REG - Legal & General Grp - L&G Half Year Results 2022 Part 1
09/08/2022 07:00
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RNS Number : 3247V Legal & General Group Plc 09 August 2022
H1 2022 Results: Continued strong performance -
8% growth in Operating profit and EPS, 21% ROE and
SII coverage ratio of 212%
Continued delivery of strong financial performance 1 (#_edn1)
· Operating profit of £1,160m, up 8% (H1 2021: £1,079m)
· Earnings per share of 19.28p, up 8% on H1 2021 (17.78p)
· Profit after tax 2 (#_edn2) of £1,153m (H1 2021: £1,065m) and
Return on equity of 21.3% (H1 2021: 22.0%)
· Solvency II coverage ratio 3 (#_edn3) of 212% (H1 2021: 182%)
· Interim dividend of 5.44p, up 5% (H1 2021: 5.18p)
Growing contribution to our five-year (2020-2024) ambitions 4 (#_edn4)
· Cash generation of £1.0bn, up 22% year on year. Capital generation
of £0.9bn, up 14% year on year
· Cumulative cash and capital generation of £4.3bn and £4.1bn
respectively, against our ambition of £8.0-9.0bn by 2024
· Cumulative dividends declared £2.5bn (H1 2022: £324m, 2020-21
£2,147m) against our ambition of £5.6-5.9bn by 2024
Strong PRT new business volumes and LGIM net flows
· Global PRT new business premiums of £4.4bn (H1 2021: £3.1bn),
including our largest ever US transaction
· LGIM record H1 external net flows of £65.6bn (H1 2021: £27.4bn),
with AUM down to £1.3tn due to market movements
· Protection premiums of £1,605m (H1 2021: £1,500m) and Individual
annuity premiums of £453m (H1 2021: £483m)
A strong and resilient balance sheet
· No defaults in H1 or for the last 13 years. £2.7bn credit default
provision remains unutilised 5 (#_edn5)
· 99% investment grade £73.2bn annuity bond portfolio
· 100% of scheduled cashflows received from our Direct Investments
· Strong and growing IFRS and Solvency II balance sheet
Long-term, growth-oriented, and highly synergistic business model
· An established track record: HY11 to HY22 CAGR of 11% in EPS, 11% in
DPS and 8% in book value per share
· Highly synergistic: four focused divisions that create a virtuous
circle of internal demand and supply, supporting c20% ROE
· Long-term and predictable value creation: 40+ year duration business
with earnings driven by a growing stock of assets
· Attractive global growth markets: retirement solutions ($57tn), asset
management ($149tn), climate change ($20tn) 6 (#_edn6)
· A longstanding commitment to Inclusive Capitalism and a leader in
ESG: rated #1 Life & Health insurer by ShareAction
"We've made a good start to the year, with operating profit and EPS up 8%,
cash and capital generation up double digits, DPS up 5% and a return on equity
of 21%. We have delivered for our institutional clients and retail customers,
while generating good volumes and margins in a buoyant PRT market and
continuing to scale LGC at pace - both in the UK and now also in the US -
originating assets for our own business and for third parties, whilst also
delivering a positive outcome for the economies where we invest. Our balance
sheet is strong and highly resilient, with a solvency ratio of 212% and with
100% of cash flows received from our Direct Investments. We are committed to
providing financial security for our customers and colleagues in a tough
economic climate and remain confident in our ability to grow profits
sustainably and at attractive returns over the long-term."
Sir Nigel Wilson, Group Chief Executive
Financial summary
£m H1 2022 H1 2021 Growth %
Analysis of operating profit
Legal & General Retirement Institutional (LGRI) 560 525 7
Legal & General Capital (LGC) 263 250 5
Legal & General Investment Management (LGIM) 200 204 (2)
Retail 7 (#_edn7) 332 292 14
Operating profit from divisions 1,355 1,271 7
Group debt costs (108) (120) 10
Group investment projects and expenses (87) (72) (21)
Operating profit 8 (#_edn8) 1,160 1,079 8
Investment and other variances (incl. minority interests) 207 241 n/a
Profit before tax attributable to equity holders 9 (#_edn9) 1,367 1,320 4
Profit after tax attributable to equity holders 1,153 1,065 8
Earnings per share (p) 19.28 17.78 8
Book value per share (p) 186 164 13
Interim dividend per share (p) 5.44 5.18 5
H1 2022 Financial performance
Income statement
Year to date operating performance is in line with our expectations, with H1
2022 operating profit up 8% to £1,160m (H1 2021: £1,079m). All four of our
divisions are well positioned to execute on compelling structural market
opportunities to deliver further profitable growth over the medium and
long-term, notwithstanding market volatility.
LGRI delivered operating profit growth of 7% to £560m (H1 2021: £525m),
underpinned by the performance of our annuity portfolio. We executed well,
writing £4,449m of global PRT at attractive Solvency II new business margins
of 8.7%. 10 (#_edn10)
LGC operating profit increased 5% to £263m (H1 2021: £250m), driven by
strong performance in our alternative asset portfolio. Our housing
businesses - notably CALA and Affordable Homes - have delivered another period
of strong trading performance. Our Alternative Finance (Pemberton) and Venture
Capital investments also continue to perform strongly.
LGIM delivered operating profit of £200m (H1 2021: £204m), a resilient
result in light of market conditions. Assets under management decreased to
£1,289.7bn (H1 2021: £1,326.8bn). However, external net flows were strong:
£65.6bn (H1 2021: £27.4bn), of which over half were from International
clients, and with continued growth in higher margin areas such as thematic
ETFs, fixed income, and multi-asset. The cost income ratio (59%) reflects
the impact of challenged markets on revenue (H1 2021: 58%).
Retail operating profit increased 14% to £332m (H1 2021: £292m), driven by
the on-going release from operations from the growing UK protection and
individual annuity portfolios, in addition to valuation uplifts in two of our
retail Fintech businesses over H1 2022. In the US, after significant claims
in Q1 2022, mortality returned to normal levels in Q2. Total Covid claims
over H1 2022 were in line with the £57m provision set up at year end.
Profit before tax attributable to equity holders 11 (#_edn11) was £1,367m
(H1 2021: £1,320m), reflecting positive investment variance of £207m (H1
2021: £241m). The key drivers of this positive investment variance are from
the formulaic impact of rising interest rates on the Insurance reserves and
strong portfolio performance in the annuity portfolio, partially offset by
volatile global equity markets impacting LGC.
Balance sheet and asset portfolio
The Group's Solvency II operational surplus generation was up 14% at £946m
(H1 2021: £831m). New business strain was £(121)m (H1 2021: £(158)m)
which results in net surplus generation of £825m (H1 2021: £673m). UK PRT
business has been written at a capital strain of less than 4%. We achieved
self-sustainability on the UK annuity portfolio in 2020 and 2021 and expect to
be self-sustaining again in 2022.
The Group reported a Solvency II coverage ratio 12 (#_edn12) of 212% at H1
2022 (FY 2021: 187%, H1 2021: 182%) which, in addition to the contribution
from net surplus generation, reflects the impact of market movements,
principally from the non-economic impact of higher interest rates on the
valuation of our balance sheet 13 (#_edn13) , partially offset by payment of
the 2021 final dividend (£792m).
Our IFRS return on equity of 21.3% (H1 2021: 22.0%) reflects the continued
strong performance of our business. 14 (#_edn14)
Our diversified, actively managed annuity portfolio has continued to perform
resiliently with no defaults. The annuity portfolio's direct investments
continue to perform strongly, with 100% of scheduled cash-flows paid year to
date, reflecting the high quality of our counterparty exposure.
Group Strategy
Legal & General has established expertise in asset origination (LGC) and
asset management (LGIM), and in the provision of retirement and protection
solutions to corporates and individuals (LGRI and Retail). We operate at
scale and are strongly positioned to capitalise on significant growth
opportunities across our chosen markets through our four main divisions:
Division Provision Description
LGRI Retirement Solutions A leading international manager of institutional Pension Risk Transfer (PRT)
business
LGC Asset Origination An alternative asset origination platform generating attractive shareholder
returns
LGIM Asset Management A global £1.3tn asset manager with deep expertise in DB and DC pensions
Retail* Retirement & Protection Solutions A leading provider of UK retail retirement and protection solutions and US
brokerage term life insurance
* Note: as of 1(st) January 2022, and as highlighted previously, LGRR and LGI
(our two retail businesses) were combined into one division, Retail. Under
the leadership of Bernie Hickman, this division covers the savings, protection
and retirement needs of our c12 million retail policyholders and workplace
members.
A powerful business model
We have a unique and highly synergistic business model, which continues to
drive our strong return on equity. Legal & General provides powerful
asset origination and management capabilities directly to clients. These
capabilities also underpin our leading retirement and protection solutions:
· LGRI is a market leader in UK PRT and a top ten player in the US PRT
market, with annuity assets of £78.8bn.It provides long-term, captive AUM to
LGIM. As noted, the annuity portfolio is continually being enhanced through
the supply of alternative assets originated by LGC.
· LGC invests across four main asset classes (Specialist Commercial
Real Estate, Clean Energy, Housing and SME Finance) to generate attractive
risk-adjusted shareholder returns and to create alternative assets with which
to back our annuity portfolio. LGC is also increasingly attracting third
party capital investment directly and through collaboration with LGIM to meet
the growing client demand for alternative assets.
· LGIM is a leading global asset manager, ranking 11th in the world 15
(#_edn15) with £1.3tn of AUM of which £468bn, or 36%, are International
assets. LGIM is a leading provider of UK and US Defined Benefit (DB)
de-risking solutions. It is uniquely positioned to support DB clients across
the full range of pension endgame destinations, including PRT with LGRI. 78%
of LGRI's PRT transactions over the past three years were from existing LGIM
clients. 16 (#_edn16) LGIM is also the market leader in UK Defined
Contribution (DC) pension scheme clients with DC AUM of £129.4bn - the
leading player in a market with significant growth potential, with total UK DC
assets expected to surpass £1.2tn by 2031. 17 (#_edn17)
· Retail is a leading provider of UK retail retirement and protection
solutions, and US brokerage term life insurance. The UK retail retirement
business offers Workplace Savings, annuities, income drawdown and lifetime
mortgages (LTM). Our UK and US insurance businesses generate day one surplus
capital which partially offsets annuity new business strain. Retail is also
an internal centre of excellence in technology, and manages a portfolio of
successful, strategic Fintech business investments.
The synergies within and across our businesses drive profits and fuel future
growth. The establishment of our Retail division is enabling us to better
serve the needs of our retail customers and drive further synergies.
The integrated nature of our business model means that we have relationships
with clients and customers that can and do last for decades. For example, an
Index or Liability Driven Investing DB corporate client in LGIM typically
becomes a PRT client after 14 years. LGRI will then typically have a
relationship with that client for another 30 to 40 years. Equally, Retail
Retirement and LGIM may have a 30-40-year relationship with a customer during
the DC accumulation phase, and then extend that relationship for another 15-30
years during the decumulation phase across a suite of decumulation products
including individual annuities, lifetime mortgages and drawdown.
The Group continues to build out, in a measured fashion, its international
retirement solutions franchise. We have made excellent progress in the US
over the last decade and will continue to build out our established businesses
(LGRI, LGIM, Retail) in that market. LGIM continues to make good progress
against its international expansion plans in Europe. Kerrigan Procter is
co-ordinating the Group's expansion plans in Asia.
A long-term commitment to Sustainability, ESG and Inclusive Capitalism
Our purpose is to improve the lives of customers, build a better society for
the long-term and create value for our shareholders. This inspires us to use
our assets in an economically, environmentally and socially useful way to
benefit society - what we call Inclusive Capitalism. At a time when many in
society are facing increasing economic hardship, we believe Inclusive
Capitalism matters more than ever.
Our philosophy underpins our approach to Sustainability and to ESG
(Environmental, Social, and Governance factors). 18 (#_edn18) We think about
Sustainability, and the long-term ESG impact of our business, in terms of:
1. How we invest proprietary assets. 19 (#_edn19) Our ambition is
to reduce our proprietary asset portfolio greenhouse gas emission intensity by
half by 2030 and to net zero carbon by 2050 and we are on track to set our
full suite of science-based targets in 2022 for publication in 2023. In 2021
we reduced the greenhouse gas intensity of the Group's balance sheet by 17.0%
versus 2020, although this has been driven in part by COVID-19 and market
volatility impacts. 20 (#_edn20) We continue to make environmentally and
socially useful investments. As at H1 2022, we have invested £1.4bn in
clean energy and £8.0bn in social infrastructure. For more information
please see our latest Climate Report, compliant with recommendations by the
Task Force on Climate-related Financial Disclosures (TCFD) 21 (#_edn21) ,
and our latest Sustainability Report, which describes our activity in
investing for positive social, economic and health outcomes.(15)
2. How we influence as one of the world's largest asset managers with
£1.3 trillion AUM. We have £271.2bn AUM in ESG strategies and in H1 2022
we cast over 45,000 stewardship votes as we continued to encourage investee
companies to behave responsibly. 22 (#_edn22) (, 23 (#_edn23) ) LGIM is
rated A+ for responsible investment strategy & active ownership from the
UN Principles for Responsible Investment and ranked as one of the highest
performers among asset managers for its approach to stewardship and holding
companies to account on climate change by both FinanceMap and Majority Action.
3. How our businesses operate. We are committed to supporting our
customers, employees, suppliers, shareholders and society at large. In the
current economic environment, we recognise that support is more critical now
than ever. For information on how we are supporting our stakeholders, see
pages 38-52 of our Sustainability report. 24 (#_edn24) We have committed to
reducing the carbon emission intensity of our operating businesses. Our
ambition is to operate our offices and business travel with net zero emissions
from 2030, and for all our new homes to be net zero operational carbon from
2030. ESG criteria are included in executives' objectives and remuneration
schemes.
Outlook
Medium-term growth: ambitious and deliverable
Our strategy has delivered strong returns for our shareholders over time. It
has demonstrated resilience through the pandemic and positions us well to
navigate - and even benefit from - the prevailing market environment. We are
confident we can continue to deliver profitable growth as we execute on our
strategy.
We set out our five-year ambitions at our Capital Markets event in November
2020. Cumulatively, over the period 2020-2024, our financial ambitions are
for 25 (#_edn25) :
1. Cash and capital generation significantly to exceed dividends (we
intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay
dividends of £5.6bn - £5.9bn). 26 (#_edn26)
2. Earnings per Share to grow faster than dividends, with the dividend
growing at low to mid-single digits from 2021.
3. Net capital surplus generation (i.e., including new business
strain) to exceed dividends.
We are now half-way through our ambition period and are on track to achieve or
beat our cumulative cash and capital ambitions. In H1 2022, we have achieved
22% growth in cash generation and 14% growth in capital generation. Since
the beginning of 2020 to date, we have achieved £4.3bn of cash generation,
£4.1bn of capital generation and declared £2.5bn of dividends. We are
confident that we will consistently grow cash and capital faster than our
dividend commitment. The jaws between net capital surplus generation and the
dividend are widening, providing attractive capital optionality. Even zero
growth in cash and capital generation from now to 2024 would still see us meet
our cash and capital generation ambitions.
We aim to deliver long-term, profitable growth across the Group. Our asset
origination and asset management businesses, LGC and LGIM, operate in
attractive and profitable markets, and maintain a strong commitment to
ESG-aligned investing. With proven asset expertise in specialist commercial
real estate, clean energy, housing and SME finance, LGC provides unique asset
origination capabilities in sectors that have significant growth potential,
which produce yield-creating assets that drive our annuity business and which
appeal to third party investors. LGIM offers a range of investment solutions
for institutional and wholesale clients and is expanding geographically and
into new channels. The annuity portfolios provide highly predictable, stable
cash flows from their growing back-books. Retail is applying technological
innovation to sustain its UK leadership, to grow in the US and to continue to
expand into adjacent markets. The creation of a new Retail division enables
us to increase our focus on serving the savings, protection and retirement
needs of our retail customers.
We remain confident in our strategy and in our ability to deliver resilient,
organic growth, supported by our strong competitive positioning in attractive
and growing markets. Our confidence in our dividend paying capacity is
underpinned by the Group's strong balance sheet, which has a £2.7bn IFRS
credit default reserve and Solvency II surplus regulatory capital of £9.2bn,
significant buffers to absorb a market downturn. We have a proven operating
model which is reinforced by robust risk management practices.
Confident in achieving our ambitions
We remain confident in achieving our five-year (2020-2024) cumulative
financial ambitions. In H1 2022, we continued to build on the good start we
made in 2020 and 2021, delivering double digit growth in both cash and capital
generation.
LGC and LGIM provide powerful asset origination and asset management
capabilities directly to clients. These same capabilities also underpin our
leading retirement and protection solutions. LGC has numerous investment
opportunities across underserved asset classes and is continuing to scale the
portfolio at pace. LGC intends to grow shareholder alternative AUM to
c£5bn, with a blended portfolio return of 10-12%, by 2025. It also aspires
to grow third party AUM to £25-30bn and to grow LGC operating profit to
£600-700m by 2025. LGIM continues to focus on attracting higher margin net
flows and on diversifying and further internationalising its business. The
business seeks to grow profits in the range of 3-6% per annum, absent market
shocks such as that experienced in the first half of this year.
LGRI wrote good levels of business at strong margins in H1 2022. Demand for
global PRT is growing, as rising interest rates and widening credit spreads
reduce pension deficits and allow more funds to consider de-risking. As
such, advisers such as WTW and LCP are bullish on the prospects for PRT for
the rest of 2022 and beyond. 27 (#_edn27) We are well placed to
participate. We continue to expect to write £40-50bn of UK PRT and $10bn of
International PRT over a five-year period. More generally, a key competitive
advantage is our ability to originate direct investments. This provides us
with significant optionality. We can use these direct investments to create
value in writing new annuity business, and/or by using them to increase
returns on the back-book.
In Retail, we continue to target mid-single digit growth in revenues across
our UK protection businesses, and to target average double digit growth in US
new business sales out to 2025. The longer-term outlook for workplace
savings, individual annuities and lifetime mortgages remains attractive,
driven respectively by ongoing growth in the DC market and by an increasing
consumer requirement to look to multiple sources of wealth to fund
retirement. However, the lifetime mortgage market is becoming more
competitive, and we will maintain pricing discipline at the expense of volumes
if required.
We are pleased with the further progress we have made in H1 2022 and are
confident in our ability to deliver further profitable growth going forwards.
We are well-positioned to support the UK Government's two flagship policies of
"Levelling Up" and "Addressing Climate Change".
We will continue to maintain a defensive and diversified asset portfolio and a
long-term investment horizon, supporting all our stakeholders by delivering
Inclusive Capitalism through investments - both for our own portfolio and for
clients - in areas such as infrastructure, clean energy and affordable
housing, and by providing products to support individuals' financial
resilience.
Business segment outlook
Legal & General Institutional Retirement (LGRI)
LGRI participates in the global pension risk transfer (PRT) market, focusing
on corporate defined benefit (DB) pension plans in the UK, the US, Canada,
Ireland and the Netherlands, which together have around £8 trillion of
pension liabilities due to ageing demographics.
We write direct business in the UK and US and are market leaders in the UK.
We are supported by LGIM's long-standing DB client relationships and
investment capabilities and LGC's asset origination capabilities, as well as
wide-ranging skills across the Group which enhance our asset strategy and
product innovation. During H1 2022, 74% by volume (40% by count) of our UK
transactions were with LGIM clients, demonstrating the strength of our client
relationships and the competitive advantage provided by our unique position as
the only firm operating across the full pension de-risking journey.
The UK is our primary market and it is the most mature PRT market globally
with £2.4 trillion of UK DB pension liabilities, of which only c13% have been
transferred to insurance companies to date. 28 (#_edn28) This leaves a
sizeable opportunity for future market growth, which has been fuelled by
rising interest rates and widening credit spreads reducing pension deficits
and allowing more schemes to consider de-risking sooner than anticipated.
Improved funding levels has seen an acceleration in demand for de-risking
solutions from companies and pension plans: we expect the total UK PRT market
to be c£35bn in 2022, with scope for a larger market dependent on a handful
of bigger schemes. 29 (#_edn29) In terms of medium-term outlook, market
commentators anticipate between £30bn-£50bn of UK PRT demand per annum over
the period to 2025, again highlighting the size of the opportunity. 30
(#_edn30) We continue to expect to write £40bn to £50bn of new UK PRT
over 5 years, but will continue to remain disciplined in our pricing and
deployment of capital.
The US represents a further, significant market opportunity, with $3.8
trillion of DB liabilities, of which only c7% have transacted to date. 31
(#_edn31) Since our market entry in 2015, our US business has written more
than $7bn of PRT spanning 80 clients with 6 repeat clients. In H1 2022 we
wrote our largest ever US deal (over $550m). We also actively quoted on
selective Canadian, Irish and Dutch PRT opportunities and wrote our third
Canadian deal in H1 2022. We are the only insurer providing PRT directly to
pension plans across the UK and US. Our ambition is to write more than $10bn
of international PRT over the five years from 2020-2024.
In addition to our source of new business emerging from LGIM LDI clients, our
other competitive advantage is in originating assets via LGC, lifetime
mortgages via Retail and sourcing assets via LGIM. LGC's asset creation is
now beginning to scale and it is on track to deliver c£1bn of new assets by
the end of 2022. This strong asset creation capability across the Group
provides us with optionality to maximise shareholder value, either by
deploying assets against new business - to improve pricing and margins - or by
applying them to increase the returns on the back-book.
As the annuity portfolio scales, the growing amount of capital generated by
the in-force book offsets both the capital investment required to fund new
business and the portfolio's contribution to a progressive Group dividend,
i.e. it is self-sustaining. The UK annuity portfolio achieved
self-sustainability in both 2020 and 2021. Whilst we expect to achieve
self-sustainability again in 2022, driven by our growing operational surplus
generation, it is not something we necessarily aim to achieve in every year.
The achievement of self-sustainability in any one year will vary depending on
new business volumes and asset yields. Our ambition is, however, for net
surplus generation to exceed dividends for the Group over the period
2020-2024.
Legal & General Capital (LGC)
LGC, the Group's alternative asset origination platform, will continue to
deploy shareholder capital in a range of underserved areas of the real economy
that are backed by long-term structural trends. LGC has three fundamental
objectives: 1) profit and value generation within LGC for shareholders; 2)
asset creation to back the Group's annuity liabilities and meet demand from
LGIM's third party clients; and 3) a focus on ESG, securing long lasting value
for society. LGC continues to make a substantial contribution to shareholder
value creation and is well positioned to drive further meaningful growth as
its underlying businesses and investments continue to scale and mature.
LGC is on track against its ambition to invest and manage over £30bn of
alternative AUM by 2025, with an upgraded blended portfolio return target of
10-12% (previously 8-10%). In combination with the contribution from the
Traded Portfolio, LGC aims to deliver operating profit of £600-700m in
2025. Additionally, we plan to increase fee-generating third party capital
to £25-30bn (H1 2022: £15.6bn). We expect our existing platforms
(Pemberton, Build-to-Rent, NTR) to continue to manage the majority of
third-party AUM, building on their impressive growth to-date, but our ambition
also includes incremental opportunities in Clean Energy, Later Living, Data
Centres and our exciting new investment in the US, Ancora L&G, which is
focused on working with anchor institutions (such as universities or research
facilities) to acquire, manage and develop life science and technology focused
real estate and innovation districts.
LGC's asset classes that include specialist commercial real estate, housing,
clean energy, and SME finance have all been selected given the long term need
for capital in these sectors, giving us a long-term opportunity to create
assets: In the UK an estimated 340,000 new homes are needed each year, there
are 1.2m people on the social housing list and 21% of homes in the private
rented sector fail Decent Homes standard. Globally, an estimated $5tn a year
is needed to fund measures to fight climate change. Through place-based
social investment, LGC is creating much needed jobs, homes and infrastructure,
driving growth, skills and innovation, and contributing towards a cleaner,
greener future:
· The specialist commercial real estate portfolio includes
capital-light urban regeneration (funded by LGRI or LGIM third parties),
digital infrastructure and science and technology-focused real estate in the
UK through Bruntwood SciTech and more recently in the US through Ancora
L&G. Partnering with universities, local authorities and private sector
experts, we have invested across twenty UK towns and cities, creating jobs,
driving economic growth and revitalising local communities.
· As a leading provider of homes, with a commitment to tackling the
affordability gap and the undersupply of housing (estimated to be around
340,000 homes required annually) across the UK, LGC's housing platform
continues to expand across all tenures, ages and demographics, leveraging both
traditional and modular construction in order to revolutionise and speed up
delivery for all. We are well positioned to scale in order to achieve our
long-term ambitions: 1) to deliver 10,000 multi-tenure homes per year
(including over 3,000 traditional build to sell homes, 3,000 affordable and
modular homes each, and 1,000 suburban rental homes); and 2) to develop c5,000
build to rent homes in our urban pipeline and 5,000 later living homes in our
JV pipeline with NatWest Group Pension Fund. To ensure that the homes we
build are future-proofed and sustainable, we have committed that all our new
homes will be operationally carbon emission-free from 2030.
· In the clean energy sector, we are focused on investing
selectively into attractive growth equity and low-carbon infrastructure
opportunities. We are confident that our considered and selective approach
to clean energy investing will continue to yield results in what can be a
highly competitive sector. Growth equity targets early-stage scale-up
companies that deliver innovative clean technologies required for a successful
energy transition. Low-carbon infrastructure targets the renewable energy
infrastructure investments needed to accelerate progress towards a low-cost
and low-carbon economy.
· In SME Finance, we are continuing to support UK and European
innovation, investing in the real economy and technological innovation in two
SME Finance business areas: Alternative Finance - via our 40% stake in
Pemberton, an alternative credit manager - and Venture Capital - via our Fund
of Funds platform and via LGC's ownership of Accelerated Digital Ventures
(ADV), a direct investment platform. Our SME Finance businesses are well
positioned to scale in these highly attractive structural growth segments.
Legal & General Investment Management (LGIM)
LGIM is a globally recognised investment leader, benefiting from a combination
of scale and a diversified asset and client base, underpinned by clear
structural demand for our capabilities. As L&G's asset manager, LGIM
also plays a critical role in supporting our leading retirement and protection
solutions.
Our purpose is to create a better future through responsible investing, and we
are a global leader in ESG. Our five-year growth ambition is driven by the
three pillars of our strategy to modernise, diversify and internationalise the
business. The first half of 2022 saw significant moves in interest rates,
inflation and global equity markets which impacted asset values across the
board. We continue to adopt a disciplined approach to cost management and
selectively invest for growth against this challenging backdrop. Our
strategy remains to: 1) to grow profits in the range of 3% to 6% per annum, in
normalised market conditions; 2) increase AUM in international and
higher-margin areas; and 3) diversify AUM by client, channel and geography. We
maintain our ambition for the cost income ratio to trend downwards after the
period of investment over the near-term, and as markets and inflation
normalise.
LGIM is one of the largest managers of corporate pension funds globally; we
are a UK leader in corporate DB pensions, the UK's number-one DC manager, and
ranked third for UK gross and net retail sales in Q2 2022. 32 (#_edn32) We
intend to maintain our strong position in the UK, which has been the bedrock
of our success to date, while continuing to diversify our capabilities and
broaden our reach internationally.
Modernise: LGIM continues to invest in the business to achieve the resilience
and agility critical to future success. We are laying the foundations for
continued global growth by investing in our people, our operating platform and
our data capabilities. We are currently implementing a transformation of our
strategic operating model to build a globally scalable platform and deliver
best in class client service. This will be achieved by expanding our
partnership with State Street and use of their Charles River technology.
Diversify: We are continuing to expand our investment offering, with a focus
on higher-margin product areas such as Real Assets, ETFs, Multi-asset and
Fixed Income. We see a sizeable opportunity in Real Assets and are expanding
our distribution footprint and our range of capabilities: for example, we are
launching a new renewable infrastructure equity offering in 2022 in
partnership with NTR. As UK and US DB schemes approach funding maturity,
many clients will look for self-sufficiency or buy-out options and, together
with LGRI, our 'endgame' Solutions offering means we are well positioned to
deliver on these options. We continue to demonstrate our leadership in ESG
investing through our award-winning Investment Stewardship team and, in
addition to offering a wide range of ESG-specific products, are driving
further integration of ESG into our mainstream investment portfolios.
Climate change remains a key issue and priority for LGIM and our leadership is
underscored by the contribution of our CEO, Michelle Scrimgeour as Co-Chair of
the Business Leaders Group at COP26, and the integration of our market-leading
Destination@Risk tool into a number of net-zero aligned investment
strategies.
Internationalise: LGIM aims to be an innovator in regions and countries where
our strengths align to client needs. Over the last five years LGIM's
International AUM has more than doubled to reach £468bn - 36% of LGIM's total
AUM. Our ambition is to continue growing International AUM profitably and at
pace in the US, Europe and Asia. In the US, we are deepening our strong
client relationships through innovation in DC retirement income solutions and
leadership in ESG. In Europe, we are building on our recent success, aiming
to penetrate new markets and grow AUM across a broader range of investment
capabilities. We are also well placed to realise growth in Asia, where we
are expanding our distribution footprint across key markets and channels.
Retail
As of 1(st) January 2022, LGI and LGRR (our two retail businesses) were
combined into one division, Retail. Under the leadership of Bernie Hickman,
this division covers the savings, protection and retirement needs of our c12
million retail policyholders and workplace members. The combined division
will strengthen its propositions by adopting best practices in customer
experience development, digital transformation and agile culture.
Insurance
We anticipate continued premium growth across our UK and US protection
businesses as technological innovation makes our products more accessible to
customers and supports further product and pricing enhancements.
In the UK, our market leading retail protection business is supported by the
strength of our distribution relationships, investment in our systems and
platforms, and product enhancements, leading to robust delivery in H1 2022.
We expect the total protection market to be slightly smaller in 2022, as the
market benefited from the UK housing stamp duty relief in 2021. Our group
protection business has also performed well, increasing premium income by 6%
year-on year. In line with our five-year ambition, we are targeting
mid-single digit growth in revenues across our UK protection businesses.
In the US, we anticipate our on-going technology investments and new
partnerships will position us for premium growth as the market continues to
recover from the distribution and underwriting disruptions caused by
COVID-19. We are using technology to improve customer experience while
reducing cost and becoming the partner of choice for a wide range of
distribution partners. We are already the largest provider of term life
assurance in the brokerage channel 33 (#_edn33) , and our digital first
approach is aiming to achieve, on average, double digit growth in new business
sales out to 2025.
We invest in Fintech start-ups and scale-ups that operate in adjacent markets
where we have the relationships, capital or expertise to accelerate their
growth and value creation. One such investment is Salary Finance, an
employee benefits platform business, in which we have a 48% holding. Salary
Finance remains one of the UK's fastest growing Fintechs and is well
positioned for international growth. Other key investments like Smartr365
and Onto are growing rapidly. We are targeting double digit growth for our
Fintech businesses.
Retirement
Workplace savings is a core part of the Group's retail proposition. The
business is a growth area for the Group and we expect the market to continue
to expand, driven by ageing demographics and welfare reforms. Our core focus
is on better assisting our 4.7 million Workplace members to plan for their
retirement whilst they are saving with us, as well as when they come to
retirement. This will drive better customer outcomes and, at the same time,
help us to retain more of our customers in retirement.
There are currently c£600bn in UK Defined Contribution (DC) accumulation
assets and this is expected to more than double over the next ten years. 34
(#_edn34) As a market leading provider in Workplace Savings, we are well
placed to benefit from this expected increase in DC pension assets, and to
grow administration revenues for the Retail division and fund management
revenues for LGIM.
Prior to Covid-19, around £40bn of these DC assets were coming to maturity
each year, with the individual annuity market accounting for just over 10% of
these assets. The size of the individual annuity market dipped slightly
during the pandemic as people deferred making retirement decisions. This trend
has continued into 2022, given the current market environment. Over the
medium-term, we do expect the market to recover as the DC market continues to
grow, and as fewer people reach retirement with defined benefit pensions and
so seek the longevity protection that an annuity provides. Retail Retirement
has a strong market share in individual annuities, with a 20.5% market share
at Q1 2022 35 (#_edn35) and continues to explore and develop new product
ideas to meet the needs of people reaching retirement.
The UK lifetime mortgage (LTM) market continues to represent a sizeable
opportunity, with UK housing equity in over 55s at £2.6 trillion. 36
(#_edn36) At present only c£5bn per year is being released through the LTM
market. While we maintain a strong focus on the traditional LTM market,
where we are focused on offering high levels of flexibility and choice, we are
increasingly also focused on the "wealth" sector: those with higher value
properties increasingly see the benefit in lifetime mortgages when planning
the distribution of their estate to future generations. We continue to
remain disciplined on pricing in order to deliver good margin assets to back
our long-term annuity liabilities.
Across all our Retail businesses we continue to focus on our customers, with a
particular focus on the technology that supports providing a more efficient
and more personalised service.
A commitment to capital discipline
The Board maintains a strong commitment to capital discipline and continues
carefully to assess the options for capital investment and return.
The Group has a track record of generating strong returns and has numerous
compelling investment opportunities, not least in Legal & General Capital,
which is investing to drive shareholder value and to originate assets for
L&G, and for third parties.
The Group continues to invest to deliver further profitable growth over the
medium and long-term, whilst maintaining a strong balance sheet and growing
the dividend in line with the Group's stated ambition.
If at any point the Board believes that capital would be better deployed by
returning it to shareholders, then it would not hesitate to do so.
Dividend
In line with our stated formulaic interim dividend policy, whereby the interim
dividend grows at the same percentage as the total prior year dividend, the
Board has declared an interim dividend of 5.44p, up 5% from the prior year
(5.18p). This is consistent with our stated ambition to grow the dividend at
3-6% per annum between 2021 and 2024.
Legal & General Institutional Retirement (LGRI)
FINANCIAL HIGHLIGHTS £m H1 2022 H1 2021
Operating Profit 560 525
Investment and other variances 133 75
Profit before tax attributable to equity holders 693 600
Release from operations 310 252
New business surplus 156 68
Net release from operations 466 320
UK PRT 3,715 2,040
International PRT 734 107
Other PRT (longevity insurance, Assured Payment Policy, Insured - 925
Self-Sufficiency)
Total new business 4,449 3,072
Operating profit of £560m
LGRI continues to deliver strong operating profit of £560m, up 7% (H1 2021:
£525m). Profit was underpinned by the performance of our annuity portfolio
and supported by strong global pension risk transfer (PRT) new business
volumes of £4.4bn (H1 2021: £3.1bn). The H1 2021 result included a
positive contribution from COVID-related mortality that was not repeated to
the same extent in H1 2022.
Release from operations increased 23% to £310m (H1 2021: £252m), reflecting
the scale of the business as prudential margins unwind from the Group's
sizeable £78.8bn annuity portfolio (FY 2021: £89.9bn) supported by good
asset origination.
Net release from operations was £466m (H1 2021: £320m) with new business
surplus of £156m (H1 2021: £68m), reflecting successful execution in writing
£4.4bn of new business volumes, supported by continued positive asset
sourcing and attractive reinsurance terms.
During H1 2022 we wrote £3,715m of UK PRT which, delivered an 8.7% UK
Solvency II new business margin (H1 2021: 8.7%). We continue to be
disciplined in our pricing and deployment of capital. UK PRT volumes were
written at a capital strain of less than 4%.
Successful execution over H1 2022
During H1 2022 LGRI underwrote £4,449m of PRT across 25 deals globally (H1
2021: £3,072m, 20 deals).
Legal & General has demonstrated successful execution, whilst remaining
focused on value creation, and continues to play a key role in the UK PRT
market. The UK market saw significant activity in H1, compared to the slower
start to 2021. For the full year we are expecting c£35bn of volume to
transact, with the potential for market volumes to be higher if a handful of
bigger transactions come to market. We are well placed to capitalise on this
opportunity.
LGRI's brand, scale and asset origination capabilities - through synergies and
expertise within LGIM and LGC - are critical to our market leadership in the
UK PRT market. Long-term client relationships, typically created and
fostered by LGIM, have allowed us to help many pension plans achieve their
de-risking goals. In H1 2022 we demonstrated our market leadership and
solutions capabilities by writing a series of innovative transactions,
including:
· c£2bn+ follow-on transaction with British Steel Pension scheme,
executed under an umbrella agreement.
· c£420m buy-out with Innospec Limited Pension Plan scheme, securing
benefits for around 2,400 members.
· c£370m buy-in with Heathrow's BAA Pension scheme securing benefits
for more than 1,400 retirees.
· c£225m buy-in with Newell Rubbermaid UK Pension scheme, securing
benefits for c1,700 retirees.
· Small scheme solutions. With 80% of our transactions falling into
this category, we leveraged technological innovation to serve smaller pension
plans efficiently.
Looking forward to H2 2022 and into 2023, we currently have a strong and
active pipeline of c£25bn.
Well positioned to execute in H2 in the US and International markets
Despite a more competitive market in the US, which is typically slower over
H1, LGRI delivered US PRT new business premiums of $729m (H1 2022: £593m; H1
2021: $149m; £107m). This included our biggest ever transaction at over
$550m, which is our third transaction with this client, reflecting the
credentials of our offering.
As in the UK, our international focus is on value creation. In addition to
the fantastic start to the year in the US, in Bermuda we secured our third
Canadian deal for CAD$230m, as we start to build momentum through our
strategic partnerships in Canada.
As the only insurer providing PRT to pension plans globally, Legal &
General is uniquely positioned to offer holistic, global pension de-risking
solutions.
Total Annuity Asset Portfolio
H1 2022 H1 2021
Total annuity assets (£bn) 78.8 85.8
Of which: Direct investments (£bn) 26.3 25.8
Annuity asset portfolio
The 'A minus' rated annuity asset portfolio of £78.8bn 37 (#_edn37) , which
backs the IFRS annuity liabilities in LGRI and Retail, is well diversified by
sector and geography. Our ambition is to continue to collaborate with LGC,
Retail and LGIM to strengthen our asset sourcing capabilities, including both
self-manufactured and public assets with a strong ESG focus. This core
competitive advantage provides our annuity portfolio with long duration direct
investments with higher risk-adjusted returns and optionality in asset
deployment. We remain focused on reducing the carbon intensity of the
portfolio and have set a target of 12% reduction against the 2019 baseline for
2022. We remain on track to achieve our portfolio decarbonisation target of
18.5% by 2025 and remain committed to reducing GHGs emission intensity by 50%
by 2030.
Credit portfolio management
The fixed income portfolio of £73.2bn is comprised of £52.7bn of listed
bonds and £20.5bn of Direct Investments. Approximately two-thirds of the
portfolio is rated A or better, 35% rated BBB and 1% sub-investment grade.
The key objective of our annuity-focused, fixed income fund managers in LGIM
is to manage the portfolio to match liabilities, while minimising credit
downgrades and avoiding defaults. We constantly review our asset portfolio,
including sector allocations and asset classes, in order to manage portfolio
credit quality and to mitigate risks. We have vigorously stress-tested our
portfolio to build resilience against a range of scenarios. In addition, we
hold a £2.7bn IFRS credit default reserve.
We have kept lower-rated, cyclical exposures to a minimum and only 12% of our
BBB assets are BBB-. We actively manage our asset portfolio and continue to
take opportunities to improve credit quality at attractive pricing
levels.
The two-pronged approach, comprising defensive positioning and active
management, has helped us to mitigate downgrade and default risk. Again, we
have had no defaults.
Direct Investment
Within the asset portfolio, we originated £1.6bn of new, high quality direct
investments during H1 2022 which, along with market movements, brought the
direct investment portfolio total to £26.3bn 38 (#_edn38) , including
£5.8bn in Lifetime mortgages. Consistent with the broader bond portfolio,
approximately two-thirds of the direct investment bond portfolio was rated 'A'
or above using robust and independent rating processes which take account of
long-term stress events on counterparties and the underlying collateral.
Our Direct Investment strategy is centred on ensuring the safety of
policyholders' benefits. We believe, and have proved, that we can protect
our policyholders and invest to deliver Inclusive Capitalism across our UK
towns and cities. By accessing the power of pensions, we can generate
positive societal impacts and drive economic growth.
During H1 2022 we have consciously allocated some Direct Investment assets to
our back-book. This, complemented by a rotation of some of our excess gilts
to high quality credit assets, has increased the total yield on our portfolio.
We will continue selectively to allocate appropriate assets over the coming
years to increase the portfolio's yield.
We have seen progress in the flow of asset creation from LGC to date and
remain on track to source close to £1bn of new assets over 2022 through
various LGC initiatives such as Build to Rent, Alternative Finance, Affordable
Homes and Urban Regeneration schemes.
Legal & General Capital (LGC)
FINANCIAL HIGHLIGHTS £m H1 2022 H1 2021
Operating profit 263 250
- Alternative asset portfolio 202 195
- Traded investment portfolio & Treasury 61 55
Investment and other variances (308) 48
Profit before tax attributable to equity holders (45) 298
Net release from operations 208 213
ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate 662 733
Clean energy 199 218
Residential property 2,190 1,914
SME Finance 688 561
3,739 3,426
TRADED ASSET PORTFOLIO £m
Equities 1,714 1,731
Fixed income 66 426
Multi-asset 199 223
Cash(1) 1,285 1,220
3,264 3,600
LGC investment portfolio 7,003 7,026
Treasury assets at holding company 1,247 1,630
Total 8,250 8,656
1. Includes short term liquid holdings.
Total operating profit increased 5% to £263m
LGC operating profit increased 5% to £263m (H1 2021: £250m). This result
principally reflects profits from our alternative asset portfolio of £202m
(H1 2021: £195m). H1 2021 included a conservative Pod Point valuation
increase ahead of last year's stock market listing.
The portfolio has continued to see valuation increases over H1 2022, notably
in the Venture Capital portfolio and in Pemberton, complemented by another
period of strong trading performance from CALA and Affordable Homes.
Operating profit from the traded & treasury portfolio increased to £61m
(H1 2021: £55m), driven by higher opening assets as a result of the strength
in equity markets over 2021.
Profit before tax was £(45)m, driven by investment and other variances of
£(308)m, compared to £48m in H1 2021, which largely reflects volatile global
equity market performance in the traded portfolio.
Our growing alternative asset portfolio achieved a net portfolio return of
9.3% (H1 2021: 10.7%). In line with our business model, we expect to deliver
a net portfolio return of 8-10% for the full year, growing to 10-12% by 2025
as our early-stage businesses continue to mature.
Alternative asset portfolio grew 9% to £3.7bn
LGC has continued to strengthen its capabilities across a diversified range of
alternative assets that are underpinned by structural growth drivers. Our
alternative asset portfolio increased to £3,739m (H1 2021: £3,426m) as we
deployed a further £0.3bn into new and existing investments. Additionally,
over H1 2022, we made new undrawn commitments of £0.1bn across our existing
asset classes. Through these investments we originate assets that generate
returns for shareholders, create attractive Matching Adjustment (MA)-eligible
assets for our annuity portfolio, and supply attractive alternative assets to
third party clients.
We have recently successfully originated assets for LGRI and Retail Retirement
in Urban regeneration, Build to Rent, Affordable homes and Alternative
Finance. We remain on track to deliver close to £1bn of new assets for the
annuity portfolio over 2022.
Specialist commercial real estate: ongoing support of the levelling up agenda
through strategic partnerships
Supporting the need to "Level Up" towns and cities across the UK, we continue
to invest in partnership with public and private sector experts, to drive
forward some of the largest urban transformation schemes, back digital
infrastructure and fund the next generation of science and innovation
centres. Supporting this objective, in H1 2022, we began construction on our
£100m regeneration scheme in Sunderland Riverside and announced our ambition
to expand our project Sky Elstree to include a further 10 stages over 65
acres, with 470,000 sq ft of stage space for filming.
Building on our flagship commitments in Oxford and Manchester, we signed in
May a seven year £4bn commitment, working in partnership with West Midlands
Combined Authority (WMCA) to invest in regeneration, net zero neighbourhoods,
housing and levelling up across the West Midlands. The programme is designed
to create vibrant, dynamic communities in the region which, by providing
attractive environments for people to work, live and play, will further
enhance the West Midlands as a driver of UK economic growth. This latest
investment is a great example of how we bring together LGC's divisional
specialisms to create a range of MA-eligible assets for the Group.
Through Bruntwood SciTech, we have continued to develop world-leading
diagnostics and life sciences infrastructure. With a gross asset value of
c£800m, Bruntwood SciTech now operates in 11 UK locations, across 7 cities,
with a portfolio of over 2.4m sqft. Over H1 2022, we made our first
investment in Scotland, the Met Tower, Glasgow, which is set to become a new
hub for tech and digital businesses.
Another milestone achievement in H1 2022 was our first investment in the US.
Our 50:50 partnership with US real estate developer, Ancora will create a
real estate platform dedicated to driving life science, research and
technology growth across the US. Ancora L&G will be capitalised by LGC
to deliver $4 billion (£3.2bn) of existing pipeline and planned acquisition
and development activity over the next five years. To support future growth,
the partnership will be seeking third party co-investment partners to
accelerate scaling the portfolio. LGC also continued to diversify into the
digital infrastructure sector, acquiring an industrial landsite in Canning
Town, London, to develop a new state-of-the-art datacentre. This latest
scheme has the opportunity to support Group-wide synergies across Legal &
General, working with LGIM as development advisor and providing a potential
future investment opportunity for our annuity business.
Our specialist commercial real estate portfolio decreased to £662m (H1 2021:
£733m), primarily driven by the sale of MediaCity in H2 2021.
Our Clean Energy portfolio expanded into new sectors
Supporting the Group's climate ambitions, we invest in early-stage innovative
clean technology companies and low carbon energy infrastructure needed to meet
UK and global UN climate targets and Sustainable Development Goals. We have
a substantial pipeline of new investment opportunities including energy
storage, electric vehicle technology and renewables and anticipate expanding
our growth equity portfolio further through H2 after a busy H1 in which we
completed several transactions.
During H1 2022, we began working with our new investee, Sero Technologies, and
made multiple additional investments, entering new sectors through Rovco,
Vaarst and Brill Power. We also secured investment in a portfolio of
renewable energy projects that will create future assets for the annuity
portfolio.
Sero Technologies is an energy technology and service company which creates
tailored, net zero-energy retrofit plans for the residential sector.
Residential retrofitting represents a significant market opportunity to
achieve the UK's legally mandated target of net zero by 2050: almost every
home will need to be improved or retrofitted with some combination of enhanced
energy efficiency and low carbon heating.
Vaarst is a leading provider of subsea 3D computer vision technologies;
supporting the offshore wind, wave & tidal, scientific, maritime security,
and civil engineering industries. It is bringing forward ground-breaking
AI-based technology, seeking to revolutionise how energy companies manage
subsea infrastructure and improve asset integrity. Rovco delivers this
technology into the energy transition space, focusing mainly on its use for
subsea surveys in offshore wind and oil field decommissioning.
In June 2022, LGC led a Series-A funding round to support the expansion of
Brill Power, a battery management system improving battery performance for
energy storage. Batteries are crucial to the electrification of transport,
and to powering our homes, businesses, and key infrastructure. Through
extended lifetimes, improved safety, and waste reduction, Brill Power's work
will help to support the net zero transition.
We also announced an additional investment into Kensa Group, a UK manufacturer
and installer of ground source heat pumps. This investment brings LGC's
total investment to £15.7 million over two years, continuing to support Kensa
to scale up rapidly and accelerate the deployment of ground source heat pump
networks to meet demand.
Our nuclear fusion business, Tokamak Energy, also reached a key milestone in
H1 2022, moving closer to commercial fusion by reaching 100 million degrees
celsius, a world record for a spherical tokamak.
Housing: platform continues to grow as LGC targets multi tenure opportunities
LGC continues to scale up its delivery across all housing tenures.
Diversified across affordability and life stage, LGC's investments meet the
UK's long-term social and economic need for quality housing for all
demographics. During H1 2022, our housing portfolio grew to £2,190m (H1
2021: £1,914m) reflecting sustained long-term demand.
LGC's Build to Sell business, CALA, has continued to perform exceptionally
over H1 2022. Having grown to become the 10th largest housebuilder in the
UK by revenue, during H1 2022 CALA has delivered revenue of £701m (H1 2021:
£610m) and operating profit of £98m (H1 2021: £78m) through the sale of
1,527 units (H1 2021: 1,479 units). Reservations on private units currently
stand at a record 93% of the full year target, giving confidence in delivering
the targets set out at the 2021 full year results of c3,000 homes delivered,
£1.3bn revenue and £170m operating profit for 2022.
Our Affordable Homes business has continued to establish itself as one of the
UK's leading institutional developers and managers of affordable housing.
Delivering £22m of operating profit (H1 2021: £7m), our business continues
to grow and over 2022 we increased our total number of operational affordable
homes by 624 to a total of 2,291. Our development and operation pipeline now
stands at over 7,726 homes, with a Gross Asset Value of around £1.2bn. In
March 2022, we entered a partnership with Lovell Partnerships to increase the
delivery of affordable homes and mixed tenure sites. The partnerships aims
to deliver 3,000 multi-tenure properties over a five year period. To further
boost our development plans, we secured an additional £150m revolving credit
facility, bringing in external capital through a 'social loan' to support the
continued growth of the platform.
Our Modular Housing business is making significant progress with projects
and partners, designing and manufacturing homes in an innovative way which
will transform the way homes are built. In H1 2022, we delivered a major
independent scheme in Selby, where our first residents have now moved in, and
progressed at pace with construction at sites in Bristol and Broadstairs for
the delivery of 450 homes. H1 2022 revenues have already exceeded the
revenue generated over 2021, highlighting the progress of the business. We
are already delivering some of the most energy efficient homes in the country
and are planning to release our first net zero carbon homes for sale at our
site in Bristol in September.
Our urban Build to Rent business joint venture with PGGM has continued to make
strong development progess across the UK's major towns and cities. Across
the Group, we now have a £3.0bn portfolio of c8,200 homes with 24 schemes in
operation or development, creating a strong pipeline of attractive, high
quality assets for LGRI and LGIM clients. Our Suburban Build to Rent
business has built its pipeline to over 1,000 homes across the UK, including
schemes in North Horsham and Peterborough.
Growth in our Inspired Villages business continues at pace, driven by the
partnership with Natwest Group Pension Fund. Our Later Living platform has
made good planning and development progress, and Inspired Villages is on track
to deliver over 5,000 homes for older people over the next 14 years. Over H1
2022, we acquired a new site in Horndean and secured planning permission for
the third phase of our development Ledian Gardens, Kent, with construction
also underway for our first two operationally net-zero carbon developments,
bringing forward over 350 energy efficient homes.
SME Finance AUM increased to £688m (H1 2021: £561m)
Investing in the real economy and technological innovation through our
Alternative Finance and our Venture Capital platforms, we are continuing to
support growth businesses, delivering enhanced returns while boosting job
creation, innovation, and science and technology advancements.
In the Alternative Finance sector we support UK and European mid-market
lending through our investments in Pemberton, our asset manager specialising
in private debt, in which we hold a 40% stake. The Pemberton platform has
raised over €14.9bn (H1 2021: €10.9bn) across four strategies, since we
first invested in 2014, with 172 investors globally. It currently has
€11.8bn (H1 2021: €8.3bn) deployed across 88 companies, delivering €45m
in revenue (H1 2021: €31m).
Our Venture Capital Funds platform backs over c500 start-up businesses across
the UK and Europe through our fund-of-funds programme and via LGC's ownership
in direct investment platform Accelerated Digital Ventures (ADV).
In light of its strategy to invest at seed, pre-seed and early stage funding
rounds, LGC's Venture Capital Fund-of-Funds programme saw strong performance,
with NAV growing by 16% to £198m over the six months to H1 2022.(( 39
(#_edn39) )) Many of the funds we invested in early in the programme are now
maturing, with the strongest companies securing new funding rounds at
increased valuations. Demonstrating the value of our patient investment
approach, the portfolio has now delivered a 23% IRR after fees since inception
in 2016, despite a period of volatility over H1 2022.
Legal & General Investment Management (LGIM)
FINANCIAL HIGHLIGHTS £m H1 2022 H1 2021
Management fee revenue 485 471
Transactional revenue 9 9
Total revenue 494 480
Total costs (294) (276)
Operating profit 200 204
Investment and other variances (7) (7)
Profit before tax 193 197
Net release from operations 162 163
Asset Management cost:income ratio (%) 59 58
NET FLOWS AND ASSETS £bn
External net flows 65.6 27.4
Total net flows 64.7 22.0
- Of which international(1) 34.5 15.0
Persistency 40 (#_edn40) (%) 91 89
Average assets under management 1,361 1,281
Assets under management as at 30 June 1,290 1,327
Of which:
- International assets under management(2) 468 434
- UK DC assets under management 129 125
1. International asset net flows are shown on the
basis of client domicile.
2. International AUM includes assets from
internationally domiciled clients plus assets managed internationally on
behalf of UK clients.
Operating profit resilient at £200m
Operating profit was slightly down at £200m (H1 2021: £204m), reflecting the
impact of recent market volatility on assets under management.
Assets under management decreased by 3% to £1,289.7bn (H1 2021: £1,326.8bn),
despite record half year external net flows of £65.6bn (H1 2021: £27.4bn).
Annualised net new revenue (ANNR) of £13m (H1 2021: £11m) represents 3%
(annualised) of prior year revenue and demonstrates the growth in
higher-margin areas including thematic ETFs and Multi-asset.
Revenues increased by 3% to £494m (H1 2021: £480m) in response to strong
flows, although growth in 2022 has been curtailed by the recent decline in
assets under management due to falling markets and the sale of the Personal
Investing business in 2021.
The cost income ratio of 59% continues to reflect a balanced approach to cost
management, with careful cost control combined with considered ongoing
investment in the business.
Growing International footprint
External net flows of £65.6bn represents 10% of opening external assets under
management (annualised) and included strong International net flows of
£34.5bn, reflecting our deep relationships with a number of leading
international clients and underpinning our conviction in our ability to grow
international AUM and earnings.
LGIM saw £22.5bn of net flows from Japanese clients and we are now Japan's
7(th) largest asset manager. 41 (#_edn41) Asia (ex-Japan) saw flows of
£11bn from multiple clients across the region, with combined Asia/Japan AUM
reaching £124bn ($151bn). In Europe our ETF business continues to grow and
we have signed several new distribution agreements in the European wholesale
market. Our US DB de-risking business had a very strong start to the year,
with net flows of $7.1bn representing the strength of our capabilities and
client/consultant relationships in helping pension plans achieve their
investment objectives. Improved funding ratios due to higher rates and wider
credit spreads have increased demand for fixed income and customised liability
hedging strategies.
International AUM of £468bn is up 8% (H1 2021: £434bn) and now constitutes
36% of total AUM.
Ongoing strength in UK
The Defined Contribution (DC) business continues to attract new assets, with
external net flows of £6.9bn, supported by ongoing growth in Retail's
Workplace pension business, which now has 4.7 million members. Total UK DC
AUM is up 3% with total AUM of £129.4bn (H1 2021: £125.5bn). This success
is underpinned by LGIM's strong customer focus, as shown by a 93% persistency
rate among our DC customers.
L&G also has one of the largest and fastest-growing UK Master Trusts,
which now has £18.2bn AUM, reflecting the increasing appeal of the structure
for DC plans wishing to outsource their governance, investment and
administration. Growth in our UK Master Trust business continues to support
growth in Multi-asset flows, since this is the default option for many of our
clients. Our ability to offer investors an integrated blend of high-quality
investment solutions, pensions administration and Master Trust governance for
a value bundled price maintains a significant source of competitive advantage
for LGIM's DC business.
Our UK Defined Benefit business delivered £22.5bn of net flows as improved
funding positions enabled our clients to de-risk. In addition, we continue
to provide a range of hedging solutions against a backdrop of market
volatility.
In Wholesale, we ranked third for both gross and net fund sales in Q2 2022.
We also continued to expand our Model Portfolio Service (MPS), further
extending our successful Multi-asset proposition into the maturing advisory
market, and with addition of two new funds, completing the build of our Future
World Multi-Index ESG range. We believe our scale and expertise can disrupt
this market while helping clients meet their investment objectives. The
launch of our Global Thematic unit trust also makes our thematic strategies
available to a wider client base. Our property fund for retail investors
continues to be one of the market leaders with over £2bn of AUM and our
higher margin Multi-asset funds now collectively have over £10bn in AUM from
UK retail investors.
Growth in ETFs
Our ETF business continues to grow strongly following our acquisition of the
Canvas business in March 2018. Over this period, revenue has more than
tripled. The business has shown resilience in the first half of the year,
against a challenging backdrop, with $0.4bn of external net flows delivering
an annualised net new revenue of $2.6m.
A focus on thematic and fixed income ETFs have supported our strategy of
growth into higher-margin areas, whilst our thematic equities continue to be
the largest contributor of revenues. A diversified product mix with fixed
income and commodities exposures have supported AUM/revenues so far this year.
LGIM continues to be ranked second on both AUM and net flows in the European
thematic ETF market. We are also in the top 10 for fixed income flows, and
in the top 10 by overall flows.
Breadth of investment management solutions
Active Multi Real Total
Asset movements(1) (£bn) Index strategies asset Solutions assets AUM
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
External inflows 63.2 7.0 6.8 21.3 1.4 99.7
External outflows (38.2) (4.2) (3.7) (12.5) (1.1) (59.7)
Overlay net flows - - - 25.6 - 25.6
External net flows 25.0 2.8 3.1 34.4 0.3 65.6
PRT transfers(2) - - - (0.4) - (0.4)
Internal net flows (0.4) 0.2 - (0.7) 0.4 (0.5)
Total net flows 24.6 3.0 3.1 33.3 0.7 64.7
Market movements (57.8) (25.2) (8.0) (102.4) (1.9) (195.3)
Other movements 0.4 1.6 - (3.2) - (1.2)
As at 30 June 2022 469.6 178.2 73.1 532.8 36.0 1,289.7
1. Please see disclosure 5.01 for further details.
2. PRT transfers reflect outflows in respect of LGIM clients who have
moved to PRT with LGRI
Solutions continued to deliver positive external net flows of £34.4bn (H1
2021: £18.8bn) driven by strong demand from UK, US and APAC DB clients as
they continue to de-risk. We manufacture Solutions products in both publicly
and privately traded asset classes and combine these together in integrated
portfolios for our DB clients. We are well positioned to capitalise on this
continuing trend. Together with our fiduciary business offering, and working
closely with LGRI's PRT business, we can tailor solutions to DB schemes at all
stages of their funding journey. We have recently signed an agreement with the
British Steel Pension Scheme to manage the £9.9bn 42 (#_edn42) assets of its
DB scheme, which we believe is competitively differentiated in the market and
provides a template for similar future deals.
Multi-asset strategies continue to be in demand from DC schemes and retail
customers. External net flows into Multi-asset funds were £3.1bn (H1 2021:
£1.8bn), and we have seen positive initial market sentiment following the
completion of our Future World Multi-Index range.
Index reported positive external net flows of £25.0bn (H1 2021: £4.7bn)
driven by new international flows into Japan (£22.7bn) and Asia (£7.9bn),
partially offset by Index outflows in the UK and US, reflecting the structural
trend of DB schemes de-risking and therefore shifting from index to LDI
strategies.
Active Strategies delivered external net flows of £2.8bn (H1 2021: £2.3bn)
as a result of positive net inflows from US and UK DB clients.
Real Assets saw total net flows of £0.7bn (H1 2021: £0.8bn) driven by
additional Private Credit transactions to support LGRI's PRT proposition. We
expect future growth in flows to be supported by our Build to Rent business
and by Private Credit, which offers clients diversification of secure income
and value protection solutions, and which UK DB investors are now accessing
through our successful SIAF and STAFF private credit funds. 43 (#_edn43)
We are continuing to build on our partnership with NTR, a leading renewable
energy specialist, to provide institutional investors in the UK, Europe and
Asia access to the €1 trillion European energy transition, with first close
expected in Q4 2022.
Investment performance
The market backdrop year-to-date in 2022, has been very challenging. War in
Ukraine has led to an Energy crisis and contributed to spiralling inflation.
This, in turn, has led to considerable volatility and weakness in both fixed
income and equity markets with key benchmark indices posting double-digit
negative total returns, leaving very little respite for investors. As a
result, our short-term performance across some of our active strategies has
been challenging.
In Solutions and Index investment success is driven by matching, for example
liability driven strategies, or tracking indices predefined by our clients.
We continue to consistently and successfully deliver against these target
returns, evidenced by increasing client flows.
Performance of our UK-managed Active Fixed Income strategies remains strong
with 94% of strategies out-performing over 3 years and 91% 44 (#_edn44) over
5 years. Our US-managed Active Fixed Income strategies have also performed
strongly.
Within Private Markets, 77% 45 (#_edn45) of our Real Estate Equity funds have
outperformed over 3 years and our Private Credit performance remains strong.
Our investment success is also evident in the number of independent awards we
have won over H1 2022 for investment performance, including ESG award at the
City AM Awards 2022, Investment Manager of the Year and Passive Manager of the
Year at the European Pensions Awards 2022, and Residential Asset Manager of
the Year at the Property Week Resi awards.
Leading in responsible investing
LGIM continues to build on its credentials as a responsible investor and
remains committed to leading the asset management industry in addressing the
environmental and social challenges arising from a rapidly changing world.
As at 30(th) June 2022, LGIM managed £271.2bn (H1 2021: £252.3bn) in
responsible investment strategies explicitly linked to ESG criteria for a
broad range of clients. 46 (#_edn46)
LGIM has a strong, unified sense of purpose: to create a better future through
responsible investing. To that end, we work to raise ESG standards on
important global issues, leveraging our position as one of the largest global
asset managers. LGIM is, for example, a founding signatory of the Net Zero
Asset Managers Initiative, and has a global marketing partnership with Lewis
Pugh, the UN Patron of the Oceans. Recent achievements include:
· Commitment to net zero:
1. LGIM has committed to work in partnership with our clients to align
70% of eligible assets to net-zero carbon emissions by 2030, and to reach
net-zero greenhouse gas emissions by 2050 or sooner across all eligible assets
under management, in the same way that L&G has already committed to with
its own balance sheet.
2. Our DC default funds - available to over four million members
across L&G Workplace Pensions and the L&G Mastertrust, have set
interim targets to support their 2050 net-zero ambitions.
3. LGIM Real Assets has committed to achieve net-zero carbon emissions
across its UK real estate portfolio by 2050.
· Product innovation: The size of the global ESG market, currently
$8 trillion, is expected to grow to $30 trillion by 2030. 47 (#_edn47) We
believe we are well positioned to benefit from this flow of AUM thanks to our
authentic and differentiated proposition. We continue to build on our strong
heritage in using index and active ESG investing insights to develop
innovative new products, with 57% of our EU domiciled UCITS funds classified
as ESG-incorporated (articles 8 or 9) under the EU annual Sustainable Finance
Disclosure Regulation (SFDR) exercise. Around 85% of all new product
development activity at LGIM is ESG-related, reflecting clients' belief in our
heritage and strength in this area. Recent examples of ESG product
innovation that place us at the forefront of growing client demand include:
· The launch of a Global Diversified Credit fund aligned to the UN's
Sustainable Development Goals.
· The launch of a new Net Zero corporate bond fund, helping Fixed
Income investors on their transition of their portfolios to Net Zero.
· Continued bespoke ESG segregated account offerings for multiple
clients, reflecting their individual ESG drivers and preferences.
· Stewardship with impact: LGIM is rated A+ for responsible
investment strategy and governance, listed equity-incorporation, listed
equity-active ownership and fixed income-SSA (supranational, sovereign,
government agencies and subnational debt instruments) by the UN Principles for
Responsible Investment. LGIM is ranked as one of the highest performers
among asset managers for its approach to stewardship and holding companies to
account on climate change by both FinanceMap and Majority Action, and in 2021
the Financial Reporting Council (FRC) recognised LGIM as a signatory to the UK
Stewardship Code for our high standards of stewardship. We also recently
published the sixth annual iteration of our market-leading Climate Impact
Pledge, driving positive momentum to address climate risk, across
approximately 1,000 companies and 15 climate-critical sectors. LGIM's voting
decisions are guided by policies that are painstakingly researched, set and
fine-tuned every year. We cast over 45,000 votes in H1 2022, and we publish
all of our voting actions on our dedicated website. We also publicly
disclose all rationales for votes against management and continue to publicly
pre-declare our voting intentions on certain votes, for example where we
consider the vote to be contentious, or as part of a specific engagement
programme.
· Investment in Tumelo: In H1 2022 we acquired a minority stake in
Tumelo, an ESG digital engagement platform, which we are providing to many of
our DC pension clients. The technology enables pension scheme members to
vote on the AGM proposals of companies they are invested in, driving greater
consumer engagement and enabling LGIM to better understand members' views and
therefore acting as an input to LGIM's engagement themes and voting stance.
Retail
FINANCIAL HIGHLIGHTS £m H1 2022 H1 2021
Operating profit 332 292
- UK Insurance & Other 139 96
- US Insurance 46 38
- Retail Retirement 147 158
Investment and other variances 670 260
Profit / (loss) before tax attributable to equity holders 1,002 552
Release from operations(1) 345 262
New business surplus / (strain) (2) 23
Net release from operations 343 285
Protection new business annual premiums 196 203
Individual annuities single premium 453 483
Workplace Savings net flows (£bn) 48 (#_edn48) 4.3 6.0
Lifetime & Retirement Interest Only mortgage advances 338 414
UK Retail protection gross premiums 740 714
UK Group protection gross premiums 291 274
US protection gross premiums 574 512
Total protection gross premiums 1,605 1,500
Protection New Business Value 92 131
Annuities New Business Value 32 33
Solvency II New Business Value 124 164
1. Includes the annual dividend of $114m (H1 2021: $111m) paid by LGIA
to the Group in March 2022.
Operating profit up £40m to £332m
During the first half of 2022, Retail operating profit increased 14% to £332m
(H1 2021: £292m), driven by the on-going release from operations from the
growing UK protection and individual annuity portfolios, valuation uplifts in
both Salary Finance and Smartr365 and improvements in the discount rate for
our US term liabilities. In the US, after significant adverse mortality
experience over Q1 2022 (in line with the wider market), mortality returned to
normal levels in Q2. Total Covid claims over H1 2022 were in line with the
£57m Covid claims provision set up at year end.
Profit before tax was predominantly impacted by the formulaic change in
discount rates. The positive investment variance of £670m was driven
primarily by an increase in UK and US government bond yields which have
resulted in a higher discount rate used to calculate the Insurance reserves.
The UK 10 year gilt rate increased by 126bps and US 10 year Treasury yields
increased by 150bps.
Solvency II New Business Value decreased by £40m to £124m (H1 2021: £164m)
reflecting lower volumes in Retail protection after a strong first half in
2021, aided by the buoyant housing market. The Insurance business continues
to generate Solvency II surplus immediately when written and provides
diversification benefits to the Group, particularly the annuity business.
Robust trading performance in H1
UK Retail protection gross premium income increased to £740m (H1 2021:
£714m), with new business annual premiums of £85m (H1 2021: £105m) in a
smaller market (2021 benefitted from a buoyant housing market driven by stamp
duty relief). L&G leads the UK protection market with a market share of
22% 49 (#_edn49) , delivering a point of sale decision for more than 80% of
our customers.
UK Group protection new business annual premiums were £63m (H1 2021: £55m)
with gross written premiums increasing 6% to £291m (H1 2021: £274m). Our
online quote and apply platform for smaller schemes launched last year and we
are seeing strong growth in this part of the market. Group Protection
supported 1,574 members of income protection schemes to return to work during
the first half of the year.
US protection (LGIA) gross written premiums increased 5% (up 12% on a sterling
basis, benefiting from FX movements) to $746m (H1 2021: $712m). New business
annual premiums increased 5% to $62m (H1 2021: $59m), with strong new business
margins of 10.7% (H1 2021: 11.5%). LGIA ranked number one in the brokerage
general agency channel in the first quarter by new policies issued and number
two in new premium. We continue to develop our market-leading, digital new
business platform (Horizon) which is starting to deliver in line with
expectation, and we expect to drive further sales growth and to reduce unit
costs over the coming years. Two thirds of new business is now submitted
through our Horizon platform and we expect this to increase over H2.
Legal & General Mortgage Club facilitated £50bn of mortgages, up 6% (H1
2021: £47bn), driven by continued strong demand in the mortgage/remortgage
market. We remain the largest participant in the UK intermediated mortgage
market and are involved in around one in five of all UK mortgage
transactions. Our Surveying Services business facilitated over 276,000
surveys and valuations (H1 2021: 263,000). Since buying a new house is often
a catalyst for purchasing life insurance, the Legal & General Mortgage
Club is a supporting component of our overall offering to customers.
Individual annuity sales were £453m (H1 2021: £483m) in what has been a
smaller overall market during 2022, as we expect retirees have been choosing
to defer annuity retirement options, given the volatile macro-economic
environment. Our relative performance has remained strong: our operational
service, competitive pricing and intermediary presence allowed us broadly to
maintain our market share at 20.5%.(40)
Lifetime mortgage advances, including Retirement Interest Only mortgages, were
£338m (H1 2021: £414m). Throughout this period, we have maintained pricing
and underwriting discipline. At H1 2022, LTMs were 7% of our total annuity
assets and our LTM new business portfolio had an average customer age of 72
and a weighted average loan-to-value of c34% at point of sale.
Workplace Savings net flows were £4.3bn (H1 2021: £6.0bn), driven by
continued client wins and increased contributions. Members on the Workplace
pension platform increased to 4.7 million in H1 2022. We are continuing to
focus on improving efficiency and scale as the business grows.
Scaling up our Fintech businesses
Retail has continued with its strategy to invest in and scale up innovative
fintech businesses in adjacent markets.
Salary Finance, an employee benefits platform in which we have a 48% holding,
continues to grow rapidly, with the platform now connected to over 4.2
million employees across the UK and US. Gross revenue grew to £20.5m, an
increase of just over 60% year on year. It remains one of the UK's fastest
growing Fintechs and is well positioned for growth in the UK, the US and
beyond. Salary Finance completed a transaction to sell Work Report to
Experian in H1 2022, generating a substantial cash injection as a result.
The proceeds of this transaction, places Salary Finance in a strong position
for continued growth.
Our c49% investment in Smartr365, a complete end-to-end mortgage platform
designed to simplify the mortgage process for brokers, introducers, networks
and consumers, has moved from start up to scale up across the UK mortgage
broking market, also achieving a successful funding round over H1 2022. We
now have around 3,400 licences signed up and continue to receive strong
feedback on the proposition.
A new investment was made in Onto, an all-inclusive electric car subscription
provider. Onto's growth plans include opportunities for a salary deduction
workplace offering which L&G is ideally placed to support given our
multiple, workplace-focused businesses and investments. Onto's business
model also aligns well with our ambitions to help the UK economy transition to
net zero.
The strategy of platform ownership and influence has continued to serve us
well in the mortgage and home-financing "ecosystem". Our mortgage research
tools for affordability, criteria and product reach over 19k advisers in the
mortgage broking market following a focus on user growth through active
promotion over the last six months. Within our Legal & General surveying
business, our work to digitise the market has proved invaluable for lenders,
primarily banks, through the pandemic and this trend has continued into
2022. Our digital valuation services have been used by many of our key
clients with over 153k completed since 2019.
Borrowings
The Group's outstanding core borrowings totalled £4.4bn at 30 June 2022 (FY
2021: £4.3bn; H1 2021: £4.5bn). There is also a further £1.2bn (FY 2021:
£0.9bn; H1 2021: £1.1bn) of operational borrowings including £1.0bn (FY
2021: £0.9bn; H1 2021: £1.1bn) of non-recourse borrowings.
Group debt costs of £108m (H1 2021: £120m) reflect an average cost of debt
of 4.9% per annum (H1 2021: 5.1% per annum) on an average nominal value of
debt balances of £4.5bn (H1 2021: £4.8bn).
Taxation
Equity holders' Effective Tax Rate (%) H1 2022 H1 2021
Equity holders' total Effective Tax Rate 15.7 19.5
Annualised rate of UK corporation tax 19.0 19.0
The H1 2022 effective tax rate reflects the different rates of taxation that
apply to Legal & General's overseas operations, as well as applying the
future enacted UK tax rate of 25% (which applies from 1 April 2023) on
deferred tax movements in the period.
The tax rate on operating profits, excluding the impact of investment
variance, was 17.2% (H1 2021: 16.1%).
Solvency II
As at 30 June 2022, the Group had an estimated Solvency II surplus of £9.2bn
over its Solvency Capital Requirement, corresponding to a Solvency II coverage
ratio of 212%.
H1 2022 2021
Capital (£m)
Own Funds 17,374 17,561
Solvency Capital Requirement (SCR) (8,193) (9,376)
Solvency II surplus 9,181 8,185
SCR coverage ratio (%) 212 187
Solvency II Own Funds Solvency II SCR Solvency II Surplus
Analysis of movement from 1 January 2022 to 30 June 2022(1) (£m)
Operational surplus generation 748 198 946
New business strain 175 (296) (121)
Net surplus generation 923 (98) 825
Operating variances( ) (231)
Mergers, acquisitions and disposals -
Market movements 1,194
Subordinated debt -
Dividends paid (792)
Total surplus movement (after dividends paid in the period) (187) 1,183 996
1. Please see disclosure note 6.01(c) for further detail.
Operational surplus generation increased to £946m (H1 2021: £831m), after
allowing for amortisation of the opening Transitional Measures on Technical
Provisions (TMTP) and release of Risk Margin.
New business strain was £(121)m, primarily reflecting UK PRT volumes written
at a capital strain of less than 4%. This resulted in net surplus generation
of £825m (H1 2021: £673m).
Dividends paid represent the payment of the 2021 final dividend in June 2022,
which is the larger of the two dividends paid during the year.
Operating variances include the impact of experience variances, changes to
assumptions, and management actions. The net impact of operating variances
over the period was negative and predominantly reflects timing differences
which we expect to reverse in H2. Market movements of £1,194m primarily
reflect the impact of rising rates on the valuation of our balance sheet,
partially offset by weaker asset markets, predominantly in equities, credit
spread dispersion in sub-investment grade assets, as well as a number of
other, smaller variances.
The movements shown above incorporate the impact of recalculating the TMTP as
at 30 June 2022.
Reconciliation of IFRS net release from operations to Solvency II net surplus
generation(1)
The table below gives a reconciliation of the Group's IFRS Release from
operations and Solvency II Operational surplus generation in H1 2022:
£bn
IFRS Release from operations 892
Expected release of IFRS prudential margins (273)
Release of IFRS specific reserves (83)
Solvency II investment margin 67
Release of Solvency II Capital Requirement and Risk Margin less TMTP 343
amortisation
Solvency II Operational Surplus Generation 946
The table below gives a reconciliation of the Group's IFRS New business
surplus to Solvency II New business strain in H1 2022:
£bn
IFRS New business surplus 153
Removal of requirement to set up prudential margins above best estimate on new 94
business
Set up of Solvency II Capital Requirement on new business (296)
Set up of Risk Margin on new business (72)
Solvency II New business strain (121)
1. Please see disclosure 2.02 and 6.01 (d) for further details.
Sensitivity analysis(2)
Impact on net of tax Solvency II capital surplus Impact on net of tax Solvency II coverage ratio
H1 2022 H1 2022
£bn %
100bps increase in risk free rates 0.5 19
50bps decrease in risk free rates (0.3) (9)
Credit spreads widen by 100bps assuming an escalating addition to ratings 0.4 12
Credit spreads narrow by 100bps assuming an escalating addition to ratings (0.4) (15)
Credit spreads widen by 100bps assuming a flat addition to ratings 0.4 14
Credit spreads of sub-investment grade assets widen by 100bps assuming a level (0.3) (8)
addition to ratings
Credit migration (1.2) (14)
25% fall in equity markets (0.4) (3)
15% fall in property markets (0.9) (9)
50bps increase in future inflation expectations - (3)
Substantially reduced Risk Margin 0.5 7
2. Please see disclosure 6.01 (f) for further details.
The above analysis does not reflect all possible management actions which
could be taken to reduce the impact of each sensitivity due to the complex
nature of the modelling. In practice, the Group actively manages its asset
and liability positions to respond to market movements. Other than in the
interest rate and inflation stresses, we have not allowed for the
recalculation of TMTP. The impacts of these stresses are not linear
therefore these results should not be used to interpolate or extrapolate the
impact of a smaller or larger stress.
The results of these tests are indicative of the market conditions prevailing
at the balance sheet date. The results would be different if performed at an
alternative reporting date.
The impacts of credit spreads and risk-free rate sensitivities are primarily
non-economic arising from movements in balance sheet items that result from
changes in the discount rates used to calculate the value of assets and
liabilities. The credit migration stress, in the absence of defaults, delays
the emergence of operating surplus generation, but does not reduce the actual
quantum of future releases. Similarly, equity and property stresses only
result in losses if assets are sold at depressed values.
Solvency II new business contribution
Management estimates of the present value of new business (PVNBP) and the
margin as at 30 June 2022 are shown below(1):
PVNBP Contribution from Margin %
new business
LGRI - UK annuity business (£m) 3,715 323 8.7
Retail Retirement - UK annuity business 453 32 7.1
UK Protection Total (£m) 870 50 5.7
- Retail protection 578 28 4.8
- Group protection 292 22 7.5
US Protection (£m) 391 42 10.7
The key economic assumptions as at 30 June 2022 are as follows:
%
Margin for risk 4.1
Risk free rate
- UK 2.3
- US 3.0
Risk discount rate (net of tax)
- UK 6.4
- US 7.1
Long-term rate of return on non-profit annuities 4.4
1. Please see disclosure 6.02 for further details.
The future earnings are discounted using duration-based discount rates, which
is the sum of a duration-based risk free rate and a flat margin for risk. The
risk free rates have been based on a swap curve net of the PRA-specified
Credit Risk Adjustment. The risk free rate shown above is a weighted average
based on the projected cash flows.
Other than updating for recent experience, all other economic and non-economic
assumptions and methodologies that would have a material impact on the margin
for these contracts are unchanged from those previously used by the group for
its European Embedded Value reporting, other than the cost of currency hedging
which has been updated to reflect current market conditions and hedging
activity in light of Solvency II.
Principal risks and uncertainties
Legal & General runs a portfolio of risk taking businesses; we accept risk
in the normal course of business and aim to deliver sustainable returns on
risk based capital to our investors in excess of our cost of capital. We
manage the portfolio of risk that we accept to build a sustainable franchise
for the interests of all our stakeholders; we do not aim to eliminate that
risk. We have an appetite for risks that we understand and are rewarded for,
and which are consistent with delivery of our strategic objectives. Risk
management is embedded within the business. The Group's Principal Risks and
Uncertainties summarise key matters that may impact the delivery of Group's
strategy earnings or profitability. The risks are expected to remain
applicable for the remaining six months of the year.
RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION
Investment market performance and conditions in the broader economy may Whilst global and UK economic activity is returning to pre-pandemic levels,
adversely impact earnings, profitability or surplus capital. The performance there remains significant uncertainty to the impacts of inflation on the
and liquidity of financial and property markets, interest rate movements and sustainability of the recovery, particularly should current inflationary
inflation impact the value of investments we hold in shareholders' funds and pressures become deep seated or should policy responses prove ineffective in
to meet the obligations from insurance business; the movement in certain response. Financial markets, as well as being impacted by the economic outlook
investments directly impacts profitability. Interest rate movements and also continue to be susceptible to shocks from a range of geo-political
inflation can also change the value of our obligations and although we seek to factors including the on-going war in Ukraine and potential further ruptures
match assets and liabilities, losses can still arise from adverse markets. in the US-China relationship. The world also remains vulnerable to the
Falls in the risk free yield curve can also create a greater degree of emergence of new Covid-19 variants. Within the UK, uncertainty persists in
inherent volatility to be managed in the Solvency II balance sheet, certain elements of commercial property markets, and within our construction
potentially impacting capital requirements and surplus capital. Falls in businesses supply chain and labour shortages are significant risks.
investment values can reduce our investment management fee income.
We cannot eliminate the downside impacts on our earnings, profitability or
surplus capital from investment market volatility and adverse economic
conditions, although we seek to position our investment portfolios and wider
business plans for a range of plausible economic scenarios and investment
market conditions to ensure their resilience across a range of outcomes.
In dealing with issuers of debt and other types of counterparty, the group is Although the wider economy has largely recovered from the direct effects of
exposed to the risk of financial loss. Systemic corporate sector failures, or global lockdowns, a range of industries remain vulnerable to further Covid-19
a major sovereign debt event, could, in extreme scenarios, trigger defaults disease control measures including the leisure, transport, travel and retail
impacting the value of our bond portfolios. Under Solvency II, a widespread consumer cyclical sectors, with the risk of downgrade and default remaining
widening of credit spreads and downgrades can also result in a reduction in particularly as governments refocus economic support packages on ameliorating
our Solvency II balance sheet surplus, despite already setting aside the effects of the current high rates of inflation in many economies. A period
significant capital for credit risk. We are also exposed to default risks in of sustained inflation with increases in interest rate suppressing economic
dealing with banking, money market and reinsurance counterparties, as well as activity in sectors reliant on discretionary spending could compound the
settlement, custody and other bespoke business services. Default risk also effects.
arises where we undertake property lending, with exposure to loss if an
accrued debt exceeds the value of security taken.
We continue to actively manage our exposure to downgrade and default risks
within our chiefly investment-grade credit portfolios, through setting
selection criteria and exposure limits, and using LGIM's global credit team's
capabilities to ensure risks are effectively controlled, and where appropriate
trading out to improve credit quality. In our property lending businesses, our
loan criteria take account of borrower default and movements in the value of
security. We manage our reinsurer exposures dealing only with those with a
strong investment-grade rating at outset, setting rating based exposure
limits, and where appropriate taking collateral. Whilst we manage risks to our
Solvency II balance sheet, we can never eliminate downgrade or default risks,
although we seek to hold a strong balance sheet that we believe to be
resilient to a range of adverse scenarios.
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
We fail to respond to the emerging threats from climate change for our Climate change and failure to transition to a low carbon economy remains a
investment portfolios and wider businesses. As a significant investor in significant risk that we believe has still to be fully priced in by financial
financial markets, commercial real estate and housing, we are exposed to markets, with delays in responding to the threats increasing the risk of
climate related transition risks, particularly should abrupt shifts in the sudden late policy action, leading to potentially large and unanticipated
political and technological landscape impact the value of those investment shifts in asset valuations for impacted industries.
assets associated with higher levels of greenhouse gas emissions. Our
interests in property assets may also expose us to physical climate change
related risks, including flood risks. We are also exposed to the risk of
adverse perceptions of the group and climate risk related litigation should We continue to embed the assessment of climate risks in our investment
our responses not align with environment, social and governance (ESG) rating process, including in the management of real assets. At the aggregate level we
expectations. measure the carbon intensity targets of our investment portfolios, and along
with specific investment exclusions for carbon intensive industries, we have
set overall reduction targets aligned with a 1.5°C interpretation of the
Paris Agreement, including setting near term science based targets to support
our long term emission reduction goals. We are also closely monitoring the
political and regulatory landscape, and as part of our climate strategy we
engage with regulators and investee companies in support of climate action.
We remain vigilant to ensure there is a resonance between what we say and what
we do on ESG issues, and are alert to the risks of "greenwashing" while
acknowledging we are a complex and multi-faceted business, and there are
strongly-held but often conflicting views among our key stakeholders.
Reserves and our assessment of capital requirements may require revision as a We undertake significant analysis of the variables associated with writing
result of changes in experience, regulation or legislation. The pricing of long-term insurance business to ensure that a suitable premium is charged for
long-term business requires the setting of assumptions for long-term trends in the risks we take on, and that reserves continue to remain appropriate for
factors such as mortality, lapse rates, valuation interest rates, expenses and factors including mortality, lapse rates, valuation interest rates, and
credit defaults as well as the availability of assets with appropriate expenses, as well as credit default in the assets backing our insurance
returns. Actual experience may require recalibration of these assumptions, liabilities. In seeking a comprehensive understanding of longevity, we
increasing the level of reserves and impacting reported profitability. continue to evaluate how Covid-19 may impact wider trends in life expectancy.
In our protection business, as part of our continuous evolution of our
underwriting capabilities, we seek to ensure we fairly assess Covid-19 and
associated impacts it has had on healthcare systems, including the deferral of
Management estimates are also required in the derivation of Solvency II medical treatments, as a risk factor. We cannot remove the risk that
capital metrics. These include modelling simplifications to reflect that it is adjustment to reserves may be required as a result of these and other factors,
not possible to perfectly model the external environment. although the selective use of reinsurance acts to reduce the impacts to us of
significant variations in life expectancy and mortality.
Forced changes in reserves can also arise from regulatory or legislative
intervention impacting capital requirements and profitability. Other risk factors that may impact future reserving requirements include a
sustained and rapid advances in medical science, beyond that anticipated,
requiring adjustment to our longevity assumptions; and the emergence of new
diseases and changes in immunology impacting mortality and morbidity
assumptions. At present we do not believe climate change to be a material
driver for mortality and longevity risk in the medium term, but we will
continue to keep this under review.
Changes in regulation or legislation may have a detrimental effect on our Regulatory driven change remains a significant risk factor across our
strategy. Legislation and government fiscal policy influence our product businesses. Areas of future change include HM Treasury's consultation on
design, the period of retention of products and required reserves for future Solvency II and the Future Regulatory Framework post Brexit; and the UK's
liabilities. Regulation defines the overall framework for the design, financial conduct regulator's proposal for a new Consumer Duty which will
marketing, taxation and distribution of our products, and the prudential place obligations to evidence the delivery of good customer outcomes. We
capital that we hold. Significant changes in legislation or regulation may also continue to prepare in readiness for IFRS 17, which will introduce a new
increase our cost base, reduce our future revenues and impact profitability or suite of financial reporting metrics. Within our property construction
require us to hold more capital. businesses, the Building Safety Bill and the Environment Act 2021 will also
introduce new operating requirements.
The prominence of the risk increases where change is implemented without prior
engagement with the sector. The nature of long-term business can also result Our internal control framework seeks to ensure on-going compliance with
in some changes in regulation, and the re-interpretation of regulation over relevant legislation and regulation. Residual risk remains, however, that
time, having a retrospective effect on in-force books of business, impacting controls may fail or that historic financial services industry accepted
future cash generation. practices may be reappraised by regulators, resulting in sanctions against the
group.
RISKS AND
UNCERTAINTIES
TREND, OUTLOOK AND MITIGATION
New entrants may disrupt the markets in which we operate. There is already We continue to monitor the factors that may impact the markets in which we
strong competition in our markets, and although we have had considerable past operate, including evolving domestic and international capital standards, and
success at building scale to offer low cost products, we recognise that are maintaining our focus on developing our digital platforms. We have a
markets remain attractive to new entrants. It is possible that alternative number of direct investments in strategically important market segments to
digitally enabled financial services providers emerge with lower cost business enhance delivery of our core businesses and LGIM continue to invest in
models or innovative service propositions and disrupt the current competitive technology to achieve the resilience and agility critical to future success.
landscape. We are also cognisant of competitors who may have lower return on We observe a continued acceleration of a number of trends, including greater
capital requirements or be unconstrained by Solvency II. consumer engagement in digital business models and on-line servicing tools. It
has also seen businesses like ours transform working practices, and we expect
to continue to invest in automation, using robotics to improve business
efficiency. Our businesses are also well positioned for changes in the
competitive landscape that may arise from the roll out of defined benefit
'superfund' consolidation schemes, pension dashboards and 'collective' pension
scheme arrangements. We continue to be supportive of the opportunity for
reform of the Solvency II capital regime post Brexit.
A material failure in our business processes or IT security may result in Our risk governance model seeks to ensure that business management are
unanticipated financial loss or reputation damage. We have constructed our actively engaged in maintaining an appropriate control environment, supported
framework of internal controls to minimise the risk of unanticipated financial by risk functions led by the Group Chief Risk Officer, with independent
loss or damage to our reputation. However, no system of internal control can assurance from Group Internal Audit. Whilst we seek to maintain a control
completely eliminate the risk of error, financial loss, fraudulent actions or environment commensurate with our risk profile we recognise that residual risk
reputational damage. We are also inherently exposed to cyber threats including will always remain across the spectrum of our business operations and we aim
the risks of data theft and fraud. There is also strong stakeholder to develop response plans so that when adverse events occur, appropriate
expectation that our core business services are resilient to operational actions are deployed in a timely fashion. We remain, alert to evolving
disruption. operational risks and continue to invest in our system capabilities, including
those for the management of cyber risks, and continue to evolve our
operational resilience capabilities in line with financial services regulatory
requirements.
The success of our operations is dependent on the ability to attract and Competition for talent across the full range of capabilities and
retain highly qualified professional people. The Group aims to recruit, qualifications remains intense and demands that the Group offers competitive
develop and retain high quality individuals. We are inherently exposed to the compensation arrangements as well as opportunities for development and an
risk that key personnel or teams of expertise may leave the Group, with an attractive work environment. People with skills in areas such as technology
adverse effect on the Group's businesses. As we increasingly focus on the and digital are particularly sought after across many business sectors,
digitalisation of our businesses, we are also competing for data and digital including those in which we operate. We also recognise the risks posed by the
skill sets with other business sectors as well as our peers. outlook for inflation in salary expectations across the wider employment
market. Market-wide approaches to hybrid working are still evolving, and
although we believe we are taking the right steps, there remains a risk that
our model does not align with the expectations of those we seek to attract or
retain.
We continue to seek to ensure that key personnel dependencies do not arise,
through employee training and development programmes, remuneration strategies
and succession planning. Our processes include the active identification and
development of talent within our workforce, and by highlighting our values and
social purpose, promoting Legal & General as a great place to work. We
also engage our people on new ways of working under our hybrid home:office
model and are investing in technology and upgrading our buildings to support a
range of working styles.
Notes
A copy of this announcement can be found in "Results, Reports and
Presentations", under the "Investors" section of our shareholder website at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A presentation to analysts and investors will take place at 10:30am UK time
today at One Coleman Street, London, EC2R 5AA. There will also be a live
webcast of the presentation that can be accessed at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
(http://www.legalandgeneralgroup.com/investors/results-reports-and-presentations)
.
A replay of the presentation will be made available on this website by 12(th)
August 2022.
Financial Calendar Date
2022 interim results announcement 9 August 2022
Ex-dividend date (2022 interim dividend) 18 August 2022
Record date 19 August 2022
Dividend payment date 26 September 2022
2022 preliminary results announcement 8 March 2023
Definitions
Definitions are included in the Glossary on pages 101 to 105 of this
release.
Forward-looking statements
This announcement may contain 'forward-looking statements' with respect to the
financial condition, performance and position, strategy, results of operations
and businesses of the Company and the Group that are based on current
expectations or beliefs, as well as assumptions about future events. These
forward-looking statements can be identified by the fact that they do not
relate only to historical or current facts. Forward-looking statements often
use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar
meaning. By their very nature, forward-looking statements are subject to
known and unknown risks and uncertainties and can be affected by other factors
that could cause actual results, and the Group's plans and objectives, to
differ materially from those expressed or implied in the forward-looking
statements. Recipients should not place reliance on, and are cautioned about
relying on, any forward-looking statements.
There are several factors which could cause actual results to differ
materially from those expressed or implied in forward-looking statements.
The factors that could cause actual results to differ materially from those
described in the forward-looking statements include (but are not limited to):
changes in global, political, economic, business, competitive and market
forces or conditions; future exchange and interest rates; changes in
environmental, social or physical risks; legislative, regulatory and policy
developments; risks arising out of health crises and pandemics; changes in tax
rates, future business combinations or dispositions; and other factors
specific to the Group. Any forward-looking statement contained in this
document is based on past or current trends and/or activities of the Group and
should not be taken as a representation that such trends or activities will
continue in the future. No statement in this document is intended to be a
profit forecast or to imply that the earnings of the Group for the current
year or future years will necessarily match or exceed the historical or
published earnings of the Group. Each forward-looking statement speaks only
as of the date of the particular statement. Except as required by any
applicable laws or regulations, the Group expressly disclaims any obligation
to revise or update any forward-looking statement contained within this
document, regardless of whether those statements are affected as a result of
new information, future events or otherwise.
Caution about climate information
This announcement contains climate and ESG disclosures which use a large
number of judgments, assumptions and estimates. These judgments, assumptions
and estimates are likely to change over time. In addition, the Group's
climate risk analysis and net zero strategy remain under development and the
data underlying the analysis and strategy remain subject to evolution. As a
result, certain climate and ESG disclosures made in this announcement are
likely to be amended, updated, recalculated or restated in future
announcements. This statement should be read together with the Cautionary
statement contained in the Group's 2021 Climate Report.
The information, statements and opinions contained in this announcement do not
constitute an offer to sell or buy or the solicitation of an offer to sell or
buy any securities or financial instruments nor do they constitute any advice
or recommendation with respect to such securities or other financial
instruments or any other matter
Going concern statement
Going concern statement is included on disclosure note 4.01(a) on page 52 of
this release.
Directors' responsibility statement
We confirm to the best of our knowledge that:
i. The consolidated interim financial statements have been prepared
in accordance with UK-adopted IAS 34 Interim Financial Reporting;
ii. The interim management report includes a fair review of the
information required by DTR 4.2.7, namely an indication of important events
that have occurred during the first six months of the financial year and their
impact on the consolidated interim financial statements, as well as a
description of the principal risks and uncertainties faced by the company and
the undertakings included in the consolidation taken as a whole for the
remaining six months of the financial year;
iii. The interim management report includes, as required by DTR 4.2.8, a
fair review of material related party transactions that have taken place in
the first six months of the financial year and any material changes in the
related party transactions described in the last Annual Report and Accounts;
and
iv. The directors of Legal & General Group Plc are listed in the
Legal & General Group Plc Annual Report and Accounts for 31 December 2021.
A list of current directors is maintained on the Legal & General Group Plc
website: www.legalandgeneralgroup.com/about-us/our-management/group-board/
(http://www.legalandgeneralgroup.com/about-us/our-management/group-board/) .
By order of the Board
Sir Nigel Wilson
Stuart Jeffrey Davies
Group Chief Executive
Group Chief Financial Officer
8 August
2022
8 August 2022
Enquiries
Investors
) +44 203 124 2091
Edward Houghton,
Group Strategy & Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
) +44 203 124 2054
Nim Ilankovan, Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
) +1 240 397 0053
Blake Carr, Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
Media
) +44 203 1242 090
John Godfrey, Group Corporate Affairs Director
8 legalandgeneralgroup.com
) +44 207 3534 200
Graeme Wilson, Tulchan Communications
) +44 7812 935 831
Guy Bates, Tulchan Communications
1 (#_ednref1) The Group uses a number of Alternative Performance Measures
(including adjusted operating profit, net release from operations, return on
equity and LGIM AUM) to enhance understanding of the Group's performance.
These are defined in the glossary, on pages 99 to 105 of this report.
Operating profit represents adjusted operating profit.
2 (#_ednref2) Profit after tax attributable to equity holders.
3 (#_ednref3) Solvency II coverage ratio of 212% is post £0.8bn payment of
2021 final dividend.
4 (#_ednref4) Cash generation defined as net release from operations and
Capital generation defined as Solvency II operational surplus generation.
5 (#_ednref5) The reduction since FY21 (£3.4bn) reflects the formulaic
impact to the discount rate as a consequence of rising interest rates and
widening credit spreads.
6 (#_ednref6) $57tn retirement solutions market, Willis Towers Watson, 2022
Global Pension Assets Study; $149tn asset management market, BCG, Global Asset
Management 2022; $20tn climate change market based on forecast that $130tn of
investment is needed to 2050 in order to achieve zero emissions, scaled
pro-rata to 2025. BloombergNEF: New energy outlook 2021
https://about.bnef.com/new-energy-outlook/
(https://about.bnef.com/new-energy-outlook/)
7 (#_ednref7) From 1 January 2022, our insurance (LGI) and retail retirement
(LGRR) businesses have come together to form Retail. The new division will
focus on the savings, protection and retirement needs of our c12m retail
policyholders and workplace members.
8 (#_ednref8) Operating profit is an Alternative Performance Measure and
represents Adjusted operating profit as defined on page 99.
9 (#_ednref9) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 100.
10 (#_ednref10) Solvency II margin represents UK pension risk transfer
volume only.
11 (#_ednref11) Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit before tax
attributable to equity holders as defined on page 101.
12 (#_ednref12) Solvency II coverage ratio incorporates the impact of
recalculating the Transitional Measures for Technical Provisions (TMTP) as at
30 June 2022.
13 (#_ednref13) For example, UK 10 year Gilts at 2.23% at the end of the
period, having increased 126bps between 31 December 2021 and 30 June 2022.
14 (#_ednref14) Calculated using annualised profit for the year and average
equity attributable to the owners of the parent of £10,835m.
15 (#_ednref15) IPE, Top 500 Asset Managers 2021.
16 (#_ednref16) Three year average (H2 2019-H1 2022) measured by UK PRT new
business volumes. Three year average measured by UK PRT deal count from LGIM
clients is 62%.
17 (#_ednref17) Broadridge, UK Defined Contribution and Retirement Income
report 2021. 2021 UK DC Assets: £515bn.
18 (#_ednref18) For more information please refer to
www.legalandgeneralgroup.com/investors/esg-investors/
(http://www.legalandgeneralgroup.com/investors/esg-investors/)
19 (#_ednref19) Proprietary assets relate to Investments to which
shareholders are directly exposed (excluding client and policyholder assets,
derivatives, cash, cash equivalents and loans), as disclosed in Note 7.01.
20 (#_ednref20) This reduction is well ahead of the original -2% target over
the same period, although it has been driven in part by COVID-19 and market
volatility impacts. In particular, the impact of COVID-19 on 2020 emissions is
partially seen in the 2021 numbers, due to the carbon data lag within the
calculation, and we may see a partial reversal of this movement in future
years. For more information, see our 2021 Climate report which is available on
our website.
21 (#_ednref21) Climate Report (TCFD) 2021 | Legal & General
(legalandgeneral.com)
(https://group.legalandgeneral.com/en/sustainability/sustainability-reporting-centre/climate-report-tcfd-2021)
22 (#_ednref22) AUM in responsible investment strategies represents only the
AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement.
23 (#_ednref23) Represents voting instructions for main FTSE pooled index
funds.
24 (#_ednref24) Sustainability & Inclusive Capitalism report 2021
(legalandgeneral.com)
(https://group.legalandgeneral.com/media/jadlbxvs/ryxl-g_sr21_interactive.pdf)
25 (#_ednref25) The ambitions are based on the aggregate performance over a
five-year period. Performance may vary from year to year and individual
statements may not be met in each year on a standalone basis. Dividend
decisions are subject to final Board approval.
26 (#_ednref26) Cash generation is net release from operations, capital
generation is Solvency II operational surplus generation. Dividends on a
declared basis. On the basis of a flat final 2020 dividend, and 3-6% annual
growth thereafter.
27 (#_ednref27) WTW: Pension risk settlement: a review of 2021
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.wtwco.com%2Fen-GB%2FInsights%2F2022%2F01%2Fpension-risk-settlement-a-review-of-2021%3Futm_source%3DMarketo%26utm_medium%3Demail%26utm_content%3DMBN.RET.GBR.GBR.EN.20220111.Pensions-Briefing-Jan22.EBP7191A1%26utm_campaign%3DModernizing-Benefits_%26utm_term%3D%26mkt_tok%3DNzQyLUxaWS0yMzEAAAGB6BcvBcOai7lkPoi8fTA2GJIXLIXt109koraC_fOn2X-cR1lewzE1k68ZbdReVzMRsRlcOw0yG54ntrx5vqmHS2S6C970i0o6H19DS79RtI3VYw&data=04%7C01%7CJillian.Berry%40landg.com%7C1a7b0a480b784b1f9c0b08d9dc0d7b4d%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637782772720844072%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=31BTRaiaiGg3u4fa4lST5im4HI2l%2Fuyfh816XUEXtjc%3D&reserved=0)
& LCP: Rise of new market leaders and 'mega' transactions could be on the
cards for the de-risking market in 2022
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.lcp.uk.com%2Fmedia-centre%2F2022%2F01%2Frise-of-new-market-leaders-and-mega-transactions-could-be-on-the-cards-for-the-de-risking-market-in-2022%2F&data=04%7C01%7CJillian.Berry%40landg.com%7C1a7b0a480b784b1f9c0b08d9dc0d7b4d%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637782772720844072%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=vM%2F5WyWP6SXJ0SHn0Z9aqpFu4kj5US%2Fk2rJQ8cem79w%3D&reserved=0)
.
28 (#_ednref28) LCP Pensions De-risking report 2021, PPF; Hymans Robertson,
2022 Risk Transfer Report.
29 (#_ednref29) LGRI market view based on discussions with external Employee
Benefit consultants.
30 (#_ednref30) LCP Pensions De-risking report 2021.
31 (#_ednref31) ICI Q4 retirement market data.
32 (#_ednref32) Pridham Report, Q2 2022.
33 (#_ednref33) Ranked number one in the brokerage channel in Q1 2022 by new
policies issued
34 (#_ednref34) Broadridge, UK Defined Contribution and Retirement Income
report 2021.
35 (#_ednref35) ABI Q1 2022 Report.
36 (#_ednref36) Lifetime Mortgages | Legal & General
(legalandgeneral.com)
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.legalandgeneral.com%2Fadviser%2Fretirement%2Flater-life-mortgages%2Fgetting-started-with-lifetime-mortgages%2Finfographic%2F&data=05%7C01%7CNimalan.Ilankovan%40group.landg.com%7C983bc5adf6e54dd87be308da6be0cb42%7Cd246baabcc004ed2bc4ef8a46cbc590d%7C0%7C0%7C637940910474253569%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=NOkB%2BKI61UMf8WCx5%2Bp7XgYG19CySczWW5mM2JK8w5o%3D&reserved=0)
.
37 (#_ednref37) Total annuity asset portfolio represents our UK and US
annuity businesses (LGRI + Retail Retirement). See note 5.04 and note 7.01 for
more detail.
38 (#_ednref38) Includes annuity direct investment bonds (£20,498m), direct
investment property (£5,632m), direct investments equity (£42m), and other
assets (£94m). Please see note 7.02b for more information.
39 (#_ednref39) 16% growth rate excludes new investment and distributions.
40 (#_ednref40) Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
41 (#_ednref41) Ranked seventh by AUM, Japanese industry publication
(Pension News) March 2022.
42 (#_ednref42) £9.9bn of assets as at 31(st) March 2022.
43 (#_ednref43) SIAF = Secure Income Assets Fund. STAFF = Short Term
Alternative Fund.
44 (#_ednref44) Net fund performance data versus key comparators (benchmark
or generic peer groups as per the relevant prospectuses, and benchmark per the
relevant prospectus or custom peer group for Multi-asset) sourced from Lipper
for the LGIM UCITS. All data as at 30 June 2022.
45 (#_ednref45) Based on Q1 2022 position.
46 (#_ednref46) AUM in responsible investment strategies represents only the
AUM from funds or client mandates that feature a deliberate and positive
expression of ESG criteria, in the fund documentation for pooled fund
structures or in a client's Investment Management Agreement.
47 (#_ednref47) Broadridge Financial Solutions, November 2021.
(( 48 (#_ednref48) )) This represents the Workplace Savings administration
business. Profits on the fund management services we provide are included in
LGIM's asset management operating profit.
49 (#_ednref49) ABI Q1 2022 Report.
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