REG - Legal & General Grp - L&G Half Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 2
09/08/2016 07:08
- Part 2: For the preceding part double click ID:nRSI5967Ga
Total experience variances 13 (14) (9)
Changes to valuation assumptions
Persistency2 - 48 -
Mortality/Morbidity3 97 (20) -
Expenses4 17 27 (2)
Reinsurance modelling5 - (93) -
Other - (7) 2
Total valuation assumption changes 114 (45) -
Movement in non-cash items
Deferred tax - - 2
Utilisation of brought forward trading losses (25) (6) -
Acquisition expense tax relief 6 - (30) (4)
Deferred Acquisition Costs (DAC)7 - - (54)
Deferred Income Liabilities (DIL)7 - - 39
Other 5 (10) (6)
Total non-cash movement items (20) (46) (23)
Other - (11) 2
Operating profit after tax 526 224 86
Tax gross up 115 59 21
Operating profit before tax 641 283 107
1. The Other LGR experience variance reflects the benefit to
profit of selective longevity and asset reinsurance related to
bulk annuity transactions, offset by other smaller experience
variances.
2. The Insurance persistency valuation assumption change
reflects continued improvement in retail protection lapse rates.
3. The mortality/morbidity valuation assumption change in LGR
primarily reflects late retirement factor assumption changes and
a change in mortality reserving assumptions in relation to
unreported deaths of deferred annuitants. The Insurance
mortality/morbidity valuation assumption change has arisen on
the strengthening of the reserving basis on the Whole Life
Protection product to reflect the current expectation of future
mortality improvement on this business.
4. The LGR and Insurance positive expense valuation assumption
changes represents the continued operational efficiency reducing
the existing business cost base.
5. The reinsurance modelling for our UK protection business has
been enhanced. Recent reinsurance contracts have been written on
a risk premium basis (as opposed to level premium) and the model
change ensures that for these treaties, sufficient prudence is
being held in later years. The one-off impact reduced operating
profit by £93m in 2015. This also defers a higher proportion of
cash generation into later years of these reinsurance contracts.
6. Net cash for Insurance and Savings recognises tax relief from
prior year acquisition expenses, which are spread evenly over
seven years under relevant 'I-E' tax legislation in the period
the cash flows actually occur. In contrast, operating profit
typically recognises the value of these future cash flows in the
same period as the underlying expense as deferred tax amounts.
The reconciling amounts arising from these items are included in
the table above. Following the removal of new retail protection
business from the 'I-E' tax regime, and the removal of
commission from new insured savings business under the Retail
Distribution Review at the end of 2012, no material amount of
deferred tax assets arise on new acquisition expenses and the
value of these future cash flows for post-2013 acquisition
expenses have been reflected within net cash. The residual prior
year acquisition expenses will run off predictably to 2018.
7. The DAC in Savings represents the amortisation charges offset
by new acquisition costs deferred in the year. The DIL reflects
initial fees on insured savings business which relate to the
future provision of services and are deferred and amortised over
the anticipated period in which these services are provided.
IFRS and Operational Cash Generation
Page 32
2.03 LGIM
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
Investment management revenue1 353 347 694
Investment management expenses1 (179) (168) (335)
Workplace Savings operating loss (3) (3) (4)
Total LGIM operating profit 171 176 355
1. Revenue and expenses are grossed up for costs that are paid to third parties for certain fund related services provided to Index clients and are passed directly onto the clients within their fees.
2.04 General insurance operating profit and combined operating ratio
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
General insurance operating profit1 31 38 51
General insurance combined operating ratio (%)2 85 82 89
1. The general insurance operating profit includes the underwriting result and smoothed investment return.
2. The calculation of the general insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.
2.05 LGC
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
Direct investments 68 32 69
Traded portfolio including treasury operations 67 83 164
Total LGC operating profit 135 115 233
2.06 Group investment projects and expenses
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
Group investment projects and central expenses (18) (19) (44)
Restructuring costs1 (16) (9) (42)
Total group investment projects and expenses (34) (28) (86)
1. Restructuring costs exclude the Kingswood office closure costs which have been presented separately.
2.07 Investment and other variances
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
Investment variance1 58 (29) (57)
M&A related2 (4) (55) (57)
Other3 (4) (2) (5)
Total Investment and other variances 50 (86) (119)
1. H1 16 investment variance is positive, primarily
driven by foreign exchange gains on US dollar assets, a
lack of defaults on the group's bond portfolios and
selective de-risking of investment portfolios, partially
offset by the negative impact of rate changes during the
period. The defined pension benefit scheme variance of
£31m contained within this line (H1 15: £(26)m; FY 15:
£(15)m) reflects the actuarial losses and gains and
valuation differences arising on annuity assets held by
defined benefit pension schemes that have been purchased
from Legal & General Assurance Society Limited
(Society). A segmental analysis of Investment and other
variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and
intangible amortisation relating to acquisitions and
disposals. H1 16 includes the £4m net gain resulting
from the disposal of subsidiaries during the period (H1
15: includes the £40m impairment loss resulting from the
classification of disposal groups as held for sale; FY
15: includes the £25m net loss resulting from the
disposal of subsidiary and joint venture investments
during the year).
3. Other includes new business start-up costs and other
non-investment related variance items.
IFRS and Operational Cash Generation
Page 33
Consolidated Income Statement
For the six months ended 30 June 2016
Full year
30.06.16 30.06.15 31.12.15
Notes £m £m £m
Income
Gross written premiums 4.03 5,492 3,170 6,321
Outward reinsurance premiums (719) (865) (1,603)
Net change in provision for unearned premiums 6 14 21
Net premiums earned 4,779 2,319 4,739
Fees from fund management and investment contracts 523 564 1,139
Investment return 2.09 36,978 5,062 5,947
Operational income 243 444 876
Total income 2.09 42,523 8,389 12,701
Expenses
Claims and change in insurance liabilities 11,377 2,090 5,080
Reinsurance recoveries (1,454) (999) (2,466)
Net claims and change in insurance liabilities 9,923 1,091 2,614
Change in provisions for investment contract liabilities 30,569 4,958 5,615
Acquisition costs 375 429 838
Finance costs 98 91 186
Other expenses 748 930 1,893
Transfers (from)/to unallocated divisible surplus (174) 61 141
Total expenses 41,539 7,560 11,287
Profit before tax 984 829 1,414
Tax expense attributable to policyholder returns (158) (157) (59)
Profit before tax attributable to equity holders 826 672 1,355
Total tax expense (317) (282) (320)
Tax expense attributable to policyholder returns 158 157 59
Tax expense attributable to equity holders 2.14 (159) (125) (261)
Profit for the period 667 547 1,094
Attributable to:
Non-controlling interests 2.20 (1) 8 19
Equity holders of the company 668 539 1,075
Dividend distributions to equity holders of the company during the period 2.16 592 496 701
Dividend distributions to equity holders of the company proposed after the period end 2.16 238 205 592
p p p
Earnings per share1 2.10 11.27 9.11 18.16
Diluted earnings per share1 2.10 11.23 9.05 18.04
1. All earnings per share calculations are based on profit attributable to equity holders of the company.
IFRS and Operational Cash Generation
Page 34
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2016
Full year
30.06.16 30.06.15 31.12.15
£m £m £m
Profit for the period 667 547 1,094
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes (62) 27 47
Tax on actuarial (losses)/gains on defined benefit pension schemes 12 (5) (11)
Actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus 23 (10) (17)
Tax on actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus (4) 2 4
Total items that will not be reclassified to profit or loss subsequently (31) 14 23
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 116 (25) 25
Net change in financial investments designated as available-for-sale 66 (27) (64)
Tax on net change in financial investments designated as available-for-sale (23) 9 22
Total items that may be reclassified to profit or loss subsequently 159 (43) (17)
Other comprehensive income/(expense) after tax 128 (29) 6
Total comprehensive income for the period 795 518 1,100
Total comprehensive income attributable to:
Non-controlling interests (1) 8 19
Equity holders of the company 796 510 1,081
IFRS and Operational Cash Generation
Page 35
Consolidated Balance Sheet
As at 30 June 2016
30.06.16 30.06.15 31.12.15
Notes £m £m £m
Assets
Goodwill 79 82 83
Purchased interest in long term businesses and other intangible assets 251 328 292
Deferred acquisition costs 2,007 1,822 1,887
Investment in associates and joint ventures 237 207 220
Property, plant and equipment 97 86 92
Investment property 2.13/3.04 8,227 8,779 8,082
Financial investments 2.13/3.04 397,123 351,159 354,063
Reinsurers' share of contract liabilities 4,955 3,360 4,120
UK deferred tax asset 2.14 5 33 20
Current tax recoverable 271 185 236
Other assets 10,900 3,539 3,618
Assets of operations classified as held for sale 2.12 - 6,149 3,409
Cash and cash equivalents 18,956 19,583 20,677
Total assets 443,108 395,312 396,799
Equity
Share capital 2.17 149 149 149
Share premium 978 973 976
Employee scheme treasury shares (32) (31) (30)
Capital redemption and other reserves 211 98 89
Retained earnings 5,285 4,843 5,220
Shareholders' equity 6,591 6,032 6,404
Non-controlling interests 2.20 292 281 289
Total equity 6,883 6,313 6,693
Liabilities
Participating insurance contracts 5,864 5,901 5,618
Participating investment contracts 5,260 5,093 4,912
Unallocated divisible surplus 693 798 893
Value of in-force non-participating contracts (135) (223) (184)
Participating contract liabilities 11,682 11,569 11,239
Non-participating insurance contracts 58,437 49,274 49,754
Non-participating investment contracts 300,605 280,472 278,554
Non-participating contract liabilities 359,042 329,746 328,308
Core borrowings 2.18 3,064 2,490 3,092
Operational borrowings 2.19 411 645 536
Provisions 2.23 1,205 1,189 1,171
UK deferred tax liabilities 2.14 206 277 137
Overseas deferred tax liabilities 2.14 523 414 436
Current tax liabilities 120 40 95
Payables and other financial liabilities 2.15 36,756 18,449 22,709
Other liabilities 617 671 737
Net asset value attributable to unit holders 22,599 17,513 18,277
Liabilities of operations classified as held for sale 2.12 - 5,996 3,369
Total liabilities 436,225 388,999 390,106
Total equity and liabilities 443,108 395,312 396,799
IFRS and Operational Cash Generation
Page 36
Condensed Consolidated Statement of Changes in Equity
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the six months ended 30 June 2016 £m £m £m £m £m £m £m £m
As at 1 January 2016 149 976 (30) 89 5,220 6,404 289 6,693
Total comprehensive income/(expense)
for the period - - - 159 637 796 (1) 795
Options exercised under
share option schemes - 2 - - - 2 - 2
Net movement in employee scheme
treasury shares - - (2) (5) (12) (19) - (19)
Dividends - - - - (592) (592) - (592)
Movement in third party interests - - - - - - 4 4
Currency translation differences - - - (32) 32 - - -
As at 30 June 2016 149 978 (32) 211 5,285 6,591 292 6,883
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the six months ended 30 June 2015 £m £m £m £m £m £m £m £m
As at 1 January 2015 149 969 (37) 117 4,830 6,028 275 6,303
Total comprehensive income/(expense)
for the period - - - (43) 553 510 8 518
Options exercised under
share option schemes - 4 - - - 4 - 4
Net movement in employee scheme
treasury shares - - 6 (4) (16) (14) - (14)
Dividends - - - - (496) (496) - (496)
Movement in third party interests - - - - - - (2) (2)
Currency translation differences - - - 28 (28) - - -
As at 30 June 2015 149 973 (31) 98 4,843 6,032 281 6,313
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the year ended 31 December 2015 £m £m £m £m £m £m £m £m
As at 1 January 2015 149 969 (37) 117 4,830 6,028 275 6,303
Total comprehensive income/(expense)
for the year - - - (17) 1,098 1,081 19 1,100
Options exercised under
share option schemes - 7 - - - 7 - 7
Net movement in employee scheme
treasury shares - - 7 3 (21) (11) - (11)
Dividends - - - - (701) (701) - (701)
Movement in third party interests - - - - - - (5) (5)
Currency translation differences - - - (14) 14 - - -
As at 31 December 2015 149 976 (30) 89 5,220 6,404 289 6,693
IFRS and Operational Cash Generation
Page 37
Consolidated Cash Flow Statement
For the six months ended 30 June 2016
30.06.16 30.06.15 31.12.15
Notes £m £m £m
Cash flows from operating activities
Profit for the period 667 547 1,094
Adjustments for non cash movements in net profit for the period
Realised and unrealised (gains)/losses on financial investments and investment properties
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