TIDMLGEN
RNS Number : 2884J
Legal & General Group Plc
15 August 2023
L&G Half year results 2023 Part 2
Independent review report to Legal & General Group Plc
Conclusion
We have been engaged by Legal & General Group Plc ("the
company") to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June
2023 which comprises the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated
Balance Sheet, Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the half-yearly financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the directors have
inappropriately adopted the going concern basis of accounting, or
that the directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the company to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
company will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Note 4.01, the annual financial statements of
the group are prepared in accordance with UK-adopted international
accounting standards.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review. Our conclusions, including
our conclusion relating to going concern, are based on procedures
that are less extensive than audit procedures, as described in the
Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Philip Smart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
14 August 2023
IFRS Disclosures on performance
2.01 IFRS 17 and IFRS 9 restatement
The group has applied IFRS 17, 'Insurance Contracts' and IFRS 9,
'Financial Instruments' for the first time from 1 January 2023.
These standards have brought significant changes to the accounting
for insurance and reinsurance contracts and financial instruments
respectively, and have had a material impact on the group's
financial statements in the period of initial application.
IFRS 17, 'Insurance Contracts' was originally issued in May 2017
by the IASB, and subsequent amendments were issued in June 2020.
Endorsement for use in the UK was granted in May 2022. The standard
replaced IFRS 4, 'Insurance Contracts', and has been applied
retrospectively, in line with the transitional options provided for
in the standard. IFRS 17 provides a comprehensive approach for
accounting for insurance contracts including their measurement,
income statement presentation and disclosure.
IFRS 9, 'Financial Instruments' was issued in July 2014 by the
IASB, effective for annual periods beginning on or after 1 January
2018. The IASB subsequently issued 'Amendments to IFRS 4: Applying
IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which
allowed entities that met certain requirements to defer their
implementation of IFRS 9 until adoption of IFRS 17, 'Insurance
Contracts' or 1 January 2021, whichever is the earlier. In June
2020, the IASB agreed to extend the temporary exemption in IFRS 4
from applying IFRS 9 to annual reporting periods beginning on or
after 1 January 2023. The group qualified for, and made use of this
deferral option, and has therefore applied IFRS 9 for the first
time on 1 January 2023. The standard replaced IAS 39, 'Financial
Instruments: Recognition and Measurement'. It includes new
principles around classification and measurement of financial
instruments, introduces an impairment model based on expected
credit losses (replacing the previous model based on incurred
losses) and new requirements on hedge accounting. IFRS 9 has been
applied retrospectively.
Note 4.01 Basis of preparation includes the new accounting
policies adopted by the group for IFRS 17 and IFRS 9, together with
information relating to the transition to the new standards.
IFRS 17 and IFRS 9 have been applied retrospectively, and prior
period comparative information has been restated. These
restatements resulted in comparative figures for the financial year
ended 31 December 2022 which are not the group's statutory accounts
for that financial year, but are derived from those accounts.
Therefore, prior periods comparative information is unaudited. More
information is provided in Note 4.01.
Restatements due to the implementation of IFRS 17 and IFRS 9
have been clearly marked as such throughout this report.
As at the transition date of 1 January 2022, the impacts on the
key line items in the group's Consolidated Balance Sheet are set
out below. The restated balances are aligned to those disclosed in
the Annual Report and Accounts for the year ended 31 December 2022,
with some minor adjustments for rounding.
31 December 1 January
2021 2022
Reclassification
due to Impact Impact
adoption of the of the
of IFRS adoption adoption
9 and IFRS of IFRS of IFRS
(as reported) 17 9 17 (restated)
Balance sheet item GBPm GBPm GBPm GBPm GBPm
-------------------------------------- --------------- ----------------- --------- --------- ------------
Financial investments 538,374 (29) (716) - 537,629
-------------------------------------- --------------- ----------------- --------- --------- ------------
Net insurance contract liabilities(1) (82,645) (199) - (6,185) (89,029)
-------------------------------------- --------------- ----------------- --------- --------- ------------
Net deferred tax (liabilities)/assets (249) - 178 1,209 1,138
-------------------------------------- --------------- ----------------- --------- --------- ------------
Other (444,994) 228 - (31) (444,797)
-------------------------------------- --------------- ----------------- --------- --------- ------------
Equity attributable to owners
of the parent 10,486 - (538) (5,007) 4,941
-------------------------------------- --------------- ----------------- --------- --------- ------------
1. Net insurance contract liabilities reflect insurance contract
assets and liabilities, net of reinsurance contracts.
The adoption of the new accounting standards does not change the
total profit recognised over the life of the group's insurance
contracts, nor the underlying economics or cash generation of the
group's businesses. It does not change the group's strategy,
solvency position nor dividend paying capacity or appetite.
2.02 Operating profit(#)
Restated Restated
6 months 6 months Full year
2023 2022 2022
For the six month period to 30 June 2023 Notes GBPm GBPm GBPm
------------------------------------------------- ----- -------- -------- ---------
Legal & General Retirement Institutional (LGRI) 2.03 471 395 828
-------------------------------------------------- ----- -------- -------- ---------
Legal & General Capital (LGC) 2.04 296 263 509
-------------------------------------------------- ----- -------- -------- ---------
Legal & General Investment Management (LGIM) 2.05 142 200 340
-------------------------------------------------- ----- -------- -------- ---------
Retail 2.03 230 295 416
-------------------------------------------------- ----- -------- -------- ---------
- Insurance 108 164 165
-------------------------------------------------- ----- -------- -------- ---------
- Retail Retirement 122 131 251
-------------------------------------------------- ----- -------- -------- ---------
Operating profit from divisions 1,139 1,153 2,093
-------------------------------------------------- ----- -------- -------- ---------
Group debt costs(1) (106) (108) (214)
-------------------------------------------------- ----- -------- -------- ---------
Group investment projects and expenses (92) (87) (194)
-------------------------------------------------- ----- -------- -------- ---------
Operating profit 941 958 1,685
-------------------------------------------------- ----- -------- -------- ---------
Investment and other variances 2.06 (611) (261) (751)
-------------------------------------------------- ----- -------- -------- ---------
Losses attributable to non-controlling interests (6) - (1)
-------------------------------------------------- ----- -------- -------- ---------
Adjusted profit before tax attributable to
equity holders 324 697 933
-------------------------------------------------- ----- -------- -------- ---------
Tax expense attributable to equity holders 4.04 (14) (122) (88)
-------------------------------------------------- ----- -------- -------- ---------
Profit for the period 3.01 310 575 845
-------------------------------------------------- ----- -------- -------- ---------
Total tax expense 3.01 128 195 159
-------------------------------------------------- ----- -------- -------- ---------
Profit before tax 3.01 438 770 1,004
-------------------------------------------------- ----- -------- -------- ---------
Profit attributable to equity holders 316 575 846
-------------------------------------------------- ----- -------- -------- ---------
Earnings per share:
------------------------------------------------- ----- -------- -------- ---------
Basic (pence per share)(2) 2.08 5.16 9.52 13.91
-------------------------------------------------- ----- --------
Diluted (pence per share)(2) 2.08 5.04 9.16 13.47
-------------------------------------------------- ----- -------- -------- ---------
1. Group debt costs exclude interest on non-recourse financing.
2. All earnings per share calculations are based on profit
attributable to equity holders of the company.
This supplementary adjusted operating profit information (one of
the group's key performance indicators) provides additional
analysis of the results reported under IFRS, and the group believes
that it provides stakeholders with useful information to enhance
their understanding of the performance of the business in the
period. While the calculation of adjusted operating profit has been
updated to reflect the accounting and presentational impacts of
IFRS 17, the key principles of what is measured by adjusted
operating profit, as set out below and except as noted, remain
unchanged from the prior year.
Adjusted operating profit measures the pre-tax result excluding
the impact of investment volatility, economic assumption changes
caused by changes in market conditions or expectations and
exceptional items. Key considerations in relation to the
calculation of adjusted operating profit for the group's long-term
insurance businesses and shareholder funds are set out below.
Exceptional income and expenses which arise outside the normal
course of business in the year, such as merger and acquisition and
start-up costs, are excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic
assumptions for the group's retirement and insurance businesses.
Variances between actual and long-term expected investment return
on traded and real assets are excluded from adjusted operating
profit, as well as economic assumption changes caused by changes in
market conditions or expectations (e.g. credit default and
inflation) and any difference between the actual allocated asset
mix and the target long-term asset mix on new pension risk transfer
business. Assets held for future new pension risk transfer business
are excluded from the asset portfolio used to determine the
discount rate for annuities on insurance contract liabilities. The
impact of investment management actions that optimise the yield of
the assets backing the back book of annuity contracts is now
included within adjusted operating profit; prior to the
implementation of IFRS17 the impact of such actions was not
included in operating profit.
For the group's long-term insurance businesses, reinsurance
mismatches are also excluded from adjusted operating profit.
Reinsurance mismatches arise where the reinsurance offset rules in
IFRS 17 do not reflect management's view of the net of reinsurance
transaction. In particular, during a period of reinsurance
renegotiation, reinsurance gains cannot be recognised to offset any
inception losses on the underlying contracts where they are
recognised before the new reinsurance agreement is signed. In these
circumstances, the onerous contract losses are reduced to reflect
the net loss (if any) after reinsurance, and future contractual
service margin (CSM) amortisation is reduced over the duration of
the contracts.
# All references to 'Operating profit' throughout this report
represent 'Adjusted operating profit', an alternative performance
measure defined in the glossary.
2.02 Operating profit(#) (continued)
Shareholder funds
Shareholder funds include both the group's traded equity
portfolio and certain direct investments for which adjusted
operating profit is based on the long-term economic return expected
to be generated. For these direct investments, as well as for the
group's traded equity portfolio, deviations from such long-term
economic return are excluded from adjusted operating profit. Direct
investments for which adjusted operating profit is reflected in
this way include the following:
-- Development assets, predominantly in the specialist
commercial real estate and housing sectors within the LGC
alternative asset portfolio: these are assets under construction
and contracted to either be sold to other parts of the group or for
other commercial usage, and on which LGC accepts development risks
and expects to realise profits once construction is complete.
-- 'Scale-up' investments, predominantly in the alternative
finance sector within the LGC alternative asset portfolio as well
as the fintech business within Retail: these are investments in
early-stage ventures in a fast-growing phase of their life cycle,
but which have not yet reached a steady-state level of
earnings.
Shareholder funds also includes other direct investments for
which adjusted operating profit reflects the IFRS profit before
tax. Direct investments for which adjusted operating profit is
reflected in this way include the following:
-- 'Start-up' investments: these are companies in the beginning
stages of their business lifecycle (i.e. typically less than 24
months) and which therefore have limited operating history
available and typically are in a pre-revenue stage.
-- Mature assets: these are companies in their final stages of
business lifecycle. They are stable businesses and have sustainable
streams of income, but the growth rate in their earnings is
expected to remain less pronounced in the future.
2.03 Analysis of LGRI and Retail operating profit(#)
LGRI Retail LGRI Retail LGRI Retail
6 months 6 months 6 months 6 months Full year Full year
2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------- -------- -------- --------- ---------
Amortisation of the CSM in the period(1) 266 210 239 206 522 425
----------------------------------------- -------- -------- -------- -------- --------- ---------
Release of risk adjustment in the
period 54 49 68 44 136 85
----------------------------------------- -------- -------- -------- -------- --------- ---------
Experience variances 1 (18) 9 (6) 14 (92)
----------------------------------------- -------- -------- -------- -------- --------- ---------
Development of losses on onerous
contracts - (8) - (5) 1 (7)
----------------------------------------- -------- -------- -------- -------- --------- ---------
Other expenses (66) (39) (65) (43) (131) (113)
----------------------------------------- -------- -------- -------- -------- --------- ---------
Insurance investment margin(2) 213 49 139 38 277 60
----------------------------------------- -------- -------- -------- -------- --------- ---------
Investment contracts and non-insurance
operating profit 3 (13) 5 61 9 58
----------------------------------------- -------- -------- -------- -------- --------- ---------
Total LGRI and Retail operating
profit 471 230 395 295 828 416
----------------------------------------- -------- -------- -------- -------- --------- ---------
1. Contractual service margin (CSM) amortisation for Retail has
been reduced by GBP8m (H1 22: GBP9m; FY 22: GBP17m) to exclude the
impact of reinsurance mismatches.
2. Insurance investment margin comprises the expected investment
return on assets backing insurance contract liabilities, the unwind
of the discount rate on insurance contract liabilities and the
optimisation of the assets backing the annuity back book.
2.04 LGC operating profit(#)
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
--------------------------------------------------------- -------- -------- ---------
Direct investments(1) 230 202 400
---------------------------------------------------------- -------- -------- ---------
Traded investment portfolio including treasury assets(2) 66 61 109
---------------------------------------------------------- -------- -------- ---------
Total LGC operating profit 296 263 509
---------------------------------------------------------- -------- -------- ---------
1. Direct investments represents LGC's portfolio of assets
across specialist commercial real estate, clean energy, housing and
alternative finance. Direct investments includes operating profit
in relation to CALA Homes of GBP68m (H1 22: GBP98m; FY 22:
GBP172m).
2. The traded investment portfolio holds a diversified set of
exposures across equities, fixed income, multi-asset funds and
cash.
2.05 LGIM operating profit(#)
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
-------------------------------------------------------- -------- -------- ---------
Asset management revenue (excluding third-party market
data)(1) 431 485 944
---------------------------------------------------------- -------- -------- ---------
Asset management transactional revenue(2) 9 9 26
---------------------------------------------------------- -------- -------- ---------
Asset management expenses (excluding third-party market
data)(1) (298) (294) (630)
---------------------------------------------------------- -------- -------- ---------
Total LGIM operating profit 142 200 340
---------------------------------------------------------- -------- -------- ---------
1. Asset management revenue and expenses exclude income and
costs of GBP13m in relation to the provision of third-party market
data (H1 22: GBP15m; FY 22: GBP30m).
2. Transactional revenue from external clients includes
execution fees, asset transition income, trigger fees, arrangement
fees on property transactions and performance fees.
# All references to 'Operating profit' throughout this report
represent 'Adjusted operating profit', an alternative performance
measure defined in the glossary.
2.06 Investment and other variances
Restated Restated
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
-------------------------------------------------------- -------- -------- ---------
LGRI and Retail
-------------------------------------------------------- -------- -------- ---------
- Net impact of investment returns (less than)/in
excess of expectation and change in liability discount
rates (186) 66 (72)
--------------------------------------------------------- -------- -------- ---------
- Other (36) 8 -
--------------------------------------------------------- -------- -------- ---------
Total LGRI and Retail (222) 74 (72)
--------------------------------------------------------- -------- -------- ---------
LGC investment variance (163) (308) (428)
--------------------------------------------------------- -------- -------- ---------
Other investment variance(1) (48) (8) (119)
--------------------------------------------------------- -------- -------- ---------
Investment variance (433) (242) (619)
--------------------------------------------------------- -------- -------- ---------
M&A related and other variances(2) (178) (19) (132)
--------------------------------------------------------- -------- -------- ---------
Total investment and other variances (611) (261) (751)
--------------------------------------------------------- -------- -------- ---------
1. Other investment variance includes the current service costs
and net interest expense of the group's defined benefit pension
schemes.
2. M&A related and other variances includes gains and
losses, expenses and intangible amortisation relating to
acquisitions, disposals and restructuring as well as business
start-up costs. The total for the 6 months ended 30 June 2023
includes GBP163m of costs incurred relating to the announced intent
to cease production within the Modular Homes business and
impairment of the group's investment in Onto.
Investment variance includes differences between actual and
long-term expected investment return on traded and real assets
(including development assets and scale-up equity direct
investments within LGC and Retail's Insurance business), the impact
of economic assumption changes caused by changes in market
conditions or expectations (e.g. credit default and inflation), the
impact of any difference between the actual allocated asset mix and
the target long-term asset mix on new pension risk transfer
business, and the yield associated with assets held for future new
pension risk transfer business.
The long-term expected investment return is based on opening
economic assumptions applied to the assets at the start of the
reporting year. The assumptions underlying the calculation of the
expected returns for traded equity, commercial property and
residential property are
based on market consensus forecasts and long-term historic
average returns expected to apply through the cycle.
The long-term expected investment returns are:
6 months 6 months Full year
2023 2022 2022
--------------------- -------- -------- ---------
Equities 7% 7% 7%
------------------------ -------- -------- ---------
Commercial property 5% 5% 5%
------------------------ -------- -------- ---------
Residential property 3.5% 3.5% 3.5%
------------------------ -------- -------- ---------
For fixed interest securities measured at FVTPL, the expected
investment returns are based on average prospective yields for the
actual assets held less an adjustment for credit risk (assessed on
a best estimate basis). Where securities are measured at amortised
cost or FVOCI, the expected investment return comprises interest
income on an effective interest rate basis.
For equity direct investments, the LGC alternative asset
portfolio and Retail's Insurance business comprise investments in
housing, specialist commercial real estate, clean energy,
alternative finance and fintech. Where used for the determination
of adjusted operating profit, the long-term expected investment
return is on average between 10% and 12%, in line with our stated
investment objectives. Rates of return specific to each asset are
determined at the point of underwriting and reviewed and updated
annually. The expected investment return includes assumptions on
appropriate discount rates and inflation as well as sector specific
assumptions including retail and commercial property yields and
power prices.
2.07 Contractual service margin (CSM) analysis
Re- Re-
Gross Gross insurance insurance Net Net
LGRI Retail LGRI Retail LGRI Retail
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 1 January 2023 9,403 4,224 (1,718) 283 7,685 4,507
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
CSM recognised for services provided/received (313) (215) 47 (3) (266) (218)
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Changes in estimates which adjust the
CSM (105) 90 38 (42) (67) 48
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Contracts initially recognised in the
period 274 185 15 (22) 289 163
-----------------------------------------------
Finance expenses/(income) from insurance
contracts 123 61 (21) 1 102 62
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Effect of movements in exchange rates (12) (58) (1) 5 (13) (53)
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 30 June 2023 9,370 4,287 (1,640) 222 7,730 4,509
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Re- Re-
Gross Gross insurance insurance Net Net
LGRI Retail LGRI Retail LGRI Retail
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 1 January 2022 8,349 3,814 (1,294) 355 7,055 4,169
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
CSM recognised for services provided/received (273) (203) 34 (12) (239) (215)
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Changes in estimates which adjust the
CSM (31) 69 (11) 10 (42) 79
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Contracts initially recognised in the
period 245 169 86 (11) 331 158
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Finance expenses/(income) from insurance
contracts 95 46 (15) 4 80 50
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Effect of movements in exchange rates 20 112 2 (14) 22 98
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 30 June 2022 8,405 4,007 (1,198) 332 7,207 4,339
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Re- Re-
Gross Gross insurance insurance Net Net
LGRI Retail LGRI Retail LGRI Retail
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 1 January 2022 8,349 3,814 (1,294) 355 7,055 4,169
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
CSM recognised for services provided/received (621) (418) 99 (24) (522) (442)
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Changes in estimates which adjust the
CSM 913 293 (621) (11) 292 282
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Contracts initially recognised in the
year 542 315 126 (28) 668 287
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Finance expenses/(income) from insurance
contracts 197 98 (29) 7 168 105
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
Effect of movements in exchange rates 23 122 1 (16) 24 106
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
As at 31 December 2022 9,403 4,224 (1,718) 283 7,685 4,507
----------------------------------------------- ----- ------ ---------- ---------- ----- ------
2.08 Earnings per share
(i) Basic earnings per share
Restated Restated Restated Restated
After Per share(1) After Per share(1) After Per share
tax tax tax (1)
6 months 6 months 6 months 6 months Full year Full year
2023 2023 2022 2022 2022 2022
GBPm p GBPm p GBPm p
----------------------------------- -------- ------------ -------- ------------ --------- ---------
Profit for the period attributable
to equity holders 316 5.34 575 9.71 846 14.30
----------------------------------- -------- ------------ -------- ------------ --------- ---------
Less: coupon payable in respect
of restricted Tier 1 convertible
notes net of tax relief (11) (0.18) (11) (0.19) (23) (0.39)
----------------------------------- -------- ------------ -------- ------------ --------- ---------
Total basic earnings 305 5.16 564 9.52 823 13.91
----------------------------------- -------- ------------ -------- ------------ --------- ---------
1. Basic earnings per share is calculated by dividing profit
after tax by the weighted average number of ordinary shares in
issue during the year, excluding employee scheme treasury
shares.
(ii) Diluted earnings per share
Weighted
average
number
After of
tax shares Per share(1)
For the six month period to 30 June GBPm m p
2023
-------------------------------------------------- ----- -------- ------------
Profit for the period attributable to equity
holders 316 5,913 5.34
---------------------------------------------------- ----- -------- ------------
Net shares under options allocable for no further
consideration - 53 (0.05)
---------------------------------------------------- ----- -------- ------------
Conversion of restricted Tier 1 notes - 307 (0.25)
---------------------------------------------------- ----- -------- ------------
Total diluted earnings 316 6,273 5.04
---------------------------------------------------- ----- -------- ------------
Weighted
average
number
Restated of Restated
After tax shares Per share(1)
For the six month period to 30 June 2022 GBPm m p
---------------------------------------------------- ---------- -------- -------------
Profit for the period attributable to equity
holders 575 5,922 9.71
---------------------------------------------------- ---------- -------- -------------
Net shares under options allocable for no further
consideration - 46 (0.07)
---------------------------------------------------- ---------- -------- -------------
Conversion of restricted Tier 1 notes - 307 (0.48)
---------------------------------------------------- ---------- -------- -------------
Total diluted earnings 575 6,275 9.16
---------------------------------------------------- ---------- -------- -------------
Weighted
average
number
Restated of Restated
After tax shares Per share(1)
For the year ended 31 December 2022 GBPm m p
----------------------------------------------------- ---------- -------- -------------
Profit for the year attributable to equity holders 846 5,917 14.30
----------------------------------------------------- ---------- -------- -------------
Net shares under options allocable for no further
consideration - 55 (0.13)
----------------------------------------------------- ---------- -------- -------------
Conversion of restricted Tier 1 notes - 307 (0.70)
----------------------------------------------------- ---------- -------- -------------
Total diluted earnings 846 6,279 13.47
----------------------------------------------------- ---------- -------- -------------
1. For diluted earnings per share, the weighted average number
of ordinary shares in issue, excluding employee scheme treasury
shares, is adjusted to assume conversion of all potential ordinary
shares, such as share options granted to employees and conversion
of restricted Tier 1 notes.
2.09 Segmental analysis
The group has five reportable segments, comprising LGRI, LGC,
LGIM, Retail Retirement and Insurance as set out in Note 2.02.
Group expenses and debt costs continue to be reported separately.
Transactions between segments are on normal commercial terms and
are included within the reported segments.
In the UK, annuity liabilities relating to LGRI and Retail
Retirement are backed by a single portfolio of assets, and once a
transaction has been
completed the assets relating to any particular transaction are
not tracked to the related liabilities. Investment variance is
allocated to the two
business segments based on the relative average size of the
underlying insurance contract liabilities for the period.
Reporting of assets and liabilities by reportable segment has
not been included, as this is not information that is provided to
key decision makers on a regular basis. The group's asset and
liabilities are managed on a legal entity rather than a segment
basis, in line with regulatory requirements.
Financial information on the reportable segments is further
broken down where relevant in order to better explain the drivers
of the group's results.
(i) Profit/(loss) for the period
Group
expenses
Retail and debt
LGRI LGC LGIM Retirement Insurance costs Total
For the six month period GBPm GBPm GBPm GBPm GBPm GBPm GBPm
to 30 June 2023
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Operating profit/(loss)(#) 471 296 142 122 108 (198) 941
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Investment and other variances (186) (291) (11) (39) (47) (37) (611)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Losses attributable to non-controlling
interests - - - - - (6) (6)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Profit/(loss) before tax
attributable to equity holders 285 5 131 83 61 (241) 324
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Tax (expense)/credit attributable
to equity holders (26) 19 (32) (5) (23) 53 (14)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Profit/(loss) for the period 259 24 99 78 38 (188) 310
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Group
expenses
Retail and debt
LGRI LGC LGIM Retirement Insurance costs(1) Total
For the six month period GBPm GBPm GBPm GBPm GBPm GBPm GBPm
to 30 June 2022 (Restated)
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Operating profit/(loss)(#) 395 263 200 131 164 (195) 958
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Investment and other variances(1) 17 (308) (7) 6 51 (20) (261)
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Losses attributable to non-controlling - - - - - - -
interests
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Profit/(loss) before tax
attributable to equity holders 412 (45) 193 137 215 (215) 697
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Tax (expense)/credit attributable
to equity holders (88) 2 (39) (28) (15) 46 (122)
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Profit/(loss) for the period 324 (43) 154 109 200 (169) 575
--------------------------------------- ---- ----- ---- ---------- --------- -------- -----
Group
expenses
Retail and debt
LGRI LGC LGIM Retirement Insurance costs Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2022 (Restated)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Operating profit/(loss)(#) 828 509 340 251 165 (408) 1,685
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Investment and other variances (105) (428) (81) (36) 69 (170) (751)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Losses attributable to non-controlling
interests - - - - - (1) (1)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Profit/(loss) before tax
attributable to equity holders 723 81 259 215 234 (579) 933
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Tax (expense)/credit attributable
to equity holders (123) (26) (30) (32) (11) 134 (88)
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
Profit/(loss) for the year 600 55 229 183 223 (445) 845
--------------------------------------- ----- ----- ---- ---------- --------- -------- -----
1. Investment and other variances within Group expenses and debt
costs has been restated for the six month period to 30 June 2022.
The restatement reflects a change in approach for the consolidation
of the annuities purchased by the group's defined benefit pension
schemes from Legal and General Assurance Society Limited (as
described in Note 4.15), to better reflect the underlying economics
of the pension scheme obligations in the Consolidated Income
Statement and Consolidated Statement of Comprehensive Income. The
change has no impact on the group's total equity as at 30 June
2022. The approach is consistent with that applied for the six
month period to 30 June 2023 and the year ended 31 December
2022.
# Operating profit for total continuing operations represents
'Adjusted operating profit', an alternative performance measure
defined in the glossary.
2.09 Segmental analysis (continued)
(ii) Revenue
(a) Total revenue - summary
Total revenue includes insurance revenue, fees from fund
management and investment contracts and other operational income
from contracts with customers. Further details on the components of
insurance revenue are disclosed in Note 4.13. Other operational
income from contracts with customers is a component of other
operational income, and excludes the share of profit/loss from
associates and joint ventures, as well as gains/losses on disposal
of subsidiaries, associates, joint ventures and other
operations.
Restated Restated
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
----------------------------------------- -------- -------- ---------
Insurance revenue 4,647 4,234 8,708
------------------------------------------- -------- -------- ---------
Fees from fund management and investment
contracts 409 461 899
------------------------------------------- -------- -------- ---------
Other operational income from contracts
with customers 782 829 1,584
------------------------------------------- -------- -------- ---------
Total revenue 5,838 5,524 11,191
------------------------------------------ -------- -------- ---------
(b) Total revenue - internal/external analysis
Retail LGC and
LGRI LGIM(1,2) Retirement Insurance other(3) Total
For the six month period to 30 GBPm GBPm GBPm GBPm GBPm GBPm
June 2023
------------------------------- ----- --------- ---------- --------- -------- -----
Internal revenue - 81 - - (81) -
------------------------------- ----- --------- ---------- --------- -------- -----
External revenue 2,470 358 703 1,583 724 5,838
------------------------------- ----- --------- ---------- --------- -------- -----
Total revenue 2,470 439 703 1,583 643 5,838
------------------------------- ----- --------- ---------- --------- -------- -----
Retail LGC and
LGRI LGIM(1,2) Retirement Insurance other(3) Total
For the six month period to 30 GBPm GBPm GBPm GBPm GBPm GBPm
June 2022 (Restated)
------------------------------- ----- --------- ---------- --------- -------- -----
Internal revenue - 92 - - (92) -
------------------------------- ----- --------- ---------- --------- -------- -----
External revenue 2,104 412 675 1,570 763 5,524
------------------------------- ----- --------- ---------- --------- -------- -----
Total revenue 2,104 504 675 1,570 671 5,524
------------------------------- ----- --------- ---------- --------- -------- -----
Retail LGC and
LGRI LGIM(1,2) Retirement Insurance other(3) Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2022 (Restated)
------------------------------- ----- --------- ---------- --------- -------- ------
Internal revenue - 178 - - (178) -
------------------------------- ----- --------- ---------- --------- -------- ------
External revenue 4,518 801 1,334 3,086 1,452 11,191
------------------------------- ----- --------- ---------- --------- -------- ------
Total revenue 4,518 979 1,334 3,086 1,274 11,191
------------------------------- ----- --------- ---------- --------- -------- ------
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management.
3. LGC and other includes LGC income, inter-segmental
eliminations and group consolidation adjustments.
(c) Fees from fund management and investment contracts
Retail LGC and
LGIM Retirement other(1) Total
For the six month period to 30 June 2023 GBPm GBPm GBPm GBPm
----------------------------------------------- ---- ---------- -------- -----
Investment contracts - 51 - 51
----------------------------------------------- ---- ---------- -------- -----
Investment management fees 430 - (81) 349
----------------------------------------------- ---- ---------- -------- -----
Transaction fees 9 - - 9
----------------------------------------------- ---- ---------- -------- -----
Total fees from fund management and investment
contracts 439 51 (81) 409
----------------------------------------------- ---- ---------- -------- -----
Retail LGC and
LGIM Retirement other(1) Total
For the six month period to 30 June 2022 GBPm GBPm GBPm GBPm
----------------------------------------------- ---- ---------- -------- -----
Investment contracts - 49 - 49
----------------------------------------------- ---- ---------- -------- -----
Investment management fees 495 - (92) 403
----------------------------------------------- ---- ---------- -------- -----
Transaction fees 9 - - 9
----------------------------------------------- ---- ---------- -------- -----
Total fees from fund management and investment
contracts 504 49 (92) 461
----------------------------------------------- ---- ---------- -------- -----
Retail LGC and
LGIM Retirement other(1) Total
For the year ended 31 December 2022 GBPm GBPm GBPm GBPm
----------------------------------------------- ---- ---------- -------- -----
Investment contracts - 98 - 98
----------------------------------------------- ---- ---------- -------- -----
Investment management fees 953 - (178) 775
----------------------------------------------- ---- ---------- -------- -----
Transaction fees 26 - - 26
----------------------------------------------- ---- ---------- -------- -----
Total fees from fund management and investment
contracts 979 98 (178) 899
----------------------------------------------- ---- ---------- -------- -----
1. LGC and other includes inter-segmental eliminations and group consolidation adjustments.
2.09 Segmental analysis (continued)
(ii) Revenue (continued)
(d) Other operational income from contracts with customers
Retail LGC and
Retirement Insurance other Total
For the six month period to 30 June 2023 GBPm GBPm GBPm GBPm
---------------------------------------------- ----------- --------- ------- -----
House building - - 702 702
---------------------------------------------- ----------- --------- ------- -----
Professional services fees 4 27 22 53
---------------------------------------------- ----------- --------- ------- -----
Insurance broker - 27 - 27
---------------------------------------------- ----------- --------- ------- -----
Total other operational income from contracts
with customers 4 54 724 782
---------------------------------------------- ----------- --------- ------- -----
Retail LGC and
Retirement Insurance other Total
For the six month period to 30 June 2022 GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- --------- ------- -----
House building - - 763 763
---------------------------------------------- ---------- --------- ------- -----
Professional services fees 4 41 - 45
---------------------------------------------- ---------- --------- ------- -----
Insurance broker - 21 - 21
---------------------------------------------- ---------- --------- ------- -----
Total other operational income from contracts
with customers 4 62 763 829
---------------------------------------------- ---------- --------- ------- -----
Retail LGC and
Retirement Insurance other Total
For the year ended 31 December 2022 GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- --------- ------- -----
House building - - 1,429 1,429
---------------------------------------------- ---------- --------- ------- -----
Professional services fees 7 78 23 108
---------------------------------------------- ---------- --------- ------- -----
Insurance broker - 47 - 47
---------------------------------------------- ---------- --------- ------- -----
Total other operational income from contracts
with customers 7 125 1,452 1,584
---------------------------------------------- ---------- --------- ------- -----
IFRS Primary Financial Statements
3.01 Consolidated Income Statement (unaudited)
Restated Restated
6 months 6 months Full year
2023 2022 2022
For the six month period to 30 June 2023 Notes GBPm GBPm GBPm
---------------------------------------------------- ----- -------- -------- ---------
Insurance revenue 4.13 4,647 4,234 8,708
---------------------------------------------------- ----- -------- -------- ---------
Insurance service expenses 4.13 (3,997) (3,646) (7,415)
---------------------------------------------------- ----- -------- -------- ---------
Insurance service result before reinsurance
contracts held 650 588 1,293
---------------------------------------------------- ----- -------- -------- ---------
Net expense from reinsurance contracts held 4.13 (53) (8) (145)
---------------------------------------------------- ----- -------- -------- ---------
Insurance service result 4.13 597 580 1,148
---------------------------------------------------- ----- -------- -------- ---------
Investment return 8,288 (74,130) (98,352)
---------------------------------------------------- ----- -------- -------- ---------
Finance income from insurance contracts issued 432 12,460 19,136
---------------------------------------------------- ----- -------- -------- ---------
Finance income/(expense) from reinsurance contracts 67 (47) 24
---------------------------------------------------- ----- -------- -------- ---------
Change in investment contract liabilities (8,208) 62,297 80,043
---------------------------------------------------- ----- -------- -------- ---------
Insurance and investment result 1,176 1,160 1,999
---------------------------------------------------- ----- -------- -------- ---------
Other operational income 758 846 1,646
---------------------------------------------------- ----- -------- -------- ---------
Fees from fund management and investment contracts 2.09 409 461 899
---------------------------------------------------- ----- -------- -------- ---------
Acquisition costs (55) (59) (103)
---------------------------------------------------- ----- -------- -------- ---------
Other finance costs (173) (145) (290)
---------------------------------------------------- ----- -------- -------- ---------
Other expenses (1,677) (1,493) (3,147)
---------------------------------------------------- ----- -------- -------- ---------
Total other income and expenses (738) (390) (995)
---------------------------------------------------- ----- -------- -------- ---------
Profit before tax 438 770 1,004
---------------------------------------------------- ----- -------- -------- ---------
Tax expense attributable to policyholder returns (114) (73) (71)
---------------------------------------------------- ----- -------- -------- ---------
Profit before tax attributable to equity holders 324 697 933
---------------------------------------------------- ----- -------- -------- ---------
Total tax expense (128) (195) (159)
---------------------------------------------------- ----- -------- -------- ---------
Tax expense attributable to policyholder returns 114 73 71
---------------------------------------------------- ----- -------- -------- ---------
Tax expense attributable to equity holders 4.04 (14) (122) (88)
---------------------------------------------------- ----- -------- -------- ---------
Profit for the period 310 575 845
---------------------------------------------------- ----- -------- -------- ---------
Attributable to:
---------------------------------------------------- ----- -------- -------- ---------
Non-controlling interests (6) - (1)
---------------------------------------------------- ----- -------- -------- ---------
Equity holders 316 575 846
---------------------------------------------------- ----- -------- -------- ---------
Dividend distributions to equity holders during
the period 4.02 831 792 1,116
---------------------------------------------------- ----- -------- -------- ---------
Dividend distributions to equity holders proposed
after the period end 4.02 340 324 829
---------------------------------------------------- ----- -------- -------- ---------
p p p
---------------------------------------------------- ----- -------- -------- ---------
Total basic earnings per share(1) 2.08 5.16 9.52 13.91
---------------------------------------------------- ----- -------- -------- ---------
Total diluted earnings per share(1) 2.08 5.04 9.16 13.47
---------------------------------------------------- ----- -------- -------- ---------
1. All earnings per share calculations are based on profit
attributable to equity holders of the company.
3.02 Consolidated Statement of Comprehensive Income
(unaudited)
Restated Restated
6 months 6 months Full year
2023 2022 2022
For the six month period to 30 June 2023 GBPm GBPm GBPm
----------------------------------------------------------- -------- -------- ---------
Profit for the period 310 575 845
----------------------------------------------------------- -------- -------- ---------
Items that will not be reclassified subsequently
to profit or loss
----------------------------------------------------------- -------- -------- ---------
Actuarial remeasurements on defined benefit pension
schemes (2) 150 26
----------------------------------------------------------- -------- -------- ---------
Tax expense on actuarial remeasurements on defined
benefit pension schemes - (38) (6)
----------------------------------------------------------- -------- -------- ---------
Total items that will not be reclassified subsequently
to profit or loss (2) 112 20
----------------------------------------------------------- -------- -------- ---------
Items that may be reclassified subsequently to profit
or loss
----------------------------------------------------------- -------- -------- ---------
Exchange differences on translation of overseas operations (7) 6 (20)
----------------------------------------------------------- -------- -------- ---------
Movement in cross-currency hedge 24 5 40
----------------------------------------------------------- -------- -------- ---------
Tax on movement in cross-currency hedge (6) (1) (10)
----------------------------------------------------------- -------- -------- ---------
Movement in financial investments measured at FVOCI 13 (96) (132)
----------------------------------------------------------- -------- -------- ---------
Tax on movement in financial investments measured
at FVOCI (2) 20 28
----------------------------------------------------------- -------- -------- ---------
Insurance finance income for insurance contracts issued
applying the OCI option 95 1,212 1,753
----------------------------------------------------------- -------- -------- ---------
Reinsurance finance expense for reinsurance contracts
issued applying the OCI option (104) (655) (1,030)
----------------------------------------------------------- -------- -------- ---------
Tax on movement in finance income/(expense) for insurance
and reinsurance contracts 2 (147) (169)
----------------------------------------------------------- -------- -------- ---------
Total items that may be reclassified subsequently
to profit or loss 15 344 460
----------------------------------------------------------- -------- -------- ---------
Other comprehensive income after tax 13 456 480
----------------------------------------------------------- -------- -------- ---------
Total comprehensive income for the period 323 1,031 1,325
----------------------------------------------------------- -------- -------- ---------
Total comprehensive income/(expense) for the period
attributable to:
----------------------------------------------------------- -------- -------- ---------
Non-controlling interests (6) - (1)
----------------------------------------------------------- -------- -------- ---------
Equity holders 329 1,031 1,326
----------------------------------------------------------- -------- -------- ---------
3.03 Consolidated Balance Sheet (unaudited)
Restated Restated
As at As at As at
30 Jun 30 Jun 31 Dec
2023 2022 2022
Notes GBPm GBPm GBPm
--------------------------------------------- ----- ------- -------- --------
Assets
--------------------------------------------- ----- ------- -------- --------
Goodwill 71 71 71
--------------------------------------------- ----- ------- -------- --------
Other intangible assets 454 406 441
--------------------------------------------- ----- ------- -------- --------
Deferred acquisition costs 5 5 7
--------------------------------------------- ----- ------- -------- --------
Investment in associates and joint ventures
accounted for using the equity method 553 387 554
--------------------------------------------- ----- ------- -------- --------
Property, plant and equipment 362 311 326
--------------------------------------------- ----- ------- -------- --------
Investment property 4.03 9,227 10,976 9,372
--------------------------------------------- ----- ------- -------- --------
Financial investments 4.03 454,967 462,807 446,558
--------------------------------------------- ----- ------- -------- --------
Reinsurance contract assets 4.13 5,398 3,969 4,685
--------------------------------------------- ----- ------- -------- --------
Deferred tax assets 4.04 1,367 1,283 1,469
--------------------------------------------- ----- ------- -------- --------
Current tax assets 908 699 802
--------------------------------------------- ----- ------- -------- --------
Receivables and other assets 11,922 17,634 13,202
--------------------------------------------- ----- ------- -------- --------
Cash and cash equivalents 14,537 24,774 35,784
--------------------------------------------- ----- ------- -------- --------
Total assets 499,771 523,322 513,271
--------------------------------------------- ----- ------- -------- --------
Equity
--------------------------------------------- ----- ------- -------- --------
Share capital 4.05 149 149 149
--------------------------------------------- ----- ------- -------- --------
Share premium 4.05 1,027 1,017 1,018
--------------------------------------------- ----- ------- -------- --------
Employee scheme treasury shares (143) (138) (144)
--------------------------------------------- ----- ------- -------- --------
Capital redemption and other reserves 346 201 338
--------------------------------------------- ----- ------- -------- --------
Retained earnings 3,214 3,908 3,751
--------------------------------------------- ----- ------- -------- --------
Attributable to owners of the parent 4,593 5,137 5,112
--------------------------------------------- ----- ------- -------- --------
Restricted Tier 1 convertible notes 4.06 495 495 495
--------------------------------------------- ----- ------- -------- --------
Non-controlling interests 4.07 (35) (36) (29)
--------------------------------------------- ----- ------- -------- --------
Total equity 5,053 5,596 5,578
--------------------------------------------- ----- ------- -------- --------
Liabilities
Insurance contract liabilities 4.13 78,378 82,892 78,171
--------------------------------------------- ----- ------- -------- --------
Reinsurance contract liabilities 4.13 138 13 52
--------------------------------------------- ----- ------- -------- --------
Investment contract liabilities 299,135 305,780 286,830
--------------------------------------------- ----- ------- -------- --------
Core borrowings 4.08 4,278 4,356 4,338
--------------------------------------------- ----- ------- -------- --------
Operational borrowings 4.09 1,272 1,182 1,219
--------------------------------------------- ----- ------- -------- --------
Provisions 4.15 1,626 781 890
--------------------------------------------- ----- ------- -------- --------
Deferred tax liabilities 4.04 160 155 206
--------------------------------------------- ----- ------- -------- --------
Current tax liabilities 68 81 69
--------------------------------------------- ----- ------- -------- --------
Payables and other financial liabilities 4.11 91,056 95,824 93,905
--------------------------------------------- ----- ------- -------- --------
Other liabilities 705 654 762
--------------------------------------------- ----- ------- -------- --------
Net asset value attributable to unit holders 17,902 26,008 41,251
--------------------------------------------- ----- ------- -------- --------
Total liabilities 494,718 517,726 507,693
--------------------------------------------- ----- ------- -------- --------
Total equity and liabilities 499,771 523,322 513,271
--------------------------------------------- ----- ------- -------- --------
3.04 Consolidated Statement of Changes in Equity (unaudited)
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
and
Share Share treasury other Retained to owners convertible controlling Total
of the
capital premium shares reserves(1) earnings parent notes interests equity
------------------
For the six month GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
period
to 30 June 2023
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
As at 1 January
2023 149 1,018 (144) 338 3,751 5,112 495 (29) 5,578
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Profit for the
period - - - - 316 316 - (6) 310
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Exchange
differences
on translation of
overseas
operations - - - (7) - (7) - - (7)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Net movement in
cross-currency
hedge - - - 18 - 18 - - 18
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Net actuarial
remeasurements
on defined
benefit pension
schemes - - - - (2) (2) - - (2)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Net movement in
financial
investments
measured
at FVOCI - - - 11 - 11 - - 11
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Net insurance
finance
income/(expense) - - - (7) - (7) - - (7)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Total
comprehensive
income for the
period - - - 15 314 329 - (6) 323
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Options exercised - 9 - - - 9 - - 9
under
share option
schemes
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Shares purchased - - (13) - - (13) - - (13)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Shares vested - - 14 (35) - (21) - - (21)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Employee scheme
treasury
shares:
- Value of
employee
services - - - 28 - 28 - - 28
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Share scheme
transfers
to retained
earnings - - - - (9) (9) - - (9)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Dividends - - - - (831) (831) - - (831)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Coupon payable in
respect
of restricted
Tier 1
convertible notes
net
of tax relief - - - - (11) (11) - - (11)
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
Movement in third - - - - - - - - -
party
interests
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
As at 30 June 2023 149 1,027 (143) 346 3,214 4,593 495 (35) 5,053
------------------ ------- ------- -------- ----------- -------- ------------- ----------- ----------- ------
1. Capital redemption and other reserves as at 30 June 2023
include share-based payments GBP92m, foreign exchange GBP40m,
capital redemption GBP17m, hedging GBP92m, insurance and
reinsurance finance GBP194m and financial assets at FVOCI reserves
GBP(89)m.
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
of the
capital premium shares reserves(1) earnings parent notes interests equity
-----------------
For the six month GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
period
to 30 June 2022
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 1 January
(as
previously
reported) 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Impact of initial
application
of IFRS 17 - - - (334) (4,673) (5,007) - - (5,007)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Impact of initial
application
of IFRS 9 - - - 3 (541) (538) - - (538)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 1 January
2022
(Restated) 149 1,012 (99) (135) 4,014 4,941 495 (38) 5,398
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Profit for the
period - - - - 575 575 - - 575
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Exchange
differences
on translation
of overseas
operations - - - 6 - 6 - - 6
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net movement in
cross-currency
hedge - - - 4 - 4 - - 4
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net actuarial
remeasurements
on defined
benefit pension
schemes - - - - 112 112 - - 112
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net movement in
financial
investments
measured
at FVOCI - - - (76) - (76) - - (76)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net insurance
finance
income/(expense) - - - 410 - 410 - - 410
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Total
comprehensive
income for the
period - - - 344 687 1,031 - - 1,031
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Options exercised
under
share option
schemes - 5 - - - 5 - - 5
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Shares purchased - - (50) - - (50) - - (50)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Shares vested - - 11 (33) - (22) - - (22)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Employee scheme
treasury
shares:
- Value of
employee
services - - - 25 - 25 - - 25
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Share scheme
transfers
to retained
earnings - - - - 10 10 - - 10
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Dividends - - - - (792) (792) - - (792)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Coupon payable in
respect
of restricted
Tier 1
convertible
notes net
of tax relief - - - - (11) (11) - - (11)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Movement in third
party
interests - - - - - - - 2 2
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 30 June
2022 (Restated) 149 1,017 (138) 201 3,908 5,137 495 (36) 5,596
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
1. Capital redemption and other reserves as at 30 June 2022
include share-based payments GBP78m, foreign exchange GBP62m,
capital redemption GBP17m, hedging GBP52m, insurance and
reinsurance finance GBP71m and financial assets at FVOCI reserves
GBP(79)m.
3.04 Consolidated Statement of Changes in Equity (unaudited)
(continued)
Employee Capital Equity Restricted
Tier
scheme redemption attributable 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
of the
capital premium shares reserves(1) earnings parent notes interests equity
For the year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended 31
December 2022
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 1 January
(as
previously
reported) 149 1,012 (99) 196 9,228 10,486 495 (38) 10,943
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Impact of initial
application
of IFRS 17 - - - (334) (4,673) (5,007) - - (5,007)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Impact of initial
application
of IFRS 9 - - - 3 (541) (538) - - (538)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 1 January
2022
(Restated) 149 1,012 (99) (135) 4,014 4,941 495 (38) 5,398
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Profit for the
year - - - - 846 846 - (1) 845
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Exchange
differences
on translation
of overseas
operations - - - (20) - (20) - - (20)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net movement in
cross-currency
hedge - - - 30 - 30 - - 30
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net actuarial
remeasurements
on defined
benefit pension
schemes - - - - 20 20 - - 20
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net movement in
financial
investments
measured
at FVOCI - - - (104) - (104) - - (104)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Net insurance
finance
income/(expense) - - - 554 - 554 - - 554
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Total
comprehensive
income for the
year - - - 460 866 1,326 - (1) 1,325
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Options exercised
under
share option
schemes - 6 - - - 6 - - 6
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Shares purchased - - (59) - - (59) - - (59)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Shares vested - - 14 (41) - (27) - - (27)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Employee scheme
treasury
shares:
- Value of
employee
services - - - 54 - 54 - - 54
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Share scheme
transfers
to retained
earnings - - - - 10 10 - - 10
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Dividends - - - - (1,116) (1,116) - - (1,116)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Coupon payable in
respect
of restricted
Tier 1
convertible
notes net
of tax relief - - - - (23) (23) - - (23)
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
Movement in third
party
interests - - - - - - - 10 10
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
As at 31 December
2022
(Restated) 149 1,018 (144) 338 3,751 5,112 495 (29) 5,578
----------------- ------- ------- -------- ----------- -------- ------------- ----------- ----------- -------
1. Capital redemption and other reserves as at 31 December 2022
include share-based payments GBP99m, foreign exchange GBP44m,
capital redemption GBP17m, hedging GBP78m, insurance and
reinsurance finance GBP205m and financial assets at FVOCI reserves
GBP(105)m.
3.05 Consolidated Statement of Cash Flows (unaudited)
Restated Restated
6 months 6 months Full year
2023 2022 2022
For the six month period to 30 June 2023 Notes GBPm GBPm GBPm
----------------------------------------------------- ----- -------- -------- ---------
Cash flows from operating activities
----------------------------------------------------- ----- -------- -------- ---------
Profit for the period 310 575 845
----------------------------------------------------- ----- -------- -------- ---------
Adjustments for non-cash movements in net profit
for the period
----------------------------------------------------- ----- -------- -------- ---------
Net (gains)/losses on financial investments and
investment property (2,125) 78,802 107,469
----------------------------------------------------- ----- -------- -------- ---------
Investment income (6,163) (4,672) (9,117)
----------------------------------------------------- ----- -------- -------- ---------
Interest expense 173 145 290
----------------------------------------------------- ----- -------- -------- ---------
Tax expense 128 195 159
----------------------------------------------------- ----- -------- -------- ---------
Other adjustments 116 88 113
----------------------------------------------------- ----- -------- -------- ---------
Net (increase)/decrease in operational assets
----------------------------------------------------- ----- -------- -------- ---------
Investments held for trading or designated as
fair value through profit or loss (7,732) 14,750 22,052
----------------------------------------------------- ----- -------- -------- ---------
Investments measured at FVOCI 456 (518) (1,025)
----------------------------------------------------- ----- -------- -------- ---------
Investments measured at amortised cost (233) (33) (93)
----------------------------------------------------- ----- -------- -------- ---------
Other assets 1,334 (9,290) (5,194)
----------------------------------------------------- ----- -------- -------- ---------
Net (decrease)/increase in operational liabilities
----------------------------------------------------- ----- -------- -------- ---------
Insurance contracts (78) (10,354) (15,691)
----------------------------------------------------- ----- -------- -------- ---------
Investment contracts 12,308 (67,182) (86,132)
----------------------------------------------------- ----- -------- -------- ---------
Other liabilities (24,341) 2,492 (972)
----------------------------------------------------- ----- -------- -------- ---------
Cash (utilised in)/generated from operations (25,847) 4,998 12,704
----------------------------------------------------- ----- -------- -------- ---------
Interest paid (167) (139) (290)
----------------------------------------------------- ----- -------- -------- ---------
Interest received 3,408 1,808 3,525
----------------------------------------------------- ----- -------- -------- ---------
Rent received 224 185 404
----------------------------------------------------- ----- -------- -------- ---------
Tax paid(1) (184) (376) (570)
----------------------------------------------------- ----- -------- -------- ---------
Dividends received 2,338 2,491 4,691
----------------------------------------------------- ----- -------- -------- ---------
Net cash flows from operations (20,228) 8,967 20,464
----------------------------------------------------- ----- -------- -------- ---------
Cash flows from investing activities
----------------------------------------------------- ----- -------- -------- ---------
Acquisition of property, plant and equipment,
intangibles and other assets (171) (60) (187)
----------------------------------------------------- ----- -------- -------- ---------
Acquisition of operations, net of cash acquired - (2) (2)
----------------------------------------------------- ----- -------- -------- ---------
Investment in joint ventures and associates (44) (34) (101)
----------------------------------------------------- ----- -------- -------- ---------
Disposal of joint ventures and associates 8 40 64
----------------------------------------------------- ----- -------- -------- ---------
Net cash flows utilised in investing activities (207) (56) (226)
----------------------------------------------------- ----- -------- -------- ---------
Cash flows from financing activities
----------------------------------------------------- ----- -------- -------- ---------
Dividend distributions to ordinary equity holders
during the period 4.02 (831) (792) (1,116)
----------------------------------------------------- ----- -------- -------- ---------
Coupon payment in respect of restricted Tier
1 convertible notes, gross of tax 4.06 (14) (14) (28)
----------------------------------------------------- ----- -------- -------- ---------
Options exercised under share option schemes 4.05 9 5 6
----------------------------------------------------- ----- -------- -------- ---------
Treasury shares purchased for employee share
schemes (13) (50) (59)
----------------------------------------------------- ----- -------- -------- ---------
Payment of lease liabilities (32) (18) (44)
----------------------------------------------------- ----- -------- -------- ---------
Proceeds from borrowings 4.10 408 385 945
----------------------------------------------------- ----- -------- -------- ---------
Repayment of borrowings 4.10 (299) (210) (737)
----------------------------------------------------- ----- -------- -------- ---------
Net cash flows utilised in financing activities (772) (694) (1,033)
----------------------------------------------------- ----- -------- -------- ---------
Net (decrease)/increase in cash and cash equivalents (21,207) 8,217 19,205
----------------------------------------------------- ----- -------- -------- ---------
Exchange gains on cash and cash equivalents (40) 70 92
----------------------------------------------------- ----- -------- -------- ---------
Cash and cash equivalents at 1 January 35,784 16,487 16,487
----------------------------------------------------- ----- -------- -------- ---------
Total cash and cash equivalents at 30 June/31
December 14,537 24,774 35,784
----------------------------------------------------- ----- -------- -------- ---------
1. Tax paid comprises UK corporation tax of GBP38m (H1 22:
GBP223m; FY 22: GBP358m), withholding tax of GBP143m (H1 22:
GBP147m; FY 22: GBP204m) and overseas corporate tax of GBP3m (H1
22: GBP6m; FY 22: GBP8m).
IFRS Disclosure Notes
4.01 Basis of preparation
The group financial information for the six months ended 30 June
2023 has been prepared in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and with IAS 34, 'Interim Financial Reporting'. The
group's financial information, a condensed set of financial
statements which comprises the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Consolidated
Balance Sheet, Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows and the related explanatory
notes, has also been prepared in line with the accounting policies
which the group expects to adopt for the 2023 year end. These
policies are consistent with the principal accounting policies
which were set out in the group's 2022 consolidated financial
statements, except where policy changes have been outlined below in
"New standards, interpretations and amendments to published
standards that have been adopted by the group". Accounting policies
are in line with UK-adopted international accounting standards, as
issued
by the International Accounting Standards Board and adopted by
the UK Endorsement Board for use in the United Kingdom.
The preparation of the Interim Management Report includes the
use of estimates and assumptions which affect items reported in the
Consolidated Balance Sheet and Consolidated Income Statement and
the disclosure of contingent assets and liabilities at the date of
the financial statements. The economic and non-economic actuarial
assumptions used to establish the liabilities in relation to
insurance represent an area of critical accounting judgement on
policy application. Following the implementation of IFRS 17,
'Insurance Contracts' on 1 January 2023, economic and non-economic
assumptions have been updated in line with the new requirements,
and applied for half year financial reporting and retrospectively
to comparative periods presented.
The results for the half year ended 30 June 2023 are unaudited
but have been reviewed by KPMG LLP. The interim results do not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The results from the full year 2022 and half
year 2022 have been restated to reflect the retrospective
application of IFRS 17, 'Insurance Contracts' and IFRS 9,
'Financial Instruments' from 1 January 2023, as outlined below in
'New standards, interpretations and amendments to published
standards that have been adopted by the group'. The comparative
figures for the financial year ended 31 December 2022 are not the
group's statutory accounts for that financial year but are derived
from those accounts. Those accounts have been reported on by the
company's auditor and delivered to the registrar of companies. The
report of the auditor was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report, and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Key technical terms and definitions
The interim management report refers to various key performance
indicators, accounting standards and other technical terms. A
comprehensive list of these definitions is contained within the
Glossary of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures
(APMs), including adjusted operating profit, in the discussion of
its business performance and financial position, as the group
believes that they, complemented with figures determined according
to other regulations, enhance understanding of the group's
performance. Definitions and further information in relation to the
group's APMs can be found in the Alternative Performance Measures
section of these interim financial statements.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income
Statement includes income tax borne by both policyholders and
shareholders. This has been split between tax attributable to
policyholders' returns and equity holders' profits. Policyholder
tax comprises the tax suffered on policyholder investment returns,
while shareholder tax is corporation tax charged on shareholder
profit. The separate presentation is intended to provide more
relevant information about the tax that the group pays on the
profits that it makes.
Climate change
At the current time, the group does not consider climate risk to
represent a significant area of judgement or of estimation
uncertainty. As at 30 June 2023, no material impacts on the group's
financial position, nor on the valuation of assets or liabilities
on the group's Consolidated Balance Sheet as a result of climate
change risk have been identified. Further detail on how the group
arrives at this determination is disclosed in the basis of
preparation of the group's 2022 consolidated financial
statements.
(i) Going concern
The group's business activities, together with the factors
likely to affect its future development, performance and position
in the current economic environment are set out in this Interim
Management Report. The financial position of the group, its cash
flows, liquidity position and borrowing facilities as at 30 June
2023 are described in the IFRS Primary Financial Statements and
IFRS Disclosure Notes. Principal risks and uncertainties are
detailed on pages 23 to 26.
The directors have made an assessment of the group's going
concern, considering both the current performance and the outlook
for a period of at least, but not limited to, 12 months from the
date of approval of the interim financial information using the
information available up to the date of issue of this Interim
Management Report.
The group manages and monitors its capital and liquidity, and
applies various stresses, including adverse inflation and interest
rate scenarios, to those positions to understand potential impacts
from market downturns. Our key sensitivities and the impacts on our
capital position from a range of stresses are disclosed in Note
6.01. These stresses do not give rise to any material uncertainties
over the ability of the group to continue as a going concern. Based
upon the available information, the directors consider that the
group has the plans and resources to manage its business risks
successfully and that it remains financially strong and well
diversified.
Having reassessed the principal risks and uncertainties (both
financial and operational) in light of the current economic
environment, as detailed on pages 23 to 26, the directors are
confident that the group and company will have sufficient funds to
continue to meet its liabilities as they fall due for a period of,
but not limited to, 12 months from the date of approval of the
financial statements and therefore have considered it appropriate
to adopt the going concern basis of accounting when preparing the
financial statements.
(ii) New standards, interpretations and amendments to published
standards that have been adopted by the group
As introduced in Note 2.01 Restatement of financial information,
the group has applied IFRS 17, 'Insurance Contracts' and IFRS 9,
'Financial Instruments' on 1 January 2023.
4.01 Basis of preparation (continued)
IFRS 17, 'Insurance Contracts' - material accounting
policies
Long term insurance contracts - initial measurement
Insurance contracts are contracts which transfer significant
insurance risk to the insurer at the inception of the contract.
This is the case if, and only if, an insured event could cause an
insurer to make significant additional payments in any scenario,
other than a scenario which lacks commercial substance. Such
contracts remain insurance contracts until all rights and
obligations are extinguished or expire.
At inception, the group separates the following components from
an insurance or reinsurance contract and accounts for them as if
they were stand-alone financial instruments:
-- derivatives embedded in the contract whose economic
characteristics and risks are not closely related to those of the
host contract, and whose terms would not meet the definition of an
insurance or reinsurance contract as a stand-alone instrument;
and
-- distinct investment components, i.e. investment components
that are not highly inter-related with the insurance components and
for which contracts with equivalent terms are sold, or could be
sold, separately in the same market or the same jurisdiction.
After separating any financial instrument components, the group
separates any promises to transfer to policyholders distinct goods
or services other than insurance coverage and investment services
and accounts for them as separate contracts with customers (i.e.
not as insurance contracts). A good or service is distinct if the
policyholder can benefit from it either on its own or with other
resources that are readily available to the policyholder. A good or
service is not distinct and is accounted for together with the
insurance component if the cash flows and risks associated with the
good or service are highly inter-related with the cash flows and
risks associated with the insurance component, and the group
provides a significant service of integrating the good or service
with the insurance component.
All of the group's in scope insurance contracts are accounted
for under the general measurement model which measures a group of
insurance contracts as the total of:
-- fulfilment cash flows; and
-- a contractual service margin (CSM) representing the unearned
profit the group will recognise as it provides services under the
insurance contract .
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted
estimates of future cash flows, discounted to present value to
reflect the time value of money and financial risks, plus a risk
adjustment for non-financial risk. The group's objective in
estimating future cash flows is to determine the expected value, or
the probability weighted mean, of the full range of possible
outcomes, considering all reasonable and supportable information
available at the reporting date without undue cost or effort. The
group estimates future cash flows considering a range of scenarios
which have commercial substance and give a good representation of
possible outcomes. The cash flows from each scenario are
probability-weighted and discounted using current assumptions.
When estimating future cash flows, the group includes all cash
flows that are within the contract boundary. The cash flows
include:
-- premiums and related cash flows;
-- claims and benefits, including reported claims not yet paid,
incurred claims not yet reported and expected future claims;
-- investment management costs incurred in the provision of an
investment return service or to enhance the benefits of an
insurance contract;
-- payments to policyholders resulting from embedded surrender value options;
-- an allocation of insurance acquisition cash flows
attributable to the portfolio to which the contract belongs;
-- claims handling costs;
-- policy administration and maintenance costs, including
recurring commissions that are expected to be paid to
intermediaries for future services;
-- an allocation of fixed and variable overheads directly
attributable to fulfilling insurance contracts; and
-- transaction-based taxes.
The group incorporates, in an unbiased way, all reasonable and
supportable information available without undue cost or effort
about the amount, timing and uncertainty of those future cash
flows. The group estimates the probabilities and amounts of future
payments under existing contracts based on information obtained,
including:
-- information about claims already reported by policyholders;
-- other information about the known or estimated characteristics of the insurance contracts;
-- historical data about the group's own experience,
supplemented when necessary, with data from other sources
(historical data is adjusted to reflect current conditions);
and
-- current pricing information, when available.
The measurement of fulfilment cash flows includes insurance
acquisition cash flows which are allocated as a portion of premium
to profit or loss (through insurance revenue) over the period of
the contract. Insurance acquisition cash flows are considered for
impairment at each reporting date.
Risk adjustment
The risk adjustment for non-financial risk for a group of
insurance contracts reflects the compensation that the group would
require for bearing uncertainty about the amount and timing of the
cash flows that arises from non-financial risk after
diversification. We have calibrated the group's risk adjustment
using a Value at Risk (VAR) methodology. In some cases, the
compensation for risk on reinsured business is linked directly to
the price paid for reinsurance.
4.01 Basis of preparation (continued)
Discounting
The insurance contract fulfilment cash flows are discounted at
rates that reflect the characteristics of the insurance contract
liabilities. These have been determined using the top-down
approach, starting from an appropriate asset portfolio with
deductions to remove risks in the assets that are not present in
the insurance liabilities.
Contractual service margin (CSM)
The group's CSM is a component of the asset or liability for the
group of insurance contracts that represents the unearned profit
the group will recognise as it provides services in the future. The
group measures the CSM on initial recognition at an amount that,
unless the group of contracts is onerous, results in no income or
expenses arising from:
-- initial recognition of the fulfilment cash flows;
-- any cash flows arising from the contracts in the group at that date;
-- the derecognition at the date of initial recognition of:
- any asset for insurance acquisition cash flows; and
- any other asset or liability previously recognised related to the group of insurance contracts.
Recognition and level of aggregation
An insurance contract is recognised at the earliest of the
following:
(a) the beginning of the coverage period;
(b) the date when the first payment from a policyholder becomes
due; and
(c) for onerous contracts, when the contract becomes
onerous.
The level of aggregation determines the unit of account at which
IFRS 17 calculations are performed. This is determined firstly by
dividing the business written into portfolios. Portfolios comprise
groups of contracts with similar risks which are managed together.
Portfolios are further divided based on expected profitability at
inception into three categories: onerous contracts, contracts with
no significant risk of subsequently becoming onerous, and the
remainder. IFRS 17 also requires that no group for level of
aggregation purposes may contain contracts issued more than one
year apart.
Onerous contracts
For groups of contracts assessed as onerous, the group
recognises a loss in profit or loss for the net outflow, resulting
in the carrying amount of the liability for the group being equal
to the fulfilment cash flows and the CSM of the group being zero. A
loss component is established by the group for the liability for
remaining coverage for an onerous group, which represents the
losses recognised.
Reinsurance contracts - initial measurement
The initial measurement of reinsurance contracts held follows
the same principles as those for insurance contracts issued, with
the exception of the following:
-- reinsurance contracts are recognised from the earlier of the following:
- the beginning of the coverage period; and
- the date the entity recognises an onerous group of underlying
insurance contracts, if the entity entered into the related
reinsurance contract held in the group of reinsurance contracts
held at or before that date.
-- measurement of the cash flows includes an allowance on a
probability-weighted basis for the effect of any non-performance by
the reinsurers, including the effects of collateral and losses from
disputes;
-- the group determines the risk adjustment for non-financial
risk so that it represents the amount of risk being transferred to
the reinsurer;
-- both day one gains and day one losses are not recognised at
initial recognition in the statement of financial position but are
deferred into the CSM and released to profit or loss as the
reinsurer renders services, except for any portion of a day 1 loss
that relates to events before initial recognition; and
-- if the reinsurance contract is recognised prior to a
loss-making underlying contract, the reinsurance CSM can be
adjusted to offset a portion of the inception loss (the loss
recovery component).
Long term insurance contracts - subsequent measurement
The group measures the carrying amount of a group of insurance
contracts at the end of each reporting period as the sum of:
(i) the liability for remaining coverage comprising fulfilment
cash flows related to future service allocated to the group at that
date and the CSM of the group at that date; and
(ii) the liability for incurred claims for the group reflecting
the fulfilment cash flows related to past service allocated to the
group at that date.
Contractual service margin - measurement
The CSM at the end of the reporting period represents the profit
in the group of insurance contracts that has not yet been
recognised in profit or loss, because it relates to future service
to be provided.
For a group of insurance contracts the carrying amount of the
CSM of that group at the end of the reporting period equals the
carrying amount at the beginning of the reporting period adjusted
for:
4.01 Basis of preparation (continued)
-- the effect of any new contracts added;
-- interest accreted on the carrying amount of the CSM during
the reporting period, measured at the discount rates at initial
recognition;
-- the changes in fulfilment cash flows relating to future service, except to the extent that:
- such increases in the fulfilment cash flows exceed the current
carrying amount of the CSM, giving rise to a loss; or
- such decreases in the fulfilment cash flows are allocated to
the loss component of the liability for remaining coverage;
-- the amount recognised as insurance revenue because of the
transfer of services in the period, determined by allocation of the
contractual service margin at the end of the period over the
current and remaining coverage period; and
-- the effect of any currency exchange differences on the CSM.
The changes in fulfilment cash flows relating to future service
that adjust the CSM comprise of:
-- experience adjustments that arise from the difference between
the premium receipts (net of refunds) and any related cash flows
such as insurance acquisition cash flows and insurance premium
taxes and the estimate, at the beginning of the period, of the
amounts expected. Differences related to premiums received (or due)
in respect of current or past services are recognised immediately
in profit or loss while differences related to premiums received
(or due) for future services are adjusted in the CSM;
-- changes in estimates of the present value of future cash
flows in the liability for remaining coverage, except those
relating to the time value of money and changes in financial risk
(which are instead recognised in the statement of profit or loss
and other comprehensive income);
-- differences between any investment component expected to
become payable in the period and the actual investment component
that becomes payable in the period; and
-- changes in the risk adjustment for non-financial risk that relate to future service.
Adjustments to the CSM noted above are measured at discount
rates that reflect the characteristics of the cash flows of the
group of insurance contracts at initial recognition (i.e. the
weighted average of the rates applicable at the date of initial
recognition of contracts that joined a group over a 12-month
period).
Onerous contracts
Groups of contracts that were not onerous at initial recognition
can subsequently become onerous if assumptions and experience
changes. The group establishes a loss component for any onerous
group depicting the future losses recognised. The loss component is
released based on a systematic allocation of the subsequent changes
in the fulfilment cash flows to: (i) the loss component; and (ii)
the liability for remaining coverage excluding the loss component.
The loss component is also updated for subsequent changes in
estimates of the fulfilment cash flows related to future service.
The systematic allocation of subsequent changes to the loss
component results in the total amounts allocated to the loss
component being equal to zero by the end of the coverage period of
a group of contracts (since the loss component will have
materialised in the form of incurred claims). The loss component
ensures that over the duration of the contract, the correct amounts
are recognised as insurance revenue and insurance service
expenses.
Contractual service margin - recognition
The amount of contractual service margin recognised in the
income statement for a group of insurance contracts reflects the
insurance contract services provided. The proportion of the CSM
earned is calculated as the amount of coverage units provided in
the period divided by the sum of all the future and current period
coverage units. The group has elected to discount the future
coverage units in this calculation. The table below indicates the
main insurance contracts services provided under the group's
insurance contracts and selected coverage unit(s) used to measure
those services.
Insurance contract Insurance service Coverage unit(s)
================== =========================== ===========================
Immediate annuity Payment of insurance claims Expected annual claims
payments
================== =========================== ===========================
Deferred annuity Payment of insurance claims Expected annual claims
(payment phase) payments
Investment return service Expected investment return
(deferral phase) on backing assets
Lump sum death benefits Sum assured
(deferral phase)
================== =========================== ===========================
Longevity swaps Payment of floating leg Expected annual floating
of swap leg payments
================== =========================== ===========================
Retail Protection Potential mortality or Sum assured
morbidity claims
================== =========================== ===========================
Group Protection Potential mortality or Sum assured
morbidity claims
================== =========================== ===========================
Where a specific unit of account contains a mixture of services,
and therefore coverage units, it is necessary to weight the
coverage units so that the resulting profile of CSM release
reflects the overall package of benefits provided. This is
particularly pertinent to units of account incorporating a
combination of immediate and deferred annuities. Under IFRS 17,
deferred annuities usually provide multiple services, split between
the two phases of benefit provision (the deferral phase and the
payment phase). Significant judgement is therefore required to
combine the different coverage units so that they fairly reflect
the services provided. The weighting between the deferral phase and
the payment phase coverage units is calculated so that the services
provided in the deferral phase reflect the investment return
provided and the probability weighted delivery of any lump sum
death benefits, both adjusted so that all of the CSM is earned in
the deferral phase for all contracts which do not enter the payment
phase either through transfer out, withdrawal of funds or
death.
Investment components
The group identifies the investment component of a contract by
determining the amount that it would be required to repay to the
policyholder in all scenarios with commercial substance. Investment
components are not included in insurance revenue and insurance
service expenses.
4.01 Basis of preparation (continued)
Insurance finance income and expense
IFRS 17 requires an accounting policy decision as to whether to
recognise all finance income or expense in profit or loss, or
whether to disaggregate the income or expense that relates to
changes in financial assumptions into other comprehensive income.
All finance income and expense will be included in profit or loss
except for protection business where this is disaggregated. Changes
in the risk adjustment for non-financial risk have been
disaggregated between insurance service result and insurance
finance income and expenses.
Reinsurance contracts held - subsequent measurement
The subsequent measurement of reinsurance contracts held follows
the same principles as those for insurance contracts issued except
that changes in the fulfilment cash flows are recognised in profit
or loss if the related changes arising from the underlying ceded
contracts are recognised in profit or loss.
Derecognition and contract modification of insurance
contracts
The group derecognises a contract when it is extinguished, i.e.
when the specified obligations in the contract expire or are
discharged or cancelled.
The group also derecognises a contract if its terms are modified
in a way that would have changed the accounting for the contract
significantly had the new terms always existed, in which case a new
contract based on the modified terms is recognised. If a contract
modification does not result in derecognition, then the group
treats the changes in cash flows caused by the modification as
changes in estimates of fulfilment cash flows.
If a contract is derecognised because its terms are modified,
then the CSM is also adjusted for the premium that would have been
charged had the group entered into a contract with the new
contract's terms at the date of modification, less any additional
premium charged for the modification. The new contract recognised
is measured assuming that, at the date of modification, the group
received the premium that it would have charged less any additional
premium charged for the modification.
Transition to IFRS 17
On transition to IFRS 17, the group has applied the full
retrospective approach unless impracticable. The full retrospective
approach requires the group to:
-- identify, recognise and measure each group of insurance and
reinsurance contracts as if IFRS 17 had always applied;
-- derecognise any existing balances that would not exist had IFRS 17 always applied; and
-- recognise any resulting net difference in equity.
If it was impracticable to apply a full retrospective approach
to a group of contracts then the group has chosen between the
modified retrospective approach and the fair value approach. If the
group could not obtain reasonable and supportable information
necessary to apply the modified retrospective approach, then the
fair value approach has been chosen.
The group has applied the following transition approaches to its
material insurance contract portfolios on transition to IFRS 17, by
year of issue:
Transition approach Annuities UK Protection US Protection
====================== ========= ============= =============
Full retrospective 2021 2021 2021
====================== ========= ============= =============
Modified retrospective 2016-2020 2012-2020 2011-2020
====================== ========= ============= =============
Fair value Pre-2016 Pre-2012 Pre-2011
====================== ========= ============= =============
Full retrospective approach
The full retrospective approach has been determined to be
impracticable where the effects of retrospective application are
not determinable because information required has not been
collected (or not with sufficient granularity), application would
require the application of hindsight, or information is unavailable
because of system migrations, data retention requirements or other
reasons. Specific examples include:
-- historic calibration of IFRS 17 specific judgements, such as the scale of the risk adjustment;
-- expectations about a contract's profitability and risks of
becoming onerous required for identifying groups of contracts;
-- information about historical cash flows and discount rates
required for determining the estimates of cash flows on initial
recognition and their subsequent changes on a retrospective
basis;
-- information required to allocate fixed and variable overheads
to groups of contracts, because the group's current accounting
policies do not require such information; and
-- information about certain changes in assumptions and
estimates because they were not documented on an ongoing basis.
Modified retrospective approach
The objective of the modified retrospective approach is to
achieve the closest outcome to retrospective application possible
using reasonable and supportable information available without
undue cost or effort.
The only modification applied by the group is that for some
groups of contracts issued before 2020, the risk adjustment for
non-financial risk on initial recognition has been determined by
adjusting the amount at 1 January 2022 for the expected release of
risk before that date. The expected release has been determined
with reference to the release of risk of similar contracts that the
group issued in 2022. This modification has been used to avoid the
application of hindsight to the calibration of the risk adjustment
in prior periods.
4.01 Basis of preparation (continued)
Fair value approach
The group has applied the fair value approach on transition for
certain groups of contracts as, prior to transition, it grouped
contracts from multiple cohorts and years into a single unit for
accounting purposes. Obtaining reasonable and supportable
information to apply the full retrospective approach was
impracticable without undue cost or effort. The group has
determined the CSM of the liability for remaining coverage at the
transition date, as the difference between the fair value of the
group of insurance contracts and the fulfilment cash flows measured
at that date. In determining fair value, the group has applied the
requirements of IFRS 13, 'Fair Value Measurement', except for the
demand deposit floor requirement. The fair value attributed to the
in-scope annuity business is calculated with reference to a price
generated using the group's pricing models and pricing assumptions
at the transition date. This incorporates an expected internal rate
of return that has been validated against relevant market
transactions.
The group has aggregated contracts issued more than one year
apart in determining groups of insurance contracts under the fair
value approach at transition, applying the permitted transition
simplification. The group did not have reasonable and supportable
information to aggregate groups into those including only contracts
issued within one year.
For portfolios of protection contracts, the group has elected to
disaggregate insurance finance income or expenses between amounts
included in profit or loss and amounts included in other
comprehensive income. For these portfolios, the cumulative amount
of insurance finance income or expense recognised in other
comprehensive income at the transition date and has been reset to
zero in line with the provisions of the standard.
Financial impact of transition
The increase in insurance liabilities on adoption of IFRS 17 at
1 January 2022 can be attributed to the following:
Impact on net
insurance contract
liabilities
on transition
to IFRS 17
GBPm
---------------------------------------------------------------- -------------------
Remeasurement of liabilities: the IFRS 17 cash flows are
best estimate and exclude all prudent margins included
in the IFRS 4 liabilities. Removal of these margins coupled
with other changes to the insurance contract measurement,
including discount rates and the exclusion of non-attributable
expenses, results in a lower best estimate liability 7,540
---------------------------------------------------------------- -------------------
Creation of a risk adjustment: IFRS 17 incorporates a
specific risk adjustment for non-financial risk (2,501)
---------------------------------------------------------------- -------------------
Creation of CSM: determined using the transition approaches
described above and reflecting the unearned profit of
these contracts (11,224)
---------------------------------------------------------------- -------------------
Total (6,185)
---------------------------------------------------------------- -------------------
IFRS 9, 'Financial Instruments' - material accounting
policies
Recognition and derecognition
Initial recognition of financial assets and liabilities is on
the trade date, which is the date on which the group becomes a
party to the contractual provisions of the instrument. A financial
asset or financial liability is initially measured at fair value
plus, for a financial asset
or financial liability not measured at fair value through profit
or loss, transaction costs that are directly attributable to its
acquisition or issue. When the fair value of financial assets and
liabilities differs from the transaction price on initial
recognition, the group recognises the difference as follows:
-- when the fair value is evidenced by a quoted price in an
active market for an identical asset or liability (i.e. a Level 1
input) or based on a valuation technique that uses only data from
observable markets, the difference is recognised as a gain or loss;
and
-- in all other cases, the difference is deferred and the timing
of recognition of deferred day one profit or loss is determined
individually. It is either amortised over the life of the
instrument, deferred until the instrument's fair value can be
determined using market observable inputs or realised through
settlement.
Financial assets are derecognised only when the contractual
rights to the cash flows from the asset expire, or when the group
transfers substantially all the risks and rewards of ownership to
another entity. This is the case for cash collateral pledged, where
the counterparty has contractual rights to receive the cash flows
generated, and which is derecognised from the Consolidated Balance
Sheet and a corresponding receivable recognised for its return.
The group enters into transactions whereby it transfers assets
recognised in its Consolidated Balance Sheet, but retains either
all or substantially all of the risks and rewards of the
transferred assets. In these cases, the transferred assets are not
derecognised. Examples of such transactions are repurchase
agreements and non-cash collateral pledged, unless the group
defaults on its obligations under the relevant agreement.
In transactions in which the group neither retains nor transfers
substantially all of the risks and rewards of ownership of a
financial asset and it retains control over the asset, the group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to
which it is exposed to changes in the value of the transferred
asset.
The group derecognises a financial liability when its
contractual obligations expire or are discharged or cancelled. The
group also derecognises a financial liability when its terms are
modified and the cash flows of the modified liability are
substantially different, in which case a new financial liability
based on the modified terms is recognised at fair value.
On derecognition of a financial asset or financial liability,
the difference between the carrying amount at the date of
derecognition and the consideration received (including any new
asset obtained less any new liability assumed) is recognised in
profit or loss.
Modification
If the terms of a financial asset are modified, then the group
evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially
different, then the contractual rights to cash flows from the
original financial asset are deemed to have expired. In this case,
the original financial asset is derecognised and a new financial
asset is recognised at fair value plus any eligible transaction
costs.
4.01 Basis of preparation (continued)
Classification and measurement
Financial assets
The group classifies its financial investments on initial
recognition as measured at amortised cost (AC), fair value through
Other Comprehensive Income (FVOCI) and fair value through profit or
loss (FVTPL).
The classification and measurement of financial assets depends
on their contractual cash flow characteristics and how they are
managed (the entity's business model). The contractual cash flow
characteristics test aims to identify those assets with cash flows
consistent with a basic lending arrangement, i.e. which are 'solely
payments of principal and interest' (SPPI). The business model test
refers to how an entity manages its financial assets with the
objectives of generating cash flows. These factors determine
whether the financial assets are measured at amortised cost, FVOCI
or FVTPL. Assets are therefore typically characterised as
follows:
-- amortised cost: financial assets with contractual terms that
give rise solely to interest and principal cash flows, and which
are held in a business model whose objective is to hold the assets
to collect their cash flows. They are measured at amortised cost
using the effective interest method. Interest income, foreign
exchange gains and losses and impairment are recognised in profit
or loss. Any gain or loss on derecognition is also recognised in
profit or loss;
-- FVOCI: financial assets with contractual terms that give rise
solely to interest and principal cash flows, and which are held in
a business model whose objective is achieved by holding the assets
to collect their cash flows and selling them. Interest income
calculated using the effective interest method, foreign exchange
gains and losses and impairment are recognised in profit or loss.
Other net gains and losses are recognised in other comprehensive
income. On derecognition, gains and losses accumulated in OCI are
reclassified to profit or loss;
-- FVTPL: all other financial assets. Net gains and losses,
including any interest or dividend income and foreign exchange
gains and losses, are recognised in profit or loss, unless they
arise from derivatives designated as hedging instruments in net
investment hedges.
Notwithstanding the above, on initial recognition the group may
irrevocably designate to FVTPL a financial asset that would
otherwise be measured at amortised cost or FVOCI if doing so
eliminates or greatly reduces an accounting mismatch.
In making the SPPI assessment, the group considers whether the
contractual cash flows are consistent with a basic lending
arrangement (that is, interest includes only consideration for the
time value of money, credit risk, other basic lending risks and a
profit margin that is consistent with a basic lending arrangement).
This includes evaluating whether the financial asset contains a
contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this condition.
Examples of such contractual terms to be considered are contingent
events that would change the amount or timing of cash flows,
leverage features, prepayment and extension features, non-recourse
asset arrangements and features that modify consideration for the
time value of money (e.g. periodic reset of interest rates).
The business model reflects how the group manages assets in
order to generate cash flows, i.e. it reflects whether the group's
objective is solely to collect the contractual cash flows from
assets or to collect both the contractual cash flows and cash flows
arising from the sale of assets. If neither of these is applicable
(for example, financial assets are held for trading purposes), the
business model is 'other' and the financial asset is measured at
FVTPL. Factors considered by the group in determining the business
model for a group of assets include past experience on how the cash
flows for these assets were collected, how the asset's performance
is evaluated and reported to key management personnel, how risks
are assessed and managed, and how managers are compensated.
The objective of the group's business model for certain debt
instruments, in particular those instruments backing annuity or
investment contract liabilities, including surplus assets, is to
fund its liabilities. Consistent with the group's investment
strategy their performance is evaluated on a total return basis, as
significant buying and selling activity is undertaken on a regular
basis to rebalance its portfolio and to ensure that contractual
cash flows from those assets are sufficient to settle the
underlying liabilities. These investments do not follow a 'held to
collect' or 'held to collect and sell' business model, and are
therefore accounted for at FVTPL. This business model is also
applicable to reverse repurchase agreements and to d erivatives.
Equity instruments are accounted for at FVTPL.
Certain debt securities are held in separate portfolios for
longer-term yield. These include long dated debt instruments
backing annuities liabilities, but in surplus to the IFRS 17 best
estimate liability and risk adjustment, used to manage interest and
inflation rate exposure, as well as assets backing protection
liabilities. These assets represent instruments consistent with the
SPPI principles, and are accounted for at amortised cost or FVOCI
depending on the expected level of trading. Receivables are
accounted for at amortised cost.
Financial liabilities
The group classifies and subsequently measures financial
liabilities at amortised cost or FVTPL.
Non-participating investment contract liabilities are measured
at FVTPL. This is because these liabilities as well as the related
assets are managed and their performance is evaluated on a fair
value basis. For unit linked liabilities, fair value is determined
by reference to the value of the underlying net asset values of the
group's unitised investment funds at the balance sheet date. For
non-linked liabilities, fair value is based on a discounted cash
flow analysis which incorporates an appropriate allowance for
credit default risk. Deposits collected and claims are not included
in the income statement but are added or deducted from investment
contract liabilities.
Borrowings are recognised initially at fair value, net of
transaction costs. Borrowings are subsequently stated at amortised
cost. The difference between the net proceeds and the redemption
value is recognised in the income statement over the borrowing
period using the effective interest rate method.
Other financial liabilities include derivative liabilities,
repurchase agreements and trail commission, which are measured at
FVTPL, while other payable balances are measured at amortised
cost.
4.01 Basis of preparation (continued)
Derivatives
Derivatives are initially recognised at fair value on the date
on which the derivative contract is entered into. The group's
derivatives, other than those designated as hedging instruments in
net investment hedges, are instruments held for trading, as they
are held principally for the purpose of selling in the near term or
are part of a portfolio of financial instruments that are managed
together, and for which there is evidence of a recent actual
pattern of short-term profit-taking. They are therefore accounted
for at FVTPL.
Derivatives may be embedded in another contractual arrangement.
If such a hybrid contract contains a host that is a financial
asset, the group assesses the entire contract for classification
and measurement purposes. Otherwise, the group accounts for an
embedded derivative separately from the host contract when:
-- its economic characteristics and risks are not closely related to those of the host contract;
-- the terms of the embedded derivative would have met the
definition of a derivative if they were contained in a separate
contract; and
-- the hybrid contract is not measured at FVTPL.
These embedded derivatives are separately accounted for at
FVTPL, unless the group chooses to designate the entire hybrid
contract at FVTPL.
A derivative embedded in a host insurance or reinsurance
contract is not accounted for separately from the host contract if
the embedded derivative itself meets the definition of an insurance
or reinsurance contract.
Impairment
The group assesses on a forward-looking basis the expected
credit loss (ECL) associated with its financial assets measured at
amortised cost and FVOCI, and recognises a loss allowance for such
losses at each reporting date. Expected credit losses are defined
as the present value of the difference between all contractual cash
flows that are due and all cash flows that the entity expects to
receive (i.e. the cash shortfall), weighted based on their
probability of occurrence. The loss allowance recognised under the
new standard can be equal to an amount corresponding to a 12-month
ECL or a lifetime ECL. A lifetime ECL is the ECL resulting from all
possible default events over the expected life of the financial
asset; a 12-month ECL is the portion of lifetime ECL resulting from
default events on a financial asset that are possible within the 12
months after the reporting date.
The group defines default on a financial asset as the inability
to meet in full and on time an original promise of expected cash
flows, the amount and timing of which are defined with certainty.
Any breach of this promise, by any amount or time (in excess of any
potential planned grace period), constitutes a default. This is
consistent with the definition of default used for internal credit
risk management purposes.
The ECL model is run from the date of initial recognition of a
financial asset, and its output updated at every reporting period,
even if no actual loss events have taken place. The impact of
updating the inputs of the ECL model in the reporting period is
recognised in profit or loss directly where it affects the carrying
value of financial assets at amortised cost, while for assets at
FVOCI an equal and opposite movement is recorded in other
comprehensive income.
In order to determine whether the group measures ECLs at an
amount equal to 12-month ECL or lifetime ECL, at each reporting
period the group is required to assess which 'stage' a financial
asset falls into. Stages reflect the general pattern of
deterioration in credit risk of a financial instrument that
ultimately defaults, as follows:
-- Stage 1 includes financially healthy financial assets that
are expected to perform in line with their contractual terms, and
which have no signs of increased credit risk;
-- Stage 2 includes financial assets for which a significant
increase in credit risk has occurred since initial recognition, but
which are not credit-impaired; and
-- Stage 3 applies to credit-impaired financial instruments.
When financial assets are under Stage 1, 12-month ECLs are
recognised. When financial assets are under Stage 2 or 3, lifetime
ECLs are recognised. An instrument moves down (or up) the stages
when a significant increase in credit risk (SICR) has happened (or
has reversed).
When determining whether the credit risk of a financial
instrument has increased significantly since initial recognition,
the group considers reasonable and supportable information, both
qualitative and quantitative, that is relevant and is available
without undue cost or effort, including forward-looking information
at its disposal. Key indicators used in order to determine whether
a SICR has occurred (either in isolation or in combination)
are:
-- deterioration in rating grade between origination date and
reporting date. The level of deterioration required by an
individual asset is determined using a relative rating matrix;
-- exposure is identified on the investment managers' 'watchlist';
-- exposure is identified on internal 'credit watchlists'; and
-- a manual shift of an exposure to Stage 2 on an exceptional
basis (where required, using management judgement).
The provisions of IFRS 9 include a rebuttable presumption that
the credit risk on a financial asset has increased significantly
since initial recognition when contractual payments are more than
30 days past due, which is taken into account for this
assessment.
The group makes use of a practical expedient available in IFRS 9
whereby it can be assumed that the credit risk on a financial
instrument has not increased significantly since initial
recognition if the financial instrument is determined to have low
credit risk at the reporting date (e.g. investment grade as
determined by the group's asset managers). This allows recognition
of 12-month ECLs as opposed to, potentially, lifetime ECLs. This is
deemed to be the case where assets that have been downgraded remain
of good credit quality (i.e. investment grade as determined by the
group's asset managers) as at the reporting date, to the extent
that the group's internal credit risk ratings are considered to be
consistent with a globally understood definition of 'low credit
risk'.
4.01 Basis of preparation (continued)
The group estimates ECLs on its financial investments at
amortised cost and debt instruments at FVOCI by using the
probability of default approach. Based on this method, the ECLs are
a probability-weighted estimate of the present value of estimated
cash shortfalls, i.e. the weighted average of credit losses, with
the respective risks of a default occurring used as the weightings.
For this purpose, the key elements to be calculated are the
Probability of Default (PD), i.e. the estimate of the likelihood of
default over a given time horizon (either 12 months or lifetime);
the respective Loss Given Default (LGD); and the Exposure at
Default (EAD).
In order to determine 12-month or lifetime PDs the group's
models utilise historical data obtained from S&P and Moody's in
order to evaluate transitions (i.e. the probability that a security
changes rating in a given year) and defaults, plus
scenario-specific annual scaling factors which adjust the PDs for
forward-looking information. The final PDs produced by the model
are unconditional, i.e. they incorporate both the probability of
not defaulting until the start of the period, and the subsequent
probability of default in that period, conditional on the position
not having defaulted to that point. This allows them to be summed
over 12 months to provide 12-month PD estimates, or over all
remaining months to produce lifetime PD estimates.
LGD is the magnitude of the likely loss if there is a default,
based on the history of recovery rates of claims against defaulted
counterparties, and taking into account collateral values where
applicable.
EAD represents the expected exposure in the event of a default .
The group estimates LGD based on the history of recovery rates of
claims against defaulted counterparties. Appropriate haircuts are
applied to baseline unsecured LGDs and used in conjunction with
forecast collateral values to estimate LGD for assets secured by
collateral.
The group has adopted a simplified approach for trade
receivables, contract assets and finance and operating lease
receivables. This allows measurement of lifetime ECLs only, thereby
removing the need to identify SICRs. For these balances, the group
makes use of provision matrices in order to calculate such lifetime
ECLs. This is a practical expedient allowed by IFRS 9 whereby
historical credit loss experience and fixed loss rates are applied
to the balances outstanding. Historical loss rates are adjusted to
allow for forward looking information.
Hedge accounting
The group uses hedge accounting, provided the prescribed
criteria are met, to recognise the offsetting effects of changes in
the fair value or cash flow of the derivative instrument and the
hedged item. Hedge accounting can be applied in order to:
-- hedge the exposure to fair value movements of a recognised
asset or liability or an unrecognised firm commitment, or a
component of any such item, that is attributable to a particular
risk and could affect the Consolidated Income Statement;
-- hedge the exposure to variability in cash flows attributable
to a particular risk associated with all, or a component of, a
recognised asset or liability, or a highly probable forecast
transaction, that could affect the Consolidated Income Statement;
and
-- hedge the exposure to the currency risk associated with a net
investment in a foreign operation.
The relationship between the hedging instrument and the hedged
item, together with the risk management objective and strategy for
undertaking the hedge transaction, are documented formally at the
inception of the transaction. The documentation includes
identification of the hedging instrument, the hedged item, the
nature of the risk being hedged and how the group will assess
whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge
ineffectiveness and how the hedge ratio is determined). A hedging
relationship qualifies for hedge accounting if it meets all of the
following effectiveness requirements:
-- there is an economic relationship between the hedged item and the hedging instrument;
-- the effect of credit risk does not dominate the value changes
that result from that economic relationship; and
-- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the group
actually hedges and the quantity of the hedging instrument that the
group actually uses to hedge that quantity of hedged item.
Currently, the group hedges part of the foreign exchange
translation exposure on its net investment in certain overseas
subsidiaries, using forward foreign exchange contracts. It
recognises the effective portion of the gain or loss on the hedging
items, together with the gain or loss on translation of the foreign
subsidiaries, in the Consolidated Statement of Comprehensive Income
and in a separate reserve within equity. Gains and losses
accumulated in equity are included in the Consolidated Income
Statement on disposal of the relevant hedged item.
Transition to IFRS 9
On transition, changes in accounting policies resulting from the
adoption of IFRS 9 have been applied retrospectively.
In line with IFRS 17 the group has chosen to restate comparative
periods under IFRS 9. While the standard does not apply to
financial assets already derecognised by 1 January 2023, the group
has applied a 'classification overlay' as allowed by the standard.
When applying IFRS 9 and IFRS 17 at the same time, the
classification overlay permits presentation of comparative
information as if the classification, measurement and impairment
requirements of IFRS 9 had been applied to such assets,
irrespective of derecognition date.
For the purpose of classification and measurement, financial
assets' business models have been assessed as at the date of
initial application and have been applied consistently in all
periods presented. If an asset was in scope of the classification
overlay described above, the group aligned the classification and
measurement of each financial asset in the comparative periods with
what it expected it would have been on 1 January 2023. Such
assessment was performed based on reasonable and supportable
information available at 1 January 2022, the transition date. Any
difference between the IAS 39 carrying amount of a financial asset
and the carrying amount at the transition date that results from
applying IFRS 9 or the classification overlay was recognised in
opening retained earnings.
4.01 Basis of preparation (continued)
For the purpose of impairment, the group assessed whether as at
1 January 2023 there had been a SICR as compared to the date that a
financial instrument was initially recognised, and applied a
12-month or lifetime ECL accordingly. The group chose to apply the
impairment requirements of IFRS 9 consistently to all of the
applicable financial instruments on its books during the
comparative periods. To the extent the classification overlay
applied and therefore an asset was derecognised by 1 January 2023,
any expected credit losses recognised in the comparative periods
were reversed upon disposal. The low credit risk practical
expedient described previously was also available for the purpose
of transition, and the group made use of this in line with set
criteria. On transition to IFRS 9, any additional provision
recognised when compared to IAS 39 was recognised in opening
retained earnings. However, if this related to a financial asset at
FVOCI, an equal and opposite movement was reflected in the OCI
reserve.
Changes to hedge accounting policies have been applied
prospectively from 1 January 2023. All hedging relationships
designated under IAS 39 at 31 December 2022 met the criteria for
hedge accounting under IFRS 9 at 1 January 2023 and were therefore
regarded as continuing hedging relationships.
Classification and measurement
The following table explains the original measurement categories
under IAS 39 and the new measurement categories under IFRS 9 for
each class of the group's financial assets as at 1 January 2023,
including the reasons for any reclassifications out of the FVTPL
category. No changes to classification and measurement of financial
liabilities have resulted from the implementation of IFRS 9.
31 December 1 January
2022 Reclassification 2023
IAS 39 measurement (before remeasurement) Remeasurement IFRS 9 measurement
---------------------- ---------------------- --------------- ---------------------
Category Amount ECL Other Category Amount
GBPm GBPm GBPm GBPm GBPm
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Financial investments
at FVTPL
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Equity securities FVTPL 167,335 FVTPL 167,335
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Debt securities FVTPL 217,613 (6,425) FVTPL 211,188
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
- To debt securities
at amortised cost (5,946)
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
- To debt securities
at FVOCI (479)
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Loans FVTPL 14,283 FVTPL 14,283
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Derivative assets -
held for trading FVTPL 45,427 FVTPL 45,427
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Total financial investments
at FVTPL 444,658 (6,425) 438,233
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Financial investments
- available for sale
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Debt securities AFS(1) 789 (789)
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
- To debt securities
at amortised cost (789)
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Total financial investments
AFS 789 (789)
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Financial investments
at FVOCI
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Debt securities 479 FVOCI 479
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
- From debt securities
at FVTPL 479
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Total financial investments
at FVOCI 479 479
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Total financial investments
at fair value 445,447 (6,735) 438,712
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Financial investments
at amortised cost
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Loans L&R(2) 28 (27)(3) AC 1
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Debt securities 6,735 (35) 1,145 AC 7,845
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
- From debt securities
AFS 789
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
- From debt securities
at FVTPL 5,946
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Total financial investments
at amortised cost 28 6,735 (35) 1,118 7,846
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Other financial
assets
--------------------- ------------ -------- ---------------------- ----- -------- ----------- --------
Reinsurance
receivables L&R(2) 291 (291)(3) N/A
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Insurance and
intermediaries
receivables L&R(2) 76 (76)(3) N/A
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Other receivables L&R(2) 9,632 (9)(3) AC 9,623
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Cash and cash
equivalents L&R(2) 35,784 AC 35,784
---------------------- ----------- -------- ---------------------- ----- -------- ----------- --------
Total other financial
assets 45,783 (376) 45,407
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
Total financial assets 491,258 (35) 742 491,965
------------------------------------ -------- ---------------------- ----- -------- ----------- --------
1. Available-for-sale. Under IAS 39, financial assets classified
as available-for-sale were measured at fair value with unrealised
gains and losses recognised in a separate reserve within
equity.
2. Loans and receivables. Under IAS 39, loans and receivables
were non-derivative financial assets with fixed or determinable
payments not quoted in an active market. These excluded assets held
for trading and those designated as available-for sale or fair
value through profit or loss.
3. Derecognition of balances that do not exist under IFRS 17 as
they are now included in the insurance contract liability on an
IFRS 17 basis.
4.01 Basis of preparation (continued)
Remeasurement from FVTPL to amortised cost:
As part of the implementation of IFRS 9, the group has
reassessed the classification and measurement of certain financial
assets backing annuity liabilities, in order to better match
interest rate and inflation sensitivities to IFRS 17 liabilities,
and reclassified a portion of its portfolio of debt securities
previously held at FVTPL. This is because, while the best estimate
liability and risk adjustment under IFRS 17 for annuities are
measured with current financial assumptions, the CSM is measured
with locked-in discount rates. Therefore, a sub-portfolio of long
dated debt instruments amounting to GBP5,603m (including accrued
interest, as at 1 January 2023) backing annuity contracts but in
surplus to the IFRS 17 best estimate liability and risk adjustment,
and passing the SPPI test, was separately identified. Starting 1
January 2023 these assets have been used to manage interest and
inflation rate exposure. They are held to maturity in a 'held to
collect' business model and accounted for at amortised cost. Other
assets reclassified in the group's Insurance business, notably
private placements and commercial mortgage loans in the US
business, were previously accounted for at FVTPL in order to
eliminate or reduce an accounting mismatch. Following the
implementation of IFRS 17 this is no longer required as finance
income and expense on the insurance liabilities that these assets
are held to back are presented in OCI. The assets pass the SPPI
test and are held in a 'held to collect' business model, and are
therefore accounted for at amortised cost.
Had such assets remained at FVTPL after 1 January 2023, the
group would have recorded fair value losses in the Consolidated
Income Statement of GBP425m during the period. Interest income
recognised in the Consolidated Income Statement in the period was
GBP52m, and the effective interest rate as at 1 January 2023 was
3.59%. The fair value as at 30 June 2023 of these assets is
GBP5,627m.
Remeasurement from FVTPL to FVOCI
Under IAS 39, bonds (including US Treasury bonds) backing
certain protection liabilities were held at FVTPL in order to
eliminate or reduce an accounting mismatch. Following the
implementation of IFRS 17 this is no longer required, as finance
income and expense on the insurance liabilities that these assets
are held to back, are presented in OCI. The assets pass the SPPI
test and are held in a 'held to collect and sell' business model,
and are therefore accounted for at FVOCI.
Had such assets remained at FVTPL after 1 January 2023, the
group would have recorded fair value gains in the Consolidated
Income Statement of GBP7m during the period. Interest income
recognised in the Consolidated Income Statement in the period was
GBP8m, and the effective interest rate as at 1 January 2023 was
2.75%. The fair value of these assets as at the end of the
reporting period is GBP427m.
Impairment
The following table reconciles the closing impairment allowance
under IAS 39 as at 31 December 2022 with the opening loss allowance
under IFRS 9 as at 1 January 2023 for financial assets subject to
the impairment requirements of IFRS 9.
31 December 1 January
2022 2023
IAS 39 IFRS 9
loan loss loan loss
provision Remeasurement provision
GBPm GBPm GBPm
------------------------------------------- ------------ ------------- ----------
Debt securities at FVOCI / Debt securities - 3 3
AFS
------------------------------------------- ------------ ------------- ----------
Debt securities at amortised cost - 35 35
------------------------------------------- ------------ ------------- ----------
Other receivables 4 - 4
------------------------------------------- ------------ ------------- ----------
Total 4 38 42
------------------------------------------- ------------ ------------- ----------
Other standards
The group has also applied the following standards and
amendments for the first time in its six months reporting period
commencing 1 January 2023, which did not give rise to a material
impact on the group's consolidated financial statements.
-- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12);
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12);
-- Definition of Accounting Estimates (Amendments to IAS 8); and
-- Disclosure of Accounting policies (Amendments to IAS 1 and IFRS Practice Statement 2).
The group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
4.02 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1) Dividend Per share(1)
6 months 6 months 6 months 6 months Full year Full year
2023 2023 2022 2022 2022 2022
GBPm p GBPm p GBPm p
------------------------------------ -------- ------------ -------- ------------ --------- ------------
Ordinary dividends paid and charged
to equity in the period:
------------------------------------ -------- ------------ -------- ------------ --------- ------------
- Final 2021 dividend paid in
June 2022 - - 792 13.27 792 13.27
------------------------------------ -------- ------------ -------- ------------ --------- ------------
- Interim 2022 dividend paid in
September 2022 - - - - 324 5.44
------------------------------------ -------- ------------ -------- ------------ --------- ------------
- Final 2022 dividend paid in
June 2023 831 13.93 - - - -
------------------------------------ -------- ------------ -------- ------------ --------- ------------
Total dividends(2) 831 13.93 792 13.27 1,116 18.71
------------------------------------ -------- ------------ -------- ------------ --------- ------------
1. The dividend per share calculation is based on the number of
equity shares registered on the ex-dividend date.
2. The dividend proposed at 31 December 2022 was GBP829m based
on the current number of eligible equity shares on that date.
Subsequent to 30 June 2023, the directors declared an interim
dividend of 5.71 pence per ordinary share. This dividend will be
paid on 26 September 2023. It will be accounted for as an
appropriation of retained earnings in the year ended 31 December
2023 and is not included as a liability in the Consolidated Balance
Sheet as at 30 June 2023.
4.03 Financial investments and investment property
Restated Restated
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------- ------- -------- --------
Equities(1) 177,368 182,847 167,335
-------------------------------------------- ------- -------- --------
Debt securities(2,3) 218,749 238,483 219,512
-------------------------------------------- ------- -------- --------
Derivative assets(4) 46,749 28,017 45,427
-------------------------------------------- ------- -------- --------
Loans(5) 12,101 13,460 14,284
-------------------------------------------- ------- -------- --------
Financial investments 454,967 462,807 446,558
-------------------------------------------- ------- -------- --------
Investment property 9,227 10,976 9,372
-------------------------------------------- ------- -------- --------
Total financial investments and investment
property 464,194 473,783 455,930
-------------------------------------------- ------- -------- --------
1. Equity securities include investments in unit trusts of
GBP18,522m (30 June 2022: GBP17,572m; 31 December 2022;
GBP16,524m).
2. Debt securities include accrued interest of GBP1,691m (30
June 2022: GBP1,497m; 31 December 2022: GBP1,635m) and include
GBP7,545m (30 June 2022: GBP7,775m; 31 December 2022: GBP7,845m) of
assets valued at amortised cost.
3. A detailed analysis of debt securities to which shareholders
are directly exposed is disclosed in Note 7.03.
4. Derivatives are used for efficient portfolio management,
particularly the use of interest rate swaps, inflation swaps,
currency swaps and foreign exchange forward contracts for asset and
liability management. Derivative assets are shown gross of
derivative liabilities of GBP49,939m (30 June 2022: GBP34,044m; 31
December 2022: GBP51,190m).
5. Loans include GBP5m (30 June 2022: GBP72m; 31 December 2022:
GBP1m) of loans valued at amortised cost.
4.03 Financial investments and investment property
(continued)
(i) Fair value hierarchy
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurements are based on observable and unobservable
inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the group's
view of market assumptions in the absence of observable market
information. The group utilises techniques that maximise the use of
observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as
follows:
Level 1: fair values measured using quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all
inputs significant to the measurement other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3: fair values measured using valuation techniques for any
input for the asset or liability significant to the measurement
that is not based on observable market data (unobservable
inputs).
All of the group's Level 2 assets have been valued using
standard market pricing sources, such as IHS Markit, ICE and
Bloomberg, or Index Providers such as Barclays, Merrill Lynch or
JPMorgan. Each uses mathematical modelling and multiple source
validation in order to determine consensus prices, with the
exception of OTC Derivative holdings; OTCs are marked to market
using an in-house system (Lombard Oberon), external vendor (IHS
Markit), internal model or Counterparty Broker marks. In normal
market conditions, we would consider these market prices to be
observable market prices. Following consultation with our pricing
providers and a number of their contributing brokers, we have
considered that these prices are not from a suitably active market
and have therefore classified them as Level 2.
The group's investment properties are valued by appropriately
qualified external valuers using unobservable inputs, resulting in
all investment property being classified as Level 3.
The group's policy is to re-assess categorisation of financial
assets at the end of each reporting period and to recognise
transfers between levels at that point in time. At 30 June 2023
debt securities totalling net GBP3.7bn transferred from Level 1 to
Level 2 in the fair value hierarchy (30 June 2022: net GBP0.8bn
from Level 1 to Level 2; 31 December 2022: net GBP6.0bn from Level
2 to Level 1).
Total Level Level Level
1 2 3
For the six month period to 30 June 2023 GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ------- ------
Shareholder
------------------------------------------- ------- ------- ------- ------
Equity securities 3,077 1,171 13 1,893
------------------------------------------- ------- ------- ------- ------
Debt securities 65,818 22,701 25,882 17,235
------------------------------------------- ------- ------- ------- ------
Derivative assets 42,307 107 42,200 -
------------------------------------------- ------- ------- ------- ------
Loans at fair value 2,049 - 2,049 -
------------------------------------------- ------- ------- ------- ------
Investment property 5,762 - - 5,762
------------------------------------------- ------- ------- ------- ------
Total Shareholder 119,013 23,979 70,144 24,890
------------------------------------------- ------- ------- ------- ------
Unit linked
------------------------------------------- ------- ------- ------- ------
Equity securities 174,291 173,276 527 488
------------------------------------------- ------- ------- ------- ------
Debt securities 145,386 113,411 30,994 981
------------------------------------------- ------- ------- ------- ------
Derivative assets 4,442 136 4,306 -
------------------------------------------- ------- ------- ------- ------
Loans at fair value 10,047 - 10,047 -
------------------------------------------- ------- ------- ------- ------
Investment property 3,465 - - 3,465
------------------------------------------- ------- ------- ------- ------
Total Unit linked 337,631 286,823 45,874 4,934
------------------------------------------- ------- ------- ------- ------
Total financial investments and investment
property at fair value 456,644 310,802 116,018 29,824
------------------------------------------- ------- ------- ------- ------
Debt securities at amortised cost(1) 6,300 - 42 6,258
------------------------------------------- ------- ------- ------- ------
Loans at amortised cost(1) 5 5 - -
------------------------------------------- ------- ------- ------- ------
1. This table includes debt securities and loans which are held
at amortised cost in the Consolidated Balance Sheet at a total
value of GBP7,550m.
4.03 Financial investments and investment property
(continued)
(i) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six month period to 30 June 2022 (Restated) GBPm GBPm GBPm GBPm
---------------------------------------------------- ------- ------- ------ ------
Shareholder
---------------------------------------------------- ------- ------- ------ ------
Equity securities 3,492 1,995 22 1,475
---------------------------------------------------- ------- ------- ------ ------
Debt securities 69,546 27,622 27,213 14,711
---------------------------------------------------- ------- ------- ------ ------
Derivative assets 25,071 6 25,065 -
---------------------------------------------------- ------- ------- ------ ------
Loans at fair value 1,701 - 1,701 -
---------------------------------------------------- ------- ------- ------ ------
Investment property 6,156 - - 6,156
---------------------------------------------------- ------- ------- ------ ------
Total Shareholder 105,966 29,623 54,001 22,342
---------------------------------------------------- ------- ------- ------ ------
Unit linked
---------------------------------------------------- ------- ------- ------ ------
Equity securities 179,355 178,691 25 639
---------------------------------------------------- ------- ------- ------ ------
Debt securities 161,162 129,689 30,836 637
---------------------------------------------------- ------- ------- ------ ------
Derivative assets 2,946 125 2,821 -
---------------------------------------------------- ------- ------- ------ ------
Loans at fair value 11,687 - 11,687 -
---------------------------------------------------- ------- ------- ------ ------
Investment property 4,820 - - 4,820
---------------------------------------------------- ------- ------- ------ ------
Total Unit linked 359,970 308,505 45,369 6,096
---------------------------------------------------- ------- ------- ------ ------
Total financial investments and investment
property at fair value 465,936 338,128 99,370 28,438
---------------------------------------------------- ------- ------- ------ ------
Debt securities at amortised cost(1) 7,257 - 52 7,205
---------------------------------------------------- ------- ------- ------ ------
Loans at amortised cost(1) 72 72 - -
---------------------------------------------------- ------- ------- ------ ------
1. This table includes debt securities and loans which are held
at amortised cost in the Consolidated Balance Sheet at a total
value of GBP7,847m.
Total Level Level Level
1 2 3
For the year ended 31 December 2022 (Restated) GBPm GBPm GBPm GBPm
-------------------------------------------------------- ------- ------- ------- ------
Shareholder
----------------------------------------------------- ------- ------- ------- ------
Equity securities 3,071 1,236 41 1,794
-------------------------------------------------------- ------- ------- ------- ------
Debt securities 63,928 17,239 31,295 15,394
-------------------------------------------------------- ------- ------- ------- ------
Derivative assets 41,978 106 41,872 -
-------------------------------------------------------- ------- ------- ------- ------
Loans at fair value 1,072 - 1,072 -
-------------------------------------------------------- ------- ------- ------- ------
Investment property 5,644 - - 5,644
-------------------------------------------------------- ------- ------- ------- ------
Total Shareholder 115,693 18,581 74,280 22,832
----------------------------------------------------- ------- ------- ------- ------
Unit linked
----------------------------------------------------- ------- ------- ------- ------
Equity securities 164,264 163,727 24 513
-------------------------------------------------------- ------- ------- ------- ------
Debt securities 147,739 105,955 40,757 1,027
-------------------------------------------------------- ------- ------- ------- ------
Derivative assets 3,449 164 3,285 -
-------------------------------------------------------- ------- ------- ------- ------
Loans at fair value 13,211 - 13,211 -
-------------------------------------------------------- ------- ------- ------- ------
Investment property 3,728 - - 3,728
-------------------------------------------------------- ------- ------- ------- ------
Total Unit linked 332,391 269,846 57,277 5,268
-------------------------------------------------------- ------- ------- ------- ------
Total financial investments and investment property
at fair value 448,084 288,427 131,557 28,100
-------------------------------------------------------- ------- ------- ------- ------
Debt securities at amortised cost(1) 6,717 - 44 6,673
-------------------------------------------------------- ------- ------- ------- ------
Loans at amortised cost(1) 1 1 - -
-------------------------------------------------------- ------- ------- ------- ------
1. This table includes debt securities and loans which are held
at amortised cost in the Consolidated Balance Sheet at a total
value of GBP7,846m.
4.03 Financial investments and investment property
(continued)
(ii) Level 3 assets measured at fair value
Level 3 assets, where modelling techniques are used, are
comprised of property, unquoted securities, untraded debt
securities and securities where unquoted prices are provided by a
single broker. Unquoted securities include suspended securities,
investments in private equity and property vehicles. Untraded debt
securities include private placements, commercial real estate
loans, income strips, retirement interest only and other lifetime
mortgages.
In many situations, inputs used to measure the fair value of an
asset or liability may fall into different levels of the fair value
hierarchy. In these situations, the group determines the level in
which the fair value falls based upon the lowest level input that
is significant to the determination of the fair value. As a result,
both observable and unobservable inputs may be used in the
determination of fair values that the group has classified within
Level 3.
The group determines the fair values of certain financial assets
and liabilities based on quoted market prices, where available. The
group also determines fair value based on estimated future cash
flows discounted at the appropriate current market rate. As
appropriate, fair values reflect adjustments for counterparty
credit quality, the group's credit standing, liquidity and risk
margins on unobservable inputs.
Fair values are subject to a control framework designed to
ensure that input variables and outputs are assessed independent of
the risk taker. These inputs and outputs are reviewed and approved
by a valuation committee and validated independently as
appropriate.
Restated
Other Other
Equity financial Investment Equity financial Investment Restated
securities investments property Total securities investments property Total
2023 2023 2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
As at 1 January 2,307 16,421 9,372 28,100 1,988 16,599 10,150 28,737
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Total gains/(losses)
for the period
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
- realised gains
or (losses)(1) (19) (157) 2 (174) 6 (3) 30 33
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
- unrealised gains
or (losses)(1) 3 (399) (510) (906) 144 (2,489) 571 (1,774)
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Purchases/Additions 169 2,929 752 3,850 179 2,110 330 2,619
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Sales/Disposals (78) (714) (425) (1,217) (266) (1,069) (105) (1,440)
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Transfers into Level
3 6 241 - 247 67 - - 67
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Transfers out of
Level 3 (3) - - (3) (10) - - (10)
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Foreign exchange
rate movements (4) (105) 36 (73) 6 200 - 206
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
As at 30 June 2,381 18,216 9,227 29,824 2,114 15,348 10,976 28,438
--------------------- ---------- ----------- ---------- ------- ---------- ----------- ---------- --------
Restated
Other
Equity financial Investment Restated
securities investments property Total
2022 2022 2022 2022
GBPm GBPm GBPm GBPm
----------------------- ---------- ----------- ---------- --------
As at 1 January 1,988 16,599 10,150 28,737
--------------------------- ---------- ----------- ---------- --------
Total gains/(losses)
for the year
----------------------- ---------- ----------- ---------- --------
- realised gains or
(losses)(1) 28 (78) 81 31
--------------------------- ---------- ----------- ---------- --------
- unrealised gains or
(losses)(1) 83 (4,381) (1,796) (6,094)
--------------------------- ---------- ----------- ---------- --------
Purchases/Additions 504 10,922 1,307 12,733
--------------------------- ---------- ----------- ---------- --------
Sales/Disposals (381) (6,908) (377) (7,666)
--------------------------- ---------- ----------- ---------- --------
Transfers into Level
3 84 72 - 156
--------------------------- ---------- ----------- ---------- --------
Transfers out of Level
3 (41) - - (41)
--------------------------- ---------- ----------- ---------- --------
Foreign exchange rate
movements 42 195 7 244
--------------------------- ---------- ----------- ---------- --------
As at 31 December 2,307 16,421 9,372 28,100
--------------------------- ---------- ----------- ---------- --------
1. Amounts presented in realised and unrealised gains/(losses)
are recognised in Investment return in the Consolidated Income
Statement.
4.03 Financial investments and investment property
(continued)
(ii) Level 3 assets measured at fair value (continued)
Equity securities
Level 3 equity securities amount to GBP2,381m (30 June 2022:
GBP2,114m; 31 December 2022: GBP2,307m), of which the majority is
made up of holdings in investment property vehicles and private
investment funds. They are valued at the proportion of the group's
holding of the Net Asset Value reported by the investment vehicles.
Other equity securities are valued by a number of third party
specialists using a range of techniques which are often dependent
on the maturity of the underlying investment but can also depend on
the characteristics of individual assets. Such techniques include
transaction values underpinned by analysis of milestone achievement
and cash runway for early/start-up stage investments, discounted
cash flow models for investments at the next stage of development
and earnings multiples for more mature investments.
Other financial investments
Lifetime mortgage (LTM) loans and retirement interest only
mortgages amount to GBP4,937m (30 June 2022: GBP5,758m; 31 December
2022: GBP4,844m). Lifetime mortgages are valued using a discounted
cash flow model by projecting best-estimate net asset proceeds and
discounted using rates inferred from current LTM loan pricing. The
inferred illiquidity premiums for the majority of the portfolio
range between 100 and 250bps. This ensures the value of loans at
outset is consistent with the purchase price of the loan and
achieves consistency between new and in-force loans. Lifetime
mortgages include a no negative equity guarantee (NNEG) to
borrowers. This ensures that if there is a shortfall between the
sale proceeds of the property and the outstanding loan balance on
redemption of the loan, the value of the loan will be reduced by
this amount. The NNEG on loan redemption is valued as a series of
put options, which we calculate using a variant of the
Black-Scholes formula. Key assumptions in the valuation of lifetime
mortgages include short-term and long-term property growth rates,
property index volatility, voluntary early repayments and longevity
assumptions. The valuation as at 30 June 2023 reflects a
combination of short-term and long-term property growth rate
assumptions equivalent to a flat rate of 2.9% annually, after
allowing for the effects of dilapidation. The values of the
properties collateralizing the LTM loans are updated from the date
of the last property valuation to the valuation date by indexing
using UK regional house price indices.
Private credit loans (including commercial real estate loans)
amount to GBP9,446m (30 June 2022: GBP5,984m; 31 December 2022:
GBP7,858m). Their valuation is determined by discounted future cash
flows which are based on the yield curve of the LGIM approved
comparable bonds and the initial spread, both of which are agreed
by IHS Markit who also provide an independent valuation of
comparable bonds. Unobservable inputs that go into the
determination of comparators include rating, sector, sub-sector,
performance dynamics, financing structure and duration of
investment. Existing private credit investments, which were
executed as far back as 2011, are subject to a range of interest
rate formats, although the majority are fixed rate. The weighted
average duration of the portfolio is 7.4 years, with a weighted
average life of 10.1 years. Maturities in the portfolio currently
extend out to 2061. The private credit portfolio of assets has
internal ratings assigned by an independent credit team in line
with internally developed methodologies. These credit ratings range
from AAA to BB-.
Private placements held by the US business amount to GBP1,309m
(30 June 2022: GBP976m; 31 December 2022: GBP1,320m). They are
valued using a pricing matrix comprised of a public spread matrix,
internal ratings assigned to each holding, average life of each
holding, and a premium spread matrix. These are added to the
risk-free rate to calculate the discounted cash flows and establish
a market value for each investment grade private placement. The
valuation as at 30 June 2023 reflects illiquidity premiums between
20 and 70bps.
Income strip assets amount to GBP1,350m (30 June 2022:
GBP1,580m; 31 December 2022: GBP1,414m). Their primary valuation is
provided by appropriately qualified external valuers who apply a
yield to maturity to discounted future cash flows to derive
valuations. The overall valuation takes into account the property
location, tenant details, tenure, rent, rental break terms, lease
expiries and underlying residual value of the property. The
valuation as at 30 June 2023 reflects equivalent yield ranges
between 3% and 9% and estimated rental values (ERV) between GBP10
and GBP310 per sq.ft.
Commercial mortgage loans amount to GBP771m (30 June 2022:
GBP814m; 31 December 2022: GBP768m) and are determined by
incorporating credit risk for performing loans at the portfolio
level and adjusted for loans identified to be distressed at the
loan level. The projected cash flows of each loan are discounted
along stochastic risk-free rate paths and are inclusive of an
Option Adjusted Spread (OAS), derived from current internal pricing
on new loans, along with the best observable inputs. The valuation
as at 30 June 2023 reflects illiquidity premiums between 20 and
30bps.
Other debt securities which are not traded in an active market
amount to GBP403m (30 June 2022: GBP236m; 31 December 2022:
GBP217m). They have been valued using third party or counterparty
valuations, and these prices are considered to be unobservable due
to infrequent market transactions.
Investment property
Level 3 investment property amounting to GBP9,227m (30 June
2022: GBP10,976m; 31 December 2022: GBP9,372m) is valued with the
involvement of external valuers. All property valuations are
carried out in accordance with the latest edition of the Valuation
Standards published by the Royal Institute of Chartered Surveyors,
and are undertaken by appropriately qualified valuers as defined
therein. Whilst transaction evidence underpins the valuation
process, the definition of market value, including the commentary,
in practice requires the valuer to reflect the realities of the
current market. In this context valuers must use their market
knowledge and professional judgement and not rely only upon market
sentiment based on historic transactional comparables. The
valuation of investment properties also includes an income approach
that is based on current rental income plus anticipated uplifts,
where the uplift and discount rates are derived from rates implied
by recent market transactions. These inputs are deemed
unobservable. The valuation as at 30 June 2023 reflects equivalent
yield ranges between 2% and 20% and ERV between GBP1 and GBP357 per
sq.ft.
The table below shows the valuation of investment property by
sector:
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPm GBPm GBPm
-------------------------------- ------ ------ ------
Retail 1,257 951 780
----------------------------------- ------ ------ ------
Leisure 460 505 461
----------------------------------- ------ ------ ------
Distribution 1,071 1,613 1,104
----------------------------------- ------ ------ ------
Office space 3,117 4,688 4,069
----------------------------------- ------ ------ ------
Industrial and other commercial 1,815 2,005 1,624
----------------------------------- ------ ------ ------
Accommodation 1,507 1,214 1,334
----------------------------------- ------ ------ ------
Total 9,227 10,976 9,372
----------------------------------- ------ ------ ------
4.03 Financial investments and investment property
(continued)
(iii) Effect of changes in assumptions on Level 3 assets
Fair values of financial instruments are, in certain
circumstances, measured using valuation techniques that incorporate
assumptions that are not evidenced by prices from observable
current market transactions in the same instrument and are not
based on observable market data.
Where material, the group assesses the sensitivity of fair
values of Level 3 investments to changes in unobservable inputs to
reasonable alternative assumptions. The table below shows the
impact of applying these sensitivities to the fair value of Level 3
assets as at 30 June 2023. Further disclosure on how these
sensitivities have been applied can be found in the descriptions
following the table.
Sensitivities
------------------
Fair
value
30 June Positive Negative
2023 impact impact
GBPm GBPm GBPm
-------------------------- ---------------- -------- --------
Lifetime mortgages 4,937 176 (247)
---------------------------- ---------------- -------- --------
Private credit portfolios 11,526 501 (501)
---------------------------- ---------------- -------- --------
Investment property 9,227 748 (738)
---------------------------- ---------------- -------- --------
Other investments(1) 4,134 478 (432)
---------------------------- ---------------- -------- --------
Total Level 3 assets 29,824 1,903 (1,918)
---------------------------- ---------------- -------- --------
1. Other investments include equity securities, income strip
assets and other traded debt securities.
The sensitivities are not a function of sensitising a single
variable relating to the valuation of the asset, but rather a
function of flexing multiple factors often at individual asset
level. The following sets out a number of key factors by asset
type, and how they have been flexed to derive reasonable
alternative valuations.
Lifetime mortgages
Key assumptions used in the valuation of lifetime mortgage
assets are listed in Note 4.03 (ii) and sensitivities are applied
to each assumption which are used to derive the values in the above
table. The most significant decrease in value is an instantaneous
10% reduction in property valuations across the portfolio which,
applied in isolation produces a sensitised value of GBP(126)m. The
most significant increase in value is a 20bps reduction to the
discount rate which, applied in isolation produces a sensitised
value of GBP124m.
Private credit portfolios
The sensitivity in the private credit portfolio has been
determined through a method which estimates investment spread value
premium differences as compared to the institutional investment
market. Individual investment characteristics of each holding, such
as credit rating and duration are used to determine spread
differentials for the purposes of determining alternate values.
Spread differentials are determined to be lower for highly rated
and/or shorter duration assets as compared to lower rated and/or
longer duration assets. A significant component of the spread
differential is in relation to the selection of comparator bonds,
which is the potential difference in spread of the basket of
relevant comparators determined by respective investors. If we were
to take an AA rated asset it may attract a spread differential of
15bps on the selection of comparator bonds as opposed to 40bps for
a similar duration BBB rated asset. Applied in isolation the
sensitivity used to reflect the spread in comparator bond selection
results in sensitised values of GBP166m and GBP(166)m.
Investment property
Investment property holdings are valued by independent valuers
on the basis of open market value as defined in the appraisal and
valuation manual of the Royal Institute of Chartered Surveyors
(RICS). As such, sensitivities are calculated through a mixture of
asset level and portfolio level methodologies which make reference
to individual investment characteristics of the holding but do not
flex individual assumptions used by the independent expert in
valuing the holdings. Each method is applied individually and
aggregated with equal weighting to determine the overall
sensitivity determined for the portfolio. One method is similar to
that used in the private credit portfolio as it determines the
impact of an alternate property yield determined in reference to
credit ratings, remaining term and other characteristics of each
holding. In this methodology we would apply a lower yield
sensitivity to a highly rated and/or shorter remaining term asset
compared with a lower rated and/or longer remaining term asset. If
we were to take an AA rated asset with remaining term of 25 years
in normal market conditions this would lead to a 15bps yield flex
(as opposed to a 35bps yield flex for a BBB rated asset with 30
year remaining term). The methodology which leads to the most
significant sensitivity at the balance sheet date is related to an
example in case law where it was found that an acceptable margin of
error in a valuation dispute is 10% either way, subject to the
valuation being undertaken with due care. If this sensitivity were
to be taken without a weighting it would produce sensitised values
of GBP593m and GBP(593)m.
It should be noted that some sensitivities described above are
non-linear, and larger or smaller impacts should not be
interpolated or extrapolated from these results.
4.04 Tax
(i) Tax expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the
tax calculated on profit before tax at the standard UK corporation
tax rate as follows:
Restated Restated
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------------ -------- -------- ---------
Profit before tax attributable to equity holders 324 697 933
------------------------------------------------------ -------- -------- ---------
Tax calculated at 23.5%(1) 76 132 177
------------------------------------------------------ -------- -------- ---------
Adjusted for the effects of:
------------------------------------------------------ -------- -------- ---------
Recurring reconciling items:
------------------------------------------------------ -------- -------- ---------
Different rate of tax on profits and losses taxed
overseas(2) (53) 29 9
------------------------------------------------------ -------- -------- ---------
Income not subject to tax (2) - (3)
------------------------------------------------------ -------- -------- ---------
Non-deductible expenses 8 - (4)
------------------------------------------------------ -------- -------- ---------
Differences between taxable and accounting investment
gains (9) (6) (9)
------------------------------------------------------ -------- -------- ---------
Other taxes on property and foreign income 1 4 6
------------------------------------------------------ -------- -------- ---------
Unrecognised tax losses 1 1 17
------------------------------------------------------ -------- -------- ---------
Double tax relief(3) - - (20)
------------------------------------------------------ -------- -------- ---------
Non-recurring reconciling items:
------------------------------------------------------ -------- -------- ---------
Adjustments in respect of prior years(4) (6) (1) (21)
------------------------------------------------------ -------- -------- ---------
Impact of the revaluation of deferred tax balances(1) (2) (37) (64)
------------------------------------------------------ -------- -------- ---------
Tax expense/(credit) attributable to equity holders 14 122 88
------------------------------------------------------ -------- -------- ---------
Equity holders' effective tax rate 4.3% 17.5% 9.4%
------------------------------------------------------ -------- -------- ---------
1. The Finance Act 2021 increased the rate of corporation tax
from 19% to 25% from 1 April 2023. The prevailing rate of UK
corporation tax for the year has increased to 23.5% (H1 22: 19.0%;
FY 22: 19.0%). The enacted tax rate of 25% has been used in the
calculation of UK deferred tax assets and liabilities, as the rate
of corporation tax that is expected to apply when the majority of
those deferred tax balances reverse.
2. The lower rate of tax on overseas profits and losses is
principally driven by the 0% rate of taxation arising in our
Bermudan reinsurance company, which provides the group with
regulatory capital flexibility for both our PRT business and our US
term insurance business. This also includes the impact of our US
operations which are taxed at 21%.
3. Double tax relief represents a UK tax credit available for
overseas withholding tax suffered on dividend income.
4. Adjustments in respect of prior years relate to revisions of prior estimates.
The Organisation for Economic Co-operation and Development
(OECD) released a framework in December 2021 to address concerns at
a global level about tax contributions of large multinational
corporations, and to introduce a global minimum tax rate of 15%.
The UK has enacted legislation to implement these new rules, which
will take effect from 1 January 2024. Under these rules, the group
is expected to be liable to top-up tax on profits arising from our
operations in territories with low tax rates. The group is
assessing the impact of this in the UK and other territories in
which it operates.
4.04 Tax (continued)
(ii) Deferred tax
Restated Restated
30 Jun 30 Jun 2022 31 Dec 2022
2023
Deferred tax (liabilities)/assets GBPm GBPm GBPm
----------------------------------------------- ------ ----------- -----------
Overseas deferred acquisition expenses(1) 116 110 116
----------------------------------------------- ------ ----------- -----------
Difference between the tax and accounting
value of insurance contracts 413 515 487
----------------------------------------------- ------ ----------- -----------
- UK(2) 1,148 1,188 1,266
----------------------------------------------- ------ ----------- -----------
- Overseas (735) (673) (779)
----------------------------------------------- ------ ----------- -----------
Realised and unrealised gains on investments 128 79 145
----------------------------------------------- ------ ----------- -----------
Excess of depreciation over capital allowances 22 20 21
----------------------------------------------- ------ ----------- -----------
Accounting provisions and other 58 36 59
----------------------------------------------- ------ ----------- -----------
Trading losses(3) 474 410 463
----------------------------------------------- ------ ----------- -----------
Pension fund deficit (1) (42) (26)
----------------------------------------------- ------ ----------- -----------
Acquired intangibles (3) - (2)
----------------------------------------------- ------ ----------- -----------
Net deferred tax asset 1,207 1,128 1,263
----------------------------------------------- ------ ----------- -----------
Presented on the Consolidated Balance Sheet
as:
----------------------------------------------- ------ ----------- -----------
- Deferred tax assets 1,367 1,283 1,469
----------------------------------------------- ------ ----------- -----------
- Deferred tax liabilities(4) (160) (155) (206)
----------------------------------------------- ------ ----------- -----------
Net deferred tax asset 1,207 1,128 1,263
----------------------------------------------- ------ ----------- -----------
1. Deferred tax assets arising on deferred acquisition expenses
relate solely to US balances as at 30 June 2023.
2. The UK deferred tax asset reflects the impact of transition to IFRS 17.
3. Trading losses consist solely of US operating losses. The
losses are not time restricted, and we expect to recover them over
a period of 15 to 20 years, commensurate with the lifecycle of the
underlying insurance contracts. In reaching this conclusion, we
have considered past results, the different basis under which US
companies are taxed, temporary differences that are expected to
generate future profits against which the deferred tax can be
offset, management actions, and future profit forecasts. The
recoverability of deferred tax assets is routinely reviewed by
management.
4. The deferred tax liability is comprised of balances of
GBP157m relating to the US (H1 22: GBP155m; FY 22: GBP206m), and
GBP3m relating to the UK (H1 22: GBPnil; FY 22: GBPnil) that are
not capable of being offset against other deferred tax assets.
4.05 Share capital and share premium
Number
of
Authorised share capital shares GBPm
------------------------------------------------ ------------- ------- -------
At 30 June 2023, 30 June 2022 and 31 December
2022: ordinary shares of 2.5p each 9,200,000,000 230
-------------------------------------------------- ---------------------- -------
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
---------------------------------------------- ------------- ------- -------
As at 1 January 2023 5,973,253,500 149 1,018
-------------------------------------------------- ------------- ------- -------
Options exercised under share option schemes 4,560,068 - 9
------------------------------------------------- ------------- ------- -------
As at 30 June 2023 5,977,813,568 149 1,027
-------------------------------------------------- ------------- ------- -------
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
---------------------------------------------- ------------- ------- -------
As at 1 January 2022 5,970,415,817 149 1,012
-------------------------------------------------- ------------- ------- -------
Options exercised under share option schemes 2,162,898 - 5
------------------------------------------------- ------------- ------- -------
As at 30 June 2022 5,972,578,715 149 1,017
-------------------------------------------------- ------------- ------- -------
Options exercised under share option schemes 674,785 - 1
------------------------------------------------- ------------- ------- -------
As at 31 December 2022 5,973,253,500 149 1,018
-------------------------------------------------- ------------- ------- -------
There is one class of ordinary shares of 2.5p each. All shares
issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to
receive dividends as declared and are entitled to one vote per
share at shareholder meetings of the company.
4.06 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued GBP500m of
5.625% perpetual restricted Tier 1 contingent convertible notes.
The notes are callable at par between 24 March 2031 and 24
September 2031 (the First Reset Date) inclusive and every 5 years
after the First Reset Date. If not called, the coupon from 24
September 2031 will be reset to the prevailing five year benchmark
gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of
coupon payments is at the discretion of the issuer and mandatory
cancellation is upon the occurrence of certain conditions. The Tier
1 notes are therefore treated as equity and coupon payments are
recognised directly in equity when paid. During the period coupon
payments of GBP14m were made (H1 22: GBP14m; FY 22: GBP28m). The
notes rank junior to all other liabilities and senior to equity
attributable to owners of the parent. On the occurrence of certain
conversion trigger events the notes are convertible into ordinary
shares of the Issuer at the prevailing conversion price.
The notes are treated as restricted Tier 1 own funds for
Solvency II purposes.
4.07 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments, including private equity, which are
consolidated in the group's results.
As at 30 June 2023, non-controlling interests primarily
represent third party ownership in Thorpe Park Holdings, a mixed
residential/commercial retail space in which the group holds
50%.
4.08 Core borrowings
Carrying Carrying Carrying
amount Fair amount Fair value amount Fair value
value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ------ -------- ---------- -------- ----------
Subordinated borrowings
------------------------------ -------- ------ -------- ---------- -------- ----------
5.5% Sterling subordinated
notes 2064 (Tier 2) 590 549 590 546 590 541
------------------------------- -------- ------ -------- ---------- -------- ----------
5.375% Sterling subordinated
notes 2045 (Tier 2) 605 577 604 610 605 593
------------------------------- -------- ------ -------- ---------- -------- ----------
5.25% US Dollar subordinated
notes 2047 (Tier 2) 678 648 707 690 712 665
------------------------------- -------- ------ -------- ---------- -------- ----------
5.55% US Dollar subordinated
notes 2052 (Tier 2) 397 376 414 416 417 389
------------------------------- -------- ------ -------- ---------- -------- ----------
5.125% Sterling subordinated
notes 2048 (Tier 2) 400 364 400 391 400 377
------------------------------- -------- ------ -------- ---------- -------- ----------
3.75% Sterling subordinated
notes 2049 (Tier 2) 599 489 598 523 599 507
------------------------------- -------- ------ -------- ---------- -------- ----------
4.5% Sterling subordinated
notes 2050 (Tier 2) 500 424 500 456 500 439
------------------------------- -------- ------ -------- ---------- -------- ----------
Client fund holdings of group
debt (Tier 2)(1) (77) (69) (50) (46) (74) (67)
------------------------------- -------- ------ -------- ---------- -------- ----------
Total subordinated borrowings 3,692 3,358 3,763 3,586 3,749 3,444
------------------------------- -------- ------ -------- ---------- -------- ----------
Senior borrowings
------------------------------ -------- ------ -------- ---------- -------- ----------
Sterling medium term notes
2031-2041 603 613 602 707 609 649
------------------------------- -------- ------ -------- ---------- -------- ----------
Client fund holdings of group
debt(1) (17) (16) (9) (10) (20) (19)
------------------------------- -------- ------ -------- ---------- -------- ----------
Total senior borrowings 586 597 593 697 589 630
------------------------------- -------- ------ -------- ---------- -------- ----------
Total core borrowings 4,278 3,955 4,356 4,283 4,338 4,074
------------------------------- -------- ------ -------- ---------- -------- ----------
1. GBP94m (30 June 2022: GBP59m; 31 December 2022: GBP94m) of
the group's subordinated and senior borrowings are held by Legal
& General customers through unit linked products. These
borrowings are shown as a deduction from total core borrowings in
the table above.
The presented fair values of the group's core borrowings reflect
quoted prices in active markets and they have been classified as
Level 1 in the fair value hierarchy.
4.08 Core borrowings (continued)
Subordinated borrowings
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. These notes mature on 27 June
2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued GBP600m of 5.375%
dated subordinated notes. The notes are callable at par on 27
October 2025 and every five years thereafter. These notes mature on
27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of
5.25% dated subordinated notes. The notes are callable at par on 21
March 2027 and every five years thereafter. These notes mature on
21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of
5.55% dated subordinated notes. The notes are callable at par on 24
April 2032 and every five years thereafter. These notes mature on
24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued
GBP400m of 5.125% dated subordinated notes. The notes are callable
at par on 14 November 2028 and every five years thereafter. These
notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued
GBP600m of 3.75% dated subordinated notes. The notes are callable
at par on 26 November 2029 and every five years thereafter. These
notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued GBP500m of
4.5% dated subordinated notes. The notes are callable at par on 1
November 2030 and every five years thereafter. These notes mature
on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own
funds for Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued
GBP600m of senior unsecured Sterling medium term notes 2031-2041 at
coupons between 5.75% and 5.875%. These notes have various maturity
dates between 2031 and 2041.
4.09 Operational borrowings
Carrying Carrying Carrying
amount Fair amount Fair value amount Fair value
value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- ------
Euro Commercial Paper 50 50 50 50 50 50
--------------------------- -------- ------ -------- ---------- -------- ----------
Bank loans and overdrafts 7 7 91 91 3 3
--------------------------- -------- ------ -------- ---------- -------- ----------
Non-recourse borrowings 1,050 1,050 1,004 1,004 910 910
--------------------------- -------- ------ -------- ---------- -------- ----------
Operational borrowings(1) 1,107 1,107 1,145 1,145 963 963
--------------------------- -------- ------ -------- ---------- -------- ----------
1. Unit linked borrowings with a carrying value of GBP165m (30
June 2022: GBP37m; 31 December 2022: GBP256m) are excluded from the
analysis above as the risk is retained by policyholders.
Operational borrowings including unit linked borrowings are
GBP1,272m (30 June 2022: GBP1,182m; 31 December 2022:
GBP1,219m).
Syndicated credit facility
The group has in place a GBP1.5bn syndicated committed revolving
credit facility provided by a number of its key relationship banks,
maturing in August 2028. No amounts were outstanding at 30 June
2023.
4.10 Movement in borrowings
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPm GBPm GBPm
As at 1 January 5,557 5,188 5,188
--------------------------------------------- ------ ------ ------
Cash movements:
-------------------------------------------- ------ ------ ------
- Proceeds from borrowings 408 265 691
--------------------------------------------- ------ ------ ------
- Repayment of borrowings (227) (210) (737)
--------------------------------------------- ------ ------ ------
- Net (decrease)/increase in bank loans and
overdrafts (72) 120 254
--------------------------------------------- ------ ------ ------
Non-cash movements:
-------------------------------------------- ------ ------ ------
- Amortisation 1 1 2
--------------------------------------------- ------ ------ ------
- Foreign exchange rate movements (93) 184 201
--------------------------------------------- ------ ------ ------
- Other (24) (10) (42)
--------------------------------------------- ------ ------ ------
Core and operational borrowings 5,550 5,538 5,557
--------------------------------------------- ------ ------ ------
4.11 Payables and other financial liabilities
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPm GBPm GBPm
----------------------------------------------- ------ ------ ------
Derivative liabilities 49,939 34,044 51,190
------------------------------------------------ ------ ------ ------
Repurchase agreements(1) 28,347 47,103 31,533
------------------------------------------------ ------ ------ ------
Other financial liabilities(2) 12,770 14,677 11,182
------------------------------------------------ ------ ------ ------
Total payables and other financial liabilities 91,056 95,824 93,905
------------------------------------------------ ------ ------ ------
1. Repurchase agreements are presented gross, however they and
their related assets (included within debt securities) are subject
to master netting arrangements. The significant majority of
repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, lease
liabilities, FX spots and the value of short positions taken out to
cover reverse repurchase agreements. The value of short positions
as at 30 June 2023 was GBP4,966m (30 June 2022: GBP4,779m; 31
December 2022: GBP4,960m). Other financial liabilities have been
restated for 30 June 2022 and 31 December 2022.
Fair value hierarchy
Amortised
Total Level Level Level cost(1)
1 2 3
As at 30 June 2023 GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ----- ------ ----- ---------
Derivative liabilities 49,939 445 49,472 22 -
----------------------------------- ------ ----- ------ ----- ---------
Repurchase agreements 28,347 - 28,347 - -
----------------------------------- ------ ----- ------ ----- ---------
Other financial liabilities 12,770 4,933 29 - 7,808
----------------------------------- ------ ----- ------ ----- ---------
Total payables and other financial
liabilities 91,056 5,378 77,848 22 7,808
----------------------------------- ------ ----- ------ ----- ---------
Amortised
Total Level Level Level cost(1)
1 2 3
As at 30 June 2022 GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ----- ------ ----- ---------
Derivative liabilities 34,044 291 33,713 40 -
----------------------------------- ------ ----- ------ ----- ---------
Repurchase agreements 47,103 - 47,103 - -
----------------------------------- ------ ----- ------ ----- ---------
Other financial liabilities(2) 14,677 4,815 81 - 9,781
----------------------------------- ------ ----- ------ ----- ---------
Total payables and other financial
liabilities 95,824 5,106 80,897 40 9,781
----------------------------------- ------ ----- ------ ----- ---------
Amortised
Total Level Level Level cost(1)
1 2 3
As at 31 December 2022 GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ----- ------ ----- ---------
Derivative liabilities 51,190 448 50,717 25 -
----------------------------------- ------ ----- ------ ----- ---------
Repurchase agreements 31,533 - 31,533 - -
----------------------------------- ------ ----- ------ ----- ---------
Other financial liabilities(2) 11,182 4,319 253 - 6,610
----------------------------------- ------ ----- ------ ----- ---------
Total payables and other financial
liabilities 93,905 4,767 82,503 25 6,610
----------------------------------- ------ ----- ------ ----- ---------
1. The carrying value of payables and other financial
liabilities at amortised cost approximates its fair value.
2. Other financial liabilities have been restated for 30 June 2022 and 31 December 2022.
Significant transfers between levels
There have been no significant transfers of liabilities between
Levels 1, 2 and 3 for the period ended 30 June 2023 (30 June 2022
and 31 December 2022: no significant transfers).
4.12 Long-term insurance valuation assumptions
The group's insurance assumptions, described below, relate to
the UK insurance (both annuities and protection) business and
material lines of the US insurance (both annuities and protection)
business. Other non-UK businesses do not constitute a material
component of the group's operations and consideration of
geographically determined assumptions is therefore not
included.
The 31 December 2022 assumptions have been rebased to those used
for the preparation of the restated comparatives under IFRS 17 and
hence differ from the IFRS 4 assumptions published in the 2022
Annual Report and Accounts. For the purpose of producing IFRS 17
best estimate liabilities, the group seeks to make best estimate
assumptions about future experience based on current market
conditions and recent experience.
(i) Mortality and morbidity
Mortality and morbidity assumptions for the UK businesses are
set with reference to standard tables drawn up by the Continuous
Mortality Investigation Bureau (CMI), a subsidiary of the Institute
and Faculty of Actuaries, and/or UK death registrations. US
assumptions are set with reference to standard tables drawn up by
the American Academy of Actuaries. Tables are based on
industry-wide mortality and morbidity experience for insured
lives.
The group conducts statistical investigations of its mortality
and morbidity experience, the majority of which are carried out at
least annually. Investigations determine the extent to which the
group's experience differs from that underpinning the standard
tables and suggest appropriate adjustments which need to be made to
the valuation assumptions.
The higher mortality experience observed in 2020 as a result of
Covid-19 is considered to be mostly exceptional and potential
endemic impacts on long-term mortality assumptions are still under
investigation. Long-term mortality assumptions have not been
revised to reflect this experience. Most allowances made in respect
of higher expected short-term mortality were released in 2022.
In most cases, mortality rates are set separately for gender and
smoker status, and the percentage of mortality table will vary for
the first 2-5 years of the policy's duration to allow for
underwriting selection. Demographic assumptions are generally
updated on an annual basis and are unchanged from those used at 31
December 2022.
Mortality tables 30 June 2023 31 December 2022
--------------------------- -------------------------- --------------------------
Non-linked individual
assurance business
--------------------------- -------------------------- --------------------------
UK term assurances (1) 90% - 92% TM08/TF08 90% - 92% TM08/TF08 Sel
Sel 5 5
--------------------------- -------------------------- --------------------------
UK term assurances with 58% - 86% TM08/TF08 58% - 86% TM08/TF08 Sel
terminal illness (1) Sel 5 5
--------------------------- -------------------------- --------------------------
UK term assurances with 89% - 132% ACL08 Sel 89% - 132% ACL08 Sel
critical illness (2) 2 2
--------------------------- -------------------------- --------------------------
US term assurances (3) Adjusted SOA 2014 VBT Adjusted SOA 2014 VBT
--------------------------- -------------------------- --------------------------
Whole of Life Protection Bespoke Tables based Bespoke Tables based
Plan (4) on TM08/TF08 and UK death on TM08/TF08 and UK death
registrations registrations
--------------------------- -------------------------- --------------------------
Whole of Life over 50 Bespoke Tables based Bespoke Tables based
(4) on ELT15 and Whole of on ELT15 and Whole of
Life Protection Plan Life Protection Plan
assumptions assumptions
--------------------------- -------------------------- --------------------------
Annuity business
--------------------------- -------------------------- --------------------------
UK Annuities in deferment 75.7%-85.6% PNMA00/PNFA00 75.7%-85.6% PNMA00/PNFA00
(5)
--------------------------- -------------------------- --------------------------
UK Vested annuities
(6)
--------------------------- -------------------------- --------------------------
Pension risk transfer 75.7%-85.6% PCMA00/PCFA00 75.7%-85.6% PCMA00/PCFA00
--------------------------- -------------------------- --------------------------
Other annuities 66.4%-105.5% PCMA00/PCFA00 66.4%-105.5% PCMA00/PCFA00
--------------------------- -------------------------- --------------------------
US annuities (7) Bespoke tables based Bespoke tables based
on on
RP-2014 Healthy Annuitant RP-2014 Healthy Annuitant
Total table Total table
--------------------------- -------------------------- --------------------------
1. Improvement assumptions applied of 1.0% p.a. for males and females.
2. Morbidity rates are assumed to deteriorate at a rate of 0.5%
p.a. for males and 0.75% p.a. for females.
3. Adjustments are made for gender, select period, smoker
status, policy size, policy duration and year, issue year and
age.
4. Mortality rates are assumed to reduce based on CMI 2020 model
with a long-term annual improvement rate of 1.5% for males and 1.0%
for females.
5. Table created by blending PCXA00 with PNXA00 tables. The base
table to be used for bulk purchase annuity policies in deferment is
PNMA00 up to and including age 55 and PCMA00 for age 65 and above
for males. The identical method is applied to females using PNFA00
and PCFA00.
6. Mortality rates are assumed to reduce according to an
adjusted version of the mortality improvement model CMI 2020 with
the following parameters:
Males: Long-term Rate of 1.5% p.a. up to age 85 tapering to 0%
at 110.
Females: Long-term Rate of 1.0% p.a. up to age 85 tapering to 0%
at 110.
Smoothing is applied to derive initial rates using a smoothing
parameter (Sk) value of 7.5 applied to Legal & General bespoke
population data up to 2020. The resulting initial rates are then
adjusted to reflect socio economic class.
For individual annuities distributed through retail channels, a
further allowance is made for the effect of initial selection.
The basis above is applicable up to age 90. After age 90 the
basis is blended towards a bespoke table from age 105 onwards.
7. Improvement table is MP2018 for Females and MP2019 for Males.
4.12 Long-term insurance valuation assumptions (continued)
(ii) Valuation rates of interest and discount rates
The interest rates used to discount the cash flows for the
purpose of valuing insurance contract liabilities should reflect
the timing and liquidity characteristics of those insurance
liability cash flows and current market conditions. The valuation
interest rate assumptions are derived as interest rate curves with
full term structure.
In deriving the valuation interest rate assumptions for annuity
business, an explicit allowance for risk is deducted from the yield
on the assets backing annuity liabilities. The allowance for risk
comprises long-term assumptions about defaults and the market risk
premiums for taking credit risk. In the case of lifetime mortgage
assets a best estimate expectation of losses arising from the no
negative equity guarantee, and the market risk premiums for this
risk, are deducted from the yield. For the UK annuity business, the
deduction for risk of default for corporate bonds and direct
investments equated to 40bps (31 December 2022: 42bps). For
lifetime mortgages the deductions equated to GBP0.3bn (31 December
2022: GBP0.3bn).
For US and UK protection business, the yield is calculated based
on notional asset portfolios of AA rated corporate bonds and cash,
which reflect the characteristics of the liability cashflows. An
explicit allowance for risk is deducted from the yield, to reflect
the default risk associated with the notional portfolio assets.
The discount rate curves used for the material product lines are
shown below. The discount rate curves are used to discount the
cashflows on the underlying contracts and the reinsurance cashflows
on those contracts. The graph displays the underlying spot
rates:
4.12 Long-term insurance valuation assumptions (continued)
(iii) Persistency
The group monitors its persistency experience and carries out
detailed investigations annually. Persistency experience can be
volatile and past experience may not be an appropriate future
indicator. The group tries to balance past experience and
assessments of potential future conditions in setting assumptions
about expected long-term average persistency levels.
Lapse Rates 30 June 2023 31 December 2022
---------------------------- ------------ ----------------
UK Level term 2.0% - 29.1% 2.0% - 29.1%
---------------------------- ------------ ----------------
UK Decreasing term 4.4% - 15.0% 4.4% - 15.0%
---------------------------- ------------ ----------------
UK Accelerated critical 3.2% - 31.5% 3.2% - 31.5%
illness cover
---------------------------- ------------ ----------------
Pensions term 2.9% - 3.3% 2.9% - 3.3%
---------------------------- ------------ ----------------
Whole of Life (conventional 0.6% - 8.5% 0.6% - 8.5%
non profit)
---------------------------- ------------ ----------------
US term - 10 year guarantee 7.1% - 8.1% 7.1% - 8.1%
period
---------------------------- ------------ ----------------
US term - 15 year guarantee 4.2% - 5.8% 4.2% - 5.8%
period
---------------------------- ------------ ----------------
US term - 20 year guarantee 3.0% - 6.1% 3.0% - 6.1%
period
---------------------------- ------------ ----------------
US term - 30 year guarantee 2.1% - 6.5% 2.1% - 6.5%
period
---------------------------- ------------ ----------------
US Universal Life 2.7% 2.7%
---------------------------- ------------ ----------------
(iv) Expenses
The group monitors its expense experience and carries out
detailed investigations regularly to determine the expenses
directly incurred in writing and administering the different
products and classes of business. Adjustments may be made for known
future changes in the administration processes, in line with the
group's business plan, as well as for changes in allocations. An
allowance for expense inflation in the future is also made in line
with best estimate inflation assumptions, taking account of both
salary and price information.
(v) Risk Adjustment
The group calculates its risk adjustment using a Provision for
Adverse Deviations (PADs) approach, where adjustments are applied
to best estimate non-financial risk assumptions to calculate the
risk adjustment required over and above the best estimate
liability. The size of adjustments and approach vary by risk
depending on the group's attitude to the compensation required for
that risk. For the majority of risks, the group's view on the
compensation required for non-financial risks is calibrated to an
85th percentile confidence level, calculated using a one-year
Value-at-Risk (VaR) measure. The calculation uses capital bases
appropriate for the territory, the type of business and how the
risk is priced.
4.13 Insurance contracts
(i) Insurance service results
Annuities Protection Total
For the six month period to 30 June 2023 GBPm GBPm GBPm
---------------------------------------------------- --------- ---------- -------
Insurance revenue
---------------------------------------------------- --------- ---------- -------
Amounts relating to changes in liabilities for
remaining coverage:
---------------------------------------------------- --------- ---------- -------
- CSM recognised for services provided 397 131 528
---------------------------------------------------- --------- ---------- -------
- Expected incurred claims and other insurance
service expenses 2,536 1,319 3,855
---------------------------------------------------- --------- ---------- -------
- Change in the risk adjustment for non-financial
risk for the risk expired 174 23 197
---------------------------------------------------- --------- ---------- -------
Recovery of insurance acquisition cashflows 8 65 73
---------------------------------------------------- --------- ---------- -------
Premium experience variance relating to past
and current service 2 (8) (6)
---------------------------------------------------- --------- ---------- -------
Total insurance revenue 3,117 1,530 4,647
---------------------------------------------------- --------- ---------- -------
Total insurance service expenses (2,472) (1,525) (3,997)
---------------------------------------------------- --------- ---------- -------
Allocation of reinsurance premiums (1,310) (501) (1,811)
Amounts recoverable from reinsurers for incurred
claims 1,139 619 1,758
---------------------------------------------------- --------- ---------- -------
Net (expense)/income from reinsurance contracts
held (171) 118 (53)
---------------------------------------------------- --------- ---------- -------
Total insurance service result 474 123 597
---------------------------------------------------- --------- ---------- -------
Annuities Protection Total
For the six month period to 30 June 2022 GBPm GBPm GBPm
---------------------------------------------------- --------- ---------- -------
Insurance revenue
---------------------------------------------------- --------- ---------- -------
Amounts relating to changes in liabilities for
remaining coverage:
---------------------------------------------------- --------- ---------- -------
- CSM recognised for services provided 347 129 476
---------------------------------------------------- --------- ---------- -------
- Expected incurred claims and other insurance
service expenses 2,193 1,304 3,497
---------------------------------------------------- --------- ---------- -------
- Change in the risk adjustment for non-financial
risk for the risk expired 181 19 200
---------------------------------------------------- --------- ---------- -------
Recovery of insurance acquisition cashflows 6 59 65
---------------------------------------------------- --------- ---------- -------
Premium experience variance relating to past
and current service - (4) (4)
---------------------------------------------------- --------- ---------- -------
Total insurance revenue 2,727 1,507 4,234
---------------------------------------------------- --------- ---------- -------
Total insurance service expenses (2,156) (1,490) (3,646)
---------------------------------------------------- --------- ---------- -------
Allocation of reinsurance premiums (1,113) (396) (1,509)
Amounts recoverable from reinsurers for incurred
claims 994 507 1,501
---------------------------------------------------- --------- ---------- -------
Net (expense)/income from reinsurance contracts
held (119) 111 (8)
---------------------------------------------------- --------- ---------- -------
Total insurance service result 452 128 580
---------------------------------------------------- --------- ---------- -------
Annuities Protection Total
For the year ended 31 December 2022 GBPm GBPm GBPm
---------------------------------------------------- --------- ---------- -------
Insurance revenue
---------------------------------------------------- --------- ---------- -------
Amounts relating to changes in liabilities for
remaining coverage:
---------------------------------------------------- --------- ---------- -------
- CSM recognised for services provided 788 251 1,039
---------------------------------------------------- --------- ---------- -------
- Expected incurred claims and other insurance
service expenses 4,585 2,557 7,142
---------------------------------------------------- --------- ---------- -------
- Change in the risk adjustment for non-financial
risk for the risk expired 359 31 390
---------------------------------------------------- --------- ---------- -------
Recovery of insurance acquisition cashflows 14 123 137
---------------------------------------------------- --------- ---------- -------
Premium experience variance relating to past
and current service 2 (2) -
---------------------------------------------------- --------- ---------- -------
Total insurance revenue 5,748 2,960 8,708
---------------------------------------------------- --------- ---------- -------
Total insurance service expenses (4,494) (2,921) (7,415)
---------------------------------------------------- --------- ---------- -------
Allocation of reinsurance premiums (2,331) (803) (3,134)
Amounts recoverable from reinsurers for incurred
claims 2,060 929 2,989
---------------------------------------------------- --------- ---------- -------
Net (expense)/income from reinsurance contracts
held (271) 126 (145)
---------------------------------------------------- --------- ---------- -------
Total insurance service result 983 165 1,148
---------------------------------------------------- --------- ---------- -------
4.13 Insurance contracts (continued)
(ii) Insurance and reinsurance contracts
Assets Liabilities Assets Liabilities Assets Liabilities
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Insurance contracts issued
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Annuities
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Insurance contract balances - 74,061 - 77,944 - 73,686
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Assets for insurance contract
acquisition cash flows (1) - (39) - (18) - (20)
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Protection
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Insurance contract balances - 4,391 - 4,991 - 4,533
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Assets for insurance contract
acquisition cash flows (1) - (35) - (25) - (28)
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Total insurance contracts issued - 78,378 - 82,892 - 78,171
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Reinsurance contracts held
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Annuities
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Reinsurance contracts balances 3,174 13 1,376 4 2,467 -
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Assets for insurance contract
acquisition cash flows (1) 8 - 2 - 5 -
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Protection
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Reinsurance contracts balances 2,216 125 2,591 9 2,213 52
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Assets for insurance contract - - - - - -
acquisition cash flows (1)
--------------------------------- ------- ----------- ------- ----------- ------- -----------
Total reinsurance contracts held 5,398 138 3,969 13 4,685 52
--------------------------------- ------- ----------- ------- ----------- ------- -----------
1. In accordance with IFRS 17, assets for insurance and
reinsurance acquisition cash flows are presented within the
carrying amount of the related insurance and reinsurance contract
liabilities.
4.14 Foreign exchange rates
Principal rates of exchange used for translation are:
Period end exchange rates 30 Jun 30 Jun 31 Dec
2023 2022 2022
========================== ====== ====== ======
United States dollar 1.27 1.22 1.21
============================ ====== ====== ======
Euro 1.16 1.16 1.13
---------------------------- ------ ------ ------
6 months 6 months Full year
Average exchange rates 2023 2022 2022
======================= ======== ======== =========
United States dollar 1.23 1.30 1.24
========================= ======== ======== =========
Euro 1.14 1.19 1.17
------------------------- -------- -------- ---------
4.15 Provisions
(i) Analysis of provisions
30 Jun 30 Jun 31 Dec
2023 2022 2022
Notes GBPm GBPm GBPm
------------------------------- ---------- ------ ------ ------
Other provisions 4.15(ii) 210 182 273
--------------------------------- -------- ------ ------ ------
4.15(ii
Retirement benefit obligations i) 1,416 599 617
--------------------------------- -------- ------ ------ ------
Total provisions 1,626 781 890
-------------------------------- ---------- ------ ------ ------
(ii) Other provisions
Included within Other provisions are amounts relating to new and
existing M&A and restructuring transactions. These include
costs that Legal & General Investment Management (LGIM) is
committed to incur on the extension of its existing partnership
with State Street announced in 2021, to increase the use of Charles
River technology across the front office and to deliver middle
office services going forward. Costs include the transfer of data
and operations to State Street, as well as the implementation of
the new operating model. The amounts included in the provision have
been determined on a best estimate basis by reference to a range of
plausible scenarios, taking into account the multi-year
implementation period for the project. As at 30 June 2023, the
outstanding provision was GBP75m (30 June 2022: GBP69m; 31 December
2022: GBP111m).
(iii) Retirement benefit obligations
Fund CALA Fund and CALA Homes Fund and CALA Homes
and Homes
Scheme and Overseas Scheme and Overseas Scheme and Overseas
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
Gross pension obligations included
in provisions 1,411 5 594 5 612 5
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
Annuity obligations insured by LGAS (1,420) - (769) - (718) -
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
Gross defined benefit pension (surplus)/deficit (9) 5 (175) 5 (106) 5
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
Deferred tax on defined benefit
pension (surplus)/deficit 2 (1) 44 (1) 27 (1)
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
Net defined benefit pension (surplus)/deficit (7) 4 (131) 4 (79) 4
----------------------------------------------- ------- ------------ -------- ------------ -------- ------------
The Legal & General Group UK Pension and Assurance Fund
(Fund) and the Legal & General Group UK Senior Pension Scheme
(Scheme) account for the majority of the UK and worldwide assets
of, and contributions to, such arrangements. The Fund and Scheme
were closed to future accrual on 31 December 2015.
Assured Payment Policies (APPs), previously transacted between
the group's defined benefit pension schemes and Legal and General
Assurance Society Limited (LGAS), have now been surrendered and
converted to annuity contracts. Unlike APPs, these annuity
contracts are not admissible as assets of the schemes, and both the
gross pension obligation and obligations insured by LGAS have
increased accordingly.
4.16 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities. Legal and
General Assurance Society Limited has provided indemnities, a
liquidity and expense risk agreement, a deed of support and a cash
and securities liquidity facility in respect of the liabilities of
group companies to facilitate the group's matching adjustment
reorganisation pursuant to Solvency II.
4.17 Related party transactions
(i) Key management personnel transactions and compensation
All transactions between the group and its key management are on
commercial terms which are no more favourable than those available
to employees in general. There were no material transactions
between key management and the Legal & General group of
companies during the period. Contributions to the post-employment
defined benefit plans were GBP128m (30 June 2022: GBP51m; 31
December 2022: GBP105m) for all employees.
At 30 June 2023, 30 June 2022 and 31 December 2022 there were no
loans outstanding to officers of the company.
The aggregate compensation for key management personnel,
including executive and non-executive directors, is as follows:
6 months 6 months Full year
2023 2022 2022
GBPm GBPm GBPm
-------------------------------------- -------- -------- ---------
Salaries 4 3 11
----------------------------------------- -------- -------- ---------
Share-based incentive awards 7 5 6
----------------------------------------- -------- -------- ---------
Key management personnel compensation 11 8 17
----------------------------------------- -------- -------- ---------
(ii) Services provided to and by related parties
All transactions between the group and associates, joint
ventures and other related parties during the period are on
commercial terms which are no more favourable than those available
to companies in general.
The group has the following material related party
transactions:
-- Assured Payment Policies (APPs), previously transacted
between the group's UK defined benefit pension schemes and Legal
and General Assurance Society Limited (LGAS), were surrendered at
their carrying value of GBP839m and converted into annuity
contracts. An additional top-up consideration of GBP178m, priced on
an arm's length basis, was paid to LGAS by the defined benefit
pension schemes as part of the transaction, making a total
contribution for new annuities of GBP1,017m (30 June 2022: GBPnil;
31 December 2022: GBP61m); and
-- Total payments by LGAS to the pension schemes for insured
pension benefits were GBP25m (30 June 2022: GBP29m; 31 December
2022: GBP56m).
Loans and commitments to related parties are made in the normal
course of business. As at 30 June 2023, the group had:
-- Loans outstanding from related parties of GBP46m (30 June
2022: GBP20m; 31 December 2022: GBP58m), with a further commitment
of GBP5m; and
-- Total other commitments of GBP1,232m to related parties (30
June 2022: GBP1,061m; 31 December 2022: GBP1,265m), of which
GBP1,048m has been drawn (30 June 2022: GBP736m; 31 December 2022:
GBP1,010m).
Asset flows and new business
5.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the six month period to 30 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
June 2023
------------------------------- ------ ---------- ----- ------------ ------ -------
As at 1 January 2023 444.7 156.8 73.9 485.9 34.4 1,195.7
------------------------------- ------ ---------- ----- ------------ ------ -------
External inflows(3) 37.6 8.8 5.5 13.6 0.8 66.3
------------------------------- ------ ---------- ----- ------------ ------ -------
External outflows(3) (35.1) (9.2) (3.4) (10.6) (1.0) (59.3)
------------------------------- ------ ---------- ----- ------------ ------ -------
Overlay net flows - - - (19.3) - (19.3)
------------------------------- ------ ---------- ----- ------------ ------ -------
External net flows(4) 2.5 (0.4) 2.1 (16.3) (0.2) (12.3)
------------------------------- ------ ---------- ----- ------------ ------ -------
PRT transfers(5) (0.3) (0.3) - (4.5) - (5.1)
------------------------------- ------ ---------- ----- ------------ ------ -------
Internal net flows(6) (0.5) (3.1) (0.1) 0.1 1.7 (1.9)
------------------------------- ------ ---------- ----- ------------ ------ -------
Total net flows 1.7 (3.8) 2.0 (20.7) 1.5 (19.3)
------------------------------- ------ ---------- ----- ------------ ------ -------
Market movements 24.4 2.6 1.1 (32.4) (0.3) (4.6)
------------------------------- ------ ---------- ----- ------------ ------ -------
Other movements(7) (0.8) (1.7) - (11.2) - (13.7)
------------------------------- ------ ---------- ----- ------------ ------ -------
As at 30 June 2023 470.0 153.9 77.0 421.6 35.6 1,158.1
------------------------------- ------ ---------- ----- ------------ ------ -------
Assets attributable to:
------------------------------- ------ ---------- ----- ------------ ------ -------
External 1,068.6
------------------------------- ------ ---------- ----- ------------ ------ -------
Internal 89.5
------------------------------- ------ ---------- ----- ------------ ------ -------
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the six month period to GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
30 June 2022
---------------------------- ------ ---------- ----- ------------ ------ -------
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
----------------------------- ------ ---------- ----- ------------ ------ -------
External inflows(3) 63.2 7.0 6.8 21.3 1.4 99.7
----------------------------- ------ ---------- ----- ------------ ------ -------
External outflows(3) (38.2) (4.2) (3.7) (12.5) (1.1) (59.7)
----------------------------- ------ ---------- ----- ------------ ------ -------
Overlay net flows - - - 25.6 - 25.6
----------------------------- ------ ---------- ----- ------------ ------ -------
External net flows(4) 25.0 2.8 3.1 34.4 0.3 65.6
----------------------------- ------ ---------- ----- ------------ ------ -------
PRT transfers(5) - - - (0.4) - (0.4)
----------------------------- ------ ---------- ----- ------------ ------ -------
Internal net flows(6) (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(7) 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
----------------------------- ------ ---------- ----- ------------ ------ -------
Assets attributable to:
---------------------------- ------ ---------- ----- ------------ ------ -------
External 1,190.7
----------------------------- ------ ---------- ----- ------------ ------ -------
Internal 99.0
----------------------------- ------ ---------- ----- ------------ ------ -------
1. Assets under management (AUM) includes assets on our
Investment Only Platform that are managed by third parties, on
which fees are earned.
2. Solutions include liability driven investments and GBP285.3bn
(30 June 2022: GBP386.9bn) of derivative notionals associated with
the Solutions business.
3. External inflows and outflows include GBP2.1bn (30 June 2022:
GBP2.3bn) of external investments and GBP1.1bn (30 June 2022:
GBP2.0bn) of redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a higher degree of variability. The total value
of these assets at 30 June 2023 was GBP62.3bn (30 June 2022:
GBP68.8bn).
5. PRT transfers represent the reduction in AUM associated with
UK defined benefit pension schemes that transacted PRT business
with LGRI in the reporting period.
6. Internal net flows include flows associated with legacy
Mature Savings business that were sold to Reassure in 2020.
7. Other movements include movements of external holdings in
money market funds, other cash mandates and short-term solutions
assets.
5.01 LGIM total assets under management(1) (AUM) (continued)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2022
------------------------------- ------- ---------- ----- ------------ ------ -------
As at 1 January 2022 502.4 198.8 78.0 605.1 37.2 1,421.5
-------------------------------- ------- ---------- ----- ------------ ------ -------
External inflows(3) 95.8 16.0 13.5 90.0 2.5 217.8
-------------------------------- ------- ---------- ----- ------------ ------ -------
External outflows(3) (102.6) (23.5) (9.3) (27.2) (2.1) (164.7)
-------------------------------- ------- ---------- ----- ------------ ------ -------
Overlay net flows - - - (3.5) - (3.5)
-------------------------------- ------- ---------- ----- ------------ ------ -------
External net flows(4) (6.8) (7.5) 4.2 59.3 0.4 49.6
-------------------------------- ------- ---------- ----- ------------ ------ -------
PRT transfers(5) (0.2) (0.4) - (2.5) - (3.1)
-------------------------------- ------- ---------- ----- ------------ ------ -------
Internal net flows(6) (1.1) (0.4) (0.2) (1.2) 3.0 0.1
-------------------------------- ------- ---------- ----- ------------ ------ -------
Total net flows (8.1) (8.3) 4.0 55.6 3.4 46.6
-------------------------------- ------- ---------- ----- ------------ ------ -------
Market movements (50.2) (33.1) (8.1) (173.9) (6.2) (271.5)
-------------------------------- ------- ---------- ----- ------------ ------ -------
Other movements(7) 0.6 (0.6) - (0.9) - (0.9)
-------------------------------- ------- ---------- ----- ------------ ------ -------
As at 31 December 2022 444.7 156.8 73.9 485.9 34.4 1,195.7
-------------------------------- ------- ---------- ----- ------------ ------ -------
Assets attributable to:
------------------------------- ------- ---------- ----- ------------ ------ -------
External 1,103.4
-------------------------------- ------- ---------- ----- ------------ ------ -------
Internal 92.3
-------------------------------- ------- ---------- ----- ------------ ------ -------
1. Assets under management (AUM) includes assets on our
Investment Only Platform that are managed by third parties, on
which fees are earned.
2. Solutions include liability driven investments and GBP336.6bn
of derivative notionals associated with the Solutions business.
3. External inflows and outflows include GBP3.9bn of external
investments and GBP3.3bn of redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a higher degree of variability. The total value
of these assets at 31 December 2022 was GBP69.1bn.
5. PRT transfers represent the reduction in AUM associated with
UK defined benefit pension schemes that transacted PRT business
with LGRI in the reporting period.
6. Internal net flows include flows associated with legacy
Mature Savings business that were sold to Reassure in 2020.
7. Other movements include movements of external holdings in
money market funds, other cash mandates and short-term solutions
assets.
5.02 LGIM total external assets under management and net
flows
Assets under management Net flows for the
at six months ended(1)
---------------------------- ------------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2023 2022 2022 2023 2022 2022
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
----------------------- -------- -------- -------- ------- ------- ------
International(2) 371.8 377.0 363.6 (2.7) 34.5 (13.1)
------------------------ -------- -------- -------- ------- ------- ------
UK Institutional
----------------------- -------- -------- -------- ------- ------- ------
- Defined contribution 146.1 129.7 135.2 5.5 7.0 4.6
------------------------ -------- -------- -------- ------- ------- ------
- Defined benefit 489.6 630.1 547.8 (17.3) 22.4 (10.0)
------------------------ -------- -------- -------- ------- ------- ------
Wholesale(3) 51.2 45.5 48.3 1.3 1.4 2.2
------------------------ -------- -------- -------- ------- ------- ------
ETF(4) 9.9 8.4 8.5 0.9 0.3 0.3
------------------------ -------- -------- -------- ------- ------- ------
Total external 1,068.6 1,190.7 1,103.4 (12.3) 65.6 (16.0)
------------------------ -------- -------- -------- ------- ------- ------
1. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability.
2. International assets are shown on the basis of client
domicile. Total International AUM including assets managed
internationally on behalf of UK clients amounted to GBP457bn as at
30 June 2023 (30 June 2022: GBP468bn; 31 December 2022:
GBP441bn).
3. Wholesale represents assets from the Retail Intermediary
business and GBP0.3bn of assets from Personal Investing customers
that did not migrate to Fidelity International Limited.
4. ETF reflects external AUM and Flows invested on the platform.
Total AUM managed on the platform is GBP11.7bn ($14.9bn) in H1 23
(H1 22: GBP9.9bn ($12.0bn); FY 22: GBP10.2bn ($12.3bn)) and Flows
of GBP1.0bn ($1.3bn) in H1 23 (H1 22: GBP0.6bn ($0.8bn); FY 22:
GBP1.0bn ($1.3bn)) which include internal investment from other
LGIM asset classes.
5.03 Reconciliation of assets under management to Consolidated
Balance Sheet
Restated Restated
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPbn GBPbn GBPbn
------------------------------------------------- ------ -------- --------
Assets under management(1) 1,158 1,290 1,196
------------------------------------------------- ------ -------- --------
Derivative notionals(2) (285) (387) (337)
------------------------------------------------- ------ -------- --------
Third party assets(3) (446) (429) (412)
------------------------------------------------- ------ -------- --------
Other(4) 52 24 45
------------------------------------------------- ------ -------- --------
Total financial investments, investment property
and cash and cash equivalents 479 498 492
------------------------------------------------- ------ -------- --------
1. These balances are unaudited.
2. Derivative notionals are included in the assets under
management measure but are not for IFRS reporting and are thus
removed.
3. Third party assets are those that LGIM manage on behalf of
others which are not included on the group's Consolidated Balance
Sheet.
4. Other includes assets that are managed by third parties on
behalf of the group, other assets and liabilities related to
financial investments, derivative assets and pooled funds. It also
includes measurement differences between assets under management,
which are on a market value basis, and total investments on an IFRS
basis.
5.04 Assets under administration
Workplace(1) Annuities(2) Workplace(1) Annuities(2) Workplace(1) Annuities(2)
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022 2022 2022
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
--------------------------- ------------ ------------ ------------ ------------ ------------ ------------
As at 1 January 66.6 72.4 65.7 89.9 65.7 89.9
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Gross inflows 4.9 5.5 6.1 5.0 10.7 10.7
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Gross outflows (1.9) - (1.8) - (3.4) -
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Payments to pensioners - (3.6) - (2.4) - (5.0)
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net flows 3.0 1.9 4.3 2.6 7.3 5.7
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Market and other movements 2.1 (1.7) (6.9) (13.7) (6.4) (23.2)
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
As at 30 June 71.7 72.6 63.1 78.8 66.6 72.4
---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
1. Workplace assets under administration as at 30 June 2023
includes GBP71.5bn (30 June 2022: GBP63.0bn; 31 December 2022:
GBP66.4bn) of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2023
includes GBP63.3bn (30 June 2022: GBP69.9bn; 31 December 2022:
GBP63.8bn) of assets under management included in Note 5.01.
5.05 LGRI new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2023 2022 2022 2022
GBPm GBPm GBPm GBPm
------------------------ -------- -------- -------- ---------
UK(1,2) 4,866 3,715 3,604 7,319
--------------------------- -------- -------- -------- ---------
US 126 593 1,170 1,763
--------------------------- -------- -------- -------- ---------
Bermuda - 141 318 459
--------------------------- -------- -------- -------- ---------
Total LGRI new business 4,992 4,449 5,092 9,541
--------------------------- -------- -------- -------- ---------
1. UK includes GBPnil (H1 22: GBPnil; H2 22: GBP93m) of Assured Payment Policies (APPs).
2. UK includes a transaction with the group's UK defined benefit
pension schemes as disclosed in Note 4.17 Related party
transactions.
5.06 Retail new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2023 2022 2022 2022
GBPm GBPm GBPm GBPm
--------------------------------------- -------- -------- -------- ---------
Individual annuities 575 453 501 954
------------------------------------------ -------- -------- -------- ---------
Lifetime mortgage loans and retirement
interest only mortgages 163 338 294 632
------------------------------------------ -------- -------- -------- ---------
Total Retail Retirement new
business 738 791 795 1,586
------------------------------------------ -------- -------- -------- ---------
UK Retail protection 76 85 86 171
------------------------------------------ -------- -------- -------- ---------
UK Group protection 53 63 44 107
------------------------------------------ -------- -------- -------- ---------
US protection(1) 70 48 56 104
------------------------------------------ -------- -------- -------- ---------
Total Insurance new business 199 196 186 382
------------------------------------------ -------- -------- -------- ---------
Total Retail new business 937 987 981 1,968
------------------------------------------ -------- -------- -------- ---------
1. In local currency, US protection reflects new business of
$87m for 2023 (H1 22: $62m; H2 22: $67m).
Capital
6.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the
Solvency II Framework Directive, as adopted by the Prudential
Regulation Authority (PRA) in the UK and measures and monitors its
capital resources on this basis.
The Solvency II results are estimated and unaudited. Further
explanation of the underlying methodology and assumptions are set
out in the sections below.
The group calculates its Solvency II capital requirements using
a Partial Internal Model. The vast majority of the risk to which
the group is exposed is assessed on the Partial Internal Model
basis approved by the PRA. Capital requirements for a few smaller
entities are assessed using the Standard Formula basis on
materiality grounds. The group's US insurance businesses and Legal
& General Reinsurance Company No. 2 are valued on a local
statutory basis, following the PRA's approval to use the Deduction
and Aggregation method of including these businesses in the group
solvency II calculation.
The table below shows the group Own Funds, Solvency Capital
Requirement (SCR) and Surplus Own Funds, based on the Partial
Internal Model, Matching Adjustment and Transitional Measures on
Technical Provisions (TMTP) as at 30 June 2023.
(i) Capital position
As at 30 June 2023, and on the above basis, the group had a
surplus of GBP9,161m (31 December 2022: GBP9,915m) over its
Solvency Capital Requirement, corresponding to a Solvency II
capital coverage ratio of 230% (31 December 2022: 236%). The
Solvency II capital position is as follows:
30 Jun 31 Dec
2023 2022
GBPm GBPm
-------------------------------- ------- -------
Unrestricted Tier 1 Own Funds 12,631 13,393
---------------------------------- ------- -------
Restricted Tier 1 Own Funds(1) 495 495
---------------------------------- ------- -------
Tier 2 Subordinated liabilities 3,304 3,448
---------------------------------- ------- -------
Eligibility restrictions (233) (110)
---------------------------------- ------- -------
Solvency II Own Funds(2,3) 16,197 17,226
---------------------------------- ------- -------
Solvency Capital Requirement (7,036) (7,311)
---------------------------------- ------- -------
Solvency II surplus 9,161 9,915
---------------------------------- ------- -------
SCR Coverage ratio 230% 236%
---------------------------------- ------- -------
1. Restricted Tier 1 Own Funds represent Perpetual restricted
Tier 1 contingent convertible notes.
2. Solvency II Own Funds do not include an accrual for the
interim dividend of GBP340m (31 December 2022: GBP829m) declared
after the balance sheet date.
3. Solvency II Own Funds allow for a Risk Margin of GBP2,729m
(2022: GBP2,753m) and TMTP of GBP1,901m (2022: GBP2,136m).
6.01 Group regulatory capital - Solvency II (continued)
(ii) Methodology and assumptions
The methodology, assumptions and Partial Internal Model
underlying the calculation of Solvency II Own Funds and associated
capital requirements are broadly consistent with those set out in
the group's 2022 Annual Report and Accounts and Full Year
Results.
Non-market assumptions are consistent with those underlying the
group's IFRS disclosures, but with the removal of any margins for
prudence. Future investment returns and discount rates are those
defined by the PRA, using risk-free rates based on SONIA market
swap rates for sterling denominated liabilities. For annuities that
are eligible, the liability discount rate includes a Matching
Adjustment. This Matching Adjustment varies between LGAS and LGRe
and by the currency of the relevant liabilities.
At 30 June 2023 the Matching Adjustment for UK GBP denominated
liabilities was 144 basis points (31 December 2022: 141 basis
points) after deducting an allowance for the fundamental spread
equivalent to 56 basis points (31 December 2022: 55 basis
points).
(iii) Analysis of change
Operational Surplus Generation is the expected surplus generated
from the assets and liabilities in-force at the start of the year.
It is based on assumed real world returns and best estimate
non-market assumptions. It includes the impact of management
actions to the extent that, at the start of the year, these were
reasonably expected to be implemented over the period.
New Business Strain is the cost of acquiring business and
setting up Technical Provisions and SCR (net of any premium
income), on actual new business written over the period. It is
based on economic conditions at the point of sale.
The table below shows the movement (net of tax) during the six
month period ended 30 June 2023 in the group's Solvency II
surplus.
6 months 6 months 6 months
30 Jun 30 Jun 30 Jun
2023 2023 2023
Own Funds SCR Surplus
GBPm GBPm GBPm
------------------------------------------------ --------- -------- --------
Opening Position 17,226 (7,311) 9,915
------------------------------------------------ --------- -------- --------
Operational Surplus Generation(1) 835 112 947
------------------------------------------------ --------- -------- --------
New business strain 188 (383) (195)
------------------------------------------------ --------- -------- --------
Net surplus generation 1,023 (271) 752
------------------------------------------------ --------- -------- --------
Operating variances(2) (543)
------------------------------------------------ --------- -------- --------
Mergers, acquisitions and disposals(3) (150)
------------------------------------------------ --------- -------- --------
Market movements(4) 18
------------------------------------------------ --------- -------- --------
Dividends paid(5) (831)
------------------------------------------------ --------- -------- --------
Total surplus movement (after dividends paid in
the period) (1,029) 275 (754)
------------------------------------------------ --------- -------- --------
Closing Position 16,197 (7,036) 9,161
------------------------------------------------ --------- -------- --------
1. Operational Surplus Generation includes a GBP104m release of
Risk Margin and GBP(103)m amortisation of the TMTP.
2. Operating variances include the impact of experience
variances, changes to valuation assumptions, methodology changes
and other management actions including changes in asset mix. The
net impact of operating variances over the period was negative and
predominantly reflects timing differences which we expect to
reverse in H2.
3. Mergers, acquisitions and disposals for the 6 months ended 30
June 2023 includes costs incurred relating to the announced intent
to cease production within the Modular Homes business and
impairment of the group's investment in Onto, along with the
associated change in SCR.
4. Market movements represent the impact of changes in
investment market conditions during the period and changes to
future economic assumptions. The movement during the period
primarily reflects the impact of rising rates on the valuation of
the balance sheet, partially offset by a number of other, smaller
variances.
5. Dividends paid are the amounts from the 2022 final dividend paid in H1 2023.
6.01 Group regulatory capital - Solvency II (continued)
(iii) Analysis of change (continued)
The table below shows the movement (net of tax) during the year
ended 31 December 2022 in the group's Solvency II surplus.
Full year Full year Full year
31 Dec 31 Dec 31 Dec
2022 2022 2022
Own Funds SCR Surplus
GBPm GBPm GBPm
------------------------------------------------ --------- --------- ---------
Opening Position 17,561 (9,376) 8,185
------------------------------------------------ --------- --------- ---------
Operational Surplus Generation(1) 1,409 396 1,805
------------------------------------------------ --------- --------- ---------
New business strain 333 (685) (352)
------------------------------------------------ --------- --------- ---------
Net surplus generation 1,742 (289) 1,453
------------------------------------------------ --------- --------- ---------
Operating variances(2) (327)
------------------------------------------------ --------- --------- ---------
Mergers, acquisitions and disposals -
------------------------------------------------ --------- --------- ---------
Market movements(3) 1,720
--------- --------- ---------
Dividends paid(4) (1,116)
------------------------------------------------ --------- --------- ---------
Total surplus movement (after dividends paid in
the period) (335) 2,065 1,730
------------------------------------------------ --------- --------- ---------
Closing Position 17,226 (7,311) 9,915
------------------------------------------------ --------- --------- ---------
1. Operational Surplus Generation includes a GBP358m release of
Risk Margin and GBP(342)m amortisation of the TMTP.
2. Operating variances include the impact of experience
variances, changes to valuation assumptions, methodology changes
and other management actions including changes in asset mix.
3. Market movements represent the impact of changes in
investment market conditions over the year and changes to future
economic assumptions.
4. Dividends paid are the amounts from the 2021 final dividend and the 2022 interim dividend.
(iv) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own
Funds is given below:
Restated
30 Jun 31 Dec
2023 2022
GBPm GBPm
---------------------------------------------------------------- ------- --------
IFRS equity(1) 5,088 5,607
------------------------------------------------------------------ ------- --------
CSM net of tax 9,812 9,766
------------------------------------------------------------------ ------- --------
IFRS equity plus CSM net of tax 14,900 15,373
------------------------------------------------------------------ ------- --------
Remove DAC, goodwill and other intangible assets and associated
liabilities (502) (502)
------------------------------------------------------------------ ------- --------
Add IFRS carrying value of subordinated borrowings(2) 3,769 3,823
------------------------------------------------------------------ ------- --------
Insurance contract valuation differences(3) (1,793) (1,668)
------------------------------------------------------------------ ------- --------
Difference in value of net deferred tax liabilities 74 335
------------------------------------------------------------------ ------- --------
Other (18) (25)
------------------------------------------------------------------ ------- --------
Eligibility restrictions (233) (110)
------------------------------------------------------------------ ------- --------
Solvency II Own Funds(4) 16,197 17,226
------------------------------------------------------------------ ------- --------
1. IFRS equity represents equity attributable to owners of the
parent and restricted Tier 1 convertible debt note as per the
Consolidated Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet
as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS and Solvency II.
4. Solvency II Own Funds do not include an accrual for the
interim dividend of GBP340m (31 December 2022: GBP829m) declared
after the balance sheet date.
6.01 Group regulatory capital - Solvency II (continued)
(v) Sensitivity analysis
The following sensitivities are provided to give an indication
of how the group's Solvency II surplus as at 30 June 2023 would
have changed in a variety of adverse events. These are all
independent stresses to a single risk. In practice, the balance
sheet is impacted by combinations of stresses and the combined
impact can be larger than adding together the impacts of the same
stresses in isolation. It is expected that, particularly for market
risks, adverse stresses will happen together.
Impact Impact Impact Impact
on on on on
net of net of net of net of
tax tax tax tax
Solvency Solvency Solvency Solvency
II II II II
capital coverage capital coverage
surplus ratio surplus ratio
30 Jun 30 Jun 31 Dec 31 Dec
2023 2023 2022 2022
GBPbn % GBPbn %
------------------------------------------------------ -------- -------- -------- --------
100bps increase in risk-free rates(1) 0.3 15 0.5 18
-------------------------------------------------------- -------- -------- -------- --------
100bps decrease in risk-free rates(1,2) (0.4) (16) (0.6) (19)
-------------------------------------------------------- -------- -------- -------- --------
Credit spreads widen by 100bps assuming an escalating
addition to ratings(3,4) 0.4 13 0.3 13
-------------------------------------------------------- -------- -------- -------- --------
Credit spreads narrow by 100bps assuming an
escalating deduction from ratings(3,4) (0.6) (17) (0.4) (16)
-------------------------------------------------------- -------- -------- -------- --------
Credit spreads widen by 100bps assuming a flat
addition to ratings(3) 0.4 14 0.3 14
-------------------------------------------------------- -------- -------- -------- --------
Credit spreads of sub investment grade assets
widen by 100bps assuming a level addition to
ratings(3,5) (0.2) (7) (0.3) (7)
-------------------------------------------------------- -------- -------- -------- --------
Credit migration(6) (0.7) (10) (0.8) (10)
-------------------------------------------------------- -------- -------- -------- --------
25% fall in equity markets(7) (0.4) (3) (0.4) (3)
-------------------------------------------------------- -------- -------- -------- --------
15% fall in property markets(8) (0.9) (11) (0.9) (11)
-------------------------------------------------------- -------- -------- -------- --------
50bps increase in future inflation expectations (0.1) (4) (0.1) (3)
-------------------------------------------------------- -------- -------- -------- --------
Substantially reduced Risk Margin(9) 0.6 8 0.5 7
-------------------------------------------------------- -------- -------- -------- --------
1. Assuming a recalculation of the Transitional Measure on
Technical Provisions that partially offsets the impact on Risk
Margin.
2. In the interest rate down stress negative rates are allowed,
i.e. there is no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond
(and similar) holdings, with no change in long-term default
expectations. Restructured lifetime mortgages are excluded as the
underlying exposure is mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A
bonds it is three times, for BBB four times and so on, such that
the weighted average spread stress for the portfolio is 100 basis
points. To give a 100bps increase on the total portfolio, the
spread stress increases in steps of 32bps, i.e. 32bps for AAA,
64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB
and below the stress is 100bps. The spread widening on the total
portfolio is smaller than 1bps as the group holds less than 1% in
bonds rated BB and below. The impact is primarily an increase in
SCR arising from the modelled cost of trading downgraded bonds back
to a higher rating in the stress scenarios in the SCR
calculation.
6. Credit migration stress covers the cost of an immediate big
letter downgrade on 20% of all assets where the capital treatment
depends on a credit rating (including corporate bonds, and sale and
leaseback rental strips; lifetime mortgage senior notes are
excluded). Downgraded assets in our annuities portfolio are assumed
to be traded to their original credit rating, so the impact is
primarily a reduction in Own Funds from the loss of value on
downgrade. The impact of the sensitivity will depend upon the
market levels of spreads at the balance sheet date.
7. This relates primarily to equity exposure in LGC but will
also include equity-based mutual funds and other investments that
receive an equity stress (for example, certain investments in
subsidiaries). Some assets have factors that increase or decrease
the stress relative to general equity levels via a beta factor.
8. Assets stressed include residual values from sale and
leaseback, the full amount of lifetime mortgages and direct
investments treated as property.
9. Assuming a 2/3 reduction in the Risk Margin, allowing for
offset from an equivalent reduction in the Transitional Measure on
Technical Provisions.
The above sensitivity analysis does not reflect all management
actions which could be taken to reduce the impacts. 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. Allowance is made for the recalculation of the Loss Absorbing
Capacity of Deferred Tax for all stresses, assuming full capacity
remains available post stress.
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.
6.02 Estimated Solvency II new business contribution
(i) New business by product(1)
Management estimates of the present value of new business
premium (PVNBP) and the margin for selected lines of business are
provided below:
Contribution Contribution
from from
new new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
6 months 6 months 6 months Full year Full Full year
year
2023 2023 2023 2022 2022 2022
GBPm GBPm % GBPm GBPm %
------------------------------- -------- ------------ --------- --------- ------------ ---------
LGRI - UK annuity business(5) 4,050 326 8.0 6,484 575 8.9
-------------------------------- -------- ------------ --------- --------- ------------ ---------
Retail Retirement - UK annuity
business 575 34 5.9 954 60 6.3
-------------------------------- -------- ------------ --------- --------- ------------ ---------
UK Protection Total 621 17 2.8 1,512 82 5.4
-------------------------------- -------- ------------ --------- --------- ------------ ---------
US Protection(6) 605 68 11.2 796 84 10.6
-------------------------------- -------- ------------ --------- --------- ------------ ---------
1. Selected lines of business only.
2. PVNBP excludes a quota share reinsurance single premium of
GBP816m (31 December 2022: GBP835m) relating to LGRI new
business.
3. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the year using the risk
discount rate applicable at the end of the year.
4. Margin is based on unrounded inputs.
5. LGRI UK annuity business includes a transaction with the
group's UK defined benefit pension schemes as disclosed in Note
4.17 Related party transactions.
6. In local currency, US protection business reflects PVNBP of
$748m (31 December 2022: $985m) and a contribution from new
business of $84m (31 December 2022: $104m).
(ii) Basis of preparation
Solvency II new business contribution reflects the portion of
Solvency II value added by new business written in the period. It
has been calculated in a manner consistent with principles and
methodologies which were adopted in the group's 2022 Annual Report
and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for
the group's most material insurance-related businesses, namely,
LGRI, Retail Retirement and Insurance.
Intra-group reinsurance arrangements are in place between US, UK
and Bermudan businesses and it is expected that these arrangements
will be periodically extended to cover recent new business. The US
protection new business margin assumes that the new business will
continue to be reinsured in 2023 and looks through the intra-group
arrangements.
6.02 Estimated Solvency II new business contribution
(continued)
(iii) Assumptions
The key economic assumptions are as follows:
30 Jun 31 Dec
2023 2022
% %
-------------------------------------- ------ ------
Margin for Risk 4.1 4.4
-------------------------------------- ------ ------
Risk-free rate
-------------------------------------- ------ ------
- UK 3.9 3.6
-------------------------------------- ------ ------
- US 3.8 3.9
-------------------------------------- ------ ------
Risk discount rate (net of tax)
-------------------------------------- ------ ------
- UK 8.0 8.0
-------------------------------------- ------ ------
- US 7.9 8.3
-------------------------------------- ------ ------
Long-term rate of return on annuities 5.5 5.7
-------------------------------------- ------ ------
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. In particular:
-- The assumed future pre-tax returns on fixed interest and RPI
linked securities are set by reference to the portfolio yield on
the relevant backing assets held at market value at the end of the
reporting period. The calculated return takes account of
derivatives and other credit instruments in the investment
portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account
of the credit rating and the outstanding term of the assets. The
allowance for corporate and other unapproved credit asset defaults
within the new business contribution is calculated explicitly for
each bulk annuity scheme written, and the weighted average
deduction for business written in 2023 equates to a level rate
deduction from the expected returns for the overall annuities
portfolio of 20 basis points.
-- Non-economic assumptions have been set at levels commensurate
with recent operating experience, including those for mortality,
morbidity, persistency and maintenance expenses (excluding
development costs). An allowance is made for future mortality
improvement. For new business, mortality assumptions may be
modified to take certain scheme specific features into account.
The profits on the new business are presented gross of tax.
(iv) Reconciliation of PVNBP to total LGRI and Retail new
business
6 months Full year
2023 2022
Notes GBPbn GBPbn
------------------------------------------ -------- -------- ---------
PVNBP 6.02 (i) 5.9 9.7
------------------------------------------ -------- -------- ---------
Effect of capitalisation factor (1.1) (1.5)
------------------------------------------ -------- -------- ---------
New business premiums from selected lines 4.8 8.2
------------------------------------------ -------- -------- ---------
Other(1) 1.1 3.3
------------------------------------------ -------- -------- ---------
5.05,
Total LGRI and Retail new business 5.06 5.9 11.5
------------------------------------------ -------- -------- ---------
1. Other principally includes annuity sales in the US, lifetime
mortgage loans and retirement interest only mortgages, and quota
share reinsurance premiums.
Investments
7.01 Investment portfolio
Restated Restated
30 Jun 30 Jun 31 Dec
2023 2022 2022
GBPm GBPm GBPm
----------------------------------------------- ----------- ----------- -----------
Worldwide total assets under management(1) 1,165,186 1,295,640 1,202,676
------------------------------------------------ ----------- ----------- -----------
Client and policyholder assets (1,034,454) (1,175,344) (1,073,126)
------------------------------------------------ ----------- ----------- -----------
Investments to which shareholders are directly
exposed (market value) 130,732 120,296 129,550
------------------------------------------------- ----------- ----------- -----------
Adjustment from market value to IFRS carrying
value(2) 1,245 478 1,083
------------------------------------------------ ----------- ----------- -----------
Investments to which shareholders are directly
exposed (IFRS carrying value) 131,977 120,774 130,633
------------------------------------------------- ----------- ----------- -----------
1. Worldwide total assets under management include LGIM AUM and
other group assets not managed by LGIM.
2. Adjustments reflect measurement differences for a portion of
the group's financial investments designated as amortised cost.
Analysed by investment class:
Other
Annuity(1) LGC(2) shareholder Restated Restated
investments investments investments Total Total Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec
2023 2023 2023 2023 2022 2022
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Equities 112 2,557 408 3,077 3,492 3,071
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Bonds 7.03 69,361 1,354 2,648 73,363 77,321 71,773
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Derivative assets(3) 42,033 274 - 42,307 25,071 41,978
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Property 7.04 5,123 639 - 5,762 6,156 5,644
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Loans(4) 1,727 287 40 2,054 1,773 1,073
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Financial investments 118,356 5,111 3,096 126,563 113,813 123,539
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Cash and cash equivalents 1,622 1,051 641 3,314 4,973 4,834
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Other assets(5) 157 1,931 12 2,100 1,988 2,260
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
Total investments 120,135 8,093 3,749 131,977 120,774 130,633
-------------------------- ----- ----------- ----------- ----------- ------- -------- --------
1. Annuity investments includes products held within the LGRI
and Retail Retirement annuity portfolios, and includes lifetime
mortgage loans & retirement interest only mortgages.
2. LGC investments includes GBP89m (30 June 2022: GBPNil; 31
December 2022: GBP95m) of Legal & General Reinsurance Company
Limited's assets managed by LGC, along with GBP169m (30 June 2022:
GBP60m; 31 December 2022: GBP122m) of bonds and equities that
belong to other shareholder funds.
3. Derivative assets are shown gross of derivative liabilities
of GBP46.0bn (30 June 2022: GBP28.4bn; 31 December 2022:
GBP46.1bn). Exposures arise from use of derivatives for efficient
portfolio management, particularly the use of interest rate swaps,
inflation swaps, currency swaps and foreign exchange forward
contracts for assets and liability management.
4. Loans include reverse repurchase agreements of GBP2,049m (30
June 2022: GBP1,701m; 31 December 2022: GBP1,072m).
5. Other assets include finance leases of GBP157m (30 June 2022:
GBP85m; 31 December 2022: GBP110m), associates and joint ventures
of GBP553m (30 June 2022: GBP387m; 31 December 2022: GBP554m) and
the consolidated net asset value of the group's investments in CALA
Homes and other housing businesses.
7.02 Direct investments
(i) Total investments analysed by asset class
Restated Restated Restated Restated
Direct(1) Traded(2) Direct(1) Traded(2) Restated Direct(1) Traded(2) Restated
investments securities Total investments securities Total investments securities Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec 31 Dec
2023 2023 2023 2022 2022 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Equities 1,782 1,295 3,077 1,431 2,061 3,492 1,704 1,367 3,071
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Bonds(3) 24,596 48,767 73,363 22,280 55,041 77,321 23,171 48,602 71,773
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Derivative
assets - 42,307 42,307 - 25,071 25,071 - 41,978 41,978
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Property(4) 5,762 - 5,762 6,156 - 6,156 5,644 - 5,644
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Loans 4 2,050 2,054 71 1,702 1,773 - 1,073 1,073
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Financial
investments 32,144 94,419 126,563 29,938 83,875 113,813 30,519 93,020 123,539
-------------- -----------
Cash and cash
equivalents 213 3,101 3,314 116 4,857 4,973 56 4,778 4,834
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Other assets 2,100 - 2,100 1,988 - 1,988 2,260 - 2,260
-------------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------- --------
Total
investments 34,457 97,520 131,977 32,042 88,732 120,774 32,835 97,798 130,633
-------------- -----------
1. Direct investments, which generally constitute an agreement
with another party, represent an exposure to untraded and often
less volatile asset classes. Direct investments also include
physical assets, bilateral loans and private equity, but excluded
hedge funds.
2. Traded securities are defined by exclusion. If an instrument
is not a direct investment, then it is classed as a traded
security.
3. Bonds include lifetime mortgage loans of GBP4,937m (30 June
2022: GBP5,758m; 31 December 2022: GBP4,844m).
4. A further breakdown of property is provided in Note 7.04.
7.02 Direct investments (continued)
(ii) Direct investments analysed by asset portfolio
Annuity Shareholder Insurance Total
(1) (2) (3)
30 Jun 30 Jun 30 Jun 30 Jun
2023 2023 2023 2023
GBPm GBPm GBPm GBPm
------- ----------- --------- ------
Equities 54 1,491 237 1,782
Bonds(4) 23,224 119 1,253 24,596
Property 5,123 639 - 5,762
Loans - 4 - 4
Financial investments 28,401 2,253 1,490 32,144
Other assets, cash and cash equivalents 157 2,136 20 2,313
Total direct investments 28,558 4,389 1,510 34,457
------- ----------- --------- ------
Annuity(1) Shareholder(2) Insurance(3) Total
30 Jun 30 Jun 30 Jun 30 Jun
2022 2022 2022 2022
GBPm GBPm GBPm GBPm
---------- -------------- ------------ ------
Equities 42 1,192 197 1,431
---------- -------------- ------------ ------
Bonds(4) 21,014 5 1,261 22,280
Property 5,632 524 - 6,156
Loans - 71 - 71
---------- -------------- ------------ ------
Financial investments 26,688 1,792 1,458 29,938
---------- -------------- ------------ ------
Other assets, cash and cash equivalents 94 2,010 - 2,104
---------- -------------- ------------ ------
Total direct investments (restated) 26,782 3,802 1,458 32,042
Annuity(1) Shareholder(2) Insurance(3) Total
31 Dec 31 Dec 31 Dec 31 Dec
2022 2022 2022 2022
GBPm GBPm GBPm GBPm
---------- -------------- ------------ ------
Equities 51 1,417 236 1,704
---------- -------------- ------------ ------
Bonds(4) 21,840 88 1,243 23,171
Property 5,037 607 - 5,644
Loans - - - -
---------- -------------- ------------ ------
Financial investments 26,928 2,112 1,479 30,519
---------- -------------- ------------ ------
Other assets, cash and cash equivalents 110 2,189 17 2,316
---------- -------------- ------------ ------
Total direct investments (restated) 27,038 4,301 1,496 32,835
1. Annuity includes products held within the LGRI and Retail Retirement annuity portfolios.
2. Shareholder primarily includes the LGC direct investment
portfolio and GBP89m (30 June 2022: GBPNil; 31 December 2022:
GBP95m) of Legal & General Reinsurance Company Limited's assets
managed by LGC, along with GBP169m (30 June 2022: GBP60m; 31
December 2022: GBP122m) of bonds and equities that belong to other
shareholder funds.
3. Insurance primarily includes assets backing the group's US protection business.
4. Bonds include lifetime mortgage loans of GBP4,937m (30 June
2022: GBP5,758m; 31 December 2022: GBP4,844m).
7.03 Bond portfolio summary
(i) Sectors analysed by credit rating
BB
or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 908 6,259 857 101 2 2 8,129 11
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - 95 93 59 1 - 248 -
- Senior - 1,488 2,995 820 - - 5,303 7
- Covered 79 - - - - - 79 -
Financial Services:
- Tier 2 and other subordinated - 449 160 22 7 4 642 1
- Senior 139 235 610 714 - - 1,698 3
Insurance:
- Tier 2 and other subordinated 56 124 23 40 1 - 244 1
- Senior 9 183 294 393 - - 879 1
Consumer Services and Goods:
- Cyclical - 13 1,321 1,669 35 20 3,058 4
- Non-cyclical 293 836 2,988 3,075 78 - 7,270 10
- Healthcare 12 733 933 734 3 - 2,415 3
Infrastructure:
- Social 167 867 3,974 1,104 67 - 6,179 9
- Economic 264 148 967 3,758 59 - 5,196 7
Technology and Telecoms 121 331 1,382 2,610 12 3 4,459 6
Industrials - 58 664 668 24 - 1,414 2
Utilities 547 660 4,546 4,612 17 - 10,382 14
Energy - 13 370 916 32 - 1,331 2
Commodities - - 329 582 24 20 955 1
Oil and Gas - 500 673 316 14 60 1,563 2
Real estate - 20 2,171 2,066 31 - 4,288 6
Structured finance ABS
/ RMBS / CMBS / Other 565 912 538 575 45 8 2,643 3
Lifetime mortgage loans(1) 3,235 887 449 353 - 13 4,937 7
CDOs - 40 - 10 - - 50 -
Total GBPm 6,395 14,851 26,337 25,197 452 131 73,363 100
Total % 9 20 36 34 1 - 100
--------
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment
structuring.
2. The group's bond portfolio is dominated by investments
backing LGRI's and Retail Retirement's annuity business. These
account for GBP69,374m, representing 95% of the total group
portfolio.
7.03 Bond portfolio summary (continued)
(i) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2022 (Restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and Sub-Sovereigns 1,696 8,059 1,184 292 11 1 11,243 15
----- ------ ------ ------ ------ ----- -------- --------
Banks:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 1 - - - - - - - -
----- ------ ------ ------ ------ ----- -------- --------
- Tier 2 and other subordinated - - 68 52 3 1 124 -
----- ------ ------ ------ ------ ----- -------- --------
- Senior - 1,334 2,336 941 1 - 4,612 6
----- ------ ------ ------ ------ ----- -------- --------
- Covered 120 - - - - - 120 -
----- ------ ------ ------ ------ ----- -------- --------
Financial Services:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 2 and other subordinated - 118 50 32 - 17 217 -
----- ------ ------ ------ ------ ----- -------- --------
- Senior 51 315 439 368 - - 1,173 2
----- ------ ------ ------ ------ ----- -------- --------
Insurance:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 2 and other subordinated 59 175 32 51 - - 317 -
----- ------ ------ ------ ------ ----- -------- --------
- Senior 5 166 416 462 - - 1,049 1
----- ------ ------ ------ ------ ----- -------- --------
Consumer Services and Goods:
----- ------ ------ ------ ------ ----- -------- --------
- Cyclical - 39 1,361 1,877 159 3 3,439 4
----- ------ ------ ------ ------ ----- -------- --------
- Non-cyclical 323 886 2,536 3,733 247 - 7,725 10
----- ------ ------ ------ ------ ----- -------- --------
- Healthcare - 612 808 761 4 - 2,185 3
----- ------ ------ ------ ------ ----- -------- --------
Infrastructure:
----- ------ ------ ------ ------ ----- -------- --------
- Social 184 895 3,750 927 79 - 5,835 8
----- ------ ------ ------ ------ ----- -------- --------
- Economic 296 173 894 3,862 180 - 5,405 7
----- ------ ------ ------ ------ ----- -------- --------
Technology and Telecoms 141 325 1,546 2,801 20 1 4,834 6
----- ------ ------ ------ ------ ----- -------- --------
Industrials - 52 613 660 29 - 1,354 2
----- ------ ------ ------ ------ ----- -------- --------
Utilities 386 628 4,735 5,537 28 - 11,314 15
----- ------ ------ ------ ------ ----- -------- --------
Energy - - 347 765 16 - 1,128 1
----- ------ ------ ------ ------ ----- -------- --------
Commodities - - 337 781 25 8 1,151 2
----- ------ ------ ------ ------ ----- -------- --------
Oil and Gas - 505 873 320 226 24 1,948 3
----- ------ ------ ------ ------ ----- -------- --------
Real estate - 23 1,973 1,729 108 - 3,833 5
----- ------ ------ ------ ------ ----- -------- --------
Structured finance ABS /
RMBS / CMBS / Other 539 772 460 695 32 - 2,498 3
----- ------ ------ ------ ------ ----- -------- --------
Lifetime mortgage loans(1) 3,721 1,146 497 381 - 13 5,758 7
----- ------ ------ ------ ------ ----- -------- --------
CDOs - 47 - 12 - - 59 -
Total GBPm 7,521 16,270 25,255 27,039 1,168 68 77,321 100
----- ------ ------ ------ ------ ----- -------- --------
Total % 10 21 33 35 1 - 100
----- ------ ------ ------ ------ ----- -------- --------
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment
structuring.
2. The group's bond portfolio is dominated by investments
backing LGRI's and Retail Retirement's annuity business. These
account for GBP73,692m, representing 95% of the total group
portfolio.
7.03 Bond portfolio summary (continued)
(i) Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2022 (Restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and Sub-Sovereigns 1,718 5,561 844 111 7 3 8,244 12
Banks:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - - 83 66 3 - 152 -
- Senior - 1,179 2,300 996 2 - 4,477 6
- Covered 114 - - - - - 114 -
Financial Services:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 2 and other subordinated 32 94 52 20 7 4 209 -
- Senior 49 246 592 561 - - 1,448 2
Insurance:
----- ------ ------ ------ ------ ----- -------- --------
- Tier 2 and other subordinated 53 138 23 53 - - 267 -
- Senior 6 186 342 407 - - 941 1
Consumer Services and Goods:
----- ------ ------ ------ ------ ----- -------- --------
- Cyclical - 18 1,129 1,871 161 8 3,187 5
- Non-cyclical 310 830 2,441 3,322 166 - 7,069 10
- Healthcare - 634 916 754 4 - 2,308 3
Infrastructure:
----- ------ ------ ------ ------ ----- -------- --------
- Social 170 808 3,580 1,173 70 - 5,801 8
- Economic 288 151 999 3,606 173 - 5,217 7
Technology and Telecoms 134 365 1,201 2,687 17 1 4,405 6
Industrials - 60 702 679 23 - 1,464 2
Utilities 531 582 4,699 4,997 27 - 10,836 15
Energy - - 351 802 42 - 1,195 2
Commodities - - 301 658 25 15 999 1
Oil and Gas - 483 805 310 67 52 1,717 3
Real estate - 24 2,004 1,984 91 2 4,105 6
Structured finance ABS /
RMBS / CMBS / Other 683 855 566 587 22 8 2,721 4
Lifetime mortgage loans(1) 3,246 824 428 336 - 10 4,844 7
CDOs - 41 - 11 - - 52 -
Total GBPm 7,334 13,079 24,358 25,991 907 104 71,773 100
Total % 10 18 34 36 2 - 100
--------
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment
structuring.
2. The group's bond portfolio is dominated by investments
backing LGRI's and Retail Retirement's annuity business. These
account for GBP67,955m, representing 95% of the total group
portfolio.
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile
Rest
of
UK US EU the Total
World
As at 30 June 2023 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 6,127 1,283 266 453 8,129
Banks 1,521 1,979 1,021 1,110 5,631
Financial Services 302 595 1,266 177 2,340
Insurance 61 966 15 81 1,123
Consumer Services and Goods:
- Cyclical 335 2,155 360 208 3,058
- Non-cyclical 1,711 4,683 346 530 7,270
- Healthcare 278 2,078 59 - 2,415
Infrastructure:
- Social 5,269 690 144 76 6,179
- Economic 3,729 840 249 378 5,196
Technology and Telecoms 377 3,010 558 514 4,459
Industrials 194 783 295 142 1,414
Utilities 5,086 3,011 1,809 476 10,382
Energy 313 715 12 291 1,331
Commodities 46 402 132 375 955
Oil and Gas 248 425 542 348 1,563
Real estate 1,888 1,469 618 313 4,288
Structured finance ABS / RMBS / CMBS
/ Other 678 1,497 46 422 2,643
Lifetime mortgage loans 4,871 - 66 - 4,937
CDOs - - - 50 50
Total 33,034 26,581 7,804 5,944 73,363
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile (continued)
Rest
of
UK US EU the World Total
As at 30 June 2022 (Restated) GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 7,708 1,774 768 993 11,243
Banks 1,514 1,846 812 684 4,856
Financial Services 349 403 380 258 1,390
Insurance 101 1,131 19 115 1,366
Consumer Services and Goods:
------ ------ ----- --------- ------
- Cyclical 473 2,300 395 271 3,439
- Non-cyclical 1,894 5,316 355 160 7,725
- Healthcare 279 1,842 63 1 2,185
Infrastructure:
------ ------ ----- --------- ------
- Social 5,104 524 158 49 5,835
- Economic 3,855 881 264 405 5,405
Technology and Telecoms 403 3,080 699 652 4,834
Industrials 189 800 313 52 1,354
Utilities 6,341 2,583 1,877 513 11,314
Energy 327 634 1 166 1,128
Commodities 37 449 151 514 1,151
Oil and Gas 167 567 690 524 1,948
Real estate 2,019 935 573 306 3,833
Structured Finance ABS / RMBS / CMBS
/ Other 704 1,503 11 280 2,498
Lifetime mortgage loans 5,758 - - - 5,758
CDOs - - - 59 59
Total 37,222 26,568 7,529 6,002 77,321
7.03 Bond portfolio summary (continued)
(ii) Sectors analysed by domicile (continued)
Rest
of
UK US EU the World Total
As at 31 December 2022 (Restated) GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 5,261 1,754 614 615 8,244
Banks 1,089 1,897 717 1,041 4,744
Financial Services 410 539 520 188 1,657
Insurance 108 1,007 20 73 1,208
Consumer Services and Goods:
------ ------ ----- --------- ------
- Cyclical 549 2,132 298 208 3,187
- Non-cyclical 1,830 4,775 296 168 7,069
- Healthcare 257 1,986 64 1 2,308
Infrastructure:
------ ------ ----- --------- ------
- Social 4,890 704 150 57 5,801
- Economic 3,756 833 256 372 5,217
Technology and Telecoms 363 2,963 577 502 4,405
Industrials 192 824 292 156 1,464
Utilities 5,656 2,840 1,855 485 10,836
Energy 294 671 13 217 1,195
Commodities 35 415 113 436 999
Oil and Gas 158 508 650 401 1,717
Real estate 2,011 1,228 636 230 4,105
Structured Finance ABS / RMBS / CMBS
/ Other 641 1,674 44 362 2,721
Lifetime mortgage loans 4,801 - 43 - 4,844
CDOs - - - 52 52
Total 32,301 26,750 7,158 5,564 71,773
7.03 Bond portfolio summary (continued)
(iii) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 30 June 2023 GBPm GBPm GBPm
AAA 2,828 3,567 6,395
---------------------- ---------- ---------- ------
AA 12,285 2,566 14,851
---------------------- ---------- ---------- ------
A 16,753 9,584 26,337
---------------------- ---------- ---------- ------
BBB 17,781 7,416 25,197
---------------------- ---------- ---------- ------
BB or below 219 233 452
---------------------- ---------- ---------- ------
Other 16 115 131
---------------------- ---------- ---------- ------
Total 49,882 23,481 73,363
---------------------- ---------- ---------- ------
Externally Internally
rated rated(1) Total
As at 30 June 2022 (Restated) GBPm GBPm GBPm
AAA 3,472 4,049 7,521
--------------------------------- ---------- ---------- ------
AA 13,469 2,801 16,270
--------------------------------- ---------- ---------- ------
A 17,268 7,987 25,255
--------------------------------- ---------- ---------- ------
BBB 19,964 7,075 27,039
--------------------------------- ---------- ---------- ------
BB or below 777 391 1,168
--------------------------------- ---------- ---------- ------
Other 19 49 68
--------------------------------- ---------- ---------- ------
Total 54,969 22,352 77,321
--------------------------------- ---------- ---------- ------
Externally Internally
rated rated(1) Total
As at 31 December 2022 (Restated) GBPm GBPm GBPm
AAA 3,741 3,593 7,334
AA 10,577 2,502 13,079
A 15,883 8,475 24,358
BBB 18,554 7,437 25,991
BB or below 529 378 907
Other 17 87 104
Total 49,301 22,472 71,773
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by Direct investments and traded
securities
Direct
investments Traded Total
As at 30 June 2023 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 659 7,470 8,129
----------- ------ ------
Banks 829 4,802 5,631
----------- ------ ------
Financial Services 1,737 603 2,340
----------- ------ ------
Insurance 98 1,025 1,123
----------- ------ ------
Consumer Services and Goods:
----------- ------ ------
- Cyclical 641 2,417 3,058
----------- ------ ------
- Non-cyclical 629 6,641 7,270
----------- ------ ------
- Healthcare 512 1,903 2,415
----------- ------ ------
Infrastructure:
----------- ------ ------
- Social 3,630 2,549 6,179
----------- ------ ------
- Economic 3,945 1,251 5,196
----------- ------ ------
Technology and Telecoms 213 4,246 4,459
----------- ------ ------
Industrials 125 1,289 1,414
----------- ------ ------
Utilities 1,960 8,422 10,382
----------- ------ ------
Energy 460 871 1,331
----------- ------ ------
Commodities 139 816 955
----------- ------ ------
Oil and Gas 84 1,479 1,563
----------- ------ ------
Real estate 2,857 1,431 4,288
----------- ------ ------
Structured finance ABS / RMBS / CMBS
/ Other 1,141 1,502 2,643
----------- ------ ------
Lifetime mortgage loans 4,937 - 4,937
----------- ------ ------
CDOs - 50 50
----------- ------ ------
Total 24,596 48,767 73,363
---------------------------------------- ----------- ------ ------
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by Direct investments and traded
securities (continued)
Direct
investments Traded Total
As at 30 June 2022 (Restated) GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 770 10,473 11,243
Banks 739 4,117 4,856
Financial Services 515 875 1,390
Insurance 116 1,250 1,366
Consumer Services and Goods:
----------- ------ ------
- Cyclical 580 2,859 3,439
----------- ------ ------
- Non-cyclical 501 7,224 7,725
----------- ------ ------
- Healthcare 287 1,898 2,185
----------- ------ ------
Infrastructure:
----------- ------ ------
- Social 3,092 2,743 5,835
----------- ------ ------
- Economic 3,906 1,499 5,405
----------- ------ ------
Technology and Telecoms 192 4,642 4,834
----------- ------ ------
Industrials 100 1,254 1,354
----------- ------ ------
Utilities 1,717 9,597 11,314
----------- ------ ------
Energy 384 744 1,128
----------- ------ ------
Commodities 70 1,081 1,151
----------- ------ ------
Oil and Gas 65 1,883 1,948
Real estate 2,407 1,426 3,833
----------- ------ ------
Structured Finance ABS / RMBS / CMBS /
Other 1,081 1,417 2,498
----------- ------ ------
Lifetime mortgage loans 5,758 - 5,758
----------- ------ ------
CDOs - 59 59
----------- ------ ------
Total 22,280 55,041 77,321
----------- ------ ------
7.03 Bond portfolio summary (continued)
(iv) Sectors analysed by Direct investments and traded
securities (continued)
Direct
investments Traded Total
As at 31 December 2022 (Restated) GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 816 7,428 8,244
----------- ------ ------
Banks 787 3,957 4,744
----------- ------ ------
Financial Services 941 716 1,657
----------- ------ ------
Insurance 111 1,097 1,208
----------- ------ ------
Consumer Services and Goods:
----------- ------ ------
- Cyclical 598 2,589 3,187
----------- ------ ------
- Non-cyclical 637 6,432 7,069
----------- ------ ------
- Healthcare 443 1,865 2,308
----------- ------ ------
Infrastructure:
----------- ------ ------
- Social 3,300 2,501 5,801
----------- ------ ------
- Economic 3,913 1,304 5,217
----------- ------ ------
Technology and Telecoms 123 4,282 4,405
----------- ------ ------
Industrials 120 1,344 1,464
----------- ------ ------
Utilities 2,012 8,824 10,836
----------- ------ ------
Energy 385 810 1,195
----------- ------ ------
Commodities 67 932 999
----------- ------ ------
Oil and Gas 89 1,628 1,717
----------- ------ ------
Real estate 2,719 1,386 4,105
----------- ------ ------
Structured Finance ABS / RMBS / CMBS /
Other 1,266 1,455 2,721
----------- ------ ------
Lifetime mortgage loans 4,844 - 4,844
----------- ------ ------
CDOs - 52 52
----------- ------ ------
Total 23,171 48,602 71,773
----------- ------ ------
7.04 Property analysis
Property exposure within Direct investments by status
Annuity Shareholder(1) Total
As at 30 June 2023 GBPm GBPm GBPm %
------- -------------- ----- ---
Fully let(2) 4,566 492 5,058 87
---------------------- ------- -------------- ----- ---
Development 557 111 668 12
---------------------- ------- -------------- ----- ---
Land - 36 36 1
---------------------- ------- -------------- ----- ---
Total 5,123 639 5,762 100
---------------------- ------- -------------- ----- ---
Annuity Shareholder(1) Total
As at 30 June 2022 GBPm GBPm GBPm %
Fully let(2) 5,190 - 5,190 84
---------------------- ------- -------------- ----- ---
Development 442 403 845 14
------- -------------- ----- ---
Land - 121 121 2
---------------------- ------- -------------- ----- ---
Total 5,632 524 6,156 100
---------------------- ------- -------------- ----- ---
Annuity Shareholder(1) Total
As at 31 December 2022 GBPm GBPm GBPm %
Fully let(2) 4,568 462 5,030 89
-------------------------- ------- -------------- ----- ---
Development 469 83 552 10
------- -------------- ----- ---
Land - 62 62 1
-------------------------- ------- -------------- ----- ---
Total 5,037 607 5,644 100
-------------------------- ------- -------------- ----- ---
1. The above analysis does not include assets related to the
group's investments in CALA Homes and other housing businesses,
which are accounted for as inventory within Receivables and other
assets on the group's Consolidated Balance Sheet and measured at
the lower of cost and net realisable value. At 30 June 2023, the
group held a total of GBP2,022m (30 June 2022: GBP2,072m; 31
December 2022: GBP1,973m) of such assets.
2. GBP4.4bn (30 June 2022: GBP5.1bn; 31 December 2022: GBP4.5bn)
fully let property were let to corporate clients, out of which
GBP3.9bn (30 June 2022: GBP4.9bn; 31 December 2022: GBP4.0bn) were
let to investment grade tenants.
Alternative Performance Measures
An alternative performance measure (APM) is a financial measure
of historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II. APMs offer investors and
stakeholders additional information on the company's performance
and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's
performance. However, APMs should be viewed as complementary to,
rather than as a substitute for, the figures determined according
to other regulations. The APMs used by the group are listed in this
Note, along with their definition/explanation, their closest IFRS
or Solvency II measure and, where relevant, the reference to the
reconciliations to those measures.
The APMs used by the group may not be the same as, or comparable
to, those used by other companies, both in similar and different
industries. The calculation of APMs is consistent with previous
periods, unless otherwise stated.
APMs derived from IFRS measures
Adjusted operating profit
Adjusted operating profit is an APM that supports the internal
performance management and decision making of the group's operating
businesses, and accordingly underpins the remuneration outcomes of
the executive directors and senior management. The group considers
this measure meaningful to stakeholders as it enhances the
understanding of the group's operating performance over time by
separately identifying non-operating items.
Adjusted operating profit measures the pre-tax result excluding
the impact of investment volatility, economic assumption changes
caused by changes in market conditions or expectations and
exceptional items. Key considerations in relation to the
calculation of adjusted operating profit for the group's long-term
insurance businesses and shareholder funds are set out below.
Exceptional income and expenses which arise outside the normal
course of business in the year, such as merger and acquisition and
start-up costs, are excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic
assumptions for the group's retirement and insurance businesses.
Variances between actual and long-term expected investment return
on traded and real assets are excluded from adjusted operating
profit, as well as economic assumption changes caused by changes in
market conditions or expectations (e.g. credit default and
inflation) and any difference between the actual allocated asset
mix and the target long-term asset mix on new pension risk transfer
business. Assets held for future new pension risk transfer business
are excluded from the asset portfolio used to determine the
discount rate for annuities on insurance contract liabilities. The
impact of investment management actions that optimise the yield of
the assets backing the back book of annuity contracts is now
included within adjusted operating profit.
For the group's long-term insurance businesses, reinsurance
mismatches are also excluded from adjusted operating profit.
Reinsurance mismatches arise where the reinsurance offset rules in
IFRS 17 do not reflect management's view of the net of reinsurance
transaction. In particular, during a period of reinsurance
renegotiation, reinsurance gains cannot be recognised to offset any
inception losses on the underlying contracts where they are
recognised before the new reinsurance agreement is signed. In these
circumstances, the onerous contract losses are reduced to reflect
the net loss (if any) after reinsurance, and future contractual
service margin (CSM) amortisation is reduced over the duration of
the contracts.
Shareholder funds
Shareholder funds include both the group's traded equity
portfolio and certain direct investments for which adjusted
operating profit is based on the long-term economic return expected
to be generated. For these direct investments, as well as for the
group's traded equity portfolio, deviations from such long-term
economic return are excluded from adjusted operating profit. Direct
investments for which adjusted operating profit is reflected in
this way include the following:
-- Development assets, predominantly in the specialist
commercial real estate and housing sectors within the LGC
alternative asset portfolio: these are assets under construction
and contracted to either be sold to other parts of the group or for
other commercial usage, and on which LGC accepts development risks
and expects to realise profits once construction is complete.
-- 'Scale-up' investments, predominantly in the alternative
finance sector within the LGC alternative asset portfolio as well
as the fintech business within Retail: these are investments in
early-stage ventures in a fast-growing phase of their life cycle,
but which have not yet reached a steady-state level of
earnings.
Shareholder funds also includes other direct investments for
which adjusted operating profit reflects the IFRS profit before
tax. Direct investments for which adjusted operating profit is
reflected in this way include the following:
-- 'Start-up' investments: these are companies in the beginning
stages of their business lifecycle (i.e. typically less than 24
months), which therefore have limited operating history available
and typically are in a pre-revenue stage.
-- Mature assets: these are companies in their final stages of
business lifecycle. They are stable businesses and have sustainable
streams of income, but the growth rate in their earnings is
expected to remain less pronounced in the future.
Note 2.02 Operating profit reconciles adjusted operating profit
with its closest IFRS measure, which is profit before tax
attributable to equity holders. Further details on reconciling
items between adjusted operating profit and profit before tax
attributable to equity holders are presented in Note 2.06
Investment and other variances.
Return on Equity (ROE)
ROE measures the return earned by shareholders on shareholder
capital retained within the business. It is a measure of
performance of the business, which shows how efficiently we are
using our financial resources to generate a return for
shareholders. ROE is calculated as IFRS pro t after tax divided by
average IFRS shareholders' funds (by reference to opening and
closing shareholders' funds as provided in the IFRS Consolidated
statement of changes in equity for the period). In the current
period, ROE was quantified using annualised profit attributable to
equity holders of GBP632m (30 June 2022: GBP1,150m; 31 December
2022: GBP846m) and average equity attributable to the owners of the
parent of GBP4,853m (30 June 2022: GBP5,039m; 31 December 2022:
GBP5,027m), based on an opening balance of GBP5,112m and a closing
balance of GBP4,593m (30 June 2022: based on an opening balance of
GBP4,941m and a closing balance of GBP5,137m; 31 December 2022:
based on an opening balance of GBP4,941m and a closing balance of
GBP5,112m).
Assets under Management
Assets under management represent funds which are managed by our
fund managers on behalf of investors. It represents the total
amount of money investors have trusted with our fund managers to
invest across our investment products. AUM include assets which are
reported in the group Consolidated Balance Sheet as well as
third-party assets that LGIM manage on behalf of others, and assets
managed by third parties on behalf of the group.
Note 5.03 Reconciliation of assets under management to
Consolidated Balance Sheet reconciles AUM with Total financial
investments, investment property and cash and cash equivalents.
Adjusted profit before tax attributable to equity holders
Adjusted profit before tax attributable to equity holders
measures the actual distributable earnings before tax attributable
to shareholders of the group. It therefore incorporates actual
investment returns experienced during the year. Adjusted profit
before tax attributable to equity holders is equal to profit before
tax attributable to equity holders plus the pre-tax results of
discontinued operations.
Note 2.02 Operating profit reconciles adjusted profit before tax
attributable to equity holders to profit for the year. In absence
of discontinued operations, adjusted profit before tax attributable
to equity holders is equal to profit before tax attributable to
equity holders.
APMs derived from Solvency II measures
The group is required to measure and monitor its capital
resources on a regulatory basis and to comply with the minimum
capital requirements of regulators in each territory in which it
operates. At a group level, Legal & General has to comply with
the requirements established by the Solvency II Framework
Directive, as adopted by the PRA.
Solvency II surplus
Solvency II surplus is the excess of Eligible Own Funds over the
Solvency Capital Requirements. It represents the amount of capital
available to the group in excess of that required to sustain it in
a 1-in-200 year risk event. The group's Solvency II surplus is
based on the Partial Internal Model, Matching Adjustment and
Transitional Measures on Technical Provisions (TMTP).
Differences between the Solvency II surplus and its related
regulatory basis include the impact of TMTP recalculation when it
is not approved by the PRA, incorporating impacts of economic
conditions as at the reporting date, and the inclusion of unaudited
profits (or losses) of financial firms, which are excluded from
regulatory Own Funds. This view of Solvency II is considered to be
representative of the shareholder risk exposure and the group's
real ability to cover the Solvency Capital Requirement (SCR) with
Eligible Own Funds. It also aligns with management's approach to
dynamically manage its capital position.
Further details on Solvency II surplus and its calculation are
included in Note 6.01 Group regulatory capital - Solvency II. This
note also includes a reconciliation between IFRS equity and
Solvency II Own Funds.
Solvency II capital coverage ratio
Solvency II capital coverage ratio is one of the indicators of
the group's balance sheet strength. It is determined as Eligible
Own Funds divided by the SCR, and therefore represents the number
of times the SCR is covered by Eligible Own Funds. The group's
Solvency II capital coverage ratio is based on the Partial Internal
Model, Matching Adjustment and TMTP.
Differences between the Solvency II capital coverage ratio and
its related regulatory basis include the impact of TMTP
recalculation when it is not approved by the PRA, incorporating
impacts of economic conditions as at the reporting date, and the
inclusion of unaudited profits (or losses) of financial firms,
which are excluded from regulatory Own Funds. This view of Solvency
II is considered to be representative of the shareholder risk
exposure and the group's real ability to cover the SCR with
Eligible Own Funds. It also aligns with management's approach to
dynamically manage its capital position.
Further details on Solvency II capital coverage ratio and its
calculation are included in Note 6.01 Group regulatory capital -
Solvency II.
Solvency II operational surplus generation
Solvency II operational surplus generation is the expected
surplus generated from the assets and liabilities in-force at the
start of the year. It is based on assumed real world returns and
best estimate non-market assumptions, and it includes the impact of
management actions to the extent that, at the start of the year,
these were reasonably expected to be implemented over the year.
It excludes operating variances, such as the impact of
experience variances, changes to valuation assumptions, methodology
changes and other management actions including changes in asset
mix. It also excludes market movements, which represent the impact
of changes in investment market conditions during the period and
changes to future economic assumptions. The group considers this
measure meaningful to stakeholders as it enhances the understanding
of its operating performance over time, and serves as an indicator
on the longer-term components of the movements in the group's
Solvency II surplus.
Note 6.01 Group regulatory capital - Solvency II includes an
analysis of change for the group's Solvency II surplus, showing the
contribution of Solvency II operational surplus generation as well
as other items to the Solvency II surplus during the reporting
period.
Glossary
* These items represent an alternative performance measure
(APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
A financial measure of historic or future financial performance,
financial position, or cash flows, other than a financial measure
defined under IFRS or the regulations of Solvency II.
Annual premiums
Premiums that are paid regularly over the duration of the
contract such as protection policies.
Annuity
Regular payments from an insurance company made for an agreed
period of time (usually up to the death of the recipient) in return
for either a cash lump sum or a series of premiums which the
policyholder has paid to the insurance company during their working
lifetime.
Assets under administration (AUA)
Assets administered by Legal & General, which are bene
cially owned by clients and are therefore not reported on the
Consolidated Balance Sheet. Services provided in respect of assets
under administration are of an administrative nature, including
safekeeping, collecting investment income, settling purchase and
sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
A long-term contract under which the policyholder (a registered
UK pension scheme) pays a day-one premium and in return receives a
contractually fixed and/or inflation-linked set of payments over
time from the insurer.
Back book acquisition
New business transacted with an insurance company which allows
the business to continue to utilise Solvency II transitional
measures associated with the business.
CAGR
Compound annual growth rate.
Common Contractual Fund (CCF)
An Irish regulated asset pooling fund structure. It enables
institutional investors to pool assets into a single fund vehicle
with the aim of achieving cost savings, enhanced returns and
operational efficiency through economies of scale. A CCF is an
unincorporated body established under a deed where investors are
"co-owners" of underlying assets which are held pro rata with their
investment. The CCF is authorised and regulated by the Central Bank
of Ireland.
Contract boundaries
Cash flows are within the boundary of an insurance contract if
they arise from substantive rights and obligations that exist
during the reporting period in which the group can compel the
policyholder to pay the premiums or has a substantive obligation to
provide the policyholder with insurance contract services.
Contractual Service Margin (CSM)
The CSM represents the unearned profit the group will recognise
for a group of insurance contracts, as it provides services under
the insurance contract. It is a component of the asset or liability
for the contracts and it results in no income or expense arising
from initial recognition of an insurance contract. Therefore,
together with the risk adjustment, the CSM provides a view of both
stored value of our in-force insurance business, and the growth
derived from new business in the current year. A CSM is not set up
for groups of contracts assessed as onerous.
The CSM is released as profit as the insurance services are
provided.
Coverage Period
The period during which the group provides insurance contract
services. This period includes the insurance contract services that
relate to all premiums within the boundary of the insurance
contract.
Credit rating
A measure of the ability of an individual, organisation or
country to repay debt. The highest rating is usually AAA. Ratings
are usually issued by a credit rating agency (e.g. Moody's or
Standard & Poor's) or a credit bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis,
whereby the assets and liabilities of certain entities are excluded
from the group consolidation. The net contribution from those
entities to group Own Funds is included as an asset on the group's
Solvency II balance sheet. Regulatory approval has been provided to
recognise the (re)insurance subsidiaries in the US and Bermuda on
this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a
specified monthly benefit on retirement that is predetermined by a
formula based on the employee's earnings history, tenure of service
and age, rather than depending directly on individual investment
returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement
are determined by agreed levels of contributions paid into the fund
by the member and employer. They provide benefits based upon the
money held in each individual's plan specifically on behalf of each
member. The amount in each plan at retirement will depend upon the
investment returns achieved as well as the member and employer
contributions.
Derivatives
Contracts usually giving a commitment or right to buy or sell
assets on specified conditions, for example on a set date in the
future and at a set price. The value of a derivative contract can
vary. Derivatives can generally be used with the aim of enhancing
the overall investment returns of a fund by taking on an increased
risk, or they can be used with the aim of reducing the amount of
risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less
volatile asset classes. Direct investments also include physical
assets, bilateral loans and private equity, but exclude hedge
funds.
Earnings per share (EPS)
A common nancial metric which can be used to measure the pro
tability and strength of a company over time. It is calculated as
total shareholder pro t after tax divided by the weighted average
number of shares outstanding during the year.
Eligible Own Funds
The capital available to cover the group's Solvency Capital
Requirement. Eligible Own Funds comprise the excess of the value of
assets over liabilities, as valued on a Solvency II basis, plus
high quality hybrid capital instruments, which are freely available
(fungible and transferable) to absorb losses wherever they occur
across the group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which
employees report that they are happy working at Legal &
General. It is measured as part of our Voice surveys, which also
include questions on commitment to the goals of Legal & General
and the overall success of the company.
ETF
LGIM's European Exchange Traded Fund platform.
Euro Commercial Paper
Short-term borrowings with maturities of up to 1 year typically
issued for working capital purposes.
Expected credit losses (ECL)
For financial assets measured at amortised cost or FVOCI, a loss
allowance defined as the present value of the difference between
all contractual cash flows that are due and all cash flows expected
to be received (i.e. the cash shortfall), weighted based on their
probability of occurrence.
Fair value through other comprehensive income (FVOCI)
A financial asset that is measured at fair value in the
Consolidated Balance Sheet and reports gains and losses arising
from movements in fair value within the Consolidated Statement of
Comprehensive Income as part of the total comprehensive income or
expense for the year.
Fair value through profit or loss (FVTPL)
A financial asset or financial liability that is measured at
fair value in the Consolidated Balance Sheet and reports gains and
losses arising from movements in fair value within the Consolidated
Income Statement as part of the profit or loss for the year.
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted
estimates of future cash flows, discounted to present value to
reflect the time value of money and financial risks, plus the risk
adjustment for non-financial risk.
Full year dividend
Full year dividend is the total dividend per share declared for
the year (including interim dividend but excluding, where
appropriate, any special dividend).
Generally accepted accounting principles (GAAP)
A widely accepted collection of guidelines and principles,
established by accounting standard setters and used by the
accounting community to report financial information.
Gross written premiums (GWP)
An industry measure of the life insurance premiums due and the
general insurance premiums underwritten in the reporting period,
before any deductions for reinsurance.
Insurance new business
New business arising from new policies written on retail
protection products and new deals and incremental business on group
protection products.
Irish Collective Asset-Management Vehicle (ICAV)
A legal structure investment fund, based in Ireland and aimed at
European investment funds looking for a simple, tax-efficient
investment vehicle.
Key performance indicators (KPIs)
These are measures by which the development, performance or
position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where
appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGIM
Legal & General Investment Management.
LGRI
Legal & General Retirement Institutional.
LGRI new business
Single premiums arising from pension risk transfers and the
notional size of longevity insurance transactions, based on the
present value of the fixed leg cash flows discounted at the SONIA
curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient
assets to meet all liabilities, both current and future. This form
of investing is most prominent in final salary pension plans, whose
liabilities can often reach into billions of pounds for the largest
of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and
over. It is a mortgage loan secured against the customer's house.
Customers do not make any monthly payments and continue to own and
live in their house until they move into long-term care or on
death. A no negative equity guarantee exists such that if the house
value on repayment is insufficient to cover the outstanding loan,
any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the
risk profile of pension risk transfer, annuity and protection
businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities
in Solvency II balance sheets. This adjustment reflects the fact
that the profile of assets held is sufficiently well-matched to the
profile of the liabilities, that those assets can be held to
maturity, and that any excess return over risk-free (that is not
related to defaults) can be earned regardless of asset value
fluctuations after purchase.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in
pricing and calculating liabilities for policyholders of life
products, which contain morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in
pricing and calculating liabilities for future policyholders of
life and annuity products, which contain mortality risks.
Net zero carbon
Achieving an overall balance between anthropogenic carbon
emissions produced and carbon emissions removed from the
atmosphere.
Onerous contracts
An insurance contract is onerous at the date of initial
recognition if the fulfilment cash flows allocated to the contract,
any previously recognised acquisition cash flows and any cash flows
arising from the contract at the date of initial recognition, in
total are a net outflow.
Open Ended Investment Company (OEIC)
A type of investment fund domiciled in the United Kingdom that
is structured to invest in stocks and other securities, authorised
and regulated by the Financial Conduct Authority (FCA).
Overlay assets
Derivative assets that are managed alongside the physical assets
held by LGIM. These instruments include interest rate swaps, in
ation swaps, equity futures and options. These are typically used
to hedge risks associated with pension scheme assets during the
derisking stage of the pension life cycle.
Paris Agreement
An agreement within the United Nations Framework Convention on
Climate Change effective 4 November 2016. The Agreement aims to
limit the increase in average global temperatures to well below
2degC, preferably to 1.5degC, compared to pre-industrial
levels.
Pension risk transfer (PRT)
Bulk annuities bought by entities that run nal salary pension
schemes to reduce their responsibilities by closing the schemes to
new members and passing the assets and obligations to insurance
providers.
Persistency
Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM. For
insurance, persistency is the rate at which policies are retained
over time and therefore continue to contribute premium income and
asset under management.
Platform
Online services used by intermediaries and consumers to view and
administer their investment portfolios. Platforms usually provide
facilities for buying and selling investments (including, in the UK
products such as Individual Savings Accounts (ISAs), Self-Invested
Personal Pensions (SIPPs) and life insurance) and for viewing an
individual's entire portfolio to assess asset allocation and risk
exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted
value of annual premiums expected to be received over the term of
the contracts using the same economic and operating assumptions
used for the new business value at the end of the financial period.
The discounted value of longevity insurance regular premiums and
quota share reinsurance single premiums are calculated on a net of
reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the
premiums associated with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed,
minus derivative assets, loans, and cash and cash equivalents.
Qualifying Investor Alternative Investment Fund (QIAIF)
An alternative investment fund regulated in Ireland targeted at
sophisticated and institutional investors, with minimum
subscription and eligibility requirements. Due to not being subject
to many investment or borrowing restrictions, QIAIFs present a high
level of flexibility in their investment strategy.
Real assets
Real assets encompass a wide variety of tangible debt and equity
investments, primarily real estate, infrastructure and energy. They
have the ability to serve as stable sources of long-term income in
weak markets, while also providing capital appreciation
opportunities in strong markets.
Retail Retirement new business
Single premiums arising from annuity sales and individual
annuity back book acquisitions and the volume of lifetime and
retirement interest only mortgage lending.
Retirement Interest Only Mortgage (RIO)
A standard retirement mortgage available for non-commercial
borrowers above 55 years old. A RIO mortgage is very similar to a
standard interest-only mortgage, with two key differences:
- The loan is usually only paid off on death, move into
long-term care or sale of the house.
- The borrowers only have to prove they can afford the monthly
interest repayments and not the capital remaining at the end of the
mortgage term.
No repayment solution is required as repayment defaults to sale
of property.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk adjustment
The risk adjustment reflects the compensation that the group
would require for bearing uncertainty about the amount and timing
of the cash flows that arises from non-financial risk after
diversification. We have calibrated the group's risk adjustment
using a Value at Risk (VAR) methodology. In some cases, the
compensation for risk on reinsured business is linked directly to
the price paid for reinsurance. The risk adjustment is a component
of the insurance contract liability, and it is released as profit
if experience plays out as expected.
Risk appetite
The aggregate level and types of risk a company is willing to
assume in its exposures and business activities in order to achieve
its business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the
terms of the policy do not anticipate more than one premium being
paid over its lifetime, such as in individual and bulk annuity
deals.
Société d'Investissement à Capital Variable (SICAV)
A publicly traded open-end investment fund structure offered in
Europe and regulated under European law.
Solvency II
The Solvency II regulatory regime is a harmonised prudential
framework for insurance rms in the EEA. This single market approach
is based on economic principles that measure assets and liabilities
to appropriately align insurers' risk with the capital they hold to
safeguard the policyholders' interest.
Solvency II capital coverage ratio*
Refer to the alternative performance measures section.
Solvency II capital coverage ratio - regulatory basis
The Eligible Own Funds on a regulatory basis divided by the
group solvency capital requirement. This represents the number of
times the SCR is covered by Eligible Own Funds.
Solvency II new business contribution
Reflects present value at the point of sale of expected future
Solvency II surplus emerging from new business written in the
period using the risk discount rate applicable at the end of the
reporting period.
Solvency II Operational Surplus Generation*
Refer to the alternative performance measures section.
Solvency II risk margin
An additional liability required in the Solvency II balance
sheet, to ensure the total value of technical provisions is equal
to the current amount a (re)insurer would have to pay if it were to
transfer its insurance and reinsurance obligations immediately to
another (re)insurer. The value of the risk margin represents the
cost of providing an amount of Eligible Own Funds equal to the
Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over
the lifetime thereof.
Solvency II surplus*
Refer to the alternative performance measures section.
Solvency II surplus - regulatory basis
The excess of Eligible Own Funds on a regulatory basis over the
SCR. This represents the amount of capital available to the company
in excess of that required to sustain it in a 1-in-200 year risk
event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses
occurring in a 1-in-200 year risk event.
Specialised Investment Fund (SIF)
An investment vehicle regulated in Luxembourg targeted to
well-informed investors, providing a great degree of flexibility in
organization, investment policy and types of underlying assets in
which it can invest.
Total shareholder return (TSR)
A measure used to compare the performance of different
companies' stocks and shares over time. It combines the share price
appreciation and dividends paid to show the total return to the
shareholder.
Transitional Measures on Technical Provisions (TMTP)
An adjustment to Solvency II technical provisions to bring them
into line with the pre-Solvency II equivalent as at 1 January 2016
when the regulatory basis switched over, to smooth the introduction
of the new regime. This decreases linearly over the 16 years
following Solvency II implementation but may be recalculated to
allow for changes impacting the relevant business, subject to
agreement with the PRA.
Yield
A measure of the income received from an investment compared to
the price paid for the investment. It is usually expressed as a
percentage.
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END
IR NKQBBCBKDCFD
(END) Dow Jones Newswires
August 15, 2023 02:00 ET (06:00 GMT)
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