REG - Legal & General Grp - L&G H1 2014 Results Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
29/10/2014 10:33
- Part 6: For the preceding part double click ID:nRSF3773Oe
49 2,633
Value of in-force
- Value of in-force business3 5,611 729 6,340
- Cost of capital (516) (12) (528)
LGC
LGAS and and group
LGR LGIM expenses LGA Total
As at 30 June 2013 £m £m £m £m £m
Analysed as:
IFRS basis shareholders' equity1 772 522 3,276 935 5,505
Additional retained profit/(loss) on an EEV basis 4,672 - (920) 72 3,824
Shareholders' equity on an EEV basis 5,444 522 2,356 1,007 9,329
Comprising:
Business reported on an IFRS basis 372 522 (1,282) - (388)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2 71 1,659 64 1,794
- Required capital to cover solvency margin 253 1,979 53 2,285
Value of in-force
- Value of in-force business3 5,228 903 6,131
- Cost of capital (480) (13) (493)
1. Shareholders' equity supporting the UK non profit LGAS and LGR businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the LGC and group expenses segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.
3. Value of in-force business includes a deduction for the time value of options and guarantees of £14m (H1 13: £27m; FY13: £23m).
Further analysis of shareholders' equity is included in Note 5.03.
European Embedded Value
96
5.02 Analysis of shareholders' equity (continued)
LGC
LGAS and and group
LGR LGIM expenses LGA Total
As at 31 December 2013 £m £m £m £m £m
Analysed as:
IFRS basis shareholders' equity1 783 421 3,622 816 5,642
Additional retained profit/(loss) on an EEV basis 4,830 - (1,003) 117 3,944
Shareholders' equity on an EEV basis 5,613 421 2,619 933 9,586
Comprising:
Business reported on an IFRS basis 408 421 (630) - 199
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2 67 1,107 192 1,366
- Required capital to cover solvency margin 248 2,142 42 2,432
Value of in-force
- Value of in-force business3 5,398 711 6,109
- Cost of capital (508) (12) (520)
1. Shareholders' equity supporting the UK non profit LGAS and LGR businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the LGC and group expenses segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.
3. Value of in-force business includes a deduction for the time value of options and guarantees of £23m.
Further analysis of shareholders' equity is included in Note 5.03.
European Embedded Value
97
5.03 Segmental analysis of shareholders' equity
Covered Other Covered Other
business business business business
EEV IFRS EEV IFRS
basis basis Total basis basis Total
30.06.14 30.06.14 30.06.14 30.06.13 30.06.13 30.06.13
£m £m £m £m £m £m
LGAS
- LGAS UK Protection and Savings 2,290 - 2,290 2,268 - 2,268
- LGAS overseas business 492 - 492 502 - 502
- General insurance and other - 441 441 - 372 372
Total LGAS 2,782 441 3,223 2,770 372 3,142
LGR 2,638 - 2,638 2,302 - 2,302
LGIM - 566 566 - 522 522
LGC and group expenses 3,627 (1,116) 2,511 3,638 (1,282) 2,356
LGA 905 - 905 1,007 - 1,007
Total 9,952 (109) 9,843 9,717 (388) 9,329
Covered Other
business business
EEV IFRS
basis basis Total
31.12.13 31.12.13 31.12.13
£m £m £m
LGAS
- LGAS UK Protection and Savings 2,331 - 2,331
- LGAS overseas business 512 - 512
- General insurance and other - 408 408
Total LGAS 2,843 408 3,251
LGR 2,362 - 2,362
LGIM - 421 421
LGC and group expenses 3,249 (630) 2,619
LGA 933 - 933
Total 9,387 199 9,586
European Embedded Value
98
5.04 Reconciliation of shareholder net worth
UK UK UK
covered covered covered
business Total business Total business Total
30.06.14 30.06.14 30.06.13 30.06.13 31.12.13 31.12.13
£m £m £m £m £m £m
SNW of long term operations (IFRS basis) 4,645 5,820 4,603 5,893 4,291 5,443
Other (liabilities)/assets (IFRS basis) - (109) - (388) - 199
Shareholders' equity on the IFRS basis 4,645 5,711 4,603 5,505 4,291 5,642
Purchased interest in long term business (51) (54) (58) (60) (52) (59)
Deferred acquisition costs/deferred income liabilities (212) (1,140) (267) (1,213) (223) (1,129)
Deferred tax1 (123) 282 (165) 195 (162) 232
Other2 (632) (768) (475) (736) (605) (689)
Shareholder net worth on the EEV basis 3,627 4,031 3,638 3,691 3,249 3,997
1. Deferred tax represents all tax which is expected to be paid under current legislation.2. Other primarily relates to the different treatment of annuities and LGA Triple X securitisation between the EEV and IFRS basis.
European Embedded Value
99
5.05 Profit/(loss) for the period
LGC
LGAS and and group
LGR LGIM expenses LGA Total
For the six months ended 30 June 2014 Note £m £m £m £m £m
Business reported on an EEV basis:
Contribution from new business after cost of capital 5.06 370 51 421
Contribution from in-force business:
- expected return1 210 28 238
- experience variances 2 42 (10) 32
- operating assumption changes3 (23) - (23)
Development costs (14) - (14)
Contribution from shareholder net worth 3 87 3 93
Operating profit on covered business 588 - 87 72 747
Business reported on an IFRS basis4,5,6 27 140 (64) - 103
Total operating profit 615 140 23 72 850
Economic variances7 97 (5) (82) (2) 8
Gains on non-controlling interests - - 6 - 6
Profit/(loss) before tax 712 135 (53) 70 864
Tax (expense)/credit on profit from ordinary activities (145) (30) 33 (24) (166)
Other taxation impacts8 21 - - - 21
Profit/(loss) for the period 588 105 (20) 46 719
Operating profit attributable to:
LGAS 185
LGR 430
p
Earnings per share
Based on profit attributable to equity holders of the 12.12
Company
Diluted earnings per share
Based on profit attributable to equity holders of the 11.99
Company
1. The expected return on in-force for LGAS and LGR is
based on the unwind of the risk discount rate on the
opening, adjusted base value of in-force (VIF). The
opening base VIF of the UK LGAS and LGR business was
£4,693m in 2014 (£4,402m in 2013). This is adjusted for
the effects of opening model changes of £4m (H1 13:
£50m; FY 13: £27m) to give an adjusted opening base VIF
of £4,697m (H1 13: £4,452m; FY 13: £4,429m). This is
then multiplied by the opening risk discount rate of
6.8% (H1 13: 6.0%; FY 13: 6.0%) and the result grossed
up at the notional attributed tax rate of 20% (H1 13:
20%; FY 13: 20%) to give a return of £196m (H1 13:
£165m; FY 13: £331m). The same approach has been applied
for the LGAS overseas businesses
2. LGAS and LGR variance primarily reflects UK cost of
capital unwind, bulk purchase annuity data loading and
fewer retail protection lapses. LGA experience variance
primarily relates to adverse mortality experience within
term assurance and universal life products.
3. LGAS and LGR assumption changes primarily reflect
mortality reserves strengthening partly offset by a
reduction in prudence margin in the regulatory morbidity
reserves within retail protection.
4. LGAS and LGR non-covered business primarily reflects
GI operating profit of £28m (H1 13: £39m; FY 13: £69m).
5. LGIM operating profit includes Retail Investments and
excludes £19m (H1 13: £15m; FY 13: £34m) of profits
arising from the provision of investment management
services at market referenced rates to the covered
business on a look through basis and as a consequence
are included in the LGAS and LGR covered business on an
EEV basis.
6. LGC and group expenses non-covered business primarily
reflects Group debt costs and investment projects and
expenses, partly offset by investment returns from non
-covered shareholder assets.
7. The LGAS and LGR positive variance has resulted from
a number of factors including lower risk discount rate
and enhanced yield on annuity assets offset by a lower
risk free rate and a narrowing credit spread. LGC and
group expenses primarily reflects lower equity return
from shareholder funds.
8. Other taxation impacts reflects the change in the
treatment of deferred tax on in-force business to align
with IFRS by removing the effect of discounting.
European Embedded Value
100
5.05 Profit/(loss) for the period (continued)
LGC
LGAS and and group
LGR LGIM expenses LGA Total
For the six months ended 30 June 2013 Note £m £m £m £m £m
Business reported on an EEV basis:
Contribution from new business after cost of capital 5.06 213 44 257
Contribution from in-force business:
- expected return1 178 33 211
- experience variances 2 42 (27) 15
- operating assumption changes3 14 - 14
Development costs (18) - (18)
Contribution from shareholder net worth 2 65 4 71
Operating profit on covered business 431 - 65 54 550
Business reported on an IFRS basis4,5,6 18 137 (65) - 90
Total operating profit 449 137 - 54 640
Economic variances7 302 (2) 11 (47) 264
Gains on non-controlling interests - - 7 - 7
Profit before tax 751 135 18 7 911
Tax (expense)/credit on profit from ordinary activities (152) (28) 16 (3) (167)
Effect of tax rate changes and other taxation impacts8 41 - - - 41
Profit for the period 640 107 34 4 785
Operating profit attributable to:
LGAS 167
LGR 282
p
Earnings per share
Based on profit attributable to equity holders of the 13.24
Company
Diluted earnings per share
Based on profit attributable to equity holders of the 13.09
Company
1. The expected return on in-force is based on the
unwind of the risk discount rate on the opening,
adjusted base value of in-force (VIF). The opening base
VIF of the UK LGAS and LGR business was £4,402m. This is
adjusted for the effects of opening model changes of
£50m to give an adjusted opening base VIF of £4,452m.
This is then multiplied by the opening risk discount
rate of 6.0% and the result grossed up at the notional
attributed tax rate of 20% to give a return of £165m.
The same approach has been applied for the LGAS overseas
business.
2. LGAS and LGR reflects UK cost of capital unwind and
bulk purchase annuity data loading and model changes.
LGA reflects a higher than anticipated lapses in the
period.
3. LGAS and LGR primarily reflects mortality assumption
changes in retail protection.
4. LGAS and LGR non-covered business primarily reflects
GI operating profit of £39m.
5. LGIM operating profit excludes £15m of profits
arising from the provision of investment management
services at market referenced rates to the covered
business. These are reported on a look through basis and
as a consequence are included in the LGAS and LGR
covered business on an EEV basis.
6. LGC and group expenses non-covered business primarily
reflects Group debt costs and investment projects and
expenses, partly offset by investment returns from non
-covered shareholder assets.
7. LGAS and LGR positive variance primarily reflects
equity market outperformance, actions to improve the
yield on annuities assets and a lower risk margin.
8. Primarily reflects the implementation of the UK
planned future reductions in the corporation tax rate to
20% on 1 April 2015.
European Embedded Value
101
5.05 Profit/(loss) for the year (continued)
LGC
LGAS and and group
LGR LGIM expenses LGA Total
For the year ended 31 December 2013 Note £m £m £m £m £m
Business reported on an EEV basis:
Contribution from new business after cost of capital 5.06 544 107 651
Contribution from in-force business:
- expected return1 358 68 426
- experience variances 2 52 (23) 29
- operating assumption changes3 (9) (52) (61)
Development costs (40) - (40)
Contribution from shareholder net worth 5 113 7 125
Operating profit on covered business 910 - 113 107 1,130
Business reported on an IFRS basis4,5,6 47 270 (106) - 211
Total operating profit 957 270 7 107 1,341
Economic variances7 250 (6) 8 (37) 215
Gains on non-controlling interests - - 13 - 13
Profit before tax 1,207 264 28 70 1,569
Tax (expense)/credit on profit from ordinary activities (251) (57) 21 (24) (311)
Effect of tax rate changes and other taxation impacts8 41 - - - 41
Profit for the year 997 207 49 46 1,299
Operating profit attributable to:
LGAS 360
LGR 597
p
Earnings per share
Based on profit attributable to equity holders of the 21.91
Company
Diluted earnings per share
Based on profit attributable to equity holders of the 21.61
Company
1. The expected return on in-force is based on the
unwind of the risk discount rate on the opening,
adjusted base value of in-force (VIF). The opening base
VIF of the UK LGAS and LGR business was £4,402m in 2013.
This is adjusted for the effects of opening model
changes of £27m to give an adjusted opening base VIF of
£4,429m. This is then multiplied by the opening risk
discount rate of 6.0% and the result grossed up at the
notional attributed tax rate of 20% to give a return of
£331m. The same approach has been applied for the LGAS
overseas businesses.
2. LGAS and LGR variance primarily reflects UK cost of
capital unwind, bulk purchase annuity data loading,
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