REG - Legal & General Grp - L&G Half Year Results 2022 Part 2
09/08/2022 07:00
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RNS Number : 3227V Legal & General Group Plc 09 August 2022
Legal & General Group Plc
Half Year Results 2022 Part 2
1 Independent review report to Legal & General Group
Plc
Page 33
Conclusion
We have been engaged by Legal & General Group Plc ('the company') to
review the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2022 which comprises the Consolidated
Income Statement, Consolidated Statement of Comprehensive Income, Consolidated
Balance Sheet, Condensed Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows (pages 46 to 51) and the related
explanatory notes to the interim financial statements (pages 35 to 45 and 52
to 72).
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 4.01, the latest annual financial statements of the group
are prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK. In preparing the condensed set of financial
statements, the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have
no realistic alternative but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
Legal & General Group Plc
Half Year Results 2022 Part 2
1 Independent review report to Legal & General Group Plc (continued)
Page 34
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Salim Tharani
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
8 August 2022
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 35
2.01 Operating profit(#)
For the six month period to 30 June 2022
6 months 6 months Full year
2022 2021 2021
Notes £m £m £m
Legal & General Retirement Institutional (LGRI)(1) 2.03 560 525 1,154
Legal & General Capital (LGC) 2.04 263 250 461
Legal & General Investment Management (LGIM) 2.05 200 204 422
Retail 2.03 332 292 620
- Insurance(2) 185 134 268
- Retail Retirement(1) 147 158 352
Operating profit from divisions 1,355 1,271 2,657
Group debt costs(3) (108) (120) (230)
Group investment projects and expenses (87) (72) (165)
Operating profit 1,160 1,079 2,262
Investment and other variances 2.06 207 244 233
Losses attributable to non-controlling interests - (3) (7)
Adjusted profit before tax attributable to equity holders 1,367 1,320 2,488
Tax expense attributable to equity holders 4.04 (214) (258) (445)
Profit for the period 3.01 1,153 1,062 2,043
Total tax expense 3.01 287 339 589
Profit before tax 3.01 1,440 1,401 2,632
Profit attributable to equity holders 1,153 1,065 2,050
Earnings per share:
Basic (pence per share)(4) 2.07 19.28p 17.78p 34.19p
Diluted (pence per share)(4) 2.07 18.37p 16.96p 32.57p
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation. Further details are
provided in Note 2.08.
2. Insurance operating profit includes £46m (H1 21: £38m; FY 21: £(52)m)
from US Insurance.
3. Group debt costs exclude interest on non-recourse financing.
4. All earnings per share calculations are based on profit attributable to
equity holders of the company.
This supplementary operating profit information (one of the group's key
performance indicators) provides additional analysis of the results reported
under IFRS, and the group believes it provides stakeholders with useful
information to enhance their understanding of the performance of the business
in the period.
Operating profit measures the pre-tax result excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations and exceptional items. It therefore reflects
longer-term economic assumptions for the group's LGRI and Retail businesses
and shareholder funds, including the traded portfolio in LGC. For the group's
direct investments, operating profit reflects the expected long-term economic
return for those assets which are developed with the intention of sale, or the
IFRS profit before tax for the early stage and mature businesses. Variances
between actual and long-term expected investment return on traded and real
assets (including direct investments) are excluded from operating profit, as
well as economic assumption changes caused by changes in market conditions or
expectations (e.g. credit default and inflation) and any difference between
the actual allocated asset mix and the target long-term asset mix on new
pension risk transfer business. Operating profit also excludes the yield
associated with assets held for future new pension risk transfer business from
the valuation discount rate on insurance contract liabilities. Exceptional
income and expenses which arise outside the normal course of business in the
year, such as merger and acquisition and start-up costs, are also excluded
from operating profit.
The group reports its results across the following business segments:
· LGRI represents worldwide pension risk transfer business
including longevity insurance.
· LGC represents shareholder assets invested in direct investments
primarily in the areas of specialist commercial real estate, clean energy,
housing and SME finance, as well as traded and treasury assets.
· LGIM represents institutional and retail investment management.
· Insurance primarily represents UK protection (both group and
retail) and Fintech business (UK Insurance and other), as well as US retail
protection business (US Insurance).
· Retail Retirement primarily represents retail annuity and
drawdown products, workplace savings and lifetime mortgage loans.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 36
2.02 Reconciliation of release from operations to operating profit(#) before
tax
Changes in Operating profit/ (loss) after tax Operating profit/ (loss) before
valuation assump- tions tax
New business surplus/ (strain) Net
release from operations
Release from operations(1) Exper- ience variances Non-cash items Other(2) Tax expense/ (credit)
For the six month period
to 30 June 2022 £m £m £m £m £m £m £m £m £m £m
LGRI(3) 310 156 466 6 - 7 - 479 81 560
LGC 208 - 208 - - - - 208 55 263
LGIM 162 - 162 - - - - 162 38 200
Retail 345 (2) 343 (3) 18 (2) (77) 279 53 332
- Insurance 219 (8) 211 2 18 (1) (77) 153 32 185
- Retail Retirement(3) 126 6 132 (5) - (1) - 126 21 147
Total from divisions 1,025 154 1,179 3 18 5 (77) 1,128 227 1,355
Group debt costs (87) - (87) - - - - (87) (21) (108)
Group investment projects and expenses (47) - (47) - - - (34) (81) (6) (87)
Total 891 154 1,045 3 18 5 (111) 960 200 1,160
1. Release from operations within Insurance includes £85m of dividends from
US Insurance.
2. Other includes experience variances, changes in valuation assumptions
(includes changes to assets allocation) and non-cash items relating to US
Insurance.
3. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation. Further details are
provided in Note 2.08.
Release from operations for LGRI and the UK protection business within Retail
represents the expected IFRS surplus generated in the period from the
difference between the prudent assumptions underlying the IFRS liabilities and
our best estimate of future experience. For workplace savings within Retail
Retirement, the release from operations represents the expected annual
management charges generated from the in-force business less expected
expenses. The Insurance release from operations also includes dividends
remitted from US Insurance and IFRS profit after tax for the Fintech business.
New business surplus/(strain) for LGRI and the UK protection business
represents the initial profit or loss from writing new business. This includes
the costs associated with acquiring new business and setting up prudent
reserves, net of tax. Similarly for workplace savings, this includes the cost
of acquiring new business in the year less the annual management charges
generated by the assets under administration (AUA), net of tax. The new
business surplus and release from operations for LGRI and Retail excludes any
capital held in excess of the prudent reserves from the liability calculation.
LGRI and Retail Retirement's new business metrics are presented based on a
single target long-term asset portfolio. At certain period ends, depending
upon the quantum and timing of pension risk transfer (PRT) volumes, we may
have sourced more or less of the high quality assets targeted to support that
business. At period end, the profit impact of the difference between actual
assets held (including alternative surplus assets where suitable) and the
long-term asset mix is reflected in investment variance.
Net release from operations for LGRI and Retail is defined as release from
operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM
represents the operating profit (net of tax).
See Note 2.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 37
2.02 Reconciliation of release from operations to operating profit(#) before
tax (continued)
Changes in Operating profit/ (loss) after tax Operating profit/ (loss) before
valuation assump- tions tax
New business surplus/ (strain) Net
release from operations
Release from operations(1) Exper- ience variances Non-cash items Other(2) Tax expense/ (credit)
For the six month period
to 30 June 2021 £m £m £m £m £m £m £m £m £m £m
LGRI(3) 252 68 320 105 8 15 - 448 77 525
LGC 213 - 213 - - - - 213 37 250
LGIM 163 - 163 - - - - 163 41 204
Retail 262 23 285 16 1 1 (64) 239 53 292
- Insurance 151 8 159 4 1 4 (64) 104 30 134
- Retail Retirement(3) 111 15 126 12 - (3) - 135 23 158
Total from divisions 890 91 981 121 9 16 (64) 1,063 208 1,271
Group debt costs (97) - (97) - - - - (97) (23) (120)
Group investment projects and expenses (30) - (30) - - - (31) (61) (11) (72)
Total 763 91 854 121 9 16 (95) 905 174 1,079
Operating
New Net Changes in Operating profit/
Release business release Exper- valuation profit/ Tax (loss)
from surplus/ from ience assump- Non-cash (loss) after expense/ before
For the year ended operations(1) (strain) operations variances tions items Other(2) tax (credit) tax
31 December 2021 £m £m £m £m £m £m £m £m £m £m
LGRI(3) 512 193 705 40 212 27 - 984 170 1,154
LGC 379 - 379 - - - - 379 82 461
LGIM 342 - 342 - - - - 342 80 422
Retail 463 54 517 28 121 2 (138) 530 90 620
- Insurance 236 27 263 14 82 6 (138) 227 41 268
- Retail Retirement(3) 227 27 254 14 39 (4) - 303 49 352
Total from divisions 1,696 247 1,943 68 333 29 (138) 2,235 422 2,657
Group debt costs (186) - (186) - - - - (186) (44) (230)
Group investment projects and expenses (69) - (69) - - - (68) (137) (28) (165)
Total 1,441 247 1,688 68 333 29 (206) 1,912 350 2,262
1. Release from operations within Insurance includes £80m of dividends from
US Insurance.
2. Other includes experience variances, changes in valuation assumptions and
non-cash items relating to US Insurance.
3. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation. Further details are
provided in Note 2.08.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 38
2.03 Analysis of LGRI and Retail operating profit
For the six month period to 30 June 2022
LGRI(1) Retail(1) LGRI(1) Retail(1) LGRI(1) Retail(1)
6 months 6 months 6 months 6 months Full year Full year
2022 2022 2021 2021 2021 2021
£m £m £m £m £m £m
Net release from operations 466 343 320 285 705 517
Experience variances
- Persistency - (1) - (6) 1 (5)
- Mortality/morbidity 13 13 27 18 24 29
- Expenses (7) (7) (1) (4) 6 (1)
- Project and development costs - (1) (2) (1) (11) (19)
- Other - (7) 81 9 20 24
Total experience variances 6 (3) 105 16 40 28
Changes in valuation assumptions
- Persistency - - - - - (5)
- Mortality/morbidity - 18 - - 153 46
- Expenses - - - - - (1)
- Other - - 8 1 59 81
Total changes in valuation assumptions - 18 8 1 212 121
Movement in non-cash items(2) 7 (2) 15 1 27 2
Other(3) - (77) - (64) - (138)
Operating profit after tax 479 279 448 239 984 530
Tax expense 81 53 77 53 170 90
Operating profit before tax 560 332 525 292 1,154 620
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation. Further details are
provided in Note 2.08.
2. LGRI Movement in non-cash items is driven by the net effect of the
capitalisation and unwind of future asset management profits on assets managed
by LGIM, and is a function of new business volumes and movements in the main
unit cost assumptions.
3. Other includes experience variances, changes in valuation assumptions
(includes changes to assets allocation) and non-cash items relating to US
Insurance.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 39
2.04 LGC operating profit
6 months 6 months Full year
2022 2021 2021
£m £m £m
Direct investments(1) 202 195 350
Traded investment portfolio including treasury assets(2) 61 55 111
Total LGC operating profit 263 250 461
1. Direct investments represents LGC's portfolio of assets across specialist
commercial real estate, clean energy, housing and SME finance. Direct
investments include operating profit in relation to CALA Homes of £98m (H1
21: £78m; FY 21: £132m).
2. The traded investment portfolio holds a diversified set of exposures across
equities, fixed income, multi-asset funds and cash.
2.05 LGIM operating profit
6 months 6 months Full year
2022 2021 2021
£m £m £m
Asset management revenue (excluding 3rd party market data)(1) 485 471 980
Asset management transactional revenue(2) 9 9 32
Asset management expenses (excluding 3rd party market data)(1) (294) (276) (590)
Total LGIM operating profit 200 204 422
1. Asset management revenue and expenses exclude income and costs of £15m in
relation to the provision of third party market data (H1 21: £18m; FY 21:
£32m).
2. Transactional revenue from external clients includes execution fees, asset
transition income, trigger fees, arrangement fees on property transactions and
performance fees.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 40
2.06 Investment and other variances
6 months 6 months Full year
2022 2021 2021
£m £m £m
Investment variance related to protection liabilities(1) 617 230 111
Investment variance related to the traded investment portfolio and direct (308) 48 19
investments(2)
Other investment variance(3) (83) (23) 211
Investment variance 226 255 341
M&A related and other variances(4) (19) (11) (108)
Total investment and other variances 207 244 233
1. The positive investment variance of £617m reflects the formulaic impact of
an increase in UK and US government bond yields which have resulted in a
higher discount rate used to calculate the group's protection liabilities.
2. The negative investment variance of £308m largely reflects volatile global
equity market performance in the traded investment portfolio.
3. Other investment variance includes a negative variance in respect of the
defined benefit pension scheme, reflecting the impact of the acquisition of
annuity assets from LGRI and Retail Retirement, and the difference between the
IAS 19 and annuity discount rates. This was partially offset by a positive
variance from the UK annuity businesses, driven by good quality asset sourcing
and improved cash flow matching within the portfolio.
4. M&A related and other variances includes gains and losses, expenses and
intangible amortisation relating to acquisitions, disposals and restructuring
as well as business start-up costs.
Investment variance includes differences between actual and long-term expected
investment return on traded and real assets (including direct investments),
economic assumption changes caused by changes in market conditions or
expectations (e.g. credit default and inflation), the impact of any difference
between the actual allocated asset mix and the single target long-term asset
mix on new pension risk transfer business, and the yield associated with
assets held for future new pension risk transfer business from the valuation
discount rate.
The long-term expected investment return is based on opening economic
assumptions applied to the assets under management at the start of the
reporting year. The assumptions underlying the calculation of the expected
returns for traded equity, commercial property and residential property are
based on market consensus forecasts and long-term historic average returns
expected to apply through the cycle.
The long-term expected investment returns are:
6 months 6 months Full year
2022 2021 2021
Equities 7% 7% 7%
Commercial property 5% 5% 5%
Residential property(1) 3.5% RPI + 50bps RPI + 50bps
1. In previous years the assumption RPI + 50bps was in line with average
historical returns. Due to the current spike in inflation and in order to keep
the rate aligned to average historical returns, it was updated to 3.5% in
2022.
Additionally, the LGC alternative asset portfolio comprises investments in
housing, specialist commercial real estate, clean energy, and SME finance. The
long-term expected investment return is on average between 8% and 10%, in line
with our stated investment objectives. Rates of return specific to each asset
are determined at the point of underwriting and reviewed and updated annually.
The expected investment return includes assumptions on appropriate discount
rates and inflation as well as sector specific assumptions including retail
and commercial property yields and power prices.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 41
2.07 Earnings per share
(a) Basic earnings per share
After tax Per share(1) After tax Per share(1) After tax Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2022 2022 2021 2021 2021 2021
£m p £m p £m p
Profit for the period attributable to equity holders 1,153 19.47 1,065 17.96 2,050 34.58
Less: coupon payable in respect of restricted Tier 1 convertible notes net of (11) (0.19) (11) (0.18) (23) (0.39)
tax relief
Total basic earnings 1,142 19.28 1,054 17.78 2,027 34.19
1. Basic earnings per share is calculated by dividing profit after tax by the
weighted average number of ordinary shares in issue during the period,
excluding employee scheme treasury shares.
(b) Diluted earnings per share
After tax Weighted Per share(1)
average
number of
shares
For the six month period to 30 June 2022 £m m p
Profit for the period attributable to equity holders 1,153 5,922 19.47
Net shares under options allocable for no further consideration - 46 (0.15)
Conversion of restricted Tier 1 notes - 307 (0.95)
Total diluted earnings 1,153 6,275 18.37
After tax Weighted Per share(1)
average
number of
shares
For the six month period to 30 June 2021 £m m p
Profit for the period attributable to equity holders 1,065 5,929 17.96
Net shares under options allocable for no further consideration - 45 (0.14)
Conversion of restricted Tier 1 notes - 307 (0.86)
Total diluted earnings 1,065 6,281 16.96
After tax Weighted Per share(1)
average
number of
shares
For the year ended 31 December 2021 £m m p
Profit for the year attributable to equity holders 2,050 5,929 34.58
Net shares under options allocable for no further consideration - 59 (0.34)
Conversion of restricted Tier 1 notes - 307 (1.67)
Total diluted earnings 2,050 6,295 32.57
1. For diluted earnings per share, the weighted average number of ordinary
shares in issue, excluding employee scheme treasury shares, is adjusted to
assume conversion of all potential ordinary shares, such as share options
granted to employees and conversion of restricted Tier 1 notes.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 42
2.08 Segmental analysis
In 2021, the group operated five core businesses across four reportable
segments that are continuing operations, with Retail Retirement and Legal
& General Retirement Institutional (LGRI) combined into a single segment
for reporting purposes, being Legal & General Retirement. From 1 January
2022, the group has made changes to the business unit responsibilities within
the Executive Committee. Andrew Kail has become the Chief Executive Officer of
LGRI, succeeding Laura Mason who had previously moved to become CEO of Legal
& General Capital (LGC). Our two retail businesses, Retail Retirement and
Insurance (comprising UK Insurance and other, and US Insurance), have come
together under the leadership of Bernie Hickman. Reportable segments have
therefore been aligned to the group's five core businesses. Group expenses and
debt costs continue to be reported separately. Transactions between segments
are on normal commercial terms, and are included within the reported segments.
To enable comparison, segmental information for prior periods has been
restated accordingly.
In the UK, annuity liabilities relating to LGRI and Retail Retirement are
backed by a single portfolio of assets, and once a transaction has been
completed the assets relating to any particular transaction are not tracked to
the related liabilities. Investment variance is allocated to the two business
segments based on the relative average size of the underlying insurance
contract liabilities for the period.
Reporting of assets and liabilities by segment has not been included, as this
is not information that is provided to key decision makers on a regular basis.
The group's assets and liabilities are managed on a legal entity rather than a
segmental basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where
relevant in order to better explain the drivers of the group's results.
(a) Profit/(loss) for the period
Group
expenses
Retail and debt
LGRI(1) LGC LGIM Retirement(1) Insurance costs Total
For the six month period to 30 June 2022 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 560 263 200 147 185 (195) 1,160
Investment and other variances 133 (308) (7) 53 617 (281) 207
Losses attributable to non-controlling interests - - - - - - -
Profit/(loss) before tax attributable to equity holders 693 (45) 193 200 802 (476) 1,367
Tax (expense)/credit attributable to equity holders (88) 2 (39) (24) (162) 97 (214)
Profit/(loss) for the period 605 (43) 154 176 640 (379) 1,153
Group
expenses
Retail and debt
LGRI(1) LGC LGIM Retirement(1) Insurance costs Total
For the six month period to 30 June 2021 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 525 250 204 158 134 (192) 1,079
Investment and other variances 75 48 (7) 30 230 (132) 244
Losses attributable to non-controlling interests - - - - - (3) (3)
Profit/(loss) before tax attributable to equity holders 600 298 197 188 364 (327) 1,320
Tax (expense)/credit attributable to equity holders (110) (54) (44) (35) (91) 76 (258)
Profit/(loss) for the period 490 244 153 153 273 (251) 1,062
Group
expenses
Retail and debt
LGRI(1) LGC LGIM Retirement(1) Insurance costs Total
For the year ended 31 December 2021 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 1,154 461 422 352 268 (395) 2,262
Investment and other variances 193 19 (11) 49 111 (128) 233
Losses attributable to non-controlling interests - - - - - (7) (7)
Profit/(loss) before tax attributable to equity holders 1,347 480 411 401 379 (530) 2,488
Tax (expense)/credit attributable to equity holders (213) (93) (79) (63) (59) 62 (445)
Profit/(loss) for the year 1,134 387 332 338 320 (468) 2,043
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
glossary.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 43
2.08 Segmental analysis (continued)
(b) Revenue
(i) Total revenue
6 months 6 months Full year
2022 2021 2021
£m £m £m
Total income (69,188) 14,898 45,450
Adjusted for:
Share of profit from associates and joint ventures, net of tax (4) (21) (25)
Gain on disposal of subsidiaries, associates and joint ventures, and other (10) - (149)
operations
Total revenue (69,202) 14,877 45,276
(ii) Total income
Retail LGC and
LGRI(1) LGIM(2,3) Retirement(1) Insurance other(4) Total
For the six month period to 30 June 2022 £m £m £m £m £m £m
Internal income - 92 - - (92) -
External income (6,845) (61,289) (2,688) 1,007 627 (69,188)
Total income (6,845) (61,197) (2,688) 1,007 535 (69,188)
Retail LGC and
LGRI(1) LGIM(2,3) Retirement(1) Insurance other(4) Total
For the six month period to 30 June 2021 £m £m £m £m £m £m
Internal income - 80 - - (80) -
External income (20) 17,891 7 1,003 (3,983) 14,898
Total income (20) 17,971 7 1,003 (4,063) 14,898
Retail LGC and
LGRI(1) LGIM(2,3) Retirement(1) Insurance other(4) Total
For the year ended 31 December 2021 £m £m £m £m £m £m
Internal income - 179 - - (179) -
External income 4,842 35,738 1,117 2,029 1,724 45,450
Total income 4,842 35,917 1,117 2,029 1,545 45,450
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation.
2. LGIM internal income relates to investment management services provided to
other segments.
3. LGIM external income primarily includes fees from fund management and
investment returns on unit linked funds.
4. LGC and other includes LGC income, intra-segmental eliminations and group
consolidation adjustments.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 44
2.08 Segmental analysis (continued)
(b) Revenue (continued)
(iii) Fees from fund management and investment contracts
Retail LGC and other(2)
LGIM Retirement(1) Total
For the six month period to 30 June 2022 £m £m £m £m
Investment contracts - 49 - 49
Investment management fees 495 - (92) 403
Transaction fees 9 - - 9
Total fees from fund management and investment contracts(3) 504 49 (92) 461
Retail LGC and other(2)
LGIM Retirement(1) Total
For the six month period to 30 June 2021 £m £m £m £m
Investment contracts - 46 - 46
Investment management fees 488 - (80) 408
Transaction fees 9 - - 9
Total fees from fund management and investment contracts(3) 497 46 (80) 463
Retail LGC and other(2)
LGIM Retirement(1) Total
For the year ended 31 December 2021 £m £m £m £m
Investment contracts - 97 - 97
Investment management fees 1,009 - (179) 830
Transaction fees 32 - - 32
Total fees from fund management and investment contracts(3) 1,041 97 (179) 959
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation.
2. LGC and other includes LGC income, intra-segmental eliminations and group
consolidation adjustments.
3. Fees from fund management and investment contracts are a component of Total
revenue disclosed in Note 2.08 (b)(i).
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosures on performance and Release from
operations
Page 45
2.08 Segmental analysis (continued)
(b) Revenue (continued)
(iv) Other operational income from contracts with customers
Retail LGC and other
Retirement(1) Insurance Total
For the six month period to 30 June 2022 £m £m £m £m
House building - - 763 763
Professional services fees 4 41 - 45
Insurance broker - 21 - 21
Total other operational income from contracts with customers(2) 4 62 763 829
Retail LGC and other
Retirement(1) Insurance Total
For the six month period to 30 June 2021 £m £m £m £m
House building - - 651 651
Professional services fees 1 49 - 50
Insurance broker - 2 - 2
Total other operational income from contracts with customers(2) 1 51 651 703
Retail LGC and other
Retirement(1) Insurance Total
For the year ended 31 December 2021 £m £m £m £m
House building - - 1,314 1,314
Professional services fees 5 89 - 94
Insurance broker - 11 - 11
Total other operational income from contracts with customers(2) 5 100 1,314 1,419
1. From 1 January 2022, following changes to business unit responsibilities
within the Executive Committee, the group's reportable segments have been
updated to align with its five core businesses. Prior period comparatives have
been restated to reflect this change in segmentation.
2. Total other operational income from contracts with customers is a component
of Total revenue disclosed in Note 2.08 (b)(i) and excludes the share of
profit/loss from associates and joint ventures, and the gain on disposal of
subsidiaries, associates and joint ventures, and other operations.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 46
3.01 Consolidated Income Statement
6 months 6 months Full year
2022 2021 2021
For the six month period to 30 June 2022 Notes £m £m £m
Income
Gross written premiums 6,612 4,263 10,375
Outward reinsurance premiums (1,576) (1,605) (3,446)
Net change in provision for unearned premiums 8 35 42
Net premiums earned 5,044 2,693 6,971
Fees from fund management and investment contracts 461 463 959
Investment return (75,536) 11,018 35,927
Other operational income 843 724 1,593
Total income 2.08 (69,188) 14,898 45,450
Expenses
Claims and change in insurance contract liabilities (10,371) 540 7,353
Reinsurance recoveries (295) (1,313) (2,968)
Net claims and change in insurance contract liabilities (10,666) (773) 4,385
Change in investment contract liabilities (62,297) 12,232 34,206
Acquisition costs 416 436 825
Finance costs 145 157 294
Other expenses 1,774 1,445 3,108
Total expenses (70,628) 13,497 42,818
Profit before tax 1,440 1,401 2,632
Tax expense attributable to policyholder returns (73) (81) (144)
Profit before tax attributable to equity holders 1,367 1,320 2,488
Total tax expense (287) (339) (589)
Tax expense attributable to policyholder returns 73 81 144
Tax expense attributable to equity holders 4.04 (214) (258) (445)
Profit for the period 1,153 1,062 2,043
Attributable to:
Non-controlling interests - (3) (7)
Equity holders 1,153 1,065 2,050
Dividend distributions to equity holders during the period 4.02 792 754 1,063
Dividend distributions to equity holders proposed after the period end 4.02 324 309 790
p p p
Total basic earnings per share(1) 2.07 19.28 17.78 34.19
Total diluted earnings per share(1) 2.07 18.37 16.96 32.57
1. All earnings per share calculations are based on profit attributable to
equity holders of the company.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 47
3.02 Consolidated Statement of Comprehensive Income
6 months 6 months Full year
2022 2021 2021
For the six month period to 30 June 2022 £m £m £m
Profit for the period 1,153 1,062 2,043
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes 387 116 53
Tax (expense)/credit on actuarial remeasurements on defined benefit pension (97) (20) (7)
schemes
Total items that will not be reclassified subsequently to profit or loss 290 96 46
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 84 (11) (11)
Movement in cross-currency hedge 5 6 20
Tax expense on movement in cross-currency hedge (1) (4) (7)
Movement in financial investments designated as available-for-sale 3 (8) (3)
Tax on movement in financial investments designated as available-for-sale (1) 1 -
Total items that may be reclassified subsequently to profit or loss 90 (16) (1)
Other comprehensive income after tax 380 80 45
Total comprehensive income for the period 1,533 1,142 2,088
Total comprehensive income/(expense) for the period attributable to:
Non-controlling interests - (3) (7)
Equity holders 1,533 1,145 2,095
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 48
3.03 Consolidated Balance Sheet
As at As at As at
30 Jun 2022 30 Jun 2021 31 Dec 2021
Notes £m £m £m
Assets
Goodwill 71 68 68
Other intangible assets 406 377 365
Deferred acquisition costs 26 46 26
Investment in associates and joint ventures accounted for using the equity 387 314 375
method
Property, plant and equipment 311 322 316
Investment property 4.03 10,976 9,080 10,150
Financial investments 4.03 462,329 519,762 538,374
Reinsurers' share of contract liabilities 6,040 6,947 7,180
Deferred tax assets 4.04 115 12 2
Current tax assets 699 612 670
Receivables and other assets 17,857 14,331 8,625
Cash and cash equivalents 24,774 16,397 16,487
Total assets 523,991 568,268 582,638
Equity
Share capital 4.05 149 149 149
Share premium 4.05 1,017 1,011 1,012
Employee scheme treasury shares (138) (90) (99)
Capital redemption and other reserves 381 162 196
Retained earnings 9,775 8,620 9,228
Attributable to owners of the parent 11,184 9,852 10,486
Restricted Tier 1 convertible notes 4.06 495 495 495
Non-controlling interests 4.07 (36) (34) (38)
Total equity 11,643 10,313 10,943
Liabilities
Insurance contract liabilities 76,889 86,339 89,825
Investment contract liabilities 305,780 358,613 372,954
Core borrowings 4.08 4,356 4,542 4,256
Operational borrowings 4.09 1,182 1,138 932
Provisions 4.13 781 1,113 1,238
Deferred tax liabilities 4.04 407 277 251
Current tax liabilities 81 57 84
Payables and other financial liabilities 4.11 95,970 80,785 74,264
Other liabilities 894 640 925
Net asset value attributable to unit holders 26,008 24,451 26,966
Total liabilities 512,348 557,955 571,695
Total equity and liabilities 523,991 568,268 582,638
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 49
3.04 Condensed Consolidated Statement of Changes in Equity
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the six month period to 30 June 2022 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2022 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
Total comprehensive income for the period - - - 90 1,443 1,533 - - 1,533
Options exercised under share option schemes - 5 - - - 5 - - 5
Net movement in employee scheme treasury shares - - (39) (8) 10 (37) - - (37)
Dividends - - - - (792) (792) - - (792)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (11) (11) - - (11)
relief
Movement in third party interests - - - - - - - 2 2
Currency translation differences - - - 103 (103) - - - -
As at 30 June 2022 149 1,017 (138) 381 9,775 11,184 495 (36) 11,643
1. Capital redemption and other reserves as at 30 June 2022 include
share-based payments £78m, foreign exchange £233m, capital redemption £17m,
hedging £52m and available-for-sale reserves £1m.
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the six month period to 30 June 2021 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2021 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
Total comprehensive income for the period - - - (16) 1,161 1,145 - (3) 1,142
Options exercised under share option schemes - 5 - - - 5 - - 5
Net movement in employee scheme treasury shares - - (15) (15) (5) (35) - - (35)
Dividends - - - - (754) (754) - - (754)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (11) (11) - - (11)
relief
Currency translation differences - - - (5) 5 - - - -
As at 30 June 2021 149 1,011 (90) 162 8,620 9,852 495 (34) 10,313
1. Capital redemption and other reserves as at 30 June 2021 include
share-based payments £86m, foreign exchange £27m, capital redemption £17m,
hedging £37m and available-for-sale reserves £(5)m.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 50
3.04 Condensed Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the year ended 31 December 2021 capital premium shares reserves(1) earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2021 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
Total comprehensive income for the year - - - (1) 2,096 2,095 - (7) 2,088
Options exercised under share option schemes - 6 - - - 6 - - 6
Net movement in employee scheme treasury shares - - (24) (15) 8 (31) - - (31)
Dividends - - - - (1,063) (1,063) - - (1,063)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax - - - - (23) (23) - - (23)
relief
Currency translation differences - - - 14 (14) - - - -
As at 31 December 2021 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
1. Capital redemption and other reserves as at 31 December 2021 include
share-based payments £86m, foreign exchange £46m, capital redemption £17m,
hedging £48m and available-for-sale reserves £(1)m.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Primary Financial
Statements
Page 51
3.05 Consolidated Statement of Cash Flows
6 months 6 months Full year
2022 2021 2021
For the six month period to 30 June 2022 Notes £m £m £m
Cash flows from operating activities
Profit for the period 1,153 1,062 2,043
Adjustments for non cash movements in net profit for the period
Net losses/(gains) on financial investments and investment property 80,187 (5,227) (26,062)
Investment income (4,651) (5,790) (9,865)
Interest expense 145 157 294
Tax expense 287 339 589
Other adjustments 88 44 137
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or 14,200 5,804 4,616
loss
Investments designated as available-for-sale (3) 15 (21)
Other assets (8,086) (4,931) 139
Net (decrease)/increase in operational liabilities
Insurance contracts (13,621) (2,615) 726
Investment contracts (67,182) 15,069 29,409
Other liabilities 2,481 (10,114) (11,161)
Cash utilised in operations 4,998 (6,187) (9,156)
Interest paid (139) (160) (301)
Interest received 1,808 3,368 5,060
Rent received 185 184 373
Tax paid(1) (376) (276) (564)
Dividends received 2,491 2,307 4,419
Net cash flows from operations 8,967 (764) (169)
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets (60) (137) (205)
Disposal of plant, equipment, intangibles and other assets - 2 -
Acquisition of operations, net of cash acquired 4.16 (2) - -
Disposal of subsidiaries and other operations, net of cash transferred - - 217
Investment in joint ventures and associates (34) (2) (56)
Disposal of joint ventures and associates 40 - 177
Net cash flows (utilised)/generated from investing activities (56) (137) 133
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the period 4.02 (792) (754) (1,063)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax 4.06 (14) (14) (28)
Options exercised under share option schemes 4.05 5 5 6
Treasury shares purchased for employee share schemes (50) (24) (34)
Payment of lease liabilities (18) (17) (37)
Proceeds from borrowings 4.10 385 252 449
Repayment of borrowings 4.10 (210) (162) (798)
Net cash flows utilised in financing activities (694) (714) (1,505)
Net increase/(decrease) in cash and cash equivalents 8,217 (1,615) (1,541)
Exchange gains/(losses) on cash and cash equivalents 70 (8) 8
Cash and cash equivalents at 1 January 16,487 18,020 18,020
Cash and cash equivalents at 30 June/31 December 24,774 16,397 16,487
1. Tax comprises UK corporation tax paid of £223m (H1 21: £155m; FY 21:
£368m), withholding tax of £147m (H1 21: £118m; FY 21: £188m) and overseas
corporate tax of £6m (H1 21: £3m; FY 21: £8m).
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 52
4.01 Basis of preparation
The group financial information for the six months ended 30 June 2022 has been
prepared in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim
Financial Reporting'. The group's financial information has also been prepared
in line with the accounting policies which the group expects to adopt for the
2022 year end. These policies are consistent with the principal accounting
policies which were set out in the group's 2021 consolidated financial
statements, except where changes have been outlined below in "New standards,
interpretations and amendments to published standards that have been adopted
by the group". These are consistent with UK-adopted international accounting
standards, issued by the International Accounting Standards Board and adopted
by the UK Endorsement Board for use in the United Kingdom.
The preparation of the Interim Management Report includes the use of estimates
and assumptions which affect items reported in the Consolidated Balance Sheet
and Income Statement and the disclosure of contingent assets and liabilities
at the date of the financial statements. The economic and non-economic
actuarial assumptions used to establish the liabilities in relation to
insurance and investment contracts are significant. For half year financial
reporting, economic assumptions have been updated to reflect market
conditions. Non-economic assumptions are consistent with those used in the 31
December 2021 financial statements, except as disclosed in Note 2.03.
The results for the half year ended 30 June 2022 are unaudited but have been
reviewed by KPMG LLP. The interim results do not constitute statutory accounts
as defined in Section 434 of the Companies Act 2006. The results from the full
year 2021 have been taken from the group's 2021 Annual Report and Accounts.
Therefore, these interim accounts should be read in conjunction with the 2021
Annual Report and Accounts that have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and related
interpretations issued by the IFRS Interpretations Committee, and with the
requirements of the Companies Act 2006 applicable to companies reporting under
IFRS. KPMG LLP reported on the 2021 financial statements, and their report was
unqualified and did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006. The group's 2021 Annual Report and Accounts has been
filed with the Registrar of Companies.
Key technical terms and definitions
The interim management report refers to various key performance indicators,
accounting standards and other technical terms. A comprehensive list of these
definitions is contained within the glossary section of these interim
financial statements.
Alternative performance measures
The group uses a number of alternative performance measures (APMs), including
net release from operations and adjusted operating profit, in the discussion
of its business performance and financial position, as the group believes that
they, complemented with figures determined according to other regulations,
enhance understanding of the group's performance. Definitions and further
information in relation to the group's APMs can be found in the Alternative
Performance Measures section of these interim financial statements.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income Statement
includes income tax borne by both policyholders and shareholders. This has
been split between tax attributable to policyholders' returns and equity
holders' profits. Policyholder tax comprises the tax suffered on policyholder
investment returns, while shareholder tax is corporation tax charged on
shareholder profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the profits that it
makes.
(a) Going concern
The group's business activities, together with the factors likely to affect
its future development, performance and position in the current economic
climate are set out in this Interim Management Report. The financial position
of the group, its cash flows, liquidity position and borrowing facilities as
at 30 June 2022 are described in the IFRS Primary Financial Statements and
IFRS Disclosure Notes. Principal risks and uncertainties are detailed on pages
26 to 28.
The directors have made an assessment of the group's going concern,
considering both the group's current performance and outlook for a period of
at least, but not limited to, 12 months from the date of approval of the
interim financial information using the information available up to the date
of issue of this Interim Management Report.
The group manages and monitors its capital and liquidity, and applies various
stresses, including high inflationary scenarios, to those positions to
understand potential impacts from market downturns. Our key sensitivities and
the impacts on our capital position from a range of stresses is disclosed on
page 80. These stresses do not give rise to any material uncertainties over
the ability of the group to continue as a going concern. Based upon the
available information, the directors consider that the group has the plans and
resources to manage its business risks successfully and that it remains
financially strong and well diversified.
Having reassessed the principal risks and uncertainties (both financial and
operational) in light of the current economic climate, as detailed on pages 26
to 28, the directors are confident that the group and company will have
sufficient funds to continue to meet their liabilities as they fall due for a
period of, but not limited to, 12 months from the date of approval of this
Interim Management Report and therefore have considered it appropriate to
adopt the going concern basis of accounting when preparing the interim
financial information.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 53
4.01 Basis of preparation (continued)
(b) New standards, interpretations and amendments to published standards that
have been adopted by the group
The group has applied the following amendments for the first time in its six
months reporting period commencing 1 January 2022.
Annual Improvements to IFRS Standards 2018-2020
These amendments, issued in May 2020, make minor amendments to IFRS 1
'First-time Adoption of IFRS', IFRS 9 'Financial instruments', IAS 41
'Agriculture' and the Illustrative Examples accompanying IFRS 16 'Leases'.
These amendments did not have a material impact on the group's consolidated
financial statements.
Amendments to IAS 16 - Property, plant and equipment
These amendments, issued in May 2020, prohibit a company from deducting from
the cost of property, plant and equipment amounts received from selling items
produced while the company is preparing the asset for its intended use.
Instead, a company will recognise such sales proceeds and related cost in
profit or loss. These amendments did not have a material impact on the group's
consolidated financial statements.
Amendments to IAS 37 - Provisions, contingent liabilities and contingent
assets
These amendments, issued in May 2020, specify which costs a company includes
when assessing whether a contract will be loss-making. These amendments did
not have a material impact on the group's consolidated financial statements.
Amendments to IFRS 3 - Business Combinations
These amendments, issued in May 2020, update a reference in IFRS 3 to the
Conceptual Framework for Financial Reporting without changing the accounting
requirements for business combinations. These amendments did not have a
material impact on the group's consolidated financial statements.
(c) Future accounting developments
IFRS 17 - Insurance Contracts
IFRS 17, 'Insurance Contracts' was originally issued in May 2017 by the IASB,
and subsequent amendments were issued in June 2020. The standard is effective
for annual periods beginning on or after 1 January 2023 following endorsement
for use in the UK in May 2022. The standard will be applied retrospectively,
subject to the transitional options provided for in the standard and provides
a comprehensive approach for accounting for insurance contracts including
their measurement, income statement presentation and disclosure.
The key general principles of IFRS 17 are that an entity:
· Identifies insurance contracts as those under which the entity
accepts significant insurance risk from another party (the policyholder) by
agreeing to compensate the policyholder if a specified uncertain future event
(the insured event) adversely affects the policyholder;
· Separates specified embedded derivatives, distinct investment
components and distinct non-insurance goods or services from insurance
contracts and accounts for them in accordance with other accounting standards;
· Aggregates the insurance contracts into groups it will recognise
and measure;
· Recognises and measures groups of insurance contracts at:
o A risk-adjusted present value of the future cash flows (the fulfilment
cash flows) that incorporates all available information about the fulfilment
cash flows; and
o An amount representing the unearned profit in the group of contracts (the
contractual service margin or CSM);
· Recognises profit from a group of insurance contracts over the
period the group provides insurance coverage. If a group of contracts is
expected to be onerous (i.e. loss making) over the remaining coverage period,
a loss is recognised immediately.
IFRS 17 is an accounting change and therefore, while it will have an impact on
the timing and profile of profit recognition, we expect the underlying
economics and cash generation of the group's businesses to remain the same.
While the group continues to refine its methodology and completes the
development of models and operational capabilities, it is not possible to
provide a reliable estimate of the impact of adopting IFRS 17, nor of the
ongoing impact on the group's financial results. However, it is expected that
there will be a significant reduction in group equity on adoption, as
previously recognised profit will be deferred in the balance sheet within the
insurance liability contractual service margin, and released in the future.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 54
4.01 Basis of preparation (continued)
(c) Future accounting developments (continued)
In terms of key accounting policies and approaches relating to IFRS 17, the
group is able to set out the following at this time:
· The group will be applying the General Measurement Model to all
business measured under IFRS 17.
· On transition to IFRS 17, the group will apply the fully
retrospective approach unless impracticable. In some instances, this will lead
to the modified retrospective and fair value approaches being used for
specific groups of insurance contracts.
· For annuity business the selection of a rate at which to discount
future cashflows for groups of insurance contracts is a key determinant in the
valuation of the insurance liability. We intend to apply a top down discount
rate to such groups, starting from an appropriate asset portfolio with
economic deductions.
· IFRS 17 requires an accounting policy decision as to whether to
recognise all finance income or expense in profit or loss, or whether to
disaggregate the income or expense that relates to changes in financial
assumptions into other comprehensive income. All finance income and expense
will be included in profit or loss except for protection business where we
intend to disaggregate such changes.
The group has a fully mobilised and well progressed programme to implement the
new standard. Work is continuing throughout 2022 to finalise technical
compliance as well as to test and embed the required systems and operational
capability. Communication and training plans are in place for impacted
employees, and the Finance function operating model is being refined to ensure
the business is ready to implement the new standard.
IFRS 9 - Financial Instruments
In July 2014, the IASB issued IFRS 9, 'Financial Instruments' which was
effective for annual periods beginning on or after 1 January 2018. The
standard replaces IAS 39, 'Financial Instruments: Recognition and
Measurement'. It includes new principles around classification and measurement
of financial instruments, introduces an impairment model based on expected
credit losses (replacing the current model based on incurred losses) and new
requirements on hedge accounting. The IASB subsequently issued 'Amendments to
IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts'
which allows entities which meet certain requirements to defer their
implementation of IFRS 9 until adoption of IFRS 17, 'Insurance Contracts' or 1
January 2021, whichever is the earlier. In June 2020, the IASB agreed to
extend the temporary exemption in IFRS 4 from applying IFRS 9 to annual
reporting periods beginning on or after 1 January 2023. The group qualifies
for, and is making use of, this deferral option.
In December 2021, in order to alleviate operational complexities and potential
one-off accounting mismatches in comparative information between insurance
contract liabilities and related financial assets on the initial application
of IFRS 17, the IASB issued an amendment to IFRS 17 titled 'Initial
Application of IFRS 9 and IFRS 17 - Comparative Information'. If an entity
applies IFRS 17 and IFRS 9 at the same time, this amendment permits it to
present comparative information about financial assets derecognised in the
comparative period as if the classification and measurement requirements of
IFRS 9 had been applied to them. The group has chosen to restate comparative
information and to apply this classification overlay to all financial assets
in scope. Due to the application of the new classification and impairment
requirements, the transition to IFRS 9 will generate a day-one impact on group
equity, which is not expected to be significant. Similarly, the ongoing impact
of IFRS 9 on the group's financial results is not expected to be significant.
IFRS 9 classifies financial assets into the following three categories:
amortised cost, fair value through other comprehensive income (FVOCI) and fair
value through profit or loss (FVTPL). The classification of financial assets
is based on the entity's business model for managing them, as well as their
contractual cash flow characteristics. The group expects to reclassify a
certain amount of financial assets as a result of these assessments, in order
to better align the accounting treatment of assets that are backing insurance
contract liabilities under IFRS 17.
With the exception of financial assets measured under FVTPL, the group will
apply an expected credit loss impairment model to all financial assets in
scope (including lease receivables and contract assets). The new impairment
model requires utilising not only past events and current conditions but also
reasonable and supportable forward-looking information, in order to assess the
credit risk profiles of those financial assets in scope. The group will
recognise either twelve months or lifetime expected credit losses in the
Consolidated Income Statement at each reporting period. The group intends to
use the practical expedient for financial assets deemed to have low credit
risk at the reporting date, which allows recognising twelve months' expected
credit losses. Additionally, for trade receivables, contract assets and lease
receivables, the group plans to use a provision matrix method to calculate and
recognise lifetime expected credit losses.
Most requirements around financial liabilities in IAS 39 have been retained by
IFRS 9. Therefore, financial liabilities are expected to be classified and
measured under their current categories (either FVTPL or amortised cost).
Finally, hedge accounting requirements have been revised by replacing some of
the prescriptive rules in IAS 39 with more principle-based requirements, to be
better aligned with the risk management activities of an entity and reflected
accordingly in the financial statements. As such, going forward more risk
management strategies should be able to qualify for hedge accounting.
The group has a fully mobilised programme to implement the standard. Work will
continue throughout the remainder of 2022 to finalise technical compliance as
well as to test and embed the required systems and operational capability.
Communication and training plans are in place for impacted employees, and the
Finance function operating model is being refined to ensure the business is
ready to implement the new standard.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 55
4.02 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1) Dividend Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2022 2022 2021 2021 2021 2021
£m p £m p £m p
Ordinary dividends paid and charged to equity in the period:
- Final 2020 dividend paid in June 2021 - - 754 12.64 754 12.64
- Interim 2021 dividend paid in September 2021 - - - - 309 5.18
- Final 2021 dividend paid in June 2022 792 13.27 - - - -
Total dividends(2) 792 13.27 754 12.64 1,063 17.82
1. The dividend per share calculation is based on the number of equity shares
registered on the ex-dividend date.
2. The dividend proposed at 31 December 2021 was £790m based on the current
number of eligible equity shares on that date.
Subsequent to 30 June 2022, the directors declared an interim dividend of 5.44
pence per ordinary share. This dividend will be paid on 26 September 2022. It
will be accounted for as an appropriation of retained earnings in the year
ended 31 December 2022 and is not included as a liability in the Consolidated
Balance Sheet as at 30 June 2022.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 56
4.03 Financial investments and investment property
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
Equities(1) 182,847 207,803 213,049
Debt securities(2,3) 237,976 278,858 296,930
Derivative assets(4) 28,017 15,449 16,792
Loans(5) 13,489 17,652 11,603
Financial investments 462,329 519,762 538,374
Investment property 10,976 9,080 10,150
Total financial investments and investment property 473,305 528,842 548,524
1. Equity securities include investments in unit trusts of £17,572m (30 June
2021: £15,681m; 31 December 2021: £18,248m).
2. Debt securities include accrued interest of £1,497m (30 June 2021:
£1,389m; 31 December 2021: £1,420m).
3. A detailed analysis of debt securities to which shareholders are directly
exposed is disclosed in Note 7.03.
4. Derivatives are used for efficient portfolio management, especially the use
of interest rate swaps, inflation swaps, credit default swaps and foreign
exchange forward contracts for asset and liability management. Derivative
assets are shown gross of derivative liabilities of £34,044m (30 June 2021:
£18,249m; 31 December 2021: £15,718m).
5. Loans include £101m (30 June 2021: £149m; 31 December 2021: £92m) of
loans valued at amortised cost.
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
Fair value measurements are based on observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the group's view of market assumptions in the
absence of observable market information. The group utilises techniques that
maximise the use of observable inputs and minimise the use of unobservable
inputs.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs
significant to the measurement other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for any input for the
asset or liability significant to the measurement that is not based on
observable market data (unobservable inputs).
All of the group's Level 2 assets have been valued using standard market
pricing sources, such as IHS Markit, ICE and Bloomberg, or Index Providers
such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modeling
and multiple source validation in order to determine consensus prices, with
the exception of OTC Derivative holdings; OTCs are marked to market using an
in-house system (Lombard Oberon), external vendor (IHS Markit), internal model
or Counterparty Broker marks. In normal market conditions, we would consider
these market prices to be observable market prices. Following consultation
with our pricing providers and a number of their contributing brokers, we have
considered that these prices are not from a suitably active market and have
therefore classified them as Level 2.
The group's investment properties are valued by appropriately qualified
external valuers using unobservable inputs, resulting in all investment
property being classified as Level 3.
The group's policy is to re-assess categorisation of financial assets at the
end of each reporting period and to recognise transfers between levels at that
point in time. At 30 June 2022 debt securities totalling net £0.8bn
transferred from Level 1 to Level 2 in the fair value hierarchy.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 57
4.03 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2022 £m £m £m £m
Shareholder(1)
Equity securities 3,492 1,995 22 1,475
Debt securities 76,814 27,622 27,265 21,927
Derivative assets 25,071 6 25,065 -
Loans at fair value(2) 1,701 - 1,701 -
Investment property 6,156 - - 6,156
Total Shareholder 113,234 29,623 54,053 29,558
Unit linked
Equity securities 179,355 178,691 25 639
Debt securities 161,162 129,689 30,836 637
Derivative assets 2,946 125 2,821 -
Loans at fair value 11,687 - 11,687 -
Investment property 4,820 - - 4,820
Total Unit linked 359,970 308,505 45,369 6,096
Total financial investments and investment property at fair value(2) 473,204 338,128 99,422 35,654
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2021 £m £m £m £m
Shareholder(1)
Equity securities 3,088 1,821 4 1,263
Debt securities 82,699 34,034 26,375 22,290
Derivative assets 14,019 2 14,017 -
Loans at fair value(2) 4,152 - 4,152 -
Investment property 5,103 - - 5,103
Total Shareholder 109,061 35,857 44,548 28,656
Unit linked
Equity securities 204,715 204,055 23 637
Debt securities 196,159 146,780 49,029 350
Derivative assets 1,430 89 1,341 -
Loans at fair value 13,351 - 13,351 -
Investment property 3,977 - - 3,977
Total Unit linked 419,632 350,924 63,744 4,964
Total financial investments and investment property at fair value(2) 528,693 386,781 108,292 33,620
1. All non-unit linked assets are classified as Shareholder assets.
Shareholders of the group are directly exposed to market and credit risk on
those assets including those backing the non-profit-non-unit linked business.
2. The above tables exclude loans (including accrued interest) of £101m,
which are held at amortised cost (30 June 2021: £149m).
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 58
4.03 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the year ended 31 December 2021 £m £m £m £m
Shareholder(1)
Equity securities 3,185 1,854 63 1,268
Debt securities 86,803 32,593 29,887 24,323
Derivative assets 13,203 9 13,194 -
Loans at fair value(2) 2,240 - 2,240 -
Investment property 5,710 - - 5,710
Total Shareholder 111,141 34,456 45,384 31,301
Unit linked
Equity securities 209,864 209,119 25 720
Debt securities 210,127 170,838 38,726 563
Derivative assets 3,589 90 3,499 -
Loans at fair value 9,271 - 9,271 -
Investment property 4,440 - - 4,440
Total Unit linked 437,291 380,047 51,521 5,723
Total financial investments and investment property at fair value(2) 548,432 414,503 96,905 37,024
1. All non-unit linked assets are classified as Shareholder assets.
Shareholders of the group are directly exposed to market and credit risk on
those assets including those backing the non-profit-non-unit linked business.
2. This table excludes loans (including accrued interest) of £92m, which are
held at amortised cost.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 59
4.03 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value
Level 3 assets, where modelling techniques are used, comprise property,
unquoted securities, untraded debt securities and securities where unquoted
prices are provided by a single broker. Unquoted securities include suspended
securities, investments in private equity and property vehicles. Untraded debt
securities include private placements, commercial real estate loans, income
strips, retirement interest only and other lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset or
liability may fall into different levels of the fair value hierarchy. In these
situations, the group determines the level in which the fair value falls based
upon the lowest level input that is significant to the determination of the
fair value. As a result, both observable and unobservable inputs may be used
in the determination of fair values that the group has classified within Level
3.
The group determines the fair values of certain financial assets and
liabilities based on quoted market prices, where available. The group also
determines fair value based on estimated future cash flows discounted at the
appropriate current market rate. As appropriate, fair values reflect
adjustments for counterparty credit quality, the group's credit standing,
liquidity and risk margins on unobservable inputs.
Fair values are subject to a control framework designed to ensure that input
variables and outputs are assessed independent of the risk taker. These inputs
and outputs are reviewed and approved by a valuation committee and validated
independently as appropriate.
Climate risk
The group's asset portfolio can be exposed to climate change through both:
• Transition risks from the move to a low-carbon economy and the impact
this has on asset valuation and the wider economic environment; and
• Physical risks from the impact on asset holdings as a result of severe
weather events and longer-term shifts in climate.
Exposure to the physical risks of climate change are minimised in the direct
investment portfolio through rigorous assessment of potential investments,
particularly in ensuring there is low susceptibility to extreme weather
events. The group monitors the carbon intensity of the investments held at a
portfolio level to help understand the environmental impact and reduce high
carbon intensive investments in the future. Further detail can be found in our
Climate Report (TCFD).
The group's assets are valued, where possible, using standard market pricing
sources or appropriately qualified external valuers and therefore reflect
current market sentiments in respect of climate risk.
Equity securities
Level 3 equity securities amount to £2,114m (30 June 2021: £1,900m; 31
December 2021: £1,988m), of which the majority is made up of holdings in
investment property vehicles and private investment funds. They are valued at
the proportion of the group's holding of the Net Asset Value reported by the
investment vehicles. Other equity securities are valued by a number of third
party specialists using a range of techniques which are often dependent on the
maturity of the underlying investment but can also depend of the
characteristics of individual investments. Such techniques include transaction
values underpinned by analysis of milestone achievement, and cash runway for
early/start-up stage investments, discounted cash flow models for investments
at the next stage of development and earnings multiples for more mature
investments.
Other financial investments
Lifetime mortgage (LTM) loans and retirement interest only mortgages amount to
£5,758m (30 June 2021: £6,325m; 31 December 2021: £6,857m). Lifetime
mortgages are valued using a discounted cash flow model by projecting
best-estimate net asset proceeds and discounted using rates inferred from
current LTM loan pricing. The inferred illiquidity premiums for the majority
of the portfolio range between 100 and 250bps. This ensures the value of loans
at outset is consistent with the purchase price of the loan, and achieves
consistency between new and in-force loans. The mortgages include a no
negative equity guarantee (NNEG) to borrowers. This ensures that if there is a
shortfall between the sale proceeds of the property and the outstanding loan
balance on redemption of the loan, the value of the loan will be reduced by
this amount. The NNEG on loan redemption is valued as a series of put options,
which we calculate using a variant of the Black-Scholes formula. Key
assumptions in the valuation of lifetime mortgages include short-term and
long-term property growth rates, property index volatility, voluntary early
repayments and longevity assumptions. The valuation as at 30 June 2022
reflects a long-term property growth rate assumption of 2.9% annually, after
allowing for the effects of dilapidation. The values of the properties
collateralising the LTM loans are updated from the date of the last property
valuation to the valuation date by indexing using UK regional house price
indices.
Private credit loans (including commercial real estate loans) amount to
£12,115m (30 June 2021: £12,232m; 31 December 2021: £13,521m). Their
valuation is determined by discounted future cash flows which are based on the
yield curve of the LGIM approved comparable bonds and the initial spread, both
of which are agreed by IHS Markit who also provide an independent valuation of
comparable bonds. Unobservable inputs that go into the determination of
comparators include: rating, sector, sub-sector, performance dynamics,
financing structure and duration of investment. Existing private credit
investments, which were executed back as far as 2011, are subject to a range
of interest rate formats, although the majority are fixed rate. The weighted
average duration of the portfolio is 9.1 years, with a weighted average life
of 11.9 years. Maturities in the portfolio currently extend out to 2064. The
private credit portfolio of assets has internal ratings assigned by an
independent credit team in line with internally developed methodologies. These
credit ratings range from AAA to BB-.
Private placements held by the US business amount to £1,932m (30 June 2021:
£2,090m; 31 December 2021: £1,762m). They are valued using a pricing matrix
comprised of a public spread matrix, internal ratings assigned to each
holding, average life of each holding, and a premium spread matrix. These are
added to the risk-free rate to calculate the discounted cash flows and
establish a market value for each investment grade private placement. The
valuation as at 30 June 2022 reflects illiquidity premiums between 10 and
70bps.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 60
4.03 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value (continued)
Commercial mortgage loans amount to £1,080m (30 June 2021: £408m; 31
December 2021: £1,021m) and are determined by incorporating credit risk for
performing loans at the portfolio level and for loans identified to be
distressed at the loan level. The projected cash flows of each loan are
discounted along stochastic risk free rate paths and are inclusive of an
Option Adjusted Spread (OAS), derived from current internal pricing on new
loans, along with the best observable inputs. The valuation as at 30 June 2022
reflects illiquidity premiums between 20 and 30bps.
Income strip assets amount to £1,580m (30 June 2021: £1,527m; 31 December
2021: £1,626m). Their valuation is outsourced to Knight Frank and CBRE who
apply a yield to maturity to discounted future cash flows to derive
valuations. The overall valuation takes into account the property location,
tenant details, tenure, rent, rental break terms, lease expiries and
underlying residual value of the property. The valuation as at 30 June 2022
reflects equivalent yield ranges between 2% and 7% and estimated rental values
(ERV) between £16 and £310 per sq.ft.
Other debt securities which are not traded in an active market amount to
£100m (30 June 2021: £143m; 31 December 2021: £99m). They have been valued
using third party or counterparty valuations, and these prices are considered
to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to £10,976m (30 June 2021: £9,080m; 31
December 2021: £10,150m) is valued with the involvement of external valuers.
All property valuations are carried out in accordance with the latest edition
of the Valuation Standards published by the Royal Institute of Chartered
Surveyors, and are undertaken by appropriately qualified valuers as defined
therein. Whilst transaction evidence underpins the valuation process, the
definition of market value, including the commentary, in practice requires the
valuer to reflect the realities of the current market. In this context valuers
must use their market knowledge and professional judgement and not rely only
upon historic market sentiment based on historic transactional comparables.
The valuation of investment properties also includes an income approach that
is based on current rental income plus anticipated uplifts, where the uplift
and discount rates are derived from rates implied by recent market
transactions. These inputs are deemed unobservable. The valuation as at 30
June 2022 reflects equivalent yield ranges between 2% and 16% and ERV between
£1 and £396 per sq.ft.
The below table breaks down the investment property by sector.
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
Retail 951 962 1,025
Leisure 505 453 482
Distribution 1,613 1,277 1,552
Office space 4,688 3,832 4,223
Industrial and other commercial 2,005 1,803 1,767
Accommodation 1,214 753 1,101
Total investment property 10,976 9,080 10,150
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 61
4.03 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value (continued)
Other Other
Equity financial Investment Equity financial Investment
securities investments property Total securities investments property Total
2022 2022 2022 2022 2021 2021 2021 2021
£m £m £m £m £m £m £m £m
As at 1 January 1,988 24,886 10,150 37,024 1,801 21,957 8,475 32,233
Total gains/(losses) for the period
- in other comprehensive income - 3 - 3 - (8) - (8)
- realised gains/(losses)(1) 6 (5) 30 31 1 (9) - (8)
- unrealised gains/(losses)(1) 144 (3,643) 571 (2,928) 97 (422) 249 (76)
Purchases/Additions 179 2,110 330 2,619 90 2,007 449 2,546
Sales/Disposals (266) (1,105) (105) (1,476) (59) (821) (93) (973)
Transfers into Level 3 67 - - 67 - 8 - 8
Transfers out of Level 3 (10) - - (10) (30) (44) - (74)
Foreign exchange rate movements 6 318 - 324 - (28) - (28)
As at 30 June 2,114 22,564 10,976 35,654 1,900 22,640 9,080 33,620
Other
Equity financial Investment
securities investments property Total
2021 2021 2021 2021
£m £m £m £m
As at 1 January 1,801 21,957 8,475 32,233
Total gains/(losses) for the year
- in other comprehensive income - (3) - (3)
- realised gains/(losses)(1) 31 12 (4) 39
- unrealised gains or (losses)(1) 208 (87) 1,028 1,149
Purchases/Additions 130 5,429 985 6,544
Sales/Disposals (153) (2,351) (334) (2,838)
Transfers into Level 3 2 10 - 12
Transfers out of Level 3 (31) (112) - (143)
Foreign exchange rate movements - 31 - 31
As at 31 December 1,988 24,886 10,150 37,024
1. Realised and unrealised gains/(losses) are recognised in investment return
in the Consolidated Income Statement.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 62
4.03 Financial investments and investment property (continued)
(c) Effect of changes in assumptions on Level 3 assets
Fair values of financial instruments are, in certain circumstances, measured
using valuation techniques that incorporate assumptions that are not evidenced
by prices from observable current market transactions in the same instrument
and are not based on observable market data.
Where material, the group assesses the sensitivity of fair values of Level 3
investments to changes in unobservable inputs to reasonable alternative
assumptions. The table below shows the impact of applying these sensitivities
on the fair value of Level 3 assets as at 30 June 2022. Further disclosure on
how these sensitivities have been applied can be found in the descriptions
following the table.
Sensitivities
Fair value Positive impact Negative impact
30 June 2022 £m £m
£m
Lifetime mortgages 5,758 216 (216)
Private credit portfolios 15,127 821 (821)
Investment property 10,976 915 (1,075)
Other investments(1) 3,793 339 (274)
Total Level 3 assets 35,654 2,291 (2,386)
1. Other investments include Level 3 equity securities, income strip assets
and other traded debt securities which are Level 3.
The sensitivities are not a function of sensitising a single variable relating
to the valuation of the asset, but rather a function of flexing multiple
factors often at individual asset level. The following sets out a number of
key factors by asset type, and how they have been flexed to derive reasonable
alternative valuations.
Lifetime mortgages
Key assumptions used in the valuation of Lifetime mortgage assets are listed
in Note 4.03 (b) and sensitivities are applied to each assumption to arrive at
the overall sensitised values in the above table. The most significant
sensitivity by value is +/-10% instant reduction in property valuation across
the portfolio which, applied in isolation produces sensitised values of £71m
and £(143)m.
Private credit portfolios
The sensitivity in the private credit portfolio has been determined through a
method which estimates investment spread value premium differences as compared
to the institutional investment market. Individual investment characteristics
of each holding, such as credit rating and duration are used to determine
spread differentials for the purposes of determining alternate values. Spread
differentials are determined to be lower for highly rated and/or shorter
duration assets as compared to lower rated and/or longer duration assets. A
significant component of the spread differential is in relation to the
selection of comparator bonds, which is the potential difference in spread of
the basket of relevant comparators determined by respective investors. If we
were to take an AA rated asset it may attract a spread differential of 15bps
on the selection of comparator bonds as opposed to 40bps for a similar
duration BBB rated asset. Applied in isolation the sensitivity used to reflect
the spread in comparator bond selection results in sensitised values of £274m
and £(274)m.
Investment property
Investment property holdings are valued by independent valuers on the basis of
open market value as defined in the appraisal and valuation manual of the
Royal Institute of Chartered Surveyors (RICS). As such, sensitivities are
calculated through a mixture of asset level and portfolio level methodologies
which make reference to individual investment characteristics of the holding
but do not flex individual assumptions used by the independent expert in
valuing the holdings. Each method is applied individually and aggregated with
equal weighting to determine the overall sensitivity determined for the
portfolio. One method is similar to that used in the private credit portfolio
as it determines the impact of an alternate property yield determined in
reference to credit ratings, remaining term and other characteristics of each
holding. In this methodology we would apply a lower yield sensitivity to a
highly rated and/or shorter remaining term asset compared with a lower rated
and/or longer remaining term asset. If we were to take an AA rated asset with
remaining term of 25 years in normal market conditions this would lead to a
15bps yield flex (as opposed to a 35bps yield flex for a BBB rated asset with
30 year remaining term). The methodology which leads to the most significant
sensitivity at the balance sheet date is related to an example in case law
where it was found that an acceptable margin of error in a valuation dispute
is 10% either way, subject to the valuation being undertaken with due care. If
this sensitivity were to be taken without a weighting it would produce
sensitised values of £723m and £(723)m.
It should be noted that some sensitivities described above are non-linear, and
larger or smaller impacts should not be interpolated or extrapolated from
these results.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 63
4.04 Tax
(a) Tax expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
6 months 6 months Full year
2022 2021 2021
£m £m £m
Profit before tax attributable to equity holders 1,367 1,320 2,488
Tax calculated at 19.00% 260 251 473
Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higher rate of tax on profits taxed overseas(1) (32) (32) (104)
Non-deductible expenses - 4 6
Differences between taxable and accounting investment gains (6) (9) (13)
Foreign tax 1 - -
Unrecognised tax losses 1 - 1
Other 3 - -
Non-recurring reconciling items:
Adjustments in respect of prior years(2) (1) 12 24
Impact of the revaluation of deferred tax balances(3) (12) 32 58
Tax expense attributable to equity holders 214 258 445
Equity holders' effective tax rate 15.7% 19.5% 17.9%
1. The lower rate of tax on overseas profits is principally driven by the 0%
rate of taxation arising in our Bermudan reinsurance company, which
provides the group with regulatory capital flexibility for both our PRT
business and our US term insurance business. This also includes the impact of
our US operations which are taxed at 21%.
2. Adjustments in respect of prior years relate to revisions of prior
estimates.
3. The Finance Act 2021 increased the rate of corporation tax from 19% to 25%
from 1 April 2023. The prevailing rate of UK corporation tax for the year
remained at 19%. The future enacted tax rate of 25% has been used in the
calculation of UK deferred tax assets and liabilities in respect of temporary
differences arising in the period, being the rate of corporation tax that is
expected to apply when the majority of those deferred tax balances reverse.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 64
4.04 Tax (continued)
(b) Deferred tax
30 Jun 2022 30 Jun 2021 31 Dec 2021
Deferred tax (liabilities)/assets £m £m £m
Overseas deferred acquisition expenses 110 88 95
Difference between the tax and accounting value of insurance contracts (901) (652) (695)
- UK (198) (231) (269)
- Overseas (703) (421) (426)
Realised and unrealised gains on investments(1) 79 (22) (83)
Excess of depreciation over capital allowances 20 23 22
Excess expenses - 1 -
Accounting provisions and other 32 (37) 55
Trading losses(2) 410 320 348
Pension fund deficit (42) 15 9
Acquired intangibles - (1) -
Net deferred tax liabilities (292) (265) (249)
Analysed by:
- Deferred tax assets(1)
115 12 2
- UK deferred tax liabilities (218) (209) (215)
- Overseas deferred tax liabilities(2) (189) (68) (36)
Net deferred tax liabilities (292) (265) (249)
1. The deferred tax asset represents £113m of US unrealised losses on
investments (H1 21: £nil; FY 21: £nil) and £2m of UK restricted losses (H1
21: £12m; FY 21: £2m) that are not capable of being offset against other
deferred tax liabilities or future trading profits.
2. Trading losses include UK trade and US operating losses of £3m (H1 21:
£12m; FY 21: £2m) and £407m (H1 21: £308m; FY 21: £346m) respectively.
Overseas net deferred tax liabilities is wholly comprised of US balances as at
30 June 2022 and includes the US deferred tax asset. The losses are not time
restricted, and we expect to recover them over a period of 15 to 20 years,
commensurate with the lifecycle of the underlying insurance contracts. In
reaching this conclusion, we have considered past results, the different basis
under which US companies are taxed, temporary differences that are expected to
generate future profits against which the deferred tax can be offset,
management actions, and future profit forecasts. The recoverability of
deferred tax assets is routinely reviewed by management.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 65
4.05 Share capital and share premium
Number of
Authorised share capital shares £m
At 30 June 2022, 30 June 2021 and 31 December 2021: ordinary shares of 2.5p 9,200,000,000 230
each
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2022 5,970,415,817 149 1,012
Options exercised under share option schemes 2,162,898 - 5
As at 30 June 2022 5,972,578,715 149 1,017
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2021 5,967,358,713 149 1,006
Options exercised under share option schemes 2,500,221 - 5
As at 30 June 2021 5,969,858,934 149 1,011
Options exercised under share option schemes 556,883 - 1
As at 31 December 2021 5,970,415,817 149 1,012
There is one class of ordinary shares of 2.5p each. All shares issued carry
equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends
as declared and are entitled to one vote per share at shareholder meetings of
the company.
4.06 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625%
perpetual restricted Tier 1 contingent convertible notes. The notes are
callable at par between 24 March 2031 and 24 September 2031 (the First Reset
Date) inclusive and every 5 years after the First Reset Date. If not called,
the coupon from 24 September 2031 will be reset to the prevailing five year
benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon
payments is at the discretion of the issuer and mandatory cancellation is upon
the occurrence of certain conditions. The Tier 1 notes are therefore treated
as equity and coupon payments are recognised directly in equity when paid.
During the period a coupon payment of £14m was made (H1 21: £14m; FY 21:
£28m). The notes rank junior to all other liabilities and senior to equity
attributable to owners of the parent. On the occurrence of certain conversion
trigger events the notes are convertible into ordinary shares of the Issuer at
the prevailing conversion price.
The notes are treated as restricted Tier 1 own funds for Solvency II purposes.
4.07 Non-controlling interests
Non-controlling interests represent third party interests in direct equity
investments, including private equity, which are consolidated in the group's
results.
As at 30 June 2022, non-controlling interests primarily represent third party
ownership in Thorpe Park Holdings, a mixed residential/commercial retail space
in which the group holds 50%.
No other individual non-controlling interest is considered to be material on
the basis of the period end carrying value or share of profit or loss.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 66
4.08 Core borrowings
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2022 2022 2021 2021 2021 2021
£m £m £m £m £m £m
Subordinated borrowings
10% Sterling subordinated notes 2041(1) - - 313 315 - -
5.5% Sterling subordinated notes 2064 590 546 589 771 590 776
5.375% Sterling subordinated notes 2045 604 610 604 699 604 673
5.25% US Dollar subordinated notes 2047 707 690 621 703 635 694
5.55% US Dollar subordinated notes 2052 414 416 364 413 373 428
5.125% Sterling subordinated notes 2048 400 391 400 478 400 461
3.75% Sterling subordinated notes 2049 598 523 598 659 598 632
4.5% Sterling subordinated notes 2050 500 456 500 582 500 558
Client fund holdings of group debt(2) (50) (46) (41) (49) (44) (51)
Total subordinated borrowings 3,763 3,586 3,948 4,571 3,656 4,171
Senior borrowings
Sterling medium term notes 2031-2041 602 707 603 866 609 846
Client fund holdings of group debt(2) (9) (10) (9) (12) (9) (11)
Total senior borrowings 593 697 594 854 600 835
Total core borrowings 4,356 4,283 4,542 5,425 4,256 5,006
1. These notes were redeemed in full on 23 July 2021.
2. £59m (30 June 2021: £50m; 31 December 2021: £53m) of the group's
subordinated and senior borrowings are held by Legal & General customers
through unit linked products. These borrowings are shown as a deduction from
total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices
in active markets and they have been classified as Level 1 in the fair value
hierarchy.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 67
4.08 Core borrowings (continued)
Subordinated borrowings
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated
notes. These notes were called at par on 23 July 2021.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued £600m of 5.5% dated
subordinated notes. The notes are callable at par on 27 June 2044 and every
five years thereafter. If not called, the coupon from 27 June 2044 will be
reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These
notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued £600m of 5.375% dated
subordinated notes. The notes are callable at par on 27 October 2025 and every
five years thereafter. If not called, the coupon from 27 October 2025 will be
reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These
notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated
subordinated notes. The notes are callable at par on 21 March 2027 and every
five years thereafter. If not called, the coupon from 21 March 2027 will be
reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes
mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated
subordinated notes. The notes are callable at par on 24 April 2032 and every
five years thereafter. If not called, the coupon from 24 April 2032 will be
reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes
mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125%
dated subordinated notes. The notes are callable at par on 14 November 2028
and every five years thereafter. If not called, the coupon from 14 November
2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65%
p.a. These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued £600m of 3.75%
dated subordinated notes. The notes are callable at par on 26 November 2029
and every five years thereafter. If not called, the coupon from 26 November
2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05%
p.a. These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated
subordinated notes. The notes are callable at par on 1 November 2030 and every
five years thereafter. If not called, the coupon from 1 November 2030 will be
reset to the prevailing five year benchmark gilt yield plus 5.25% p.a. These
notes mature on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own funds for
Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior
unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and
5.875%. These notes have various maturity dates between 2031 and 2041.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 68
4.09 Operational borrowings
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2022 2022 2021 2021 2021 2021
£m £m £m £m £m £m
Euro Commercial Paper 50 50 50 50 50 50
Non-recourse borrowings 1,004 1,004 1,064 1,064 874 874
Bank loans and overdrafts 91 91 2 2 - -
Operational borrowings(1) 1,145 1,145 1,116 1,116 924 924
1. Unit linked borrowings with a carrying value of £37m (30 June 2021: £22m;
31 December 2021: £8m) are excluded from the analysis above as the risk is
retained by policyholders. Operational borrowings including unit linked
borrowings are £1,182m (30 June 2021: £1,138m; 31 December 2021: £932m).
Syndicated Credit Facility
As at 30 June 2022, the group had in place a £1bn syndicated committed
revolving credit facility provided by a number of its key relationship banks,
maturing in December 2024. No amounts were outstanding at 30 June 2022.
4.10 Movement in borrowings
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
As at 1 January 5,188 5,613 5,613
Cash movements:
- Proceeds from borrowings 265 269 503
- Repayment of borrowings (210) (162) (798)
- Net increase/(decrease) in bank loans and overdrafts 120 (17) (54)
Non-cash movements:
- Amortisation 1 1 3
- Foreign exchange rate movements 184 (19) 10
- Other (10) (5) (89)
Core and operational borrowings 5,538 5,680 5,188
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 69
4.11 Payables and other financial liabilities
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Derivative liabilities 34,044 18,249 15,718
Repurchase agreements(1) 47,103 47,703 46,331
Other financial liabilities(2) 14,823 14,833 12,215
Total payables and other financial liabilities 95,970 80,785 74,264
1. The repurchase agreements are presented gross, however they and their
related assets (included within debt securities) are subject to master netting
arrangements. The significant majority of the repurchase agreements are unit
linked.
2. Other financial liabilities includes trail commission, lease liabilities,
FX spots and the value of short positions taken out to cover reverse
repurchase agreements. The value of short positions as at 30 June 2022 was
£4,779m (30 June 2021: £4,320m; 31 December 2021: £5,418m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 30 June 2022 £m £m £m £m £m
Derivative liabilities 34,044 291 33,713 40 -
Repurchase agreements 47,103 - 47,103 - -
Other financial liabilities 14,823 4,815 81 - 9,927
Total payables and other financial liabilities 95,970 5,106 80,897 40 9,927
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 30 June 2021 £m £m £m £m £m
Derivative liabilities 18,249 397 17,780 72 -
Repurchase agreements 47,703 - 47,703 - -
Other financial liabilities 14,833 5,484 15 10 9,324
Total payables and other financial liabilities 80,785 5,881 65,498 82 9,324
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2021 £m £m £m £m £m
Derivative liabilities 15,718 331 15,316 71 -
Repurchase agreements 46,331 - 46,331 - -
Other financial liabilities 12,215 5,438 55 - 6,722
Total payables and other financial liabilities 74,264 5,769 61,702 71 6,722
1. The carrying value of payables and other financial liabilities at amortised
cost approximates its fair value.
Significant transfers between levels
There have been no significant transfers of liabilities between Levels 1, 2
and 3 for the period ended 30 June 2022 (30 June 2021 and 31 December 2021: no
significant transfers).
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 70
4.12 Foreign exchange rates
Principal rates of exchange used for translation are:
Period end exchange rates 30 Jun 2022 30 Jun 2021 31 Dec 2021
United States dollar 1.22 1.38 1.35
Euro 1.16 1.17 1.19
6 months 6 months Full year
Average exchange rates 2022 2021 2021
United States dollar 1.30 1.39 1.38
Euro 1.19 1.15 1.16
4.13 Provisions
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note £m £m £m
Other provisions 4.13 (a) 182 108 213
Retirement benefit obligations 4.13 (b) 599 1,005 1,025
Total provisions 781 1,113 1,238
(a) Other provisions
Included within Other provisions are amounts relating to new and existing
M&A and restructuring transactions. This includes costs that Legal &
General Investment Management (LGIM) has committed to incur to extend its
existing partnership with State Street, to increase the use of Charles River
technology across the front office and to deliver middle office services going
forward.
(b) Retirement benefit obligations
The Legal & General Group UK Pension and Assurance Fund (Fund) and the
Legal & General Group UK Senior Pension Scheme (Scheme) account for the
majority of the UK and worldwide assets of, and contributions to, such
arrangements. The Fund and Scheme were closed to future accrual on 31 December
2015.
As at 30 June 2022, the combined obligation arising from these arrangements
has been estimated at £594m (30 June 2021: £980m; 31 December 2021:
£1,020m). The retirement benefit obligations are a component of Provisions on
the Consolidated Balance Sheet. The after tax surplus, net of annuity
obligations insured by Legal and General Assurance Society (LGAS), has been
calculated to be £131m (30 June 2021: deficit of £28m; 31 December 2021:
deficit of £22m).
The group operates two other defined benefit pension schemes, both of which
are closed to future accrual and have a combined retirement benefit obligation
of £5m (30 June 2021: £25m; 31 December 2021: £5m).
4.14 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is
based on certain assumptions. The variance between actual experience from that
assumed may result in those liabilities differing from the provisions made for
them. Liabilities may also arise in respect of claims relating to the
interpretation of policyholder contracts, or the circumstances in which
policyholders have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and requirements of
the PRA, FCA, ombudsman rulings, industry compensation schemes and court
judgments.
Various group companies receive claims and become involved in actual or
threatened litigation and regulatory issues from time to time. The relevant
members of the group ensure that they make prudent provision as and when
circumstances calling for such provision become clear, and that each has
adequate capital and reserves to meet reasonably foreseeable eventualities.
The provisions made are regularly reviewed. It is not possible to predict,
with certainty, the extent and the timing of the financial impact of these
claims, litigation or issues.
Group companies have given warranties, indemnities and guarantees as a normal
part of their business and operating activities or in relation to capital
market transactions or corporate disposals. Legal & General Group Plc has
provided indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension Protection
Fund compliant guarantees in respect of certain group companies' liabilities
under the group pension Fund and Scheme. LGAS has provided indemnities, a
liquidity and expense risk agreement, a deed of support and a cash and
securities liquidity facility in respect of the liabilities of group companies
to facilitate the group's matching adjustment reorganisation pursuant to
Solvency II.
Legal & General Group Plc
Half Year Results 2022 Part 2
IFRS Disclosure
Notes
Page 71
4.15 Related party transactions
(i) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal &
General group of companies during the period. All transactions between the
group and its key management are on commercial terms which are no more
favourable than those available to employees in general. Contributions to the
post-employment defined benefit plans were £51m (30 June 2021: £52m; 31
December 2021: £109m) for all employees.
At 30 June 2022, 30 June 2021 and 31 December 2021 there were no loans
outstanding to officers of the company.
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
6 months 6 months Full year
2022 2021 2021
£m £m £m
Salaries 3 3 10
Share-based incentive awards 5 5 5
Key management personnel compensation 8 8 15
(ii) Services provided to and by related parties
All transactions between the group and associates, joint ventures and other
related parties during the period are on commercial terms which are no more
favourable than those available to companies in general.
Loans and commitments to related parties are made in the normal course of
business.
The group has the following material related party transactions:
- Assured Payment Policies (APPs) have been transacted between the group's
defined benefit pension schemes and LGAS. An APP is an investment contract
product sold by LGRI which, issued to a pension scheme, provides the scheme
with a fixed or inflation-linked schedule of payments to match the scheme's
expected liabilities. As at 30 June 2022, LGAS recognised a liability related
to the APP transactions of £968m (30 June 2021: £1,251m; 31 December 2021:
£1,214m) which is included in the group's investment contract liabilities.
The UK defined benefit pension schemes hold transferable plan assets of the
same amounts, which do not eliminate on consolidation.
- Loans outstanding from related parties at 30 June 2022 of £20m (30 June
2021: £22m; 31 December 2021: £15m), with a further commitment of £2m;
- The group has total other commitments of £1,061m to related parties (30
June 2021: £1,206m; 31 December 2021: £1,158m), of which £736m has been
drawn at 30 June 2022 (30 June 2021: £738m; 31 December 2021: £726m).
4.16 Acquisitions
Ancora L&G LLC
On 25 May 2022 Legal & General Capital (LGC) announced that it has formed
a 50:50 partnership with US based real estate developer to create a real
estate platform dedicated to driving life science, research and technology
growth across the US.
As part of the transaction, the group transferred consideration of $4m (£3m)
in cash, in return for a 50% shareholding in Ancora L&G LLC. As a result
of the transaction, in line with IFRS 3 'Business Combinations', the group
controls Ancora, and therefore the assets and liabilities acquired have been
included in the group's consolidated financial statements, using the group's
accounting policies. Goodwill of £3m has been recognised on consolidation.
Legal & General Group Plc
Half Year Results 2022 Part 2
Page 72
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