TIDMLGEN
RNS Number : 1629I
Legal & General Group Plc
07 August 2019
Legal & General Group Plc
2019 Half Year Results Part 3
Capital Page 73
6.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the
Solvency II Framework Directive, as adopted by the Prudential
Regulation Authority (PRA) in the UK and to measure and monitor its
capital resources on this basis.
The Solvency II results are estimated and unaudited. Further
explanation of the underlying methodology and assumptions are set
out in the sections below.
The group calculates its Solvency II capital requirements using
a Partial Internal Model. The vast majority of the risk to which
the group is exposed is assessed on the Internal Model basis
approved by the PRA. Capital requirements for a few smaller
entities are assessed using the Standard Formula basis on
materiality grounds. The group's US insurance businesses are valued
on a local statutory basis, following the PRA's approval to use the
Deduction and Aggregation method of including these businesses in
the group solvency calculation.
The table below shows the "shareholder view" of the group Own
Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds,
based on the Partial Internal Model, Matching Adjustment and
Transitional Measures on Technical Provisions (TMTP) (recalculated
as at end June 2019). The TMTP incorporates estimated impacts of
end June 2019 economic conditions and changes during 2019 to the
Internal Model and Matching Adjustment. This is in line with
group's management of the capital position on a dynamic TMTP
basis.
(a) Capital position
As at 30 June 2019, and on the above basis, the group had a surplus
of GBP5.9bn (31 December 2018: GBP6.9bn) over its Solvency Capital
Requirement, corresponding to a Solvency II capital coverage
ratio on a "shareholder view" basis of 171% (31 December 2018:
188%). The shareholder view of the Solvency II capital position
is as follows:
30 Jun 31 Dec
2019 2018
GBPbn GBPbn
Core tier 1 Own Funds 11.1 11.5
Tier 2 subordinated liabilities(1) 3.3 3.5
Eligibility restrictions (0.2) (0.2)
========================================================================= === ====== ======
Solvency II Own Funds(2,3) 14.2 14.8
Solvency Capital Requirement (8.3) (7.9)
Solvency II surplus 5.9 6.9
SCR coverage ratio(4) 171% 188%
1. Tier 2 subordinated liabilities of GBP0.4bn were redeemed
on 1 April 2019.
2. Solvency II Own Funds do not include an accrual for the interim
dividend of GBP294m (31 December 2018: GBP704m) declared after
the balance sheet date.
3. Solvency II Own Funds allow for a risk margin of GBP6.0bn
(31 December 2018: GBP5.5bn) and TMTP of GBP5.7bn (31 December
2018: GBP5.2bn).
4. Coverage ratio is based on unrounded inputs.
The "shareholder view" basis excludes the contribution that the
with-profits fund and the final salary pension scheme would
normally make to the group position. This is reflected by reducing
the group's Own Funds and the group's SCR by the amount of the SCR
for the with-profits fund and the final salary pension scheme.
On a proforma basis, which includes the contribution of the
with-profits fund and the final salary pension scheme in the
group's Own Funds and corresponding SCR in the group's SCR, the
coverage ratio at 30 June 2019 is 166% (31 December 2018:
181%).
On 6 December 2017 the group announced the sale of its Mature
Savings business to Swiss Re. Swiss Re assumed the economic
exposure of the business from 1 January 2018 via a risk transfer
agreement. It is expected that the formal transfer of the business
will be completed in 2019, subject to satisfaction of normal
conditions for a transaction including court sanction. The transfer
will be effected by way of a Part VII transfer under the Financial
Services Markets Act 2000. The impact of the risk transfer
agreement is reflected in both Own Funds and SCR as at 30 June
2019.
On 31 May 2019 the group announced the sale of Legal &
General Insurance Ltd. The Solvency II capital position as at 30
June 2019 does not reflect the expected impact of this sale. The
transaction is expected to complete in H2 2019, at which point it
is estimated that the impact of the sale will increase the group's
Solvency II coverage ratio by 2%.
Capital Page 74
6.01 Group regulatory capital - Solvency II (continued)
(b) Methodology and assumptions
The methodology and assumptions and Partial Internal Model
underlying the calculation of Solvency II Own Funds and associated
capital requirements are consistent with those set out in the
group's 2018 Annual Reports and Accounts and Full Year Results.
Non-market assumptions are consistent with those underlying the
group's IFRS disclosures, but with the removal of any margins for
prudence. Future investment returns and discount rates are those
defined by EIOPA, which means that the risk free rates used to
discount liabilities are market swap rates net of credit risk
adjustment of 11 basis points (31 December 2018: 10 basis points)
for sterling denominated liabilities. For annuities that are
eligible, the liability discount rate includes a Matching
Adjustment. This Matching Adjustment varies between LGAS and LGRe
and by the currency of the relevant liabilities.
At 30 June 2019 the Matching Adjustment for UK GBP denominated
liabilities was 121 basis points (31 December 2018: 138 basis
points) after deducting an allowance for the EIOPA fundamental
spread equivalent to 53 basis points (31 December 2018: 52 basis
points).
(c) Analysis of change
The table below shows the movement (net of tax) during the 6 month
period ended 30 June 2019 in the group's Solvency II surplus.
30 Jun 31 Dec
2019 2018
GBPbn GBPbn
Surplus arising from back-book (including release
of SCR) 0.8 1.4
Release of Risk Margin(1) 0.2 0.4
Amortisation of TMTP(2) (0.2) (0.4)
-------------------------------------------------------------- ------- -------
Operational Surplus Generation(3) 0.8 1.4
New Business Strain (0.3) (0.5)
-------------------------------------------------------------- ------- -------
Net Surplus Generation 0.5 0.9
Dividends paid(4) (0.7) (0.9)
Operating variances(5) (0.2) 0.1
Mergers, acquisitions and disposals(6) - -
Market movements(7) (0.2) (0.5)
Subordinated debt (0.4) 0.4
-------------------------------------------------------------- ------- -------
Total Surplus movement (after dividends paid in the
period) (1.0) -
1. Based on the risk margin in force at end 2018 and does not include
the release of any risk margin added by new business written in 2019.
2. TMTP amortisation based on a linear run down of the end-2018 TMTP
of GBP4.4bn (net of tax, GBP5.2bn before tax).
3. Release of surplus generated by in-force business and includes
management actions which at the start of the year could have been
reasonably expected to take place. For 2019 these are primarily related
to the optimisation of structures used to make assets matching adjustment
eligible and the planned reinsurance of backbook liabilities.
4. Dividends paid are the amounts from the 2018 final dividend declaration
paid in H1 19 (FY 18: 2017 final and 2018 interim dividend declarations).
5. Operating variances include the impact of experience variances,
changes to valuation and capital calibration assumptions, other management
actions including changes in asset mix, hedging strategies, and Matching
Adjustment optimisation.
6. Mergers, acquisitions and disposals include the impact of the
sale of IndiaFirst.
7. Market movements represent the impact of changes in investment
market conditions over the period and changes to future economic
assumptions. Market movements in H1 2019 include an increase in the
risk margin of GBP0.4bn (net of tax) and an increase to TMTP of GBP0.5bn
(net of tax).
Operational Surplus Generation is the expected surplus generated
from the assets and liabilities in-force at the start of the year.
It is based on assumed real world returns and best estimate
non-market assumptions. It includes the impact of management
actions to the extent that, at the start of the year, these were
reasonably expected to be implemented over the year.
New Business Strain is the cost of acquiring, and setting up
Technical Provisions and SCR (net of any premium income), on actual
new business written over the year. It is based on economic
conditions at the point of sale.
Capital Page 75
6.01 Group regulatory capital - Solvency II (continued)
(d) Reconciliation of IFRS Net Release from Operations to Solvency
II Net Surplus Generation
(i) The table below provides a reconciliation of the group's IFRS
Release from Operations to Solvency II Operational Surplus Generation.
Full
6 months year
2019 2018
GBPbn GBPbn
IFRS Release from Operations 0.7 1.3
Expected release of IFRS prudential margins (0.2) (0.5)
Releases of IFRS specific reserves(1) (0.1) (0.1)
Solvency II investment margin(2,3) 0.1 0.1
Release of Solvency II Capital Requirement and Risk
Margin less TMTP amortisation 0.3 0.6
Solvency II Operational Surplus Generation(4) 0.8 1.4
------------------------------------------------------------- -------- -----
1. Release of prudence from IFRS specific reserves which are not
included in Solvency II (e.g. long term expenses and longevity
margins).
2. Release of prudence related to differences between the EIOPA-defined
fundamental spread and Legal & General's best estimate default
assumption.
3. Expected market returns earned on LGR's free assets in excess
of risk free rates over H1 2019.
4. Solvency II Operational Surplus Generation includes management
actions which at the start of 2019 were expected to take place
within the group plan.
(ii) The table below provides a reconciliation of the group's
IFRS New Business Surplus to Solvency II New Business Strain.
Full
6 months year
2019 2018
GBPbn GBPbn
----------------------------------------------------------- ======== -----
IFRS New Business Surplus 0.2 0.2
Removal of requirement to set up prudential margins
above best estimate on New Business 0.1 0.2
Set up of Solvency II Capital Requirement on New Business (0.5) (0.7)
Set up of Risk Margin on New Business (0.1) (0.2)
Solvency II New Business Strain(1) (0.3) (0.5)
------------------------------------------------------------- -------- -----
1. PRT new business volumes over H1 2019 were GBP6.7bn (including
GBP4.6bn from the Rolls Royce UK Pension Fund) compared to GBP9.1bn
over 2018.
(e) Reconciliation of IFRS shareholders' equity to Solvency II
Own Funds
A reconciliation of the group's IFRS shareholders' equity to Own
Funds is given below:
30 Jun 31 Dec
2019 2018(1)
GBPbn GBPbn
----------------------------------------------------- ------ --------
IFRS shareholders' equity(1) 8.8 8.6
Remove DAC, goodwill and other intangible assets and
associated liabilities(1) (0.7) (0.8)
Add IFRS carrying value of subordinated debt treated
as available capital under Solvency II(2) 2.9 3.3
Insurance contract valuation differences(3) 4.7 5.1
Difference in value of net deferred tax liabilities (0.4) (0.3)
SCR for with-profits fund and final salary pension
schemes (0.9) (0.8)
Other(4) - (0.1)
Eligibility restrictions(5) (0.2) (0.2)
------ --------
Solvency II Own Funds(6) 14.2 14.8
------ --------
1. Values are per the consolidated financial statements.
2. Treated as available capital on the Solvency II balance sheet
as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between
IFRS and Solvency II.
4. Reflects valuation differences on other assets and liabilities,
predominantly in respect of borrowings measured at fair value
under solvency II.
5. Relating to the Own Funds of non-insurance regulated entities
that are subject to local regulatory rules.
6. Solvency II Own Funds do not include an accrual for the interim
dividend of GBP294m (31 December 2018: GBP704m) declared after
the balance sheet date.
Capital Page 76
6.01 Group regulatory capital - Solvency II (continued)
(f) Sensitivity analysis
The following sensitivities are provided to give an indication
of how the group's Solvency II surplus as at 30 June 2019 would
have changed in a variety of adverse events. These are all independent
stresses to a single risk. In practice, the balance sheet is
impacted by combinations of stresses and the combined impact
can be larger than adding together the impacts of the same stresses
in isolation. It is expected that, particularly for market risks,
adverse stresses will happen together.
Impact Impact Impact Impact
on on on on
net of net of net of net
tax tax tax of tax
Solvency Solvency Solvency Solvency
II II II II
capital coverage capital coverage
surplus(8) ratio(8) surplus(8) ratio(8)
30 Jun 30 Jun 31 Dec 31 Dec
2019 2019 2018 2018
GBPbn % GBPbn %
Credit spreads widen by 100bps assuming
an escalating addition to ratings(1,2) 0.3 9 0.3 10
Credit migration(3) (0.8) (10) (0.8) (10)
25% fall in equity markets(4) (0.6) (6) (0.5) (6)
15% fall in property markets (5) (0.6) (7) (0.6) (7)
100bps increase in risk free rates (6) 1.2 25 0.9 24
50bps decrease in risk free rates(6,7) (0.7) (12) (0.5) (12)
1. The spread sensitivity applies to group's corporate bond
(and similar) holdings, with no change in the firm's long term
default expectations. Restructured lifetime mortgages are excluded.
2. The stress for AA bonds is twice that for AAA bonds, for
A bonds it is three times, for BBB four times and so on, such
that the weighted average spread stress for the portfolio is
100 basis points.
3. Credit migration stress covers the cost of an immediate big
letter downgrade on 20% of all assets where the capital treatment
depends on a credit rating (including corporate bonds, sale
and leaseback rental strips and lifetime mortgage senior notes).
4. This relates primarily to equity exposure in LGC but will
also include equity-based mutual funds and other investments
that receive an equity stress (for example, certain investments
in subsidiaries). Some assets have factors that increase or
decrease the stress relative to general equity levels via a
beta factor.
5. Assets stressed include residual values from sale and leaseback,
the full amount of lifetime mortgages and direct investments
treated as property.
6. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
7. In the interest rate down stress negative rates are allowed,
i.e. there is no floor at zero rates.
8. Both the 2018 and 2019 sensitivities exclude the impact from
the Mature Savings business (including the With-Profits fund)
as the risks have been transferred to ReAssure division of Swiss
Re from 1 January 2018.
The above sensitivity analysis does not reflect all management
actions which could be taken to reduce the impacts due to the
complex nature of the modelling. In practice, the group actively
manages its asset and liability positions to respond to market
movements. Other than in the interest rate stresses, we have
not allowed for the recalculation of TMTP.
The impacts of these stresses are not linear therefore these
results should not be used to interpolate or extrapolate the
impact of a smaller or larger stress. The results of these tests
are indicative of the market conditions prevailing at the balance
sheet date. The results would be different if performed at an
alternative reporting date.
Capital Page 77
6.02 Estimated Solvency II new business contribution
(a) New business by product(1)
Management estimates of the present value of new business premium
(PVNBP) and the margin for selected lines of business are provided
below:
Contri- Contri-
bution bution
from new from new
PVNBP business(2) Margin(3) PVNBP business(2) Margin(3)
6 months 6 months 6 months Full year Full year Full year
2019 2019 2019 2018 2018 2018
GBPm GBPm % GBPm GBPm %
LGR - UK annuity business 6,813 533 7.8 9,148 722 7.9
UK Protection Total 862 68 7.9 1,609 115 7.1
- Retail Protection 679 56 8.2 1,271 93 7.3
- Group Protection 183 12 6.6 338 22 6.4
US Protection(4) 440 48 10.8 854 96 11.2
1. Selected lines of business only.
2. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $559m (31
December 2018: $1,088m) and a contribution from new business of
$61m (31 December 2018: $122m).
LGR margin remains at similar levels to full year 2018 on increased
volumes, reflecting our strong pricing discipline, which we have
maintained in a competitive market.
For UK protection new business the increase in profitability was
driven by a shift in the mix of business by product combined with
continued price optimisation.
The US Protection margin of 10.8% remains strong, albeit down slightly
from full year 2018, reflecting an exceptionally competitive environment
for term life business during the first six months of 2019.
(b) Basis of preparation
Solvency II new business contribution reflects the portion of
Solvency II value added by new business written in the period. It
has been calculated in a manner consistent with principles and
methodologies which were set out in the group's 2018 Annual Report
and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for
the group's most material insurance-related businesses, namely,
LGR, LGI and LGA.
Intra-group reinsurance arrangements are in place between US, UK
and Bermudan businesses and it is expected that these arrangements
will be periodically extended to cover recent new business. The LGA
new business margin assumes that the new business will continue to
be reinsured in 2019 and looks through the intra-group
arrangements.
Capital Page 78
6.02 Estimated Solvency II new business contribution
(continued)
(c) Assumptions
The key economic assumptions are as follows:
30 Jun 31 Dec
2019 2018
% %
Margin for Risk 3.4 3.2
Risk free rate
- UK 1.2 1.5
- US 2.0 2.7
Risk discount rate (net of tax)
- UK 4.6 4.7
- US 5.4 5.9
Long-term rate of return on non profit annuities
in LGR 3.4 3.4
The future earnings are discounted using duration-based discount
rates, which is the sum of a duration-based risk free rate and a
flat Margin for Risk. The risk free rates have been based on a swap
curve net of the EIOPA-specified Credit Risk Adjustment. The risk
free rate shown above is a weighted average based on the projected
cash flows.
The methodology and assumptions used to calculate the above
margins comply with the CFO Forum EEV Principles (dated April 2016)
in all material respects. Key assumptions to note are:
-- The assumed future pre-tax returns on fixed interest and RPI
linked securities are set by reference to the portfolio yield on
the relevant backing assets held at market value at the end of the
reporting period. The calculated return takes account of
derivatives and other credit instruments in the investment
portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account
of the credit rating and the outstanding term of the assets. The
allowance for corporate and other unapproved credit asset defaults
within the new business contribution is calculated explicitly for
each bulk annuity scheme written, and the weighted average
deduction for business written in 2018 equates to a level rate
deduction from the expected returns for the overall annuities
portfolio of 20 basis points.
-- Non-economic assumptions have been set at levels commensurate
with recent operating experience, including those for mortality,
morbidity, persistency and maintenance expenses (excluding
development costs). An allowance is made for future mortality
improvement. For new business, mortality assumptions may be
modified to take certain scheme specific features into account.
These are normally reviewed annually.
Tax
The projections take into account all tax which is expected to
be paid, based on best estimate assumptions, applying current
legislation and practice together with substantively enacted future
changes.
The profits on the new business are calculated on an after tax
basis and are grossed up by the notional attributed tax rate. For
the UK, the after tax basis assumes the annualised current rate of
19% and subsequent enacted future tax rate of 17% from 1 April 2020
onwards. The tax rate used for grossing up is the long term
corporate tax rate in the territory concerned, which for the UK is
17%.
US covered business profits are grossed up using the long term
corporate tax rate of 21%.
Capital Page 79
6.02 Estimated Solvency II new business contribution
(continued)
(d) Reconciliation of PVNBP to gross written
premium
A reconciliation of PVNBP and gross written
premium is given below:
6 months Full year
2019 2018
GBPbn GBPbn
PVNBP 8.1 11.6
Effect of capitalisation factor (1.0) (2.0)
New business premiums from selected lines 7.1 9.6
Other(1) 0.7 2.1
Total LGR and LGI new business 7.8 11.7
Annualisation impact of regular premium long-term
business (0.1) (0.2)
IFRS gross written premiums from existing
long-term insurance business 1.5 2.8
Deposit accounting for lifetime mortgage advances (0.5) (1.2)
Future premiums on longevity swap new business - (0.3)
Total gross written premiums(2) 8.7 12.8
1. Other principally includes annuity sales in the US, lifetime
mortgage advances and discounted future cash flows on longevity
swap new business.
2. This excludes gross written premiums from discontinued operations.
Page 80
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Investments Page 81
7.01 Investment portfolio
Market Market Market
value value value
30 Jun 30 Jun 31 Dec
2019 2018 2018
GBPm GBPm GBPm
Worldwide total assets under management(1) 1,141,593 990,379 1,019,858
Client and unit-linked policyholder
assets (1,036,229) (907,834) (930,516)
Non-unit linked with-profits assets (10,372) (10,673) (9,893)
Investments to which shareholders are
directly exposed 94,992 71,872 79,449
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
Analysed by investment class:
Other
non profit Other
LGR insurance LGC(2) shareholder
investments investments investments investments Total Total Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec
2019 2019 2019 2019 2019 2018 2018
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities(3,6) 162 13 2,741 226 3,142 2,727 2,785
Bonds 7.03 66,907 1,859 2,002 490 71,258 55,826 63,096
Derivative assets(4) 11,523 - 109 1 11,633 4,225 4,411
Property 7.04 3,131 - 144 - 3,275 2,871 3,055
Cash, cash equivalents
and loans(5) 1,555 587 1,541 634 4,317 5,104 4,894
Financial investments 83,278 2,459 6,537 1,351 93,625 70,753 78,241
Other assets(6) 90 - 1,277 - 1,367 1,119 1,208
Total investments 83,368 2,459 7,814 1,351 94,992 71,872 79,449
2. LGC property includes GBP23m of shareholder investment property.
3. Equity investments include a total of GBP362m (30 June 2018:
GBP125m; 31 December 2018: GBP260m) in respect of associates and
joint ventures.
4. Derivative assets are shown gross of derivative liabilities of
GBP6.9bn (30 June 2018: GBP3.3bn; 31 December 2018: GBP3.3bn). Exposures
arise from use of derivatives 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.
5. Loans include reverse repurchase agreements of GBP960m (30 June
2018: GBP752m; 31 December 2018: GBP857m).
6. Other assets includes the consolidated net asset value of the
group's investments in CALA Homes and other housing businesses.
Investments Page 82
7.02 Direct Investments
(a) Analysed by asset
class
Direct(1) Traded(2) Direct Traded Direct(1) Traded(2)
Investments securities Total Investments securities Total Investments securities Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec 31 Dec
2019 2019 2019 2018 2018 2018 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities 1,300 1,842 3,142 890 1,837 2,727 1,166 1,619 2,785
Bonds(3) 15,824 55,434 71,258 10,800 45,026 55,826 13,369 49,727 63,096
Derivative
assets - 11,633 11,633 - 4,225 4,225 - 4,411 4,411
Property(4) 3,275 - 3,275 2,871 - 2,871 3,055 - 3,055
Cash, cash
equivalents
and loans 410 3,907 4,317 580 4,524 5,104 418 4,476 4,894
Financial
investments 20,809 72,816 93,625 15,141 55,612 70,753 18,008 60,233 78,241
Other assets 1,367 - 1,367 1,119 - 1,119 1,208 - 1,208
Total investments 22,176 72,816 94,992 16,260 55,612 71,872 19,216 60,233 79,449
----------------- ----------- ---------- ------ ----------- ---------- ------ ----------- ---------- ------
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile
asset classes. Direct Investments also include physical assets, bilateral
loans and private equity, but exclude hedge funds.
2. Traded securities are defined by exclusion. If an instrument is
not a Direct Investment, then it is classed as a traded security.
3. Bonds include lifetime mortgages of GBP3,990m (30 June 2018: GBP2,674m;
31 December 2018: GBP3,227m).
4. A further breakdown of property is provided in Note 7.04.
Investments Page 83
7.02 Direct Investments (continued)
(b) Analysed by segment
LGR LGC(1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
-
----------------------------------------- ---- -------- ------ ------ ------
Equities 6 1,233 61 1,300
Bonds(2) 15,148 3 673 15,824
Property(3) 3,131 144 - 3,275
Cash, cash equivalents and loans - 64 346 410
------------------------------------------------- -------- ------ ------ ------
Financial investments 18,285 1,444 1,080 20,809
-------------------------------------------------- -------- ------ ------ ------
Other assets(4) 90 1,277 - 1,367
------------------------------------------------- -------- ------ ------ ------
Total direct investments 18,375 2,721 1,080 22,176
-------------------------------------------------- -------- ------ ------ ------
1. LGC includes GBP58m of equities and GBP23m of property
that belong to other shareholder funds.
2. Bonds include lifetime mortgages of GBP3,990m.
3. A further breakdown of property is provided in Note 7.04.
4. Other assets include finance leases of GBP90m and the consolidated
net asset value of the group's investments in CALA Homes and other
housing businesses.
LGR LGC(1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2018 2018 2018 2018
Equities - 851 39 890
Bonds(2) 10,432 30 338 10,800
Property(3) 2,791 80 - 2,871
Cash, cash equivalents and loans 175 77 328 580
------------------------------------------- -------- ------- ------- -------
Financial investments 13,398 1,038 705 15,141
--------------------------------------------- -------- ------- ------- -------
Other assets(4) 92 1,027 - 1,119
------------------------------------------- -------- ------- ------- -------
Total direct investments 13,490 2,065 705 16,260
--------------------------------------------- -------- ------- ------- -------
1. LGC included GBP40m of equities, GBP27m of bonds and GBP23m of
property that belong to other shareholder funds.
2. Bonds included lifetime mortgages of GBP2,674m.
3. A further breakdown of property is provided in Note 7.04.
4. Other assets include finance leases of GBP92m and the consolidated
net asset value of the group's investments in CALA Homes and other
housing businesses.
LGR LGC(1) LGI Total
31 Dec 31 Dec 31 Dec 31 Dec
2018 2018 2018 2018
GBPm GBPm GBPm GBPm
Equities 6 1,124 36 1,166
Bonds(2) 12,716 3 650 13,369
Property(3) 2,930 125 - 3,055
Cash, cash equivalents and loans - 64 354 418
-------------------------------------------- -------- ------- ------- -------
Financial investments 15,652 1,316 1,040 18,008
--------------------------------------------- -------- ------- ------- -------
Other assets(4) 91 1,117 - 1,208
-------- ------- -------
Total direct investments 15,743 2,433 1,040 19,216
--------------------------------------------- -------- ------- ------- -------
1. LGC included GBP51m of equities and GBP23m of property that belong
to other shareholder funds.
2. Bonds include lifetime mortgages of GBP3,227m.
3. A further breakdown of property is provided in Note 7.04.
4. Other assets include finance leases of GBP91m and the consolidated
net asset value of the group's investments in CALA Homes and other
housing businesses.
Investments Page 84
7.03 Bond portfolio summary
(a) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,585 9,472 297 456 59 - 11,869 17
Banks:
- Tier 1 - - - 2 - - 2 -
- Tier 2 and other subordinated - 47 84 27 2 - 160 -
- Senior 23 1,693 2,830 81 - - 4,627 6
- Covered 132 - - - - - 132 -
Financial Services:
- Tier 2 and other subordinated - 93 91 10 - 4 198 -
- Senior 2 469 73 303 8 - 855 1
Insurance:
- Tier 2 and other subordinated 28 125 3 53 - - 209 -
- Senior - 233 551 205 - - 989 1
Consumer Services and
Goods:
- Cyclical - 632 951 1,903 142 2 3,630 5
- Non-cyclical 240 1,100 2,060 3,698 209 1 7,308 10
- Health Care - 138 465 472 7 - 1,082 2
Infrastructure:
- Social 110 790 3,719 847 40 - 5,506 8
- Economic 336 27 1,683 2,781 55 - 4,882 7
Technology and Telecoms 116 168 1,133 2,819 52 - 4,288 6
Industrials - 12 750 679 26 - 1,467 2
Utilities - 181 5,863 4,513 4 35 10,596 15
Energy - - 300 874 14 - 1,188 2
Commodities - - 261 584 15 - 860 1
Oil and Gas - 419 917 698 113 1 2,148 3
Real estate - 6 1,692 1,542 131 - 3,371 5
Structured finance ABS
/ RMBS / CMBS / Other 446 766 251 336 21 1 1,821 3
Lifetime mortgage loans(1) 2,403 886 326 276 - 99 3,990 6
CDOs - - 66 14 - - 80 -
Total GBPm 5,421 17,257 24,366 23,173 898 143 71,258 100
Total % 8 24 34 33 1 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Unstructured lifetime mortgages have been categorised as AA.
2(.) The group's bond portfolio is dominated by LGR investments.
These account for GBP66,907m, representing 94% of the total group
portfolio.
Investments Page 85
7.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating
(continued)
BB or
AAA AA A BBB below Other Total Total
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,266 9,102 160 323 43 - 10,894 20
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - - 76 38 2 - 116 -
- Senior - 1,184 2,411 62 - 8 3,665 7
- Covered 173 - - - - - 173 -
Financial Services:
- Tier 1 1 - - - - 1 2 -
- Tier 2 and other subordinated - 187 104 17 - - 308 1
- Senior - 84 354 59 10 - 507 1
Insurance:
- Tier 1 - - - 1 - - 1 -
- Tier 2 and other subordinated - 109 1 48 - - 158 -
- Senior - 168 456 91 - - 715 1
Consumer Services and
Goods:
- Cyclical - 512 825 1,435 220 1 2,993 5
- Non-cyclical 209 498 1,360 2,006 295 1 4,369 8
- Health Care 3 52 276 325 3 - 659 1
Infrastructure:
- Social 95 788 3,276 905 127 - 5,191 9
- Economic 180 23 1,079 2,353 43 - 3,678 7
Technology and Telecoms 84 151 759 2,035 52 1 3,082 6
Industrials - 3 817 374 43 - 1,237 2
Utilities - 105 4,912 3,657 5 19 8,698 16
Energy - - 103 548 15 - 666 1
Commodities - - 248 491 13 - 752 1
Oil and Gas - 341 557 617 111 - 1,626 3
Real estate - - 1,048 1,145 56 - 2,249 4
Structured finance ABS
/ RMBS / CMBS / Other 324 656 195 128 10 - 1,313 2
Lifetime mortgage loans(1) 1,533 588 219 211 - 123 2,674 5
CDOs - 24 61 14 - - 99 -
Total GBPm 3,868 14,575 19,297 16,883 1,048 155 55,826 100
Total % 7 26 35 30 2 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
2(.) The group's bond portfolio is dominated by LGR investments.
These account for GBP50,847m, representing 90% of the total group
portfolio.
Investments Page 86
7.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating
(continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,385 9,591 181 410 48 - 11,615 18
Banks:
- Tier 1 - - - 1 - 1 2 -
- Tier 2 and other subordinated - - 87 24 2 - 113 -
- Senior 18 1,971 2,946 59 - 42 5,036 8
- Covered 191 1 - - - - 192 -
Financial Services:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - 165 91 11 - 6 273 -
- Senior - 282 69 305 8 - 664 1
Insurance:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - 113 1 46 - - 160 -
- Senior - 177 543 94 - - 814 1
Consumer Services and
Goods:
- Cyclical - 604 663 1,343 134 2 2,746 4
- Non-cyclical 216 970 1,138 2,639 308 1 5,272 8
- Health Care - 150 375 405 4 - 934 2
Infrastructure:
- Social 92 768 3,425 829 38 - 5,152 8
- Economic 331 23 1,420 2,335 42 - 4,151 7
Technology and Telecoms 93 166 933 2,296 53 1 3,542 7
Industrials - 3 709 629 42 - 1,383 2
Utilities - 153 5,498 4,129 5 27 9,812 16
Energy - - 464 590 10 - 1,064 2
Commodities - - 242 481 11 - 734 1
Oil and Gas - 382 583 535 110 - 1,610 3
Real estate - - 1,233 1,425 125 - 2,783 4
Structured finance ABS
/ RMBS / CMBS / Other 430 873 180 250 8 1 1,742 3
Lifetime mortgage loans(1) 1,938 718 249 219 - 103 3,227 5
CDOs - - 61 14 - - 75 -
Total GBPm 4,694 17,110 21,091 19,069 948 184 63,096 100
Total % 7 27 34 30 2 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Unstructured lifetime mortgages have been categorised as AA.
2(.) The group's bond portfolio is dominated by LGR investments.
These account for GBP57,355m, representing 91% of the total group
portfolio.
Investments Page 87
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2019 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,279 1,500 704 386 11,869
Banks 1,468 1,209 1,450 794 4,921
Financial Services 354 91 597 11 1,053
Insurance 137 769 206 86 1,198
Consumer Services and Goods:
- Cyclical 624 2,232 615 159 3,630
- Non-cyclical 1,619 5,158 491 40 7,308
- Health care 18 1,018 46 - 1,082
Infrastructure:
- Social 5,106 358 - 42 5,506
- Economic 3,905 563 95 319 4,882
Technology and Telecoms 717 2,217 653 701 4,288
Industrials 96 932 372 67 1,467
Utilities 5,928 1,869 2,300 499 10,596
Energy 266 780 4 138 1,188
Commodities 14 335 66 445 860
Oil and Gas 294 659 438 757 2,148
Real estate 2,080 401 525 365 3,371
Structured Finance ABS / RMBS /
CMBS / Other 1,019 754 22 26 1,821
Lifetime mortgages 3,990 - - - 3,990
CDOs - - - 80 80
Total 36,914 20,845 8,584 4,915 71,258
Investments Page 88
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
(continued)
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 8,702 1,005 774 413 10,894
Banks 1,643 703 932 677 3,955
Financial Services 291 127 397 2 817
Insurance 132 541 113 88 874
Consumer Services and Goods:
- Cyclical 530 1,888 467 108 2,993
- Non-cyclical 1,284 2,717 350 18 4,369
- Health care 10 649 - - 659
Infrastructure:
- Social 4,860 294 - 37 5,191
- Economic 3,000 381 71 226 3,678
Technology and Telecoms 690 1,352 599 441 3,082
Industrials 199 690 264 84 1,237
Utilities 4,449 1,377 2,162 710 8,698
Energy 36 572 5 53 666
Commodities 10 272 38 432 752
Oil and Gas 272 471 348 535 1,626
Real estate 1,582 341 58 268 2,249
Structured Finance ABS / RMBS /
CMBS / Other 947 295 48 23 1,313
Lifetime mortgages 2,674 - - - 2,674
CDOs - 24 - 75 99
Total 31,311 13,699 6,626 4,190 55,826
Investments Page 89
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
(continued)
EU
excluding Rest of
UK US UK the World Total
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,238 1,038 1,009 330 11,615
Banks 1,817 1,012 1,373 1,141 5,343
Financial Services 287 104 544 2 937
Insurance 134 542 215 83 974
Consumer Services and Goods:
- Cyclical 479 1,692 427 148 2,746
- Non-cyclical 1,328 3,478 430 36 5,272
- Health care 9 916 9 - 934
Infrastructure:
- Social 4,819 295 - 38 5,152
- Economic 3,340 463 87 261 4,151
Technology and Telecoms 688 1,814 549 491 3,542
Industrials 196 848 253 86 1,383
Utilities 5,154 1,740 2,374 544 9,812
Energy 363 610 2 89 1,064
Commodities 11 285 35 403 734
Oil and Gas 270 524 349 467 1,610
Real estate 1,864 373 241 305 2,783
Structured Finance ABS / RMBS /
CMBS / Other 985 681 45 31 1,742
Lifetime mortgages 3,227 - - - 3,227
CDOs - - - 75 75
Total 34,209 16,415 7,942 4,530 63,096
Investments Page 90
7.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 30 June 2019 GBPm GBPm GBPm
AAA 2,647 2,774 5,421
AA 14,631 2,626 17,257
A 19,173 5,193 24,366
BBB 18,199 4,974 23,173
BB or below 658 240 898
Other 10 133 143
Total 55,318 15,940 71,258
Externally Internally
rated rated(1) Total
As at 30 June 2018 GBPm GBPm GBPm
AAA 2,117 1,751 3,868
AA 12,901 1,674 14,575
A 16,062 3,235 19,297
BBB 13,045 3,838 16,883
BB or below 730 318 1,048
Other 15 140 155
Total 44,870 10,956 55,826
Externally Internally
rated rated(1) Total
As at 31 December 2018 GBPm GBPm GBPm
AAA 2,390 2,304 4,694
AA 14,386 2,724 17,110
A 16,731 4,360 21,091
BBB 14,928 4,141 19,069
BB or below 723 225 948
Other 55 129 184
Total 49,213 13,883 63,096
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
Investments Page 91
7.04 Property analysis
Property exposure within direct investments by
status
LGR(1) LGC(2,3) Total
As at 30 June 2019 GBPm GBPm GBPm %
Fully let 3,131 - 3,131 95
Development - 23 23 1
Land - 121 121 4
Total 3,131 144 3,275 100
LGR(1) LGC(2) Total
As at 30 June 2018 GBPm GBPm GBPm %
Fully let 2,791 11 2,802 97
Development - 23 23 1
Land - 46 46 2
Total 2,791 80 2,871 100
LGR(1) LGC(2) Total
As at 31 December GBPm GBPm GBPm %
2018
Fully let 2,930 - 2,930 96
Development - 23 23 1
Land - 102 102 3
Total 2,930 125 3,055 100
1. The fully let LGR property includes GBP3.0bn (30 June 2018: GBP2.6bn;
31 December 2018: GBP2.8bn) let to investment grade tenants.
2. Development includes GBP23m (30 June 2018 and 31 December 2018:
GBP23m) of shareholder investment property.
3. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are
accounted for as inventory within Receivables and other assets on
the group's Consolidated Balance Sheet and measured at the lower
of cost and net realisable value. At 30 June 2019 the group held
a total of GBP1,910m (30 June 2018: GBP1,427m; 31 December 2018:
GBP1,687m) of such assets.
Page 92
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Alternative Performance Measures Page 93
An alternative performance measure (APM) is a financial measure
of historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II. APMs offer investors additional
information on the company's performance and the financial effect
of 'one-off' events and the group uses a range of these metrics to
provide a better understanding of its underlying performance. The
APMs used by the group are listed in this section, along with their
definition/ explanation, their closest IFRS measure and reference
to the reconciliations to those IFRS measures.
Group adjusted operating profit (previously labelled as
'operating profit')
Definition
Group adjusted operating profit measures the pre-tax result
excluding the impact of investment volatility, economic assumption
changes and exceptional items. It therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except for LGC's trading businesses (which
reflects the IFRS profit before tax) and LGA 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 group
adjusted operating profit, as well as 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 merger and acquisition
and start-up costs, are also excluded from group adjusted operating
profit.
Group adjusted operating profit was previously described as
'operating profit'. In order to maintain a consistent understanding
of the group's performance the term 'operating profit' will
continue to be used throughout the interim report as a substitute
for group adjusted operating profit.
Closest IFRS measure
Profit before tax attributable to equity holders
Reconciliation
Note 2.01 Operating profit
Return on Equity (ROE)
Definition
ROE measures the return earned by shareholders on shareholder
capital retained within the business. ROE is calculated as
annualised IFRS pro t after tax attributable to equity holders
divided by average IFRS shareholders' funds (by reference to
opening and closing shareholders' funds as provided in the IFRS
consolidated statement of changes in equity for the period).
Closest IFRS measure
Calculated using:
- Profit for the period attributable to equity holders
- Equity attributable to owners of the parent
Reconciliation
Calculated using annualised profit for the period of GBP1,748m
(30 June 2018: GBP1,542m; 31 December 2018: GBP1,827m) and average
equity attributable to the owners of the parent of GBP8,671m (30
June 2018: GBP7,595m; 31 December 2018: GBP8,048m)
Assets under Management
Definition
Funds which are managed by our fund managers on behalf of
investors. It represents the total amount of money investors have
trusted with our fund managers to invest across our investment
products.
Closest IFRS measures
- Financial investments
- Investment property
- Cash and cash equivalents
Reconciliation
5.03 - Reconciliation of Assets under management to Consolidated
Balance Sheet financial investments, investment property and cash
and cash equivalents
Net release from operations
Definition
Release from operations plus new business surplus / (strain).
Net release from operations includes the release of prudent margins
from the back book, together with the premium received less the
setup of prudent reserves and associated acquisition costs for new
business.
Closest IFRS measure
Profit before tax attributable to equity holders
Reconciliation
Notes 2.01 Operating profit and 2.02 Reconciliation of release
from operations to operating profit before tax
Adjusted profit before tax attributable to equity holders
(previously labelled as 'profit before tax attributable to equity
holders')
Definition
The APM measures profit before tax attributable to shareholders
incorporating actual investment returns experienced during the year
and the pre-tax results of discontinued operations.
Closest IFRS measure
Profit before tax attributable to equity holders
Reconciliation
Note 2.01 Operating profit
Glossary Page 94
* These items represent an alternative performance measure
(APM)
Ad valorem fees
Ongoing management fees earned on assets under management,
overlay assets and advisory assets as defined below.
Adjusted profit before tax attributable to equity holders
(previously labelled as 'profit before tax attributable to equity
holders')*
Refer to the alternative performance measures section.
Advisory assets
These are assets on which Global Index Advisors (GIA) provide
advisory services. Advisory assets are bene cially owned by GIA's
clients and all investment decisions pertaining to these assets are
also made by the clients. These are different from Assets under
Management (AUM) de ned below.
Alternative performance measures (APMs)
An alternative performance measure is a financial measure of
historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II.
Annual premium
Premiums that are paid regularly over the duration of the
contract such as protection policies.
Annual premium equivalent (APE)
A standardised measure of the volume of new life insurance
business written. It is calculated as the sum of (annualised) new
recurring premiums and 10% of the new single premiums written in an
annual reporting period.
Annuity
Regular payments from an insurance company made for an agreed
period of time (usually up to the death of the recipient) in return
for either a cash lump sum or a series of premiums which the
policyholder has paid to the insurance company during their working
lifetime.
Assets under administration (AUA)
Assets administered by Legal & General which are bene cially
owned by clients and are therefore not reported on the Consolidated
Balance Sheet. Services provided in respect of assets under
administration are of an administrative nature, including
safekeeping, collecting investment income, settling purchase and
sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Back book acquisition
New business transacted with an insurance company which allows
the business to continue to utilise Solvency II transitional
measures associated with the business.
Bundled DC solution
Where investment and administration pension scheme services are
provided to a scheme by the same service provider. Typically, all
investment and administration costs are passed onto the scheme
members.
CAGR
Compound annual growth rate.
Combined operating ratio (COR)
The COR is a measure of the underwriting profitability of the
general insurance business. It is calculated as the sum of the net
incurred claims, expenses and net commission, divided by the net
earned premium for the period.
Credit rating
A measure of the ability of an individual, organisation or
country to repay debt. The highest rating is usually AAA and the
lowest Unrated. Ratings are usually issued by a credit rating
agency (e.g. Moody's or Standard & Poor's) or a credit
bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis,
whereby the assets and liabilities of certain entities are excluded
from the group consolidation. The net contribution from those
entities to group Own Funds is included as an asset on the group's
Solvency II balance sheet. Regulatory approval has been provided to
recognise the (re)insurance subsidiaries of LGI US on this
basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a
specified monthly benefit on retirement that is predetermined by a
formula based on the employee's earnings history, tenure of service
and age, rather than depending directly on individual investment
returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement
are determined by agreed levels of contributions paid into the fund
by the member and employer. They provide benefits based upon the
money held in each individual's plan specifically on behalf of each
member. The amount in each plan at retirement will depend upon the
investment returns achieved and on the member and employer
contributions.
Derivatives
Derivatives are not a separate asset class but are contracts
usually giving a commitment or right to buy or sell assets on
specified conditions, for example on a set date in the future and
at a set price. The value of a derivative contract can vary.
Derivatives can generally be used with the aim of enhancing the
overall investment returns of a fund by taking on an increased
risk, or they can be used with the aim of reducing the amount of
risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less
volatile asset classes. Direct investments also include physical
assets, bilateral loans and private equity, but exclude hedge
funds.
Dividend cover
Dividend cover measures how many times over the net release from
operations in the year could have paid the full year dividend. For
example, if the dividend cover is 3, this means that the net
release from operations was three times the amount of dividend paid
out.
Earnings per share (EPS)
EPS is a common nancial metric which can be used to measure the
pro tability and strength of a company over time. It is the total
shareholder pro t after tax divided by the number of shares
outstanding. EPS uses a weighted average number of shares
outstanding during the year.
Glossary Page 95
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the
group's Solvency II Capital Requirement. Eligible Own Funds
comprise the excess of the value of assets over liabilities, as
valued on a Solvency II basis, plus high quality hybrid capital
instruments, which are freely available (fungible and transferable)
to absorb losses wherever they occur across the group. Eligible Own
Funds (shareholder view basis) excludes the contribution to the
group's solvency capital requirement of with-profits funds and
final salary pension schemes.
Employee engagement index
The Employee engagement index measures the extent to which
employees are committed to the goals of Legal & General and are
motivated to contribute to the overall success of the company,
whilst working with their manager to enhance their own sense of
development and well-being.
ETF
LGIM's European Exchange Traded Fund platform.
Euro Commercial paper
Short term borrowings with maturities of up to 1 year typically
issued for working capital purposes.
FVTPL
Fair value through profit or loss. A financial asset or
financial liability that is measured at fair value in the
Consolidated Balance Sheet and reports gains and losses arising
from movements in fair value within the Consolidated Income
Statement as part of the profit or loss for the year.
Full year dividend
Full year dividend is the total dividend per share declared for
the year (including interim dividend but excluding, where
appropriate, any special dividend).
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and
principles, established by accounting standard setters and used by
the accounting community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due
and the general insurance premiums underwritten in the reporting
period, before any deductions for reinsurance.
Group adjusted operating profit (previously labelled as
'operating profit')*
Refer to the alternative performance measures section.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment fund, based in Ireland and aimed at
European investment funds looking for a simple, tax-efficient
investment vehicle.
Index tracker (passive fund)
Index tracker funds invest in most or all of the same shares,
and in a similar proportion, as the index they are tracking, for
example the FTSE 100 index. Index tracker funds aim to produce a
return in line with a particular market or sector, for example,
Europe or technology. They are also sometimes known as 'tracker
funds'.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and
organisations follow when completing financial statements.
They are designed to enable comparable reporting between
companies, and they are the standards that all publicly listed
groups in the European Union (EU) are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or
position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where
appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGI new business
New business arising from new policies written on retail
protection products and new deals and incremental business on group
protection products.
LGIA
Legal & General Insurance America.
LGIM
Legal & General Investment Management.
LGR
Legal & General Retirement, which includes Legal &
General Retirement Institutional (LGRI) and Legal & General
Retirement Retail (LGRR).
LGR new business
Single premiums arising from annuity sales and back book
acquisitions (including individual annuity and pension risk
transfer), the volume of lifetime mortgage lending and the notional
size of longevity insurance transactions, based on the present
value of the fixed leg cash flows discounted at the LIBOR
curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient
assets to meet all liabilities, both current and future. This form
of investing is most prominent in final salary pension plans, whose
liabilities can often reach into billions of pounds for the largest
of plans.
Lifetime mortgages
An equity release product aimed at people aged 60 years and
over. It is a mortgage loan secured against the customer's house.
Customers do not make any monthly payments and continue to own and
live in their house until they move into long term care or on
death. A no negative equity guarantee exists such that if the house
value on repayment is insufficient to cover the outstanding loan,
any shortfall is borne by the lender.
Glossary Page 96
Matching adjustment
An adjustment to the discount rate used for annuity liabilities
in Solvency II balance sheets. This adjustment reflects the fact
that the profile of assets held is sufficiently well-matched to the
profile of the liabilities, that those assets can be held to
maturity, and that any excess return over risk-free (that is not
related to defaults) can be earned regardless of asset value
fluctuations after purchase.
Mortality rate
Rate of death, influenced by age, gender and health, used in
pricing and calculating liabilities for future policyholders of
life and annuity products, which contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
New business surplus/(strain)
The net impact of writing new business on the IFRS position,
including the benefit/cost of acquiring new business and the
setting up of reserves, for UK non profit annuities, workplace
savings, protection and savings, net of tax. This metric provides
an understanding of the impact of new contracts on the IFRS profit
for the year.
Open architecture
Where a company offers investment products from a range of other
companies in addition to its own products. This gives customers a
wider choice of funds to invest in and access to a larger pool of
money management professionals.
Overlay assets
Overlay assets are derivative assets that are managed alongside
the physical assets held by LGIM. These instruments include
interest rate swaps, in ation swaps, equity futures and options.
These are typically used to hedge risks associated with pension
scheme assets during the derisking stage of the pension life
cycle.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run nal
salary pension schemes to reduce their responsibilities by closing
the schemes to new members and passing the assets and obligations
to insurance providers.
Platform
Online services used by intermediaries and consumers to view and
administer their investment portfolios. Platforms usually provide
facilities for buying and selling investments (including, in the UK
products such as Individual Savings Accounts (ISAs), Self-Invested
Personal Pensions (SIPPs) and life insurance) and for viewing an
individual's entire portfolio to assess asset allocation and risk
exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted
value of annual premiums expected to be received over the term of
the contracts using the same economic and operating assumptions
used for the new business value at the end of the financial period.
The discounted value of longevity insurance regular premiums and
quota share reinsurance single premiums are calculated on a net of
reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the
premiums associated with new business written in the year.
Purchased interest in long term business (PILTB)
An estimate of the future profits that will emerge over the
remaining term of life and pensions policies that have been
acquired via a business combination.
Real assets
Real assets encompass a wide variety of tangible debt and equity
investments, primarily real estate, infrastructure and energy. They
have the ability to serve as stable sources of long term income in
weak markets, while also providing capital appreciation
opportunities in strong markets.
Release from operations
The expected release of IFRS surplus from in-force business for
the UK non-profit Insurance and Savings and LGR businesses, the
shareholder's share of bonuses on with-profits business, the
post-tax operating profit on other UK businesses, including the
medium term expected investment return on LGC invested assets, and
dividends remitted from LGA. Release from operations was previously
referred to as operational cash generation.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk appetite
The aggregate level and types of risk a company is willing to
assume in its exposures and business activities in order to achieve
its business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the
terms of the policy do not anticipate more than one premium being
paid over its lifetime, such as in individual and bulk annuity
deals.
Solvency II
Taking effect from 1 January 2016, the Solvency II regulatory
regime is a harmonised prudential framework for insurance rms in
the EEA. This single market approach is based on economic
principles that measure assets and liabilities to appropriately
align insurers' risk with the capital they hold to safeguard the
policyholders' interest.
Solvency II capital coverage ratio
The Eligible Own Funds on a regulatory basis divided by the
group solvency capital requirement. This represents the number of
times the SCR is covered by Eligible Own Funds.
Solvency II capital coverage ratio (proforma basis)
The proforma basis solvency II SCR coverage ratio incorporates
the impacts of a recalculation of the Transitional Measures for
Technical Provisions and the contribution of with-profits funds and
our defined benefit pension schemes in both Own Funds and the SCR
in the calculation of the SCR coverage ratio.
Glossary Page 97
Solvency II capital coverage ratio (shareholder view basis)
In order to represent a shareholder view of group solvency
position, the contribution of with-profits funds and our defined
benefit pension schemes are excluded from both, the group's Own
Funds and the group's solvency capital requirement, by the amount
of their respective solvency capital requirements, in the
calculation of the SCR coverage ratio. This incorporates the
impacts of a recalculation of the Transitional Measures for
Technical Provisions based on end of period economic conditions.
The shareholder view basis does not reflect the regulatory capital
position as at 30 June 2019. This will be submitted to the PRA in
August 2019.
Solvency II new business contribution
Reflects present value at the point of sale of expected future
Solvency II surplus emerging from new business written in the
period using the risk discount rate applicable at the end of the
reporting period.
Solvency II risk margin
An additional liability required in the Solvency II balance
sheet, to ensure the total value of technical provisions is equal
to the current amount a (re)insurer would have to pay if it were to
transfer its insurance and reinsurance obligations immediately to
another (re)insurer. The value of the risk margin represents the
cost of providing an amount of Eligible Own Funds equal to the
Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over
the lifetime thereof.
Solvency II surplus
The excess of Eligible Own Funds on a regulatory basis over the
Solvency Capital Requirement. This represents the amount of capital
available to the company in excess of that required to sustain it
in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses
occurring in a 1-in-200 year risk event.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different
companies' stocks and shares over time. It combines the share price
appreciation and dividends paid to show the total return to the
shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to
bring them into line with the pre-Solvency II equivalent as at 1
January 2016 when the regulatory basis switched over, to smooth the
introduction of the new regime. This will decrease linearly over
the 16 years following Solvency II implementation but may be
recalculated to allow for changes impacting the relevant business,
subject to agreement with the PRA.
Unbundled DC solution
When investment and administration pension scheme services are
supplied by separate providers. Typically the sponsoring employer
will cover administration costs and scheme members the investment
costs.
With-profits funds
Individually identifiable portfolios where policyholders have a
contractual right to receive additional benefits based on factors
such as the performance of a pool of assets held within the fund,
as a supplement to any guaranteed benefits. An insurer may either
have discretion as to the timing of the allocation of those
benefits to participating policyholders or may have discretion as
to the timing and the amount of the additional benefits.
Yield
A measure of the income received from an investment compared to
the price paid for the investment. It is usually expressed as a
percentage.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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