REG - Legal & General Grp - L&G Half-year Report 2017 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 6
09/08/2017 07:07
- Part 6: For the preceding part double click ID:nRSI4602Ne
1,862 847 12,121
Banks 1,408 876 737 498 3,519
Financial Services 588 162 349 11 1,110
Insurance 286 629 57 80 1,052
Consumer Services and Goods:
- Cyclical 638 2,402 284 179 3,503
- Non-cyclical 1,141 1,917 181 83 3,322
- Health care 47 332 10 - 389
Infrastructure:
- Social 4,802 277 1 37 5,117
- Economic 1,730 70 29 114 1,943
Technology and Telecoms 566 1,435 932 422 3,355
Industrials 195 787 329 182 1,493
Utilities 3,450 1,268 2,432 866 8,016
Energy - 613 10 102 725
Commodities 21 302 26 541 890
Oil and Gas 209 571 396 631 1,807
Property 5 3 6 1 15
Real estate 1,449 449 17 60 1,975
Structured Finance ABS / RMBS / CMBS / Other 1,055 267 201 19 1,542
Lifetime mortgages 440 - - - 440
CDOs - - 1,031 71 1,102
Total 26,451 13,351 8,890 4,744 53,436
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
Capital and Investments
Page 97
4.06 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
excluding Rest of
UK1 US1 UK1 the World1 Total1
31.12.16 31.12.16 31.12.16 31.12.16 31.12.16
£m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 9,569 1,038 1,264 729 12,600
Banks 1,625 803 1,005 546 3,979
Financial Services 500 124 355 2 981
Insurance 189 566 17 55 827
Consumer Services and Goods
- Cyclical 794 2,410 272 153 3,629
- Non-cyclical 1,155 2,650 208 28 4,041
- Health care 18 106 6 - 130
Infrastructure
- Social 4,788 137 - 35 4,960
- Economic 1,937 102 1 225 2,265
Technology and Telecoms 589 1,467 753 449 3,258
Industrials 166 904 312 198 1,580
Utilities 3,687 1,293 2,401 915 8,296
Energy 1 598 14 117 730
Commodities 16 292 33 548 889
Oil and Gas 190 574 450 586 1,800
Property - 71 4 3 78
Real estate 1,631 345 17 61 2,054
Structured finance ABS / RMBS / CMBS / Other 1,020 323 469 18 1,830
Lifetime mortgage loans 852 - - - 852
CDOs - - - 73 73
Total 28,727 13,803 7,581 4,741 54,852
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement.
Capital and Investments
Page 98
4.06 Bond portfolio summary (continued)
(c) LGR and total group analysed by credit rating
Externally Internally Externally Internally Total
rated rated2 LGR rated rated2 Group
30.06.17 30.06.17 30.06.17 30.06.17 30.06.17 30.06.17
£m £m £m £m £m £m
AAA 1,573 1,130 2,703 2,115 1,130 3,245
AA 13,205 1,739 14,944 14,579 1,812 16,391
A 14,511 2,928 17,439 15,971 3,032 19,003
BBB 13,103 2,575 15,678 13,516 2,789 16,305
BB or below 691 81 772 989 160 1,149
Other - - - - - -
43,083 8,453 51,536 47,170 8,923 56,093
Externally Internally Externally Internally
rated1 rated1, 2 LGR1 rated1 rated1, 2 Total1
30.06.16 30.06.16 30.06.16 30.06.16 30.06.16 30.06.16
£m £m £m £m £m £m
AAA 1,719 8 1,727 2,756 8 2,764
AA 12,136 1,701 13,837 13,606 1,706 15,312
A 14,506 2,301 16,807 15,570 2,378 17,948
BBB 12,497 1,635 14,132 13,375 1,851 15,226
BB or below 1,102 542 1,644 1,348 605 1,953
Other - - - 233 - 233
41,960 6,187 48,147 46,888 6,548 53,436
Externally Internally Externally Internally Total
rated1 rated1, 2 LGR1 rated1 rated1, 2 Group 1
31.12.16 31.12.16 31.12.16 31.12.16 31.12.16 31.12.16
£m £m £m £m £m £m
AAA 1,839 388 2,227 2,438 388 2,826
AA 13,499 1,236 14,735 14,632 1,503 16,135
A 14,637 2,773 17,410 16,063 2,883 18,946
BBB 12,405 2,062 14,467 13,068 2,295 15,363
BB or below 960 77 1,037 1,322 148 1,470
Other - - - - 112 112
43,340 6,536 49,876 47,523 7,329 54,852
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values have been restated. Refer to footnote 1 in the Consolidated Cash Flow Statement
2. Where external ratings are not available an internal rating has been used where it is practicable to do so.
Capital and Investments
Page 99
4.07 Property analysis
(a) Property exposure within Direct Investments
(i) Group property Direct Investments by status
LGI
(UK and
LGR1 LGC Other) Total
At At At At
30.06.17 30.06.17 30.06.17 30.06.17
£m £m £m £m %
Fully let 2,687 8 - 2,695 93
Development - 1442 - 144 5
Land - 48 - 48 2
2,687 200 - 2,887 100
1. The fully let LGR property includes £2.3bn let to investment grade tenants.
2. Included in LGC Development is £25m of Other shareholder investment property as noted in note 4.04.
LGI
(UK and
LGR1 LGC Other) Total
At At At At
30.06.16 30.06.16 30.06.16 30.06.16
£m £m £m £m %
Fully let 2,257 58 4 2,319 94
Development - 95 - 95 4
Land - 43 - 43 2
2,257 196 4 2,457 100
1. The fully let LGR property includes £1.9bn let to investment grade tenants.
LGI
(UK and
LGR1 LGC Other) Total
At At At At
31.12.16 31.12.16 31.12.16 31.12.16
£m £m £m £m %
Fully let 2,442 16 - 2,458 94
Development - 101 - 101 4
Land - 45 - 45 2
2,442 162 - 2,604 100
1. The fully let LGR property includes £2.1bn let to investment grade tenants.
Capital and Investments
Page 100
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Glossary
Page 101
* These items represent an alternative performance measure.
Adjusted earnings per share*
Calculated by dividing profit after tax from continuing operations, attributable to equity holders of the company,
excluding recognised gains and losses associated with held for sale and completed business disposals, by the weighted
average number of ordinary shares in issue during the period, excluding employee scheme treasury shares. Excluding the
impact of anticipated and completed disposals provides an indication of the earnings per share from on-going operations.
Ad valorem fees
On-going Management fees earned on assets under management, overly assets and advisory assets as defined below
Adjusted return on equity*
ROE measures the return earned by shareholders on shareholder capital retained within the business. Adjusted ROE is
calculated as IFRS profit after tax divided by average IFRS shareholders' funds excluding recognised gains and losses
associated with held for sale and completed business disposals. Excluding the impact of anticipated and completed disposals
provides an indication of the return on equity from on-going operations.
Adjusted operating profit*
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and
exceptional items. Adjusted operating profit further removes exceptional restructuring costs to demonstrate the
profitability before these costs which are non-recurring in nature.
Advisory assets
These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are beneficially owned by
GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different
from Assets under Management (AUM) defined below.
Alternative performance measures (APMs)
An alternative performance measure is a financial measure of historic or future financial performance, financial position,
or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. The group uses a range
of these metrics to provide a better understanding of the underlying performance of the group. Where appropriate,
reconciliations of alternative performance measures to IFRS measures are provided. All APMs defined within this glossary
are marked with an asterisk.
Annuity
Regular payments from an insurance company made for an agreed period of time (usually up to the depth of the recipient) in
return for either cash lump sum or a series of premiums which the policyholder has paid to the insurance company during
their working lifetime.
Annual premium
Premiums that are paid regularly over the duration of the contract such as protection policies.
Assets under administration (AUA)*
Assets administered by Legal & General which are beneficially owned by clients. 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)*
The total amount of money investors have trusted to our fund managers to invest across our investment products i.e. these
are funds which are managed by our fund managers on behalf of investors.
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.
Bundled DC solution
Where investment and administration services are provided to a scheme by the same service provider. Typically, all
investment and administration costs are passed onto the scheme members.
Glossary
Page 102
Bundled pension schemes
Where the fund manager bundles together the investment provider role and third-party administrator role, together with the
role of selecting funds and providing investment education, into one proposition.
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
of LGI US on this basis.
Direct investments
Direct investments, which generally constitute an agreement with another party and 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)
EPS is a common financial metric which can be used to measure the profitability and strength of a company over time. It is
the total shareholder profit after tax divided by the number of shares outstanding. EPS uses a weighted average number of
shares outstanding during the year.
Economic capital*
Economic capital is the capital that an insurer holds internally as a result of its own assessment of risk. It differs from
regulatory capital, which is determined by regulators. It represents an estimate of the amount of economic losses an
insurer could withstand and still remain solvent with a target level of confidence over a specified time horizon.
Economic Capital Requirement (ECR)
The amount of Economic Capital required to cover the losses occurring in a 1-in-200 year risk event.
Economic Capital Surplus*
The excess of Eligible Own Funds on an economic basis over the Economic Capital Requirement. 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.
ECR coverage ratio*
The Eligible Own Funds on an economic basis divided by the Economic Capital Requirement (ECR). This represents the number
of times that the ECR is covered by Eligible Own Funds.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's Economic or Solvency II Capital Requirement.
Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on an Economic Capital or
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. Eligible own funds (shareholder view basis) excludes the contribution
to the groups solvency capital requirement of with-profits fund and final salary pension schemes.
Escape of Water
Escape of water is a type of home insurance claim relating to leakage from fixed water tanks, apparatus (e.g. washing
machine) or pipes.
Euro Commercial paper
Short term borrowings with maturities of up to 1 year typically issued for working capital purposes.
General insurance combined operating ratio
The combined ratio is calculated as the sum of incurred losses and expenses divided by earned premium.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the
reporting period, before any deductions for reinsurance.
Index tracker
Index tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking,
for example the FTSE 100 index. Index tracker funds aim to produce a return in line with a particular market sector, for
example, Europe or technology. They are also sometimes known as 'tracker funds'.
Glossary
Page 103
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment funds, based in Ireland and aimed at European investment funds looking for a simple,
tax-efficient investment vehicle.
IFRS profit before tax (PBT)
PBT measures profit attributable to shareholders incorporating actual investment returns experienced during the year but
before the payment of tax.
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.
Lifetime mortgages
An equity release product aimed at people aged 60 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.
Long dated debt
Debt issued in either subordinated or senior format which forms part of the Group's core borrowings.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Economic Capital and 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.
Net release from operations*
Net release from operations is defined as release from operations plus new business surplus/(strain). Net release from
operations was previously referred to as Net Cash and provides information on the underlying release of prudent margins
from the back book.
New business surplus/(strain)*
The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the
setting up of reserves, for UK non profit annuities, workplace savings, protection and savings, net of tax. This metric
provides an understanding of the impact of new contracts on the IFRS profit for the year.
Operating profit*
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term economic assumptions and changes in insurance risks such
as mortality and longevity for the group's insurance business and shareholder funds, except for LGI US which excludes
unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed
assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of
business in the period, such as merger and acquisition and start-up costs are excluded from operating profit.
Overlay assets
Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include
interest rate swaps, inflation swaps, equity futures and options. These are typically used to hedge risks associated with
pension scheme assets during the derisking stage of the pension life cycle.
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 and individual's entire
portfolio to assess asset allocation and risk exposure.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run final salary pension schemes to reduce their responsibilities by
closing the schemes to new members and passing the assets and obligations to insurance providers.
Glossary
Page 104
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.
Recapitalisation Cost*
An additional liability required in the L&G Economic Capital balance sheet, to allow for the cost of recapitalising the
balance sheet following a 1-in-200 year risk event, in order to maintain confidence that our future liabilities will be
met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the
group could raise debt and allows for diversification between all group entities.
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.
Release from operations*
The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses,
the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses,
including the medium term expected investment return on LGC invested assets, and dividends remitted from LGI US and Legal &
General Netherlands. 2015 included dividends remitted from Legal & General France, which was disposed of on 31 December
2015. Release from operations was previously referred to as operational cash generation.
Return on equity (ROE)*
ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as
IFRS profit after tax divided by average IFRS shareholders' funds.
Single premiums*
Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium
being paid over its lifetime, such as in individual and bulk annuity deals.
Solvency II
Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance
firms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to
appropriately align insurers' risk with the capital they hold to safeguard policyholder.
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 Risk Margin
An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is
equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance
obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of
Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the
insurance and reinsurance obligations over the lifetime thereof.
Solvency II Surplus
The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. 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.
SCR (shareholder view basis)
In order to present a shareholder view of group SCR the Solvency capital requirement of the Society's with-profits fund and
defined benefit final salary pension scheme is excluded from SCR.
Glossary
Page 105
SCR coverage ratio
The Eligible Own Funds on a regulatory basis divided by the Solvency Capital Requirement (SCR). This represents the number
of times that the SCR is covered by Eligible Own Funds.
SCR coverage ratio (proforma basis)*
The proforma basis solvency II coverage incorporates the estimated impacts of a recalculation of the Transitional Measures
for Technical Provisions recalculated based on end of period economic conditions, changes to the Internal Model and
Matching Adjustment and management's updated Solvency I basis. This includes the solvency capital requirement in relation
to the Society's ring-fenced with-profits fund and our defined benefit pension schemes in both Eligible Own Funds and the
SCR in the calculation of the SCR coverage ratio.
SCR coverage ratio (shareholder view basis)*
In order to represent a shareholder view of group solvency position, the solvency capital requirement in relation to the
Society's ring-fenced with-profits fund and our defined benefit pension schemes is excluded from both Eligible Own Funds
and the SCR in the calculation of the SCR coverage ratio. This incorporates the estimated impacts of a recalculation of the
Transitional Measures for Technical Provisions based on end of period economic conditions.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share
price appreciation and dividends paid to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at
1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease
linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the
relevant business, subject to agreement with the PRA.
Unbundled DC solution
When investment services and administration services are supplied by separate providers. Typically the sponsoring employer
will cover administration costs and scheme members the investment costs.
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