TIDMLGEN
RNS Number : 1627I
Legal & General Group Plc
07 August 2019
Legal & General Group Plc
2019 Half Year Results Part 2
1 Independent review report to Legal & General Group Plc Page 29
Conclusion
We have been engaged by the Legal & General Group Plc ("the
Group") to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2019
which comprises the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated Balance Sheet,
the Condensed Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows (pages 42 to 47) and the
related explanatory notes to the interim financial statements
(pages 31 to 41 and 48 to 66).
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Group in accordance with the
terms of our engagement to assist the Group in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Group those matters we are
required to state to it in this report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group for our review work,
for this report, or for the conclusions we have reached.
Rees Aronson
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
6 August 2019
Page 30
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IFRS Disclosures on performance and Release from operations Page 31
2.01 Operating profit(#)
For the six month period to 30 June 2019
6 months 6 months Full year
2019 2018 2018
Notes GBPm GBPm GBPm
From continuing operations
Legal & General Retirement
(LGR) 2.03 655 480 1,548
-------- -------- ---------
- LGR Institutional (LGRI) 524 361 1,149
- LGR Retail (LGRR) 131 119 399
-------- -------- ---------
Legal & General Investment
Management (LGIM) 2.04 205 203 407
Legal & General Capital (LGC) 2.05 173 172 322
Legal & General Insurance
(LGI) 2.03 134 154 308
-------- -------- ---------
- UK and Other 93 136 246
- US (LGIA) 41 18 62
-------- -------- ---------
Operating profit from divisions:
From continuing operations 1,167 1,009 2,585
From discontinued operations(1) 19 50 79
Operating profit from divisions 1,186 1,059 2,664
Group debt costs(2) (108) (97) (203)
Group investment projects
and central expenses (73) (53) (126)
Operating profit 1,005 909 2,335
Investment and other variances 2.06 57 32 (188)
(Losses)/gains on non-controlling
interests (9) 1 (19)
Adjusted profit before tax attributable
to equity holders 1,053 942 2,128
Tax expense attributable
to equity holders 4.06 (188) (170) (320)
Profit for the period 865 772 1,808
Profit attributable to equity
holders 874 771 1,827
p p p
Total basic earnings per
share(3) 2.07 14.74 13.00 30.79
Total diluted earnings per
share(3) 2.07 14.66 12.94 30.64
1. Operating profit from discontinued divisions reflects the operating
profit of the Mature Savings and General Insurance divisions following
the group's announcements to sell these businesses to Swiss Re and
Allianz respectively.
2. Group debt costs exclude interest on non-recourse financing.
3. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the
group's key performance indicators) provides further analysis of
the results reported under IFRS and the group believes it provides
shareholders with a better understanding of the underlying
performance of the business in the period.
-- LGR represents worldwide pension risk transfer business
including longevity insurance (within LGRI), and individual
retirement and lifetime mortgages (within LGRR).
-- LGIM represents institutional and retail investment
management and workplace savings businesses.
-- LGC represents shareholder assets invested in direct
investments primarily in the areas of housing, urban regeneration,
clean energy and SME finance, as well as traded and treasury
assets.
-- LGI primarily represents UK and US retail protection
business, UK group protection and Fintech business.
-- Discontinued operations represent businesses that have either
been sold or announced to sell subject to formal transfer, namely
Mature Savings (including with-profits) and General Insurance.
Operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except the operating profit for LGC's trading
businesses (which reflects the IFRS profit before tax) and LGIA's
non-term business (which excludes unrealised investment returns to
align with the liability measurement under US GAAP). Variances
between actual and smoothed investment return assumptions are
reported below operating profit, which include any differences
between investment return on actual assets and the target long-term
asset mix. Exceptional income and expenses which arise outside the
normal course of business in the period, such as gains/losses from
merger and acquisition, and start-up costs, are also excluded from
operating profit
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 32
2.02 Reconciliation of release from operations to operating
profit(#) before tax
Changes Operating Operating
New Net in profit/ profit/
For the six Release business release Exper- valuation (loss) Tax (loss)
month from surplus/ from ience assump- Non-cash after expense/ before
period operations(1) (strain) operations variances tions items Other tax (credit) tax
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2019
LGR 303 185 488 (37) 33 58 - 542 113 655
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 212 165 377 (37) 33 61 - 434 90 524
- LGRR 91 20 111 - - (3) - 108 23 131
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM 175 (11) 164 - - (1) - 163 42 205
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings)(2) 162 - 162 - - - - 162 42 204
- Workplace
Savings(3) 13 (11) 2 - - (1) - 1 - 1
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGC 142 - 142 - - - - 142 31 173
LGI 171 (1) 170 (21) 18 (2) (59) 106 28 134
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 84 (1) 83 (21) 18 (2) - 78 15 93
- US (LGIA) 87 - 87 - - - (59) 28 13 41
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 791 173 964 (58) 51 55 (59) 953 214 1,167
From
discontinued
operations(4) 15 - 15 - - - - 15 4 19
Total from
divisions 806 173 979 (58) 51 55 (59) 968 218 1,186
Group debt
costs (87) - (87) - - - - (87) (21) (108)
Group
investment
projects and
expenses (19) - (19) - - - (36) (55) (18) (73)
Total 700 173 873 (58) 51 55 (95) 826 179 1,005
1. Release from operations within US (LGIA) includes GBP81m of dividends
from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management
services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings
and General Insurance divisions following the group's announcements
to sell these businesses to Swiss Re and Allianz respectively.
Release from operations for LGR, LGIM - Workplace Savings and LGI
represents the expected IFRS surplus generated in the period from
the in-force non profit annuities, workplace savings and UK protection
businesses using best estimate assumptions. The LGIM (excluding Workplace
Savings) release from operations includes operating profit after tax
from the institutional and retail investment management businesses.
The LGI release from operations also includes dividends remitted from
LGIA. The release from operations within discontinued operations primarily
reflects the unwind of expected profits after tax under the risk transfer
agreement with ReAssure Limited (a subsidiary of Swiss Re) from the
Mature Savings business, and the operating profit (net of tax) from
the General Insurance business.
New business surplus/strain for LGR, LGIM - Workplace Savings and
LGI represents the cost of acquiring new business and setting up prudent
reserves in respect of the new business for UK non profit annuities,
workplace savings and protection, net of tax. The new business surplus
and release from operations for LGR, LGIM and LGI excludes any capital
held in excess of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long term
asset portfolio. The six months period to 30 June 2019 has seen record
pension risk transfer (PRT) volumes, and as a result we continue to
source high quality assets to support this business in 2019, as appropriate,
taking into account the alternative risk and rewards of traded credit.
At period end, any difference between the actual assets and the target
long-term asset mix is reflected in investment variance.
Net release from operations for LGR, LGIM - Workplace Savings, LGI
and discontinued operations is defined as release from operations
plus new business surplus/(strain).
Release from operations and net release from operations for LGC and
LGIM (excluding Workplace Savings) represent the operating profit
(net of tax) of these divisions.
See Note 2.03 for more detail on experience variances, changes to
valuation assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Group adjusted operating profit', an alternative performance measure
defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 33
2.02 Reconciliation of release from operations to operating
profit(#) before tax (continued)
Changes Operating Operating
New Net in profit/ profit/
Release business release Exper- valuation (loss) Tax (loss)
For the six from surplus/ from ience assump- Non-cash after expense/ before
month period operations(1) (strain) operations variances tions items Other tax (credit) tax
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2018
LGR 275 23 298 51 57 (6) - 400 80 480
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 192 12 204 50 54 (7) - 301 60 361
- LGRR 83 11 94 1 3 1 - 99 20 119
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM 177 (13) 164 (1) - (1) - 162 41 203
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings)(2) 161 - 161 - - - - 161 40 201
- Workplace
Savings(3) 16 (13) 3 (1) - (1) - 1 1 2
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGC 138 - 138 - - - - 138 34 172
LGI 165 (8) 157 31 8 (9) (76) 111 43 154
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 88 (8) 80 31 8 (9) 1 111 25 136
- US (LGIA) 77 - 77 - - - (77) - 18 18
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 755 2 757 81 65 (16) (76) 811 198 1,009
From
discontinued
operations(4) 17 - 17 (3) - 26 - 40 10 50
Total from
divisions 772 2 774 78 65 10 (76) 851 208 1,059
Group debt
costs (79) - (79) - - - - (79) (18) (97)
Group
investment
projects and
expenses (15) - (15) - - - (25) (40) (13) (53)
Total 678 2 680 78 65 10 (101) 732 177 909
1. Release from operations within the US (LGIA) includes GBP77m of
dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management
services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings
and General Insurance divisions following the group's announcement
to sell these businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 34
2.02 Reconciliation of release from operations to operating
profit(#) before tax (continued)
Exper-
ience
variances Changes Operating Operating
New Net in profit/ profit/
Release business release valuation (loss) Tax (loss)
For the year from surplus/ from assump- Non-cash after expense/ before
ended operations(1) (strain) operations tions items Other tax (credit) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2018
LGR 551 217 768 33 444 40 - 1,285 263 1,548
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 379 188 567 22 324 43 - 956 193 1,149
- LGRR 172 29 201 11 120 (3) - 329 70 399
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM 354 (25) 329 (3) (1) 1 - 326 81 407
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings)(2) 323 - 323 - - - - 323 81 404
- Workplace
Savings(3) 31 (25) 6 (3) (1) 1 - 3 - 3
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGC 261 - 261 - - - - 261 61 322
LGI 258 (22) 236 24 35 (19) (7) 269 39 308
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 181 (22) 159 24 35 (19) 1 200 46 246
- US (LGIA) 77 - 77 - - - (8) 69 (7) 62
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 1,424 170 1,594 54 478 22 (7) 2,141 444 2,585
From
discontinued
operations(4) 44 - 44 (6) - 26 - 64 15 79
Total from
divisions 1,468 170 1,638 48 478 48 (7) 2,205 459 2,664
Group debt
costs (164) - (164) - - - - (164) (39) (203)
Group
investment
projects and
expenses (34) - (34) - - - (68) (102) (24) (126)
Total 1,270 170 1,440 48 478 48 (75) 1,939 396 2,335
1. Release from operations within US (LGIA) includes GBP77m of dividends
from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management
services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the result of the Mature Savings
and General Insurance divisions following the group's announcements
to sell these businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report represent
'Group adjusted operating profit', an alternative performance measure
defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 35
2.03 Analysis of LGR and LGI operating profit
LGR LGI LGR LGI LGR LGI
6 months 6 months 6 months 6 months Full Full
year year
2019 2019 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Net release from operations 488 170 298 157 768 236
Experience variances
- Persistency - (13) 3 (9) 8 (12)
- Mortality/morbidity 5 (8) 9 (12) 73 (7)
- Expenses (9) (1) (6) 3 (13) 2
- Project and development
costs (4) (1) (3) - (11) -
- Other(1) (29) 2 48 49 (24) 41
Total experience variances (37) (21) 51 31 33 24
Changes to valuation assumptions
- Persistency - - - - - (4)
- Mortality/morbidity(2) - 5 57 10 444 25
- Expenses - - - - - 17
- Other(3) 33 13 - (2) - (3)
Total changes to valuation
assumptions 33 18 57 8 444 35
Movement in non-cash items
- Acquisition expense tax
relief - (1) - (5) - (11)
- Other(4) 58 (1) (6) (4) 40 (8)
Total movement in non-cash
items 58 (2) (6) (9) 40 (19)
Other - (59) - (76) - (7)
Operating profit after tax 542 106 400 111 1,285 269
Tax gross up 113 28 80 43 263 39
Operating profit before tax 655 134 480 154 1,548 308
1. Other experience variances for LGR predominantly reflects an
update to the liability valuation model for deferred annuitants
and increased prudence in reserves where death experience is out
of date. The positive variance for the six months ended 30 June
2018 reflect the impact of an improvement in the quality of the
scheme data relating to bulk annuities.
2. In 2018, LGR reviewed the longevity trend assumptions and made
a mortality release of GBP57m in H1 18 and GBP444m in H2 18. In
2019, as in previous years, LGR are reviewing the current longevity
trend assumptions against the CMI 2017 experience data and intend
to make any amendments as necessary in H2 19.
3. LGR Other changes to valuation assumptions reflect a change
in assumption on the future exercise of an option within a longevity
swap contract.
4. LGR Other movement in non-cash items is driven by the capitalisation
and unwind of future asset management profits on activity managed
by LGIM, and is a function of new business volumes.
IFRS Disclosures on performance and Release from operations Page 36
2.04 Analysis of LGIM operating profit
6 months 6 months Full year
2019 2018 2018
GBPm GBPm GBPm
Asset management revenue (excluding 3rd
party market data)(1,2) 425 401 820
Asset management transactional revenue
from external clients(3) 9 13 27
Asset management expenses (excluding 3rd
party market data)(1,2) (230) (213) (443)
Workplace Savings operating profit(4) 1 2 3
Total LGIM operating profit 205 203 407
1. Asset management revenue and expenses exclude income and costs
of GBP11m in relation to the provision of third party market data
(H1 18: GBP8m; FY 18: GBP19m).
2. The ETF operating result is included as part of asset management
revenue and expenses, which represents a change in the presentation
from previous periods. Asset management revenue (excluding 3rd
party market data) and Asset management expenses (excluding 3rd
party market data) have therefore been restated for the six months
ended 30 June 2018 and for the full year ended 31 December 2018
to reflect this change.
3. 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.
4. Workplace Savings represents administration business only.
2.05 Analysis of LGC operating profit
6 months 6 months Full year
2019 2018 2018
GBPm GBPm GBPm
Direct investments(1) 99 104 188
Traded investment portfolio including treasury
assets(2) 74 68 134
Total LGC operating profit 173 172 322
1. Direct Investments represents LGC's portfolio of assets across
future cities (including urban regeneration and clean energy),
housing and SME finance.
2. The traded investment portfolio holds a diversified set of exposures
across equities, fixed income, multi-asset funds and cash.
2.06 Investment and other variances
6 months 6 months Full year
2019 2018 2018
GBPm GBPm GBPm
Investment variance(1) 84 54 (126)
M&A related and other variances(2) (27) (22) (62)
Total investment and other variances 57 32 (188)
1. Investment variance includes differences between actual and
smoothed investment return on traded and real assets, economic
assumption changes (e.g. credit default and inflation) and the
impact of any difference between the actual allocated asset mix
and the target long-term asset mix on new pension risk transfer
business written during the period and held at a period end.
2. M&A related and other variances includes gains and losses, expenses
and intangible amortisation relating to acquisitions and disposals.
H1 19 includes a GBP43m gain on the disposal of the group's stake
in IndiaFirst Life Insurance Company Limited (H1 18 and FY 18 included
the recognition of a one-off profit of GBP20m arising on the stepped
acquisition of CALA Homes).
IFRS Disclosures on performance and Release from operations Page 37
2.07 Earnings per share
(a) Basic earnings per share
After Per share(1) After Per share(1) After Per share(1)
tax tax tax
6 months 6 months 6 months 6 months Full year Full year
2019 2019 2018 2018 2018 2018
GBPm p GBPm p GBPm p
Profit for the period attributable
to equity holders 874 14.74 771 13.00 1,827 30.79
Less: earnings derived from
discontinued
operations (27) (0.46) (33) (0.56) (43) (0.72)
Basic earnings derived from continuing
operations 847 14.28 738 12.44 1,784 30.07
--------------------------------------- -------- ------------ -------- ------------ --------- ------------
1. Basic earnings per share is calculated by dividing profit after tax
by the weighted average number of ordinary shares in issue during the
period, excluding employee scheme treasury shares.
(b) Diluted earnings per share
Weighted
average
number
of
After tax shares Per share(1)
For the six month period GBPm m p
to 30 June 2019
Profit for the period attributable to equity
holders 874 5,931 14.74
Net shares under options allocable for
no further consideration - 30 (0.08)
Total diluted earnings 874 5,961 14.66
Less: diluted earnings derived from discontinued
operations (27) - (0.45)
----------------------------------------------------- --------- -------- ------------
Diluted earnings derived from continuing
operations 847 5,961 14.21
----------------------------------------------------- --------- -------- ------------
Weighted
average
number
of
After tax shares Per share(1)
For the six month period GBPm m p
to 30 June 2018
Profit for the period attributable
to equity holders 771 5,933 13.00
Net shares under options allocable for no further
consideration - 25 (0.06)
Total diluted earnings 771 5,958 12.94
Less: diluted earnings derived from discontinued
operations (33) - (0.55)
----------------------------------------------------- --------- -------- ------------
Diluted earnings derived from continuing
operations 738 5,958 12.39
----------------------------------------------------- --------- -------- ------------
Weighted
average
number
of
After tax shares Per share(1)
For the year ended 31 GBPm m p
December 2018
Profit for the period attributable to equity
holders 1,827 5,933 30.79
Net shares under options allocable for no further
consideration - 29 (0.15)
Total diluted earnings 1,827 5,962 30.64
Less: diluted earnings derived from discontinued
operations (43) - (0.72)
----------------------------------------------------- --------- -------- ------------
Diluted earnings derived from continuing
operations 1,784 5,962 29.92
----------------------------------------------------- --------- -------- ------------
1. For diluted earnings per share, the weighted average number of ordinary
shares in issue, excluding employee scheme treasury shares, is adjusted
to assume conversion of all potential ordinary shares, such as share
options granted to employees.
IFRS Disclosures on performance and Release from operations Page 38
2.08 Segmental analysis
Reportable segments
The group has four reportable segments that are continuing
operations, comprising LGR, LGIM, LGC and LGI, as set out in Note
2.01. Group central expenses and debt costs are reported
separately. Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
Reporting of assets and liabilities by reportable segment has
not been included, as this is not information that is provided to
key decision makers on a regular basis. The group's assets and
liabilities are managed on a legal entity rather than reportable
segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further
broken down where relevant in order to better explain the drivers
of the group's results.
(i) Profit/(loss) for the period
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs operations(1)
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2019
Operating profit/(loss)(#) 655 205 173 134 (181) 986
Investment and other variances (17) (5) 105 (134) 94 43
Losses attributable to non-controlling
interests - - - - (9) (9)
Profit/(loss) before tax attributable
to equity holders 638 200 278 - (96) 1,020
Tax (expense)/credit attributable
to equity holders (110) (42) (36) - 6 (182)
Profit/(loss) for the period 528 158 242 - (90) 838
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs operations(1)
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2018
Operating profit/(loss)(#) 480 203 172 154 (150) 859
Investment and other variances 85 (4) (90) (37) 86 40
Gains attributable to non-controlling
interests - - - - 1 1
Profit/(loss) before tax attributable
to equity holders 565 199 82 117 (63) 900
Tax (expense)/credit attributable
to equity holders (102) (39) (14) (35) 29 (161)
Profit/(loss) for the period 463 160 68 82 (34) 739
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs operations(1)
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2018
Operating profit/(loss)(#) 1,548 407 322 308 (329) 2,256
Investment and other variances 95 (4) (273) (1) 22 (161)
Losses attributable to non-controlling
interests - - - - (19) (19)
Profit/(loss) before tax attributable
to equity holders 1,643 403 49 307 (326) 2,076
Tax (expense)/credit attributable
to equity holders (267) (81) 13 (39) 63 (311)
Profit/(loss) for the year 1,376 322 62 268 (263) 1,765
1. Total continuing operations exclude the results of the Mature
Savings and General Insurance divisions which have been classified
as discontinued following the group's announcements to sell these
businesses to Swiss Re and Allianz respectively.
# All references to 'Operating profit' throughout this report represent
'Group adjusted operating profit', an alternative performance measure
defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 39
2.08 Segmental analysis (continued)
(ii) Revenue
(a) Total revenue
6 months 6 months Full year
2019 2018 2018
GBPm GBPm GBPm
Total income 48,450 2,307 894
Less:
Share of profit from associates and
joint ventures, net of tax (6) (3) (15)
Gain on disposal/acquisition of subsidiaries,
associates and joint ventures (43) (20) (20)
Total revenue from continuing operations(1) 48,401 2,284 859
1. Total revenue from continuing operations excludes the revenue of
the Mature Savings and General Insurance divisions which have been
classified as discontinued following the group's announcements to sell
these businesses to Swiss Re and Allianz respectively.
(b) Total income
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations(4)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2019
Internal income - 89 - (89) -
External income 10,602 25,376 1,141 11,331 48,450
Total income 10,602 25,465 1,141 11,242 48,450
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations(4)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2018
Internal income - 81 - (81) -
External income (101) 1,324 1,073 11 2,307
Total income (101) 1,405 1,073 (70) 2,307
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations(4)
For the year ended 31 December 2018 GBPm GBPm GBPm GBPm GBPm
Internal income - 172 - (172) -
External income 8,507 (10,654) 1,742 1,299 894
Total income 8,507 (10,482) 1,742 1,127 894
1. LGIM internal income relates to investment management services provided
to other segments.
2. LGIM external income primarily includes fees from fund management
and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
4. Total continuing operations exclude the results of the Mature Savings
and General Insurance divisions which have been classified as discontinued
following the group's announcements to sell these businesses to Swiss
Re and Allianz respectively.
IFRS Disclosures on performance and Release from operations Page 40
2.08 Segmental analysis (continued)
(c) Fees from fund management and investment contracts
Total
continuing
LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June 2019 GBPm GBPm GBPm GBPm
Investment contracts 34 - - 34
Investment management fees 431 - (74) 357
Transaction fees 10 - (1) 9
Total fees from fund management and investment
contracts(3) 475 - (75) 400
Total
continuing
LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June 2018 GBPm GBPm GBPm GBPm
Investment contracts 38 1 - 39
Investment management fees 393 - (53) 340
Transaction fees 16 - (1) 15
Total fees from fund management and investment
contracts(3) 447 1 (54) 394
Total
continuing
LGIM LGI LGC and operations(2)
other(1)
For the year ended 31 December 2018 GBPm GBPm GBPm GBPm
Investment contracts 75 1 - 76
Investment management fees 813 - (114) 699
Transaction fees 42 - (15) 27
Total fees from fund management and investment
contracts(3) 930 1 (129) 802
1. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
2. Total continuing operations exclude the results of the Mature Savings
and General Insurance divisions which have been classified as discontinued
following the group's announcements to sell these businesses to Swiss
Re and Allianz respectively.
3. Fees from fund management and investment contracts are a component
of Total revenue from continuing operations disclosed in Note 2.08(ii)(a).
IFRS Disclosures on performance and Release from operations Page 41
2.08 Segmental analysis (continued)
(d) Other operational income from contracts
with customers
Total
continuing
LGR LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June 2019 GBPm GBPm GBPm GBPm GBPm
House building - - - 454 454
Professional services
fees 1 1 43 - 45
Insurance broker - - 17 - 17
Total other operational income from contracts
with customers(3) 1 1 60 454 516
Total
continuing
LGR LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June 2018 GBPm GBPm GBPm GBPm GBPm
House building - - - 501 501
Professional services
fees - 1 77 (2) 76
Insurance broker - - 11 - 11
Total other operational income from contracts
with customers(3) - 1 88 499 588
Total
continuing
LGR LGIM LGI LGC and operations(2)
other(1)
For the year ended 31 December 2018 GBPm GBPm GBPm GBPm GBPm
House building - - - 981 981
Professional services
fees 3 3 155 - 161
Insurance broker - - 29 - 29
Total other operational income from contracts
with customers(3) 3 3 184 981 1,171
1. LGC and other includes LGC income, intra-segmental eliminations and
group consolidation adjustments.
2. Total continuing operations exclude the results of the Mature Savings
and General Insurance divisions which have been classified as discontinued
following the group's announcements to sell these businesses to Swiss
Re and Allianz respectively.
3. Total other operational income from contracts with customers is a
component of Total revenue from continuing operations disclosed in Note
2.08(ii)(a).
IFRS Primary Financial Statements Page 42
3.01 Consolidated Income Statement
For the six month period to 30 June 2019
6 months 6 months Full year
2019 2018 2018
Notes GBPm GBPm GBPm
Income
Gross written premiums 8,745 2,563 12,843
Outward reinsurance premiums (1,522) (859) (2,114)
Net premiums earned 7,223 1,704 10,729
Fees from fund management and investment
contracts 2.08 400 394 802
Investment return 40,262 (407) (11,843)
Other operational income 565 616 1,206
Total income 2.08 48,450 2,307 894
Expenses
Claims and change in insurance contract
liabilities 12,368 846 8,370
Reinsurance recoveries (1,971) (1,127) (1,051)
Net claims and change in insurance
contract liabilities 10,397 (281) 7,319
Change in investment contract liabilities 35,412 292 (11,304)
Acquisition costs 395 371 780
Finance costs 137 113 238
Other expenses 1,048 852 1,732
Total expenses 47,389 1,347 (1,235)
Profit before tax 1,061 960 2,129
Tax expense attributable to policyholder
returns (41) (60) (53)
Profit before tax attributable to
equity holders 1,020 900 2,076
Total tax expense (223) (221) (364)
Tax expense attributable to policyholder
returns 41 60 53
Tax expense attributable to equity
holders 4.06 (182) (161) (311)
Profit after tax from continuing operations 2.08 838 739 1,765
Profit after tax from discontinued
operations(1) 4.03 27 33 43
Profit for the period 865 772 1,808
--------------------------------------------- ----- -------- -------- ---------
Attributable to:
Non-controlling interests (9) 1 (19)
Equity holders 874 771 1,827
Dividend distributions to equity holders
during the period 4.04 704 658 932
Dividend distributions to equity
holders proposed after the period
end 4.04 294 274 704
p p p
Total basic earnings per share(2) 2.07 14.74 13.00 30.79
Total diluted earnings per share(2) 2.07 14.66 12.94 30.64
--------------------------------------------- ----- -------- -------- ---------
Basic earnings per share derived
from continuing operations(2) 2.07 14.28 12.44 30.07
Diluted earnings per share derived
from continuing operations(2) 2.07 14.21 12.39 29.92
--------------------------------------------- ----- -------- -------- ---------
1. Discontinued operations reflect the results of the Mature Savings
and General Insurance divisions following the group's announcements
to sell these businesses to Swiss Re and Allianz respectively.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
IFRS Primary Financial Statements Page 43
3.02 Consolidated Statement of Comprehensive Income
For the six month period to 30 June 2019
6 months 6 months Full year
2019 2018 2018
GBPm GBPm GBPm
Profit for the period 865 772 1,808
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (69) 143 117
Tax on actuarial (losses)/gains on defined
benefit pension schemes 13 (26) (22)
Total items that will not be reclassified subsequently
to profit or loss (56) 117 95
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of overseas
operations 3 13 62
Movement in cross-currency hedge 27 9 34
Tax on movement in cross-currency hedge (5) (2) (5)
Movement in financial investments designated
as available-for-sale 65 (41) (36)
Tax on movement in financial investments designated
as available-for-sale (11) 9 5
Total items that may be reclassified subsequently
to profit or loss 79 (12) 60
Other comprehensive income after tax 23 105 155
Total comprehensive income for the period 888 877 1,963
Total comprehensive income for the period attributable
to:
Continuing operations 861 844 1,920
Discontinued operations 27 33 43
------------------------------------------------------- -------- -------- ---------
Total comprehensive income for the period attributable
to:
Non-controlling interests (9) 1 (19)
Equity holders 897 876 1,982
IFRS Primary Financial Statements Page 44
3.03 Consolidated Balance Sheet
As at 30 June 2019
As at As at As at
30 Jun 30 Jun 31 Dec
2019 2018(1) 2018
Notes GBPm GBPm GBPm
Assets
Goodwill 62 65 65
Purchased interest in long term businesses
and other intangible assets 158 194 223
Deferred acquisition costs 74 128 140
Investment in associates and joint ventures
accounted for using the equity method 362 51 259
Property, plant and equipment 291 63 57
Investment property 4.05 7,140 7,231 6,965
Financial investments 4.05 471,118 428,117 430,498
Reinsurers' share of contract liabilities 5,413 5,761 4,737
Deferred tax assets 4.06 7 7 7
Current tax assets 476 388 418
Receivables and other assets 10,706 9,383 5,593
Assets of operations classified as held for
sale 4.03 27,194 21,932 26,234
Cash and cash equivalents 14,224 20,178 17,321
Total assets 537,225 493,498 492,517
Equity
Share capital 4.07 149 149 149
Share premium 4.07 998 990 992
Employee scheme treasury shares (62) (52) (52)
Capital redemption and other reserves 300 158 230
Retained earnings 7,376 6,483 7,261
Attributable to owners of the parent 8,761 7,728 8,580
Non-controlling interests 4.08 66 77 72
Total equity 8,827 7,805 8,652
Liabilities
Non-participating insurance contract liabilities 73,869 59,713 64,707
Non-participating investment contract liabilities 315,603 302,280 293,080
Core borrowings 4.09 3,514 3,489 3,922
Operational borrowings 4.10 1,051 957 1,026
Provisions 1,202 1,153 1,140
UK deferred tax liabilities 4.06 193 73 144
Overseas deferred tax liabilities 4.06 197 235 185
Current tax liabilities 175 255 171
Payables and other financial liabilities 4.11 75,527 59,152 62,548
Other liabilities 719 438 619
Net asset value attributable to unit holders 24,909 25,434 26,481
Liabilities of operations classified as held
for sale 4.03 31,439 32,514 29,842
Total liabilities 528,398 485,693 483,865
Total equity and liabilities 537,225 493,498 492,517
1. Following a change in accounting policy for LGIA term assurance
reserves during 2018, the initial best estimate impacts of the change
to certain balance sheet items have been refined.The overall impact
is an increase in reinsurers' share of contract liabilities and the
group's retained earnings of GBP27m. Further details on the change
in accounting policy are provided in Note 4.01.
IFRS Primary Financial Statements Page 45
3.04 Condensed Consolidated Statement of Changes in Equity
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves(1) earnings parent interests equity
For the six month period GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
to 30 June 2019
As at 1 January 2019 149 992 (52) 230 7,261 8,580 72 8,652
Total comprehensive
income for the period - - - 79 818 897 (9) 888
Options exercised under
share option schemes - 6 - - - 6 - 6
Net movement in employee
scheme treasury shares - - (10) (7) (1) (18) - (18)
Dividends - - - - (704) (704) - (704)
Movement in third party
interests - - - - - - 3 3
Currency translation
differences - - - (2) 2 - - -
As at 30 June 2019 149 998 (62) 300 7,376 8,761 66 8,827
1. Capital redemption and other reserves as at 30 June 2019 include
share-based payments GBP74m, foreign exchange GBP122m, capital redemption
GBP17m, hedging reserves GBP42m and available-for-sale reserves
GBP45m.
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves(1) earnings parent interests equity
For the six month period GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
to 30 June 2018
As at 1 January 2018 149 988 (40) 168 6,224 7,489 76 7,565
Change in accounting
policy(2) - - - - 27 27 - 27
Restated as at 1 January
2018 149 988 (40) 168 6,251 7,516 76 7,592
Total comprehensive
income for the period - - - (12) 888 876 1 877
Options exercised under
share option schemes - 2 (12) (22) - (32) - (32)
Net movement in employee
scheme treasury shares - - - 23 3 26 - 26
Dividends - - - - (658) (658) - (658)
Movement in third party - - - - - - - -
interests
Currency translation
differences - - - 1 (1) - - -
Restated as at 30 June
2018(2) 149 990 (52) 158 6,483 7,728 77 7,805
1. Capital redemption and other reserves as at 30 June 2018 include
share-based payments GBP70m, foreign exchange GBP83m, capital redemption
GBP17m, hedging reserves GBP(2)m and available-for-sale reserves
GBP(10)m.
2. During H2 18 the calculation of the retrospective impact of the
change in accounting policy for LGIA term assurance reserves was
refined, as described in Note 4.01. Change in accounting policy
reflects the results of this refinement and consequently Retained
earnings attributable to owners of the parent have been restated.
IFRS Primary Financial Statements Page 46
3.04 Condensed Consolidated Statement of Changes in Equity
(continued)
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
capital premium shares reserves(1) earnings of the interests equity
parent
For the year ended 31 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
December 2018
As at 1 January 2018 149 988 (40) 168 6,251 7,516 76 7,592
Total comprehensive
income for the year - - - 60 1,922 1,982 (19) 1,963
Options exercised under
share option schemes - 4 - - - 4 - 4
Net movement in employee
scheme treasury shares - - (12) 12 10 10 - 10
Dividends - - - - (932) (932) - (932)
Movement in third party
interests - - - - - - 15 15
Currency translation
differences - - - (10) 10 - - -
As at 31 December 2018 149 992 (52) 230 7,261 8,580 72 8,652
1. Capital redemption and other reserves as at 31 December 2018
include share-based payments GBP81m, foreign exchange GBP121m, capital
redemption GBP17m, hedging reserves GBP20m and available-for-sale
reserves GBP(9)m.
IFRS Primary Financial Statements Page 47
3.05 Consolidated Statement of Cash Flows
For the six month period to 30 June 2019
6 months 6 months Full year
2019 2018 2018
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period 865 772 1,808
Adjustments for non cash movements in net
profit for the period
Net (gains)/losses on financial investments
and investment properties (37,069) 6,025 23,132
Investment income (5,588) (5,386) (10,182)
Interest expense 164 140 293
Tax expense 411 210 210
Other adjustments 62 105 183
Net (increase)/decrease in operational assets
Investments held for trading or designated
as fair value through profit or loss 413 7,306 (10,381)
Investments designated as available-for-sale 97 387 (248)
Other assets (6,033) (2,012) 1,258
Net increase/(decrease) in operational liabilities
Insurance contracts 9,157 (2,001) 3,257
Investment contracts 22,524 (13,370) (22,571)
Other liabilities 7,472 5,923 12,057
Net increase/(decrease) in held for sale
net liabilities 223 (538) (8,500)
Cash utilised in operations (7,302) (2,439) (9,684)
Interest paid (140) (142) (215)
Interest received 2,532 1,816 4,841
Tax paid(1) (219) (286) (504)
Dividends received 2,819 2,802 5,201
Net cash flows from operating activities (2,310) 1,751 (361)
Cash flows from investing activities
Net acquisition of plant, equipment, intangibles
and other assets (28) (97) (401)
Net disposal/(acquisition) of operations 4.02 76 326 326
Investment in joint ventures and associates (88) - (130)
Net cash flows utilised in investing activities (40) 229 (205)
Cash flows from financing activities
Dividend distributions to ordinary equity
holders during the period 4.04 (704) (658) (932)
Issue of ordinary share capital 4.07 6 2 4
Exercise of employee scheme shares (net) (10) 12 12
Payment of lease liabilities (12) - -
Proceeds from borrowings 151 148 960
Repayment of borrowings (593) (11) (325)
Movement in non-controlling interests - 1 -
Net cash flows utilised in financing activities (1,162) (506) (281)
Net (decrease)/increase in cash and cash
equivalents (3,512) 1,474 (847)
Exchange gains/(losses) on cash and cash
equivalents 1 6 16
Cash and cash equivalents at 1 January 18,088 18,919 18,919
Total cash and cash equivalents 14,577 20,399 18,088
Less: cash and cash equivalents of operations
classified as held for sale 4.03 (353) (221) (767)
Cash and cash equivalents at 30 June/31
December 14,224 20,178 17,321
1. Tax comprises UK corporation tax paid of GBP126m (H1 18: GBP170m;
FY 18: GBP359m), overseas corporate taxes of GBP(12)m (H1 18:
GBP23m; FY 18: GBP25m), and withholding tax of GBP105m (H1 18:
GBP93m; FY 18: GBP120m).
IFRS Disclosure Notes Page 48
4.01 Basis of preparation
The group financial information for the six months ended 30 June
2019 has been prepared in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and with IAS 34, 'Interim Financial Reporting'. The
group's financial information has also been prepared in line with
the accounting policies which the group expects to adopt for the
2019 year end. These policies are consistent with the principal
accounting policies which were set out in the group's 2018
consolidated financial statements, except where changes have been
outlined below in "New standards, interpretations and amendments to
published standards that have been adopted by the group". These are
consistent with IFRSs issued by the International Accounting
Standards Board as adopted by the European Commission for use in
the European Union.
The preparation of the interim management report includes the
use of estimates and assumptions which affect items reported in the
consolidated balance sheet and income statement and the disclosure
of contingent assets and liabilities at the date of the financial
statements. The economic and non-economic actuarial assumptions
used to establish the liabilities in relation to insurance and
investment contracts are significant. For half-year financial
reporting, economic assumptions have been updated to reflect market
conditions. Non-economic assumptions are consistent with those used
in the 31 December 2018 financial statements.
The results for the half year ended 30 June 2019 are unaudited
but have been reviewed by KPMG LLP. The interim results do not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The results from the full year 2018 have been
taken from the group's 2018 Annual Report and Accounts, restated as
described in the changes in accounting policy section below.
Therefore, these interim accounts should be read in conjunction
with the 2018 Annual Report and Accounts that have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board and adopted
by the European Commission for use in the European Union. KPMG LLP
reported on the 2018 financial statements, and their report was
unqualified and did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006. The group's 2018 Annual Report
and Accounts has been filed with the Registrar of Companies.
Key technical terms and definitions
The interim management report refers to various key performance
indicators, accounting standards and other technical terms. A
comprehensive list of these definitions is contained within the
glossary section of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures
(APMs), including net release from operations and group adjusted
operating profit, in the discussion of its business performance and
financial position, as the group believes that they provide a
better understanding of its underlying performance. Definitions of
key APMs can be found in the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income
Statement includes income tax borne by both policyholders and
shareholders. This has been apportioned between that attributable
to policyholders' returns and equity holders' profits. This
represents the fact that the group's long-term business in the UK
pays tax on policyholder investment return, in addition to the
corporation tax charge charged on shareholder profit. The separate
presentation is intended to provide more relevant information about
the tax that the group pays on the profits that it makes.
For this apportionment, the equity holders' tax on long-term
business is estimated by applying the statutory tax rate to profits
attributed to equity holders. This is considered to approximate the
corporation tax attributable to shareholders as calculated under UK
tax rules. The balance of income tax associated with UK long-term
business is attributed to income tax attributable to policyholders'
returns and approximates the corporation tax attributable to
policyholders as calculated under UK tax rules.
(a) New standards, interpretations and amendments to published
standards that have been adopted by the group
The group has applied the following standards and amendments for
the first time in its six months reporting period commencing 1
January 2019.
IFRS 16 - Leases
IFRS 16, 'Leases', issued in January 2016, became effective from
1 January 2019, and replaced all previous lease requirements and
guidance under IFRS, including IAS 17, 'Leases', IFRIC 4,
'Determining Whether an Arrangement Contains a Lease', SIC-15,
'Operating Leases - Incentives' and SIC-27, 'Evaluating the
Substance of Transactions in the Legal Form of a Lease'. IFRS 16
requires lessees to recognise a lease liability reflecting future
lease payments and a 'right-of-use asset' for virtually all lease
contracts, bringing many commitments in relation to operating
leases (as previously defined in IAS 17) onto the balance
sheet.
The group has adopted IFRS 16 by using the modified
retrospective approach, and therefore did not restate comparative
financial information. At the date of the initial application the
group recognised a lease liability and a right-of-use asset of an
equal amount (adjusted by the amount of any prepaid or accrued
lease payments relating to that lease recognised in the group
Consolidated Balance Sheet immediately before the date of initial
application), as allowed by the standard. Additionally, on
transition, the group has elected to apply the standard only to
those contracts that were previously assessed as leases under IAS
17 and IFRIC 4. The group also has elected to use the exemptions
proposed by the standard on lease contracts for which the lease
terms ends within 12 months as of the date of initial application,
and lease contracts for which the underlying asset is of low value.
The implementation of IFRS 16 did not have a material impact on the
group financial statements. The new accounting policy of the group
upon adoption of IFRS 16 is disclosed below.
IFRS Disclosure Notes Page 49
4.01 Basis of preparation (continued)
(a) New standards, interpretations and amendments to published
standards that have been adopted by the group (continued)
Under IFRS 16, a lease is a contract that conveys the right to
use an identified asset, for a period of time in exchange for
consideration.
The group takes many assets on lease, including head office
accommodation, cars, IT equipment and investment properties. The
group has elected to take the exemptions available on lease
contracts for which the lease terms end within 12 months as of the
commencement date, and lease contracts for which the underlying
asset is of low value. Such leases are not recognised on the group
consolidated balance sheet.
As a lessee, the group recognises leases on the balance sheet as
'right-of-use' assets and lease liabilities. The right-of-use
assets' value is initially recognised as the calculated value of
the lease liabilities with several additional adjustments,
including initial direct costs. The initial measurement of the
lease liabilities is made up of the present value of lease payments
to be made over the lease term, including fixed and variable lease
payments and excluding lease incentive receivables. The group
policy is to use the incremental borrowing rates as a discount rate
for calculating the lease liabilities. The right-of use assets are
subsequently accounted for in accordance with the cost model in IAS
16 - Property, Plant and Equipment or as investment property under
IAS 40 - Investment Property. The lease liabilities are unwound
over the term of the lease giving rise to an interest expense.
Additionally, the liabilities are reduced when lease payments are
made. The group reassesses the valuation of lease liabilities and
right-of-use assets if certain events occur that modify the
original assumptions used to calculate the lease balances upon
initial recognition.
As a lessor, the group accounts for leases as either operating
or finance leases depending on whether the lease transfers
substantially all the risks and rewards incidental to ownership of
the underlying asset to the lessee. Operating leases are recorded
as assets on the balance sheet and lease income recognised on a
straight line basis over the lease term. For finance leases, the
group derecognises the underlying asset and records a receivable
equal to the net investment in the lease. Finance income is
recognised over the lease term based on a pattern reflecting a
constant periodic rate of return on the net investment in the
lease.
IFRIC Interpretation 23 - Uncertainty over Income Tax
Treatments
IFRIC 23, 'Uncertainty over Income Tax Treatments' was issued in
June 2017. The Interpretation clarifies the application of
recognition and measurement requirements in IAS 12, 'Income Taxes'
when there is uncertainty over income tax treatments. The
implementation of IFRIC 23 did not have a material impact on the
group consolidated financial statements.
Amendments to IAS 19 - Employee Benefits
These amendments were issued in February 2018. The amendments
require entities to use updated assumptions to determine current
service cost and net interest for the remainder of the period after
a plan amendment, curtailment or settlement; they also clarify how
the requirements for accounting for a plan amendment, curtailment
or settlement affect the asset ceiling requirements. These
amendments did not have any material impact on the group's
consolidated financial statements.
Annual Improvements to IFRS Standards 2015-2017 Cycle
These improvements were issued in December 2017 and consist of
minor amendments affecting IFRS 3 'Business combinations', IFRS 11,
'Joint arrangements', IAS 12, 'Income taxes' and IAS 23, 'Borrowing
costs'. These amendments did not have any material impact on the
group's consolidated financial statements.
Amendments to IAS 28 - Investments in Associates and Joint
Ventures
These amendments, titled 'Long-term Interests in Associates and
Joint Ventures', were issued in October 2017. The amendments
clarify the accounting for long-term interests in an associate or
joint venture, which in substance form part of the net investment
in the associate or joint venture, but to which equity accounting
is not applied. These amendments did not have any material impact
on the group's consolidated financial statements.
IFRS Disclosure Notes Page 50
4.01 Basis of preparation (continued)
(b) Changes in accounting policy
LGIA (Legal & General Insurance America) Term Assurance
During 2018 the group changed its accounting policy for term
assurance liabilities on business transacted by its US
subsidiaries, which was previously based on recognised actuarial
methods reflecting US GAAP. From 1 January 2018, the group
calculated such liabilities on the basis of current information
using the gross premium valuation method, which is in line with how
similar products are accounted for in other parts of the
business.
The group reported an initial best estimate of the impact of
this change in accounting policy in the interim report for the six
months ended 30 June 2018, and continued to refine that impact
during the second half of 2018 as disclosed in the accounts for the
year ended 31 December 2018. The final impact on each line item of
the comparative Consolidated Balance Sheet as at 30 June 2018 is
shown in the table below:
As reported As restated
at at
30 Jun Adjustments 30 Jun
2018 2018
GBPm GBPm GBPm
Reinsurers' share of contract liabilities 5,734 27 5,761
Retained earnings 6,456 27 6,483
(c) Future accounting developments
IFRS 17 - Insurance Contracts
IFRS 17, 'Insurance Contracts' was issued in May 2017 and is
expected to be effective for annual periods beginning on or after 1
January 2022. This reflects the one year delay proposed by the IASB
in their June 2019 exposure draft and is subject to subsequent
endorsement for use in the EU. The standard will be applied
retrospectively, subject to the transitional options provided for
in the standard, and provides a comprehensive approach for
accounting for insurance contracts including their measurement,
income statement presentation and disclosure. The group has
mobilised a project to assess the financial and operational
implications of the standard, and work will continue throughout the
remainder of 2019 to ensure technical compliance and to develop the
required system capability to implement the standard.
IFRS 9 - Financial Instruments and Amendments to IFRS 4 -
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts
In July 2014, the IASB issued IFRS 9, 'Financial Instruments'
which is effective for annual periods beginning on or after 1
January 2018. The standard replaces IAS 39 'Financial Instruments:
Recognition and Measurement'. It includes new principles around
classification and measurement of financial instruments, introduces
an impairment model based on expected credit losses (replacing the
current model based on incurred losses) and new requirements on
hedge accounting. The IASB subsequently issued 'Amendments to IFRS
4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts' which allows entities which meet certain requirements to
defer their implementation of IFRS 9 until adoption of IFRS 17 or 1
January 2021, whichever is the earlier. In June 2019 the IASB
proposed to extend the fixed expiry date of the temporary exemption
in IFRS 4 from applying IFRS 9 by one year. Entities eligible for
the exemption will be required to apply IFRS 9 for annual periods
beginning on or after 1 January 2022, to align with the proposed
delay in the adoption date of IFRS 17. As disclosed in the 2018
annual report and accounts, the group qualified for the deferral of
IFRS 9 and is making use of this option.
The group has mobilised a project to assess the impact of IFRS 9
on its financial instruments, in particular around the
classification and measurement of financial assets backing
insurance contract liabilities expected to be measured using
locked-in discount rates under IFRS 17, and impairment.
IFRS Disclosure Notes Page 51
4.02 Disposals
On 7 February 2019, the group completed the disposal of its stake in
IndiaFirst Life Insurance Company Limited ("IndiaFirst Life") to an
affiliate of Warburg Pincus LLC for INR 7.1bn (c.GBP76m at GBP:INR 1:92).
The disposal resulted in a current period pre-tax gain of GBP43m, net
of transaction costs. The operations of IndiaFirst Life have not been
classified as discontinued operations since they do not represent a
major line of business of the group.
4.03 Assets and liabilities of operations classified as held for
sale
Mature Savings
On 6 December 2017 the group announced the sale of its Mature Savings
business to the ReAssure division of Swiss Re Limited ('Swiss Re')
for a consideration of GBP650m. As part of the transaction, on 1 January
2018 the group entered into a risk transfer agreement with Swiss Re,
whereby the group transfers all economic risks and rewards of the Mature
Savings business to Swiss Re from that date. The risk transfer agreement
operates until the business is transferred under a court approved scheme
under Part VII of the Financial Services and Markets Act 2000, which
is expected to complete in H2 2019. The consideration of GBP650m was
received in 2018.
As a result of the transaction, the Mature Savings business has been
classified as held for sale. Profit arising from the Mature Savings
business in accordance with the risk transfer agreement has been presented
as "Profit after tax from discontinued operations" in the Consolidated
Income Statement.
General Insurance
On 31 May 2019 the group announced that it had agreed to sell its General
Insurance business to Allianz Holdings plc. The financial consideration
from the proposed sale consists of a base price of GBP242 million payable
at completion with potential further payments over a three year period
from ongoing commercial arrangements.The proposed transaction, which
is subject to regulatory approvals, is expected to complete in the
second half of 2019.
As a result of the announcement, the General Insurance business has
been classified as held for sale. Profit arising from the General Insurance
business has been presented as "Profit after tax from discontinued
operations" in the Consolidated Income Statement.
4.04 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1) Dividend Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2019 2019 2018 2018 2018 2018
GBPm p GBPm p GBPm p
Ordinary dividends paid and charged
to equity in the period:
- Final 2017 dividend
paid in June 2018 - - 658 11.05 658 11.05
- Interim 2018 dividend
paid in September 2018 - - - - 274 4.60
- Final 2018 dividend
paid in June 2019 704 11.82 - - - -
Total dividends 704 11.82 658 11.05 932 15.65
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
Subsequent to 30 June 2019, the directors declared an interim dividend
for 2019 of 4.93 pence per ordinary share. This dividend will be
paid on 26 September 2019. It will be accounted for as an appropriation
of retained earnings in the year ended 31 December 2019 and is not
included as a liability in the Consolidated Balance Sheet as at 30
June 2019.
IFRS Disclosure Notes Page 52
4.05 Financial investments and investment property
30 Jun 30 Jun 31 Dec
2019 2018 2018
GBPm GBPm GBPm
Equity securities(1) 192,387 191,540 177,566
Debt securities(2) 275,086 233,977 254,452
Accrued interest 1,617 1,502 1,635
Derivative assets(3) 13,198 10,132 10,065
Loans(4) 12,861 10,271 9,662
Financial investments 495,149 447,422 453,380
Investment property 8,706 8,505 8,608
Total financial investments and
investment property 503,855 455,927 461,988
---------------------------------------------------- -------- -------- --------
Less: financial investments and investment
property of operations classified as held for
sale (25,597) (20,579) (24,525)
-------- -------- --------
Financial investments and investment property 478,258 435,348 437,463
-------- -------- --------
1. Equity securities include investments in unit trusts of GBP13,122m
(30 June 2018: GBP10,005m; 31 December 2018: GBP10,553m).
2. A detailed analysis of debt securities to which shareholders
are directly exposed, is disclosed in Note 7.03.
3. Derivatives are used for efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, credit default
swaps and foreign exchange forward contracts for asset and liability
management. Derivative assets are shown gross of derivative liabilities
of GBP11,778m (30 June 2018: GBP7,652m; 31 December 2018 GBP7,791m).
4. Loans includes GBP447m (30 June 2018: GBP443m; 31 December 2018:
GBP456m) of loans valued at amortised cost.
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurements are based on observable and unobservable
inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the group's
view of market assumptions in the absence of observable market
information. The group utilises techniques that maximise the use of
observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as
follows:
Level 1: fair values measured using quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all
inputs significant to the measurement other than quoted prices
included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3: fair values measured using valuation techniques for any
input for the asset or liability significant to the measurement
that is not based on observable market data (unobservable
inputs).
The group's financial assets are valued, where possible, using
standard market pricing sources, such as IHS Markit, ICE and
Bloomberg, or Index Providers such as Barclays, Merrill Lynch or
JPMorgan. Each uses mathematical modelling and multiple source
validation in order to determine consensus prices, with the
exception of OTC Derivative holdings; OTCs are marked to market
using an in-house system (Lombard Oberon), external vendor (IHS
Markit), internal model or counterparty broker marks. In normal
market conditions, we would consider these market prices to be
observable and therefore classify them as Level 1. However, where
inputs to the valuation have been sourced from a market that is not
suitably active the prices have been classified as Level 2. Refer
to Note 4.06 (b) for Level 3 methodology.
The group's policy is to re-assess categorisation of financial
assets at the end of each reporting period and to recognise
transfers between levels at that point in time.
There have been no significant transfers between Level 1 and
Level 2 in the six month period to 30 June 2019 (30 June 2018; 31
December 2018: No significant transfers). Transfers into and out of
Level 3 are disclosed in Note 4.05 (b).
IFRS Disclosure Notes Page 53
4.05 Financial investments and investment property
(continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
As at 30 June 2019 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,624 1,629 - 995
Debt securities 4,319 1,601 2,040 678
Accrued interest 32 13 13 6
Derivative assets 110 104 6 -
Loans at fair value 234 - 234 -
Investment property 203 - - 203
================================================== ======== ======= ======= ======
Non profit non-unit linked
Equity securities 156 152 - 4
Debt securities 66,387 7,314 43,723 15,350
Accrued interest 520 25 464 31
Derivative assets 11,523 - 11,523 -
Loans at fair value 726 - 726 -
Investment property 3,131 - - 3,131
================================================== ======== ======= ======= ======
With-profits
Equity securities 3,191 2,998 - 193
Debt securities 5,598 1,636 3,962 -
Accrued interest 47 11 36 -
Derivative assets 68 8 60 -
Loans at fair value 396 - 396 -
Investment property 520 - - 520
================================================== ======== ======= ======= ======
Unit linked
Equity securities 186,416 183,682 2,070 664
Debt securities 198,782 140,904 57,601 277
Accrued interest 1,018 493 525 -
Derivative assets 1,497 200 1,297 -
Loans at fair value 11,058 - 11,058 -
Investment property 4,852 - - 4,852
================================================== ======== ======= ======= ======
Total financial investments and investment
property at fair value(1,2) 503,408 340,770 135,734 26,904
================================================== ======== ------- ------- ------
1. This table excludes loans (including accrued interest) of GBP447m,
which are held at amortised cost.
2. This table includes financial investments of GBP24,031m and investment
property of GBP1,566m classified as assets of operations classified
as held for sale.
IFRS Disclosure Notes Page 54
4.05 Financial investments and investment property
(continued)
(a) Fair value hierarchy
(continued)
Total Level Level Level
1 2 3
As at 30 June 2018 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,317 1,535 - 782
Debt securities 4,947 1,688 2,886 373
Accrued interest 32 15 14 3
Derivative assets 12 4 8 -
Loans at fair value 352 - 352 -
Investment property 109 - - 109
Non profit non-unit linked
Equity securities 285 281 4 -
Debt securities 50,406 6,641 33,373 10,392
Accrued interest 441 29 391 21
Derivative assets 4,213 - 4,181 32
Loans at fair value 573 - 398 175
Investment property 2,791 - - 2,791
With-profits
Equity securities 3,276 3,087 - 189
Debt securities 6,083 1,746 4,333 4
Accrued interest 50 14 36 -
Derivative assets 57 4 53 -
Loans at fair value 117 - 117 -
Investment property 551 - - 551
Unit linked
Equity securities 185,662 185,009 36 617
Debt securities 172,541 120,048 52,484 9
Accrued interest 979 439 540 -
Derivative assets 5,850 218 5,632 -
Loans at fair value 8,786 - 8,786 -
Investment property 5,054 - - 5,054
Total financial investments and investment
property at fair value(1,2) 455,484 320,758 113,624 21,102
1. This table excludes loans of GBP443m, which are held at amortised
cost.
2. This table includes financial investments of GBP19,306m and investment
property of GBP1,273m classified as assets of operations classified
as held for sale.
IFRS Disclosure Notes Page 55
4.05 Financial investments and investment property
(continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
As at 31 December 2018 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,322 1,432 - 890
Debt securities 5,708 1,851 3,199 658
Accrued interest 33 15 15 3
Derivative assets 18 7 11 -
Loans at fair value 371 - 371 -
Investment property 166 - - 166
Non profit non-unit linked
Equity securities 205 194 1 10
Debt securities 56,864 7,031 36,937 12,896
Accrued interest 491 20 446 25
Derivative assets 4,393 - 4,336 57
Loans at fair value 486 - 486 -
Investment property 2,930 - - 2,930
With-profits
Equity securities 2,936 2,742 - 194
Debt securities 5,988 1,707 4,277 4
Accrued interest 52 15 37 -
Derivative assets 51 5 46 -
Loans at fair value 45 - 45 -
Investment property 520 - - 520
Unit linked
Equity securities 172,103 169,414 2,026 663
Debt securities 185,892 131,679 53,941 272
Accrued interest 1,059 502 557 -
Derivative assets 5,603 428 5,175 -
Loans at fair value 8,304 - 8,304 -
Investment property 4,992 - - 4,992
Total financial investments and investment
property at fair value(1,2) 461,532 317,042 120,210 24,280
1. This table excludes loans (including accrued interest) of GBP456m,
which are held at amortised cost.
2. This table includes financial investments of GBP22,882m and investment
property of GBP1,643m classified as assets of operations classified
as held for sale.
IFRS Disclosure Notes Page 56
4.05 Financial investments and investment property
(continued)
(b) Level 3 assets measured at fair value
Level 3 assets, where internal models are used, comprise property,
unquoted equities, untraded debt securities and securities where unquoted
prices are provided by a single broker. Unquoted securities include
suspended securities, investments in private equity and property vehicles.
Untraded debt securities include private placements, commercial real
estate loans, income strips and lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset
or liability may fall into different levels of the fair value hierarchy.
In these situations, the group determines the level in which the fair
value falls based upon the lowest level input that is significant
to the determination of the fair value. As a result, both observable
and unobservable inputs may be used in the determination of fair values
that the group has classified within Level 3.
The group determines the fair values of certain financial assets and
liabilities based on quoted market prices, where available. The group
also determines fair value based on estimated future cash flows discounted
at the appropriate current market rate. As appropriate, fair values
reflect adjustments for counterparty credit quality, the group's credit
standing, liquidity and risk margins on unobservable inputs.
Equity securities
Level 3 equity securities amount to GBP1,856m (30 June 2018: GBP1,588m;
31 December 2018: GBP1,757m), of which the majority is made up of
holdings of investment property vehicles and private investment funds.
They are valued at the proportion of the group's holding of the Net
Asset Value reported by the investment vehicles. Other equity securities
are valued by a number of third party specialists using a range of
techniques, including latest round of funding and discounted cash
flow models.
Other financial investments
Other level 3 financial investments comprise of various debt securities
(including lifetime mortgages), accrued interest and derivative assets.
Lifetime mortgage (LTM) loans amount to GBP3,990m (30 June 2018: GBP2,674m;
31 December 2018 GBP3,227m). They are valued using a discounted cash
flow model by projecting best-estimate net asset proceeds and discounting
using rates inferred from current LTM pricing. The inferred illiquidity
premiums for the majority of the portfolio range between 100 and 350bps.
This ensures the value of loans at outset is consistent with the purchase
price of the loan, and achieves consistency between new and in-force
loans. Inputs to the model include property growth rates and voluntary
early redemptions. The valuation as at 30 June 2019 reflects a long-term
property growth rate assumption of RPI + 0.5%.
Private credit loans (including commercial real estate loans) amount
to GBP9,421m (30 June 2018: GBP6,765m; 31 December 2018: GBP8,001m).
Their valuation is outsourced to IHS Markit who use discounted future
cash flows based on a yield curve. The discount factors take into
consideration the z-spread of the LGIM approved comparable bond and
the initial spread agreed by both parties. Unobservable inputs that
go into the determination of comparators, include: rating, sector,
sub-sector, performance dynamics, financing structure and duration
of investment. Existing private credit investments which were executed
back as far as 2011, are subject to a range of interest rate formats,
although the majority are fixed rate. The weighted average duration
of the portfolio is 11.7 years, with a weighted average life of 16.5
years. Maturities in the portfolio currently extend out to 2064. The
private credit portfolio of assets is not externally rated but has
internal ratings assigned by an independent credit team in line with
internally developed methodologies. These credit ratings range from
AAA to B.
Income strip assets amount to GBP1,258m (30 June 2018: GBP1,190m;
31 December 2018: GBP1,248m). Their valuation is outsourced to Knight
Frank and CBRE who apply a yield to maturity to discounted future
cash flows to derive valuations. The overall valuation takes into
account the property location, tenant details, tenure, rent, rental
break terms, lease expiries and underlying residual value of the property.
The valuation as at 30 June 2019 reflects equivalent yield ranges
between 2% and 6% and estimated rental values (ERV) between GBP10
and GBP27 per sq. ft.
Private placements held by the US business amount to GBP1,043m (30
June 2018: GBP525m; 31 December 2018: GBP938m). They are valued using
a pricing matrix comprised of a public spread matrix, internal ratings
assigned to each holding, average life of each holding, and a premium
spread matrix. These are added to the risk-free rate to calculate
the discounted cash flows and establish a market value for each investment
grade private placement. The valuation as at 30 June 2019 reflects
illiquidity premiums between 10 and 75bps.
Commercial mortgage loans amount to GBP357m (30 June 2018: GBP175m;
31 December 2018: GBP275m) and are determined by incorporating credit
risk for performing loans at the portfolio level and for loans identified
to be distressed at the loan level. The projected cash flows of each
loan are discounted along stochastic risk free rate paths and are
inclusive of an Option Adjusted Spread (OAS), derived from current
internal pricing on new loans, along with the best observable inputs.
The valuation as at 30 June 2019 reflects illiquidity premiums between
20 and 40bps.
Other debt securities which are not traded in an active market have
been valued using third party or counterparty valuations. These prices
are considered to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to GBP8,706m (30 June 2018:
GBP8,505m; 31 December 2018: GBP8,608m) is valued with the involvement
of external valuers. All property valuations are carried out in accordance
with the latest edition of the Valuation Standards published by the
Royal Institute of Chartered Surveyors, and are undertaken by appropriately
qualified valuers as defined therein. Whilst transaction evidence
underpins the valuation process, the definition of market value, including
the commentary, in practice requires the valuer to reflect the realities
of the current market. In this context valuers must use their market
knowledge and professional judgement and not rely only upon historic
market sentiment based on historic transactional comparables.
The valuation of investment properties also include an income approach
that is based on current rental income plus anticipated uplifts, where
the uplift and discount rates are derived from rates implied by recent
market transactions. These inputs are deemed unobservable. The valuation
as at 30 June 2019 reflects equivalent yield ranges between 1% and
10% and ERV between GBP1 and GBP134 per sq. ft.
IFRS Disclosure Notes Page 57
4.05 Financial investments and investment property
(continued)
(b) Level 3 assets measured at fair value (continued)
Fair values are subject to a control framework designed to ensure
that input variables and outputs are assessed independent of the risk
taker. These inputs and outputs are reviewed and approved by a valuation
committee and validated independently as appropriate.
The group's policy is to reassess the categorisation of financial
assets at the end of each reporting period and to recognise transfers
between levels at that point in time.
Other Other
financial financial
Equity invest- Investment Equity invest- Investment
securities ments property Total securities ments property Total
2019 2019 2019 2019 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 1,757 13,915 8,608 24,280 1,451 9,888 8,337 19,676
Total gains/(losses)
for the period recognised
in profit:
- in other comprehensive
income - - (34) (34) 7 (113) - (106)
- realised and unrealised
gains / (losses)(1) 38 930 15 983 41 20 70 131
Purchases / Additions 173 2,608 359 3,140 147 1,338 397 1,882
Sales / Disposals (105) (1,054) (250) (1,409) (47) (214) (299) (560)
Transfers into Level
3 2 - - 2 - 90 - 90
Transfers out of Level
3 - (57) - (57) (11) - - (11)
Other (9) - 8 (1) - - - -
As at 30 June 1,856 16,342 8,706 26,904 1,588 11,009 8,505 21,102
Other
financial
Equity invest- Investment
securities ments property Total
2018 2018 2018 2018
GBPm GBPm GBPm GBPm
As at 1 January 1,451 9,888 8,337 19,676
Total gains / (losses)
for the year recognised
in profit:
- in other comprehensive
income 1 (18) - (17)
- realised and unrealised
gains / (losses)(1) 35 (92) 50 (7)
Purchases / Additions 519 5,521 1,153 7,193
Sales / Disposals (375) (1,707) (904) (2,986)
Transfers into Level
3 126 295 - 421
Transfers out of Level - - - -
3
Other - 28 (28) -
=========================== ========== ========= ========== ======= ========== ========= ========== =======
As at 31 December 1,757 13,915 8,608 24,280
1. Realised and unrealised gains and losses are recognised in Investment
return in the Consolidated Income Statement.
IFRS Disclosure Notes Page 58
4.05 Financial investments and investment property
(continued)
(c) Effect on changes in assumptions on Level 3
Fair values of financial instruments are, in certain
circumstances, measured using valuation techniques that incorporate
assumptions that are not evidenced by prices from observable
current market transactions in the same instrument and are not
based on observable market data.
Where possible, the group assesses the sensitivity of fair
values of Level 3 investments to changes in unobservable inputs to
reasonable alternative assumptions. As outlined above, Level 3
investments are valued using internally-modelled valuations or
independent third parties. Where internally-modelled valuations are
used, sensitivities are determined by adjusting various inputs of
the model and assigning them a weighting. Where independent third
parties are used, sensitivities are determined as outlined
below:
-- Unquoted investments in property vehicles and direct holdings
in investment property are valued using valuations provided by
independent valuers on the basis of open market value as defined in
the appraisal and valuation manual of the Royal Institute of
Chartered Surveyors. Reasonably possible alternative valuations
have been determined using alternative yields.
-- Private equity investments are valued in accordance with the
International Private Equity and Venture Capital Valuation
Guidelines. Reasonably possible alternative valuations have been
determined by stressing key assumptions used in the valuation
models.
The group is therefore able to perform a sensitivity analysis
for its Level 3 investments, which amount to GBP26.9bn (30 June
2018: GBP21.1bn; 31 December 2018: GBP24.3bn). The effect of
changes in significant unobservable valuation inputs to reasonable
alternative assumptions would result in a change in fair value of
+/- GBP1.7bn (30 June 2018: +/-GBP1.0bn; 31 December 2018:
+/-GBP1.6bn), which represents 6% (30 June 2018: 5%; 31 December
2018: 7%) of the total value of Level 3 investments, including
investment property.
Of the total sensitivity impact, +/- GBP1.0bn (30 June 2018: +/-
GBP0.8bn; 31 December 2018: +/-GBP0.9bn) relates to Level 3
financial assets (excluding investment property), which represents
5% (30 June 2018: 6%; 31 December 2018: 6%) of total Level 3
financial assets and 4% (30 June 2018: 4%; 31 December 2018: 4%) of
total Level 3 investments.
IFRS Disclosure Notes Page 59
4.06 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
Continuing Continuing Continuing
operations Total operations Total operations Total
6 months 6 months 6 months 6 months Full Full
2019 2019 2018 2018 year year
2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Profit before tax attributable
to equity holders 1,020 1,053 900 942 2,076 2,128
Tax calculated at 19.00% 194 200 171 179 394 404
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax (1) (1) (1) (1) - -
Higher/(lower) rate of tax on
overseas profits (11) (11) 12 12 (55) (55)
Non-deductible expenses 1 1 - - 5 5
Differences between taxable
and accounting investment
gains - - (1) (1) (4) (4)
Property income attributable
to non-controlling interests - - (1) (1) - -
Unrecognised tax losses 2 2 - - - -
Non-recurring reconciling
items:
Income not subject to tax (2) (2) (4) (4) (10) (10)
Non-deductible expenses - - 1 1 5 5
Adjustments in respect of prior
years (2) (2) (15) (15) (35) (36)
Impact of reduction in UK and
US corporate tax rates on deferred
tax balances 1 1 2 2 11 11
Other - - (3) (2) - -
Tax expense attributable to
equity holders 182 188 161 170 311 320
Equity holders' effective tax
rate(1) 17.8% 17.9% 17.9% 18.0% 15.0% 15.0%
1. Equity holders' effective tax rate is calculated by dividing
the tax attributable to equity holders over profit before tax attributable
to equity holders. Refer to Note 4.01 for details on the methodology
of the split of policyholder and equity holders' tax.
IFRS Disclosure Notes Page 60
4.06 Tax (continued)
(b) Deferred tax
30 Jun 30 Jun 31 Dec
2019 2018 2018
Deferred tax (liabilities)/assets GBPm GBPm GBPm
Deferred acquisition expenses 29 14 25
------ ------ ------
- UK (40) (38) (40)
- Overseas 69 52 65
------ ------ ------
Difference between the tax and accounting
value of insurance contracts (635) (377) (577)
------ ------ ------
- UK (228) (74) (171)
- Overseas (407) (303) (406)
------ ------ ------
Realised and unrealised gains on investments (175) (243) (72)
Excess of depreciation over capital allowances 12 14 12
Excess expenses 20 22 21
Accounting provisions and other (32) (11) (28)
Trading losses(1) 179 29 163
Pension fund deficit 35 39 41
Acquired intangibles (2) (24) (4)
====================================================== ====== ====== ======
Total net deferred tax liabilities (569) (537) (419)
Less: net deferred tax liabilities of operations
classified as held for sale 186 236 97
Net deferred tax liabilities (383) (301) (322)
Analysed by:
- UK deferred tax assets 2 2 2
- UK deferred tax liabilities (193) (73) (144)
- Overseas deferred tax assets 5 5 5
- Overseas deferred tax liabilities(2) (197) (235) (185)
Net deferred tax liabilities (383) (301) (322)
1. Trading losses include UK trade and US operating losses of GBP3m
(H1 18: GBP2m; FY 18: GBP4m) and GBP176m (H1 18: GBP27m; FY 18:
GBP159m) respectively.
2. Overseas deferred tax liability is wholly comprised of US balances
as at 30 June 2019.
IFRS Disclosure Notes Page 61
4.07 Share capital and share premium
Number
of
Authorised share capital shares GBPm
As at 30 June 2019, 30 June 2018 and 31 December
2018: ordinary shares of 2.5p each 9,200,000,000 230
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2019 5,960,768,234 149 992
Options exercised under share option
schemes 3,497,185 - 6
As at 30 June 2019 5,964,265,419 149 998
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2018 5,958,438,193 149 988
Options exercised under share option
schemes 1,435,336 - 2
As at 30 June 2018 5,959,873,529 149 990
Options exercised under share option
schemes 894,705 - 2
As at 31 December 2018 5,960,768,234 149 992
There is one class of ordinary shares of 2.5p each. All shares
issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive
dividends as declared and are entitled to one vote per share at
shareholder meetings of the company.
4.08 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments as well as investments in private equity
and property investment vehicles which are consolidated in the
group's results.
No individual non-controlling interest is considered to be
material on the basis of the period end carrying value or share of
profit or loss.
IFRS Disclosure Notes Page 62
4.09 Core borrowings
Carrying Carrying Carrying
amount Fair amount Fair amount Fair
value value value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2019 2019 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Subordinated borrowings
5.875% Sterling undated subordinated
notes (Tier 2) - - 405 415 405 409
10% Sterling subordinated notes
2041 (Tier 2) 312 364 311 380 312 366
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 684 589 629 589 569
5.375% Sterling subordinated
notes 2045 (Tier 2) 602 673 603 657 603 627
5.25% US Dollar subordinated
notes 2047 (Tier 2) 661 706 640 617 659 612
5.55% US Dollar subordinated
notes 2052 (Tier 2) 388 419 376 361 387 356
5.125% Sterling subordinated
notes 2048 (Tier 2) 399 445 - - 399 401
Client fund holdings of group
debt(1) (31) (34) (27) (29) (31) (30)
Total subordinated borrowings 2,920 3,257 2,897 3,030 3,323 3,310
-------------------------------------- -------- ------ -------- ------ -------- ------
Senior borrowings
Sterling medium term notes
2031-2041 603 868 603 812 609 824
Client fund holdings of group
debt(1) (9) (13) (11) (14) (10) (13)
Total senior borrowings 594 855 592 798 599 811
-------------------------------------- -------- ------ -------- ------ -------- ------
Total core borrowings 3,514 4,112 3,489 3,828 3,922 4,121
-------------------------------------- -------- ------ -------- ------ -------- ------
1. GBP40m (30 June 2018: GBP38m; 31 December 2018: GBP41m) of the
group's subordinated and senior borrowings are currently held by
Legal & General customers through unit linked products. These borrowings
are shown as a deduction from total core borrowings in the table
above.
The presented fair values of the group's core borrowings reflect
quoted prices in active markets and they have been classified as
level 1 in the fair value hierarchy.
Subordinated borrowings
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued GBP400m of 5.875%
Sterling undated subordinated notes. These notes were called at par
on 1 April 2019. Effective from the notification on 4 February 2019
of the intention to redeem, the notes were no longer treated as
tier 2 own funds for Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. The notes are callable at par on 23 July
2021 and every five years thereafter. If not called, the coupon
from 23 July 2021 will be reset to the prevailing five year
benchmark gilt yield plus 9.325% p.a. These notes mature on 23 July
2041.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon
from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June
2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued GBP600m of 5.375%
dated subordinated notes. The notes are callable at par on 27
October 2025 and every five years thereafter. If not called, the
coupon from 27 October 2025 will be reset to the prevailing five
year benchmark gilt yield plus 4.58% p.a. These notes mature on 27
October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of
5.25% dated subordinated notes. The notes are callable at par on 21
March 2027 and every five years thereafter. If not called, the
coupon from 21 March 2027 will be reset to the prevailing US Dollar
mid-swap rate plus 3.687% p.a. These notes mature on 21 March
2047.
IFRS Disclosure Notes Page 63
4.09 Core borrowings (continued)
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of
5.55% dated subordinated notes. The notes are callable at par on 24
April 2032 and every five years thereafter. If not called, the
coupon from 24 April 2032 will be reset to the prevailing US Dollar
mid-swap rate plus 4.19% p.a. These notes mature on 24 April
2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued
GBP400m of 5.125% dated subordinated notes. The notes are callable
at par on 14 November 2028 and every five years thereafter. If not
called, the coupon from 14 November 2028 will be reset to the
prevailing five year benchmark gilt yield plus 4.65% p.a. These
notes mature on 14 November 2048.
All of the above subordinated notes are treated as tier 2 own
funds for Solvency II purposes unless otherwise stated.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued
GBP600m of senior unsecured Sterling medium term notes 2031-2041 at
coupons between 5.75% and 5.875%. These notes have various maturity
dates between 2031 and 2041.
4.10 Operational borrowings
Carrying Carrying Carrying
amount Fair amount Fair amount Fair
value value value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2019 2019 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Short term operational borrowings
Euro Commercial Paper 354 354 497 497 293 293
Non recourse borrowings 657 657 251 251 617 617
Bank loans and overdrafts 58 58 200 200 83 83
Total operational borrowings(1) 1,069 1,069 948 948 993 993
Less: liabilities of operations
classified as held for sale (29) (29) - - (28) (28)
Operational borrowings 1,040 1,040 948 948 965 965
1. Unit linked borrowings with a carrying value of GBP11m (30 June
2018: GBP9m; 31 December 2018: GBP61m) are excluded from the analysis
above as the risk is retained by policyholders. Operational borrowings
including unit linked borrowings are GBP1,051m (30 June 2018: GBP957m;
31 December 2018: GBP1,026m).
Syndicated credit facility
As at 30 June 2019, the group had in place a GBP1.0bn syndicated
committed revolving credit facility provided by a number of its key
relationship banks, maturing in December 2022. No amounts were outstanding
at 30 June 2019.
IFRS Disclosure Notes Page 64
4.11 Payables and other financial liabilities
30 Jun 30 Jun 31 Dec
2019 2018 2018
GBPm GBPm GBPm
Derivative liabilities 11,778 7,652 7,791
Repurchase agreements(1) 46,994 36,919 43,775
Other financial liabilities(2) 17,353 15,016 11,406
Total payables and other financial liabilities 76,125 59,587 62,972
Less: liabilities of operations
classified as held for sale (598) (435) (424)
Payables and other financial liabilities 75,527 59,152 62,548
1. Repurchase agreements are presented gross, however they and their
related assets (included within debt securities) are subject to master
netting arrangements. The vast majority of the repurchase agreements
are unit linked.
2. Other financial liabilities includes trail commission, FX spots
and collateral repayable on short position reverse repurchase agreements.
The value of collateral repayable on short position reverse repurchase
agreements was GBP6,114m (2018: GBP4,883m).
(a) Fair value hierarchy
Total Level Level 2 Level 3 Amortised
1 cost
As at 30 June 2019 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 11,778 276 11,500 2 -
Repurchase agreements 46,994 - 46,994 - -
Other financial liabilities 17,353 5,854 14 577 10,908
------------------------------------------- ------ ----- ------- ------- ---------
Total payables and other financial
liabilities 76,125 6,130 58,508 579 10,908
------------------------------------------- ------ ----- ------- ------- ---------
Amortised
Total Level Level 2 Level 3 cost
1
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 7,652 1,312 6,340 - -
Repurchase agreements 36,919 - 36,919 - -
Other financial liabilities 15,016 5,580 25 126 9,285
------------------------------------------- ------ ----- ------- ------- ---------
Total payables and other financial
liabilities 59,587 6,892 43,284 126 9,285
Amortised
Total Level Level 2 Level 3 cost
1
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 7,791 337 7,452 2 -
Repurchase agreements 43,775 - 43,775 - -
Other financial liabilities 11,406 4,718 35 496 6,157
------------------------------------------- ------ ----- ------- ------- ---------
Total payables and other financial
liabilities 62,972 5,055 51,262 498 6,157
Trail commission (included within Other financial liabilities) is
modelled using expected cash flows, incorporating expected future
persistency. It has therefore been classified as a Level 3 liability.
The entire movement in the balance has been reflected in the Consolidated
Income Statement during the period. A reasonably possible alternative
persistency assumption would have the effect of increasing the trail
commission liability by GBP4m (30 June 2018 and 31 December 2018:
Increase of GBP4m).
There have been no significant transfers of payables and other financial
liabilities between Levels 1, 2 and 3 for the period ended 30 June
2019 (30 June 2018 and 31 December 2018: no significant transfers).
IFRS Disclosure Notes Page 65
4.12 Foreign exchange rates
The principal rates of exchange used
for translation are:
Period end exchange rates 30 Jun 30 Jun 31 Dec
2019 2018 2018
United States dollar 1.27 1.32 1.28
Euro 1.12 1.13 1.11
6 months 6 months Full year
Average exchange rates 2019 2018 2018
United States dollar 1.29 1.38 1.34
Euro 1.15 1.14 1.13
4.13 Retirement benefit obligations
The Legal & General Group UK Pension and Assurance Fund (Fund)
and the Legal & General Group UK Senior Pension Scheme (Scheme)
account for the majority of the UK and worldwide assets of, and
contributions to, such arrangements. The Fund and Scheme were closed
to future accrual on 31 December 2015.
As at 30 June 2019, the combined obligation arising from these
arrangements has been estimated at GBP1,139m (30 June 2018: GBP1,095m;
31 December 2018: GBP1,091m). The retirement benefit obligations
is a component of Provisions on the Consolidated Balance Sheet.
The after tax deficit, net of annuity obligations insured by Legal
and General Assurance Society, has been calculated to be GBP161m
(30 June 2018: GBP179m; 31 December 2018: GBP192m).
4.14 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various Group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the Group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
In 1975, Legal and General Assurance Society Limited (LGAS) was
required by the Institute of London Underwriters (ILU) to execute
the ILU form of guarantee in respect of policies issued through the
ILU's Policy Signing Office on behalf of NRG Victory Reinsurance
Company Ltd (Victory), a company which was then a subsidiary of
LGAS. In 1990, Nederlandse Reassurantie Groep Holding NV (the
assets and liabilities of which have since been assumed by
Nederlandse Reassurantie Groep NV under a statutory merger in the
Netherlands) acquired Victory and provided an indemnity to LGAS
against any liability LGAS may have as a result of the ILU's
requirement, and the ILU agreed that its requirement of LGAS would
not apply to policies written or renewed after the acquisition.
Nederlandse Reassurantie Groep NV is now owned by Columbia
Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether
LGAS has any liability as a result of the ILU's requirement and, if
so, the amount of its potential liability is uncertain. LGAS has
made no payment or provision in respect of this matter.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of Group
companies in support of their business activities including Pension
Protection Fund compliant guarantees in respect of certain Group
companies' liabilities under the Group pension fund and scheme.
LGAS has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity
facility in respect of the liabilities of Group companies to
facilitate the Group's matching adjustment reorganisation pursuant
to Solvency II.
IFRS Disclosure Notes Page 66
4.15 Related party transactions
(a) Key management personnel transactions and compensation
There were no material transactions between key management and
the Legal & General group of companies during the period. All transactions
between the group and its key management are on commercial terms
which are no more favourable than those available to employees
in general. Contributions to the post-employment defined benefit
plans were GBP40m (H1 18: GBP39m; FY 18: GBP84m) for all employees.
At 30 June 2019, 30 June 2018 and 31 December 2018 there were no
loans outstanding to officers of the company.
The aggregate compensation for key management personnel, including
executive and non-executive directors, is as follows:
6 months 6 months Full year
2019 2018(1) 2018
GBPm GBPm GBPm
Salaries 3 3 10
Post-employment benefits - - -
Share-based incentive awards 3 2 6
Key management personnel compensation 6 5 16
Number of key management personnel 16 15 15
1. Key management personnel compensation for the six months ended
30 June 2018 has been restated to correctly reflect certain compensation
excluded from the disclosure. The restatement has no impact on
either Total expenses or Profit before income tax in the group's
Consolidated Statement of Comprehensive Income for the six months
ended 30 June 2018.
(b) Services provided to and by related parties
All transactions between the group and associates, joint
ventures and other related parties during the year are on
commercial terms which are no more favourable than those available
to companies in general. Transactions between the group and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Loans and commitments to related parties are made in the normal
course of business.
The group has the following material related party
transactions:
- Annuity contracts issued by Legal and General Assurance
Society Limited for consideration of GBP78m (H1 18: 59m; FY 18:
GBP59m) purchased by the group's UK defined benefit pension schemes
during the period, priced on an arm's length basis;
- Loans outstanding from related parties, including preference
shares, at 30 June 2019 of GBP81m (30 June 2018: GBP163m; 31
December 2018 of GBP201m);
- Total other commitments of GBP1,178m to related parties (30
June 2018: GBP787m; 31 December 2018: GBP837m), of which GBP821m
has been drawn at 30 June 2019 (30 June 2018: GBP430m; 31 December
2018: GBP507m).
Asset and premium flows Page 67
5.01 LGIM Total assets under management (AUM)
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the six month period to GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
30 June 2019
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(2) 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(3) - 0.5 - - - 0.5
Market and other movements(2) 45.5 10.8 (2.3) 1.2 0.6 55.8
As at 30 June 2019(4) 390.1 172.9 536.4 29.5 5.6 1,134.5
Assets attributable to:
External(5) 1,032.7
Internal 101.8
1. As at 30 June 2019, Solutions include liability driven investments,
multi-asset funds and GBP301.9bn of derivative notionals associated
with the Solutions business.
2. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability. The total value of these
assets as at 30 June 2019 was GBP49.4bn and the movement in these
assets is included in market and other movements for Solutions
assets.
3. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management purposes.
4. AUM includes assets on our Investment Only Platform that are
managed by third parties, on which fees are earned.
5. As part of the sale of the Mature Savings business to Swiss
Re, a further GBP0.5bn (31 December 2018: GBP5.5bn) of assets have
been reclassified from the Internal channel to External channel.
Asset and premium flows Page 68
5.01 LGIM Total assets under management (AUM) (continued)
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the six month period to GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
30 June 2018
At 1 January 2018 340.9 148.8 462.7 23.8 7.1 983.3
Canvas acquisition(2) 2.4 - - - - 2.4
External inflows 22.4 8.7 18.2 0.6 0.5 50.4
External outflows (41.2) (2.2) (8.7) (0.5) (0.1) (52.7)
Overlay net flows - - 16.7 - - 16.7
ETF net flows 0.2 - - - - 0.2
External net flows(3) (18.6) 6.5 26.2 0.1 0.4 14.6
Internal net flows (0.3) (2.5) (0.3) 0.6 (0.1) (2.6)
Total net flows (18.9) 4.0 25.9 0.7 0.3 12.0
Cash management movements(4) - 1.0 - - - 1.0
Market and other movements(3) 1.9 (1.4) (14.9) 0.8 (0.3) (13.9)
At 30 June 2018 326.3 152.4 473.7 25.3 7.1 984.8
Assets attributable to:
External 888.8
Internal 96.0
1. As at 30 June 2018 Solutions include liability driven investments,
multi-asset funds, and include GBP277.2bn of derivative notionals
associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability. The total value of these
assets as at 30 June 2018 was GBP48.3bn and the movement in these
assets is included in market and other movements for Solutions
assets.
4. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management purposes.
Asset and premium flows Page 69
5.01 LGIM Total assets under management (AUM) (continued)
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2018
At 1 January 2018 340.9 148.8 462.7 23.8 7.1 983.3
Canvas acquisition(2) 2.4 - - - - 2.4
External inflows 54.2 15.7 33.8 1.5 0.6 105.8
External outflows (69.0) (6.2) (16.1) (1.6) (0.2) (93.1)
Overlay net flows - - 29.9 - - 29.9
ETF net flows - - - - - -
External net flows(3) (14.8) 9.5 47.6 (0.1) 0.4 42.6
Internal net flows (0.7) 1.8 (0.7) 2.5 (0.3) 2.6
Total net flows (15.5) 11.3 46.9 2.4 0.1 45.2
Cash management movements(4) - (0.5) - - - (0.5)
Market and other movements(3) (17.6) 3.0 0.9 0.9 (2.1) (14.9)
As at 31 December 2018 310.2 162.6 510.5 27.1 5.1 1,015.5
Assets attributable to:
External(5) 921.7
Internal 93.8
1. As at 31 December 2018, Solutions include liability driven investments,
multi-asset funds and GBP303.9bn of derivative notionals associated
with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability. The total value of these
assets as at 31 December 2018 was GBP60.1bn and the movement in
these assets is included in market and other movements for Solutions
assets.
4. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management purposes.
5. As part of the sale of the Mature Savings business to Swiss
Re GBP5.5bn of assets have been re-classified from the Internal
channel to External channel.
Asset and premium flows Page 70
5.02 LGIM Total external assets under management and net
flows
External assets under External net flows(2)
management(1)
As at As at As at 6 months 6 months 6 months
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2019 2018 2018 2019 2018 2018
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
International(1,3) 248.6 165.8 177.7 44.6 9.9 9.7
UK Institutional
- Defined contribution 86.4 64.0 70.8 3.6 3.5 4.9
- Defined benefit(3) 659.7 625.4 640.3 10.7 (0.3) 12.1
UK Retail
- Retail intermediary 30.0 25.1 25.5 1.7 1.4 1.6
- Personal investing(4) 5.6 5.7 5.1 (0.1) (0.1) (0.1)
ETF 2.4 2.8 2.3 (0.2) 0.2 (0.2)
Total external 1032.7 888.8 921.7 60.3 14.6 28.0
1. International asset are shown on the basis of client domicile.
Total International AUM including assets managed internationally
on behalf of UK clients amounted to GBP343bn as at 30 June 2019
(30 June 2018: GBP229.3bn; 31 December 2018: GBP258.0bn).
2. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability.
3. Defined benefit as at 30 June 2019 includes GBP70.8bn of assets
managed in the US on behalf of UK clients (30 June 2018: GBP63.5bn;
31 December 2018: GBP61.7bn).
4. Personal investing as at 30 June 2019 includes GBP1.9bn of legacy
Banks and Building Society customers which is the principal cause
of net outflows.
5.03 Reconciliation of Assets under management to Consolidated Balance
Sheet financial investments, investment property and cash and cash
equivalents
30 Jun 30 Jun 31 Dec
2019 2018 2018
GBPbn GBPbn GBPbn
Assets under management 1,135 985 1,015
Derivative notionals(1) (302) (277) (304)
Third party assets(2) (362) (275) (284)
Other(3) 47 44 53
Total financial investments, investment property
and cash and cash equivalents 518 477 480
Less: assets of operations classified as held
for sale(4) (26) (21) (25)
------- ------- -------
Financial investments, investment property
and cash and cash equivalents 492 456 455
1. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others
which are not included on the Group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf
of the group, other assets and liabilities related to financial
investments, derivative assets and pooled funds.
4. Assets of operations classified as held for sale relate to the
Mature Savings and General Insurance divisions following the group's
announcements to sell these businesses to Swiss Re and Allianz respectively.
Asset and premium flows Page 71
5.04 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities Workplace Annuities
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2019 2019 2018 2018 2018 2018
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 30.0 63.0 27.7 58.2 27.7 58.2
Gross inflows 3.5 7.2 2.7 1.1 5.6 9.9
Gross outflows (0.9) - (0.8) - (1.8) -
Payments to pensioners - (2.0) - (1.7) - (3.5)
Net flows 2.6 5.2 1.9 (0.6) 3.8 6.4
Market and other movements 3.5 3.9 0.1 (1.2) (1.5) (1.6)
At 30 June/31 December 36.1 72.1 29.7 56.4 30.0 63.0
1. Workplace assets under administration as at 30 June 2019 includes
GBP36.0bn (30 June 2018: GBP29.5bn; 31 December 2018: GBP29.7bn) of
assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2019 includes
GBP67.9bn (30 June 2018: GBP52.0bn; 31 December 2018: GBP59.3bn) of
assets under management included in Note 5.01.
5.05 LGR new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2019 2018 2018 2018
GBPm GBPm GBPm GBPm
Pension risk transfer
- UK 6,316 507 7,844 8,351
- US 223 220 426 646
- Bermuda 138 8 135 143
Individual annuities 497 337 458 795
Lifetime mortgage advances 489 521 676 1,197
Longevity insurance(1) - - 287 287
-
========== ========== ========== =========
Total LGR new business 7,663 1,593 9,826 11,419
1. Represents the notional size of the transaction and is based
on the present value of the fixed leg cash flows discounted
at the LIBOR curve.
5.06 LGI new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2019 2018 2018 2018
GBPm GBPm GBPm GBPm
UK Retail Protection 91 87 88 175
UK Group Protection 44 34 49 83
US Protection(1) 43 42 43 85
Total LGI new business 178 163 180 343
1. In local currency, US protection reflects new business of
$55m for six months to 30 June 2019 (H1 18: $58m; H2 18: $56m).
Asset and premium flows Page 72
5.07 Gross written premiums on Insurance business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2019 2018 2018 2018
GBPm GBPm GBPm GBPm
UK Retail protection 658 633 646 1,279
UK Group protection 233 223 106 329
US protection(1) 518 461 511 972
Longevity insurance 190 187 192 379
Total insurance gross written premiums(2) 1,599 1,504 1,455 2,959
1. In local currency, US protection reflects new business of
$670m for six months to 30 June 2019 (H1 18: $635m; H2 18: $664m).
2. Total insurance gross written premiums excludes new business
of the General Insurance division following the group's announcement
to sell the business to Allianz.
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
IR CKADDKBKBPFK
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