REG - Legal & General Grp - L&G Half Year Results 2016 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 1

Legal & GeneralAnnouncement

09/08/2016 07:08

RNS Number : 5968G
Legal & General Group Plc
09 August 2016
Legal & General Group Plc
Half Year Results 2016 Part3
Capital and Investments Page 71
4.01 Group regulatory capital - Solvency II Directive 
From 1 January 2016, the group has been required to measure and monitor its capital resources on a new regulatory basis and to comply with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK. 
In December 2015, the group received approval to calculate its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Internal Model basis approved by the PRA. Capital requirements for a handful of smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses are valued on a local statutory basis, following the PRA's approval of the group's application to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.
The table below shows the estimated Eligible Own Funds, Solvency Capital Requirement (SCR) and Surplus own funds of the group, based on the Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP), approved by the PRA in December 2015 (together with the recalculation of TMTP approved by the PRA in July 2016). 
(a) Capital position
 
 
 
As at 30 June 2016, the group had a Solvency II surplus of 5.3bn (FY 15: 5.5bn) over its Solvency Capital Requirement, corresponding to a coverage ratio of 158% (FY 15: 169%). The pro-forma Solvency II capital position is as follows: 
 
30.06.16
31.12.15 
 
bn
bn 
 
 
 
Core tier 1 own funds
11.6
11.3 
Tier 1 subordinated liabilities
0.6
0.6
Tier 2 subordinated liabilities
2.2
2.0
Eligibility restrictions
(0.1)
(0.4)
Eligible Own Funds1
14.3
13.5
Solvency Capital Requirement (SCR) 
9.0
8.0
 
Surplus
5.3
5.5
 
 
SCR coverage ratio2
158%
169%
 
 
1. Eligible Own Funds do not include an accrual for the dividend of 238m (FY 15: 592m) declared after the balance sheet date. 
2. Coverage ratio is calculated on unrounded values. 
 
 
 
The Solvency II results are estimated and unaudited. Further explanation of the underlying methodology and assumptions is set out in the sections below. 
 
 
(b) Methodology
Eligible Own Funds comprise the excess of the value of assets over the liabilities, as valued on a Solvency II basis. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims. Eligible Own Funds include deductions in relation to fungibility and transferability restrictions, where the surplus own funds of a specific group entity cannot be freely transferred around the group due to local legal or regulatory constraints. 
Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Solvency II Balance Sheet. 
Liabilities are valued on a best estimate market consistent basis, with the application of a Solvency II Matching Adjustment for valuing annuity liabilities, and include recognition of the benefit relating to the TMTP for firms moving from the Solvency I to the Solvency II regime. The TMTP has been calculated on a basis approved by the PRA which seeks to encapsulate the difference between the total Financial Resources Requirement under the previous Solvency I regime and the new Solvency II regime. 
The liabilities include the Risk Margin which represents an allowance for the cost of capital for a purchasing insurer taking on the portfolio of liabilities and residual risks that are deemed to be not hedgeable under Solvency II, following the 1-in-200 stress event. This is calculated using a cost of capital of 6% as prescribed by the European Insurance and Occupational Pensions Authority (EIOPA). 
The Solvency Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks to which they are exposed.
All material EEA insurance firms, including Legal & General Assurance Society Limited, Legal & General Insurance Limited, and Legal & General Assurance (Pensions Management) Limited (LGIM's insurance subsidiary) are incorporated into the group's Solvency II Internal Model assessment of required capital, assuming diversification of the risks between and within those firms. These firms contribute over 95% of the group's SCR.
Firms for which the capital requirements are less material, for example Legal & General Netherlands, are valued on a Solvency II Standard Formula basis. Firms which are not regulated but which carry material risks to group solvency are modelled in the Internal Model on the basis of applying an appropriate stress to their net asset value.
Capital and Investments Page 72
4.01 Group regulatory capital - Solvency II Directive (continued) 
(b) Methodology (continued) 
Legal & General America's Banner Life and its subsidiaries are incorporated into the calculation of group solvency using a Deduction and Aggregation basis.All risk exposure in these firms is valued on a local statutory basis, with capital requirements set to a multiple of local statutory Risk Based Capital (RBC) and further restrictions on the surplus contribution to the group. The US regulatory regime is considered to be equivalent to Solvency II by the European Commission. The contribution to group SCR is 150% of the local RBC Capital Adequacy Level (CAL).The contribution to Eligible Own Funds is the SCR together with any surplus capital in excess of 250% of RBC CAL.
All non-insurance regulated firms are included using their current regulatory surplus. At the half year, unaudited profits earned in the year to date have been included, allowing for any restrictions on fungibility or transferability, without allowing for any diversification with the rest of the group.
Allowance is made within the Solvency II Balance Sheet for the group's defined benefit pension scheme using results on an IFRS basis. Allowance is made within the SCR by stressing the IFRS result position using the same Internal Model basis as for the insurance firms.
(c) Assumptions
The calculation of the Solvency II Balance Sheet and associated capital requirements requires a number of assumptions, including:
(i) assumptions required to derive the present value of best estimate liability cash flows. Non-market assumptions are broadly the same as those used to derive the group's IFRS disclosures. 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, with a 14 basis point deduction to allow for a credit risk adjustment. For annuities that are eligible, the liability discount rate includes a Matching Adjustment;
(ii) assumptions regarding management actions and policyholder behaviour across the full range of scenarios. The only management actions allowed for are those that have been approved by the Board and are in place at the balance sheet date;
(iii) assumptions regarding the volatility of the risks to which the group is exposed. Assumptions have been set using a combination of historic market, demographic and operating experience data. In areas where data is not considered robust, expert judgement has been used; and
(iv) assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.
(d) Analysis of change
The table below shows the movement (net of tax) during the financial year in the group's Solvency II surplus.
 
 
Solvency II
surplus
Analysis of movement in the period
bn
Solvency II surplus as at 1 January 2016
5.5
Operating experience expected release1
0.5
Operating experience new business 
-
Market movements
(0.6)
Other capital movements2
0.5
Dividends declared in the period 
(0.6)
Solvency II surplus as at 30 June 2016
5.3
1. Release of surplus generated by in-force business.
2. Other capital movements comprise model and assumption changes, including changes to eligibility restrictions over the period.
Capital and Investments Page 73
4.01 Group regulatory capital - Solvency II Directive (continued)
(e) Reconciliation of IFRS shareholders' equity to Solvency II Eligible Own Funds
The table below gives a reconciliation of the group's IFRS shareholders' equity to the Eligible Own Funds on a Solvency II basis. 
 
30.06.16
31.12.15
bn
bn
IFRS shareholders' equity 
6.6
6.4
Remove DAC, goodwill and other intangible assets and liabilities
(2.1)
(2.0)
Add subordinated debt treated as available capital1
2.5
2.5
Insurance contract valuation differences2
8.2
7.5
Add value of shareholder transfers
0.2
0.2
Difference in value of net deferred tax liabilities (resulting from valuation differences) 
(0.7)
(0.5)
Other3
(0.3)
(0.2)
Eligibility restrictions4
(0.1)
(0.4)
Eligible Own Funds 
14.3
13.5
1. Treated as available capital on the Solvency II Balance Sheet as the liabilities are subordinate to policyholder claims. 
2. Differences in the measurement of liabilities between IFRS and Solvency II, offset by the inclusion of the Risk Margin net of TMTP.
3. Reflects the valuation differences on other assets and liabilities, predominately in respect of borrowings measured at fair value under Solvency II.
4. Relating to the own funds of non-insurance regulated entities, subject to local regulator rules. 
The figures that appear in this note are all pre-accrual for the 2016 interim dividend of 238m (FY 15: 2015 final dividend of 592m).
(f) Sensitivity analysis
The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2016 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. Only key sensitivities have been updated for the half-year process, and only on a Solvency II basis.
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
surplus
ratio
surplus
ratio
30.06.16
30.06.16
31.12.15
31.12.15
bn
%
bn
%
Credit spreads widen by 100bps assuming an escalating addition to ratings1,2
(0.5)
(6)
(0.6)
(8)
A worsening in our expectation of future default and downgrade to 115% of our assumed best estimate level3 
(0.6)
(9)
(0.5)
(11)
15% fall in property markets 
(0.3)
(3)
(0.3)
(3)
100bps increase in risk free rates 
0.7
14
0.6
19
100bps fall in risk free rates 
(0.9)
(14)
(0.4)
(11)
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 100bps.
3. Downgrade stress covers the cost of an immediate big letter downgrade on c.20% of annuity portfolio bonds, or 3 times level expected in the next 12 months.
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 2016 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 and Investments Page 74
(g) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type. The split is shown after the effects of diversification. 
 
30.06.16
31.12.15
%
%
Interest Rate 
3
4
Equity 
9
11
Property 
4
5
Credit1
54
48
Currency 
1
3
Inflation 
3
2
Total Market Risk2
74
73
Counterparty Risk
1
1
Life Mortality 
-
-
Life Longevity3
12
11
Life Lapse 
1
1
Life Catastrophe 
2
2
Non-life underwriting 
1
1
Health underwriting 
-
-
Expense 
-
-
Total Insurance Risk
16
15
Operational Risk 
5
5
Miscellaneous4
4
6
Total SCR 
100
100
1. Credit risk is Legal & General's most significant exposure, arising predominantly from the portfolio of bonds and bond-like assets backing the group's annuity business.
2. In addition to credit risk 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-profits Savings business.
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. Miscellaneous includes LGA on a Deduction and Aggregation basis and the sectoral capital requirements for non-insurance regulated firms.
Capital and Investments Page 75
4.02 Group Economic Capital
Legal & General defines Economic Capital to be the amount of capital that the Board believes the group needs to hold, over and above its liabilities, in order to meet its strategic objectives. This is not the same as regulatory capital which reflects regulatory rules and constraints. The group's objectives include being able to meet its liabilities as they fall due whilst maintaining the confidence of our investors, rating agencies, customers and intermediaries.
Legal & General maintains a risk-based capital model that is used to calculate the group's Economic Capital Balance Sheet and support the management of risk within the group. This modelling framework, suitably adjusted for regulatory constraints, also meets the needs of the Solvency II regime. Our Economic Capital model has not been reviewed by the Prudential Regulatory Authority (PRA), nor will it be.
Solvency II has elements which are considered to be inconsistent with the group's definition of economic capital, so there are differences between the two balance sheets. A reconciliation between the two bases is provided in section 4.02(g).
(a) Capital position
 
 
As at 30 June 2016, the group had an economic capital surplus of 8.1bn (H1 15: 6.4bn; FY 15: 7.6bn), corresponding to an economic capital coverage ratio of 235% (H1 15: 220%; FY 15: 230%). The economic capital position is as follows: 
 
30.06.16
30.06.15
31.12.15 
 
bn
bn
bn 
 
 
 
Core tier 1 own funds
11.2
9.7
10.8 
Tier 1 subordinated liabilities
0.6
0.7
0.7
Tier 2 subordinated liabilities 
2.2
1.7
2.3
Eligibility restrictions 
-
(0.3)
(0.3)
Eligible Own Funds1
14.0
11.8
13.5
Economic Capital Requirement (ECR) 
5.9
5.4
5.9
 
 
Surplus 
8.1
6.4
7.6
 
 
ECR coverage ratio2
235%
220%
230%
 
 
1. Eligible Own Funds do not include an accrual for the dividend of 238m (H1 15: 205m; FY 15: 592m) declared after the balance sheet date. 
2. Coverage ratio is calculated on unrounded values.
 
 
Further explanation of the underlying methodology and assumptions is set out in the sections below. 
 
 
(b) Methodology
Eligible Own Funds are defined to be the excess of the value of assets over the liabilities. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims.
Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Economic Capital Balance Sheet. 
Liabilities are valued on a best estimate market consistent basis, with the application of an Economic Matching Adjustment for valuing annuity liabilities. 
The Economic Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks that they are exposed to.
The liabilities include a Recapitalisation Cost to allow for the cost of recapitalising the balance sheet following the 1-in-200 stress in order to maintain confidence that our future liabilities will be met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the group could raise debt and allowing for diversification between all group entities. 
All material insurance firms, including Legal & General Assurance Society Limited, Legal & General Insurance Limited, Legal & General Assurance (Pensions Management) Limited (LGIM's insurance subsidiary) and Legal & General America (LGA) are incorporated into the group's Economic Capital model assessment of required capital, assuming diversification of the risks between the different firms within the group and between the risks to which they are exposed.
Firms for which the capital requirements are less material, for example Legal & General Netherlands, are valued on the Solvency II Standard Formula basis. Non-insurance firms are included using their current regulatory surplus, without allowing for any diversification with the rest of the group.
Allowance is made within the Economic Capital Balance Sheet for the group's defined benefit pension scheme based upon the scheme's funding basis, and allowance is made within the capital requirement by stressing the funding position, using the same economic capital basis as for the insurance firms.
Capital and Investments Page 76
4.02 Group Economic Capital (continued)
(c) Assumptions
The calculation of the Economic Capital Balance Sheet and associated capital requirement requires a number of assumptions, including:
(i) assumptions required to derive the present value of best estimate liability cash flows. Non-market assumptions are broadly the same as those used to derive the group's IFRS disclosures. Future investment returns and discount rates are based on market data where a deep and liquid market exists or using appropriate estimation techniques where this is not the case. The risk-free rates used to discount liabilities are market swap rates, with a 14 basis point deduction to allow for a credit risk adjustment;
(ii) assumptions regarding management actions and policyholder behaviour across the full range of scenarios. The only management actions allowed for are those that have been approved by the Board and are in place at the balance sheet date;
(iii) assumptions regarding the volatility of the risks to which the group is exposed. Assumptions have been set using a combination of historic market, demographic and operating experience data. In areas where data is not considered robust, expert judgement has been used; and
(iv) assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.
For annuities the liability discount rate includes an Economic Matching Adjustment, which is derived using the same approach as the Solvency II matching adjustment, but any constraints we consider economically artificial, such as capping the yield on assets with a credit rating below BBB and any ineligibility of certain assets and liabilities, have not been applied.
The other key assumption relating to the annuity business is the assumption of longevity. As for IFRS, Legal & General models base mortality and future improvement of mortality separately. For our Economic Capital assessment we believe it is appropriate to ensure that the balance sheet makes sufficient allowance to meet the 1-in-200 stress to longevity over the run-off of the liabilities rather than just over a 1 year timeframe as required by Solvency II. 
(d) Analysis of change
The table below shows the movement (net of tax) during the financial year in the group's Economic Capital surplus.
 
Economic
Capital
surplus
Analysis of movement in the period
bn
 
Economic solvency position as at 1 January 2016
7.6
Operating experience expected release1
0.5
Operating experience new business 
0.2
Market movements 
0.1
Other capital movements2
0.3
Dividends declared in the period
(0.6)
Economic solvency position as at 30 June 2016
8.1
1. Release of surplus generated by in-force business. 
2. Other capital movements comprise model and assumption changes. 
Capital and Investments Page 77
4.02 Group Economic Capital (continued)
(e) Reconciliation of IFRS shareholders' equity to Economic Capital Eligible Own Funds
The table below gives a reconciliation of the group's IFRS shareholders' equity to the Eligible Own Funds on an Economic Capital basis. 
 
30.06.16
30.06.15
31.12.15
bn
bn
bn
IFRS shareholders' equity 
6.6
6.0
6.4
Remove DAC, goodwill and other intangible assets and liabilities
(2.1)
(2.0)
(2.0)
Add subordinated debt treated as economic available capital1
2.5
1.9
2.5
Insurance contract valuation differences2
7.6
6.2
7.0
Add value of shareholder transfers
0.2
0.3
0.2
Difference in value of net deferred tax liabilities (resulting from valuation differences) 
(0.6)
(0.5)
(0.5)
Other 
(0.2)
0.2
0.2
Eligibility restrictions3
-
(0.3)
(0.3)
Eligible Own Funds
14.0
11.8
13.5
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. Relating to the own funds of US captive reassurers and the UK with-profits fund. 
 
The figures that appear in this note are all pre-accrual for the 2016 interim dividend of 238m (H1 15: 205m; FY 15: 592m).
(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.
 
30.06.16
30.06.15
31.12.15
%
%
%
Interest Rate 
3
6
4
Equity 
11
14
13
Property 
6
4
6
Credit1
48
44
48
Currency 
-
2
-
Inflation 
4
(1)
3
Total Market Risk2
72
69
74
Counterparty Risk
2
2
1
Life Mortality 
-
-
-
Life Longevity3
6
9
4
Life Lapse 
4
5
4
Life Catastrophe 
4
3
4
Non-life underwriting 
1
1
1
Health underwriting 
-
1
-
Expense 
1
1
1
Total Insurance Risk
16
20
14
Operational Risk 
7
7
7
Miscellaneous4
3
2
4
Total Economic Capital Requirement 
100
100
100
1. Credit risk is Legal & General's most significant exposure, arising predominantly from the portfolio of bonds backing the group's annuity business.
2. In addition to credit risk 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-profits Savings business.
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. Miscellaneous includes the sectoral capital requirements for non-insurance regulated firms.
Capital and Investments Page 78
4.02 Group Economic Capital (continued) 
(g) Reconciliation from Economic Capital surplus to Solvency II surplus
The Economic Capital position does not reflect regulatory constraints. The regulatory constraints imposed by the Solvency II regime result in a lower surplus. The table below provides an analysis of the key differences between the two bases. The Solvency II results are reported net of Transitional Measures on Technical Provisions (TMTP).
 
30.06.16
31.12.15
bn
bn
Economic Capital surplus 
8.1
7.6
Different matching adjustment1
(2.2)
(1.4)
Risk margin vs Recapitalisation cost2
-
-
Longevity calibration3
(0.6)
(0.3)
Eligibility of group own funds4
(0.1)
(0.5)
LGA on a D&A basis5
0.1
0.1
Solvency II surplus6
5.3
5.5
1. This is the difference between the Economic Matching Adjustment and the Solvency II Matching Adjustment.
2. The risk margin represents the amount a third party insurance company would require to take on the obligations of a given insurance company. It is equal to the cost of capital on the SCR necessary to support insurance risks that cannot be hedged over the lifetime of the business. This is presented net of TMTP. The recapitalisation cost is an equivalent measure under economic capital, but represents the cost of recapitalising the balance sheet following a stress event. It also removes elements of Solvency II specifications that are, in Legal & General's view, uneconomic. 
3. Economic Capital and Solvency II balance sheets use different calibrations for longevity risk.
4. Deductions for regulatory restrictions in respect of fungibility and transferability restrictions. These do not apply to the Economic Capital balance sheet.
5. To ensure consistency of risk management across the group, L&G America remains within the Internal Model for Economic Capital purposes.
6. There are also differences in the valuation of with-profits business and the group pension scheme that have lower order impacts on the difference between the surpluses.
Capital and Investments Page 79
4.03 Estimated Solvency II new business contribution
 
(a) New business by product1
 
 
Contri- 
 
bution 
 
from new 
 
PVNBP
business2
Margin 
For the six months ended 30 June 2016
m
m 
%
 
 
 
LGR - UK annuity business
3,743
382 
10.2
 
UK Insurance Total
727
81 
11.1
- Retail protection
565
69 
12.2
- Group protection 
162
12 
7.4
 
LGA3
325
40 
12.4
 
 
 
4,795
503 
10.5
 
 
 
 
 
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. In local currency, LGA reflects PVNBP of $435m and a contribution from new business of $54m.
(b) Assumptions 
The key economic assumptions as at 30 June 2016 are as follows: 
%
Risk margin
3.5
Risk free rate
- UK
1.1
- US
1.3
Risk discount rate (net of tax)
- UK
4.6
- US
4.8
Long-term rate of return on non profit annuities in LGR
3.2
The cashflows are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat risk margin. 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. Using the previous methodology the risk free rate as at 30 June 2016 (for both the UK and the US) would be 1.5% and the risk discount rate would be 5.0%.
All other economic and non-economic assumptions and methodologies that would have a material impact on the margin for these contracts are unchanged from those used for the European Embedded Value reporting at end 2015 other than the cost of currency hedging which has been updated to reflect current market conditions and hedging activity in light of Solvency II. In particular:
 The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked securities are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the securities. The allowance for corporate defaults within the new business contribution is based on a level rate deduction from the expected returns for the overall annuities portfolio of 20bps.
 Non-economic assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding development costs). An allowance is made for future mortality improvement. For new business, mortality assumptions may be modified to take certain scheme specific features into account. These are normally reviewed annually.
Tax
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 20% and subsequent planned future reductions in corporation tax to 19% from 1 April 2017 and 18% 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 18%.
US, covered business profits are also grossed up using the long term corporate tax rates i.e. 35%. 
Capital and Investments Page 80
4.03 Estimated Solvency II new business contribution (continued)
(c) Methodology
Basis of preparation
The group is required to comply with the requirements established by the EU Solvency II Directive. Consequently, a Solvency II value reporting framework, which incorporates a best estimate of cash flows in relation to insurance assets and liabilities, has replaced EEV reporting in the management information used internally to measure and monitor capital resources. Solvency II new business contribution reflects the portion of Solvency II value added by new business written in 2016, recognising that the statutory solvency in the UK is now on a Solvency II basis. It has been calculated in a manner consistent with European Embedded Value (EEV) principles. 
Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGR, the Insurance Division and LGA.
Description of methodology
The objective of the Solvency II new business contribution is to provide shareholders with information on the long term contribution of new business written in 2016.
With the exception of the discount rate, cost of currency hedging and the statutory solvency basis, new business contribution arising from the new business premiums written during the reporting period has been calculated on the same economic and operating assumptions as would have been used under the EEV methodology.
The 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 calculation of the new business contribution for the financial period.
The new business margin is defined as new business contribution divided by the PVNBP. The premium volumes used to calculate the PVNBP are the same as those used to calculate new business contribution.
LGA is consolidated into the group solvency balance sheet on a US Statutory solvency basis. Therefore, the LGA margin is largely unchanged from the EEV basis, where new business profitability was also based on the US Statutory solvency basis. Intra-group reinsurance arrangements are in place between the US and UK businesses, and it is expected that these arrangements will be periodically extended to cover recent new business. LGA new business premiums and contribution reflect the groupwide expected impact of LGA directly-written business (i.e. looks-through any intra-group reinsurance arrangements).
Comparison to EEV new business contribution
The key difference between Solvency II and EEV new business contribution is the statutory solvency basis used for UK business. Due to the different reserving and capital bases under Solvency II compared to Solvency I, the timing of profit emergence changes. The impact on new business contribution therefore largely reflects the cost of capital effect of this change in profit timing. The impact on new business contribution of moving to a Solvency II basis will differ by type of business. Products which are more capital consumptive under Solvency II will have a lower new business value and vice versa for less capital consumptive products.
Capital and Investments Page 81
4.03 Estimated Solvency II new business contribution (continued)
(c) Methodology (continued)
Projection assumptions
Cash flow projections are determined using best estimate assumptions for each component of cash flow for each line of business. Future economic and investment return assumptions are based on conditions at the end of the financial period.
Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.
All costs relating to new business, even if incurred elsewhere in the group, are allocated to the new business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.
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 known future changes.
 
Risk discount rate 
The risk discount rate (RDR) is duration-based and is a combination of the risk free curve and a flat risk margin, 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 (30 June 2016: 14bps for UK and 10bps for US). 
The risk margin 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. 
The WACC is derived from the group's cost of equity and debt, and the proportion of equity to debt in the group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the company's beta. 
The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a time adjusted rate of 18.4%. 
Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital, the inherent strength of the group's regulatory reserves and the explicit deduction for the cost of options and guarantees, is appropriate to reflect the risks within the covered business.
(d) PVNBP to gross written premium reconciliation 
 
 
30.06.16
30.06.15 
31.12.15
Notes
bn
bn 
bn
 
 
 
PVNBP
4.03(a)
4.8
Effect of capitalisation factor 
(0.9)
 
 
 
New business premiums from selected lines
3.9
Other1
0.3
 
 
 
 
Total LGR, Insurance and LGA new business
3.07/
3.08
4.2
1.6 
3.3
 
Annualisation impact of regular premium long-term business 
(0.1)
(0.1) 
(0.2)
IFRS gross written premiums from existing long-term insurance business 
1.3
1.3 
2.6
IFRS gross written premiums from Savings business 
0.1
0.2 
0.5
Deposit accounting for lifetime mortgage advances
(0.2)
- 
(0.2)
General insurance gross written premiums 
3.09
0.2
0.2 
0.3
 
 
 
 
Total gross written premiums 
5.5
3.2 
6.3
 
 
 
1. Other principally includes annuity sales in the US and lifetime mortgage advances.
 
 
Capital and Investments Page 82
4.04 Investment portfolio
 
 
Market
Market
Market
value
value
value
30.06.16
30.06.15
31.12.15
m
m
m
 
Worldwide total assets 
846,140
717,034
747,944
Client and policyholder assets
(766,397)
(649,882)
(679,831)
Non-unit linked with-profits assets 
(12,478)
(12,216)
(11,644)
 
Investments to which shareholders are directly exposed
67,265
54,936
56,469
 
Analysed by investment class:
 
Other 
non profit
Other 
LGR
insurance
LGC 
shareholder
investments
investments
investments1
investments
Total
Total
Total
30.06.16
30.06.16
30.06.16 
30.06.16
30.06.16
30.06.15
31.12.15
Note
m
m
m 
m
m
m
m
 
Equities
56
- 
2,350 
188
2,594
2,409
2,252
Bonds
4.06
47,908
2,505
1,651 
666
52,730
43,917
43,916
Derivative assets2
5,661
- 
62 
- 
5,723
3,730
3,663
Property
4.07
2,257
- 
196 
4
2,457
2,220
2,347
Cash, cash equivalents,
 
loans & receivables
878
556
1,313 
504
3,251
2,527
4,168
 
Financial investments
56,760
3,061
5,572 
1,362
66,755
54,803
56,346
 
Other assets3
157
-
331 
22
510
133
123
 
Total investments
56,917
3,061
5,903 
1,384
67,265
54,936
56,469
 
1. Equity investments include a total of 323m in respect of CALA Group Limited, Peel Media Holdings Limited (MediaCityUK) and NTR Wind Management Ltd (30 June 2015: 280m; 31 December 2015: 295m).
2. Derivative assets are shown gross of derivative liabilities of 5.0bn (HY15: 2.0bn; FY15: 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.
3. Other assets include reverse repurchase agreements of 464m (HY15: nil; FY15: 82m).
Capital and Investments Page 83
4.05 Direct Investments 
 
 
 
(a) Analysed by asset class
 
 
 
 
 
 
 
 
 
 
 
 
Direct1, 2
Traded3
Direct1, 2
Traded3
Direct1, 2
Traded3
Investments 
securities 
Total
Investments 
securities 
Total
Investments 
securities 
Total
30.06.16 
30.06.16 
30.06.16
30.06.15 
30.06.15 
30.06.15
31.12.15 
31.12.15 
31.12.15
m 
m 
m
m 
m 
m
m 
m 
m
 
 
 
 
 
 
 
 
 
 
Equities
508 
2,086 
2,594
410 
1,999 
2,409
432 
1,820 
2,252
Bonds
4,474 
48,256 
52,730
3,050 
40,867 
43,917
3,722 
40,194 
43,916
Derivative assets
-  
5,723 
5,723
-  
3,730 
3,730
-  
3,663 
3,663
Property
2,457 
-  
2,457
2,220 
-  
2,220
2,347 
-  
2,347
Cash, cash equivalents,
 
 
 
 
 
loans & receivables
466 
2,785 
3,251
380 
2,147 
2,527
425 
3,743 
4,168
Other assets
46 
464 
510
133 
-  
133
41 
82 
123
 
 
 
 
 
 
 
 
 
 
7,951 
59,314 
67,265
6,193 
48,743 
54,936
6,967 
49,420 
56,469
 
 
 
 
 
 
 
 
 
 
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. A further breakdown of property is provided in note 4.07.
3. 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
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
m
m
m
m
m
Equities
- 
508
- 
- 
508
Bonds
3,932
197
345
- 
4,474
Property
2,257
196
- 
4
2,457
Cash, cash equivalents, loans & receivables
20
117
329
- 
466
Other assets
- 
46
- 
- 
46
6,209
1,064
674
4
7,951
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
Capital and Investments Page 84
4.05 Direct Investments (continued)
(b) Analysed by segment (continued)
LGR
LGC
LGA
Insurance
Total
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
m
m
m
m
m
Equities
- 
432
- 
- 
432
Bonds
3,336
93
293
- 
3,722
Property
2,157
186
- 
4
2,347
Cash, cash equivalents, loans & receivables
- 
115
310
- 
425
Other assets
- 
41
- 
- 
41
5,493
867
603
4
6,967
(c) Movement in the period
Carrying 
Change in
Carrying
value
market
value
01.01.16
Additions
Disposals
value
30.06.16
m
m
m
m
m
Equities
432
65
(9)
20
508
Bonds
3,722
580
(182)
354
4,474
Property
2,347
198
(60)
(28)
2,457
Cash, cash equivalents, loans & receivables
425
29
(23)
35
466
Other assets
41
3
- 
2
46
6,967
875
(274)
383
7,951
Capital and Investments Page 85
4.06 Bond portfolio summary
(a) LGR analysed by sector
Sectors analysed by credit rating 
 
BB or
AAA
AA
A
BBB
below
LGR
LGR
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
m 
m 
m 
m 
m 
m
%
 
Sovereigns, Supras and Sub-Sovereigns
898
6,747
114
200
58
8,017
17
Banks: 
 - Tier 1 
-
-
-
-
21
21
-
 - Tier 2 and other subordinated 
-
-
159
265
-
424
1
 - Senior 
100
564
1,046
85
-
1,795
4
Financial Services: 
 - Tier 1 
-
-
-
-
-
-
-
 - Tier 2 and other subordinated 
-
-
31
10
-
41
-
 - Senior 
78
420
210
125
-
833
2
Insurance:
 - Tier 1
-
-
-
-
-
-
-
 - Tier 2 and other subordinated
-
-
136
60
26
222
-
 - Senior
-
15
418
184
-
617
1
Utilities
63
7
2,324
2,834
24
5,252
11
Consumer Services and Goods 
& Health Care
174
1,181
2,041
2,407
124
5,927
12
Technology and Telecoms
46
156
550
2,181
115
3,048
6
Industrials1
-
24
1,082
967
103
2,176
5
Oil and Gas 
-
169
683
1,146
273
2,271
5
Property 
-
579
323
969
1
1,872
4
Asset backed securities 
134
745
292
95
48
1,314
3
Securitisations and debentures2
252
2,335
6,948
2,151
850
12,536
26
Lifetime mortgage loans3
-
-
-
440
-
440
1
CDOs4
-
722
366
14
-
1,102
2
 
Total m
1,745
13,664
16,723
14,133
1,643
47,908
100
 
Total %
4
29
34
30
3
100
 
1. Included within Industrials is a 599m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(c).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period. 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 counterparty valuation.
Capital and Investments Page 86
4.06 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
 
BB or
AAA
AA
A
BBB
below
Other
LGR
LGR
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
m 
m 
m 
m 
m 
m
m
%
 
Sovereigns, Supras and Sub-Sovereigns
921
5,458
126
208
8
1
6,722
17
Banks: 
 - Tier 1 
-
-
55
6
33
-
94
-
 - Tier 2 and other subordinated 
41
2
231
149
11
-
434
1
 - Senior 
73
383
891
137
3
-
1,487
4
Financial Services: 
 - Tier 1 
-
4
-
-
-
-
4
-
 - Tier 2 and other subordinated 
4
1
43
8
-
-
56
-
 - Senior 
52
386
89
121
1
-
649
2
Insurance:
 - Tier 1
-
4
10
71
-
-
85
-
 - Tier 2 and other subordinated
4
6
147
138
-
-
295
1
 - Senior
-
49
346
138
-
-
533
1
Utilities
3
5
2,154
2,329
24
-
4,515
11
Consumer Services and Goods 
& Health Care
161
735
1,434
1,518
140
1
3,989
11
Technology and Telecoms
24
98
436
1,669
158
1
2,386
6
Industrials1
3
20
866
857
36
1
1,783
5
Oil and Gas 
19
345
473
1,011
278
-
2,126
5
Property 
2
364
231
814
-
2
1,413
4
Asset backed securities 
296
671
197
73
33
-
1,270
3
Securitisations and debentures2
272
2,186
5,437
2,149
292
-
10,336
26
Lifetime mortgage loans3
-
-
-
38
-
-
38
-
CDOs4
-
537
464
54
47
-
1,102
3
 
Total m
1,875
11,254
13,630
11,488
1,064
6
39,317
100
 
Total %
5
29
34
29
3
-
100
 
1. Included within Industrials is a 507m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(c).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period. 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 counterparty valuation.
Capital and Investments Page 87
4.06 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
 
BB or
AAA
AA
A
BBB
below
LGR
LGR
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
m 
m 
m 
m 
m 
m
%
 
Sovereigns, Supras and Sub-Sovereigns
956
4,774
64
154
30
5,978
14
Banks: 
 - Tier 1 
17
35
-
-
26
78
-
 - Tier 2 and other subordinated 
-
-
92
138
2
232
1
 - Senior 
49
421
859
77
1
1,407
4
Financial Services: 
 - Tier 1 
-
-
-
-
-
-
-
 - Tier 2 and other subordinated 
-
3
33
8
4
48
-
 - Senior 
63
396
106
140
-
705
2
Insurance:
 - Tier 1
-
-
-
6
-
6
-
 - Tier 2 and other subordinated
-
-
144
64
-
208
1
 - Senior
-
14
316
118
-
448
1
Utilities
43
8
1,847
2,593
27
4,518
11
Consumer Services and Goods 
& Health Care
136
969
1,572
1,830
130
4,637
12
Technology and Telecoms
48
138
409
1,940
129
2,664
7
Industrials1
-
21
934
899
30
1,884
5
Oil and Gas 
24
321
482
901
247
1,975
5
Property 
-
516
269
868
-
1,653
4
Asset backed securities 
123
657
167
74
38
1,059
3
Securitisations and debentures2
258
2,152
5,489
2,349
331
10,579
26
Lifetime mortgage loans3
-
-
-
207
-
207
1
CDOs4
-
552
469
14
47
1,082
3
 
Total m
1,717
10,977
13,252
12,380
1,042
39,368
100
 
Total %
4
28
34
31
3
100
 
1. Included within Industrials is a 455m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(c).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period . 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 counterparty valuation.
Capital and Investments Page 88
4.06 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile
 
 
EU
Rest of
 
UK
US
excluding UK
the World
LGR
 
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
6,133
571
635
678
8,017
Banks 
 
638
780
635
187
2,240
Financial Services 
 
270
229
277
98
874
Insurance
 
312
481
46
-
839
Utilities
 
2,673
390
2,125
64
5,252
Consumer Services and Goods & Health Care
1,214
4,054
464
195
5,927
Technology and Telecoms
 
508
1,267
879
394
3,048
Industrials 
 
119
1,129
323
605
2,176
Oil and Gas 
 
181
1,106
345
639
2,271
Property 
 
1,410
385
12
65
1,872
Asset backed securities, securitisations and debentures1
11,539
1,086
462
1,203
14,290
CDOs 
 
-
-
1,031
71
1,102
 
 
 
Total
 
24,997
11,478
7,234
4,199
47,908
 
 
 
1. Includes lifetime mortgage loans.
 
 
EU
Rest of
 
UK
US
excluding UK
the World
LGR
 
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
4,963
519
638
602
6,722
Banks 
 
662
795
453
105
2,015
Financial Services 
 
186
330
140
53
709
Insurance
 
463
341
91
18
913
Utilities
 
2,347
252
1,857
59
4,515
Consumer Services and Goods & Health Care
 
792
2,786
336
75
3,989
Technology and Telecoms
 
389
973
841
183
2,386
Industrials 
 
199
735
266
583
1,783
Oil and Gas 
 
193
1,088
354
491
2,126
Property 
 
1,054
316
17
26
1,413
Asset backed securities, securitisations and debentures1
9,013
1,075
378
1,178
11,644
CDOs 
 
-
-
1,026
76
1,102
 
 
 
Total
 
20,261
9,210
6,397
3,449
39,317
 
 
 
1. Includes lifetime mortgage loans.
 
Capital and Investments Page 89
4.06 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile (continued)
 
 
EU
Rest of
 
UK
US
excluding UK
the World
LGR
 
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
4,305
455
647
571
5,978
Banks 
 
568
582
441
126
1,717
Financial Services 
 
217
373
159
4
753
Insurance
 
337
284
41
-
662
Utilities
 
2,355
313
1,796
54
4,518
Consumer Services and Goods & Health Care 
870
3,212
391
164
4,637
Technology and Telecoms
 
462
1,217
787
198
2,664
Industrials 
 
220
854
272
538
1,884
Oil and Gas 
 
197
995
326
457
1,975
Property 
 
1,286
324
12
31
1,653
Asset backed securities, securitisations and debentures1
9,570
884
355
1,036
11,845
CDOs 
 
-
-
1,047
35
1,082
 
 
 
Total
 
20,387
9,493
6,274
3,214
39,368
 
 
 
1. Includes lifetime mortgage loans.
 
Capital and Investments Page 90
4.06 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
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
m 
m 
m 
m 
m 
m
m
%
 
Sovereigns, Supras and Sub-Sovereigns 
1,549
7,355
196
424
113
1
9,638
18
Banks:
 - Tier 1
-
-
-
1
21
-
22
-
 - Tier 2 and other subordinated
-
-
172
279
-
1
452
1
 - Senior
207
865
1,335
102
1
1
2,511
5
Financial Services: 
 - Tier 1 
-
-
-
-
-
-
-
-
 - Tier 2 and other subordinated 
-
-
32
11
-
3
46
-
 - Senior 
85
504
259
161
2
2
1,013
2
Insurance: 
 - Tier 1 
-
-
1
-
-
-
1
-
 - Tier 2 and other subordinated 
-
3
140
70
26
1
240
-
 - Senior 
-
17
426
190
-
-
633
1
Utilities 
64
16
2,385
2,931
36
40
5,472
10
Consumer Services and Goods 
& Health Care 
210
1,218
2,195
2,630
207
11
6,471
13
Technology and Telecoms 
58
185
614
2,302
142
3
3,304
6
Industrials1
-
34
1,194
1,125
158
5
2,516
5
Oil and Gas
-
197
740
1,241
323
2
2,503
5
Property
-
579
344
1,029
10
163
2,125
4
Asset backed securities
335
768
293
95
48
-
1,539
3
Securitisations and debentures2
309
2,337
7,011
2,180
865
-
12,702
24
Lifetime mortgage loans3
-
-
-
440
-
-
440
1
CDOs4
-
722
366
14
-
-
1,102
2
 
Total m 
2,817
14,800
17,703
15,225
1,952
233
52,730
100
 
Total % 
5
28
34
29
4
-
100
 
1. Included within Industrials is a 605m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(d).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period. 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 Page 91
4.06 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
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
m 
m 
m 
m 
m 
m
m
%
 
Sovereigns, Supras and Sub-Sovereigns
1,485
5,928
181
399
42
8
8,043
18
Banks: 
 - Tier 1 
-
-
55
9
33
-
97
-
 - Tier 2 and other subordinated 
133
4
248
183
14
1
583
1
 - Senior 
271
511
1,031
168
8
1
1,990
5
Financial Services: 
 - Tier 1 
-
4
-
-
-
-
4
-
 - Tier 2 and other subordinated 
10
5
51
14
1
-
81
-
 - Senior 
70
418
176
186
9
1
860
2
Insurance:
 - Tier 1
-
4
10
72
-
-
86
-
 - Tier 2 and other subordinated
9
15
149
150
2
1
326
1
 - Senior
1
89
359
146
-
-
595
1
Utilities
7
18
2,235
2,423
33
2
4,718
11
Consumer Services and Goods
& Health Care
211
817
1,636
1,714
209
5
4,592
10
Technology and Telecoms
44
137
512
1,755
189
3
2,640
6
Industrials1
9
28
1,011
1,023
77
4
2,152
5
Oil and Gas 
28
381
512
1,097
312
2
2,332
5
Property 
4
367
243
866
11
64
1,555
4
Asset backed securities 
670
706
201
75
34
-
1,686
4
Securitisations and debentures2
274
2,199
5,505
2,154
305
-
10,437
24
Lifetime mortgage loans3
-
-
-
38
-
-
38
-
CDOs4
-
537
464
54
47
-
1,102
3
 
Total m
3,226
12,168
14,579
12,526
1,326
92
43,917
100
 
Total %
7
28
33
29
3
-
100
 
1. Included within Industrials is a 520m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(d).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period. 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 Page 92
4.06 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
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
m 
m 
m 
m 
m 
m
m
%
 
Sovereigns, Supras and Sub-Sovereigns
1,981
5,022
112
367
62
5
7,549
17
Banks: 
 - Tier 1 
68
139
5
10
26
-
248
1
 - Tier 2 and other subordinated 
22
-
100
146
3
1
272
1
 - Senior 
105
721
992
98
3
1
1,920
4
Financial Services: 
 - Tier 1 
-
-
-
-
-
-
-
-
 - Tier 2 and other subordinated 
-
3
38
16
-
1
58
-
 - Senior 
65
415
172
198
7
-
857
2
Insurance:
 - Tier 1
-
-
-
6
-
-
6
-
 - Tier 2 and other subordinated
-
3
146
68
1
1
219
-
 - Senior
1
18
326
126
-
-
471
1
Utilities
42
17
1,900
2,677
42
13
4,691
11
Consumer Services and Goods 
& Health Care
170
1,004
1,707
1,993
210
4
5,088
12
Technology and Telecoms
61
169
472
2,027
151
1
2,881
7
Industrials1
-
38
1,039
1,075
67
2
2,221
5
Oil and Gas 
27
342
517
958
280
1
2,125
5
Property 
-
516
287
912
9
81
1,805
4
Asset backed securities 
511
672
164
74
42
-
1,463
3
Securitisations and debentures2
281
2,157
5,602
2,370
343
-
10,753
25
Lifetime mortgage loans3
-
-
-
207
-
-
207
-
CDOs4
-
552
469
14
47
-
1,082
2
 
Total m
3,334
11,788
14,048
13,342
1,293
111
43,916
100
 
Total %
8
27
32
30
3
-
100
 
1. Included within Industrials is a 455m exposure to Basic Resources.
2. Securitisations and debentures have been reanalysed in note 4.06(d).
3. Lifetime mortgage loans have increased in value since inception predominantly due to the accrual of interest on the loans.
4. The underlying reference portfolio has had no reference entity defaults during the period. 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 Page 93
4.06 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
 
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
6,503
881
1,398
856
9,638
Banks 
 
676
941
935
433
2,985
Financial Services 
 
279
287
293
200
1,059
Insurance
 
322
497
55
-
874
Utilities
 
2,723
474
2,206
69
5,472
Consumer Services and Goods & Health Care
1,261
4,446
535
229
6,471
Technology and Telecoms
 
521
1,419
942
422
3,304
Industrials 
 
153
1,354
374
635
2,516
Oil and Gas 
 
205
1,202
404
692
2,503
Property 
 
1,575
459
22
69
2,125
Asset backed securities, securitisations and debentures1
11,586
1,394
478
1,223
14,681
CDOs 
 
-
-
1,031
71
1,102
 
 
 
Total
 
25,804
13,354
8,673
4,899
52,730
 
 
 
1. Includes lifetime mortgage loans.
 
 
EU
 
excluding
Rest of
 
UK
US
UK
the World
Total
 
30.06.15
30.06.15
30.06.15
30.06.15
30.06.15
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
5,309
735
1,271
728
8,043
Banks 
 
757
925
687
301
2,670
Financial Services 
 
200
443
212
90
945
Insurance
 
486
399
102
20
1,007
Utilities
 
2,365
344
1,933
76
4,718
Consumer Services and Goods & Health Care
861
3,221
392
118
4,592
Technology and Telecoms
 
405
1,147
884
204
2,640
Industrials 
 
247
952
331
622
2,152
Oil and Gas 
 
208
1,186
399
539
2,332
Property 
 
1,129
369
22
35
1,555
Asset backed securities, securitisations and debentures1
9,081
1,515
388
1,177
12,161
CDOs 
 
-
-
1,026
76
1,102
 
 
 
Total
 
21,048
11,236
7,647
3,986
43,917
 
 
 
1. Includes lifetime mortgage loans.
 
Capital and Investments Page 94
4.06 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
 
31.12.15
31.12.15
31.12.15
31.12.15
31.12.15
 
m 
m 
m 
m
m
 
 
 
Sovereigns, Supras and Sub-Sovereigns
4,665
775
1,374
735
7,549
Banks 
 
674
703
655
408
2,440
Financial Services 
 
227
460
208
20
915
Insurance
 
343
305
47
1
696
Utilities
 
2,376
387
1,859
69
4,691
Consumer Services and Goods & Health Care
 
904
3,565
428
191
5,088
Technology and Telecoms
 
468
1,377
822
214
2,881
Industrials 
 
257
1,064
330
570
2,221
Oil and Gas 
 
206
1,060
357
502
2,125
Property 
 
1,375
374
19
37
1,805
Asset backed securities, securitisations and debentures1
9,578
1,440
364
1,041
12,423
CDOs 
 
-
-
1,047
35
1,082
 
 
 
Total
 
21,073
11,510
7,510
3,823
43,916
 
 
 
1. Includes lifetime mortgage loans.
 
Capital and Investments Page 95
4.06 Bond portfolio summary (continued)
(c) Analysis of LGR securitisations and debentures
 
BB or
AAA
AA
A
BBB
below
LGR
LGR
LGR
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.15
31.12.15
m 
m 
m 
m 
m 
m
m
m
 
Sovereigns, Supras and Sub-Sovereigns
-
743
5
-
-
748
702
682
Financial Services 
-
636
1,392
249
150
2,427
2,145
2,166
Insurance
-
43
106
-
-
149
110
130
Utilities
-
103
1,797
129
-
2,029
1,722
1,765
Consumer Services and Goods 
& Health Care 
-
-
286
69
21
376
408
355
Technology and Telecoms
-
-
-
-
-
-
1
1
Industrials 
-
43
455
300
5
803
700
711
Oil and Gas 
-
-
14
32
19
65
64
65
Property 
-
204
586
1
-
791
411
402
Infrastructure / PFI / Social housing 
-
186
664
715
64
1,629
1,259
1,232
Covered Bonds1
251
2
-
16
-
269
285
273
Whole Business Securitised 
-
67
390
345
105
907
847
624
Commercial Property Backed Bonds 
-
188
505
14
464
1,171
679
1,092
Secured Bonds2
1
120
748
281
22
1,172
1,003
949
Other
-
-
-
-
-
-
-
132
 
Total
252
2,335
6,948
2,151
850
12,536
10,336
10,579
 
1. Covered bonds are typically issued by banks and are secured on pools of residential mortgages.
2. Secured bonds are typically issued by Special Purpose Vehicles and are secured on various assets and/or cashflows within the issuer's business.
(d) Analysis of total group securitisations and debentures
 
BB or
AAA
AA
A
BBB
below
Total
Total
Total
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.16
30.06.15
31.12.15
m 
m 
m 
m 
m 
m
m
m
 
Sovereigns, Supras and Sub-Sovereigns
-
743
5
-
-
748
702
682
Financial Services 
-
636
1,392
249
150
2,427
2,145
2,166
Insurance
-
43
106
-
-
149
114
132
Utilities
-
103
1,799
130
-
2,032
1,727
1,768
Consumer Services and Goods 
& Health Care 
-
-
332
86
24
442
410
416
Technology and Telecoms
-
-
-
-
-
-
1
1
Industrials 
-
43
456
300
6
805
701
711
Oil and Gas 
-
-
14
32
19
65
64
65
Property 
-
204
586
1
-
791
411
403
Infrastructure / PFI / Social housing 
-
186
667
715
64
1,632
1,259
1,234
Covered Bonds1
307
2
-
16
-
325
286
279
Whole Business Securitised 
-
67
390
347
105
909
847
626
Commercial Property Backed Bonds 
-
189
505
14
464
1,172
679
1,092
Secured Bonds2
1
121
749
289
33
1,193
1,034
959
Other
1
-
10
1
-
12
57
219
 
Total
309
2,337
7,011
2,180
865
12,702
10,437
10,753
 
1. Covered bonds are typically issued by banks and are secured on pools of residential mortgages.
2. Secured bonds are typically issued by Special Purpose Vehicles and are secured on various assets and/or cashflows within the issuer's business.
Capital and Investments Page 96
4.06 Bond portfolio summary (continued)
(e) LGR and total group analysed by credit rating
 
Externally
Internally 
Externally
Internally 
rated
rated1
LGR
rated
rated1
Total
30.06.16
30.06.16 
30.06.16
30.06.16
30.06.16 
30.06.16
m 
m 
m 
m 
m 
m 
 
 
 
AAA
1,737
8 
1,745
2,809
8 
2,817
AA
11,964
1,700 
13,664
13,096
1,704 
14,800
A
14,422
2,301 
16,723
15,325
2,378 
17,703
BBB
12,496
1,637 
14,133
13,372
1,853 
15,225
BB or below
1,102
541 
1,643
1,348
604 
1,952
Other
-
- 
-
233
- 
233
 
 
 
41,721
6,187 
47,908
46,183
6,547 
52,730
 
 
 
1. Where external ratings are not available an internal rating has been used where it is practicable to do so.
 
 
 
Externally
Internally 
Externally
Internally 
rated
rated1
LGR
rated
rated1
Total
30.06.15
30.06.15 
30.06.15
30.06.15
30.06.15 
30.06.15
m 
m 
m 
m 
m 
m 
 
 
 
AAA
1,870
5 
1,875
3,149
77 
3,226
AA
9,763
1,491 
11,254
10,605
1,563 
12,168
A
11,996
1,634 
13,630
12,915
1,664 
14,579
BBB
10,268
1,220 
11,488
11,133
1,393 
12,526
BB or below
1,008
56 
1,064
1,233
93 
1,326
Other
-
6 
6
-
92 
92
 
 
 
34,905
4,412 
39,317
39,035
4,882 
43,917
 
 
 
1. Where external ratings are not available an internal rating has been used where it is practicable to do so.
 
 
 
Externally
Internally 
Externally
Internally 
rated
rated1
LGR
rated
rated1
Total
31.12.15
31.12.15 
31.12.15
31.12.15
31.12.15 
31.12.15
m 
m 
m 
m 
m 
m 
 
 
 
AAA
1,711
6 
1,717
3,326
8 
3,334
AA
9,426
1,551 
10,977
10,234
1,554 
11,788
A
11,349
1,903 
13,252
12,084
1,964 
14,048
BBB
10,721
1,659 
12,380
11,497
1,845 
13,342
BB or below
1,022
20 
1,042
1,221
72 
1,293
Other
-
- 
-
-
111 
111
 
 
 
34,229
5,139 
39,368
38,362
5,554 
43,916
 
 
 
1. Where external ratings are not available an internal rating has been used where it is practicable to do so.
Capital and Investments Page 97
4.07 Property analysis
Group property Direct Investments by status 
 
 
LGR1
LGC
Insurance
Total
At 
At
At
At
30.06.16 
30.06.16
30.06.16
30.06.16
m 
m
m
m
%
 
Fully let
2,257 
58
4
2,319
94
Part let
-  
- 
- 
- 
- 
Development
-  
95
- 
95
4
Land
-  
43
- 
43
2
 
2,257 
196
4
2,457
100
 
1. The fully let LGR property includes 1.9bn let to investment grade tenants.
LGR1
LGC
Insurance
Total
At 
At
At
At
30.06.15 
30.06.15
30.06.15
30.06.15
m 
m
m
m
%
 
Fully let
2,037 
30
3
2,070
93
Part let
-  
- 
- 
- 
- 
Development
-  
108
- 
108
5
Land
-  
42
- 
42
2
 
2,037 
180
3
2,220
100
 
1. The fully let LGR property includes 1.7bn let to investment grade tenants.
LGR1
LGC
Insurance
Total
At 
At
At
At
31.12.15 
31.12.15
31.12.15
31.12.15
m 
m
m
m
%
 
Fully let
2,157 
25
4
2,186
93
Part let
-  
- 
- 
- 
- 
Development
-  
118
- 
118
5
Land
-  
43
- 
43
2
 
2,157 
186
4
2,347
100
 
1. The fully let LGR property includes 1.9bn let to investment grade tenants.
Capital and Investments Page 98
This page has been left intentionally blank
Glossary  Page 99
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.
Adjusted return on equity*
ROE measures the return earned by shareholders on shareholder capital retained within the business. Adjusted ROE is calculated as IFRS prot after tax divided by average IFRS shareholders' funds excluding recognised gains and losses associated with held for sale and completed business disposals.
Adjusted operating profit*
Operating prot 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.
Advisory assets*
These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are benecially 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) dened below.
Alternative performance measures (APMs)
Measures that are not defined by an accounting or regulatory standard, but used by the group to give shareholders a better understanding of the underlying performance of the group. All APMs defined within this glossary are marked with an asterisk.
Annualised return on equity* 
Calculated by taking annualised profit after tax attributable to equity holders of the company, excluding gains and losses associated with held for sale and completed business disposals, as a percentage of the average shareholders' capital employed, being an average of the opening and closing shareholders' equity during the period.
Annual premium*
Premiums that are paid regularly over the duration of the contract such as protection policies.
Assets under administration (AUA)*
Assets administered by Legal & General which are benecially owned by clients. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
The total amount of money investors have trusted to our fund managers to invest across our investment products i.e. these are funds which are managed by our fund managers on behalf of investors.
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 LGA on this basis. 
Direct investments
Direct investments constitute an agreement with another party and represent an exposure to untraded and often less liquid asset classes. They can include physical assets, bilateral loans and private equity but exclude hedge funds.
Earnings per share (EPS)
EPS is a common nancial metric which can be used to measure the protability and strength of a company over time. It is the total shareholder prot after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.
Economic capital*
Economic capital is the capital that an insurer holds internally as a result of its own assessment of risk. It differs from regulatory capital, which is determined by regulators. It represents an estimate of the amount of economic losses an insurer could withstand and still remain solvent with a target level of condence over a specied time horizon. 
* Represents an alternative performance measure.
Glossary  Page 100
Economic Capital Requirement (ECR)*
The amount of Economic Capital required to cover the losses occurring in a 1-in-200 year risk event.
Economic Capital Surplus*
The excess of Eligible Own Funds on an economic basis over the Economic Capital Requirement. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.
ECR coverage ratio*
The Eligible Own Funds on an economic basis divided by the Economic Capital Requirement (ECR). This represents the number of times that the ECR is covered by Eligible Own Funds.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's Economic or Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on an Economic Capital or Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group. 
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.
IFRS prot before tax (PBT)
PBT measures prot attributable to shareholders incorporating actual investment returns experienced during the year but before the payment of tax.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.
Lifetime mortgages
An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Economic Capital and Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.
Net cash generation*
Net cash generation is dened as operational cash generation plus new business surplus/(strain).
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.
Operating prot*
Operating prot measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating prot therefore reects longer-term economic assumptions and changes in insurance risks such as mortality and longevity for the group's insurance business and shareholder funds, except for LGA which excludes unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed assumptions are reported below operating prot. Exceptional income and expenses which arise outside the normal course of business in the period, such as merger and acquisition and start-up costs are excluded from operating prot.
* Represents an alternative performance measure.
Glossary  Page 101
Operational cash generation*
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 and Legal & General Netherlands. 2015 included dividends remitted from Legal & General France, which was disposed of on 31 December 2015.
Overlay assets
Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include interest rate swaps, ination 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.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run nal 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 profits (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.
Recapitalisation Cost*
An additional liability required in the L&G Economic Capital balance sheet, to allow for the cost of recapitalising the balance sheet following a 1-in-200 year risk event, in order to maintain confidence that our future liabilities will be met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the group could raise debt and allows for diversification between all group entities.
Return on equity (ROE)*
ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS prot after tax divided by average IFRS shareholders' funds.
Single premiums*
Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium being paid over its lifetime, such as in individual and bulk annuity deals.
Solvency II
Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance rms 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 Risk Margin
An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the insurance and reinsurance obligations over the lifetime thereof.
Solvency II Surplus
The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event.
SCR coverage ratio
The Eligible Own Funds on a regulatory basis divided by the Solvency Capital Requirement (SCR). This represents the number of times that the SCR is covered by Eligible Own Funds.
* Represents an alternative performance measure
Glossary  Page 102
SCR coverage ratio (shareholder basis)*
In order to represent a shareholder view of group solvency on a regulatory basis, the capital requirement in relation to the ring-fenced LGAS With-profits fund is excluded from both Eligible Own Funds and the SCR in the calculation of the SCR coverage ratio. 
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.
* Represents an alternative performance measure.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR AKFDDOBKDBFK