REG - Legal & General Grp - L&G Half Year Results 2019 Part 2
RNS Number : 1627ILegal & General Group Plc07 August 2019Legal & General Group Plc
2019 Half Year Results Part 2
1 Independent review report to Legal & General Group Plc Page 29
Conclusion
We have been engaged by the Legal & General Group Plc ("the Group") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows (pages 42 to 47) and the related explanatory notes to the interim financial statements (pages 31 to 41 and 48 to 66).
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European Union on our review
Uncertainties related to the effects of Brexit are relevant to understanding our review of the condensed financial statements. Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Group a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Group in accordance with the terms of our engagement to assist the Group in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Group those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group for our review work, for this report, or for the conclusions we have reached.
Rees Aronson
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
6 August 2019
Page 30
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IFRS Disclosures on performance and Release from operations Page 31
2.01 Operating profit#
For the six month period to 30 June 2019
6 months
6 months
Full year
2019
2018
2018
Notes
£m
£m
£m
From continuing operations
Legal & General Retirement (LGR)
2.03
655
480
1,548
- LGR Institutional (LGRI)
524
361
1,149
- LGR Retail (LGRR)
131
119
399
Legal & General Investment Management (LGIM)
2.04
205
203
407
Legal & General Capital (LGC)
2.05
173
172
322
Legal & General Insurance (LGI)
2.03
134
154
308
- UK and Other
93
136
246
- US (LGIA)
41
18
62
Operating profit from divisions:
From continuing operations
1,167
1,009
2,585
From discontinued operations1
19
50
79
Operating profit from divisions
1,186
1,059
2,664
Group debt costs2
(108)
(97)
(203)
Group investment projects and central expenses
(73)
(53)
(126)
Operating profit
1,005
909
2,335
Investment and other variances
2.06
57
32
(188)
(Losses)/gains on non-controlling interests
(9)
1
(19)
Adjusted profit before tax attributable to equity holders
1,053
942
2,128
Tax expense attributable to equity holders
4.06
(188)
(170)
(320)
Profit for the period
865
772
1,808
Profit attributable to equity holders
874
771
1,827
p
p
p
Total basic earnings per share3
2.07
14.74
13.00
30.79
Total diluted earnings per share3
2.07
14.66
12.94
30.64
1. Operating profit from discontinued divisions reflects the operating profit of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
2. Group debt costs exclude interest on non-recourse financing.
3. All earnings per share calculations are based on profit attributable to equity holders of the company.
This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the period.
· LGR represents worldwide pension risk transfer business including longevity insurance (within LGRI), and individual retirement and lifetime mortgages (within LGRR).
· LGIM represents institutional and retail investment management and workplace savings businesses.
· LGC represents shareholder assets invested in direct investments primarily in the areas of housing, urban regeneration, clean energy and SME finance, as well as traded and treasury assets.
· LGI primarily represents UK and US retail protection business, UK group protection and Fintech business.
· Discontinued operations represent businesses that have either been sold or announced to sell subject to formal transfer, namely Mature Savings (including with-profits) and General Insurance.
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except the operating profit for LGC's trading businesses (which reflects the IFRS profit before tax) and LGIA's non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit, which include any differences between investment return on actual assets and the target long-term asset mix. Exceptional income and expenses which arise outside the normal course of business in the period, such as gains/losses from merger and acquisition, and start-up costs, are also excluded from operating profit
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 32
2.02 Reconciliation of release from operations to operating profit# before tax
Changes in
valuation assump- tions
Operating profit/ (loss) after tax
Operating profit/ (loss) before
tax
New business surplus/ (strain)
Net
release from operations
Release from operations1
Exper- ience variances
Non-cash items
Other
Tax expense/ (credit)
For the six month period
to 30 June 2019
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
LGR
303
185
488
(37)
33
58
-
542
113
655
- LGRI
212
165
377
(37)
33
61
-
434
90
524
- LGRR
91
20
111
-
-
(3)
-
108
23
131
LGIM
175
(11)
164
-
-
(1)
-
163
42
205
- LGIM (excluding
Workplace Savings)2
162
-
162
-
-
-
-
162
42
204
- Workplace Savings3
13
(11)
2
-
-
(1)
-
1
-
1
LGC
142
-
142
-
-
-
-
142
31
173
LGI
171
(1)
170
(21)
18
(2)
(59)
106
28
134
- UK and Other
84
(1)
83
(21)
18
(2)
-
78
15
93
- US (LGIA)
87
-
87
-
-
-
(59)
28
13
41
From continuing operations
791
173
964
(58)
51
55
(59)
953
214
1,167
From discontinued operations4
15
-
15
-
-
-
-
15
4
19
Total from divisions
806
173
979
(58)
51
55
(59)
968
218
1,186
Group debt costs
(87)
-
(87)
-
-
-
-
(87)
(21)
(108)
Group investment projects and expenses
(19)
-
(19)
-
-
-
(36)
(55)
(18)
(73)
Total
700
173
873
(58)
51
55
(95)
826
179
1,005
1. Release from operations within US (LGIA) includes £81m of dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
Release from operations for LGR, LGIM - Workplace Savings and LGI represents the expected IFRS surplus generated in the period from the in-force non profit annuities, workplace savings and UK protection businesses using best estimate assumptions. The LGIM (excluding Workplace Savings) release from operations includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA. The release from operations within discontinued operations primarily reflects the unwind of expected profits after tax under the risk transfer agreement with ReAssure Limited (a subsidiary of Swiss Re) from the Mature Savings business, and the operating profit (net of tax) from the General Insurance business.
New business surplus/strain for LGR, LGIM - Workplace Savings and LGI represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long term asset portfolio. The six months period to 30 June 2019 has seen record pension risk transfer (PRT) volumes, and as a result we continue to source high quality assets to support this business in 2019, as appropriate, taking into account the alternative risk and rewards of traded credit. At period end, any difference between the actual assets and the target long-term asset mix is reflected in investment variance.
Net release from operations for LGR, LGIM - Workplace Savings, LGI and discontinued operations is defined as release from operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM (excluding Workplace Savings) represent the operating profit (net of tax) of these divisions.
See Note 2.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 33
2.02 Reconciliation of release from operations to operating profit# before tax (continued)
Changes in
valuation assump- tions
Operating profit/ (loss) after tax
Operating profit/ (loss) before
tax
New business surplus/ (strain)
Net
release from operations
Release from operations1
Exper- ience variances
Non-cash items
Other
Tax expense/ (credit)
For the six month period
to 30 June 2018
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
LGR
275
23
298
51
57
(6)
-
400
80
480
- LGRI
192
12
204
50
54
(7)
-
301
60
361
- LGRR
83
11
94
1
3
1
-
99
20
119
LGIM
177
(13)
164
(1)
-
(1)
-
162
41
203
- LGIM (excluding
Workplace Savings)2
161
-
161
-
-
-
-
161
40
201
- Workplace Savings3
16
(13)
3
(1)
-
(1)
-
1
1
2
LGC
138
-
138
-
-
-
-
138
34
172
LGI
165
(8)
157
31
8
(9)
(76)
111
43
154
- UK and Other
88
(8)
80
31
8
(9)
1
111
25
136
- US (LGIA)
77
-
77
-
-
-
(77)
-
18
18
From continuing operations
755
2
757
81
65
(16)
(76)
811
198
1,009
From discontinued operations4
17
-
17
(3)
-
26
-
40
10
50
Total from divisions
772
2
774
78
65
10
(76)
851
208
1,059
Group debt costs
(79)
-
(79)
-
-
-
-
(79)
(18)
(97)
Group investment projects and expenses
(15)
-
(15)
-
-
-
(25)
(40)
(13)
(53)
Total
678
2
680
78
65
10
(101)
732
177
909
1. Release from operations within the US (LGIA) includes £77m of dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcement to sell these businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 34
2.02 Reconciliation of release from operations to operating profit# before tax (continued)
Changes in
valuation assump- tions
Operating profit/
(loss) after
tax
Operating profit/
(loss)
before
tax
New business surplus/ (strain)
Net
release
from operations
Release from operations1
Exper-
Non-cash items
Other
Tax expense/ (credit)
ience
For the year ended
variances
31 December 2018
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
LGR
551
217
768
33
444
40
-
1,285
263
1,548
- LGRI
379
188
567
22
324
43
-
956
193
1,149
- LGRR
172
29
201
11
120
(3)
-
329
70
399
LGIM
354
(25)
329
(3)
(1)
1
-
326
81
407
- LGIM (excluding
Workplace Savings)2
323
-
323
-
-
-
-
323
81
404
- Workplace Savings3
31
(25)
6
(3)
(1)
1
-
3
-
3
LGC
261
-
261
-
-
-
-
261
61
322
LGI
258
(22)
236
24
35
(19)
(7)
269
39
308
- UK and Other
181
(22)
159
24
35
(19)
1
200
46
246
- US (LGIA)
77
-
77
-
-
-
(8)
69
(7)
62
From continuing
operations
1,424
170
1,594
54
478
22
(7)
2,141
444
2,585
From discontinued operations4
44
-
44
(6)
-
26
-
64
15
79
Total from divisions
1,468
170
1,638
48
478
48
(7)
2,205
459
2,664
Group debt costs
(164)
-
(164)
-
-
-
-
(164)
(39)
(203)
Group investment projects and expenses
(34)
-
(34)
-
-
-
(68)
(102)
(24)
(126)
Total
1,270
170
1,440
48
478
48
(75)
1,939
396
2,335
1. Release from operations within US (LGIA) includes £77m of dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the result of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 35
2.03 Analysis of LGR and LGI operating profit
LGR
LGI
LGR
LGI
LGR
LGI
6 months
6 months
6 months
6 months
Full year
Full year
2019
2019
2018
2018
2018
2018
£m
£m
£m
£m
£m
£m
Net release from operations
488
170
298
157
768
236
Experience variances
- Persistency
-
(13)
3
(9)
8
(12)
- Mortality/morbidity
5
(8)
9
(12)
73
(7)
- Expenses
(9)
(1)
(6)
3
(13)
2
- Project and development costs
(4)
(1)
(3)
-
(11)
-
- Other1
(29)
2
48
49
(24)
41
Total experience variances
(37)
(21)
51
31
33
24
Changes to valuation assumptions
- Persistency
-
-
-
-
-
(4)
- Mortality/morbidity2
-
5
57
10
444
25
- Expenses
-
-
-
-
-
17
- Other3
33
13
-
(2)
-
(3)
Total changes to valuation assumptions
33
18
57
8
444
35
Movement in non-cash items
- Acquisition expense tax relief
-
(1)
-
(5)
-
(11)
- Other4
58
(1)
(6)
(4)
40
(8)
Total movement in non-cash items
58
(2)
(6)
(9)
40
(19)
Other
-
(59)
-
(76)
-
(7)
Operating profit after tax
542
106
400
111
1,285
269
Tax gross up
113
28
80
43
263
39
Operating profit before tax
655
134
480
154
1,548
308
1. Other experience variances for LGR predominantly reflects an update to the liability valuation model for deferred annuitants and increased prudence in reserves where death experience is out of date. The positive variance for the six months ended 30 June 2018 reflect the impact of an improvement in the quality of the scheme data relating to bulk annuities.
2. In 2018, LGR reviewed the longevity trend assumptions and made a mortality release of £57m in H1 18 and £444m in H2 18. In 2019, as in previous years, LGR are reviewing the current longevity trend assumptions against the CMI 2017 experience data and intend to make any amendments as necessary in H2 19.
3. LGR Other changes to valuation assumptions reflect a change in assumption on the future exercise of an option within a longevity swap contract.
4. LGR Other movement in non-cash items is driven by the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes.
IFRS Disclosures on performance and Release from operations Page 36
2.04 Analysis of LGIM operating profit
6 months
6 months
Full year
2019
2018
2018
£m
£m
£m
Asset management revenue (excluding 3rd party market data)1,2
425
401
820
Asset management transactional revenue from external clients3
9
13
27
Asset management expenses (excluding 3rd party market data)1,2
(230)
(213)
(443)
Workplace Savings operating profit4
1
2
3
Total LGIM operating profit
205
203
407
1. Asset management revenue and expenses exclude income and costs of £11m in relation to the provision of third party market data (H1 18: £8m; FY 18: £19m).
2. The ETF operating result is included as part of asset management revenue and expenses, which represents a change in the presentation from previous periods. Asset management revenue (excluding 3rd party market data) and Asset management expenses (excluding 3rd party market data) have therefore been restated for the six months ended 30 June 2018 and for the full year ended 31 December 2018 to reflect this change.
3. Transactional revenue earned from external clients including execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees for property funds.
4. Workplace Savings represents administration business only.
2.05 Analysis of LGC operating profit
6 months
6 months
Full year
2019
2018
2018
£m
£m
£m
Direct investments1
99
104
188
Traded investment portfolio including treasury assets2
74
68
134
Total LGC operating profit
173
172
322
1. Direct Investments represents LGC's portfolio of assets across future cities (including urban regeneration and clean energy), housing and SME finance.
2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.
2.06 Investment and other variances
6 months
6 months
Full year
2019
2018
2018
£m
£m
£m
Investment variance1
84
54
(126)
M&A related and other variances2
(27)
(22)
(62)
Total investment and other variances
57
32
(188)
1. Investment variance includes differences between actual and smoothed investment return on traded and real assets, economic assumption changes (e.g. credit default and inflation) and the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business written during the period and held at a period end.
2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. H1 19 includes a £43m gain on the disposal of the group's stake in IndiaFirst Life Insurance Company Limited (H1 18 and FY 18 included the recognition of a one-off profit of £20m arising on the stepped acquisition of CALA Homes).
IFRS Disclosures on performance and Release from operations Page 37
2.07 Earnings per share
(a) Basic earnings per share
After tax
Per share1
After tax
Per share1
After tax
Per share1
6 months
6 months
6 months
6 months
Full year
Full year
2019
2019
2018
2018
2018
2018
£m
p
£m
p
£m
p
Profit for the period attributable to equity holders
874
14.74
771
13.00
1,827
30.79
Less: earnings derived from discontinued operations
(27)
(0.46)
(33)
(0.56)
(43)
(0.72)
Basic earnings derived from continuing operations
847
14.28
738
12.44
1,784
30.07
1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.
(b) Diluted earnings per share
After tax
Weighted
average
number of
shares
Per share1
For the six month period to 30 June 2019
£m
m
p
Profit for the period attributable to equity holders
874
5,931
14.74
Net shares under options allocable for no further consideration
-
30
(0.08)
Total diluted earnings
874
5,961
14.66
Less: diluted earnings derived from discontinued operations
(27)
-
(0.45)
Diluted earnings derived from continuing operations
847
5,961
14.21
After tax
Weighted
average
number of
shares
Per share1
For the six month period to 30 June 2018
£m
m
p
Profit for the period attributable to equity holders
771
5,933
13.00
Net shares under options allocable for no further consideration
-
25
(0.06)
Total diluted earnings
771
5,958
12.94
Less: diluted earnings derived from discontinued operations
(33)
-
(0.55)
Diluted earnings derived from continuing operations
738
5,958
12.39
After tax
Weighted
average
number of
shares
Per share1
For the year ended 31 December 2018
£m
m
p
Profit for the period attributable to equity holders
1,827
5,933
30.79
Net shares under options allocable for no further consideration
-
29
(0.15)
Total diluted earnings
1,827
5,962
30.64
Less: diluted earnings derived from discontinued operations
(43)
-
(0.72)
Diluted earnings derived from continuing operations
1,784
5,962
29.92
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.
IFRS Disclosures on performance and Release from operations Page 38
2.08 Segmental analysis
Reportable segments
The group has four reportable segments that are continuing operations, comprising LGR, LGIM, LGC and LGI, as set out in Note 2.01. Group central expenses and debt costs are reported separately. Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
Reporting of assets and liabilities by reportable segment has not been included, as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.
(i) Profit/(loss) for the period
Group
expenses
Total
and debt
continuing
LGR
LGIM
LGC
LGI
costs
operations1
For the six month period to 30 June 2019
£m
£m
£m
£m
£m
£m
Operating profit/(loss)#
655
205
173
134
(181)
986
Investment and other variances
(17)
(5)
105
(134)
94
43
Losses attributable to non-controlling interests
-
-
-
-
(9)
(9)
Profit/(loss) before tax attributable to equity holders
638
200
278
-
(96)
1,020
Tax (expense)/credit attributable to equity holders
(110)
(42)
(36)
-
6
(182)
Profit/(loss) for the period
528
158
242
-
(90)
838
Group
expenses
Total
and debt
continuing
LGR
LGIM
LGC
LGI
costs
operations1
For the six month period to 30 June 2018
£m
£m
£m
£m
£m
£m
Operating profit/(loss)#
480
203
172
154
(150)
859
Investment and other variances
85
(4)
(90)
(37)
86
40
Gains attributable to non-controlling interests
-
-
-
-
1
1
Profit/(loss) before tax attributable to equity holders
565
199
82
117
(63)
900
Tax (expense)/credit attributable to equity holders
(102)
(39)
(14)
(35)
29
(161)
Profit/(loss) for the period
463
160
68
82
(34)
739
Group
expenses
Total
and debt
continuing
LGR
LGIM
LGC
LGI
costs
operations1
For the year ended 31 December 2018
£m
£m
£m
£m
£m
£m
Operating profit/(loss)#
1,548
407
322
308
(329)
2,256
Investment and other variances
95
(4)
(273)
(1)
22
(161)
Losses attributable to non-controlling interests
-
-
-
-
(19)
(19)
Profit/(loss) before tax attributable to equity holders
1,643
403
49
307
(326)
2,076
Tax (expense)/credit attributable to equity holders
(267)
(81)
13
(39)
63
(311)
Profit/(loss) for the year
1,376
322
62
268
(263)
1,765
1. Total continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 39
2.08 Segmental analysis (continued)
(ii) Revenue
(a) Total revenue
6 months
6 months
Full year
2019
2018
2018
£m
£m
£m
Total income
48,450
2,307
894
Less:
Share of profit from associates and joint ventures, net of tax
(6)
(3)
(15)
Gain on disposal/acquisition of subsidiaries, associates and joint ventures
(43)
(20)
(20)
Total revenue from continuing operations1
48,401
2,284
859
1. Total revenue from continuing operations excludes the revenue of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
(b) Total income
LGC and
Total continuing
LGR
LGIM1,2
LGI
other3
operations4
For the six month period to 30 June 2019
£m
£m
£m
£m
£m
Internal income
-
89
-
(89)
-
External income
10,602
25,376
1,141
11,331
48,450
Total income
10,602
25,465
1,141
11,242
48,450
LGC and
Total continuing
LGR
LGIM1,2
LGI
other3
operations4
For the six month period to 30 June 2018
£m
£m
£m
£m
£m
Internal income
-
81
-
(81)
-
External income
(101)
1,324
1,073
11
2,307
Total income
(101)
1,405
1,073
(70)
2,307
LGC and
Total continuing
LGR
LGIM1,2
LGI
other3
operations4
For the year ended 31 December 2018
£m
£m
£m
£m
£m
Internal income
-
172
-
(172)
-
External income
8,507
(10,654)
1,742
1,299
894
Total income
8,507
(10,482)
1,742
1,127
894
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
4. Total continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
IFRS Disclosures on performance and Release from operations Page 40
2.08 Segmental analysis (continued)
(c) Fees from fund management and investment contracts
LGC and other1
Total continuing
LGIM
LGI
operations2
For the six month period to 30 June 2019
£m
£m
£m
£m
Investment contracts
34
-
-
34
Investment management fees
431
-
(74)
357
Transaction fees
10
-
(1)
9
Total fees from fund management and investment contracts3
475
-
(75)
400
LGC and other1
Total continuing
LGIM
LGI
operations2
For the six month period to 30 June 2018
£m
£m
£m
£m
Investment contracts
38
1
-
39
Investment management fees
393
-
(53)
340
Transaction fees
16
-
(1)
15
Total fees from fund management and investment contracts3
447
1
(54)
394
LGC and other1
Total continuing
LGIM
LGI
operations2
For the year ended 31 December 2018
£m
£m
£m
£m
Investment contracts
75
1
-
76
Investment management fees
813
-
(114)
699
Transaction fees
42
-
(15)
27
Total fees from fund management and investment contracts3
930
1
(129)
802
1. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
2. Total continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
3. Fees from fund management and investment contracts are a component of Total revenue from continuing operations disclosed in Note 2.08(ii)(a).
IFRS Disclosures on performance and Release from operations Page 41
2.08 Segmental analysis (continued)
(d) Other operational income from contracts with customers
LGC and other1
Total continuing
LGR
LGIM
LGI
operations2
For the six month period to 30 June 2019
£m
£m
£m
£m
£m
House building
-
-
-
454
454
Professional services fees
1
1
43
-
45
Insurance broker
-
-
17
-
17
Total other operational income from contracts with customers3
1
1
60
454
516
LGC and other1
Total continuing
LGR
LGIM
LGI
operations2
For the six month period to 30 June 2018
£m
£m
£m
£m
£m
House building
-
-
-
501
501
Professional services fees
-
1
77
(2)
76
Insurance broker
-
-
11
-
11
Total other operational income from contracts with customers3
-
1
88
499
588
LGC and other1
Total continuing
LGR
LGIM
LGI
operations2
For the year ended 31 December 2018
£m
£m
£m
£m
£m
House building
-
-
-
981
981
Professional services fees
3
3
155
-
161
Insurance broker
-
-
29
-
29
Total other operational income from contracts with customers3
3
3
184
981
1,171
1. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
2. Total continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
3. Total other operational income from contracts with customers is a component of Total revenue from continuing operations disclosed in Note 2.08(ii)(a).
IFRS Primary Financial Statements Page 42
3.01 Consolidated Income Statement
For the six month period to 30 June 2019
6 months
6 months
Full year
2019
2018
2018
Notes
£m
£m
£m
Income
Gross written premiums
8,745
2,563
12,843
Outward reinsurance premiums
(1,522)
(859)
(2,114)
Net premiums earned
7,223
1,704
10,729
Fees from fund management and investment contracts
2.08
400
394
802
Investment return
40,262
(407)
(11,843)
Other operational income
565
616
1,206
Total income
2.08
48,450
2,307
894
Expenses
Claims and change in insurance contract liabilities
12,368
846
8,370
Reinsurance recoveries
(1,971)
(1,127)
(1,051)
Net claims and change in insurance contract liabilities
10,397
(281)
7,319
Change in investment contract liabilities
35,412
292
(11,304)
Acquisition costs
395
371
780
Finance costs
137
113
238
Other expenses
1,048
852
1,732
Total expenses
47,389
1,347
(1,235)
Profit before tax
1,061
960
2,129
Tax expense attributable to policyholder returns
(41)
(60)
(53)
Profit before tax attributable to equity holders
1,020
900
2,076
Total tax expense
(223)
(221)
(364)
Tax expense attributable to policyholder returns
41
60
53
Tax expense attributable to equity holders
4.06
(182)
(161)
(311)
Profit after tax from continuing operations
2.08
838
739
1,765
Profit after tax from discontinued operations1
4.03
27
33
43
Profit for the period
865
772
1,808
Attributable to:
Non-controlling interests
(9)
1
(19)
Equity holders
874
771
1,827
Dividend distributions to equity holders during the period
4.04
704
658
932
Dividend distributions to equity holders proposed after the period end
4.04
294
274
704
p
p
p
Total basic earnings per share2
2.07
14.74
13.00
30.79
Total diluted earnings per share2
2.07
14.66
12.94
30.64
Basic earnings per share derived from continuing operations2
2.07
14.28
12.44
30.07
Diluted earnings per share derived from continuing operations2
2.07
14.21
12.39
29.92
1. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
2. All earnings per share calculations are based on profit attributable to equity holders of the company.
IFRS Primary Financial Statements Page 43
3.02 Consolidated Statement of Comprehensive Income
For the six month period to 30 June 2019
6 months
6 months
Full year
2019
2018
2018
£m
£m
£m
Profit for the period
865
772
1,808
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes
(69)
143
117
Tax on actuarial (losses)/gains on defined benefit pension schemes
13
(26)
(22)
Total items that will not be reclassified subsequently to profit or loss
(56)
117
95
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
3
13
62
Movement in cross-currency hedge
27
9
34
Tax on movement in cross-currency hedge
(5)
(2)
(5)
Movement in financial investments designated as available-for-sale
65
(41)
(36)
Tax on movement in financial investments designated as available-for-sale
(11)
9
5
Total items that may be reclassified subsequently to profit or loss
79
(12)
60
Other comprehensive income after tax
23
105
155
Total comprehensive income for the period
888
877
1,963
Total comprehensive income for the period attributable to:
Continuing operations
861
844
1,920
Discontinued operations
27
33
43
Total comprehensive income for the period attributable to:
Non-controlling interests
(9)
1
(19)
Equity holders
897
876
1,982
IFRS Primary Financial Statements Page 44
3.03 Consolidated Balance Sheet
As at 30 June 2019
As at
As at
As at
30 Jun 2019
30 Jun 20181
31 Dec 2018
Notes
£m
£m
£m
Assets
Goodwill
62
65
65
Purchased interest in long term businesses and other intangible assets
158
194
223
Deferred acquisition costs
74
128
140
Investment in associates and joint ventures accounted for using the equity method
362
51
259
Property, plant and equipment
291
63
57
Investment property
4.05
7,140
7,231
6,965
Financial investments
4.05
471,118
428,117
430,498
Reinsurers' share of contract liabilities
5,413
5,761
4,737
Deferred tax assets
4.06
7
7
7
Current tax assets
476
388
418
Receivables and other assets
10,706
9,383
5,593
Assets of operations classified as held for sale
4.03
27,194
21,932
26,234
Cash and cash equivalents
14,224
20,178
17,321
Total assets
537,225
493,498
492,517
Equity
Share capital
4.07
149
149
149
Share premium
4.07
998
990
992
Employee scheme treasury shares
(62)
(52)
(52)
Capital redemption and other reserves
300
158
230
Retained earnings
7,376
6,483
7,261
Attributable to owners of the parent
8,761
7,728
8,580
Non-controlling interests
4.08
66
77
72
Total equity
8,827
7,805
8,652
Liabilities
Non-participating insurance contract liabilities
73,869
59,713
64,707
Non-participating investment contract liabilities
315,603
302,280
293,080
Core borrowings
4.09
3,514
3,489
3,922
Operational borrowings
4.10
1,051
957
1,026
Provisions
1,202
1,153
1,140
UK deferred tax liabilities
4.06
193
73
144
Overseas deferred tax liabilities
4.06
197
235
185
Current tax liabilities
175
255
171
Payables and other financial liabilities
4.11
75,527
59,152
62,548
Other liabilities
719
438
619
Net asset value attributable to unit holders
24,909
25,434
26,481
Liabilities of operations classified as held for sale
4.03
31,439
32,514
29,842
Total liabilities
528,398
485,693
483,865
Total equity and liabilities
537,225
493,498
492,517
1. Following a change in accounting policy for LGIA term assurance reserves during 2018, the initial best estimate impacts of the change to certain balance sheet items have been refined.The overall impact is an increase in reinsurers' share of contract liabilities and the group's retained earnings of £27m. Further details on the change in accounting policy are provided in Note 4.01.
IFRS Primary Financial Statements Page 45
3.04 Condensed Consolidated Statement of Changes in Equity
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained
to owners
controlling
Total
For the six month period to 30 June 2019
capital
premium
shares
reserves1
earnings
of the parent
interests
equity
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 January 2019
149
992
(52)
230
7,261
8,580
72
8,652
Total comprehensive income for the period
-
-
-
79
818
897
(9)
888
Options exercised under share option schemes
-
6
-
-
-
6
-
6
Net movement in employee scheme treasury shares
-
-
(10)
(7)
(1)
(18)
-
(18)
Dividends
-
-
-
-
(704)
(704)
-
(704)
Movement in third party interests
-
-
-
-
-
-
3
3
Currency translation differences
-
-
-
(2)
2
-
-
-
As at 30 June 2019
149
998
(62)
300
7,376
8,761
66
8,827
1. Capital redemption and other reserves as at 30 June 2019 include share-based payments £74m, foreign exchange £122m, capital redemption £17m, hedging reserves £42m and available-for-sale reserves £45m.
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained
to owners
controlling
Total
capital
premium
shares
reserves1
earnings
of the parent
interests
equity
For the six month period to 30 June 2018
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 January 2018
149
988
(40)
168
6,224
7,489
76
7,565
Change in accounting policy2
-
-
-
-
27
27
-
27
Restated as at 1 January 2018
149
988
(40)
168
6,251
7,516
76
7,592
Total comprehensive income for the period
-
-
-
(12)
888
876
1
877
Options exercised under share option schemes
-
2
(12)
(22)
-
(32)
-
(32)
Net movement in employee scheme treasury shares
-
-
-
23
3
26
-
26
Dividends
-
-
-
-
(658)
(658)
-
(658)
Movement in third party interests
-
-
-
-
-
-
-
-
Currency translation differences
-
-
-
1
(1)
-
-
-
Restated as at 30 June 20182
149
990
(52)
158
6,483
7,728
77
7,805
1. Capital redemption and other reserves as at 30 June 2018 include share-based payments £70m, foreign exchange £83m, capital redemption £17m, hedging reserves £(2)m and available-for-sale reserves £(10)m.
2. During H2 18 the calculation of the retrospective impact of the change in accounting policy for LGIA term assurance reserves was refined, as described in Note 4.01. Change in accounting policy reflects the results of this refinement and consequently Retained earnings attributable to owners of the parent have been restated.
IFRS Primary Financial Statements Page 46
3.04 Condensed Consolidated Statement of Changes in Equity (continued)
Employee
Capital
Equity
scheme
redemption
attributable
Non-
Share
Share
treasury
and other
Retained
to owners
controlling
Total
For the year ended 31 December 2018
capital
premium
shares
reserves1
earnings
of the parent
interests
equity
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 January 2018
149
988
(40)
168
6,251
7,516
76
7,592
Total comprehensive income for the year
-
-
-
60
1,922
1,982
(19)
1,963
Options exercised under share option schemes
-
4
-
-
-
4
-
4
Net movement in employee scheme treasury shares
-
-
(12)
12
10
10
-
10
Dividends
-
-
-
-
(932)
(932)
-
(932)
Movement in third party interests
-
-
-
-
-
-
15
15
Currency translation differences
-
-
-
(10)
10
-
-
-
As at 31 December 2018
149
992
(52)
230
7,261
8,580
72
8,652
1. Capital redemption and other reserves as at 31 December 2018 include share-based payments £81m, foreign exchange £121m, capital redemption £17m, hedging reserves £20m and available-for-sale reserves £(9)m.
IFRS Primary Financial Statements Page 47
3.05 Consolidated Statement of Cash Flows
For the six month period to 30 June 2019
6 months
6 months
Full year
2019
2018
2018
Notes
£m
£m
£m
Cash flows from operating activities
Profit for the period
865
772
1,808
Adjustments for non cash movements in net profit for the period
Net (gains)/losses on financial investments and investment properties
(37,069)
6,025
23,132
Investment income
(5,588)
(5,386)
(10,182)
Interest expense
164
140
293
Tax expense
411
210
210
Other adjustments
62
105
183
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss
413
7,306
(10,381)
Investments designated as available-for-sale
97
387
(248)
Other assets
(6,033)
(2,012)
1,258
Net increase/(decrease) in operational liabilities
Insurance contracts
9,157
(2,001)
3,257
Investment contracts
22,524
(13,370)
(22,571)
Other liabilities
7,472
5,923
12,057
Net increase/(decrease) in held for sale net liabilities
223
(538)
(8,500)
Cash utilised in operations
(7,302)
(2,439)
(9,684)
Interest paid
(140)
(142)
(215)
Interest received
2,532
1,816
4,841
Tax paid1
(219)
(286)
(504)
Dividends received
2,819
2,802
5,201
Net cash flows from operating activities
(2,310)
1,751
(361)
Cash flows from investing activities
Net acquisition of plant, equipment, intangibles and other assets
(28)
(97)
(401)
Net disposal/(acquisition) of operations
4.02
76
326
326
Investment in joint ventures and associates
(88)
-
(130)
Net cash flows utilised in investing activities
(40)
229
(205)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the period
4.04
(704)
(658)
(932)
Issue of ordinary share capital
4.07
6
2
4
Exercise of employee scheme shares (net)
(10)
12
12
Payment of lease liabilities
(12)
-
-
Proceeds from borrowings
151
148
960
Repayment of borrowings
(593)
(11)
(325)
Movement in non-controlling interests
-
1
-
Net cash flows utilised in financing activities
(1,162)
(506)
(281)
Net (decrease)/increase in cash and cash equivalents
(3,512)
1,474
(847)
Exchange gains/(losses) on cash and cash equivalents
1
6
16
Cash and cash equivalents at 1 January
18,088
18,919
18,919
Total cash and cash equivalents
14,577
20,399
18,088
Less: cash and cash equivalents of operations classified as held for sale
4.03
(353)
(221)
(767)
Cash and cash equivalents at 30 June/31 December
14,224
20,178
17,321
1. Tax comprises UK corporation tax paid of £126m (H1 18: £170m; FY 18: £359m), overseas corporate taxes of £(12)m (H1 18: £23m; FY 18: £25m), and withholding tax of £105m (H1 18: £93m; FY 18: £120m).
IFRS Disclosure Notes Page 48
4.01 Basis of preparation
The group financial information for the six months ended 30 June 2019 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting'. The group's financial information has also been prepared in line with the accounting policies which the group expects to adopt for the 2019 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2018 consolidated financial statements, except where changes have been outlined below in "New standards, interpretations and amendments to published standards that have been adopted by the group". These are consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union.
The preparation of the interim management report includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2018 financial statements.
The results for the half year ended 30 June 2019 are unaudited but have been reviewed by KPMG LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results from the full year 2018 have been taken from the group's 2018 Annual Report and Accounts, restated as described in the changes in accounting policy section below. Therefore, these interim accounts should be read in conjunction with the 2018 Annual Report and Accounts that have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Commission for use in the European Union. KPMG LLP reported on the 2018 financial statements, and their report was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The group's 2018 Annual Report and Accounts has been filed with the Registrar of Companies.
Key technical terms and definitions
The interim management report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary section of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures (APMs), including net release from operations and group adjusted operating profit, in the discussion of its business performance and financial position, as the group believes that they provide a better understanding of its underlying performance. Definitions of key APMs can be found in the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.
For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.
(a) New standards, interpretations and amendments to published standards that have been adopted by the group
The group has applied the following standards and amendments for the first time in its six months reporting period commencing 1 January 2019.
IFRS 16 - Leases
IFRS 16, 'Leases', issued in January 2016, became effective from 1 January 2019, and replaced all previous lease requirements and guidance under IFRS, including IAS 17, 'Leases', IFRIC 4, 'Determining Whether an Arrangement Contains a Lease', SIC-15, 'Operating Leases - Incentives' and SIC-27, 'Evaluating the Substance of Transactions in the Legal Form of a Lease'. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts, bringing many commitments in relation to operating leases (as previously defined in IAS 17) onto the balance sheet.
The group has adopted IFRS 16 by using the modified retrospective approach, and therefore did not restate comparative financial information. At the date of the initial application the group recognised a lease liability and a right-of-use asset of an equal amount (adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the group Consolidated Balance Sheet immediately before the date of initial application), as allowed by the standard. Additionally, on transition, the group has elected to apply the standard only to those contracts that were previously assessed as leases under IAS 17 and IFRIC 4. The group also has elected to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. The implementation of IFRS 16 did not have a material impact on the group financial statements. The new accounting policy of the group upon adoption of IFRS 16 is disclosed below.
IFRS Disclosure Notes Page 49
4.01 Basis of preparation (continued)
(a) New standards, interpretations and amendments to published standards that have been adopted by the group (continued)
Under IFRS 16, a lease is a contract that conveys the right to use an identified asset, for a period of time in exchange for consideration.
The group takes many assets on lease, including head office accommodation, cars, IT equipment and investment properties. The group has elected to take the exemptions available on lease contracts for which the lease terms end within 12 months as of the commencement date, and lease contracts for which the underlying asset is of low value. Such leases are not recognised on the group consolidated balance sheet.
As a lessee, the group recognises leases on the balance sheet as 'right-of-use' assets and lease liabilities. The right-of-use assets' value is initially recognised as the calculated value of the lease liabilities with several additional adjustments, including initial direct costs. The initial measurement of the lease liabilities is made up of the present value of lease payments to be made over the lease term, including fixed and variable lease payments and excluding lease incentive receivables. The group policy is to use the incremental borrowing rates as a discount rate for calculating the lease liabilities. The right-of use assets are subsequently accounted for in accordance with the cost model in IAS 16 - Property, Plant and Equipment or as investment property under IAS 40 - Investment Property. The lease liabilities are unwound over the term of the lease giving rise to an interest expense. Additionally, the liabilities are reduced when lease payments are made. The group reassesses the valuation of lease liabilities and right-of-use assets if certain events occur that modify the original assumptions used to calculate the lease balances upon initial recognition.
As a lessor, the group accounts for leases as either operating or finance leases depending on whether the lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset to the lessee. Operating leases are recorded as assets on the balance sheet and lease income recognised on a straight line basis over the lease term. For finance leases, the group derecognises the underlying asset and records a receivable equal to the net investment in the lease. Finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the lease.
IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments
IFRIC 23, 'Uncertainty over Income Tax Treatments' was issued in June 2017. The Interpretation clarifies the application of recognition and measurement requirements in IAS 12, 'Income Taxes' when there is uncertainty over income tax treatments. The implementation of IFRIC 23 did not have a material impact on the group consolidated financial statements.
Amendments to IAS 19 - Employee Benefits
These amendments were issued in February 2018. The amendments require entities to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; they also clarify how the requirements for accounting for a plan amendment, curtailment or settlement affect the asset ceiling requirements. These amendments did not have any material impact on the group's consolidated financial statements.
Annual Improvements to IFRS Standards 2015-2017 Cycle
These improvements were issued in December 2017 and consist of minor amendments affecting IFRS 3 'Business combinations', IFRS 11, 'Joint arrangements', IAS 12, 'Income taxes' and IAS 23, 'Borrowing costs'. These amendments did not have any material impact on the group's consolidated financial statements.
Amendments to IAS 28 - Investments in Associates and Joint Ventures
These amendments, titled 'Long-term Interests in Associates and Joint Ventures', were issued in October 2017. The amendments clarify the accounting for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied. These amendments did not have any material impact on the group's consolidated financial statements.
IFRS Disclosure Notes Page 50
4.01 Basis of preparation (continued)
(b) Changes in accounting policy
LGIA (Legal & General Insurance America) Term Assurance
During 2018 the group changed its accounting policy for term assurance liabilities on business transacted by its US subsidiaries, which was previously based on recognised actuarial methods reflecting US GAAP. From 1 January 2018, the group calculated such liabilities on the basis of current information using the gross premium valuation method, which is in line with how similar products are accounted for in other parts of the business.
The group reported an initial best estimate of the impact of this change in accounting policy in the interim report for the six months ended 30 June 2018, and continued to refine that impact during the second half of 2018 as disclosed in the accounts for the year ended 31 December 2018. The final impact on each line item of the comparative Consolidated Balance Sheet as at 30 June 2018 is shown in the table below:
As reported at
As restated at
30 Jun 2018
Adjustments
30 Jun 2018
£m
£m
£m
Reinsurers' share of contract liabilities
5,734
27
5,761
Retained earnings
6,456
27
6,483
(c) Future accounting developments
IFRS 17 - Insurance Contracts
IFRS 17, 'Insurance Contracts' was issued in May 2017 and is expected to be effective for annual periods beginning on or after 1 January 2022. This reflects the one year delay proposed by the IASB in their June 2019 exposure draft and is subject to subsequent endorsement for use in the EU. The standard will be applied retrospectively, subject to the transitional options provided for in the standard, and provides a comprehensive approach for accounting for insurance contracts including their measurement, income statement presentation and disclosure. The group has mobilised a project to assess the financial and operational implications of the standard, and work will continue throughout the remainder of 2019 to ensure technical compliance and to develop the required system capability to implement the standard.
IFRS 9 - Financial Instruments and Amendments to IFRS 4 - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
In July 2014, the IASB issued IFRS 9, 'Financial Instruments' which is effective for annual periods beginning on or after 1 January 2018. The standard replaces IAS 39 'Financial Instruments: Recognition and Measurement'. It includes new principles around classification and measurement of financial instruments, introduces an impairment model based on expected credit losses (replacing the current model based on incurred losses) and new requirements on hedge accounting. The IASB subsequently issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which allows entities which meet certain requirements to defer their implementation of IFRS 9 until adoption of IFRS 17 or 1 January 2021, whichever is the earlier. In June 2019 the IASB proposed to extend the fixed expiry date of the temporary exemption in IFRS 4 from applying IFRS 9 by one year. Entities eligible for the exemption will be required to apply IFRS 9 for annual periods beginning on or after 1 January 2022, to align with the proposed delay in the adoption date of IFRS 17. As disclosed in the 2018 annual report and accounts, the group qualified for the deferral of IFRS 9 and is making use of this option.
The group has mobilised a project to assess the impact of IFRS 9 on its financial instruments, in particular around the classification and measurement of financial assets backing insurance contract liabilities expected to be measured using locked-in discount rates under IFRS 17, and impairment.
IFRS Disclosure Notes Page 51
4.02 Disposals
On 7 February 2019, the group completed the disposal of its stake in IndiaFirst Life Insurance Company Limited ("IndiaFirst Life") to an affiliate of Warburg Pincus LLC for INR 7.1bn (c.£76m at GBP:INR 1:92). The disposal resulted in a current period pre-tax gain of £43m, net of transaction costs. The operations of IndiaFirst Life have not been classified as discontinued operations since they do not represent a major line of business of the group.
4.03 Assets and liabilities of operations classified as held for sale
Mature Savings
On 6 December 2017 the group announced the sale of its Mature Savings business to the ReAssure division of Swiss Re Limited ('Swiss Re') for a consideration of £650m. As part of the transaction, on 1 January 2018 the group entered into a risk transfer agreement with Swiss Re, whereby the group transfers all economic risks and rewards of the Mature Savings business to Swiss Re from that date. The risk transfer agreement operates until the business is transferred under a court approved scheme under Part VII of the Financial Services and Markets Act 2000, which is expected to complete in H2 2019. The consideration of £650m was received in 2018.
As a result of the transaction, the Mature Savings business has been classified as held for sale. Profit arising from the Mature Savings business in accordance with the risk transfer agreement has been presented as "Profit after tax from discontinued operations" in the Consolidated Income Statement.
General Insurance
On 31 May 2019 the group announced that it had agreed to sell its General Insurance business to Allianz Holdings plc. The financial consideration from the proposed sale consists of a base price of £242 million payable at completion with potential further payments over a three year period from ongoing commercial arrangements.The proposed transaction, which is subject to regulatory approvals, is expected to complete in the second half of 2019.
As a result of the announcement, the General Insurance business has been classified as held for sale. Profit arising from the General Insurance business has been presented as "Profit after tax from discontinued operations" in the Consolidated Income Statement.
4.04 Dividends and appropriations
Dividend
Per share1
Dividend
Per share1
Dividend
Per share1
6 months
6 months
6 months
6 months
Full year
Full year
2019
2019
2018
2018
2018
2018
£m
p
£m
p
£m
p
Ordinary dividends paid and charged to equity in the period:
- Final 2017 dividend paid in June 2018
-
-
658
11.05
658
11.05
- Interim 2018 dividend paid in September 2018
-
-
-
-
274
4.60
- Final 2018 dividend paid in June 2019
704
11.82
-
-
-
-
Total dividends
704
11.82
658
11.05
932
15.65
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
Subsequent to 30 June 2019, the directors declared an interim dividend for 2019 of 4.93 pence per ordinary share. This dividend will be paid on 26 September 2019. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2019 and is not included as a liability in the Consolidated Balance Sheet as at 30 June 2019.
IFRS Disclosure Notes Page 52
4.05 Financial investments and investment property
30 Jun 2019
30 Jun 2018
31 Dec 2018
£m
£m
£m
Equity securities1
192,387
191,540
177,566
Debt securities2
275,086
233,977
254,452
Accrued interest
1,617
1,502
1,635
Derivative assets3
13,198
10,132
10,065
Loans4
12,861
10,271
9,662
Financial investments
495,149
447,422
453,380
Investment property
8,706
8,505
8,608
Total financial investments and investment property
503,855
455,927
461,988
Less: financial investments and investment property of operations classified as held for sale
(25,597)
(20,579)
(24,525)
Financial investments and investment property
478,258
435,348
437,463
1. Equity securities include investments in unit trusts of £13,122m (30 June 2018: £10,005m; 31 December 2018: £10,553m).
2. A detailed analysis of debt securities to which shareholders are directly exposed, is disclosed in Note 7.03.
3. Derivatives are used 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. Derivative assets are shown gross of derivative liabilities of £11,778m (30 June 2018: £7,652m; 31 December 2018 £7,791m).
4. Loans includes £447m (30 June 2018: £443m; 31 December 2018: £456m) of loans valued at amortised cost.
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the group's view of market assumptions in the absence of observable market information. The group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).
The group's financial assets are valued, where possible, using standard market pricing sources, such as IHS Markit, ICE and Bloomberg, or Index Providers such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modelling and multiple source validation in order to determine consensus prices, with the exception of OTC Derivative holdings; OTCs are marked to market using an in-house system (Lombard Oberon), external vendor (IHS Markit), internal model or counterparty broker marks. In normal market conditions, we would consider these market prices to be observable and therefore classify them as Level 1. However, where inputs to the valuation have been sourced from a market that is not suitably active the prices have been classified as Level 2. Refer to Note 4.06 (b) for Level 3 methodology.
The group's policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.
There have been no significant transfers between Level 1 and Level 2 in the six month period to 30 June 2019 (30 June 2018; 31 December 2018: No significant transfers). Transfers into and out of Level 3 are disclosed in Note 4.05 (b).
IFRS Disclosure Notes Page 53
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total
Level 1
Level 2
Level 3
As at 30 June 2019
£m
£m
£m
£m
Shareholder
Equity securities
2,624
1,629
-
995
Debt securities
4,319
1,601
2,040
678
Accrued interest
32
13
13
6
Derivative assets
110
104
6
-
Loans at fair value
234
-
234
-
Investment property
203
-
-
203
Non profit non-unit linked
Equity securities
156
152
-
4
Debt securities
66,387
7,314
43,723
15,350
Accrued interest
520
25
464
31
Derivative assets
11,523
-
11,523
-
Loans at fair value
726
-
726
-
Investment property
3,131
-
-
3,131
With-profits
Equity securities
3,191
2,998
-
193
Debt securities
5,598
1,636
3,962
-
Accrued interest
47
11
36
-
Derivative assets
68
8
60
-
Loans at fair value
396
-
396
-
Investment property
520
-
-
520
Unit linked
Equity securities
186,416
183,682
2,070
664
Debt securities
198,782
140,904
57,601
277
Accrued interest
1,018
493
525
-
Derivative assets
1,497
200
1,297
-
Loans at fair value
11,058
-
11,058
-
Investment property
4,852
-
-
4,852
Total financial investments and investment property at fair value1,2
503,408
340,770
135,734
26,904
1. This table excludes loans (including accrued interest) of £447m, which are held at amortised cost.
2. This table includes financial investments of £24,031m and investment property of £1,566m classified as assets of operations classified as held for sale.
IFRS Disclosure Notes Page 54
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total
Level 1
Level 2
Level 3
As at 30 June 2018
£m
£m
£m
£m
Shareholder
Equity securities
2,317
1,535
-
782
Debt securities
4,947
1,688
2,886
373
Accrued interest
32
15
14
3
Derivative assets
12
4
8
-
Loans at fair value
352
-
352
-
Investment property
109
-
-
109
Non profit non-unit linked
Equity securities
285
281
4
-
Debt securities
50,406
6,641
33,373
10,392
Accrued interest
441
29
391
21
Derivative assets
4,213
-
4,181
32
Loans at fair value
573
-
398
175
Investment property
2,791
-
-
2,791
With-profits
Equity securities
3,276
3,087
-
189
Debt securities
6,083
1,746
4,333
4
Accrued interest
50
14
36
-
Derivative assets
57
4
53
-
Loans at fair value
117
-
117
-
Investment property
551
-
-
551
Unit linked
Equity securities
185,662
185,009
36
617
Debt securities
172,541
120,048
52,484
9
Accrued interest
979
439
540
-
Derivative assets
5,850
218
5,632
-
Loans at fair value
8,786
-
8,786
-
Investment property
5,054
-
-
5,054
Total financial investments and investment property at fair value1,2
455,484
320,758
113,624
21,102
1. This table excludes loans of £443m, which are held at amortised cost.
2. This table includes financial investments of £19,306m and investment property of £1,273m classified as assets of operations classified as held for sale.
IFRS Disclosure Notes Page 55
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total
Level 1
Level 2
Level 3
As at 31 December 2018
£m
£m
£m
£m
Shareholder
Equity securities
2,322
1,432
-
890
Debt securities
5,708
1,851
3,199
658
Accrued interest
33
15
15
3
Derivative assets
18
7
11
-
Loans at fair value
371
-
371
-
Investment property
166
-
-
166
Non profit non-unit linked
Equity securities
205
194
1
10
Debt securities
56,864
7,031
36,937
12,896
Accrued interest
491
20
446
25
Derivative assets
4,393
-
4,336
57
Loans at fair value
486
-
486
-
Investment property
2,930
-
-
2,930
With-profits
Equity securities
2,936
2,742
-
194
Debt securities
5,988
1,707
4,277
4
Accrued interest
52
15
37
-
Derivative assets
51
5
46
-
Loans at fair value
45
-
45
-
Investment property
520
-
-
520
Unit linked
Equity securities
172,103
169,414
2,026
663
Debt securities
185,892
131,679
53,941
272
Accrued interest
1,059
502
557
-
Derivative assets
5,603
428
5,175
-
Loans at fair value
8,304
-
8,304
-
Investment property
4,992
-
-
4,992
Total financial investments and investment property at fair value1,2
461,532
317,042
120,210
24,280
1. This table excludes loans (including accrued interest) of £456m, which are held at amortised cost.
2. This table includes financial investments of £22,882m and investment property of £1,643m classified as assets of operations classified as held for sale.
IFRS Disclosure Notes Page 56
4.05 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value
Level 3 assets, where internal models are used, comprise property, unquoted equities, untraded debt securities and securities where unquoted prices are provided by a single broker. Unquoted securities include suspended securities, investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips and lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the group has classified within Level 3.
The group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the group's credit standing, liquidity and risk margins on unobservable inputs.
Equity securities
Level 3 equity securities amount to £1,856m (30 June 2018: £1,588m; 31 December 2018: £1,757m), of which the majority is made up of holdings of investment property vehicles and private investment funds. They are valued at the proportion of the group's holding of the Net Asset Value reported by the investment vehicles. Other equity securities are valued by a number of third party specialists using a range of techniques, including latest round of funding and discounted cash flow models.
Other financial investments
Other level 3 financial investments comprise of various debt securities (including lifetime mortgages), accrued interest and derivative assets.
Lifetime mortgage (LTM) loans amount to £3,990m (30 June 2018: £2,674m; 31 December 2018 £3,227m). They are valued using a discounted cash flow model by projecting best-estimate net asset proceeds and discounting using rates inferred from current LTM pricing. The inferred illiquidity premiums for the majority of the portfolio range between 100 and 350bps. This ensures the value of loans at outset is consistent with the purchase price of the loan, and achieves consistency between new and in-force loans. Inputs to the model include property growth rates and voluntary early redemptions. The valuation as at 30 June 2019 reflects a long-term property growth rate assumption of RPI + 0.5%.
Private credit loans (including commercial real estate loans) amount to £9,421m (30 June 2018: £6,765m; 31 December 2018: £8,001m). Their valuation is outsourced to IHS Markit who use discounted future cash flows based on a yield curve. The discount factors take into consideration the z-spread of the LGIM approved comparable bond and the initial spread agreed by both parties. Unobservable inputs that go into the determination of comparators, include: rating, sector, sub-sector, performance dynamics, financing structure and duration of investment. Existing private credit investments which were executed back as far as 2011, are subject to a range of interest rate formats, although the majority are fixed rate. The weighted average duration of the portfolio is 11.7 years, with a weighted average life of 16.5 years. Maturities in the portfolio currently extend out to 2064. The private credit portfolio of assets is not externally rated but has internal ratings assigned by an independent credit team in line with internally developed methodologies. These credit ratings range from AAA to B.
Income strip assets amount to £1,258m (30 June 2018: £1,190m; 31 December 2018: £1,248m). Their valuation is outsourced to Knight Frank and CBRE who apply a yield to maturity to discounted future cash flows to derive valuations. The overall valuation takes into account the property location, tenant details, tenure, rent, rental break terms, lease expiries and underlying residual value of the property. The valuation as at 30 June 2019 reflects equivalent yield ranges between 2% and 6% and estimated rental values (ERV) between £10 and £27 per sq. ft.
Private placements held by the US business amount to £1,043m (30 June 2018: £525m; 31 December 2018: £938m). They are valued using a pricing matrix comprised of a public spread matrix, internal ratings assigned to each holding, average life of each holding, and a premium spread matrix. These are added to the risk-free rate to calculate the discounted cash flows and establish a market value for each investment grade private placement. The valuation as at 30 June 2019 reflects illiquidity premiums between 10 and 75bps.
Commercial mortgage loans amount to £357m (30 June 2018: £175m; 31 December 2018: £275m) and are determined by incorporating credit risk for performing loans at the portfolio level and for loans identified to be distressed at the loan level. The projected cash flows of each loan are discounted along stochastic risk free rate paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best observable inputs. The valuation as at 30 June 2019 reflects illiquidity premiums between 20 and 40bps.
Other debt securities which are not traded in an active market have been valued using third party or counterparty valuations. These prices are considered to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to £8,706m (30 June 2018: £8,505m; 31 December 2018: £8,608m) is valued with the involvement of external valuers. All property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are undertaken by appropriately qualified valuers as defined therein. Whilst transaction evidence underpins the valuation process, the definition of market value, including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market knowledge and professional judgement and not rely only upon historic market sentiment based on historic transactional comparables.
The valuation of investment properties also include an income approach that is based on current rental income plus anticipated uplifts, where the uplift and discount rates are derived from rates implied by recent market transactions. These inputs are deemed unobservable. The valuation as at 30 June 2019 reflects equivalent yield ranges between 1% and 10% and ERV between £1 and £134 per sq. ft.
IFRS Disclosure Notes Page 57
4.05 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value (continued)
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.
The group's policy is to reassess the categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.
Other
Other
financial
financial
Equity
invest-
Investment
Equity
invest-
Investment
securities
ments
property
Total
securities
ments
property
Total
2019
2019
2019
2019
2018
2018
2018
2018
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 January
1,757
13,915
8,608
24,280
1,451
9,888
8,337
19,676
Total gains/(losses) for the period recognised in profit:
- in other comprehensive income
-
-
(34)
(34)
7
(113)
-
(106)
- realised and unrealised gains / (losses)1
38
930
15
983
41
20
70
131
Purchases / Additions
173
2,608
359
3,140
147
1,338
397
1,882
Sales / Disposals
(105)
(1,054)
(250)
(1,409)
(47)
(214)
(299)
(560)
Transfers into Level 3
2
-
-
2
-
90
-
90
Transfers out of Level 3
-
(57)
-
(57)
(11)
-
-
(11)
Other
(9)
-
8
(1)
-
-
-
-
As at 30 June
1,856
16,342
8,706
26,904
1,588
11,009
8,505
21,102
Other
financial
Equity
invest-
Investment
securities
ments
property
Total
2018
2018
2018
2018
£m
£m
£m
£m
As at 1 January
1,451
9,888
8,337
19,676
Total gains / (losses) for the year recognised in profit:
- in other comprehensive income
1
(18)
-
(17)
- realised and unrealised gains / (losses)1
35
(92)
50
(7)
Purchases / Additions
519
5,521
1,153
7,193
Sales / Disposals
(375)
(1,707)
(904)
(2,986)
Transfers into Level 3
126
295
-
421
Transfers out of Level 3
-
-
-
-
Other
-
28
(28)
-
As at 31 December
1,757
13,915
8,608
24,280
1. Realised and unrealised gains and losses are recognised in Investment return in the Consolidated Income Statement.
IFRS Disclosure Notes Page 58
4.05 Financial investments and investment property (continued)
(c) Effect on changes in assumptions on Level 3
Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data.
Where possible, the group assesses the sensitivity of fair values of Level 3 investments to changes in unobservable inputs to reasonable alternative assumptions. As outlined above, Level 3 investments are valued using internally-modelled valuations or independent third parties. Where internally-modelled valuations are used, sensitivities are determined by adjusting various inputs of the model and assigning them a weighting. Where independent third parties are used, sensitivities are determined as outlined below:
· Unquoted investments in property vehicles and direct holdings in investment property are valued using valuations provided by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yields.
· Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined by stressing key assumptions used in the valuation models.
The group is therefore able to perform a sensitivity analysis for its Level 3 investments, which amount to £26.9bn (30 June 2018: £21.1bn; 31 December 2018: £24.3bn). The effect of changes in significant unobservable valuation inputs to reasonable alternative assumptions would result in a change in fair value of +/- £1.7bn (30 June 2018: +/-£1.0bn; 31 December 2018: +/-£1.6bn), which represents 6% (30 June 2018: 5%; 31 December 2018: 7%) of the total value of Level 3 investments, including investment property.
Of the total sensitivity impact, +/- £1.0bn (30 June 2018: +/- £0.8bn; 31 December 2018: +/-£0.9bn) relates to Level 3 financial assets (excluding investment property), which represents 5% (30 June 2018: 6%; 31 December 2018: 6%) of total Level 3 financial assets and 4% (30 June 2018: 4%; 31 December 2018: 4%) of total Level 3 investments.
IFRS Disclosure Notes Page 59
4.06 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:
Continuing
Continuing
Continuing
operations
Total
operations
Total
operations
Total
6 months
2019
6 months
2019
6 months
2018
6 months
2018
Full year
2018
Full year
2018
£m
£m
£m
£m
£m
£m
Profit before tax attributable to equity holders
1,020
1,053
900
942
2,076
2,128
Tax calculated at 19.00%
194
200
171
179
394
404
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax
(1)
(1)
(1)
(1)
-
-
Higher/(lower) rate of tax on overseas profits
(11)
(11)
12
12
(55)
(55)
Non-deductible expenses
1
1
-
-
5
5
Differences between taxable and accounting investment gains
-
-
(1)
(1)
(4)
(4)
Property income attributable to non-controlling interests
-
-
(1)
(1)
-
-
Unrecognised tax losses
2
2
-
-
-
-
Non-recurring reconciling items:
Income not subject to tax
(2)
(2)
(4)
(4)
(10)
(10)
Non-deductible expenses
-
-
1
1
5
5
Adjustments in respect of prior years
(2)
(2)
(15)
(15)
(35)
(36)
Impact of reduction in UK and US corporate tax rates on deferred tax balances
1
1
2
2
11
11
Other
-
-
(3)
(2)
-
-
Tax expense attributable to equity holders
182
188
161
170
311
320
Equity holders' effective tax rate1
17.8%
17.9%
17.9%
18.0%
15.0%
15.0%
1. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders. Refer to Note 4.01 for details on the methodology of the split of policyholder and equity holders' tax.
IFRS Disclosure Notes Page 60
4.06 Tax (continued)
(b) Deferred tax
30 Jun 2019
30 Jun 2018
31 Dec 2018
Deferred tax (liabilities)/assets
£m
£m
£m
Deferred acquisition expenses
29
14
25
- UK
(40)
(38)
(40)
- Overseas
69
52
65
Difference between the tax and accounting value of insurance contracts
(635)
(377)
(577)
- UK
(228)
(74)
(171)
- Overseas
(407)
(303)
(406)
Realised and unrealised gains on investments
(175)
(243)
(72)
Excess of depreciation over capital allowances
12
14
12
Excess expenses
20
22
21
Accounting provisions and other
(32)
(11)
(28)
Trading losses1
179
29
163
Pension fund deficit
35
39
41
Acquired intangibles
(2)
(24)
(4)
Total net deferred tax liabilities
(569)
(537)
(419)
Less: net deferred tax liabilities of operations classified as held for sale
186
236
97
Net deferred tax liabilities
(383)
(301)
(322)
Analysed by:
- UK deferred tax assets
2
2
2
- UK deferred tax liabilities
(193)
(73)
(144)
- Overseas deferred tax assets
5
5
5
- Overseas deferred tax liabilities2
(197)
(235)
(185)
Net deferred tax liabilities
(383)
(301)
(322)
1. Trading losses include UK trade and US operating losses of £3m (H1 18: £2m; FY 18: £4m) and £176m (H1 18: £27m; FY 18: £159m) respectively.
2. Overseas deferred tax liability is wholly comprised of US balances as at 30 June 2019.
IFRS Disclosure Notes Page 61
4.07 Share capital and share premium
Number of
Authorised share capital
shares
£m
As at 30 June 2019, 30 June 2018 and 31 December 2018: ordinary shares of 2.5p each
9,200,000,000
230
Share
Share
Number of
capital
premium
Issued share capital, fully paid
shares
£m
£m
As at 1 January 2019
5,960,768,234
149
992
Options exercised under share option schemes
3,497,185
-
6
As at 30 June 2019
5,964,265,419
149
998
Share
Share
Number of
capital
premium
Issued share capital, fully paid
shares
£m
£m
As at 1 January 2018
5,958,438,193
149
988
Options exercised under share option schemes
1,435,336
-
2
As at 30 June 2018
5,959,873,529
149
990
Options exercised under share option schemes
894,705
-
2
As at 31 December 2018
5,960,768,234
149
992
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.
4.08 Non-controlling interests
Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results.
No individual non-controlling interest is considered to be material on the basis of the period end carrying value or share of profit or loss.
IFRS Disclosure Notes Page 62
4.09 Core borrowings
Carrying
Carrying
Carrying
amount
Fair value
amount
Fair value
amount
Fair value
30 Jun
30 Jun
30 Jun
30 Jun
31 Dec
31 Dec
2019
2019
2018
2018
2018
2018
£m
£m
£m
£m
£m
£m
Subordinated borrowings
5.875% Sterling undated subordinated notes (Tier 2)
-
-
405
415
405
409
10% Sterling subordinated notes 2041 (Tier 2)
312
364
311
380
312
366
5.5% Sterling subordinated notes 2064 (Tier 2)
589
684
589
629
589
569
5.375% Sterling subordinated notes 2045 (Tier 2)
602
673
603
657
603
627
5.25% US Dollar subordinated notes 2047 (Tier 2)
661
706
640
617
659
612
5.55% US Dollar subordinated notes 2052 (Tier 2)
388
419
376
361
387
356
5.125% Sterling subordinated notes 2048 (Tier 2)
399
445
-
-
399
401
Client fund holdings of group debt1
(31)
(34)
(27)
(29)
(31)
(30)
Total subordinated borrowings
2,920
3,257
2,897
3,030
3,323
3,310
Senior borrowings
Sterling medium term notes 2031-2041
603
868
603
812
609
824
Client fund holdings of group debt1
(9)
(13)
(11)
(14)
(10)
(13)
Total senior borrowings
594
855
592
798
599
811
Total core borrowings
3,514
4,112
3,489
3,828
3,922
4,121
1. £40m (30 June 2018: £38m; 31 December 2018: £41m) of the group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as level 1 in the fair value hierarchy.
Subordinated borrowings
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes were called at par on 1 April 2019. Effective from the notification on 4 February 2019 of the intention to redeem, the notes were no longer treated as tier 2 own funds for Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% p.a. These notes mature on 23 July 2041.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes mature on 21 March 2047.
IFRS Disclosure Notes Page 63
4.09 Core borrowings (continued)
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65% p.a. These notes mature on 14 November 2048.
All of the above subordinated notes are treated as tier 2 own funds for Solvency II purposes unless otherwise stated.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.
4.10 Operational borrowings
Carrying
Carrying
Carrying
amount
Fair value
amount
Fair value
amount
Fair value
30 Jun
30 Jun
30 Jun
30 Jun
31 Dec
31 Dec
2019
2019
2018
2018
2018
2018
£m
£m
£m
£m
£m
£m
Short term operational borrowings
Euro Commercial Paper
354
354
497
497
293
293
Non recourse borrowings
657
657
251
251
617
617
Bank loans and overdrafts
58
58
200
200
83
83
Total operational borrowings1
1,069
1,069
948
948
993
993
Less: liabilities of operations classified as held for sale
(29)
(29)
-
-
(28)
(28)
Operational borrowings
1,040
1,040
948
948
965
965
1. Unit linked borrowings with a carrying value of £11m (30 June 2018: £9m; 31 December 2018: £61m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,051m (30 June 2018: £957m; 31 December 2018: £1,026m).
Syndicated credit facility
As at 30 June 2019, the group had in place a £1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2022. No amounts were outstanding at 30 June 2019.
IFRS Disclosure Notes Page 64
4.11 Payables and other financial liabilities
30 Jun 2019
30 Jun 2018
31 Dec 2018
£m
£m
£m
Derivative liabilities
11,778
7,652
7,791
Repurchase agreements1
46,994
36,919
43,775
Other financial liabilities2
17,353
15,016
11,406
Total payables and other financial liabilities
76,125
59,587
62,972
Less: liabilities of operations classified as held for sale
(598)
(435)
(424)
Payables and other financial liabilities
75,527
59,152
62,548
1. Repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The vast majority of the repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, FX spots and collateral repayable on short position reverse repurchase agreements. The value of collateral repayable on short position reverse repurchase agreements was £6,114m (2018: £4,883m).
(a) Fair value hierarchy
Total
Level 1
Level 2
Level 3
Amortised
cost
As at 30 June 2019
£m
£m
£m
£m
£m
Derivative liabilities
11,778
276
11,500
2
-
Repurchase agreements
46,994
-
46,994
-
-
Other financial liabilities
17,353
5,854
14
577
10,908
Total payables and other financial liabilities
76,125
6,130
58,508
579
10,908
Amortised
Total
Level 1
Level 2
Level 3
cost
As at 30 June 2018
£m
£m
£m
£m
£m
Derivative liabilities
7,652
1,312
6,340
-
-
Repurchase agreements
36,919
-
36,919
-
-
Other financial liabilities
15,016
5,580
25
126
9,285
Total payables and other financial liabilities
59,587
6,892
43,284
126
9,285
Amortised
Total
Level 1
Level 2
Level 3
cost
As at 31 December 2018
£m
£m
£m
£m
£m
Derivative liabilities
7,791
337
7,452
2
-
Repurchase agreements
43,775
-
43,775
-
-
Other financial liabilities
11,406
4,718
35
496
6,157
Total payables and other financial liabilities
62,972
5,055
51,262
498
6,157
Trail commission (included within Other financial liabilities) is modelled using expected cash flows, incorporating expected future persistency. It has therefore been classified as a Level 3 liability. The entire movement in the balance has been reflected in the Consolidated Income Statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing the trail commission liability by £4m (30 June 2018 and 31 December 2018: Increase of £4m).
There have been no significant transfers of payables and other financial liabilities between Levels 1, 2 and 3 for the period ended 30 June 2019 (30 June 2018 and 31 December 2018: no significant transfers).
IFRS Disclosure Notes Page 65
4.12 Foreign exchange rates
The principal rates of exchange used for translation are:
Period end exchange rates
30 Jun 2019
30 Jun 2018
31 Dec 2018
United States dollar
1.27
1.32
1.28
Euro
1.12
1.13
1.11
6 months
6 months
Full year
Average exchange rates
2019
2018
2018
United States dollar
1.29
1.38
1.34
Euro
1.15
1.14
1.13
4.13 Retirement benefit obligations
The Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) account for the majority of the UK and worldwide assets of, and contributions to, such arrangements. The Fund and Scheme were closed to future accrual on 31 December 2015.
As at 30 June 2019, the combined obligation arising from these arrangements has been estimated at £1,139m (30 June 2018: £1,095m; 31 December 2018: £1,091m). The retirement benefit obligations is a component of Provisions on the Consolidated Balance Sheet. The after tax deficit, net of annuity obligations insured by Legal and General Assurance Society, has been calculated to be £161m (30 June 2018: £179m; 31 December 2018: £192m).
4.14 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court judgments.
Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the Group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.
In 1975, Legal and General Assurance Society Limited (LGAS) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of LGAS. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to LGAS against any liability LGAS may have as a result of the ILU's requirement, and the ILU agreed that its requirement of LGAS would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether LGAS has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. LGAS has made no payment or provision in respect of this matter.
Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of Group companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain Group companies' liabilities under the Group pension fund and scheme. LGAS has provided indemnities, a liquidity and expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of Group companies to facilitate the Group's matching adjustment reorganisation pursuant to Solvency II.
IFRS Disclosure Notes Page 66
4.15 Related party transactions
(a) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal & General group of companies during the period. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £40m (H1 18: £39m; FY 18: £84m) for all employees.
At 30 June 2019, 30 June 2018 and 31 December 2018 there were no loans outstanding to officers of the company.
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
6 months
6 months
Full year
2019
20181
2018
£m
£m
£m
Salaries
3
3
10
Post-employment benefits
-
-
-
Share-based incentive awards
3
2
6
Key management personnel compensation
6
5
16
Number of key management personnel
16
15
15
1. Key management personnel compensation for the six months ended 30 June 2018 has been restated to correctly reflect certain compensation excluded from the disclosure. The restatement has no impact on either Total expenses or Profit before income tax in the group's Consolidated Statement of Comprehensive Income for the six months ended 30 June 2018.
(b) Services provided to and by related parties
All transactions between the group and associates, joint ventures and other related parties during the year are on commercial terms which are no more favourable than those available to companies in general. Transactions between the group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Loans and commitments to related parties are made in the normal course of business.
The group has the following material related party transactions:
- Annuity contracts issued by Legal and General Assurance Society Limited for consideration of £78m (H1 18: 59m; FY 18: £59m) purchased by the group's UK defined benefit pension schemes during the period, priced on an arm's length basis;
- Loans outstanding from related parties, including preference shares, at 30 June 2019 of £81m (30 June 2018: £163m; 31 December 2018 of £201m);
- Total other commitments of £1,178m to related parties (30 June 2018: £787m; 31 December 2018: £837m), of which £821m has been drawn at 30 June 2019 (30 June 2018: £430m; 31 December 2018: £507m).
Asset and premium flows Page 67
5.01 LGIM Total assets under management (AUM)
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the six month period to 30 June 2019
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2019
310.2
162.6
510.5
27.1
5.1
1,015.5
External inflows
60.8
5.6
15.3
0.8
0.1
82.6
External outflows
(26.1)
(4.7)
(12.4)
(0.8)
(0.1)
(44.1)
Overlay net flows
-
-
22.0
-
-
22.0
ETF net flows
(0.2)
-
-
-
-
(0.2)
External net flows2
34.5
0.9
24.9
-
-
60.3
Internal net flows
(0.1)
(1.9)
3.3
1.2
(0.1)
2.4
Total net flows
34.4
(1.0)
28.2
1.2
(0.1)
62.7
Cash management movements3
-
0.5
-
-
-
0.5
Market and other movements2
45.5
10.8
(2.3)
1.2
0.6
55.8
As at 30 June 20194
390.1
172.9
536.4
29.5
5.6
1,134.5
Assets attributable to:
External5
1,032.7
Internal
101.8
1. As at 30 June 2019, Solutions include liability driven investments, multi-asset funds and £301.9bn of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets as at 30 June 2019 was £49.4bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. AUM includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
5. As part of the sale of the Mature Savings business to Swiss Re, a further £0.5bn (31 December 2018: £5.5bn) of assets have been reclassified from the Internal channel to External channel.
Asset and premium flows Page 68
5.01 LGIM Total assets under management (AUM) (continued)
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the six month period to 30 June 2018
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2018
340.9
148.8
462.7
23.8
7.1
983.3
Canvas acquisition2
2.4
-
-
-
-
2.4
External inflows
22.4
8.7
18.2
0.6
0.5
50.4
External outflows
(41.2)
(2.2)
(8.7)
(0.5)
(0.1)
(52.7)
Overlay net flows
-
-
16.7
-
-
16.7
ETF net flows
0.2
-
-
-
-
0.2
External net flows3
(18.6)
6.5
26.2
0.1
0.4
14.6
Internal net flows
(0.3)
(2.5)
(0.3)
0.6
(0.1)
(2.6)
Total net flows
(18.9)
4.0
25.9
0.7
0.3
12.0
Cash management movements4
-
1.0
-
-
-
1.0
Market and other movements3
1.9
(1.4)
(14.9)
0.8
(0.3)
(13.9)
At 30 June 2018
326.3
152.4
473.7
25.3
7.1
984.8
Assets attributable to:
External
888.8
Internal
96.0
1. As at 30 June 2018 Solutions include liability driven investments, multi-asset funds, and include £277.2bn of derivative notionals associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets as at 30 June 2018 was £48.3bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
Asset and premium flows Page 69
5.01 LGIM Total assets under management (AUM) (continued)
Global
fixed
Real
Active
Total
Index
income
Solutions1
assets
equities
AUM
For the year ended 31 December 2018
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2018
340.9
148.8
462.7
23.8
7.1
983.3
Canvas acquisition2
2.4
-
-
-
-
2.4
External inflows
54.2
15.7
33.8
1.5
0.6
105.8
External outflows
(69.0)
(6.2)
(16.1)
(1.6)
(0.2)
(93.1)
Overlay net flows
-
-
29.9
-
-
29.9
ETF net flows
-
-
-
-
-
-
External net flows3
(14.8)
9.5
47.6
(0.1)
0.4
42.6
Internal net flows
(0.7)
1.8
(0.7)
2.5
(0.3)
2.6
Total net flows
(15.5)
11.3
46.9
2.4
0.1
45.2
Cash management movements4
-
(0.5)
-
-
-
(0.5)
Market and other movements3
(17.6)
3.0
0.9
0.9
(2.1)
(14.9)
As at 31 December 2018
310.2
162.6
510.5
27.1
5.1
1,015.5
Assets attributable to:
External5
921.7
Internal
93.8
1. As at 31 December 2018, Solutions include liability driven investments, multi-asset funds and £303.9bn of derivative notionals associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets as at 31 December 2018 was £60.1bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
5. As part of the sale of the Mature Savings business to Swiss Re £5.5bn of assets have been re-classified from the Internal channel to External channel.
Asset and premium flows Page 70
5.02 LGIM Total external assets under management and net flows
External assets under management1
External net flows2
As at
As at
As at
6 months
6 months
6 months
30 Jun 2019
30 Jun 2018
31 Dec 2018
30 Jun 2019
30 Jun 2018
31 Dec 2018
£bn
£bn
£bn
£bn
£bn
£bn
International1,3
248.6
165.8
177.7
44.6
9.9
9.7
UK Institutional
- Defined contribution
86.4
64.0
70.8
3.6
3.5
4.9
- Defined benefit3
659.7
625.4
640.3
10.7
(0.3)
12.1
UK Retail
- Retail intermediary
30.0
25.1
25.5
1.7
1.4
1.6
- Personal investing4
5.6
5.7
5.1
(0.1)
(0.1)
(0.1)
ETF
2.4
2.8
2.3
(0.2)
0.2
(0.2)
Total external
1032.7
888.8
921.7
60.3
14.6
28.0
1. International asset are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £343bn as at 30 June 2019 (30 June 2018: £229.3bn; 31 December 2018: £258.0bn).
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
3. Defined benefit as at 30 June 2019 includes £70.8bn of assets managed in the US on behalf of UK clients (30 June 2018: £63.5bn; 31 December 2018: £61.7bn).
4. Personal investing as at 30 June 2019 includes £1.9bn of legacy Banks and Building Society customers which is the principal cause of net outflows.
5.03 Reconciliation of Assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents
30 Jun 2019
30 Jun 2018
31 Dec 2018
£bn
£bn
£bn
Assets under management
1,135
985
1,015
Derivative notionals1
(302)
(277)
(304)
Third party assets2
(362)
(275)
(284)
Other3
47
44
53
Total financial investments, investment property and cash and cash equivalents
518
477
480
Less: assets of operations classified as held for sale4
(26)
(21)
(25)
Financial investments, investment property and cash and cash equivalents
492
456
455
1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others which are not included on the Group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.
4. Assets of operations classified as held for sale relate to the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to Swiss Re and Allianz respectively.
Asset and premium flows Page 71
5.04 Assets under administration
Workplace1
Annuities2
Workplace
Annuities
Workplace
Annuities
30 Jun 2019
30 Jun 2019
30 Jun 2018
30 Jun 2018
31 Dec 2018
31 Dec 2018
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January
30.0
63.0
27.7
58.2
27.7
58.2
Gross inflows
3.5
7.2
2.7
1.1
5.6
9.9
Gross outflows
(0.9)
-
(0.8)
-
(1.8)
-
Payments to pensioners
-
(2.0)
-
(1.7)
-
(3.5)
Net flows
2.6
5.2
1.9
(0.6)
3.8
6.4
Market and other movements
3.5
3.9
0.1
(1.2)
(1.5)
(1.6)
At 30 June/31 December
36.1
72.1
29.7
56.4
30.0
63.0
1. Workplace assets under administration as at 30 June 2019 includes £36.0bn (30 June 2018: £29.5bn; 31 December 2018: £29.7bn) of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2019 includes £67.9bn (30 June 2018: £52.0bn; 31 December 2018: £59.3bn) of assets under management included in Note 5.01.
5.05 LGR new business
6 months
6 months
6 months
Full year
30 Jun
30 Jun
31 Dec
31 Dec
2019
2018
2018
2018
£m
£m
£m
£m
Pension risk transfer
- UK
6,316
507
7,844
8,351
- US
223
220
426
646
- Bermuda
138
8
135
143
Individual annuities
497
337
458
795
Lifetime mortgage advances
489
521
676
1,197
Longevity insurance1
-
-
287
287
-
Total LGR new business
7,663
1,593
9,826
11,419
1. Represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve.
5.06 LGI new business
6 months
6 months
6 months
Full year
30 Jun
30 Jun
31 Dec
31 Dec
2019
2018
2018
2018
£m
£m
£m
£m
UK Retail Protection
91
87
88
175
UK Group Protection
44
34
49
83
US Protection1
43
42
43
85
Total LGI new business
178
163
180
343
1. In local currency, US protection reflects new business of $55m for six months to 30 June 2019 (H1 18: $58m; H2 18: $56m).
Asset and premium flows Page 72
5.07 Gross written premiums on Insurance business
6 months
6 months
6 months
Full year
30 Jun
30 Jun
31 Dec
31 Dec
2019
2018
2018
2018
£m
£m
£m
£m
UK Retail protection
658
633
646
1,279
UK Group protection
233
223
106
329
US protection1
518
461
511
972
Longevity insurance
190
187
192
379
Total insurance gross written premiums2
1,599
1,504
1,455
2,959
1. In local currency, US protection reflects new business of $670m for six months to 30 June 2019 (H1 18: $635m; H2 18: $664m).
2. Total insurance gross written premiums excludes new business of the General Insurance division following the group's announcement to sell the business to Allianz.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR CKADDKBKBPFK
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