TIDMLGEN
RNS Number : 4470C
Legal & General Group Plc
28 June 2016
LEGAL & GENERAL: STRONG CAPITAL AND CASH GENERATION,
RESILIENT ASSET PORTFOLIO
In light of the significant market volatility following the
outcome of the EU Referendum, Legal & General Group plc ("Legal
& General" or "the Company") is updating the market on its
balance sheet strength: specifically its Solvency II ratio, credit
portfolio, derisking actions and providing cash generation guidance
for the half year.
Our Solvency II surplus is c.GBP4.9bn(1) , we expect our net
cash for half year 2016 to be up 15% and we run an 'A minus' rated
credit portfolio of GBP44.8bn(2) .
Legal & General's central planning scenario, ahead of the
Referendum, was for a 50-50 probability of a vote for the UK to
leave. We positioned our balance sheet accordingly to reduce risk
for our customers and shareholders. We undertook a number of
derisking actions in respect of our asset portfolios, including the
traded equities held within our shareholder funds, before the
Referendum to mitigate our balance sheet against the downside risk
of a "leave" vote.
Surplus Solvency II capital of around GBP5bn:
We have a strong regulatory capital balance sheet.
We estimate, based on market conditions at 4:30pm on 27 June
2016, the Group's Solvency II coverage ratio (PRA basis) was
c.156%(1) with Eligible Own Funds of c.GBP13.7bn, SCR of c.GBP8.8bn
and hence a surplus of c.GBP4.9bn.
The year-end 2015 Solvency II balance sheet (PRA basis) had a
coverage ratio of 169%(3) with Eligible Own Funds of GBP13.5bn and
a Solvency Capital Requirement ("SCR") of GBP8.0bn resulting in a
surplus of GBP5.5bn.
Changes in the first half of 2016 include the payment of the
2015 final dividend of GBP592m reduced the coverage ratio by c.7%
points and the acquisition of the GBP2.9bn UK annuity portfolio
from Aegon reduced surplus by c.GBP50m and the coverage ratio by
c.3% points. The increase in the SCR from year-end 2015 has largely
been driven by the fall in risk free rates.
Overall, our Solvency II balance sheet has demonstrated its
resilience to market volatility, including that caused to date by
the EU Referendum outcome.
well-diversified ASSET PORTFOLIO:
Our global credit team keeps our portfolios under continuous
review and in recent months has actively de-risked the credit
component of Eligible Own Funds as well as Legal & General
Retirement's ("LGR's") GBP44.8bn(2) 'A minus' rated bond portfolio.
This has included selling sub-investment grade credit and reducing
our exposure to European banks' subordinated debt. The portfolio is
well diversified by sector and by geography.
Bank holdings represented 4.9% of the LGR bond portfolio as at
31 May 2016, with very limited exposure to either Tier 1 or
sub-investment grade. Further detail on the assets backing the
annuity portfolio are available in the appendix to this
release.
We have not taken any action as a result of the downgrade of UK
Sovereign debt by Moody's, Standard & Poor's and Fitch because
we had already treated UK Sovereign debt as AA rated in our
internal model.
Additionally, we hold a GBP2.3bn IFRS provision for defaults on
LGR's portfolio, of which less than GBP10m has been used in the
last five years.
We currently hold c.GBP3.3bn of cash and cash equivalents within
our Eligible Own Funds excluding cash held within our With-profits
funds.
strong OPERATIONAL AND NET Cash GENERATION:
The Company remains strongly cash-generative. In the first half
of 2016, we expect the Group's operational cash generation to be up
c.5% to c.GBP655m and net cash generation to be up c.15% to
c.GBP720m.
CONSISTENT AND SUCESSFUL STRATEGY:
We are executing our clear and focused strategy based on five
key long term growth drivers: Ageing populations, Globalisation of
asset markets, Creation of new real assets, Welfare reform and
Digital. This strategy is resilient and we see these trends as
substantially unaffected by the EU Referendum result.
(1.) Assumes that Transitional Measures for Technical Provisions
are recalculated. The Solvency II ratio adjusting for the Own Funds
and SCR of the With-profits fund was c.160% at 4:30pm on 27 June
2016
(2.) As at 31 May 2016
(3.) The Solvency II ratio adjusting for the Own Funds and SCR
of the With-profits fund was c.175% at year-end 2015
APPICES:
Details of the rating and sector diversification split of that
portfolio are shown in the tables below.
Legal & General Retirement ("LGR") annuity bond portfolio
analysed by credit rating (unaudited):
As at 31 Externally Internally Total LGR % of LGR
May 2016 rated bonds rated bonds, bond portfolio bond portfolio
GBPm direct investments
and CDOs
------------- ------------- -------------------- ---------------- ----------------
AAA 1,521.9 6.8 1,528.7 3%
------------- ------------- -------------------- ---------------- ----------------
AA 11,272.8 1,647.7 12,920.5 29%
------------- ------------- -------------------- ---------------- ----------------
A 13,120.7 2,534.4 15,655.1 35%
------------- ------------- -------------------- ---------------- ----------------
BBB 11,480.5 1,770.0 13,250.5 30%
------------- ------------- -------------------- ---------------- ----------------
BB or below 1,108.2 351.3 1,459.5 3%
------------- ------------- -------------------- ---------------- ----------------
Total 38,504.1 6,310.2 44,814.3 100%
------------- ------------- -------------------- ---------------- ----------------
% 86% 14% 100%
------------- ------------- -------------------- ---------------- ----------------
LGR annuity bond portfolio analysed by sector (unaudited):
GBPm As at 31 % of LGR
May 2016 bond portfolio
------------------------------ ---------- ----------------
Sovereigns 6,197.1 14%
------------------------------ ---------- ----------------
Supras, Sub-Sovereigns 1,310.2 3%
------------------------------ ---------- ----------------
Banks 2,182.1 5%
------------------------------ ---------- ----------------
Financial Services 1,092.8 2%
------------------------------ ---------- ----------------
Insurance 790.8 2%
------------------------------ ---------- ----------------
Utilities 4,785.6 11%
------------------------------ ---------- ----------------
Consumer Services and Goods
& Healthcare 5,026.4 11%
------------------------------ ---------- ----------------
Technology & Telecoms 2,749.1 6%
------------------------------ ---------- ----------------
Industrials & Oil and Gas 4,012.9 9%
------------------------------ ---------- ----------------
Property 1,753.7 4%
------------------------------ ---------- ----------------
Securitisations & Debentures
and Asset Backed Securities 13,583.8 30%
------------------------------ ---------- ----------------
CDOs 1,329.8 3%
------------------------------ ---------- ----------------
44,814.3 100%
------------------------------ ---------- ----------------
-S -
For further information, please contact:
Investors:
Laura Doyle Head of Investor Relations 020 3124 2088
Stephen Thomas Investor Relations Manager 020 3124 2047
Media:
John Godfrey Corporate Affairs Director 020 3124 2090
Richard King Head of Group Corporate Communications 020 3124
2095
Notes to editors:
Legal & General Group Plc
Established in 1836, Legal & General is a leading provider
of insurance, savings and investment management products in the UK.
The Group has a market capitalisation of GBP10.2bn (as at 27 June
2016) and is responsible for investing GBP746bn worldwide (as at 31
December 2015) on behalf of investors, policyholders and
shareholders. Legal & General has over seven million customers
in the UK for life assurance, pensions, investments and general
insurance plans and over one million customers in the US who rely
on us for life assurance. In 2015, Legal & General's operating
profit (on the IFRS basis) was GBP1,455m and adjusted earnings per
share were 18.58p for the period, an increase of 14% and 11%
respectively.
For more information on Legal & General, please see
http://www.legalandgeneralgroup.com/
Forward-looking statements
This announcement may contain certain forward-looking statements
relating to Legal & General, its plans and its current goals
and expectations relating to future financial condition,
performance and results. By their nature, forward-looking
statements involve uncertainty because they relate to future events
and circumstances which are beyond Legal & General's control,
including, among others, UK domestic and global economic and
business conditions, market related risks such as fluctuations in
interest rates and exchange rates, the policies and actions of
regulatory and Governmental authorities, the impact of competition,
the timing impact of these events and other uncertainties of future
acquisition or combinations within relevant industries. As a
result, Legal & General's actual future condition, performance
and results may differ materially from the plans, goals and
expectations set out in these forward-looking statements and
persons reading this announcement should not place reliance on
forward-looking statements. These forward-looking statements are
made only as at the date on which such statements are made and
Legal & General Group Plc does not undertake to update
forward-looking statements contained in this announcement or any
other forward-looking statement it may make.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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