REG - Legal & General Grp - L&G Half-year results 2015 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 2
05/08/2015 07:02
- Part 2: For the preceding part double click ID:nRSE1058Va
Eligible Own Funds at 30 June / 31 December 11.8 12.5
1. Treated as available capital on the Economic Capital Balance Sheet as the liabilities are subordinate to policyholder claims. 2. Differences in the measurement of liabilities between IFRS and Economic Capital, offset by the inclusion of the recapitalisation cost.3. Primarily valuation differences between the IFRS carrying value and the fair value of financial assets and liabilities. 4. Eligibility restrictions relating to the own funds of US captive reassurers.
Capital and Investments
75
4.02 Group Economic Capital (continued)
(f) Analysis of Group Economic Capital Requirement
The table below shows a breakdown of the Group's Economic Capital Requirement by risk
type. The split is shown after the effects of diversification.
At At
30.06.15 31.12.14
% %
Interest Rate 6 6
Equity 14 15
Credit1 44 44
Property 4 4
Currency 2 3
Inflation (1) (2)
Total Market Risk2 69 70
Counterparty Risk 2 1
Life Mortality - -
Life Longevity3 9 10
Life Lapse4 5 5
Life Catastrophe 3 3
Non-life underwriting 1 1
Health underwriting 1 1
Expense 1 1
Total Insurance Risk 20 21
Operational Risk 7 7
Miscellaneous 2 1
Total Economic Capital Requirement 100 100
1. Credit risk is Legal & General's most significant exposure, arising predominantly
from the c£40bn portfolio of corporate bond (or similar) exposure backing the Group's
annuity portfolio.2. The Group also has significant exposure to other market risks,
primarily due to the investment holdings within the shareholder funds but also the
risk to fee income from assets backing unit linked and with-profit Savings
businesses.3. Longevity risk is Legal & General's most significant insurance risk
exposure, arising from the annuity book on which the majority of the longevity risk
is retained.4. Lapse risk is also a significant risk, primarily through the risk of
mass lapse on investment management and savings businesses and the risk of non
-renewal on the Group's protection businesses.
(g) Solvency II
The Economic Capital results set out above do not reflect the Solvency II regime. They have however, been derived using the
same modelling framework that Legal & General intend to use for Solvency II. It is anticipated that our Solvency II
internal model will be approved in Q4 2015, ready for use on the Solvency II go live date - 1 January 2016. We expect the
final outcome on Solvency II to result in a lower Group solvency ratio than the Economic Capital Coverage Ratio shown
above.
Capital and Investments
76
4.03 Investment portfolio
Market Market Market
value value value
At At At
30.06.15 30.06.14 31.12.14
£m £m £m
Worldwide total assets 717,034 642,076 710,554
Client and policyholder assets (649,882) (576,774) (638,117)
Non-unit linked with-profits assets (12,216) (17,061) (15,242)
Investments to which shareholders are directly exposed 54,936 48,241 57,195
Analysed by investment class:
Other
non profit Other
LGR insurance LGC shareholder
investments1 investments investments investments Total Total Total
At At At At At At At
30.06.15 30.06.15 30.06.15 30.06.15 30.06.15 30.06.14 31.12.14
Note £m £m £m £m £m £m £m
Equities2 307 - 2,023 79 2,409 1,685 2,265
Bonds 4.05 39,317 2,410 1,480 710 43,917 39,242 45,811
Derivative assets3 3,643 13 74 - 3,730 2,337 3,940
Property 2,037 - 180 3 2,220 2,020 2,030
Cash, cash equivalents,
loans & receivables 528 432 1,009 558 2,527 2,802 3,018
Financial investments 45,832 2,855 4,766 1,350 54,803 48,086 57,064
Other assets4 118 - 15 - 133 155 131
Total investments 45,950 2,855 4,781 1,350 54,936 48,241 57,195
1. LGR investments include all business written in LGPL, including £0.5bn of non annuity assets held in LGPL.
2. Equity investments include CALA Group Limited and MediaCity Limited.
3. Derivative assets are shown gross of derivative liabilities of £2.0bn (H1 14: £1.7bn; FY 14: £2.7bn). Exposures arise from the 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.
4. Other assets include finance lease debtors.
Capital and Investments
77
4.04 Direct Investments
(a) Analysed by asset class
Direct1 Traded2 Direct1 Traded2 Direct1 Traded2
Investments securities Total Investments securities Total Investments securities Total
At At At At At At At At At
30.06.15 30.06.15 30.06.15 30.06.14 30.06.14 30.06.14 31.12.14 31.12.14 31.12.14
£m £m £m £m £m £m £m £m £m
Equities 410 1,999 2,409 298 1,387 1,685 318 1,947 2,265
Bonds 3,050 40,867 43,917 2,036 37,206 39,242 2,983 42,828 45,811
Derivative assets - 3,730 3,730 - 2,337 2,337 - 3,940 3,940
Property 2,220 - 2,220 2,020 - 2,020 2,030 - 2,030
Cash, cash equivalents,
loans & receivables 380 2,147 2,527 75 2,727 2,802 241 2,777 3,018
Other assets 133 - 133 155 - 155 131 - 131
6,193 48,743 54,936 4,584 43,657 48,241 5,703 51,492 57,195
1. Direct Investments constitute an agreement with another party and represent an exposure to untraded and often less volatile assets. Direct Investments 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.
(b) Analysed by segment
LGR LGC LGA Insurance Total
At At At At At
30.06.15 30.06.15 30.06.15 30.06.15 30.06.15
£m £m £m £m £m
Equities - 410 - - 410
Bonds 2,737 61 252 - 3,050
Property 2,037 180 - 3 2,220
Cash, cash equivalents,
loans & receivables - 112 268 - 380
Other assets 118 15 - - 133
4,892 778 520 3 6,193
LGR LGC LGA Insurance Total
At At At At At
30.06.14 30.06.14 30.06.14 30.06.14 30.06.14
£m £m £m £m £m
Equities - 298 - - 298
Bonds 1,885 - 151 - 2,036
Property 1,692 324 - 4 2,020
Cash, cash equivalents,
loans & receivables - - 75 - 75
Other assets 155 - - - 155
3,732 622 226 4 4,584
Capital and Investments
78
4.04 Direct Investments (continued)
(b) Analysed by segment (continued)
LGR LGC LGA Insurance Total
At At At At At
31.12.14 31.12.14 31.12.14 31.12.14 31.12.14
£m £m £m £m £m
Equities - 318 - - 318
Bonds 2,586 168 229 - 2,983
Property 1,879 147 - 4 2,030
Cash, cash equivalents,
loans & receivables - 54 187 - 241
Other assets 118 13 - - 131
4,583 700 416 4 5,703
(c) Movement in the period
Carrying Change in Carrying
value market value
01.01.15 Additions Disposals value 30.06.15
£m £m £m £m £m
Equities 318 86 (18) 24 410
Bonds 2,983 246 (149) (30) 3,050
Property 2,030 154 - 36 2,220
Cash, cash equivalents,
loans & receivables 241 140 (1) - 380
Other assets 131 - - 2 133
5,703 626 (168) 32 6,193
Capital and Investments
79
4.05 Bond portfolio summary
(a) Analysed by sector
LGR LGR Total Total
At At At At
30.06.15 30.06.15 30.06.15 30.06.15
Note £m % £m %
Sovereigns, Supras and Sub-Sovereigns 4.05(b) 6,722 17 8,043 18
Banks:
- Tier 1 94 - 97 -
- Tier 2 and other subordinated 434 1 583 1
- Senior 1,487 4 1,990 5
Financial Services:
- Tier 1 4 - 4 -
- Tier 2 and other subordinated 56 - 81 -
- Senior 649 2 860 3
Insurance:
- Tier 1 85 - 86 -
- Tier 2 and other subordinated 295 1 326 1
- Senior 533 1 595 1
Utilities 4,515 11 4,718 11
Consumer Services and Goods & Health Care 3,989 10 4,592 10
Technology and Telecoms 2,386 6 2,640 6
Industrials & Oil and Gas 3,909 10 4,484 10
Property 1,446 4 1,588 4
Asset backed securities:1
- Traditional 617 2 1,033 2
- Securitisations and debentures 10,994 28 11,095 25
CDOs2 1,102 3 1,102 3
Total 39,317 100 43,917 100
1. Traditional asset backed securities are securities,
often with variable expected redemption profiles issued
by Special Purpose Vehicles and typically backed by
pools of receivables from loans or personal credit.
Securitisations are securities with fixed redemption
profiles that are issued by Special Purpose Vehicles and
secured on revenues from specific assets or operating
companies and debentures are securities with fixed
redemption profiles issued by firms typically secured on
property.
2. The underlying reference portfolio has had no
reference entity defaults during the period ended 30
June 2015. The CDOs are termed as super senior since
default losses on the reference portfolio have to exceed
27.5%, on average across the reference portfolio, before
the CDOs incur any default losses. Assuming an average
recovery rate of 30%, then over 39% of the reference
names would have to default before the CDOs incur any
default losses. The CDOs are valued using an external
valuation which is based on observable market inputs.
This is then validated against the market valuation.
Capital and Investments
80
4.05 Bond portfolio summary (continued)
(a) Analysed by sector (continued)
LGR LGR Total Total
At At At At
30.06.14 30.06.14 30.06.14 30.06.14
Note £m % £m %
Sovereigns, Supras and Sub-Sovereigns 4.05(b) 6,578 19 8,257 21
Banks:
- Tier 1 60 - 66 -
- Tier 2 and other subordinated 590 2 649 2
- Senior 1,359 4 1,901 5
Financial Services:
- Tier 1 4 - 6 -
- Tier 2 and other subordinated 136 - 174 1
- Senior 882 3 1,153 3
Insurance:
- Tier 1 146 - 156 -
- Tier 2 and other subordinated 544 2 581 2
- Senior 493 2 565 2
Utilities 4,456 13 4,764 12
Consumer Services and Goods & Health Care 3,246 10 3,795 10
Technology and Telecoms 2,099 6 2,382 6
Industrials & Oil and Gas 3,333 10 3,879 10
Property 998 3 1,073 3
Asset backed securities:1
- Traditional 703 2 1,222 3
- Securitisations and debentures 7,337 21 7,521 18
CDOs2 1,098 3 1,098 2
Total 34,062 100 39,242 100
1. Traditional asset backed securities are securities,
often with variable expected redemption profiles issued
by Special Purpose Vehicles and typically backed by
pools of receivables from loans or personal credit.
Securitisations are securities with fixed redemption
profiles that are issued by Special Purpose Vehicles and
secured on revenues from specific assets or operating
companies and Debentures are securities with fixed
redemption profiles issued by firms typically secured on
property.
2. The underlying reference portfolio had no reference
entity defaults during the period ended 30 June 2014.
The CDOs are termed as super senior since default losses
on the reference portfolio have to exceed 27.5%, on
average across the reference portfolio, before the CDOs
incur any default losses. Assuming an average recovery
rate of 30%, then over 39% of the reference names would
have to default before the CDOs incur any default
losses. The CDOs are valued using an external valuation
which is based on observable market inputs. This is then
validated against the market valuation.
Capital and Investments
81
4.05 Bond portfolio summary (continued)
(a) Analysed by sector (continued)
LGR LGR Total Total
At At At At
31.12.14 31.12.14 31.12.14 31.12.14
Note £m % £m %
Sovereigns, Supras and Sub-Sovereigns 4.05(b) 7,760 19 9,249 20
Banks:
- Tier 1 24 - 26 -
- Tier 2 and other subordinated 559 1 621 1
- Senior 1,667 4 2,221 5
Financial Services:
- Tier 1 - - - -
- Tier 2 and other subordinated 96 - 132 -
- Senior 946 2 1,138 3
Insurance:
- Tier 1 128 - 129 -
- Tier 2 and other subordinated 363 1 375 1
- Senior 624 2 704 2
Utilities 5,561 14 5,824 13
Consumer Services and Goods & Health Care 4,126 10 4,726 10
Technology and Telecoms 2,548 6 2,836 6
Industrials & Oil and Gas 4,306 11 4,928 11
Property 1,882 5 2,126 5
Asset backed securities:1
- Traditional 722 2 1,234 3
- Securitisations and debentures 8,305 20 8,422 18
CDOs2 1,120 3 1,120 2
Total 40,737 100 45,811 100
1. Traditional asset backed securities are securities,
often with variable expected redemption profiles issued
by Special Purpose Vehicles and typically backed by
pools of receivables from loans or personal credit.
Securitisations are securities with fixed redemption
profiles that are issued by Special Purpose Vehicles and
secured on revenues from specific assets or operating
companies and debentures are securities with fixed
redemption profiles issued by firms typically secured on
property.
2. The underlying reference portfolio had no reference
entity defaults in 2014. The CDOs are termed as super
senior since default losses on the reference portfolio
have to exceed 27.5%, on average across the reference
portfolio, before the CDOs incur any default losses.
Assuming an average recovery rate of 30%, then over 39%
of the reference names would have to default before the
CDOs incur any default losses. The CDOs are valued using
an external valuation which is based on observable
market inputs. This is then validated against the market
valuation.
Capital and Investments
82
4.05 Bond portfolio summary (continued)
(b) Analysed by domicile
The tables below are based on the legal domicile of the security:
LGR Total LGR Total LGR Total
At At At At At At
30.06.15 30.06.15 30.06.14 30.06.14 31.12.14 31.12.14
£m £m £m £m £m £m
Market value by region:
United Kingdom 20,261 21,048 16,299 17,224 20,055 21,021
USA 9,231 11,365 7,747 10,034 9,515 11,839
Netherlands 1,686 1,944 1,778 2,119 1,910 2,182
France 1,290 1,522 1,289 1,642 1,412 1,726
Germany 264 575 378 737 378 682
Greece - - - 5 - -
Ireland 307 335 225 264 276 303
Italy 236 342 485 636 301 429
Portugal - 4 3 14 1 11
Spain 156 210 158 224 212 260
Russia 9 18 1 2 19 37
Ukraine - - - 4 - -
Rest of Europe 1,776 2,076 1,642 2,007 1,857 2,164
Brazil 50 61 114 116 139 157
Rest of World 2,949 3,315 2,845 3,116 3,542 3,880
CDOs 1,102 1,102 1,098 1,098 1,120 1,120
Total 39,317 43,917 34,062 39,242
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