REG - Legal & General Grp - L&G Half Year Results 2024 Part 1
07/08/2024 07:00
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RNS Number : 4446Z Legal & General Group Plc 07 August 2024
Half Year 2024 Results
Stable core operating profit, strong solvency at 223%, good progress on private markets fund launches
António Simões, CEO
"These results reflect the ongoing strength of our business, with core operating profit slightly ahead of the prior year and a solvency coverage ratio of 223%. We continue to expect 2024 core operating profit to grow by mid-single digits year-on-year.
At our Capital Markets event in June we set out our strategy to deliver L&G's next phase of sustainable growth and enhanced returns, through focused capital allocation and rigour in execution. We are pleased to announce a 5% increase in interim dividends per share, and progress in undertaking a £200m share buyback, consistent with our new capital return framework.
We are making clear progress on delivering against our strategy, notably in the establishment of a single asset manager. We have good momentum in private markets, launching a new fund to offer diversified exposure to Defined Contribution pension scheme members, and establishing our Affordable Housing fund, leveraging pension capital to build new homes.
These developments are important steps forward for L&G, reflecting our commitment to helping address the long-term investment needs of individuals and society, and create compelling opportunities for partners to invest alongside us to generate positive change. We are encouraged by the action being taken here in the UK to drive institutional capital towards productive assets, alongside progress on addressing structural barriers to investment, such as the planning system.
Looking ahead, we are well positioned to continue to execute our strategy with
pace and ambition, delivering growth and value for all our stakeholders."
Stable financial performance(1)
· Core operating profit of £849m (H1 2023: £844m)
· Core operating EPS of 10.58p (H1 2023: 10.52p)
· Operating ROE of 35.4% (H1 2023: 28.6%)
· Profit after tax(2) of £223m (H1 2023: £377m)
· Asset Management AUM of £1,136bn (H1 2023: £1,170bn) of which
Private Markets £52bn (H1 2023: £48bn)
· Solvency II capital generation of £897m (H1 2023: £947m)
· Solvency II coverage ratio(3) of 223% with surplus of £8.8bn (FY
2023: 224%, £9.2bn)
· Interim dividends per share of 6.00p, up 5% (H1 2023: 5.71p)
Growth in our store of future profit: up 7% year on year to £14.5bn(4)
· £5bn of PRT written or exclusive year to date; £24bn+ of active UK
PRT deals(5)
· Record Retail volumes in individual annuities and US protection;
continued growth in Workplace DC:
‒ £1.2bn of individual annuities, more than double that of the prior
year (H1 2023: £575m)
‒ $103m of US protection new business premium, up 18% (H1 2023: $87m)
‒ Workplace DC net flows of £3.2bn, up 7% (H1 2023: £3.0bn)
· New business CSM contributed £326m (H1 2023: £475m), reflecting
lower PRT volumes
· CSM has grown 8% to £13.0bn (H1 2023: £12.0bn)
1. The Group uses a number of Alternative Performance Measures to enhance
understanding of the Group's performance. These are defined in the glossary,
on pages 87-92.
2. Profit after tax attributable to equity holders.
3. Solvency II coverage ratio before the payment of 2024 interim dividend and
after the £200m buyback.
4. Store of future profit refers to the gross of tax combination of
established Contractual Service Margin "CSM" and Risk Adjustment "RA" (net of
reinsurance) under IFRS 17.
5. £5bn PRT comprises H1: £1.5bn; H2: £1.1bn, plus exclusive: £2.3bn. Most
of the £24bn+ pipeline is expected to transact in 2024.
Financial summary(1)
£m H1 2024 H1 2023 Growth (%)
Analysis of core operating profit
Institutional Retirement 560 530 6
Asset Management 214 249 (14)
Retail 268 252 6
Group debt costs (107) (106) (1)
Group investment projects and expenses (86) (81) (6)
Core Operating profit(2) 849 844 1
Corporate Investments unit 71 80 (11)
Operating Profit(2) 920 924 -
Investment variance from Core businesses (incl. minority interests) (417) (296) (41)
Investment variance from Corporate Investments (187) (235) 20
Profit before tax attributable to equity holders(2) 316 393 (20)
Profit after tax attributable to equity holders 223 377 (41)
Core Operating Earnings per share(2) (p) 10.58 10.52 1
Operating ROE(2) (%) 35.4 28.6 7
Contractual Service Margin (CSM)(2) 12,965 12,002 8
Solvency II
Operational surplus generation 897 947
Coverage ratio (%) 223
Half year dividends per share (p) 6.00 5.71 5
1. Comparatives restated to reflect the creation of Corporate Investments
Unit and movement of LGC assets to Institutional Retirement, Retail Annuities
and Asset Management. The H1 2023 result also includes adjustments in relation
to IFRS 17 made as part of the finalisation of the Group's 2023 Accounts.
These adjustments reduced H1 2023 operating profit by £17m and were fully
reflected in the FY 2023 results. For further information please see Note
2.01.
2. Alternative Performance Measure as defined on pages 84-86.
H1 2024 Financial performance
Income statement
H1 2024 operating performance was stable, with core operating profit of £849m
slightly ahead of the prior year (H1 2023: £844m) consistent with the
guidance we gave at our Capital Markets event in June. We continue to expect
2024 core operating profit to grow by mid-single digits year on year.
Institutional Retirement operating profit increased by 6% to £560m (H1 2023:
£530m) underpinned by the growing scale of back-book earnings and the
consistent investment performance of our annuity portfolio. Following a record
year for UK Pension Risk Transfer (PRT) in 2023, H1 volumes reflect lower
quoting activity in the wider market. In H1 we have written £1,543m of global
PRT (H1 2023: £4,992m). Despite the slower start to the year, we have now
written or are exclusive on £5bn and our pipeline for PRT is larger than
ever. We continue to expect elevated PRT volumes over the next decade.
Asset Management delivered operating profit of £214m (H1 2023: £249m). This
reflects the increased investment signalled at the Capital Markets event in
June. Revenues have increased by 6% reflecting a conscious shift towards
higher margin business illustrated by UK DC and Wholesale, despite lower
average AUM. Pemberton continues to make good progress in raising and
deploying capital. This has been reflected in a valuation uplift which is
lower than the prior year.
Retail operating profit increased by 6% to £268m (H1 2023: £252m) driven by
Retail Retirement, up 13% (from £144m at H1 2023 to £163m at H1 2024) due to
the unwind of a larger back-book which reflects strong 2023 performance.
Retail Annuity sales continue to be strong, with volumes in H1 2024 of
£1.2bn, double that of the prior year. Workplace DC net flows were £3.2bn
and total members are now up to 5.3 million.
Profit before tax attributable to equity holders was £316m (H1 2023: £393m),
reflecting investment and other variances from core businesses of £(417)m (H1
2023: £(296)m). This was mostly driven by the impact on our annuity portfolio
of the increase in interest rates of 64bps 1 (#_ftn1) and movements in
inflation expectations both in line with our published sensitivities, as well
as some non-recurring IFRS 17 modelling refinements. The investment variance
from Corporate Investments of £(187)m (H1 2023: £(235)m) was largely driven
by the write down in valuation of Salary Finance, as we consider options to
manage the business outcome in the best interests of customers and
shareholders.
Balance sheet and asset portfolio
Solvency II operational surplus generation (OSG) at £897m (H1 2023: £947m)
reflects the impact of higher interest rates, which have reduced both our
aggregate solvency capital requirement and capital generation from Asset
Management. Net surplus generation (NSG) was £731m (H1 2023: £752m)
reflecting lower operational surplus generation, partially offset by the
impact of lower UK PRT volumes and therefore a lower quantum of new business
capital strain.
Solvency II coverage ratio is strong at 223% (FY 2023: 224%).
Our operating return on equity 2 (#_ftn2) was 35.4% (H1 2023: 28.6%).
Our store of future profit increased by 7% to £14.5bn (H1 2023: £13.5bn),
with the CSM up 8% to £13.0bn (H1 2023: £12.0bn), reflecting contributions
from our growing annuity businesses and the routine longevity review in H2
2023. Risk Adjustment of £1.5bn is in line with H1 2023 (£1.5bn).
Our diversified, actively managed annuity portfolio has continued to perform
resiliently. The annuity portfolio's direct investments have received 100% of
scheduled cash-flows year to date, reflecting the high quality of our
counterparty exposure.
Group Strategy
At our Capital Markets event in June we set out a strategy for delivering the
next phase of sustainable growth and enhanced returns to shareholders. We are
targeting:
· 6-9% CAGR in core operating EPS (2024-27) at >20% operating Return
on Equity
· £5-6bn cumulative Solvency II capital generation over three years
(2025, 2026, 2027)
The Board intends to return more to shareholders over the period 2024-27
through a combination of dividends (5% DPS growth to FY24, 2% DPS growth per
annum 2025-27) and buybacks (with a first buyback of £200m in 2024 and
further similar buybacks).
We have well-positioned, capital generative businesses in Institutional
Retirement, Asset Management and Retail. Our divisions have strong
complementary synergies and a shared sense of purpose, which together create
significant competitive advantages for the Group. Making the most of these
synergistic benefits is a core tenet of our strategy.
Our long-term vision for the Group requires near-term investment in our
operating model to position us for structural growth trends in Asset
Management and Retail. This in turn will move the business towards a more
capital-light model.
Successful execution will require sharper focus. We have a disciplined
approach to capital allocation and we have simplified the Group by creating a
single asset manager and a Corporate Investments unit. We are committed to
doing things 'once and well', leading to efficiencies in operations.
Our three divisions
· Institutional Retirement is a market leader in UK PRT and with a
growing presence internationally, in the US and via our global reinsurance hub
in Bermuda. We are well placed to address the significant growth in the global
PRT market over the next decade. The economics are attractive, with our
growing portfolio set to release reliable earnings over decades from our store
of future profit (H1 2024: £9.0bn). Our total annuity portfolio - comprising
both Institutional and Individual annuities - stands at £84bn as at H1 2024.
It acts as a valuable source of permanent capital to cornerstone new
investment strategies.
Key metrics: Guidance of £50-65bn UK PRT at <4% strain (2024-28), 5-7%
operating profit CAGR (FY23-28)
· Asset Management is a newly created division, formed from the
combination of LGIM (Legal & General Investment Management) and LGC (Legal
& General Capital). It is a leading global asset manager with £1.1trn
AUM, of which 41% is international. It has significant market share of the UK
pensions industry, which supports the growth of our other divisions - e.g.
conversion of our strong Defined Benefit (DB) client relationships into
buy-out partners for Institutional Retirement.
Private markets will be a major driver of Asset Management growth both
directly in L&G and through our origination partners (e.g. Pemberton). We
can access and originate differentiated investment opportunities in private
credit, real estate and infrastructure for our clients and for our annuity
balance sheet as it grows.
Key metrics: £500-600m operating profit (2028), £100-150m cumulative ANNR 3
(#_ftn3) (2025-28), £85bn+ 4 (#_ftn4) private markets AUM (2028)
· Retail is a leading provider of UK retail retirement and protection
solutions, and US term life insurance. We support customers throughout their
lifetime and create valuable bundled propositions, leveraging our Asset
Management capabilities, as responsibility for retirement savings shifts from
employers to individuals. We will leverage technology to engage customers
effectively and efficiently at scale.
Key metrics: 6-8% operating profit CAGR (FY23-28), £40-50bn Workplace net
flows (2024-28)
Our capital allocation policy
We have a clear allocation policy which prioritises:
· A strong and sustainable balance sheet, supported by strong capital
generation from our divisions
· Investment for growth, with disciplined investment in organic growth
and potential bolt-on acquisitions in Asset Management
· Shareholder returns, with surplus capital to be returned to
shareholders in the form of dividend or buybacks
Capital from disposals will be deployed in line with this capital allocation
policy.
Returning capital to shareholders
As noted, the Board intends to return more to shareholders over 2024-2027 than
the equivalent of maintaining 5% per annum growth in dividends per share
(DPS). This is intended to be achieved through a combination of dividends and
buybacks with:
· 5% DPS growth to FY24 and, thereafter, 2% DPS growth per annum out to
FY27
· A first buyback of £200m in 2024 and further similar buybacks over
the subsequent period
As at 5 August we had bought back 40m shares, comprising 46% of the £200m
buyback. The full amount has been accrued for in IFRS and Solvency II.
All future capital returns will be subject to the market environment, our
views on solvency buffers, and opportunities for investment in the business,
including Institutional Retirement.
In line with this approach, the Board has recommended an interim dividend of
6.00p, up 5% from the prior year (5.71p).
Institutional Retirement
FINANCIAL HIGHLIGHTS(1) £m H1 2024 H1 2023
Contractual service margin release 316 267
Risk adjustment release 64 54
Expected investment margin 283 292
Experience variances (20) (18)
Non-attributable expenses (86) (68)
Other 3 3
Operating profit 560 530
Investment variance from longevity assumption change - -
Other investment variance (263) (183)
Profit before tax attributable to equity holders 297 347
Contractual service margin (CSM)(2) 8,321 7,511
Risk adjustment (RA)(2) 650 639
Total store of future profit 8,971 8,150
CSM release as a % of closing CSM pre release 3.7% 3.4%
New business CSM(2) 135 307
New business RA(2)(;3) (48) 24
Total new business future profit 87 331
UK PRT 1,126 4,866
International PRT 417 126
Total new business (Gross Premiums) 1,543 4,992
Funded reinsurance premiums - (816)
Total new business (net of Funded Reinsurance) 1,543 4,176
Institutional annuity assets(4) (£bn) 66.3 61.4
Shareholder assets(5) (£bn) 3.2 3.3
1. Comparatives restated to reflect the movement of assets from LGC to
Institutional Retirement. For further information please see Note 2.01.
2. H1 2023 numbers restated to reflect adjustments in relation to IFRS 17 made
as part of the finalisation of the Group's 2023 Accounts.
3. The H1 2024 RA includes a £(56)m impact from funded reinsurance on the
2023 Boots Pension Scheme transaction which was put in place after year-end.
4. In the UK, annuity assets across Institutional Retirement and Retail are
managed together. We show here estimated Institutional Retirement annuity
assets. Excludes derivative assets.
5. Assets formerly reported in LGC.
Institutional Retirement continued to deliver strong operating profit, up 6%
to £560m
Contractual Service Margin (CSM) release increased 18% to £316m (H1 2023:
£267m). This reflects the growth in our store of future profit which is
supported by profitable new business written and the routine longevity review
in H2 2023. In H1 2024, 3.7% of the closing CSM pre-release (£8.6bn) was
released into profit (H1 2023: 3.4%, £7.8bn). Overall, the CSM grew 11% to
£8.3bn (H1 2023: £7.5bn).
The expected investment margin decreased by 3% to £283m (H1 2023: £292m)
reflecting less backbook optimisation in H1 2024 vs H1 2023.
Non-attributable expenses of £(86)m (H1 2023: £(68)m) are broadly in line
with the H2 2023 run-rate (£92m).
Profit before tax of £297m (H1 2023: £347m) was impacted by investment and
other variances of £(263)m. This was mostly driven by increases in interest
rates and movements to inflation expectations, in line with our year-end
sensitivities. There are also some non-recurring IFRS 17 modelling
refinements.
£5bn PRT volumes written or exclusive year to date and a strong pipeline for
H2 2024
During H1 2024, we wrote £1.5bn of global PRT new business across 15 deals
(H1 2023: £5.0bn across 20 deals). UK volumes were £1.1bn (H1 2023: £4.9bn)
due to quieter quoting activity in H1, and international volumes were £0.4bn
(H1 2023: £0.1bn). Despite the slower start to the year, we have now written
or are exclusive on £5bn year to date and have £24bn+ of active deals in the
UK pipeline, most of which is expected to transact in 2024.
Under IFRS 17, new business profits are now deferred into the CSM and RA on
the balance sheet and recognised in operating profit over the lifetime of the
contract. New business added £87m of future profit to the CSM and RA.
The £1.1bn of UK PRT written in H1 delivered a 6.1% UK Solvency II new
business margin. The year-on-year reduction in SII new business metrics is
driven by the significantly shorter duration of the ICI Pension Fund 5
(#_ftn5) pensioner-only buy-in which had a duration of less than 8 years. This
compares with an average duration for business written over the last three
years of 12.7 years.
We continue to be disciplined in our pricing and deployment of capital. We
have successfully executed transactions over the last few years, including at
H1 2024, at initial UK strain levels below our 4% target. We actively optimise
the back-book by matching newly sourced, higher-return assets to back-book
liabilities, resulting in additional margin and profit generation post-sale.
Successful execution in the UK leveraging internal synergies
Institutional Retirement's brand, scale and asset origination capabilities -
through synergies and expertise within Asset Management - are critical to our
market leadership in the UK PRT market. Long-term client relationships,
typically created and fostered by Asset Management, have allowed us to help
many pension plans achieve their de-risking goals, including the large schemes
executed at the end of 2023: a £4.8 billion full buy-in with the Boots
Pension Scheme, and the earlier £2.7bn follow-on transaction with the British
Steel Pension Scheme, executed under an umbrella agreement. This has continued
in 2024 with the £1.1bn transaction with SCA UK pension plan 6 (#_ftn6) in
July. In H1 2024 9 out of the 15 deals transacted were with Asset Management
clients.
Well positioned to execute in international markets
Institutional Retirement delivered increased US PRT new business premiums of
$525m or £417m (H1 2023: $163m; £126m) in a market that is typically slower
in H1. This includes a $0.6bn split transaction leveraging our longstanding
relationship with RGA. In June, the US Institutional Retirement team and RGA
were awarded the Pension Risk Transfer Innovation of the Year award for this
split transaction approach that is meeting the evolving needs of pension plan
sponsors in the US PRT market.
We are active in the Canadian PRT market, developing our proposition to meet
anticipated market needs. The 2024 market is expected to be cCAD$8-10bn,
weighted towards the second half. We continue to actively participate in the
Canadian market and remain disciplined on price with a focus on long-term
profitability and shareholder returns.
In the Netherlands, we have developed expertise to actively participate in the
PRT market. We are exploring our partner options for access to this
developing PRT market.
Legal & General remains strongly positioned to offer holistic,
multinational pension de-risking solutions, leveraging skills and capabilities
across geographies.
Asset Management
FINANCIAL HIGHLIGHTS(1) £m H1 2024 H1 2023
Management fee revenue 481 455
Transactional revenue 11 9
Total revenue 492 464
Total costs (359) (326)
Operating profit from fee-related earnings 133 138
Operating profit from Balance Sheet investments 81 111
Total Operating Profit 214 249
Investment and other variances (55) (40)
Profit before tax 159 209
Asset Management cost:income ratio (%) 73% 70%
NET FLOWS AND ASSETS £bn
External net flows (28.5) (12.3)
PRT Transfers (0.5) (5.1)
Internal net flows (2.3) (1.9)
Total net flows (31.3) (19.3)
Persistency(2) (%) 84 87
Average assets under management 1,131 1,180
Assets under management ex JV and Associates 1,122 1,158
JV & Associate AUM(3) 14 12
Total AUM 1,136 1,170
Of which:
- International assets under management(4) 465 457
- Private Markets(5) 52 48
- UK DC assets under management 176 146
1. Comparatives restated to reflect the movement of
assets from LGC to Asset Management. For further information please see Note
2.01
2. Persistency is a measure of client asset retention,
calculated as a function of net flows and closing AUM.
3. Includes 100% of assets managed by associates
(Pemberton, NTR, BTR).
4. International AUM includes assets from
internationally domiciled clients plus assets managed internationally on
behalf of UK clients.
5. Private Markets assets includes assets from
associates and is based on Managed AUM including £1.5bn from multi-asset
strategies.
Total operating profit of £214m (HY 2023: £249m)
At our Capital Markets Event in June we announced the creation of the Asset
Management division, bringing together LGIM and LGC to create a single,
global, public and private markets asset manager.
Operating profit from fee-related earnings £133m (HY 2023: £138m)
Operating profit from fee-related earnings has decreased due to increased
investment, as signalled at the Capital Markets event in June, as we modernise
our platform, and invest to drive growth. Revenues have increased by 6% to
£492m (H1 2023: £464m), reflecting a conscious shift towards higher margin
business, illustrated by Workplace DC and Wholesale, despite lower average
AUM.
Operating costs of £359m are 10% higher than H1 2023, driven by investment
for growth (c£23m of the £50-100m per annum run rate outlined at the Capital
Markets event). Underlying operating expenses are 3% higher than H1 2023 (i.e.
lower than UK wage inflation). We will continue to be disciplined in our
management of these underlying operating expenses.
Operating profit from Balance Sheet investments £81m (HY 2023: £111m)
Balance Sheet investments are comprised of asset origination platforms such as
Pemberton (a private credit manager) and NTR (a specialist renewable energy
asset manager); our Affordable Homes and Build to Rent platforms; and our
digital infrastructure platform, Kao, alongside Bruntwood SciTech, our
specialist property platform serving the UK's innovation economy.
Lower operating profit of £81m reflects a smaller uplift in the valuation of
Pemberton. Pemberton has continued to make significant progress in raising and
deploying capital. We expect future valuation uplifts to occur as the business
continues to successfully launch new funds and deploy capital.
Our investment portfolio grew by 27% to £1,082m in the 12 months to 30 June
2024.
Profit Before Tax and Investment Variances
Profit before tax was £159m, with investment and other variances of £(55)m,
driven primarily by the mark-to-market impact on the carrying value of our
balance sheet investments.
Supporting clients across key channels and markets
Total AUM (excluding JV and Associates) reduced by 3% year on year to
£1,122bn (H1 2023: £1,158bn), while average AUM was 4% lower.
External net flows of £(28.5)bn reflect UK DB clients adjusting their
portfolios in response to improved funding ratios, with many now positioning
for PRT. As the UK DB market matures, our expertise in preparing schemes to
achieve buy out or to "run on", means we are well placed to support clients,
with many likely to choose Legal & General as a PRT partner. Over the last
three years, 84% of UK PRT new business premiums have come from Asset
Management clients including the British Steel Pension Scheme and the Boots
Pension Scheme, which insured a combined £13.5bn of pension
liabilities.
Our Defined Contribution (DC) business continues to attract new assets with
AUM growth of 21% to £176bn (H1 2023: £146bn), and including external net
flows of £3.2bn and £4.8m of ANNR from our workplace business. Our ability
to offer investors an integrated blend of high-quality investment solutions,
pensions administration and Master Trust governance is a significant source of
competitive advantage.
Our UK Wholesale AUM has seen 12% growth over H1 2024 which now stands at
£61bn (H1 2023: £49bn). We achieved record gross sales of £13bn and
ranked 2(nd) across the industry 7 (#_ftn7) . In particular, our Active Fixed
Income strategies and Multi-Asset capabilities have seen strong AUM growth of
19% and 7% in the last year, respectively.
ANNR excluding UK DB is flat, reflecting lower value index rotation outflows,
and ETF and Fixed Income outflows in the US.
Investment performance has been strong across our range of matching, tracking
and active strategies. For our UK-managed Active Fixed Income strategies, 96%
of strategies out-performed over 1 year, and 77% over 3 years. US-managed
Active Fixed Income strategies also performed well with 58% of strategies
out-performing over both 1 and 3 years. Multi-Asset strategies outperformed by
45% over 1 year and 47% 3 years.
Growing our Private Markets Platform
We are expanding our Private Markets platform, targeting £85bn of private
markets AUM by 2028. As at 30 June 2024 we have £52bn in private markets AUM,
and £6bn more in committed capital. In the period we generated £4m of ANNR
from Private Markets.
On 1 July 2024 we announced the launch of the L&G Private Markets Access
Fund, giving UK DC investors new routes to access private markets. This fund
will utilise L&G's Private Markets Platform, offering potential investment
opportunities across clean energy, affordable homes, university spin-outs and
critical infrastructure and gives our 5.3 million DC members the opportunity
to access diversified private markets exposure.
We launched our Affordable Homes fund on 15 July 2024, which to date includes
commitment from local government pension funds, ACCESS and Greater Manchester
Pension Fund (GMPF). This launch is an exemplar of how we catalyse our own
balance sheet investments by offering our clients new investment opportunities
while addressing real-world challenges.
Milestones in Private Credit include the launch of a new Short-Term
Alternative Finance Fund on 3 April, as we continue to deliver wide-ranging
strategies across alternative debt. Pemberton, our private credit GP
investment, has become a leading multi-strategy alternative credit manager in
Europe and a top-25 global private debt manager, with total AUM of €21bn.
NTR AME, our renewable energy GP partnership, continues to grow, adding
renewable power to over 750,000 homes.
We continue to use our principal balance sheet capital to invest in
alternative assets that generate profits for our shareholders and positive
societal impact, while also providing a pipeline of investable assets to
support our fund strategies.
Our Private Markets platform is well positioned to match our strong
multi-sector investment propositions and continues to strengthen its
operational capabilities to support the growing global demand for our
products.
Expanding our global footprint
We continue to successfully diversify the business, growing international AUM
by 80% since 2018 to £465bn (41% of overall AUM).
In the US, we are a leading corporate pension manager with assets for several
of the largest asset owners in North America. Our Index Solutions business has
witnessed Index Plus AUM growing to c.$9bn since launch in May 2023. We are
bringing shorter duration products to market to meet demand as well as
expanding our private markets capabilities, through the creation of a real
estate equity platform.
In Europe, we have offices across six locations and have seen AUM growth of 8%
over the past year to £84.8bn driven by a 31% growth in Active Fixed Income
and our scaled Index Equity offerings. Over 20% of our AUM is managed in our
active strategies capabilities and smart beta ETF products with an average fee
rate of around 17bps.
In Asia, our AUM has grown by 12% over the past year. With offices in Tokyo,
Hong Kong and now Singapore, our AUM in Asia including Japan has reached
£147bn, and we now have clients across nine countries in the region. In
Japan, our AUM has more than doubled since 2019, and we are now Japan's 7(th)
largest asset manager 8 (#_ftn8) .
Creating a better future through Responsible Investing
Responsible investing is core to our approach and we continue to innovate. In
June we published our eighth Climate Impact Pledge, our flagship engagement
programme to achieve the goals of the Paris Agreement. We have assessed over
5,000 companies quantitatively and engaged with more than 2,800. As at 30 June
2024, we managed £381.2bn (H1 2023: £331.6bn) in responsible investment
strategies explicitly linked to ESG criteria for a broad range of clients.
Retail
FINANCIAL HIGHLIGHTS(1) £m H1 2024 H1 2023
Contractual service margin release 226 210
Risk adjustment release 39 49
Expected investment margin 65 71
Experience variances 10 (25)
Non-attributable expenses (76) (40)
Other 4 (13)
Operating profit 268 252
- US/UK Insurance(2) 105 108
- Retail Retirement(3) 163 144
Investment variance from longevity assumption change - -
Other investment variance (86) (29)
Profit before tax attributable to equity holders 182 223
Contractual service margin (CSM)(4) 4,644 4,491
Risk adjustment (RA)(4) 848 871
Total store of future profit 5,492 5,362
New business CSM(4) 191 168
New business RA 25 13
Total new business future profit 216 181
Protection new business annual premiums 224 199
Individual annuities single premium 1,174 575
Workplace DC net flows(5) (£bn) 3.2 3.0
Lifetime & Retirement Interest Only mortgage advances 140 163
Retail retirement annuity assets(6) (£bn) 17.5 16.7
Retail retirement shareholder assets(6) (£bn) 0.9 0.9
UK Retail protection gross premiums 760 752
UK Group protection gross premiums 349 295
US protection gross premiums 657 633
Total protection gross premiums 1,766 1,680
Protection New Business Value 106 85
Annuities New Business Value 70 34
Solvency II New Business Value 176 119
1. Comparatives restated to reflect the movement of
assets from LGC to Retail Annuities and Fintech investments into the Corporate
Investments unit. For further information please see Note 2.01.
2. UK Insurance includes Retail protection, Group
protection and Mortgage Services.
3. Retail Retirement includes Individual Annuities,
Lifetime Mortgages, Workplace Admin and returns from shareholder assets.
4. H1 2023 numbers restated to reflect adjustments in
relation to IFRS 17 made as part of the finalisation of the Group's 2023
Accounts.
5. This represents the Workplace DC administration
business. Profits on the fund management services we provide are included in
Asset Management operating profit.
6. In the UK, annuity assets across Institutional
Retirement and Retail are managed together. Estimated proportion of annuity
assets belonging to Retail. Excludes derivative assets.
Operating profit of £268m
In H1 2024, Retail operating profit has increased by 6% to £268m (H1 2023:
£252m). This is due to the growth in CSM release and positive claims
experience in the UK, partially offset by higher year-on-year non-attributable
expenses which are, however, in line with the H2 2023 run rate (£81m).
The Contractual Service Margin (CSM) release was £226m (H1 2023: £210m),
reflecting the release of previously stored insurance profits. Growth in the
CSM release was driven by profitable new business written and assumption
changes in the prior year. In H1 2024, 4.6% of the closing CSM pre-release
(£4.9bn) was released into profit (H1 2023: 4.5%, £4.7bn). Overall, the CSM
grew by 3% to £4.6bn (H1 2023: £4.5bn).
Profit before tax was £182m (H1 2023: £223m).
Solvency II New Business Value increased 48% to £176m (H1 2023: £119m) with
growth in Retail annuities, US and UK protection. We continue to operate with
a focus on disciplined pricing and on maintaining strong distribution
channels.
Succeeding in a competitive landscape in H1 2024
Workplace DC net flows were £3.2bn (H1 2023: £3.0bn), as a result of
continued client wins and increased member contributions. Workplace pension
platform members increased to 5.3 million in H1 2024.
Retail annuity sales were £1,174m (H1 2023: £575m), doubling volumes in a
buoyant market in which we also increased market share to 24.3% 9 (#_ftn9)
. Both Lifetime Annuity and Fixed Term Annuity sales performed well
throughout H1 as higher interest rates have made these products more
attractive to our customers.
Lifetime mortgage advances, including Retirement Interest Only mortgages, were
£140m (H1 2023: £163m) reflecting a decline in demand as a result of higher
interest rates. We continue to maintain pricing and underwriting discipline.
UK Retail protection gross premium income increased to £760m (H1 2023:
£752m), with new business annual premiums of £75m (H1 2023: £76m) in what
remained a highly competitive market. L&G is the leader in this market
with a share of 18.8% 10 (#_ftn10) , delivering a point-of-sale underwriting
decision for more than 80% of our customers.
UK Group protection gross premium income increased 18% to £349m (H1 2023:
£295m) as a result of good retention and new business annual premiums of
£68m (H1 2023: £53m). Our online "quote and apply" platform for smaller
schemes continues to perform well, processing c492 new clients over the year
(H1 2023: c261), and we continue to see growth in this part of the market.
Group Protection saw 1,359 income protection scheme members return to work
during H1.
US protection (LGIA) new business annual premiums increased 18% to $103m (H1
2023: $87m), with robust Solvency II new business margins of 12.1 % (H1 2023:
11.2%). Gross premiums increased 6% to $831m (H1 2023: $781m). Our digital
new business platform is making it easier for customers and their advisors to
apply and buy our term products, resulting in our strongest ever 6 month sales
volumes in H1 2024. This is driving up our market share: LGIA ranked number
one in the independent broker channel and third in the overall US term market
in Q1 2024. 11 (#_ftn11) We expect to drive further sales growth and to
reduce unit costs over the coming years. c98% of eligible new business is
now submitted through our digital new business platform.
Corporate Investments Unit
FINANCIAL HIGHLIGHTS £m H1 2024 H1 2023
Operating profit 71 80
Investment and other variances (187) (235)
Profit before tax attributable to equity holders (116) (155)
Asset portfolio (£bn)
CALA 1.1 1.1
Legacy Real Estate 0.5 0.5
Legacy Land 0.2 0.2
Fintech and Other 0.2 0.3
Total Corporate Investments Unit NAV 2.0 2.1
Total operating profit of £71m
Operating profit from our Corporate Investments Unit is down 11% at £71m
versus prior year earnings (H1 2023: £80m). This largely reflects the trading
performance of CALA (H1 2024: £42m) which was lower year-on-year but in line
with the second half run-rate (H2 2023 £39m), reflecting a combination of the
higher interest rate environment and some planning delays.
Profit before tax predominantly reflects the valuation write-down of Salary
Finance as we consider options to manage the business outcome in the best
interests of customers and shareholders.
Asset valuations
The valuation of Corporate Investments Unit assets in the Group balance sheet
reflects the accounting treatment of the underlying assets, being either on a
cost (primarily purchase price) or fair value basis. For CALA, the largest
asset in the Corporate Investments Unit, the majority of the value on the
group balance sheet is associated with land and work in progress and is
therefore valued on a cost rather than fair value basis. CALA's NAV at 30 June
2024 was £1.1bn.
All assets within the Corporate Investments Unit that are held at fair value
have been revalued as at 30 June 2024, and other assets have been assessed for
impairment. We conduct a thorough internal valuation process and engage
external third-party valuers to support all material valuations.
Borrowings
The Group's outstanding core borrowings totalled £4.3bn at 30 June 2024 (H1
2023: £4.3bn). There is also a further £1.9bn (H1 2023: £1.3bn) of
operational borrowings including £1.6bn (H1 2023: £1.1bn) of non-recourse
borrowings.
Group debt costs of £107m (H1 2023: £106m) reflect an average cost of debt
of 4.8% per annum (H1 2023: 4.7% per annum) on an average nominal value of
debt balances of £4.5bn (H1 2023: £4.5bn).
Cash
As at 30 June 2024, the Group held £2,326m of Treasury Assets and Other
Shareholder Cash (H1 2023: £2,275m).
Taxation
Equity holders' Effective Tax Rate (%) H1 2024 H1 2023
Equity holders' total Effective Tax Rate 30.4 6.0
Annualised rate of UK corporation tax 25.0 23.5
The effective tax rate reflects the varying rates of tax that we pay on our
businesses in different territories and the mixture of profits and losses
across those territories. HY 24 is the first period in which a rate of 15%
applies to our profits arising in Bermuda.
Solvency II
As at 30 June 2024, the Group had an estimated Solvency II surplus of £8.8bn
over its Solvency Capital Requirement, corresponding to a Solvency II coverage
ratio of 223%.
H1 2024 2023
Capital (£m)
Own Funds 16,012 16,556
Solvency Capital Requirement (SCR) (7,173) (7,389)
Solvency II surplus 8,839 9,167
SCR coverage ratio (%) 223 224
Solvency II Own Funds Solvency II SCR Solvency II Surplus
Analysis of movement from 1 January to 30 June 2024(1) (£m)
Operational surplus generation 899 (2) 897
New business strain 56 (222) (166)
Net surplus generation 955 (224) 731
Operating variances( ) 30
Mergers, acquisitions and disposals -
Market movements (14)
Subordinated debt -
Dividends paid (874)
Share buyback(2) (201)
Total surplus movement (after dividends paid in the period) (544) 216 (328)
1. Please see disclosure note 6.01 for further detail.
2. On 13 June 2024, Legal & General Group Plc
entered into an irrevocable agreement to acquire £200m of ordinary shares for
cancellation. Accordingly, SII surplus has reduced by £201m (inclusive of
stamp duty tax). This is aligned to IFRS as detailed in disclosure note 3.04.
Operational surplus generation is at £897m (H1 2023: £947m), after allowing
for amortisation of the opening Transitional Measures on Technical Provisions
(TMTP) and release of Risk Margin.
New business strain was £(166)m, primarily reflecting lower UK PRT volumes
written at capital strain levels in line with our long-term average. This
resulted in net surplus generation of £731m (H1 2023: £752m).
Operating variances include the impact of experience variances, changes to
assumptions and management actions.
Market movements of £(14)m reflect the impact of movements in interest rates,
credit spreads and property & equity markets.
The movements shown above incorporate the impact of recalculating the TMTP as
at 30 June 2024.
Sensitivity analysis(3)
Impact on net of tax Solvency II capital surplus Impact on net of tax Solvency II coverage ratio
H1 2024 H1 2024
£bn %
100bps increase in risk-free rates 0.1 13
100bps decrease in risk-free rates (0.2) (14)
Credit spreads widen by 100bps assuming an escalating addition to ratings 0.5 15
Credit spreads narrow by 100bps assuming an escalating deduction from ratings (0.6) (17)
Credit spreads widen by 100bps assuming a flat addition to ratings 0.5 16
Credit spreads of sub-investment grade assets widen by 100bps assuming a level (0.2) (7)
addition to ratings
Credit migration (0.5) (8)
25% fall in equity markets (0.4) (3)
15% fall in property markets (0.8) (8)
50bps increase in future inflation expectations (0.0) (2)
3. Please see disclosure 6.01 (v) for further details.
The above sensitivity analysis does not reflect all management actions which
could be taken to reduce the impacts. In practice, the group actively manages
its asset and liability positions to respond to market movements. Other than
in the interest rate and inflation stresses, we have not allowed for the
recalculation of TMTP. Allowance is made for the recalculation of the Loss
Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity
remains available post stress.
The impacts of these stresses are not linear therefore these results should
not be used to interpolate or extrapolate the impact of a smaller or larger
stress. The results of these tests are indicative of the market conditions
prevailing at the balance sheet date. The results would be different if
performed at an alternative reporting date.
Solvency II new business contribution
Management estimates of the present value of new business (PVNBP) and the
margin as at 30 June 2024 are shown below(1):
£m PVNBP Contribution from Margin %
new business
Institutional Retirement - UK annuity business 1,126 69 6.1
Retail Retirement - UK annuity business 1,174 70 6.0
UK Protection 719 26 3.5
US Protection 656 80 12.1
The key economic assumptions as at 30 June 2024 are as follows:
%
Margin for risk 3.9
Risk-free rate
- UK 3.9
- US 4.4
Risk discount rate (net of tax)
- UK 7.8
- US 8.3
Long-term rate of return on non-profit annuities 5.5
1. Please see disclosure 6.02 for further details.
The future earnings are discounted using duration-based discount rates, which
is the sum of a duration-based risk-free rate and a flat margin for risk. The
risk-free rate shown above is a weighted average based on the projected cash
flows.
Economic and non-economic assumptions are set to best estimates of their
real-world outcomes, including a risk premium for asset returns where
appropriate. In particular:
· The assumed future pre-tax returns on fixed interest and RPI linked
securities are set by reference to yield on the relevant backing assets, net
of an allowance for default risk which takes into account the credit rating
and the outstanding term of the assets. The weighted average deduction for
business written in 2024 equates to a level rate deduction from the expected
returns of 16 basis points. The calculated return takes account of derivatives
and other credit instruments in the investment portfolio.
· Non-economic assumptions have been set at levels commensurate with
recent operating experience, including those for mortality, morbidity,
persistency and maintenance expenses (excluding development costs). An
allowance is made for future mortality improvement. For new business,
mortality assumptions may be modified to take certain scheme specific features
into account.
The profits on the new business are presented gross of tax.
Principal risks and uncertainties
The directors confirm that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity.
The principal risks are set out below including details of how they have been
managed or mitigated. Further details of the Group's inherent risk exposures
are set out at Notes 7 and 15 to 17 of the financial statements.
Risks and Uncertainties Risk management Outlook
Investment market performance and conditions in the broader economy may We cannot completely eliminate the downside impacts on our earnings, The global economic outlook remains uncertain with the potential for external
adversely impact earnings, profitability, liquidity, or surplus capital. profitability, liquidity, or surplus capital from investment market volatility shocks to knock economies and markets off course.
and adverse economic conditions, although we seek to position our investment
The performance and liquidity of financial and property markets, interest rate portfolios and wider business plans for a range of plausible economic Our businesses are primarily exposed to economic conditions in the UK and US.
movements and inflation impact the value of investments we hold in both scenarios and investment market conditions to ensure their resilience across a Interest rates have started to fall in the UK and look poised to fall soon in
shareholders' funds and to meet the obligations from insurance business; the range of outcomes. This includes setting risk limits on exposures to different the US, but the pace and timing of any further reductions is not clear and
movement in certain investments directly impacts profitability. Interest rate asset classes and where hedging instruments exist, we seek to limit our there is no guarantee of a "soft-landing" for either economy.
movements and inflation can also change the value of our obligations and exposures on a financial reporting basis. We maintain a range of actions to
although we seek to match assets and liabilities, losses can still arise. retain liquidity flexibility. Asset values, including commercial and residential property prices, remain
Falls in the risk-free yield curve can also create a greater degree of
susceptible to reappraisal should the current economic outlook deteriorate, as
inherent volatility to be managed in the solvency balance sheet, potentially Our Own Risk Solvency Assessment ("ORSA") process is integral to our risk well as from a range of geo-political factors including the on-going war in
impacting capital requirements and surplus capital. Rises in risk free rates management approach, and includes an assessment of the financial impacts of Ukraine and conflict in the Middle East. During 2024 we have seen signs of
can lead to reduced liquidity buffers. Falls in investment values can reduce risks associated with investment market volatility and adverse economic commercial property markets stabilising, albeit transaction volumes remain low
our investment management fee income. scenarios for our solvency balance sheet, capital sufficiency, and liquidity and the office sector continues to show pressure. Within our construction
requirements. businesses supply chain pressure and cost inflation appear to be moderating,
albeit we remain vigilant over cost inflation being absorbed by the supply
chain for projects undertaken since 2021. Labour shortages also continue to
present risk.
In dealing with issuers of debt and other types of counterparty, the group is We manage our exposure to downgrade and default risks within our bond The risk of credit default increases in periods of low economic growth, and we
exposed to the risk of financial loss. portfolios, through setting selection criteria and exposure limits, and using continue to closely monitor the factors that may lead to a widening of credit
LGIM's global credit team's capabilities to ensure risks are effectively spreads including the outlook for the real economy and fiscal and monetary
Systemic corporate sector failures, or a major sovereign debt event, could, in controlled, where appropriate trading out to improve credit quality. In our policy.
extreme scenarios, trigger defaults impacting the value of our bond property lending businesses, our loan criteria take account of borrower
portfolios. Under Solvency II, a widespread widening of credit spreads and creditworthiness and the potential for movements in the value of security. Although real incomes in the UK have risen in 2023 and 2024, any reversal of
downgrades can also result in a reduction in our balance sheet surplus,
this would particularly impact economic activity in sectors reliant on
despite already having set aside significant capital for credit risk. We manage our reinsurer exposures tightly, with the vast majority of our discretionary spending.
reinsurers having a minimum A- rating, setting rating-based exposure limits,
We are also exposed to default risks in dealing with banking, money market and and where appropriate taking collateral. Similarly, we seek to limit aggregate We remain vigilant, closely monitoring all the names/assets in our portfolio
reinsurance counterparties, as well as settlement, custody, and other bespoke exposure to banking, money market and service providers. Whilst we manage in the short term, as well as forming views on the medium to long-term
business services. Default risk also arises where we undertake property risks to our balance sheet, we can never eliminate downgrade or default risks, outlook. Our credit portfolio remains overwhelmingly (98%+) investment grade,
lending, with exposure to loss if an accrued debt exceeds the value of although we seek to hold a strong balance sheet that we believe to be prudent and our office property lending continues to focus on high-grade assets let to
security taken. for a range of adverse scenarios. investment grade or government tenants.
We fail to respond to the emerging threats from climate change for our We recognise that our scale brings a responsibility to act decisively in Over the next decade, the change necessary to meet global carbon reduction
investment portfolios and wider businesses. positioning our balance sheet in the context of the threats from climate targets will require societal adjustments on an unprecedented scale.
change. We continue to embed the assessment of climate risks in our investment
As a significant investor in financial markets, commercial real estate and process, including in the management of real assets. We measure the carbon Recent events, particularly the increasing frequency of record-breaking heat
housing, we are exposed to climate related transition risks. Abrupt shifts in intensity of our investment portfolios. Along with specific investment and extreme weather, have demonstrated the impacts of increased climate
the political and technological landscape could impact the value of those exclusions for carbon intensive sectors, we have set overall reduction targets volatility can be significant and may emerge rapidly.
investment assets associated with higher levels of greenhouse gas emissions. aligned with the 1.5°C Paris objective. This includes near term science-based
targets to support our long-term emission reduction goals in line with our A failure by governments to ensure an orderly transition to low carbon
Physical risks, stemming from extreme climate outcomes, could impact the transition plan. economies increases the risk for sudden late policy action and large,
valuation of at-risk assets, for example floods could impact the value of our
unanticipated shifts in the asset values of impacted industries. Whilst our
property assets; and could also potentially have longer-term effects on We continue to develop how we incorporate the potential physical impacts of transition plans seek to minimise our overall exposure to this risk, their
mortality rates. climate change on both assets and liabilities into our modelling and execution is dependent on the delivery of the policy actions and the climate
projections work. reduction targets of the firms we invest in. The actions governments take will
We are also exposed to reputation and climate related litigation risks should
also, to a significant extent, impact on our ability to deliver upon the
our responses to the threats from climate change be judged not to align with We are evolving our approach to the inclusion of nature and biodiversity climate-related targets we have set ourselves, and as the science of climate
the expectations of environment, social and governance (ESG) groups. Our risk alongside our climate risk work. change evolves, we may need to adapt our actions. Anti ESG sentiment,
management approach is also reliant upon the availability of verifiable
particularly within countries with a high dependency on fossil fuel related
consistent and comparable emissions data. Alongside managing exposures, we closely monitor the political and regulatory industries, may also constrain global ambition in addressing climate change as
landscape, and as part of our climate strategy we engage with regulators and well as limiting investment opportunities.
investee companies in support of climate action. As we change how we invest,
the products and services we offer, and how we operate, we are also mindful of Although a broad set of actions to limit global warming are underway, we are
the need to ensure that we have the right skills for the future. moving to a situation where the path to achieving a sub-1.5 temperature
increase is becoming narrower. Whilst we retain our current ambition, this
could also have an impact on our ability to meet the climate-related targets
we have set ourselves.
As the science of climate change and the world's responses to these risks
evolve, we may need to adapt our actions. Understanding the range of current
and potential future policies and progression, as well as their implications
for the financial system will continue to shape our transitional approach.
We expect a continuing and increased focus on nature and biodiversity risks
going forward.
Changes in experience, regulation or legislation may require revisions to our We undertake significant analysis of the variables associated with writing At times, we have seen elevated levels of mortality in both the UK and the US
reserves and capital requirements, and could also impact our reported solvency long-term insurance business to ensure that a suitable premium is charged for since the Covid 19 pandemic, and there is continued uncertainty in the
position and our dividend and capital return policy. the risks we take on, and that provisions continue to remain appropriate for outlook. The causes are unclear but may reflect indirect impacts of Covid 19
factors including mortality, lapse rates, expenses, valuation interest rates related illness, and the deferral of diagnostics and medical treatments for
The pricing of long-term business requires the setting of assumptions for and credit defaults in the assets backing our insurance liabilities. other conditions. Cost of living pressures and government spending decisions
long-term trends in factors such as mortality, lapse rates, expenses, interest
also have the potential to affect mortality outcomes.
rates and credit defaults. Actual experience may require recalibration of We seek to have a comprehensive understanding of longevity, mortality, and
these assumptions, changing the level of provisions and impacting reported morbidity risks, and we continue to evaluate wider trends in life expectancy. Along with the emergence of new diseases and changes in immunology impacting
profitability. However, we cannot remove the risk that adjustment to reserves may be mortality and morbidity assumptions, other risk factors that may impact future
required, although the selective use of reinsurance acts to reduce the impact reserving requirements include significant advances in medical science leading
Regulation defines the overall framework for the design, marketing, taxation to us of significant variations in life expectancy and mortality. to more effective treatments, beyond that anticipated, requiring adjustment to
and distribution of our products, and the prudential provisions and capital
our longevity assumptions.
that we hold. Significant changes in legislation or regulation may increase We actively engage with government and regulatory bodies to assist in the
our cost base, reduce our future revenues, impact profitability or require us evaluation of regulatory and tax change to promote outcomes that meet the Whilst at present we do not believe climate change to be material driver for
to hold more capital. needs of all stakeholders. To influence policy our interactions with mortality and longevity risk in the medium term, we continue to keep this
government and policy teams at regulators include face-to-face and virtual under review.
The prominence of the risk increases where change is implemented without prior meetings, written responses to discussion papers and consultations, ad-hoc
engagement with the sector. The nature of long-term business can also result communications and attendance at roundtables with industry peers. With our Changes in capital standards, both in the UK and elsewhere, could impact our
in some changes in regulation, and the re-interpretation of regulation over experience in various sectors, we can explain how proposed policy translates reported solvency position and our dividend and capital return policy.
time, having a retrospective effect on in-force books of business, impacting into practice and identify potential issues or unintended consequences that
future cash generation. might arise. Post-Brexit, the UK is reforming its capital regime to move from Solvency II
to Solvency UK. The key changes are designed to enable annuity product
Changes in these areas can affect our reported solvency position and our When such regulatory changes move to the implementation stage, we undertake providers to invest more broadly to diversify risk and support investment in
dividend and capital return policy. detailed gap analysis work and depending on the scale of the work required, the UK economy. A 65% reduction in the Risk Margin took effect at the end of
establish project management arrangements with first- and second-line teams 2023, with reform of the Matching Adjustment now published and underway. The
working together. This is to ensure we deliver regulatory change effectively PRA has also published a policy statement on the use of Funded Re, which is of
and efficiently, minimising disruption to our operations. relevance to us. We are actively engaging with the PRA on all these subjects,
and working to implement the required changes.
The Bermuda Monetary Authority ("BMA") revised its capital regime for life
insurers during 2023, with changes effective from March 2024. The impact of
the changes on L&G's business is expected to be modest.
The International Association of Insurance Supervisors ("IAIS") is finalising
the Insurance Capital Standards ("ICS"), a global minimum standard capital for
Internationally Active Insurance Groups ("IAIGs"). The ICS is expected to be
adopted by the end of 2024. L&G Group, designated an IAIG by the PRA, has
actively participated in consultations on the standard. If Solvency UK is
considered as strong as the ICS, it may be used for ICS compliance and
therefore would result in little impact on L&G Group. We will continue to
engage with both the PRA and the IAIS during this period.
New UK rules implementing both a global minimum tax regime and a UK domestic
minimum tax regime at 15% apply from 1 January 2024 to all of the Group's
businesses globally with work underway to ensure compliance and to engage with
regulators as implementation and guidance on the new regimes develops.
Bermuda has introduced a corporate income tax regime from 1 January 2025 and
there is ongoing consultation on the implementation of the new regime.
Failure to effectively implement regulatory or legislative change applying to We identify, track and review the impact of regulatory and legislative change The volume and burden of regulatory change remains high across the sectors we
the financial services sector in a timely manner could lead to regulatory through our internal control processes, with material updates being considered operate in. We analyse, interpret and implement all relevant financial
censure, reputational damage, and deteriorating customer outcomes. at the Executive and Group Risk Committees and the Group Board. Our processes services legislation and regulation impacting our business units ensuring
are designed to ensure compliance with all new and developing regulation. appropriate levels of governance and assurance.
We are exposed to several risks where effective identification and
implementation of regulatory changes are particularly important. These include We actively engage with appropriate regulatory bodies to ensure we maintain Key forthcoming developments in our risk areas include:
changes relating to our management of operational risk, conduct risk, climate high standards of business and deliver for our customers.
risk and health & safety risk. The magnitude or scope of some regulatory
Operational risk: Work is underway to comply with the UK's new operational
changes can have a bearing on our ability to deliver our overall strategy. In 2023 we successfully implemented the Consumer Duty for open products, and resilience rules by 31 March 2025 and similar rules in other jurisdictions.
our work on legacy products is also now complete. We have also made progress
Regulatory or legislative changes can have a significant impact on our on our implementation of the UK's Operational Resilience rules which are due Conduct risk: The FCA continues to focus on Consumer Duty, with closed book
business. Such changes could limit our ability to operate in certain markets to come into force in March 2025. products in scope from 31 July 2024. Discussions are ongoing about the
or sectors, potentially leading to a reduction in our customer base and
advice/guidance boundary and a proposal for 'targeted support' to close the
revenue. We seek to influence the direction of travel on various regulatory policy advice gap. In 2024, new rules on diversity and inclusion in financial
themes at the government and regulator level for the benefit of our customers services were expected, but most of this work has now been paused and timing
There is a risk that regulatory policies could develop in a manner that is and other stakeholders. We have advocated for the development of the Consumer is uncertain We maintain a focus on minimising the risks of financial crime
detrimental to our business and/or customers. Alternatively, it could develop Duty, pension and pension tax reforms, reform to planning in the UK, policies for our customers and on our financial results.
in a way that presents opportunities, but we fail to revise our strategy and on sustainability and those relating to diversity and inclusion.
adapt quickly enough to benefit.
Climate risk: There are a variety of moving pieces in the development of
climate regulation at the UK, the US and EU level. We anticipate more focus on
Non-compliance with new regulations or legislation could potentially damage
scenario testing and scrutiny on sustainability claims following the FCA's new
our reputation. This could lead to a loss of customer trust and result in anti-greenwashing rule and Sustainability Disclosure Regulations effective
regulatory sanctions including potentially significant monetary penalties.
from 31 May 2024. We're awaiting the UK Green Taxonomy and implementation of
ISSB disclosure standards.
Health & Safety: We have enhanced our governance processes and developed a
3-year strategy focusing on culture, quality, consistency, technology, and
keeping pace with change. Initial registration requirements for the new
Buildings Safety Act were met and we are working to ensure we meet the Act's
requirements.
Strategic risk: We are engaging closely with the new UK Government on issues
relating to pensions reform, planning reform and tax policy.
New entrants and/or new technology may disrupt the markets in which we We continuously monitor the factors that may impact the markets in which we We observe a continued acceleration of a number of trends, including greater
operate. operate, including evolving domestic and internal capital standards, and are consumer engagement in digital business models and on-line servicing tools. In
maintaining our focus on digital platforms. the current operating environment, businesses like ours have transformed
There is already strong competition in our markets, and although we have had
working practices, and we anticipate further investment in automation, using
considerable past success at building scale to offer low-cost products, we We have responded to the rapid advancement and accessibility of generative AI robotics and machine learning to enhance business efficiency. We are deepening
recognise that markets remain attractive to new entrants. capabilities from third parties by launching a central AI Accelerator our understanding of the impacts of AI on our businesses and in the wider
programme. This initiative brings together colleagues across the Group to sector.
We are also cognisant of competitors who may have lower return on capital shape and incubate our generative AI approaches, raise awareness and educate
requirements or be unconstrained by Solvency II and/or Solvency UK. our business, and deliver a secure environment for internal test and learn use Our businesses are also well positioned for changes in the competitive
cases. landscape that may arise from pensions-related changes. We welcome innovation
The continued evolution of AI has the potential to be a significant disrupting
in the market, such as the proposed roll out of DB 'superfund' consolidation
force across our businesses, for example by enabling new entrants to compete Our regulatory developments team keeps a close watch on the AI landscape schemes, as long as the security of members' benefits is prioritised. We may
with potentially lower costs, and more efficient processes. The technology across all our regulators. We have been e actively engaged in numerous see alternative de-risking offerings coming to the market targeting a similar
itself could have an impact on asset valuations, and on our liabilities consultations in relation to AI and generative AI. segment to superfunds, for instance with funding of around 90%.
including through its impact on life sciences and health care systems
effectiveness. The pension dashboards initiative will also be a positive development. A new
regulated activity was legislated for in 2024 to operate a qualifying pensions
dashboard service. The FCA recently consulted on the regulatory framework
and the final rules are expected to be published in Q4 2024. We recently
announced our intention to provide this service and intend to apply to the FCA
for a Variation of Permission as soon as we are able to.
On the 'collective' defined contribution reform, while we have seen limited
demand for this to date, it may hold the potential to disrupt both the
workplace and retirement income market.
A material failure in our business processes or IT security may result in Our risk governance model seeks to ensure that business management are We continue to remain alert to evolving operational risks and invest in our
unanticipated financial loss or reputational damage. actively engaged in maintaining an appropriate control environment, supported system capabilities, including those for the management of cyber risks, to
by risk functions led by the Group Chief Risk Officer, with independent ensure that our important business processes are resilient. We also remain
We have constructed our framework of internal control to minimise the risk of assurance from Group Internal Audit. cognisant of the risks as we implement a new global operating model and IT
unanticipated financial loss or damage to our reputation. However, no system
platform for Asset Management and have structured the migration in phases to
of internal control can completely eliminate the risk of error, financial We continue to evolve our risk management approach for change, IT, security, minimise change risks.
loss, fraudulent actions, or reputational damage. We are also inherently operational resilience and data access and privacy.
exposed to cyber threats including the risks of data theft and fraud and more
generally it is imperative that we maintain the privacy of our customers' Whilst we seek to maintain a control environment commensurate with our risk
personal data. There is also strong stakeholder expectation that our core profile, we recognise that residual risk will always remain across the
business services are resilient to operational disruption. spectrum of our business operations and we aim to develop response plans so
that when adverse events occur, appropriate actions are deployed.
The successful delivery of our strategy is dependent on the ability to attract We seek to ensure that key personnel dependencies do not arise, through Competition for talent remains strong with skills in areas such as technology
and retain highly qualified professional people. employee training and development programmes, remuneration strategies and and digital particularly sought after across many business sectors, including
succession planning. those in which we operate. We also recognise the risks posed by the outlook
The Group aims to recruit, develop and retain high quality individuals. We are
for inflation in salary expectations across the wider employment market, and
inherently exposed to the risk that key personnel or teams of expertise may Our processes include the active identification and development of talent internally we have taken steps to help our employees through direct financial
leave the Group, with an adverse effect on the Group's businesses. As we within our workforce, and by highlighting our values and social purpose, support and by providing advice and resources to help them manage their
increasingly focus on the digitalisation of our businesses, we are also promoting Legal & General as a great place to work. As well as investing financial well-being.
competing for technology and digital skill sets with other business sectors as in our people, we are also transforming how we engage and develop
well as our peers. capabilities, with new technologies and tools to support globalisation,
increase productivity and provide an exceptional employee experience.
Notes
A copy of this announcement can be found in "Results, Reports and
Presentations", under the "Investors" section of our shareholder website at
https://group.legalandgeneral.com/en/investors/results-reports-and-presentations
(https://group.legalandgeneral.com/en/investors/results-reports-and-presentations)
.
A presentation to analysts and investors will take place at 10:00am UK time
today at One Coleman Street, London, EC2R 5AA. There will also be a live
webcast of the presentation that can be accessed at
https://group.legalandgeneral.com/en/investors
(https://group.legalandgeneral.com/en/investors) .
A replay of the presentation will be made available on this website by 8
August 2024.
Financial Calendar Date
2024 interim results announcement 7 August 2024
Ex-dividend date (2024 interim dividend) 22 August 2024
Record date 23 August 2024
Dividend payment date 27 September 2024
Definitions
Definitions are included in the Glossary on pages 87 to 92 of this release.
Forward-looking statements
This release may contain 'forward-looking statements' with respect to the
financial condition, performance and position, strategy, results of operations
and businesses of the company and the Group that are based on management's
current expectations or beliefs, as well as assumptions and projections about
future events. These forward- looking statements can be identified by the fact
that they do not relate only to historical or current facts. Forward-looking
statements often use words such as 'aim', 'ambition', 'may', 'could', 'will',
'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek',
'continue', 'milestones', 'outlook', 'target', 'objectives' or other words of
similar meaning. By their very nature, forward-looking statements are subject
to known and unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and the Group's plans and objectives,
to differ materially from those expressed or implied in the forward-looking
statements. Recipients should not place undue reliance on, and are cautioned
about relying on, any forward-looking statements.
There are several factors which could cause actual results to differ
materially from those expressed or implied in forward-looking statements. The
factors that could cause actual results to differ materially from those
described in the forward-looking statements include (but are not limited to):
changes in global, political, economic, business, competitive and market
forces or conditions; future exchange and interest rates; changes in
environmental, social or physical risks; legislative, regulatory and policy
developments; risks arising out of health crises and pandemics; changes in tax
rates, future business combinations or dispositions; and other factors
specific to the Group. Any forward-looking statement contained in this
document is based on past or current trends and/or activities of the Group and
should not be taken as a guarantee, warranty or representation that such
trends or activities will continue in the future. No statement in this
document is intended to be a profit forecast or to imply that the earnings of
the Group for the current year or future years will necessarily match or
exceed the historical or published earnings of the Group. Each forward-looking
statement speaks only as of the date of the particular statement. Except as
required by any applicable laws or regulations, the Group expressly disclaims
any obligation to revise or update any forward- looking statement contained
within this document, regardless of whether those statements are affected as a
result of new information, future events or otherwise.
The information, statements and opinions contained in this release do not
constitute an offer to sell or buy or the solicitation of an offer to sell or
buy any securities or financial instruments nor do they constitute any advice
or recommendation with respect to such securities or other financial
instruments or any other matter.
Caution about climate information
This release contains climate and ESG disclosures which use a large number of
judgments, assumptions and estimates in connection with involved complex
issues. The ESG disclosures should be treated with special caution, as ESG and
climate data, models and methodologies are often relatively new, are rapidly
evolving and are not of the same standard as those available in the context of
other financial information, nor are they subject to the same or equivalent
disclosure standards, historical reference points, benchmarks, market
consensus or globally accepted accounting principals. These judgments,
assumptions and estimates are likely to change over time, in particular given
the uncertainty around the evolution and impact of climate change. In
addition, the Group's climate risk analysis and net zero strategy remain under
development and the data underlying the analysis and strategy remain subject
to evolution. As a result, certain climate and ESG disclosures made in this
release are likely to be amended, updated, recalculated or restated in future
announcements, releases and/or reports. This statement should be read together
with the Cautionary statement contained in the Group's 2023 Climate and nature
report.
Going concern statement
A going concern statement is included on disclosure note 4.012 on page 42 of
this release.
Directors' responsibility statement
We confirm to the best of our knowledge that:
· The Group consolidated financial statements have been prepared in
accordance with the UK-adopted IAS 34 Interim Financial Reporting.
· The interim management report includes a fair review of
information required by DTR 4.2.7R, namely an indication of important events
that have occurred during the first six months of the financial year and their
impact on the consolidated interim financial statements, as well as a
description of the principal risks and uncertainties faced by the company and
undertakings included in the consolidation taken as a whole for the remaining
six months of the financial year;
· The interim management report includes, as required by DTR
4.2.8R, a fair review of related party transactions that:
o have taken place in the first six months of the financial year and that
have materially affected the financial position or the performance of the
company during that period; and
o any changes in the related party transactions described in the last Annual
Report and Accounts that could have a material effect on the financial
position or performance of the company in the first six months of the current
financial year; and
· A list of current directors of Legal & General Group Plc is
maintained on the Legal & General Group Plc website:
https://group.legalandgeneral.com/en/about-us/our-management/group-board
(https://group.legalandgeneral.com/en/about-us/our-management/group-board)
By order of the Board
António Pedro dos Santos Simões Stuart Jeffrey Davies
Group Chief Executive Officer Group Chief Financial Officer
6 August 2024 6 August 2024
Enquiries
Investors
Edward Houghton, Group Strategy & Investor Relations Director
investor.relations@group.landg.com (mailto:investor.relations@group.landg.com)
+44 203 124 2091
Gregory Franck, Investor Relations Director
investor.relations@group.landg.com (mailto:investor.relations@group.landg.com)
+44 203 124 4415
Media
Natalie Whitty, Group Corporate Affairs Director
Natalie.whitty@group.landg.com (mailto:Natalie.whitty@group.landg.com)
+44 738 443 5692
Lauren Kemp, Group Head of Corporate Media & Issues
Lauren.Kemp@lgim.com (mailto:Lauren.Kemp@lgim.com)
+44 794 651 4627
Lucy Legh / Nigel Prideaux, Headland Consultancy
LandG@headlandconsultancy.com (mailto:LandG@headlandconsultancy.com)
+44 20 3805 4822
1 (#_ftnref1) 10 year gilts
2 (#_ftnref2) See glossary for more information.
3 (#_ftnref3) Annualised Net New Revenue, for definition see glossary on
page 87
4 (#_ftnref4) Includes £25bn Pemberton fee-earning AUM at 100% (not
pro-rated by 40% ownership stake)
5 (#_ftnref5) See press release Legal & General agrees £900 million
buy-in with the ICI Pension Fund | Legal & General (legalandgeneral.com)
(https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-agrees-900-million-buy-in-with-the-ici-pension-fund)
6 (#_ftnref6) See press release Legal & General completes £1.1 billion
buy-in with the SCA UK Pension Plan (legalandgeneral.com)
(https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-completes-1-1-billion-buy-in-with-the-sca-uk-pension-plan)
7 (#_ftnref7) Pridham Q1 2024
8 (#_ftnref8) Ranked seventh by AUM, Japanese industry publication (Pension
News) March 2024
9 (#_ftnref9) ABI Q1 2024 Report - Lifetime Annuities only.
10 (#_ftnref10) ABI Q1 2024 Report.
11 (#_ftnref11) LIMRA Q1 2024 Ranking.
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