Legal & General Group Plc L&G FY 2014 results -9-
04 März 2015 - 8:02AM
UK Regulatory
2014 2013
GBPm GBPm
Profit before tax attributable to equity
holders 1,238 1,144
Tax calculated at 21.5% (2013:
23.25%) 266 266
Effects of:
Adjustments in respect of prior years 8 4
Income not subject to tax, such as dividends (9) (6)
Change in valuation of tax losses (6) (19)
Higher rate of tax on profits taxed
overseas 8 23
Additional allowances/non-deductible
expenses (7) (11)
Impact of reduction in UK corporate tax rate to 20%
(2013: 20%/21%) on deferred tax balances - 3
Differences between taxable and accounting investment gains
e.g. RPI relief (15) (19)
Other 1 (3)
Tax attributable to equity
holders 246 238
Equity holders' effective tax
rate(1) 19.9% 20.8%
1. Equity holders' effective tax rate is calculated by dividing the tax
attributable to equity holders over profit before tax attributable to
equity holders.
(b) Deferred Tax
2014 2013
(i) UK deferred tax (liabilities)/ GBPm GBPm
assets
Realised and unrealised gains on investments (168) (160)
Excess of depreciation over capital allowances 19 24
Excess expenses(1) 105 192
Deferred acquisition expenses (61) (72)
Difference between the tax and accounting value of insurance
contracts (143) (70)
Accounting provisions 3 8
Trading losses(2) 45 93
Pension fund deficit 98 93
Purchased interest in long term business (24) (26)
Net UK deferred tax (liabilities)/ assets(3) (126) 82
(ii) Overseas deferred tax (liabilities)/ assets
Realised and unrealised gains on investments (53) (33)
Deferred acquisition expenses (295) (241)
Difference between the tax and accounting value of insurance
contracts (242) (229)
Accounting provisions (20) (17)
Trading losses 186 158
Purchased interest in long term business (10) -
Net Overseas deferred tax liabilities (434) (362)
1. The reduction in the deferred tax asset on excess expenses reflects
the full utilisation of excess management expenses together with the
unwind of the spread acquisition expenses relating to changes in the
I-E legislation.
2. The reduction in the deferred tax asset primarily reflects utilisation
of brought forward trading losses against LGAS and LGR taxable profits
(GBP71m) partly offset by additional tax losses.
3. The move to a net deferred tax liability provision in the UK reflects
the continued utilisation of tax losses and corresponding reduction
in deferred tax asset while the deferred tax liability on actuarial
reserves has increased. On the Consolidated Balance Sheet the net UK
deferred tax liability has been split between an asset of GBP54m and
a liability of GBP180m where the relevant items cannot be offset.
IFRS and Cash 52
2.23 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.
In 1975, Legal and General Assurance Society Limited (the
Society) was required by the Institute of London Underwriters (ILU)
to execute the ILU form of guarantee in respect of policies issued
through the ILU's Policy Signing Office on behalf of NRG Victory
Reinsurance Company Ltd (Victory), a company which was then a
subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep
Holding NV (the assets and liabilities of which have since been
assumed by Nederlandse Reassurantie Groep NV under a statutory
merger in the Netherlands) acquired Victory and provided an
indemnity to the Society against any liability the Society may have
as a result of the ILU's requirement, and the ILU agreed that its
requirement of the Society would not apply to policies written or
renewed after the acquisition. Nederlandse Reassurantie Groep NV is
now owned by Columbia Insurance Company, a subsidiary of Berkshire
Hathaway Inc. Whether the Society has any liability as a result of
the ILU's requirement and, if so, the amount of its potential
liability is uncertain. The Society has made no payment or
provision in respect of this matter.
Group companies have given indemnities and guarantees as a
normal part of their business and operating activities or in
relation to capital market transactions. Legal & General Group
Plc has provided indemnities and guarantees in respect of the
liabilities of Group companies in support of their business
activities, including Pension Protection Fund compliant guarantees
in respect of certain Group companies' liabilities under the Group
pension fund and scheme.
IFRS and Cash 53
2.24 Basis of preparation
The Group financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) issued by
the International Accounting Standards Board (IASB) as adopted by
the European Union, and with those parts of the UK Companies Act
2006 applicable to companies reporting under IFRS. The Group
financial statements also comply with IFRS and interpretations by
the IFRS Interpretations Committee as issued by the IASB as adopted
by the European Union. The Group financial statements have been
prepared under the historical cost convention, as modified by the
revaluation of land and buildings, available-for-sale financial
assets, and financial assets and financial liabilities (including
derivative instruments) at fair value through profit and loss.
The Group has selected accounting policies which state fairly
its financial position, financial performance and cash flows for a
reporting period. The accounting policies have been consistently
applied to all years presented, unless otherwise stated.
The Group presents its balance sheet in order of liquidity. This
is considered to be more relevant than a before and after 12 months
presentation, given the long term nature of the Group's core
business. However, for each asset and liability line item which
combines amounts expected to be recovered or settled before and
after 12 months from the balance sheet date, disclosure of the
split is made by way of a note.
Financial assets and financial liabilities are disclosed gross
in the balance sheet unless a legally enforceable right of offset
exists and there is an intention to settle recognised amounts on a
net basis. Income and expenses are not offset in the income
statement unless required or permitted by any accounting standard
or interpretations by the IFRS Interpretations Committee.
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