TIDMLGEN
RNS Number : 4747H
Legal & General Group Plc
04 August 2021
Legal & General Group Plc
Half Year Results 2021 Part 2
1 INDEPENT REVIEW REPORT TO LEGAL & GENERAL GROUP PLC Page
33
Conclusion
We have been engaged by Legal & General Group plc ("the
Group") to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2021
which comprises the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Balance Sheet,
Condensed Consolidated Statement of Changes in Equity, Consolidated
Statement of Cash Flows (pages 46 to 51) and the related
explanatory notes to the interim financial statements (pages 35 to
45 and 52 to 72).
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Note 4.01, the latest annual financial
statements of the Group were prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and the
next annual financial statements will be prepared in accordance
with UK-adopted international accounting standards. The directors
are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Group in accordance with the
terms of our engagement to assist the Group in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Group those matters we are
required to state to it in this report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group for our review work,
for this report, or for the conclusions we have reached.
Rees Aronson
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
3 August 2021
Legal & General Group Plc
Half Year Results 2021 Part 2
Page 34
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Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
35
2.01 Operating profit(#)
For the six month period to 30 June 2021
6 months 6 months Full year
2021 2020 2020
Notes GBPm GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 2.03 683 720 1,728
-------- -------- ---------
- LGR Institutional (LGRI) 525 585 1,331
- LGR Retail (LGRR) (1) 158 135 397
-------- -------- ---------
Legal & General Investment Management
(LGIM) (1) 2.04 204 197 407
Legal & General Capital (LGC) 2.05 250 123 275
Legal & General Insurance (LGI) 2.03 134 88 189
-------- -------- ---------
- UK and Other 96 57 205
- US (LGIA) 38 31 (16)
-------- -------- ---------
Operating profit from divisions:
From continuing operations 1,271 1,128 2,599
From discontinued operations (2) - 26 34
Operating profit from divisions 1,271 1,154 2,633
Group debt costs (3) (120) (115) (233)
Group investment projects and expenses (72) (72) (155)
Covid-19 costs (4) - (21) (27)
Operating profit 1,079 946 2,218
Investment and other variances 2.06 244 (644) (394)
Losses on non-controlling interests (3) (17) (36)
Adjusted profit before tax attributable
to equity holders 1,320 285 1,788
Tax attributable to equity holders 4.05 (258) (12) (217)
Profit for the period 3.01 1,062 273 1,571
Less: Profit after tax from discontinued
operations (2) 3.01 - (19) (290)
--------------------------------------------- ----- -------- -------- ---------
Profit after tax from continuing operations 3.01 1,062 254 1,281
--------------------------------------------- ----- -------- -------- ---------
Total tax expense 3.01 339 88 218
--------------------------------------------- ----- -------- -------- ---------
Profit before tax 3.01 1,401 342 1,499
--------------------------------------------- ----- -------- -------- ---------
Profit attributable to equity holders 1,065 290 1,607
Earnings per share:
Basic (pence per share) (5) 2.07 17.78p 4.89p 27.00p
Diluted (pence per share) (5) 2.07 16.96p 4.63p 25.60p
1. LGRR includes the Workplace Savings business which was previously
reported in LGIM. Prior period comparatives have been restated to
reflect the change in segmentation. Further details are provided
in Note 2.08.
2. In 2020 discontinued operations included the results of the Mature
Savings division, the sale of which completed on 7 September 2020.
3. Group debt costs exclude interest on non-recourse financing.
4. Covid-19 costs reflected incremental operational expenses incurred
as a result of Covid-19.
5. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the
group's key performance indicators) provides additional analysis of
the results reported under IFRS, and the group believes it provides
stakeholders with useful information to enhance their understanding
of the performance of the business in the period.
Operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except the operating profit for LGC's trading
businesses (which reflects the IFRS profit before tax). Variances
between actual and long-term expected investment return assumptions
are reported below operating profit, which include any differences
between investment return on actual assets and the target long-term
asset mix. Exceptional income and expenses which arise outside the
normal course of business in the period, such as gains/losses from
merger and acquisition, and start-up costs, are also excluded from
operating profit.
The group reports its results across the following business
segments:
-- LGR represents worldwide pension risk transfer business
including longevity insurance (within LGRI), and retail retirement,
workplace savings and lifetime mortgage loans (within LGRR).
-- LGIM represents institutional and retail investment management.
-- LGC represents shareholder assets invested in direct
investments primarily in the areas of housing, urban regeneration,
clean energy and SME finance, as well as traded and treasury
assets.
-- LGI primarily represents UK and US retail protection
business, UK group protection and Fintech business.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
36
2.02 Reconciliation of release from operations to operating
profit(#) before tax
Changes Operating Operating
New Net in profit/ profit/
For the six Release business release Exper- valuation (loss) Tax (loss)
month from surplus/ from ience assump- Non-cash after expense/ before
period operations(1) (strain) operations variances tions items Other tax (credit) tax
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2021
LGR 363 83 446 117 8 12 - 583 100 683
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 252 68 320 105 8 15 - 448 77 525
- LGRR (2) 111 15 126 12 - (3) - 135 23 158
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM (2) 163 - 163 - - - - 163 41 204
LGC 213 - 213 - - - - 213 37 250
LGI 151 8 159 4 1 4 (64) 104 30 134
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 61 8 69 4 1 4 - 78 18 96
- US
(LGIA)
(3) 90 - 90 - - - (64) 26 12 38
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
Total from
divisions 890 91 981 121 9 16 (64) 1,063 208 1,271
Group debt
costs (97) - (97) - - - - (97) (23) (120)
Group
investment
projects
and
expenses (30) - (30) - - - (31) (61) (11) (72)
Total 763 91 854 121 9 16 (95) 905 174 1,079
1. Release from operations within US (LGIA) includes GBP80m of dividends
from the US.
2. LGRR includes the Workplace Savings business which was previously
reported in LGIM. Prior year comparatives have been restated to reflect
the change in segmentation. Further details are provided in Note 2.08.
3. Other includes experience variances, changes in valuation assumptions
and non-cash items for LGIA.
Release from operations for LGR and LGI UK and Other represents the
expected IFRS surplus generated in the period from the difference between
the prudent assumptions underlying the IFRS liabilities and our best
estimate of future experience for in-force non-profit annuities, workplace
savings and UK protection businesses. The LGI release from operations
also includes dividends remitted from LGIA.
New business surplus/(strain) for LGR and LGI UK and Other represents
the initial profit or loss from writing new business. This includes
the costs associated with acquiring new business and setting up prudent
reserves in respect of new business for UK non-profit annuities, workplace
savings and protection, net of tax. The new business surplus and release
from operations for LGR and LGI excludes any capital held in excess
of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long-term
asset portfolio. At certain period ends, depending upon the quantum
and timing of pension risk transfer (PRT) volumes, we may have sourced
more or less of the high quality assets targeted to support that business.
At period end, the profit impact of the difference between actual assets
held (including alternative surplus assets where suitable) and the long-term
asset mix is reflected in investment variance.
Net release from operations for LGR and LGI is defined as release from
operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and
LGIM represents the operating profit (net of tax).
See Note 2.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Group adjusted operating profit', an alternative performance measure
defined in the glossary.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
37
2.02 Reconciliation of release from operations to operating
profit(#) before tax (continued)
Changes Operating Operating
New Net in profit/ profit/
For the six Release business release Exper- valuation (loss) Tax (loss)
month from surplus/ from ience assump- Non-cash after expense/ before
period operations(1) (strain) operations variances tions items Other tax (credit) tax
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2020
LGR 344 87 431 22 143 21 - 617 103 720
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 246 71 317 20 143 21 - 501 84 585
- LGRR (2) 98 16 114 2 - - - 116 19 135
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM (2) 158 - 158 - - - - 158 39 197
LGC 97 - 97 - - - - 97 26 123
LGI 163 (1) 162 (25) 8 (5) (81) 59 29 88
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 69 (1) 68 (25) 8 (5) - 46 11 57
- US (LGIA)
(3) 94 - 94 - - - (81) 13 18 31
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 762 86 848 (3) 151 16 (81) 931 197 1,128
From
discontinued
operations
(4) 21 - 21 - - - - 21 5 26
Total from
divisions 783 86 869 (3) 151 16 (81) 952 202 1,154
Group debt
costs (93) - (93) - - - - (93) (22) (115)
Group
investment
projects and
expenses (25) - (25) - - - (30) (55) (17) (72)
Covid-19
costs
(5) - - - - - - (17) (17) (4) (21)
Total 665 86 751 (3) 151 16 (128) 787 159 946
1. Release from operations within US (LGIA) includes GBP84m of dividends
from the US.
2. LGRR includes the Workplace Savings business which was previously
reported in LGIM. Further details are provided in Note 2.08.
3. Other includes experience variances, changes in valuation assumptions
and non-cash items for LGIA.
4. Discontinued operations include the results of the Mature Savings
division, the sale of which completed on 7 September 2020.
5. Covid-19 costs reflect incremental operational expenses incurred
as a result of Covid-19.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
38
2.02 Reconciliation of release from operations to operating
profit(#) before tax (continued)
Operating
New Net Changes Operating profit/
in
Release business release Exper- valuation profit/ Tax (loss)
from surplus/ from ience assump- Non-cash (loss) expense/ before
after
For the year operations(1) (strain) operations variances tions items Other tax (credit) tax
ended
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2020
LGR 685 262 947 99 400 32 - 1,478 250 1,728
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 492 220 712 81 314 30 - 1,137 194 1,331
- LGRR (2) 193 42 235 18 86 2 - 341 56 397
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM (2) 327 - 327 - - - - 327 80 407
LGC 224 - 224 - - - - 224 51 275
LGI 250 8 258 (41) 58 (5) (115) 155 34 189
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 146 8 154 (41) 58 (5) - 166 39 205
- US (LGIA)
(3) 104 - 104 - - - (115) (11) (5) (16)
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 1,486 270 1,756 58 458 27 (115) 2,184 415 2,599
From
discontinued
operations
(4) 28 - 28 - - - - 28 6 34
Total from
divisions 1,514 270 1,784 58 458 27 (115) 2,212 421 2,633
Group debt
costs (189) - (189) - - - - (189) (44) (233)
Group
investment
projects and
expenses (56) - (56) - - - (61) (117) (38) (155)
Covid-19
costs
(5) - - - - - - (20) (20) (7) (27)
Total 1,269 270 1,539 58 458 27 (196) 1,886 332 2,218
1. Release from operations within US (LGIA) includes GBP84m of dividends
from the US.
2. LGRR includes the Workplace Savings business which was previously
reported in LGIM. Further details are provided in Note 2.08.
3. Other includes experience variances, changes in valuation assumptions
and non-cash items for LGIA.
4. Discontinued operations include the results of the Mature Savings
division, the sale of which completed on 7 September 2020.
5. Covid-19 costs reflect incremental operational expenses incurred
as a result of Covid-19.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
39
2.03 Analysis of LGR and LGI operating profit
For the six month period to 30 June 2021
LGR(1) LGI LGR(1) LGI LGR(1) LGI
6 months 6 months 6 months 6 months Full year Full year
2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Net release from operations 446 159 431 162 947 258
Experience variances
- Persistency - (6) 3 (11) 7 3
- Mortality/morbidity 42 3 33 (17) 104 (46)
- Expenses (3) (2) (3) (5) (18) (5)
- Project and development costs (3) - (4) - (9) (1)
- Other (2) 81 9 (7) 8 15 8
Total experience variances 117 4 22 (25) 99 (41)
Changes in valuation assumptions
- Persistency - - - - - (1)
- Mortality/morbidity - - 19 4 255 54
- Expenses - - - - - 2
- Other (3) 8 1 124 4 145 3
Total changes in valuation assumptions 8 1 143 8 400 58
Movement in non-cash items
- Acquisition expense tax relief - - - (2) - (3)
- Other (4) 12 4 21 (3) 32 (2)
Total movement in non-cash items 12 4 21 (5) 32 (5)
Other - (64) - (81) - (115)
Operating profit after tax 583 104 617 59 1,478 155
Tax expense 100 30 103 29 250 34
Operating profit before tax 683 134 720 88 1,728 189
1. LGR includes the Workplace Savings business which was previously
reported in LGIM. Prior year comparatives have been restated to reflect
the change in segmentation. Further details are provided in Note
2.08.
2. Other experience variances for LGR in the period to 30 June 2021
include the impact from an improvement in the quality of scheme data
relating to bulk annuities, as well as the net impact of new reinsurance
agreements relating to schemes transacted in different periods.
3. In 2020, the positive Other assumption change in LGR reflects
a reduction in the assumed late retirement factors applied to deferred
annuities.
4. LGR Other movement in non-cash items is driven by the net effect
of the capitalisation and unwind of future asset management profits
on activity managed by LGIM, and is a function of new business volumes
and movements in the main unit cost assumptions.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
40
2.04 LGIM operating profit
6 months 6 months Full year
2021 2020 2020
GBPm GBPm GBPm
Asset management revenue (excluding 3rd
party market data) (1,2) 471 458 929
Asset management transactional revenue
(3) 9 9 27
Asset management expenses (excluding 3rd
party market data) (1,2) (276) (270) (549)
Total LGIM operating profit (4) 204 197 407
1. Asset management revenue and expenses exclude income and costs
of GBP18m in relation to the provision of third party market data
(H1 20: GBP13m; FY 20: GBP27m).
2. The ETF operating result is included as part of asset management
revenue and expenses.
3. Transactional revenue from external clients includes execution
fees, asset transition income, trigger fees, arrangement fees on
property transactions and performance fees.
4. The Workplace Savings business, which was previously reported
in LGIM, has been transferred to LGRR. Prior year comparatives
have been restated to reflect the change in segmentation. Further
details are provided in Note 2.08.
2.05 LGC operating profit
6 months 6 months Full year
2021 2020 2020
GBPm GBPm GBPm
Direct investments(1) 195 36 112
Traded investment portfolio including
treasury assets(2) 55 87 163
Total LGC operating profit 250 123 275
1. Direct investments represents LGC's portfolio of assets across
urban regeneration (including specialist commercial real estate
and clean energy), housing and SME finance.
2. The traded investment portfolio holds a diversified set of exposures
across equities, fixed income, multi-asset funds and cash.
2.06 Investment and other variances
Full
6 months 6 months year
2021 2020 2020
GBPm GBPm GBPm
Investment variance (1) 255 (599) (691)
M&A related and other variances
(2) (11) (45) 297
Total investment and other variances 244 (644) (394)
1. The investment variance for the six months ended 30 June 2021
is driven by the formulaic impact of rising interest rates on LGI
reserves of GBP230m (H1 20: GBP(483)m), along with strong portfolio
performance in LGR and LGC, partially offset by the similarly formulaic
but negative impact of rising interest rates on the value of the
annuity obligations insured by LGAS in the group's defined benefit
pension schemes, which drives the Group central expenses investment
variance of GBP(132)m (H1 20: GBP71m).
2. M&A related and other variances includes gains and losses, expenses
and intangible amortisation relating to acquisitions and disposals.
Full year 2020 includes a GBP335m profit on the disposal of the
Mature Savings business.
Investment variance includes differences between actual and long
term expected investment return on traded and real assets, economic
assumption changes (e.g. credit default and inflation), the impact
of any difference between the actual allocated asset mix and the
target long-term asset mix on new pension risk transfer business,
and excludes the yield associated with assets held for future new
pension risk transfer business from the valuation discount rate.
The long term expected investment return is based on opening economic
assumptions applied to the assets under management at the start
of the reporting period. The assumptions underlying the calculation
of the expected returns for traded equity and commercial property
assets are based on market consensus forecasts and long term historic
average returns expected to apply through the cycle. The principal
assumptions are:
Full
6 months 6 months year
2021 2020 2020
Equities 7% 7% 7%
Commercial property 5% 5% 5%
Residential property RPI + RPI + RPI +
50bps 50bps 50bps
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
41
2.07 Earnings per share
(a) Basic earnings per share
After Per share(1) After Per share(1) After Per share(1)
tax tax tax
6 months 6 months 6 months 6 months Full year Full year
2021 2021 2020 2020 2020 2020
GBPm p GBPm p GBPm p
Profit for the period attributable
to equity holders 1,065 17.96 290 4.89 1,607 27.10
Less: coupon payable in respect
of restricted Tier 1 convertible
notes net of tax relief (11) (0.18) - - (6) (0.10)
-------------------------------------- -------- ============ ======== ============ ========= ============
Total basic earnings 1,054 17.78 290 4.89 1,601 27.00
Less: earnings derived from
discontinued operations - - (19) (0.32) (290) (4.89)
------------------------------------- -------- ------------ -------- ------------ --------- ------------
Basic earnings derived from
continuing operations 1,054 17.78 271 4.57 1,311 22.11
------------------------------------ -------- ------------ -------- ------------ --------- ------------
1. Basic earnings per share is calculated by dividing profit after
tax by the weighted average number of ordinary shares in issue during
the period, excluding employee scheme treasury shares.
(b) Diluted earnings per share
Weighted
average
number
of
After tax shares Per share(1)
For the six month period GBPm m p
to 30 June 2021
Profit for the period attributable
to equity holders 1,065 5,929 17.96
Net shares under options allocable
for no further consideration - 45 (0.14)
Conversion of restricted
Tier 1 notes - 307 (0.86)
Total diluted earnings 1,065 6,281 16.96
Diluted earnings derived from continuing
operations 1,065 6,281 16.96
------------------------------------------------ --------- -------- ------------
Weighted
average
number
of
After tax shares Per share(1)
For the six month period GBPm m p
to 30 June 2020
Profit for the period attributable to equity
holders 290 5,930 4.89
Net shares under options allocable for no
further consideration - 33 (0.03)
Conversion of restricted
Tier 1 notes - 307 (0.23)
Total diluted earnings 290 6,270 4.63
Less: diluted earnings derived from
discontinued operations (19) - (0.30)
------------------------------------------------ --------- -------- ------------
Diluted earnings derived from continuing
operations 271 6,270 4.33
------------------------------------------------ --------- -------- ------------
Weighted
average
number
of
After tax shares Per share(1)
For the year ended 31 December 2020 GBPm m p
Profit for the year attributable to equity
holders 1,607 5,930 27.10
Net shares under options allocable for no
further consideration - 40 (0.18)
Conversion of restricted
Tier 1 notes - 307 (1.32)
Total diluted earnings 1,607 6,277 25.60
Less: diluted earnings derived from
discontinued operations (290) - (4.62)
------------------------------------------------ --------- -------- ------------
Diluted earnings derived from continuing
operations 1,317 6,277 20.98
------------------------------------------------ --------- -------- ------------
1. For diluted earnings per share, the weighted average number of
ordinary shares in issue, excluding employee scheme treasury shares,
is adjusted to assume conversion of all potential ordinary shares,
such as share options granted to employees and conversion of restricted
Tier 1 notes.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
42
2.08 Segmental analysis
The group has four reportable segments that are continuing
operations, comprising LGR, LGIM, LGC and LGI, as set out in Note
2.01. Group central expenses and debt costs are reported
separately. Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
From 1 January 2021, management of the Workplace Savings
business has transferred from LGIM to LGRR, where it complements
their retirement solutions offering and retail customer focus. The
change in segment reporting has no impact on the profit or loss, or
net assets, of the group. To enable comparison, segmental
information for prior periods has been restated accordingly.
For 2020, continuing operations exclude the results of the
Mature Savings division, the sale of which completed on 7 September
2020.
Reporting of assets and liabilities by reportable segment has
not been included, as this is not information that is provided to
key decision makers on a regular basis. The group's assets and
liabilities are managed on a legal entity rather than reportable
segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further
broken down where relevant in order to better explain the drivers
of the group's results.
(i) Profit/(loss) for the period
Group
expenses Total
and debt continuing
LGR(1) LGIM(1) LGC LGI costs(2) operations
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2021
Operating profit/(loss)(#) 683 204 250 134 (192) 1,079
Investment and other variances 105 (7) 48 230 (132) 244
Losses attributable to non-controlling
interests - - - - (3) (3)
Profit/(loss) before tax attributable
to equity holders 788 197 298 364 (327) 1,320
Tax (expense)/credit attributable
to equity holders (145) (44) (54) (91) 76 (258)
Profit/(loss) for the period 643 153 244 273 (251) 1,062
Group
expenses Total
and debt continuing
LGR(1) LGIM(1) LGC LGI costs(2) operations
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2020
Operating profit/(loss)(#) 720 197 123 88 (208) 920
Investment and other variances 73 4 (307) (483) 71 (642)
Losses attributable to non-controlling
interests - - - - (17) (17)
Profit/(loss) before tax attributable
to equity holders 793 201 (184) (395) (154) 261
Tax (expense)/credit attributable
to equity holders (97) (23) 33 70 10 (7)
Profit/(loss) for the period 696 178 (151) (325) (144) 254
Group
expenses Total
and debt continuing
LGR(1) LGIM(1) LGC LGI costs(2) operations
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2020
Operating profit/(loss) (#) 1,728 407 275 189 (415) 2,184
Investment and other variances 15 1 (299) (459) 24 (718)
Losses attributable to non-controlling
interests - - - - (36) (36)
Profit/(loss) before tax attributable
to equity holders 1,743 408 (24) (270) (427) 1,430
Tax (expense)/credit attributable
to equity holders (228) (65) (8) 58 94 (149)
Profit/(loss) for the year 1,515 343 (32) (212) (333) 1,281
1. LGR includes the Workplace Savings business which was previously
reported in LGIM. Prior year comparatives have been restated to
reflect the change in segmentation.
2. Group expenses and debt costs include GBPnil of incremental costs
incurred as a result of Covid-19 (H1 20: GBP21m; FY 20: GBP27m).
# Operating profit for total continuing operations represents 'Group
adjusted operating profit', an alternative performance measure defined
in the glossary.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
43
2.08 Segmental analysis (continued)
(ii) Revenue
(a) Total revenue
6 months 6 months Full year
2021 2020 2020
GBPm GBPm GBPm
Total income 14,898 17,419 50,231
Adjusted for:
Share of (profit)/loss from associates
and joint ventures, net of tax (21) 23 28
Total revenue from continuing operations 14,877 17,442 50,259
(b) Total income
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2021
Internal income - 80 - (80) -
External income (13) 17,891 1,003 (3,983) 14,898
Total income (13) 17,971 1,003 (4,063) 14,898
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2020
Internal income - 102 - (102) -
External income 6,530 (1,812) 1,016 11,685 17,419
Total income 6,530 (1,710) 1,016 11,583 17,419
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations
For the year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm
Internal income - 201 - (201) -
External income 15,057 20,878 1,799 12,497 50,231
Total income 15,057 21,079 1,799 12,296 50,231
1. LGIM internal income relates to investment management services
provided to other segments.
2. LGIM external income primarily includes fees from fund
management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
44
2.08 Segmental analysis (continued)
(ii) Revenue (continued)
(c) Fees from fund management and investment contracts
Total
continuing
LGI LGC and operations
LGR(1) LGIM(1) other(2)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2021
Investment contracts 46 - - - 46
Investment management fees - 488 - (80) 408
Transaction fees - 9 - - 9
Total fees from fund management
and investment contracts (3) 46 497 - (80) 463
Total
continuing
LGC and operations
LGR(1) LGIM(1) LGI other(2)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2020
Investment contracts 38 - - - 38
Investment management fees - 467 - (96) 371
Transaction fees - 9 - - 9
Total fees from fund management and
investment contracts (3) 38 476 - (96) 418
Total
continuing
LGC and operations
LGR(1) LGIM(1) LGI other(2)
For the year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm
Investment contracts 79 - 1 - 80
Investment management fees - 954 - (188) 766
Transaction fees - 27 - - 27
Total fees from fund management and
investment contracts (3) 79 981 1 (188) 873
1. LGR includes the Workplace Savings business which was previously
reported in LGIM. Prior year comparatives have been restated to
reflect the change in segmentation.
2. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
3. Fees from fund management and investment contracts are a component
of Total revenue from continuing operations disclosed in Note 2.08
(ii)(a).
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosures on performance and Release from operations Page
45
2.08 Segmental analysis (continued)
(ii) Revenue (continued)
(d) Other operational income from contracts with customers
Total
continuing
LGR LGIM LGI LGC and operations
other
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2021
House building - - - 651 651
Professional services
fees 1 - 49 - 50
Insurance broker - - 2 - 2
Total other operational income from
contracts with customers(1) 1 - 51 651 703
Total
continuing
LGR LGIM LGI LGC and operations
other
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2020
House building - - - 220 220
Professional services
fees 1 1 33 - 35
Insurance broker - - 13 - 13
Total other operational income from
contracts with customers(1) 1 1 46 220 268
Total
continuing
LGR LGIM LGI LGC and operations
other
For the year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm
House building - - - 748 748
Professional services
fees 1 - 83 - 84
Insurance broker - - 16 - 16
Total other operational income from
contracts with customers(1) 1 - 99 748 848
1. Total other operational income from contracts with customers
is a component of Total revenue from continuing operations disclosed
in Note 2.08 (ii)(a) and excludes the share of profit/loss from
associates and joint ventures, and the gain on acquisition and disposal
of subsidiaries, associates and joint ventures.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 46
3.01 Consolidated Income Statement
6 months 6 months Full year
2021 2020 2020
For the six month period to 30 June Notes GBPm GBPm GBPm
2021
Income
Gross written premiums 4,263 5,497 12,545
Outward reinsurance premiums (1,605) (1,303) (3,187)
Net change in provision for unearned
premiums 35 10 12
Net premiums earned 2,693 4,204 9,370
Fees from fund management and investment
contracts 463 418 873
Investment return 11,018 12,552 39,168
Other operational income 724 245 820
Total income 2.08 14,898 17,419 50,231
Expenses
Claims and change in insurance contract
liabilities 540 8,366 17,768
Reinsurance recoveries (1,313) (1,957) (3,601)
Net claims and change in insurance
contract liabilities (773) 6,409 14,167
Change in investment contract liabilities 12,232 9,190 31,410
Acquisition costs 436 438 617
Finance costs 157 155 305
Other expenses 1,445 885 2,233
Total expenses 13,497 17,077 48,732
Profit before tax 1,401 342 1,499
Tax expense attributable to policyholder
returns (81) (81) (69)
Profit before tax attributable to equity
holders 1,320 261 1,430
Total tax expense (339) (88) (218)
Tax expense attributable to policyholder
returns 81 81 69
Tax expense attributable to equity
holders 4.05 (258) (7) (149)
Profit after tax from continuing operations 2.08 1,062 254 1,281
Profit after tax from discontinued
operations(1) - 19 290
Profit for the period 1,062 273 1,571
----------------------------------------------------------------- ------- -------- -------- ---------
Attributable to:
Non-controlling interests (3) (17) (36)
Equity holders 1,065 290 1,607
Dividend distributions to equity holders
during the period 4.03 754 754 1,048
Dividend distributions to equity holders
proposed after the period end 4.03 309 294 754
p p p
Total basic earnings per share(2) 2.07 17.78 4.89 27.00
Total diluted earnings per share(2) 2.07 16.96 4.63 25.60
----------------------------------------------------------------- ------- -------- -------- ---------
Basic earnings per share derived from
continuing operations(2) 2.07 17.78 4.57 22.11
Diluted earnings per share derived
from continuing operations(2) 2.07 16.96 4.33 20.98
----------------------------------------------------------------- ------- -------- -------- ---------
1. In 2020, discontinued operations include the results of the
Mature Savings division, the sale of which completed on 7 September
2020.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 47
3.02 Consolidated Statement of Comprehensive Income
6 months 6 months Full year
2021 2020 2020
For the six month period to 30 June 2021 GBPm GBPm GBPm
Profit for the period 1,062 273 1,571
Items that will not be reclassified subsequently
to profit or loss
Actuarial gains/(losses) on defined benefit
pension schemes 116 (146) (168)
Tax on actuarial gains/(losses) on defined
benefit pension schemes (20) 45 48
Total items that will not be reclassified
subsequently to profit or loss 96 (101) (120)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of overseas
operations (11) 56 2
Movement in cross-currency hedge 6 75 7
Tax on movement in cross-currency hedge (4) (11) (4)
Movement in financial investments designated
as available-for-sale (8) (8) 2
Tax on movement in financial investments designated
as available-for-sale 1 1 -
Total items that may be reclassified subsequently
to profit or loss (16) 113 7
Other comprehensive income/(expense) after
tax 80 12 (113)
Total comprehensive income for the period 1,142 285 1,458
Total comprehensive income for the period
from:
Continuing operations 1,142 266 1,168
Discontinued operations - 19 290
---------------------------------------------------- -------- -------- ---------
Total comprehensive income/(expense) for the
period attributable to:
Non-controlling interests (3) (17) (36)
Equity holders 1,145 302 1,494
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 48
3.03 Consolidated Balance Sheet
As at As at As at
30 Jun 30 Jun 31 Dec
2021 2020(1) 2020
Notes GBPm GBPm GBPm
Assets
Goodwill 68 68 68
Purchased interest in long term businesses
and other intangible assets 377 221 329
Deferred acquisition costs 46 49 47
Investment in associates and joint ventures
accounted for using the equity method 314 328 288
Property, plant and equipment 322 291 274
Investment property 4.04 9,080 8,041 8,475
Financial investments 4.04 519,762 513,602 526,057
Reinsurers' share of contract liabilities 6,947 6,694 6,939
Deferred tax assets 4.05 12 10 5
Current tax assets 612 508 634
Receivables and other assets 14,331 15,986 9,429
Assets of operations classified as held for
sale - 23,968 -
Cash and cash equivalents 16,397 21,700 18,020
Total assets 568,268 591,466 570,565
Equity
Share capital 4.06 149 149 149
Share premium 4.06 1,011 1,003 1,006
Employee scheme treasury shares (90) (76) (75)
Capital redemption and other reserves 162 302 198
Retained earnings 8,620 7,137 8,224
Attributable to owners of the parent 9,852 8,515 9,502
Restricted Tier 1 convertible notes 4.07 495 495 495
Non-controlling interests 4.08 (34) 34 (31)
Total equity 10,313 9,044 9,966
Liabilities
Non-participating insurance contract liabilities 86,339 83,504 89,029
Non-participating investment contract liabilities 358,613 327,380 343,543
Core borrowings 4.09 4,542 4,651 4,558
Operational borrowings 4.10 1,138 1,195 1,055
Provisions 4.14 1,113 1,336 1,288
Deferred tax liabilities 4.05 277 237 207
Current tax liabilities 57 - 61
Payables and other financial liabilities 4.12 80,785 101,665 91,942
Other liabilities 640 540 756
Net asset value attributable to unit holders 24,451 33,883 28,160
Liabilities of operations classified as held
for sale - 28,031 -
Total liabilities 557,955 582,422 560,599
Total equity and liabilities 568,268 591,466 570,565
1. Following a change in accounting policy during the second half
of 2020 for LGIA universal life and annuity reserves, a number of
balance sheet items have been restated, notably financial investments,
reinsurers' share of contract liabilities, capital redemption and
other reserves, non-participating insurance contracts liabilities
and deferred tax liabilities. The overall net impact on the group's
retained earnings as at 30 June 2020 is a reduction of GBP316m. Further
details on the impact of the 2020 change in accounting policy are
provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 49
3.04 Condensed Consolidated Statement of Changes in Equity
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the six month
period of the
to 30 June 2021 capital premium shares reserves(1) earnings parent notes interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January
2021 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
Total
comprehensive
income
for the period - - - (16) 1,161 1,145 - (3) 1,142
Options exercised
under
share option
schemes - 5 - - - 5 - - 5
Net movement in
employee
scheme treasury
shares - - (15) (15) (5) (35) - - (35)
Dividends - - - - (754) (754) - - (754)
Coupon payable in
respect
of restricted
Tier 1
convertible notes
net
of tax relief(2) - - - - (11) (11) - - (11)
Movement in third - - - - - - - - -
party
interests
Currency
translation
differences - - - (5) 5 - - - -
As at 30 June 2021 149 1,011 (90) 162 8,620 9,852 495 (34) 10,313
1. Capital redemption and other reserves as at 30 June 2021 include share-based
payments GBP86m, foreign exchange GBP27m, capital redemption GBP17m, hedging
reserves GBP37m and available-for-sale reserves GBP(5)m.
2. See Note 4.07
for
details.
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the six month
period of the
to 30 June 2020 capital premium shares reserves(1) earnings parent notes interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January
2020 149 1,000 (65) 250 8,033 9,367 - 55 9,422
================== ======= ======= ======== =========== ======== ============= =========== =========== ======
Change in
accounting
policy(2) - - - (45) (284) (329) - - (329)
Restated as at 1
January
2020 149 1,000 (65) 205 7,749 9,038 - 55 9,093
================== ======= ======= ======== =========== ======== ============= =========== =========== ======
Total
comprehensive
income
for the period - - - 113 189 302 - (17) 285
Options exercised
under
share option
schemes - 3 - - - 3 - - 3
Net movement in
employee
scheme treasury
shares - - (11) (6) 11 (6) - - (6)
Dividends - - - - (754) (754) - - (754)
Restricted Tier 1
convertible
notes - - - - - - 495 - 495
Movement in third
party
interests - - - - - - - (4) (4)
Currency
translation
differences - - - 26 (26) - - - -
Changes in
accounting
policy (2) - - - (36) (32) (68) - - (68)
Restated as at 30
June
2020 149 1,003 (76) 302 7,137 8,515 495 34 9,044
1. Capital redemption and other reserves as at 30 June 2020 include share-based
payments GBP79m, foreign exchange GBP150m, capital redemption GBP17m,
hedging reserves GBP96m and available-for-sale reserves GBP(40)m.
2. Changes in accounting policy represents the impact on capital redemption
and other reserves and retained earnings of the change in accounting
policy in 2020 related to LGIA universal life and annuity reserves, described
in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 50
3.04 Condensed Consolidated Statement of Changes in Equity
(continued)
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
and
Share Share treasury other Retained to owners convertible controlling Total
For the year
ended 31 of the
December 2020 capital premium shares reserves(1) earnings parent notes interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January
2020 149 1,000 (65) 205 7,749 9,038 - 55 9,093
Total
comprehensive
income
for the year - - - 7 1,487 1,494 - (36) 1,458
Options exercised
under
share option
schemes - 6 - - - 6 - - 6
Net movement in
employee
scheme treasury
shares - - (10) 16 12 18 - - 18
Dividends - - - - (1,048) (1,048) - - (1,048)
Coupon payable in
respect
of restricted
Tier 1
convertible
notes net
of tax relief - - - - (6) (6) - - (6)
Restricted Tier 1
convertible
notes - - - - - - 495 - 495
Movement in third
party
interests - - - - - - - (50) (50)
Currency
translation
differences - - - (30) 30 - - - -
As at 31 December
2020 149 1,006 (75) 198 8,224 9,502 495 (31) 9,966
1. Capital redemption and other reserves as at 31 December 2020 include
share-based payments GBP101m, foreign exchange GBP43m, capital redemption
GBP17m, hedging reserves GBP35m and available-for-sale reserves GBP2m.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Primary Financial Statements Page 51
3.05 Consolidated Statement of Cash Flows
6 months 6 months Full year
2021 2020 2020
For the six month period to 30 June 2021 Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period 1,062 273 1,571
Adjustments for non cash movements in net
profit for the period
Net gains on financial investments and investment
property (5,227) (6,969) (28,530)
Investment income (5,790) (4,578) (9,761)
Interest expense 157 179 337
Tax expense 339 (17) 144
Other adjustments 44 18 (12)
Net decrease/(increase) in operational assets
Investments held for trading or designated
as fair value through profit or loss 5,804 6,032 6,519
Investments designated as available-for-sale 15 (35) 1,072
Other assets (4,931) (8,098) (2,445)
Net increase/(decrease) in operational liabilities
Insurance contracts (2,615) 5,187 11,607
Investment contracts 15,069 6,789 20,855
Other liabilities (10,114) 5,537 (5,900)
Net (decrease)/increase in held for sale net
liabilities - (1,181) -
Cash (utilised in)/from operations (6,187) 3,137 (4,543)
Interest paid (160) (127) (301)
Interest received 3,368 2,296 5,190
Rental income 184 173 384
Tax paid(1) (276) (279) (554)
Dividends received 2,307 2,284 4,125
Net cash flows (utilised in)/from operations (764) 7,484 4,301
Cash flows from investing activities
Acquisition of plant, equipment, intangibles
and other assets (137) (43) (198)
Disposal of plant, equipment, intangibles
and other assets 2 1 34
Acquisition of operations, net of cash acquired - 1 1
Disposal of operations, net of cash transferred - - (278)
Investment in joint ventures and associates (2) - (16)
Net cash flows utilised from investing activities (137) (41) (457)
Cash flows from financing activities
Dividend distributions to ordinary equity
holders during the period 4.03 (754) (754) (1,048)
Coupon payment in respect of restricted Tier
1 convertible notes, gross of tax (14) - (7)
Options exercised under share option schemes 4.06 5 3 6
Treasury shares purchased for employee share
schemes (24) (22) (23)
Payment of lease liabilities (17) (18) (37)
Proceeds from borrowings 252 869 1,086
Repayment of borrowings (162) (237) (501)
Proceeds from issuance of restricted Tier
1 convertible notes, net of associated expenses - 495 495
Net cash flows (utilised in)/from financing
activities (714) 336 (29)
Net (decrease)/increase in cash and cash equivalents (1,615) 7,779 3,815
Exchange (losses)/gains on cash and cash equivalents (8) 26 (28)
Cash and cash equivalents at 1 January (before
reallocation of held for sale cash) 18,020 14,233 14,233
Total cash and cash equivalents 16,397 22,038 18,020
Less: cash and cash equivalents of operations
classified as held for sale - (338) -
Cash and cash equivalents at 30 June/31 December 16,397 21,700 18,020
1. Tax comprises UK corporation tax paid of GBP155m (H1 20: GBP203m;
FY 20: GBP417m), withholding tax of GBP118m (H1 20: GBP95m; FY 20:
GBP137m) and overseas corporate tax of GBP3m (H1 20: refund of GBP19m;
FY 20: GBPnil).
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 52
4.01 Basis of preparation
The group financial information for the six months ended 30 June
2021 has been prepared in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and with IAS 34, 'Interim Financial Reporting'. The
group's financial information has also been prepared in line with
the accounting policies which the group expects to adopt for the
2021 year end. These policies are consistent with the principal
accounting policies which were set out in the group's 2020
consolidated financial statements, except where changes have been
outlined below in "New standards, interpretations and amendments to
published standards that have been adopted by the group". These are
consistent with IFRSs iss ued by the International Accounting
Standards Board as adopted by the UK Endorsement Board for use in
the United Kingdom.
The preparation of the interim management report includes the
use of estimates and assumptions which affect items reported in the
consolidated balance sheet and income statement and the disclosure
of contingent assets and liabilities at the date of the financial
statements. The economic and non-economic actuarial assumptions
used to establish the liabilities in relation to insurance and
investment contracts are significant. For half-year financial
reporting, economic assumptions have been updated to reflect market
conditions. Non-economic assumptions are consistent with those used
in the 31 December 2020 financial statements, except as disclosed
in Note 2.03 and Note 4.14.
The results for the half year ended 30 June 2021 are unaudited
but have been reviewed by KPMG LLP. The interim results do not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The results from the full year 2020 have been
taken from the group's 2020 Annual Report and Accounts. Therefore,
these interim accounts should be read in conjunction with the 2020
Annual Report and Accounts that have been prepared in accordance
with International Financial Reporting Standards as issued by the
International Accounting Standards Board as adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
(EU), and with the requirements of the Companies Act 2006
applicable to companies reporting under IFRS. KPMG LLP reported on
the 2020 financial statements, and their report was unqualified and
did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The group's 2020 Annual Report and Accounts has
been filed with the Registrar of Companies.
Key technical terms and definitions
The interim management report refers to various key performance
indicators, accounting standards and other technical terms. A
comprehensive list of these definitions is contained within the
glossary section of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures
(APMs), including net release from operations and group adjusted
operating profit, in the discussion of its business performance and
financial position, as the group believes that they enhance
understanding of the group's performance. Definitions of key APMs
can be found in the glossary.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income
Statement includes income tax borne by both policyholders and
shareholders. This has been split between tax attributable to
policyholders' returns and equity holders' profits. Policyholder
tax comprises the tax suffered on policyholder investment returns,
while shareholder tax is corporation tax charged on shareholder
profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the
profits that it makes.
(a) Impact of changes in accounting policy in 2020
Legal & General Insurance America (LGIA) universal life and
annuity liabilities
In 2020, the group changed its accounting policy for universal
life and annuity liabilities on business transacted by its US
subsidiaries, which was previously based on recognised actuarial
methods reflecting US GAAP. From 1 July 2020, the group has
calculated such liabilities on the basis of current information
using the gross premium valuation method, which is in line with how
similar products are accounted for in other parts of the
business.
In addition, as at 1 July 2020 the group reclassified GBP 1,621
m of financial investments from designated as available-for-sale
and amortised cost to designated as fair value through profit or
loss. This represented a further change in accounting policy
permitted by IFRS 4, 'Insurance Contracts'.
The above voluntary changes in accounting policy were applied in
2020 retrospectively, with prior year retained earnings adjusted
accordingly. As a consequence of these changes, the Consolidated
Balance Sheet as at 30 June 2020 has now also been restated, and
the impact on each line item is shown in the table below:
As reported at As restated at
30 June 2020 Adjustments 30 June 2020
GBPm GBPm GBPm
--------------- ------------ ---------------
Financial investments 513,584 18 513,602
Reinsurers' share of contract liabilities 6,530 164 6,694
Non-participating insurance contract liabilities 82,792 712 83,504
Deferred tax liabilities 370 (133) 237
Capital redemption and other reserves 383 (81) 302
Retained earnings 7,453 (316) 7,137
--------------- ------------ ---------------
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 53
4.01 Basis of preparation (continued)
(b) Going concern
The group's business activities, together with the factors
likely to affect its future development, performance and position
in the current economic climate are set out in this Interim
Management Report. The financial position of the group, its cash
flows, liquidity position and borrowing facilities as at 30 June
2021 are described in the IFRS Primary Financial Statements and
IFRS Disclosure Notes. Since the balance sheet date, Legal &
General Group Plc (the company) has called at par GBP300m of 10%
dated subordinated notes, which were issued in 2009. Principal
risks and uncertainties are detailed on pages 28 to 29.
The directors have made an assessment of the group's going
concern, considering both the group's current performance and
outlook for a period of at least, but not limited to, 12 months
from the date of approval of the interim financial information,
which takes account of the current and future impact of the
Covid-19 pandemic, using the information available up to the date
of issue of this Interim Management Report.
The group manages and monitors its capital and liquidity, and
various stresses are applied to those positions to understand
potential impacts from market downturns. Our key sensitivities and
the impacts on our capital position from a range of stresses is
disclosed on page 82. These stresses, including the additional
considerations and stresses applied in response to Covid-19, do not
give rise to any material uncertainties over the ability of the
group to continue as a going concern. Based upon the available
information, the directors consider that the group has the plans
and resources to manage its business risks successfully and that it
remains financially strong and well diversified.
Having reassessed the principal risks and uncertainties (both
financial and operational) in light of Covid-19 and the current
economic climate, as detailed on pages 28 to 29, the directors are
confident that the group and company will have sufficient funds to
continue to meet their liabilities as they fall due for a period
of, but not limited to, 12 months from the date of approval of this
Interim Management Report and therefore have considered it
appropriate to adopt the going concern basis of accounting when
preparing the interim financial information.
(c) New standards, interpretations and amendments to published
standards that have been adopted by the group
The group has applied the following amendments for the first
time in its six months reporting period commencing 1 January
2021.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -
Interest Rate Benchmark Reform Phase 2
These amendments, issued in August 2020, address issues that
might affect financial reporting after the reform of an interest
rate benchmark, including its replacement with alternative
benchmark rates. In particular, they offer practical expedients,
under certain conditions, when a financial contract is modified due
to a change resulting directly from IBOR reform. They also allow a
series of exemptions from the current rules around hedge
accounting. The amendments will be considered as new interest rate
benchmarks are introduced. New disclosure requirements have also
been introduced as part of Phase 2 on the nature and extent of
risks to which the group is exposed arising from financial
instruments subject to IBOR reform, how such risks are managed and
the group's progress in completing its transition to alternative
benchmark rates.
(d) Future accounting developments
IFRS 17 - Insurance Contracts
IFRS 17, 'Insurance Contracts' was originally issued in May 2017
and subsequent amendments were issued in June 2020. The standard is
expected to be effective for annual periods beginning on or after 1
January 2023. Adoption by the group remains subject to endorsement
for use in the UK. The standard provides a comprehensive approach
for accounting for insurance contracts including their measurement,
income statement presentation and disclosure, and will be applied
retrospectively, subject to the transitional options provided for
in the standard. The group project to implement the standard is
making substantial progress in ensuring technical compliance and in
finalising the build of the required systems and operational
capabilities.
IFRS 9 - Financial Instruments
In July 2014 the IASB issued IFRS 9, 'Financial Instruments',
which is effective for annual periods beginning on or after 1
January 2018. The standard includes new principles around
classification and measurement of financial instruments, introduces
an impairment model based on expected credit losses (replacing the
current model based on incurred losses) and new requirements on
hedge accounting. The group qualifies for, and is making use of an
option provided by the IASB in 'Amendments to IFRS 4: Applying IFRS
9 Financial Instruments with IFRS 4 Insurance Contracts' to allow
deferral of implementation of IFRS 9 until adoption of IFRS 17 or 1
January 2023, whichever is the earlier. The group project to
implement the standard has progressed in the development of the
expected credit loss model and transitional requirements. Work will
continue throughout the remainder of 2021 to develop the policy and
operational changes needed for the implementation of the
standard.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 54
4.02 Post balance sheet events
LGIM Partnership with State Street
On 14 July 2021, the group announced that Legal & General
Investment Management (LGIM) was extending its existing partnership
with State Street, to increase the use of Charles River technology
across the front office and to deliver middle office services going
forward. The agreement is aligned to LGIM's strategy of building a
market-leading global operating model, by enabling the division to
offer a more automated, consistent and seamless business experience
to its clients from all over the world.
As a result of this announcement, in the second half of the year
the group will recognise a provision in relation to implementing
this restructuring, in 'Investment and other variances'. The
associated costs, the estimation of which is subject to ongoing
review, are not expected to have a material impact on the group's
results for the year ended 31 December 2021.
Subordinated Note Redemption
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. Following the notification on 26 May 2021
of the group's intention to redeem these notes in full, they were
called at par on 23 July 2021.
4.03 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1) Dividend Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2021 2021 2020 2020 2020 2020
GBPm p GBPm p GBPm p
Ordinary dividends paid and charged
to equity in the period:
- Final 2019 dividend paid
in June 2020 - - 754 12.64 754 12.64
- Interim 2020 dividend paid
in September 2020 - - - - 294 4.93
- Final 2020 dividend paid
in June 2021 754 12.64 - - - -
Total dividends 754 12.64 754 12.64 1,048 17.57
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
Subsequent to 30 June 2021, the directors declared an interim dividend
of 5.18 pence per ordinary share. This dividend will be paid on 20
September 2021. It will be accounted for as an appropriation of retained
earnings in the year ended 31 December 2021 and is not included as
a liability in the Consolidated Balance Sheet as at 30 June 2021.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 55
4.04 Financial investments and investment property
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
Equities(1) 207,803 189,798 189,089
Debt securities(2,3,6) 278,858 301,059 295,660
Derivative assets(4) 15,449 25,207 24,631
Loans(5,6) 17,652 19,035 16,677
Financial investments 519,762 535,099 526,057
Investment property 9,080 9,334 8,475
Total financial investments and investment
property 528,842 544,433 534,532
---------------------------------------------------------- ------- -------- -------
Less: financial investments and investment property
of operations classified as held for sale - (22,790) -
------- -------- -------
Financial investments and investment property 528,842 521,643 534,532
------- -------- -------
1. Equity securities include investments in unit trusts of GBP15,681m
(30 June 2020: GBP13,615m; 31 December 2020: GBP13,215m).
2. Debt securities include accrued interest of GBP1,389m (30 June 2020:
GBP1,552m; 31 December 2020: GBP1,434m).
3. A detailed analysis of debt securities to which shareholders are
directly exposed is disclosed in Note 7.03.
4. Derivatives are used for efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, credit default swaps
and foreign exchange forward contracts for asset and liability management.
Derivative assets are shown gross of derivative liabilities of GBP18,249m
(30 June 2020: GBP27,550m; 31 December 2020: GBP23,208m).
5. Loans include GBP149m (30 June 2020: GBP122m; 31 December 2020: GBP131m)
of loans valued at amortised cost.
6. As part of a change in accounting policy in the second half of 2020
for LGIA universal life and annuity reserves, certain financial investments
were reclassified from designated as amortised cost to designated as
fair value through profit or loss. Accordingly, the half year 2020 balances
for Debt securities, Accrued interest and Loans have been restated to
reflect the fair value of those assets. Further details on the impact
of the 2020 change in accounting policy are provided in Note 4.01.
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurements are based on observable and unobservable
inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the group's
view of market assumptions in the absence of observable market
information. The group utilises techniques that maximise the use of
observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as
follows:
Level 1: fair values measured using quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all
inputs significant to the measurement other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3: fair values measured using valuation techniques for any
input for the asset or liability significant to the measurement
that is not based on observable market data (unobservable
inputs).
All of the group's Level 2 assets have been valued using
standard market pricing sources, such as IHS Markit, ICE and
Bloomberg, or Index Providers such as Barclays, Merrill Lynch or
JPMorgan. Each uses mathematical modeling and multiple source
validation in order to determine consensus prices, with the
exception of OTC Derivative holdings; OTCs are marked to market
using an in-house system (Lombard Oberon), external vendor (IHS
Markit), internal model or Counterparty Broker marks. In normal
market conditions, we would consider these market prices to be
observable market prices. Following consultation with our pricing
providers and a number of their contributing brokers, we have
considered that these prices are not from a suitably active market
and have therefore classified them as Level 2.
The group's investment properties are valued by appropriately
qualified external valuers using unobservable inputs, resulting in
all investment property being classified as Level 3.
The group's policy is to re-assess categorisation of financial
assets at the end of each reporting period and to recognise
transfers between levels at that point in time.
During 2020 the group enhanced the level of market data it uses
to support the determination of the observability of valuation
inputs, and this has increased the sensitivity of the levelling
assessment to trading volumes, which in turn has increased the
number of debt securities transferring between Level 1 and Level 2.
At 30 June 2021 debt securities totalling GBP9,311m transferred
from Level 2 to Level 1 in the fair value hierarchy, primarily due
to suppressed trading volumes at 31 December 2020.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 56
4.04 Financial investments and investment property
(continued)
(a ) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six month period to 30 June 2021 GBPm GBPm GBPm GBPm
Shareholder and Non-profit
non-unit linked
Equity securities 3,088 1,821 4 1,263
Debt securities 82,699 34,034 26,375 22,290
Derivative assets 14,019 2 14,017 -
Loans at fair value(1) 4,152 - 4,152 -
Investment property 5,103 - - 5,103
=============================================== ======= ======= ======= ======
Total Shareholder and Non-profit non-unit
linked 109,061 35,857 44,548 28,656
============================================== ======= ======= ======= ======
With-profits
Equity securities - - - -
Debt securities - - - -
Derivative assets - - - -
Loans at fair value - - - -
Investment property - - - -
=========================================== ======= ======= ======= ======
Total With-profits - - - -
=========================================== ======= ======= ======= ======
Unit linked
Equity securities 204,715 204,055 23 637
Debt securities 196,159 146,780 49,029 350
Derivative assets 1,430 89 1,341 -
Loans at fair value 13,351 - 13,351 -
Investment property 3,977 - - 3,977
=============================================== ======= ======= ======= ======
Total Unit linked 419,632 350,924 63,744 4,964
=============================================== ======= ======= ======= ======
Total financial investments and investment
property at fair value(1) 528,693 386,781 108,292 33,620
=============================================== ======= ------- ------- ------
1. This table excludes loans (including accrued interest) of GBP149m,
which are held at amortised cost.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 57
4.04 Financial investments and investment property
(continued)
(a ) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six month period to 30 June 2020 GBPm GBPm GBPm GBPm
Shareholder and Non-profit
non-unit linked
Equity securities 2,812 1,662 - 1,150
Debt securities 81,337 11,155 49,347 20,835
Derivative assets 22,388 6 22,382 -
Loans at fair value (1) 1,878 - 1,878 -
Investment property 4,250 - - 4,250
Total Shareholder and Non-profit
non-unit linked 112,665 12,823 73,607 26,235
================================================= ======== ======== ======= ======
With-profits
Equity securities 2,846 2,664 - 182
Debt securities 4,960 1,542 3,418 -
Derivative assets 295 3 292 -
Loans at fair value 450 - 450 -
Investment property 455 - - 455
Total With-profits 9,006 4,209 4,160 637
==================================================== ======== ======== ======= ======
Unit linked
Equity securities 184,140 183,466 21 653
Debt securities 214,762 153,360 61,116 286
Derivative assets 2,524 174 2,350 -
Loans at fair value 16,585 - 16,585 -
Investment property 4,629 - - 4,629
Total Unit linked 422,640 337,000 80,072 5,568
==================================================== ======== ======== ======= ======
Total financial investments and investment
property at fair value(1,2,3) 544,311 354,032 157,839 32,440
1. This table excludes loans (including accrued interest) of GBP122m,
which are held at amortised cost.
2. This table includes financial investments of GBP21,497m and investment
property of GBP1,293m relating to assets of operations classified as
held for sale.
3. As part of a change in accounting policy in the second half of 2020
for LGIA universal life and annuity reserves, certain financial investments
were reclassified from designated as amortised cost to designated as
fair value through profit or loss. Accordingly, the half year 2020
balances for Debt securities and Accrued interest have been restated
to reflect the fair value of those assets. Further details on the impact
of the 2020 change in accounting policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 58
4.04 Financial investments and investment property
(continued)
(a ) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the year ended 31 December 2020 GBPm GBPm GBPm GBPm
Shareholder and Non-profit
non-unit linked
Equity securities 3,086 1,905 16 1,165
Debt securities 85,502 29,898 33,935 21,669
Derivative assets 20,936 4 20,932 -
Loans at fair value (1) 4,117 - 4,117 -
Investment property 4,672 - - 4,672
Total Shareholder and Non-profit
non-unit linked 118,313 31,807 59,000 27,506
============================================ ======= ======= ======= ======
With-profits
Equity securities - - - -
Debt securities - - - -
Derivative assets - - - -
Loans at fair value - - - -
Investment property - - - -
Total With-profits - - - -
=========================================== ======= ======= ======= ======
Unit linked
Equity securities 186,003 185,345 22 636
Debt securities 210,158 168,155 41,715 288
Derivative assets 3,695 224 3,471 -
Loans at fair value 12,429 - 12,429 -
Investment property 3,803 - - 3,803
Total Unit linked 416,088 353,724 57,637 4,727
=============================================== ======= ======= ======= ======
Total financial investments and investment
property at fair value(1) 534,401 385,531 116,637 32,233
1. This table excludes loans (including accrued interest) of GBP131m,
which are held at amortised cost.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 59
4.04 Financial investments and investment property
(continued)
(b ) Level 3 assets measured at fair value
Level 3 assets, where modelling techniques are used, comprise property,
unquoted securities, untraded debt securities and securities where unquoted
prices are provided by a single broker. Unquoted securities include
suspended securities, investments in private equity and property vehicles.
Untraded debt securities include private placements, commercial real
estate loans, income strips and lifetime and retirement interest only
mortgages.
In many situations, inputs used to measure the fair value of an asset
or liability may fall into different levels of the fair value hierarchy.
In these situations, the group determines the level in which the fair
value falls based upon the lowest level input that is significant to
the determination of the fair value. As a result, both observable and
unobservable inputs may be used in the determination of fair values
that the group has classified within Level 3.
The group determines the fair values of certain financial assets and
liabilities based on quoted market prices, where available. The group
also determines fair value based on estimated future cash flows discounted
at the appropriate current market rate. As appropriate, fair values
reflect adjustments for counterparty credit quality, the group's credit
standing, liquidity and risk margins on unobservable inputs.
Fair values are subject to a control framework designed to ensure that
input variables and outputs are assessed independent of the risk taker.
These inputs and outputs are reviewed and approved by a valuation committee
and validated independently as appropriate.
Equity securities
Level 3 equity securities amount to GBP1,900m (30 June 2020: GBP1,985m;
31 December 2020: GBP1,801m), of which the majority is made up of holdings
in investment property vehicles and private investment funds. They are
valued at the proportion of the group's holding of the Net Asset Value
reported by the investment vehicles. Other equity securities are valued
by a number of third party specialists using a range of techniques which
are often dependent on the maturity of the underlying investment but
can also depend of the characteristics of individual investments. Such
techniques include transaction values underpinned by analysis of milestone
achievement, and cash runway for early/start-up stage investments, discounted
cash flow models for investments at the next stage of development and
earnings multiples for more mature investments.
Other financial investments
Lifetime mortgage (LTM) loans amount to GBP6,325m (30 June 2020: GBP5,478m;
31 December 2020: GBP6,036m). They are valued using a discounted cash
flow model by projecting best-estimate net asset proceeds and discounting
using rates inferred from current LTM loan pricing. The inferred illiquidity
premiums for the majority of the portfolio range between 100 and 350bps.
This ensures the value of loans at outset is consistent with the purchase
price of the loan, and achieves consistency between new and in-force
loans. The mortgages include a no negative equity guarantee (NNEG) to
borrowers. This ensures that if there is a shortfall between the sale
proceeds of the house and the outstanding loan balance on redemption
of the loan, the value of the loan will be reduced by this amount. The
NNEG on loan redemption is valued as a series of put options, which
we calculate using a variant of the Black-Scholes formula. Key assumptions
in the valuation of lifetime mortgages include short-term and long-term
property growth rates, property index volatility, voluntary early repayments
and longevity assumptions. The valuation as at 30 June 2021 reflects
a long-term property growth rate assumption of RPI + 0.1%, after allowing
for the effects of dilapidation. The values of the properties collateralising
the LTM loans are updated from the date of the last property valuation
to the valuation date by indexing using UK regional house price indices.
Private credit loans (including commercial real estate loans) amount
to GBP12,146m (30 June 2020: GBP11,661m; 31 December 2020: GBP11,889m).
Their valuation is determined by discounted future cash flows which
are based on the yield curve of the LGIM approved comparable bonds and
the initial spread, both of which are agreed by IHS Markit who also
provide an independent valuation of comparable bonds. Unobservable inputs
that go into the determination of comparators include: rating, sector,
sub-sector, performance dynamics, financing structure and duration of
investment. Existing private credit investments, which were executed
back as far as 2011, are subject to a range of interest rate formats,
although the majority are fixed rate. The weighted average duration
of the portfolio is 10.9 years, with a weighted average life of 13.1
years. Maturities in the portfolio currently extend out to 2064. The
private credit portfolio of assets is not externally rated but has internal
ratings assigned by an independent credit team in line with internally
developed methodologies. These credit ratings range from AAA to BB.
Private placements held by the US business amount to GBP2,090m (30 June
2020: GBP1,870m; 31 December 2020: GBP2,049m). They are valued using
a pricing matrix comprised of a public spread matrix, internal ratings
assigned to each holding, average life of each holding, and a premium
spread matrix. These are added to the risk-free rate to calculate the
discounted cash flows and establish a market value for each investment
grade private placement. The valuation as at 30 June 2021 reflects illiquidity
premiums between 10 and 70bps.
Commercial mortgage loans amount to GBP408m (30 June 2020: GBP469m;
31 December 2020: GBP419m) and are determined by incorporating credit
risk for performing loans at the portfolio level and for loans identified
to be distressed at the loan level. The projected cash flows of each
loan are discounted along stochastic risk free rate paths and are inclusive
of an Option Adjusted Spread (OAS), derived from current internal pricing
on new loans, along with the best observable inputs. The valuation as
at 30 June 2021 reflects illiquidity premiums between 20 and 40bps.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 60
4.04 Financial investments and investment property
(continued)
(b ) Level 3 assets measured at fair value (continued)
Income strip assets amount to GBP1,527m (30 June 2020: GBP1,400m; 31
December 2020: GBP1,449m). Their valuation is outsourced to Knight Frank
and CBRE who apply a yield to maturity to discounted future cash flows
to derive valuations. The overall valuation takes into account the property
location, tenant details, tenure, rent, rental break terms, lease expiries
and underlying residual value of the property. The valuation as at 30
June 2021 reflects equivalent yield ranges between 2% and 6% and estimated
rental values (ERV) between GBP6 and GBP337 per sq.ft.
Other debt securities which are not traded in an active market have
been valued using third party or counterparty valuations. These prices
are considered to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to GBP9,080m (30 June 2020: GBP9,334m;
31 December 2020: GBP8,475m) is valued with the involvement of external
valuers. All property valuations are carried out in accordance with
the latest edition of the Valuation Standards published by the Royal
Institute of Chartered Surveyors, and are undertaken by appropriately
qualified valuers as defined therein. Whilst transaction evidence underpins
the valuation process, the definition of market value, including the
commentary, in practice requires the valuer to reflect the realities
of the current market. In this context valuers must use their market
knowledge and professional judgement and not rely only upon historic
market sentiment based on historic transactional comparables.
The valuation of investment properties also include an income approach
that is based on current rental income plus anticipated uplifts, where
the uplift and discount rates are derived from rates implied by recent
market transactions. These inputs are deemed unobservable. The valuation
as at 30 June 2021 reflects equivalent yield ranges between 2% and 18%
and ERV between GBP1 and GBP356 per sq.ft.
The below table breaks down the investment property
by sector.
30 Jun 30 Jun(1) 31 Dec
2021 2020 2020
GBPm GBPm GBPm
Retail 962 1,052 999
Leisure 453 452 440
Distribution 1,277 994 1,142
Office space 3,832 3,641 3,703
Industrial and other
commercial 1,803 1,422 1,588
Accommodation 753 480 603
Total 9,080 8,041 8,475
1. The 30 June 2020 investment property by sector excludes GBP1,293m
relating to assets of operations classified as held for sale.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 61
4.04 Financial investments and investment property
(continued)
(b ) Level 3 assets measured at fair value (continued)
Other Other
Equity financial Investment Equity financial Investment
securities investments property Total securities investments(4) property Total
2021 2021 2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 1,801 21,957 8,475 32,233 2,035 19,402 9,107 30,544
Total gains/(losses)
for the period
- in other comprehensive
income - (8) - (8) - (44) - (44)
- realised and
unrealised
gains/(losses) (1) 98 (431) 249 (84) (38) 924 (256) 630
Purchases/Additions 90 2,007 449 2,546 76 1,603 577 2,256
Sales/Disposals (59) (821) (93) (973) (72) (868) (94) (1,034)
Transfers into Level
3 - 8 - 8 44 5 - 49
Transfers out of Level
3 (30) (44) - (74) (61) (26) - (87)
Foreign exchange rate
movements (3) - (28) - (28) 1 125 - 126
As at 30 June 1,900 22,640 9,080 33,620 1,985 21,121 9,334 32,440
Other
Equity financial Investment
securities investments property Total
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
As at 1 January 2,035 19,402 9,107 30,544
Total gains/(losses)
for the year
- in other comprehensive
income - 2 - 2
- realised and
unrealised
gains/(losses) (1) (85) 1,367 (85) 1,197
Purchases/Additions 283 2,491 1,019 3,793
Sales/Disposals (2) (451) (1,123) (1,566) (3,140)
Transfers into Level
3 52 - - 52
Transfers out of Level
3 (32) (87) - (119)
Foreign exchange rate
movements (1) (95) - (96)
As at 31 December 1,801 21,957 8,475 32,233
1. Realised and unrealised gains/(losses) are recognised in investment
return in the Consolidated Income Statement.
2. Disposals in 2020 include GBP926m of Investment property and
GBP234m of Equity securities that relate to the sale of the Mature
Savings business, which completed on 7 September 2020.
3. The 30 June 2020 balances have been restated to separately disclose
foreign exchange rate movements from realised and unrealised gains/(losses).
4. As part of a change in accounting policy in the second half of
2020 for LGIA universal life and annuity reserves, certain financial
investments were reclassified from designated as amortised cost
to designated as fair value through profit or loss. Accordingly,
the 1 January 2020 and 30 June 2020 balances for Other financial
investments, as well as the realised gains for the period, have
been restated to reflect the fair value of those assets at those
reporting dates. Further details on the impact of the 2020 change
in accounting policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 62
4.04 Financial investments and investment property
(continued)
(c) Effect of changes in assumptions on Level 3 assets
Fair values of financial instruments are, in certain
circumstances, measured using valuation techniques that incorporate
assumptions that are not evidenced by prices from observable
current market transactions in the same instrument and are not
based on observable market data.
Where material, the group assesses the sensitivity of fair
values of Level 3 investments to changes in unobservable inputs to
reasonable alternative assumptions. The table below shows the
impact of applying these sensitivities on the fair value of Level 3
assets as at 30 June 2021. Further disclosure on how these
sensitivities have been applied can be found in the descriptions
following the table.
Sensitivities
Fair value Positive Negative
30 June 2021 impact impact
GBPm GBPm GBPm
Lifetime mortgages 6,325 300 (380)
Private credit portfolios 14,644 824 (824)
Investment property 9,080 799 (826)
Other investments(1) 3,571 310 (292)
Total Level 3 assets 33,620 2,233 (2,322)
1. Other investments include Level 3 equity securities, income
strip assets and other traded debt securities which are Level 3.
The sensitivities are not a function of sensitising a single variable
relating to the valuation of the asset, but rather a function of
flexing multiple factors often at individual asset level. The following
sets out a number of key factors by asset type, and how they have
been flexed to derive reasonable alternative valuations.
Lifetime mortgages
Key assumptions used in the valuation of Lifetime mortgage assets
are listed in Note 4.04(b) and sensitivities are applied to each
assumption to arrive at the overall sensitised values in the above
table. The most significant sensitivity by value is +/-10% instant
reduction in property valuation across the portfolio which, applied
in isolation produces sensitised values of GBP212m and GBP(297)m.
Private credit portfolios
The sensitivity in the private credit portfolio has been determined
through a method which estimates investment spread value premium
differences as compared to the institutional investment market.
Individual investment characteristics of each holding, such as
credit rating and duration are used to determine spread differentials
for the purposes of determining alternate values. Spread differentials
are determined to be lower for highly rated and/or shorter duration
assets as compared to lower rated and/or longer duration assets.
A significant component of the spread differential is in relation
to the selection of comparator bonds, which is the potential difference
in spread of the basket of relevant comparators determined by respective
investors. If we were to take an AA rated asset it may attract
a spread differential of 15bps on the selection of comparator bonds
as opposed to 40bps for a similar duration BBB rated asset. Applied
in isolation the sensitivity used to reflect the spread in comparator
bond selection results in sensitised values of GBP312m and GBP(312)m.
Investment property
Investment property holdings are valued by independent valuers
on the basis of open market value as defined in the appraisal and
valuation manual of the Royal Institute of Chartered Surveyors
(RICS). As such, sensitivities are calculated through a mixture
of asset level and portfolio level methodologies which make reference
to individual investment characteristics of the holding but do
not flex individual assumptions used by the independent expert
in valuing the holdings. Each method is applied individually and
aggregated with equal weighting to determine the overall sensitivity
determined for the portfolio. One method is similar to that used
in the private credit portfolio as it determines the impact of
an alternate property yield determined in reference to credit ratings,
remaining term and other characteristics of each holding. In this
methodology we would apply a lower yield sensitivity to a highly
rated and/or shorter remaining term asset compared with a lower
rated and/or longer remaining term asset. If we were to take an
AA rated asset with remaining term of 25 years in normal market
conditions this would lead to a 15bps yield flex (as opposed to
a 35bps yield flex for a BBB rated asset with 30 year remaining
term). The methodology which leads to the most significant sensitivity
at the balance sheet date is related to an example in case law
where it was found that an acceptable margin of error in a valuation
dispute is 10% either way, subject to the valuation being undertaken
with due care. If this sensitivity were to be taken without a weighting
it would produce sensitised values of GBP637m and GBP(637)m.
It should be noted that some sensitivities described above are
non-linear, and larger or smaller impacts should not be interpolated
or extrapolated from these results.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 63
4.04 Financial investments and investment property
(continued)
(d) Interest rate benchmark reform
In July of 2017, Andrew Bailey, the then chief executive of the
FCA, announced in a speech that after 2021 the FCA would no longer
compel panel banks to submit rate information to determine LIBOR,
and encouraged the market to develop replacement benchmark
rates.
In the UK, LIBOR will be replaced by SONIA from the end of 2021,
and in the US LIBOR is expected to be replaced by mid-2023. Euribor
will remain but will be administered by EMMI (Euro Money Markets
Institute).
The key challenges for the group arise in the following
areas:
-- all financial contracts that reference LIBOR will need to be
amended;
-- derivatives and assets on balance sheet will be exposed to
changes in market value when the reference rate changes;
-- discount rates that are based on risk free curves will
change, which primarily impacts the Solvency II balance sheet,
although due to the Credit Risk Adjustment and Transitional
Measures on Technical Provisions, the expected impact is small;
-- customers will need to understand the implications for the
products that they hold, and agree to the necessary changes.
To deal with these risks and to manage the groupwide conversion,
the group initiated a project in 2019. To date, the group has made
significant progress in identifying and addressing its investment
exposures, remediating its contractual obligations, and has begun
the necessary system upgrades to deal with the transition. LGIM is
the reportable segment whose operations are most impacted regarding
investments linked to LIBOR. Business as usual processes have been
enhanced to include increased market surveillance on LIBOR trading,
added record-keeping specific to LIBOR trades, increased client
communications and additional complaints monitoring processes.
The largest shareholder exposures relate to LIBOR-linked
derivates that are used for hedging the annuity business. In 2021
the group has stopped trading assets referenced to LIBOR (except in
some very limited circumstances) and initiated a programme of
replacing legacy assets denominated in LIBOR with new SONIA based
positions. The unwinding of legacy exposure is well advanced across
all asset types, with all GBP LIBOR interest rate swaps replaced.
The group's plan is that, by the end of 2021, no GBP LIBOR risk
remains on our balance sheet and non-GBP LIBOR exposure will
continue to be unwound in line with the currency specific cessation
dates.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 64
4.05 Tax
(a ) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
Continuing Continuing Continuing
operations Total operations Total operations Total
6 months 6 months 6 months 6 months Full year Full year
2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Profit before tax attributable
to equity holders 1,320 1,320 261 285 1,430 1,788
Tax calculated at 19.00% 251 251 50 54 272 340
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax - - - - (1) (1)
(Lower)/higher rate of tax on
profits taxed overseas(1) (32) (32) (49) (49) (111) (111)
Non-deductible expenses 4 4 6 6 11 11
Differences between taxable and
accounting investment gains (9) (9) (2) (2) (10) (10)
Adjustments for non-controlling
interests - - 3 3 - -
Foreign tax - - 2 2 1 1
Unrecognised tax losses - - 1 1 14 14
Non-recurring reconciling items:
Income not subject to tax - - - - - -
Non-deductible expenses - - 2 2 - -
Adjustments in respect of prior
years(2) 12 12 (14) (14) (42) (42)
Impact of the revaluation of deferred
tax balances(3) 32 32 7 7 16 16
Other - - 1 2 (1) (1)
Tax attributable to equity holders 258 258 7 12 149 217
Equity holders' effective tax
rate(4) 19.5% 19.5% 2.7% 4.2% 10.4% 12.1%
1. The lower rate of tax on overseas profits is principally driven
by the 0% rate of taxation arising in our Bermudan reinsurance company,
which provides the group with regulatory capital flexibility for both
our PRT business and US term insurance business. This line also includes
the impact of tax on our US operations which are taxed at 21%.
2. In line with normal practice, adjustments in respect of prior years
relate to revisions of earlier estimates.
3. The Finance Act 2021 introduced a 25% tax rate on UK profits arising
after 1 April 2023. As a result, UK deferred tax assets and liabilities
previously recognised at 19% have been revalued to the appropriate
tax rate which is expected to be in force when the deferred tax asset
or liability is forecast to unwind. The group has spread the one-off
forecasted tax impact of the revaluation of deferred taxes across
the year as permitted by IAS 34, 'Interim Financial Reporting', recognising
50% of the forecasted impact as at 30 June 2021.
4. The tax charge attributable to equity holders has been calculated
on a best estimate of the weighted average annual tax rate expected
to apply for the year.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 65
4.05 Tax (continued)
(b ) Deferred tax
30 Jun 30 Jun 31 Dec
2021 2020 (1) 2020
Deferred tax (liabilities)/assets GBPm GBPm GBPm
Deferred acquisition expenses 88 50 85
------- --------- ------
- UK - (40) -
- Overseas 88 90 85
------- ---------
Difference between the tax and accounting
value of insurance contracts (652) (557) (557)
- UK (231) (232) (207)
- Overseas (421) (325) (350)
------- ---------
Unrealised gains on investments (22) (57) (11)
Excess of depreciation over capital allowances 23 18 18
Excess expenses 1 19 1
Accounting provisions and other (37) (59) (48)
Trading losses(2) 320 257 289
Pension fund deficit 15 34 22
Acquired intangibles (1) (2) (1)
Total net deferred tax liabilities (265) (297) (202)
Less: net deferred tax liabilities of
operations classified as held for sale(3) - 70 -
Net deferred tax liabilities (265) (227) (202)
Analysed by:
- UK deferred tax assets 12 5 5
- UK deferred tax liabilities (209) (186) (168)
- Overseas deferred tax assets - 5 -
- Overseas deferred tax liabilities(4) (68) (51) (39)
Net deferred tax liabilities (265) (227) (202)
1. US deferred tax liabilities have been restated following the change
in accounting policy in the second half of 2020 for LGIA universal
life and annuity reserves. Further details on the impact of the 2020
change in accounting policy are provided in Note 4.01. The impact
to overseas deferred tax liabilities is a reduction of GBP133m as
at 30 June 2020.
2. Trading losses include UK trade and US operating losses of GBP12m
(H1 20: GBP5m; FY 20: GBP5m) and GBP308m (H1 20: GBP252m; FY 20:
GBP284m) respectively.
3. Liabilities of operations classified as held for sale relate to
the Mature Savings business, the sale of which completed on 7 September
2020.
4. Overseas deferred tax liability is wholly comprised of US balances
as at 30 June 2021.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 66
4.06 Share capital and share premium
Number
of
Authorised share capital shares GBPm
At 30 June 2021, 30 June 2020 and 31 December
2020: ordinary shares of 2.5p each 9,200,000,000 230
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January
2021 5,967,358,713 149 1,006
Options exercised under share option
schemes 2,500,221 - 5
As at 30 June 2021 5,969,858,934 149 1,011
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January
2020 5,965,349,607 149 1,000
Options exercised under share option
schemes 1,225,772 - 3
As at 30 June 2020 5,966,575,379 149 1,003
Options exercised under share option
schemes 783,334 - 3
As at 31 December
2020 5,967,358,713 149 1,006
There is one class of ordinary shares of 2.5p each. All shares issued
carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive
dividends as declared and are entitled to one vote per share at
shareholder meetings of the company.
4.07 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued GBP500m of
5.625% perpetual restricted Tier 1 contingent convertible notes.
The notes are callable at par between 24 March 2031 and 24
September 2031 (the First Reset Date) inclusive and every 5 years
after the First Reset Date. If not called, the coupon from 24
September 2031 will be reset to the prevailing five year benchmark
gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of
coupon payments is at the discretion of the issuer and mandatory
cancellation is upon the occurrence of certain conditions. The Tier
1 notes are therefore treated as equity and coupon payments are
recognised directly in equity when paid. During the period a coupon
payment of GBP14m was made (H1 20: GBPnil; FY 20: GBP7m). The notes
rank junior to all other liabilities and senior to equity
attributable to owners of the parent. On the occurrence of certain
conversion trigger events the notes are convertible into ordinary
shares of the Issuer at the prevailing conversion price.
The notes are treated as restricted Tier 1 own funds for
Solvency II purposes.
4.08 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments, including private equity, which are
consolidated in the group's results.
As at 30 June 2021, non-controlling interests primarily
represent third party ownership in Thorpe Park Holdings, a mixed
residential/commercial retail space in which the group holds
50%.
No other individual non-controlling interest is considered to be
material on the basis of the period end carrying value or share of
profit or loss.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 67
4.09 Core borrowings
Carrying Carrying Carrying
amount Fair amount Fair amount Fair
value value value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Subordinated borrowings
10% Sterling subordinated
notes 2041 (Tier 2) (1) 313 315 312 339 313 329
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 771 589 688 589 813
5.375% Sterling subordinated
notes 2045 (Tier 2) 604 699 603 672 604 714
5.25% US Dollar subordinated
notes 2047 (Tier 2) 621 703 693 733 628 703
5.55% US Dollar subordinated
notes 2052 (Tier 2) 364 413 407 435 369 411
5.125% Sterling subordinated
notes 2048 (Tier 2) 400 478 399 442 400 484
3.75% Sterling subordinated
notes 2049 (Tier 2) 598 659 598 595 598 662
4.5% Sterling subordinated
notes 2050 (Tier 2) 500 582 499 521 499 587
Client fund holdings of group
debt (Tier 2) (2) (41) (49) (43) (47) (42) (51)
Total subordinated borrowings 3,948 4,571 4,057 4,378 3,958 4,652
Senior borrowings
Sterling medium term notes
2031-2041 603 866 603 896 609 926
Client fund holdings of group
debt (2) (9) (12) (9) (13) (9) (12)
Total senior borrowings 594 854 594 883 600 914
Total core borrowings 4,542 5,425 4,651 5,261 4,558 5,566
1. These notes were subsequently called at par on 23 July 2021.
2. GBP50m (30 June 2020: GBP52m; 31 December 2020: GBP51m) of the
group's subordinated and senior borrowings are held by Legal & General
customers through unit linked products. These borrowings are shown
as a deduction from total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect
quoted prices in active markets and they have been classified as
Level 1 in the fair value hierarchy.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 68
4.09 Core borrowings (continued)
Subordinated borrowings
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. The notes were callable at par on 23 July
2021 and every five years thereafter. On 26 May 2021, notification
was given of the group's intention to redeem these notes in full.
Effective from the notification date, the notes were no longer
treated as Tier 2 own funds for Solvency II purposes. The notes
were subsequently called at par on 23 July 2021.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon
from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June
2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued GBP600m of 5.375%
dated subordinated notes. The notes are callable at par on 27
October 2025 and every five years thereafter. If not called, the
coupon from 27 October 2025 will be reset to the prevailing five
year benchmark gilt yield plus 4.58% p.a. These notes mature on 27
October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of
5.25% dated subordinated notes. The notes are callable at par on 21
March 2027 and every five years thereafter. If not called, the
coupon from 21 March 2027 will be reset to the prevailing US Dollar
mid-swap rate plus 3.687% p.a. These notes mature on 21 March
2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of
5.55% dated subordinated notes. The notes are callable at par on 24
April 2032 and every five years thereafter. If not called, the
coupon from 24 April 2032 will be reset to the prevailing US Dollar
mid-swap rate plus 4.19% p.a. These notes mature on 24 April
2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued
GBP400m of 5.125% dated subordinated notes. The notes are callable
at par on 14 November 2028 and every five years thereafter. If not
called, the coupon from 14 November 2028 will be reset to the
prevailing five year benchmark gilt yield plus 4.65% p.a. These
notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued
GBP600m of 3.75% dated subordinated notes. The notes are callable
at par on 26 November 2029 and every five years thereafter. If not
called, the coupon from 26 November 2029 will be reset to the
prevailing five year benchmark gilt yield plus 4.05% p.a. These
notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued GBP500m of
4.5% dated subordinated notes. The notes are callable at par on 1
November 2030 and every five years thereafter. If not called, the
coupon from 1 November 2030 will be reset to the prevailing five
year benchmark gilt yield plus 5.25% p.a. These notes mature on 1
November 2050.
All of the above subordinated notes are treated as Tier 2 own
funds for Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued
GBP600m of senior unsecured Sterling medium term notes 2031-2041 at
coupons between 5.75% and 5.875%. These notes have various maturity
dates between 2031 and 2041.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 69
4.10 Operational borrowings
Carrying Carrying Carrying
amount Fair amount Fair amount Fair
value value value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Euro Commercial Paper 50 50 100 100 50 50
Non-recourse borrowings 1,064 1,064 1,000 1,000 941 941
Bank loans and overdrafts 2 2 104 104 54 54
Total operational borrowings
(1) 1,116 1,116 1,204 1,204 1,045 1,045
Less: liabilities of operations
classified as held for sale - - (30) (30) - -
Operational borrowings 1,116 1,116 1,174 1,174 1,045 1,045
1. Unit linked borrowings with a carrying value of GBP22m (30 June
2020: GBP21m; 31 December 2020: GBP10m) are excluded from the analysis
above as the risk is retained by policyholders. Operational borrowings
including unit linked borrowings are GBP1,138m (30 June 2020: GBP1,195m;
31 December 2020: GBP1,055m).
Syndicated Credit Facility
As at 30 June 2021, the group had in place a GBP1bn syndicated committed
revolving credit facility provided by a number of its key relationship
banks, maturing in December 2023. No amounts were outstanding at 30
June 2021.
4.11 Movement in core and operational borrowings
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
As at 1 January 5,613 5,140 5,140
Cash movements:
- Proceeds from borrowings 269 869 1,022
- Repayment of borrowings (162) (237) (501)
- Net (decrease)/increase in bank
loans and overdrafts (17) 59 64
Non-cash movements:
- Amortisation 1 1 2
- Foreign exchange rate movements (19) 104 (56)
- Other (5) (60) (58)
Total core and operational borrowings 5,680 5,876 5,613
Less: liabilities of operations
classified as held for sale - (30) -
Core and operational borrowings 5,680 5,846 5,613
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 70
4.12 Payables and other financial liabilities
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
Derivative liabilities 18,249 27,550 23,208
Repurchase agreements (1) 47,703 55,309 53,853
Other financial liabilities (2) 14,833 19,544 14,881
Total payables and other financial liabilities 80,785 102,403 91,942
Less: Payables and other liabilities
of operations classified as held for
sale - (738) -
Payables and other financial liabilities 80,785 101,665 91,942
1. The repurchase agreements are presented gross, however they
and their related assets (included within debt securities) are
subject to master netting arrangements. The vast majority of the
repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, lease
liabilities, FX spots and the value of short positions taken out
to cover reverse repurchase agreements. The value of short positions
as at 30 June 2021 was GBP4,320m (30 June 2020: GBP5,882m; 31
December 2020: GBP5,147m).
Fair value hierarchy
Amortised
Total Level Level Level cost(1)
1 2 3
As at 30 June 2021 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 18,249 397 17,780 72 -
Repurchase agreements 47,703 - 47,703 - -
Other financial liabilities 14,833 5,484 15 10 9,324
Total payables and other financial
liabilities 80,785 5,881 65,498 82 9,324
Amortised
Total Level Level Level cost(1)
1 2 3
As at 30 June 2020 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 27,550 232 27,301 17 -
Repurchase agreements 55,309 - 55,309 - -
Other financial liabilities 19,544 6,552 61 138 12,793
Total payables and other financial
liabilities 102,403 6,784 82,671 155 12,793
Amortised
Total Level Level Level cost(1)
1 2 3
As at 31 December 2020 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 23,208 300 22,826 82 -
Repurchase agreements 53,853 - 53,853 - -
Other financial liabilities 14,881 5,222 29 11 9,619
Total payables and other financial
liabilities 91,942 5,522 76,708 93 9,619
1. The carrying value of payables and other financial liabilities
at amortised cost approximates its fair value.
Trail commission (included within Other financial liabilities)
is modelled using expected cash flows, incorporating expected
future persistency. It has therefore been classified as a Level
3 liability.
Significant transfers between levels
There have been no significant transfers of liabilities between
Levels 1, 2 and 3 for the period ended 30 June 2021 (30 June 2020
and 31 December 2020: no significant transfers).
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 71
4.13 Foreign exchange rates
Principal rates of exchange used
for translation are:
Period end exchange rates 30 Jun 30 Jun 31 Dec
2021 2020 2020
United States dollar 1.38 1.24 1.37
Euro 1.17 1.10 1.12
6 months 6 months Full year
Average exchange rates 2021 2020 2020
United States dollar 1.39 1.26 1.28
Euro 1.15 1.14 1.13
4.14 Retirement benefit obligations
The Legal & General Group UK Pension and Assurance Fund (Fund)
and the Legal & General Group UK Senior Pension Scheme (Scheme)
account for the majority of the UK and worldwide assets of, and
contributions to, such arrangements. The Fund and Scheme were
closed to future accrual on 31 December 2015. During the period,
modelling of the Fund and Scheme's liabilities has been brought
in-house. This has resulted in minor changes to the actuarial
assumptions that are applied, which have had an immaterial impact
on the valuation of the retirement benefit obligation as at 30
June 2021.
As at 30 June 2021, the combined obligation arising from these
arrangements has been estimated at GBP980m (30 June 2020: GBP1,199m;
31 December 2020: GBP1,138m). The retirement benefit obligations
are a component of Provisions on the Consolidated Balance Sheet.
The after tax deficit, net of annuity obligations insured by Legal
and General Assurance Society, has been calculated to be GBP28m
(30 June 2020: GBP122m; 31 December 2020: GBP70m).
4.15 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension
Protection Fund compliant guarantees in respect of certain group
companies' liabilities under the group pension Fund and Scheme.
LGAS has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity
facility in respect of the liabilities of group companies to
facilitate the group's matching adjustment reorganisation pursuant
to Solvency II.
Legal & General Group Plc
Half Year Results 2021 Part 2
IFRS Disclosure Notes Page 72
4.16 Related party transactions
(i) Key management personnel transactions
and compensation
There were no material transactions between key management and
the Legal & General group of companies during the period. All
transactions between the group and its key management are on commercial
terms which are no more favourable than those available to employees
in general. Contributions to the post-employment defined benefit
plans were GBP52m (30 June 2020: GBP47m; 31 December 2020: GBP137m)
for all employees.
At 30 June 2021, 30 June 2020 and 31 December 2020 there were
no loans outstanding to officers of the company.
The aggregate compensation for key management personnel, including
executive and non-executive directors, is as follows:
6 months 6 months Full year
2021 2020 2020
GBPm GBPm GBPm
Salaries 3 3 8
Share-based incentive awards 5 4 5
Key management personnel compensation 8 7 13
(ii) Services provided to and by related parties
All transactions between the group and associates, joint
ventures and other related parties during the period are on
commercial terms which are no more favourable than those available
to companies in general.
Loans and commitments to related parties are made in the normal
course of business.
The group has the following material related party
transactions:
- Annuity contracts issued by Legal and General Assurance
Society Limited of GBPnil (30 June 2020: GBP50m; 31 December 2020:
GBP50m) were purchased by the group's UK defined benefit pension
schemes during the period, priced on an arm's length basis;
- During the period, the Legal & General Group UK Pension
& Assurance Fund (the Fund) completed an Assured Payment Policy
(APP) transaction with Legal and General Assurance Society Limited
(LGAS), a group company. An APP is an investment contract product
sold by LGR which, issued to a pension scheme, provides the scheme
with a fixed or inflation linked schedule of payments to match the
scheme's expected liabilities. In June 2021, GBP925m was paid by
the Fund to LGAS, and LGAS and the Fund recognised an investment
contract liability and an APP plan asset of the same amount,
respectively.
- Loans outstanding from related parties at 30 June 2021 of
GBP22m (30 June 2020: GBP86m; 31 December 2020: GBP89m), with a
further commitment of GBP84m;
- The group has total other commitments of GBP1,206m to related
parties (30 June 2020: GBP1,253m; 31 December 2020: GBP1,207m), of
which GBP738m has been drawn at 30 June 2021 (30 June 2020:
GBP820m; 31 December 2020: GBP772m).
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IR DKNBKFBKDNFK
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