TIDMLGEN
RNS Number : 1618I
Legal & General Group Plc
07 August 2019
H1 2019: Operating profit up 11% to GBP1 billion, record H1
global annuity sales of GBP7 billion and LGIM net flows of GBP60
billion
Financial highlights(1)
-- Operating profit of GBP1,005m, up 11% (H1 2018: GBP909m)
-- Earnings per share of 14.74p, up 13% (H1 2018: 13.00p)
-- Return on equity at 20.2% (H1 2018: 20.3%)
-- Interim dividend(2) of 4.93p per share (H1 2018: 4.60p)
-- Profit after tax(3) up 13% to GBP874m (H1 2018: GBP771m)
-- Net release from continuing operations up 29% to GBP858m (H1 2018: GBP663m)
-- Solvency II operational surplus generation up by 17% to GBP0.8bn (H1 2018: GBP0.7bn)
-- Solvency II coverage ratio(4) of 171% (FY 2018: 188%),
impacted by discounting the balance sheet at lower interest
rates
Business highlights
-- Pension Risk Transfer sales of GBP6,677m (H1 2018: GBP735m),
including the UK's largest bulk annuity with Rolls Royce
-- Individual annuity sales up 47% to GBP497m (H1 2018: GBP337m)
-- Direct Investment up 36% at GBP22.2bn (H1 2018: GBP16.3bn)
-- LGIM AUM up 15% at GBP1,135bn (H1 2018: GBP985bn)
-- LGIM external net flows of GBP60.3bn (H1 2018: GBP14.6bn),
with significant index flows from Asian clients
-- Insurance GWP up 7% to GBP1,409m (H1 2018: GBP1,317m)
"Legal & General's five businesses collectively delivered
another strong set of results in H1 2019, with EPS rising 13% to
14.74p, operating profit up 11% to GBP1bn and a RoE of 20%.
We have a depth of management, track record and opportunities
that mean all five of our businesses should contribute to future
growth. The opportunity in global Pension Risk Transfer, retail
retirement solutions, and DC is immense and expected to continue.
The sale of Mature Savings and General Insurance enables us to
focus on businesses where we have leading market share and adjacent
businesses where we see outstanding growth potential.
Our balance sheet remains strong. We have a globally diversified
asset portfolio with minimal exposure to UK sub-investment grade
credit and a GBP3.2bn credit default reserve. H2 has started well,
building on the success of our H1 transactions including the
c.GBP4.6bn Rolls Royce PRT, GBP4bn Oxford University Future Cities
deal and c.$50bn Japanese global index win.
We are well-prepared for the full range of foreseeable Brexit
outcomes and we remain confident in our ability to deliver
Inclusive Capitalism, growing value for shareholders, customers and
the broader economy."
Nigel Wilson, Group Chief Executive
1. The Alternative Performance Measures within the Group's
financial highlights are defined in the glossary, on page 95 of
this report.
2. A formulaic approach is used to set the interim dividend,
being 30% of the prior year full year dividend.
3. Profit after tax attributable to equity holders.
4. Solvency II coverage ratio on a shareholder basis is adjusted
for the Own Funds and SCR of the With-profits fund and the Group
final salary pension schemes.
Financial summary
GBPm H1 2019 H1 2018 Growth
%
================================================= ======= ============= ======
Analysis of operating profit
Legal & General Retirement (LGR)(1) 655 480 36
- LGR Institutional (LGRI) 524 361 45
- LGR Retail (LGRR) 131 119 10
Legal & General Investment Management (LGIM) 205 203 1
Legal & General Capital (LGC) 173 172 1
Legal & General Insurance (LGI) 134 154 (13)
Continuing operating profit from divisions(2) 1,167 1,009 16
Mature Savings(3) 24 56 (57)
General Insurance(4) (5) (6) n/a
Operating profit from divisions 1,186 1,059 12
Group debt costs (108) (97) (11)
Group investment projects and expenses (73) (53) (38)
Operating profit 1,005 909 11
-------------------------------------------------- ------- ------------- ------
Investment and other variances (incl. minority
interests) 48 33 45
Profit before tax attributable to equity holders 1,053 942 12
Profit after tax attributable to equity holders 874 771 13
Earnings per share (p) 14.74 13.00 13
------- -------------
Return on equity (%) 20.2 20.3 n/a
Book value per share (p) 146 129 13
Interim dividend per share (p) 4.93 4.60 n/a
================================================== ======= ============= ======
Net release from continuing operations(2) 858 663 29
Net release from discontinued operations(3,4) 15 17 (12)
1. In 2018, Legal & General reviewed our longevity trend
assumptions against updated experience data (CMI 2016) and made a
mortality release of GBP433m in H2 2018. As in previous years, in
2019 we are reviewing our current longevity trend assumptions
against the CMI 2017 experience data and intend to make any
amendments as necessary in H2 2019.
2. Excludes Mature Savings and General Insurance.
3. Mature Savings sale to Swiss Re was announced on 6 December
2017 and the H1 2018 and H1 2019 results reflect the interim
Reinsurance Transfer Agreement.
4. General Insurance sale to Allianz announced on 31 May
2019.
H1 2019 financial performance
Income statement
Operating profit increased 11% to GBP1,005m (H1 2018:
GBP909m).
LGR delivered a 36% increase in operating profit to GBP655m (H1
2018: GBP480m), driven by profits emerging from the growing
backbook, record UK Pension Risk Transfer (PRT) volumes in H1 and
our increasing market share in individual annuities.
LGIM operating profit increased by 1% to GBP205m (H1 2018:
GBP203m). Management fee revenues grew to GBP425m (H1 2018:
GBP401m) and AUM reached GBP1,135bn (H1 2018: GBP985bn). External
net flows of GBP60.3bn (H1 2018: GBP14.6bn) have been strong in
most channels and regions with the international businesses
contributing GBP44.6bn, predominantly from Asia. Favourable market
movements of GBP55.8bn have also grown AUM. As previously guided,
LGIM has continued to invest in the diversification and
technological advancement of the business which has seen the cost
income ratio reach 53% (H1 2018: 51%).
LGC operating profit was GBP173m (H1 2018: GBP172m), reflecting
ongoing growth in the underlying direct investments portfolio,
which contributed operating profit of GBP99m (H1 2018: GBP104m),
slightly down due to a more challenging build-to-sell market
compared to H1 2018.
LGI operating profit decreased by 13% to GBP134m (H1 2018:
GBP154m), against a prior year comparator that benefited from the
one-off contribution of specific model refinements. The underlying
UK and US protection businesses continued to generate good levels
of profit and margins remain robust.
Disposed operations contributed GBP19m to operating profit. This
comprised GBP24m from Mature Savings, reflecting the unwind of
expected underlying profits, and GBP(5)m from General Insurance
which experienced higher claims inflation. Both disposals are
expected to complete in H2 2019.
Profit before tax attributable to equity holders was GBP1,053m
(H1 2018: GBP942m).
Profit before tax benefitted from a net positive investment
variance during the period (H1 2019: GBP48m, H1 2018: GBP33m) as a
result of a number of counterbalancing items, including profit on
disposal of our stake in IndiaFirst Life Insurance Company offset
by increased LGI reserve requirements due to a reduction in the
discount rate caused by falling interest rates. Consistent with
prior years, there was an accounting gain driven by the Group's
defined benefit pension scheme which includes accounting valuation
differences arising on annuity assets held by the scheme.
Net release from continuing operations([1]) was GBP858m (H1
2018: GBP663m), comprising GBP685m (H1 2018: GBP661m) release from
operations and GBP173m (H1 2018: GBP2m) new business surplus. The
increase was due to record LGR annuity new business volumes in H1
2019, which will continue to contribute to our profits and SII
operational surplus generation for several decades through release
from operations.
Balance sheet
The Group's Solvency II operational surplus generation increased
by 17% to GBP0.8bn (H1 2018: GBP0.7bn). New business strain was
GBP0.3bn (H1 2018: GBP0.1bn) reflecting significant UK annuity
volumes written at a capital strain of c.4%, which typically has a
payback period of five years, and changes in business mix. This
resulted in net surplus generation of GBP0.5bn (H1 2018:
GBP0.6bn).
After allowing for the non-economic impact of lower interest
rates on the valuation of our balance sheet[2], payment of the 2018
final dividend, which is typically c70% of the total dividends paid
during the year, and redemption of GBP400m of subordinated debt in
April 2019, the Group reported a Solvency II coverage ratio[3](,
[4]) of 171% at the end of H1 2019 (FY 2018: 188%).
In H2 2019 we expect similar levels of operational surplus
generation, significantly in excess of the GBP294m interim dividend
payment and providing capacity to write further new business.
On a proforma calculation basis(3,4) , our Solvency II coverage
ratio was 166% at the end of H1 2019 (FY 2018: 181%).
We continue to deliver a strong IFRS return on equity of 20.2%
(H1 2018: 20.3%).
Strategy overview
The Group's strategy continues to align to our six established
long term growth drivers: ageing demographics; globalisation of
asset markets; creating new real productive assets; reform of the
welfare state; technological innovation; and providing "today's
capital". These drivers have led us to participate in material,
high growth markets where we are leaders or where we can leverage
our expertise to increase our market share.
To deliver our strategy, Legal & General's operating model
comprises five businesses:
1. Legal & General Retirement Institutional (LGRI)
2. Legal & General Retirement Retail (LGRR)
3. Legal & General Investment Management (LGIM)
4. Legal & General Capital (LGC)
5. Legal & General Insurance (LGI)
Our strategy has positioned us to be a leader in the pension
asset management and insurance markets, benefitting from a mutually
reinforcing business model and unique synergies in pension
de-risking and asset manufacturing and management:
-- LGIM is the UK market leader in providing investment
management to defined benefit (DB) pension scheme clients,
specifically through index, fixed income and LDI strategies. This
provides LGRI with a strong pipeline: on average around a third of
our annual pension risk transfer (PRT) premiums are from existing
LGIM clients.[5]
-- LGRI, the market leader in UK PRT, and LGRR, a leading
provider of UK individual annuities, has GBP72.1bn of assets
predominantly managed by LGIM. This portfolio is continually being
enhanced with attractive, matching adjustment compliant direct
investments originated by LGC.
-- LGC uses the Group's shareholder capital to provide the
equity investment in, and to therefore manufacture, part of the
direct investment portfolio used to back LGRI and LGRR's annuity
liabilities, as well as creating assets for LGIM's clients.
-- LGI is a market leader in UK protection and US brokerage term
life insurance, and provides significant Solvency II benefits to
the Group by partially offsetting new business strain in LGRI and
LGRR. Additionally, the business facilitates LGRI's US PRT
transactions which are written onto the existing US balance sheet,
which supports the term business.
The synergies within our businesses drive profits and fuel
future growth, allowing the Group to regularly deliver an ROE of
c.20%.
Outlook
Our strategy and growth drivers have delivered consistently
strong returns, both dividend and ROE, for our shareholders and we
are confident they will continue to deliver growth in H2 and
further into the future to support our pursuit of inclusive
capitalism. Between 2011 and 2015 we achieved an EPS CAGR of 10%
per annum, and we are on track to deliver at least a similar
performance out to 2020, having already delivered a CAGR of 11%
since 2015.[6] As previously reported, Legal & General is well
placed to grow organically, which we will continue to enable
through ongoing judicious investment in technology across the
Group.
Our confidence in future growth and dividend paying capacity is
underpinned by the Group's strong balance sheet with GBP5.9bn in
surplus regulatory capital and significant buffers to absorb a
market downturn. We have a proven operating model which is
reinforced by robust risk management practices.
We are confident in the resilience of our balance sheet and
operations to the foreseeable range of Brexit outcomes. We have
extensively tested and prepared the balance sheet, building a
globally diversified asset portfolio with only 23% of our annuity
bond portfolio invested in UK-listed corporate credit, many of
these being multinationals. Operationally, we have Brexit
contingency plans at full readiness. For example, LGIM has secured
the relevant authorisation for our EU asset management company in
2018 and has transferred all EU regulated funds. We will continue
to monitor the market as Brexit unfolds in order to robustly manage
our businesses and asset portfolio and capitalise on opportunities
to support UK growth.
LGR's Institutional (LGRI) business participates in the rapidly
growing global pension risk transfer (PRT) market, focussing on
corporate defined benefit (DB) pension plans in the UK, the US, the
Netherlands, Ireland, and Canada, which together have more than
GBP5tn of pension liabilities.[7]
Our primary market, the UK, is the most mature; however, it
still represents an enormous opportunity as only c.8% of the GBP2.2
trillion of UK DB pension liabilities have transferred to insurance
companies.[8] UK pension advisers estimate more than GBP60bn of
demand for bulk annuities within the next two years and they expect
that number will continue to grow, against c.GBP30bn of annual
insurer capacity.[9] In order to better address demand from pension
schemes, we have bolstered our structuring expertise in order to
develop capital-light solutions. We have a strong UK pipeline,
actively quoting on more than GBP20bn of transactions, having
already completed a further GBP923m of new UK PRT in July 2019.
The US represents a significant market opportunity, with $3.5
trillion of DB liabilities, of which only c.5% have transacted to
date. In H1 we wrote our first fully retained transaction for more
than $200m, heralding a new phase of growth for our US business. We
expect increased volumes in the second half of the year, when we
have historically seen more activity. We have already written a
further $477m of US transactions in July 2019 and we are currently
quoting on $2bn of US PRT transactions. In April 2019, we wrote our
first deal in Canada through our Bermuda-based reinsurer, Legal
& General Re. As always, we will remain disciplined in the
deployment of our capital, and will only select PRT and longevity
opportunities that meet our return targets.
Ageing demographics have meant that LGR Retail's (LGRR) target
market continues to expand, both in terms of the numbers of
retirees and the levels of wealth they hold. The potential of the
Lifetime Mortgage (LTM) market is vast, with GBP1.8tn of housing
equity owned by UK individuals over the age of 55.[10] Over the
first half of 2019 the market has seen a slight slowdown in the
growth of total LTM lending, however, we do not anticipate a change
in the long-term growth trend.[11] During Q1 our volumes were down
due to increased competition, however, by Q2, our quarterly market
share recovered to 29%.11 To further bolster our LTM offering and
profits, in H2 we plan to launch our Retirement Interest-Only
Mortgage to address the growing number of individuals reaching
retirement with interest-only mortgages. In annuities, LGRR
continues to benefit from ongoing improvements to its enhanced
annuity offering which, together with further customer service
innovation, will allow us to compete effectively in the retail
annuity market. Separately, LGRR works closely with LGIM Workplace
and Personal Investing to deliver a broader range of retirement
solutions to customers.
As in previous years, we will review our longevity trend
assumptions against updated experience data and intend to make any
amendments, as necessary, in H2 2019 to reflect our analysis of the
next set of mortality tables (CMI 2017) and our specific data. Our
analysis continues to show evidence of higher than forecasted
mortality, which is effectively embedded future profit. At this
stage in our review of the CMI 2017 mortality tables, we anticipate
a mortality reserve release of over GBP200m in our 2019 full year
results.
LGIM continues to benefit from global trends in retirement
saving and the structural shifts in demand being experienced by the
asset management industry. This is driving an increase in customer
appetite for our diverse range of products and broad investment
capabilities spanning index, active, multi-asset and alternatives,
underpinned with a thoughtful approach to ESG. The strong customer
and strategic alignment of Legal & General's business units
will remain a positive source of funds for LGIM.
The business continues to grow in the UK, which has been the
bedrock of the firm's success to date. LGIM is a leading player in
providing DB de-risking solutions and the market leader in UK DC
with total assets of GBP86.4bn (H1 2018: GBP64.0bn).[12] We are
planning for the future, by broadening our DC proposition and
through further expansion in international markets.
International AUM has grown by a 28% CAGR since 2014 and is now
at GBP342.8bn (H1 2018: GBP229.3bn). In H1 2019 we secured a
GBP37bn passive mandate with the Japan Government Pension
Investment Fund, providing a long term foundation for future growth
in Japan and the broader region. This establishes LGIM as a top 3
non-domestic manager in the Japanese institutional pension
market.[13] Overall, we expect international inflows to continue in
the second half of 2019 as we leverage our growing presence in
Europe, Asia, the Gulf and the US.
We will continue to invest in a disciplined way in areas of the
business where we expect to see future growth opportunities and we
will also invest in areas where automation and simplification will
generate operational leverage and efficiency. Enhancing customers'
digital experience, optimising our investment platforms, and
utilising data analytics are at the forefront of our
endeavours.
Michelle Scrimgeour joined LGIM as CEO in July 2019 from
Columbia Threadneedle, where she was CEO for EMEA. Michelle is
spending time getting to know the business and is reviewing LGIM's
strategy. She will provide an update at the March 2020 annual
results.
LGC uses shareholder capital to achieve three clear goals. The
first is to deliver attractive financial returns for our
shareholders by creating real assets and leveraging Legal &
General's existing businesses, our network of relationships, our
brand, and our expertise. The second is to self-manufacture
matching adjustment eligible assets for LGR's growing annuity
business. Our ability to invest in equity and debt like instruments
uniquely positions us to unlock attractive returns. Finally, LGC's
asset sourcing provides third party opportunities for LGIM. LGC
will continue to seek opportunities to deploy its long-term capital
in real assets, primarily across the UK, where we see an enduring
need for private long-term capital for future cities, housing, and
innovative funding for SMEs and early stage enterprises.
Our Future Cities portfolio has invested in 12 cities across the
UK and we expect to invest further in these locations and others.
The recent announcement of our partnership with Oxford University
is an example of our ability to make meaningful investments in UK
cities. Working closely with LGIM Real Assets and with partners
around the UK, LGC will continue to apply capabilities in
infrastructure, clean energy, commercial real estate and
residential property in order to create real assets for LGR's
growing asset portfolio. Legal & General Group is well placed
to bring together on-balance sheet or third party private capital
with the development capability to make a difference to UK
cities.
LGC's housing platform continues to grow its diversified,
multi-tenure business across build-to-rent, build-to-sell, later
living and affordable housing. In our build-to-sell arm, CALA,
which has achieved revenues of over GBP400m in H1 2019, continues
to build its business under LGC's ownership. Within our Affordable
housing business, our first affordable housing contract became
operational in Croydon. The affordable market remains highly
attractive with more than 1.3 million households on UK waiting
lists for housing, with new additions to the housing stock
averaging only c.30,000 properties a year over the last 10 years.
LGC plans to deliver 3,000 affordable homes per year within the
next four years. As a registered provider of social and affordable
housing, we have focussed on accelerating our business plan to
develope, hold and manage a blend of affordable housing tenures
which include both social and affordable, rent and shared-ownership
homes under grant-supported schemes.
In SME Finance, we expect to continue to deploy our capital and
focus to support the UK venture ecosystem to help create the
businesses of tomorrow, whilst continuing our support of Pemberton
in the provision of private credit to the European mid-market.
In LGI, we anticipate continued premium growth across our UK and
US businesses. LGI operating profits in H2 2019 are expected to
exceed those of H1, resulting in a full year operating result which
is in a similar range to that of the prior year.
Our UK group protection business typically generates more new
business strain in H1 as scheme renewals often coincide with the
start of the calendar or tax year, followed by release from
operations in the following periods. This new business pattern
typically leads to H2 profits exceeding H1 profits. In our market
leading UK retail protection business we expect to continue growing
premiums and to generate good profits in H2, supported by
distribution and product enhancements.
LGI's US protection H1 new business annual premiums were
slightly down, reflecting increased competition over the period. We
expect our on-going investment in digital transformation to result
in new business growth while maintaining healthy profits.
In LGI Fintech we expect continued growth from SalaryFinance
both in the UK and the US as the business gains access to more
employees and diversifies the products and services offered. We
also expect our investments and developments in the UK mortgage
market to deliver growth as we make the journey to buy and finance
a house easier and more efficient for everyone involved.
Dividend
Legal & General has a progressive dividend policy reflecting
the Group's expected medium term underlying business growth,
including net release from operations and operating earnings. There
is no change to our dividend policy.
In line with Group's policy of using a formulaic approach to
setting the interim dividend, being 30% of the prior year full year
dividend, the Board has declared an interim dividend of 4.93p per
share.
Legal & General Retirement
FINANCIAL HIGHLIGHTS GBPm H1 2019 H1 2018
================================================ ======= ========
Release from operations 303 275
New business surplus 185 23
================================================== ======= ========
Net release from operations 488 298
Experience variances, other assumption changes,
tax and non-cash movements 167 182
================================================== ======= ========
Operating profit 655 480
- LGR Institutional (LGRI) 524 361
- LGR Retail (LGRR) 131 119
Investment and other variances (17) 85
================================================== ======= ========
Profit before tax 638 565
================================================== ======= ========
UK PRT 6,316 507
International PRT 361 228
Individual annuity single premiums 497 337
Lifetime mortgage advances 489 521
Total new business 7,663 1,593
Total annuity assets (GBPbn) 72.1 56.4
================================================== ======= ========
Operating profit up 36% to GBP655m
Operating profit increased to GBP655m (H1 2018: GBP480m), due to
record UK PRT new business volumes and strong growth in individual
annuities.
Release from operations was GBP303m (H1 2018: GBP275m), an
increase of 10%, resulting from the continued stable and consistent
performance of our growing GBP72.1bn annuity fund (H1 2018:
GBP56.4bn).
Net release from operations increased 64% to GBP488m (H1 2018:
GBP298m), reflecting new business surplus growth (H1 2019: GBP185m,
H1 2018: GBP23m) due to heightened new business volumes in H1 2019
compared to H1 2018.
In H1 2019 we wrote GBP6,813m of UK annuities (H1 2018: GBP844m)
delivering a 7.8% Solvency II new business margin with capital
strain of c.4%, in line with FY 2018 performance and reflecting our
strong pricing discipline.
We constantly evaluate the appropriateness of our longevity
trend assumptions and we are currently reviewing the CMI 2017
mortality data which we expect to complete by the end of 2019. We
will exhibit care in our assessment of longevity trends and only
recognise applicable releases as greater certainty emerges.
LGR Institutional - Global Pension Risk Transfer
In H1 2019, LGR Institutional (LGRI) completed GBP6,677m (H1
2018: GBP735m) of bulk annuities across 18 deals in the UK, US,
Ireland and Canada.
Legal & General are leaders in the UK PRT market[14] and in
H1 2019 we wrote GBP6,316m in bulk annuities (H1 2018: GBP507m),
ranging from GBP2m to the largest UK bulk annuity for more than
GBP4.6bn with Rolls Royce Pension Fund.
LGRI's brand, scale and asset origination capabilities through
synergies with, and expertise within, LGIM and LGC are critical to
our market leadership in the rapidly growing UK PRT market.
Leveraging our solutions capabilities we have written some of the
most innovative transactions in the UK, such as bulk annuities
supported by private debt issuance and transactions insuring member
options. As previously noted, we service the complete size spectrum
of the UK PRT market, from pension plans of around GBP1m to those
over GBP1bn, including four of the five largest UK bulk
annuities[15], and we are actively expanding our business model
globally.
International PRT premiums were GBP361m (H1 2018: GBP228m). In
April 2019, LGRI continued its international expansion into Canada
where we wrote our first transaction for more than CAD $200m
through our strategic Canadian partnership with Brookfield Annuity
Company. Further bolstering international PRT volumes, our US
business wrote USD $291m (GBP223m) of premiums (H1 2018: $297m,
GBP220m) as it entered its next phase of growth, writing a
transaction of over USD $200m.
LGR Retail - Individual Retirement Solutions
LGR Retail (LGRR) has had another period of strong performance
in H1 2019, delivering solutions to retirees in the UK through
individual annuities and Lifetime Mortgages (LTMs).
Individual annuity sales increased 47% to GBP497m in the first
half of the year (H1 2018: GBP337m), driven by wider market
penetration and continued improvement of our enhanced annuity
proposition relative to H1 2018. We are one of the leading players
in the UK individual annuity market with a current market share of
18.3%([16]) , a 5.2 percentage point increase over the prior
year.
Lifetime mortgage advances were GBP489m in H1 2019, lower than
the prior year's advance of GBP521m, as we continue to manage risk
and maintain our pricing and underwriting discipline. As the LTM
market matures, Legal & General has emerged as an established
player offering customer-focused products, such as our flexible
drawdown product and Optional Payment LTM. LTMs are currently 6% of
our total annuity assets and our LTM portfolio has an average
customer age of 69 and a weighted average loan-to-value of c.28% at
the transaction date.
On-going credit and asset management
Credit portfolio management
LGR's GBP72.1bn 'A minus' rated asset portfolio backing the IFRS
annuity liabilities is well diversified by sector and geography.
Within the GBP66.9bn[17] bond portfolio, approximately two-thirds
of the portfolio is A-rated or better, 34% BBB-rated and c.1%
sub-investment grade. Just 23% of the bond asset portfolio is
invested in UK-listed corporate credit, many of these being
multinationals.
The principal objective of our annuity focused fixed income fund
managers in LGIM is to manage the portfolio to avoid credit
downgrades and defaults. We constantly review our asset portfolio,
including sector allocations and asset classes, in order to improve
credit quality and to mitigate risks. We have vigorously stress
tested our portfolio to build resilience against a range of
scenarios and hold a GBP3.2bn IFRS credit default reserve.
Direct Investment
LGR has originated GBP2.4bn of new, high quality direct
investments in the first half of the year, which, along with market
movements, bring the portfolio total to GBP18.4bn[18] (FY 2018:
GBP15.7bn), including GBP4.0bn in LTMs. Consistent with the broader
bond portfolio, two-thirds of the direct investment portfolio is
rated 'A' or above based on strong counterparties and collateral,
using robust and independent rating processes which take account of
long term stress events. We invest in sectors where long term
funding is needed, for example government infrastructure. During
H1, we invested a further GBP183m in long term leases on HMRC
buildings in Salford and Nottingham.
Direct investments are one of the key components of our
investment strategy supporting bulk annuity pricing, and we
regularly assess the relative value of our different direct
investment asset classes against each other as well as against the
risk-reward characteristics of global traded bonds. We see
particular opportunity in the build-to-rent and affordable housing
asset classes, as LGC Homes and LGIM Real Assets build their
capabilities. The Group's long term illiquid liabilities and large
balance sheet size enable LGR to invest in assets of size and term
that differentiate it from many other institutional investors, and
mean we are able to secure a premium above that of liquid
credit.
Our ability to self-manufacture attractive assets to back
annuities, working with LGIM, LGC, or through LTMs, is a
differentiating feature of LGR's business and remains a key
competitive advantage.
Legal & General Investment Management
FINANCIAL HIGHLIGHTS GBPm H1 2019 H1 2018
=============================================== ======== =========
Management fee revenue(1) 425 401
Transactional revenue(2) 9 13
================================================= ======== =========
Total revenue 434 414
Total costs(1) (230) (213)
================================================= ======== =========
Asset management operating profit(3) 204 201
Workplace Saving operating result 1 2
================================================= ======== =========
Operating profit 205 203
Investment and other variances (5) (4)
================================================= ======== =========
Profit before tax 200 199
================================================= ======== =========
Net release from operations 164 164
================================================= ======== =========
Asset Management cost:income ratio(3) (%) 53 51
================================================= ======== =========
NET FLOWS AND ASSETS GBPbn
=============================================== ======== =========
Canvas Acquisition - 2.4
External net flows 60.3 14.6
Internal net flows 2.4 (2.6)
================================================= ======== =========
Total net flows 62.7 12.0
- Of which international 44.6 9.9
Cash management flows 0.5 1.0
Persistency (%) 91 88
================================================= ======== =========
Average assets under management 1,075 978
Assets under management as at 30 June 1,135 985
Of which:
- International assets under management(4) 343 229
- UK DC assets under management 86 64
================================================= ======== =========
1. Management fee revenue and total costs exclude income and
costs of GBP11m in relation to the provision of 3rd party market
data (H1 18: GBP8m), and also excludes revenue and costs from our
Workplace Savings business.
2. Transactional revenue earned from external clients including
execution fees, asset transition income, trigger fees, arrangement
fees on property transactions and performance fees for property
funds.
3. Excludes revenue and costs from the Workplace Savings
business.
4. International AUM includes assets from internationally
domiciled clients plus assets managed internationally on behalf of
UK clients.
External net flows of GBP60bn drive AUM to GBP1,135bn
LGIM's drive to expand and diversify its business across
channels, regions and investment capabilities has resulted in
external net flows of GBP60.3bn (H1 2018: GBP14.6bn) with assets
under management (AUM) growing by 15% to GBP1,135bn (H1 2018:
GBP985bn). External net flows were broad-based and positive in our
growth businesses including international, DC, and retail.
Investing for growth as operating profit increases 1% to
GBP205m
Operating profit increased by 1% to GBP205m (H1 2018: GBP203m),
reflecting increased revenues and LGIM's long term commitment to
investing in its growth strategy. Revenues were up 5% to GBP434m
(H1 2018: GBP414m). Management fees increased by 6% to GBP425m (H1
2018: GBP401m). Transactional revenues were GBP9m (H1 2018: GBP13m)
and are a result of LDI activity as clients increase the hedging of
their assets.
We will continue to invest in areas of the business that are
experiencing strong growth or where increased automation and
simplification will generate operational leverage. Enhancing
customers' digital experience, optimising our investment platforms,
and utilising data analytics are at the forefront of our
endeavours. The cost income ratio (53%) reflects this continued
investment in the business.
International assets up 50% to GBP343bn
LGIM's international businesses experienced net flows of
GBP44.6bn (H1 2018: GBP9.9bn), including a GBP37bn passive mandate
with the Japan Government Pension Investment Fund. This provides a
long term foundation for future growth in Japan and the broader
region. Total flows from Asia were GBP37.3bn (H1 2018: GBP2.5bn)
over the period. Our European (excluding UK) business performed
well with net flows of GBP4.9bn (H1 2018: GBP0.4bn), reflecting the
continued focus we have placed on the region. The US business had
net flows of GBP2.6bn (USD $3.3bn; H1 2018: GBP8.3bn, USD $11.5bn)
and with a strong pipeline we have positive expectations for the
second half of the year. In the Gulf, strategic asset reallocations
have resulted in net outflows of GBP0.2bn (H1 2018: GBP1.4bn net
outflow).
DB clients support solutions based investments
The defined benefit (DB) business had net flows of GBP10.7bn (H1
2018: -GBP0.3bn). There was a strong uptake of our Solutions based
investment strategies from new and existing clients aiming to
de-risk and adapt their investment objectives. The rate of existing
clients transitioning out of their index strategies slowed
significantly from 2018.
GBP3.6bn net flows from DC business
The defined contribution (DC) business continues to grow rapidly
in the UK with total net flows of GBP3.6bn (H1 2018: GBP3.5bn),
driven by the bundled business which provides administration and
investment services to DC schemes. Total UK DC AUM increased by 35%
to GBP86.4bn (H1 2018: GBP64.0bn).
Workplace Savings assets under administration increased by 22%
to GBP36.1bn (H1 2018: GBP29.7bn) with the number of customers on
our pension platform rising by 10% to 3.4m. Contributions from our
customers increased as a result of changes to the minimum
contribution for UK auto-enrolment pensions from 5% to 8%. Our
Master Trust (one of the UK's largest) has GBP7.4bn in AUM,
reflecting the continued appeal of the structure for DC schemes
that wish to outsource their governance, investment and
administration.
Accelerating growth in our retail businesses
The retail business experienced strong net flows of GBP1.7bn (H1
2018: GBP1.4bn) despite challenging market conditions. There has
been strong demand for multi-asset and index products while the
L&G UK Property Fund is the largest fund in the UK Direct
Property sector. Retail AUM increased to GBP30.0bn (H1 2018:
GBP25.1bn) as we continue to develop our product range and
client-service proposition in the UK and broaden our distribution
strategy in Europe. LGIM was ranked second in both gross and net UK
retail sales in H1 2019.[19]
We continue to make progress in our Personal Investing business
with further enhancements to our digital platform and the launch of
the Legal & General Personal Pension. New customer applications
have increased by 84% at a lower cost per acquisition. We continue
to introduce innovative functionality to engage customers and meet
a variety of saving needs. The Personal Investing business
currently has AUM of GBP5.6bn (H1 2018: GBP5.7bn), including
GBP1.9bn from legacy relationships with banks and building
societies.
The ETF business has further supported our European retail
distribution plans with additional launches in core equities and
thematic ETFs. Currently 64% of our ETF offering has experienced
net inflows in 2019 and we rank in the top 10 for pan-European
mutual funds and ETFs net flows.([20]) We will continue to build
out our range of funds and distribution capabilities in line with
client demand. The reduction in ETF AUM to GBP2.4bn (H1 2018:
GBP2.8bn) reflects growth in our core equity range offset by the
strategic closure of certain funds that were under review following
last year's acquisition.
Breadth of investment management solutions
Asset movements Index Global fixed Real Active Total
(GBPbn) funds income Solutions assets equities AUM
============================ ====== ============ ========= ======= ========= =======
At 1 January 2019 310.2 162.6 510.5 27.1 5.1 1,015.5
============================ ====== ============ ========= ======= ========= =======
External inflows 60.8 5.6 15.3 0.8 0.1 82.6
External outflows (26.1) (4.7) (12.4) (0.8) (0.1) (44.1)
Overlay net flows - - 22.0 - - 22.0
ETF net flows (0.2) - - - - (0.2)
============================ ====== ============ ========= ======= ========= =======
External net flows 34.5 0.9 24.9 - - 60.3
Internal net flows (0.1) (1.9) 3.3 1.2 (0.1) 2.4
============================ ====== ============ ========= ======= ========= =======
Total net flows 34.4 (1.0) 28.2 1.2 (0.1) 62.7
Cash management movements - 0.5 - - - 0.5
Market and other
movements 45.5 10.8 (2.3)(1) 1.2 0.6 55.8
============================ ====== ============ ========= ======= ========= =======
At 30 June 2019 390.1 172.9 536.4 29.5 5.6 1,134.5
============================ ====== ============ ========= ======= ========= =======
1. Solutions "Market and other movements" includes the
reallocation of the Rolls Royce LGIM investment mandate following
the PRT transaction with LGRI in June 2019.
Total AUM increased 15% to GBP1,135bn (H1 2018: GBP985bn), with
external net flows of GBP60.3bn (H1 2018: GBP14.6bn) and rising
asset values driving GBP55.8bn of AUM growth. Net flows were broad
based with the international business contributing GBP44.6bn and
positive flows from all established UK channels. Flows were
positive across most asset classes as customers benefitted from our
diverse product range and broad investment capabilities.
We anticipate that LGIM will continue to benefit from global
trends in retirement saving and structural shifts in demand in the
asset management industry including ESG strategies. The Legal &
General Master Trust launched the L&G Future World Multi-Asset
Fund as a default option for members making it the first Master
Trust to launch a multi-asset ESG fund as a default option.
Solutions external net flows were GBP24.9bn (H1 2018:
GBP26.2bn), driven by DB pension schemes implementing a broad range
of liability driven investment (LDI) strategies as customers manage
their risk positions more proactively. Multi-asset strategies are
in high demand from DC schemes and retail customers. External net
flows into multi-asset funds were GBP5.1bn (H1 2018: GBP4.3bn) of
which GBP1.4bn relates to funds switching from Index as part of a
review of the default investment offering for some DC schemes.
Index external net flows were GBP34.5bn (H1 2018: -GBP18.6bn net
flows), as we secured a GBP37bn passive mandate with the Japan
Government Pension Investment Fund and experienced strong demand
from a broad range of European customers. UK DB pension schemes
continued to mature and reduce risk although at a slower pace than
anticipated with GBP10.5bn of net outflows in H1 2019. For the past
several years we have had consistent net outflows from our UK DB
index funds and we expect this trend to continue as many clients
transition into LDI strategies where we are well positioned to
retain the assets.
Net external flows into Global Fixed Income of GBP0.9bn (H1
2018: GBP6.5bn), with relative performance reflecting the higher
demand in 2018 for US DB credit strategies from clients responding
to US tax exemptions for pension contributions. External outflows
were elevated in H1 2019, predominantly due to a few clients
undertaking planned PRT transactions. We have also won new mandates
in the Gulf and Japan in the first half of the year.
The Real Assets business has continued to expand, growing its
AUM to GBP29.5bn (H1 2018: GBP25.3bn). External flows have been
affected by market sentiment and political uncertainty. The future
growth of external flows will be supported by our build-to-rent
business, which now has a pipeline of around 4,500 homes across the
country, and our Private Credit business, which offers clients
diversification of secure income and value protection solutions.
The long term nature of the strategic relationships developed with
LGR and LGC continue to be a positive source of funds.
Legal & General Capital
FINANCIAL HIGHLIGHTS GBPm H1 2019 H1 2018
================================================= ======= ========
Net release from operations 142 138
================================================= ======= ========
Operating profit 173 172
- Direct investment 99 104
- Traded investment portfolio 67 64
- Treasury assets 7 4
Investment and other variances 105 (90)
================================================= ======= ========
Profit before tax attributable to equity holders 278 82
DIRECT INVESTMENT PORTFOLIO GBPm
================================================= ======= ========
Future Cities 905 589
Homes 1,313 1,050
SME Finance 420 366
2,638 2,005
TRADED PORTFOLIO GBPm
================================================= ======= ========
Equities 1,717 1,631
Fixed income 161 219
Multi-asset 234 126
Cash(1) 2,315 2,690
================================================= ======= ========
4,427 4,666
LGC investment portfolio 7,065 6,671
Treasury assets at holding company(2) 749 1,407
================================================= ======= ========
Total 7,814 8,078
================================================= ======= ========
1. Includes short term liquid holdings.
2. Excludes an interim dividend from subsidiaries of GBP145m
which was paid in July 2019.
Total operating profit of GBP173m
LGC operating profit was GBP173m, in line with the previous year
(H1 2018: GBP172m), reflecting continued growth in the underlying
direct investments portfolio combined with a more challenging
build-to-sell market compared to H1 2018. The operating profit from
the traded investment and treasury portfolios increased by 9% to
GBP74m (H1 2018: GBP68m). The direct investment operating profit
was GBP99m (H1 2018: GBP104m). Profit before tax increased to
GBP278m (H1 2018: GBP82m), due to the strong performance in equity
markets compared to the prior period.
Our growing direct investment portfolio achieved a net portfolio
return of 5.6% (H1 2018: 9.1%). The reduction reflects both the
growth of the portfolio, which now has a greater proportion of AUM
in early stage development assets, and the relative H1 2019
build-to-sell portfolio returns.
Direct investment portfolio up 32% to GBP2.6bn (H1 2018:
GBP2.0bn)
The LGC direct investment portfolio grew to GBP2,638m (H1 2018:
GBP2,005m) as we added GBP0.5bn in investments and new commitments
in the first half of the year. Our Future Cities strategy continues
to develop through new and existing sites, and in H1 2019 we also
announced our GBP4bn commitment to invest in the development of
homes for University staff and students, together with science and
innovation districts in and around Oxford over a ten year period.
LGC's housing platform has expanded its multi-tenure offering,
delivering our first Affordable Housing contracts, extending our
Later Living offering to urban development and continuing to add to
our build-to-rent portfolio, including funding a flagship scheme in
Wandsworth, London.
LGC holds cash and liquid investments to provide liquidity to
facilitate investment into strategic opportunities as they arise
and for collateral to cover derivatives trades. We are constantly
reviewing our strategic options for deploying surplus liquidity
across the Group, primarily through technology investment, bolt-on
M&A, and funding organic growth.
Investing GBP905m in the future of UK cities (H1 2018:
GBP589m)
UK cities need investment in their infrastructure, and in
commercial and residential property to be the cities of the future.
LGC's Future Cities business line is addressing a shortage of
investment and innovation in urban regeneration, clean energy and
digital infrastructure. Together, these building blocks can have a
multiplier effect to create the resilient urban centres of the
future. Through these investments and our partnerships with
universities, local governments, authorities and businesses, Legal
& General is supporting the UK to develop great places to live
and quality, world class science and technology employment.
Our Future Cities investments create real assets and support
clean energy technologies which generate stable returns for
shareholders, are attractive Matching Adjustment eligible assets
for LGR, and are desirable assets for LGIM clients. During the
first half of 2019, our LGC Future Cities portfolio increased 15%
to GBP905m (FY 2018: GBP787m, H1 2018: GBP589m) through investment
across all our target sectors including investment in technology,
such as electric vehicle charging (Pod Point in February 2019) and
data centres (Kao Data in January 2019).
In June LGC led the formation of a 50:50 partnership with Oxford
University to develop homes for University staff and students,
together with science and innovation districts in and around
Oxford. LGC's Future Cities business will act as funding and
development partner for the University. This demonstrates LGC's
ability to create assets for the wider Legal & General Group,
which will provide funding of up to GBP4bn over the next ten years
from its shareholder, annuity and LGIM-managed funds. The
partnership will deliver a series of transformational projects to
enable the world-class university to address its shortage of
residential and commercial space, which it needs to continue to
attract research graduates, and support spin-out and scale-up
businesses.
Separately, in March LGC was selected as development partner for
a 306,000 sq. ft. office-led, mixed use scheme in Bath Quays North,
a 5.5 acre prime riverside site in Bath city centre. This scheme
adds to our significant ongoing investment in Bath, where Legal
& General Group is also developing 171 build to rent apartments
at Spring Wharf, which now has its first residents in situ and is
also developing an urban later living scheme. Most recently, at the
end of July LGC announced a further investment in Cardiff Central
Square, providing a transport interchange, 318 build-to-rent
apartments and 100,000 sq. ft. of office space.
Strengthening our UK Homes platform as assets increase to
GBP1,313m (H1 2018: GBP1,050m)
LGC's Homes platform is diversified across affordability, tenure
and lifestage in order to help meet the UK's need for 340,000 homes
each year.
In our build-to-sell business, CALA is now operationally bedded
down and was awarded Home Builder of the Year by Homes for
Scotland. It has 90 active sites, which have generated c.1,100
sales, in the first half of the year. It has been a good
performance in the headwind of a slower sales market and we expect
market conditions to remain challenging throughout the year. Our
diversified housing platform makes us more resilient to temporary
market slowdowns.
LGC's Affordable Homes business is now operational and has
secured its first four affordable schemes, comprising 278 new homes
in Croydon, Cornwall, Dunstable and Shrivenham and has also secured
a further pipeline of over 40 sites across the UK, providing 1,500
affordable homes in the next 24 months. This is a strong start to
LGC's target of delivering 3,000 affordable homes per year within
the next four years.
LGC has also extended its later living offering with the
establishment of Guild Living, a developer and operator of urban
later living communities. Through Guild Living, we plan to deliver
over 3,000 new retirement homes over the next five years. Guild
Living is a partnership between LGC and a team of global experts in
design, development and academically-accredited wellness programmes
and will deliver a new class of urban retirement community across
the UK's towns and cities to enable and enrich an independent,
active later life. Since its launch, Guild Living has acquired a
site in Bath and two sites in Surrey. This will complement LGC's
existing suburban Later Living offering, Inspired Villages, which
has acquired seven sites, with a strong pipeline of future
sites.
Finally, in Legal & General's build-to-rent business, LGC
has supported further developments in Brighton, Glasgow and
Wandsworth. In Wandsworth we have exchanged contracts on two
adjacent sites which will combine to deliver L&G's largest
build-to-rent scheme to date.
SME Finance assets grow to GBP420m (H1 2018: GBP366m)
SME Finance supports UK and European mid-market lending via fund
investments with Pemberton and invests in start-up businesses
across the UK and Europe through fund investments with Venture
Capital managers and direct stakes in innovation and growth
companies strategically aligned with our business.
In European SME financing, our 40% owned private credit manager
Pemberton has had significant success during the period, raising
over EUR2.5bn over the past twelve months. This takes UK/European
Mid-Market strategies to EUR4.4bn of AUM and the Strategic Credit
fund to EUR0.9bn. The total committed AUM of Pemberton is now
c.EUR5.5bn.
Our Venture Capital fund investing strategy has continued
successfully during H1, benefitting from the UK's strong innovation
economy, with a number of the companies we have indirectly invested
in generating valuation increases. In addition, we continue to
focus on accessing this strongly performing asset class for our DC
pension clients and have been working across the industry to
develop solutions.
Legal & General Insurance
FINANCIAL HIGHLIGHTS GBPm H1 2019 H1 2018
=================================== ======= ========
Release from operations 171 165
New business surplus (1) (8)
===================================== ======= ========
Net release from operations 170 157
===================================== ======= ========
Operating profit 134 154
* UK 93 136
* US (LGIA) 41 18
Investment and other variances(1) (134) (37)
===================================== ======= ========
Profit before tax attributable
to equity holders 0 117
===================================== ======= ========
LGI new business annual premiums 178 163
UK Retail Protection gross
premiums 658 633
UK Group Protection gross premiums 233 223
US Protection (LGIA) gross
premiums 518 461
Total gross premiums 1,409 1,317
===================================== ======= ========
1. Investment variance is driven by a fall in UK government bond
yields and US Treasury yields which has resulted in a reduction in
the discount rate used to calculate the reserves for both our UK
and US protection liabilities.
7% growth in gross written premium
In H1 2019, LGI gross written premiums grew by 7% (H1 2019:
GBP1,409m, H1 2018: GBP1,317m), demonstrating good new business
performance.
UK Retail Protection gross premium income increased 4% to
GBP658m (H1 2018: GBP633m) with new business annual premiums of
GBP91m (H1 2018: GBP87m), reflecting strong growth from bank
distribution partners and from intermediary distribution. We remain
the leading provider of Retail Protection in the UK, delivering
straight-through processing for more than 80% of our customers.
Group Protection increased new business premiums by 29% to
GBP44m (H1 2018: GBP34m) and gross premium income up 4% at GBP233m
(H1 2018: GBP223m). The Group Protection business has a leading
rehabilitation offering which helped drive further growth in the
income protection segment.
LGIA gross premium income increased 6% (up 12% on a sterling
basis) to $670m (H1 2018: $635m). New business annual premiums
decreased $3m to $55m (H1 2018: $58m). Through the brokerage
channel, LGIA is the largest provider of US term life assurance by
number of policies issued, and second largest by new business
annual premium.
Legal & General Mortgage Club facilitated GBP36bn of
mortgages in H1 2019, up 5% (H1 2018: GBP35bn) through strong
partnerships with top lenders. As the largest participant in the
intermediated mortgage market in the UK, we are involved in one in
five of all UK mortgage transactions. Legal & General Surveying
Services continued to deliver for lenders and customers,
facilitating more than 250,000 surveys and valuations.
Total operating profit of GBP134m
LGI's operating profit reduced by GBP20m to GBP134m (H1 2018:
GBP154m), as the prior year results benefited from one-off specific
model enhancements and assumption changes in the UK. Underlying
profitability growth was strong with net release from operations
increasing 8% to GBP170m. We expect the full year operating profit
in 2019 to be in a similar range to that of 2018.
LGI UK operating profit decreased by GBP43m to GBP93m (H1 2018:
GBP136m), primarily due to the prior year comparator described
above. Additionally, at the end of 2018, LGI implemented new US
reserve financing reinsurance which involved LGIA recapturing part
of the US business previously ceded to the UK. As a result c.GBP13m
of annual profits shifted from the UK into the US, half of which is
reflected in the H1 2019 results. We expect to continue to
gradually reduce the intra-group reinsurance into the UK in the
coming years.
Net release from operations for LGI UK was up 4% to GBP83m (H1
2018: GBP80m), reflecting improved new business strain of GBP(1)m
(H1 2018: GBP(8)m) from in Retail Protection. This was partially
offset by the reduction in release from operations as a result of
the recapture of intra-group reinsurance and prior year model and
assumption changes, as well as an increase in Fintech's
contribution, particularly from our participation in
SalaryFinance.
Profitability of UK protection sales increased as a result of
management actions to rebalance the new business mix to products
with a higher profitability and further price optimisation actions.
The Solvency II new business margin increased to 7.9% (H1 2018:
7.1%). UK protection new business continues to generate Solvency II
surplus immediately.
LGIA operating profit increased by $29m to $53m (H1 2018: $24m).
This includes reserve releases following some assumption changes
and the impact of the change in the reinsurance arrangement with
the UK business, coupled with a better mortality result compared to
prior year, in which the US life sector experienced elevated cases
of flu.
The annual dividend paid by LGIA to the Group in March 2019,
shown in the accounts as the LGIA net release from operations,
increased by 2% (up 5% on a sterling basis) to $107m (H1 2018:
$105m).
US protection sales delivered a strong Solvency II new business
margin of 10.8% (H1 2018:11.6%).
Profit before tax was impacted by a fall in government yields.
LGI's negative investment variance of GBP134m was primarily driven
by a fall in UK government bond yields which has resulted in a
reduction in the discount rate used to calculate the reserves for
our UK protection liabilities (down 34 bps[21]) and a similar
impact in the US where Treasury yields fell by 69 bps[22].
Fintech: Strong profit growth and improved customer
experience
LGI continues to grow its expertise in the Fintech sector to
help customers engage with financial services. Our focus is on
transforming markets adjacent to our life insurance business by
building solutions and making targeted investments in start-up and
scale-up companies.
SalaryFinance continued its rapid expansion. In the first half
of 2019 the financial wellbeing platform achieved a reach of more
than one million UK employees and its loan book grew by 96%
compared to the end of June 2018. In the US, the platform has
reached more than 50,000 employees in the first few months of
operation. The company is in a strong position to continue to grow
the UK and US loan books and new products are launching to their
customer base in the second half of the year such as: Advance, a
fixed cost pay advance product; and a HMRC Help to Save scheme.
During H1 2019 we provided more growth funding, increasing our
ownership to 44%.
In May, Legal & General Mortgage Club announced improvements
to SmartrCriteria, its digital user-friendly criteria search
system. SmartrCriteria offers advisers 394,000 mortgage outcomes
from over 95 lenders across the Residential, Buy to Let and New
Build sector, to help determine the best outcome for their
customers. Over 4,400 mortgage advisors are now signed up to use
this tool.
Legal & General Surveying Services has soft launched a next
generation digital home buyers survey and continues to invest in
technology to innovate and transform the lender valuations
market.
Smartr365, the B2B mortgage intermediary technology platform has
delivered a range of enhancements throughout the H1 2019 to make it
easier and quicker for mortgage advisers to arrange mortgages for
their customers. These enhancements are accelerating the number of
mortgage advisers using the platform.
General Insurance
In May 2019, Legal & General Group announced the sale of the
General Insurance business to Allianz Holdings Plc. The transaction
is expected to complete in H2 2019, at which point the Group's
Solvency II coverage ratio is expected to increase by c.2%.
FINANCIAL HIGHLIGHTS GBPm H1 2019 H1 2018
=========================================================== ======= =======
Net release from operations (4) (5)
Experience variances, assumption changes, tax and non-cash
movements (1) (1)
============================================================= ======= =======
Operating profit (5) (6)
Investment and other variances 19 (8)
============================================================= ======= =======
Profit before tax 14 (14)
============================================================= ======= =======
General Insurance gross premiums 218 193
Combined operating ratio (%) 106 107
============================================================= ======= =======
13% growth in gross written premium
Gross written premium income increased 13% to GBP218m (H1 2018:
GBP193m), comprising a 13% increase in Household premiums to
GBP196m (H1 2018: GBP174m), and a 25% increase in Pet premiums to
GBP15m (H1 2018: GBP12m). Across the General Insurance business,
new business gross premiums increased 25% to GBP116m (H1 2018:
GBP93m). Direct business delivered gross premiums of GBP65m in H1
2019, representing an 8% reduction on H1 2018 as a result of strong
pricing action, and accounted for 30% of total gross written
premiums (H1 2018: GBP71m, 37% of gross premiums).
Operating profit in H1 2019 was GBP(5)m (H1 2018: GBP(6)m) with
a combined operating ratio of 106% (H1 2018: 107%), reflecting
higher claims inflation.
Disposed operations
Please refer to page 16 for detail on the sale of the General
Insurance business, announced in May 2019.
The Group announced the sale of the Mature Savings business to
Swiss Re on 6 December 2017 for GBP650m. The proceeds were received
by the Group at the start of January 2018. In H1 2019 we recognised
GBP24m operating profit from the business, resulting from the
unwind of the expected underlying profits. Following the Part VII
transfer, expected later this year, it is anticipated that an IFRS
gain of over GBP400m will be generated. The completion of the Part
VII is expected to be broadly neutral to the Group's Solvency II
coverage ratio, as we reflected the impact of the Risk Transfer
Agreement in our Internal Model in 2018, which gave a small
improvement in the capital position.
On 7 February 2019, the Group completed the sale of its stake in
IndiaFirst Life Insurance Company to an affiliate of Warburg Pincus
LLC for INR 7.1bn (c.GBP76m at GBP:INR 1:92) resulting in a current
period pre-tax profit of GBP43m, net of transaction costs. The
operations of IndiaFirst Life Insurance Company have not been
regarded as discontinued operations since it does not represent a
major line of business of the Group.
Borrowings
The Group's outstanding core borrowings totalled GBP3.5bn at 30
June 2019 (FY 2018: GBP3.9bn; H1 2018: GBP3.5bn). There is also a
further GBP1.1bn (FY 2018: GBP1.0bn; H1 2018: GBP0.9bn) of
operational borrowings including GBP0.7bn (FY 2018: GBP0.6bn; H1
2018: GBP0.3bn) of non-recourse borrowings.
In November 2018 the Group issued GBP400m of Tier 2 subordinated
debt with a coupon of 5.125%. The proceeds were used to refinance
the Group's GBP400m of 5.875% undated subordinated notes which were
redeemed in full on 1 April 2019.
Group debt costs of GBP108m (H1 2018: GBP97m) on a total
borrowings balance of GBP4.1bn (H1 2018: GBP3.9bn).
Taxation
Equity holders' Effective Tax Rate (%) H1 2019 H1 2018
============================================= ======= ========
Equity holders' total Effective Tax Rate[23] 17.9 18.0
Annualised rate of UK corporation tax 19.0 19.0
============================================== ======= ========
The effective tax rate reflects the different rates of taxation
that applies to Legal & General's overseas operations.
Solvency II
As at 30 June 2019, the Group had an estimated Solvency II
surplus of GBP5.9bn over its Solvency Capital Requirement,
corresponding to a Solvency II coverage ratio of 171% on a
shareholder basis.
Capital (GBPbn) H1 2019(1) FY 2018(1)
Own Funds 14.2 14.8
Solvency Capital Requirement (SCR) (8.3) (7.9)
=================================== ========== ============
Solvency II surplus 5.9 6.9
SCR coverage ratio (%) 171 188
=================================== ========== ============
1. Solvency II position on a shareholder basis is adjusted for
the Own Funds and SCR of the With-profits fund and the Group final
salary pension schemes, and before the accrual of the relevant
dividend.
Analysis of movement from 1 January 2019 to Solvency II
30 June 2019 (GBPbn) surplus
Surplus arising from back-book (including
release of SCR) 0.8
Release of Risk Margin(1) 0.2
Amortisation of TMTP(2) (0.2)
================================================================================ =============
Operational surplus generation 0.8
New business strain (0.3)
================================================================================ =============
Net surplus generation 0.5
Dividends paid(3) (0.7)
Operating variances (0.2)
Mergers, acquisitions and disposals -
Market movements(4) (0.2)
Subordinated debt(5) (0.4)
================================================================================ =============
Total surplus movement (after dividends paid
in the period) (1.0)
1. Based on the Risk Margin in force at end 2018 and does not include
the release of any Risk Margin added by new business written in H1 2019.
2. TMTP amortisation based on a linear run down of the end-2018 TMTP
of GBP4.4bn net of tax (GBP5.2bn before tax).
3. Dividends paid are the amounts from the 2018 final dividend declaration
paid in H1 2019.
4. Market movements represent the impacts of changes in investment market
conditions over the period and changes to future economic assumptions.
5. In April 2019 the Group redeemed GBP400m of Tier 2 subordinated debt.
Operational surplus generation was up 17%[24] to GBP0.8bn (H1
2018: GBP0.7bn), after allowing for amortisation of the opening
Transitional Measures on Technical Provisions (TMTP) and release of
Risk Margin. We are guiding to a similar level of operational
surplus generation in the second half.
New business strain was GBP0.3bn, reflecting significant UK
annuity volumes written at a capital strain of c.4%. This resulted
in net surplus generation of GBP0.5bn (H1 2018: GBP0.6bn).
Dividends paid represent payment of the 2018 final dividend in
June 2019, which is typically c.70% of the total dividends paid
during the year.
Operating variances include the impact of experience variances,
changes to model calibrations, and management actions. The net
impact of operating variances over the period was GBP(0.2)bn.
Market movements of GBP(0.2)bn reflect the impact of lower rates on
the valuation of our balance sheet, higher asset markets,
predominantly in equities, as well as a number of other, smaller
variances.
The above incorporates management's estimate of the impact of
recalculating the TMTP as at 30 June 2019 as we believe this
provides the most up to date and meaningful view of our Solvency II
position. In line with UK regulatory requirements, a formal
recalculation of the Group's TMTP will take place no later than 31
December 2019.
When stated on a proforma basis, including the SCR attributable
to our With-profits fund and the Group final salary pension schemes
in both the Group's Own Funds and the SCR, the Group's coverage
ratio was 166% (FY 2018: 181%).
Reconciliation of IFRS net release from operations to Solvency
II net surplus generation
The table below gives a reconciliation of the Group's IFRS
Release from operations and Solvency II Operational surplus
generation in H1 2019:
GBPbn
IFRS Release from operations 0.7
Expected release of IFRS prudential margins (0.2)
Release of IFRS specific reserves (0.1)
Solvency II investment margin 0.1
Release of Solvency II Capital Requirement and Risk Margin less
TMTP amortisation 0.3
Solvency II Operational surplus generation 0.8
The table below gives a reconciliation of the Group's IFRS New
business surplus to Solvency II New business strain in H1 2019:
GBPbn
IFRS New business surplus 0.2
Removal of requirement to set up prudential margins above
best estimate on new business 0.1
Set up of Solvency II Capital Requirement on new business (0.5)
Set up of Risk Margin on new business (0.1)
Solvency II New business strain (0.3)
Sensitivity analysis
Impact on net Impact on
of tax Solvency net of tax
II capital Solvency II
surplus H1 coverage ratio
2019 H1 2019
GBPbn %
====================================================== ================== ================
Credit spreads widen by 100bps assuming an escalating
addition to ratings(1) 0.3 9
Credit migration(2) (0.8) (10)
25% fall in equity markets (0.6) (6)
15% fall in property markets (0.6) (7)
100bps increase in risk free rates 1.2 25
50bps decrease in risk free rates (0.7) (12)
====================================================== ================== ================
1. The spread sensitivity applies to group's corporate bond (and
similar) holdings, with no change in the firm's long term default
expectations. Restructured Lifetime Mortgages are excluded.
2. 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, Sale &
Leaseback rental strips, and LTM senior notes).
The above sensitivity analysis does not reflect all management
actions which could be taken to reduce the impacts due to the
complex nature of the modelling. In practice, the Group actively
manages its asset and liability positions to respond to market
movements. Other than in the interest rate stresses, we have not
allowed for the recalculation of TMTP. 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.
The impacts of credit spread and risk free rate sensitivities
are primarily non-economic arising from movement in balance sheet
items that result from changes in the discount rates used to
calculate the value of assets and liabilities. The credit migration
stress, in the absence of defaults, delays the emergence of
operating surplus generation, but does not reduce the actual
quantum of future releases. Similarly equity and property stresses
only result in losses if assets are sold at depressed values.
Solvency II new business contribution
Management estimates of the value of new business and the margin
as at 30 June 2019 are shown below:
PVNBP Contribution from Margin
new business %
=========================== ===== ================= ======
LGR(1) (GBPm) 6,813 533 7.8
UK Protection Total (GBPm) 862 68 7.9
- Retail protection 679 56 8.2
- Group protection 183 12 6.6
US Protection (GBPm) 440 48 10.8
=========================== ===== ================= ======
1. UK annuity business.
The key economic assumptions as at 30 June 2019 are as
follows:
Margin for risk 3.4%
Risk free rate
- UK 1.2%
- US 2.0%
Risk discount rate (net of tax)
- UK 4.6%
- US 5.4%
Long term rate of return on non-profit annuities
in LGR 3.4%
=================================================== ====
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 rates have been based on a swap
curve net of the EIOPA-specified Credit Risk Adjustment. The risk
free rate shown above is a weighted average based on the projected
cash flows.
Other than updating for recent experience, all other economic
and non-economic assumptions and methodologies that would have a
material impact on the margin for these contracts are unchanged
from those previously used by the group for its European Embedded
Value reporting, other than the cost of currency hedging which has
been updated to reflect current market conditions and hedging
activity in light of Solvency II.
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's
Principal Risks and Uncertainties summarise key matters that may
impact the delivery of Group's strategy earnings or
profitability.
Risks and uncertainties Trend, outlook and mitigation
========================================== ====================================================
Reserves and our assessment of We undertake significant analysis of the
capital requirements may require variables associated with writing long-term
revision as a result of changes insurance business to ensure that a suitable
in experience, regulation or legislation premium is charged for the risks we take
The pricing of long-term insurance on, and that reserves continue to remain
business requires the setting appropriate for factors including mortality,
of assumptions for long-term trends lapse rates, valuation interest rates,
in factors such as mortality, expenses and credit defaults. We remain,
lapse rates, valuation interest however, inherently exposed to certain
rates, expenses and credit defaults. extreme events that could require us to
Actual experience may require adjust our reserves. For example, in our
recalibration of these assumptions, pensions risk transfer and annuities business,
impacting profitability. Management while trend data suggests the rate of longevity
estimates are also required in improvement may be slowing, a dramatic
the derivation of Solvency II advance in medical science beyond that
capital metrics. These include anticipated may lead to an unexpected change
modelling simplifications to reflect in life expectancy, requiring adjustment
that it is not possible to perfectly to reserves. In our protection businesses
model the external environment, a widespread increase in mortality/morbidity
with adjustment necessitated where may also require us to re-evaluate reserves.
new data emerges. Forced changes We are also exposed to lapse risks if our
in reserves can also arise from US term policies are not continued in line
regulatory or legislative intervention with our renewal assumptions. We remain
impacting capital requirements focused on continuously developing our
and profitability. understanding of longevity and to evolve
and develop our underwriting capabilities
for our protection business. Our selective
use of reinsurance also acts to reduce
the impacts of significant variations in
life expectancy and mortality.
========================================== ====================================================
Investment market performance The outlook for the global economy remains
and conditions in the broader uncertain, with economic data reflecting
economy may adversely impact earnings, a general slowing in the rate of growth
profitability or surplus capital for many advanced economies and the risk
The performance and liquidity of recession for some. Current factors
of investment markets, interest that may lead to a further deterioration
rate movements and inflation impact in current conditions and reappraisal of
the value of investments we hold asset values include a collapse in US and
in shareholders' funds and those China trade talks; a "no-deal" Brexit,
to meet the obligations from insurance with the current uncertainties for the
business, with the movement in UK and EU economies proving more enduring;
certain investments directly impacting and a new financial crisis emerging in
profitability. Interest rate movements Italy, with possible contagion to other
and inflation can also change Euro area economies. A rapid reassessment
the value of our obligations. by markets of the US monetary policy stance
We use a range of techniques to also remains an area of potential financial
manage mismatches between assets shock. We cannot remove these market risks
and liabilities. However, loss from our business plans ensure resilience
can still arise from adverse markets. across a range of economic scenarios. Our
Interest rate expectations leading Own Risk and Solvency Assessment (ORSA)
to falls in the risk free yield plays an integral part in this process
curve can also create a greater ensuring a clear link between capital sufficiency
degree of inherent volatility and the nature of risks to which we may
to be managed in the Solvency be exposed, and confirming that exposures
II balance sheet than the underlying are within our risk appetite.
economic position would dictate,
potentially impacting capital
requirements and surplus capital.
In addition, significant falls
in investment values can reduce
fee income to our investment management
business.
========================================== ====================================================
In dealing with issuers of debt We continue to closely monitor a number
and other types of counterparty of factors that may lead to a widening
the group is exposed to the risk of credit spreads including the outlook
of financial loss for global interest rates; the effects
Systemic corporate sector failures, of a global slowdown on emerging markets,
or a major sovereign debt event, and the potential economic impacts of an
could, in extreme scenarios, trigger unfavourable Brexit outcome for specific
defaults impacting the value of industrial and service sectors. Factors
our bond portfolios. Under Solvency that could increase the level of default
II, a widespread widening of credit risk, if they were to occur, include a
spreads and downgrades can also material deterioration in global economic
result in a reduction in our Solvency conditions; a renewed banking crisis; and
II balance sheet surplus, despite default on debt linked to emerging markets.
already setting aside significant We actively manage our exposure to default
capital for credit risk. We are risks within our bond portfolios, setting
also exposed to default risks selection criteria and exposure limits,
in dealing with banking, money and using the capabilities of LGIM's global
market and reinsurance counterparties, credit team to ensure the risks are effectively
as well as settlement, custody controlled, and if appropriate trade out
and other bespoke business services. to improve credit quality. Within our property
A default by a counterparty could lending businesses, our loan criteria take
expose us to both financial loss account of both the default risk of the
and operational disruption of borrower and the potential for adverse
business processes. Default risk movements in the value of secured property.
also arises where we undertake We seek to closely manage risks to our
property lending, with exposure Solvency II balance sheet through monitoring
to loss if an accrued debt exceeds factors that could give rise to a heightened
the value of security taken. level of default risk. However, we cannot
eliminate default risks or their impacts
to our Solvency II balance sheet, although
we seek to hold a strong balance sheet
that we believe to be prudent for a range
of adverse scenarios.
========================================== ====================================================
Changes in regulation or legislation Regulatory driven change remains a significant
may have a detrimental effect factor across our businesses. Prudential
on our strategy regulation focus on Solvency II and recovery
Legislation and government fiscal and resolution planning continues, with
policy influence our product design, areas of developing regulation including
the period of retention of products operational resilience and ensuring that
and required reserves for future the investment portfolios are resilient
liabilities. Regulation defines to shocks arising through the transition
the overall framework for the to a lower-carbon economy. Conduct regulation
design, marketing, taxation and continues to focus on consumer protection,
distribution of our products; market integrity and the promotion of competition,
and the prudential capital that and we are preparing for the FCA's transition
we hold. Significant changes in in 2021 from LIBOR to SONIA. Alongside
legislation or regulation may regulatory risk, we are also closing monitoring
increase our cost base, reduce potential for significant changes in UK
our future revenues and impact fiscal policy and broader economic policy
profitability or require us to were there to be change in the current
hold more capital. The prominence political environment and the impacts for
of the risk increases where change our products and services. Our internal
is implemented without prior engagement control framework seeks to ensure ongoing
with the sector. The nature of compliance with relevant legislation and
long-term business can also result regulation. We cannot, however, completely
in some changes in regulation, eliminate the risks that controls may fail
and the re-interpretation of regulation or that historic accepted practices may
over time, having a retrospective be reappraised by regulators, resulting
effect on in-force books of business, in sanction against the group.
impacting future cash generation.
========================================== ====================================================
New entrants, or legislative change, We seek to closely monitor the factors
may disrupt the markets in which that may impact the markets in which we
we operate operate, including governmental initiatives,
There is already strong competition developing industry practices and competitor
in our markets, and although we activity. Alongside digital enabled changes
have had considerable past success to business operating models that enhance
at building scale to offer low the customer experience, technology is
cost products, we recognise that being widely applied to achieve cost savings
markets remain attractive to new and efficiencies for market participants.
entrants. In particular, as has The UK government consultation on a new
been seen in other business sectors, legislative framework for defined benefit
it is possible that alternative 'superfund' consolidation schemes also
digitally enabled providers of has potential to significantly transform
financial services products emerge the operating environment for our asset
with lower cost business models management and pension risk transfer businesses.
or innovative service propositions We continue to build our digital businesses
and capital structures disrupt and the use of technology to transform
the current competitive landscape. our insurance product distribution reach.
Changes in regulation or legislation In our asset management alongside positioning
can also influence the competitive the business to protect existing market
landscape. share, we are accessing new markets and
sources of funds, in particular overseas.
========================================== ====================================================
A material failure in our business Our plans for growth and the digitalisation
processes or IT security may result of our businesses, together with the regulatory
in unanticipated financial loss change agenda, inherently increase the
or reputation damage profile of operational risks across our
We have constructed our framework businesses, and as the digital world increasingly
of internal controls to minimise becomes 24/7 there is expectation of very
the risk of unanticipated financial high levels of operational resilience in
loss or damage to our reputation. business services and in the management
However, no system of internal of change. We are also cognisant of the
control can completely eliminate changing cyber threat environment and the
the risk of error, financial loss, significant regulatory sanctions that may
fraudulent actions, personal injury be imposed where IT security and other
or reputational damage. We are failures arise.. We continue to invest
inherently exposed to the risk in our system capabilities, including those
that third parties may seek to for the management of cyber risks, to ensure
disrupt our online business operations, that our business processes are resilient,
steal customer data or perpetrate and that appropriate recovery plans are
acts of fraud using digital media. in place. We also seek to closely manage
As we develop our housing businesses our property construction and safety risks
we are also increasing our exposure robust internal control systems, including
to property construction and safety training, monitoring and independent assessments.
risks, together with risk associated We recognise, however, that residual risk
with operating properties in the will always remain across the spectrum
affordable homes and retirement of our business operations and we aim to
sectors. develop response plans so that when adverse
events occur, appropriate actions are deployed.
========================================== ====================================================
The Impact of "Brexit"
At the time of writing the UK is scheduled to leave the EU on 31 October
2019. Considerable uncertainty remains on the basis of the UK's departure,
the potential for volatility in financial markets and the monetary policy
actions that may be taken should the economic outlook be perceived to be
at risk of deteriorating. As a predominantly UK and US focused business,
our operating model will not be materially impacted from any changes to
access to European markets following the UK's withdrawal from the EU. We
have, however, established businesses in Dublin to support LGIM's EU-based
investment clients and funds. With regard to financial markets, we have
undertaken analysis to ensure our capital position remains resilient under
a range of scenarios including those described by the Bank of England as
being disorderly and disruptive. We have also evaluated risk factors that
are idiosyncratic to the UK, including the impacts for particular UK business
sectors and asset classes, where appropriate, restructuring our investment
portfolios, recognising that we cannot completely eliminate the effects
of volatility in financial markets on our earnings. We have also taken
steps to ensure the continuity of the financial instruments on which we
rely, and assessed the contingency planning activities of those EU based
financial counterparties with which we deal. As much of the UK financial
services regulation is derived from EU law, over the longer term it is
likely that elements will be re-written. We expect, however, the overall
Solvency II regulatory regime to continue to apply for the foreseeable
future.
================================================================================================
Notes
A copy of this announcement can be found in "Results, Reports
and Presentations", under the "Investors" section of our
shareholder website at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations/
A presentation to analysts and fund managers will take place at
10.30am UK time today at One Coleman Street, London, EC2R 5AA.
There will be a live webcast of the presentation which can be
accessed at
www.legalandgeneralgroup.com/investors/half-year-results-2019/ A
replay will be available on this website later today.
There will be a live, listen only, teleconference link to the
presentation. Details below:
Participant dial-in numbers
Location you are dialling in from Number you should dial
United Kingdom 020 3936 2999
=================================== ======================
United States (toll free) +1 855 979 6654
All other locations +44 20 3936 2999
Please enter access code 844531 to gain access to the
conference.
2019 Financial Calendar Date
Ex-dividend date (2019 interim dividend) 15 August 2019
Record date 16 August 2019
Last day for DRIP elections 5 September
2019
Payment date of 2019 interim dividend 26 September
2019
Definitions
Definitions are included in the Glossary on pages 96 to 99 of
this release.
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
acquisitions 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.
Going concern statement
The Group's business activities, together with the factors
likely to affect its future development, performance and position
in the current economic climate are set out in this Interim
Management Report. The financial position of the Group, its cash
flows, liquidity position and borrowing facilities are described in
the Group Results. Principal risks and uncertainties are detailed
on pages 21 to 23.
The Group manages and monitors its capital with various stresses
built in order to understand the expected impact of market
downturns. These stresses do not give rise to any material
uncertainties over the ability of the Group to continue as a going
concern and therefore, based upon the available information, the
directors consider that the Group has the plans and resources to
manage its business risks successfully as it has a diverse range of
business and remains financially strong.
Having reassessed the principal risks, the directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the preliminary financial information.
Director's responsibility statement
We confirm to the best of our knowledge that:
i. The consolidated interim financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union;
ii. The interim management report includes a fair review of the
information required by DTR 4.2.7, namely an indication of
important events that have occurred during the first six months of
the financial year and their impact on the consolidated interim
financial statements, as well as a description of the principal
risks and uncertainties faced by the company and the undertakings
included in the consolidation taken as a whole for the remaining
six months of the financial year;
iii. The interim management report includes, as required by DTR
4.2.8, a fair review of material related party transactions that
have taken place in the first six months of the financial year and
any material changes in the related party transactions described in
the last Annual Report and Accounts; and
iv. The directors of Legal & General Group Plc are listed in
the Legal & General Group Plc Annual Report and Accounts for 31
December 2018. A list of current directors is maintained on the
Legal & General Group Plc website:
www.legalandgeneralgroup.com/about-us/our-management/group-board/.
By order of the Board
Nigel Wilson Stuart Jeffrey Davies
Group Chief Executive Group Chief Financial Officer
6 August 2019 6 August 2019
Enquiries
Investors
+44 203 1242 091
Edward Houghton, Head of Investor Relations
investor.relations@group.landg.com
legalandgeneralgroup.com
+1 312 964 3034
Sujee Rajah, Investor Relations Director
investor.relations@group.landg.com
legalandgeneralgroup.com
+44 203 1242 047
Alyssa Manning, Investor Relations Director
investor.relations@group.landg.com
legalandgeneralgroup.com
Media
+44 203 1242 090
John Godfrey, Group Corporate Affairs Director
legalandgeneralgroup.com
+44 207 3534 200
Simon Pilkington, Tulchan Communications
+44 207 3534 200
Sheebani Chothani, Tulchan Communications
Notes
Notes
[1] Excludes the discontinued businesses of Mature Savings and
General Insurance.
[2] 10 year UK swaps rate fell 39bps between 31 December 2018
and 30 June 2019.
[3] Incorporates management's estimate of the impact of
recalculating the Transitional Measures for Technical Provisions
(TMTP) as at 30 June 2019 as we believe this provides the most up
to date and meaningful view of our Solvency II position. In line
with guidance, the next formal recalculation will take place no
later than 31 December 2019.
[4] Solvency II coverage ratio on a shareholder basis is
adjusted for the Own Funds and SCR of the With-profits fund and the
Group final salary pension schemes. The proforma basis includes
both of these items.
[5] Excludes the June 2019 Rolls Royce transaction; including
this increases our annual PRT premiums from existing LGIM clients
to c.60%.
[6] To 31 December 2018.
[7] Source: Pension Purple Book 2018, PPF; LIMRA, March 2019;
https://www.ipe.com/countries/ireland/irish-pension-liabilities-hit-167-of-gdp/10024291.article;
"The Coming
Pensions Crisis", Citi Research
[8] Source: Pension Purple Book 2018, PPF; Hymans Robertson,
2018 Risk Transfer Report
[9] RBC, "Bulk annuities: 10 things you need to know about the
best structural growth opportunity in Euro insurance"
[10] Equity Release Council, "Equity Release Rebooted", April
2017
[11] UK Equity Release Market Monitor, Half Year 2019
[12] Broadridge, Q2 2018
[13] Japan Funds News Letter as at 31 March 2019
[14] LCP, "Pensions De-risking Report 2019"
[15] As at 31 June 2019
[16] Q1 2019: 18.3%; Q2 2018: 13.1%
[17] Excludes equities, derivative assets, property, and cash.
GBP15,148m of this portfolio is direct investment bonds. Please see
note 7.01 and 7.02b for more information.
[18] Includes LGR direct investment bonds (GBP15,148m), direct
investment property (GBP3,131m), direct investments equity (GBP6m),
and other assets (GBP90m). Please see note 7.02b for more
information.
[19] Pridham Report, Q1 2019 and Q2 2019
[20] Broadridge Pan-European mutual fund and ETF flows Q1
2019
[21] UK protection discount rate movement from 31 December 2018
to 30 June 2019
[22] US 10 year treasury rate from 31 December 2018 to 30 June
2019
[23] The equity holders' total Effective Tax Rate excluding
discontinued operations is 17.8% (H1 2018: 17.9%).
[24] Using unrounded operational surplus generation values.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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