REG - Legal & General Grp - L&G Half Year Results 2016 Part 3 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 4
09/08/2016 07:08
- Part 4: For the preceding part double click ID:nRSI5968Gc
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
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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 profit 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 profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and
exceptional items. Adjusted operating profit further removes exceptional restructuring costs.
Advisory assets*
These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are beneficially owned by
GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different
from Assets under Management (AUM) defined below.
Alternative performance measures (APMs)
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 beneficially owned by clients. Services provided in respect of assets under
administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and
sales transactions and record keeping.
Assets under management (AUM)*
The total amount of money investors have trusted to our fund managers to invest across our investment products i.e. these
are funds which are managed by our fund managers on behalf of investors.
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 financial metric which can be used to measure the profitability and strength of a company over time. It is
the total shareholder profit after tax divided by the number of shares outstanding. EPS uses a weighted average number of
shares outstanding during the year.
Economic capital*
Economic capital is the capital that an insurer holds internally as a result of its own assessment of risk. It differs from
regulatory capital, which is determined by regulators. It represents an estimate of the amount of economic losses an
insurer could withstand and still remain solvent with a target level of confidence over a specified time horizon.
* 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 profit before tax (PBT)
PBT measures profit attributable to shareholders incorporating actual investment returns experienced during the year but
before the payment of tax.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where appropriate.
Lifetime mortgages
An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's
house. Customers do not make any monthly payments and continue to own and live in their house until they move into long
term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to
cover the outstanding loan, any shortfall is borne by the lender.
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 defined 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 profit*
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term economic assumptions and changes in insurance risks such
as mortality and longevity for the group's insurance business and shareholder funds, except for 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 profit. Exceptional income and expenses which arise outside the normal course of
business in the period, such as merger and acquisition and start-up costs are excluded from operating profit.
* 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, inflation swaps, equity futures and options. These are typically used to hedge risks associated with
pension scheme assets during the derisking stage of the pension life cycle.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run final salary pension schemes to reduce their responsibilities by
closing the schemes to new members and passing the assets and obligations to insurance providers.
Present value of future new business 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 profit after tax divided by average IFRS shareholders' funds.
Single premiums*
Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium
being paid over its lifetime, such as in individual and bulk annuity deals.
Solvency II
Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance
firms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to
appropriately align insurers' risk with the capital they hold to safeguard policyholder.
Solvency II 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
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