L&G Full Year Results 2023
Part 2
IFRS Disclosures on
performance
1.01 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.
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, are included in the group's 2023
Annual Report and Accounts.
IFRS 17 and IFRS 9 have been applied retrospectively
and prior period comparative information has been restated, with
all restatements clearly labelled as such throughout this
report.
Prior period comparative information reflecting the
implementation of IFRS 17 and IFRS 9 was initially provided in the
group's interim financial statements for the period ending 30 June
2023. This information was unaudited. Since that time, and in
particular as a result of the detailed work and review undertaken
to finalise the numbers included in this report and in the group's
2023 Annual Report and Accounts, which has now been audited,
certain adjustments have been identified which have now been
reflected in the prior period comparatives. This includes a £154m
reclassification between Change in investment contract liabilities
and Other expenses in the Consolidated Income Statement, with no
impact on profit. In total, the impact of these adjustments on
equity attributable to owners of the parent was an increase of £19m
as at 1 January 2022, and a decrease of £45m as at 31 December
2022.
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.
Balance sheet item
|
31
December
2021
(as
reported)
£m
|
Reclassification due to
adoption of IFRS 9 and IFRS 17
£m
|
Impact of the adoption of
IFRS 9
£m
|
Impact of the adoption of
IFRS 17
£m
|
1 January
2022
(restated)
£m
|
Financial investments
|
538,374
|
(29)
|
(716)
|
-
|
537,629
|
Net insurance contract
liabilities1
|
(82,645)
|
(199)
|
-
|
(6,133)
|
(88,977)
|
Net deferred tax
(liabilities)/assets
|
(249)
|
-
|
178
|
1,178
|
1,107
|
Other
|
(444,994)
|
228
|
-
|
(33)
|
(444,799)
|
Equity attributable to owners of
the parent
|
10,486
|
-
|
(538)
|
(4,988)
|
4,960
|
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.
1.02 Operating
profit#
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
2023
|
2022
|
For the year ended 31 December 2023
|
|
Notes
|
£m
|
£m
|
Legal & General Retirement
Institutional (LGRI)
|
|
1.03
|
886
|
807
|
Legal & General Capital
(LGC)
|
|
1.04
|
510
|
509
|
Legal & General Investment
Management (LGIM)
|
|
1.05
|
274
|
340
|
Retail
|
|
1.03
|
408
|
415
|
- Insurance
|
|
|
138
|
165
|
- Retail
Retirement
|
|
|
270
|
250
|
|
|
|
|
|
Operating profit from divisions
|
|
|
2,078
|
2,071
|
Group debt
costs1
|
|
|
(212)
|
(214)
|
Group investment projects and
expenses
|
|
|
(199)
|
(194)
|
Operating profit
|
|
|
1,667
|
1,663
|
Investment and other
variances
|
|
1.06
|
(1,577)
|
(794)
|
Losses attributable to
non-controlling interests
|
|
|
(14)
|
(1)
|
Adjusted profit before tax attributable to equity
holders
|
|
|
76
|
868
|
Tax credit/(expense) attributable
to equity holders
|
|
3.04
|
367
|
(86)
|
Profit for the year
|
|
2.01
|
443
|
782
|
Total tax
(credit)/expense
|
|
2.01
|
(248)
|
157
|
Profit before tax
|
|
2.01
|
195
|
939
|
Profit attributable to equity holders
|
|
|
457
|
783
|
Earnings per share:
|
|
|
|
|
Basic (pence per share)2
|
|
1.08
|
7.35
|
12.84
|
Diluted (pence per share)2
|
|
1.08
|
7.28
|
12.47
|
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 year. 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 year 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.
1.02 Operating profit#
(continued)
Shareholder funds
Shareholder funds include both the group's traded
investments 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 investments 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.
1.03 Analysis of LGRI and Retail
operating profit#
|
LGRI
|
Retail
|
LGRI
|
Retail
|
|
2023
|
2023
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
Amortisation of the CSM in the
year1
|
591
|
446
|
497
|
424
|
Release of risk adjustment in the
year
|
119
|
74
|
136
|
85
|
Experience variances
|
(14)
|
(17)
|
15
|
(92)
|
Development of losses on onerous
contracts
|
1
|
(27)
|
1
|
(7)
|
Other
expenses2
|
(160)
|
(121)
|
(130)
|
(113)
|
Insurance investment
margin3
|
344
|
81
|
280
|
60
|
Investment contracts and
non-insurance operating profit
|
5
|
(28)
|
8
|
58
|
Total LGRI and Retail operating profit
|
886
|
408
|
807
|
415
|
1. Contractual service
margin (CSM) amortisation for Retail has been reduced by £16m
(2022: £17m) to exclude the impact of reinsurance
mismatches.
2. Other expenses are
non-attributable expenses on both new business and existing
business. These are overhead costs which are not allowed for in the
CSM or the best estimate liability unit cost assumptions, and
instead are reported within the Consolidated Income Statement as
part of the profit or loss for the year.
3. 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.
1.04 LGC operating
profit#
|
|
2023
|
2022
|
|
|
£m
|
£m
|
Direct
investments1
|
371
|
400
|
Traded investment portfolio
including treasury assets2
|
139
|
109
|
Total LGC operating profit
|
510
|
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 £106m (2022:
£172m).
2. The traded investment portfolio
holds a diversified set of exposures across equities, bonds,
derivative assets, loans and cash.
1.05 LGIM operating
profit#
|
|
|
2023
|
2022
|
|
|
|
£m
|
£m
|
Asset management revenue
(excluding third-party market data)1
|
876
|
944
|
Asset management transactional
revenue2
|
26
|
26
|
Asset management expenses
(excluding third-party market data)1
|
(628)
|
(630)
|
Total LGIM operating profit
|
274
|
340
|
1. Asset management revenue and
expenses exclude income and costs of £26m in relation to the
provision of third-party market data (2022: £30m).
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.
1.06 Investment and other
variances
|
|
|
Restated
|
|
|
2023
|
2022
|
|
|
£m
|
£m
|
LGRI and Retail
|
|
|
|
- Net impact of investment returns
less than expectation and change in liability discount
rates1
|
|
(584)
|
(115)
|
- Other
|
|
(16)
|
-
|
Total LGRI and Retail
|
|
(600)
|
(115)
|
LGC investment variance
|
|
(351)
|
(428)
|
Other investment
variance2
|
|
(427)
|
(119)
|
Investment variance
|
|
(1,378)
|
(662)
|
M&A related and other
variances3
|
|
(199)
|
(132)
|
Total investment and other variances
|
|
(1,577)
|
(794)
|
1. Investment
variance for LGRI and Retail includes a £318m expense (2022: £167m
expense) arising from rate differences on longevity assumption
changes in the period.
2. Other investment variance
includes the £167m one-off settlement cost associated with the
buy-out of the group's UK defined benefit pension schemes (see Note
3.14 (iii) for further information) along with the current service
costs and net interest expense up until that transaction. It also
includes costs that 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.
3. 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 year ended 31
December 2023 includes £181m 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. Changes in non-financial
assumptions, including longevity, recalibrate the CSM at locked-in
point-of-sale discount rates whilst the fulfilment cash flows are
measured at current discount rates, thereby creating a component of
investment variance between these different bases.
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:
|
2023
|
2022
|
Equities
|
7%
|
7%
|
Commercial property
|
5%
|
5%
|
Residential property
|
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.
1.07 Risk adjustment (RA) and
Contractual service margin (CSM) analysis
|
|
Net of reinsurance
RA
|
Net of reinsurance
RA
|
Net of reinsurance
CSM
|
Net of reinsurance
CSM
|
|
|
LGRI
|
Retail
|
LGRI
|
Retail
|
|
|
£m
|
£m
|
£m
|
£m
|
As at 1 January 2023
|
|
649
|
883
|
7,448
|
4,490
|
CSM recognised for services
provided/received
|
|
-
|
-
|
(591)
|
(462)
|
Release of risk
adjustment
|
|
(119)
|
(74)
|
-
|
-
|
Changes in estimates which adjust
the CSM
|
|
6
|
(26)
|
424
|
204
|
Changes in estimates that result
in losses or reversal of losses on underlying onerous
contracts
|
|
-
|
(1)
|
-
|
8
|
Contracts initially recognised in
the year
|
|
161
|
32
|
865
|
320
|
Finance expenses from insurance
contracts
|
|
114
|
105
|
220
|
134
|
Effect of movements in exchange
rates
|
|
(4)
|
(28)
|
(16)
|
(50)
|
As at 31 December 2023
|
|
807
|
891
|
8,350
|
4,644
|
|
|
Net of
reinsurance RA
|
Net of
reinsurance RA
|
Net of
reinsurance CSM
|
Net of
reinsurance CSM
|
|
|
LGRI
|
Retail
|
LGRI
|
Retail
|
|
|
£m
|
£m
|
£m
|
£m
|
As at 1 January 2022
|
|
1,230
|
1,271
|
6,946
|
4,170
|
CSM recognised for services
provided/received
|
|
-
|
-
|
(497)
|
(441)
|
Release of risk
adjustment
|
|
(136)
|
(85)
|
-
|
-
|
Changes in estimates which adjust
the CSM
|
|
(34)
|
3
|
197
|
264
|
Changes in estimates that result
in losses or reversal of losses on underlying onerous
contracts
|
|
-
|
(2)
|
-
|
-
|
Contracts initially recognised in
the year
|
|
80
|
28
|
613
|
287
|
Finance (income)/expenses from
insurance contracts
|
|
(498)
|
(408)
|
165
|
105
|
Effect of movements in exchange
rates
|
|
7
|
76
|
24
|
105
|
As at 31 December 2022
|
|
649
|
883
|
7,448
|
4,490
|
The amounts presented reflect the net CSM
amortisation expected to be recognised in operating profit in
future periods from the business in-force at the end of the year,
excluding the adjustment for reinsurance mismatches relating to
protection business (described in Note 1.03). Actual CSM
amortisation in future periods will differ from that presented due
to the impacts of future new business, recalibrations of the CSM
and changes in the future coverage units. The total amount
presented exceeds the carrying value of the CSM as it incorporates
the future accretion of interest.
1.08 Earnings per share
(i) Basic earnings per
share
|
|
|
Restated
|
Restated
|
|
After tax
|
Per
share1
|
After
tax
|
Per
share1
|
|
2023
|
2023
|
2022
|
2022
|
|
£m
|
p
|
£m
|
p
|
Profit for the year attributable to equity
holders
|
457
|
7.73
|
783
|
13.23
|
Less: coupon payable in respect of
restricted Tier 1 convertible notes net of tax relief
|
(22)
|
(0.38)
|
(23)
|
(0.39)
|
Total basic earnings
|
435
|
7.35
|
760
|
12.84
|
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
|
|
|
After tax
|
Weighted
average
number of
shares
|
Per
share1
|
For the year ended 31 December 2023
|
|
|
£m
|
m
|
p
|
Profit for the year attributable to equity
holders
|
457
|
5,915
|
7.73
|
Net shares under options allocable
for no further consideration
|
-
|
59
|
(0.08)
|
Conversion of restricted Tier 1
notes
|
|
|
-
|
307
|
(0.37)
|
Total diluted earnings
|
|
|
457
|
6,281
|
7.28
|
|
|
|
Restated
After
tax
|
Weighted
average
number
of
shares
|
Restated
Per
share1
|
For the year ended 31 December
2022
|
£m
|
m
|
p
|
Profit for the year attributable
to equity holders
|
783
|
5,917
|
13.23
|
Net shares under options allocable
for no further consideration
|
-
|
55
|
(0.12)
|
Conversion of restricted Tier 1
notes
|
|
|
-
|
307
|
(0.64)
|
Total diluted earnings
|
783
|
6,279
|
12.47
|
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.
1.09 Segmental analysis
The group has five reportable segments, comprising
LGRI, LGC, LGIM, Insurance and Retail Retirement as set out in Note
1.02. Group expenses and debt costs are 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 year.
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
year
|
|
|
|
|
|
Group
|
|
|
|
|
|
|
|
expenses
|
|
|
|
|
|
|
Retail
|
and debt
|
|
|
LGRI
|
LGC
|
LGIM
|
Insurance
|
Retirement
|
costs
|
Total
|
For the year ended 31 December 2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Operating profit/(loss)#
|
886
|
510
|
274
|
138
|
270
|
(411)
|
1,667
|
Investment and other
variances
|
(449)
|
(487)
|
(76)
|
(81)
|
(119)
|
(365)
|
(1,577)
|
Losses attributable to
non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
(14)
|
(14)
|
Profit/(loss) before tax attributable to equity
holders
|
437
|
23
|
198
|
57
|
151
|
(790)
|
76
|
Tax credit/(expense) attributable
to equity holders
|
244
|
18
|
(49)
|
(40)
|
63
|
131
|
367
|
Profit/(loss) for the year
|
681
|
41
|
149
|
17
|
214
|
(659)
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
|
|
|
|
|
|
expenses
|
|
|
|
|
|
|
Retail
|
and
debt
|
|
|
LGRI
|
LGC
|
LGIM
|
Insurance
|
Retirement
|
costs
|
Total
|
For the year ended 31 December
2022 (Restated)
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Operating
profit/(loss)#
|
807
|
509
|
340
|
165
|
250
|
(408)
|
1,663
|
Investment and other
variances
|
(137)
|
(428)
|
(81)
|
69
|
(47)
|
(170)
|
(794)
|
Losses attributable to
non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
Profit/(loss) before tax
attributable to equity holders
|
670
|
81
|
259
|
234
|
203
|
(579)
|
868
|
Tax (expense)/credit attributable
to equity holders
|
(121)
|
(26)
|
(30)
|
(11)
|
(32)
|
134
|
(86)
|
Profit/(loss) for the
year
|
549
|
55
|
229
|
223
|
171
|
(445)
|
782
|
|
# All references to 'Operating
profit' throughout this report represent 'Adjusted operating
profit', an alternative performance measure defined in the
glossary.
1.09 Segmental analysis (continued)
(ii) Revenue
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 3.11. 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.
|
|
|
|
Retail
|
LGC and
|
|
|
LGRI
|
LGIM1,2
|
Insurance
|
Retirement
|
other3
|
Total
|
For the year ended 31 December 2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Internal revenue
|
-
|
169
|
-
|
-
|
(169)
|
-
|
External revenue
|
5,255
|
720
|
3,114
|
1,469
|
1,553
|
12,111
|
Total revenue
|
5,255
|
889
|
3,114
|
1,469
|
1,384
|
12,111
|
|
|
|
|
Retail
|
LGC
and
|
|
|
LGRI
|
LGIM1,2
|
Insurance
|
Retirement
|
other3
|
Total
|
For the year ended 31 December
2022 (Restated)
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Internal revenue
|
-
|
178
|
-
|
-
|
(178)
|
-
|
External revenue
|
4,492
|
801
|
3,086
|
1,335
|
1,452
|
11,166
|
Total revenue
|
4,492
|
979
|
3,086
|
1,335
|
1,274
|
11,166
|
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.
IFRS Primary Financial
Statements
2.01 Consolidated Income Statement
|
|
|
Restated1
|
|
|
2023
|
2022
|
For the year ended 31 December 2023
|
Notes
|
£m
|
£m
|
Insurance revenue
|
3.11
|
9,624
|
8,683
|
Insurance service
expenses
|
3.11
|
(8,373)
|
(7,497)
|
Insurance service result before reinsurance contracts
held
|
|
1,251
|
1,186
|
Net expense from reinsurance contracts held
|
3.11
|
(137)
|
(145)
|
Insurance service result
|
3.11
|
1,114
|
1,041
|
Investment return
|
|
32,973
|
(98,352)
|
Finance (expense)/income from
insurance contracts
|
|
(5,830)
|
19,114
|
Finance income from reinsurance
contracts
|
|
584
|
6
|
Change in investment contract
liabilities
|
|
(27,116)
|
79,889
|
Insurance and investment result
|
|
1,725
|
1,698
|
Other operational
income
|
|
1,571
|
1,646
|
Fees from fund management and
investment contracts
|
|
825
|
899
|
Acquisition costs
|
|
(149)
|
(103)
|
Other finance costs
|
|
(347)
|
(290)
|
Other expenses
|
|
(3,430)
|
(2,911)
|
Total other income and expenses
|
|
(1,530)
|
(759)
|
Profit before tax
|
|
195
|
939
|
Tax expense attributable to
policyholder returns
|
|
(119)
|
(71)
|
Profit before tax attributable to equity
holders
|
|
76
|
868
|
Total tax
credit/(expense)
|
|
248
|
(157)
|
Tax expense attributable to
policyholder returns
|
|
119
|
71
|
Tax credit/(expense) attributable
to equity holders
|
3.04
|
367
|
(86)
|
Profit for the year
|
|
443
|
782
|
|
|
|
|
Attributable to:
|
|
|
|
Non-controlling
interests
|
|
(14)
|
(1)
|
Equity holders
|
|
457
|
783
|
|
|
|
|
Dividend distributions to equity
holders during the year
|
3.02
|
1,172
|
1,116
|
Dividend distributions to equity
holders proposed after the year end
|
3.02
|
871
|
829
|
|
|
|
|
|
|
|
|
|
|
p
|
p
|
Total basic earnings per share2
|
1.08
|
7.35
|
12.84
|
Total diluted earnings per
share2
|
1.08
|
7.28
|
12.47
|
1. Prior year comparatives have
been restated to reflect the implementation of IFRS 17 and IFRS 9.
They also reflect a small number of adjustments to the (unaudited)
prior period comparatives that were included in the group's interim
financial statements for the period ending 30 June 2023. Further
information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this
report and in the group's consolidated financial statements.
2. All earnings per share
calculations are based on profit attributable to equity holders of
the company.
2.02 Consolidated Statement of
Comprehensive Income
|
|
Restated1
|
|
2023
|
2022
|
For the year ended 31 December 2023
|
£m
|
£m
|
Profit for the year
|
443
|
782
|
Items that will not be reclassified subsequently to profit or
loss
|
|
|
Actuarial remeasurements on
defined benefit pension schemes
|
(29)
|
26
|
Tax on actuarial remeasurements on
defined benefit pension schemes
|
8
|
(6)
|
Total items that will not be reclassified subsequently to
profit or loss
|
(21)
|
20
|
Items that may be reclassified subsequently to profit or
loss
|
|
|
Exchange differences on
translation of overseas operations
|
(6)
|
(21)
|
Movement in cross-currency
hedge
|
(37)
|
40
|
Tax on movement in cross-currency
hedge
|
9
|
(10)
|
Movement in financial investments
measured at FVOCI
|
75
|
(132)
|
Tax on movement in financial
investments measured at FVOCI
|
(18)
|
28
|
Insurance finance (expense)/income
for insurance contracts applying the OCI option
|
(73)
|
1,753
|
Reinsurance finance
income/(expense) for reinsurance contracts applying the OCI
option
|
43
|
(1,030)
|
Tax on movement in finance
income/(expense) for insurance and reinsurance contracts
|
6
|
(169)
|
Total items that may be reclassified subsequently to profit
or loss
|
(1)
|
459
|
Other comprehensive (expense)/income after
tax
|
(22)
|
479
|
Total comprehensive income for the year
|
421
|
1,261
|
Total comprehensive income/(expense) for the year
attributable to:
|
|
|
Non-controlling
interests
|
(14)
|
(1)
|
Equity holders
|
435
|
1,262
|
1. Prior year comparatives have
been restated to reflect the implementation of IFRS 17 and IFRS 9.
They also reflect a small number of adjustments to the (unaudited)
prior period comparatives that were included in the group's interim
financial statements for the period ending 30 June 2023. Further
information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this
report and in the group's consolidated financial statements.
2.03 Consolidated Balance Sheet
|
|
|
Restated1
|
Restated1
|
|
|
2023
|
2022
|
2021
|
As at 31 December 2023
|
Notes
|
£m
|
£m
|
£m
|
Assets
|
|
|
|
|
Goodwill
|
|
73
|
71
|
68
|
Intangible assets
|
|
477
|
441
|
365
|
Investment in associates and joint
ventures accounted for using the equity method
|
|
616
|
554
|
375
|
Property, plant and
equipment
|
|
433
|
326
|
316
|
Investment property
|
3.03
|
8,893
|
9,372
|
10,150
|
Financial investments
|
3.03
|
471,405
|
446,558
|
537,629
|
Reinsurance contract
assets
|
3.11
|
7,306
|
4,713
|
4,652
|
Deferred tax assets
|
3.04
|
1,714
|
1,440
|
1,167
|
Current tax assets
|
|
885
|
802
|
670
|
Receivables and other
assets
|
|
9,780
|
13,209
|
8,543
|
Cash and cash
equivalents
|
|
20,513
|
35,784
|
16,487
|
Total assets
|
|
522,095
|
513,270
|
580,422
|
Equity
|
|
|
|
|
Share capital
|
3.05
|
149
|
149
|
149
|
Share premium
|
3.05
|
1,030
|
1,018
|
1,012
|
Employee scheme treasury
shares
|
|
(147)
|
(144)
|
(99)
|
Capital redemption and other
reserves
|
|
326
|
337
|
(135)
|
Retained earnings
|
|
2,973
|
3,707
|
4,033
|
Attributable to owners of the parent
|
|
4,331
|
5,067
|
4,960
|
Restricted Tier 1 convertible
notes
|
3.06
|
495
|
495
|
495
|
Non-controlling
interests
|
3.07
|
(42)
|
(29)
|
(38)
|
Total equity
|
|
4,784
|
5,533
|
5,417
|
Liabilities
|
|
|
|
|
Insurance contract
liabilities
|
3.11
|
91,446
|
78,214
|
93,627
|
Reinsurance contract
liabilities
|
3.11
|
220
|
52
|
2
|
Investment contract
liabilities
|
|
316,872
|
286,830
|
372,954
|
Core borrowings
|
3.08
|
4,280
|
4,338
|
4,256
|
Operational borrowings
|
3.09
|
1,840
|
1,219
|
932
|
Provisions
|
3.14
|
258
|
890
|
1,238
|
Deferred tax
liabilities
|
3.04
|
107
|
206
|
60
|
Current tax liabilities
|
|
77
|
69
|
84
|
Payables and other financial
liabilities
|
3.10
|
78,439
|
93,905
|
73,858
|
Other liabilities
|
|
680
|
763
|
1,028
|
Net asset value attributable to
unit holders
|
|
23,092
|
41,251
|
26,966
|
Total liabilities
|
|
517,311
|
507,737
|
575,005
|
Total equity and liabilities
|
|
522,095
|
513,270
|
580,422
|
1. Prior year comparatives have
been restated to reflect the implementation of IFRS 17 and IFRS 9.
They also reflect a small number of adjustments to the (unaudited)
prior period comparatives that were included in the group's interim
financial statements for the period ending 30 June 2023. Further
information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this
report and in the group's consolidated financial statements.
2.04 Consolidated Statement of
Changes in Equity
|
|
|
Employee
|
Capital
|
|
Equity
|
Restricted
|
|
|
|
|
|
scheme
|
redemption
|
|
attributable
|
Tier 1
|
Non-
|
|
|
Share
|
Share
|
treasury
|
and other
|
Retained
|
to owners
|
convertible
|
controlling
|
Total
|
For the year ended 31 December 2023
|
capital
|
premium
|
shares
|
reserves1
|
earnings
|
of the
parent
|
notes
|
interests
|
equity
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
As at 1 January 2023
|
149
|
1,018
|
(144)
|
337
|
3,707
|
5,067
|
495
|
(29)
|
5,533
|
Profit/(loss) for the
year
|
-
|
-
|
-
|
-
|
457
|
457
|
-
|
(14)
|
443
|
Exchange differences on
translation of overseas operations
|
-
|
-
|
-
|
(6)
|
-
|
(6)
|
-
|
-
|
(6)
|
Net movement in cross-currency
hedge
|
-
|
-
|
-
|
(28)
|
-
|
(28)
|
-
|
-
|
(28)
|
Net actuarial remeasurements on
defined benefit pension schemes
|
-
|
-
|
-
|
-
|
(21)
|
(21)
|
-
|
-
|
(21)
|
Net movement in financial
investments measured at FVOCI
|
-
|
-
|
-
|
57
|
-
|
57
|
-
|
-
|
57
|
Net insurance finance
expense
|
-
|
-
|
-
|
(24)
|
-
|
(24)
|
-
|
-
|
(24)
|
Total comprehensive
(expense)/income for the year
|
-
|
-
|
-
|
(1)
|
436
|
435
|
-
|
(14)
|
421
|
Options exercised under share
option schemes
|
-
|
12
|
-
|
-
|
-
|
12
|
-
|
-
|
12
|
Shares purchased
|
-
|
-
|
(18)
|
-
|
-
|
(18)
|
-
|
-
|
(18)
|
Shares vested
|
-
|
-
|
15
|
(69)
|
-
|
(54)
|
-
|
-
|
(54)
|
Employee scheme treasury
shares:
- Value of employee
services
|
-
|
-
|
-
|
59
|
-
|
59
|
-
|
-
|
59
|
Share scheme transfers to retained
earnings
|
-
|
-
|
-
|
-
|
24
|
24
|
-
|
-
|
24
|
Dividends
|
-
|
-
|
-
|
-
|
(1,172)
|
(1,172)
|
-
|
-
|
(1,172)
|
Coupon payable in respect of
restricted Tier 1 convertible notes net of tax relief
|
-
|
-
|
-
|
-
|
(22)
|
(22)
|
-
|
-
|
(22)
|
Movement in third party
interests
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
As at 31 December 2023
|
149
|
1,030
|
(147)
|
326
|
2,973
|
4,331
|
495
|
(42)
|
4,784
|
1. Capital redemption and other
reserves as at 31 December 2023 include share-based payments £89m,
foreign exchange £41m, capital redemption £17m, hedging £46m,
insurance and reinsurance finance for contracts applying the OCI
option £176m and financial assets at FVOCI £(43)m.
2.04 Consolidated Statement of
Changes in Equity (continued)
|
|
|
Employee
|
Capital
|
|
Equity
|
Restricted
|
|
|
|
|
|
scheme
|
redemption
|
|
attributable
|
Tier
1
|
Non-
|
|
|
Share
|
Share
|
treasury
|
and
other
|
Retained
|
to
owners
|
convertible
|
controlling
|
Total
|
|
capital
|
premium
|
shares
|
reserves1
|
earnings
|
of the
parent
|
notes
|
interests
|
equity
|
For the year ended 31 December
2022
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
As at 1 January 2022 (as
previously reported)
|
149
|
1,012
|
(99)
|
196
|
9,228
|
10,486
|
495
|
(38)
|
10,943
|
Impact of initial application of
IFRS 17
|
-
|
-
|
-
|
(334)
|
(4,654)
|
(4,988)
|
-
|
-
|
(4,988)
|
Impact of initial application of
IFRS 9
|
-
|
-
|
-
|
3
|
(541)
|
(538)
|
-
|
-
|
(538)
|
As at 1 January 2022
(Restated)2
|
149
|
1,012
|
(99)
|
(135)
|
4,033
|
4,960
|
495
|
(38)
|
5,417
|
Profit/(loss) for the
year
|
-
|
-
|
-
|
-
|
783
|
783
|
-
|
(1)
|
782
|
Exchange differences on
translation of overseas operations
|
-
|
-
|
-
|
(21)
|
-
|
(21)
|
-
|
-
|
(21)
|
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
|
-
|
-
|
-
|
554
|
-
|
554
|
-
|
-
|
554
|
Total comprehensive
income/(expense) for the year
|
-
|
-
|
-
|
459
|
803
|
1,262
|
-
|
(1)
|
1,261
|
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)2
|
149
|
1,018
|
(144)
|
337
|
3,707
|
5,067
|
495
|
(29)
|
5,533
|
1. Capital redemption and other
reserves as at 31 December 2022 include share-based payments £99m,
foreign exchange £43m, capital redemption £17m, hedging £78m,
insurance and reinsurance finance for contracts applying the OCI
option £205m and financial assets at FVOCI £(105)m.
2. Prior year comparatives have
been restated to reflect the implementation of IFRS 17 and IFRS 9.
They also reflect a small number of adjustments to the (unaudited)
prior period comparatives that were included in the group's interim
financial statements for the period ending 30 June 2023. Further
information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this
report and in the group's consolidated financial statements.
2.05 Consolidated Statement of
Cash Flows
|
|
|
Restated1
|
|
|
2023
|
2022
|
For the year ended 31 December 2023
|
Notes
|
£m
|
£m
|
Cash flows from operating activities
|
|
|
|
Profit for the year
|
|
443
|
782
|
Adjustments for non-cash movements in net profit for the
year
|
|
|
|
Net (gains)/losses on financial
investments and investment property
|
|
(21,567)
|
107,469
|
Investment income
|
|
(11,406)
|
(9,117)
|
Interest expense
|
|
347
|
290
|
Tax (credit)/expense
|
|
(248)
|
157
|
Other adjustments
|
|
112
|
113
|
Net (increase)/decrease in operational
assets
|
|
|
|
Investments mandatorily measured
at FVTPL
|
|
(7,478)
|
22,052
|
Investments measured at
FVOCI
|
|
(1,344)
|
(1,025)
|
Investments measured at amortised
cost
|
|
(126)
|
(93)
|
Other assets
|
|
3,218
|
(5,215)
|
Net increase/(decrease) in operational
liabilities
|
|
|
|
Insurance contracts and
reinsurance contracts held
|
|
11,153
|
(15,625)
|
Investment contracts
|
|
30,045
|
(86,132)
|
Other liabilities
|
|
(26,682)
|
(952)
|
Cash (utilised in)/generated from
operations
|
|
(23,533)
|
12,704
|
Interest paid
|
|
(469)
|
(290)
|
Interest
received2
|
|
5,210
|
3,525
|
Rent received
|
|
437
|
404
|
Tax paid3
|
|
(186)
|
(570)
|
Dividends received
|
|
4,297
|
4,691
|
Net cash flows from operations
|
|
(14,244)
|
20,464
|
Cash flows from investing activities
|
|
|
|
Acquisition of property, plant and
equipment, intangibles and other assets
|
|
(237)
|
(187)
|
Acquisition of operations, net of
cash acquired
|
|
(9)
|
(2)
|
Investment in joint ventures and
associates
|
|
(184)
|
(101)
|
Disposal of joint ventures and
associates
|
|
8
|
64
|
Net cash flows utilised in investing
activities
|
|
(422)
|
(226)
|
Cash flows from financing activities
|
|
|
|
Dividend distributions to ordinary
equity holders during the year
|
3.02
|
(1,172)
|
(1,116)
|
Coupon payment in respect of
restricted Tier 1 convertible notes, gross of tax
|
3.06
|
(28)
|
(28)
|
Options exercised under share
option schemes
|
3.05
|
12
|
6
|
Treasury shares purchased for
employee share schemes
|
|
(18)
|
(59)
|
Payment of lease
liabilities
|
|
(32)
|
(44)
|
Proceeds from
borrowings
|
|
1,226
|
945
|
Repayment of borrowings
|
|
(544)
|
(737)
|
Net cash flows utilised in financing
activities
|
|
(556)
|
(1,033)
|
Net (decrease)/increase in cash and cash
equivalents
|
|
(15,222)
|
19,205
|
Exchange (losses)/gains on cash
and cash equivalents
|
|
(49)
|
92
|
Cash and cash equivalents at 1
January
|
|
35,784
|
16,487
|
Total cash and cash equivalents at 31
December
|
|
20,513
|
35,784
|
1. Prior year comparatives have
been restated to reflect the implementation of IFRS 17 and IFRS 9.
They also reflect a small number of adjustments to the (unaudited)
prior period comparatives that were included in the group's interim
financial statements for the period ending 30 June 2023. Further
information can be found in Note 1.01. These corrections have been
applied consistently to all affected disclosure notes in this
report and in the group's consolidated financial statements.
2. Interest received comprises of
net interest received from financial instruments at fair value
through profit or loss and other financial instruments.
3. Tax paid comprises UK
corporation tax of £nil (2022: £358m), withholding tax of £179m
(2022: £204m) and overseas corporate tax of £7m (2022: £8m).
IFRS Disclosure Notes
3.01 Basis of
preparation
The preliminary announcement for the year ended 31
December 2023 does not constitute statutory accounts as defined in
Section 434 of the Companies Act 2006. The financial information in
this preliminary announcement has been derived from the group
financial statements within the group's 2023 Annual Report and
Accounts (including financial information for 31 December 2022 as
restated for the adoption of IFRS 17 and IFRS 9), which will be
made available on the group's website on 13 March 2024. The group's
2022 Annual Report and Accounts have been filed with the Registrar
of Companies, and those for 2023 will be delivered in due course.
KPMG have reported on the 2023 and 2022 Annual Report and Accounts.
Both their reports were: (i) unqualified; (ii) did not include a
reference to any matters to which they 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.
The group financial statements have been prepared in
accordance with UK-adopted international accounting standards,
comprising International Accounting Standards and International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), and related interpretations
issued by the IFRS Interpretations Committee. Endorsement is
granted by the UK Endorsement Board. The group financial statements
have been prepared under the historical cost convention, as
modified by the revaluation of investment property, certain
financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss and financial
assets at fair value through other comprehensive income.
The group has selected accounting policies which
state fairly its financial position, financial performance and cash
flows for a reporting period. The accounting policies have been
consistently applied to all years presented, unless otherwise
stated.
Financial assets and financial liabilities are
disclosed gross in the Consolidated Balance Sheet unless a legally
enforceable right of offset exists and there is an intention to
settle recognised amounts on a net basis. Income and expenses are
not offset in the Consolidated Income Statement unless required or
permitted by any accounting standard or interpretations by the IFRS
Interpretations Committee.
Foreign currency transactions are translated into
the functional currency using the exchange rate prevailing at the
date of the transactions. The functional currency of the group's
foreign operations is the currency of the primary economic
environment in which the entity operates. The assets and
liabilities of all of the group's foreign operations are translated
into sterling, the group's presentation currency, at the closing
rate at the date of the balance sheet. The income and expenses for
the income statement are translated at average exchange rates. On
consolidation, exchange differences arising from the translation of
the net investment in foreign entities and of borrowings and other
currency instruments designated as hedges of such investments, are
taken to a separate component of shareholders' equity.
Critical accounting
judgements and the use of estimates
The preparation of the financial statements includes
the use of estimates and assumptions which affect items reported in
the Consolidated Balance Sheet and Income Statement and the
disclosure of contingent assets and liabilities at the date of the
financial statements. Although these estimates are based on
management's best knowledge of current circumstances and future
events and actions, actual results may differ from those estimates,
possibly significantly. This is particularly relevant for the
valuation of insurance contract liabilities, unquoted illiquid
assets and investment property. From a policy application
perspective, the major areas of judgement are the assessment of
whether a contract transfers significant insurance risk to the
group, and whether the group controls underlying entities and
should therefore consolidate them. The basis of accounting for
these areas, and the significant judgements used in determining
them, are outlined in the respective notes to the group's 2023
Annual Report and Accounts.
Key technical terms
and definitions
The report refers to various key performance
indicators, accounting standards and other technical terms. A
comprehensive list of these definitions is contained within the
glossary.
Tax attributable to
policyholders and equity holders
The total tax expense shown in the group's
Consolidated Income Statement includes income tax borne by both
policyholders and equity holders. 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 equity holder tax is corporation tax
charged on equity holder profit. The separate presentation is
intended to provide more relevant information about the tax that
the group pays on the profits that it makes.
3.02 Dividends and
appropriations
|
Dividend
|
Per
share1
|
Dividend
|
Per
share1
|
|
2023
|
2023
|
2022
|
2022
|
|
£m
|
p
|
£m
|
p
|
Ordinary dividends paid and
charged to equity in the year:
|
|
|
|
|
- Final 2021 dividend paid
in June 2022
|
-
|
-
|
792
|
13.27
|
- Interim 2022 dividend paid
in September 2022
|
-
|
-
|
324
|
5.44
|
- Final 2022 dividend paid
in June 20232
|
831
|
13.93
|
-
|
-
|
- Interim 2023 dividend paid
in September 2023
|
341
|
5.71
|
-
|
-
|
Total dividends
|
1,172
|
19.64
|
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 £829m based on the current number of eligible
equity shares at that date.
Subsequent to 31 December 2023, the directors
declared a final dividend for 2023 of 14.63 pence per ordinary
share. This dividend will be paid on 6 June 2024. It will be
accounted for as an appropriation of retained earnings in the year
ended 31 December 2024 and is not included as a liability in the
Consolidated Balance Sheet as at 31 December 2023.
3.03 Financial investments and
investment property
|
|
|
Restated
|
|
|
2023
|
2022
|
|
|
£m
|
£m
|
Equities1
|
|
185,982
|
167,335
|
Debt
securities2,3
|
|
233,980
|
219,512
|
Derivative
assets4
|
|
41,140
|
45,427
|
Loans5
|
|
10,303
|
14,284
|
Financial investments
|
|
471,405
|
446,558
|
Investment property
|
|
8,893
|
9,372
|
Total financial investments and investment
property
|
|
480,298
|
455,930
|
1. Equities include investments in
unit trusts of £19,660m (31 December 2022: £16,524m).
2. Debt securities include accrued
interest of £1,852m (31 December 2022: £1,635m) and include £8,032m
(31 December 2022: £7,845m) of assets valued at amortised cost.
3. A detailed analysis of debt
securities to which shareholders are directly exposed is disclosed
in Note 6.03.
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 £43,821m (31
December 2022: £51,190m).
5. Loans include £13m (31 December
2022: £1m) of loans valued at amortised cost.
3.04 Tax
(i) Tax (credit)/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
|
|
2023
|
2022
|
|
£m
|
£m
|
Profit before tax attributable to
equity holders
|
76
|
868
|
Tax calculated at
23.5%1
|
18
|
165
|
|
|
|
Adjusted for the effects
of:
|
|
|
Recurring reconciling items:
|
|
|
Different rate of tax on profits
and losses taxed overseas2
|
(68)
|
12
|
Income not subject to
tax
|
(4)
|
(3)
|
Non-deductible expenses
|
27
|
(2)
|
Differences between taxable and
accounting investment gains
|
(9)
|
(9)
|
Other taxes on property and
foreign income
|
4
|
6
|
Unrecognised tax losses
|
19
|
17
|
Double tax
relief3
|
(2)
|
(20)
|
|
|
|
Non-recurring reconciling items:
|
|
|
Adjustments in respect of prior
years4
|
(11)
|
(21)
|
Impact of the revaluation of
deferred tax balances
|
(1)
|
(59)
|
Impact of law changes on deferred
tax balances5
|
(340)
|
-
|
Tax (credit)/expense attributable to equity
holders6
|
(367)
|
86
|
Equity holders' effective tax
rate7
|
(483)%
|
10%
|
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% (2022: 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.
5. The tax credit relates to the
introduction of a new corporate income tax regime in Bermuda, which
was enacted in December 2023.
6. The tax credit for the year
includes a material one-off tax credit arising
from the recognition of a deferred tax asset relating to the
introduction of a new Bermuda corporate income tax regime. The net
tax credit for the year excluding this one-off credit is £27m and
reflects the varying rates of tax that we pay on our businesses in
different territories and the mixture of profits and losses across
those territories.
7. The equity
holders' effective tax rate excluding the impact of expenses
arising from rate differences on longevity assumption changes, the
one-off settlement cost associated with the buy-out of the group's
UK defined benefit pension schemes and the one-off Bermuda tax
credit is 11.9%.
During the year the UK Government enacted
legislation to apply a global minimum tax rate of 15% to
multinational businesses headquartered in the UK as well as a new
domestic UK minimum tax rate of 15%, in line with the Model Rules
agreed by the Organisation for Economic Co-operation and
Development (OECD). These rules apply from 1 January 2024, and will
apply to all of the group's businesses globally.
During 2023 the Bermudan Government consulted on
introducing a local corporate income tax with effect from 1 January
2025, which would apply to our Bermudan reinsurance businesses.
This has been substantively enacted as at 31 December 2023 and
deferred tax on temporary differences relating to the new regime
have been valued at 15%.
The group is expected to be liable to UK top-up tax
in 2024 in respect of profits arising in our global reinsurance hub
in Bermuda. From 2025, we anticipate that the group will be liable
for local Bermudan corporate income tax at 15%, instead of top-up
tax under the global minimum tax rules, on Bermudan profits.
Further guidance on both the new UK and new Bermuda rules is
expected and will be kept under review for any further impact.
3.04 Tax (continued)
(ii) Deferred tax
|
|
Restated
|
|
2023
|
2022
|
Deferred tax assets/(liabilities)
|
£m
|
£m
|
Overseas deferred acquisition
expenses1
|
121
|
116
|
Difference between the tax and
accounting value of insurance contracts
|
736
|
458
|
-
UK2
|
1,149
|
1,237
|
-
Bermuda3
|
340
|
-
|
- US
|
(753)
|
(779)
|
Realised and unrealised gains on
investments
|
72
|
145
|
Excess of depreciation over
capital allowances
|
17
|
21
|
Accounting provisions and
other
|
52
|
59
|
Trading losses
|
609
|
463
|
- UK
|
76
|
-
|
-
US4
|
533
|
463
|
Pension fund deficit
|
3
|
(26)
|
Acquired intangibles
|
(3)
|
(2)
|
Net deferred tax asset
|
1,607
|
1,234
|
|
|
|
Presented on the Consolidated
Balance Sheet as:
|
|
|
- Deferred tax
assets
|
1,714
|
1,440
|
- Deferred tax
liabilities5
|
(107)
|
(206)
|
Net deferred tax asset
|
1,607
|
1,234
|
1. Deferred tax assets arising on
deferred acquisition expenses relate solely to US balances.
2. The UK deferred tax asset
reflects the impact of transition to IFRS 17 (see Note 1.01 for
further details).
3. The Bermuda deferred tax asset
relates to the introduction of a new corporate income tax regime in
Bermuda, which was enacted in December 2023 (see Note 3.04
(i)).
4. This deferred tax asset relates
to 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.
5. The deferred tax liability is
comprised of balances of £107m relating to the US (2022: £206m),
that are not capable of being offset against other deferred tax
assets.
3.05 Share capital and share
premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Authorised share capital
|
|
|
|
|
shares
|
£m
|
As at 31 December 2023 and 31
December 2022: ordinary shares of 2.5p each
|
|
9,200,000,000
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
Share
|
|
|
|
|
|
|
Number of
|
capital
|
premium
|
Issued share capital, fully paid
|
|
|
|
|
|
shares
|
£m
|
£m
|
As at 1 January 2023
|
|
|
|
|
5,973,253,500
|
149
|
1,018
|
Options exercised under share
option schemes
|
|
6,324,780
|
-
|
12
|
As at 31 December 2023
|
|
|
|
|
5,979,578,280
|
149
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
Share
|
|
|
|
|
|
|
Number
of
|
capital
|
premium
|
Issued share capital, fully
paid
|
|
|
|
|
|
shares
|
£m
|
£m
|
As at 1 January 2022
|
|
|
|
|
5,970,415,817
|
149
|
1,012
|
Options exercised under share
option schemes
|
|
|
2,837,683
|
-
|
6
|
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.
3.06 Restricted Tier 1 convertible
notes
On 24 June 2020, Legal & General Group Plc
issued £500m 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 year coupon payments of £28m were made (2022: £28m). 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.
3.07 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 31 December 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%.
3.08 Core borrowings
|
Carrying
|
Coupon
|
|
Carrying
|
Coupon
|
|
|
amount
|
rate
|
Fair value
|
amount
|
rate
|
Fair
value
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
Subordinated borrowings
|
|
|
|
|
|
|
5.5% Sterling subordinated notes
2064 (Tier 2)
|
590
|
5.50
|
600
|
590
|
5.50
|
541
|
5.375% Sterling subordinated notes
2045 (Tier 2)
|
605
|
5.38
|
603
|
605
|
5.38
|
593
|
5.25% US Dollar subordinated notes
2047 (Tier 2)
|
676
|
5.25
|
656
|
712
|
5.25
|
665
|
5.55% US Dollar subordinated notes
2052 (Tier 2)
|
396
|
5.55
|
382
|
417
|
5.55
|
389
|
5.125% Sterling subordinated notes
2048 (Tier 2)
|
401
|
5.13
|
395
|
400
|
5.13
|
377
|
3.75% Sterling subordinated notes
2049 (Tier 2)
|
599
|
3.75
|
545
|
599
|
3.75
|
507
|
4.5% Sterling subordinated notes
2050 (Tier 2)
|
501
|
4.50
|
467
|
500
|
4.50
|
439
|
Client fund holdings of group debt
(Tier 2)1
|
(80)
|
-
|
(77)
|
(74)
|
-
|
(67)
|
Total subordinated borrowings
|
3,688
|
-
|
3,571
|
3,749
|
-
|
3,444
|
Senior borrowings
|
|
|
|
|
|
|
Sterling medium term notes
2031-2041
|
609
|
5.87
|
666
|
609
|
5.87
|
649
|
Client fund holdings of group
debt1
|
(17)
|
-
|
(17)
|
(20)
|
-
|
(19)
|
Total senior borrowings
|
592
|
-
|
649
|
589
|
-
|
630
|
Total core borrowings
|
4,280
|
-
|
4,220
|
4,338
|
-
|
4,074
|
1. £97m (31 December 2022: £94m)
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.
Subordinated borrowings
5.5% Sterling
subordinated notes 2064
On 27 June 2014, Legal & General Group Plc
issued £600m 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
On 27 October 2015, Legal & General Group Plc
issued £600m 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 £400m 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 £600m 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
£500m 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 £600m 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.
3.09 Operational
borrowings
|
|
Carrying
|
Interest
|
|
Carrying
|
Interest
|
|
|
|
amount
|
rate
|
Fair value
|
amount
|
rate
|
Fair
value
|
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
Short-term operational borrowings
|
|
|
|
|
|
|
Euro Commercial Paper
|
49
|
4.73
|
49
|
50
|
1.60
|
50
|
Bank loans and
overdrafts
|
12
|
-
|
12
|
3
|
-
|
3
|
Non-recourse borrowings
|
|
|
|
|
|
|
Cardiff Interchange Limited credit
facility
|
|
-
|
-
|
-
|
64
|
5.63
|
64
|
CALA revolving credit
facility
|
|
149
|
7.15
|
149
|
24
|
5.50
|
24
|
Class B Surplus
Notes1
|
|
1,176
|
8.27
|
1,176
|
788
|
6.62
|
788
|
Affordable Homes revolving credit
facility
|
|
41
|
7.15
|
41
|
19
|
4.38
|
19
|
Homes Modular revolving credit
facility
|
|
11
|
8.30
|
11
|
15
|
6.62
|
15
|
Suburban Build to Rent revolving
credit facility
|
|
19
|
6.00
|
19
|
-
|
-
|
-
|
Total operational borrowings2
|
|
1,457
|
-
|
1,457
|
963
|
-
|
963
|
1. The Class B
Surplus Notes have been issued by a US subsidiary of the group as
part of a coinsurance structure for the purpose of US statutory
regulations. The notes were issued in exchange for bonds of the
same value from an unrelated party, included within financial
investments on the group's Consolidated Balance Sheet.
2. Unit linked borrowings with a
carrying value of £383m (31 December 2022: £256m) are excluded from
the analysis above as the risk is retained by policyholders.
Operational borrowings including unit linked borrowings are £1,840m
(31 December 2022: £1,219m).
Syndicated credit facility
As at 31 December 2023, the group has in place a
£1.5bn syndicated committed revolving credit facility provided by a
number of its key relationship banks, maturing in August 2028. No
amounts were outstanding at 31 December 2023.
3.10 Payables and other financial
liabilities
|
|
|
2023
|
2022
|
|
|
|
£m
|
£m
|
Derivative liabilities
|
|
43,821
|
51,190
|
Repurchase
agreements1
|
|
25,452
|
31,533
|
Other financial
liabilities2
|
|
9,166
|
11,182
|
Total payables and other financial
liabilities
|
|
78,439
|
93,905
|
Due within 12 months
|
|
38,175
|
39,917
|
Due after 12 months
|
|
40,264
|
53,988
|
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 31 December 2023 was £2,647m (31
December 2022: £4,960m). Other financial liabilities have been
restated for 31 December 2022.
Fair value
hierarchy
|
|
|
|
|
Amortised
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
cost1
|
As at 31 December 2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
Derivative liabilities
|
43,821
|
627
|
43,147
|
47
|
-
|
Repurchase agreements
|
25,452
|
-
|
25,452
|
-
|
-
|
Other financial
liabilities
|
9,166
|
3,103
|
59
|
-
|
6,004
|
Total payables and other financial
liabilities
|
78,439
|
3,730
|
68,658
|
47
|
6,004
|
|
|
|
|
|
Amortised
|
|
Total
|
Level
1
|
Level
2
|
Level
3
|
cost1
|
As at 31 December 2022
|
£m
|
£m
|
£m
|
£m
|
£m
|
Derivative liabilities
|
51,190
|
448
|
50,717
|
25
|
-
|
Repurchase agreements
|
31,533
|
-
|
31,533
|
-
|
-
|
Other financial
liabilities2
|
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 31 December 2022.
Significant transfers between levels
There have been no significant transfers of
liabilities between Levels 1, 2 and 3 for the year ended 31
December 2023 (2022: no significant transfers).
3.11 Insurance contracts
(i) Insurance contract revenue and expenses
For the year ended 31 December 2023
|
Annuities
£m
|
Protection
£m
|
Total
£m
|
Insurance revenue
|
|
|
|
Amounts relating to changes in
liabilities for remaining coverage:
|
|
|
|
- CSM recognised for services
provided
|
943
|
225
|
1,168
|
- Expected incurred claims and
other insurance service expenses
|
5,278
|
2,597
|
7,875
|
- Change in the risk adjustment
for non-financial risk for the risk expired
|
371
|
16
|
387
|
Recovery of insurance acquisition
cash flows
|
19
|
132
|
151
|
Premium experience variance
relating to past and current service
|
1
|
42
|
43
|
Total insurance revenue
|
6,612
|
3,012
|
9,624
|
Total insurance service expenses
|
(5,244)
|
(3,129)
|
(8,373)
|
Allocation of reinsurance
premiums
|
(2,847)
|
(1,044)
|
(3,891)
|
Amounts recoverable from
reinsurers for incurred claims
|
2,415
|
1,339
|
3,754
|
Net (expense)/income from reinsurance contracts
held
|
(432)
|
295
|
(137)
|
Total insurance service result
|
936
|
178
|
1,114
|
For the year ended 31 December
2022
|
Annuities
£m
|
Protection
£m
|
Total
£m
|
Insurance revenue
|
|
|
|
Amounts relating to changes in
liabilities for remaining coverage:
|
|
|
|
- CSM recognised for services
provided
|
762
|
251
|
1,013
|
- Expected incurred claims and
other insurance service expenses
|
4,585
|
2,558
|
7,143
|
- Change in the risk adjustment
for non-financial risk for the risk expired
|
359
|
31
|
390
|
Recovery of insurance acquisition
cash flows
|
14
|
123
|
137
|
Premium experience variance
relating to past and current service
|
2
|
(2)
|
-
|
Total insurance revenue
|
5,722
|
2,961
|
8,683
|
Total insurance service
expenses
|
(4,576)
|
(2,921)
|
(7,497)
|
Allocation of reinsurance
premiums
|
(2,323)
|
(803)
|
(3,126)
|
Amounts recoverable from
reinsurers for incurred claims
|
2,052
|
929
|
2,981
|
Net (expense)/income from
reinsurance contracts held
|
(271)
|
126
|
(145)
|
Total insurance service
result
|
875
|
166
|
1,041
|
(ii) Insurance and reinsurance contracts
|
Assets
2023
£m
|
Liabilities
2023
£m
|
Assets
2022
£m
|
Liabilities
2022
£m
|
Insurance contracts issued
|
|
|
|
|
Annuities
|
|
|
|
|
Insurance contract
balances
|
-
|
86,706
|
-
|
73,729
|
Assets for insurance contract
acquisition cash flows1
|
-
|
(18)
|
-
|
(20)
|
Protection
|
|
|
|
|
Insurance contract
balances
|
-
|
4,782
|
-
|
4,533
|
Assets for insurance contract
acquisition cash flows1
|
-
|
(24)
|
-
|
(28)
|
Total insurance contracts issued2
|
-
|
91,446
|
-
|
78,214
|
|
|
|
|
|
|
Assets
2023
£m
|
Liabilities
2023
£m
|
Assets
2022
£m
|
Liabilities
2022
£m
|
Reinsurance contracts held
|
|
|
|
|
Annuities
|
|
|
|
|
Reinsurance contracts
balances
|
4,758
|
-
|
2,495
|
-
|
Assets for reinsurance contract
acquisition cash flows1
|
3
|
-
|
5
|
-
|
Protection
|
|
|
|
|
Reinsurance contracts
balances
|
2,545
|
220
|
2,213
|
52
|
Assets for reinsurance contract
acquisition cash flows1
|
-
|
-
|
-
|
-
|
Total reinsurance contracts held2
|
7,306
|
220
|
4,713
|
52
|
1. Assets for insurance and
reinsurance acquisition cash flows are presented within the
carrying amount of the related insurance and reinsurance contract
liabilities.
2. £5,119m (2022: £5,122m) of the
net insurance balance of £84,360m (2022: £73,553m) is expected to
run off within 12 months.
3.12 Sensitivity analysis
|
|
|
Impact on
|
|
|
|
|
Impact on
|
|
post-tax
|
Impact on
|
|
|
|
post-tax
|
Impact on
|
group
profit
|
group
equity
|
|
|
|
group
profit
|
group
equity
|
arising
from
|
arising
from
|
Net impact
on
|
|
|
arising
from
|
arising
from
|
insurance
|
insurance
|
post-tax
|
Net impact
on
|
|
financial
assets
|
financial
assets
|
contracts
|
contracts
|
group
profit
|
group
equity
|
|
2023
|
2023
|
2023
|
2023
|
2023
|
2023
|
Economic sensitivity
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Long-term insurance, other group assets and
obligations
|
|
|
|
|
|
|
100bps increase in interest
rates1
|
(5,909)
|
(6,151)
|
5,713
|
5,892
|
(196)
|
(259)
|
100bps decrease in interest
rates1
|
6,999
|
7,318
|
(6,919)
|
(7,147)
|
80
|
171
|
50bps increase in future inflation
expectations1
|
1,778
|
1,814
|
(1,831)
|
(1,801)
|
(53)
|
13
|
50bps decrease in future inflation
expectations1
|
(1,620)
|
(1,652)
|
1,732
|
1,707
|
112
|
55
|
Credit spreads widen by 100bps
with no change in expected defaults
|
(4,193)
|
(4,216)
|
4,041
|
4,206
|
(152)
|
(10)
|
25% rise in equity
markets
|
297
|
297
|
-
|
-
|
297
|
297
|
25% fall in equity
markets
|
(297)
|
(297)
|
-
|
-
|
(297)
|
(297)
|
15% rise in property
values
|
1,155
|
1,155
|
(25)
|
(25)
|
1,130
|
1,130
|
15% fall in property
values
|
(1,276)
|
(1,276)
|
102
|
102
|
(1,174)
|
(1,174)
|
10bps increase in credit default
assumptions
|
-
|
-
|
(494)
|
(514)
|
(494)
|
(514)
|
10bps decrease in credit default
assumptions
|
-
|
-
|
455
|
471
|
455
|
471
|
|
|
|
Impact
on
|
|
|
|
|
Impact
on
|
|
post-tax
|
Impact
on
|
|
|
|
post-tax
|
Impact
on
|
group
profit
|
group
equity
|
|
|
|
group
profit
|
group
equity
|
arising
from
|
arising
from
|
Net
impact on
|
|
|
arising
from
|
arising
from
|
insurance
|
insurance
|
post-tax
|
Net
impact on
|
|
financial assets
|
financial assets
|
contracts
|
contracts
|
group
profit
|
group
equity
|
|
2022
|
2022
|
2022
|
2022
|
2022
|
2022
|
Economic sensitivity
(Restated)
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Long-term insurance, other group
assets and obligations
|
|
|
|
|
|
|
100bps increase in interest
rates
|
(4,775)
|
(4,802)
|
4,715
|
4,876
|
(60)
|
74
|
100bps decrease in interest
rates
|
5,706
|
5,737
|
(5,626)
|
(5,833)
|
80
|
(96)
|
50bps increase in future inflation
expectations
|
1,345
|
1,346
|
(1,298)
|
(1,270)
|
47
|
76
|
50bps decrease in future inflation
expectations
|
(1,233)
|
(1,234)
|
1,232
|
1,207
|
(1)
|
(27)
|
Credit spreads widen by 100bps
with no change in expected defaults
|
(3,990)
|
(3,993)
|
3,735
|
3,885
|
(255)
|
(108)
|
25% rise in equity
markets
|
317
|
317
|
-
|
-
|
317
|
317
|
25% fall in equity
markets
|
(317)
|
(317)
|
-
|
-
|
(317)
|
(317)
|
15% rise in property
values
|
1,032
|
1,032
|
53
|
53
|
1,085
|
1,085
|
15% fall in property
values
|
(1,113)
|
(1,113)
|
(3)
|
(3)
|
(1,116)
|
(1,116)
|
10bps increase in credit default
assumptions
|
(12)
|
(12)
|
(449)
|
(467)
|
(461)
|
(479)
|
10bps decrease in credit default
assumptions
|
12
|
12
|
423
|
438
|
435
|
450
|
1. The group undertook a number of
management actions in January 2024 in order to reduce interest rate
and inflation sensitivities. Incorporating the impact of these
management actions, the sensitivities for the Net impact on
post-tax group profit 2023 relating to +/-100bps interest rates are
£(153)m and £23m, and to +/-50bps inflation are £(28)m and
£84m.
3.12 Sensitivity analysis (continued)
|
|
|
|
Impact on
|
|
|
|
|
Impact on
|
post-tax
|
Impact on
|
|
|
|
CSM
|
group
profit
|
group
equity
|
|
|
|
2023
|
2023
|
2023
|
Non-economic sensitivity
|
|
|
£m
|
£m
|
£m
|
Long-term insurance
|
|
|
|
|
|
1% increase in annuitant
mortality, gross of reinsurance
|
|
|
352
|
(52)
|
(52)
|
1% increase in annuitant
mortality, net of reinsurance
|
|
|
181
|
(26)
|
(26)
|
1% decrease in annuitant
mortality, gross of reinsurance
|
|
|
(357)
|
52
|
52
|
1% decrease in annuitant
mortality, net of reinsurance
|
|
|
(183)
|
27
|
27
|
5% increase in assurance
mortality, gross of reinsurance
|
|
|
(591)
|
(395)
|
(308)
|
5% increase in assurance
mortality, net of reinsurance
|
|
|
(307)
|
(95)
|
(81)
|
10% increase in maintenance
expenses, gross of reinsurance
|
|
|
(140)
|
(3)
|
1
|
10% increase in maintenance
expenses, net of reinsurance
|
|
|
(137)
|
(4)
|
1
|
|
|
|
|
Impact
on
|
|
|
|
|
Impact
on
|
post-tax
|
Impact
on
|
|
|
|
CSM
|
group
profit
|
group
equity
|
|
|
|
2022
|
2022
|
2022
|
Non-economic
sensitivity
|
|
|
£m
|
£m
|
£m
|
Long-term insurance
|
|
|
|
|
|
1% increase in annuitant
mortality, gross of reinsurance
|
|
|
323
|
(70)
|
(70)
|
1% increase in annuitant
mortality, net of reinsurance
|
|
|
168
|
(32)
|
(32)
|
1% decrease in annuitant
mortality, gross of reinsurance
|
|
|
(324)
|
70
|
70
|
1% decrease in annuitant
mortality, net of reinsurance
|
|
|
(168)
|
32
|
32
|
5% increase in assurance
mortality, gross of reinsurance
|
|
|
(628)
|
(344)
|
(228)
|
5% increase in assurance
mortality, net of reinsurance
|
|
|
(331)
|
(63)
|
(39)
|
10% increase in maintenance
expenses, gross of reinsurance
|
|
|
(126)
|
-
|
6
|
10% increase in maintenance
expenses, net of reinsurance
|
|
|
(123)
|
-
|
6
|
The economic sensitivity tables above show the
impacts on group post tax profit and equity, net of reinsurance,
under each sensitivity scenario. The impacts on group post tax
profit and equity arising from financial assets and insurance
contracts are also shown separately in the tables. The economic
sensitivity impacts cover long-term insurance business and other
group assets and obligations.
The non-economic sensitivity tables above show the
impacts on CSM, group post tax profit and equity, gross and net of
reinsurance, under each sensitivity scenario. The non-economic
sensitivity impacts cover long-term insurance business only.
The group impacts may arise from asset and/or
liability movements under the sensitivities. The current disclosure
reflects management's view of key risks in current economic
conditions.
The stresses are assumed to occur on the balance
sheet date. Both CSM and current year CSM release into profit are
assumed to be affected when non-financial assumptions are
stressed.
In calculating the alternative values, all other
assumptions are left unchanged. In practice, impacts of the group's
experience may be correlated.
The sensitivity analyses do not take into account
management actions that could be taken to reduce the impacts. The
group seeks to actively manage its asset and liability position. A
change in market conditions may lead to changes in the asset
allocation or charging structure which may have a more, or less,
significant impact on the value of the liabilities. The analysis
also ignores any second order effects of the assumption change,
including the potential impact on the group asset and liability
position and any second order tax effects.
The sensitivity of profit and equity to changes in
assumptions may not be linear. They should not be extrapolated to
changes of a much larger order.
The change in interest rate stresses assume a 100
basis point increase/decrease in the gross redemption yield on
fixed interest securities together with the same change in the real
yields on variable securities. Interest rates used to discount
liabilities are assumed to move in line with market yields,
adjusted to remove risks in the asset reference portfolios that are
not present in the liabilities calculated in a manner consistent
with the base results.
The inflation stresses adopted are a 0.5% per annum
(p.a.) increase/decrease in inflation, resulting in a 0.5% p.a.
reduction/rise in real yield and no change to the nominal yield. In
addition, the expense inflation rate is increased/decreased by 0.5%
p.a. The expense inflation assumptions are non-financial and
therefore recalibrate the CSM under the stresses. These
recalibrations are reflected in the impacts shown.
In the sensitivity for credit spreads, corporate
bond yields have increased by 100bps, government bond yields
unchanged, and there has been no adjustment to the default
assumptions. All lifetime mortgages are excluded, as their primary
exposure is to property risk, and therefore captured under the
property stress.
The equity stresses are a 25% rise and 25% fall in
listed equity market values.
3.12 Sensitivity analysis (continued)
The property stresses adopted are a 15% rise and 15%
fall in property market values including lifetime mortgages. Where
property is being used to back liabilities, interest rates used to
discount liabilities move with property yields, and so the value of
the liabilities will also move.
The credit default assumption is set based on the
credit rating of individual bonds and Moody's historical transition
matrices. The credit default stress assumes a +/-10bps stress to
the current credit default assumptions, which will have an impact
on the interest rates used to discount liabilities. Default
allowances for assets deemed credit risk free are unchanged. All
lifetime mortgages are excluded, as their primary exposure is to
property risk, and therefore captured under the property
stress.
The annuitant mortality stresses are a 1% increase
and 1% decrease in the mortality rates for immediate and deferred
annuitants with no change to the mortality improvement rates.
The assurance mortality stress is a 5% increase in
the mortality and morbidity rates with no change to the mortality
and morbidity improvement rates.
The maintenance expense stress is a 10% increase in
all types of maintenance expenses in future years.
3.13 Foreign exchange
rates
Principal rates of exchange used for translation
are:
Year end exchange rates
|
|
|
2023
|
2022
|
United States dollar
|
|
|
1.27
|
1.21
|
Euro
|
|
|
1.15
|
1.13
|
Average exchange rates
|
|
|
2023
|
2022
|
United States dollar
|
|
|
1.24
|
1.24
|
Euro
|
|
|
1.15
|
1.17
|
3.14 Provisions
(i) Analysis of
provisions
|
|
|
|
2023
|
2022
|
|
|
|
Notes
|
£m
|
£m
|
Other provisions
|
|
|
3.14(ii)
|
244
|
273
|
Retirement benefit
obligations
|
|
|
3.14(iii)
|
14
|
617
|
Total provisions
|
|
|
258
|
890
|
(ii) Other
provisions
Other provisions 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 31 December 2023, the outstanding provision was
£108m (31 December 2022: £111m).
(iii) Retirement benefit
obligations
|
Fund and
|
CALA Homes
|
Fund
and
|
CALA
Homes
|
|
Scheme
|
and
Overseas
|
Scheme
|
and
Overseas
|
|
2023
|
2023
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
Gross pension obligations included
in provisions
|
-
|
14
|
612
|
5
|
Annuity obligations insured by
LGAS
|
-
|
-
|
(718)
|
-
|
Gross defined benefit pension
deficit/(surplus)
|
-
|
14
|
(106)
|
5
|
Deferred tax on defined benefit
pension deficit/(surplus)
|
-
|
(3)
|
27
|
(1)
|
Net defined benefit pension
deficit/(surplus)
|
-
|
11
|
(79)
|
4
|
The Trustees completed a buy-out of the Legal &
General Group UK Pension and Assurance Fund (Fund) and the Legal
& General Group UK Senior Pension Scheme (Scheme) in November
2023, and the existing annuity policies were exchanged for
individual policies between LGAS and members. As a result, all the
group's obligations under the pension schemes have now been fully
extinguished, and the defined benefit obligation as at the
settlement date of £1,470m was therefore derecognised. On the same
date, the group recognised the direct liability to the pensioners
within insurance contract liabilities. The difference between the
defined benefit obligation at this date and the fair value of the
insurance contract liabilities recognised under IFRS 17 resulted in
£167m being recognised in the Consolidated Income Statement as
settlement costs. This reflects measurement differences between
IFRS 17 and IAS 19, principally comprising of the associated CSM
and risk adjustment.
3.15 Contingent liabilities,
guarantees and indemnities
Provision for the liabilities arising under
contracts with policyholders is based on certain assumptions. The
variance between actual experience from that assumed may result in
those liabilities differing from the provisions made for them.
Liabilities may also arise in respect of claims relating to the
interpretation of policyholder contracts, or the circumstances in
which policyholders have entered into them. The extent of these
liabilities is influenced by a number of factors including the
actions and requirements of the PRA, FCA, ombudsman rulings,
industry compensation schemes and court judgments.
Various group companies receive claims and become
involved in actual or threatened litigation and regulatory issues
from time to time. The relevant members of the group ensure that
they make prudent provision as and when circumstances calling for
such provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
Group companies have given warranties, indemnities
and guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities. 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.
3.16 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 year. Contributions to the
post-employment defined benefit plans were £134m (2022: £105m) for
all employees.
At 31 December 2023 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:
|
|
|
|
2023
|
2022
|
|
|
|
|
£m
|
£m
|
Salaries
|
|
|
|
12
|
11
|
Share-based incentive
awards
|
|
|
|
8
|
6
|
Key management personnel compensation
|
|
|
|
20
|
17
|
(ii) Services provided to and by related
parties
All transactions between the group and associates,
joint ventures and other related parties during the year 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:
• A number of transactions between the
group's UK defined benefit pension schemes and Legal and General
Assurance Society Limited (LGAS) occurred during the year. These
include the surrender of Assured Payment Policies (APPs) and their
conversion into annuities, as well as a buy-out of the schemes
completed by the Trustees, where existing annuity policies were
exchanged for individual policies between LGAS and members. Further
details are provided in Note 3.14; and
• Total payments by LGAS to the pension
schemes for insured pension benefits were £55m (2022: £56m).
Loans and commitments to related parties are made in
the normal course of business. As at 31 December 2023, the group
had:
• Loans outstanding from related parties
of £49m (2022: £58m), with a further commitment of £7m (2022: £6m);
and
• Total other commitments of £1,347m to
related parties (2022: £1,265m), of which £1,108m has been drawn
(2022: £1,010m).
Asset flows and new
business
4.01 LGIM total assets under management1
(AUM)
|
|
|
|
|
|
|
|
|
Active
|
Multi
|
|
Real
|
Total
|
|
Index
|
strategies
|
asset
|
Solutions2
|
assets
|
AUM
|
For the year ended 31 December 2023
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
As at 1 January 2023
|
444.7
|
156.8
|
73.9
|
485.9
|
34.4
|
1,195.7
|
External
inflows3
|
69.4
|
17.4
|
12.4
|
25.5
|
1.5
|
126.2
|
External
outflows3
|
(84.9)
|
(17.2)
|
(7.4)
|
(23.4)
|
(2.6)
|
(135.5)
|
Overlay net flows
|
-
|
-
|
-
|
(29.1)
|
-
|
(29.1)
|
External net flows4
|
(15.5)
|
0.2
|
5.0
|
(27.0)
|
(1.1)
|
(38.4)
|
PRT
transfers5
|
(0.4)
|
(1.5)
|
-
|
(13.1)
|
(0.2)
|
(15.2)
|
Internal net
flows6
|
(0.8)
|
-
|
(0.2)
|
0.5
|
2.1
|
1.6
|
Total net flows
|
(16.7)
|
(1.3)
|
4.8
|
(39.6)
|
0.8
|
(52.0)
|
Market movements
|
55.3
|
10.4
|
5.6
|
(29.6)
|
0.3
|
42.0
|
Other
movements7
|
(1.6)
|
3.0
|
-
|
(27.9)
|
-
|
(26.5)
|
As at 31 December 2023
|
481.7
|
168.9
|
84.3
|
388.8
|
35.5
|
1,159.2
|
Assets attributable to:
|
|
|
|
|
|
|
External
|
|
|
|
|
|
1,062.1
|
Internal
|
|
|
|
|
|
97.1
|
|
|
|
Active
|
Multi
|
|
Real
|
Total
|
|
|
Index
|
strategies
|
asset
|
Solutions2
|
assets
|
AUM
|
For the year ended 31 December
2022
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
As at 1 January 2022
|
|
502.4
|
198.8
|
78.0
|
605.1
|
37.2
|
1,421.5
|
External
inflows3
|
|
95.8
|
16.0
|
13.5
|
90.0
|
2.5
|
217.8
|
External
outflows3
|
|
(102.6)
|
(23.5)
|
(9.3)
|
(27.2)
|
(2.1)
|
(164.7)
|
Overlay net flows
|
|
-
|
-
|
-
|
(3.5)
|
-
|
(3.5)
|
External net
flows4
|
|
(6.8)
|
(7.5)
|
4.2
|
59.3
|
0.4
|
49.6
|
PRT
transfers5
|
|
(0.2)
|
(0.4)
|
-
|
(2.5)
|
-
|
(3.1)
|
Internal net
flows6
|
|
(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
movements7
|
|
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 £246.7bn (31 December 2022: £336.6bn) of
derivative notionals associated with the Solutions business.
3. External inflows and outflows
include £5.3bn (31 December 2022: £3.9bn) of external investments
and £3.4bn (31 December 2022: £3.3bn) 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 2023 was £66.9bn (31 December 2022: £69.1bn).
5. PRT transfers reflect UK
defined benefit pension scheme buy-outs to LGRI.
6. Internal net flows includes
legacy assets from the Mature Savings business 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.
4.02 LGIM total assets under management1
half-yearly progression
|
|
|
|
|
|
|
|
|
|
|
Active
|
Multi
|
|
Real
|
Total
|
|
|
Index
|
strategies
|
asset
|
Solutions2
|
assets
|
AUM
|
For the year ended 31 December 2023
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
As at 1 January 2023
|
|
444.7
|
156.8
|
73.9
|
485.9
|
34.4
|
1,195.7
|
External
inflows3
|
|
37.6
|
8.8
|
5.5
|
13.6
|
0.8
|
66.3
|
External
outflows3
|
|
(35.1)
|
(9.2)
|
(3.4)
|
(10.6)
|
(1.0)
|
(59.3)
|
Overlay net flows
|
|
-
|
-
|
-
|
(19.3)
|
-
|
(19.3)
|
External net flows4
|
|
2.5
|
(0.4)
|
2.1
|
(16.3)
|
(0.2)
|
(12.3)
|
PRT
transfers5
|
|
(0.3)
|
(0.3)
|
-
|
(4.5)
|
-
|
(5.1)
|
Internal net
flows6
|
|
(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
movements7
|
|
(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
|
External inflows
|
|
31.8
|
8.6
|
6.9
|
11.9
|
0.7
|
59.9
|
External outflows
|
|
(49.8)
|
(8.0)
|
(4.0)
|
(12.8)
|
(1.6)
|
(76.2)
|
Overlay net flows
|
|
-
|
-
|
-
|
(9.8)
|
-
|
(9.8)
|
External net flows4
|
|
(18.0)
|
0.6
|
2.9
|
(10.7)
|
(0.9)
|
(26.1)
|
PRT
transfers5
|
|
(0.1)
|
(1.2)
|
-
|
(8.6)
|
(0.2)
|
(10.1)
|
Internal net
flows6
|
|
(0.3)
|
3.1
|
(0.1)
|
0.4
|
0.4
|
3.5
|
Total net flows
|
|
(18.4)
|
2.5
|
2.8
|
(18.9)
|
(0.7)
|
(32.7)
|
Market movements
|
|
30.9
|
7.8
|
4.5
|
2.8
|
0.6
|
46.6
|
Other
movements7
|
|
(0.8)
|
4.7
|
-
|
(16.7)
|
-
|
(12.8)
|
As at 31 December 2023
|
|
481.7
|
168.9
|
84.3
|
388.8
|
35.5
|
1,159.2
|
|
|
|
Active
|
Multi
|
|
Real
|
Total
|
|
|
Index
|
strategies
|
asset
|
Solutions2
|
assets
|
AUM
|
For the year ended 31 December
2022
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
As at 1 January 2022
|
|
502.4
|
198.8
|
78.0
|
605.1
|
37.2
|
1,421.5
|
External
inflows3
|
|
63.2
|
7.0
|
6.8
|
21.3
|
1.4
|
99.7
|
External
outflows3
|
|
(38.2)
|
(4.2)
|
(3.7)
|
(12.5)
|
(1.1)
|
(59.7)
|
Overlay net flows
|
|
-
|
-
|
-
|
25.6
|
-
|
25.6
|
External net
flows4
|
|
25.0
|
2.8
|
3.1
|
34.4
|
0.3
|
65.6
|
PRT
transfers5
|
|
-
|
-
|
-
|
(0.4)
|
-
|
(0.4)
|
Internal net
flows6
|
|
(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
movements7
|
|
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
|
External inflows
|
|
32.6
|
9.0
|
6.7
|
68.7
|
1.1
|
118.1
|
External outflows
|
|
(64.4)
|
(19.3)
|
(5.6)
|
(14.7)
|
(1.0)
|
(105.0)
|
Overlay net flows
|
-
|
-
|
-
|
(29.1)
|
-
|
(29.1)
|
External net
flows4
|
|
(31.8)
|
(10.3)
|
1.1
|
24.9
|
0.1
|
(16.0)
|
PRT
transfers5
|
|
(0.2)
|
(0.4)
|
-
|
(2.1)
|
-
|
(2.7)
|
Internal net
flows6
|
|
(0.7)
|
(0.6)
|
(0.2)
|
(0.5)
|
2.6
|
0.6
|
Total net flows
|
|
(32.7)
|
(11.3)
|
0.9
|
22.3
|
2.7
|
(18.1)
|
Market movements
|
|
7.6
|
(7.9)
|
(0.1)
|
(71.5)
|
(4.3)
|
(76.2)
|
Other
movements7
|
|
0.2
|
(2.2)
|
-
|
2.3
|
-
|
0.3
|
As at 31 December 2022
|
|
444.7
|
156.8
|
73.9
|
485.9
|
34.4
|
1,195.7
|
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 £246.7bn (31 December 2022: £336.6bn) of
derivative notionals associated with the Solutions business.
3. External inflows and outflows
include £5.3bn (31 December 2022: £3.9bn) of external investments
and £3.4bn (31 December 2022: £3.3bn) 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 2023 was £66.9bn (31 December 2022: £69.1bn).
5. PRT transfers reflect UK
defined benefit pension scheme buy-outs to LGRI.
6. Internal net flows includes
legacy assets from the Mature Savings business 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.
4.03 LGIM total external assets
under management and net
flows
|
Assets under management
at
|
|
Net flows for the six months
ended1
|
|
31
December
|
30 June
|
31
December
|
30
June
|
|
31
December
|
30 June
|
31
December
|
30
June
|
|
2023
|
2023
|
2022
|
2022
|
|
2023
|
2023
|
2022
|
2022
|
|
£bn
|
£bn
|
£bn
|
£bn
|
|
£bn
|
£bn
|
£bn
|
£bn
|
International2
|
377.7
|
371.8
|
363.6
|
377.0
|
|
(14.2)
|
(2.7)
|
(13.1)
|
34.5
|
UK Institutional
|
|
|
|
|
|
|
|
|
|
- Defined contribution
|
163.0
|
146.1
|
135.2
|
129.7
|
|
6.9
|
5.5
|
4.6
|
7.0
|
- Defined benefit
|
453.4
|
489.6
|
547.8
|
630.1
|
|
(22.0)
|
(17.3)
|
(10.0)
|
22.4
|
Wholesale3
|
56.6
|
51.2
|
48.3
|
45.5
|
|
2.2
|
1.3
|
2.2
|
1.4
|
ETF4
|
11.4
|
9.9
|
8.5
|
8.4
|
|
1.0
|
0.9
|
0.3
|
0.3
|
Total external
|
1,062.1
|
1,068.6
|
1,103.4
|
1,190.7
|
|
(26.1)
|
(12.3)
|
(16.0)
|
65.6
|
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
£465bn as at 31 December 2023 (31 December 2022: £441bn).
3. Wholesale represents assets
from the Retail Intermediary business and £0.2bn 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 £13.5bn ($17.2bn) in 2023 (£10.2bn/$12.3bn in 2022) and flows
are £2.2bn ($2.7bn) in 2023 (£1.0bn/$1.3bn in 2022) which include
internal investment from other LGIM asset classes.
4.04 Reconciliation of assets under management to
Consolidated Balance Sheet
|
|
Restated
|
|
2023
|
2022
|
|
£bn
|
£bn
|
Assets under
management1
|
1,159
|
1,196
|
Derivative
notionals2
|
(247)
|
(337)
|
Third party
assets3
|
(458)
|
(412)
|
Other4
|
47
|
45
|
Total financial investments, investment property and cash and
cash equivalents
|
501
|
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.
4.05 Workplace Savings assets
under administration1
|
|
2023
|
2022
|
|
|
£bn
|
£bn
|
As at 1 January
|
|
66.6
|
65.7
|
Gross inflows
|
|
10.4
|
10.7
|
Gross outflows
|
|
(4.1)
|
(3.4)
|
Net flows
|
|
6.3
|
7.3
|
Market and other
movements
|
|
7.0
|
(6.4)
|
As at 31 December
|
|
79.9
|
66.6
|
1. Workplace savings assets under
administration as at 31 December 2023 includes £79.7bn (31 December
2022: £66.4bn) of assets under management included in Note
4.01.
4.06 Workplace Savings assets under administration
half-yearly progression
|
|
2023
|
2022
|
|
£bn
|
£bn
|
As at 1 January
|
66.6
|
65.7
|
Gross inflows
|
|
4.9
|
6.1
|
Gross outflows
|
|
(1.9)
|
(1.8)
|
Net flows
|
|
3.0
|
4.3
|
Market and other
movements
|
|
2.1
|
(6.9)
|
As at 30 June
|
71.7
|
63.1
|
Gross inflows
|
|
5.5
|
4.6
|
Gross outflows
|
|
(2.2)
|
(1.6)
|
Net flows
|
|
3.3
|
3.0
|
Market and other
movements
|
|
4.9
|
0.5
|
As at 31 December
|
|
79.9
|
66.6
|
4.07 LGRI new business
|
|
|
|
6 months
|
6 months
|
|
6
months
|
6
months
|
|
|
|
Total
|
31
December
|
30 June
|
Total
|
31
December
|
30
June
|
|
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
UK1,2
|
|
|
12,048
|
7,182
|
4,866
|
7,319
|
3,604
|
3,715
|
US
|
|
|
1,463
|
1,337
|
126
|
1,763
|
1,170
|
593
|
Bermuda
|
|
|
208
|
208
|
-
|
459
|
318
|
141
|
Total LGRI new business
|
|
|
13,719
|
8,727
|
4,992
|
9,541
|
5,092
|
4,449
|
1. UK includes £nil (H1 23: £nil;
H2 23: £nil) (H1 22: £nil; H2 22: £93m) of Assured Payment Policies
(APPs).
2. UK includes a transaction with
the group's UK defined benefit pension schemes as disclosed in Note
3.16 Related party transactions.
4.08 Retail new
business
|
|
6 months
|
6 months
|
|
6
months
|
6
months
|
|
Total
|
31
December
|
30 June
|
Total
|
31
December
|
30
June
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Individual annuities
|
1,431
|
856
|
575
|
954
|
501
|
453
|
Lifetime mortgage loans and
retirement interest only mortgages
|
299
|
136
|
163
|
632
|
294
|
338
|
Total Retail Retirement new business
|
1,730
|
992
|
738
|
1,586
|
795
|
791
|
UK Retail protection
|
150
|
74
|
76
|
171
|
86
|
85
|
UK Group protection
|
121
|
68
|
53
|
107
|
44
|
63
|
US
protection1
|
141
|
71
|
70
|
104
|
56
|
48
|
Total Insurance new business
|
412
|
213
|
199
|
382
|
186
|
196
|
Total Retail new business
|
2,142
|
1,205
|
937
|
1,968
|
981
|
987
|
1. In local currency, US
protection reflects new business of $175m for 2023 (H1 23: $87m; H2
23: $88m), and $129m for 2022 (H1 22: $62m; H2 22: $67m).
Capital
5.01 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
regulations were amended in the UK in December 2023 to introduce a
change to the calculation of Risk Margin. All other Solvency II
regulations remain unchanged.
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 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 31 December 2023.
(i) Capital position
As at 31 December 2023, and on the above basis, the
group had a surplus of £9,167m (31 December 2022: £9,915m) over its
Solvency Capital Requirement, corresponding to a Solvency II
capital coverage ratio of 224% (31 December 2022: 236%). The
Solvency II capital position is as follows:
|
|
|
2023
|
2022
|
|
|
|
£m
|
£m
|
Unrestricted Tier 1 Own Funds
|
12,845
|
13,393
|
Restricted Tier 1 Own
Funds1
|
495
|
495
|
Tier 2 Subordinated
liabilities
|
3,460
|
3,448
|
Eligibility
restrictions
|
(244)
|
(110)
|
Solvency II Own Funds2,3
|
16,556
|
17,226
|
Solvency Capital
Requirement
|
(7,389)
|
(7,311)
|
Solvency II surplus
|
9,167
|
9,915
|
SCR Coverage ratio
|
224%
|
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 final dividend of £871m (31 December
2022: £829m) declared after the balance sheet date.
3. Solvency II Own Funds allow for
a Risk Margin of £1,191m (31 December 2022: £2,753m) and TMTP of
£970m (31 December 2022: £2,136m).
5.01 Group regulatory capital -
Solvency II (continued)
(ii) Methodology
Own Funds comprise the excess of
the value of assets over the liabilities, as valued on a Solvency
II basis. Subordinated debt issued by the group is
considered to be part of available
capital, rather than a liability, as it is subordinate to
policyholder claims. Own Funds include deductions in
relation
to fungibility and transferability
restrictions, to the extent that the surplus Own Funds of a
specific group entity cannot be freely transferred
around
the group due to local legal or
regulatory constraints.
Assets are valued at IFRS fair
value with adjustments to remove intangibles and deferred
acquisition costs, and to value reinsurers' share of
technical provisions on a basis
consistent with the liabilities on the Solvency II balance
sheet.
Liabilities are valued on a best
estimate market consistent basis, with the application of a
Solvency II Matching Adjustment for valuing annuity
liabilities. Own Funds incorporate
changes to the Internal Model and Matching Adjustment during 2023
and the impacts of a recalculation of the
TMTP as at end December 2023. The
recalculated TMTP of £970m (31 December 2022: £2,136m) is net of
amortisation to 31 December 2023.
The liabilities include a Risk
Margin of £1,191m (31 December 2022: £2,753m) which represents an
allowance for the cost of capital for a
purchasing insurer to take on the
portfolio of liabilities and residual risks that are deemed to be
non-hedgeable under Solvency II. This is calculated
using a cost of capital of 4% and
includes a tapering factor of 90% (31 December 2022: 6% cost of
capital, with no tapering factor).
The Solvency Capital Requirement is
the amount of capital required to cover the 1-in-200 worst
projected future outcome in the year following the
valuation, allowing for realistic
management and policyholder actions and the impact of the stress on
the tax position of the group. This allows for
diversification between the
different firms within the group and between the risks to which
they are exposed.
All material EEA insurance firms,
including Legal and General Assurance Society Limited (LGAS) and
Legal and General Assurance (Pensions
Management) Limited, are
incorporated into the group's Solvency II Internal Model assessment
of required capital, assuming diversification of the
risks between and within those
firms. These firms, as well as the non-EEA insurance firm (Legal
& General Reinsurance Company Limited (L&G Re)
based in Bermuda) contribute over
90% of the group's SCR.
Firms which are not regulated but
which carry material risks to the group's solvency are also
modelled in the Internal Model, with an appropriate stress being
applied to their net asset value. There are a small number of
insurance firms for which the capital requirements are valued on a
Solvency II Standard Formula basis.
Legal & General America's
insurance entities (LGA) and Legal and General Reinsurance Company
No.2 Limited (L&G Re 2) are incorporated into the calculation
of group solvency using a Deduction & Aggregation (D&A)
basis. All risk exposure in these firms is valued on local
statutory bases.
For LGA (excluding Legal &
General America Reinsurance Limited (LGAR)), all risk exposure is
valued on a US statutory basis, with capital requirements set to a
multiple of US statutory Risk Based Capital (RBC). The contribution
to group SCR is 150% of the local Company Action Level RBC (CAL
RBC). The contribution to group's Own Funds is the SCR together
with any surplus capital in excess of 250% of CAL RBC. The US
regulatory regime is considered to be equivalent to Solvency II by
the European Commission.
For L&G Re 2 and LGAR, all risk
exposure is valued on a Bermudan capital basis, with capital
requirements set equal to the Bermudan capital requirements. The
Own Funds contribution is restricted by 20% of the capital. The
Bermuda regulatory regime is also considered to be equivalent to
Solvency II by the European Commission.
All non-insurance regulated firms
are included using their current regulatory surplus.
(iii) Assumptions
The calculation of the Solvency II
balance sheet and associated capital requirements requires a number
of assumptions, including:
i.
Demographic assumptions required to project best estimate liability
cash flows are mostly consistent with those underlying the group's
IFRS disclosures where relevant, subject to minor
exceptions.
ii. Future
investment returns and discount rates to derive the present value
of best estimate liability cash flows are those defined by
the
PRA. The risk-free rates used to
discount UK Sterling and US Dollar cashflows are SONIA- and
SOFR-based market swap rates. For other liabilities, the risk-free
rates used to discount cash flows include a credit risk adjustment
that varies by currency.
iii. For
annuities that are eligible, the liability discount rate includes a
Matching Adjustment. This Matching Adjustment varies between
LGAS
and L&G Re and by the currency
of the relevant liabilities. At 31 December 2023 the Matching
Adjustment for UK Sterling was 122 basis
points (31 December 2022: 141 basis
points) after deducting an allowance for the fundamental spread
equivalent to 53 basis points (31
December 2022: 55 basis
points).
iv. Assumptions
regarding management actions and policyholder behaviour across the
full range of scenarios. The only management
actions allowed for are those that
have been approved by the Board and are in place at the balance
sheet date.
v.
Assumptions regarding the volatility of the risks to which the
group is exposed. Assumptions have been set using a combination
of
historic market, demographic and
operating experience data. In areas where data is not considered
robust, expert judgement has been
used.
vi. Assumptions
on the dependencies between risks, which are calibrated using a
combination of historic data and expert judgement.
5.01 Group regulatory capital -
Solvency II (continued)
(iv) 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 year.
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 year. It
is based on economic conditions at the point of sale.
The table below shows the movement (net of tax)
during the year ended 31 December 2023 in the group's Solvency II
surplus.
|
|
|
|
|
2023
|
2023
|
2023
|
|
Own Funds
|
SCR
|
Surplus
|
|
£m
|
£m
|
£m
|
Opening Position
|
17,226
|
(7,311)
|
9,915
|
Operational Surplus
Generation1
|
1,596
|
225
|
1,821
|
New business strain
|
551
|
(989)
|
(438)
|
Net surplus generation
|
2,147
|
(764)
|
1,383
|
Operating
variances2
|
|
|
(307)
|
Mergers, acquisitions and
disposals3
|
|
|
(140)
|
Market
movements4
|
|
|
(512)
|
Dividends
paid5
|
|
|
(1,172)
|
Total surplus movement (after dividends paid in the
year)
|
(670)
|
(78)
|
(748)
|
Closing Position
|
16,556
|
(7,389)
|
9,167
|
1.
Operational Surplus Generation includes a £208m release of Risk
Margin and £(206)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.
Mergers, acquisitions and disposals for the year ended 31 December
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 year and changes to future economic
assumptions.
5.
Dividends paid are the amounts from the 2022 final dividend and
2023 interim dividend.
The table below shows the movement (net of tax)
during the year ended 31 December 2022 in the group's Solvency II
surplus.
|
2022
|
2022
|
2022
|
|
Own
Funds
|
SCR
|
Surplus
|
|
£m
|
£m
|
£m
|
Opening Position
|
17,561
|
(9,376)
|
8,185
|
Operational Surplus
Generation1
|
1,409
|
396
|
1,805
|
New business strain
|
333
|
(685)
|
(352)
|
Net surplus generation
|
1,742
|
(289)
|
1,453
|
Operating
variances2
|
|
|
(327)
|
Mergers, acquisitions and
disposals
|
|
|
-
|
Market
movements3
|
|
|
1,720
|
Dividends
paid4
|
|
|
(1,116)
|
Total surplus movement (after
dividends paid in the year)
|
(335)
|
2,065
|
1,730
|
Closing Position
|
17,226
|
(7,311)
|
9,915
|
1. Operational Surplus Generation
includes a £358m release of Risk Margin and £(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.
5.01 Group regulatory capital -
Solvency II (continued)
(v) Future Solvency II surplus generation - UK
annuities
The table below shows a projection of future OSG
expected from the £78.3bn (2022: £70.1bn) UK annuity portfolio as
at 31 December 2023. The projection excludes any allowance for
future new business. The table shows the OSG from our UK annuity
businesses in the Annuity back book OSG line, L&G Other
includes a contribution from LGC assets supporting the SCR and
LGIM's asset management fees for managing assets of the UK annuity
portfolio. The impact of management actions is excluded; we expect
management actions to contribute up to £0.2bn in each year of the
projection.
|
2023
|
2024
|
2025
|
2026
|
2027
|
2028-2032
|
2033-2042
|
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
£bn
|
Annuity back book
OSG1
|
0.7
|
0.6
|
0.6
|
0.6
|
0.6
|
2.5
|
4.2
|
L&G Other
|
0.1
|
0.1
|
0.1
|
0.1
|
0.1
|
0.3
|
0.5
|
Total OSG for UK Annuity back book
|
0.8
|
0.7
|
0.7
|
0.7
|
0.7
|
2.8
|
4.7
|
1. Annuity back
book OSG does not include new business.
(vi) 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
|
|
|
|
2023
|
2022
|
|
|
|
£m
|
£m
|
IFRS equity1
|
4,826
|
5,562
|
CSM net of tax
|
|
|
10,462
|
9,593
|
IFRS equity plus CSM net of tax
|
|
|
15,288
|
15,155
|
Remove DAC, goodwill and other
intangible assets and associated liabilities
|
(525)
|
(502)
|
Add IFRS carrying value of
subordinated borrowings2
|
3,768
|
3,823
|
Insurance contract valuation
differences3
|
(622)
|
141
|
Financial investments valuation
differences
|
|
|
(845)
|
(1,111)
|
Difference in value of net
deferred tax liabilities
|
(211)
|
(145)
|
Other
|
(53)
|
(25)
|
Eligibility
restrictions
|
(244)
|
(110)
|
Solvency II Own Funds4
|
16,556
|
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 final dividend of £871m (31 December
2022: £829m) declared after the balance sheet date.
5.01 Group regulatory capital -
Solvency II (continued)
(vii) Sensitivity
analysis
The following sensitivities are provided to give an
indication of how the group's Solvency II surplus as at 31 December
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 on
|
Impact on
|
Impact
on
|
Impact
on
|
|
|
|
net of tax
|
net of tax
|
net of
tax
|
net of
tax
|
|
|
|
Solvency
II
|
Solvency
II
|
Solvency
II
|
Solvency
II
|
|
|
|
capital
|
coverage
|
capital
|
coverage
|
|
|
|
surplus
|
ratio
|
surplus
|
ratio
|
|
|
|
2023
|
2023
|
2022
|
2022
|
|
|
|
£bn
|
%
|
£bn
|
%
|
100bps increase in risk-free
rates1
|
0.1
|
10
|
0.5
|
18
|
100bps decrease in risk-free
rates1,2
|
(0.2)
|
(11)
|
(0.6)
|
(19)
|
Credit spreads widen by 100bps
assuming an escalating addition to ratings3,4
|
0.4
|
14
|
0.3
|
13
|
Credit spreads narrow by 100bps
assuming an escalating deduction from
ratings3,4
|
(0.6)
|
(18)
|
(0.4)
|
(16)
|
Credit spreads widen by 100bps
assuming a flat addition to ratings3
|
0.5
|
15
|
0.3
|
14
|
Credit spreads of sub investment
grade assets widen by 100bps assuming a level addition to
ratings3,5
|
(0.2)
|
(7)
|
(0.3)
|
(7)
|
Credit
migration6
|
(0.7)
|
(10)
|
(0.8)
|
(10)
|
25% fall in equity
markets7
|
(0.4)
|
(3)
|
(0.4)
|
(3)
|
15% fall in property
markets8
|
(0.9)
|
(10)
|
(0.9)
|
(11)
|
50bps increase in future inflation
expectations1
|
(0.1)
|
(3)
|
(0.1)
|
(3)
|
10% increase in maintenance
expenses9
|
(0.3)
|
(4)
|
(0.3)
|
(4)
|
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. A 10% increase in the assumed
unit costs and future costs of investment management across all
long-term insurance business lines.
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.
5.01 Group regulatory capital -
Solvency II (continued)
(viii) Analysis of Group Solvency
Capital Requirement
The table below shows a breakdown
of the group's SCR by risk type. The split is shown before the
effects of diversification and tax.
|
|
|
2023
|
2022
|
|
|
|
%
|
%
|
Interest
rate1
|
|
|
10
|
3
|
Equity
|
|
|
6
|
6
|
Property
|
|
|
12
|
12
|
Credit2
|
|
|
22
|
27
|
Currency
|
|
|
1
|
2
|
Inflation
|
|
|
4
|
5
|
Total Market risk3
|
|
|
55
|
55
|
Counterparty risk
|
|
|
2
|
2
|
Life mortality
|
|
|
3
|
3
|
Life
longevity4
|
|
|
18
|
18
|
Life mass lapse
|
|
|
3
|
3
|
Life non-mass lapse
|
|
|
2
|
2
|
Life catastrophe
|
|
|
6
|
6
|
Expense
|
|
|
3
|
3
|
Total Insurance risk
|
|
|
35
|
35
|
Non-life underwriting
|
|
|
-
|
-
|
Operational risk
|
|
|
4
|
5
|
Miscellaneous5
|
|
|
4
|
3
|
Total SCR
|
|
|
100
|
100
|
1. Interest rate risk before
diversification increased over the year, mainly driven by a
lengthening of interest rate exposure and a strengthening in the
interest rate stress calibration. However, rates exposure is
significantly smaller after allowing for diversification with other
risks. The material increase in interest rate risk also resulted in
a decrease in other market risks as a percentage of total.
2. Credit risk is one of the
group's most significant exposures, arising predominantly from the
portfolio of bonds and bond-like assets backing the group's annuity
business.
3. In addition to credit risk the
group also has significant exposure to other market risks,
primarily due to the investment holdings within the shareholder
funds but also the risk to fee income from
assets backing unit linked business.
4. Longevity risk is the group's
most significant insurance risk exposure, arising from the annuity
book on which the majority of the longevity risk on the back-book
is retained. However, we expect
this to reduce over time as we continue to reinsure
the majority of the exposure on the new business written post the
implementation of Solvency II.
5. Miscellaneous includes LGA and
L&G Re 2 on a Deduction and Aggregation basis and the sectoral
capital requirements for non-insurance regulated firms.
5.02 Estimated Solvency II new
business contribution
(i) New business by
product1
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 new
|
|
|
from
new
|
|
|
|
PVNBP2
|
business3
|
Margin4
|
PVNBP2
|
business3
|
Margin4
|
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
LGRI - UK annuity business5
|
8,859
|
654
|
7.4
|
6,484
|
575
|
8.9
|
Retail Retirement - UK annuity business
|
|
1,431
|
100
|
7.0
|
954
|
60
|
6.3
|
UK Protection
|
1,337
|
37
|
2.8
|
1,512
|
82
|
5.4
|
US Protection6
|
1,123
|
128
|
11.4
|
796
|
84
|
10.6
|
1. Selected lines of business
only.
2. PVNBP
excludes a quota share reinsurance single premium of £3,189m (31
December 2022: £835m) 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. For 2023, the contribution from new business has
been calculated using the revised Risk Margin calculation
introduced into the UK in December 2023.
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 3.16 Related party transactions.
6. In local currency, US
protection business reflects PVNBP of $1,397m (31 December 2022:
$985m) and a contribution from new business of $160m (31 December
2022: $104m).
5.02 Estimated Solvency II new
business contribution (continued)
(ii) Assumptions
The key economic assumptions are as follows:
|
2023
|
2022
|
|
%
|
%
|
Margin for Risk
|
4.2
|
4.4
|
Risk-free rate
|
|
|
- UK
|
3.3
|
3.6
|
- US
|
3.9
|
3.9
|
Risk discount rate (net of tax)
|
|
|
- UK
|
7.5
|
8.0
|
- US
|
8.1
|
8.3
|
Long-term rate of return on annuities
|
4.9
|
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 rate shown
above is a weighted average based on the projected cash flows.
Economic and non-economic assumptions are set to
best estimates of their real-world outcomes, including a risk
premium for asset returns where appropriate. In particular:
• The assumed future pre-tax returns on
fixed interest and RPI linked securities are set by reference to
yield on the relevant backing assets, net of an allowance for
default risk which takes into account the credit rating and the
outstanding term of the assets. The weighted average deduction for
business written in 2023 equates to a level rate deduction from the
expected returns of 19 basis points. The calculated return takes
account of derivatives and other credit instruments in the
investment portfolio.
• 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.
5.02 Estimated Solvency II new
business contribution (continued)
(iii) Methodology
Basis of Preparation
Solvency II new business contribution reflects the
portion of Solvency II value added by new business written in the
year. It has been calculated in a manner consistent with principles
and methodologies which were adopted in the group's 2023 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.
Description of
methodology
The objective of the Solvency II new business
contribution is to provide shareholders with information on the
long-term contribution of new business written in 2023.
The Solvency II new business contribution has been
calculated as the present value of future shareholder profits
arising from business written in 2023. Cash flow projections are
determined using best estimate assumptions for each component of
cash flow and for each policy group. Best estimate assumptions
including mortality, morbidity, persistency and expenses reflect
recent operating experience. The Risk Margin included in the new
business contribution has been calculated under the Solvency UK
rules that came into effect in December 2023, using a 4% cost of
capital and a 10% tapering factor.
The 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 calculation of the new business
contribution for the financial year.
The new business margin is defined as new business
contribution divided by the PVNBP. The premium volumes used to
calculate the PVNBP are the same as those used to calculate new
business contribution.
LGA new business contribution is calculated on a US
statutory basis.
Projection assumptions
Cash flow projections are determined using best
estimate assumptions for each component of cash flow for each line
of business. Future economic and investment return assumptions are
based on conditions at the end of the financial year.
Detailed projection assumptions including mortality,
morbidity, persistency and expenses reflect recent operating
experience and are normally reviewed annually. Allowance is made
for future improvements in annuitant mortality based on experience
and externally published data. Favourable changes in operating
experience are not anticipated until the improvement in experience
has been observed.
All costs relating to new business, even if incurred
elsewhere in the group, are allocated to the new business. The
expense assumptions used for the cash flow projections therefore
include the full cost of servicing this business.
Risk discount rate
The risk discount rate (RDR) is duration-based and
is a combination of the risk-free curve and a flat Margin for
Risk.
The GBP risk-free rates have been based on a
SONIA-based swap curve with no Credit Risk Adjustment. The USD
risk-free rates have been based on a SOFR-based swap curve with no
Credit Risk Adjustment.
The Margin for Risk has been determined based on an
assessment of the group's Weighted Average Cost of Capital (WACC).
This assessment incorporates a beta for the group, which measures
the correlation of movements in the group's share price to
movements in a relevant index. Beta values therefore allow for the
market's assessment of the risks inherent in the business relative
to other companies in the chosen index.
5.02 Estimated Solvency II new
business contribution (continued)
(iii) Methodology
(continued)
The WACC is derived from the
group's cost of equity, cost of debt, and the proportion of equity
to debt in the group's capital structure measured using market
values. Each of these three parameters is forward looking, although
informed by historic information and appropriate judgements where
necessary. The cost of equity is calculated as the risk-free rate
plus the equity risk premium for the chosen index multiplied by the
company's beta.
The cost of debt used in the WACC
calculations takes account of the actual locked-in rates for our
senior and subordinated long-term debt. All debt interest attracts
tax relief at a time adjusted rate of 25% (31 December 2022:
25%).
Whilst the WACC approach is a
relatively simple and transparent calculation to apply,
subjectivity remains within a number of the assumptions. Management
believes that the chosen Margin for Risk, together with the levels
of required capital and the inherent strength of the group's
regulatory reserves, is appropriate to reflect the risks within the
covered business.
(iv) Reconciliation of PVNBP to
total LGRI and Retail new business
|
|
2023
|
2022
|
|
Notes
|
£bn
|
£bn
|
PVNBP
|
5.02
(i)
|
12.7
|
9.7
|
Effect of capitalisation factor
|
|
(1.8)
|
(1.5)
|
New business premiums from selected lines
|
|
10.9
|
8.2
|
Other1
|
|
5.0
|
3.3
|
Total LGRI and Retail new business
|
4.07,
4.08
|
15.9
|
11.5
|
1. Other principally includes
annuity sales in the US £1.5bn (31 December 2022:
£1.8bn), lifetime mortgage loans and retirement interest
only mortgages £0.3bn (31 December 2022:
£0.6bn), and quota share reinsurance premiums £3.2bn (31 December 2022: £0.8bn).
Investments
6.01 Investment
portfolio
|
|
|
|
Restated
|
|
|
|
2023
|
2022
|
|
|
|
£m
|
£m
|
Worldwide total assets under
management1
|
|
1,168,269
|
1,202,676
|
Client and policyholder
assets
|
|
(1,032,713)
|
(1,073,126)
|
Investments to which shareholders are directly exposed
(market value)
|
135,556
|
129,550
|
Adjustment from market value to
IFRS carrying value2
|
|
848
|
1,083
|
Investments to which shareholders are directly exposed (IFRS
carrying value)
|
136,404
|
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:
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
Other
|
|
Restated
|
Restated
|
Other
|
|
|
|
Annuity1
|
LGC2
|
shareholder
|
|
Annuity1
|
LGC2
|
shareholder
|
Restated
|
|
|
investments
|
investments
|
investments
|
Total
|
investments
|
investments
|
investments
|
Total
|
|
|
2023
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
2022
|
|
Notes
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Equities
|
|
240
|
2,513
|
413
|
3,166
|
95
|
2,576
|
400
|
3,071
|
Bonds
|
6.03
|
76,836
|
1,493
|
3,001
|
81,330
|
67,936
|
1,229
|
2,608
|
71,773
|
Derivative
assets3
|
|
37,878
|
141
|
-
|
38,019
|
41,641
|
337
|
-
|
41,978
|
Property
|
6.04
|
4,764
|
739
|
-
|
5,503
|
5,037
|
607
|
-
|
5,644
|
Loans4
|
|
1,239
|
325
|
48
|
1,612
|
785
|
238
|
50
|
1,073
|
Financial investments
|
|
120,957
|
5,211
|
3,462
|
129,630
|
115,494
|
4,987
|
3,058
|
123,539
|
Cash and cash
equivalents
|
|
2,573
|
1,014
|
648
|
4,235
|
2,631
|
1,418
|
785
|
4,834
|
Other
assets5
|
|
451
|
2,077
|
11
|
2,539
|
110
|
2,133
|
17
|
2,260
|
Total investments
|
|
123,981
|
8,302
|
4,121
|
136,404
|
118,235
|
8,538
|
3,860
|
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 £92m
(31 December 2022: £95m) of Legal & General Reinsurance Company
Limited's assets managed by LGC, along with £279m (31 December
2022: £122m) of bonds and equities that belong to other shareholder
funds.
3. Derivative assets are shown
gross of derivative liabilities of £40.5bn (31 December 2022:
£46.1bn). 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 £1,599m (31 December 2022: £1,072m).
5. Other assets include finance
leases of £451m (31 December 2022: £110m), associates and joint
ventures of £616m (31 December 2022: £554m) and the consolidated
net asset value of the group's investments in CALA Homes and other
housing businesses.
6.02 Direct investments
(i) Total investments analysed by
asset class
|
|
|
|
Restated
|
Restated
|
|
|
Direct1
|
Traded2
|
|
Direct1
|
Traded2
|
Restated
|
|
investments
|
securities
|
Total
|
investments
|
securities
|
Total
|
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Equities
|
1,856
|
1,310
|
3,166
|
1,704
|
1,367
|
3,071
|
Bonds3
|
27,671
|
53,659
|
81,330
|
23,171
|
48,602
|
71,773
|
Derivative assets
|
-
|
38,019
|
38,019
|
-
|
41,978
|
41,978
|
Property4
|
5,503
|
-
|
5,503
|
5,644
|
-
|
5,644
|
Loans
|
13
|
1,599
|
1,612
|
-
|
1,073
|
1,073
|
Financial investments
|
35,043
|
94,587
|
129,630
|
30,519
|
93,020
|
123,539
|
Cash and cash
equivalents
|
163
|
4,072
|
4,235
|
56
|
4,778
|
4,834
|
Other assets
|
2,539
|
-
|
2,539
|
2,260
|
-
|
2,260
|
Total investments
|
37,745
|
98,659
|
136,404
|
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 £5,766m (31 December 2022: £4,844m).
4. A further breakdown of property
is provided in Note 6.04.
6.02 Direct investments
(continued)
(ii) Direct investments analysed
by asset portfolio
|
|
|
|
Annuity1
|
Shareholder2
|
Insurance3
|
Total
|
|
|
|
|
2023
|
2023
|
2023
|
2023
|
|
|
|
|
£m
|
£m
|
£m
|
£m
|
Equities
|
|
|
|
62
|
1,545
|
249
|
1,856
|
Bonds4
|
|
25,756
|
265
|
1,650
|
27,671
|
Property
|
|
4,764
|
739
|
-
|
5,503
|
Loans
|
|
-
|
13
|
-
|
13
|
Financial investments
|
|
|
|
30,582
|
2,562
|
1,899
|
35,043
|
Other assets, cash and cash
equivalents
|
|
480
|
2,211
|
11
|
2,702
|
Total direct investments
|
|
|
|
31,062
|
4,773
|
1,910
|
37,745
|
|
|
|
|
Annuity1
|
Shareholder2
|
Insurance3
|
Total
|
|
|
|
|
2022
|
2022
|
2022
|
2022
|
|
|
|
|
£m
|
£m
|
£m
|
£m
|
Equities
|
|
|
|
51
|
1,417
|
236
|
1,704
|
Bonds4
|
|
21,840
|
51
|
1,280
|
23,171
|
Property
|
|
5,037
|
607
|
-
|
5,644
|
Loans
|
|
-
|
-
|
-
|
-
|
Financial investments
|
|
|
|
26,928
|
2,075
|
1,516
|
30,519
|
Other assets, cash and cash
equivalents
|
|
|
110
|
2,189
|
17
|
2,316
|
Total direct investments
(restated)
|
|
|
|
27,038
|
4,264
|
1,533
|
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 £92m (31 December 2022:
£95m) of Legal & General Reinsurance Company Limited's assets
managed by LGC, along with £279m (31 December 2022: £122m) 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 £5,766m (31 December 2022: £4,844m).
6.03 Bond portfolio
summary
(i) Sectors analysed by credit
rating
|
|
|
|
|
BB or
|
|
|
|
|
AAA
|
AA
|
A
|
BBB
|
below
|
Other
|
Total2
|
Total2
|
As at 31 December 2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
%
|
Sovereigns, Supras and Sub-Sovereigns
|
399
|
10,342
|
1,023
|
102
|
1
|
2
|
11,869
|
15
|
Banks:
|
|
|
|
|
|
|
|
|
- Tier
1
|
-
|
-
|
-
|
20
|
-
|
1
|
21
|
-
|
- Tier 2 and
other subordinated
|
-
|
-
|
77
|
47
|
1
|
-
|
125
|
-
|
-
Senior
|
-
|
1,656
|
4,270
|
824
|
1
|
-
|
6,751
|
8
|
-
Covered
|
106
|
-
|
-
|
-
|
-
|
-
|
106
|
-
|
Financial Services:
|
|
|
|
|
|
|
|
|
- Tier 2 and
other subordinated
|
-
|
74
|
57
|
17
|
7
|
3
|
158
|
-
|
-
Senior
|
238
|
361
|
828
|
716
|
-
|
3
|
2,146
|
3
|
Insurance:
|
|
|
|
|
|
|
|
|
- Tier
1
|
-
|
-
|
-
|
9
|
-
|
-
|
9
|
-
|
- Tier 2 and
other subordinated
|
31
|
131
|
32
|
44
|
-
|
-
|
238
|
-
|
-
Senior
|
10
|
188
|
411
|
379
|
-
|
-
|
988
|
1
|
Consumer Services and Goods:
|
|
|
|
|
|
|
|
|
-
Cyclical
|
-
|
46
|
1,174
|
1,843
|
25
|
21
|
3,109
|
4
|
-
Non-cyclical
|
314
|
840
|
3,176
|
2,917
|
65
|
1
|
7,313
|
9
|
-
Healthcare
|
12
|
697
|
1,060
|
668
|
4
|
-
|
2,441
|
3
|
Infrastructure:
|
|
|
|
|
|
|
|
|
-
Social
|
163
|
822
|
4,333
|
1,135
|
71
|
-
|
6,524
|
8
|
-
Economic
|
253
|
157
|
1,096
|
4,031
|
60
|
13
|
5,610
|
7
|
Technology and Telecoms
|
97
|
301
|
1,611
|
2,802
|
12
|
6
|
4,829
|
6
|
Industrials
|
-
|
58
|
593
|
651
|
25
|
1
|
1,328
|
2
|
Utilities
|
541
|
751
|
4,771
|
4,384
|
17
|
-
|
10,464
|
13
|
Energy
|
-
|
26
|
504
|
1,033
|
34
|
-
|
1,597
|
2
|
Commodities
|
-
|
-
|
210
|
630
|
24
|
21
|
885
|
1
|
Oil and Gas
|
-
|
501
|
618
|
326
|
13
|
59
|
1,517
|
2
|
Real estate
|
-
|
32
|
2,197
|
2,200
|
22
|
-
|
4,451
|
5
|
Structured finance ABS / RMBS / CMBS /
Other
|
656
|
1,042
|
697
|
566
|
55
|
15
|
3,031
|
4
|
Lifetime mortgage loans1
|
-
|
4,835
|
504
|
402
|
-
|
25
|
5,766
|
7
|
CDOs
|
-
|
43
|
-
|
11
|
-
|
-
|
54
|
-
|
Total £m
|
2,820
|
22,903
|
29,242
|
25,757
|
437
|
171
|
81,330
|
100
|
Total %
|
3
|
28
|
36
|
32
|
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 £76,836m, representing 94% of
the total group portfolio.
6.03 Bond portfolio summary
(continued)
(i) Sectors analysed by credit
rating (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BB
or
|
|
|
|
|
AAA
|
AA
|
A
|
BBB
|
below
|
Other
|
Total2
|
Total2
|
As at 31 December 2022
(Restated)
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
%
|
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
loans1
|
3,246
|
824
|
428
|
336
|
-
|
10
|
4,844
|
7
|
CDOs
|
-
|
41
|
-
|
11
|
-
|
-
|
52
|
-
|
Total £m
|
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 £67,936m, representing 95% of
the total group portfolio.
6.03 Bond portfolio summary
(continued)
(ii) Sectors analysed by
domicile
|
|
|
|
Rest of
|
|
|
UK
|
US
|
EU
|
the World
|
Total
|
As at 31 December 2023
|
£m
|
£m
|
£m
|
£m
|
£m
|
Sovereigns, Supras and Sub-Sovereigns
|
8,790
|
1,696
|
849
|
534
|
11,869
|
Banks
|
1,772
|
2,360
|
1,459
|
1,412
|
7,003
|
Financial Services
|
527
|
902
|
649
|
226
|
2,304
|
Insurance
|
64
|
1,015
|
75
|
81
|
1,235
|
Consumer Services and Goods:
|
|
|
|
|
|
-
Cyclical
|
355
|
2,281
|
294
|
179
|
3,109
|
-
Non-cyclical
|
1,891
|
4,697
|
379
|
346
|
7,313
|
-
Healthcare
|
277
|
2,093
|
71
|
-
|
2,441
|
Infrastructure:
|
|
|
|
|
|
-
Social
|
5,605
|
679
|
162
|
78
|
6,524
|
-
Economic
|
3,968
|
909
|
267
|
466
|
5,610
|
Technology and Telecoms
|
448
|
3,226
|
566
|
589
|
4,829
|
Industrials
|
199
|
768
|
310
|
51
|
1,328
|
Utilities
|
4,654
|
3,334
|
1,951
|
525
|
10,464
|
Energy
|
335
|
887
|
23
|
352
|
1,597
|
Commodities
|
53
|
392
|
134
|
306
|
885
|
Oil and Gas
|
288
|
371
|
530
|
328
|
1,517
|
Real estate
|
1,955
|
1,658
|
539
|
299
|
4,451
|
Structured finance ABS / RMBS / CMBS /
Other
|
768
|
1,744
|
62
|
457
|
3,031
|
Lifetime mortgage loans
|
5,324
|
-
|
442
|
-
|
5,766
|
CDOs
|
-
|
-
|
-
|
54
|
54
|
Total
|
37,273
|
29,012
|
8,762
|
6,283
|
81,330
|
6.03 Bond portfolio summary
(continued)
(ii) Sectors analysed by domicile
(continued)
|
|
|
|
Rest
of
|
|
|
UK
|
US
|
EU
|
the
World
|
Total
|
As at 31 December 2022
(Restated)
|
£m
|
£m
|
£m
|
£m
|
£m
|
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
|
6.03 Bond portfolio summary
(continued)
(iii) Bond portfolio analysed by
credit rating
|
|
|
|
Externally
|
Internally
|
|
|
|
|
|
rated
|
rated1
|
Total
|
As at 31 December 2023
|
|
|
|
£m
|
£m
|
£m
|
AAA
|
|
|
|
2,373
|
447
|
2,820
|
AA
|
|
|
|
16,323
|
6,580
|
22,903
|
A
|
|
|
|
18,365
|
10,877
|
29,242
|
BBB
|
|
|
|
18,458
|
7,299
|
25,757
|
BB or below
|
|
|
|
195
|
242
|
437
|
Other
|
|
|
|
20
|
151
|
171
|
Total
|
|
|
|
55,734
|
25,596
|
81,330
|
|
|
|
|
Externally
|
Internally
|
|
|
|
|
|
rated
|
rated1
|
Total
|
As at 31 December 2022
(Restated)
|
|
|
|
£m
|
£m
|
£m
|
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.
6.03 Bond portfolio summary
(continued)
(iv) Sectors analysed by Direct
investments and traded securities
|
|
|
Direct
|
|
|
|
|
|
investments
|
Traded
|
Total
|
As at 31 December 2023
|
|
|
£m
|
£m
|
£m
|
Sovereigns, Supras and Sub-Sovereigns
|
|
|
1,257
|
10,612
|
11,869
|
Banks
|
|
|
1,228
|
5,775
|
7,003
|
Financial Services
|
|
|
1,481
|
823
|
2,304
|
Insurance
|
|
|
160
|
1,075
|
1,235
|
Consumer Services and Goods:
|
|
|
|
|
|
-
Cyclical
|
|
|
550
|
2,559
|
3,109
|
-
Non-cyclical
|
|
|
1,017
|
6,296
|
7,313
|
-
Healthcare
|
|
|
517
|
1,924
|
2,441
|
Infrastructure:
|
|
|
|
|
|
-
Social
|
|
|
3,836
|
2,688
|
6,524
|
-
Economic
|
|
|
4,231
|
1,379
|
5,610
|
Technology and Telecoms
|
|
|
307
|
4,522
|
4,829
|
Industrials
|
|
|
127
|
1,201
|
1,328
|
Utilities
|
|
|
2,370
|
8,094
|
10,464
|
Energy
|
|
|
521
|
1,076
|
1,597
|
Commodities
|
|
|
145
|
740
|
885
|
Oil and Gas
|
|
|
102
|
1,415
|
1,517
|
Real estate
|
|
|
2,763
|
1,688
|
4,451
|
Structured finance ABS / RMBS / CMBS /
Other
|
|
|
1,293
|
1,738
|
3,031
|
Lifetime mortgage loans
|
|
|
5,766
|
-
|
5,766
|
CDOs
|
|
|
-
|
54
|
54
|
Total
|
|
|
27,671
|
53,659
|
81,330
|
6.03 Bond portfolio summary
(continued)
(iv) Sectors analysed by Direct
investments and traded securities (continued)
|
|
|
|
|
|
|
|
|
Direct
|
|
|
|
|
|
investments
|
Traded
|
Total
|
As at 31 December 2022
(Restated)
|
|
|
£m
|
£m
|
£m
|
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
|
6.04 Property analysis
Property exposure within Direct
investments by status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
Shareholder1
|
Total
|
|
As at 31 December 2023
|
|
|
|
£m
|
£m
|
£m
|
%
|
Fully let2
|
|
|
|
4,304
|
601
|
4,905
|
89
|
Development
|
|
|
|
460
|
104
|
564
|
10
|
Land
|
|
|
|
-
|
34
|
34
|
1
|
Total
|
|
|
|
4,764
|
739
|
5,503
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
Shareholder1
|
Total
|
|
As at 31 December 2022
|
|
|
|
£m
|
£m
|
£m
|
%
|
Fully let2
|
|
|
|
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 31 December 2023, the group held a total £1,932m (31
December 2022: £1,973m) of such assets.
2. £4.2bn (31 December 2022:
£4.5bn) fully let property were let to corporate clients, out of
which £3.7bn (31 December 2022: £4.0bn) 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 adoption of IFRS 17 by the group has led to
changes in both the definition and/or result of several of the
APMs, although the principles underlying them have not changed.
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.
Application of IFRS 17 has changed the timing of the
recognition of profit from insurance contracts. This includes
spreading both the day one profit arising on new business and the
impact of assumption changes into the contractual service margin.
Accordingly, the application of IFRS 17 reduced the reported 2022
operating profit from divisions by £0.9bn in comparison with the
result presented under IFRS4.
Shareholder
funds
Shareholder funds include both the group's traded
investments 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 investments 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 1.02 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
1.06 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 profit 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 year). In the current year,
ROE was quantified using profit attributable to equity holders of
£457m (31 December 2022: £783m) and average equity attributable to
the owners of the parent of £4,699m (31 December 2022: £5,014m),
based on an opening balance of £5,067m and a closing balance of
£4,331m (31 December 2022: based on an opening balance of £4,960m
and a closing balance of £5,067m). The methodology for determining
the ROE has not changed following the adoption of IFRS 17 and IFRS
9.
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. AUM has
not changed following the adoption of IFRS 9.
Note 4.04 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 is equal to profit before tax attributable to equity
holders plus the pre-tax results of discontinued operations. There
has been no change in definition as a result of the adoption of
IFRS 17.
Note 1.02 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 5.01 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 5.01 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
year 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 5.01 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 year.
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 beneficially 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 financial metric which can be used to
measure the profitability and strength of a company over time. It is
calculated as total shareholder profit 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.
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 uthorized 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, uthorized 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, inflation 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 2°C, preferably to 1.5°C, compared to pre-industrial
levels.
Pension risk
transfer (PRT)
Bulk annuities bought by entities that run final
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 assets 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
These are insurance regulations designed to
harmonise EU insurance regulation. Primarily this concerns the
amount of capital that European insurance companies must hold under
a measure of capital and risk. Solvency II became effective from 1
January 2016. 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.
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.