REG - Legal & General Grp - L&G Half-year Report 2018 Part 3
RNS Number : 2646XLegal & General Group Plc09 August 2018Legal & General Half-year Report 2018 Part 3
Asset and premium flows Page 67
5.01 LGIM total assets under management (AUM)
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the six month period to 30 June 2018
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2018
340.9
148.8
462.7
23.8
7.1
983.3
Canvas acquisition2
2.4
-
-
-
-
2.4
External inflows
22.4
8.7
18.2
0.6
0.5
50.4
External outflows
(41.2)
(2.2)
(8.7)
(0.5)
(0.1)
(52.7)
Overlay net flows
-
-
16.7
-
-
16.7
ETF net flows
0.2
-
-
-
-
0.2
External net flows3
(18.6)
6.5
26.2
0.1
0.4
14.6
Internal net flows
(0.3)
(2.5)
(0.3)
0.6
(0.1)
(2.6)
Total net flows
(18.9)
4.0
25.9
0.7
0.3
12.0
Cash management movements4
-
1.0
-
-
-
1.0
Market and other movements3
1.9
(1.4)
(14.9)
0.8
(0.3)
(13.9)
At 30 June 2018
326.3
152.4
473.7
25.3
7.1
984.8
Assets attributable to:
External
888.8
Internal
96.0
1. Solutions include liability driven investments, multi-asset funds, and include £277.2bn of derivative notionals associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. 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. The total value of these assets was £48.3bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the six month period to 30 June 2017
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2017
319.8
134.8
411.9
19.6
8.1
894.2
External inflows
25.4
8.3
16.0
0.8
0.1
50.6
External outflows
(29.7)
(3.0)
(9.0)
(0.5)
(0.1)
(42.3)
Overlay/advisory net flows
-
-
13.4
-
-
13.4
External net flows2
(4.3)
5.3
20.4
0.3
-
21.7
Internal net flows
(0.3)
(0.4)
0.4
0.5
(1.3)
(1.1)
Disposal of LGN4
(0.3)
(0.5)
-
-
-
(0.8)
Total net flows
(4.9)
4.4
20.8
0.8
(1.3)
19.8
Cash management movements3
-
4.1
-
-
-
4.1
Market and other movements2
16.6
1.7
13.4
0.8
0.5
33.0
At 30 June 2017
331.5
145.0
446.1
21.2
7.3
951.1
Assets attributable to:
External
853.2
Internal
97.9
1. Solutions include liability driven investments, multi-asset funds, and include £280.0bn of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets was £81.7bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 68
5.01 LGIM total assets under management (AUM) (continued)
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the year ended 31 December 2017
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2017
319.8
134.8
411.9
19.6
8.1
894.2
External inflows
51.1
15.1
33.2
1.5
0.1
101.0
External outflows
(61.4)
(6.4)
(15.7)
(1.2)
(0.1)
(84.8)
Overlay/advisory net flows
-
-
27.3
-
-
27.3
External net flows2
(10.3)
8.7
44.8
0.3
-
43.5
Internal net flows
(0.4)
(2.0)
(1.1)
1.5
(0.7)
(2.7)
Disposal of LGN4
(0.3)
(0.5)
-
-
-
(0.8)
Total net flows
(11.0)
6.2
43.7
1.8
(0.7)
40.0
Cash management movements3
-
3.0
-
-
-
3.0
Market and other movements2
32.1
4.8
7.1
2.4
(0.3)
46.1
At 31 December 2017
340.9
148.8
462.7
23.8
7.1
983.3
Assets attributable to:
External
883.8
Internal
99.5
1. Solutions include liability driven investments, multi-asset funds, and include £272.8bn of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets was £47.0bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017.
5.02 LGIM total external assets under management and net flows
Assets under management1
Net flows2
30 June
30 June
31 December
6 months
6 months
6 months
2018
2017
2017
30 June
2018
30 June
2017
31 December
2017
£bn
£bn
£bn
£bn
£bn
£bn
International1,3
165.8
135.8
160.1
9.9
17.9
15.1
UK Institutional
- Defined contribution
64.0
55.3
60.1
3.5
1.7
1.3
- Defined benefit3
625.4
635.3
633.9
(0.3)
0.4
4.1
UK Retail
- Retail intermediary
25.1
21.4
24.2
1.4
1.8
1.4
- Personal investing4
5.7
5.4
5.5
(0.1)
(0.1)
(0.1)
ETF5
2.8
-
-
0.2
-
-
Total external
888.8
853.2
883.8
14.6
21.7
21.8
1. International asset are shown on the basis of client domicile. International AUM is £229.3bn when assets managed in the US on behalf of UK clients are included.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
3. Defined benefit includes £63.5bn of assets managed in the US on behalf of UK clients.
4. Personal investing includes £2.0bn of legacy Banks and Building Society customers which is driving net outflows.
5. ETF reflects the acquisition of Canvas that completed in March 2018.
Asset and premium flows Page 69
5.03 LGIM investment performance
Investment performance across our AUM as at 30 June 2018 is set out in the table below. This has been calculated internally by LGIM to provide general guidance as to how our assets under management are performing. The data is aggregated and is not intended for clients or potential clients investing in our products.
Performance against success measures - benchmark or performance criteria
For the six month period to
30 June 2018
One
year period
Three
year period
Five
year period
Actively Managed AUM1
88%
85%
81%
Index Managed AUM2
98%
98%
97%
Client Solutions AUM3
100%
100%
100%
Percentage of AUM reported4
89%
64%
55%
1. Actively Managed AUM: actively managed products measured against applicable benchmark or peer group performance.
2. Index Managed AUM: assets managed against benchmark within applicable tolerance.
3. Client solutions AUM: products managed against specific risk target or client outcome.
4. Excluded from the performance measurement are non-discretionary accounts, funds on our investment only platform with external manager holdings, funds with insufficient performance history and transition management accounts.
Performance is measured on a gross-of-fee basis for institutional accounts and net-of-fee for retail funds, and is measured against benchmarks, peer group performance or risk based metrics.
5.04 Assets under management reconciliation to Consolidated Balance Sheet financial assets
30 June
2018
30 June
2017
31 December
2017
£bn
£bn
£bn
Assets under management
985
951
983
Derivative notionals1
(277)
(281)
(273)
Third party assets2
(275)
(233)
(261)
Other3
44
8
42
Total financial investments, investment property and cash and cash equivalents
477
445
491
Less: financial assets classified as held for sale4
(21)
-
(22)
Financial investments, investment property and cash and cash equivalents
456
445
469
1. Derivative notionals are included in the assets under management but not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others, to which the group is not exposed to the risks or rewards and thus are not included on the IFRS balance sheet.
3. 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.
4. Details relating to assets classified as held for sale is provided in Note 4.03.
Asset and premium flows Page 70
5.05 Assets under administration
Workplace1
Annuities2
Workplace
Annuities
Workplace
Annuities
30 June
2018
30 June
2018
30 June
2017
30 June
2017
31 December
2017
31 December
2017
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January
27.7
58.2
20.8
54.4
20.8
54.4
Gross inflows
2.7
1.1
3.4
2.0
5.9
4.6
Gross outflows
(0.8)
-
(0.6)
-
(1.4)
-
Payments to pensioners
-
(1.7)
-
(1.6)
-
(3.3)
Net flows
1.9
(0.6)
2.8
0.4
4.5
1.3
Market and other movements
0.1
(1.2)
1.3
0.8
2.4
2.5
At 30 June/31 December
29.7
56.4
24.9
55.6
27.7
58.2
1. Workplace assets under administration includes £29.5bn of assets under management included in Note 5.01.
2. Annuities assets under administration includes £52.0bn of assets under management included in Note 5.01.
5.06 LGR new business
6 months
6 months
6 months
30 June
30 June
31 December
2018
2017
2017
£m
£m
£m
Pension risk transfer
- UK
507
1,504
1,901
- US
220
115
428
- Bermuda
8
-
-
Individual Annuities
337
345
326
Lifetime Mortgage Advances
521
424
580
Longevity Insurance1
-
800
-
Total LGR new business
1,593
3,188
3,235
1. Represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve.
5.07 Insurance new business
6 months
6 months
6 months
30 June
2018
30 June
2017
31 December
2017
£m
£m
£m
UK Retail Protection
87
86
86
UK Group Protection
34
28
21
Netherlands Protection1
-
1
-
US Protection
42
38
41
Total LGI new business
163
153
148
1. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 71
5.08 Gross written premiums on Insurance business
6 months
6 months
6 months
30 June
2018
30 June
2017
31 December
2017
£m
£m
£m
UK Retail Protection
633
609
623
UK Group Protection
223
224
102
General Insurance
193
173
196
Netherlands Protection1
-
14
-
US Protection
461
491
482
Longevity insurance
187
175
186
Total gross written premiums on Insurance business
1,697
1,686
1,589
1. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 72
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Capital Page 73
6.01 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 to measure and monitor its capital resources on this basis.
The Solvency II results are estimated for 30 June 2018. Further explanation of the underlying methodology and assumptions are set out in the sections below.
The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the group's Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (recalculated as at 30 June 2018).
(a) Capital position
As at 30 June 2018 the group had a surplus of £6.9bn (31 December 2017: £6.9bn) over its Solvency Capital Requirement, corresponding to a coverage ratio on a "shareholder view" basis of 193% (31 December 2017: 189%). The shareholder view of the Solvency II capital position is as follows:
30 June
2018
31 December
2017
£bn
£bn
Core tier 1 Own Funds
11.3
11.6
Tier 2 subordinated liabilities
3.1
3.1
Eligibility restrictions
(0.1)
(0.1)
Solvency II Own Funds1,2
14.3
14.6
Solvency Capital Requirement3
(7.4)
(7.7)
Solvency II surplus
6.9
6.9
SCR coverage ratio4
193%
189%
1. Solvency II Own Funds do not include an accrual for the interim dividend of £274m (31 December 2017: £658m) declared after the balance sheet date.
2. Solvency II Own Funds allow for a risk margin of £5.2bn (31 December 2017: £5.9bn) and TMTP of £5.3bn (31 December 2017: £6.2bn).
3. The SCR is not subject to audit.
4. Coverage ratio is based on unrounded inputs.
The "shareholder view" basis excludes the contribution that the with-profits fund and the final salary pension scheme would normally make to the group position. This is reflected by reducing the group's Own Funds and the group's SCR by the amount of the SCR for the with-profits fund and the final salary pension scheme.
On a proforma basis, which includes the contribution of with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR in group's SCR, the coverage ratio at 30 June 2018 is 186% (31 December 2017: 181%).
On 6 December 2017 the group announced its intention to sell the Mature Savings business to Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in 2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement had been reflected in the Own Funds at the end of 2017. The impact in SCR has now been incorporated as at 30 June 2018.
Capital Page 74
6.01 Group regulatory capital - Solvency II (continued)
(b) Methodology and assumptions
The methodology and assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are consistent with those set out in the group's 2017 Annual Reports and Accounts and Full Year Results.
Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates net of credit risk adjustment of 10 basis points (31 December 2017: 10 basis points) for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.
At 30 June 2018 the Matching Adjustment for UK GBP denominated liabilities was 111 basis points (31 December 2017: 106 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 53 basis points (31 December 2017: 51 basis points). The increase in Fundamental Spread was driven by changes in the asset portfolio.
(c) Analysis of change
The table below shows the movement (net of tax) during the period ended 30 June 2018 in the group's Solvency II surplus.
30 June
2018
31 December
2017
£bn
£bn
Surplus arising from back-book (including release of SCR)
0.7
1.3
Release of Risk Margin1
0.2
0.4
Amortisation of TMTP2
(0.2)
(0.4)
Operational Surplus Generation3
0.7
1.3
New Business Strain
(0.1)
(0.1)
Net Surplus Generation
0.6
1.2
Dividends paid4
(0.7)
(0.9)
Operating variances5
-
0.4
Mergers, acquisitions and disposals6
-
-
Market movements7
0.1
-
Subordinated debt
-
0.5
Total Surplus movement (after dividends paid in the period)
-
1.2
1. Based on the risk margin in force at end 2017 and does not include the release of any risk margin added by new business written in 2018.
2. TMTP amortisation based on a linear run down of the end-2017 TMTP of £5.3bn (net of tax, £6.2bn before tax).
3. Release of surplus generated by in-force business and includes management actions which at the start of the year could have been reasonably expected to take place. For 2018 these are primarily to deliver further eligible assets and liabilities into the Matching Adjustment portfolio and an increase in direct investments allocation to the annuity back-book.
4. Dividends paid are the amounts from the 2017 final dividend declaration paid in H1 18 (FY 17: 2016 final and 2017 interim dividend declarations).
5. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, other management actions including changes in asset mix, hedging strategies, and Matching Adjustment optimisation.
6. Mergers, acquisitions and disposals include the impact of the sale of Mature Savings (in excess of the amount which came through in 2017) and purchase of 100% of CALA Homes.
7. Market movements represents the impact of changes in investment market conditions over the period and changes to future economic assumptions. Market movements in half year ended 30 June 2018 include a reduction in the risk margin of £0.4bn (net of tax) and a reduction to TMTP of £0.4bn. 31 December 2017 included a reduction in the risk margin of £2.0bn (net of tax).
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, and setting up Technical Provisions and SCR capital (net of any premium income), on actual new business written over the year. It is based on economic conditions at the point of sale.
Capital Page 75
6.01 Group regulatory capital - Solvency II (continued)
(d) Reconciliation of IFRS Net Release from Operations to Solvency II Net Surplus Generation
(i) The table below provides a reconciliation of the group's IFRS Release from Operations to Solvency II Operational Surplus Generation.
6 months
Full year
2018
2017
£bn
£bn
IFRS Release from Operations
0.7
1.3
Expected release of IFRS prudential margins
(0.2)
(0.5)
Releases of IFRS specific reserves1
(0.1)
(0.1)
Solvency II investment margin2,3
0.1
0.2
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation4
0.2
0.4
Solvency II Operational Surplus Generation
0.7
1.3
1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term expenses and longevity margins).
2. Release of prudence related to differences between the EIOPA-defined fundamental spread and L&G's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk free rates over 2018.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2018 were expected to take place within the group plan.
(ii) The table below provides a reconciliation of the group's IFRS New Business Surplus to Solvency II New Business Strain.
6 months
Full year
2018
2017
£bn
£bn
IFRS New Business Surplus
-
0.2
Removal of requirement to set up prudential margins above best estimate on New Business
-
0.2
Set up of Solvency II Capital Requirement on New Business1
(0.1)
(0.3)
Set up of Risk Margin on New Business
-
(0.2)
Solvency II New Business Strain
(0.1)
(0.1)
1. The lower Solvency II capital requirement on new business in 2018 reflects lower premiums written and the success of our strategy to source direct investments (including lifetime mortgages) to back new annuity sales.
(e) Reconciliation of IFRS shareholders' equity to Solvency II Own Funds
A reconciliation of the group's IFRS shareholders' equity to Own Funds is given below:
30 Jun 2018
31 Dec 20171
£bn
£bn
IFRS shareholders' equity
7.7
7.6
Remove DAC, goodwill and other intangible assets and liabilities
(0.7)
(0.6)
Add IFRS carrying value of subordinated debt treated as available capital under Solvency II2
2.9
2.9
Insurance contract valuation differences3
6.3
6.4
Difference in value of net deferred tax liabilities
(0.9)
(0.7)
SCR for with-profits fund and final salary pension schemes
(0.8)
(0.7)
Other4
(0.1)
(0.2)
Eligibility restrictions5
(0.1)
(0.1)
Solvency II Own Funds6
14.3
14.6
1. Following a change in accounting policy for LGIA term life reserves, specific IFRS balance sheet items have been restated, notably deferred acquisition costs, non-participating insurance contracts and deferred tax liabilities. The overall net impact on the group's IFRS shareholders' equity as at 31 December 2017 is a reduction of £354m. Further details on the change in accounting policy is provided in Note 4.01.
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. Reflects valuation differences on other assets and liabilities, predominately in respect of borrowings measured at fair value under Solvency II.
5. Relating to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.
6. Own Funds do not include an accrual for the interim dividend of £274m (31 December 2017: £658m) declared after the balance sheet date.
Capital Page 76
6.01 Group regulatory capital - Solvency II (continued)
(f) Sensitivity analysis
The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2018 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
surplus5
ratio5
surplus5
ratio5
30 Jun
2018
30 Jun
2018
31 Dec
2017
31 Dec
2017
£bn
%
£bn
%
Credit spreads widen by 100bps assuming an escalating addition to ratings1,2
0.4
12
0.2
8
Credit migration3
(0.5)
(7)
(0.5)
(6)
15% fall in property markets
(0.5)
(6)
(0.4)
(4)
100bps increase in risk free rates
0.8
22
0.8
20
50bps decrease in risk free rates4
(0.5)
(11)
(0.5)
(10)
1. The spread sensitivity applies to Legal & General's corporate bond (and similar) holdings, with no change in the firm's long term default expectations.
2. 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.
3. 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, sale and leaseback rental strips and LTM senior notes).
4. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
5. Both the 2017 and 2018 sensitivities exclude the impact from the Mature Savings business (including the with-profits fund) as the risks have been transferred to the ReAssure division of Swiss Re from 1 January 2018.
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. These results all allow (on an approximate basis) for the recalculation of TMTP as at 30 June 2018 where the impact of the stress would cause this to change materially.
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.
Capital Page 77
6.02 Estimated Solvency II new business contribution
(a) New business by product1
Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:
Contri-
Contri-
bution
bution
from new
from new
PVNBP
business2
Margin3
PVNBP
business2
Margin3
6 months
6 months
6 months
Full year
Full year
Full year
2018
2018
2018
2017
2017
2017
£m
£m
%
£m
£m
%
LGR - UK annuity business
844
65
7.7
4,083
346
8.5
UK Protection Total
788
56
7.1
1,496
129
8.6
- Retail Protection
652
49
7.6
1,293
111
8.6
- Group Protection
136
7
5.2
203
18
8.7
US Protection4,5
411
48
11.6
764
89
11.7
1. Selected lines of business only.
2. 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 period using the risk discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $543m (31 December 2017: $985m) and a contribution from new business of $63m (31 December 2017: $115m).
5. Assumes reassurance is enacted during 2018.
As in previous years the reported LGR margin includes all of LGR's new business costs including those incurred in quoting on business we expect to conclude in H2 and beyond. The margin increases to 10.3% by only including the costs associated with the business written in H1. This is a better comparator to 2017. The increase reflects the higher long term value generated from the smaller sized schemes written in H1, as well as our ability to source attractive DI assets from bespoke deals such as the buy-in transaction with the BAA Pension Scheme. Additionally, the 2017 margin includes a £250m scheme where the group passes on all of the risk and retains a small facilitation fee.
In UK Protection business we have seen competitive pricing pressure combined with a shift in the mix of business towards lower margin products.
For US Protection, the new business contribution has increased relative to the 2017 position due to higher new business volumes and more favourable business mix. The change in Solvency II new business margin reflects the significant increase in US risk free rates over the first half of the year. This has more than offset the contribution from a more favourable business mix.
Capital Page 78
6.02 Estimated Solvency II new business contribution (continued)
(b) Basis of preparation
Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2017 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, LGR, LGI and LGA.
Intra-group reinsurance arrangements are in place between US and UK businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The LGA new business margin assumes that the new business will be reinsured in 2018 and looks through the intra-group arrangements.
(c) Assumptions
The key economic assumptions are as follows:
30 June
2018
31 December
2017
%
%
Margin for risk
3.1
3.0
Risk free rate
- UK
1.7
1.6
- US
2.8
2.4
Risk discount rate (net of tax)
- UK
4.8
4.6
- US
5.9
5.4
Long-term rate of return on non profit annuities in LGR
3.0
3.0
The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat Margin for risk. The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment. The risk free rate shown above is a weighted average based on the projected cash flows.
Tax
The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with substantively enacted future changes.
The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19% and subsequent enacted future tax rate of 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.
US covered business profits are grossed up using the long term corporate tax rate of 21%.
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, which reflects the residual risks inherent in the group's businesses, after taking account of margins in the statutory technical provisions, the required capital and the specific allowance for financial options and guarantees.
The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment 10 basis points for GBP and 14 basis points for USD (31 December 2017: 10 basis points for GBP and for USD).
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.
Capital Page 79
6.02 Estimated Solvency II new business contribution (continued)
(d) Reconciliation of PVNBP to gross written premiums
A reconciliation of PVNBP and gross written premium is given below:
6 months
2018
Full year
2017
£bn
£bn
PVNBP
2.0
6.3
Effect of capitalisation factor
(1.0)
(2.0)
New business premiums from selected lines
1.0
4.3
Other1
0.8
2.4
Total LGR and LGI new business
1.8
6.7
Annualisation impact of regular premium long-term business
(0.1)
(0.2)
IFRS gross written premiums from existing long-term insurance business
1.4
2.8
Deposit accounting for lifetime mortgage advances
(0.5)
(1.0)
General Insurance gross written premiums
0.2
0.4
Future premiums on longevity swap new business
-
(0.8)
Total gross written premiums
2.8
7.9
1. Other principally includes annuity sales in the US, lifetime mortgage advances and discounted future cash flows on longevity swap new business.
2. This excludes gross written premiums from discontinued operations.
Capital Page 80
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Investments Page 81
7.01 Investment portfolio
Market
Market
Market
value
value
value
30 June
2018
30 June
2017
31 December
2017
£m
£m
£m
Worldwide total assets under management1
990,379
952,100
984,120
Client and policyholder assets2
(907,834)
(870,400)
(900,904)
Non-unit linked with-profits assets
(10,673)
(11,551)
(11,113)
Investments to which shareholders are directly exposed
71,872
70,149
72,103
1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.
Analysed by investment class:
Other
non profit
Other
LGR
insurance
LGC3
shareholder
investments
investments
investments
investments
Total
Total
Total
30 June
2018
30 June
2018
30 June
2018
30 June
2018
30 June
2018
30 June
2017
31 December
2017
Notes
£m
£m
£m
£m
£m
£m
£m
Equities4,7
285
15
2,246
181
2,727
2,876
2,960
Bonds
7.03
50,847
1,569
2,930
480
55,826
56,093
57,075
Derivative assets5
4,213
-
11
1
4,225
3,823
4,062
Property
7.04
2,791
-
80
-
2,871
2,887
2,832
Cash, cash equivalents and loans
2,147
482
1,461
262
4,352
3,893
4,084
Financial investments
60,283
2,066
6,728
924
70,001
69,572
71,013
Other assets2,6,7
490
-
1,373
8
1,871
577
1,090
Total investments
60,773
2,066
8,101
932
71,872
70,149
72,103
2. At 30 June 2017, the group held £5,660m of reverse repurchase agreements, which were disclosed within Other assets in the above analysis in the interim financial statements for the period then ended. These assets back unit-linked liabilities and hence were incorrectly classified as Investments to which shareholders are directly exposed, rather than Client and policyholder assets. The 30 June 2017 disclosures have been adjusted to reflect this restatement. There is no impact on total assets in the Consolidated Balance Sheet as a result of this reallocation.
3. LGC property includes £23m of shareholder investment property.
4. Equity investments include a total of £125m in respect of Peel Media Holdings Limited (MediaCityUK) and Access Development Partnership (30 June 2017: £256m; 31 December 2017: £260m).
5. Derivative assets are shown gross of derivative liabilities of £3.3bn (30 June 2017: £2.4bn; 31 December 2017: £2.3bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.
6. Other assets include reverse repurchase agreements of £752m (30 June 2017: £542m; 31 December 2017: £679m).
7. Other assets includes the consolidated net asset value of the group's investments in CALA Homes and other housing businesses, previously disclosed within Financial investments.
Investments Page 82
7.02 Direct Investments
(a) Analysed by asset class
Direct1
Traded2
Direct1
Traded2
Direct1
Traded2
Investments
securities
Total
Investments
securities
Total
Investments
securities
Total
30 June
30 June
30 June
30 June
30 June
30 June
31 December
31 December
31 December
2018
2018
2018
2017
2017
2017
2017
2017
2017
£m
£m
£m
£m
£m
£m
£m
£m
£m
Equities
890
1,837
2,727
650
2,226
2,876
930
2,030
2,960
Bonds3
10,800
45,026
55,826
7,722
48,371
56,093
9,726
47,349
57,075
Derivative assets
-
4,225
4,225
-
3,823
3,823
-
4,062
4,062
Property4
2,871
-
2,871
2,887
-
2,887
2,832
-
2,832
Cash, cash equivalents and loans
580
3,772
4,352
496
3,397
3,893
474
3,610
4,084
Financial investments
15,141
54,860
70,001
11,755
57,817
69,572
13,962
57,051
71,013
Other assets5
1,119
752
1,871
35
542
577
411
679
1,090
Total investments
16,260
55,612
71,872
11,790
58,359
70,149
14,373
57,730
72,103
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 exclude 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 mortgages of £2,674m (30 June 2017: £1,433; 31 December 2017: £2,023m).
4. A further breakdown of property is provided in Note 7.04.
5. At 30 June 2017, the group held £5,660m of reverse repurchase agreements, which were disclosed as Other assets in the above analysis in the interim financial statements for the period then ended. These assets back unit-linked liabilities and hence were incorrectly included in the analysis. The 30 June 2017 disclosures have been adjusted to exclude these assets reflecting this restatement. There is no impact on total assets in the Consolidated Balance Sheet as a result of this reallocation.
Investments Page 83
7.02 Direct Investments (continued)
(b) Analysed by segment
LGR
LGC1
LGI2
Total
30 June
2018
30 June
2018
30 June
2018
30 June
2018
£m
£m
£m
£m
-
Equities
-
851
39
890
Bonds3
10,432
30
338
10,800
Property4
2,791
80
-
2,871
Cash, cash equivalents and loans
175
77
328
580
Financial investments
13,398
1,038
705
15,141
Other assets5
92
1,027
-
1,119
Total direct investments
13,490
2,065
705
16,260
1. LGC includes £40m of equities, £27m of bonds and £23m of property that belong to other shareholder funds.
2. LGI includes £18m of equity investments in LGI UK. The bonds and loans and receivables are in the US business.
3. Bonds include lifetime mortgages of £2,674m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets include finance leases of £92m.
LGR
LGC1
LGI
Total
30 June
2017
30 June
2017
30 June
2017
30 June
2017
£m
£m
£m
£m
Equities
-
650
-
650
Bonds2
7,094
267
361
7,722
Property3
2,687
200
-
2,887
Cash, cash equivalents and loans
31
123
342
496
Financial investments
9,812
1,240
703
11,755
Other assets
-
35
-
35
Total direct investments
9,812
1,275
703
11,790
1. LGC included £27m of equities, £33m of bonds and £25m of property that belong to other shareholder funds.
2. Bonds included lifetime mortgages of £1,433m.
3. A further breakdown of property is provided in Note 7.04.
LGR
LGC1
LGI2
Total
31 December
2017
31 December
2017
31 December
2017
31 December
2017
£m
£m
£m
£m
Equities
-
922
8
930
Bonds3
9,272
22
432
9,726
Property4
2,722
110
-
2,832
Cash, cash equivalents and loans
88
150
236
474
Financial investments
12,082
1,204
676
13,962
Other assets5
92
319
-
411
Total direct investments
12,174
1,523
676
14,373
1. LGC included £30m of equities, £19m of bonds and £23m of property that belong to other shareholder funds.
2. LGI included £8m of equity investments in LGI UK. The bonds and loans are in the US business.
3. Bonds included lifetime mortgages of £2,023m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets included finance leases of £92m.
Investments Page 84
7.03 Bond portfolio summary
(a) LGR analysed by sector
Sectors analysed by credit rating
BB or
Total
Total
AAA
AA
A
BBB
below
Other
LGR
LGR
As at 30 June 2018
£m
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,020
7,732
128
233
2
-
9,115
19
Banks:
- Tier 1
-
-
-
-
-
-
-
-
- Tier 2 and other subordinated
-
-
66
28
-
-
94
-
- Senior
-
554
1,483
32
-
4
2,073
4
- Covered
117
-
-
-
-
-
117
-
Financial Services:
- Tier 2 and other subordinated
-
187
104
15
-
-
306
1
- Senior
-
76
329
42
-
-
447
1
Insurance:
- Tier 1
-
-
-
-
-
-
-
-
- Tier 2 and other subordinated
-
106
-
43
-
-
149
-
- Senior
-
150
449
84
-
-
683
1
Consumer Services and Goods:
- Cyclical
-
501
775
1,406
172
-
2,854
6
- Non-cyclical
195
479
1,284
1,908
267
-
4,133
8
- Health care
3
49
249
312
-
-
613
1
Infrastructure:
- Social
95
788
3,273
905
127
-
5,188
11
- Economic
180
23
1,068
2,333
43
-
3,647
7
Technology and Telecoms
75
138
707
1,994
25
-
2,939
6
Industrials
-
-
751
264
7
-
1,022
2
Utilities
-
98
4,854
3,603
-
17
8,572
17
Energy
-
-
103
520
-
-
623
1
Commodities
-
-
242
479
-
-
721
1
Oil and Gas
-
322
536
586
80
-
1,524
3
Real estate
-
-
1,036
1,091
48
-
2,175
4
Structured finance ABS / RMBS / CMBS / Other
171
621
158
121
8
-
1,079
2
Lifetime mortgage loans1
1,533
588
219
211
-
123
2,674
5
CDOs
-
24
61
14
-
-
99
-
Total £m
3,389
12,436
17,875
16,224
779
144
50,847
100
Total %
7
24
35
32
2
-
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 85
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
Total
Total
AAA
AA
A
BBB
below
LGR
LGR
As at 30 June 2017
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,058
9,718
297
230
31
11,334
23
Banks:
- Tier 1
-
-
-
-
-
-
-
- Tier 2 and other subordinated
211
49
58
35
-
353
1
- Senior
3
363
1,227
34
-
1,627
3
- Covered
254
-
-
-
-
254
-
Financial Services:
- Tier 2 and other subordinated
-
129
109
58
-
296
1
- Senior
-
580
66
114
-
760
1
Insurance:
- Tier 1
-
-
-
-
-
-
-
- Tier 2 and other subordinated
-
110
-
52
-
162
-
- Senior
-
55
487
76
-
618
1
Consumer Services and Goods
- Cyclical
-
335
1,071
1,676
160
3,242
6
- Non-cyclical
177
558
1,329
2,050
97
4,211
8
- Health care
3
32
195
155
-
385
1
Infrastructure:
- Social
86
841
3,380
1,005
20
5,332
10
- Economic
-
29
913
1,402
43
2,387
5
Technology and Telecoms
56
139
724
2,014
86
3,019
6
Industrials
-
148
705
381
12
1,246
2
Utilities
-
80
4,867
3,370
16
8,333
16
Energy
-
-
102
482
16
600
1
Commodities
-
-
302
523
20
845
2
Oil and Gas
-
278
481
670
163
1,592
3
Real estate
-
369
482
1,199
53
2,103
4
Structured finance ABS / RMBS / CMBS / Other
134
588
485
47
55
1,309
3
Lifetime mortgage loans1
721
522
99
91
-
1,433
3
CDOs
-
21
60
14
-
95
-
Total £m
2,703
14,944
17,439
15,678
772
51,536
100
Total %
5
30
34
30
1
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 86
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
Total
Total
AAA
AA
A
BBB
below
Other
LGR
LGR
As at 31 December 2017
£m
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,220
8,604
186
238
10
-
10,258
20
Banks:
- Tier 1
-
-
-
-
-
-
-
-
- Tier 2 and other subordinated
142
-
63
31
-
-
236
1
- Senior
-
682
1,740
47
-
-
2,469
5
- Covered
193
-
-
-
-
-
193
-
Financial Services:
- Tier 1
-
-
-
-
-
-
-
-
- Tier 2 and other subordinated
-
123
113
9
-
-
245
1
- Senior
-
307
348
187
-
-
842
2
Insurance:
- Tier 1
-
-
-
-
-
-
-
-
- Tier 2 and other subordinated
-
124
1
46
-
-
171
-
- Senior
-
116
458
65
-
-
639
1
Consumer Services and Goods:
- Cyclical
-
271
798
1,510
213
-
2,792
5
- Non-cyclical
201
574
1,239
2,031
126
-
4,171
8
- Health care
3
32
232
176
-
-
443
1
Infrastructure:
- Social
93
708
3,442
1,111
21
-
5,375
10
- Economic
179
30
937
2,179
43
-
3,368
6
Technology and Telecoms
60
148
777
1,941
26
-
2,952
6
Industrials
-
-
774
274
9
-
1,057
2
Utilities
-
107
4,800
3,666
11
-
8,584
17
Energy
-
-
106
538
16
-
660
1
Commodities
-
-
246
490
19
-
755
1
Oil and Gas
-
304
616
541
170
-
1,631
3
Real estate
-
22
1,044
1,166
49
-
2,281
4
Structured finance ABS / RMBS / CMBS / Other
176
681
172
151
55
-
1,235
2
Lifetime mortgage loans1
1,141
403
207
159
-
113
2,023
4
CDOs
-
22
60
14
-
-
96
-
Total £m
3,408
13,258
18,359
16,570
768
113
52,476
100
Total %
6
25
35
32
2
-
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 87
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile
EU
Rest of
Total
UK
US
excluding UK
the World
LGR
As at 30 June 2018
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
7,383
723
734
275
9,115
Banks
878
604
495
307
2,284
Financial Services
290
79
382
2
753
Insurance
127
507
111
87
832
Consumer Services and Goods:
- Cyclical
524
1,800
430
100
2,854
- Non-cyclical
1,272
2,517
338
6
4,133
- Health care
1
612
-
-
613
Infrastructure:
- Social
4,857
294
-
37
5,188
- Economic
2,998
371
53
225
3,647
Technology and Telecoms
684
1,234
593
428
2,939
Industrials
188
503
256
75
1,022
Utilities
4,440
1,281
2,147
704
8,572
Energy
36
530
5
52
623
Commodities
8
250
35
428
721
Oil and Gas
267
422
327
508
1,524
Real estate
1,580
277
54
264
2,175
Structured finance ABS / RMBS / CMBS / Other
942
105
9
23
1,079
Lifetime mortgages
2,674
-
-
-
2,674
CDOs
-
24
-
75
99
Total
29,149
12,133
5,969
3,596
50,847
Investments Page 88
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
Rest of
Total
UK
US
excluding UK
the World
LGR
As at 30 June 2017
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
9,024
704
1,105
501
11,334
Banks
931
688
497
118
2,234
Financial Services
383
68
605
-
1,056
Insurance
154
555
16
55
780
Consumer Services and Goods:
- Cyclical
772
2,049
290
131
3,242
- Non-cyclical
1,359
2,564
279
9
4,211
- Health care
1
384
-
-
385
Infrastructure:
- Social
5,012
284
-
36
5,332
- Economic
1,917
205
29
236
2,387
Technology and Telecoms
591
1,356
659
413
3,019
Industrials
204
568
335
139
1,246
Utilities
3,862
1,237
2,322
912
8,333
Energy
-
498
6
96
600
Commodities
8
290
22
525
845
Oil and Gas
187
396
465
544
1,592
Real estate
1,686
379
10
28
2,103
Structured finance ABS / RMBS / CMBS / Other
947
42
302
18
1,309
Lifetime mortgages
1,433
-
-
-
1,433
CDOs
-
21
-
74
95
Total
28,471
12,288
6,942
3,835
51,536
Investments Page 89
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
Rest of
Total
UK
US
excluding UK
the World
LGR
As at 31 December 2017
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
8,052
925
978
303
10,258
Banks
1,351
690
662
195
2,898
Financial Services
364
68
655
-
1,087
Insurance
135
531
91
53
810
Consumer Services and Goods:
- Cyclical
597
1,919
210
66
2,792
- Non-cyclical
1,298
2,553
314
6
4,171
- Health care
1
442
-
-
443
Infrastructure:
- Social
5,051
287
-
37
5,375
- Economic
2,658
310
34
366
3,368
Technology and Telecoms
686
1,300
556
410
2,952
Industrials
195
523
263
76
1,057
Utilities
3,997
1,233
2,280
1,074
8,584
Energy
-
583
5
72
660
Commodities
8
263
34
450
755
Oil and Gas
259
418
429
525
1,631
Real estates
1,600
359
44
278
2,281
Structured finance ABS / RMBS / CMBS / Other
1,011
192
10
22
1,235
Lifetime mortgages
2,023
-
-
-
2,023
CDOs
-
22
-
74
96
Total
29,286
12,618
6,565
4,007
52,476
Investments Page 90
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector
Sectors analysed by credit rating
BB or
AAA
AA
A
BBB
below
Other
Total
Total
As at 30 June 2018
£m
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,266
9,102
160
323
43
-
10,894
20
Banks:
- Tier 1
-
-
-
-
-
1
1
-
- Tier 2 and other subordinated
-
-
76
38
2
-
116
-
- Senior
-
1,184
2,411
62
-
8
3,665
7
- Covered
173
-
-
-
-
-
173
-
Financial Services:
- Tier 1
1
-
-
-
-
1
2
-
- Tier 2 and other subordinated
-
187
104
17
-
-
308
1
- Senior
-
84
354
59
10
-
507
1
Insurance:
- Tier 1
-
-
-
1
-
-
1
-
- Tier 2 and other subordinated
-
109
1
48
-
-
158
-
- Senior
-
168
456
91
-
-
715
1
Consumer Services and Goods:
- Cyclical
-
512
825
1,435
220
1
2,993
5
- Non-cyclical
209
498
1,360
2,006
295
1
4,369
8
- Health Care
3
52
276
325
3
-
659
1
Infrastructure:
- Social
95
788
3,276
905
127
-
5,191
9
- Economic
180
23
1,079
2,353
43
-
3,678
7
Technology and Telecoms
84
151
759
2,035
52
1
3,082
6
Industrials
-
3
817
374
43
-
1,237
2
Utilities
-
105
4,912
3,657
5
19
8,698
16
Energy
-
-
103
548
15
-
666
1
Commodities
-
-
248
491
13
-
752
1
Oil and Gas
-
341
557
617
111
-
1,626
3
Real estate
-
-
1,048
1,145
56
-
2,249
4
Structured finance ABS / RMBS / CMBS / Other
324
656
195
128
10
-
1,313
2
Lifetime mortgage loans1
1,533
588
219
211
-
123
2,674
5
CDOs
-
24
61
14
-
-
99
-
Total £m
3,868
14,575
19,297
16,883
1,048
155
55,826
100
Total %
7
26
35
30
2
-
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 91
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
AAA
AA
A
BBB
below
Other
Total
Total
As at 30 June 2017
£m
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,334
10,381
322
314
81
-
12,432
22
Banks:
- Tier 1
-
-
-
1
1
-
2
-
- Tier 2 and other subordinated
211
49
70
46
4
-
380
1
- Senior
11
992
2,233
51
1
-
3,288
6
- Covered
310
-
-
-
-
-
310
-
Financial Services:
- Tier 1
2
-
-
-
-
-
2
-
- Tier 2 and other subordinated
-
129
109
64
-
-
302
1
- Senior
-
591
100
132
11
-
834
1
Insurance:
- Tier 1
-
-
-
1
-
-
1
-
- Tier 2 and other subordinated
-
113
4
56
-
-
173
-
- Senior
-
71
493
80
-
-
644
1
Consumer Services and Goods:
- Cyclical
-
358
1,124
1,698
230
-
3,410
6
- Non-cyclical
191
591
1,398
2,143
134
-
4,457
7
- Health Care
3
31
222
172
6
-
434
1
Infrastructure:
- Social
86
841
3,383
1,005
20
-
5,335
10
- Economic
-
29
940
1,405
43
-
2,417
4
Technology and Telecoms
71
158
779
2,062
122
-
3,192
6
Industrials
-
151
786
482
68
-
1,487
3
Utilities
-
87
4,931
3,428
34
-
8,480
15
Energy
-
-
102
515
31
-
648
1
Commodities
-
-
312
537
41
-
890
2
Oil and Gas
-
287
514
695
204
-
1,700
3
Real estate
-
369
491
1,254
63
-
2,177
4
Structured finance ABS / RMBS / CMBS / Other
305
620
531
59
55
-
1,570
3
Lifetime mortgage loans1
721
522
99
91
-
-
1,433
3
CDOs
-
21
60
14
-
-
95
-
Total £m
3,245
16,391
19,003
16,305
1,149
-
56,093
100
Total %
6
29
34
29
2
-
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 92
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
AAA
AA
A
BBB
below
Other
Total
Total
As at 31 December 2017
£m
£m
£m
£m
£m
£m
£m
%
Sovereigns, Supras and Sub-Sovereigns
1,477
9,376
210
328
59
-
11,450
20
Banks:
- Tier 1
-
-
-
1
1
2
4
-
- Tier 2 and other subordinated
142
-
74
42
2
-
260
-
- Senior
-
1,366
2,782
90
-
-
4,238
8
- Covered
221
-
-
-
-
-
221
-
Financial Services:
- Tier 1
1
-
-
-
-
-
1
-
- Tier 2 and other subordinated
-
123
118
10
-
-
251
-
- Senior
-
323
368
205
9
-
905
2
Insurance:
- Tier 1
-
-
-
1
-
-
1
-
- Tier 2 and other subordinated
-
127
4
51
-
-
182
-
- Senior
-
128
464
68
-
-
660
1
Consumer Services and Goods:
- Cyclical
-
289
841
1,542
271
2
2,945
5
- Non-cyclical
215
601
1,313
2,114
165
1
4,409
8
- Health care
3
32
262
189
4
-
490
1
Infrastructure:
- Social
93
708
3,445
1,111
21
-
5,378
9
- Economic
179
30
949
2,182
44
-
3,384
6
Technology and Telecoms
73
167
833
1,988
57
2
3,120
6
Industrials
-
3
851
376
52
1
1,283
2
Utilities
-
115
4,860
3,725
21
-
8,721
16
Energy
-
-
106
567
31
-
704
1
Commodities
-
-
260
494
39
-
793
1
Oil and Gas
-
322
640
566
213
1
1,742
3
Real estate
-
22
1,053
1,221
59
-
2,355
4
Structured finance ABS / RMBS / CMBS / Other
318
717
208
161
55
-
1,459
3
Lifetime mortgage loans1
1,141
403
207
159
-
113
2,023
4
CDOs
-
22
60
14
-
-
96
-
Total £m
3,863
14,874
19,908
17,205
1,103
122
57,075
100
Total %
7
26
35
30
2
-
100
1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 93
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile
EU
excluding
Rest of
UK
US
UK
the World
Total
As at 30 June 2018
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
8,702
1,005
774
413
10,894
Banks
1,643
703
932
677
3,955
Financial Services
291
127
397
2
817
Insurance
132
541
113
88
874
Consumer Services and Goods:
- Cyclical
530
1,888
467
108
2,993
- Non-cyclical
1,284
2,717
350
18
4,369
- Health care
10
649
-
-
659
Infrastructure:
- Social
4,860
294
-
37
5,191
- Economic
3,000
381
71
226
3,678
Technology and Telecoms
690
1,352
599
441
3,082
Industrials
199
690
264
84
1,237
Utilities
4,449
1,377
2,162
710
8,698
Energy
36
572
5
53
666
Commodities
10
272
38
432
752
Oil and Gas
272
471
348
535
1,626
Real estate
1,582
341
58
268
2,249
Structured Finance ABS / RMBS / CMBS / Other
947
295
48
23
1,313
Lifetime mortgages
2,674
-
-
-
2,674
CDOs
-
24
-
75
99
Total
31,311
13,699
6,626
4,190
55,826
Investments Page 94
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
excluding
Rest of
UK
US
UK
the World
Total
As at 30 June 2017
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
9,600
965
1,236
631
12,432
Banks
1,858
793
920
409
3,980
Financial Services
384
124
630
-
1,138
Insurance
161
583
19
55
818
Consumer Services and Goods:
- Cyclical
782
2,153
336
139
3,410
- Non-cyclical
1,374
2,769
291
23
4,457
- Health care
10
424
-
-
434
Infrastructure:
- Social
5,015
283
-
37
5,335
- Economic
1,920
232
29
236
2,417
Technology and Telecoms
597
1,499
668
428
3,192
Industrials
218
775
345
149
1,487
Utilities
3,874
1,344
2,341
921
8,480
Energy
-
546
6
96
648
Commodities
10
313
27
540
890
Oil and Gas
193
436
496
575
1,700
Real estate
1,687
444
14
32
2,177
Structured Finance ABS / RMBS / CMBS / Other
950
246
349
25
1,570
Lifetime mortgages
1,433
-
-
-
1,433
CDOs
-
21
-
74
95
Total
30,066
13,950
7,707
4,370
56,093
Investments Page 95
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
excluding
Rest of
UK
US
UK
the World
Total
As at 31 December 2017
£m
£m
£m
£m
£m
Sovereigns, Supras and Sub-Sovereigns
8,689
1,204
1,114
443
11,450
Banks
2,326
794
1,187
416
4,723
Financial Services
365
111
681
-
1,157
Insurance
143
555
92
53
843
Consumer Services and Goods
- Cyclical
604
2,015
251
75
2,945
- Non-cyclical
1,313
2,752
324
20
4,409
- Health care
10
480
-
-
490
Infrastructure
- Social
5,054
287
-
37
5,378
- Economic
2,661
321
34
368
3,384
Technology and Telecoms
692
1,435
563
430
3,120
Industrials
209
714
274
86
1,283
Utilities
4,008
1,334
2,296
1,083
8,721
Energy
-
626
5
73
704
Commodities
10
287
38
458
793
Oil and Gas
265
462
458
557
1,742
Real estate
1,602
422
48
283
2,355
Structured finance ABS / RMBS / CMBS / Other
1,017
366
54
22
1,459
Lifetime mortgage loans
2,023
-
-
-
2,023
CDOs
-
22
-
74
96
Total
30,991
14,187
7,419
4,478
57,075
Investments Page 96
7.03 Bond portfolio summary (continued)
(c) LGR and total group analysed by credit rating
Externally
Internally
Total
Externally
Internally
Total
rated
rated1
LGR
rated
rated1
group
As at 30 June 2018
£m
£m
£m
£m
£m
£m
AAA
1,640
1,749
3,389
2,117
1,751
3,868
AA
10,858
1,578
12,436
12,901
1,674
14,575
A
14,720
3,155
17,875
16,062
3,235
19,297
BBB
12,635
3,589
16,224
13,045
3,838
16,883
BB or below
507
272
779
730
318
1,048
Other
4
140
144
15
140
155
Total
40,364
10,483
50,847
44,870
10,956
55,826
Externally
Internally
Total
Externally
Internally
Total
rated
rated1
LGR
rated
rated1
group
As at 30 June 2017
£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
-
-
-
-
-
-
Total
43,083
8,453
51,536
47,170
8,923
56,093
Externally
Internally
Total
Externally
Internally
Total
rated
rated1
LGR
rated
rated1
group
As at 31 December 2017
£m
£m
£m
£m
£m
£m
AAA
1,783
1,625
3,408
2,238
484
2,722
AA
11,617
1,641
13,258
13,024
3,419
16,443
A
15,174
3,185
18,359
16,609
3,143
19,752
BBB
12,979
3,591
16,570
13,389
3,657
17,046
BB or below
690
78
768
965
138
1,103
Other
-
113
113
9
-
9
Total
42,243
10,233
52,476
46,234
10,841
57,075
1. Where external ratings are not available an internal rating has been used where practicable to do so.
Investments Page 97
7.04 Property analysis
Property exposure within direct investments by status
LGR1
LGC2,3
Total
As at 30 June 2018
£m
£m
£m
%
Fully let
2,791
11
2,802
97
Development
-
23
23
1
Land
-
46
46
2
2,791
80
2,871
100
1. The fully let LGR property includes £2.6bn let to investment grade tenants.
2. Development includes £23m of shareholder investment property as noted in Note 7.01.
3. 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 Other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2018 the group held a total of £1,427m of such assets.
LGR1
LGC2
Total
As at 30 June 2017
£m
£m
£m
%
Fully let
2,687
8
2,695
93
Development
-
144
144
5
Land
-
48
48
2
2,687
200
2,887
100
1. The fully let LGR property included £2.3bn let to investment grade tenants.
2. Development included £25m of shareholder investment property.
LGR1
LGC2
Total
As at 31 December 2017
£m
£m
£m
%
Fully let
2,722
30
2,752
97
Development
-
32
32
1
Land
-
48
48
2
2,722
110
2,832
100
1. The fully let LGR property included £2.4bn let to investment grade tenants.
2. Development included £23m of shareholder investment property.
Investments Page 98
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Glossary Page 99
* These items represent an alternative performance measure (APM)
Ad valorem fees
Ongoing management fees earned on assets under management, overlay assets and advisory assets as defined below.
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 continuing operations.
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.
Annual premium equivalent (APE)
A standardised measure of the volume of new life insurance business written. It is calculated as the sum of (annualised) new recurring premiums and 10% of the new single premiums written in an annual reporting period.
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)*
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.
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.
Glossary Page 100
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.
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.
Combined operating ratio (COR)
The COR is a measure of the underwriting profitability of the general insurance business. It is calculated as the sum of the net incurred claims, expenses and net commission, divided by the net earned premium for the period.
Credit rating
A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA and the lowest Unrated. Ratings are usually issued by a credit rating agency (e.g. Moody's or Standard & Poor's) or a credit bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis, whereby the assets and liabilities of certain entities are excluded from the group consolidation. The net contribution from those entities to group own funds is included as an asset on the group's Solvency II balance sheet. Regulatory approval has been provided to recognise the (re)insurance subsidiaries of LGI US 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 and on the member and employer contributions.
Derivatives
Derivatives are not a separate asset class but are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another party 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.
Dividend cover
Dividend cover measures how many times over the net release from operations in the year could have paid the full year dividend. For example, if the dividend cover is 3, this means that the net release from operations was three times the amount of dividend paid out.
Earnings per share (EPS)
EPS is a common financial metric which can be used to measure the profitability and strength of a company over time. It is the total shareholder profit after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group. Eligible own funds (shareholder view basis) excludes the contribution to the groups solvency capital requirement of with-profits fund and final salary pension schemes.
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Employee engagement index
The Employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst at the same time working with their manager to enhance their own sense of development and well-being.
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
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.
FVTPL
Fair value through profit or loss. A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet reports gains and losses arising from movements in fair value within the Consolidated Income Statement as part of the profit or loss for the year.
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).
General insurance combined operating ratio
The combined operating ratio is calculated as the sum of incurred losses and expenses, including commission, divided by net earned premium.
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used
by the accounting community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the reporting period, before any deductions for reinsurance.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment funds, based in Ireland and aimed at European investment funds looking for a simple, tax-efficient investment vehicle.
Index tracker (passive fund)
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 or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds'.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and organisations follow when completing financial statements.
They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed
groups in the European Union (EU) are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited
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LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGIM
Legal & General Investment Management
LGR
Legal & General Retirement
LGR new business
Single premiums arising from annuity sales and back book acquisitions (including individual annuity and pension risk transfer), the volume of lifetime mortgage lending and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the LIBOR 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 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.
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.
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 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 for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects the IFRS profit before tax) and LGA non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return 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 also excluded from operating profit.
Glossary Page 103
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.
Open architecture
Where a company offers investment products from a rang of other companies in addition to its own products. This gives customers a wider choice of funds to invest in and access to a larger pool of money management professionals.
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.
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.
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.
Profit before tax attributable to equity holders (PBT)*
Profit attributable to shareholders incorporating actual investment returns experienced during the year but before
the payment of tax.
Purchased interest in long term business (PILTB)
An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been
acquired via a business combination.
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 LGA. 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 (by reference to opening and closing shareholders' funds in the period).
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.
Glossary Page 104
SCR coverage ratio
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.
SCR coverage ratio (proforma basis)
The proforma basis solvency II SCR coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of with-profits fund and our defined benefit pension schemes in both 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 contribution of with-profits fund and our defined benefit pension schemes is excluded from both the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 30 June 2018. This will be submitted to the PRA in August 2018.
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.
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.
With-profits funds
Individually identifiable portfolios where policyholders have a contractual right to receive additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. An insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or
may have discretion as to the timing and the amount of the additional benefits.
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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