TIDMLGEN
RNS Number : 4753H
Legal & General Group Plc
04 August 2021
H1 2021 Results: Strong financial performance -
14% growth in operating profit and 22% ROE
Strong financial performance [1] , now well above pre-COVID 2019
levels
-- Operating profit of GBP1,079m, up 14% (H1 2020: GBP946m),
with double-digit growth or higher in LGC, LGI and LGRR
-- Earnings per share of 17.78p, up 21% on H1 2019 (14.74p) and
up significantly on H1 2020 ( 4.89p)
-- Profit after tax [2] of GBP1,065m (H1 2020: GBP290m) and R
eturn on equity of 22.0% (H1 2020: 6.3%)
-- Solvency II coverage ratio [3] of 183% (H1 2020: 173%)
-- Interim dividend of 5.18p, up 5% (H1 2020: 4.93p), consistent with our stated ambition
Growing contribution to our five-year (2020-2024) ambitions
[4]
-- Cash generation of GBP0.9bn, up 14% year on year. Capital
generation of GBP0.8bn, up 9% year on year
-- Cumulative cash and capital generation of GBP2.4bn and
GBP2.3bn respectively , against our ambition of GBP8.0-9.0bn by
2024
-- Cumulative dividends declared GBP1.4bn (H1 2021: GBP309m,
2020: GBP1,048m) against our ambition of GBP5.6-5.9bn by 2024
Good PRT new business volumes and strong net flows
-- Global PRT new business premiums of GBP3.1bn (H1 2020:
GBP3.4bn) with GBP2bn already won/in exclusive negotiations for
H2
-- LGIM external net flows of GBP27.4bn (H1 2020: GBP6.2bn), with AUM up 7% to GBP1.3tn
-- Individual annuity premiums up 15% and LGI new business annual premiums up 6%
Unique and growing alternative asset origination
capabilities
-- Legal & General Capital (LGC) operating profit doubled to GBP250m (H1 2020: GBP123m)
-- ESG-aligned asset origination expertise in clean energy,
residential property, digital infrastructure and SME finance
-- Third party capital AUM of GBP6.8bn against our ambition of GBP14bn by 2025
Long-term, growth-oriented and highly synergistic business
model
-- An established track record: HY11 to HY21 CAGR of 11% in EPS,
12% in DPS and 7% in book value per share
-- Highly synergistic: five focused divisions that create a
virtuous circle of internal demand and supply, supporting c20%
ROE
-- Long-term and predictable value creation : 40+ year duration
business with earnings driven by a growing
stock of assets
-- Attractive global growth markets: retirement solutions
($53tn), asset management ($136tn), climate change ($20tn) [5]
-- A longstanding commitment to Inclusive Capitalism and a
leader in ESG : rated #1 Life & Health insurer by
ShareAction
"Thanks to the hard work and dedication of my colleagues across
Legal & General, we have delivered a strong set of financial
results, with EPS up 21% since H1 2019. And we expect to deliver
double digit growth in operating profit at the full year.
We're continuing to make investments that are economically,
environmentally and socially valuable, in line with our long-term
commitment to delivering Inclusive Capitalism and supporting the
Building Back Better and Levelling Up agenda.
We are already a leading asset manager and we remain focused on
continuing to scale-up our asset origination capabilities which are
a unique and important component of our synergistic business model
which has driven our 22% ROE."
Nigel Wilson, Group Chief Executive
Financial summary
GBPm H1 2021 H1 2020 Growth
%
=========================================== ======= ======= ======
Analysis of operating profit
Legal & General Retirement (LGR) [6] 683 720 (5)
- LGR - Institutional (LGRI) 525 585 (10)
- LGR - Retail (LGRR) (6) 158 135 17
Legal & General Investment Management
(LGIM) (6) 204 197 4
Legal & General Capital (LGC) 250 123 103
Legal & General Insurance (LGI) 134 88 52
=========================================== ======= ======= ======
Operating profit from continuing divisions
(6) (, [7]) 1,271 1,128 13
=========================================== ======= ======= ======
Mature Savings [8] nil 26 n/a
Operating profit from divisions 1,271 1,154 10
Group debt costs (120) (115) (4)
Group investment projects and expenses (72) (72) -
Exceptional COVID-19 related expenses nil (21) n/a
[9]
=========================================== ======= ======= ======
Operating profit [10] 1,079 946 14
=========================================== ======= ======= ======
Investment and other variances (incl.
minority interests), excluding LGI 11 (178) n/a
LGI investment variance [11] 230 (483) n/a
Profit before tax attributable to equity
holders [12] 1,320 285 363
Profit after tax attributable to equity
holders 1,065 290 267
Earnings per share (p) 17.78 4.89 264
======= =======
Book value per share (p) 164 148 11
Interim dividend per share (p) 5.18 4.93 5
Net release from continuing operations
(7) 854 730 17
Net release from discontinued operations nil 21 n/a
=========================================== ======= ======= ======
H1 2021 Financial performance
Income statement
Legal & General has made a strong start to the year, with H1
2021 operating profit up 14% to GBP1,079m (H1 2020: GBP946m). The
strength of our diversified business model meant we were able to
weather the volatility of 2020 and were well positioned to deliver
profitable growth again in the first half of 2021. LGC, LGI and
LGRR delivered at least double-digit growth, with strong
contributions from LGRI and LGIM. All five businesses are well
positioned to execute on compelling structural market opportunities
to deliver further profitable growth.
LGRI delivered operating profit of GBP525m (H1 2020: GBP585m),
underpinned by the performance of our growing annuity portfolio. In
what was a somewhat quieter first half for the PRT market, we
executed well, writing GBP3,072m [13] of global PRT at attractive
Solvency II new business margins of 8.4%. [14]
LGRR operating profit increased 17% to GBP158m (H1 2020:
GBP135m), supported by the ongoing release from the retail annuity
portfolio. Individual annuities delivered 15% growth in new
business against H1 2020, and retirement lending volumes 14%
growth, as these markets started to recover following the impact of
the COVID pandemic last year.
LGIM delivered operating profit growth of 4% to GBP204m (H1
2020: GBP197m), reflecting increased revenues from strong external
net flows of GBP27.4bn (H1 2020: GBP6.2bn), and an increased focus
on higher margin areas such as thematic ETFs and multi-asset.
Assets under management increased by 7% to GBP1,326.8bn (H1 2020:
GBP1,240.6bn), of which 33% is International AUM. The cost income
ratio (58%) reflects our continued investment in the business,
balanced with careful cost control (H1 2020: 58%).
LGC operating profit doubled to GBP250m (H1 2020: GBP123m) and
is up 45% on pre-COVID levels (H1 2019: GBP173m). This growth is
driven by strong performance in our alternative asset portfolio,
where operating profit increased to GBP195m (H1 2020: GBP36m)
predominantly as a result of a bounce-back in the housebuilding
market. The portfolio has also seen valuation increases over H1
2021, notably in the Venture Capital portfolio and Pod Point
(electric vehicle charging) in recognition of strong performance
and increasing revenues.
LGI operating profit increased 52% to GBP134m (H1 2020: GBP
88m), reflecting strong new business growth in UK retail
protection, and the fact that adverse COVID-19 related claims
during the period were provided for in the 2020 results. We
previously provisioned for GBP110m of future COVID-19 related
claims, cGBP30m of which remains unutilised as at the end of June,
highlighting the significant impact of the second wave in both the
UK and US over Q1 2021.
Profit before tax attributable to equity holders [15] was
GBP1,320m (H1 2020: GBP285m), reflecting positive investment
variance of GBP241m (H1 2020: GBP(661)m). The key drivers of this
positive investment variance are from the formulaic impact of
rising interest rates on LGI reserves, which has a GBP230m impact
(compared to a GBP(483)m impact in H1 2020), and strong portfolio
performance in both LGR and LGC.
Balance sheet and asset portfolio
The Group's Solvency II operational surplus generation from
continuing operations was up 9% at GBP0.8bn (H1 2020: GBP0.8bn).
New business strain was GBP(0.2)bn (H1 2020: GBP(0.1)bn) reflecting
UK annuity new business written at a capital strain broadly in line
with that of 2019, resulting in net surplus generation of GBP0.6bn
(H1 2020: GBP0.7bn).
The Group reported a Solvency II coverage ratio [16] of 183% at
the end of H1 2021 (FY 2020: 177%; H1 2020: 173%), principally
reflecting the non-economic impact of higher interest rates on the
valuation of our balance sheet [17] , partially offset by payment
of the 2020 final dividend and the provisioned redemption of
GBP0.3bn of subordinated debt.
On a proforma calculation basis [18] , our Solvency II coverage
ratio was 182% at the end of June (FY 2020: 175%; H1 2020:
169%).
Our IFRS return on equity of 22.0% reflects the impact of
operating profit growth and unrealised positive investment
variances (H1 2020: 6.3%). [19]
Our diversified balance sheet, and actively-managed asset
portfolio, has continued to perform resiliently with no defaults.
The annuity portfolio's direct investments continue to perform
strongly, with 99.7% of scheduled cash-flows paid year to date,
reflecting the high quality of our counterparty exposure.
COVID-19
Whilst we remain confident in our collective and successful
emergence from the pandemic, COVID-19 is continuing to have a
significant impact on our customers and our people, and on society
at large. The Group has continued to support all our stakeholders,
without relying on direct Government funding. Our priorities remain
to look after our customers, to safeguard the wellbeing of our
people and to support the development of the wider community
through Inclusive Capitalism and by investing in the real
economy.
Our purpose is to provide financial stability to our customers
and their dependants in good times and in bad: it is "what we do".
During H1 2021 we paid GBP1bn in gross protection claims and
continued to provide financial stability through regular payments
to over 1 million pensioners.
We continue to support our employees' mental and physical
wellbeing through a range of resources including trained Mental
Health First Aiders, a confidential employee assistance helpline,
access to "Unmind" (a workplace mental health platform) and a
dedicated COVID-19 intranet hub.
To support the communities around us, we have, amongst other
initiatives, funded the expansion of the Samaritan's existing
training programmes, as the charity looks at new volunteering
models to improve their ability to assist those struggling to cope
with mental health issues. We continue to support the elderly in
isolation through our befriending scheme with Independent Age, the
Royal Voluntary Service and Carers First. We have also worked
closely with Let's Localise, which has seen hundreds of our
recycled laptops donated to schools in need.
Legal & General experienced GBP79m of COVID-19-related
claims in LGI in H1 2021, which were absorbed by the GBP110m
provision raised at FY 2020. Our reinsurance strategy, which
reinsures virtually all LGI's UK retail protection business, has
substantially reduced the impact on LGI of higher claims, although
we retain the majority of our exposure in the US and in UK group
protection. During H1, LGR recognised a GBP49m reserve release in
light of 2021 COVID-19 mortality experience.
Group Strategy
Legal & General is primarily a global provider of retirement
solutions to corporates and individuals, with core skills in asset
management and origination, longevity risk and technological
innovation. We operate at scale and are strongly positioned to
capitalise on significant growth opportunities across our chosen
markets through our five businesses:
1. Legal & General Retirement - Institutional (LGRI) offers
pension risk transfer (PRT) to institutional clients globally.
2. Legal & General Retirement - Retail (LGRR) is a
waterfront provider of UK retail retirement solutions, including
individual annuities, lifetime mortgages (LTMs) and workplace
savings.
3. Legal & General Investment Management (LGIM) is the
11(th) largest global asset manager by AUM [20] , primarily serving
institutional pension clients.
4. Legal & General Capital (LGC) invests shareholder capital
and originates alternative assets.
5. Legal & General Insurance (LGI) sells retail and group
protection in the UK and retail protection in the US.
A unique, synergistic and long-duration business model
Our strategy has positioned us to be a leader in the global
retirement solutions and insurance markets, benefitting from a
mutually reinforcing business model with unique synergies in
pension de-risking and asset manufacturing & management:
-- LGRI , a market leader in UK PRT, and LGRR, a leading
provider of UK individual annuities, have GBP85.8bn of annuity
assets, providing long-term, captive AUM to LGIM. This portfolio is
continually being enhanced with alternative assets originated by
LGC.
-- LGIM is a leading player in providing UK and US DB de-risking
solutions and is uniquely positioned to support DB clients
journeying to the full range of pension endgame destinations,
including PRT and Assured Payment Policy with LGRI. 69% of LGRI's
PRT transactions over the past three years were from existing LGIM
clients. [21] Furthermore, when DB clients de-risk assets and
liabilities through PRT with LGRI, LGIM then manages the associated
assets. LGIM is also the market leader in UK DC pension scheme
clients - a market with significant growth potential. Total UK DC
assets are expected to more than double by 2028 to GBP955bn.
[22]
-- LGC invests shareholders' capital for society's benefit. As a
core component of our retirement solutions business, LGC creates
assets to back pensions (notably in LGRI and LGRR) and invests our
shareholder funds to achieve more attractive risk adjusted returns.
LGC is building alternative asset creation platforms, benefitting
LGIM clients, and increasingly attracting third party capital
investment.
-- LGI is a market leader in UK protection and US brokerage term
life insurance and provides significant Solvency II benefits to the
Group by partially offsetting new business strain in LGRI and LGRR.
LGI is a centre of excellence in technology, particularly in
retail, and is working closely with other divisions to drive
further tech synergies. Further, LGI's US business facilitates
LGRI's US PRT transactions, which are written onto the existing US
balance sheet.
The synergies within and across our businesses drive profits and
fuel future growth.
The integrated nature of our business model means that we have
relationships with clients and customers that can and do last for
decades. For example, an Index or Liability Driven Investing DB
corporate client in LGIM typically becomes a PRT client after 14
years. LGRI will then typically have a relationship with that
client for another 30-40 years. Equally, LGRR and LGIM may have a
30-40 year relationship with a customer during the DC accumulation
phase, and then extend that relationship for another 15-30 years
during the decumulation phase across a suite of decumulation
products including individual annuities, lifetime mortgages and
drawdown.
The Group continues to build out, in a measured fashion, its
international retirement solutions franchise. We have made
tremendous progress in the US over the last decade and will
continue to build out our established businesses (LGRI, LGIM, LGI)
in that market. LGIM is also making good progress against its
international expansion plans in Europe. Kerrigan Procter has now
moved to Hong Kong to co-ordinate the Group's expansion plans in
Asia.
A long-term commitment to Sustainability, ESG and Inclusive
Capitalism
Our purpose is to improve the lives of customers, build a better
society for the long term and create value for our shareholders.
This inspires us to use our assets in an economically,
environmentally and socially useful way to benefit society - what
we call Inclusive Capitalism.
This philosophy underpins our approach to Sustainability and to
ESG ( Environmental, Social, and Governance factors). [23] We think
about Sustainability, and the long-term ESG impact of our business,
in terms of:
1. How we invest our GBP93bn of proprietary assets . [24] Our
ambition is to reduce our portfolio carbon emission intensity by
half by 2030 and to net zero by 2050. In 2020 we reduced the carbon
intensity of the Group's balance sheet by 2% versus 2019. We
continue to make environmentally and socially useful investments.
As at H1 2021, we have invested GBP1.4bn in clean energy and
GBP7.8bn in social infrastructure. For more information, please see
our latest Task Force on Climate-related Financial Disclosures
(TCFD) report. [25]
2. How we influence as one of the world's largest asset managers
with GBP 1.3 trillion AUM . We have GBP252.3bn AUM in ESG
strategies and during H1 2021 we cast over 50,000 stewardship votes
as we continued to encourage investee companies to behave
responsibly. [26] LGIM is rated A+ for responsible investment
strategy and active ownership from the UN Principles for
Responsible Investment, and ranked #1 among asset managers for its
approach to climate change by both ShareAction and
InfluenceMap.
3. How our businesses operate . We are committed to supporting
our customers, employees, suppliers, shareholders and society at
large. For information on what we are doing to support our key
stakeholders, see pages 15-17 of our Sustainability report. [27] We
have committed to reducing the carbon emission intensity of our
operating businesses. Our ambition is to operate our offices and
business travel with net zero emissions from 2030, and for all our
new homes to be net zero operational carbon from 2030. From 2021,
ESG criteria have been included in executives' objectives and
remuneration targets.
Climate and COP26
Addressing Climate Change is one of Legal & General's six
strategic growth drivers and is increasingly embedded throughout
the group, supported by a rigorous governance framework and
transparent metrics.
Climate change is not only the biggest challenge, but also the
biggest investment opportunity, of our lifetimes, and we are
committed to achieving net zero by 2050. It's a challenge and an
opportunity that starts now. For context, it is estimated that $20
trillion of investment is needed by 2025 alone to put us on the
path to achieving global net zero emissions by 2050. [28]
Our commitment to addressing climate change is increasingly
reflected in our own asset allocation and risk management
frameworks, in our balance sheet investments, in how we manage and
steward money for external clients, in our real asset, housing,
regeneration and VC portfolios, and in our direct operational
emissions. Our approach is set out in more detail in our TCFD
Report which describes how we invest, influence and operate. This
also covers progress made to date and sets out the staging-posts we
have set ourselves on the journey to our goal of net zero by 2050,
including the adoption of science-based targets.
COP26, which will take place in November this year, will be a
major milestone in the global journey to net zero. We are involved
in several ways, notably through Michelle Scrimgeour's role as
co-chair of the COP26 Business Leaders Group alongside the
President for COP26, Rt Hon Alok Sharma MP, and through LGIM's
participation in the Glasgow Financial Alliance for Net Zero
(GFANZ). The principal challenge for governments, business and
finance, however, remains not just agreeing the next global
priorities and targets for climate, but implementing them. Here,
Legal & General has a number of important technical roles.
Nigel Wilson leads the Innovation Workstream for the Bank of
England/FCA's Climate Financial Risk Forum and the Workstream on
investment for the Insurance Sustainable Market Initiative, both of
which will contribute to the work of COP26 and beyond. Many Legal
& General employees provide expertise in specialist areas
including, for example, through HM Treasury and the Bank of
England's Productive Finance Committee, the Green Finance Institute
and the Green Buildings Council.
Outlook
Medium term growth: ambitious and deliverable
Our strategy has delivered strong returns for our shareholders
over time and has demonstrated resilience through the pandemic. We
are confident we can continue to deliver profitable growth as we
execute on our strategy .
We set out our five-year ambitions at our Capital Markets event
last November. Cumulatively, over the period 2020-2024, our
financial ambitions are for [29] :
1. Cash and capital generation significantly to exceed dividends
(we intend to generate GBP8.0bn - GBP9.0bn of both cash and
capital, and to pay dividends of GBP5.6bn - GBP5.9bn). [30]
2. Earnings per Share to grow faster than dividends, with the
dividend growing at low to mid-single digits from 2021.
3. Net capital surplus generation (i.e. including new business strain) to exceed dividends.
We aim to deliver long-term, profitable growth across the Group
. LGRI and LGRR provide highly predictable, stable cash flows from
their growing back-books. The UK annuity portfolio will be fully
self-financing [31] at cGBP100bn of AUM (H1 2021: GBP81.8bn) which
we expect to achieve in the next three to five years. Our asset
management and origination businesses, LGIM and LGC, operate in
attractive and profitable markets, and maintain a strong commitment
to ESG-aligned investing. With proven asset expertise in clean
energy, residential property, digital infrastructure and SME
finance, LGC provides unique asset origination capabilities in
sectors that have significant growth potential, which produce
yield-creating assets that drive our LGR business, and appeal to
third party investors. LGI is applying technological innovation to
sustain its UK leadership, to grow in the US and to continue to
expand into adjacent markets.
We remain confident in our strategy and in our ability to
deliver resilient, organic growth, supported by our strong
competitive positioning in attractive and growing markets. Our
confidence and our dividend paying capacity are underpinned by the
Group's strong balance sheet, which has a GBP3.4bn IFRS credit
default reserve and, for Solvency II, GBP7.5bn in surplus
regulatory capital, in addition to significant buffers to absorb a
market downturn. We have a proven operating model which is
reinforced by robust risk management practices.
Confident in achieving our ambitions
We remain confident in achieving our five-year cumulative
financial ambitions. In the first half of 2021, we continued to
build on the good start we made in 2020. We expect to deliver
double digit growth in operating profit at the full year.
Whilst PRT markets have been relatively subdued in the first
half of 2021, we executed well in the UK at stable margins, and
expect a stronger market in the second half of the year. At the UK
market level, we are expecting around GBP20-GBP25bn to transact in
2021 for the year as a whole. We have already won or are in
exclusive negotiations on GBP2bn of UK PRT business in the second
half. We continue to anticipate long-term institutional demand to
de-risk DB pension portfolios and remain confident in achieving our
five-year ambition of writing GBP40-50bn of UK PRT and $10bn of
International PRT.
LGIM continues to focus on attracting higher margin net flows
and on diversifying and further internationalising its business.
The business remains confident of achieving its ambition of growing
cumulative profits in the range of 3-6%. LGC continues to grow
Alternative AUM towards GBP5bn, with a blended portfolio return of
8-10%, creating assets for LGR and attracting third party capital.
LGIM and LGC have benefited from rising equity markets and
valuations and, in the case of LGC, a continuation of the rebound
in the UK residential property market, which has also increased
demand for UK retail protection from LGI, which we expect to
persist.
In LGI, we continue to target mid-single digit growth in
revenues across our UK protection businesses, and to achieve double
digit growth in US new business sales. In line with previous years,
we expect LGI's H2 to deliver greater operating profits than
H1.
In LGRR, the markets for individual annuities and lifetime
mortgages started to recover in H1 2021, following the impact of
the pandemic last year. The longer-term outlook for both these
markets remains attractive, driven respectively by ongoing growth
in the DC market and by an increasing consumer requirement to look
to multiple sources of wealth to fund retirement. However, the
lifetime mortgage market is becoming more competitive and we will
maintain pricing discipline at the expense of volumes if
required.
We are pleased with the progress we have made year to date and
are confident in our ability to deliver further profitable growth
in the second half of the year. The immediate outlook for the
broader economy is positive and we are well-positioned to support
the UK Government's three flagship policies of "Build Back Better",
"Levelling Up" and "Address Climate Change".
We will continue to maintain a defensive asset portfolio and a
long-term investment horizon, supporting all our stakeholders by
delivering Inclusive Capitalism through investments in
infrastructure, clean energy and affordable housing, and by
providing products to support individuals' financial
resilience.
Business segment outlook
LGR Institutional (LGRI)
LGRI participates in the rapidly growing global PRT market,
focusing on corporate defined DB pension plans in the UK, the US,
the Netherlands, Ireland, and Canada, which together have nearly
GBP7 trillion of pension liabilities due to ageing demographics.
([32])
We are the only global player in PRT, writing direct business in
the UK and US, and are market leaders in the UK. We are supported
by LGIM's long-standing client relationships and LGC's asset
manufacturing capabilities, as well as wide-ranging skills across
the Group which enhance our asset strategy and product innovation.
During H1 2021, 53% of our UK transactions were with LGIM clients,
demonstrating the strength of our client relationships and the
resilience provided by our unique position as the only firm
operating across the full pension de-risking journey.
The UK is our primary market and it is the most mature PRT
market globally with GBP2.3 trillion of UK DB pension liabilities,
of which only c12% have been transferred to insurance companies to
date. [33] This leaves a sizeable opportunity for future growth in
this market. Demand from companies and pension plans for insurance
remains robust: we expect the total UK PRT market to be around
GBP20-GBP25bn in 2021 despite the relatively subdued first half of
the year. [34] Market commentators anticipate between
GBP150bn-GBP250bn of UK PRT demand over the next five years. [35]
Our ambition is to write GBP40bn to GBP50bn of new UK PRT over the
next five years, whilst remaining disciplined in our pricing and
deployment of capital.
The US represents a further, significant market opportunity,
with $3.4 (GBP2.5) trillion of DB liabilities, of which only c7%
have transacted to date. [36] Since our market entry in 2015, our
US business has written more than $5bn of PRT with 70 clients. We
are the only insurer providing PRT directly to pension plans
globally. This is anticipated by market commentators to be "one of
the key levers that sponsors with UK and US obligations look to
utilise going forwards". [37] Our ambition is to write more than
$10bn of international PRT over the next five years.
Whilst new PRT business requires solvency capital on day one,
this capital commitment pays back quickly, generating an attractive
and long-term stream of operating surplus, which provides stability
to the division's operating performance and means that LGRI is not
solely dependent on new business to deliver profits. Our UK annuity
portfolio (including LGRR individual annuities) is expected to be
self-sustaining within 3-5 years as it reaches cGBP100bn AUM (H1
2021: GBP81.8bn). At that point, it will be able to fund new
business, while both (a) paying its share of a progressive Group
dividend and (b) contributing to an increase in the Group solvency
coverage ratio over time.
LGR Retail (LGRR)
LGRR is a growth area for the Group and we expect its target
market to continue to expand, driven by ageing demographics and
welfare reforms . LGRR is a waterfront provider of UK retail
retirement solutions, offering annuities, income drawdown, pension
pot consolidation, lifetime mortgages (LTM) and LTM advice. To
further complement LGRR's customer retirement and savings
proposition, the Workplace Savings administration business was
transferred from LGIM to LGRR at the start of the year. This
enables us to better assist the 4.2 million Workplace customers in
planning their retirement whilst they are saving with us, rather
than when they come to retirement. This will provide better
customer outcomes and, at the same time, help us to retain more of
our customers and allow us to more easily offer them a wider range
of L&G products. Our ambition is to be the UK's leading
retirement brand, enabling all our customers to have a secure
retirement whilst generating long duration assets and profits for
the Group and, over time, to expand internationally.
Our primary market is the UK where currently, each year, there
are GBP40bn of personal pension assets coming to maturity. [38]
This is expected to grow to GBP50bn by 2024. [39] The individual
annuity market currently accounts for just GBP4.2bn of total
maturing assets, i.e. a little over 10%. 26 However, we expect the
individual annuity market to grow in absolute and relative terms,
as the DC market continues to grow, and as fewer people reach
retirement with defined benefit pensions and so seek the longevity
protection that an annuity provides. LGRR has a strong and growing
market share in individual annuities. As at Q1 2021, we have a
22.6% market share in individual annuities. [40] We are building on
the strength of that position by providing other retirement income
products and services, recognising that each customer will have
different needs and requirements.
The UK lifetime mortgages (LTM) market continues to represent a
sizeable opportunity for LGRR, with UK housing equity in over 55s
at GBP1.7 trillion across approximately 5.5m houses. [41] At
present only cGBP4bn per year is being released through the LTM
market. While we maintain our focus on the traditional LTM market,
we continue to see interest from the "wealth" sector as those with
higher value properties increasingly see the benefit in lifetime
mortgages when planning the distribution of their estate to future
generations.
There are currently GBP400bn in UK DC accumulation assets and
this is expected to more than double to GBP955bn by 2028. As a
market leading provider in Workplace Savings, we are well placed to
benefit from this expected increase in DC pension assets, to grow
administration revenues for LGRR, and fund management revenues for
LGIM.
Legal & General Investment Management (LGIM)
LGIM benefits from a combination of scale businesses and a
diversified asset base, underpinned by structural demand for our
products and investment capabilities. Our purpose is to create a
better future through responsible investing, and we are recognised
as a global leader in ESG. Our five-year growth ambition is driven
by the three pillars of our strategy to modernise, diversify and
internationalise the business. We seek (i) to grow cumulative
profits in the range of 3% to 6%, absent market shocks, (ii) to
increase AUM in international and higher margin areas, and (iii) to
continue to diversify AUM by client, channel and geography. We
expect to maintain a cost income ratio in the high 50 percent range
over the next two to three years as we invest for growth , after
which we expect it to trend downwards.
LGIM plays a critical role in Legal & General's position as
a leading, global pension solutions provider, as well as a
significant UK leader in retail investment management. As such,
LGIM intends to maintain its strong position in the UK, which has
been the bedrock of its success to date, while continuing to
diversify its capabilities and broaden its reach
internationally.
Modernise: LGIM continues to invest in the business to achieve
the resilience and global scalability critical to its future
success. We are laying the foundations for continued global growth
by investing in our people and our operating platform, and by
refining our organisational structure . Our recently announced
technology and Middle Office partnership with State Street further
supports our strategic commitment to Modernise. It will support our
ambition to scale, internationalise and diversify and enable us to
better serve our clients. [42] We have also strengthened our senior
leadership team, with the recent appointments of a Chief Technology
Officer and a Chief Data Officer.
Diversify: We continue to cement our leadership in ESG investing
and, in addition to offering a wide range of ESG-specific products,
are driving further integration of ESG into our mainstream
investment portfolios. We will continue to expand our investment
offering, with a focus on higher margin areas such as Real Assets,
ETFs, Multi Asset and Solutions. We see a sizeable opportunity in
Real Assets - we are well known for our UK Real Estate Equity
expertise and, increasingly, will also provide investors with
access to our leading private credit capabilities. As UK and US DB
schemes approach funding maturity, many clients will look for
self-sufficiency or buy-out options that, together with LGRI, we
are well positioned to deliver through our 'endgame' Solutions
offering.
Internationalise: LGIM aims to be a disruptor in regions and
countries where our strengths align to client needs. Over the last
five years LGIM's international AUM has more than doubled to reach
GBP434bn - 33% of LGIM's total AUM. Our ambition is to continue
growing International AUM profitably and at pace in the US, Europe
and Asia. In the US, we are deepening our strong client
relationships through innovation in DC and leadership in ESG. In
Europe, we will build on our successes in Germany and Italy, to
expand further into European markets and channels. In Asia, our
strategy is to retain and increase our share of wallet with
existing clients and deepen our footprint in existing markets -
Japan, China, Hong Kong, Taiwan and Korea - by showcasing
investment solutions that address key market trends.
Legal & General Capital (LGC)
LGC , the Group's alternative asset platform, will continue to
deploy capital in a range of underserved areas of the UK's real
economy that are backed by long-term structural trends. LGC has
built strong, scalable platforms which create attractive pipelines
of investable assets that match LGR's annuity liabilities and the
demands of LGIM's third party clients. Making a substantial
contribution to shareholder value creation, LGC is well positioned
to drive further meaningful growth as its businesses continue to
scale and mature. Supporting the Levelling Up agenda, and society's
need to Build Back Better and Address Climate Change, LGC's asset
classes include residential property, specialist commercial real
estate, clean energy and SME finance.
Over the next five years we expect to build LGC's diversified
alternative AUM towards cGBP5bn using shareholder equity (H1 2021:
GBP3.4bn), with a target blended portfolio return of 8% to 10%.
Additionally, we plan to increase fee-generating third party
capital to over GBP14bn (H1 2021: GBP6.8bn). Excluding LGR asset
creation, LGC expects to manage close to GBP20bn of alternative AUM
by 2025.
Supporting the Group's focus on climate and inclusive
capitalism, our alternative asset strategy is made up of sectors
where our investments change lives. We are creating much needed
jobs, homes and infrastructure, driving growth, skills and
innovation, and contributing towards a clean and green future:
-- Through our specialist commercial real estate portfolio,
which includes data centres, urban development, and science and
technology-focused real estate, we are levelling-up, transforming
our regions and growing the UK knowledge economy. Partnering with
universities, local authorities and private sector experts, we have
invested across sixteen UK towns and cities, creating jobs, driving
economic growth and boosting local communities as the UK looks to
build back better.
-- As a leading provider of homes, with a commitment to tackling
the structural shortages across the UK's housing market, LGC's
residential property platform continues to expand across all
tenures, ages and demographics, leveraging both traditional and
modular construction in order to revolutionise and speed up
delivery. We recognise the vital role that safe, quality housing
plays in a healthy, equitable society and that the UK continues to
fall far short of the over 300,000 new homes required annually.
With a pressing need to ensure that the homes we build are also
future-proofed and sustainable, we have committed that all our new
homes will be operationally carbon emission-free from 2030.
We are well positioned to achieve our long-term targets of
delivering:
o Over 3,000 traditional build to sell homes per annum, with the
expected delivery of c2,900 new homes in 2021
o 5,500 build to rent homes in our urban pipeline and an
ambition to deliver 1,000 suburban rental homes each year
o Up to 3,000 Affordable homes per year by 2023 to help meet the
needs of the more than 1.4 million households on waiting lists for
UK social housing
o Around 4,500 Later Living homes in our pipeline to help
address the housing requirements of last time buyers seeking to
downsize
o 670 new modular homes in our pipeline and creating up to 300
new jobs at our Leeds factory this year in order to support our
ambition to deliver up to 3,000 modular homes a year by 2024
-- In the clean energy sector, more than $130tn of investment is
needed globally by 2050 to address climate change. [43] We are
investing in early-stage scale-up companies to deliver the
innovation, clean technologies and renewable energy infrastructure
needed to accelerate progress towards a low-cost and low-carbon
economy.
-- In SME Finance, we are continuing to support UK and European
innovation, investing in the real economy by creating a diverse
portfolio of assets. We expect to continue to deploy our capital
and focus to support the venture capital ecosystem to help create
and grow the businesses of tomorrow.
Legal & General Insurance (LGI)
We anticipate continued premium growth across our UK and US
businesses as technological innovation makes our products more
accessible to customers and supports further product and pricing
enhancements.
In the UK, our market leading retail protection business is
supported by the strength of our distribution relationships,
investment in our systems and platforms, and product enhancements.
These strengths led to a strong performance in H1 2021. Our group
protection business has also performed well. Note, however, that
2021 group protection new business volumes may not reach the record
levels of 2020 as, typically, fewer large schemes are tendered in
odd years than in even years. In line with our five-year ambition,
we are targeting mid-single digit growth in revenues across our UK
protection businesses.
In the US, we anticipate our on-going technology investments and
new partnerships will position us for premium growth as the market
continues to recover from the distribution and underwriting
disruptions caused by COVID-19. We are using technology to improve
customer experience while reducing cost and becoming the partner of
choice for a wide range of distribution partners. We are already
the largest provider of term life assurance in the brokerage
channel, and our digital first approach is aiming to achieve double
digit growth in new business sales out to 2025.
As we look to transform adjacent markets, we are also
accelerating growth in our digital platforms. Salary Finance, our
employee benefits platform business in which we have a 41% holding,
continues to grow rapidly, with the platform now connected to over
3.8 million employees across the UK and US. Annualised run-rate
gross revenue grew to GBP29m as at 30 June 2021, growth of 75% year
on year. This trend is expected to continue with growing employee
awareness and increasing platform engagement. Salary Finance
remains one of the UK's fastest growing Fintechs and is well
positioned for growth in the UK, the US and beyond.
In line with previous years, we expect H2 operating profit to be
greater than H1.
Dividend
The Board has declared an interim dividend of 5.18p, up 5% from
the prior year (4.93p). This is consistent with our stated ambition
to grow the dividend at 3-6% per annum between 2021 and 2024.
Going forward, the Board intends to adopt a formulaic approach
to the dividend whereby the interim dividend grows by the same
percentage as the total dividend for the prior year.
LGR - Institutional
FINANCIAL HIGHLIGHTS GBPm H1 2021 H12020
================================================ ======= ========
Operating Profit 525 585
================================================ ======= ========
Release from operations 252 246
New business surplus 68 71
================================================ ======= ========
Net release from operations 320 317
================================================ ======= ========
UK PRT 2,040 3,176
International PRT 107 248
Other PRT (longevity insurance, Assured Payment 925 -
Policy, Insured Self-Sufficiency)
Total new business 3,072 3,424
================================================ ======= ========
Operating profit of GBP525m
LGRI continues to deliver strong operating profit of GBP525m (H1
2020: GBP585m). Profit was underpinned by the performance of our
growing annuity portfolio, robust pension risk transfer (PRT) new
business volumes and positive mortality experience due to the
continued tragic impact of COVID-19 . Note: a review of late
retirement factors was undertaken in H1 2020, releasing GBP124m
(net of tax).
Release from operations increased 2% to GBP252m (H1 2020:
GBP246m), reflecting the scale of the business as prudential
margins unwind from LGR's growing GBP85.8bn annuity portfolio
(2020: GBP87.0bn).
Net release from operations was GBP320m (H1 2020: GBP317m) with
new business surplus of GBP68m (H1 2020: GBP71m), reflecting
successful execution with broadly consistent volume and new
business profitability despite subdued PRT market volumes.
During H1 2021 we wrote GBP2,040m of UK PRT which, combined with
Other PRT of GBP925m and GBP483m of individual annuities written in
LGRR, delivered an 8.4% UK Solvency II new business margin (H1
2020: 10 .6%). UK PRT capital strain remains broadly at the 4%
mark.
Successful execution in a slower H1 market
During H1 2021 LGRI underwrote GBP3,072m of PRT across 20 deals
globally (H1 2020: GBP3,424m, 29 deals) .
Legal & General has demonstrated its resilience and
continues to play a key role in the UK PRT market, despite the
market being relatively subdued in the first half. However, we are
still expecting around GBP20-GBP25bn to transact in the 2021 market
and we are well placed to execute on this opportunity in H2, with
GBP2bn already won or in exclusive negotiations. As the only
whole-of-market provider in the UK we see nearly all deals coming
to market and are well positioned to preserve (or build) market
share.
LGRI's brand, scale and asset origination capabilities - through
synergies with, and expertise within, LGIM and LGC - are critical
to our market leadership in the UK PRT market. Long term client
relationships, typically fostered by LGIM, have allowed us to help
many pension plans achieve their de-risking goals. In H1 2021 we
demonstrated our market leadership and solutions capabilities by
writing a series of innovative transactions, including:
-- Small scheme solutions. With over 60 % of our transactions
smaller than GBP100m, we leveraged technological innovation to
serve smaller pension plans more efficiently.
-- cGBP800m buy-in with TUI group UK Pension Trust. This
transaction marks the Scheme's first PRT transaction with Legal
& General.
-- A GBP925m Assured Payment Policy, our capital-light PRT
product, for Legal & General's Group UK Pension and Assurance
Fund. The policy provides asset yield, interest rate and inflation
risk protection to the pension plan, paving a more secure path to
buyout over a planned timeframe.
-- First conversion of an Assured Payment Policy (APP) to a
buy-in. A GBP61m transaction agreed with AIB Group UK Pension
Scheme, converted c20% of the original APP transaction completed in
December 2019. The transaction is a testament to our commitment in
helping schemes along their de-risking journey, every step of the
way, offering flexible solutions and enabling them to seize
de-risking opportunities as they arise.
Well positioned to execute in H2 in the US
US PRT new business premiums of $149m (H1 2021: GBP107m; H1
2020: $312m; GBP248m) , with the US PRT market typically slower in
H1, and seeing relatively high levels of competition. As normal, we
expect a much larger market in the second half, with activity
typically concentrated in Q4 although, in fact, we have recently
won a $181m US PRT deal. Market commentators expect US PRT volumes
for 2021 to be higher than for 2020 ($27bn). [44]
Since entering the market in 2015, we have underwritten more
than $5bn of premium with 70 clients. [45] As the only insurer
providing PRT to pension plans globally, Legal & General is
uniquely positioned to offer holistic, global pension de-risking
solutions.
LGR - Retail
FINANCIAL HIGHLIGHTS GBPm H1 2021 H1 2020
==================================== ======= =========
Operating Profit 158 135
------------------------------------ ------- ---------
Release from operations 111 98
New business surplus 15 16
------------------------------------ ------- ---------
Net release from operations 126 114
==================================== ======= =========
Workplace Savings net flows (GBPbn) 6.0 2.4
Individual single premium annuities 483 421
Lifetime & Retirement Interest Only
mortgage advances 414 362
Total new business 897 783
==================================== ======= =========
Operating profit up 17% to GBP158m
LGRR operating profit increased 17 % t o GBP158m during H1 2021
(H1 2020: GBP135m), driven by the ongoing release from operations,
and positive mortality experience due to the continued tragic
impact of COVID-19.
Release from operations was GBP111m (H1 2020: GBP98m), an
increase of 13%, reflecting the unwind of prudential margins from
the annuity portfolio and increasing administration fees from the
growing workplace assets.
Net release from operations was GBP126m (H1 2020: GBP114m) with
new business surplus of GBP15m (H1 2020: GBP16m).
From 1 January 2021, the Workplace Savings administration
business was transferred from LGIM to LGRR, building out LGRR's
retail retirement proposition. Profits on the fund management
services we provide are included in LGIM's asset management
operating profit.
Resilient new business volumes in H1 2021
LGRR has helped customers weather the economic uncertainty
following COVID-19, delivering solutions to retirees through
individual annuities and Lifetime Mortgages (LTMs).
Individual annuity sales were up 15% to GBP483m in H1 2021 (H1
2020: GBP421m), as markets started to recover following the impact
of the COVID pandemic last year. Our relative performance remained
strong: our operational service, competitive pricing and increased
intermediary presence allowed us to grow market share to 22.6%.
([46])
Lifetime mortgage advances, including Retirement Interest Only
mortgages, were up 14 % to GBP414m (H1 2020: GBP362m). Throughout
this period, we have maintained pricing and underwriting discipline
whilst increasing advances. At the end of June 2021, LTMs were 7%
of our total annuity assets and our LTM new business portfolio had
an average customer age of 72 and a weighted average loan-to-value
of c30% at point of sale.
Workplace Savings net flows were up 150% to GBP6.0bn (H1 2020:
GBP2.4bn), driven by continued client wins and increased
contributions. Members on the Workplace pension platform increased
to 4.2 million in H1 2021. We are continuing to focus on improving
efficiency and scale as the business grows.
Legal & General Retirement - Total Annuity Asset
Portfolio
FINANCIAL HIGHLIGHTS GBPm H1 2021 H1 2020
========================================= ======= ========
Operating Profit 683 720
Investment and other variances 105 73
========================================= ======= ========
Profit before tax 788 793
========================================= ======= ========
Total annuity assets (GBPbn) 85.8 80.7
Of which: Direct investments (GBPbn) 25.8 23.6
========================================= ======= ========
Profit before tax was GBP788m, with investment variance
contributing positively due to standard unwind of margins and
strong underlying performanc e.
Annuity asset portfolio
Legal & General Retirement's (LGR) GBP85 .8 bn [47] 'A
minus' rated asset portfolio, which backs the IFRS annuity
liabilities in LGRI and LGRR, is well diversified by sector and
geography. Our ambition is to continue to strengthen our asset
sourcing capabilities (a core competitive advantage), including
both self-manufactured and public assets with a strong ESG focus,
as outlined in LGR's ESG strategy launched in 2020. Current
examples include Build to Rent and Affordable housing.
Credit portfolio management
LGR's GBP78.2bn fixed income portfolio is comprised of GBP57.2bn
of listed bonds and GBP21.0bn of Direct Investments. Approximately
two-thirds of the portfolio is rated A or better, 34 % rated BBB
and 2 % sub-investment grade.
The key objective of our annuity-focused, fixed income fund
managers in LGIM is to manage the portfolio to match liabilities,
while minimising credit downgrades and avoiding defaults. We
constantly review our asset portfolio, including sector allocations
and asset classes, in order to manage portfolio credit quality and
to mitigate risks. We have vigorously stress-tested our portfolio
to build resilience against a range of scenarios. In addition, we
hold a GBP 3.4 bn IFRS credit default reserve .
We have kept lower-rated, cyclical exposures to a minimum and
only 13% of our BBB assets are BBB-. We actively manage our asset
portfolio and continue to take opportunities to improve credit
quality at attractive pricing levels.
This two-pronged approach, comprising defensive positioning and
active management, has helped us mitigate downgrade and default
risk. Again, we have had no defaults.
Direct Investment
LGR originated GBP1 .4 bn of new, high quality direct
investments during H1 2021 which, along with market movements,
brought the direct investment portfolio total to GBP25 .8 bn [48] ,
including GBP6 .3 bn in LTMs . Consistent with the broader bond
portfolio, approximately two-thirds of the direct investment bond
portfolio was rated 'A' or above using robust and independent
rating processes which take account of long-term stress events on
the strong counterparties and the underlying collateral.
Across the Group, our businesses help to meet the societal needs
arising from welfare reforms by harnessing the power of pensions to
deliver Inclusive Capitalism and to support the UK to Build back
Better. We aim to invest in sectors where long term funding is
needed, for example, in assets providing social infrastructure,
housing and clean energy across our UK towns and cities. Our
ability to self-manufacture attractive, long-term assets to back
annuities, such as Build To Rent or Affordable Housing, working
with LGIM, LGC, or through LTMs, is a differentiating feature of
LGR's business and remains a key competitive advantage.
Legal & General Investment Management
FINANCIAL HIGHLIGHTS GBPm H1 2021 H1 2020
=============================================== ======== ========
Management fee revenue 471 458
Transactional revenue 9 9
=============================================== ======== ========
Total revenue 480 467
Total costs (276) (270)
=============================================== ======== ========
Operating profit 204 197
Investment and other variances (7) 4
=============================================== ======== ========
Profit before tax 197 201
=============================================== ======== ========
Net release from operations 163 158
=============================================== ======== ========
Asset Management cost:income ratio
(%) 58 58
=============================================== ======== ========
NET FLOWS AND ASSETS GBPbn
=============================================== ======== ========
External net flows 27.4 6.2
Internal net flows (1.7) (0.6)
=============================================== ======== ========
Total net flows 25.7 5.6
- Of which international(1) 15.0 (3.2)
Cash management flows (0.4) 2.8
Persistency [49] (%) 89 86
=============================================== ======== ========
Average assets under management 1,280.5 1,218.4
Assets under management as at 30
June 1,326.8 1,240.6
Of which:
- International assets under management(2) 434 385
- UK DC assets under management 125 97
=============================================== ======== ========
1. International asset net flows are shown on the basis of client domicile.
2. International AUM includes assets from internationally
domiciled clients plus assets managed internationally on behalf of
UK clients.
Operating profit growth of 4% to GBP204m
Operating profit increased by 4% to GBP204m (H1 2020: GBP197m),
reflecting increased revenues from flows and favourable business
mix.
Assets under management increased by 7% to GBP1,326.8bn (H1
2020: GBP1,240.6bn), benefitting from strong external net flows of
GBP27.4bn (H1 2020: GBP6.2bn). Market movements were positive in H1
2021, reflecting our diverse asset base. Whilst rising interest
rates reduced the value of fixed income assets, this was offset by
an increase in equity markets.
Revenues increased 3% to GBP480m (H1 2020: GBP467m), supported
by growth in higher margin areas including thematic ETFs and
multi-asset, partially offset by the strengthening pound which
reduced the value of our International revenues. Our strengths in
ESG led to several ESG mandate wins in H1 2021, and we have
continued to see good flows into our ESG products. The cost income
ratio (58%) reflects our continued investment in the business,
balanced with careful cost control.
Strong international flows
International external net flows of GBP15.0bn constituted over
half of LGIM's total external net flows.
LGIM saw GBP8.8bn of further net flows from Japanese clients and
we are now Japan's 9(th) largest asset manager. [50] The US saw net
flows of GBP3.5bn, primarily into LDI and Fixed Income products, as
US clients re-focused on long term de-risking objectives, reversing
the trend seen last year. We continue to make good progress against
our European growth strategy.
International AUM of GBP434bn is up 13% from H1 2020 (GBP385bn)
and now constitutes 33% of total AUM. On a constant currency basis,
International AUM is up 23% year on year. Our deep relationships
with a number of leading international clients underpin our
conviction in our ability to grow international AUM and earnings
over the next five years.
Ongoing strength in UK institutional business
LGIM's UK Institutional business delivered strong external net
flows of GBP9.0bn (H1 2020: GBP8.0bn).
As a leading Solutions provider, LGIM can support clients at all
stages of their funding journey, eventually helping them transition
into a PRT relationship with LGRI. At this point, these assets are
returned to LGIM as captive AUM to manage for the long term. This
means that as the UK DB market gradually de-risks, LGIM will
continue to be a key participant, benefitting from a virtuous
circle with LGRI. Within our suite of DB investment solutions, the
Secure Income Assets Fund (SIAF) launched in 2020, offering DB
clients the chance to invest in infrastructure debt, real estate
debt and private corporate debt. The SIAF now has total commitments
of over GBP300m.
The Defined Contribution (DC) business continues to attract
flows, with external net flows of GBP4.4bn, supported by ongoing
growth in LGRR's Workplace pension business, which now has 4.2
million members. Total UK DC AUM is up 30% since H1 2020 with total
AUM of GBP125.5bn (H1 2020: GBP96.7bn). This success was made
possible by LGIM's strong customer focus, as shown by our 2020
Global Investor Award and a 91% persistency rate among our DC
customers.
LGIM also has one of the largest and fastest-growing UK Master
Trusts, which now has GBP15.1bn AUM, reflecting the increasing
appeal of the structure for DC plans wishing to outsource their
governance, investment and administration. Growth in our UK Master
Trust business continues to support growth in multi-asset flows,
since multi-asset is the default option for many of our UK Master
Trust clients.
Good growth in ETFs
2021 has marked the third anniversary following the acquisition
of the Canvas ETF business in March 2018. Over this period, revenue
has more than doubled. The business has continued to grow at a
strong pace in 2021 (H1 2021: $3.4bn net flows) with the focus on
thematic ETFs supporting our strategy of growth into higher margin
areas. This has been the key driver of the more than 50% increase
in ETF AUM over H1 2021 to $13.0bn. This builds on our position in
2020, a year in which we had the largest percentage increase in AUM
(+89%) of any of the top 20 largest ETF issuers in Europe. [51]
LGIM is committed to growth via innovation and we have continued
to develop ETFs with our proactive design approach. H1 2021
included a number of fund launches, including the expansion of our
fixed income range. We now have over $1.3bn AUM in fixed income
ETFs at the end of H1 2021.
LGIM has also continued to develop and grow its equities range
and thematic expertise through ETFs. As at the end of H1 2021, the
thematic range of ETFs exceeded $6bn in AUM. LGIM continues to be
ranked second on both AUM and net flows in the European thematic
ETF market, with over 16% market share. LGIM has launched two
further thematic ETFs in H1 2021 to cover the emerging hydrogen
economy and the digital payments evolution, with both products
being first to market in Europe. These two ETFs have contributed
over $450m in net flows in H1 2021. A range of equity ETFs focused
on high quality dividend paying companies has also been launched in
H1 2021 to target continued demand for income generating
products.
Breadth of investment management solutions
Asset movements (1) Active Real Total
Multi
(GBPbn) Index Strategies Asset Solutions assets AUM
============================ ====== =========== ====== ========= ======= =======
At 1 January 2021 429.9 193.6 63.4 559.5 32.5 1,278.9
============================ ====== =========== ====== ========= ======= =======
External inflows 44.5 10.0 4.9 20.2 0.6 80.2
External outflows (41.9) (7.7) (3.1) (8.0) (0.8) (61.5)
Overlay net flows - - - 6.6 - 6.6
ETF net flows 2.1 - - - - 2.1
============================ ====== =========== ====== ========= ======= =======
External net flows 4.7 2.3 1.8 18.8 (0.2) 27.4
Internal net flows (0.3) (2.3) 0.1 (0.2) 1.0 (1.7)
============================ ====== =========== ====== ========= ======= =======
Total net flows 4.4 - 1.9 18.6 0.8 25.7
Cash management movements - (0.4) - - - (0.4)
Market and other
movements 37.1 (3.1) 2.8 (14.6) 0.4 22.6
============================ ====== =========== ====== ========= ======= =======
At 30 June 2021 471.4 190.1 68.1 563.5 33.7 1,326.8
============================ ====== =========== ====== ========= ======= =======
1. Please see disclosure 5.01 for further details.
LDI Solutions continued to deliver positive external net flows
of GBP 18.8 bn (H1 2020: GBP8.3bn) driven by strong demand from UK
and US DB clients as they continue to de-risk. We manufacture
Solutions products in both publicly and privately traded asset
classes and combine these together in integrated portfolios for UK
DB clients. We are well positioned to capitalise on this continuing
trend. Together with our fiduciary business offering, and working
closely with LGR's PRT business, we can tailor solutions to DB
schemes at all stages of their funding journey.
Index reported external net flows of GBP 4.7 bn (H1 2020:
GBP(4.4)bn) driven by new international flows, partially offset by
Index outflows in the UK and US, reflecting the structural trend of
DB schemes de-risking, and therefore shifting from index to LDI
strategies.
Active Strategies (formerly Global Fixed Income and Active
Equities) delivered external net flows of GBP 2.3 bn (H1 2020:
GBP0.5bn) as a result of positive net inflows from US and UK DB
clients.
Multi-asset strategies continue to be in demand from DC schemes
and retail customers . External net flows into multi-asset funds
were GBP1.8bn (H1 2020: GBP1.6bn).
Real Assets saw external net flows of GBP(0.2)bn (H1 2020:
GBP0.2bn), as the market continues to assess the longer-term impact
of COVID-19 on demand. LGIM Real Assets is, however, well
positioned. We expect future growth in flows to be supported by our
Build to Rent business, which now has a pipeline of c5,500 homes
across the country, and by Private Credit, which offers clients
diversification of secure income and value protection
solutions.
Investment performance
In Solutions and Index, clients rely on us to deliver their
target returns against defined benchmarks. For actively managed
portfolios, investment outperformance versus either benchmarks or
peer groups is an important driver of current and future client
flows, and in 2021 LGIM's active teams delivered strong performance
across multiple asset classes. Using our regulated UCITS and US
Composites as a proxy for the performance returns(2) of our
mainstream investment strategies, the vast majority of our
strategies outperformed over 1, 3 and 5 year periods to 30 June
2021 as follows:
% of outperforming funds
Strategies 1 year 3 year 5 year
Multi asset 88% 86% 90%
===================== ======== ======== ========
Active Fixed Income
(UK) 100% 100% 92%
===================== ======== ======== ========
Active Fixed Income
(US) 71% 82% 82%
===================== ======== ======== ========
Active Equities 75% 55% 56%
===================== ======== ======== ========
2. Net fund performance data versus key comparators (benchmark
or generic peer groups for bonds and equities as per the relevant
prospectuses, and benchmark per the relevant prospectus or custom
peer group for Multi Asset) sourced from Lipper for the LGIM UCITS
and calculated internally for the U.S. composites. All data as at
30 June 2021.
Leading in responsible investing
LGIM continues to build on its credentials as a responsible
investor and remains committed to leading the asset management
industry in addressing the environmental and social challenges
arising from a rapidly changing world.
As at 30 June 2021, LGIM managed GBP252.3bn in responsible
investment strategies explicitly linked to ESG criteria for a broad
range of clients.
LGIM has a strong, unified sense of purpose: to create a better
future through responsible investing. To that end, we work to raise
ESG standards on important global issues, leveraging our position
as one of the largest global asset managers. LGIM is, for example,
a founding signatory of the Net Zero Asset Managers Initiative.
Recent achievements include:
-- Commitment to net zero:
1. In December 2020 we announced our intention to help our
clients achieve net zero across their portfolios by 2050, in the
same way that L&G has already committed to with its own balance
sheet.
2. Our DC default funds - available to over four million members
across L&G Workplace Pensions and the L&G Mastertrust -
have set interim targets to support their 2050 net-zero
ambitions.
3. At the end of 2020, LGIM Real Assets published a roadmap to
help achieve its commitment to net zero emissions by 2050 or sooner
across real estate assets.
-- Integration of ESG factors : Using technological innovation
to address climate change, LGIM has developed a bespoke climate
risk framework, Destination@Risk. This has initially been used to
analyse around 2,000 companies globally. A climate risk and
temperature scenario alignment dashboard is now available to
portfolio managers and analysts within LGIM, enabling LGIM to embed
climate risk and alignment in a consistent way throughout the
entire global investment function and into our product range.
-- Product innovation : LGIM is committed to developing
ESG-focused investment products that integrate the most
forward-thinking ideas in the space. We continue to build on our
strong heritage in using index and active ESG investing insights to
develop innovative new products, with 55% of our EU domiciled UCITS
funds classified as ESG-incorporated (articles 8 or 9) in the EU's
first annual Sustainable Finance Disclosure Regulation (SFDR)
exercise. Recent examples of ESG product innovation include:
1. A low carbon transition index equity fund suite for UK
pension clients, designed by LGIM in partnership with a key
consultant, to reduce exposure to carbon emissions in alignment
with 2050 net-zero goals, whilst also being aligned to LGIM's
market leading engagement and voting activities.
2. A multi-factor developed equity index fund with a strong
focus on climate, which adheres to the EU's Climate Transition
Benchmark framework.
3. Successful launch of a number of ESG ETFs, including a Green
Bond strategy, a Hydrogen Economy thematic ETF, and a range of
Quality Dividend ETFs with ESG exclusions.
-- Stewardship with impact : LGIM's Investment Stewardship team
aim to protect clients' assets through raising market standards and
best practice, and engaging with consequences. The team has engaged
with over 300 companies and voted on over 50,000 resolutions in H1
2021. We also celebrated the fourth anniversary of our climate
impact pledge, which has now grown to cover 1,000 global companies,
responsible for more than half of the greenhouse-gas emissions from
listed companies, across 15 climate-critical sectors. Companies
falling short of LGIM's minimum standards are subject to voting
sanctions and potential divestment. Encouragingly, since we
launched the Pledge in 2018, we have seen positive progress being
made across the most climate-critical areas of the global economy,
with 22% of companies on LGIM's priority list setting a net-zero
target this year.
-- Driving our industry forward: Recognising the crucial role of
international leadership and collaboration in the decarbonisation
initiative, Legal & General is at the heart of the COP26
programme in 2021, with LGIM CEO, Michelle Scrimgeour, co-chairing
COP26 Business Leaders alongside the President for COP26 , Rt Hon
Alok Sharma MP.
Legal & General Capital
FINANCIAL HIGHLIGHTS GBPm H1 2021 H1 2020
============================================= ======= ========
Operating profit 250 123
- Alternative asset portfolio 195 36
- Traded investment portfolio & Treasury 55 87
Investment and other variances 48 (307)
============================================= ======= ========
Profit before tax attributable to equity
holders 298 (184)
============================================= ======= ========
Net release from operations 213 97
============================================= ======= ========
ALTERNATIVE ASSET PORTFOLIO GBPm
============================================= ======= ========
Specialist commercial real estate 733 716
Clean energy 218 179
Residential property 1,914 1,636
SME Finance 561 502
3,426 3,033
TRADED ASSET PORTFOLIO GBPm
============================================= ======= ========
Equities 1,731 1,987
Fixed income 426 238
Multi-asset 223 242
Cash(1) 1,220 1,388
============================================= ======= ========
3,600 3,855
LGC investment portfolio 7,026 6,888
Treasury assets at holding company 1,630 2,074
============================================= ======= ========
Total 8,656 8,962
============================================= ======= ========
1. Includes short term liquid holdings.
Total operating profit of GBP250m reflecting rebound to
pre-pandemic growth targets
LGC operating profit doubled to GBP250m (H1 2020: GBP123m). This
growth principally reflects increased profits from our alternative
asset portfolio (H1 2020: GBP36m) as a result of a bounce-back in
the housebuilding market and the continued maturing of our venture
capital and clean energy businesses. Operating profit from the
traded & treasury portfolio decreased to GBP55m (H1 2020:
GBP87m), primarily driven by the continued sell down of listed
equities in order to fund the increasing expansion of the
alternative asset portfolio.
Profit before tax was GBP298m, driven by investment and other
variances of GBP48m, compared to GBP(307)m in H1 2020, which
reflects the rebound in alternative asset portfolio profits and
equity market performance.
Our growing alternative asset portfolio achieved a net portfolio
return of 10.7% (H1 2020: (5.9)%). In line with our business model,
we expect to deliver a return of 8% to 10% over the medium term as
our early stage businesses continue to mature.
Alternative asset portfolio grew 13% over H1 2021 to
GBP3.4bn
LGC has continued to strengthen its capabilities across an
increasingly established range of alternative assets that are
underpinned by our structural growth drivers. Our alternative asset
portfolio increased to GBP3,426m (H1 2020: GBP3,033m) as we
deployed a further GBP0.2bn and made new undrawn commitments of
GBP0.5bn across our existing investment platforms. Through these
investments we create assets that generate returns for
shareholders, create attractive yield-generating Matching
Adjustment-eligible assets for LGRI and LGRR and supply desirable
alternative assets to LGIM and other third party clients.
Our portfolio continues to be well diversified across the
sectors we invest in:
-- 55% invested in wholly-owned operating businesses, including
our investments in Affordable Housing and CALA;
-- 29% in joint ventures or partnerships with other investors,
such as the Bruntwood SciTech partnership and our Oxford University
Development partnership; and
-- 16% in externally managed funds, including our investments in
Pemberton funds and NTR, where in both cases we are a significant
shareholder.
As we set out below, our Alternative asset portfolio is creating
value for shareholders, driving growth in our LGR businesses and
creating assets for third party clients, with a focus on ESG and
delivering Inclusive Capitalism.
Investment in specialist commercial real estate: ongoing support
of the levelling up agenda
Addressing a shortage of investment in specialist commercial
real estate, we continue to invest in partnership with the public
sector to drive forward some of the UK's largest urban
transformation schemes, back digital infrastructure and fund the
next generation of science and innovation centres. During H1 2021
our specialist commercial real estate portfolio increased
marginally to GBP733m (H1 2020: GBP716m) as a result of continued
investment in new and existing projects, and overall portfolio
value growth.
Through Bruntwood SciTech, we have continued to develop world
leading diagnostics infrastructure, growing our portfolio to over
2.5m sq ft. Valued at more than GBP600m and home to over 500
science and tech businesses, the Bruntwood SciTech network includes
nine sector-specialist campuses across Manchester, Liverpool,
Birmingham, Alderley Park and, most recently, Melbourn Science
Park. Its development pipeline of over 6m sq ft includes Birmingham
Health Innovation Campus, where construction of Birmingham's first
smart-enabled building, Enterprise Wharf, is now well underway, and
- as announced in June - a development partnership with the
University of Manchester to deliver ID (Innovation District)
Manchester, a new GBP1.5bn innovation district across 4m sq ft in
the city centre which forms an ambitious plan to make Manchester
the heart of innovation in Europe. To be delivered over a 15-year
period and setting new benchmarks for mixed-use, net-zero carbon
development, Manchester ID will create 10,000 full time jobs and
facilitate the commercialisation of knowledge, ideas and innovation
generated from one of the world's leading universities.
Our Clean Energy portfolio expanded to GBP218m (H1 2020:
GBP179m)
Supporting the Group's climate ambitions, we invest in
early-stage scale-up companies, across low-carbon heat, transport,
and power generation, to deliver the innovation, clean technology
and renewable energy infrastructure needed to meet UK and global UN
climate targets and Sustainable Development Goals.
During H1 2021, our portfolio continued to make excellent
progress in scaling up. One of our investee companies, Pod Point,
in which we hold a c22% stake, is rapidly building its business to
meet increased consumer demand for electric vehicles. By April
2021, Pod Point's partnership with Volkswagen and Tesco had
provided more than 500,000 free top-ups at Tesco stores across the
UK and powered more than 10 million miles of travel, helping to
make electric vehicle charging accessible for all drivers and
accelerate the adoption of electric vehicles. Pod Point has also
expanded its partnership with Lidl to install rapid chargers at 350
stores.
Through another of our investee companies, NTR - a specialist
clean energy fund manager - we are continuing to source, build and
operate new renewable energy assets to create attractive returns
for investors over the medium to long term. In January, the NTR
Renewable Energy Income Fund II (NTR REIF II), acquired the 48.4 MW
Artigues et Ollières wind park in France, which will provide
sufficient electricity for 25,000 households. In February, NTR REIF
II completed a 54MW solar & battery transaction for EUR29m
which represents the Fund's first in the energy storage space. The
battery element will help support the stability of the Irish grid
and, once constructed in 2022, the solar park will provide
sufficient power for 1,650 households.
Bounceback in housebuilding supports growth of our residential
property platform
LGC continues to scale up its ambitions across all housing
tenures, making good progress with projects and partners, and
seeing a strong rebound in sales and reservations levels.
Diversified across affordability and life stage, LGC's investments
meet the UK's long term social and economic need for quality
housing for all demographics. During H1 2021, our residential
property portfolio grew to GBP1,914m (H1 2020: GBP1,636m)
reflecting a bounceback in the housebuilding sector and sustained
long term demand.
LGC's Build to Sell business, CALA, has performed exceptionally
in H1 2021, rebounding strongly from its position in 2020 when it
was impacted by a pause in construction and sales activity
following the first COVID-19 lockdown. During H1 2021 CALA has
delivered revenue of GBP610m (H1 2020: GBP205m) and profit before
tax of GBP70m (H1 2020: GBP(19)m) through the sale of more than
1,450 units, significantly higher than H1 2020 and H1 2019 levels
(H1 2020: 468 units; H1 2019: 1,025 units). Reservations on private
units currently stand at 93% of the full year target, giving
confidence in the full year outcome for 2021. The strong rebound
has been supported by the extension of the Government's tax breaks,
rising consumer confidence and a relatively limited supply of
housing stock.
Our Affordable Homes business has continued to establish itself
as one of the UK's leading institutional developers and managers of
affordable housing. We now have a total of 1,066 homes in operation
(H1 2020: 221) and have completed 100 shared ownership sales (H1
2020: 63). In only its second full year of operation, the business
delivered GBP12m of profit in H1 2021 and we expect this to grow as
we contine to scale. Our pipeline stands at over 6,000 homes across
the UK, with a Gross Asset Value of around GBP1bn.
Our Modular Housing business, which made a GBP16m loss in H1
2021, is making good progress with projects and partners, gaining
planning consent to deliver a further 153 homes at a site in
Broadstairs in East Kent, delivering show homes to its 102 home
site in Selby, and acquiring and starting on site at a 185 home
scheme in Lockleaze, Bristol, developed in conjunction with Bristol
City Council. We are creating some of the most energy efficient
homes in the country with all homes from 2020 onwards achieving an
Energy Performance Certificate (EPC) A rating, a standard met by
only around 1% of new and existing dwellings in England &
Wales.
Our Build to Rent business has a GBP1.9bn portfolio of c5,500
homes with 15 schemes in operation or development across the UK's
major towns and cities. Our Urban Build to Rent portfolio is
creating a strong pipeline of attractive, high quality assets for
LGRI and LGRR, and for LGIM clients. We have continued to make
strong development progress, with over 1,700 homes having completed
or under management. We have also now appointed our Suburban Build
to Rent senior leadership team, bringing in skills from across some
of the UK's leading property companies, and put in a planning
application for its first site in North Horsham. This is designed
to deliver 124 new homes for suburban families, alongside a
selection of affordable housing options, delivering a multi-tenure
community in partnership with LGC's other housing businesses,
including our modular homes business.
Our JV with NatWest Group Pension Fund enables our Later Living
business to keep scaling at pace
Our Later Living platform addresses the growing demand for
specialist age-appropriate homes. Delivering on our ambitious third
party capital strategy, we recently announced that we have entered
into a 15-year joint venture (JV) partnership with NatWest Pension
Trustee Limited (NWPTL), as trustee of the GBP53bn defined benefit
pension scheme of NatWest Group, to invest GBP500m of equity in
later living communities to be developed by Inspired Villages. As
part of the JV, Legal & General sold a 50% stake in Inspired
Villages' first 11 sites to NWPTL based on an enterprise value of
over GBP300m. This investment will support our future pipeline of
34 sites, which will deliver c5,100 homes, housing c8,000 residents
and create an estimated Gross Development Value of cGBP4bn. The
transaction is unique as it sees one of the largest UK pension
funds investing directly into UK private social infrastructure.
In the meantime, growth in our Inspired Villages business
continues at pace. The business has reserved 38% off plan for the
first phase of its seventh scheme in Kent, ahead of completion at
the end of the year. Our Later Living platform has also made good
planning and development progress. It has secured planning
permission for 141 homes in West Sussex, 133 homes in South
Oxfordshire, 222 homes in Walton-on-Thames and 194 homes and care
suites in Uxbridge. It has also broken ground on its first two
operationally net-zero carbon developments, located in Bedfordshire
and Hampshire, together bringing forward over 350 energy efficient
homes.
SME Finance AUM increased to GBP561m (H1 2020: GBP502m)
Investing in the real economy through our Alternative Finance
and our Venture Capital platforms, we are continuing to support
growth businesses, delivering enhanced returns while boosting job
creation, innovation, and science and technology advancements.
In the Alternative Finance sector we support UK and European
mid-market lending through our investments in Pemberton, our asset
manager specialising in private debt, in which we hold a 40% stake.
The Pemberton platform has raised over EUR10.9bn (H1 2020:
EUR7.4bn) across four strategies in the six years since we first
invested in 2014, with 126 investors globally. It has deployed
EUR8.3bn (H1 2020: EUR4.5bn) across 91 companies, actively engaging
with borrowers to support sustainable growth.
Our Venture Capital Funds business backs over 300 start-up
businesses across the UK and Europe through our fund-of-funds
programme and via LGC's ownership in direct investment platform
Accelerated Digital Ventures (ADV).
The venture capital fund-of-funds programme saw strong
performance over the period, with NAV growing by 43% to GBP129m
over the six months to end of Q1 2021. Many of the funds we
invested in early in the programme are now maturing, with the
strongest assets achieving new funding rounds at increased
valuations. Demonstrating the value of our patient investment
approach, the portfolio has now delivered an 18% IRR after fees,
since inception.
We continue to work with LGIM to develop a viable solution for
Defined Contribution clients which will democratise access to the
venture capital asset class.
Legal & General Insurance
FINANCIAL HIGHLIGHTS GBPm H1 2021 H1 2020
Operating profit 134 88
* UK 96 57
* US (LGIA) 38 31
Investment and other variances 230 (483)
======================================== ======= ========
Profit / (loss) before tax attributable
to equity holders 364 (395)
======================================== ======= ========
Release from operations(1) 151 163
New business surplus / (strain) 8 (1)
======================================== ======= ========
Net release from operations 159 162
======================================== ======= ========
Solvency II New Business Value 131 138
======================================== ======= ========
LGI new business annual premiums 203 192
UK Retail Protection gross premiums 714 680
UK Group Protection gross premiums 274 245
US Protection (LGIA) gross premiums 512 550
Total gross premiums 1,500 1,475
======================================== ======= ========
1. Includes the annual dividend of $111m (H1 2020: $109m) paid
by LGIA to the Group in March 2021.
Operating profit up GBP46m to GBP134m; strong new business
growth in the UK
During the first half of 2021, LGI operating profit increased
52% to GBP134m (H1 2020: GBP 88m), reflecting strong new business
growth in UK retail protection, and adverse COVID-related claims
during the period, which were provided for in the 2020 results. We
previously provisioned for GBP110m of future COVID-19 related
claims, cGBP30m of which remains unutilised, highlighting the
significant impact of the second wave in both the UK and US over Q1
2021. As in previous years, we expect H2 operating profit to be
greater than H1.
Honouring our promises and responding quickly and
compassionately to our customers' needs is core to our values at
Legal & General. LGI is especially aware of the importance of
our commitments to our customers: we paid GBP 1bn of protection
claims in the first half of the year.
Profit before tax was predominantly impacted by the formulaic
change in LGI's discount rates. LGI's positive investment variance
of GBP230m was driven primarily by an increase in UK and US
government bond yields which have resulted in a higher discount
rate used to calculate the reserves. The UK 10 year gilt rate
increased by 52 bps and US 10 year Treasury yields increased by
52bps.
Solvency II New Business Value decreased by GBP7m to GBP131m (H1
2020: GBP138m) reflecting the negative impacts of USD exchange rate
weakening and lower volumes in Group Protection after a strong
first half in 2020. Retail Protection new business value increased
as a result of strong volumes. The protection business continues to
generate Solvency II surplus immediately when written and provides
diversification benefits to the Group, particularly LGR.
Gross written premium at GBP1,500m; good trading performance in
the US and UK in H1
UK Retail Protection gross premium income increased to GBP714m
(H1 2020: GBP680m), with new business annual premiums of GBP105m
(H1 2020: GBP83m), up 27% on prior year as the market continues to
recover from COVID-related disruption. We increased our market
share to 26% in Q1 2021 [52] , up from 22% in Q1 2020, and
strengthened our position as the leading provider of retail
protection in the UK, delivering a point of sale decision for more
than 80% of our customers. Our market share growth was supported by
our innovation over the period. For instance, further enhancements
to our Income Protection Benefit and good progress on critical
illness cover attracted new customers in the first half and helped
us achieve market leadership for these products.
UK Group Protection new business annual premiums were GBP55m (H1
2020: GBP65m) with gross written premiums increasing 12% to GBP274m
(H1 2020: GBP245m). Through improved service and more refined
pricing we are attracting a wider range of scheme sizes and
actively dealing with more advisers in the group protection market,
enabling us to gain market share and grow new business premiums. We
anticipate that full year 2021 new business volumes may not reach
the record levels of 2020 as typically fewer large schemes are
tendered in odd years than in even years.
US Protection (LGIA) gross written premiums increased 3% (down
7% on a sterling basis) to $712m (H1 2020: $693m). New business
annual premiums increased 5% to $59m (H1 2020: $56m), with strong
new business margins of 11.5%. LGIA ranked number one in the
brokerage general agency channel in the first quarter by both new
premium and new policies issued. We continue to develop our
market-leading, digital new business platform (Horizon) which we
expect to drive further sales growth and to reduce unit costs over
the coming years. Adoption of our Horizon platform is now above 50%
of new business and we expect this to increase towards 100% by the
end of the year. We have significantly reduced usage of physical
examinations, from 85% of all applications needing an exam at the
start of 2020 to less than 50% of Horizon applications currently.
This has been achieved without a material expected impact to
mortality through the use of alternative data sources. In addition,
we have a range of further underwriting innovations being deployed
to reduce usage of physical exams and shorten the time taken to
provide an underwriting decision, which will in turn improve
placement rates and so increase business volumes.
Legal & General Mortgage Club facilitated GBP47bn of
mortgages, up 39% (H1 2020: GBP34bn), driven by the buoyant housing
market due to the extension of the Stamp Duty holiday. We remain
the largest participant in the UK intermediated mortgage market and
are involved in around one in five of all UK mortgage transactions.
Our Surveying Services business facilitated 263,000 surveys and
valuations, compared to 185,000 surveys and valuations in the prior
year. Since buying a new house is often a catalyst for purchasing
life insurance, the Legal & General Mortgage Club is a
supporting component of our overall offering to customers.
Scaling up our Fintech businesses
LGI has continued with its strategy to scale up its innovative
fintech businesses in adjacent markets. Our strategy of "digital
first" has proved to be resilient through the COVID period, driving
further growth in value and revenue. Salary Finance, our employee
benefits platform, in which we have a 41% holding, continues to
grow rapidly, with the platform now connected to over 3.8 million
employees across the UK and US. Annualised run-rate gross revenue
grew to GBP29m as at June 2021, an increase of 75% year on year.
This trend is expected to continue with growing employee awareness
and increasing platform engagement. It remains one of the UK's
fastest growing Fintechs and is well positioned for growth in the
UK, the US and beyond.
The strategy of platform ownership and influence has continued
to serve us well in the mortgage and home financing "ecosystem".
Our SmartrFit mortgage criteria and sourcing system now reaches
over 3,400 brokers in the mortgage broking market. Within our Legal
& General surveying business, our work to digitise the market
has proved invaluable for banks through the lockdown period. Our
digital valuation services have been used by many of our key
clients with over 90,000 completed since 2019. Elsewhere in the
ecosystem, our c40% investment in Smartr365, a complete end-to-end
mortgage and protection platform used to unite mortgage advisers
and their clients, has moved from start up to scale up across the
UK mortgage broking market. With licence numbers having grown
fourfold since the start of the year, we now have just under 2,000
licences in place. We have received strong feedback on the
proposition, and how it simplifies the mortgage advice journey for
brokers and customers.
Borrowings
The Group's outstanding core borrowings totalled GBP4.5bn at 30
June 2021 (FY 2020: GBP4.6bn; H1 2020: GBP4.7bn). There is also a
further GBP1.1bn (FY 2020: GBP1.0bn; H1 2020: GBP1.2bn) of
operational borrowings including GBP1.1bn (FY 2020: GBP0.9bn; H1
2020: GBP1.0bn) of non-recourse borrowings.
Group debt costs of GBP120m (H1 2020: GBP115m) reflect an
average cost of debt of 5.1% per annum (H1 2020: 5.0% per annum) on
an average nominal value of debt balances of GBP4.8bn (H1 2020:
GBP4.6bn).
In late May 2021, we gave notification of our intention to
redeem GBP300m of 10% dated subordinated notes and they were
subsequently called at par on 23 July 2021.
Taxation
Equity holders' Effective Tax Rate (%) H1 2021 H1 2020
Equity holders' total Effective Tax Rate 19.5 4.2
Annualised rate of UK corporation tax 19.0 19.0
========================================= ======= ========
The effective tax rate reflects the impact of revaluing UK
deferred tax assets and liabilities at 25%, following the
announcement of an increase in the headline rate of UK corporation
tax from 1 April 2023, and the different rates of tax that apply to
Legal & General's overseas operations. This is higher than the
effective tax rate at H1 2020 which was below the headline rate as
a result of the impact of losses arising in the period through
investment variance.
The tax rate on operating profits, excluding the impact of
investment variance, was 16.1% (H1 2020: 16.8%).
Solvency II
As at 30 June 2021, the Group had an estimated Solvency II
surplus of GBP7.5bn over its Solvency Capital Requirement,
corresponding to a Solvency II coverage ratio of 183% on a
shareholder basis.
Capital (GBPbn) H1 2021(1) FY 2020(1)
Own Funds 16.6 17.1
Solvency Capital Requirement (SCR) (9.1) (9.7)
=================================== ========== ===========
Solvency II surplus 7.5 7.4
SCR coverage ratio (%) 183 177
=================================== ========== ===========
1. Solvency II position on a shareholder basis is adjusted for
the Own Funds and SCR of the Group final salary pension schemes and
is before the accrual of the relevant dividend.
Analysis of movement from 1 January 2021 to Solvency II
30 June 2021(1) (GBPbn) surplus
Surplus arising from back-book (including
release of SCR) 0.7
Release of Risk Margin 0.3
Amortisation of TMTP (0.2)
=============================================== =============
Operational surplus generation 0.8
New business strain (0.2)
=============================================== =============
Net surplus generation 0.6
Operating variances -
Mergers, acquisitions and disposals -
Market movements 0.6
Subordinated debt (0.3)
Dividends paid (0.8)
=============================================== =============
Total surplus movement (after dividends paid
in the period) 0.1
Operational surplus generation from continuing operations
increased to GBP0.8bn (H1 2020: GBP0.8bn) , after allowing for
amortisation of the opening Transitional Measures on Technical
Provisions (TMTP) and release of Risk Margin.
New business strain was GBP(0.2)bn, primarily reflecting UK PRT
volumes written at a capital strain of c4%. This resulted in net
surplus generation of GBP0.6bn (H1 2020: GBP0.7bn).
Dividends paid represent the payment of the 2020 final dividend
in June 2021, which is the larger of the two dividends paid during
the year.
Operating variances include the impact of experience variances,
changes to model calibrations, and management actions. The net
impact of operating variances over the period was neutral. Market
movements of GBP0.6bn reflect the impact of rising rates on the
valuation of our balance sheet, and improved asset markets,
predominantly in equities, as well as a number of other, smaller
variances.
The movements shown above incorporate management's estimate of
the impact of recalculating the TMTP as at 30 June 2021 as we
believe this provides the most up to date and meaningful view of
our Solvency II position. In line with UK regulatory requirements,
a formal recalculation of the TMTP will take place no later than 31
December 2021.
When stated on a proforma basis, including the SCR attributable
to the Group final salary pension schemes in both the Group's Own
Funds and the SCR, the Group's coverage ratio was 182% (FY 2020:
175%; H1 2020: 169%).
Reconciliation of IFRS net release from operations to Solvency
II net surplus generation(1)
The table below gives a reconciliation of the Group's IFRS
Release from operations and Solvency II Operational surplus
generation in H1 2021:
GBPbn
IFRS Release from operations 0.8
Expected release of IFRS prudential margins (0.2)
Release of IFRS specific reserves (0.1)
Solvency II investment margin -
Release of Solvency II Capital Requirement and
Risk Margin less TMTP amortisation 0.3
=============================================== ======
Solvency II Operational Surplus Generation 0.8
The table below gives a reconciliation of the Group's IFRS New
business surplus to Solvency II New business strain in H1 2021:
GBPbn
IFRS New business surplus 0.1
Removal of requirement to set up prudential margins
above best estimate on new business 0.2
Set up of Solvency II Capital Requirement on new business (0.4)
Set up of Risk Margin on new business (0.1)
Solvency II New business strain (0.2)
1. Please see disclosure 6.01 (d) for further details.
Sensitivity analysis(2)
Impact on Impact on
net of tax net of tax
Solvency II Solvency
capital surplus II coverage
H1 2021 ratio
GBPbn H1 2021
%
================================================ ================ =============
Credit spreads widen by 100bps assuming
an escalating addition to ratings 0.5 11
Credit spreads narrow by 100bps assuming
an escalating addition to ratings (0.7) (12)
Credit spreads widen by 100bps assuming a
level addition to ratings 0.6 12
Credit spreads of sub-investment grade assets
widen by 100bps assuming a level addition
to ratings (0.3) (5)
Credit migration (0.8) (9)
25% fall in equity markets (0.5) (4)
15% fall in property markets (0.8) (7)
100bps increase in risk free rates 1.0 21
50bps decrease in risk free rates (0.7) (12)
50bps increase in future inflation expectations (0.1) (3)
Substantially reduced Risk Margin 0.6 6
================================================ ================ =============
2. Please see disclosure 6.01 (f) for further details.
The above analysis does not reflect all possible management
actions which could be taken to reduce the impact of each
sensitivity due to the complex nature of the modelling. In
practice, the Group actively manages its asset and liability
positions to respond to market movements. Other than in the
interest rate stresses, we have not allowed for the recalculation
of TMTP. The impacts of these stresses are not linear therefore
these results should not be used to interpolate or extrapolate the
impact of a smaller or larger stress.
The results of these tests are indicative of the market
conditions prevailing at the balance sheet date. The results would
be different if performed at an alternative reporting date.
The impacts of credit spreads and risk-free rate sensitivities
are primarily non-economic arising from movements in balance sheet
items that result from changes in the discount rates used to
calculate the value of assets and liabilities. The credit migration
stress, in the absence of defaults, delays the emergence of
operating surplus generation, but does not reduce the actual
quantum of future releases. Similarly, equity and property stresses
only result in losses if assets are sold at depressed values.
Solvency II new business contribution
Management estimates of the present value of new business
(PVNBP) and the margin as at 30 June 2021 are shown below(1) :
PVNBP Contribution Margin %
from
new business
=========================== ===== ============= ========
LGR - UK annuity business
(GBPm) 3,269 274 8.4
UK Protection Total (GBPm) 1,089 83 7.6
- Retail protection 828 65 7.8
- Group protection 261 18 7.1
US Protection (GBPm) 413 48 11.5
=========================== ===== ============= ========
The key economic assumptions as at 30 June 2021 are as
follows:
%
================================================= ===
Margin for risk 3.6
Risk free rate
- UK 1.1
- US 1.5
Risk discount rate (net of tax)
- UK 4.7
- US 5.1
Long term rate of return on non-profit annuities
in LGR 2.4
================================================== ===
1. Please see disclosure 6.02 for further details.
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 PRA-specified Credit Risk Adjustment. The
risk-free rate shown above is a weighted average based on the
projected cash flows.
Other than updating for recent experience, all other economic
and non-economic assumptions and methodologies that would have a
material impact on the margin for these contracts are unchanged
from those previously used by the group for its European Embedded
Value reporting, other than the cost of currency hedging which has
been updated to reflect current market conditions and hedging
activity in light of Solvency II.
Principal risks and uncertainties
Legal & General runs a portfolio of risk-taking businesses;
we accept risk in the normal course of business and aim to deliver
sustainable returns on risk-based capital to our investors in
excess of our cost of capital. We manage the portfolio of risk that
we accept to build a sustainable franchise for the interests of all
our stakeholders; we do not aim to eliminate that risk. We have an
appetite for risks that we understand and are rewarded for, and
which are consistent with delivery of our strategic objectives.
Risk management is embedded within the business. The Group's
Principal Risks and Uncertainties summarise key matters that may
impact the delivery of Group's strategy earnings or profitability.
The risks are expected to remain applicable for the remaining six
months of the year.
RISKS AND UNCERTAINTIES TR, OUTLOOK AND MITIGATION
Reserves and our assessment of capital requirements may We undertake significant analysis of the variables
require revision as a result of changes associated with writing long-term insurance
in experience, regulation or legislation . The pricing of business to ensure that a suitable premium is charged for
long-term insurance business requires the risks we take on, and that reserves
the setting of assumptions for long-term trends in continue to remain appropriate for factors including
factors such as mortality, lapse rates, mortality, morbidity, lapse rates, valuation
valuation interest rates, expenses and credit defaults as interest rates, and expenses, as well as credit default in
well as the availability of assets the assets backing our insurance
with appropriate returns. Actual experience may require liabilities. We continue to closely monitor the impacts of
recalibration of these assumptions, Covid-19 on the lives we insure
increasing the level of reserves and impacting and the impacts for longevity and other insurance
profitability. Management estimates are also assumptions. To date Covid-19 mortality
required in the derivation of Solvency II capital has been lower than our 1-in-200 pandemic modelling
metrics. These include modelling simplifications scenario, and we have seen an offsetting
to reflect that it is not possible to perfectly model the effect in our annuity portfolios. Areas of uncertainty
external environment, with adjustment remain, however, including future virus
necessitated where new data emerges. Forced changes in mutations, the long-term efficacy of vaccines, the effects
reserves can also arise from regulatory of 'long Covid' on morbidity and
or legislative intervention impacting capital any impacts created by the deferral of some non-Covid-19
requirements and profitability. medical treatments during the course
of the pandemic. Other risk factors remain, including
dramatic advances in medical science,
beyond that anticipated requiring adjustment to our
longevity assumptions; the emergence of
new diseases and changes in immunology impacting mortality
and morbidity assumptions; and
for our US term policies variances in the rate of policy
renewal compared to our assumptions.
Investment market performance and conditions in the Whilst the outlook for developed economies continues to
broader economy may adversely impact improve, there remains significant
earnings, profitability or surplus capital. The uncertainty to the depth and sustainability of the
performance and liquidity of investment markets, recovery, with financial markets highly
interest rate movements and inflation impact the value susceptible to shocks and the re-appraisal of asset
of investments we hold in shareholders' values. Risk factors include the outlook
funds and to meet the obligations from insurance for inflation and shifts in monetary policy by central
business; the movement in certain investments banks should the current rates of growth
directly impacts profitability. Interest rate movements in inflation become deep seated; as well as geo-political
and inflation changes can also change risks, including US - China tensions
the value of our obligations. Losses can arise from and disruptions to global supply chains. Uncertainty is
market movements although we seek to match also likely to persist in elements
assets and liabilities. Falls in the risk free yield of commercial property markets pending easing from the
curve can also create a greater degree effects of the pandemic restrictions.
of inherent volatility to be managed in the Solvency II We cannot eliminate the downside impacts from these or
balance sheet, potentially impacting other risk factors on our earnings,
capital requirements and surplus capital. Falls in profitability or surplus capital, however, we continue to
investment values can reduce our investment seek to model our business plans
management fee income. across plausible economic scenarios to ensure resilience
across a range of outcomes.
In dealing with issuers of debt and other types of Despite recovery in the wider economy, a range of
counterparty the Group is exposed to the industries remain directly impacted by global
risk of financial loss . Systemic corporate sector lockdowns including the leisure, transport, travel and
failures, or a major sovereign debt event, retail consumer cyclical sectors, with
could, in some scenarios, trigger defaults impacting the risk of downgrade and default persisting particularly as
value of our bond portfolios. Under governments withdraw current economic
Solvency II, a widespread widening of credit spreads and support measures. We continue to actively manage our
downgrades can also result in a reduction exposure to default risks within our
in our Solvency II balance sheet surplus, despite bond portfolios, monitoring positions relative to our
already setting aside significant capital exposure limits, and using the capabilities
for credit risk. We are also exposed to default risks in of LGIM's global credit team to ensure the risks are
dealing with banking, money market effectively controlled, and if appropriate
and reinsurance counterparties, as well as settlement, trade out to improve credit quality. Within our property
custody and other bespoke business lending businesses, our loan criteria
services. A default by a counterparty could expose us to take account of both the default risk of the borrower and
both financial loss and operational the potential for adverse movements
disruption of business processes. Default risk also in the value of secured property. We are also monitoring
arises where we undertake property lending, the effect of Covid-19 on reinsurance
with exposure to loss if an accrued debt exceeds the counterparties, although default generally remains a more
value of security taken. remote risk, which we seek to mitigate
through selectively collateralising significant
exposures. We cannot, however, eliminate default
risks or their impacts to our Solvency II and IFRS
balance sheets, although we seek to hold
a strong balance sheet that we believe to be prudent for
a range of adverse scenarios.
n
========================================================== ==========================================================
RISKS AND UNCERTAINTIES TR, OUTLOOK AND MITIGATION
Changes in regulation or legislation may have a Regulatory driven change remains a significant risk
detrimental effect on our strategy. Legislation factor across our businesses. Key drivers
and government fiscal policy influence our product of future change include HM Treasury's consultation on
design, the period of retention of products Solvency II and the Future Regulatory
and required reserves for future liabilities. Regulation Framework post Brexit. The FCA's proposal for a new
defines the overall framework for Consumer Duty has also been published
the design, marketing, taxation and distribution of our and we are preparing for transition from LIBOR to SONIA
products, and the prudential capital at the end of 2021. Regulatory focus
that we hold. Significant changes in legislation or also continues on operational resilience, the management
regulation may increase our cost base, of third parties and the financial
reduce our future revenues and impact profitability or risks presented from climate change. Alongside regulatory
require us to hold more capital. The risk, we are monitoring potential
prominence of the risk increases where change is for changes in UK fiscal policy arising from the need to
implemented without prior engagement with fund government borrowing in response
the sector. The nature of long-term business can also to Covid-19, and progressing our readiness for IFRS 17,
result in some changes in regulation, which will introduce new financial
and the re-interpretation of regulation over time, reporting metrics. As part of our internal control
having a retrospective effect on in-force framework we seek to ensure on-going compliance
books of business, impacting future cash generation. with relevant legislation and regulation and ensure we
are proactive in addressing change.
We cannot, however, fully eliminate the risks that
controls may fail or that historic accepted
practices may be reappraised by regulators, resulting in
sanction against the group.
New entrants may disrupt the markets in which we operate We continue to monitor the factors that may impact the
. There is already strong competition markets in which we operate and are
in our markets, and although we have had considerable maintaining our focus on developing our digital
past success at building scale to offer platforms, recognising that the current operating
low cost products, we recognise that markets remain environment is likely to have further hastened the
attractive to new entrants, including transition to greater digital engagement
those domiciled overseas. It is possible that with our customers. We also continue to invest in
alternative digitally enabled financial services automation to improve business efficiency,
providers emerge with lower cost business models or and our businesses are well positioned for changes in the
innovative service propositions and capital competitive landscape that may arise
structures, and disrupt the current competitive from the roll out of defined benefit 'superfund'
landscape, and that changes in legislation consolidation schemes, pension dashboards
or regulation impact operating models and 'collective' pension scheme arrangements.
========================================================== ==========================================================
A material failure in our business processes or IT We are planning our future ways of working post Covid-19
security may result in unanticipated financial to include a hybrid office:home working
loss or reputation damage . We have constructed our model that will maintain high standards of customer
framework of internal controls to minimise service and internal control. We remain
the risk of unanticipated financial loss or damage to our vigilant to the associated operational risks and we
reputation. However, no system of continue to invest in our system capabilities,
internal control can completely eliminate the risk of including those for the management of cyber risks, to
error, financial loss, fraudulent actions ensure that our business processes are
or reputational damage. We are also inherently exposed to resilient. We also seek to closely manage our property
the risk that third parties may construction and safety risks through
seek to steal customer data or perpetrate acts of fraud robust internal control systems, including training,
using digital media, and there is monitoring and independent assessments.
strong stakeholder expectation that our core business We recognise, however, that residual risk will always
services are resilient to operational remain across the spectrum of our business
disruption operations and we aim to develop response plans so that
when adverse events occur, appropriate
actions are deployed.
---------------------------------------------------------- ----------------------------------------------------------
We fail to respond to the emerging threats from climate Climate change and failure to transition to a low carbon
change for our investment portfolios economy remains a significant risk
and wider businesses . As a significant investor in that we believe has still to be fully priced in by
financial markets, commercial real estate financial markets, with delays in responding
and housing, we are exposed to climate related to the threats increasing the risk of sudden late policy
transition risks, particularly should abrupt action, leading to potentially large
shifts in the political and technological landscape and unanticipated shifts in asset valuations for impacted
impact the value of those investment assets industries. We continue to embed
associated with higher levels of greenhouse gas the assessment of climate risks in our investment process
emissions . and have developed risk tolerances
to manage our exposures to the risk. We also continue to
seek investments in new technologies
that offer good returns whilst meeting global goals for
net zero carbon emissions and engage
with regulators and investee companies in support of
increased climate action.
Notes
A copy of this announcement can be found in "Results, Reports
and Presentations", under the "Investors" section of our
shareholder we bsite at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
.
A virtual presentation to analysts, fund managers and investors
will be available from 7:00am UK time today at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
.
A teleconference for analyst questions will take place at 9:00am
UK time today. Details of the teleconference below:
Participant dial-in numbers
================================= ===============================================================
Location where you are dialling Number you should dial
in from
================================= ===============================================================
United Kingdom +44 20 3936 2999
================================= ===============================================================
United States (toll free) +1 855 9796 654
================================= ===============================================================
All other locations www.legalandgeneralgroup.com/investors/teleconference-details/
================================= ===============================================================
Please enter access code 110278 to gain access to the
conference.
To ask a question press *1; to remove a question press *2.
Financial Calendar Date
======================================== ================
2021 interim results announcement 4 August 2021
Ex-dividend date (2021 interim dividend) 12 August 2021
Record date 13 August 2021
Dividend payment date 20 September
2021
LGC Capital markets day 14 October 2021
2021 preliminary results announcement 9 March 2022
Definitions
Definitions are included in the Glossary on pages 102 to 105 of
this release.
Forward looking statements
This announcement may contain certain forward-looking statements
relating to Legal & General, its plans and its current goals
and expectations relating to future financial condition,
performance and results. By their nature, forward-looking
statements involve uncertainty because they relate to future events
and circumstances which are beyond Legal & General's control,
including, among others, UK domestic and global economic and
business conditions, market-related risks such as fluctuations in
interest rates and exchange rates, the policies and actions of
regulatory and Governmental authorities, the impact of competition,
the timing impact of these events and other uncertainties of future
acquisitions or combinations within relevant industries. As a
result, Legal & General's actual future condition, performance
and results may differ materially from the plans, goals and
expectations set out in these forward-looking statements and
persons reading this announcement should not place reliance on
forward-looking statements. These forward-looking statements are
made only as at the date on which such statements are made and
Legal & General Group Plc does not undertake to update
forward-looking statements contained in this announcement or any
other forward-looking statement it may make.
Going concern statement
Going concern statement is included on disclosure note 4.01(b)
on page 52 of this release.
Directors' responsibility statement
We confirm to the best of our knowledge that:
i. The consolidated interim financial statements have been
prepared in accordance with UK-adopted IAS 34 Interim Financial
Reporting;
ii. The interim management report includes a fair review of the
information required by DTR 4.2.7, namely an indication of
important events that have occurred during the first six months of
the financial year and their impact on the consolidated interim
financial statements, as well as a description of the principal
risks and uncertainties faced by the company and the undertakings
included in the consolidation taken as a whole for the remaining
six months of the financial year;
iii. The interim management report includes, as required by DTR
4.2.8, a fair review of material related party transactions that
have taken place in the first six months of the financial year and
any material changes in the related party transactions described in
the last Annual Report and Accounts; and
iv. The directors of Legal & General Group Plc are listed in
the Legal & General Group Plc Annual Report and Accounts for 31
December 2020. A list of current directors is maintained on the
Legal & General Group Plc website:
www.legalandgeneralgroup.com/about-us/our-management/group-board/
.
By order of the Board
Nigel Wilson Stuart Jeffrey Davies
Group Chief Executive Group Chief Financial Officer
4 August 2021 4 August 2021
Enquiries
Investors
+44 203 124 2091
Edward Houghton, Head of Investor Relations
investor.relations@group.landg.com
legalandgeneralgroup.com
+1 312 964 3034
Sujee Rajah, Investor Relations
Director
investor.relations@group.landg.com
legalandgeneralgroup.com
+44 203 1242 054
Nim Ilankovan, Investor Relations Director
investor.relations@group.landg.com
legalandgeneralgroup.com
Media
+44 203 1242 090
John Godfrey, Group Corporate Affairs Director
legalandgeneralgroup.com
[1] The Group uses a number of Alternative Performance Measures
(including operating profit, net release from operations, return on
equity and LGIM AUM) to enhance understanding of the Group's
performance. These are defined in the glossary, on pages 101 to 105
of this report.
[2] Profit after tax attributable to equity holders. Performance
driven by strong business and market performance, in addition to
partial reversal of formulaic impact of rates on LGI.
[3] Solvency II coverage ratio on a shareholder basis, which is
adjusted for the Own Funds and SCR of the Group final salary
pension plans. 183% coverage ratio is post GBP0.8bn payment of 2020
final dividend and provision for GBP0.3bn sub-debt redemption.
[4] Cash generation defined as net release from operations and
Capital generation defined as Solvency II operational surplus
generation.
[5] $53tn retirement solutions market, Willis Towers Watson,
2021 Global Pension Assets Study; $136tn asset management market,
BCG, Global Asset Management 2021; $20tn climate change market
based on forecast that $130tn of investment is needed to 2050 in
order to achieve zero emissions, scaled pro-rata to 2025.
BloombergNEF: New energy outlook 2021
https://about.bnef.com/new-energy-outlook/
[6] From 1 January 2021, the Workplace Savings administration
business has transferred to LGRR, where it complements LGRR's
retirement solutions offering and retail customer focus; LGIM
continues to manage the assets and earn the asset management profit
from this business. 2020 financials have been restated
accordingly.
[7] Excludes Mature Savings.
[8] The sale of the Mature Savings business completed on 7
September 2020.
[9] COVID-19 costs reflect incremental operational expenses
incurred in 2020 as a result of COVID-19 and include the provision
of IT spend on remote working solutions.
[10] Operating profit is an Alternative Performance Measure and
represents Group adjusted operating profit as defined on page 101
.
[11] LGI investment variance is the formulaic impact of rising
(positive) and falling (negative) interest rates on the discount
rate (both UK and US) used to calculate LGI reserves.
[12] Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit
before tax attributable to equity holders as defined on page
101.
[13] GBP3.1bn of global PRT includes a GBP925m Assured Payment
Policy for Legal & General's Group UK Pension.
[14] 8.4% Solvency II margin represents UK pension risk transfer
volume (LGRI) and individual annuity volume (LGRR).
[15] Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit
before tax attributable to equity holders as defined on page
101.
[16] Solvency II coverage ratio on a "shareholder view".
Incorporates the impact of recalculating the Transitional Measures
for Technical Provisions (TMTP) as at 30 June 2021.
[17] For example, UK 10 year Gilts at 0.72% at the end of the
period, having increased 52bps between 31 December 2020 and 30 June
2021.
[18] Solvency II coverage ratio on a proforma basis includes the
SCR attributable to our Group final salary pension plans in both
the Group's Own Funds and the SCR. Incorporates the impact of
recalculating the Transitional Measures for Technical Provisions
(TMTP) as at 30 June 2021.
[19] Calculated using annualised profit for the year and average
equity attributable to the owners of the parent of GBP9,677m.
[20] IPE, Top 500 Asset Managers 2021.
[21] Three year average (2018-2020) measured by UK PRT new
business volumes. Three year average measured by UK PRT deal count
from LGIM clients is 67%.
[22] Broadridge, UK Defined Contribution and Retirement Income
report 2019. 2019 UK DC Assets: GBP438bn.
[23] For more information please refer to
www.legalandgeneralgroup.com/investors/esg-investors/
[24] Proprietary assets relate to Investments to which
shareholders are directly exposed (excluding client and
policyholder assets, derivatives, cash, cash equivalents and
loans), as disclosed in Note 7.01.
[25] www.legalandgeneralgroup.com/media/18377/fy2020-lg-tcfd-report.pdf
[26] Represents voting instructions for main FTSE pooled
funds.
[27] 2020 Sustainability and Inclusive Capitalism 2020-2021
[28] $130tn investment needed to 2050 in order to achieve zero
emissions, scaled pro-rata to 2025. BloombergNEF: New energy
outlook 2021 https://about.bnef.com/new-energy-outlook/
[29] The ambition is based on the aggregate performance over a
five-year period. Performance may vary from year to year and
individual statements may not be met in
each year on a standalone basis. Dividend decisions are subject
to final Board approval.
[30] Cash generation is net release from operations, capital
generation is Solvency II operational surplus generation. Dividends
on a declared basis. On the basis of a flat final 2020 dividend,
and 3-6% annual growth thereafter.
[31] Self-financing means that LGR can write up to GBP10-11bn of
UK annuity new business volume per annum, while contributing to a)
its share of a progressive Group dividend, and b) the Group
Solvency coverage ratio increasing over time.
[32] Legal & General 2020 Capital Markets Event, slide
26.
[33] Pension Purple Book 2020, PPF; Hymans Robertson, 2019 Risk
Transfer Report; 2021 de-risking report, Willis Towers Watson.
[34] LGR market view based on discussions with external Employee
Benefit consultants.
[35] Pension buy-ins/outs: Predictions for 2021 and beyond;
LCP.
[36] LIMRA, March 2020.
[37] Professional Pensions, "L&G announces bulk annuities
with UK and US schemes", 13 May 2020.
[38] FCA Retirement Income Data Apr 2018 - March 2020.
[39] Broadridge DC Report 2019.
[40] ABI Q1 2021 Report.
[41] Legal & General 2020 Capital Markets Event, slide
79.
[42] Note: W e expect a neutral financial impact. LGIM's
financial ambitions remain as stated in previous market
guidance.
[43] $130tn investment needed to 2050 in order to achieve net
zero emissions (midpoint of estimated range), BloombergNEF: New
energy outlook 2021 https://about.bnef.com/new-energy-outlook/
[44] LGRA market view based on discussions with external
Employee Benefit consultants.
[45] 2015: $445m, 1; 2016: $448m, 6; 2017: $713m, 15; 2018:
$844m, 21; 2019: $1,140m, 10; 2020: $1,614m, 17; H1 2021: $149m,
3.
[46] ABI Q1 2021 Report.
[47] LGR's total annuity asset portfolio represents our UK and
US annuities businesses. See note 5.04 and note 7.01 for more
detail.
[48] Includes LGR direct investment bonds (GBP 21,023m), direct
investment property (GBP4,639m), direct investments equity (GBP9m),
and other assets (GBP100m). Please see note 7.02b for more
information.
[49] Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
[50] Ranked ninth by AUM, Japanese industry publication Nenkin
joho (Pension News) 5 Apr 2021.
[51] ETFBook. This source also applies to other references to
market data, and to market shares, in this section.
[52] ABI Q1 2021 Report.
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