TIDMLGEN
RNS Number : 3247V
Legal & General Group Plc
09 August 2022
H1 2022 Results: Continued strong performance -
8% growth in Operating profit and EPS, 21% ROE and
SII coverage ratio of 212%
Continued delivery of strong financial performance [1]
-- Operating profit of GBP1,160m, up 8% (H1 2021: GBP1,079m)
-- Earnings per share of 19.28p, up 8% on H1 2021 (17.78p)
-- Profit after tax [2] of GBP1,153m (H1 2021: GBP1,065m) and R
eturn on equity of 21.3% (H1 2021: 22.0%)
-- Solvency II coverage ratio [3] of 212% (H1 2021: 182%)
-- Interim dividend of 5.44p, up 5% (H1 2021: 5.18p)
Growing contribution to our five-year (2020-2024) ambitions
[4]
-- Cash generation of GBP1.0bn, up 22% year on year. Capital
generation of GBP0.9bn, up 14% year on year
-- Cumulative cash and capital generation of GBP4.3bn and
GBP4.1bn respectively , against our ambition of GBP8.0-9.0bn by
2024
-- Cumulative dividends declared GBP2.5bn (H1 2022: GBP324m,
2020-21 GBP2,147m) against our ambition of GBP5.6-5.9bn by 2024
Strong PRT new business volumes and LGIM net flows
-- Global PRT new business premiums of GBP4.4bn (H1 2021:
GBP3.1bn), including our largest ever US transaction
-- LGIM record H1 external net flows of GBP65.6bn (H1 2021:
GBP27.4bn), with AUM down to GBP1.3tn due to market movements
-- Protection premiums of GBP1,605m (H1 2021: GBP1,500m) and
Individual annuity premiums of GBP453m (H1 2021: GBP483m)
A strong and resilient balance sheet
-- No defaults in H1 or for the last 13 years. GBP2.7bn credit
default provision remains unutilised [5]
-- 99% investment grade GBP73.2bn annuity bond portfolio
-- 100% of scheduled cashflows received from our Direct Investments
-- Strong and growing IFRS and Solvency II balance sheet
Long-term, growth-oriented, and highly synergistic business
model
-- An established track record: HY11 to HY22 CAGR of 11% in EPS,
11% in DPS and 8% in book value per share
-- Highly synergistic: four focused divisions that create a
virtuous circle of internal demand and supply, supporting c20%
ROE
-- Long-term and predictable value creation : 40+ year duration
business with earnings driven by a growing stock of assets
-- Attractive global growth markets: retirement solutions
($57tn), asset management ($149tn), climate change ($20tn) [6]
-- A longstanding commitment to Inclusive Capitalism and a
leader in ESG : rated #1 Life & Health insurer by
ShareAction
"We've made a good start to the year, with operating profit and
EPS up 8%, cash and capital generation up double digits, DPS up 5%
and a return on equity of 21%. We have delivered for our
institutional clients and retail customers, while generating good
volumes and margins in a buoyant PRT market and continuing to scale
LGC at pace - both in the UK and now also in the US - originating
assets for our own business and for third parties, whilst also
delivering a positive outcome for the economies where we invest.
Our balance sheet is strong and highly resilient, with a solvency
ratio of 212% and with 100% of cash flows received from our Direct
Investments. We are committed to providing financial security for
our customers and colleagues in a tough economic climate and remain
confident in our ability to grow profits sustainably and at
attractive returns over the long-term."
Sir Nigel Wilson, Group Chief Executive
Financial summary
GBPm H1 2022 H1 2021 Growth
%
========================================= ======= ========= =======
Analysis of operating profit
Legal & General Retirement Institutional
(LGRI) 560 525 7
Legal & General Capital (LGC) 263 250 5
Legal & General Investment Management
(LGIM) 200 204 (2)
Retail [7] 332 292 14
----------------------------------------- ------- --------- -------
Operating profit from divisions 1,355 1,271 7
========================================= ======= ========= =======
Group debt costs (108) (120) 10
Group investment projects and expenses (87) (72) (21)
----------------------------------------- ------- --------- -------
Operating profit [8] 1,160 1,079 8
========================================= ======= ========= =======
Investment and other variances (incl.
minority interests) 207 241 n/a
Profit before tax attributable to
equity holders [9] 1,367 1,320 4
Profit after tax attributable to equity
holders 1,153 1,065 8
Earnings per share (p) 19.28 17.78 8
======= =========
Book value per share (p) 186 164 13
Interim dividend per share (p) 5.44 5.18 5
H1 2022 Financial performance
Income statement
Year to date operating performance is in line with our
expectations, with H1 2022 operating profit up 8% to GBP1,160m (H1
2021: GBP1,079m). All four of our divisions are well positioned to
execute on compelling structural market opportunities to deliver
further profitable growth over the medium and long-term,
notwithstanding market volatility.
LGRI delivered operating profit growth of 7% to GBP560m (H1
2021: GBP525m), underpinned by the performance of our annuity
portfolio. We executed well, writing GBP4,449m of global PRT at
attractive Solvency II new business margins of 8.7%. [10]
LGC operating profit increased 5% to GBP263m (H1 2021: GBP250m),
driven by strong performance in our alternative asset portfolio.
Our housing businesses - notably CALA and Affordable Homes - have
delivered another period of strong trading performance. Our
Alternative Finance (Pemberton) and Venture Capital investments
also continue to perform strongly.
LGIM delivered operating profit of GBP200m (H1 2021: GBP204m), a
resilient result in light of market conditions. Assets under
management decreased to GBP1,289.7bn (H1 2021: GBP1,326.8bn).
However, external net flows were strong: GBP65.6bn (H1 2021:
GBP27.4bn), of which over half were from International clients, and
with continued growth in higher margin areas such as thematic ETFs,
fixed income, and multi-asset. The cost income ratio (59%) reflects
the impact of challenged markets on revenue (H1 2021: 58%).
Retail operating profit increased 14% to GBP332m (H1 2021:
GBP292m), driven by the on-going release from operations from the
growing UK protection and individual annuity portfolios, in
addition to valuation uplifts in two of our retail Fintech
businesses over H1 2022. In the US, after significant claims in Q1
2022, mortality returned to normal levels in Q2. Total Covid claims
over H1 2022 were in line with the GBP57m provision set up at year
end.
Profit before tax attributable to equity holders [11] was
GBP1,367m (H1 2021: GBP1,320m), reflecting positive investment
variance of GBP207m (H1 2021: GBP241m). The key drivers of this
positive investment variance are from the formulaic impact of
rising interest rates on the Insurance reserves and strong
portfolio performance in the annuity portfolio, partially offset by
volatile global equity markets impacting LGC.
Balance sheet and asset portfolio
The Group's Solvency II operational surplus generation was up
14% at GBP946m (H1 2021: GBP831m). New business strain was
GBP(121)m (H1 2021: GBP(158)m) which results in net surplus
generation of GBP825m (H1 2021: GBP673m). UK PRT business has been
written at a capital strain of less than 4%. We achieved
self-sustainability on the UK annuity portfolio in 2020 and 2021
and expect to be self-sustaining again in 2022.
The Group reported a Solvency II coverage ratio [12] of 212% at
H1 2022 (FY 2021: 187%, H1 2021: 182%) which, in addition to the
contribution from net surplus generation, reflects the impact of
market movements, principally from the non-economic impact of
higher interest rates on the valuation of our balance sheet [13] ,
partially offset by payment of the 2021 final dividend
(GBP792m).
Our IFRS return on equity of 21.3% (H1 2021: 22.0%) reflects the
continued strong performance of our business. [14]
Our diversified, actively managed annuity portfolio has
continued to perform resiliently with no defaults. The annuity
portfolio's direct investments continue to perform strongly, with
100% of scheduled cash-flows paid year to date, reflecting the high
quality of our counterparty exposure.
Group Strategy
Legal & General has established expertise in asset
origination (LGC) and asset management (LGIM), and in the provision
of retirement and protection solutions to corporates and
individuals (LGRI and Retail). We operate at scale and are strongly
positioned to capitalise on significant growth opportunities across
our chosen markets through our four main divisions:
Division Provision Description
LGRI Retirement A leading international manager of institutional
Solutions Pension Risk Transfer (PRT) business
------------------ -------------------------------------------------
LGC Asset Origination An alternative asset origination platform
generating attractive shareholder returns
------------------ -------------------------------------------------
LGIM Asset Management A global GBP1.3tn asset manager with
deep expertise in DB and DC pensions
------------------ -------------------------------------------------
Retail* Retirement A leading provider of UK retail retirement
& Protection and protection solutions and US brokerage
Solutions term life insurance
------------------ -------------------------------------------------
* Note: as of 1(st) January 2022, and as highlighted previously,
LGRR and LGI (our two retail businesses) were combined into one
division, Retail. Under the leadership of Bernie Hickman, this
division covers the savings, protection and retirement needs of our
c12 million retail policyholders and workplace members.
A powerful business model
We have a unique and highly synergistic business model, which
continues to drive our strong return on equity. Legal & General
provides powerful asset origination and management capabilities
directly to clients. These capabilities also underpin our leading
retirement and protection solutions:
-- LGRI is a market leader in UK PRT and a top ten player in the
US PRT market, with annuity assets of GBP78.8bn.It provides
long-term, captive AUM to LGIM. As noted, the annuity portfolio is
continually being enhanced through the supply of alternative assets
originated by LGC.
-- LGC invests across four main asset classes (Specialist
Commercial Real Estate, Clean Energy, Housing and SME Finance) to
generate attractive risk-adjusted shareholder returns and to create
alternative assets with which to back our annuity portfolio. LGC is
also increasingly attracting third party capital investment
directly and through collaboration with LGIM to meet the growing
client demand for alternative assets.
-- LGIM is a leading global asset manager, ranking 11th in the
world [15] with GBP1.3tn of AUM of which GBP468bn, or 36%, are
International assets. LGIM is a leading provider of UK and US
Defined Benefit (DB) de-risking solutions. It is uniquely
positioned to support DB clients across the full range of pension
endgame destinations, including PRT with LGRI. 78% of LGRI's PRT
transactions over the past three years were from existing LGIM
clients. [16] LGIM is also the market leader in UK Defined
Contribution ( DC) pension scheme clients with DC AUM of GBP129.4bn
- the leading player in a market with significant growth potential,
with total UK DC assets expected to surpass GBP1.2tn by 2031.
[17]
-- Retail is a leading provider of UK retail retirement and
protection solutions, and US brokerage term life insurance. The UK
retail retirement business offers Workplace Savings, annuities,
income drawdown and lifetime mortgages (LTM). Our UK and US
insurance businesses generate day one surplus capital which
partially offsets annuity new business strain. Retail is also an
internal centre of excellence in technology, and manages a
portfolio of successful, strategic Fintech business
investments.
The synergies within and across our businesses drive profits and
fuel future growth. The establishment of our Retail division is
enabling us to better serve the needs of our retail customers and
drive further synergies.
The integrated nature of our business model means that we have
relationships with clients and customers that can and do last for
decades. For example, an Index or Liability Driven Investing DB
corporate client in LGIM typically becomes a PRT client after 14
years. LGRI will then typically have a relationship with that
client for another 30 to 40 years. Equally, Retail Retirement and
LGIM may have a 30-40-year relationship with a customer during the
DC accumulation phase, and then extend that relationship for
another 15-30 years during the decumulation phase across a suite of
decumulation products including individual annuities, lifetime
mortgages and drawdown.
The Group continues to build out, in a measured fashion, its
international retirement solutions franchise. We have made
excellent progress in the US over the last decade and will continue
to build out our established businesses (LGRI, LGIM, Retail) in
that market. LGIM continues to make good progress against its
international expansion plans in Europe. Kerrigan Procter is
co-ordinating the Group's expansion plans in Asia.
A long-term commitment to Sustainability, ESG and Inclusive
Capitalism
Our purpose is to improve the lives of customers, build a better
society for the long-term and create value for our shareholders.
This inspires us to use our assets in an economically,
environmentally and socially useful way to benefit society - what
we call Inclusive Capitalism. At a time when many in society are
facing increasing economic hardship, we believe Inclusive
Capitalism matters more than ever.
Our philosophy underpins our approach to Sustainability and to
ESG ( Environmental, Social, and Governance factors). [18] We think
about Sustainability, and the long-term ESG impact of our business,
in terms of:
1. How we invest proprietary assets . [19] Our ambition is to
reduce our proprietary asset portfolio greenhouse gas emission
intensity by half by 2030 and to net zero carbon by 2050 and we are
on track to set our full suite of science-based targets in 2022 for
publication in 2023. In 2021 we reduced the greenhouse gas
intensity of the Group's balance sheet by 17.0% versus 2020,
although this has been driven in part by COVID-19 and market
volatility impacts. [20] We continue to make environmentally and
socially useful investments. As at H1 2022, we have invested
GBP1.4bn in clean energy and GBP8.0bn in social infrastructure. For
more information please see our latest Climate Report, compliant
with recommendations by the Task Force on Climate-related Financial
Disclosures (TCFD) [21] , and our latest Sustainability Report,
which describes our activity in investing for positive social,
economic and health outcomes. (15)
2. How we influence as one of the world's largest asset managers
with GBP 1.3 trillion AUM . We have GBP271.2bn AUM in ESG
strategies and in H1 2022 we cast over 45,000 stewardship votes as
we continued to encourage investee companies to behave responsibly.
[22](, [23]) LGIM is rated A+ for responsible investment strategy
& active ownership from the UN Principles for Responsible
Investment and ranked as one of the highest performers among asset
managers for its approach to stewardship and holding companies to
account on climate change by both FinanceMap and Majority
Action.
3. How our businesses operate . We are committed to supporting
our customers, employees, suppliers, shareholders and society at
large. In the current economic environment, we recognise that
support is more critical now than ever. For information on how we
are supporting our stakeholders, see pages 38-52 of our
Sustainability report. [24] We have committed to reducing the
carbon emission intensity of our operating businesses. Our ambition
is to operate our offices and business travel with net zero
emissions from 2030, and for all our new homes to be net zero
operational carbon from 2030. ESG criteria are included in
executives' objectives and remuneration schemes.
Outlook
Medium-term growth: ambitious and deliverable
Our strategy has delivered strong returns for our shareholders
over time. It has demonstrated resilience through the pandemic and
positions us well to navigate - and even benefit from - the
prevailing market environment. We are confident we can continue to
deliver profitable growth as we execute on our strategy .
We set out our five-year ambitions at our Capital Markets event
in November 2020. Cumulatively, over the period 2020-2024, our
financial ambitions are for [25] :
1. Cash and capital generation significantly to exceed dividends
(we intend to generate GBP8.0bn - GBP9.0bn of both cash and
capital, and to pay dividends of GBP5.6bn - GBP5.9bn). [26]
2. Earnings per Share to grow faster than dividends, with the
dividend growing at low to mid-single digits from 2021.
3. Net capital surplus generation (i.e., including new business strain) to exceed dividends.
We are now half-way through our ambition period and are on track
to achieve or beat our cumulative cash and capital ambitions. In H1
2022, we have achieved 22% growth in cash generation and 14% growth
in capital generation. Since the beginning of 2020 to date, we have
achieved GBP4.3bn of cash generation, GBP4.1bn of capital
generation and declared GBP2.5bn of dividends. We are confident
that we will consistently grow cash and capital faster than our
dividend commitment. The jaws between net capital surplus
generation and the dividend are widening, providing attractive
capital optionality. Even zero growth in cash and capital
generation from now to 2024 would still see us meet our cash and
capital generation ambitions.
We aim to deliver long-term, profitable growth across the Group
. Our asset origination and asset management businesses, LGC and
LGIM, operate in attractive and profitable markets, and maintain a
strong commitment to ESG-aligned investing. With proven asset
expertise in specialist commercial real estate, clean energy,
housing and SME finance, LGC provides unique asset origination
capabilities in sectors that have significant growth potential,
which produce yield-creating assets that drive our annuity business
and which appeal to third party investors. LGIM offers a range of
investment solutions for institutional and wholesale clients and is
expanding geographically and into new channels. The annuity
portfolios provide highly predictable, stable cash flows from their
growing back-books. Retail is applying technological innovation to
sustain its UK leadership, to grow in the US and to continue to
expand into adjacent markets. The creation of a new Retail division
enables us to increase our focus on serving the savings, protection
and retirement needs of our retail customers.
We remain confident in our strategy and in our ability to
deliver resilient, organic growth, supported by our strong
competitive positioning in attractive and growing markets. Our
confidence in our dividend paying capacity is underpinned by the
Group's strong balance sheet, which has a GBP2.7bn IFRS credit
default reserve and Solvency II surplus regulatory capital of
GBP9.2bn, significant buffers to absorb a market downturn. We have
a proven operating model which is reinforced by robust risk
management practices.
Confident in achieving our ambitions
We remain confident in achieving our five-year (2020-2024)
cumulative financial ambitions. In H1 2022, we continued to build
on the good start we made in 2020 and 2021, delivering double digit
growth in both cash and capital generation.
LGC and LGIM provide powerful asset origination and asset
management capabilities directly to clients. These same
capabilities also underpin our leading retirement and protection
solutions. LGC has numerous investment opportunities across
underserved asset classes and is continuing to scale the portfolio
at pace. LGC intends to grow shareholder alternative AUM to
cGBP5bn, with a blended portfolio return of 10-12%, by 2025. It
also aspires to grow third party AUM to GBP25-30bn and to grow LGC
operating profit to GBP600-700m by 2025. LGIM continues to focus on
attracting higher margin net flows and on diversifying and further
internationalising its business. The business seeks to grow profits
in the range of 3-6% per annum, absent market shocks such as that
experienced in the first half of this year.
LGRI wrote good levels of business at strong margins in H1 2022.
Demand for global PRT is growing, as rising interest rates and
widening credit spreads reduce pension deficits and allow more
funds to consider de-risking. As such, advisers such as WTW and LCP
are bullish on the prospects for PRT for the rest of 2022 and
beyond. [27] We are well placed to participate. We continue to
expect to write GBP40-50bn of UK PRT and $10bn of International PRT
over a five-year period. More generally, a key competitive
advantage is our ability to originate direct investments. This
provides us with significant optionality. We can use these direct
investments to create value in writing new annuity business, and/or
by using them to increase returns on the back-book.
In Retail, we continue to target mid-single digit growth in
revenues across our UK protection businesses, and to target average
double digit growth in US new business sales out to 2025. The
longer-term outlook for workplace savings, individual annuities and
lifetime mortgages remains attractive, driven respectively by
ongoing growth in the DC market and by an increasing consumer
requirement to look to multiple sources of wealth to fund
retirement. However, the lifetime mortgage market is becoming more
competitive, and we will maintain pricing discipline at the expense
of volumes if required.
We are pleased with the further progress we have made in H1 2022
and are confident in our ability to deliver further profitable
growth going forwards. We are well-positioned to support the UK
Government's two flagship policies of "Levelling Up" and
"Addressing Climate Change".
We will continue to maintain a defensive and diversified asset
portfolio and a long-term investment horizon, supporting all our
stakeholders by delivering Inclusive Capitalism through investments
- both for our own portfolio and for clients - in areas such as
infrastructure, clean energy and affordable housing, and by
providing products to support individuals' financial
resilience.
Business segment outlook
Legal & General Institutional Retirement (LGRI)
LGRI participates in the global pension risk transfer (PRT)
market, focusing on corporate defined benefit (DB) pension plans in
the UK, the US, Canada, Ireland and the Netherlands, which together
have around GBP8 trillion of pension liabilities due to ageing
demographics.
We write direct business in the UK and US and are market leaders
in the UK. We are supported by LGIM's long-standing DB client
relationships and investment capabilities and LGC's asset
origination capabilities, as well as wide-ranging skills across the
Group which enhance our asset strategy and product innovation.
During H1 2022, 74% by volume (40% by count) of our UK transactions
were with LGIM clients, demonstrating the strength of our client
relationships and the competitive advantage provided by our unique
position as the only firm operating across the full pension
de-risking journey.
The UK is our primary market and it is the most mature PRT
market globally with GBP2.4 trillion of UK DB pension liabilities,
of which only c13% have been transferred to insurance companies to
date. [28] This leaves a sizeable opportunity for future market
growth, which has been fuelled by rising interest rates and
widening credit spreads reducing pension deficits and allowing more
schemes to consider de-risking sooner than anticipated. Improved
funding levels has seen an acceleration in demand for de-risking
solutions from companies and pension plans: we expect the total UK
PRT market to be cGBP35bn in 2022, with scope for a larger market
dependent on a handful of bigger schemes. [29] In terms of
medium-term outlook, market commentators anticipate between
GBP30bn-GBP50bn of UK PRT demand per annum over the period to 2025,
again highlighting the size of the opportunity. [30] We continue to
expect to write GBP40bn to GBP50bn of new UK PRT over 5 years, but
will continue to remain disciplined in our pricing and deployment
of capital.
The US represents a further, significant market opportunity,
with $3.8 trillion of DB liabilities, of which only c7% have
transacted to date. [31] Since our market entry in 2015, our US
business has written more than $7bn of PRT spanning 80 clients with
6 repeat clients. In H1 2022 we wrote our largest ever US deal
(over $550m). We also actively quoted on selective Canadian, Irish
and Dutch PRT opportunities and wrote our third Canadian deal in H1
2022. We are the only insurer providing PRT directly to pension
plans across the UK and US. Our ambition is to write more than
$10bn of international PRT over the five years from 2020-2024.
In addition to our source of new business emerging from LGIM LDI
clients, our other competitive advantage is in originating assets
via LGC, lifetime mortgages via Retail and sourcing assets via
LGIM. LGC's asset creation is now beginning to scale and it is on
track to deliver cGBP1bn of new assets by the end of 2022. This
strong asset creation capability across the Group provides us with
optionality to maximise shareholder value, either by deploying
assets against new business - to improve pricing and margins - or
by applying them to increase the returns on the back-book.
As the annuity portfolio scales, the growing amount of capital
generated by the in-force book offsets both the capital investment
required to fund new business and the portfolio's contribution to a
progressive Group dividend, i.e. it is self-sustaining. The UK
annuity portfolio achieved self-sustainability in both 2020 and
2021. Whilst we expect to achieve self-sustainability again in
2022, driven by our growing operational surplus generation, it is
not something we necessarily aim to achieve in every year. The
achievement of self-sustainability in any one year will vary
depending on new business volumes and asset yields. Our ambition
is, however, for net surplus generation to exceed dividends for the
Group over the period 2020-2024.
Legal & General Capital (LGC)
LGC , the Group's alternative asset origination platform, will
continue to deploy shareholder capital in a range of underserved
areas of the real economy that are backed by long-term structural
trends. LGC has three fundamental objectives: 1) profit and value
generation within LGC for shareholders; 2) asset creation to back
the Group's annuity liabilities and meet demand from LGIM's third
party clients; and 3) a focus on ESG, securing long lasting value
for society. LGC continues to make a substantial contribution to
shareholder value creation and is well positioned to drive further
meaningful growth as its underlying businesses and investments
continue to scale and mature.
LGC is on track against its ambition to invest and manage over
GBP30bn of alternative AUM by 2025, with an upgraded blended
portfolio return target of 10-12% (previously 8-10%). In
combination with the contribution from the Traded Portfolio, LGC
aims to deliver operating profit of GBP600-700m in 2025.
Additionally, we plan to increase fee-generating third party
capital to GBP25-30bn (H1 2022: GBP15.6bn). We expect our existing
platforms (Pemberton, Build-to-Rent, NTR) to continue to manage the
majority of third-party AUM, building on their impressive growth
to-date , but our ambition also includes incremental opportunities
in Clean Energy, Later Living, Data Centres and our exciting new
investment in the US, Ancora L&G, which is focused on working
with anchor institutions (such as universities or research
facilities) to acquire, manage and develop life science and
technology focused real estate and innovation districts.
LGC's asset classes that include specialist commercial real
estate, housing, clean energy, and SME finance have all been
selected given the long term need for capital in these sectors,
giving us a long-term opportunity to create assets: In the UK an
estimated 340,000 new homes are needed each year, there are 1.2m
people on the social housing list and 21% of homes in the private
rented sector fail Decent Homes standard. Globally, an estimated
$5tn a year is needed to fund measures to fight climate change.
Through place-based social investment, LGC is creating much needed
jobs, homes and infrastructure, driving growth, skills and
innovation, and contributing towards a cleaner, greener future:
-- The specialist commercial real estate portfolio includes
capital-light urban regeneration (funded by LGRI or LGIM third
parties), digital infrastructure and science and technology-focused
real estate in the UK through Bruntwood SciTech and more recently
in the US through Ancora L&G. Partnering with universities,
local authorities and private sector experts, we have invested
across twenty UK towns and cities, creating jobs, driving economic
growth and revitalising local communities.
-- As a leading provider of homes, with a commitment to tackling
the affordability gap and the undersupply of housing (estimated to
be around 340,000 homes required annually) across the UK, LGC's
housing platform continues to expand across all tenures, ages and
demographics, leveraging both traditional and modular construction
in order to revolutionise and speed up delivery for all. We are
well positioned to scale in order to achieve our long-term
ambitions: 1) to deliver 10,000 multi-tenure homes per year
(including over 3,000 traditional build to sell homes, 3,000
affordable and modular homes each, and 1,000 suburban rental
homes); and 2) to develop c5,000 build to rent homes in our urban
pipeline and 5,000 later living homes in our JV pipeline with
NatWest Group Pension Fund. To ensure that the homes we build are
future-proofed and sustainable, we have committed that all our new
homes will be operationally carbon emission-free from 2030.
-- In the clean energy sector, we are focused on investing
selectively into attractive growth equity and low-carbon
infrastructure opportunities. We are confident that our considered
and selective approach to clean energy investing will continue to
yield results in what can be a highly competitive sector. Growth
equity targets early-stage scale-up companies that deliver
innovative clean technologies required for a successful energy
transition. Low-carbon infrastructure targets the renewable energy
infrastructure investments needed to accelerate progress towards a
low-cost and low-carbon economy.
-- In SME Finance, we are continuing to support UK and European
innovation, investing in the real economy and technological
innovation in two SME Finance business areas: Alternative Finance -
via our 40% stake in Pemberton, an alternative credit manager - and
Venture Capital - via our Fund of Funds platform and via LGC's
ownership of Accelerated Digital Ventures (ADV), a direct
investment platform . Our SME Finance businesses are well
positioned to scale in these highly attractive structural growth
segments.
Legal & General Investment Management (LGIM)
LGIM is a globally recognised investment leader, benefiting from
a combination of scale and a diversified asset and client base,
underpinned by clear structural demand for our capabilities. As
L&G's asset manager, LGIM also plays a critical role in
supporting our leading retirement and protection solutions.
Our purpose is to create a better future through responsible
investing, and we are a global leader in ESG. Our five-year growth
ambition is driven by the three pillars of our strategy to
modernise, diversify and internationalise the business. The first
half of 2022 saw significant moves in interest rates, inflation and
global equity markets which impacted asset values across the board.
We continue to adopt a disciplined approach to cost management and
selectively invest for growth against this challenging backdrop.
Our strategy remains to: 1) to grow profits in the range of 3% to
6% per annum, in normalised market conditions; 2) increase AUM in
international and higher-margin areas; and 3) diversify AUM by
client, channel and geography. We maintain our ambition for the
cost income ratio to trend downwards after the period of investment
over the near-term, and as markets and inflation normalise.
LGIM is one of the largest managers of corporate pension funds
globally; we are a UK leader in corporate DB pensions, the UK's
number-one DC manager, and ranked third for UK gross and net retail
sales in Q2 2022. [32] We intend to maintain our strong position in
the UK, which has been the bedrock of our success to date, while
continuing to diversify our capabilities and broaden our reach
internationally.
Modernise: LGIM continues to invest in the business to achieve
the resilience and agility critical to future success. We are
laying the foundations for continued global growth by investing in
our people, our operating platform and our data capabilities . We
are currently implementing a transformation of our strategic
operating model to build a globally scalable platform and deliver
best in class client service. This will be achieved by expanding
our partnership with State Street and use of their Charles River
technology.
Diversify: We are continuing to expand our investment offering,
with a focus on higher-margin product areas such as Real Assets,
ETFs, Multi-asset and Fixed Income. We see a sizeable opportunity
in Real Assets and are expanding our distribution footprint and our
range of capabilities: for example, we are launching a new
renewable infrastructure equity offering in 2022 in partnership
with NTR. As UK and US DB schemes approach funding maturity, many
clients will look for self-sufficiency or buy-out options and,
together with LGRI, our 'endgame' Solutions offering means we are
well positioned to deliver on these options. We continue to
demonstrate our leadership in ESG investing through our
award-winning Investment Stewardship team and, in addition to
offering a wide range of ESG-specific products, are driving further
integration of ESG into our mainstream investment portfolios.
Climate change remains a key issue and priority for LGIM and our
leadership is underscored by the contribution of our CEO, Michelle
Scrimgeour as Co-Chair of the Business Leaders Group at COP26, and
the integration of our market-leading Destination@Risk tool into a
number of net-zero aligned investment strategies.
Internationalise: LGIM aims to be an innovator in regions and
countries where our strengths align to client needs. Over the last
five years LGIM's International AUM has more than doubled to reach
GBP468bn - 36% of LGIM's total AUM. Our ambition is to continue
growing International AUM profitably and at pace in the US, Europe
and Asia. In the US, we are deepening our strong client
relationships through innovation in DC retirement income solutions
and leadership in ESG. In Europe, we are building on our recent
success, aiming to penetrate new markets and grow AUM across a
broader range of investment capabilities. We are also well placed
to realise growth in Asia, where we are expanding our distribution
footprint across key markets and channels.
Retail
As of 1(st) January 2022, LGI and LGRR (our two retail
businesses) were combined into one division, Retail. Under the
leadership of Bernie Hickman, this division covers the savings,
protection and retirement needs of our c12 million retail
policyholders and workplace members. The combined division will
strengthen its propositions by adopting best practices in customer
experience development, digital transformation and agile
culture.
Insurance
We anticipate continued premium growth across our UK and US
protection businesses as technological innovation makes our
products more accessible to customers and supports further product
and pricing enhancements.
In the UK, our market leading retail protection business is
supported by the strength of our distribution relationships,
investment in our systems and platforms, and product enhancements,
leading to robust delivery in H1 2022. We expect the total
protection market to be slightly smaller in 2022, as the market
benefited from the UK housing stamp duty relief in 2021. Our group
protection business has also performed well, increasing premium
income by 6% year-on year. In line with our five-year ambition, we
are targeting mid-single digit growth in revenues across our UK
protection businesses.
In the US, we anticipate our on-going technology investments and
new partnerships will position us for premium growth as the market
continues to recover from the distribution and underwriting
disruptions caused by COVID-19. We are using technology to improve
customer experience while reducing cost and becoming the partner of
choice for a wide range of distribution partners. We are already
the largest provider of term life assurance in the brokerage
channel [33] , and our digital first approach is aiming to achieve,
on average, double digit growth in new business sales out to
2025.
We invest in Fintech start-ups and scale-ups that operate in
adjacent markets where we have the relationships, capital or
expertise to accelerate their growth and value creation. One such
investment is Salary Finance, an employee benefits platform
business, in which we have a 48% holding. Salary Finance remains
one of the UK's fastest growing Fintechs and is well positioned for
international growth. Other key investments like Smartr365 and Onto
are growing rapidly. We are targeting double digit growth for our
Fintech businesses.
Retirement
Workplace savings is a core part of the Group's retail
proposition. The business is a growth area for the Group and we
expect the market to continue to expand, driven by ageing
demographics and welfare reforms. Our core focus is on better
assisting our 4.7 million Workplace members to plan for their
retirement whilst they are saving with us, as well as when they
come to retirement. This will drive better customer outcomes and,
at the same time, help us to retain more of our customers in
retirement.
There are currently cGBP600bn in UK Defined Contribution (DC)
accumulation assets and this is expected to more than double over
the next ten years. [34] As a market leading provider in Workplace
Savings, we are well placed to benefit from this expected increase
in DC pension assets, and to grow administration revenues for the
Retail division and fund management revenues for LGIM.
Prior to Covid-19, around GBP40bn of these DC assets were coming
to maturity each year, with the individual annuity market
accounting for just over 10% of these assets. The size of the
individual annuity market dipped slightly during the pandemic as
people deferred making retirement decisions. This trend has
continued into 2022, given the current market environment. Over the
medium-term, we do expect the market to recover as the DC market
continues to grow, and as fewer people reach retirement with
defined benefit pensions and so seek the longevity protection that
an annuity provides. Retail Retirement has a strong market share in
individual annuities, with a 20.5% market share at Q1 2022 [35] and
continues to explore and develop new product ideas to meet the
needs of people reaching retirement.
The UK lifetime mortgage (LTM) market continues to represent a
sizeable opportunity, with UK housing equity in over 55s at GBP2.6
trillion. [36] At present only cGBP5bn per year is being released
through the LTM market. While we maintain a strong focus on the
traditional LTM market, where we are focused on offering high
levels of flexibility and choice, we are increasingly also focused
on the "wealth" sector: those with higher value properties
increasingly see the benefit in lifetime mortgages when planning
the distribution of their estate to future generations. We continue
to remain disciplined on pricing in order to deliver good margin
assets to back our long-term annuity liabilities.
Across all our Retail businesses we continue to focus on our
customers, with a particular focus on the technology that supports
providing a more efficient and more personalised service.
A commitment to capital discipline
The Board maintains a strong commitment to capital discipline
and continues carefully to assess the options for capital
investment and return.
The Group has a track record of generating strong returns and
has numerous compelling investment opportunities, not least in
Legal & General Capital, which is investing to drive
shareholder value and to originate assets for L&G, and for
third parties.
The Group continues to invest to deliver further profitable
growth over the medium and long-term, whilst maintaining a strong
balance sheet and growing the dividend in line with the Group's
stated ambition.
If at any point the Board believes that capital would be better
deployed by returning it to shareholders, then it would not
hesitate to do so.
Dividend
In line with our stated formulaic interim dividend policy,
whereby the interim dividend grows at the same percentage as the
total prior year dividend, the Board has declared an interim
dividend of 5.44p, up 5% from the prior year (5.18p). This is
consistent with our stated ambition to grow the dividend at 3-6%
per annum between 2021 and 2024.
Legal & General Institutional Retirement (LGRI)
FINANCIAL HIGHLIGHTS GBPm H1 2022 H1
2021
================================================= ======= =======
Operating Profit 560 525
-------------------------------------------------- ------- -------
Investment and other variances 133 75
================================================== ======= =======
Profit before tax attributable to equity holders 693 600
================================================== ======= =======
Release from operations 310 252
New business surplus 156 68
================================================== ======= =======
Net release from operations 466 320
================================================== ======= =======
UK PRT 3,715 2,040
International PRT 734 107
Other PRT (longevity insurance, Assured Payment
Policy, Insured Self-Sufficiency) - 925
Total new business 4,449 3,072
================================================== ======= =======
Operating profit of GBP560m
LGRI continues to deliver strong operating profit of GBP560m, up
7% (H1 2021: GBP525m). Profit was underpinned by the performance of
our annuity portfolio and supported by strong global pension risk
transfer (PRT) new business volumes of GBP4.4bn (H1 2021:
GBP3.1bn). The H1 2021 result included a positive contribution from
COVID-related mortality that was not repeated to the same extent in
H1 2022.
Release from operations increased 23% to GBP310m (H1 2021:
GBP252m), reflecting the scale of the business as prudential
margins unwind from the Group's sizeable GBP78.8bn annuity
portfolio (FY 2021: GBP89.9bn) supported by good asset
origination.
Net release from operations was GBP466m (H1 2021: GBP320m) with
new business surplus of GBP156m (H1 2021: GBP68m), reflecting
successful execution in writing GBP4.4bn of new business volumes,
supported by continued positive asset sourcing and attractive
reinsurance terms.
During H1 2022 we wrote GBP3,715m of UK PRT which, delivered an
8.7% UK Solvency II new business margin (H1 2021: 8 .7%). We
continue to be disciplined in our pricing and deployment of
capital. UK PRT volumes were written at a capital strain of less
than 4%.
Successful execution over H1 2022
During H1 2022 LGRI underwrote GBP4,449m of PRT across 25 deals
globally (H1 2021: GBP3,072m, 20 deals) .
Legal & General has demonstrated successful execution,
whilst remaining focused on value creation, and continues to play a
key role in the UK PRT market. The UK market saw significant
activity in H1, compared to the slower start to 2021. For the full
year we are expecting cGBP35bn of volume to transact, with the
potential for market volumes to be higher if a handful of bigger
transactions come to market. We are well placed to capitalise on
this opportunity.
LGRI's brand, scale and asset origination capabilities - through
synergies and expertise within LGIM and LGC - are critical to our
market leadership in the UK PRT market. Long-term client
relationships, typically created and fostered by LGIM, have allowed
us to help many pension plans achieve their de-risking goals. In H1
2022 we demonstrated our market leadership and solutions
capabilities by writing a series of innovative transactions,
including:
-- cGBP2bn+ follow-on transaction with British Steel Pension
scheme, executed under an umbrella agreement.
-- cGBP420m buy-out with Innospec Limited Pension Plan scheme,
securing benefits for around 2,400 members.
-- cGBP370m buy-in with Heathrow's BAA Pension scheme securing
benefits for more than 1,400 retirees.
-- cGBP225m buy-in with Newell Rubbermaid UK Pension scheme,
securing benefits for c1,700 retirees.
-- Small scheme solutions. With 80% of our transactions falling into this category, we leveraged technological innovation to serve smaller pension plans efficiently.
Looking forward to H2 2022 and into 2023, we currently have a
strong and active pipeline of cGBP25bn.
Well positioned to execute in H2 in the US and International
markets
Despite a more competitive market in the US, which is typically
slower over H1, LGRI delivered US PRT new business premiums of
$729m (H1 2022: GBP593m; H1 2021: $149m; GBP107m). This included
our biggest ever transaction at over $550m, which is our third
transaction with this client, reflecting the credentials of our
offering.
As in the UK, our international focus is on value creation. In
addition to the fantastic start to the year in the US, in Bermuda
we secured our third Canadian deal for CAD$230m, as we start to
build momentum through our strategic partnerships in Canada.
As the only insurer providing PRT to pension plans globally,
Legal & General is uniquely positioned to offer holistic,
global pension de-risking solutions.
Total Annuity Asset Portfolio
H1 2022 H1 2021
========================================= ======= ========
Total annuity assets (GBPbn) 78.8 85.8
Of which: Direct investments (GBPbn) 26.3 25.8
========================================= ======= ========
Annuity asset portfolio
The 'A minus' rated annuity asset portfolio of GBP78 .8 bn [37]
, which backs the IFRS annuity liabilities in LGRI and Retail, is
well diversified by sector and geography. Our ambition is to
continue to collaborate with LGC, Retail and LGIM to strengthen our
asset sourcing capabilities, including both self-manufactured and
public assets with a strong ESG focus. This core competitive
advantage provides our annuity portfolio with long duration direct
investments with higher risk-adjusted returns and optionality in
asset deployment. We remain focused on reducing the carbon
intensity of the portfolio and have set a target of 12% reduction
against the 2019 baseline for 2022. We remain on track to achieve
our portfolio decarbonisation target of 18.5% by 2025 and remain
committed to reducing GHGs emission intensity by 50% by 2030.
Credit portfolio management
The fixed income portfolio of GBP73.2bn is comprised of
GBP52.7bn of listed bonds and GBP20.5bn of Direct Investments.
Approximately two-thirds of the portfolio is rated A or better, 35%
rated BBB and 1% sub-investment grade.
The key objective of our annuity-focused, fixed income fund
managers in LGIM is to manage the portfolio to match liabilities,
while minimising credit downgrades and avoiding defaults. We
constantly review our asset portfolio, including sector allocations
and asset classes, in order to manage portfolio credit quality and
to mitigate risks. We have vigorously stress-tested our portfolio
to build resilience against a range of scenarios. In addition, we
hold a GBP 2.7 bn IFRS credit default reserve .
We have kept lower-rated, cyclical exposures to a minimum and
only 12% of our BBB assets are BBB-. We actively manage our asset
portfolio and continue to take opportunities to improve credit
quality at attractive pricing levels.
The two-pronged approach, comprising defensive positioning and
active management, has helped us to mitigate downgrade and default
risk. Again, we have had no defaults.
Direct Investment
Within the asset portfolio, we originated GBP1 .6 bn of new,
high quality direct investments during H1 2022 which, along with
market movements, brought the direct investment portfolio total to
GBP26 .3 bn [38] , including GBP5 .8 bn in Lifetime mortgages .
Consistent with the broader bond portfolio, approximately
two-thirds of the direct investment bond portfolio was rated 'A' or
above using robust and independent rating processes which take
account of long-term stress events on counterparties and the
underlying collateral.
Our Direct Investment strategy is centred on ensuring the safety
of policyholders' benefits. We believe, and have proved, that we
can protect our policyholders and invest to deliver Inclusive
Capitalism across our UK towns and cities. By accessing the power
of pensions, we can generate positive societal impacts and drive
economic growth.
During H1 2022 we have consciously allocated some Direct
Investment assets to our back-book. This, complemented by a
rotation of some of our excess gilts to high quality credit assets,
has increased the total yield on our portfolio. We will continue
selectively to allocate appropriate assets over the coming years to
increase the portfolio's yield.
We have seen progress in the flow of asset creation from LGC to
date and remain on track to source close to GBP1bn of new assets
over 2022 through various LGC initiatives such as Build to Rent,
Alternative Finance, Affordable Homes and Urban Regeneration
schemes.
Legal & General Capital (LGC)
FINANCIAL HIGHLIGHTS GBPm H1 2022 H1 2021
============================================= ============= ========
Operating profit 263 250
- Alternative asset portfolio 202 195
- Traded investment portfolio & Treasury 61 55
Investment and other variances (308) 48
============================================= ============= ========
Profit before tax attributable to equity
holders (45) 298
============================================= ============= ========
Net release from operations 208 213
============================================= ============= ========
ALTERNATIVE ASSET PORTFOLIO GBPm
============================================= ============= ========
Specialist commercial real estate 662 733
Clean energy 199 218
Residential property 2,190 1,914
SME Finance 688 561
============================================= ============= ========
3,739 3,426
TRADED ASSET PORTFOLIO GBPm
============================================= ============= ========
Equities 1,714 1,731
Fixed income 66 426
Multi-asset 199 223
Cash(1) 1,285 1,220
============================================= ============= ========
3,264 3,600
LGC investment portfolio 7,003 7,026
Treasury assets at holding company 1,247 1,630
===================================================== ===== ========
Total 8,250 8,656
===================================================== ===== ========
1. Includes short term liquid holdings.
Total operating profit increased 5% to GBP263m
LGC operating profit increased 5% to GBP263m (H1 2021: GBP250m).
This result principally reflects profits from our alternative asset
portfolio of GBP202m (H1 2021: GBP195m). H1 2021 included a
conservative Pod Point valuation increase ahead of last year's
stock market listing.
The portfolio has continued to see valuation increases over H1
2022, notably in the Venture Capital portfolio and in Pemberton,
complemented by another period of strong trading performance from
CALA and Affordable Homes. Operating profit from the traded &
treasury portfolio increased to GBP61m (H1 2021: GBP55m), driven by
higher opening assets as a result of the strength in equity markets
over 2021.
Profit before tax was GBP(45)m, driven by investment and other
variances of GBP(308)m, compared to GBP48m in H1 2021, which
largely reflects volatile global equity market performance in the
traded portfolio.
Our growing alternative asset portfolio achieved a net portfolio
return of 9.3% (H1 2021: 10.7%). In line with our business model,
we expect to deliver a net portfolio return of 8-10% for the full
year, growing to 10-12% by 2025 as our early-stage businesses
continue to mature.
Alternative asset portfolio grew 9% to GBP3.7bn
LGC has continued to strengthen its capabilities across a
diversified range of alternative assets that are underpinned by
structural growth drivers. Our alternative asset portfolio
increased to GBP3,739m (H1 2021: GBP3,426m) as we deployed a
further GBP0.3bn into new and existing investments. Additionally,
over H1 2022, we made new undrawn commitments of GBP0.1bn across
our existing asset classes. Through these investments we originate
assets that generate returns for shareholders, create attractive
Matching Adjustment (MA)-eligible assets for our annuity portfolio,
and supply attractive alternative assets to third party
clients.
We have recently successfully originated assets for LGRI and
Retail Retirement in Urban regeneration, Build to Rent, Affordable
homes and Alternative Finance. We remain on track to deliver close
to GBP1bn of new assets for the annuity portfolio over 2022.
Specialist commercial real estate: ongoing support of the
levelling up agenda through strategic partnerships
Supporting the need to "Level Up" towns and cities across the
UK, we continue to invest in partnership with public and private
sector experts, to drive forward some of the largest urban
transformation schemes, back digital infrastructure and fund the
next generation of science and innovation centres. Supporting this
objective, in H1 2022, we began construction on our GBP100m
regeneration scheme in Sunderland Riverside and announced our
ambition to expand our project Sky Elstree to include a further 10
stages over 65 acres, with 470,000 sq ft of stage space for
filming.
Building on our flagship commitments in Oxford and Manchester,
we signed in May a seven year GBP4bn commitment, working in
partnership with West Midlands Combined Authority (WMCA) to invest
in regeneration, net zero neighbourhoods, housing and levelling up
across the West Midlands. The programme is designed to create
vibrant, dynamic communities in the region which, by providing
attractive environments for people to work, live and play, will
further enhance the West Midlands as a driver of UK economic
growth. This latest investment is a great example of how we bring
together LGC's divisional specialisms to create a range of
MA-eligible assets for the Group.
Through Bruntwood SciTech, we have continued to develop
world-leading diagnostics and life sciences infrastructure. With a
gross asset value of cGBP800m, Bruntwood SciTech now operates in 11
UK locations, across 7 cities, with a portfolio of over 2.4m sqft.
Over H1 2022, we made our first investment in Scotland, the Met
Tower, Glasgow, which is set to become a new hub for tech and
digital businesses.
Another milestone achievement in H1 2022 was our first
investment in the US. Our 50:50 partnership with US real estate
developer, Ancora will create a real estate platform dedicated to
driving life science, research and technology growth across the US.
Ancora L&G will be capitalised by LGC to deliver $4 billion
(GBP3.2bn) of existing pipeline and planned acquisition and
development activity over the next five years. To support future
growth, the partnership will be seeking third party co-investment
partners to accelerate scaling the portfolio. LGC also continued to
diversify into the digital infrastructure sector, acquiring an
industrial landsite in Canning Town, London, to develop a new
state-of-the-art datacentre. This latest scheme has the opportunity
to support Group-wide synergies across Legal & General, working
with LGIM as development advisor and providing a potential future
investment opportunity for our annuity business.
Our specialist commercial real estate portfolio decreased to
GBP662m (H1 2021: GBP733m), primarily driven by the sale of
MediaCity in H2 2021.
Our Clean Energy portfolio expanded into new sectors
Supporting the Group's climate ambitions, we invest in
early-stage innovative clean technology companies and low carbon
energy infrastructure needed to meet UK and global UN climate
targets and Sustainable Development Goals. We have a substantial
pipeline of new investment opportunities including energy storage,
electric vehicle technology and renewables and anticipate expanding
our growth equity portfolio further through H2 after a busy H1 in
which we completed several transactions.
During H1 2022, we began working with our new investee, Sero
Technologies, and made multiple additional investments, entering
new sectors through Rovco, Vaarst and Brill Power. We also secured
investment in a portfolio of renewable energy projects that will
create future assets for the annuity portfolio.
Sero Technologies is an energy technology and service company
which creates tailored, net zero-energy retrofit plans for the
residential sector. Residential retrofitting represents a
significant market opportunity to achieve the UK's legally mandated
target of net zero by 2050: almost every home will need to be
improved or retrofitted with some combination of enhanced energy
efficiency and low carbon heating.
Vaarst is a leading provider of subsea 3D computer vision
technologies; supporting the offshore wind, wave & tidal,
scientific, maritime security, and civil engineering industries. It
is bringing forward ground-breaking AI-based technology, seeking to
revolutionise how energy companies manage subsea infrastructure and
improve asset integrity. Rovco delivers this technology into the
energy transition space, focusing mainly on its use for subsea
surveys in offshore wind and oil field decommissioning.
In June 2022, LGC led a Series-A funding round to support the
expansion of Brill Power, a battery management system improving
battery performance for energy storage. Batteries are crucial to
the electrification of transport, and to powering our homes,
businesses, and key infrastructure. Through extended lifetimes,
improved safety, and waste reduction, Brill Power's work will help
to support the net zero transition.
We also announced an additional investment into Kensa Group, a
UK manufacturer and installer of ground source heat pumps. This
investment brings LGC's total investment to GBP15.7 million over
two years, continuing to support Kensa to scale up rapidly and
accelerate the deployment of ground source heat pump networks to
meet demand.
Our nuclear fusion business, Tokamak Energy, also reached a key
milestone in H1 2022, moving closer to commercial fusion by
reaching 100 million degrees celsius, a world record for a
spherical tokamak.
Housing: platform continues to grow as LGC targets multi tenure
opportunities
LGC continues to scale up its delivery across all housing
tenures. Diversified across affordability and life stage, LGC's
investments meet the UK's long-term social and economic need for
quality housing for all demographics. During H1 2022, our housing
portfolio grew to GBP2,190m (H1 2021: GBP1,914m) reflecting
sustained long-term demand.
LGC's Build to Sell business, CALA, has continued to perform
exceptionally over H1 2022. Having grown to become the 10th largest
housebuilder in the UK by revenue, during H1 2022 CALA has
delivered revenue of GBP701m (H1 2021: GBP610m) and operating
profit of GBP98m (H1 2021: GBP78m) through the sale of 1,527 units
(H1 2021: 1,479 units). Reservations on private units currently
stand at a record 93% of the full year target, giving confidence in
delivering the targets set out at the 2021 full year results of
c3,000 homes delivered, GBP1.3bn revenue and GBP170m operating
profit for 2022.
Our Affordable Homes business has continued to establish itself
as one of the UK's leading institutional developers and managers of
affordable housing. Delivering GBP22m of operating profit (H1 2021:
GBP7m), our business continues to grow and over 2022 we increased
our total number of operational affordable homes by 624 to a total
of 2,291. Our development and operation pipeline now stands at over
7,726 homes, with a Gross Asset Value of around GBP1.2bn. In March
2022, we entered a partnership with Lovell Partnerships to increase
the delivery of affordable homes and mixed tenure sites. The
partnerships aims to deliver 3,000 multi-tenure properties over a
five year period. To further boost our development plans, we
secured an additional GBP150m revolving credit facility, bringing
in external capital through a 'social loan' to support the
continued growth of the platform .
Our Modular Housing business is making significant progress with
projects and partners, designing and manufacturing homes in an
innovative way which will transform the way homes are built. In H1
2022, we delivered a major independent scheme in Selby, where our
first residents have now moved in, and progressed at pace with
construction at sites in Bristol and Broadstairs for the delivery
of 450 homes. H1 2022 revenues have already exceeded the revenue
generated over 2021, highlighting the progress of the business. We
are already delivering some of the most energy efficient homes in
the country and are planning to release our first net zero carbon
homes for sale at our site in Bristol in September.
Our urban Build to Rent business joint venture with PGGM has
continued to make strong development progess across the UK's major
towns and cities. Across the Group, we now have a GBP3.0bn
portfolio of c8,200 homes with 24 schemes in operation or
development, creating a strong pipeline of attractive, high quality
assets for LGRI and LGIM clients. Our Suburban Build to Rent
business has built its pipeline to over 1,000 homes across the UK,
including schemes in North Horsham and Peterborough.
Growth in our Inspired Villages business continues at pace,
driven by the partnership with Natwest Group Pension Fund . Our
Later Living platform has made good planning and development
progress, and Inspired Villages is on track to deliver over 5,000
homes for older people over the next 14 years. Over H1 2022, we
acquired a new site in Horndean and secured planning permission for
the third phase of our development Ledian Gardens, Kent, with
construction also underway for our first two operationally net-zero
carbon developments, bringing forward over 350 energy efficient
homes .
SME Finance AUM increased to GBP688m (H1 2021: GBP561m)
Investing in the real economy and technological innovation
through our Alternative Finance and our Venture Capital platforms,
we are continuing to support growth businesses, delivering enhanced
returns while boosting job creation, innovation, and science and
technology advancements.
In the Alternative Finance sector we support UK and European
mid-market lending through our investments in Pemberton, our asset
manager specialising in private debt, in which we hold a 40% stake.
The Pemberton platform has raised over EUR14.9bn (H1 2021:
EUR10.9bn) across four strategies, since we first invested in 2014,
with 172 investors globally. It currently has EUR11.8bn (H1 2021:
EUR8.3bn) deployed across 88 companies, delivering EUR45m in
revenue (H1 2021: EUR31m).
Our Venture Capital Funds platform backs over c500 start-up
businesses across the UK and Europe through our fund-of-funds
programme and via LGC's ownership in direct investment platform
Accelerated Digital Ventures (ADV).
In light of its strategy to invest at seed, pre-seed and early
stage funding rounds, LGC's Venture Capital Fund-of-Funds programme
saw strong performance, with NAV growing by 16% to GBP198m over the
six months to H1 2022. ([39]) Many of the funds we invested in
early in the programme are now maturing, with the strongest
companies securing new funding rounds at increased valuations.
Demonstrating the value of our patient investment approach, the
portfolio has now delivered a 23% IRR after fees since inception in
2016, despite a period of volatility over H1 2022.
Legal & General Investment Management (LGIM)
FINANCIAL HIGHLIGHTS GBPm H1 2022 H1 2021
=============================================== ======== ========
Management fee revenue 485 471
Transactional revenue 9 9
=============================================== ======== ========
Total revenue 494 480
Total costs (294) (276)
=============================================== ======== ========
Operating profit 200 204
Investment and other variances (7) (7)
=============================================== ======== ========
Profit before tax 193 197
=============================================== ======== ========
Net release from operations 162 163
=============================================== ======== ========
Asset Management cost:income ratio (%) 59 58
=============================================== ======== ========
NET FLOWS AND ASSETS GBPbn
=============================================== ======== ========
External net flows 65.6 27.4
Total net flows 64.7 22.0
- Of which international(1) 34.5 15.0
Persistency [40] (%) 91 89
=============================================== ======== ========
Average assets under management 1,361 1,281
Assets under management as at 30 June 1,290 1,327
Of which:
- International assets under management(2) 468 434
- UK DC assets under management 129 125
=============================================== ======== ========
1. International asset net flows are shown on the basis of client domicile.
2. International AUM includes assets from internationally
domiciled clients plus assets managed internationally on behalf of
UK clients.
Operating profit resilient at GBP200m
Operating profit was slightly down at GBP200m (H1 2021:
GBP204m), reflecting the impact of recent market volatility on
assets under management.
Assets under management decreased by 3% to GBP1,289.7bn (H1
2021: GBP1,326.8bn), despite record half year external net flows of
GBP65.6bn (H1 2021: GBP27.4bn). Annualised net new revenue (ANNR)
of GBP13m (H1 2021: GBP11m) represents 3% (annualised) of prior
year revenue and demonstrates the growth in higher-margin areas
including thematic ETFs and Multi-asset.
Revenues increased by 3% to GBP494m (H1 2021: GBP480m) in
response to strong flows, although growth in 2022 has been
curtailed by the recent decline in assets under management due to
falling markets and the sale of the Personal Investing business in
2021.
The cost income ratio of 59% continues to reflect a balanced
approach to cost management, with careful cost control combined
with considered ongoing investment in the business.
Growing International footprint
External net flows of GBP65.6bn represents 10% of opening
external assets under management (annualised) and included strong
International net flows of GBP34.5bn, reflecting our deep
relationships with a number of leading international clients and
underpinning our conviction in our ability to grow international
AUM and earnings.
LGIM saw GBP22.5bn of net flows from Japanese clients and we are
now Japan's 7(th) largest asset manager. [41] Asia (ex-Japan) saw
flows of GBP11bn from multiple clients across the region, with
combined Asia/Japan AUM reaching GBP124bn ($151bn). In Europe our
ETF business continues to grow and we have signed several new
distribution agreements in the European wholesale market. Our US DB
de-risking business had a very strong start to the year, with net
flows of $7.1bn representing the strength of our capabilities and
client/consultant relationships in helping pension plans achieve
their investment objectives. Improved funding ratios due to higher
rates and wider credit spreads have increased demand for fixed
income and customised liability hedging strategies.
International AUM of GBP468bn is up 8% (H1 2021: GBP434bn) and
now constitutes 36% of total AUM.
Ongoing strength in UK
The Defined Contribution (DC) business continues to attract new
assets, with external net flows of GBP6.9bn, supported by ongoing
growth in Retail's Workplace pension business, which now has 4.7
million members. Total UK DC AUM is up 3% with total AUM of
GBP129.4bn (H1 2021: GBP125.5bn). This success is underpinned by
LGIM's strong customer focus, as shown by a 93% persistency rate
among our DC customers.
L&G also has one of the largest and fastest-growing UK
Master Trusts, which now has GBP18.2bn AUM, reflecting the
increasing appeal of the structure for DC plans wishing to
outsource their governance, investment and administration. Growth
in our UK Master Trust business continues to support growth in
Multi-asset flows, since this is the default option for many of our
clients. Our ability to offer investors an integrated blend of
high-quality investment solutions, pensions administration and
Master Trust governance for a value bundled price maintains a
significant source of competitive advantage for LGIM's DC
business.
Our UK Defined Benefit business delivered GBP22.5bn of net flows
as improved funding positions enabled our clients to de-risk. In
addition, we continue to provide a range of hedging solutions
against a backdrop of market volatility.
In Wholesale, we ranked third for both gross and net fund sales
in Q2 2022. We also continued to expand our Model Portfolio Service
(MPS), further extending our successful Multi-asset proposition
into the maturing advisory market, and with addition of two new
funds, completing the build of our Future World Multi-Index ESG
range. We believe our scale and expertise can disrupt this market
while helping clients meet their investment objectives. The launch
of our Global Thematic unit trust also makes our thematic
strategies available to a wider client base. Our property fund for
retail investors continues to be one of the market leaders with
over GBP2bn of AUM and our higher margin Multi-asset funds now
collectively have over GBP10bn in AUM from UK retail investors.
Growth in ETFs
Our ETF business continues to grow strongly following our
acquisition of the Canvas business in March 2018. Over this period,
revenue has more than tripled. The business has shown resilience in
the first half of the year, against a challenging backdrop, with
$0.4bn of external net flows delivering an annualised net new
revenue of $2.6m.
A focus on thematic and fixed income ETFs have supported our
strategy of growth into higher-margin areas, whilst our thematic
equities continue to be the largest contributor of revenues. A
diversified product mix with fixed income and commodities exposures
have supported AUM/revenues so far this year.
LGIM continues to be ranked second on both AUM and net flows in
the European thematic ETF market. We are also in the top 10 for
fixed income flows, and in the top 10 by overall flows.
Breadth of investment management solutions
Active Multi Real Total
Asset movements(1) Index strategies asset Solutions assets AUM
(GBPbn)
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
====================== =========== ============= ====== ========== ======= ========
External inflows 63.2 7.0 6.8 21.3 1.4 99.7
External outflows (38.2) (4.2) (3.7) (12.5) (1.1) (59.7)
Overlay net flows - - - 25.6 - 25.6
External net flows 25.0 2.8 3.1 34.4 0.3 65.6
PRT transfers(2) - - - (0.4) - (0.4)
Internal net flows (0.4) 0.2 - (0.7) 0.4 (0.5)
Total net flows 24.6 3.0 3.1 33.3 0.7 64.7
Market movements (57.8) (25.2) (8.0) (102.4) (1.9) (195.3)
Other movements 0.4 1.6 - (3.2) - (1.2)
As at 30 June 2022 469.6 178.2 73.1 532.8 36.0 1,289.7
====================== =========== ============= ====== ========== ======= ========
1. Please see disclosure 5.01 for further details.
2. PRT transfers reflect outflows in respect of LGIM clients who have moved to PRT with LGRI
Solutions continued to deliver positive external net flows of
GBP34.4bn (H1 2021: GBP18.8bn) driven by strong demand from UK, US
and APAC DB clients as they continue to de-risk. We manufacture
Solutions products in both publicly and privately traded asset
classes and combine these together in integrated portfolios for our
DB clients. We are well positioned to capitalise on this continuing
trend. Together with our fiduciary business offering, and working
closely with LGRI's PRT business, we can tailor solutions to DB
schemes at all stages of their funding journey. We have recently
signed an agreement with the British Steel Pension Scheme to manage
the GBP9.9bn [42] assets of its DB scheme, which we believe is
competitively differentiated in the market and provides a template
for similar future deals.
Multi-asset strategies continue to be in demand from DC schemes
and retail customers . External net flows into Multi-asset funds
were GBP3.1bn (H1 2021: GBP1.8bn), and we have seen positive
initial market sentiment following the completion of our Future
World Multi-Index range.
Index reported positive external net flows of GBP25.0bn (H1
2021: GBP4.7bn) driven by new international flows into Japan
(GBP22.7bn) and Asia (GBP7.9bn), partially offset by Index outflows
in the UK and US, reflecting the structural trend of DB schemes
de-risking and therefore shifting from index to LDI strategies.
Active Strategies delivered external net flows of GBP2.8bn (H1
2021: GBP2.3bn) as a result of positive net inflows from US and UK
DB clients.
Real Assets saw total net flows of GBP0.7bn (H1 2021: GBP0.8bn)
driven by additional Private Credit transactions to support LGRI's
PRT proposition. We expect future growth in flows to be supported
by our Build to Rent business and by Private Credit, which offers
clients diversification of secure income and value protection
solutions, and which UK DB investors are now accessing through our
successful SIAF and STAFF private credit funds. [43] We are
continuing to build on our partnership with NTR, a leading
renewable energy specialist, to provide institutional investors in
the UK, Europe and Asia access to the EUR1 trillion European energy
transition, with first close expected in Q4 2022.
Investment performance
The market backdrop year-to-date in 2022, has been very
challenging. War in Ukraine has led to an Energy crisis and
contributed to spiralling inflation. This, in turn, has led to
considerable volatility and weakness in both fixed income and
equity markets with key benchmark indices posting double-digit
negative total returns, leaving very little respite for investors.
As a result, our short-term performance across some of our active
strategies has been challenging.
In Solutions and Index investment success is driven by matching,
for example liability driven strategies, or tracking indices
predefined by our clients. We continue to consistently and
successfully deliver against these target returns, evidenced by
increasing client flows.
Performance of our UK-managed Active Fixed Income strategies
remains strong with 94% of strategies out-performing over 3 years
and 91% [44] over 5 years. Our US-managed Active Fixed Income
strategies have also performed strongly.
Within Private Markets, 77% [45] of our Real Estate Equity funds
have outperformed over 3 years and our Private Credit performance
remains strong.
Our investment success is also evident in the number of
independent awards we have won over H1 2022 for investment
performance, including ESG award at the City AM Awards 2022,
Investment Manager of the Year and Passive Manager of the Year at
the European Pensions Awards 2022, and Residential Asset Manager of
the Year at the Property Week Resi awards.
Leading in responsible investing
LGIM continues to build on its credentials as a responsible
investor and remains committed to leading the asset management
industry in addressing the environmental and social challenges
arising from a rapidly changing world.
As at 30(th) June 2022, LGIM managed GBP271.2bn (H1 2021:
GBP252.3bn) in responsible investment strategies explicitly linked
to ESG criteria for a broad range of clients. [46]
LGIM has a strong, unified sense of purpose: to create a better
future through responsible investing. To that end, we work to raise
ESG standards on important global issues, leveraging our position
as one of the largest global asset managers. LGIM is, for example,
a founding signatory of the Net Zero Asset Managers Initiative, and
has a global marketing partnership with Lewis Pugh, the UN Patron
of the Oceans. Recent achievements include:
-- Commitment to net zero:
1. LGIM has committed to work in partnership with our clients to
align 70% of eligible assets to net-zero carbon emissions by 2030,
and to reach net-zero greenhouse gas emissions by 2050 or sooner
across all eligible assets under management, in the same way that
L&G has already committed to with its own balance sheet.
2. Our DC default funds - available to over four million members
across L&G Workplace Pensions and the L&G Mastertrust, have
set interim targets to support their 2050 net-zero ambitions.
3. LGIM Real Assets has committed to achieve net-zero carbon
emissions across its UK real estate portfolio by 2050.
-- Product innovation : The size of the global ESG market,
currently $8 trillion, is expected to grow to $30 trillion by 2030.
[47] We believe we are well positioned to benefit from this flow of
AUM thanks to our authentic and differentiated proposition. We
continue to build on our strong heritage in using index and active
ESG investing insights to develop innovative new products, with 57%
of our EU domiciled UCITS funds classified as ESG-incorporated
(articles 8 or 9) under the EU annual Sustainable Finance
Disclosure Regulation (SFDR) exercise. Around 85% of all new
product development activity at LGIM is ESG-related, reflecting
clients' belief in our heritage and strength in this area. Recent
examples of ESG product innovation that place us at the forefront
of growing client demand include:
-- The launch of a Global Diversified Credit fund aligned to the
UN's Sustainable Development Goals.
-- The launch of a new Net Zero corporate bond fund, helping
Fixed Income investors on their transition of their portfolios to
Net Zero.
-- Continued bespoke ESG segregated account offerings for
multiple clients, reflecting their individual ESG drivers and
preferences.
-- Stewardship with impact : LGIM is rated A+ for responsible
investment strategy and governance, listed equity-incorporation,
listed equity-active ownership and fixed income-SSA (supranational,
sovereign, government agencies and subnational debt instruments) by
the UN Principles for Responsible Investment. LGIM is ranked as one
of the highest performers among asset managers for its approach to
stewardship and holding companies to account on climate change by
both FinanceMap and Majority Action, and in 2021 the Financial
Reporting Council (FRC) recognised LGIM as a signatory to the UK
Stewardship Code for our high standards of stewardship. We also
recently published the sixth annual iteration of our market-leading
Climate Impact Pledge, driving positive momentum to address climate
risk, across approximately 1,000 companies and 15 climate-critical
sectors. LGIM's voting decisions are guided by policies that are
painstakingly researched, set and fine-tuned every year. We cast
over 45,000 votes in H1 2022, and we publish all of our voting
actions on our dedicated website. We also publicly disclose all
rationales for votes against management and continue to publicly
pre-declare our voting intentions on certain votes, for example
where we consider the vote to be contentious, or as part of a
specific engagement programme.
-- Investment in Tumelo : In H1 2022 we acquired a minority
stake in Tumelo, an ESG digital engagement platform, which we are
providing to many of our DC pension clients. The technology enables
pension scheme members to vote on the AGM proposals of companies
they are invested in, driving greater consumer engagement and
enabling LGIM to better understand members' views and therefore
acting as an input to LGIM's engagement themes and voting
stance.
Retail
FINANCIAL HIGHLIGHTS GBPm H1 2022 H1 2021
============================================= ======= ========
Operating profit 332 292
* UK Insurance & Other 139 96
* US Insurance 46 38
* Retail Retirement 147 158
Investment and other variances 670 260
============================================= ======= ========
Profit / (loss) before tax attributable
to equity holders 1,002 552
============================================= ======= ========
Release from operations(1) 345 262
New business surplus / (strain) (2) 23
============================================= ======= ========
Net release from operations 343 285
============================================= ======= ========
Protection new business annual premiums 196 203
Individual annuities single premium 453 483
Workplace Savings net flows (GBPbn) [48] 4.3 6.0
Lifetime & Retirement Interest Only mortgage
advances 338 414
UK Retail protection gross premiums 740 714
UK Group protection gross premiums 291 274
US protection gross premiums 574 512
============================================= ======= ========
Total protection gross premiums 1,605 1,500
============================================= ======= ========
Protection New Business Value 92 131
--------------------------------------------- ------- --------
Annuities New Business Value 32 33
============================================= ======= ========
Solvency II New Business Value 124 164
============================================= ======= ========
1. Includes the annual dividend of $114m (H1 2021: $111m) paid
by LGIA to the Group in March 2022.
Operating profit up GBP40m to GBP332m
During the first half of 2022, Retail operating profit increased
14% to GBP332m (H1 2021: GBP292m), driven by the on-going release
from operations from the growing UK protection and individual
annuity portfolios, valuation uplifts in both Salary Finance and
Smartr365 and improvements in the discount rate for our US term
liabilities. In the US, after significant adverse mortality
experience over Q1 2022 (in line with the wider market), mortality
returned to normal levels in Q2. Total Covid claims over H1 2022
were in line with the GBP57m Covid claims provision set up at year
end.
Profit before tax was predominantly impacted by the formulaic
change in discount rates. The positive investment variance of
GBP670m was driven primarily by an increase in UK and US government
bond yields which have resulted in a higher discount rate used to
calculate the Insurance reserves. The UK 10 year gilt rate
increased by 126bps and US 10 year Treasury yields increased by
150bps.
Solvency II New Business Value decreased by GBP40m to GBP124m
(H1 2021: GBP164m) reflecting lower volumes in Retail protection
after a strong first half in 2021, aided by the buoyant housing
market. The Insurance business continues to generate Solvency II
surplus immediately when written and provides diversification
benefits to the Group, particularly the annuity business.
Robust trading performance in H1
UK Retail protection gross premium income increased to GBP740m
(H1 2021: GBP714m), with new business annual premiums of GBP85m (H1
2021: GBP105m) in a smaller market (2021 benefitted from a buoyant
housing market driven by stamp duty relief). L&G leads the UK
protection market with a market share of 22% [49] , delivering a
point of sale decision for more than 80% of our customers.
UK Group protection new business annual premiums were GBP63m (H1
2021: GBP55m) with gross written premiums increasing 6% to GBP291m
(H1 2021: GBP274m). Our online quote and apply platform for smaller
schemes launched last year and we are seeing strong growth in this
part of the market. Group Protection supported 1,574 members of
income protection schemes to return to work during the first half
of the year.
US protection (LGIA) gross written premiums increased 5% (up 12%
on a sterling basis, benefiting from FX movements) to $746m (H1
2021: $712m). New business annual premiums increased 5% to $62m (H1
2021: $59m), with strong new business margins of 10.7% (H1 2021:
11.5%). LGIA ranked number one in the brokerage general agency
channel in the first quarter by new policies issued and number two
in new premium. We continue to develop our market-leading, digital
new business platform (Horizon) which is starting to deliver in
line with expectation, and we expect to drive further sales growth
and to reduce unit costs over the coming years. Two thirds of new
business is now submitted through our Horizon platform and we
expect this to increase over H2.
Legal & General Mortgage Club facilitated GBP50bn of
mortgages, up 6% (H1 2021: GBP47bn), driven by continued strong
demand in the mortgage/remortgage market. We remain the largest
participant in the UK intermediated mortgage market and are
involved in around one in five of all UK mortgage transactions. Our
Surveying Services business facilitated over 276,000 surveys and
valuations (H1 2021: 263,000). Since buying a new house is often a
catalyst for purchasing life insurance, the Legal & General
Mortgage Club is a supporting component of our overall offering to
customers.
Individual annuity sales were GBP453m (H1 2021: GBP483m) in what
has been a smaller overall market during 2022, as we expect
retirees have been choosing to defer annuity retirement options,
given the volatile macro-economic environment. Our relative
performance has remained strong: our operational service,
competitive pricing and intermediary presence allowed us broadly to
maintain our market share at 20.5%. (40)
Lifetime mortgage advances, including Retirement Interest Only
mortgages, were GBP338m (H1 2021: GBP414m). Throughout this period,
we have maintained pricing and underwriting discipline. At H1 2022,
LTMs were 7% of our total annuity assets and our LTM new business
portfolio had an average customer age of 72 and a weighted average
loan-to-value of c34% at point of sale.
Workplace Savings net flows were GBP4.3bn (H1 2021: GBP6.0bn),
driven by continued client wins and increased contributions.
Members on the Workplace pension platform increased to 4.7 million
in H1 2022. We are continuing to focus on improving efficiency and
scale as the business grows.
Scaling up our Fintech businesses
Retail has continued with its strategy to invest in and scale up
innovative fintech businesses in adjacent markets.
Salary Finance, an employee benefits platform in which we have a
48% holding, continues to grow rapidly, with the platform now
connected to over 4.2 million employees across the UK and US. Gross
revenue grew to GBP20.5m, an increase of just over 60% year on
year. It remains one of the UK's fastest growing Fintechs and is
well positioned for growth in the UK, the US and beyond. Salary
Finance completed a transaction to sell Work Report to Experian in
H1 2022, generating a substantial cash injection as a result. The
proceeds of this transaction, places Salary Finance in a strong
position for continued growth.
Our c49% investment in Smartr365, a complete end-to-end mortgage
platform designed to simplify the mortgage process for brokers,
introducers, networks and consumers, has moved from start up to
scale up across the UK mortgage broking market, also achieving a
successful funding round over H1 2022. We now have around 3,400
licences signed up and continue to receive strong feedback on the
proposition.
A new investment was made in Onto, an all-inclusive electric car
subscription provider. Onto's growth plans include opportunities
for a salary deduction workplace offering which L&G is ideally
placed to support given our multiple, workplace-focused businesses
and investments. Onto's business model also aligns well with our
ambitions to help the UK economy transition to net zero.
The strategy of platform ownership and influence has continued
to serve us well in the mortgage and home-financing "ecosystem".
Our mortgage research tools for affordability, criteria and product
reach over 19k advisers in the mortgage broking market following a
focus on user growth through active promotion over the last six
months. Within our Legal & General surveying business, our work
to digitise the market has proved invaluable for lenders, primarily
banks, through the pandemic and this trend has continued into 2022.
Our digital valuation services have been used by many of our key
clients with over 153k completed since 2019.
Borrowings
The Group's outstanding core borrowings totalled GBP4.4bn at 30
June 2022 (FY 2021: GBP4.3bn; H1 2021: GBP4.5bn). There is also a
further GBP1.2bn (FY 2021: GBP0.9bn; H1 2021: GBP1.1bn) of
operational borrowings including GBP1.0bn (FY 2021: GBP0.9bn; H1
2021: GBP1.1bn) of non-recourse borrowings.
Group debt costs of GBP108m (H1 2021: GBP120m) reflect an
average cost of debt of 4.9% per annum (H1 2021: 5.1% per annum) on
an average nominal value of debt balances of GBP4.5bn (H1 2021:
GBP4.8bn).
Taxation
Equity holders' Effective Tax Rate (%) H1 2022 H1 2021
Equity holders' total Effective Tax Rate 15.7 19.5
Annualised rate of UK corporation tax 19.0 19.0
============================================= ======= ==========
The H1 2022 effective tax rate reflects the different rates of
taxation that apply to Legal & General's overseas operations,
as well as applying the future enacted UK tax rate of 25% (which
applies from 1 April 2023) on deferred tax movements in the
period.
The tax rate on operating profits, excluding the impact of
investment variance, was 17.2% (H1 2021: 16.1%).
Solvency II
As at 30 June 2022, the Group had an estimated Solvency II
surplus of GBP9.2bn over its Solvency Capital Requirement,
corresponding to a Solvency II coverage ratio of 212%.
Capital (GBPm) H1 2022 2021
=================================== ======= ========
Own Funds 17,374 17,561
Solvency Capital Requirement (SCR) (8,193) (9,376)
=================================== ======= ========
Solvency II surplus 9,181 8,185
SCR coverage ratio (%) 212 187
=================================== ======= ========
Solvency
Analysis of movement from 1 January II Own Solvency Solvency
2022 to 30 June 2022(1) (GBPm) Funds II SCR II Surplus
Operational surplus generation 748 198 946
New business strain 175 (296) (121)
============================================= =========== ========= ==============
Net surplus generation 923 (98) 825
Operating variances (231)
Mergers, acquisitions and disposals -
Market movements 1,194
Subordinated debt -
Dividends paid (792)
============================================= =========== ========= ==============
Total surplus movement (after dividends
paid in the period) (187) 1,183 996
1. Please see disclosure note 6.01(c) for further detail.
Operational surplus generation increased to GBP946m (H1 2021:
GBP831m) , after allowing for amortisation of the opening
Transitional Measures on Technical Provisions (TMTP) and release of
Risk Margin.
New business strain was GBP(121)m, primarily reflecting UK PRT
volumes written at a capital strain of less than 4%. This resulted
in net surplus generation of GBP825m (H1 2021: GBP673m).
Dividends paid represent the payment of the 2021 final dividend
in June 2022, which is the larger of the two dividends paid during
the year.
Operating variances include the impact of experience variances,
changes to assumptions, and management actions. The net impact of
operating variances over the period was negative and predominantly
reflects timing differences which we expect to reverse in H2.
Market movements of GBP1,194m primarily reflect the impact of
rising rates on the valuation of our balance sheet, partially
offset by weaker asset markets, predominantly in equities, credit
spread dispersion in sub-investment grade assets, as well as a
number of other, smaller variances.
The movements shown above incorporate the impact of
recalculating the TMTP as at 30 June 2022.
Reconciliation of IFRS net release from operations to Solvency
II net surplus generation(1)
The table below gives a reconciliation of the Group's IFRS
Release from operations and Solvency II Operational surplus
generation in H1 2022:
GBPbn
=========================================================== ======
IFRS Release from operations 892
Expected release of IFRS prudential margins (273)
Release of IFRS specific reserves (83)
Solvency II investment margin 67
Release of Solvency II Capital Requirement and Risk Margin
less TMTP amortisation 343
=========================================================== ======
Solvency II Operational Surplus Generation 946
=========================================================== ======
The table below gives a reconciliation of the Group's IFRS New
business surplus to Solvency II New business strain in H1 2022:
GBPbn
IFRS New business surplus 153
Removal of requirement to set up prudential margins above
best estimate on new business 94
Set up of Solvency II Capital Requirement on new business (296)
Set up of Risk Margin on new business (72)
Solvency II New business strain (121)
1. Please see disclosure 2.02 and 6.01 (d) for further
details.
Sensitivity analysis(2)
Impact on Impact
net of tax on net of
Solvency tax Solvency
II capital II coverage
surplus ratio
H1 2022 H1 2022
GBPbn %
================================================ =========== ==============
100bps increase in risk free rates 0.5 19
50bps decrease in risk free rates (0.3) (9)
Credit spreads widen by 100bps assuming an
escalating addition to ratings 0.4 12
Credit spreads narrow by 100bps assuming
an escalating addition to ratings (0.4) (15)
Credit spreads widen by 100bps assuming a
flat addition to ratings 0.4 14
Credit spreads of sub-investment grade assets
widen by 100bps assuming a level addition
to ratings (0.3) (8)
Credit migration (1.2) (14)
25% fall in equity markets (0.4) (3)
15% fall in property markets (0.9) (9)
50bps increase in future inflation expectations - (3)
Substantially reduced Risk Margin 0.5 7
================================================ =========== ==============
2. Please see disclosure 6.01 (f) for further details.
The above analysis does not reflect all possible management
actions which could be taken to reduce the impact of each
sensitivity due to the complex nature of the modelling. In
practice, the Group actively manages its asset and liability
positions to respond to market movements. Other than in the
interest rate and inflation stresses, we have not allowed for the
recalculation of TMTP. The impacts of these stresses are not linear
therefore these results should not be used to interpolate or
extrapolate the impact of a smaller or larger stress.
The results of these tests are indicative of the market
conditions prevailing at the balance sheet date. The results would
be different if performed at an alternative reporting date.
The impacts of credit spreads and risk-free rate sensitivities
are primarily non-economic arising from movements in balance sheet
items that result from changes in the discount rates used to
calculate the value of assets and liabilities. The credit migration
stress, in the absence of defaults, delays the emergence of
operating surplus generation, but does not reduce the actual
quantum of future releases. Similarly, equity and property stresses
only result in losses if assets are sold at depressed values.
Solvency II new business contribution
Management estimates of the present value of new business
(PVNBP) and the margin as at 30 June 2022 are shown below(1) :
PVNBP Contribution Margin
from %
new business
======================================== ======= =============== =========
LGRI - UK annuity business (GBPm) 3,715 323 8.7
---------------------------------------- ------- --------------- ---------
Retail Retirement - UK annuity business 453 32 7.1
UK Protection Total (GBPm) 870 50 5.7
- Retail protection 578 28 4.8
- Group protection 292 22 7.5
US Protection (GBPm) 391 42 10.7
The key economic assumptions as at 30 June 2022 are as
follows:
%
================================================= ===
Margin for risk 4.1
Risk free rate
- UK 2.3
- US 3.0
Risk discount rate (net of tax)
- UK 6.4
- US 7.1
Long-term rate of return on non-profit annuities 4.4
================================================== ===
1. Please see disclosure 6.02 for further details.
The future earnings are discounted using duration-based discount
rates, which is the sum of a duration-based risk free rate and a
flat margin for risk. The risk free rates have been based on a swap
curve net of the PRA-specified Credit Risk Adjustment. The risk
free rate shown above is a weighted average based on the projected
cash flows.
Other than updating for recent experience, all other economic
and non-economic assumptions and methodologies that would have a
material impact on the margin for these contracts are unchanged
from those previously used by the group for its European Embedded
Value reporting, other than the cost of currency hedging which has
been updated to reflect current market conditions and hedging
activity in light of Solvency II.
Principal risks and uncertainties
Legal & General runs a portfolio of risk taking businesses;
we accept risk in the normal course of business and aim to deliver
sustainable returns on risk based capital to our investors in
excess of our cost of capital. We manage the portfolio of risk that
we accept to build a sustainable franchise for the interests of all
our stakeholders; we do not aim to eliminate that risk. We have an
appetite for risks that we understand and are rewarded for, and
which are consistent with delivery of our strategic objectives.
Risk management is embedded within the business. The Group's
Principal Risks and Uncertainties summarise key matters that may
impact the delivery of Group's strategy earnings or profitability.
The risks are expected to remain applicable for the remaining six
months of the year.
RISKS AND UNCERTAINTIES TR, OUTLOOK AND MITIGATION
Investment market performance and conditions in the Whilst global and UK economic activity is returning to
broader economy may adversely impact pre-pandemic levels, there remains
earnings, profitability or surplus capital. The significant uncertainty to the impacts of inflation on the
performance and liquidity of financial and sustainability of the recovery,
property markets, interest rate movements and inflation particularly should current inflationary pressures become
impact the value of investments we deep seated or should policy responses
hold in shareholders' funds and to meet the obligations prove ineffective in response. Financial markets, as well
from insurance business; the movement as being impacted by the economic
in certain investments directly impacts profitability. outlook also continue to be susceptible to shocks from a
Interest rate movements and inflation range of geo-political factors including
can also change the value of our obligations and although the on-going war in Ukraine and potential further ruptures
we seek to match assets and liabilities, in the US-China relationship. The
losses can still arise from adverse markets. Falls in the world also remains vulnerable to the emergence of new
risk free yield curve can also create Covid-19 variants. Within the UK, uncertainty
a greater degree of inherent volatility to be managed in persists in certain elements of commercial property
the Solvency II balance sheet, potentially markets, and within our construction businesses
impacting capital requirements and surplus capital. Falls supply chain and labour shortages are significant risks.
in investment values can reduce
our investment management fee income. We cannot eliminate the downside impacts on our earnings,
profitability or surplus capital
from investment market volatility and adverse economic
conditions, although we seek to position
our investment portfolios and wider business plans for a
range of plausible economic scenarios
and investment market conditions to ensure their
resilience across a range of outcomes.
In dealing with issuers of debt and other types of Although the wider economy has largely recovered from the
counterparty, the group is exposed to direct effects of global lockdowns,
the risk of financial loss. Systemic corporate sector a range of industries remain vulnerable to further
failures, or a major sovereign debt Covid-19 disease control measures including
event, could, in extreme scenarios, trigger defaults the leisure, transport, travel and retail consumer
impacting the value of our bond portfolios. cyclical sectors, with the risk of downgrade
Under Solvency II, a widespread widening of credit and default remaining particularly as governments refocus
spreads and downgrades can also result economic support packages on ameliorating
in a reduction in our Solvency II balance sheet surplus, the effects of the current high rates of inflation in
despite already setting aside significant many economies. A period of sustained
capital for credit risk. We are also exposed to default inflation with increases in interest rate suppressing
risks in dealing with banking, money economic activity in sectors reliant
market and reinsurance counterparties, as well as on discretionary spending could compound the effects.
settlement, custody and other bespoke business
services. Default risk also arises where we undertake We continue to actively manage our exposure to downgrade
property lending, with exposure to loss and default risks within our chiefly
if an accrued debt exceeds the value of security taken. investment-grade credit portfolios, through setting
selection criteria and exposure limits,
and using LGIM's global credit team's capabilities to
ensure risks are effectively controlled,
and where appropriate trading out to improve credit
quality. In our property lending businesses,
our loan criteria take account of borrower default and
movements in the value of security.
We manage our reinsurer exposures dealing only with those
with a strong investment-grade rating
at outset, setting rating based exposure limits, and
where appropriate taking collateral.
Whilst we manage risks to our Solvency II balance sheet,
we can never eliminate downgrade
or default risks, although we seek to hold a strong
balance sheet that we believe to be resilient
to a range of adverse scenarios.
RISKS AND UNCERTAINTIES TR, OUTLOOK AND MITIGATION
We fail to respond to the emerging threats from climate Climate change and failure to transition to a low carbon
change for our investment portfolios economy remains a significant risk
and wider businesses. As a significant investor in that we believe has still to be fully priced in by
financial markets, commercial real estate financial markets, with delays in responding
and housing, we are exposed to climate related to the threats increasing the risk of sudden late policy
transition risks, particularly should abrupt action, leading to potentially large
shifts in the political and technological landscape and unanticipated shifts in asset valuations for impacted
impact the value of those investment assets industries.
associated with higher levels of greenhouse gas
emissions. Our interests in property assets We continue to embed the assessment of climate risks in
may also expose us to physical climate change related our investment process, including
risks, including flood risks. We are in the management of real assets. At the aggregate level
also exposed to the risk of adverse perceptions of the we measure the carbon intensity targets
group and climate risk related litigation of our investment portfolios, and along with specific
should our responses not align with environment, social investment exclusions for carbon intensive
and governance (ESG) rating expectations. industries, we have set overall reduction targets aligned
with a 1.5degC interpretation of
the Paris Agreement, including setting near term science
based targets to support our long
term emission reduction goals. We are also closely
monitoring the political and regulatory
landscape, and as part of our climate strategy we engage
with regulators and investee companies
in support of climate action.
We remain vigilant to ensure there is a resonance between
what we say and what we do on ESG
issues, and are alert to the risks of "greenwashing"
while acknowledging we are a complex
and multi-faceted business, and there are strongly-held
but often conflicting views among
our key stakeholders.
Reserves and our assessment of capital requirements may We undertake significant analysis of the variables
require revision as a result of changes associated with writing long-term insurance
in experience, regulation or legislation. The pricing of business to ensure that a suitable premium is charged for
long-term business requires the setting the risks we take on, and that reserves
of assumptions for long-term trends in factors such as continue to remain appropriate for factors including
mortality, lapse rates, valuation interest mortality, lapse rates, valuation interest
rates, expenses and credit defaults as well as the rates, and expenses, as well as credit default in the
availability of assets with appropriate assets backing our insurance liabilities.
returns. Actual experience may require recalibration of In seeking a comprehensive understanding of longevity, we
these assumptions, increasing the continue to evaluate how Covid-19
level of reserves and impacting reported profitability. may impact wider trends in life expectancy. In our
protection business, as part of our continuous
Management estimates are also required in the derivation evolution of our underwriting capabilities, we seek to
of Solvency II capital metrics. These ensure we fairly assess Covid-19 and
include modelling simplifications to reflect that it is associated impacts it has had on healthcare systems,
not possible to perfectly model the including the deferral of medical treatments,
external environment. as a risk factor. We cannot remove the risk that
adjustment to reserves may be required as
Forced changes in reserves can also arise from a result of these and other factors, although the
regulatory or legislative intervention impacting selective use of reinsurance acts to reduce
capital requirements and profitability. the impacts to us of significant variations in life
expectancy and mortality.
Other risk factors that may impact future reserving
requirements include a sustained and rapid
advances in medical science, beyond that anticipated,
requiring adjustment to our longevity
assumptions; and the emergence of new diseases and
changes in immunology impacting mortality
and morbidity assumptions. At present we do not believe
climate change to be a material driver
for mortality and longevity risk in the medium term, but
we will continue to keep this under
review.
========================================================== ==========================================================
Changes in regulation or legislation may have a Regulatory driven change remains a significant risk
detrimental effect on our strategy. Legislation factor across our businesses. Areas of
and government fiscal policy influence our product future change include HM Treasury's consultation on
design, the period of retention of products Solvency II and the Future Regulatory
and required reserves for future liabilities. Regulation Framework post Brexit; and the UK's financial conduct
defines the overall framework for regulator's proposal for a new Consumer
the design, marketing, taxation and distribution of our Duty which will place obligations to evidence the
products, and the prudential capital delivery of good customer outcomes. We also
that we hold. Significant changes in legislation or continue to prepare in readiness for IFRS 17, which will
regulation may increase our cost base, introduce a new suite of financial
reduce our future revenues and impact profitability or reporting metrics. Within our property construction
require us to hold more capital. businesses, the Building Safety Bill and
the Environment Act 2021 will also introduce new
The prominence of the risk increases where change is operating requirements.
implemented without prior engagement
with the sector. The nature of long-term business can Our internal control framework seeks to ensure on-going
also result in some changes in regulation, compliance with relevant legislation
and the re-interpretation of regulation over time, and regulation. Residual risk remains, however, that
having a retrospective effect on in-force controls may fail or that historic financial
books of business, impacting future cash generation. services industry accepted practices may be reappraised
by regulators, resulting in sanctions
against the group.
---------------------------------------------------------- ----------------------------------------------------------
RISKS AND UNCERTAINTIES TR, OUTLOOK AND MITIGATION
New entrants may disrupt the markets in which we We continue to monitor the factors that may impact the
operate. There is already strong competition markets in which we operate, including
in our markets, and although we have had considerable evolving domestic and international capital standards,
past success at building scale to offer and are maintaining our focus on developing
low cost products, we recognise that markets remain our digital platforms. We have a number of direct
attractive to new entrants. It is possible investments in strategically important market
that alternative digitally enabled financial services segments to enhance delivery of our core businesses and
providers emerge with lower cost business LGIM continue to invest in technology
models or innovative service propositions and disrupt to achieve the resilience and agility critical to future
the current competitive landscape. We success. We observe a continued acceleration
are also cognisant of competitors who may have lower of a number of trends, including greater consumer
return on capital requirements or be engagement in digital business models and
unconstrained by Solvency II. on-line servicing tools. It has also seen businesses like
ours transform working practices,
and we expect to continue to invest in automation, using
robotics to improve business efficiency.
Our businesses are also well positioned for changes in
the competitive landscape that may
arise from the roll out of defined benefit 'superfund'
consolidation schemes, pension dashboards
and 'collective' pension scheme arrangements. We continue
to be supportive of the opportunity
for reform of the Solvency II capital regime post Brexit.
========================================================== ==========================================================
A material failure in our business processes or IT Our risk governance model seeks to ensure that business
security may result in unanticipated financial management are actively engaged in
loss or reputation damage. We have constructed our maintaining an appropriate control environment, supported
framework of internal controls to minimise by risk functions led by the Group
the risk of unanticipated financial loss or damage to Chief Risk Officer, with independent assurance from Group
our reputation. However, no system of Internal Audit. Whilst we seek to
internal control can completely eliminate the risk of maintain a control environment commensurate with our risk
error, financial loss, fraudulent actions profile we recognise that residual
or reputational damage. We are also inherently exposed risk will always remain across the spectrum of our
to cyber threats including the risks business operations and we aim to develop
of data theft and fraud. There is also strong response plans so that when adverse events occur,
stakeholder expectation that our core business appropriate actions are deployed in a timely
services are resilient to operational disruption. fashion. We remain, alert to evolving operational risks
and continue to invest in our system
capabilities, including those for the management of cyber
risks, and continue to evolve our
operational resilience capabilities in line with
financial services regulatory requirements.
========================================================== ==========================================================
The success of our operations is dependent on the Competition for talent across the full range of
ability to attract and retain highly qualified capabilities and qualifications remains intense
professional people. The Group aims to recruit, develop and demands that the Group offers competitive
and retain high quality individuals. compensation arrangements as well as opportunities
We are inherently exposed to the risk that key personnel for development and an attractive work environment.
or teams of expertise may leave the People with skills in areas such as technology
Group, with an adverse effect on the Group's businesses. and digital are particularly sought after across many
As we increasingly focus on the digitalisation business sectors, including those in
of our businesses, we are also competing for data and which we operate. We also recognise the risks posed by
digital skill sets with other business the outlook for inflation in salary
sectors as well as our peers. expectations across the wider employment market.
Market-wide approaches to hybrid working
are still evolving, and although we believe we are taking
the right steps, there remains a
risk that our model does not align with the expectations
of those we seek to attract or retain.
We continue to seek to ensure that key personnel
dependencies do not arise, through employee
training and development programmes, remuneration
strategies and succession planning. Our
processes include the active identification and
development of talent within our workforce,
and by highlighting our values and social purpose,
promoting Legal & General as a great place
to work. We also engage our people on new ways of working
under our hybrid home:office model
and are investing in technology and upgrading our
buildings to support a range of working
styles.
========================================================== ==========================================================
Notes
A copy of this announcement can be found in "Results, Reports
and Presentations", under the "Investors" section of our
shareholder we bsite at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
.
A presentation to analysts and investors will take place at
10:30am UK time today at One Coleman Street, London, EC2R 5AA.
There will also be a live webcast of the presentation that can be
accessed at
www.legalandgeneralgroup.com/investors/results-reports-and-presentations
.
A replay of the presentation will be made available on this
website by 12(th) August 2022.
Financial Calendar Date
======================================== ====================
2022 interim results announcement 9 August 2022
Ex-dividend date (2022 interim dividend) 18 August 2022
Record date 19 August 2022
Dividend payment date 26 September 2022
2022 preliminary results announcement 8 March 2023
Definitions
Definitions are included in the Glossary on pages 101 to 105 of
this release.
Forward-looking statements
This announcement may contain 'forward-looking statements' with
respect to the financial condition, performance and position,
strategy, results of operations and businesses of the Company and
the Group that are based on current expectations or beliefs, as
well as assumptions about future events. These forward-looking
statements can be identified by the fact that they do not relate
only to historical or current facts. Forward-looking statements
often use words such as 'may', 'could', 'will', 'expect', 'intend',
'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or
other words of similar meaning. By their very nature,
forward-looking statements are subject to known and unknown risks
and uncertainties and can be affected by other factors that could
cause actual results, and the Group's plans and objectives, to
differ materially from those expressed or implied in the
forward-looking statements. Recipients should not place reliance
on, and are cautioned about relying on, any forward-looking
statements.
There are several factors which could cause actual results to
differ materially from those expressed or implied in
forward-looking statements. The factors that could cause actual
results to differ materially from those described in the
forward-looking statements include (but are not limited to):
changes in global, political, economic, business, competitive and
market forces or conditions; future exchange and interest rates;
changes in environmental, social or physical risks; legislative,
regulatory and policy developments; risks arising out of health
crises and pandemics; changes in tax rates, future business
combinations or dispositions; and other factors specific to the
Group. Any forward-looking statement contained in this document is
based on past or current trends and/or activities of the Group and
should not be taken as a representation that such trends or
activities will continue in the future. No statement in this
document is intended to be a profit forecast or to imply that the
earnings of the Group for the current year or future years will
necessarily match or exceed the historical or published earnings of
the Group. Each forward-looking statement speaks only as of the
date of the particular statement. Except as required by any
applicable laws or regulations, the Group expressly disclaims any
obligation to revise or update any forward-looking statement
contained within this document, regardless of whether those
statements are affected as a result of new information, future
events or otherwise.
Caution about climate information
This announcement contains climate and ESG disclosures which use
a large number of judgments, assumptions and estimates. These
judgments, assumptions and estimates are likely to change over
time. In addition, the Group's climate risk analysis and net zero
strategy remain under development and the data underlying the
analysis and strategy remain subject to evolution. As a result,
certain climate and ESG disclosures made in this announcement are
likely to be amended, updated, recalculated or restated in future
announcements. This statement should be read together with the
Cautionary statement contained in the Group's 2021 Climate
Report.
The information, statements and opinions contained in this
announcement do not constitute an offer to sell or buy or the
solicitation of an offer to sell or buy any securities or financial
instruments nor do they constitute any advice or recommendation
with respect to such securities or other financial instruments or
any other matter
Going concern statement
Going concern statement is included on disclosure note 4.01(a)
on page 52 of this release.
Directors' responsibility statement
We confirm to the best of our knowledge that:
i. The consolidated interim financial statements have been
prepared in accordance with UK-adopted IAS 34 Interim Financial
Reporting;
ii. The interim management report includes a fair review of the
information required by DTR 4.2.7, namely an indication of
important events that have occurred during the first six months of
the financial year and their impact on the consolidated interim
financial statements, as well as a description of the principal
risks and uncertainties faced by the company and the undertakings
included in the consolidation taken as a whole for the remaining
six months of the financial year;
iii. The interim management report includes, as required by DTR
4.2.8, a fair review of material related party transactions that
have taken place in the first six months of the financial year and
any material changes in the related party transactions described in
the last Annual Report and Accounts; and
iv. The directors of Legal & General Group Plc are listed in
the Legal & General Group Plc Annual Report and Accounts for 31
December 2021. A list of current directors is maintained on the
Legal & General Group Plc website:
www.legalandgeneralgroup.com/about-us/our-management/group-board/
.
By order of the Board
Sir Nigel Wilson Stuart Jeffrey Davies
Group Chief Executive Group Chief Financial Officer
8 August 2022 8 August 2022
Enquiries
Investors
) +44 203 124 2091
Edward Houghton,
Group Strategy & Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
) +44 203 124 2054
Nim Ilankovan, Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
) +1 240 397 0053
Blake Carr, Investor Relations Director
8 investor.relations@group.landg.com
legalandgeneralgroup.com
Media
) +44 203 1242 090
John Godfrey, Group Corporate Affairs Director
8 legalandgeneralgroup.com
) +44 207 3534 200
Graeme Wilson, Tulchan Communications
) +44 7812 935 831
Guy Bates, Tulchan Communications
[1] The Group uses a number of Alternative Performance Measures
(including adjusted operating profit, net release from operations,
return on equity and LGIM AUM) to enhance understanding of the
Group's performance. These are defined in the glossary, on pages 99
to 105 of this report. Operating profit represents adjusted
operating profit.
[2] Profit after tax attributable to equity holders.
[3] Solvency II coverage ratio of 212% is post GBP0.8bn payment
of 2021 final dividend.
[4] Cash generation defined as net release from operations and
Capital generation defined as Solvency II operational surplus
generation.
[5] The reduction since FY21 (GBP3.4bn) reflects the formulaic
impact to the discount rate as a consequence of rising interest
rates and widening credit spreads.
[6] $57tn retirement solutions market, Willis Towers Watson,
2022 Global Pension Assets Study; $149tn asset management market,
BCG, Global Asset Management 2022; $20tn climate change market
based on forecast that $130tn of investment is needed to 2050 in
order to achieve zero emissions, scaled pro-rata to 2025.
BloombergNEF: New energy outlook 2021
https://about.bnef.com/new-energy-outlook/
[7] From 1 January 2022, our insurance (LGI) and retail
retirement (LGRR) businesses have come together to form Retail. The
new division will focus on the savings, protection and retirement
needs of our c12m retail policyholders and workplace members.
[8] Operating profit is an Alternative Performance Measure and
represents Adjusted operating profit as defined on page 99 .
[9] Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit
before tax attributable to equity holders as defined on page 100
.
[10] Solvency II margin represents UK pension risk transfer
volume only.
[11] Profit before tax attributable to equity holders is an
Alternative Performance Measure and represents Adjusted profit
before tax attributable to equity holders as defined on page
101.
[12] Solvency II coverage ratio incorporates the impact of
recalculating the Transitional Measures for Technical Provisions
(TMTP) as at 30 June 2022.
[13] For example, UK 10 year Gilts at 2.23% at the end of the
period, having increased 126bps between 31 December 2021 and 30
June 2022.
[14] Calculated using annualised profit for the year and average
equity attributable to the owners of the parent of GBP10,835m.
[15] IPE, Top 500 Asset Managers 2021.
[16] Three year average (H2 2019-H1 2022) measured by UK PRT new
business volumes. Three year average measured by UK PRT deal count
from LGIM clients is 62%.
[17] Broadridge, UK Defined Contribution and Retirement Income
report 2021. 2021 UK DC Assets: GBP515bn.
[18] For more information please refer to
www.legalandgeneralgroup.com/investors/esg-investors/
[19] Proprietary assets relate to Investments to which
shareholders are directly exposed (excluding client and
policyholder assets, derivatives, cash, cash equivalents and
loans), as disclosed in Note 7.01.
[20] This reduction is well ahead of the original -2% target
over the same period, although it has been driven in part by
COVID-19 and market volatility impacts. In particular, the impact
of COVID-19 on 2020 emissions is partially seen in the 2021
numbers, due to the carbon data lag within the calculation, and we
may see a partial reversal of this movement in future years. For
more information, see our 2021 Climate report which is available on
our website.
[21] Climate Report (TCFD) 2021 | Legal & General
(legalandgeneral.com)
[22] AUM in responsible investment strategies represents only
the AUM from funds or client mandates that feature a deliberate and
positive expression of ESG criteria in the fund documentation for
pooled fund structures or in a client's Investment Management
Agreement.
[23] Represents voting instructions for main FTSE pooled index
funds.
[24] Sustainability & Inclusive Capitalism report 2021
(legalandgeneral.com)
[25] The ambitions are based on the aggregate performance over a
five-year period. Performance may vary from year to year and
individual statements may not be met in each year on a standalone
basis. Dividend decisions are subject to final Board approval.
[26] Cash generation is net release from operations, capital
generation is Solvency II operational surplus generation. Dividends
on a declared basis. On the basis of a flat final 2020 dividend,
and 3-6% annual growth thereafter.
[27] WTW: Pension risk settlement: a review of 2021 & LCP:
Rise of new market leaders and 'mega' transactions could be on the
cards for the de-risking market in 2022 .
[28] LCP Pensions De-risking report 2021, PPF; Hymans Robertson,
2022 Risk Transfer Report.
[29] LGRI market view based on discussions with external
Employee Benefit consultants.
[30] LCP Pensions De-risking report 2021.
[31] ICI Q4 retirement market data.
[32] Pridham Report, Q2 2022.
[33] R anked number one in the brokerage channel in Q1 2022 by
new policies issued
[34] Broadridge, UK Defined Contribution and Retirement Income
report 2021.
[35] ABI Q1 2022 Report.
[36] Lifetime Mortgages | Legal & General
(legalandgeneral.com) .
[37] Total annuity asset portfolio represents our UK and US
annuity businesses (LGRI + Retail Retirement). See note 5.04 and
note 7.01 for more detail.
[38] Includes annuity direct investment bonds (GBP20,498m),
direct investment property (GBP5,632m), direct investments equity
(GBP42m), and other assets (GBP94m). Please see note 7.02b for more
information.
[39] 16% growth rate excludes new investment and
distributions.
[40] Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
[41] Ranked seventh by AUM, Japanese industry publication
(Pension News) March 2022.
[42] GBP9.9bn of assets as at 31(st) March 2022.
[43] SIAF = Secure Income Assets Fund. STAFF = Short Term
Alternative Fund.
[44] Net fund performance data versus key comparators (benchmark
or generic peer groups as per the relevant prospectuses, and
benchmark per the relevant prospectus or custom peer group for
Multi-asset) sourced from Lipper for the LGIM UCITS. All data as at
30 June 2022.
[45] Based on Q1 2022 position.
[46] AUM in responsible investment strategies represents only
the AUM from funds or client mandates that feature a deliberate and
positive expression of ESG criteria, in the fund documentation for
pooled fund structures or in a client's Investment Management
Agreement.
[47] Broadridge Financial Solutions, November 2021.
([48]) This represents the Workplace Savings administration
business. Profits on the fund management services we provide are
included in LGIM's asset management operating profit.
[49] ABI Q1 2022 Report.
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