adjusted
operating profit. Direct investments for which adjusted operating profit is
reflected in this way include the following:
• Development assets, predominantly in the specialist commercial real
estate and housing sectors within the LGC alternative asset portfolio: these
are assets under construction and contracted to either be sold to other parts
of the group or for other commercial usage, and on which LGC accepts
development risks and expects to realise profits once construction is
complete.
• 'Scale-up' investments, predominantly in the alternative finance
sector within the LGC alternative asset portfolio as well as the fintech
business within Retail: these are investments in early-stage ventures in a
fast-growing phase of their life cycle, but which have not yet reached a
steady-state level of earnings.
Shareholder funds also includes other direct investments for which adjusted
operating profit reflects the IFRS profit before tax. Direct investments for
which adjusted operating profit is reflected in this way include the
following:
• 'Start-up' investments: these are companies in the beginning stages of
their business lifecycle (i.e. typically less than 24 months), which therefore
have limited operating history available and typically are in a pre-revenue
stage.
• Mature assets: these are companies in their final stages of business
lifecycle. They are stable businesses and have sustainable streams of income,
but the growth rate in their earnings is expected to remain less pronounced in
the future.
Note 1.02 Operating profit reconciles adjusted operating profit with its
closest IFRS measure, which is profit before tax attributable to equity
holders. Further details on reconciling items between adjusted operating
profit and profit before tax attributable to equity holders are presented in
Note 1.06 Investment and other variances.
Return on Equity (ROE)
ROE measures the return earned by shareholders on shareholder capital retained
within the business. It is a measure of performance of the business, which
shows how efficiently we are using our financial resources to generate a
return for shareholders. ROE is calculated as IFRS profit after tax divided
by average IFRS shareholders' funds (by reference to opening and closing
shareholders' funds as provided in the IFRS Consolidated Statement of Changes
In Equity for the year). In the current year, ROE was quantified using profit
attributable to equity holders of £457m (31 December 2022: £783m) and
average equity attributable to the owners of the parent of £4,699m (31
December 2022: £5,014m), based on an opening balance of £5,067m and a
closing balance of £4,331m (31 December 2022: based on an opening balance of
£4,960m and a closing balance of £5,067m). The methodology for determining
the ROE has not changed following the adoption of IFRS 17 and IFRS 9.
Assets under Management
Assets under management represent funds which are managed by our fund managers
on behalf of investors. It represents the total amount of money investors have
trusted with our fund managers to invest across our investment products. AUM
include assets which are reported in the group Consolidated Balance Sheet as
well as third-party assets that LGIM manage on behalf of others, and assets
managed by third parties on behalf of the group. AUM has not changed following
the adoption of IFRS 9.
Note 4.04 Reconciliation of assets under management to Consolidated Balance
Sheet reconciles AUM with Total financial investments, investment property and
cash and cash equivalents.
Adjusted profit before tax attributable to equity holders
Adjusted profit before tax attributable to equity holders is equal to profit
before tax attributable to equity holders plus the pre-tax results of
discontinued operations. There has been no change in definition as a result of
the adoption of IFRS 17.
Note 1.02 Operating profit reconciles adjusted profit before tax attributable
to equity holders to profit for the year. In absence of discontinued
operations, adjusted profit before tax attributable to equity holders is equal
to profit before tax attributable to equity holders.
APMs derived from Solvency II measures
The group is required to measure and monitor its capital resources on a
regulatory basis and to comply with the minimum capital requirements of
regulators in each territory in which it operates. At a group level, Legal
& General has to comply with the requirements established by the Solvency
II Framework Directive, as adopted by the PRA.
Solvency II surplus
Solvency II surplus is the excess of Eligible Own Funds over the Solvency
Capital Requirements. It represents the amount of capital available to the
group in excess of that required to sustain it in a 1-in-200 year risk event.
The group's Solvency II surplus is based on the Partial Internal Model,
Matching Adjustment and Transitional Measures on Technical Provisions (TMTP).
Differences between the Solvency II surplus and its related regulatory basis
include the impact of TMTP recalculation when it is not approved by the PRA,
incorporating impacts of economic conditions as at the reporting date, and the
inclusion of unaudited profits (or losses) of financial firms, which are
excluded from regulatory Own Funds. This view of Solvency II is considered to
be representative of the shareholder risk exposure and the group's real
ability to cover the Solvency Capital Requirement (SCR) with Eligible Own
Funds. It also aligns with management's approach to dynamically manage its
capital position.
Further details on Solvency II surplus and its calculation are included in
Note 5.01 Group regulatory capital - Solvency II. This note also includes a
reconciliation between IFRS equity and Solvency II Own Funds.
Solvency II capital coverage ratio
Solvency II capital coverage ratio is one of the indicators of the group's
balance sheet strength. It is determined as Eligible Own Funds divided by the
SCR, and therefore represents the number of times the SCR is covered by
Eligible Own Funds. The group's Solvency II capital coverage ratio is based on
the Partial Internal Model, Matching Adjustment and TMTP.
Differences between the Solvency II capital coverage ratio and its related
regulatory basis include the impact of TMTP recalculation when it is not
approved by the PRA, incorporating impacts of economic conditions as at the
reporting date, and the inclusion of unaudited profits (or losses) of
financial firms, which are excluded from regulatory Own Funds. This view of
Solvency II is considered to be representative of the shareholder risk
exposure and the group's real ability to cover the SCR with Eligible Own
Funds. It also aligns with management's approach to dynamically manage its
capital position.
Further details on Solvency II capital coverage ratio and its calculation are
included in Note 5.01 Group regulatory capital - Solvency II.
Solvency II operational surplus generation
Solvency II operational surplus generation is the expected surplus generated
from the assets and liabilities in-force at the start of the year. It is based
on assumed real world returns and best estimate non-market assumptions, and it
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the year.
It excludes operating variances, such as the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix. It also excludes market movements,
which represent the impact of changes in investment market conditions during
the year and changes to future economic assumptions. The group considers this
measure meaningful to stakeholders as it enhances the understanding of its
operating performance over time, and serves as an indicator on the longer-term
components of the movements in the group's Solvency II surplus.
Note 5.01 Group regulatory capital - Solvency II includes an analysis of
change for the group's Solvency II surplus, showing the contribution of
Solvency II operational surplus generation as well as other items to the
Solvency II surplus during the reporting year.
Glossary
* These items represent an alternative performance measure (APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
A financial measure of historic or future financial performance, financial
position, or cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II.
Annual premiums
Premiums that are paid regularly over the duration of the contract such as
protection policies.
Annuity
Regular payments from an insurance company made for an agreed period of time
(usually up to the death of the recipient) in return for either a cash lump
sum or a series of premiums which the policyholder has paid to the insurance
company during their working lifetime.
Assets under administration (AUA)
Assets administered by Legal & General, which are beneficially owned by
clients and are therefore not reported on the Consolidated Balance Sheet.
Services provided in respect of assets under administration are of an
administrative nature, including safekeeping, collecting investment income,
settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
A long-term contract under which the policyholder (a registered UK pension
scheme) pays a day-one premium and in return receives a contractually fixed
and/or inflation-linked set of payments over time from the insurer.
Back book acquisition
New business transacted with an insurance company which allows the business to
continue to utilise Solvency II transitional measures associated with the
business.
CAGR
Compound annual growth rate.
Common Contractual Fund (CCF)
An Irish regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of achieving
cost savings, enhanced returns and operational efficiency through economies of
scale. A CCF is an unincorporated body established under a deed where
investors are "co-owners" of underlying assets which are held pro rata with
their investment. The CCF is authorised and regulated by the Central Bank of
Ireland.
Contract boundaries
Cash flows are within the boundary of an insurance contract if they arise
from substantive rights and obligations that exist during the reporting period
in which the group can compel the policyholder to pay the premiums or has a
substantive obligation to provide the policyholder with insurance contract
services.
Contractual Service Margin (CSM)
The CSM represents the unearned profit the group will recognise for a group of
insurance contracts, as it provides services under the insurance contract. It
is a component of the asset or liability for the contracts and it results in
no income or expense arising from initial recognition of an insurance
contract. Therefore, together with the risk adjustment, the CSM provides a
view of both stored value of our in-force insurance business, and the growth
derived from new business in the current year. A CSM is not set up for groups
of contracts assessed as onerous.
The CSM is released as profit as the insurance services are provided.
Coverage Period
The period during which the group provides insurance contract services. This
period includes the insurance contract services that relate to all premiums
within the boundary of the insurance contract.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA. Ratings are usually issued by a
credit rating agency (e.g. Moody's or Standard & Poor's) or a credit
bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis, whereby the
assets and liabilities of certain entities are excluded from the group
consolidation. The net contribution from those entities to group Own Funds is
included as an asset on the group's Solvency II balance sheet. Regulatory
approval has been provided to recognise the (re)insurance subsidiaries in the
US and Bermuda on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a specified
monthly benefit on retirement that is predetermined by a formula based on the
employee's earnings history, tenure of service and age, rather than depending
directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are determined
by agreed levels of contributions paid into the fund by the member and
employer. They provide benefits based upon the money held in each individual's
plan specifically on behalf of each member. The amount in each plan at
retirement will depend upon the investment returns achieved as well as the
member and employer contributions.
Derivatives
Contracts usually giving a commitment or right to buy or sell assets on
specified conditions, for example on a set date in the future and at a set
price. The value of a derivative contract can vary. Derivatives can generally
be used with the aim of enhancing the overall investment returns of a fund by
taking on an increased risk, or they can be used with the aim of reducing the
amount of risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another
party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but exclude hedge funds.
Earnings per share (EPS)
A common financial metric which can be used to measure the profitability and
strength of a company over time. It is calculated as total shareholder profit
after tax divided by the weighted average number of shares outstanding during
the year.
Eligible Own Funds
The capital available to cover the group's Solvency Capital Requirement.
Eligible Own Funds comprise the excess of the value of assets over
liabilities, as valued on a Solvency II basis, plus high quality hybrid
capital instruments, which are freely available (fungible and transferable) to
absorb losses wherever they occur across the group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which employees report
that they are happy working at Legal & General. It is measured as part of
our Voice surveys, which also include questions on commitment to the goals of
Legal & General and the overall success of the company.
ETF
LGIM's European Exchange Traded Fund platform.
Euro Commercial Paper
Short-term borrowings with maturities of up to 1 year typically issued for
working capital purposes.
Expected credit losses (ECL)
For financial assets measured at amortised cost or FVOCI, a loss allowance
defined as the present value of the difference between all contractual cash
flows that are due and all cash flows expected to be received (i.e. the cash
shortfall), weighted based on their probability of occurrence.
Fair value through other comprehensive income (FVOCI)
A financial asset that is measured at fair value in the Consolidated Balance
Sheet and reports gains and losses arising from movements in fair value within
the Consolidated Statement of Comprehensive Income as part of the total
comprehensive income or expense for the year.
Fair value through profit or loss (FVTPL)
A financial asset or financial liability that is measured at fair value in the
Consolidated Balance Sheet and reports gains and losses arising from movements
in fair value within the Consolidated Income Statement as part of the profit
or loss for the year.
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted estimates of
future cash flows, discounted to present value to reflect the time value of
money and financial risks, plus the risk adjustment for non-financial risk.
Full year dividend
Full year dividend is the total dividend per share declared for the year
(including interim dividend but excluding, where appropriate, any special
dividend).
Generally accepted accounting principles (GAAP)
A widely accepted collection of guidelines and principles, established by
accounting standard setters and used by the accounting community to report
financial information.
Insurance new business
New business arising from new policies written on retail protection products
and new deals and incremental business on group protection products.
Irish Collective Asset-Management Vehicle (ICAV)
A legal structure investment fund, based in Ireland and aimed at European
investment funds looking for a simple, tax-efficient investment vehicle.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the
business can be measured effectively. The group Board reviews the KPIs
annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGIM
Legal & General Investment Management.
LGRI
Legal & General Retirement Institutional.
LGRI new business
Single premiums arising from pension risk transfers and the notional size of
longevity insurance transactions, based on the present value of the fixed leg
cash flows discounted at the SONIA curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to
meet all liabilities, both current and future. This form of investing is most
prominent in final salary pension plans, whose liabilities can often reach
into billions of pounds for the largest of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and over. It is a
mortgage loan secured against the customer's house. Customers do not make any
monthly payments and continue to own and live in their house until they move
into long-term care or on death. A no negative equity guarantee exists such
that if the house value on repayment is insufficient to cover the outstanding
loan, any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the risk profile of
pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II
balance sheets. This adjustment reflects the fact that the profile of assets
held is sufficiently well-matched to the profile of the liabilities, that
those assets can be held to maturity, and that any excess return over
risk-free (that is not related to defaults) can be earned regardless of asset
value fluctuations after purchase.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and
calculating liabilities for future policyholders of life and annuity products,
which contain mortality risks.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions produced
and carbon emissions removed from the atmosphere.
Onerous contracts
An insurance contract is onerous at the date of initial recognition if the
fulfilment cash flows allocated to the contract, any previously uthorized
acquisition cash flows and any cash flows arising from the contract at the
date of initial recognition, in total are a net outflow.
Open Ended Investment Company (OEIC)
A type of investment fund domiciled in the United Kingdom that is structured
to invest in stocks and other securities, uthorized and regulated by the
Financial Conduct Authority (FCA).
Overlay assets
Derivative assets that are managed alongside the physical assets held by LGIM.
These instruments include interest rate swaps, inflation swaps, equity
futures and options. These are typically used to hedge risks associated with
pension scheme assets during the derisking stage of the pension life cycle.
Paris Agreement
An agreement within the United Nations Framework Convention on Climate Change
effective 4 November 2016. The Agreement aims to limit the increase in average
global temperatures to well below 2°C, preferably to 1.5°C, compared to
pre-industrial levels.
Pension risk transfer (PRT)
Bulk annuities bought by entities that run final salary pension schemes to
reduce their responsibilities by closing the schemes to new members and
passing the assets and obligations to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention, calculated as a
function of net flows and closing AUM.
For insurance, persistency is the rate at which policies are retained over
time and therefore continue to contribute premium income and assets under
management.
Platform
Online services used by intermediaries and consumers to view and administer
their investment portfolios. Platforms usually provide facilities for buying
and selling investments (including, in the UK products such as Individual
Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life
insurance) and for viewing an individual's entire portfolio to assess asset
allocation and risk exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the new business value at
the end of the financial period. The discounted value of longevity insurance
regular premiums and quota share reinsurance single premiums are calculated on
a net of reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the premiums
associated with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed, minus derivative
assets, loans, and cash and cash equivalents.
Qualifying Investor Alternative Investment Fund (QIAIF)
An alternative investment fund regulated in Ireland targeted at sophisticated
and institutional investors, with minimum subscription and eligibility
requirements. Due to not being subject to many investment or borrowing
restrictions, QIAIFs present a high level of flexibility in their investment
strategy.
Real assets
Real assets encompass a wide variety of tangible debt and equity investments,
primarily real estate, infrastructure and energy. They have the ability to
serve as stable sources of long-term income in weak markets, while also
providing capital appreciation opportunities in strong markets.
Retail Retirement new business
Single premiums arising from annuity sales and individual annuity back book
acquisitions and the volume of lifetime and retirement interest only mortgage
lending.
Retirement Interest Only Mortgage (RIO)
A standard retirement mortgage available for non-commercial borrowers above 55
years old. A RIO mortgage is very similar to a standard interest-only
mortgage, with two key differences:
- The loan is usually only paid off on death, move into long-term care or sale
of the house.
- The borrowers only have to prove they can afford the monthly interest
repayments and not the capital remaining at the end of the mortgage term.
No repayment solution is required as repayment defaults to sale of property.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk adjustment
The risk adjustment reflects the compensation that the group would require for
bearing uncertainty about the amount and timing of the cash flows that arises
from non-financial risk after diversification. We have calibrated the group's
risk adjustment using a Value at Risk (VAR) methodology. In some cases, the
compensation for risk on reinsured business is linked directly to the price
paid for reinsurance. The risk adjustment is a component of the insurance
contract liability, and it is released as profit if experience plays out as
expected.
Risk appetite
The aggregate level and types of risk a company is willing to assume in its
exposures and business activities in order to achieve its business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the terms of the
policy do not anticipate more than one premium being paid over its lifetime,
such as in individual and bulk annuity deals.
Société d'Investissement à Capital Variable (SICAV)
A publicly traded open-end investment fund structure offered in Europe and
regulated under European law.
Solvency II
These are insurance regulations designed to harmonise EU insurance regulation.
Primarily this concerns the amount of capital that European insurance
companies must hold under a measure of capital and risk. Solvency II became
effective from 1 January 2016. The group complies with the requirements
established by the Solvency II Framework Directive, as adopted by the
Prudential Regulation Authority (PRA) in the UK, and measures and monitors its
capital resources on this basis.
Solvency II capital coverage ratio*
Refer to the alternative performance measures section.
Solvency II capital coverage ratio - regulatory basis
The Eligible Own Funds on a regulatory basis divided by the group solvency
capital requirement. This represents the number of times the SCR is covered by
Eligible Own Funds.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II
surplus emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
Solvency II Operational Surplus Generation*
Refer to the alternative performance measures section.
Solvency II risk margin
An additional liability required in the Solvency II balance sheet, to ensure
the total value of technical provisions is equal to the current amount a
(re)insurer would have to pay if it were to transfer its insurance and
reinsurance obligations immediately to another (re)insurer. The value of the
risk margin represents the cost of providing an amount of Eligible Own Funds
equal to the Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over the
lifetime thereof.
Solvency II surplus*
Refer to the alternative performance measures section.
Solvency II surplus - regulatory basis
The excess of Eligible Own Funds on a regulatory basis over the SCR. This
represents the amount of capital available to the company in excess of that
required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a
1-in-200 year risk event.
Specialised Investment Fund (SIF)
An investment vehicle regulated in Luxembourg targeted to well-informed
investors, providing a great degree of flexibility in organization, investment
policy and types of underlying assets in which it can invest.
Total shareholder return (TSR)
A measure used to compare the performance of different companies' stocks and
shares over time. It combines the share price appreciation and dividends paid
to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
An adjustment to Solvency II technical provisions to bring them into line with
the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis
switched over, to smooth the introduction of the new regime. This decreases
linearly over the 16 years following Solvency II implementation but may be
recalculated to allow for changes impacting the relevant business, subject to
agreement with the PRA.
Yield
A measure of the income received from an investment compared to the price paid
for the investment. It is usually expressed as a percentage.
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