Legal & General Group Plc L&G FY 2014 Results -8-
04 März 2015 - 8:01AM
UK Regulatory
Supplementary EEV disclosure.
EEV highlights 2014 2013
Pence
--------------------------------- ----- -----
Equity per share including LGIM 212 190
--------------------------------- ----- -----
Equity per share 185 162
--------------------------------- ----- -----
Analysis of EEV results 2014 2013
GBPm
---------------------------------------------------- ------ ------
Contribution from new business 850 651
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Intra-group transfer of annuities from With-Profit
to Non-Profit Fund 100 -
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Expected return from in-force business 490 426
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Experience variances and assumption changes (185) (32)
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Development costs (32) (40)
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Contribution from shareholder net worth 194 125
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EEV operating profit on covered business 1,417 1,130
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Business reported on an IFRS basis 164 211
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EEV operating profit 1,581 1,341
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Economic variances 790 215
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Losses attributable to non-controlling interests 7 13
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EEV profit before tax 2,378 1,569
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Tax and other (362) (270)
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EEV profit after tax 2,016 1,299
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EEV PER SHARE
The Group delivered GBP2,016m of EEV profit after tax, which
after external dividend payments in the year of GBP580m and foreign
exchange, pension deficit and other adjustments of GBP(45)m,
increased EEV shareholders' equity to GBP10,975m (2013: GBP9,586m),
equivalent to 185p per share (2013: 162p per share). Including
LGIM's external funds in the calculation increases the EEV per
share to 212p (2013: 190p).
NEW BUSINESS CONTRIBUTION
Contribution from new business increased to GBP850m (2013:
GBP651m). The increase reflects the strong increase in the
contribution from Legal & General Retirement, where sales
increased to GBP6.6bn (2013: GBP4.1bn), excluding the internal
transfer of annuities from with-profits to our shareholder fund in
July.
Worldwide EEV new business margin increased to 5.8% (2013: 5.1%)
primarily due to the higher mix and improved margin of our annuity
business.
EEV OPERATING PROFIT
EEV operating profit increased by 18% to GBP1,581m (2013:
GBP1,341m), as the Group benefited from its growth strategy and
higher sales. Experience variances and assumption changes were
GBP(185)m (2013: GBP(32)m) with positive experience and assumption
changes in LGAS and LGR being more than offset by negative
operating assumption changes in LGA of GBP(241)m. LGA has adjusted
its mortality embedded value assumptions to reflect the potential
impact of industry wide mortality tables issued for consultation in
the second half of 2014.
Operating profit also benefited from strong results in
Investment Management and General Insurance which are largely
reported on an IFRS basis within the EEV operating profit.
ECONOMIC VARIANCES
Positive economic variances of GBP790m (2013: GBP215m) arose
from a number of factors including gains of GBP0.8bn resulting from
a reduction in the UK risk discount rate to 5.5% (2013: 6.8%) and
GBP0.2bn arising from equity market gains, offset by GBP(0.4)bn
resulting from the reduction in the UK risk free rate to 2.2%
(2013: 3.4%) impacting expected longer-term investment returns.
VALUE OF IN-FORCE
The table below illustrates how the discounted and undiscounted
value of in-force (VIF) has increased throughout the year.
Reconciliation of LGAS and LGR VIF Discounted Undiscounted(1)
GBPbn
--------------------------------------------------- ----------- ----------------
Opening VIF at 1 January 2014 4.9 10.5
--------------------------------------------------- ----------- ----------------
Contribution from new business 0.6 1.4
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Intragroup transfer from with-profit to
non-profit fund 0.1 0.2
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Unwind of discount rate 0.3 n/a
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Expected release from non profit and with-profits
businesses(2) (0.7) (0.8)
--------------------------------------------------- ----------- ----------------
Experience variances / assumption changes - 0.2
--------------------------------------------------- ----------- ----------------
Investment variance / economic assumption
changes 0.9 0.6
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Other 0.2 -
--------------------------------------------------- ----------- ----------------
Closing VIF at 31 December 2014 6.3 12.1
--------------------------------------------------- ----------- ----------------
1. Management estimates.
2. Comprises the expected release from non-profit business of
GBP645m and with-profits transfer of GBP43m.
ADDITIONAL VALUE OF LGIM
Within the calculation of Group embedded value, LGIM profits on
internally sourced business are included on a look through basis at
GBP0.4bn (2013: GBP0.3bn), equivalent to 6p per share (2013: 5p per
share).
The external assets component of LGIM is included at the IFRS
net asset value of GBP0.5bn (2013: GBP0.4bn), equivalent to 8p per
share (2013: 7p per share).
Including the external assets component of LGIM on an embedded
value basis would increase the contribution of LGIM to the Group
embedded value from GBP0.9bn (14p per share) to GBP2.5bn (41p per
share). In line with the rest of the Group, the embedded value for
LGIM excludes any value for future new business.
Estimated LGIM discounted cash flow valuation 2014 2014
p per share GBPbn
----------------------------------------------- ------------- ------
Look through value of profits on covered
business 6 0.4
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Net asset value 8 0.5
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Current value of LGIM in Group embedded
value 14 0.9
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LGIM VIF 27 1.6
----------------------------------------------- ------------- ------
Alternative discounted value of LGIM future
cash flows 41 2.5
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Including LGIM, this scenario equates to an indicative valuation
per share of 212p (2013: 190p).
Indicative valuation including LGIM 2014 2014
p per share GBPbn
------------------------------------- ------------ ------
EEV as reported 185 11.0
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LGIM VIF 27 1.6
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Total including LGIM 212 12.6
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PRINCIPAL RISKS AND UNCERTAINTIES.
Legal & General runs a portfolio of risk taking businesses;
we accept risk in the normal course of business and aim to deliver
sustainable returns on risk based capital to our investors in
excess of our cost of capital. We manage the portfolio of risk that
we accept to build a sustainable franchise for the interests of all
our stakeholders; we do not aim to eliminate that risk. We have an
appetite for risks that we understand deeply and are rewarded for,
and which are consistent with delivery of our strategic objectives.
Risk management is embedded within the business. The Group is
exposed to a number of key risk categories.
RISKS AND UNCERTAINTIES trend, outlook and MITIGATION
Reserves for long-term business We regularly appraise the
may require revision as a assumptions underpinning the
result of changes in experience, business that we write. In
regulation or legislation. our annuities business we
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