REG - Legal & General Grp - L&G Half Year Results 2024 Part 2
07/08/2024 07:00
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RNS Number : 4440Z Legal & General Group Plc 07 August 2024
L&G Half Year Results 2024 Part 2
Independent review report to Legal & General Group Plc
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 2024 which comprises the Consolidated
Income Statement, Consolidated Statement of Comprehensive Income, Consolidated
Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated
Statement of Cash Flows and the related explanatory notes.
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 2024 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.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for 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 Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company 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 half-yearly financial report of the Company is
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 Company'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 Company 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.
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.
Philip Smart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
6 August 2024
IFRS Disclosures on performance
2.01 Restatement
At a Capital Markets Event on 12 June 2024, the Group set out a refreshed
strategy and set of financial targets. As part of a new vision for a growing,
simpler and better-connected business, the Group has implemented a revised
business model, including the:
· creation of a single Asset Management division, bringing Legal
& General Investment Management (LGIM) and Legal & General Capital
(LGC) together as a unified, global, public and private markets asset manager;
and
· maximisation of the value of non-strategic assets through a new
Corporate Investments Unit.
As a result, the Group is now focused on three core business divisions, namely
Institutional Retirement, Asset Management and Retail, with a shared sense of
purpose and powerful synergies.
The new divisional organisation has an impact on the reportable segments of
the Group. Previously, the Group operated five reportable segments, comprising
Legal & General Retirement Institutional (LGRI), LGC, LGIM, Insurance and
Retail Retirement. Following the announcement, in line with the principles in
IFRS 8, 'Operating Segments', the Group operating and reportable segments have
been updated to the following:
· Institutional Retirement, which continues to focus on worldwide
pension risk transfer business opportunities;
· Asset Management, the new combined investment management business
of the Group, committed to driving growth in public markets as well as
materially scale the Group's in-house and origination platform capability in
private markets across Real Estate, Private Credit and Infrastructure,
including through an accelerated programme of fund launches;
· Insurance, which primarily represents UK protection (both group
and retail) and US retail protection business (US Insurance);
· Retail Retirement, which primarily represents retail annuity and
drawdown products, workplace savings and lifetime mortgage loans; and
· Corporate Investments, which represents a portfolio of
non-strategic assets managed separately with the goal of maximising
shareholder value ahead of potential divestment.
Group expenses, debt costs and assets held centrally are reported separately.
Transactions between segments are on normal commercial terms and are included
within the reported segments.
Segmental disclosures in relation to the comparative periods presented have
been restated to reflect the new divisional organisation.
Further to the impact of the changes noted above, during the finalisation of
the numbers included in the Group's 2023 Annual Report and Accounts following
the implementation of IFRS 17, certain immaterial adjustments have been
identified, which have now been reflected in the comparatives for the period
ended 30 June 2023. In total, the impact of these adjustments on equity
attributable to owners of the parent was a decrease of £45m as at 1 January
2023 and an increase of £17m as at 30 June 2023. The impact on profit for the
period to 30 June 2023 attributable to equity holders was an increase of
£61m.
2.02 Operating profit(#)
Restated Restated
6 months 6 months Full year
2024 2023 2023
For the six month period to 30 June 2024 Notes £m £m £m
Institutional Retirement 2.03 560 530 1,028
Asset Management 2.04 214 249 448
Retail 2.03 268 252 449
- Insurance 105 108 139
- Retail Retirement 163 144 310
Group debt costs(1) (107) (106) (212)
Group investment projects and expenses (86) (81) (182)
Core operating profit 849 844 1,531
Corporate Investments 71 80 136
Total operating profit 920 924 1,667
Investment and other variances 2.05 (601) (525) (1,577)
Losses attributable to non-controlling interests (3) (6) (14)
Adjusted profit before tax attributable to equity holders 316 393 76
Tax (expense)/credit attributable to equity holders 4.04 (96) (22) 367
Profit for the period 3.01 220 371 443
Total tax expense/(credit) 3.01 270 136 (248)
Profit before tax 3.01 490 507 195
Profit attributable to equity holders 223 377 457
Earnings per share:
Core (pence per share)(2) 2.07 10.58 10.52 19.04
Basic (pence per share)(2) 2.07 3.58 6.19 7.35
Diluted (pence per share)(2) 2.07 3.55 6.01 7.28
1. Group debt costs exclude interest on non-recourse financing.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary adjusted operating profit information (one of the Group's
key performance indicators) provides additional analysis of the results
reported under IFRS, and the Group believes that it provides stakeholders with
useful information to enhance their understanding of the performance of the
business in the period. Core operating profit measures the operating
performance of the Group's core business and is therefore calculated as the
Group's adjusted operating profit excluding the operating profit of the
Corporate Investments Unit.
Adjusted 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. Adjusted operating profit
for insurance contracts primarily reflects the release of profit from the
contractual service margin and risk adjustment in the period (adjusted for
reinsurance mismatches), the unwind of the discount rate used in the
calculation of the insurance liabilities and incurred expenses that are not
directly attributable to the insurance contracts.
To remove investment volatility, adjusted operating profit reflects long-term
expected investment returns on the substantial majority of investments held by
the Group, including both traded and private market investments. For the
remainder of the asset portfolio, including certain operational businesses in
the Asset Management division and CALA Homes, no adjustments are made to
exclude investment volatility. The investment margin for insurance business
therefore reflects the expected investment return above the unwind of the
insurance liability discount rate.
Following the recent refresh of the Group's strategy and the segmentation
changes described in Note 2.01, the Group has updated the application of its
methodology for the determination of adjusted operating profit for assets
allocated to the Asset Management and Corporate Investments segments, in order
to simplify and harmonise the methodology within the segments. This has not
had a material impact on the comparative adjusted operating profit of each
segment, and therefore has not led to a restatement.
The long-term expected investment return reflects the best estimate of the
long-term return at the start of the year, as follows:
· Expected returns for traded equity, commercial property and
residential property (including lifetime mortgages) are based on market
consensus forecasts and long-term historic average returns expected to apply
through the cycle;
· Assumptions for fixed interest securities measured at FVTPL are
based on asset yields for the assets held, less an adjustment for credit risk
(assessed on a best estimate basis). Where securities are measured at
amortised cost or FVOCI, the expected investment return comprises interest
income on an effective interest rate basis; and
· Equity direct investments incorporate investments in housing,
specialist commercial real estate, clean energy, alternative finance and
fintech. Where used for the determination of adjusted operating profit, the
long-term expected investment return is on average between 10% and 12%. Rates
of return specific to each asset are determined at the point of underwriting
and reviewed and updated annually. The expected investment return includes
current financial assumptions as well as sector specific assumptions,
including retail and commercial property yields and power prices where
appropriate.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
alternative performance measures (APM) section.
2.02 Operating profit(#) (continued)
The long-term expectations used in determining the expected investment returns
for traded equity and property assets are:
6 months 6 months Full year
2024 2023 2023
Equity returns 7% 7% 7%
Commercial property growth 5% 5% 5%
Residential property growth 3.5% 3.5% 3.5%
Variances between actual and long-term expected investment returns are
excluded from adjusted operating profit, as are economic assumption changes to
insurance contract liabilities caused by movements 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. Assets held for future new pension risk
transfer business are excluded from the asset portfolio used to determine the
discount rate for annuities on insurance contract liabilities. The impact of
investment management actions that optimise the yield of the assets backing
the back book of annuity contracts is included within adjusted operating
profit.
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
excluded from adjusted operating profit.
2.03 Analysis of Institutional Retirement and Retail operating profit(#)
Restated Restated
Institutional Institutional Restated Institutional Restated
Retirement Retail Retirement Retail Retirement Retail
6 months 6 months 6 months 6 months Full year Full year
2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m
Amortisation of the CSM in the period(1) 316 226 267 210 591 446
Release of risk adjustment in the period 64 39 54 49 119 74
Experience variances (20) 18 (18) (17) (14) (17)
Development of losses on onerous contracts - (8) - (8) 1 (27)
Other expenses(2) (86) (76) (68) (40) (160) (121)
Insurance investment margin(3) 283 65 292 71 486 122
Investment contracts and non-insurance operating profit 3 4 3 (13) 5 (28)
Total Institutional Retirement and Retail operating profit 560 268 530 252 1,028 449
1. Contractual service margin (CSM) amortisation for Retail has been
reduced by £8m (H1 23: £8m; FY 23: £16m) to exclude the impact of
reinsurance mismatches.
2. Other expenses are non-attributable expenses on both new and existing
business. These are overhead costs which are not allowed for in the CSM or the
best estimate liability unit cost assumptions, and instead are reported within
the Consolidated Income Statement as part of the profit or loss for the
period.
3. Insurance investment margin comprises the expected investment return
on assets backing insurance contract liabilities, the unwind of the discount
rate on insurance contract liabilities and the optimisation of the assets
backing the annuity back book. The insurance investment margin also
incorporates the impact of the change in segmentation (see Note 2.01).
2.04 Asset Management operating profit(#)
Restated Restated
6 months 6 months Full year
2024 2023 2023
£m £m £m
Management fee revenue (excluding third-party market data)(1) 481 455 926
Transactional revenue(2) 11 9 26
Expenses (excluding third-party market data)(1) (359) (326) (684)
Operating profit from fee related earnings 133 138 268
Operating profit from balance sheet investments(3) 81 111 180
Total Asset Management operating profit 214 249 448
1. Asset Management revenue and expenses exclude income and costs of
£16m in relation to the provision of third-party market data (H1 23: £13m;
FY 23: £26m).
2. Transactional revenue from external clients includes execution fees,
asset transition income, trigger fees, arrangement fees on property
transactions and performance fees.
3. Earnings from balance sheet investments across specialist commercial
real estate, clean energy, housing and alternative finance.
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
alternative performance measures (APM) section.
2.05 Investment and other variances
Restated Restated
6 months 6 months Full year
2024 2023 2023
£m £m £m
Institutional Retirement and Retail
- Net impact of investment returns less than expectation and change in (322) (182) (720)
liability discount rates
- Other (27) (30) (6)
Total Institutional Retirement and Retail investment variance (349) (212) (726)
Asset Management investment variance (55) (40) (123)
Other investment variance(1) (197) (95) (529)
Investment variance (601) (347) (1,378)
M&A related and other variances - (178) (199)
Total investment and other variances (601) (525) (1,577)
1. Other investment variance in H1 24 includes a £110m valuation
write-down of Salary Finance. In FY 23, it includes the £167m one-off
settlement cost associated with the buy-out of the Group's UK defined benefit
pension schemes along with the current service costs and net interest expense
up until that transaction.
Investment variance includes differences between actual and long-term expected
investment return on traded and non-traded assets, the impact of 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 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. Note 2.02 includes details around the
determination of the long-term expected investment return in the calculation
of adjusted operating profit.
For the Group's long-term insurance businesses, reinsurance mismatches can
arise where the reinsurance offset rules in IFRS 17 do not reflect
management's view of the net of reinsurance transaction. In particular, during
a year of reinsurance renegotiation, reinsurance gains cannot be recognised to
offset any inception losses on the underlying contracts where they are
recognised before the new reinsurance agreement is signed. In these
circumstances, the onerous contract losses are reduced to reflect the net loss
(if any) after reinsurance, and future contractual service margin (CSM)
amortisation is reduced over the duration of the contracts.
Changes in non-financial assumptions, including longevity, recalibrate the CSM
at locked-in, point-of-sale discount rates, whilst the fulfilment cash flows
change at the current discount rate. This creates a component of investment
variance reflecting the difference between these bases. Investment variance
for Institutional Retirement and Retail includes £nil (H1 23: £nil; FY 23:
£318m expense) arising from interest rate differences on longevity assumption
changes in the period.
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. The costs incurred in 2023 were primarily
in relation to the announced intent to cease production within the Modular
Homes business and impairment of the Group's investment in Onto.
2.06 Risk adjustment (RA) and Contractual service margin (CSM) analysis
Net of Net of
reinsurance Net of reinsurance Net of
RA reinsurance CSM reinsurance
Institutional RA Institutional CSM
Retirement Retail Retirement Retail
£m £m £m £m
As at 1 January 2024 807 891 8,350 4,644
CSM recognised for services provided/received - - (316) (234)
Release of risk adjustment (64) (39) - -
Changes in estimates which adjust the CSM (24) 2 19 (34)
Changes in estimates that result in losses or reversal of losses on underlying - (1) - -
onerous contracts
Contracts initially recognised in the period (48) 25 135 191
Finance (income)/expenses from insurance contracts (22) (34) 134 70
Effect of movements in exchange rates 1 4 (1) 7
As at 30 June 2024 650 848 8,321 4,644
Net of Net of
reinsurance Net of reinsurance Net of
RA reinsurance CSM reinsurance
Institutional RA Institutional CSM
Retirement Retail Retirement Retail
£m £m £m £m
As at 1 January 2023 (Restated) 649 883 7,448 4,490
CSM recognised for services provided/received - - (267) (218)
Release of risk adjustment (54) (49) - -
Changes in estimates which adjust the CSM 12 12 (67) 42
Contracts initially recognised in the period 24 13 307 168
Finance expenses from insurance contracts 12 40 102 62
Effect of movements in exchange rates (4) (28) (12) (53)
As at 30 June 2023 (Restated) 639 871 7,511 4,491
Net of Net of
reinsurance Net of reinsurance Net of
RA reinsurance CSM reinsurance
Institutional RA Institutional CSM
Retirement Retail Retirement Retail
£m £m £m £m
As at 1 January 2023 649 883 7,448 4,490
CSM recognised for services provided/received - - (591) (462)
Release of risk adjustment (119) (74) - -
Changes in estimates which adjust the CSM 6 (26) 424 204
Changes in estimates that result in losses or reversal of losses on underlying - (1) - 8
onerous contracts
Contracts initially recognised in the year 161 32 865 320
Finance expenses from insurance contracts 114 105 220 134
Effect of movements in exchange rates (4) (28) (16) (50)
As at 31 December 2023 807 891 8,350 4,644
The amounts presented reflect the net CSM amortisation expected to be
recognised in operating profit in future periods from the business in-force at
the end of the period, excluding the adjustment for reinsurance mismatches
relating to protection business (described in Note 2.03). Actual CSM
amortisation in future periods will differ from that presented due to the
impacts of future new business, recalibrations of the CSM and changes in the
future coverage units. The total amount presented exceeds the carrying value
of the CSM as it incorporates the future accretion of interest. The periods
start from 1 January 2024 and so the first year comprises six months of actual
CSM recognised and six months of CSM to be recognised.
2.07 Earnings per share
(i) Basic earnings per share
Restated Restated Restated Restated
Total Per share(1) Total Per share(1) Total Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2024 2024 2023 2023 2023 2023
£m p £m p £m p
Profit for the period attributable to equity holders 223 3.77 377 6.38 457 7.73
Less: coupon payable in respect of restricted Tier 1 convertible notes after (11) (0.19) (11) (0.19) (22) (0.38)
tax relief
Total basic earnings 212 3.58 366 6.19 435 7.35
Less: Corporate Investments operating profit after tax (60) (1.01) (59) (1.00) (104) (1.76)
Less: Investment variance after allocated tax 474 8.01 315 5.33 795 13.45
Total core earnings(2) 626 10.58 622 10.52 1,126 19.04
1. Basic earnings per share is calculated by dividing profit after tax
by the weighted average number of ordinary shares in issue during the year,
excluding employee scheme treasury shares.
2. Total core earnings includes allocated tax at the standard UK
corporate tax rate.
(ii) Diluted earnings per share
After tax Weighted Per share(1)
average
number of
shares
For the six month period to 30 June 2024 £m m p
Profit for the period attributable to equity holders 223 5,918 3.77
Net shares under options allocable for no further consideration - 57 (0.03)
Conversion of restricted Tier 1 notes - 307 (0.19)
Total diluted earnings 223 6,282 3.55
Restated Weighted Restated
After tax average Per share(1)
number of
shares
For the six month period to 30 June 2023 £m m p
Profit for the period attributable to equity holders 377 5,913 6.38
Net shares under options allocable for no further consideration - 53 (0.06)
Conversion of restricted Tier 1 notes - 307 (0.31)
Total diluted earnings 377 6,273 6.01
Restated Weighted Restated
After tax average Per share(1)
number of
shares
For the year ended 31 December 2023 £m m p
Profit for the period attributable to equity holders 457 5,915 7.73
Net shares under options allocable for no further consideration - 59 (0.08)
Conversion of restricted Tier 1 notes - 307 (0.37)
Total diluted earnings 457 6,281 7.28
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.
2.08 Segmental analysis
Following the announcement of a refreshed strategy on 12 June 2024, the
divisional organisation of the Group has been restructured. Accordingly,
reportable segments have been updated and are now the following:
· Institutional Retirement, which represents worldwide pension risk
transfer business including longevity insurance;
· Asset Management, which represents investment management business
in public and private markets, and the Group's in-house and origination
platforms across Real Estate, Private Credit and Infrastructure;
· Insurance, which primarily represents UK protection (both group
and retail) and US retail protection business (US Insurance);
· Retail Retirement, which primarily represents retail annuity and
drawdown products, workplace savings and lifetime mortgage loans; and
· Corporate Investments, which represents a portfolio of
non-strategic assets, most materially CALA Homes, managed separately with the
goal of maximising shareholder value ahead of potential divestment.
Group expenses, debt costs and assets held centrally are reported separately.
Transactions between segments are on normal commercial terms and are included
within the reported segments.
In the UK, annuity liabilities relating to Institutional Retirement 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 reportable segment has not been
included, as this is not information that is provided to key decision makers
on a regular basis. The Group's asset and liabilities are managed on a legal
entity rather than a segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where
relevant in order to better explain the drivers of the Group's results.
(i) Profit/(loss) for the period
Group
expenses
Institutional Asset Retail Corporate and debt
Retirement Management Insurance Retirement Investments costs Total
For the six month period to 30 June 2024 £m £m £m £m £m £m £m
Operating profit/(loss)(#) 560 214 105 163 71 (193) 920
Investment and other variances (263) (55) (14) (72) (187) (10) (601)
Losses attributable to non-controlling interests - - - - - (3) (3)
Profit/(loss) before tax attributable to equity holders 297 159 91 91 (116) (206) 316
Tax (expense)/credit attributable to equity holders (61) (41) (20) (19) (5) 50 (96)
Profit/(loss) for the period 236 118 71 72 (121) (156) 220
Group
expenses
Institutional Asset Retail Corporate and debt
Retirement Management Insurance Retirement Investments costs Total
For the six month period to 30 June 2023 (Restated) £m £m £m £m £m £m £m
Operating profit/(loss)(#) 530 249 108 144 80 (187) 924
Investment and other variances (183) (40) 9 (38) (235) (38) (525)
Losses attributable to non-controlling interests - - - - - (6) (6)
Profit/(loss) before tax attributable to equity holders 347 209 117 106 (155) (231) 393
Tax (expense)/credit attributable to equity holders (35) (18) (27) (8) 14 52 (22)
Profit/(loss) for the period 312 191 90 98 (141) (179) 371
Group
expenses
Institutional Asset Retail Corporate and debt
Retirement Management Insurance Retirement Investments costs Total
For the year ended 31 December 2023 (Restated) £m £m £m £m £m £m £m
Operating profit/(loss)(#) 1,028 448 139 310 136 (394) 1,667
Investment and other variances (555) (123) (22) (149) (363) (365) (1,577)
Losses attributable to non-controlling interests - - - - - (14) (14)
Profit/(loss) before tax attributable to equity holders 473 325 117 161 (227) (773) 76
Tax credit/(expense) attributable to equity holders 236 (30) (44) 61 17 127 367
Profit/(loss) for the year 709 295 73 222 (210) (646) 443
# All references to 'Operating profit' throughout this report represent
'Adjusted operating profit', an alternative performance measure defined in the
alternative performance measures (APM) section.
2.08 Segmental analysis (continued)
(ii) Revenue
(a) Total revenue - summary
Total revenue includes insurance revenue, fees from fund management and
investment contracts and other operational income from contracts with
customers. Further details on the components of insurance revenue are
disclosed in Note 4.12. Other operational income from contracts with customers
is a component of other operational income and excludes the share of
profit/loss from associates and joint ventures, as well as gains/losses on
disposal of subsidiaries, associates, joint ventures and other operations.
The tables below split the revenue by the geographic location of the client.
United Kingdom USA Rest of World Total
For the six month period to 30 June 2024 £m £m £m £m
Insurance revenue 4,111 1,017 54 5,182
Fees from fund management and investment contracts 342 45 41 428
Other operational income from contracts with customers 644 1 - 645
Total revenue 5,097 1,063 95 6,255
United Kingdom USA Rest of World Total
For the six month period to 30 June 2023 (Restated) £m £m £m £m
Insurance revenue 3,652 930 47 4,629
Fees from fund management and investment contracts 323 42 44 409
Other operational income from contracts with customers 782 - - 782
Total revenue 4,757 972 91 5,820
United Kingdom USA Rest of World Total
For the year ended 31 December 2023 £m £m £m £m
Insurance revenue 7,679 1,830 115 9,624
Fees from fund management and investment contracts 652 80 93 825
Other operational income from contracts with customers 1,661 1 - 1,662
Total revenue 9,992 1,911 208 12,111
(b) Total revenue - internal/external analysis
Institutional Asset Retail
Retirement Management(1) Insurance Retirement Other(2) Total
For the six month period to 30 June 2024 £m £m £m £m £m £m
Internal revenue - 108 - - (108) -
External revenue 2,857 402 1,672 781 543 6,255
Total revenue 2,857 510 1,672 781 435 6,255
Institutional Asset Retail
Retirement Management(1) Insurance Retirement Other(2) Total
For the six month period to 30 June 2023 (Restated) £m £m £m £m £m £m
Internal revenue - 99 - - (99) -
External revenue 2,450 374 1,584 704 708 5,820
Total revenue 2,450 473 1,584 704 609 5,820
Institutional Asset Retail
Retirement Management(1) Insurance Retirement Other(2) Total
For the year ended 31 December 2023 (Restated) £m £m £m £m £m £m
Internal revenue - 202 - - (202) -
External revenue 5,257 930 3,115 1,468 1,341 12,111
Total revenue 5,257 1,132 3,115 1,468 1,139 12,111
1. Asset Management internal income relates to investment management
services provided to other segments.
2. Other includes Corporate Investments, inter-segmental eliminations
and Group consolidation adjustments.
2.08 Segmental analysis (continued)
(ii) Revenue (continued)
(c) Fees from fund management and investment contracts
Asset Retail
Management Retirement Other(1) Total
For the six month period to 30 June 2024 £m £m £m £m
Investment contracts and management fees 466 59 (107) 418
Transaction fees 10 - - 10
Total fees from fund management and investment contracts 476 59 (107) 428
Asset Retail
Management Retirement Other(1) Total
For the six month period to 30 June 2023 (Restated) £m £m £m £m
Investment contracts and management fees 448 51 (99) 400
Transaction fees 9 - - 9
Total fees from fund management and investment contracts 457 51 (99) 409
Asset Retail
Management Retirement Other(1) Total
For the year ended 31 December 2023 (Restated) £m £m £m £m
Investment contracts and management fees 895 104 (199) 800
Transaction fees 25 - - 25
Total fees from fund management and investment contracts 920 104 (199) 825
1. Other includes Corporate Investments, inter-segmental eliminations
and Group consolidation adjustments.
(d) Other operational income from contracts with customers
Institutional Asset Retail
Retirement Management Insurance Retirement Other(3) Total
For the six month period to 30 June 2024 £m £m £m £m £m £m
House building 6 34 - 2 532 574
Professional services fees - - 25 3 10 38
Insurance broker - - 33 - - 33
Total other operational income from contracts with customers(1,2) 6 34 58 5 542 645
Institutional Asset Retail
Retirement Management Insurance Retirement Other(3) Total
For the six month period to 30 June 2023 (Restated) £m £m £m £m £m £m
House building - 3 - - 699 702
Professional services fees - 13 27 4 9 53
Insurance broker - - 27 - - 27
Total other operational income from contracts with customers(1,2) - 16 54 4 708 782
Institutional Asset Retail
Retirement Management Insurance Retirement Other(3) Total
For the year ended 31 December 2023 (Restated) £m £m £m £m £m £m
House building 2 208 - - 1,321 1,531
Professional services fees - 4 46 7 17 74
Insurance broker - - 57 - - 57
Total other operational income from contracts with customers(1,2) 2 212 103 7 1,338 1,662
1. Total other operational income from contracts with customers excludes
the share of profit/loss from associates and joint ventures, and the gain on
disposal of subsidiaries, associates and joint ventures.
2. £8m of other operational income from contracts with customers is
presented within management fee revenue of Note 2.04 Asset Management
operating profit (H1 23: £5m; FY 23: £17m).
3. Other includes Corporate Investments, inter-segmental eliminations
and Group consolidation adjustments.
IFRS Primary Financial Statements
3.01 Consolidated Income Statement (unaudited)
Restated(1)
6 months 6 months Full year
2024 2023 2023
For the six month period to 30 June 2024 Notes £m £m £m
Insurance revenue 4.12 5,182 4,629 9,624
Insurance service expenses 4.12 (4,461) (3,997) (8,373)
Insurance service result before reinsurance contracts held 721 632 1,251
Net expense from reinsurance contracts held 4.12 (119) (52) (137)
Insurance service result 4.12 602 580 1,114
Investment return 12,982 8,288 32,973
Finance income/(expense) from insurance contracts issued 1,246 518 (5,830)
Finance (expense)/income from reinsurance contracts (108) 67 584
Change in investment contract liabilities (13,693) (8,208) (27,116)
Insurance and investment result 1,029 1,245 1,725
Other operational income 616 758 1,571
Fees from fund management and investment contracts 2.08 428 409 825
Acquisition costs (87) (55) (149)
Other finance costs (188) (173) (347)
Other expenses (1,308) (1,677) (3,430)
Total other income and expenses (539) (738) (1,530)
Profit before tax 490 507 195
Tax expense attributable to policyholder returns (174) (114) (119)
Profit before tax attributable to equity holders 316 393 76
Total tax (expense)/credit (270) (136) 248
Tax expense attributable to policyholder returns 174 114 119
Tax (expense)/credit attributable to equity holders 4.04 (96) (22) 367
Profit for the period 220 371 443
Attributable to:
Non-controlling interests (3) (6) (14)
Equity holders 223 377 457
Dividend distributions to equity holders during the period 4.02 874 831 1,172
Dividend distributions to equity holders proposed after the period end 4.02 357 340 871
p p p
Total basic earnings per share(2) 2.07 3.58 6.19 7.35
Total diluted earnings per share(2) 2.07 3.55 6.01 7.28
1. As noted in Note 2.01, during the finalisation of the numbers
included in the Group's 2023 Annual Report and Accounts, certain immaterial
adjustments have been identified, which have now been reflected in the
comparatives for the period ended 30 June 2023. These corrections have been
applied consistently to all affected disclosure notes in this report.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
3.02 Consolidated Statement of Comprehensive Income (unaudited)
Restated(1)
6 months 6 months Full year
2024 2023 2023
For the six month period to 30 June 2024 £m £m £m
Profit for the period 220 371 443
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes - (2) (29)
Tax on actuarial remeasurements on defined benefit pension schemes - - 8
Total items that will not be reclassified subsequently to profit or loss - (2) (21)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations (5) (6) (6)
Movement in cross-currency hedge 3 24 (37)
Tax on movement in cross-currency hedge (1) (6) 9
Movement in financial investments measured at FVOCI (118) 13 75
Tax on movement in financial investments measured at FVOCI 29 (2) (18)
Insurance finance income/(expense) for insurance contracts issued applying the 284 95 (73)
OCI option
Reinsurance finance (expense)/income for reinsurance contracts issued applying (152) (104) 43
the OCI option
Tax on movement in finance income/(expense) for insurance and reinsurance (35) 2 6
contracts
Total items that may be reclassified subsequently to profit or loss 5 16 (1)
Other comprehensive income/(expense) after tax 5 14 (22)
Total comprehensive income for the period 225 385 421
Total comprehensive income/(expense) for the period attributable to:
Non-controlling interests (3) (6) (14)
Equity holders 228 391 435
1. As noted in Note 2.01, during the finalisation of the numbers
included in the Group's 2023 Annual Report and Accounts, certain immaterial
adjustments have been identified, which have now been reflected in the
comparatives for the period ended 30 June 2023. These corrections have been
applied consistently to all affected disclosure notes in this report.
3.03 Consolidated Balance Sheet (unaudited)
Restated(1)
As at As at As at
30 Jun 2024 30 Jun 2023 31 Dec 2023
Notes £m £m £m
Assets
Goodwill 73 71 73
Other intangible assets 466 454 477
Investment in associates and joint ventures accounted for using the equity 641 553 616
method
Property, plant and equipment 427 362 433
Investment property 4.03 9,264 9,227 8,893
Financial investments 4.03 476,280 454,967 471,405
Reinsurance contract assets 4.12 8,184 5,426 7,306
Deferred tax assets 4.04 1,720 1,341 1,714
Current tax assets 822 895 885
Receivables and other assets 12,836 11,928 9,780
Cash and cash equivalents 15,806 14,537 20,513
Total assets 526,519 499,761 522,095
Equity
Share capital 4.05 149 149 149
Share premium 4.05 1,034 1,027 1,030
Employee scheme treasury shares (142) (143) (147)
Capital redemption and other reserves 325 346 326
Retained earnings 2,097 3,231 2,973
Attributable to owners of the parent 3,463 4,610 4,331
Restricted Tier 1 convertible notes 4.06 495 495 495
Non-controlling interests (44) (35) (42)
Total equity 3,914 5,070 4,784
Liabilities
Insurance contract liabilities 4.12 89,500 78,352 91,446
Reinsurance contract liabilities 4.12 142 137 220
Investment contract liabilities 323,140 299,135 316,872
Core borrowings 4.07 4,288 4,278 4,280
Operational borrowings 4.08 1,854 1,272 1,840
Provisions 4.14 232 1,626 258
Deferred tax liabilities 4.04 176 160 107
Current tax liabilities 110 68 77
Payables and other financial liabilities 4.10 80,464 91,056 78,439
Other liabilities 587 705 680
Net asset value attributable to unit holders 22,112 17,902 23,092
Total liabilities 522,605 494,691 517,311
Total equity and liabilities 526,519 499,761 522,095
1. As noted in Note 2.01, during the finalisation of the numbers
included in the Group's 2023 Annual Report and Accounts, certain immaterial
adjustments have been identified, which have now been reflected in the
comparatives for the period ended 30 June 2023. These corrections have been
applied consistently to all affected disclosure notes in this report.
3.04 Consolidated Statement of Changes in Equity (unaudited)
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 2024 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 2024 149 1,030 (147) 326 2,973 4,331 495 (42) 4,784
Profit/(loss) for the period - - - - 223 223 - (3) 220
Exchange differences on translation of overseas operations - - - (5) - (5) - - (5)
Net movement in cross-currency hedge - - - 2 - 2 - - 2
Net actuarial remeasurements on defined benefit pension schemes - - - - - - - - -
Net movement in financial investments measured at FVOCI - - - (89) - (89) - - (89)
Net insurance finance income - - - 97 - 97 - - 97
Total comprehensive income for the period - - - 5 223 228 - (3) 225
Options exercised under share option schemes - 4 - - - 4 - - 4
Shares purchased - - (7) - - (7) - - (7)
Shares vested - - 12 (32) - (20) - - (20)
Employee scheme treasury shares: - - - 26 - 26 - - 26
- Value of employee services
Share scheme transfers to retained earnings - - - - (13) (13) - - (13)
Share buyback(2) - - - - (201) (201) - - (201)
Dividends - - - - (874) (874) - - (874)
Coupon payable in respect of restricted Tier 1 convertible notes after tax - - - - (11) (11) - - (11)
relief
Movement in third party interests - - - - - - - 1 1
As at 30 June 2024 149 1,034 (142) 325 2,097 3,463 495 (44) 3,914
1. Capital redemption and other reserves as at 30 June 2024 include
share-based payments £83m, foreign exchange £36m, capital redemption £17m,
hedging £48m, insurance and reinsurance finance for contracts applying the
OCI option £273m and financial assets at FVOCI £(132)m.
2. On 13 June 2024, Legal & General Group Plc entered into an
irrevocable agreement to acquire £200m of ordinary shares for cancellation.
Accordingly, a liability of £201m (inclusive of stamp duty tax) has been
recorded in the balance sheet with a corresponding amount in equity. As at 30
June 2024, £21m of shares had been acquired under the programme (see Note
4.17 for further information).
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 2023 (Restated)(1) capital premium shares reserves(1,2) earnings(1) of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2023 149 1,018 (144) 337 3,707 5,067 495 (29) 5,533
Profit/(loss) for the period - - - - 377 377 - (6) 371
Exchange differences on translation of overseas operations - - - (6) - (6) - - (6)
Net movement in cross-currency hedge - - - 18 - 18 - - 18
Net actuarial remeasurements on defined benefit pension schemes - - - - (2) (2) - - (2)
Net movement in financial investments measured at FVOCI - - - 11 - 11 - - 11
Net insurance finance expense - - - (7) - (7) - - (7)
Total comprehensive income/(expense) for the period - - - 16 375 391 - (6) 385
Options exercised under share option schemes - 9 - - - 9 - - 9
Shares purchased - - (13) - - (13) - - (13)
Shares vested - - 14 (35) - (21) - - (21)
Employee scheme treasury shares: - - - 28 - 28 - - 28
- Value of employee services
Share scheme transfers to retained earnings - - - - (9) (9) - - (9)
Dividends - - - - (831) (831) - - (831)
Coupon payable in respect of restricted Tier 1 convertible notes after tax - - - - (11) (11) - - (11)
relief
Movement in third party interests - - - - - - - - -
As at 30 June 2023 149 1,027 (143) 346 3,231 4,610 495 (35) 5,070
1. As noted in Note 2.01, during the finalisation of the numbers
included in the Group's 2023 Annual Report and Accounts, certain immaterial
adjustments have been identified, which have now been reflected in the
comparatives for the period ended 30 June 2023. These corrections have been
applied consistently to all affected disclosure notes in this report.
2. Capital redemption and other reserves as at 30 June 2023 include
share-based payments £92m, foreign exchange £40m, capital redemption £17m,
hedging £92m, insurance and reinsurance finance for contracts applying the
OCI option £194m and financial assets at FVOCI £(89)m.
3.04 Consolidated Statement of Changes in Equity (unaudited) (continued)
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
capital premium shares reserves(1) earnings of the parent notes interests equity
For the year ended 31 December 2023 £m £m £m £m £m £m £m £m £m
As at 1 January 2023 149 1,018 (144) 337 3,707 5,067 495 (29) 5,533
Profit/(loss) for the year - - - - 457 457 - (14) 443
Exchange differences on translation of overseas operations - - - (6) - (6) - - (6)
Net movement in cross-currency hedge - - - (28) - (28) - - (28)
Net actuarial remeasurements on defined benefit pension schemes - - - - (21) (21) - - (21)
Net movement in financial investments measured at FVOCI - - - 57 - 57 - - 57
Net insurance finance expense - - - (24) - (24) - - (24)
Total comprehensive (expense)/income for the period - - - (1) 436 435 - (14) 421
Options exercised under share option schemes - 12 - - - 12 - - 12
Shares purchased - - (18) - - (18) - - (18)
Shares vested - - 15 (69) - (54) - - (54)
Employee scheme treasury shares: - - - 59 - 59 - - 59
- Value of employee services
Share scheme transfers to retained earnings - - - - 24 24 - - 24
Dividends - - - - (1,172) (1,172) - - (1,172)
Coupon payable in respect of restricted Tier 1 convertible notes after tax - - - - (22) (22) - - (22)
relief
Movement in third party interests - - - - - - - 1 1
As at 31 December 2023 149 1,030 (147) 326 2,973 4,331 495 (42) 4,784
1. Capital redemption and other reserves as at 31 December 2023 include
share-based payments £89m, foreign exchange £41m, capital redemption £17m,
hedging £46m, insurance and reinsurance finance for contracts applying the
OCI option £176m and financial assets at FVOCI £(43)m.
3.05 Consolidated Statement of Cash Flows (unaudited)
Restated(1)
6 months 6 months Full year
2024 2023 2023
For the six month period to 30 June 2024 Notes £m £m £m
Profit for the period 220 371 443
Adjustments for non-cash movements in net profit for the period
Net gains on financial investments and investment property (6,337) (2,125) (21,567)
Investment income (6,645) (6,163) (11,406)
Interest expense 188 173 347
Tax expense/(credit) 270 136 (248)
Other adjustments 51 116 112
Net (increase)/decrease in operational assets
Investments mandatorily measured at FVTPL 6,372 (7,732) (7,478)
Investments measured at FVOCI (115) 456 (1,344)
Investments measured at amortised cost (270) (233) (126)
Other assets (2,939) 1,333 3,218
Net (decrease)/increase in operational liabilities
Insurance contracts and reinsurance contracts held (2,813) (147) 11,153
Investment contracts 6,267 12,308 30,045
Other liabilities (3,366) (24,340) (26,682)
Cash utilised in operations (9,117) (25,847) (23,533)
Interest paid (198) (167) (469)
Interest received(2) 2,709 3,408 5,210
Rent received 229 224 437
Tax paid(3) (114) (184) (186)
Dividends received 2,823 2,338 4,297
Net cash flows from operations (3,668) (20,228) (14,244)
Cash flows from investing activities
Acquisition of property, plant and equipment, intangibles and other assets (29) (171) (237)
Acquisition of operations, net of cash acquired - - (9)
Investment in joint ventures and associates (66) (44) (184)
Disposal of joint ventures and associates - 8 8
Net cash flows utilised in investing activities (95) (207) (422)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the period 4.02 (874) (831) (1,172)
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 4 9 12
Treasury shares purchased for employee share schemes (7) (13) (18)
Purchase of shares under share buyback programme 4.05 (21) - -
Payment of lease liabilities (22) (32) (32)
Proceeds from borrowings 4.09 476 408 1,226
Repayment of borrowings 4.09 (489) (299) (544)
Net cash flows utilised in financing activities (947) (772) (556)
Net decrease in cash and cash equivalents (4,710) (21,207) (15,222)
Exchange gains/(losses) on cash and cash equivalents 3 (40) (49)
Cash and cash equivalents at 1 January 20,513 35,784 35,784
Total cash and cash equivalents at 30 June/31 December 15,806 14,537 20,513
1. As noted in Note 2.01, during the finalisation of the numbers
included in the Group's 2023 Annual Report and Accounts, certain immaterial
adjustments have been identified, which have now been reflected in the
comparatives for the period ended 30 June 2023. These corrections have been
applied consistently to all affected disclosure notes in this report.
2. Interest received comprises of net interest received from financial
instruments at fair value through profit or loss and other financial
instruments.
3. Tax paid comprises UK corporation tax received of £37m (H1 23:
payment of £38m; FY 23: £nil), withholding tax of £151m (H1 23: £143m; FY
23: £179m) and overseas corporate tax of £nil (H1 23: £3m; FY 23: £7m).
IFRS Disclosure Notes
4.01 Basis of preparation
The Group financial information for the six months ended 30 June 2024 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, a condensed set of
financial statements which comprises the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet,
Consolidated Statement of Changes in Equity, Consolidated Statement of Cash
Flows and the related explanatory notes, has also been prepared in line with
the accounting policies which the Group expects to adopt for the 2024 year
end. These policies are consistent with the principal accounting policies
which were set out in the Group's 2023 consolidated financial statements,
except where policy changes have been outlined below in "New standards,
interpretations and amendments to published standards that have been adopted
by the Group". Accounting policies are in line with UK-adopted international
accounting standards, as 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 Consolidated 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 represent an area of critical accounting judgement on
policy application. 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 2023 financial statements.
The results for the half year ended 30 June 2024 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 for the full
year 2023 have been taken from the Group's 2023 Annual Report and Accounts.
Therefore, these interim accounts should be read in conjunction with the 2023
Annual Report and Accounts, prepared in accordance with UK-adopted
international accounting standards, which comprise 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. Those accounts have been reported on by the company's auditor and
delivered to the Registrar of Companies. The report of the auditor was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
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 of these interim financial
statements.
Alternative performance measures
The Group uses a number of alternative performance measures (APMs), including
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 equity holders. 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 equity holder tax is corporation tax charged on
equity holder profit. The separate presentation is intended to provide more
relevant information about the tax that the Group pays on the profits that it
makes.
Climate change
At the current time, the Group does not consider climate risk to represent a
significant area of judgement or of estimation uncertainty. As at 30 June
2024, no material impacts on the Group's financial position, nor on the
valuation of assets or liabilities on the Group's Consolidated Balance Sheet
as a result of climate change risk have been identified. Further detail on how
the Group arrives at this determination is disclosed in the basis of
preparation of the Group's 2023 consolidated financial statements.
(i) Restatement
During the finalisation of the numbers included in the Group's 2023 Annual
Report and Accounts, certain immaterial adjustments have been identified,
which have now been reflected in the comparatives for the period ended 30 June
2023. In total, the impact of these adjustments on equity attributable to
owners of the parent as at 30 June 2023 was an increase of £17m.
(ii) Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position in the current economic
environment 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 2024 are described in the IFRS Primary Financial
Statements and IFRS Disclosure Notes. Principal risks and uncertainties are
detailed on pages 18 to 22.
The directors have made an assessment of the Group's going concern,
considering both the current performance and the 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 adverse inflation and interest rate 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
are disclosed in Note 6.01. 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.
4.01 Basis of preparation (continued)
(ii) Going concern (continued)
Having reassessed the principal risks and uncertainties (both financial and
operational) in light of the current economic environment, as detailed on
pages 18 to 22, the directors are confident that the Group and company will
have sufficient funds to continue to meet its liabilities as they fall due for
a period of, but not limited to, 12 months from the date of approval of the
financial statements and therefore have considered it appropriate to adopt the
going concern basis of accounting when preparing the financial statements.
(iii) 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 2024, which did not have a
material impact on its consolidated financial statements.
- Amendments to IAS 1 - Presentation of Financial Statements: 'Classification
of Liabilities as Current or Non-Current';
- Amendments to IAS 1 - Presentation of Financial Statements: 'Non-current
Liabilities with Covenants';
- Amendments to IFRS 16 - Leases: 'Lease Liability in a Sale and Leaseback';
and
- Amendments to IAS 7 - Statement of Cash Flows and IFRS 7 - Financial
Instruments: Disclosures: 'Supplier Finance Arrangements'.
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
2024 2024 2023 2023 2023 2023
£m p £m p £m p
Ordinary dividends paid and charged to equity in the period:
- Final 2022 dividend paid in June 2023 - - 831 13.93 831 13.93
- Interim 2023 dividend paid in September 2023 - - - - 341 5.71
- Final 2023 dividend paid in June 2024 874 14.63 - - - -
Total dividends(2) 874 14.63 831 13.93 1,172 19.64
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
2. All dividends proposed are based on the number of eligible equity
shares for that date.
Subsequent to 30 June 2024, the directors declared an interim dividend of 6.00
pence per ordinary share. This dividend will be paid on 27 September 2024. It
will be accounted for as an appropriation of retained earnings in the year
ended 31 December 2024 and is not included as a liability in the Consolidated
Balance Sheet as at 30 June 2024.
4.03 Financial investments and investment property
30 Jun 30 Jun 31 Dec
2024 2023 2023
£m £m £m
Equities(1) 196,735 177,368 185,982
Debt securities(2,3) 228,928 218,749 233,980
Derivative assets(4) 43,433 46,749 41,140
Loans(5) 7,184 12,101 10,303
Financial investments 476,280 454,967 471,405
Investment property 9,264 9,227 8,893
Total financial investments and investment property 485,544 464,194 480,298
1. Equities include investments in unit trusts of £19,708m (30 June
2023: £18,522m; 31 December 2023: £19,660m).
2. Debt securities include accrued interest of £1,842m (30 June 2023:
£1,691m; 31 December 2023: £1,852m) and include £8,291m (30 June 2023:
£7,545m; 31 December 2023: £8,032m) of assets valued at amortised cost.
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, particularly
the use of interest rate swaps, inflation swaps, currency swaps and foreign
exchange forward contracts for asset and liability management. Derivative
assets are shown gross of derivative liabilities of £47,896m (30 June 2023:
£49,939m; 31 December 2023: £43,821m).
5. Loans include £15m (30 June 2023: £5m; 31 December 2023: £13m) of
loans valued at amortised cost.
4.03 Financial investments and investment property (continued)
(i) 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 modelling
and multiple source validation in order to determine consensus prices, with
the exception of OTC Derivative holdings; OTCs are marked to market using an
in-house system (Lombard Oberon), external vendor (IHS Markit), internal model
or Counterparty Broker marks. In normal market conditions, we would consider
these market prices to be observable 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 2024 debt securities totaling net £3.9bn
transferred from Level 1 to Level 2 in the fair value hierarchy (30 June 2023:
net £3.7bn from Level 1 to Level 2; 31 December 2023: net £0.7bn from Level
2 to Level 1).
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2024 £m £m £m £m
Shareholder
Equity securities 3,077 1,128 88 1,861
Debt securities 71,287 29,096 21,676 20,515
Derivative assets 41,661 141 41,469 51
Loans at fair value 2,411 - 2,411 -
Investment property 5,815 - - 5,815
Total Shareholder 124,251 30,365 65,644 28,242
Unit linked
Equity securities 193,658 193,170 34 454
Debt securities 149,350 104,696 43,550 1,104
Derivative assets 1,772 47 1,725 -
Loans at fair value 4,758 - 4,758 -
Investment property 3,449 - - 3,449
Total Unit linked 352,987 297,913 50,067 5,007
Total financial investments and investment property at fair value 477,238 328,278 115,711 33,249
Debt securities at amortised cost(1) 7,240 - 43 7,197
Loans at amortised cost(1) 15 1 14 -
1. Debt securities and loans, with a fair value of £7,240m and £15m
respectively, are included in the Consolidated Balance Sheet at an amortised
cost total value of £8,306m.
4.03 Financial investments and investment property (continued)
(i) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2023 £m £m £m £m
Shareholder
Equity securities 3,077 1,171 13 1,893
Debt securities 65,818 22,701 25,882 17,235
Derivative assets 42,307 107 42,200 -
Loans at fair value 2,049 - 2,049 -
Investment property 5,762 - - 5,762
Total Shareholder 119,013 23,979 70,144 24,890
Unit linked
Equity securities 174,291 173,276 527 488
Debt securities 145,386 113,411 30,994 981
Derivative assets 4,442 136 4,306 -
Loans at fair value 10,047 - 10,047 -
Investment property 3,465 - - 3,465
Total Unit linked 337,631 286,823 45,874 4,934
Total financial investments and investment property at fair value 456,644 310,802 116,018 29,824
Debt securities at amortised cost(1) 6,300 - 42 6,258
Loans at amortised cost(1) 5 5 - -
1. Debt securities and loans, with a fair value of £6,300m and £5m
respectively, are included in the Consolidated Balance Sheet at an amortised
cost total value of £7,550m.
Total Level 1 Level 2 Level 3
For the year ended 31 December 2023 £m £m £m £m
Shareholder
Equity securities 3,166 1,069 144 1,953
Debt securities 73,298 26,003 27,860 19,435
Derivative assets 38,019 123 37,896 -
Loans at fair value 1,599 - 1,599 -
Investment property 5,503 - - 5,503
Total Shareholder 121,585 27,195 67,499 26,891
Unit linked
Equity securities 182,816 182,348 29 439
Debt securities 152,650 91,874 59,748 1,028
Derivative assets 3,121 148 2,973 -
Loans at fair value 8,691 - 8,691 -
Investment property 3,390 - - 3,390
Total Unit linked 350,668 274,370 71,441 4,857
Total financial investments and investment property at fair value 472,253 301,565 138,940 31,748
Debt securities at amortised cost(1) 7,184 - 45 7,139
Loans at amortised cost(1) 13 1 12 -
1. Debt securities and loans, with a fair value of £7,184m and £13m
respectively, are included in the Consolidated Balance Sheet at an amortised
cost total value of £8,045m.
4.03 Financial investments and investment property (continued)
(ii) Level 3 assets measured at fair value
Level 3 assets, where modelling techniques are used, are comprised of
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.
Other Other
Equity financial Investment Equity financial Investment
securities investments property Total securities investments property Total
2024 2024 2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m £m £m
As at 1 January 2,392 20,463 8,893 31,748 2,307 16,421 9,372 28,100
Total gains/(losses) for the period
- realised gains or (losses)(1) (3) 1 (27) (29) (19) (157) 2 (174)
- unrealised gains or (losses)(1) (160) (286) (79) (525) 3 (399) (510) (906)
Purchases/Additions 159 2,124 716 2,999 169 2,929 752 3,850
Sales/Disposals (80) (628) (245) (953) (78) (714) (425) (1,217)
Transfers into Level 3 - 118 - 118 6 241 - 247
Transfers out of Level 3 - (135) - (135) (3) - - (3)
Foreign exchange rate movements 7 13 6 26 (4) (105) 36 (73)
As at 30 June 2,315 21,670 9,264 33,249 2,381 18,216 9,227 29,824
Other
Equity financial Investment
securities investments property Total
2023 2023 2023 2023
£m £m £m £m
As at 1 January 2,307 16,421 9,372 28,100
Total gains/(losses) for the year
- realised gains or (losses)(1) 24 (432) 3 (405)
- unrealised gains or (losses)(1) (34) 357 (923) (600)
Purchases/Additions 278 6,009 1,264 7,551
Sales/Disposals (149) (2,018) (854) (3,021)
Transfers into Level 3 2 241 - 243
Transfers out of Level 3 (3) - - (3)
Foreign exchange rate movements (33) (115) 31 (117)
As at 31 December 2,392 20,463 8,893 31,748
1. Amounts presented in realised and unrealised gains/(losses) are
recognised in Investment return in the Consolidated Income Statement.
Equity securities
Level 3 equity securities amount to £2,315m (30 June 2023: £2,381m; 31
December 2023: £2,392m), the majority of which 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 on the
characteristics of individual assets. 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.
4.03 Financial investments and investment property (continued)
(ii) Level 3 assets measured at fair value (continued)
Other financial investments
Lifetime mortgage (LTM) loans and retirement interest only mortgages amount to
£5,761m (30 June 2023: £4,937m; 31 December 2023: £5,766m). 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 125 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. Lifetime 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 2024
reflects a combination of short-term and long-term property growth rate
assumptions equivalent to a flat rate of 3.2% 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
£11,362m (30 June 2023: £9,446m; 31 December 2023: £10,574m). Their
valuation is determined by discounted future cash flows which are based on the
yield curve of the Asset Management 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 as far back 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 7.6 years, with a weighted
average life of 11.0 years. Maturities in the portfolio currently extend out
to 2063. 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 £1,857m (30 June 2023:
£1,309m; 31 December 2023: £1,684m). 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 2024 reflects illiquidity premiums between 20 and
70bps.
Income strip assets amount to £1,336m (30 June 2023: £1,350m; 31 December
2023: £1,306m). Their primary valuation is provided by appropriately
qualified external valuers 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 2024 reflects equivalent yield ranges between 3% and 7% and estimated
rental values (ERV) between £16 and £310 per sq.ft.
Commercial mortgage loans amount to £809m (30 June 2023: £771m; 31 December
2023: £784m) and are determined by incorporating credit risk for performing
loans at the portfolio level and adjusted 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 2024
reflects illiquidity premiums between 20 and 40bps.
Other debt securities and derivative assets which are not traded in an active
market amount to £545m (30 June 2023: £403m; 31 December 2023: £349m). 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 £9,264m (30 June 2023: £9,227m; 31
December 2023: £8,893m) is valued with the involvement of external valuers.
All property valuations in the UK 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. Outside the UK, valuations are produced in conjunction with
external qualified professional valuers in the countries concerned. 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 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 2024 reflects equivalent yield ranges between 2% and 14% and ERV between
£5 and £310 per sq.ft.
The table below shows the valuation of investment property by sector:
30 Jun 30 Jun 31 Dec
2024 2023 2023
£m £m £m
Retail 1,141 1,257 1,169
Leisure 455 460 451
Distribution 1,057 1,071 1,076
Office space 2,762 3,117 2,768
Industrial and other commercial 1,765 1,815 1,714
Accommodation 2,084 1,507 1,715
Total 9,264 9,227 8,893
4.03 Financial investments and investment property (continued)
(iii) 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
to the fair value of Level 3 assets as at 30 June 2024. Further disclosure on
how these sensitivities have been applied can be found in the descriptions
following the table.
Sensitivities
Fair value 30 June 2024 Positive Negative
£m impact impact
£m £m
Lifetime mortgages 5,761 249 (299)
Private credit portfolios 14,028 547 (547)
Investment property 9,264 733 (723)
Other investments(1) 4,196 247 (308)
Total Level 3 assets 33,249 1,776 (1,877)
1. Other investments include equity securities, income strip assets,
derivative assets and other debt securities.
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 (ii) and sensitivities are applied to each assumption which are
used to derive the values in the above table. The most significant decrease in
value is an instantaneous 10% reduction in property valuations across the
portfolio which, applied in isolation produces a sensitised value of £(162)m.
The most significant increase in value is a 20bps reduction to the discount
rate which, applied in isolation produces a sensitised value of £141m.
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 £221m
and £(221)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 £561m and £(561)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.
4.04 Tax
(i) Tax expense/(credit) in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated
on profit before tax at the standard UK corporation tax rate as follows:
Restated
6 months 6 months Full year
2024 2023 2023
£m £m £m
Profit before tax attributable to equity holders 316 393 76
Tax calculated at 25% (2023: 23.5%)(1) 79 92 18
Adjusted for the effects of:
Recurring reconciling items:
Different rate of tax on overseas profits and losses(2) (19) (61) (68)
Income not subject to tax - (2) (4)
Non-deductible expenses 8 8 27
Differences between taxable and accounting investment gains 19 (9) (9)
Other taxes on property and foreign income 3 1 4
Unrecognised tax losses - 1 19
Double tax relief(3) - - (2)
Non-recurring reconciling items:
Adjustments in respect of prior years(4) 6 (6) (11)
Impact of the revaluation of deferred tax balances - (2) (1)
Impact of law changes on deferred tax balances(5) - - (340)
Tax expense/(credit) attributable to equity holders 96 22 (367)
Equity holders' effective tax rate 30% 6% (483)%
1. 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 has increased to 25% (H1 23: 23.5%; FY 23: 23.5%). The enacted tax rate
of 25% has been used in the calculation of UK deferred tax assets and
liabilities, as the rate of corporation tax that is expected to apply when the
majority of those deferred tax balances reverse.
2. Our Bermudan reinsurance businesses, which provide the Group with
regulatory capital flexibility for both our PRT business and our US term
insurance business, suffer tax locally at 0% rate. From 1 January 2024,
profits arising in Bermuda suffer a top-up tax of 15% on the UK parent.
3. Double tax relief represents a UK tax credit available for overseas
withholding tax suffered on dividend income.
4. Adjustments in respect of prior years relate to revisions of prior
estimates.
5. The tax credit relates to the introduction of a new corporate income
tax regime in Bermuda, which was enacted in December 2023.
In 2023 the UK Government enacted legislation to apply a global minimum tax
rate of 15% to multinational businesses headquartered in the UK as well as a
new domestic UK minimum tax rate of 15%, in line with the Model Rules agreed
by the Organisation for Economic Co-operation and Development (OECD). These
Pillar Two rules apply from 1 January 2024, and apply to all Group businesses
globally.
During 2023 the Bermudan Government consulted on introducing a local corporate
income tax with effect from 1 January 2025, which would apply to our Bermudan
reinsurance businesses. This was substantively enacted in 2023.
The Group is liable to UK Pillar Two top-up tax in 2024 in respect of profits
arising in our global reinsurance hub in Bermuda. This is estimated to give
rise to a current tax charge in the UK of £34m for H1 24. From 1 January
2025, we anticipate that the Group will be liable for local Bermudan corporate
income tax at 15%, instead of top-up tax under the global minimum tax rules,
on Bermudan profits. Further guidance on both the new UK and new Bermuda rules
is expected and will be kept under review for any further impact.
4.04 Tax (continued)
(ii) Deferred tax
Restated
30 Jun 2024 30 Jun 2023 31 Dec 2023
Deferred tax assets/(liabilities) £m £m £m
Overseas deferred acquisition expenses(1) 128 116 121
Difference between the tax and accounting value of insurance contracts 820 387 736
- UK 1,344 1,122 1,149
- Bermuda(2) 340 - 340
- US (864) (735) (753)
Realised and unrealised gains on investments (91) 128 72
Excess of depreciation over capital allowances 16 22 17
Accounting provisions and other 31 58 52
Trading losses 641 474 609
- UK 77 - 76
- US(3) 564 474 533
Other (1) (4) -
Net deferred tax asset 1,544 1,181 1,607
Presented on the Consolidated Balance Sheet as:
- Deferred tax assets 1,720 1,341 1,714
- Deferred tax liabilities(4) (176) (160) (107)
Net deferred tax asset 1,544 1,181 1,607
1. Deferred tax assets arising on deferred acquisition expenses relate
solely to US balances.
2. The Bermuda deferred tax asset relates to the introduction of a new
corporate income tax regime in Bermuda, which was enacted in December 2023.
3. This deferred tax asset relates to US operating losses. 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.
4. The deferred tax liability is comprised of balances of £176m
relating to the US (H1 23: £157m; FY 23: £107m) and £nil relating to the UK
(H1 23: £3m; FY 23: £nil) which is not capable of being offset against other
deferred tax assets.
4.05 Share capital and share premium
Number of
Authorised share capital shares £m
At 30 June 2024, 30 June 2023 and 31 December 2023: 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 2024 5,979,578,280 149 1,030
Cancellation of shares under share buyback programme(1) (9,250,000) - -
Options exercised under share option schemes 1,795,636 - 4
As at 30 June 2024 5,972,123,916 149 1,034
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2023 5,973,253,500 149 1,018
Options exercised under share option schemes 4,560,068 - 9
As at 30 June 2023 5,977,813,568 149 1,027
Options exercised under share option schemes 1,764,712 - 3
As at 31 December 2023 5,979,578,280 149 1,030
1. During the period, 9,250,000 shares were repurchased and cancelled
under the share buyback programme representing 0.2% of opening issued share
capital at a cost of £21m including expenses. At 5 August 2024, a further
30,906,201 ordinary shares had been purchased for cancellation at a total cost
of £70m including expenses (see Note 4.17 for further information).
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 coupon payments of £14m were made (H1 23: £14m; FY 23:
£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 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
2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2) 590 568 590 549 590 600
5.375% Sterling subordinated notes 2045 (Tier 2) 605 601 605 577 605 603
5.25% US Dollar subordinated notes 2047 (Tier 2) 681 662 678 648 676 656
5.55% US Dollar subordinated notes 2052 (Tier 2) 399 390 397 376 396 382
5.125% Sterling subordinated notes 2048 (Tier 2) 401 393 400 364 401 395
3.75% Sterling subordinated notes 2049 (Tier 2) 599 541 599 489 599 545
4.5% Sterling subordinated notes 2050 (Tier 2) 501 460 500 424 501 467
Client fund holdings of group debt (Tier 2)(1) (76) (72) (77) (69) (80) (77)
Total subordinated borrowings 3,700 3,543 3,692 3,358 3,688 3,571
Senior borrowings
Sterling medium term notes 2031-2041 603 637 603 613 609 666
Client fund holdings of group debt(1) (15) (15) (17) (16) (17) (17)
Total senior borrowings 588 622 586 597 592 649
Total core borrowings 4,288 4,165 4,278 3,955 4,280 4,220
1. £91m (30 June 2023: £94m; 31 December 2023: £97m) 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 fair value of the Group's subordinated borrowings reflects quoted prices
in active markets and they have been classified as Level 1 in the fair value
hierarchy.
The fair value of the Group's senior borrowings includes £587m that reflects
quoted prices in active markets and they have been classified as Level 1 in
the fair value hierarchy. The remaining fair value of senior borrowings is
derived using prices from an external, publicly available pricing model by a
standard market pricing source and have been classified as Level 2 in the fair
value hierarchy. The inputs for this model include a range of factors which
are deemed to be observable, including current market prices for comparative
instruments, period to maturity and yield curves.
Subordinated borrowings
5.5% Sterling subordinated notes 2064
On 27 June 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. These notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
On 27 October 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. 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. 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. 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. 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. 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. 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.
4.08 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
2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m
Euro Commercial Paper 49 49 50 50 49 49
Bank loans and overdrafts 4 4 7 7 12 12
Non-recourse borrowings 1,638 1,638 1,050 1,050 1,396 1,396
Operational borrowings(1) 1,691 1,691 1,107 1,107 1,457 1,457
1. Unit linked borrowings with a carrying value of £163m (30 June 2023:
£165m; 31 December 2023: £383m) are excluded from the analysis above as the
risk is retained by policyholders. Operational borrowings including unit
linked borrowings are £1,854m (30 June 2023: £1,272m; 31 December 2023:
£1,840m).
Syndicated credit facility
The Group has in place a £1.5bn syndicated committed revolving credit
facility provided by a number of its key relationship banks, maturing in
August 2028. No amounts were outstanding at 30 June 2024.
4.09 Movement in borrowings
30 Jun 30 Jun 31 Dec
2024 2023 2023
£m £m £m
As at 1 January 6,120 5,557 5,557
Cash movements:
- Proceeds from borrowings 476 408 1,078
- Repayment of borrowings (261) (227) (544)
- Net (decrease)/increase in bank loans and overdrafts (228) (72) 148
Non-cash movements:
- Amortisation 1 1 3
- Foreign exchange rate movements 14 (93) (108)
- Other 20 (24) (14)
Core and operational borrowings 6,142 5,550 6,120
4.10 Payables and other financial liabilities
30 Jun 2024 30 Jun 2023 31 Dec 2023
£m £m £m
Derivative liabilities 47,895 49,939 43,821
Repurchase agreements(1) 22,142 28,347 25,452
Other financial liabilities(2) 10,427 12,770 9,166
Total payables and other financial liabilities 80,464 91,056 78,439
1. 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 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 2024
was £2,100m (30 June 2023: £4,966m; 31 December 2023: £2,647m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 30 June 2024 £m £m £m £m £m
Derivative liabilities 47,895 524 47,333 38 -
Repurchase agreements 22,142 - 22,142 - -
Other financial liabilities 10,427 3,532 57 - 6,838
Total payables and other financial liabilities 80,464 4,056 69,532 38 6,838
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 30 June 2023 £m £m £m £m £m
Derivative liabilities 49,939 445 49,472 22 -
Repurchase agreements 28,347 - 28,347 - -
Other financial liabilities 12,770 4,933 29 - 7,808
Total payables and other financial liabilities 91,056 5,378 77,848 22 7,808
Amortised
Total Level 1 Level 2 Level 3 cost(1)
As at 31 December 2023 £m £m £m £m £m
Derivative liabilities 43,821 627 43,147 47 -
Repurchase agreements 25,452 - 25,452 - -
Other financial liabilities 9,166 3,103 59 - 6,004
Total payables and other financial liabilities 78,439 3,730 68,658 47 6,004
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 2024 (30 June 2023 and 31 December 2023: no
significant transfers).
4.11 Long-term insurance discount rate assumptions
The interest rates used to discount the cash flows for the purpose of valuing
insurance contract liabilities should reflect the timing and liquidity
characteristics of the insurance liability cash flows and current market
conditions. The valuation interest rate assumptions are derived as interest
rate curves with full term structure.
In deriving the liquidity premium assumptions for annuity business, an
explicit allowance for risk is deducted from the yield on the assets backing
annuity liabilities. The allowance for risk comprises long-term assumptions
about defaults and the market risk premiums for taking credit risk. In the
case of lifetime mortgage assets, a best estimate expectation of losses
arising from the no negative equity guarantee, and the market risk premiums
for this risk are deducted from the yield. For the UK annuity business, the
deduction for risk of default for corporate bonds and direct investments
equated to 38bps (30 June 2023: 40bps; 31 December 2023: 40bps). For lifetime
mortgages the deductions equated to £0.3bn (30 June 2023: £0.3bn; 31
December 2023: £0.4bn).
For US and UK protection business, the yield is calculated based on notional
asset portfolios of AA rated corporate bonds and cash, which reflect the
characteristics of the liability cash flows. An explicit allowance is deducted
from the yield to reflect the default risk associated with the notional
portfolio assets.
The discount rate curves used for material product lines are shown below. The
discount rate curves are used to discount the cash flows on the underlying
contracts and any associated reinsurance cash flows. The graphs display the
underlying spot rates.
4.12 Insurance contracts
(i) Insurance service result
For the six month period to 30 June 2024 Annuities Protection Total
£m £m £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided 487 118 605
- Expected incurred claims and other insurance service expenses 2,862 1,421 4,283
- Change in the risk adjustment for non-financial risk for the risk expired 208 8 216
Recovery of insurance acquisition cashflows 12 71 83
Premium experience variance relating to past and current service (1) (4) (5)
Total insurance revenue 3,568 1,614 5,182
Insurance service expenses (2,899) (1,562) (4,461)
Allocation of reinsurance premiums (1,599) (503) (2,102)
Amounts recoverable from reinsurers for incurred claims 1,393 590 1,983
Net (expense)/income from reinsurance contracts held (206) 87 (119)
Total insurance service result 463 139 602
For the six month period to 30 June 2023 (Restated) Annuities Protection Total
£m £m £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided 397 131 528
- Expected incurred claims and other insurance service expenses 2,518 1,319 3,837
- Change in the risk adjustment for non-financial risk for the risk expired 174 23 197
Recovery of insurance acquisition cashflows 8 65 73
Premium experience variance relating to past and current service 2 (8) (6)
Total insurance revenue 3,099 1,530 4,629
Insurance service expenses (2,472) (1,525) (3,997)
Allocation of reinsurance premiums (1,308) (501) (1,809)
Amounts recoverable from reinsurers for incurred claims 1,138 619 1,757
Net (expense)/income from reinsurance contracts held (170) 118 (52)
Total insurance service result 457 123 580
For the year ended 31 December 2023 Annuities Protection Total
£m £m £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided 943 225 1,168
- Expected incurred claims and other insurance service expenses 5,278 2,597 7,875
- Change in the risk adjustment for non-financial risk for the risk expired 371 16 387
Recovery of insurance acquisition cashflows 19 132 151
Premium experience variance relating to past and current service 1 42 43
Total insurance revenue 6,612 3,012 9,624
Insurance service expenses (5,244) (3,129) (8,373)
Allocation of reinsurance premiums (2,847) (1,044) (3,891)
Amounts recoverable from reinsurers for incurred claims 2,415 1,339 3,754
Net (expense)/income from reinsurance contracts held (432) 295 (137)
Total insurance service result 936 178 1,114
4.12 Insurance contracts (continued)
(ii) Insurance and reinsurance contracts
Restated Restated
Assets Liabilities Assets Liabilities Assets Liabilities
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m
Insurance contracts issued
Annuities
Insurance contract balances - 84,759 - 74,035 - 86,706
Assets for insurance contract acquisition cash flows(1) - (27) - (39) - (18)
Protection
Insurance contract balances - 4,788 - 4,391 - 4,782
Assets for insurance contract acquisition cash flows(1) - (20) - (35) - (24)
Total insurance contracts issued - 89,500 - 78,352 - 91,446
Reinsurance contracts held
Annuities
Reinsurance contracts balances 5,679 - 3,203 13 4,758 -
Assets for insurance contract acquisition cash flows(1) 4 - 8 - 3 -
Protection
Reinsurance contracts balances 2,501 142 2,215 124 2,545 220
Assets for insurance contract acquisition cash flows(1) - - - - - -
Total reinsurance contracts held 8,184 142 5,426 137 7,306 220
1. Assets for insurance and reinsurance acquisition cash flows are presented
within the carrying amount of the related insurance and reinsurance contract
liabilities.
4.13 Foreign exchange rates
Principal rates of exchange used for translation
are:
Period end exchange rates 30 Jun 2024 30 Jun 2023 31 Dec 2023
United States dollar 1.27 1.27 1.27
Euro 1.18 1.16 1.15
6 months 6 months Full year
Average exchange rates 2024 2023 2023
United States dollar 1.27 1.23 1.24
Euro 1.17 1.14 1.15
4.14 Provisions
(i) Analysis of provisions
30 Jun 2024 30 Jun 2023 31 Dec 2023
Notes £m £m £m
Other provisions 4.14(ii) 218 210 244
Retirement benefit obligations 4.14(iii) 14 1,416 14
Total provisions 232 1,626 258
(ii) Other provisions
Other provisions include costs that the Asset Management division is committed
to incur on the extension of its existing partnership with State Street
announced in 2021, to increase the use of Charles River technology across the
front office and to deliver middle office services going forward. Costs
include the transfer of data and operations to State Street, as well as the
implementation of the new operating model.
The amounts included in the provision have been determined on a best estimate
basis by reference to a range of plausible scenarios, taking into account the
multi-year implementation period for the project. As at 30 June 2024, the
outstanding provision was £77m (30 June 2023: £75m; 31 December 2023:
£108m).
(iii) Retirement benefit obligations
The Trustees completed a buy-out of the Legal & General Group UK Pension
and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension
Scheme (Scheme) in November 2023, and the existing annuity policies were
exchanged for individual policies between LGAS and members. As a result, all
the Group's obligations under the pension schemes have now been fully
extinguished, and the defined benefit obligation as at the settlement date of
£1,470m was therefore derecognised. On the same date, the Group recognised
the direct liability to the members within insurance contract liabilities. The
difference between the defined benefit obligation at this date and the fair
value of the insurance contract liabilities recognised under IFRS 17 resulted
in £167m being recognised in the Consolidated Income Statement for the year
ended 31 December 2023 as settlement costs. This reflects measurement
differences between IFRS 17 and IAS 19, principally comprising of the
associated CSM and risk adjustment.
4.15 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. Legal and General Assurance
Society Limited 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.
4.16 Related party transactions
(i) Key management personnel transactions and compensation
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. There were no material transactions between key management and the
Legal & General group of companies during the period. Contributions to the
post-employment defined benefit plans were £2m (30 June 2023: £128m; 31
December 2023: £134m) for all employees.
At 30 June 2024, 30 June 2023 and 31 December 2023 there were no loans
outstanding to officers of the company.
The aggregate compensation for key management personnel, including executive
directors, non-executive directors and the members of the Group Management
Committee, is as follows:
6 months 6 months Full year
2024 2023 2023
£m £m £m
Salaries 6 4 12
Share-based incentive awards 7 7 8
Key management personnel compensation 13 11 20
The Group Management Committee was established on 1 January 2024. The
comparatives incorporate the members of the Group Executive Committee which
existed under the Group's previous governance framework.
(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.
The Group has the following material related party transactions:
• A number of transactions between the Group's UK defined benefit
pension schemes and Legal and General Assurance Society Limited (LGAS)
occurred in 2023. These include the surrender of Assured Payment Policies
(APPs) and their conversion into annuities, as well as a buyout of the schemes
completed by the Trustees, where existing annuity policies were exchanged for
individual policies between LGAS and members. Further details are provided in
Note 4.14; and
• Total payments by LGAS to the pension schemes for insured pension
benefits were £nil (30 June 2023: £25m; 31 December 2023: £55m).
Loans and commitments to related parties are made in the normal course of
business. As at 30 June 2024, the Group had:
• Loans outstanding from related parties of £31m (30 June 2023: £46m;
31 December 2023: £49m), with a further commitment of £6m (30 June 2023:
£5m; 31 December 2023: £7m); and
• Total other commitments of £1,496m to related parties (30 June 2023:
£1,232m; 31 December 2023: £1,347m), of which £1,137m has been drawn (30
June 2023: £1,048m; 31 December 2023: £1,108m).
4.17 Post balance sheet events
Since 30 June 2024, additional shares have been purchased under the company's
buyback programme. At 5 August 2024, a further 30,906,201 ordinary shares
(representing 0.5% of Legal & General Group Plc's issued share capital at
30 June 2024) had been purchased for cancellation at a total cost of £70m
including expenses, at an average price of 226.26p per share. Cumulatively, a
total of 40,156,201 shares have been repurchased at a total cost of £91m.
Asset flows and new business
5.01 Asset Management total assets under management(1) (AUM)
Active Multi Private Total
Index strategies asset Solutions(2) markets(3) AUM
For the six month period to 30 June 2024 £bn £bn £bn £bn £bn £bn
As at 1 January 2024 - excluding joint ventures and associates 481.7 168.9 84.3 388.8 35.5 1,159.2
External inflows(4) 35.3 9.3 6.2 8.0 0.7 59.5
External outflows(4) (50.2) (11.3) (4.4) (14.3) (0.7) (80.9)
Overlay net flows - - - (7.1) - (7.1)
External net flows(5) (14.9) (2.0) 1.8 (13.4) - (28.5)
PRT transfers(6) - - - (0.5) - (0.5)
Internal net flows(7) (0.2) (3.4) - (0.4) 1.7 (2.3)
Total net flows (15.1) (5.4) 1.8 (14.3) 1.7 (31.3)
Market movements 43.5 (2.5) 2.6 (22.9) (0.3) 20.4
Other movements(8) (3.3) 0.7 - (23.5) - (26.1)
As at 30 June 2024 - excluding joint ventures and associates 506.8 161.7 88.7 328.1 36.9 1,122.2
Joint ventures and associates(9) - - - - 13.6 13.6
Total Asset Management AUM as at 30 June 2024 506.8 161.7 88.7 328.1 50.5 1,135.8
Active Multi Private Total
Index strategies asset Solutions(2) markets(3) AUM
For the six month period to 30 June 2023 £bn £bn £bn £bn £bn £bn
As at 1 January 2023 - excluding joint ventures and associates 444.7 156.8 73.9 485.9 34.4 1,195.7
External inflows(4) 37.6 8.8 5.5 13.6 0.8 66.3
External outflows(4) (35.1) (9.2) (3.4) (10.6) (1.0) (59.3)
Overlay net flows - - - (19.3) - (19.3)
External net flows(5) 2.5 (0.4) 2.1 (16.3) (0.2) (12.3)
PRT transfers(6) (0.3) (0.3) - (4.5) - (5.1)
Internal net flows(7) (0.5) (3.1) (0.1) 0.1 1.7 (1.9)
Total net flows 1.7 (3.8) 2.0 (20.7) 1.5 (19.3)
Market movements 24.4 2.6 1.1 (32.4) (0.3) (4.6)
Other movements(8) (0.8) (1.7) - (11.2) - (13.7)
As at 30 June 2023 - excluding joint ventures and associates 470.0 153.9 77.0 421.6 35.6 1,158.1
Joint ventures and associates(9) - - - - 11.5 11.5
Total Asset Management AUM as at 30 June 2023(10) 470.0 153.9 77.0 421.6 47.1 1,169.6
1. Assets under management (AUM) includes assets on our Investment Only
Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £202.5bn (30 June
2023: £285.3bn) of derivative notionals associated with the Solutions
business.
3. Private Markets AUM of £50.5bn (30 June 2023: £47.1bn) are shown on
the basis of client asset view and excludes assets from multi asset fund of
fund structures. Total managed Private Markets AUM including AUM from multi
asset strategies (£1.5bn) is £52.0bn (30 June 2023: £48.2bn).
4. External inflows and outflows include £2.1bn (30 June 2023: £2.1bn)
of external investments and £4.3bn (30 June 2023: £1.1bn) of redemptions in
the ETF business.
5. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 30 June
2024 was £50.6bn (30 June 2023: £62.3bn).
6. PRT transfers reflect UK defined benefit pension scheme buy-outs to
Institutional Retirement.
7. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
8. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
9. Figures reflect 100% of the AUM associated with fund managers
classified as joint ventures and associates irrespective of the Group's
holding in those fund managers.
10. Total Asset Management AUM as at 30 June 2023 has been restated to
include joint ventures and associates AUM.
5.01 Asset Management total assets under management(1) (AUM) (continued)
Active Multi Private Total
Index strategies asset Solutions(2) markets(3) AUM
For the year ended 31 December 2023 £bn £bn £bn £bn £bn £bn
As at 1 January 2023 - excluding joint ventures and associates 444.7 156.8 73.9 485.9 34.4 1,195.7
External inflows(4) 69.4 17.4 12.4 25.5 1.5 126.2
External outflows(4) (84.9) (17.2) (7.4) (23.4) (2.6) (135.5)
Overlay net flows - - - (29.1) - (29.1)
External net flows(5) (15.5) 0.2 5.0 (27.0) (1.1) (38.4)
PRT transfers(6) (0.4) (1.5) - (13.1) (0.2) (15.2)
Internal net flows(7) (0.8) - (0.2) 0.5 2.1 1.6
Total net flows (16.7) (1.3) 4.8 (39.6) 0.8 (52.0)
Market movements 55.3 10.4 5.6 (29.6) 0.3 42.0
Other movements(8) (1.6) 3.0 - (27.9) - (26.5)
As at 31 December 2023 - excluding joint ventures and associates 481.7 168.9 84.3 388.8 35.5 1,159.2
Joint ventures and associates(9) - - - - 12.7 12.7
Total Asset Management AUM as at 31 December 2023(10) 481.7 168.9 84.3 388.8 48.2 1,171.9
1. Assets under management (AUM) includes assets on our Investment Only
Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £246.7bn of
derivative notionals associated with the Solutions business.
3. Private Markets AUM of £48.2bn are shown on the basis of client
asset view and excludes assets from multi asset fund of fund structures. Total
managed Private Markets AUM including AUM from multi asset strategies is
£49.6bn.
4. External inflows and outflows include £5.3bn of external investments
and £3.4bn of redemptions in the ETF business.
5. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31 December
2023 was £66.9bn.
6. PRT transfers reflect UK defined benefit pension scheme buy-outs to
Institutional Retirement.
7. Internal net flows includes legacy assets from the Mature Savings
business sold to ReAssure in 2020.
8. Other movements include movements of external holdings in money
market funds, other cash mandates and short-term solutions assets.
9. Figures reflect 100% of the AUM associated with fund managers
classified as joint ventures and associates irrespective of the Group's
holding in those fund managers.
10. Total Asset Management AUM as at 31 December 2023 has been restated to
include joint ventures and associates AUM.
5.02 Asset Management assets under management (excluding joint ventures and
associates) and net flows
Assets under management (excluding joint ventures and associates) at Net flows for the six months ended(1)
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2024 2023 2023 2024 2023 2023
£bn £bn £bn £bn £bn £bn
International(2) 371.6 371.8 377.7 (11.1) (2.7) (14.2)
UK Institutional
- Defined contribution 176.0 146.1 163.0 1.7 5.5 6.9
- Defined benefit 409.0 489.6 453.4 (18.6) (17.3) (22.0)
Wholesale(3) 62.7 51.2 56.6 1.7 1.3 2.2
ETF(4) 9.5 9.9 11.4 (2.2) 0.9 1.0
External 1,028.8 1,068.6 1,062.1 (28.5) (12.3) (26.1)
Internal(5) 93.4 89.5 97.1 (2.8) (7.0) (6.6)
Total 1,122.2 1,158.1 1,159.2 (31.3) (19.3) (32.7)
1. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to a higher
degree of variability.
2. International assets are shown on the basis of client domicile. Total
International AUM including assets managed internationally on behalf of UK
clients amounted to £465bn as at 30 June 2024 (30 June 2023: £457bn; 31
December 2023: £465bn).
3. Retail represents assets from the Retail Intermediary business and
legacy assets from Personal Investing customers that did not migrate to
Fidelity International Limited.
4. ETF reflects external AUM and Flows invested on the platform. Total
AUM managed on the platform is £11.7bn ($14.8bn) as at 30 June 2024 (30 June
2023: £11.7bn ($14.9bn); 31 December 2023: £13.5bn ($17.2bn)) and flows of
£(2.2)bn ($(2.8)bn) as at 30 June 2024 (30 June 2023: £1.0bn ($1.3bn); 31
December 2023: £2.2bn ($2.7bn)) which include internal investment from other
Asset Management asset classes.
5. Internal net flows include PRT transfers of £0.5bn (30 June 2023:
£5.1bn; 31 December 2023: £10.1bn). PRT transfers reflect UK defined benefit
pension scheme buy-outs to Institutional Retirement.
5.03 Reconciliation of assets under management to Consolidated Balance Sheet
Restated
30 Jun 2024 30 Jun 2023 31 Dec 2023
£bn £bn £bn
Total assets under management(1) 1,136 1,170 1,172
Derivative notionals(2) (202) (285) (247)
Third party assets(3) (483) (458) (471)
Other(4) 50 52 47
Total financial investments, investment property and cash and cash equivalents 501 479 501
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
3. Third party assets are those that the Asset Management division
manage on behalf of others which are not included on the Group's Consolidated
Balance Sheet.
4. Other includes assets that are managed by third parties on behalf of
the Group, other assets and liabilities related to financial investments,
derivative assets and pooled funds. It also includes measurement differences
between assets under management, which are on a market value basis, and total
investments on an IFRS basis.
5.04 Workplace Savings assets under administration(1)
30 Jun 2024 30 Jun 2023 30 Dec 2023
£bn £bn £bn
As at 1 January 79.9 66.6 66.6
Gross inflows 5.9 4.9 10.4
Gross outflows (2.7) (1.9) (4.1)
Net flows 3.2 3.0 6.3
Market and other movements 4.3 2.1 7.0
As at 30 June 87.4 71.7 79.9
1. Workplace assets under administration as at 30 June 2024 includes
£87.3bn (30 June 2023: £71.5bn; 31 December 2023: £79.7bn) of assets under
management included in Note 5.01.
5.05 Institutional Retirement new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2024 2023 2023 2023
£m £m £m £m
UK(1) 1,126 4,866 7,182 12,048
US 417 126 1,337 1,463
Bermuda - - 208 208
Total Institutional Retirement new business 1,543 4,992 8,727 13,719
1. Full year ending 31 December 2023 includes a transaction with the
Group's UK defined benefit pension schemes as disclosed in Note 4.16 Related
party transactions.
5.06 Retail new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2024 2023 2023 2023
£m £m £m £m
Individual annuities 1,174 575 856 1,431
Lifetime mortgage loans and retirement interest only mortgages 140 163 136 299
Total Retail Retirement new business 1,314 738 992 1,730
UK Retail protection 75 76 74 150
UK Group protection 68 53 68 121
US protection(1) 81 70 71 141
Total Insurance new business 224 199 213 412
Total Retail new business 1,538 937 1,205 2,142
1. In local currency, US protection reflects new business of $103m for
30 June 2024 (H1 2023: $87m; H2 2023: $88m).
Capital
6.01 Group regulatory capital - Solvency II
The Group complies with the requirements established by the Solvency II
Framework Directive, as adopted by the Prudential Regulation Authority (PRA)
in the UK and measures and monitors its capital resources on this basis. The
Solvency II regulations were amended in the UK in December 2023 to introduce a
change to the calculation of Risk Margin, and in June 2024 to change the
calculation of the Matching Adjustment and fundamental spread. All other
Solvency II regulations remain unchanged.
The Solvency II results are estimated and unaudited. Further explanation of
the underlying methodology and assumptions are set out in the sections below.
The Group calculates its Solvency II capital requirements using a Partial
Internal Model. The majority of the risk to which the Group is exposed is
assessed on the Partial Internal Model basis approved by the PRA. Capital
requirements for a few smaller entities are assessed using the Standard
Formula basis on materiality grounds. The Group's US insurance businesses and
Legal & General Reinsurance Company No. 2 are valued on a local statutory
basis, following the PRA's approval to use the Deduction and Aggregation
method of including these businesses in the Group Solvency II calculation.
The table below shows the Group Own Funds, Solvency Capital Requirement (SCR)
and Surplus Own Funds, based on the Partial Internal Model, Matching
Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 30
June 2024.
(i) Capital position
As at 30 June 2024, and on the above basis, the Group had a surplus of
£8,839m (31 December 2023: £9,167m) over its Solvency Capital Requirement,
corresponding to a Solvency II capital coverage ratio of 223% (31 December
2023: 224%). The Solvency II capital position is as follows:
30 Jun 31 Dec
2024 2023
£m £m
Unrestricted Tier 1 Own Funds 12,142 12,845
Restricted Tier 1 Own Funds(1) 495 495
Tier 2 Subordinated liabilities 3,396 3,460
Eligibility restrictions (21) (244)
Solvency II Own Funds(2,3) 16,012 16,556
Solvency Capital Requirement (7,173) (7,389)
Solvency II surplus 8,839 9,167
SCR Coverage ratio 223% 224%
1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1
contingent convertible notes.
2. Solvency II Own Funds include a reduction to allow for the £201m
share buyback announced on 12 June 2024. They do not include an accrual for
the interim dividend of £357m (31 December 2023: final dividend of £871m)
declared after the balance sheet date.
3. Solvency II Own Funds allow for a Risk Margin of £1,009m (31
December 2023: £1,191m) and TMTP of £647m (31 December 2023: £970m).
6.01 Group regulatory capital - Solvency II (continued)
(ii) Methodology and assumptions
The methodology, assumptions and Partial Internal Model underlying the
calculation of Solvency II Own Funds and associated capital requirements are
broadly consistent with those set out in the Group's 2023 Annual Report and
Accounts and Full Year Results.
Non-market assumptions are consistent with those underlying the Group's IFRS
disclosures. Future investment returns and discount rates are those defined by
the PRA, using risk-free rates based on SONIA market swap rates for sterling
denominated liabilities. For annuities that are eligible, the liability
discount rate includes a Matching Adjustment. This Matching Adjustment varies
between LGAS and LGRe and by the currency of the relevant liabilities.
At 30 June 2024 the Matching Adjustment for UK GBP denominated liabilities was
118 basis points (31 December 2023: 122 basis points) after deducting an
allowance for the fundamental spread equivalent to 45 basis points (31
December 2023: 53 basis points). The Matching Adjustment and fundamental
spread have been calculated in accordance with the latest Solvency UK
regulations.
(iii) Analysis of change
Operational Surplus Generation is the expected surplus generated from the
assets and liabilities in-force at the start of the year. It is based on
assumed real world returns and best estimate non-market assumptions. It
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the period.
New Business Strain is the cost of acquiring business and setting up Technical
Provisions and SCR (net of any premium income), on actual new business written
over the period. It is based on economic conditions at the point of sale.
The table below shows the movement (net of tax) during the six month period
ended 30 June 2024 in the Group's Solvency II surplus.
6 months 6 months 6 months
30 Jun 2024 30 Jun 2024 30 Jun 2024
Own Funds SCR Surplus
£m £m £m
Opening Position 16,556 (7,389) 9,167
Operational Surplus Generation(1) 899 (2) 897
New business strain 56 (222) (166)
Net surplus generation 955 (224) 731
Operating variances(2) 30
Market movements(3) (14)
Share buyback (201)
Dividends paid(4) (874)
Total surplus movement (after dividends paid in the period) (544) 216 (328)
Closing Position 16,012 (7,173) 8,839
1. Operational Surplus Generation includes a £22m release of Risk
Margin and £(41)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Market movements represent the impact of changes in investment market
conditions during the period and changes to future economic assumptions.
4. Dividends paid are the amounts from the 2023 final dividend paid in
H1 2024.
6.01 Group regulatory capital - Solvency II (continued)
(iii) Analysis of change (continued)
The table below shows the movement (net of tax) during the year ended 31
December 2023 in the Group's Solvency II surplus.
Full year Full year Full year
31 Dec 2023 31 Dec 2023 31 Dec 2023
Own Funds SCR Surplus
£m £m £m
Opening Position 17,226 (7,311) 9,915
Operational Surplus Generation(1) 1,596 225 1,821
New business strain 551 (989) (438)
Net surplus generation 2,147 (764) 1,383
Operating variances(2) (307)
Mergers, acquisitions and disposals(3) (140)
Market movements(4) (512)
Dividends paid(5) (1,172)
Total surplus movement (after dividends paid in the period) (670) (78) (748)
Closing Position 16,556 (7,389) 9,167
1. Operational Surplus Generation includes a £208m release of Risk
Margin and £(206)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
3. Mergers, acquisitions and disposals for the year ended 31 December
2023 includes costs incurred relating to the announced intent to cease
production within the Modular Homes business and impairment of the Group's
investment in Onto, along with the associated change in SCR.
4. Market movements represent the impact of changes in investment market
conditions over the year and changes to future economic assumptions.
5. Dividends paid are the amounts from the 2022 final dividend and 2023
interim dividend.
(iv) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the Group's IFRS equity to Solvency II Own Funds is given
below:
30 Jun 31 Dec
( ) ( ) ( ) 2024 2023
( ) ( ) ( ) £m £m
IFRS equity(1) 3,958 4,826
CSM net of tax(2) 10,023 10,048
IFRS equity plus CSM net of tax 13,981 14,874
Remove DAC, goodwill and other intangible assets and associated liabilities (522) (525)
Add IFRS carrying value of subordinated borrowings(3) 3,776 3,768
Insurance contract valuation differences(4) (502) (622)
Financial investments valuation differences (1,051) (845)
Difference in value of net deferred tax liabilities(2) 373 203
Other (22) (53)
Eligibility restrictions (21) (244)
Solvency II Own Funds(5) 16,012 16,556
1. IFRS equity represents equity attributable to owners of the parent
and restricted Tier 1 convertible debt note as per the Consolidated Balance
Sheet.
2. 31 December 2023 CSM net of tax and Difference in value of net
deferred tax liabilities have been restated to reflect the introduction of the
new corporate income tax regime in Bermuda, which was enacted in December
2023.
3. Treated as available capital on the Solvency II balance sheet as the
liabilities are subordinate to policyholder claims.
4. Differences in the measurement of technical provisions between IFRS
and Solvency II.
5. Solvency II Own Funds include a reduction to allow for the £201m
share buyback announced on 12 June 2024. They do not include an accrual for
the interim dividend of £357m (31 December 2023: final dividend of £871m)
declared after the balance sheet date.
6.01 Group regulatory capital - Solvency II (continued)
(v) Sensitivity analysis
The following sensitivities are provided to give an indication of how the
Group's Solvency II surplus as at 30 June 2024 would have changed in a variety
of adverse events. These are all independent stresses to a single risk. In
practice, the balance sheet is impacted by combinations of stresses and the
combined impact can be larger than adding together the impacts of the same
stresses in isolation. It is expected that, particularly for market risks,
adverse stresses will happen together.
Impact on Impact on Impact on Impact on
net of tax net of tax net of tax net of tax
Solvency II Solvency II Solvency II Solvency II
capital coverage capital coverage
surplus ratio surplus ratio
30 Jun 30 Jun 31 Dec 31 Dec
2024 2024 2023 2023
£bn % £bn %
100bps increase in risk-free rates(1) 0.1 13 0.1 10
100bps decrease in risk-free rates(1,2) (0.2) (14) (0.2) (11)
Credit spreads widen by 100bps assuming an escalating addition to ratings(3,4) 0.5 15 0.4 14
Credit spreads narrow by 100bps assuming an escalating deduction from (0.6) (17) (0.6) (18)
ratings(3,4)
Credit spreads widen by 100bps assuming a flat addition to ratings(3) 0.5 16 0.5 15
Credit spreads of sub investment grade assets widen by 100bps assuming a level (0.2) (7) (0.2) (7)
addition to ratings(3,5)
Credit migration(6) (0.5) (8) (0.7) (10)
25% fall in equity markets(7) (0.4) (3) (0.4) (3)
15% fall in property markets(8) (0.8) (8) (0.9) (10)
50bps increase in future inflation expectations(1) (0.0) (2) (0.1) (3)
1. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e.
there is no floor at zero rates.
3. The spread sensitivity applies to the Group's corporate bond (and
similar) holdings, with no change in long-term default expectations.
Restructured lifetime mortgages are excluded as the underlying exposure is
mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it
is three times, for BBB four times and so on, such that the weighted average
spread stress for the portfolio is 100 basis points. To give a 100bps increase
on the total portfolio, the spread stress increases in steps of 32bps, i.e.
32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below
the stress is 100bps. The spread widening on the total portfolio is smaller
than 1bps as the Group holds less than 1% in bonds rated BB and below. The
impact is primarily an increase in SCR arising from the modelled cost of
trading downgraded bonds back to a higher rating in the stress scenarios in
the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends on a credit
rating (including corporate bonds, and sale and leaseback rental strips;
lifetime mortgage senior notes are excluded). Downgraded assets in our annuity
portfolio are assumed to be traded to their original credit rating, so the
impact is primarily a reduction in Own Funds from the loss of value on
downgrade. The impact of the sensitivity will depend upon the market levels of
spreads at the balance sheet date.
7. This relates primarily to equity exposure held by the Group but will
also include equity-based mutual funds and other investments that receive an
equity stress (for example, certain investments in subsidiaries). Some assets
have factors that increase or decrease the stress relative to general equity
levels via a beta factor.
8. Assets stressed include residual values from sale and leaseback, the
full amount of lifetime mortgages and direct investments treated as property.
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.
6.02 Estimated Solvency II new business contribution
(i) New business by product(1)
Management estimates of the present value of new business premium (PVNBP) and
the margin for selected lines of business are provided below:
Contribution Contribution
from new from new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
6 months 6 months 6 months Full year Full year Full year
2024 2024 2024 2023 2023 2023
£m £m % £m £m %
Institutional Retirement - UK annuity business 1,126 69 6.1 8,859 654 7.4
Retail Retirement - UK annuity business 1,174 70 6.0 1,431 100 7.0
UK Protection 719 26 3.5 1,337 37 2.8
US Protection(5) 656 80 12.1 1,123 128 11.4
1. Selected lines of business only.
2. PVNBP excludes a quota share reinsurance single premium of £nil (31
December 2023: £3,189m) relating to Institutional Retirement new business.
3. The contribution from new business is defined as the present value at
the point of sale of expected future Solvency II surplus emerging from new
business written in the year using the risk discount rate applicable at the
end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US Protection business reflects PVNBP of $830m (31
December 2023: $1,397m) and a contribution from new business of $101m (31
December 2023: $160m).
(ii) Basis of preparation
Solvency II new business contribution reflects the portion of Solvency II
value added by new business written in the period. It has been calculated in a
manner consistent with principles and methodologies which were adopted in the
Group's 2023 Annual Report and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for the Group's most
material insurance-related businesses, namely, Institutional Retirement,
Retail Retirement and Insurance.
Intra-group reinsurance arrangements are in place between US, UK and Bermudan
businesses and it is expected that these arrangements will be periodically
extended to cover recent new business. The US Protection new business margin
assumes that the new business will continue to be reinsured in 2024 and looks
through the intra-group arrangements.
6.02 Estimated Solvency II new business contribution
(continued)
(iii) Assumptions
The key economic assumptions are as follows:
30 Jun 2024 31 Dec 2023
% %
Margin for Risk 3.9 4.2
Risk-free rate
- UK 3.9 3.3
- US 4.4 3.9
Risk discount rate (net of tax)
- UK 7.8 7.5
- US 8.3 8.1
Long-term rate of return on annuities 5.5 4.9
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.
(iv) Reconciliation of PVNBP to total Institutional Retirement and Retail new
business
6 months Full year
2024 2023
Notes £bn £bn
PVNBP 6.02 (i) 3.7 12.7
Effect of capitalisation factor ( ) (1.2) (1.8)
New business premiums from selected lines 2.5 10.9
Other(1) 0.6 5.0
Total Institutional Retirement and Retail new business 5.05, 5.06 3.1 15.9
1. Other principally includes annuity sales in the US £0.4bn (31
December 2023: £1.5bn), lifetime mortgage loans and retirement interest only
mortgages £0.1bn (31 December 2023: £0.3bn), and quota share reinsurance
premiums £nil (31 December 2023: £3.2bn).
Investments
7.01 Investment portfolio
Restated(1) Restated(1)
30 Jun 30 Jun 31 Dec
2024 2023 2023
£m £m £m
Worldwide total assets under management(2) 1,145,104 1,177,886 1,179,769
Client and policyholder assets (1,007,870) (1,047,154) (1,044,213)
Investments to which shareholders are directly exposed (market value) 137,234 130,732 135,556
Adjustment from market value to IFRS carrying value(3) 1,051 1,245 848
Investments to which shareholders are directly exposed (IFRS carrying value) 138,285 131,977 136,404
1. Worldwide assets under management, client and policyholder assets
have been restated to include the total AUM associated with fund managers
classified as joint ventures and associates irrespective of the Group's
holding in those fund managers.
2. Worldwide total assets under management include Asset Management AUM
and other Group assets not managed by Asset Management.
3. Adjustments reflect measurement differences for a portion of the
Group's financial investments designated as amortised cost.
Analysed by investment class:
Restated Restated Restated Restated
Annuity(1) Other Annuity(1) Other Annuity(1) Other
investments investments Total investments investments Total investments investments Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec 31 Dec
2024 2024 2024 2023 2023 2023 2023 2023 2023
Notes £m £m £m £m £m £m £m £m £m
Equities 1,961 1,116 3,077 1,967 1,110 3,077 1,989 1,177 3,166
Bonds 7.03 75,474 4,104 79,578 70,278 3,085 73,363 77,571 3,759 81,330
Derivative assets(2) 41,527 134 41,661 42,062 245 42,307 37,894 125 38,019
Property 7.04 5,506 309 5,815 5,515 247 5,762 5,269 234 5,503
Loans(3) 2,242 184 2,426 1,898 156 2,054 1,382 230 1,612
Financial investments 126,710 5,847 132,557 121,720 4,843 126,563 124,105 5,525 129,630
Cash and cash equivalents 2,035 1,295 3,330 2,275 1,039 3,314 3,122 1,113 4,235
Other assets(4) 664 1,734 2,398 443 1,657 2,100 779 1,760 2,539
Total investments 129,409 8,876 138,285 124,438 7,539 131,977 128,006 8,398 136,404
1. Annuity investments includes products held within the Institutional
Retirement and Retail Retirement annuity portfolios and includes lifetime
mortgage loans & retirement interest only mortgages.
2. Derivative assets are shown gross of derivative liabilities of
£45.0bn (30 June 2023: £46.0bn; 31 December 2023: £40.5bn). Exposures arise
from use of derivatives for efficient portfolio management, particularly the
use of interest rate swaps, inflation swaps, currency swaps and foreign
exchange forward contracts for assets and liability management.
3. Loans include reverse repurchase agreements of £2,411m (30 June
2023: £2,049m; 31 December 2023: £1,599m).
4. Other assets include finance leases of £414m (30 June 2023: £157m;
31 December 2023: £451m), associates and joint ventures of £641m (30 June
2023: £553m; 31 December 2023: £616m) and the consolidated net asset value
of the Group's investments in CALA Homes and other housing businesses.
7.02 Direct investments
(i) Total investments analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2) Direct(1) Traded(2)
investments securities Total investments securities Total investments securities Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec 31 Dec
2024 2024 2024 2023 2023 2023 2023 2023 2023
£m £m £m £m £m £m £m £m £m
Equities 1,766 1,311 3,077 1,782 1,295 3,077 1,856 1,310 3,166
Bonds(3) 28,958 50,620 79,578 24,596 48,767 73,363 27,671 53,659 81,330
Derivative assets - 41,661 41,661 - 42,307 42,307 - 38,019 38,019
Property(4) 5,815 - 5,815 5,762 - 5,762 5,503 - 5,503
Loans 14 2,412 2,426 4 2,050 2,054 13 1,599 1,612
Financial investments 36,553 96,004 132,557 32,144 94,419 126,563 35,043 94,587 129,630
Cash and cash equivalents 202 3,128 3,330 213 3,101 3,314 163 4,072 4,235
Other assets 2,398 - 2,398 2,100 - 2,100 2,539 - 2,539
Total investments 39,153 99,132 138,285 34,457 97,520 131,977 37,745 98,659 136,404
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a
direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £5,761m (30 June 2023:
£4,937m; 31 December 2023: £5,766m).
4. A further breakdown of property is provided in Note 7.04.
7.02 Direct investments (continued)
(ii) Direct investments analysed by asset portfolio
Annuity(1) Other Total
30 Jun 30 Jun 30 Jun
2024 2024 2024
£m £m £m
Equities 832 934 1,766
Bonds(2) 27,080 1,878 28,958
Property 5,506 309 5,815
Loans - 14 14
Financial investments 33,418 3,135 36,553
Other assets, cash and cash equivalents 725 1,875 2,600
Total direct investments 34,143 5,010 39,153
Annuity(1) Other Total
30 Jun 30 Jun 30 Jun
2023 2023 2023
£m £m £m
Equities 846 936 1,782
Bonds(2) 23,227 1,369 24,596
Property 5,515 247 5,762
Loans - 4 4
Financial investments 29,588 2,556 32,144
Other assets, cash and cash equivalents 470 1,843 2,313
Total direct investments (Restated) 30,058 4,399 34,457
Annuity(1) Other Total
31 Dec 31 Dec 31 Dec
2023 2023 2023
£m £m £m
Equities 839 1,017 1,856
Bonds(2) 25,816 1,855 27,671
Property 5,269 234 5,503
Loans - 13 13
Financial investments 31,924 3,119 35,043
Other assets, cash and cash equivalents 842 1,860 2,702
Total direct investments (Restated) 32,766 4,979 37,745
1. Annuity includes products held within the Institutional Retirement
and Retail Retirement annuity portfolios.
2. Bonds include lifetime mortgage loans of £5,761m (30 June 2023:
£4,937m; 31 December 2023: £5,766m).
7.03 Bond portfolio summary
(i) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2024 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 525 9,878 997 136 1 3 11,540 15
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - - 75 31 2 - 108 -
- Senior - 1,984 3,580 856 1 - 6,421 8
- Covered 80 - - - - - 80 -
Financial Services:
- Tier 2 and other subordinated - 104 150 15 7 8 284 -
- Senior 207 478 735 722 - 5 2,147 3
Insurance:
- Tier 2 and other subordinated 36 133 29 42 - - 240 -
- Senior 30 185 406 354 - - 975 1
Consumer Services and Goods:
- Cyclical - 88 1,140 1,531 29 1 2,789 4
- Non-cyclical 296 773 2,744 2,683 63 1 6,560 8
- Healthcare - 725 994 563 5 - 2,287 3
Infrastructure:
- Social 154 773 4,513 1,235 66 - 6,741 9
- Economic - 455 1,122 4,104 48 22 5,751 7
Technology and Telecoms 85 481 1,182 2,439 11 6 4,204 5
Industrials - 211 433 908 26 1 1,579 2
Utilities 514 403 4,711 3,727 8 - 9,363 12
Energy - 25 498 1,414 33 - 1,970 2
Commodities - - 208 607 26 2 843 1
Oil and Gas - 451 559 353 12 4 1,379 2
Real estate - 27 2,293 2,337 82 - 4,739 6
Structured finance ABS / RMBS / CMBS / Other 874 780 1,283 756 52 20 3,765 5
Lifetime mortgage loans(1) - 4,819 490 399 - 53 5,761 7
CDOs - 41 - 11 - - 52 -
Total £m 2,801 22,814 28,142 25,223 472 126 79,578 100
Total % 3 29 35 32 1 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The Group's bond portfolio is dominated by investments backing
Institutional Retirement's and Retail Retirement's annuity business. These
account for £75,474m, representing 95% of the total Group portfolio.
7.03 Bond portfolio summary (continued)
(i) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2023 (Restated) £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 908 6,259 857 101 2 2 8,129 11
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - 95 93 59 1 - 248 -
- Senior - 1,488 2,995 820 - - 5,303 7
- Covered 79 - - - - - 79 -
Financial Services:
- Tier 2 and other subordinated - 449 160 22 7 4 642 1
- Senior 139 235 610 714 - - 1,698 3
Insurance:
- Tier 2 and other subordinated 56 124 23 40 1 - 244 1
- Senior 9 183 294 393 - - 879 1
Consumer Services and Goods:
- Cyclical - 13 1,321 1,669 35 20 3,058 4
- Non-cyclical 293 836 2,988 3,075 78 - 7,270 10
- Healthcare 12 733 933 734 3 - 2,415 3
Infrastructure:
- Social 167 867 3,974 1,104 67 - 6,179 9
- Economic 264 148 967 3,758 59 - 5,196 7
Technology and Telecoms 121 331 1,382 2,610 12 3 4,459 6
Industrials - 58 664 668 24 - 1,414 2
Utilities 547 660 4,546 4,612 17 - 10,382 14
Energy - 13 370 916 32 - 1,331 2
Commodities - - 329 582 24 20 955 1
Oil and Gas - 500 673 316 14 60 1,563 2
Real estate - 20 2,171 2,066 31 - 4,288 6
Structured finance ABS / RMBS / CMBS / Other 565 912 538 575 45 8 2,643 3
Lifetime mortgage loans(1) 3,235 887 449 353 - 13 4,937 7
CDOs - 40 - 10 - - 50 -
Total £m 6,395 14,851 26,337 25,197 452 131 73,363 100
Total % 9 20 36 34 1 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The Group's bond portfolio is dominated by investments backing
Institutional Retirement's and Retail Retirement's annuity business. These
account for £70,278m, representing 96% of the total Group portfolio.
7.03 Bond portfolio summary (continued)
(i) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2023 (Restated) £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 399 10,342 1,023 102 1 2 11,869 15
Banks:
- Tier 1 - - - 20 - 1 21 -
- Tier 2 and other subordinated - - 77 47 1 - 125 -
- Senior - 1,656 4,270 824 1 - 6,751 8
- Covered 106 - - - - - 106 -
Financial Services:
- Tier 2 and other subordinated - 74 57 17 7 3 158 -
- Senior 238 361 828 716 - 3 2,146 3
Insurance:
- Tier 1 - - - 9 - - 9 -
- Tier 2 and other subordinated 31 131 32 44 - - 238 -
- Senior 10 188 411 379 - - 988 1
Consumer Services and Goods:
- Cyclical - 46 1,174 1,843 25 21 3,109 4
- Non-cyclical 314 840 3,176 2,917 65 1 7,313 9
- Healthcare 12 697 1,060 668 4 - 2,441 3
Infrastructure:
- Social 163 822 4,333 1,135 71 - 6,524 8
- Economic 253 157 1,096 4,031 60 13 5,610 7
Technology and Telecoms 97 301 1,611 2,802 12 6 4,829 6
Industrials - 58 593 651 25 1 1,328 2
Utilities 541 751 4,771 4,384 17 - 10,464 13
Energy - 26 504 1,033 34 - 1,597 2
Commodities - - 210 630 24 21 885 1
Oil and Gas - 501 618 326 13 59 1,517 2
Real estate - 32 2,197 2,200 22 - 4,451 5
Structured finance ABS / RMBS / CMBS / Other 656 1,042 697 566 55 15 3,031 4
Lifetime mortgage loans(1) - 4,835 504 402 - 25 5,766 7
CDOs - 43 - 11 - - 54 -
Total £m 2,820 22,903 29,242 25,757 437 171 81,330 100
Total % 3 28 36 32 1 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The Group's bond portfolio is dominated by investments backing
Institutional Retirement's and Retail Retirement's annuity business. These
account for £77,571m, representing 95% of the total Group portfolio.
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile
Rest of
UK US EU the World Total
As at 30 June 2024 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 8,382 1,859 888 411 11,540
Banks 1,618 2,267 1,438 1,286 6,609
Financial Services 419 1,002 764 246 2,431
Insurance 54 1,010 74 77 1,215
Consumer Services and Goods:
- Cyclical 423 1,917 257 192 2,789
- Non-cyclical 1,364 4,298 558 340 6,560
- Healthcare 279 1,956 52 - 2,287
Infrastructure:
- Social 5,866 648 154 73 6,741
- Economic 3,947 917 282 605 5,751
Technology and Telecoms 393 2,798 460 553 4,204
Industrials 225 999 307 48 1,579
Utilities 3,734 3,337 1,771 521 9,363
Energy 600 1,016 23 331 1,970
Commodities 53 381 119 290 843
Oil and Gas 284 351 425 319 1,379
Real estate 1,960 1,715 756 308 4,739
Structured finance ABS / RMBS / CMBS / Other 1,101 2,114 92 458 3,765
Lifetime mortgage loans 5,295 - 466 - 5,761
CDOs - - - 52 52
Total 35,997 28,585 8,886 6,110 79,578
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile (continued)
Rest of
UK US EU the World Total
As at 30 June 2023 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 6,127 1,283 266 453 8,129
Banks 1,521 1,979 1,021 1,110 5,631
Financial Services 302 595 1,266 177 2,340
Insurance 61 966 15 81 1,123
Consumer Services and Goods:
- Cyclical 335 2,155 360 208 3,058
- Non-cyclical 1,711 4,683 346 530 7,270
- Healthcare 278 2,078 59 - 2,415
Infrastructure:
- Social 5,269 690 144 76 6,179
- Economic 3,729 840 249 378 5,196
Technology and Telecoms 377 3,010 558 514 4,459
Industrials 194 783 295 142 1,414
Utilities 5,086 3,011 1,809 476 10,382
Energy 313 715 12 291 1,331
Commodities 46 402 132 375 955
Oil and Gas 248 425 542 348 1,563
Real estate 1,888 1,469 618 313 4,288
Structured Finance ABS / RMBS / CMBS / Other 678 1,497 46 422 2,643
Lifetime mortgage loans 4,871 - 66 - 4,937
CDOs - - - 50 50
Total 33,034 26,581 7,804 5,944 73,363
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile (continued)
Rest of
UK US EU the World Total
As at 31 December 2023 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 8,790 1,696 849 534 11,869
Banks 1,772 2,360 1,459 1,412 7,003
Financial Services 527 902 649 226 2,304
Insurance 64 1,015 75 81 1,235
Consumer Services and Goods:
- Cyclical 355 2,281 294 179 3,109
- Non-cyclical 1,891 4,697 379 346 7,313
- Healthcare 277 2,093 71 - 2,441
Infrastructure:
- Social 5,605 679 162 78 6,524
- Economic 3,968 909 267 466 5,610
Technology and Telecoms 448 3,226 566 589 4,829
Industrials 199 768 310 51 1,328
Utilities 4,654 3,334 1,951 525 10,464
Energy 335 887 23 352 1,597
Commodities 53 392 134 306 885
Oil and Gas 288 371 530 328 1,517
Real estate 1,955 1,658 539 299 4,451
Structured Finance ABS / RMBS / CMBS / Other 768 1,744 62 457 3,031
Lifetime mortgage loans 5,324 - 442 - 5,766
CDOs - - - 54 54
Total 37,273 29,012 8,762 6,283 81,330
7.03 Bond portfolio summary (continued)
(iii) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 30 June 2024 £m £m £m
AAA 2,315 486 2,801
AA 16,328 6,486 22,814
A 16,612 11,530 28,142
BBB 16,280 8,943 25,223
BB or below 245 227 472
Other 23 103 126
Total 51,803 27,775 79,578
Externally Internally
rated rated(1) Total
As at 30 June 2023 £m £m £m
AAA 2,828 3,567 6,395
AA 12,285 2,566 14,851
A 16,753 9,584 26,337
BBB 17,781 7,416 25,197
BB or below 219 233 452
Other 16 115 131
Total 49,882 23,481 73,363
Externally Internally
rated rated(1) Total
As at 31 December 2023 £m £m £m
AAA 2,373 447 2,820
AA 16,323 6,580 22,903
A 18,365 10,877 29,242
BBB 18,458 7,299 25,757
BB or below 195 242 437
Other 20 151 171
Total 55,734 25,596 81,330
1. Where external ratings are not available an internal rating has been
used where practicable to do so.
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by direct investments and traded securities
Direct
investments Traded Total
As at 30 June 2024 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 1,473 10,067 11,540
Banks 1,234 5,375 6,609
Financial Services 1,524 907 2,431
Insurance 149 1,066 1,215
Consumer Services and Goods:
- Cyclical 535 2,254 2,789
- Non-cyclical 688 5,872 6,560
- Healthcare 516 1,771 2,287
Infrastructure:
- Social 4,090 2,651 6,741
- Economic 4,205 1,546 5,751
Technology and Telecoms 285 3,919 4,204
Industrials 257 1,322 1,579
Utilities 2,586 6,777 9,363
Energy 794 1,176 1,970
Commodities 142 701 843
Oil and Gas 94 1,285 1,379
Real estate 2,864 1,875 4,739
Structured finance ABS / RMBS / CMBS / Other 1,761 2,004 3,765
Lifetime mortgage loans 5,761 - 5,761
CDOs - 52 52
Total 28,958 50,620 79,578
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by direct investments and traded securities (continued)
Direct
investments Traded Total
As at 30 June 2023 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 659 7,470 8,129
Banks 829 4,802 5,631
Financial Services 1,737 603 2,340
Insurance 98 1,025 1,123
Consumer Services and Goods:
- Cyclical 641 2,417 3,058
- Non-cyclical 629 6,641 7,270
- Healthcare 512 1,903 2,415
Infrastructure:
- Social 3,630 2,549 6,179
- Economic 3,945 1,251 5,196
Technology and Telecoms 213 4,246 4,459
Industrials 125 1,289 1,414
Utilities 1,960 8,422 10,382
Energy 460 871 1,331
Commodities 139 816 955
Oil and Gas 84 1,479 1,563
Real estate 2,857 1,431 4,288
Structured Finance ABS / RMBS / CMBS / Other 1,141 1,502 2,643
Lifetime mortgage loans 4,937 - 4,937
CDOs - 50 50
Total 24,596 48,767 73,363
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by direct investments and traded securities (continued)
Direct
investments Traded Total
As at 31 December 2023 £m £m £m
Sovereigns, Supras and Sub-Sovereigns 1,257 10,612 11,869
Banks 1,228 5,775 7,003
Financial Services 1,481 823 2,304
Insurance 160 1,075 1,235
Consumer Services and Goods:
- Cyclical 550 2,559 3,109
- Non-cyclical 1,017 6,296 7,313
- Healthcare 517 1,924 2,441
Infrastructure:
- Social 3,836 2,688 6,524
- Economic 4,231 1,379 5,610
Technology and Telecoms 307 4,522 4,829
Industrials 127 1,201 1,328
Utilities 2,370 8,094 10,464
Energy 521 1,076 1,597
Commodities 145 740 885
Oil and Gas 102 1,415 1,517
Real estate 2,763 1,688 4,451
Structured Finance ABS / RMBS / CMBS / Other 1,293 1,738 3,031
Lifetime mortgage loans 5,766 - 5,766
CDOs - 54 54
Total 27,671 53,659 81,330
7.04 Property analysis
Property exposure within Direct investments by status
Annuity Other(1) Total
As at 30 June 2024 £m £m £m %
Fully let(2) 4,927 96 5,023 86
Development 579 179 758 13
Land - 34 34 1
Total 5,506 309 5,815 100
Restated Restated
Annuity Other(1) Total
As at 30 June 2023 £m £m £m %
Fully let(2) 4,958 100 5,058 87
Development 557 111 668 12
Land - 36 36 1
Total 5,515 247 5,762 100
Restated Restated
Annuity Other(1) Total
As at 31 December 2023 £m £m £m %
Fully let(2) 4,809 96 4,905 89
Development 460 104 564 10
Land - 34 34 1
Total 5,269 234 5,503 100
1. The above analysis does not include assets related to the Group's
investments in CALA Homes and other housing businesses, which are accounted
for as inventory within Receivables and other assets on the Group's
Consolidated Balance Sheet and measured at the lower of cost and net
realisable value. At 30 June 2024, the Group held a total of £2,084m (30 June
2023: £2,022m; 31 December 2023: £1,932m) of such assets.
2. £4.0bn (30 June 2023: £4.4bn; 31 December 2023: £4.2bn) fully let
property were let to corporate clients, out of which £3.9bn (30 June 2023:
£3.9bn; 31 December 2023: £3.7bn) were let to investment grade tenants.
Alternative Performance Measures
An alternative performance measure (APM) is a financial measure of historic or
future financial performance, financial position, or cash flows, other than a
financial measure defined under IFRS or the regulations of Solvency II. APMs
offer investors and stakeholders additional information on the company's
performance and the financial effect of 'one-off' events, and the Group uses a
range of these metrics to enhance understanding of the Group's performance.
However, APMs should be viewed as complementary to, rather than as a
substitute for, the figures determined according to other regulations. The
APMs used by the Group are listed in this Note, along with their
definition/explanation, their closest IFRS or Solvency II measure and, where
relevant, the reference to the reconciliations to those measures.
The APMs used by the Group may not be the same as, or comparable to, those
used by other companies, both in similar and different industries. The
calculation of APMs is consistent with previous periods, unless otherwise
stated.
APMs derived from IFRS measures
Adjusted operating profit
Adjusted operating profit is an APM that supports the internal performance
management and decision making of the Group's operating businesses, and
accordingly underpins the remuneration outcomes of the executive directors and
senior management. The Group considers this measure meaningful to stakeholders
as it enhances the understanding of the Group's operating performance over
time by separately identifying non-operating items.
Following the recent refresh of the Group's strategy and the segmentation
changes described in Note 2.01, the Group has updated the application of its
methodology for the determination of adjusted operating profit for assets
allocated to the Asset Management and Corporate Investments segments, in order
to simplify and harmonise the methodology across the segments. As part of the
update, in order to calculate operating profit for direct investments, a
long-term expected investment return is now applied to most private market and
non-traded assets. In previous periods, this approach only applied to assets
under construction contracted to be sold or for other commercial usage, and
early-stage ventures not yet at a steady-state level of earnings. The update
has not had a material impact on the comparative adjusted operating profit of
each segment, and therefore has not led to a restatement.
Adjusted 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. Adjusted operating profit
for insurance contracts primarily reflects the release of profit from the
contractual service margin and risk adjustment in the period (adjusted for
reinsurance mismatches), the unwind of the discount rate used in the
calculation of the insurance liabilities and incurred expenses that are not
directly attributable to the insurance contracts.
Reinsurance mismatches can arise where the reinsurance offset rules in IFRS 17
do not reflect management's view of the net of reinsurance transaction. In
particular, during a year of reinsurance renegotiation, reinsurance gains
cannot be recognised to offset any inception losses on the underlying
contracts where they are recognised before the new reinsurance agreement is
signed. In these circumstances, the onerous contract losses are reduced to
reflect the net loss (if any) after reinsurance, and future contractual
service margin (CSM) amortisation is reduced over the duration of the
contracts.
To remove investment volatility, adjusted operating profit reflects long-term
expected investment returns on the substantial majority of investments held by
the Group, including both traded and private market investments. For the
remainder of the asset portfolio, including certain operational businesses in
the Asset Management division and CALA Homes, no adjustments are made to
exclude investment volatility. The investment margin for insurance business
therefore reflects the expected investment return above the unwind of the
insurance liability discount rate.
The long-term expected investment return reflects the best estimate of the
long-term return at the start of the year, as follows:
· Expected returns for traded equity, commercial property and
residential property (including lifetime mortgages) are based on market
consensus forecasts and long-term historic average returns expected to apply
through the cycle.
· Assumptions for fixed interest securities measured at FVTPL are
based on asset yields for the assets held, less an adjustment for credit risk
(assessed on a best estimate basis). Where securities are measured at
amortised cost or FVOCI, the expected investment return comprises interest
income on an effective interest rate basis.
· For other private market and non-traded assets, the expected
return assumption is set in line with our 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 current
financial assumptions as well as sector specific assumptions, including retail
and commercial property yields and power prices where appropriate.
Variances between actual and long-term expected investment returns are
excluded from adjusted operating profit, as are economic assumption changes to
insurance contract liabilities caused by movements 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. Assets held for future new pension risk
transfer business are excluded from the asset portfolio used to determine the
discount rate for annuities on insurance contract liabilities. The impact of
investment management actions that optimise the yield of the assets backing
the back book of annuity contracts is included within adjusted operating
profit.
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
excluded from adjusted operating profit.
Note 2.02 Operating profit reconciles adjusted operating profit with its
closest IFRS measure, which is profit before tax attributable to equity
holders. Further details on reconciling items between adjusted operating
profit and profit before tax attributable to equity holders are presented in
Note 2.05 Investment and other variances.
Core operating profit
Core operating profit is an APM that measures the operating performance of the
Group's core business and is calculated as the Group's adjusted operating
profit excluding the operating profit of the Corporate Investments Unit. This
measure is considered to be relevant for stakeholders in addition to adjusted
operating profit, as it focuses on appraising the performance of those areas
of the business that management considers to be key to achieving the Group's
strategy.
Note 2.02 Operating profit provides a breakdown of adjusted operating profit
and identifies what is represented by core operating profit in line with the
definition above.
Core earnings per share (Core EPS)
Core EPS is calculated as core operating profit less coupon payable in respect
of restricted Tier 1 convertible notes, all after allocated tax at the
standard UK corporate tax rate, divided by the weighted average number of
shares outstanding during the year. This APM is therefore a measure of the
performance of the Group, on an after allocated tax basis, excluding the
contribution of the Corporate Investments Unit and the impact of investment
volatility, economic assumption changes caused by changes in market conditions
or expectations, and exceptional items. Note 2.07 reconciles core EPS to basic
EPS.
Return on Equity (ROE)
ROE measures the return earned by shareholders on shareholder capital retained
within the business. It is a measure of performance of the business, which
shows how efficiently we are using our financial resources to generate a
return for shareholders. ROE is calculated as IFRS profit after tax divided
by average IFRS shareholders' funds (by reference to opening and closing
equity attributable to the owners of the parent as provided in the IFRS
Consolidated statement of changes in equity for the period). In the current
period, ROE was quantified using annualised profit attributable to equity
holders of £446m (30 June 2023: £754m; 31 December 2023: £457m) and average
equity attributable to the owners of the parent of £3,897m (30 June 2023:
£4,839m; 31 December 2023: £4,699m), based on an opening balance of £4,331m
and a closing balance of £3,463m (30 June 2023: based on an opening balance
of £5,067m and a closing balance of £4,610m; 31 December 2023: based on an
opening balance of £5,067m and a closing balance of £4,331m).
Operating Return on Equity (Operating ROE)
Operating ROE is calculated as the Group's adjusted operating profit after
allocated tax at the standard UK corporate tax rate divided by average IFRS
shareholders' funds (by reference to opening and closing equity attributable
to the owners of the parent as provided in the IFRS Consolidated statement of
changes in equity for the period). It therefore measures the after allocated
tax return for shareholders generated by the Group, excluding the impact of
investment volatility, economic assumption changes caused by changes in market
conditions or expectations, and exceptional items. In the current period,
operating ROE was quantified using annualised adjusted profit after tax of
£1,380m (30 June 2023: £1,386m; 31 December 2023: £1,250m) and average
equity attributable to the owners of the parent of £3,897m (30 June 2023:
£4,839m; 31 December 2023: £4,699m), based on an opening balance of £4,331m
and a closing balance of £3,463m (30 June 2023: based on an opening balance
of £5,067m and a closing balance of £4,610m; 31 December 2023: based on an
opening balance of £5,067m and a closing balance of £4,331m).
Assets under Management (AUM)
Assets under management represent funds which are managed by our fund managers
on behalf of investors. It represents the total amount of money investors have
trusted with our fund managers to invest across our investment products. AUM
include assets which are reported in the Group Consolidated Balance Sheet as
well as third-party assets that Asset Management manage on behalf of others,
and assets managed by third parties on behalf of the Group.
Following the implementation of the new divisional organisation announced on
12 June 2024, and the creation of a single Asset Management division bringing
LGIM and LGC together, the determination of AUM has been updated to also
include external assets managed by fund managers classified as associates and
joint ventures in line with IAS 28, 'Investments in Associates and Joint
Ventures'.
Note 5.03 Reconciliation of assets under management to Consolidated Balance
Sheet reconciles Total AUM with Total financial investments, investment
property and cash and cash equivalents.
Adjusted profit before tax attributable to equity holders
Adjusted profit before tax attributable to equity holders is equal to profit
before tax attributable to equity holders plus the pre-tax results of
discontinued operations.
Note 2.02 Operating profit reconciles adjusted profit before tax attributable
to equity holders to profit for the year. In absence of discontinued
operations, adjusted profit before tax attributable to equity holders is equal
to profit before tax attributable to equity holders.
APMs derived from Solvency II measures
The Group is required to measure and monitor its capital resources on a
regulatory basis and to comply with the minimum capital requirements of
regulators in each territory in which it operates. At a Group level, Legal
& General has to comply with the requirements established by the Solvency
II Framework Directive, as adopted by the PRA.
Solvency II surplus
Solvency II surplus is the excess of Eligible Own Funds over the Solvency
Capital Requirements. It represents the amount of capital available to the
Group in excess of that required to sustain it in a 1-in-200 year risk event.
The Group's Solvency II surplus is based on the Partial Internal Model,
Matching Adjustment and Transitional Measures on Technical Provisions (TMTP).
Differences between the Solvency II surplus and its related regulatory basis
include the impact of TMTP recalculation when it is not approved by the PRA,
incorporating impacts of economic conditions as at the reporting date, and the
inclusion of unaudited profits (or losses) of financial firms, which are
excluded from regulatory Own Funds. This view of Solvency II is considered to
be representative of the shareholder risk exposure and the Group's real
ability to cover the Solvency Capital Requirement (SCR) with Eligible Own
Funds. It also aligns with management's approach to dynamically manage its
capital position.
Further details on Solvency II surplus and its calculation are included in
Note 6.01 Group regulatory capital - Solvency II. This note also includes a
reconciliation between IFRS equity and Solvency II Own Funds.
Solvency II capital coverage ratio
Solvency II capital coverage ratio is one of the indicators of the Group's
balance sheet strength. It is determined as Eligible Own Funds divided by the
SCR, and therefore represents the number of times the SCR is covered by
Eligible Own Funds. The Group's Solvency II capital coverage ratio is based on
the Partial Internal Model, Matching Adjustment and TMTP.
Differences between the Solvency II capital coverage ratio and its related
regulatory basis include the impact of TMTP recalculation when it is not
approved by the PRA, incorporating impacts of economic conditions as at the
reporting date, and the inclusion of unaudited profits (or losses) of
financial firms, which are excluded from regulatory Own Funds. This view of
Solvency II is considered to be representative of the shareholder risk
exposure and the Group's real ability to cover the SCR with Eligible Own
Funds. It also aligns with management's approach to dynamically manage its
capital position.
Further details on Solvency II capital coverage ratio and its calculation are
included in Note 6.01 Group regulatory capital - Solvency II.
Solvency II operational surplus generation
Solvency II operational surplus generation is the expected surplus generated
from the assets and liabilities in-force at the start of the year. It is based
on assumed real world returns and best estimate non-market assumptions, and it
includes the impact of management actions to the extent that, at the start of
the year, these were reasonably expected to be implemented over the year.
It excludes operating variances, such as the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix. It also excludes market movements,
which represent the impact of changes in investment market conditions during
the period and changes to future economic assumptions. The Group considers
this measure meaningful to stakeholders as it enhances the understanding of
its operating performance over time and serves as an indicator on the
longer-term components of the movements in the Group's Solvency II surplus.
Note 6.01 Group regulatory capital - Solvency II includes an analysis of
change for the Group's Solvency II surplus, showing the contribution of
Solvency II operational surplus generation as well as other items to the
Solvency II surplus during the reporting period.
Glossary
* These items represent an alternative performance measure (APM).
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
A financial measure of historic or future financial performance, financial
position, or cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II.
Annual premiums
Premiums that are paid regularly over the duration of the contract such as
protection policies.
Annualised net new revenue (ANNR)
ANNR provides an insight into the organic growth of an asset manager,
excluding the impact of investment markets. It reflects the combined effect
of inflows and outflows to assets under management and the fee rates on those
flows.
ANNR is calculated as the annualised revenue on new monies invested by our
Asset Management clients in the year, minus the annualised revenue on existing
monies divested by our clients in the year, plus or minus the annualised
revenue on switches between asset classes/strategies by our clients in the
year. Annualised revenue is the amount of investment management fees we would
expect on the fund flow in one calendar year.
Annuity
Regular payments from an insurance company made for an agreed period of time
(usually up to the death of the recipient) in return for either a cash lump
sum or a series of premiums which the policyholder has paid to the insurance
company during their working lifetime.
Assets under administration (AUA)
Assets administered by Legal & General, which are beneficially owned by
clients and are therefore not reported on the Consolidated Balance Sheet.
Services provided in respect of assets under administration are of an
administrative nature, including safekeeping, collecting investment income,
settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
A long-term contract under which the policyholder (a registered UK pension
scheme) pays a day-one premium and in return receives a contractually fixed
and/or inflation-linked set of payments over time from the insurer.
Back book acquisition
New business transacted with an insurance company which allows the business to
continue to utilise Solvency II transitional measures associated with the
business.
CAGR
Compound annual growth rate.
Common Contractual Fund (CCF)
An Irish regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of achieving
cost savings, enhanced returns and operational efficiency through economies of
scale. A CCF is an unincorporated body established under a deed where
investors are "co-owners" of underlying assets which are held pro rata with
their investment. The CCF is authorised and regulated by the Central Bank of
Ireland.
Contract boundaries
Cash flows are within the boundary of an insurance contract if they arise from
substantive rights and obligations that exist during the reporting period in
which the Group can compel the policyholder to pay the premiums or has a
substantive obligation to provide the policyholder with insurance contract
services.
Contractual Service Margin (CSM)
The CSM represents the unearned profit the Group will recognise for a group of
insurance contracts, as it provides services under the insurance contract. It
is a component of the asset or liability for the contracts and it results in
no income or expense arising from initial recognition of an insurance
contract. Therefore, together with the risk adjustment, the CSM provides a
view of both stored value of our in-force insurance business, and the growth
derived from new business in the current year. A CSM is not set up for groups
of contracts assessed as onerous.
The CSM is released as profit as the insurance services are provided.
Core earnings per share (Core EPS)*
Refer to the alternative performance measures section.
Core operating profit*
Refer to the alternative performance measures section.
Coverage Period
The period during which the Group provides insurance contract services. This
period includes the insurance contract services that relate to all premiums
within the boundary of the insurance contract.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA. Ratings are usually issued by a
credit rating agency (e.g. Moody's or Standard & Poor's) or a credit
bureau.
Deduction and aggregation (D&A)
A method of calculating Group solvency on a Solvency II basis, whereby the
assets and liabilities of certain entities are excluded from the Group
consolidation. The net contribution from those entities to Group Own Funds is
included as an asset on the Group's Solvency II balance sheet. Regulatory
approval has been provided to recognise the (re)insurance subsidiaries in the
US and Bermuda on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a specified
monthly benefit on retirement that is predetermined by a formula based on the
employee's earnings history, tenure of service and age, rather than depending
directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are determined
by agreed levels of contributions paid into the fund by the member and
employer. They provide benefits based upon the money held in each individual's
plan specifically on behalf of each member. The amount in each plan at
retirement will depend upon the investment returns achieved as well as the
member and employer contributions.
Derivatives
Contracts usually giving a commitment or right to buy or sell assets on
specified conditions, for example on a set date in the future and at a set
price. The value of a derivative contract can vary. Derivatives can generally
be used with the aim of enhancing the overall investment returns of a fund by
taking on an increased risk, or they can be used with the aim of reducing the
amount of risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another
party, represent an exposure to untraded and often less volatile asset
classes. Direct investments also include physical assets, bilateral loans and
private equity, but exclude hedge funds.
Earnings per share (EPS)
A common financial metric which can be used to measure the profitability and
strength of a company over time. It is calculated as total shareholder profit
after tax divided by the weighted average number of shares outstanding during
the year.
Eligible Own Funds
The capital available to cover the Group's Solvency Capital Requirement.
Eligible Own Funds comprise the excess of the value of assets over
liabilities, as valued on a Solvency II basis, plus high quality hybrid
capital instruments, which are freely available (fungible and transferable) to
absorb losses wherever they occur across the Group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which employees report
that they are happy working at Legal & General. It is measured as part of
our Voice surveys, which also include questions on commitment to the goals of
Legal & General and the overall success of the company.
ETF
Our Asset Management division's European Exchange Traded Fund platform.
Euro Commercial Paper
Short-term borrowings with maturities of up to 1 year typically issued for
working capital purposes.
Expected credit losses (ECL)
For financial assets measured at amortised cost or FVOCI, a loss allowance
defined as the present value of the difference between all contractual cash
flows that are due and all cash flows expected to be received (i.e. the cash
shortfall), weighted based on their probability of occurrence.
Fair value through other comprehensive income (FVOCI)
A financial asset that is measured at fair value in the Consolidated Balance
Sheet and reports gains and losses arising from movements in fair value within
the Consolidated Statement of Comprehensive Income as part of the total
comprehensive income or expense for the year.
Fair value through profit or loss (FVTPL)
A financial asset or financial liability that is measured at fair value in the
Consolidated Balance Sheet and reports gains and losses arising from movements
in fair value within the Consolidated Income Statement as part of the profit
or loss for the year.
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted estimates of
future cash flows, discounted to present value to reflect the time value of
money and financial risks, plus the risk adjustment for non-financial risk.
Full year dividend
Full year dividend is the total dividend per share declared for the year
(including interim dividend but excluding, where appropriate, any special
dividend).
Generally accepted accounting principles (GAAP)
A widely accepted collection of guidelines and principles, established by
accounting standard setters and used by the accounting community to report
financial information.
Institutional Retirement new business
Single premiums arising from pension risk transfers and the notional size of
longevity insurance transactions, based on the present value of the fixed leg
cash flows discounted at the SONIA curve.
Insurance new business
New business arising from new policies written on retail protection products
and new deals and incremental business on Group protection products.
Irish Collective Asset-Management Vehicle (ICAV)
A legal structure investment fund, based in Ireland and aimed at European
investment funds looking for a simple, tax-efficient investment vehicle.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the
business can be measured effectively. The Group Board reviews the KPIs
annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to
meet all liabilities, both current and future. This form of investing is most
prominent in final salary pension plans, whose liabilities can often reach
into billions of pounds for the largest of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and over. It is a
mortgage loan secured against the customer's house. Customers do not make any
monthly payments and continue to own and live in their house until they move
into long-term care or on death. A no negative equity guarantee exists such
that if the house value on repayment is insufficient to cover the outstanding
loan, any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the risk profile of
pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II
balance sheets. This adjustment reflects the fact that the profile of assets
held is sufficiently well-matched to the profile of the liabilities, that
those assets can be held to maturity, and that any excess return over
risk-free (that is not related to defaults) can be earned regardless of asset
value fluctuations after purchase.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and
calculating liabilities for future policyholders of life and annuity products,
which contain mortality risks.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions produced
and carbon emissions removed from the atmosphere.
Onerous contracts
An insurance contract is onerous at the date of initial recognition if the
fulfilment cash flows allocated to the contract, any previously recognised
acquisition cash flows and any cash flows arising from the contract at the
date of initial recognition, in total are a net outflow.
Open Ended Investment Company (OEIC)
A type of investment fund domiciled in the United Kingdom that is structured
to invest in stocks and other securities, authorised and regulated by the
Financial Conduct Authority (FCA).
Operating Return on Equity (Operating ROE)*
Refer to the alternative performance measures section.
Overlay assets
Derivative assets that are managed alongside the physical assets held by the
Group's Asset Management's division. These instruments include interest rate
swaps, inflation swaps, equity futures and options. These are typically used
to hedge risks associated with pension scheme assets during the derisking
stage of the pension life cycle.
Paris Agreement
An agreement within the United Nations Framework Convention on Climate Change
effective 4 November 2016. The Agreement aims to limit the increase in average
global temperatures to well below 2°C, preferably to 1.5°C, compared to
pre-industrial levels.
Pension risk transfer (PRT)
Bulk annuities bought by entities that run final salary pension schemes to
reduce their responsibilities by closing the schemes to new members and
passing the assets and obligations to insurance providers.
Persistency
Persistency is a measure of Asset Management client asset retention,
calculated as a function of net flows and closing AUM.
For insurance, persistency is the rate at which policies are retained over
time and therefore continue to contribute premium income and assets under
management.
Platform
Online services used by intermediaries and consumers to view and administer
their investment portfolios. Platforms usually provide facilities for buying
and selling investments (including, in the UK products such as Individual
Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life
insurance) and for viewing an individual's entire portfolio to assess asset
allocation and risk exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted value of
annual premiums expected to be received over the term of the contracts using
the same economic and operating assumptions used for the new business value at
the end of the financial period. The discounted value of longevity insurance
regular premiums and quota share reinsurance single premiums are calculated on
a net of reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the premiums
associated with new business written in the year.
Private Markets
Private Markets encompass a wide variety of tangible debt and equity
investments, primarily real estate, infrastructure and energy. They have the
ability to serve as stable sources of long-term income in weak markets, while
also providing capital appreciation opportunities in strong markets.
Proprietary assets
Total investments to which shareholders are directly exposed, minus derivative
assets, loans, and cash and cash equivalents.
Qualifying Investor Alternative Investment Fund (QIAIF)
An alternative investment fund regulated in Ireland targeted at sophisticated
and institutional investors, with minimum subscription and eligibility
requirements. Due to not being subject to many investment or borrowing
restrictions, QIAIFs present a high level of flexibility in their investment
strategy.
Retail Retirement new business
Single premiums arising from annuity sales and individual annuity back book
acquisitions and the volume of lifetime and retirement interest only mortgage
lending.
Retirement Interest Only Mortgage (RIO)
A standard retirement mortgage available for non-commercial borrowers above 55
years old. A RIO mortgage is very similar to a standard interest-only
mortgage, with two key differences:
- The loan is usually only paid off on death, move into long-term care or sale
of the house.
- The borrowers only have to prove they can afford the monthly interest
repayments and not the capital remaining at the end of the mortgage term.
No repayment solution is required as repayment defaults to sale of property.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk adjustment
The risk adjustment reflects the compensation that the Group would require for
bearing uncertainty about the amount and timing of the cash flows that arises
from non-financial risk after diversification. We have calibrated the Group's
risk adjustment using a Value at Risk (VAR) methodology. In some cases, the
compensation for risk on reinsured business is linked directly to the price
paid for reinsurance. The risk adjustment is a component of the insurance
contract liability, and it is released as profit if experience plays out as
expected.
Risk appetite
The aggregate level and types of risk a company is willing to assume in its
exposures and business activities in order to achieve its business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the terms of the
policy do not anticipate more than one premium being paid over its lifetime,
such as in individual and bulk annuity deals.
Société d'Investissement à Capital Variable (SICAV)
A publicly traded open-end investment fund structure offered in Europe and
regulated under European law.
Solvency II
These are insurance regulations designed to harmonise EU insurance regulation.
Primarily this concerns the amount of capital that European insurance
companies must hold under a measure of capital and risk. Solvency II became
effective from 1 January 2016. The Group complies with the requirements
established by the Solvency II Framework Directive, as adopted by the
Prudential Regulation Authority (PRA) in the UK, and measures and monitors its
capital resources on this basis.
Solvency II capital coverage ratio*
Refer to the alternative performance measures section.
Solvency II capital coverage ratio - regulatory basis
The Eligible Own Funds on a regulatory basis divided by the Group solvency
capital requirement. This represents the number of times the SCR is covered by
Eligible Own Funds.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II
surplus emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
Solvency II Operational Surplus Generation*
Refer to the alternative performance measures section.
Solvency II risk margin
An additional liability required in the Solvency II balance sheet, to ensure
the total value of technical provisions is equal to the current amount a
(re)insurer would have to pay if it were to transfer its insurance and
reinsurance obligations immediately to another (re)insurer. The value of the
risk margin represents the cost of providing an amount of Eligible Own Funds
equal to the Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over the
lifetime thereof.
Solvency II surplus*
Refer to the alternative performance measures section.
Solvency II surplus - regulatory basis
The excess of Eligible Own Funds on a regulatory basis over the SCR. This
represents the amount of capital available to the company in excess of that
required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a
1-in-200 year risk event.
Specialised Investment Fund (SIF)
An investment vehicle regulated in Luxembourg targeted to well-informed
investors, providing a great degree of flexibility in organization, investment
policy and types of underlying assets in which it can invest.
Total shareholder return (TSR)
A measure used to compare the performance of different companies' stocks and
shares over time. It combines the share price appreciation and dividends paid
to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
An adjustment to Solvency II technical provisions to bring them into line with
the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis
switched over, to smooth the introduction of the new regime. This decreases
linearly over the 16 years following Solvency II implementation but may be
recalculated to allow for changes impacting the relevant business, subject to
agreement with the PRA.
Yield
A measure of the income received from an investment compared to the price paid
for the investment. It is usually expressed as a percentage.
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