TIDMLGEN
RNS Number : 9181E
Legal & General Group Plc
04 March 2020
Legal & General Group Plc
Full Year Results 2019 Part 2
IFRS Disclosures on performance and Release from operations Page 31
1.01 Operating profit(#)
For the year ended 31 December 2019
2019 2018
Notes GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 1.03 1,569 1,548
------- -------
- LGR Institutional (LGRI) 1,216 1,149
- LGR Retail (LGRR) 353 399
------- -------
Legal & General Investment Management
(LGIM) 1.04 423 407
Legal & General Capital (LGC) 1.05 363 322
Legal & General Insurance (LGI) 1.03 314 308
------- -------
- UK and Other 223 246
- US (LGIA) 91 62
------- -------
Operating profit from divisions:
From continuing operations 2,669 2,585
From discontinued operations (1) 11 79
Operating profit from divisions 2,680 2,664
Group debt costs (2) (208) (203)
Group investment projects and expenses (186) (126)
Operating profit 2,286 2,335
Investment and other variances 1.06 (150) (188)
Losses on non-controlling interests (24) (19)
Adjusted profit before tax attributable
to equity holders 2,112 2,128
Tax expense attributable to equity
holders 3.07 (302) (320)
Profit for the year 1,810 1,808
Profit attributable to equity holders 1,834 1,827
Earnings per share:
Basic (pence per share) (3) 1.07 30.92p 30.79p
Diluted (pence per share) (3) 1.07 30.75p 30.64p
1. Discontinued operations include the results of the Mature Savings
and General Insurance divisions following the group announcement
to sell these businesses to ReAssure Limited (a subsidiary of Swiss
Re) and Allianz respectively. The sale of the General Insurance
business completed on 31 December 2019.
2. Group debt costs exclude interest on non recourse financing.
3. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the
group's key performance indicators) provides further analysis of
the results reported under IFRS and the group believes it provides
shareholders with a better understanding of the underlying
performance of the business in the period.
-- LGR represents worldwide pension risk transfer business
including longevity insurance (within LGRI), and individual
retirement and lifetime mortgages (within LGRR).
-- LGIM represents institutional and retail investment
management and workplace savings businesses.
-- LGC represents shareholder assets invested in direct
investments primarily in the areas of housing, urban regeneration,
clean energy and SME finance, as well as traded and treasury
assets.
-- LGI primarily represents UK and US retail protection
business, UK group protection and Fintech business.
-- Discontinued operations represent the results of the Mature
Savings and General Insurance divisions following the group
announcement to sell these businesses to ReAssure Limited (a
subsidiary of Swiss Re) and Allianz respectively. The sale of the
General Insurance business completed on 31 December 2019.
Operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except the operating profit for LGC's trading
businesses (which reflects the IFRS profit before tax) and LGIA's
non-term business (which excludes unrealised investment returns to
align with the liability measurement under US GAAP). Variances
between actual and smoothed investment return assumptions are
reported below operating profit, which include any differences
between investment return on actual assets and the target long-term
asset mix. Exceptional income and expenses which arise outside the
normal course of business in the period, such as gains/losses from
merger and acquisition, and start-up costs, are also excluded from
operating profit.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 32
1.02 Reconciliation of release from operations to operating
profit(#) before tax
Changes Operating Operating
New Net in profit/ profit/
Release business release Exper- valuation (loss) Tax (loss)
For the year from surplus/ from ience assump- Non-cash after expense/ before
ended operations(1) (strain) operations variances tions items Other tax (credit) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2019
LGR 598 327 925 (53) 390 91 - 1,353 216 1,569
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 418 265 683 (40) 313 88 - 1,044 172 1,216
- LGRR 180 62 242 (13) 77 3 - 309 44 353
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM 366 (20) 346 (1) - (4) - 341 82 423
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings)
(2) 339 - 339 - - - - 339 82 421
- Workplace
Savings
(3) 27 (20) 7 (1) - (4) - 2 - 2
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGC 295 - 295 - - - - 295 68 363
LGI 259 (7) 252 (11) 44 (12) 4 277 37 314
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 165 (7) 158 (11) 44 (12) 4 183 40 223
- US (LGIA) 94 - 94 - - - - 94 (3) 91
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 1,518 300 1,818 (65) 434 75 4 2,266 403 2,669
From
discontinued
operations
(4) 9 - 9 - - - - 9 2 11
Total from
divisions 1,527 300 1,827 (65) 434 75 4 2,275 405 2,680
Group debt
costs (168) - (168) - - - - (168) (40) (208)
Group
investment
projects and
expenses (44) - (44) - - - (102) (146) (40) (186)
Total 1,315 300 1,615 (65) 434 75 (98) 1,961 325 2,286
1. Release from operations within US (LGIA) includes GBP81m of dividends
from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management
services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings
and General Insurance divisions following the group's announcement to
sell these businesses to ReAssure Limited (a subsidiary of Swiss Re)
and Allianz respectively. The sale of the General Insurance business
completed on 31 December 2019 and the recognised operating loss for
the year is GBP35m (2018: GBPnil).
Release from operations for LGR, LGIM - Workplace Savings and LGI represents
the expected IFRS surplus generated in the year from the in-force non
profit annuities, workplace savings and UK protection businesses using
best estimate assumptions. The LGIM release from operations also includes
operating profit after tax from the institutional and retail investment
management businesses. The LGI release from operations also includes
dividends remitted from LGIA. The release from operations within discontinued
operations primarily reflects the unwind of expected profits after tax
under the risk transfer agreement with ReAssure Limited (a subsidiary
of Swiss Re) from the Mature Savings business, offset by losses from
the General Insurance business in 2019.
New business surplus/strain for LGR, LGIM - Workplace Savings and LGI
represents the cost of acquiring new business and setting up prudent
reserves in respect of the new business for UK non profit annuities,
workplace savings and protection, net of tax. The new business surplus
and release from operations for LGR, LGIM and LGI excludes any capital
held in excess of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long-term
asset portfolio. At certain period ends, depending upon the quantum
and timing pf pension risk transfer (PRT) volumes, we may continue to
source high quality assets to support that business after the period
end, as appropriate, taking into account the alternative risks and rewards
of traded credit. At year end, any difference between the actual assets
and the long-term asset mix is reflected in investment variance.
Net release from operations for LGR, LGIM - Workplace Savings, LGI and
discontinued operations is defined as release from operations plus new
business surplus/(strain).
Release from operations and net release from operations for LGC and
LGIM represents the operating profit (net of tax).
See Note 1.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent
'Group adjusted operating profit', an alternative performance measure
defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 33
1.02 Reconciliation of release from operations to operating
profit(#) before tax (continued)
Changes Operating Operating
New Net in profit/ profit/
Release business release Exper- valuation (loss) Tax (loss)
For the year from surplus/ from ience assump- Non-cash after expense/ before
ended operations(1) (strain) operations variances tions items Other tax (credit) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2018
LGR 551 217 768 33 444 40 - 1,285 263 1,548
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGRI 379 188 567 22 324 43 - 956 193 1,149
- LGRR 172 29 201 11 120 (3) - 329 70 399
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGIM 354 (25) 329 (3) (1) 1 - 326 81 407
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings)
(2) 323 - 323 - - - - 323 81 404
- Workplace
Savings
(3) 31 (25) 6 (3) (1) 1 - 3 - 3
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
LGC 261 - 261 - - - - 261 61 322
LGI 258 (22) 236 24 35 (19) (7) 269 39 308
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
- UK and
Other 181 (22) 159 24 35 (19) 1 200 46 246
- US (LGIA) 77 - 77 - - - (8) 69 (7) 62
------------- -------- ---------- --------- --------- -------- ----- --------- -------- ---------
From
continuing
operations 1,424 170 1,594 54 478 22 (7) 2,141 444 2,585
From
discontinued
operations
(4) 44 - 44 (6) - 26 - 64 15 79
Total from
divisions 1,468 170 1,638 48 478 48 (7) 2,205 459 2,664
Group debt
costs (164) - (164) - - - - (164) (39) (203)
Group
investment
projects and
expenses (34) - (34) - - - (68) (102) (24) (126)
Total 1,270 170 1,440 48 478 48 (75) 1,939 396 2,335
1. Release from operations within US (LGIA) includes GBP77m of dividends
from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management
services.
3. Workplace Savings represents administration business only.
4. Discontinued operations reflect the results of the Mature Savings
and General Insurance divisions following the group's announcements
to sell these businesses to ReAssure Limited (a subsidiary of Swiss
Re) and Allianz respectively. Operating profit of the General Insurance
business in 2018 was GBP0m.
# All references to 'Operating profit' throughout this report
represent 'Group adjusted operating profit', an alternative
performance measure defined in the glossary.
IFRS Disclosures on performance and Release from operations Page 34
1.03 Analysis of LGR and LGI operating profit
For the year ended 31 December 2019
LGR LGI LGR LGI
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
Net release from operations 925 252 768 236
Experience variances
- Persistency (4) (9) 8 (12)
- Mortality/morbidity 6 (5) 73 (7)
- Expenses (23) - (13) 2
- Project and development costs (12) - (11) -
- Other (1) (20) 3 (24) 41
Total experience variances (53) (11) 33 24
Changes to valuation assumptions
- Persistency - (16) - (4)
- Mortality/morbidity (2) 352 39 444 25
- Expenses 5 - - 17
- Other (3) 33 21 - (3)
Total changes to valuation assumptions 390 44 444 35
Movement in non-cash items
- Acquisition expense tax relief - (2) - (11)
- Other (4) 91 (10) 40 (8)
Total movement in non-cash items 91 (12) 40 (19)
Other - 4 - (7)
Operating profit after tax 1,353 277 1,285 269
Tax gross up 216 37 263 39
Operating profit before tax 1,569 314 1,548 308
1. Other experience variances for LGI in 2018 reflected a number of
modelling requirements which were not repeated in 2019.
2. Mortality assumption changes for LGR include a one off release
of GBP134m (net of tax) from an update in the longevity trend assumption
from adjusted CMI 2016 to adjusted CMI 2017. In 2018, the comparable
one off release of GBP359m was from adjusted CMI 2015 to adjusted
CMI 2016. Other positive longevity variances are driven by routine
updates to our assumptions relating to base mortality rates.
3. LGR Other changes to valuation assumptions reflect a change in
assumption on the future exercise of an option within a longevity
swap contract.
4. LGR Other movement in non-cash items is driven by the net effect
of the capitalisation and unwind of future asset management profits
on activity managed by LGIM, and is a function of new business volumes
and movements in the main unit cost assumptions.
IFRS Disclosures on performance and Release from operations Page 35
1.04 LGIM operating profit
2019 2018
GBPm GBPm
Asset management revenue (excluding 3rd party market
data) (1,2) 889 820
Asset management transactional revenue (3) 23 27
Asset management expenses (excluding 3rd party market
data) (1,2) (491) (443)
Workplace Savings operating profit (4) 2 3
Total LGIM operating profit 423 407
1. Asset management revenue and expenses exclude income and costs of
GBP24m in relation to the provision of third party market data (2018:
GBP19m).
2. The ETF operating result is included as part of asset management
revenue and expenses, which represents a change in the presentation
from previous periods. Asset management revenue (excluding 3rd party
market data) and Asset management expenses (excluding 3rd party market
data) have therefore been restated for the full year ended 31 December
2018 to reflect this change.
3. Transactional revenue from external clients includes execution fees,
asset transition income, trigger fees, arrangement fees on property
transactions and performance fees.
4. Workplace Savings represents administration business.
1.05 LGC operating profit
2019 2018
GBPm GBPm
Direct investments(1) 217 188
Traded investment portfolio including treasury
assets(2) 146 134
Total LGC operating profit 363 322
1. Direct Investments represents LGC's portfolio of assets across future
cities (including urban regeneration and clean energy), housing and
SME finance.
2. The traded investment portfolio holds a diversified set of exposures
across equities, fixed income, multi-asset funds and cash.
1.06 Investment and other variances
2019 2018
GBPm GBPm
Investment variance (1) (27) (126)
M&A related and other variances (2) (123) (62)
Total investment and other variances (150) (188)
1. Investment variance includes differences between actual and smoothed
investment return on traded and real assets, economic assumption changes
(e.g. credit default and inflation) and the impact of any difference
between the actual allocated asset mix and the target long-term asset
mix on new pension risk transfer business written during the period
and held at a period end.
2. M&A related and other variances includes gains and losses, expenses
and intangible amortisation relating to acquisitions and disposals.
2019 reflects the impact of impairing GBP55m of capitalised software
intangibles following a groupwide review, as well as a GBP43m gain
on the disposal of the group's stake in IndiaFirst Life Insurance Company
Limited.
IFRS Disclosures on performance and Release from operations Page 36
1.07 Earnings per share
(a) Basic earnings per share
After Per share(1) After Per share(1)
tax tax
2019 2019 2018 2018
GBPm p GBPm p
Profit for the year attributable to equity
holders 1,834 30.92 1,827 30.79
Less: earnings derived from discontinued
operations (23) (0.39) (43) (0.72)
--------------------------------------------- ----- ------------ ----- ------------
Basic earnings derived from continuing
operations 1,811 30.53 1,784 30.07
-------------------------------------------- ----- ------------ ----- ------------
1. Basic earnings per share is calculated by dividing profit after
tax by the weighted average number of ordinary shares in issue during
the period, excluding employee scheme treasury shares.
(b) Diluted earnings per share
Weighted
average
number
of
After tax shares Per share(1)
2019 2019 2019
GBPm m p
Profit for the year attributable to
equity holders 1,834 5,932 30.92
Net shares under options allocable
for no further consideration - 33 (0.17)
Total diluted earnings 1,834 5,965 30.75
Less: diluted earnings derived from
discontinued operations (23) - (0.39)
---------------------------------------------- --------- -------- ------------
Diluted earnings derived from continuing
operations 1,811 5,965 30.36
---------------------------------------------- --------- -------- ------------
Weighted
average
number
of
After tax shares Per share(1)
2018 2018 2018
GBPm m p
Profit for the year attributable to equity
holders 1,827 5,933 30.79
Net shares under options allocable for no
further consideration - 29 (0.15)
Total diluted earnings 1,827 5,962 30.64
Less: diluted earnings derived from
discontinued operations (64) - (0.72)
---------------------------------------------- --------- -------- ------------
Diluted earnings derived from continuing
operations 1,763 5,962 29.92
---------------------------------------------- --------- -------- ------------
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.
IFRS Disclosures on performance and Release from operations Page 37
1.08 Segmental analysis
Reportable segments
The group has four reportable segments that are continuing
operations, comprising LGR, LGIM, LGC and LGI, as set out in Note
1.01. Group central expenses and debt costs are reported
separately. Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
Continuing operations exclude the results of the Mature Savings
and General Insurance divisions which have been classified as
discontinued following the group's announcements to sell these
businesses to ReAssure Limited (a subsidiary of Swiss Re) and
Allianz respectively.
Reporting of assets and liabilities by reportable segment has
not been included, as this is not information that is provided to
key decision makers on a regular basis. The group's assets and
liabilities are managed on a legal entity rather than reportable
segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further
broken down where relevant in order to better explain the drivers
of the group's results.
(a) Profit/(loss) for the year
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs operations
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2019
Operating profit/(loss)(#) 1,569 423 363 314 (394) 2,275
Investment and other variances 43 (9) 91 (234) (58) (167)
Losses attributable to non-controlling
interests - - - - (24) (24)
Profit/(loss) before tax attributable
to equity holders 1,612 414 454 80 (476) 2,084
Tax (expense)/credit attributable
to equity holders (234) (81) (75) 12 81 (297)
Profit/(loss) for the year 1,378 333 379 92 (395) 1,787
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs operations
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2018
Operating profit/(loss) (#) 1,548 407 322 308 (329) 2,256
Investment and other variances 95 (4) (273) (1) 22 (161)
Losses attributable to non-controlling
interests - - - - (19) (19)
Profit/(loss) before tax attributable
to equity holders 1,643 403 49 307 (326) 2,076
Tax (expense)/credit attributable
to equity holders (267) (81) 13 (39) 63 (311)
Profit/(loss) for the year 1,376 322 62 268 (263) 1,765
# Operating profit for total continuing operations represents 'Group
adjusted operating profit', an alternative performance measure defined
in the glossary.
IFRS Disclosures on performance and Release from operations Page 38
1.08 Segmental analysis (continued)
(b) Total income
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations
For the year ended 31 December 2019 GBPm GBPm GBPm GBPm GBPm
Internal income - 188 - (188) -
External income 16,385 43,836 1,593 4,972 66,786
Total income 16,385 44,024 1,593 4,784 66,786
Total
LGC and continuing
LGR LGIM(1,2) LGI other(3) operations
For the year ended 31 December 2018 GBPm GBPm GBPm GBPm GBPm
Internal income - 172 - (172) -
External income 8,507 (10,654) 1,742 1,299 894
Total income 8,507 (10,482) 1,742 1,127 894
1. LGIM internal income relates to investment management services
provided to other segments.
2. LGIM external income primarily includes fees from fund
management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
IFRS Primary Financial Statements Page 39
2.01 Consolidated Income Statement
2019 2018
For the year ended 31 December 2019 Notes GBPm GBPm
Income
Gross written premiums 15,203 12,843
Outward reinsurance premiums (3,452) (2,114)
Net change in provision for unearned premiums (66) -
Net premiums earned 11,685 10,729
Fees from fund management and investment contracts 834 802
Investment return 53,014 (11,843)
Other operational income 1,253 1,206
Total income 1.08 66,786 894
Expenses
Claims and change in insurance contract liabilities 19,005 8,370
Reinsurance recoveries (3,502) (1,051)
Net claims and change in insurance contract
liabilities 15,503 7,319
Change in investment contract liabilities 45,809 (11,304)
Acquisition costs 805 780
Finance costs 269 238
Other expenses 2,244 1,732
Total expenses 64,630 (1,235)
Profit before tax 2,156 2,129
Tax expense attributable to policyholder returns (72) (53)
Profit before tax attributable to equity holders 2,084 2,076
Total tax expense (369) (364)
Tax expense attributable to policyholder returns 72 53
Tax expense attributable to equity holders 3.07 (297) (311)
Profit after tax from continuing operations 1.08 1,787 1,765
Profit after tax from discontinued operations(1) 3.04 23 43
Profit for the year 1,810 1,808
--------------------------------------------------------------------------- ----- ------- --------
Attributable to:
Non-controlling interests (24) (19)
Equity holders 1,834 1,827
Dividend distributions to equity holders during
the year 3.05 998 932
Dividend distributions to equity holders proposed
after the year end 3.05 753 704
p p
Total basic earnings per share(2) 1.07 30.92 30.79
Total diluted earnings per share(2) 1.07 30.75 30.64
--------------------------------------------------------------------------- ----- ------- --------
Basic earnings per share derived from continuing
operations(2) 1.07 30.53 30.07
Diluted earnings per share derived from continuing
operations(2) 1.07 30.36 29.92
--------------------------------------------------------------------------- ----- ------- --------
1. Discontinued operations reflect the results of the Mature Savings
and General Insurance divisions following the group's announcements
to sell these businesses to ReAssure Limited (a subsidiary of Swiss
Re) and Allianz respectively. The sale of the General Insurance business
completed on 31 December 2019.
2. All earnings per share calculations are based on profit attributable
to equity holders of the company.
IFRS Primary Financial Statements Page 40
2.02 Consolidated Statement of Comprehensive Income
2019 2018
For the year ended 31 December 2019 GBPm GBPm
Profit for the year 1,810 1,808
Items that will not be reclassified subsequently to
profit or loss
Actuarial (losses)/gains on defined benefit pension
schemes (62) 117
Tax on actuarial (losses)/gains on defined benefit pension
schemes 11 (22)
Total items that will not be reclassified subsequently
to profit or loss (51) 95
Items that may be reclassified subsequently to profit
or loss
Exchange differences on translation of overseas operations (67) 62
Movement in cross-currency hedge 13 34
Tax on movement in cross-currency hedge (1) (5)
Movement in financial investments designated as available-for-sale 72 (36)
Tax on movement in financial investments designated
as available-for-sale (15) 5
Total items that may be reclassified subsequently to
profit or loss 2 60
Other comprehensive (expense)/income after tax (49) 155
Total comprehensive income for the year 1,761 1,963
Total comprehensive income for the year attributable
to:
Continuing operations 1,738 1,920
Discontinued operations 23 43
------------------------------------------------------------------- ----- -----
Total comprehensive income/(expense) for the year attributable
to:
Non-controlling interests (24) (19)
Equity holders 1,785 1,982
IFRS Primary Financial Statements Page 41
2.03 Consolidated Balance Sheet
2019 2018
As at 31 December 2019 Notes GBPm GBPm
Assets
Goodwill 64 65
Purchased interest in long term businesses
and other intangible assets 190 223
Deferred acquisition costs 75 140
Investment in associates and joint ventures
accounted for using the equity method 324 259
Property, plant and equipment (1) 298 57
Investment property 3.06 7,695 6,965
Financial investments 3.06 498,376 430,498
Reinsurers' share of contract liabilities 5,810 4,737
Deferred tax assets 3.07 8 7
Current tax assets 468 418
Receivables and other assets 8,532 5,593
Assets of operations classified as held for
sale 3.04 24,844 26,234
Cash and cash equivalents 13,923 17,321
Total assets 560,607 492,517
Equity
Share capital 3.08 149 149
Share premium 3.08 1,000 992
Employee scheme treasury shares (65) (52)
Capital redemption and other reserves 250 230
Retained earnings 8,033 7,261
Attributable to owners of the parent 9,367 8,580
Non-controlling interests 3.09 55 72
Total equity 9,422 8,652
Liabilities
Non-participating insurance contract liabilities 77,317 64,707
Non-participating investment contract liabilities 320,594 293,080
Core borrowings 3.1 4,091 3,922
Operational borrowings 3.11 1,020 1,026
Provisions 3.15 1,220 1,140
UK deferred tax liabilities 3.07 189 144
Overseas deferred tax liabilities 3.07 182 185
Current tax liabilities 107 171
Payables and other financial liabilities 3.12 84,039 62,548
Other liabilities 804 619
Net asset value attributable to unit holders 31,507 26,481
Liabilities of operations classified as held
for sale 3.04 30,115 29,842
Total liabilities 551,185 483,865
Total equity and liabilities 560,607 492,517
1. Property, plant and equipment for 2019 includes GBP238m of right
of use assets that have arisen on the implementation of IFRS 16.
IFRS Primary Financial Statements Page 42
2.04 Consolidated Statement of Changes in Equity
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the year ended 31 December of the
2019 capital premium shares reserves(1) earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 2019 149 992 (52) 230 7,261 8,580 72 8,652
Profit for the year - - - - 1,834 1,834 (24) 1,810
Exchange differences on
translation
of overseas operations - - - (67) - (67) - (67)
Net movement in cross-currency
hedge - - - 12 - 12 - 12
Net actuarial losses on defined
benefit pension schemes - - - - (51) (51) - (51)
Net movement in financial
investments designated as
available-for-sale - - - 57 - 57 - 57
Total comprehensive income
for the year - - - 2 1,783 1,785 (24) 1,761
Options exercised under share
option schemes - 8 - - - 8 - 8
Shares purchased - - (20) - - (20) - (20)
Shares vested - - 7 (35) - (28) - (28)
Employee scheme treasury
shares:
- Value of employee services - - - 39 - 39 - 39
Share scheme transfers to
retained earnings - - - - 1 1 - 1
Dividends - - - - (998) (998) - (998)
Movement in third party
interests - - - - - - 7 7
Currency translation
differences - - - 14 (14) - - -
As at 31 December 2019 149 1,000 (65) 250 8,033 9,367 55 9,422
1. Capital redemption and other reserves as at 31 December 2019 include
share-based payments GBP85m, foreign exchange GBP68m, capital redemption
GBP17m, hedging reserves GBP32m and available-for-sale reserves GBP48m.
IFRS Primary Financial Statements Page 43
2.04 Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity
scheme redemption attributable Non-
and
Share Share treasury other Retained to owners controlling Total
For the year ended 31 December of the
2018 capital premium shares reserves(1) earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 2018 149 988 (40) 168 6,251 7,516 76 7,592
Profit for the year - - - - 1,827 1,827 (19) 1,808
Exchange differences on
translation of overseas
operations - - - 62 - 62 - 62
Net movement in cross-currency
hedge - - - 29 - 29 - 29
Net actuarial gains on defined
benefit pension schemes - - - - 95 95 - 95
Net movement in financial
investments designated as
available-for-sale - - - (31) - (31) - (31)
Total comprehensive income
for the year - - - 60 1,922 1,982 (19) 1,963
Options exercised under
share option schemes - 4 - - - 4 - 4
Shares purchased - - (17) - - (17) - (17)
Shares vested - - 5 (26) - (21) - (21)
Employee scheme treasury
shares:
- Value of employee services - - - 38 - 38 - 38
Share scheme transfers to
retained earnings - - - - 10 10 - 10
Dividends - - - - (932) (932) - (932)
Movement in third party
interests - - - - - - 15 15
Currency translation
differences - - - (10) 10 - - -
As at 31 December 2018 149 992 (52) 230 7,261 8,580 72 8,652
1. Capital redemption and other reserves as at 31 December 2018 include
share-based payments GBP81m, foreign exchange GBP121m, capital redemption
GBP17m, hedging reserves GBP20m and available-for-sale reserves GBP(9)m.
IFRS Primary Financial Statements Page 44
2.05 Consolidated Statement of Cash Flows
2019 2018
For the year ended 31 December 2019 Notes GBPm GBPm
Cash flows from operating activities
Profit for the year 1,810 1,808
Adjustments for non cash movements in net profit
for the year
Net (gains)/losses on financial investments and
investment property (45,516) 23,132
Investment income (10,501) (10,182)
Interest expense 322 293
Tax expense 598 210
Other adjustments 117 183
Net (increase)/decrease in operational assets
Investments held for trading or designated as
fair value through profit or loss (18,031) (10,381)
Investments designated as available-for-sale (179) (248)
Other assets (4,660) 1,258
Net increase/(decrease) in operational liabilities
Insurance contracts 13,089 3,257
Investment contracts 27,514 (22,571)
Other liabilities 21,313 12,057
Net increase/(decrease) in held for sale net liabilities 1,206 (8,500)
Cash utilised in operations (12,918) (9,684)
Interest paid (263) (215)
Interest received 5,047 4,841
Tax paid(1) (540) (504)
Dividends received 5,389 5,201
Net cash flows utilised in operating activities (3,285) (361)
Cash flows from investing activities
Net acquisition of plant, equipment, intangibles
and other assets (89) (401)
Net disposal/(acquisition) of operations, net 3.02,
of cash (transferred)/acquired 3.03 198 326
Net disposal/(investment) in associates and joint
ventures 29 (130)
Net cash flows generated/(utilised) from investing
activities 138 (205)
Cash flows from financing activities
Dividend distributions to ordinary equity holders
during the year 3.05 (998) (932)
Options exercised under share option schemes 3.08 8 4
Treasury shares purchased for employee share schemes (20) 12
Payment of lease liabilities (33) -
Proceeds from borrowings 1,309 960
Repayment of borrowings (958) (325)
Net cash flows utilised in financing activities (692) (281)
Net (decrease)/increase in cash and cash equivalents (3,839) (847)
Exchange (losses)/gains on cash and cash equivalents (16) 16
Cash and cash equivalents at 1 January (before
reallocation of held for sale cash) 18,088 18,919
Total cash and cash equivalents 14,233 18,088
Less: cash and cash equivalents of operations
classified as held for sale 3.04 (310) (767)
Cash and cash equivalents at 31 December 13,923 17,321
1. Tax comprises UK corporation tax paid of GBP381m (2018: GBP359m),
withholding tax of GBP166m (2018: GBP120m) and an overseas corporate
tax refund of GBP7m (2018: tax paid GBP25m).
IFRS Disclosure Notes Page 45
3.01 Basis of preparation
The preliminary announcement for the year ended 31 December 2019
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 2019 Annual report and accounts,
which will be available on the group's website on 12 March 2020.
The group's 2018 Annual report and accounts have been filed with
the Registrar of Companies, and those for 2019 will be delivered in
due course. KPMG have reported on the 2019 and 2018 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 International Financial Reporting Standards (IFRSs) issued by
the International Accounting Standards Board (IASB) and as adopted
by the European Union, and with those parts of the UK Companies Act
2006 applicable to companies reporting under IFRS. The group
financial statements also comply with IFRS and interpretations by
the IFRS Interpretations Committee as issued by the IASB and as
adopted by the European Union. The group financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of land and buildings, available-for-sale financial
assets and financial assets and financial liabilities (including
derivative instruments) at fair value through profit or loss.
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 policies 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 and investment contract liabilities, unquoted illiquid
assets, investment property, and the determination of defined
benefit pension plan assumptions. 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 2019
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
shareholders. This has been apportioned between that attributable
to policyholders' returns and equity holders' profits. This
represents the fact that the group's long-term business in the UK
pays tax on policyholder investment return, in addition to the
corporation tax charge charged on shareholder profit. The separate
presentation is intended to provide more relevant information about
the tax that the group pays on the profits that it makes.
For this apportionment, the equity holders' tax on long-term
business is estimated by applying the statutory tax rate to profits
attributed to equity holders. This is considered to approximate the
corporation tax attributable to shareholders as calculated under UK
tax rules. The balance of income tax associated with UK long-term
business is attributed to income tax attributable to policyholders'
returns and approximates the corporation tax attributable to
policyholders as calculated under UK tax rules.
IFRS Disclosure Notes Page 46
3.02 Acquisitions
Accelerated Digital Ventures Limited
On 31 August 2019 the group increased its shareholding in
Accelerated Digital Ventures Ltd to 97% from 48.5%.
The transaction has been accounted for as a stepped acquisition
in accordance with IFRS 3 'Business combinations'. The assets and
liabilities acquired at the point of the transaction have been
recorded at the fair value for the purposes of the acquisition
balance sheet and included in the consolidated accounts of the
group using the group's accounting policies in accordance with
IFRS.
The total deemed consideration for the 97% stake was GBP41m
compared to GBP49m of net assets at fair value net of
non-controlling interest, giving rise to a one off gain of GBP8m,
which has been recognised within other operational income in the
Consolidated Income Statement.
3.03 Disposals
IndiaFirst Life Insurance Company Limited
On 7 February 2019, the group completed the disposal of its stake in
IndiaFirst Life Insurance Company Limited ("IndiaFirst Life") to an
affiliate of Warburg Pincus LLC for INR 7.1bn (c.GBP76m at GBP:INR 1:92).
A pre-tax gain on disposal of GBP43m, net of transaction costs, has
been recognised in other operational income in the Consolidated Income
Statement. The operations of IndiaFirst Life have not been classified
as discontinued operations since they do not represent a major line
of business of the group.
Legal & General Insurance Limited
On 31 May 2019 the group announced the sale of its General Insurance
("GI") business to Allianz, and the transaction completed on 31 December
2019 for an estimated consideration of GBP255m. The carrying value of
the GI business on disposal was GBP231m, resulting in a profit on disposal
of GBP2m, net of transaction and separation costs of GBP22m.
The result arising from the GI business until its disposal, as well
as the gain on the sale, have been recognised in the Consolidated Income
Statement, as part of profit from discontinued operations.
The GI balance sheet on disposal is presented below:
Total
2019
GBPm
Deferred acquisition
costs 65
Financial investments 368
Receivables 160
Intangible assets 44
Reinsurers' share of
contract liabilities 24
Cash and cash equivalents 26
Other assets 9
Total assets 696
Insurance contract
liabilities 378
Tax liabilities 49
Other liabilities 38
Total liabilities 465
Net assets on disposal 231
-------------------------------------------------------------------- ------------
IFRS Disclosure Notes Page 47
3.04 Assets and liabilities of operations classified as held for
sale
Mature Savings
On 6 December 2017 the group announced the sale of its Mature Savings
business to the ReAssure Limited, a subsidiary of Swiss Re Limited
('Swiss Re') for a consideration of GBP650m. As part of the transaction,
on 1 January 2018 the group entered into a risk transfer agreement
with Swiss Re, whereby the group transferred all economic risks and
rewards of the Mature Savings business to ReAssure limited. The risk
transfer agreement operates until the business is transferred under
a court approved scheme under Part VII of the Financial Services and
Markets Act 2000. The sale is expected to finalise in 2020 following
the completion of the Part VII transfer. As the legal transfer of the
business has not yet occurred the Mature Savings business has been
classified as held for sale on the Group's balance sheet as at 31 December
2019. The profit arising from the Mature Savings business in accordance
with the risk transfer agreement has been recognised as "Profit after
tax from discontinued operations" in the Consolidated Income Statement.
Up until the Part VII this reflects the unwind of expected underlying
profits, which will offset the final profit on disposal.
Swiss Re has since announced the sale of ReAssure Limited to Phoenix
Group Holdings. The announcement is not expected to have any direct
impact on the transfer of the Mature Savings business to ReAssure Limited.
3.05 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1)
2019 2019 2018 2018
GBPm p GBPm p
Ordinary dividends paid and charged to equity
in the year:
- Final 2017 dividend paid in June
2018 - - 658 11.05
- Interim 2018 dividend paid in September
2018 - - 274 4.60
- Final 2018 dividend paid in June
2019 704 11.82 - -
- Interim 2019 dividend paid in September
2019 294 4.93 - -
Total dividends 998 16.75 932 15.65
Ordinary share dividend proposed
(2) 753 12.64 704 11.82
1. The dividend per share calculation is based on the number of
equity shares registered on the ex-dividend date.
2. Subsequent to 31 December 2019, the directors declared a final
dividend for 2019 of 12.64 pence per ordinary share. This dividend
will be paid on 4 June 2020. It will be accounted for as an appropriation
of retained earnings in the year ended 31 December 2020 and is not
included as a liability in the Consolidated Balance Sheet as at
31 December 2019.
IFRS Disclosure Notes Page 48
3.06 Financial investments and investment property
2019 2018
GBPm GBPm
Equities(1) 200,365 177,566
Debt securities (2) 286,916 254,452
Accrued interest 1,647 1,635
Derivative assets (3) 14,828 10,065
Loans (4) 16,814 9,662
Financial investments 520,570 453,380
Investment property 9,107 8,608
Total financial investments and investment
property 529,677 461,988
-------------------------------------------------------------- --------- --------
Less: financial investments and investment property
of operations classified as held for sale (23,606) (24,525)
-------------------------------------------------------------- --------- --------
Financial investments and investment property 506,071 437,463
-------------------------------------------------------------- --------- --------
1. Equity securities include investments in unit trusts of GBP13,046m
(2018: GBP10,553m).
2. A detailed analysis of debt securities to which shareholders are
directly exposed is disclosed in Note 6.03.
3. Derivatives are used for efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, credit default swaps
and foreign exchange forward contracts for asset and liability management.
Derivative assets are shown gross of derivative liabilities of GBP13,113m
(2018: GBP7,791m).
4. Loans include GBP437m (2018: GBP456m) of loans valued at amortised
cost.
IFRS Disclosure Notes Page 49
3.07 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
Continuing Continuing
operations Total operations Total
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
Profit before tax attributable to equity holders 2,084 2,112 2,076 2,128
Tax calculated at 19.00% 396 401 394 404
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax (4) (4) - -
(Lower)/higher rate of tax on profits taxed
overseas(1) (117) (117) (55) (55)
Non-deductible expenses 2 2 5 5
Differences between taxable and accounting
investment gains (10) (10) (4) (4)
Property income attributable to minority interests 4 4 - -
Foreign tax 6 6 - -
Unrecognised tax losses 14 14 - -
Non-recurring reconciling items:
Income not subject to tax (6) (6) (10) (10)
Non-deductible expenses 6 6 5 5
Adjustments in respect of prior years(2) 9 9 (35) (36)
Impact of changes in corporate tax rates on
deferred tax balances (2) (2) 11 11
Other (1) (1) - -
- -
=================================================== ========== ===== ========== =====
Tax attributable to equity holders 297 302 311 320
Equity holders' effective tax rate (3) 14.3% 14.3% 15.0% 15.0%
1. The lower rate of tax on overseas profits is principally driven
by the 0% rate of taxation arising in our Bermudan reinsurance company,
which provides our business with regulatory capital flexibility for
both our PRT business and our US term insurance business. This is
partially offset by the effect of our US operations taxed at 21%.
2. Adjustments in respect of prior years relate to revisions to earlier
estimates.
3. Equity holders' effective tax rate is calculated by dividing the
tax attributable to equity holders over profit before tax attributable
to equity holders.
IFRS Disclosure Notes Page 50
3.07 Tax
(b) Deferred tax
2019 2018
Deferred tax (liabilities)/assets GBPm GBPm
Deferred acquisition expenses 35 25
-------- -------
- UK (40) (40)
- Overseas 75 65
-------- -------
Difference between the tax
and accounting value of insurance
contracts (630) (577)
-------- -------
- UK (198) (171)
- Overseas (432) (406)
-------- -------
Unrealised gains on investments (184) (72)
Excess of depreciation over
capital allowances 15 12
Excess expenses 20 21
Accounting provisions and other (44) (28)
Trading losses(1) 217 163
Pension fund deficit 28 41
Acquired intangibles (2) (4)
================================================================= ======== =======
Total net deferred tax liabilities(2) (545) (419)
Less: net deferred tax liabilities
of operations classified as
held for sale 182 97
Net deferred tax liabilities (363) (322)
----------------------------------------------------------------- -------- -------
Analysed by:
- Deferred tax assets 8 7
- UK deferred tax liabilities (189) (144)
- Overseas deferred tax liabilities (182) (185)
Net deferred tax liabilities (363) (322)
----------------------------------------------------------------- -------- -------
1. Trading losses include deferred tax on UK trade and US operating losses
of GBP4m (2018: GBP4m) and GBP213m (2018: GBP159m) respectively.
2. Total net deferred tax liabilities are presented gross of held for
sale liabilities in 2019. Disclosure relating to liabilities of operations
classified as held for sale is included in Note 3.04.
IFRS Disclosure Notes Page 51
3.08 Share capital and share premium
2019 2018
Number 2019 Number 2018
of of
Authorised share capital shares GBPm shares GBPm
At 31 December: ordinary shares
of 2.5p each 9,200,000,000 230 9,200,000,000 230
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2019 5,960,768,234 149 992
Options exercised under share option
schemes 4,581,373 - 8
As at 31 December 2019 5,965,349,607 149 1,000
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2018 5,958,438,193 149 988
Options exercised under share option
schemes 2,330,041 - 4
As at 31 December 2018 5,960,768,234 149 992
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.
3.09 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments as well as investments in private equity
and property investment vehicles which are consolidated in the
group's results.
No individual non-controlling interest is considered to be
material on the basis of the year end carrying value or share of
profit or loss.
IFRS Disclosure Notes Page 52
3.10 Core borrowings
Carrying Coupon Carrying Coupon
amount rate Fair amount rate Fair
value value
2019 2019 2019 2018 2018 2018
GBPm % GBPm GBPm % GBPm
Subordinated borrowings
5.875% Sterling undated subordinated
notes (Tier 2) - - - 405 5.88 409
10% Sterling subordinated notes
2041 (Tier 2) 312 10.00 353 312 10.00 366
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 5.50 726 589 5.50 569
5.375% Sterling subordinated
notes 2045 (Tier 2) 603 5.38 691 603 5.38 627
5.25% US Dollar subordinated
notes 2047 (Tier 2) 648 5.25 704 659 5.25 612
5.55% US Dollar subordinated
notes 2052 (Tier 2) 380 5.55 405 387 5.55 356
5.125% Sterling subordinated
notes 2048 (Tier 2) 399 5.13 459 399 5.13 401
3.75% Sterling subordinated
notes 2049 (Tier 2) 598 3.75 613 - - -
Client fund holdings of group
debt (Tier 2) (1) (38) - (44) (31) - (30)
Total subordinated borrowings 3,491 3,907 3,323 3,310
-------------------------------------- -------- ------ ------ -------- ------ ------
Senior borrowings
Sterling medium term notes
2031-2041 609 5.88 877 609 5.88 824
Client fund holdings of group
debt (1) (9) - (13) (10) - (13)
Total senior borrowings 600 864 599 811
-------------------------------------- -------- ------ ------ -------- ------ ------
Total core borrowings 4,091 4,771 3,922 4,121
-------------------------------------- -------- ------ ------ -------- ------ ------
1. GBP47m (2018: GBP41m) 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.
IFRS Disclosure Notes Page 53
3.10 Core borrowings (continued)
Subordinated borrowings
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued GBP400m of 5.875%
Sterling undated subordinated notes. These notes were called at par
on 1 April 2019.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. The notes are callable at par on 23 July
2021 and every five years thereafter. If not called, the coupon
from 23 July 2021 will be reset to the prevailing five year
benchmark gilt yield plus 9.325% p.a. These notes mature on 23 July
2041.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon
from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June
2064.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued GBP600m of 5.375%
dated subordinated notes. The notes are callable at par on 27
October 2025 and every five years thereafter. If not called, the
coupon from 27 October 2025 will be reset to the prevailing five
year benchmark gilt yield plus 4.58% p.a. These notes mature on 27
October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of
5.25% dated subordinated notes. The notes are callable at par on 21
March 2027 and every five years thereafter. If not called, the
coupon from 21 March 2027 will be reset to the prevailing US Dollar
mid-swap rate plus 3.687% p.a. These notes mature on 21 March
2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of
5.55% dated subordinated notes. The notes are callable at par on 24
April 2032 and every five years thereafter. If not called, the
coupon from 24 April 2032 will be reset to the prevailing US Dollar
mid-swap rate plus 4.19% p.a. These notes mature on 24 April
2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued
GBP400m of 5.125% dated subordinated notes. The notes are callable
at par on 14 November 2028 and every five years thereafter. If not
called, the coupon from 14 November 2028 will be reset to the
prevailing five year benchmark gilt yield plus 4.65% p.a. These
notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued
GBP600m of 3.75% dated subordinated notes. The notes are callable
at par on 26 November 2029 and every five years thereafter. If not
called, the coupon from 26 November 2029 will be reset to the
prevailing five year benchmark gilt yield plus 4.05% p.a. These
notes mature on 26 November 2049.
All of the above subordinated notes are treated as tier 2 own
funds for Solvency II purposes.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued
GBP600m of senior unsecured Sterling medium term notes 2031-2041 at
coupons between 5.75% and 5.875%. These notes have various maturity
dates between 2031 and 2041.
IFRS Disclosure Notes Page 54
3.11 Operational borrowings
Carrying Interest Carrying Interest
amount rate Fair amount rate Fair
value value
2019 2019 2019 2018 2018 2018
GBPm % GBPm GBPm % GBPm
Short term operational borrowings
Euro Commercial Paper 200 0.93 200 293 0.93 293
Non recourse borrowings
Consolidated Property Limited
Partnerships 58 2.36 58 57 2.46 57
Later Living portfolio 72 3.47 72 76 3.45 76
CALA revolving credit facility 178 3.37 178 188 3.37 188
Class B Surplus Notes 489 4.33 489 296 5.61 296
Affordable Homes revolving credit
facility 29 2.66 29 - - -
L&G Homes Limited revolving
credit facility 16 3.44 16 - - -
Bank loans and overdrafts - - - 83 - 83
Total operational borrowings
(1) 1,042 1,042 993 993
Less: liabilities of operations
classified as held for sale
(2) (29) 2.36 (29) (28) 2.46 (28)
Operational borrowings 1,013 1,013 965 965
1. Unit linked borrowings with a carrying value of GBP7m (2018:
GBP61m) are excluded from the analysis above as the risk is retained
by policyholders. Operational borrowings including unit linked borrowings
are GBP1,020m (2018: GBP1,026m).
2. Disclosure related to liabilities of operations classified as
held for sale is included in Note 3.04.
Non recourse borrowings
- Consolidated Property Limited Partnerships loans have a charge
on the assets of the relevant Property Fund
- Loan facilities to Later Living portfolio have a charge on all
assets of each individual SPV company.
- CALA Group (Holdings) Limited's revolving credit facility is secured
by way of a bond and floating charge, and guarantees and fixed charges
granted by CALA Group Limited and its main subsidiaries (CALA 1999
Limited, CALA Limited, and CALA Management Limited). A number of
other bonds and floating charges, fixed securities, debentures and
share pledges over land and assets have been granted by certain
subsidiaries of CALA Group Limited in favour of the lenders.
- 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.
- The revolving credit facility to Affordable Homes is subject to
agreed covenants, the breach of which could result in a charge on
the land and work in progress of L&G Affordable Homes (Development
2) Limited.
- The revolving credit facility to L&G Homes Limited is secured
by way of a charge on the land assets of L&G Homes Limited.
The carrying value of operational borrowings approximates their
fair value. The presented fair values reflect observable market
information and have been classified as Level 2 in the fair value
hierarchy with the exception of the Later Living portfolio, Affordable
Homes and L&G Homes Limited revolving credit facilities which have
been classified as Level 3.
As at 31 December 2019, the group had in place a GBP1.0bn syndicated
committed revolving credit facility provided by a number of its key
relationship banks, maturing in December 2022. No amounts were outstanding
at 31 December 2019.
IFRS Disclosure Notes Page 55
3.12 Payables and other financial liabilities
2019 2018
GBPm GBPm
Derivative liabilities 13,113 7,791
Repurchase agreements (1) 56,884 43,775
Other financial liabilities (2) 14,476 11,406
Total payables and other financial liabilities 84,473 62,972
Less: Payables and other liabilities of
operations classified as held for sale (3) (434) (424)
Payables and other financial liabilities 84,039 62,548
Due within 12 months (4) 64,689 51,178
Due after 12 months (4) 19,784 11,794
--------------------------------------------------- ----- ------ ------ ---------
1. The repurchase agreements are presented gross, however they and
their related assets (included within debt securities) are subject
to master netting arrangements. The vast majority of the repurchase
agreements are unit linked.
2. Other financial liabilities includes trail commission, lease
liabilities, reinsurance payables and collateral repayable on short
position reverse repurchase agreements. The value of collateral
repayable on short position reverse repurchase agreements was GBP7,673m
(2018: GBP4,883m).
3. Disclosure relating to liabilities of operations classified as
held for sale is included in Note 3.04.
4. The maturity analysis of the liabilities between less and more
than 12 months is based on the Total payables and other financial
liabilities.
Fair value hierarchy
Total Level Level Level Amortised
1 2 3 cost
As at 31 December 2019 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 13,113 283 12,828 2 -
Repurchase agreements 56,884 - 56,884 - -
Other financial liabilities 14,476 7,822 9 139 6,506
------------------------------------------- ------ ----- ------ ------ ---------
Total payables and other financial
liabilities 84,473 8,105 69,721 141 6,506
------------------------------------------- ------ ----- ------ ------ ---------
Amortised
Total Level Level Level cost
1 2 3
As at 31 December 2018 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 7,791 337 7,452 2 -
Repurchase agreements 43,775 - 43,775 - -
Other financial liabilities 11,406 4,718 35 496 6,157
------------------------------------------- ------ ----- ------ ------ ---------
Total payables and other financial
liabilities 62,972 5,055 51,262 498 6,157
Trail commission (included within Other financial liabilities) is
modelled using expected cash flows, incorporating expected future
persistency. It has therefore been classified as Level 3 liabilities.
A reasonably possible alternative persistency assumption would have
the effect of increasing the trail commission liability by GBP4m
(2018: GBP4m).
Significant transfers between levels
There have been no significant transfers of liabilities between
Levels 1, 2 and 3 for the year ended 31 December 2019 (2018: no
significant transfers).
IFRS Disclosure Notes Page 56
3.13 Sensitivity analysis
Impact Impact
on on
pre-tax Impact pre-tax Impact
on on
group group group group
profit equity profit equity
net of net of net of net of
re- re- re- re-
insurance insurance insurance insurance
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
Economic sensitivity
Long-term insurance
100bps increase in interest
rates 257 130 384 209
50bps decrease in interest
rates (188) (109) (220) (122)
50bps increase in future inflation
expectations 53 43 65 53
Credit spreads widen by 100bps with
no change in expected defaults (220) (273) (138) (213)
25% rise in equity
markets 434 383 458 399
25% fall in equity
markets (434) (383) (459) (399)
15% rise in property
values 899 744 738 606
15% fall in property
values (958) (791) (761) (623)
10bps increase in credit default assumptions (717) (580) (551) (446)
10bps decrease in credit default assumptions 633 512 558 451
Non-economic sensitivity
Long-term insurance
1% increase in annuitant mortality 195 221 157 192
1% decrease in annuitant mortality (201) (225) (147) (183)
5% increase in assurance mortality (385) (305) (375) (298)
The table above shows the impacts on group pre-tax profit and
equity, net of reinsurance, under each sensitivity scenario. The
current disclosure reflects management's view of key risks in
current economic conditions.
The interest rate sensitivities reflect the impact of the
regulatory restrictions on the reinvestment rate used to value the
liabilities of the long term business. The scenario does not
reflect management actions which could be taken to reduce the
impact of a decrease in interest rates.
The change in interest rate test assumes a 100 basis point
increase and a 50 basis point decrease in the gross redemption
yield on fixed interest securities together with the same change in
the real yields on variable securities. Valuation interest rates
are assumed to move in line with market yields, adjusted to allow
for prudence calculated in a manner consistent with the base
results.
In the sensitivity for credit spreads, corporate bond yields
have increased by 100bps, gilt and approved security yields
unchanged, and there has been no adjustment to the default
assumptions.
The inflation stress adopted is a 0.5% pa increase in inflation,
resulting in a 0.5% pa reduction in real yield and no change to the
nominal yield. In addition, the expense inflation rate is increased
by 0.5% pa.
The credit default assumption is set based on the credit rating
of individual bonds and their outstanding term using Moody's global
credit default rates. The credit default stress assumes a +/-10bps
stress to the current unapproved credit default assumption, which
will have an impact on the valuation interest rates used to
discount liabilities. Other credit default allowances are
unchanged.
The property stresses adopted are a 15% rise and 15% fall in
property market values. Rental income is assumed to be unchanged.
Where property is being used to back liabilities, valuation
interest rates move with property yields, and so the value of the
liabilities will also move.
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
equity stresses are a 25% rise and 25% fall in listed equity market
values.
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 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. In calculating the alternative values,
all other assumptions are left unchanged, though in practice, items
may be correlated. The sensitivity of the profit to changes in
assumptions may not be linear. They should not be extrapolated to
changes of a much larger order.
IFRS Disclosure Notes Page 57
3.14 Foreign exchange rates
Principal rates of exchange used for translation
are:
Year end exchange rates 2019 2018
United States dollar 1.33 1.28
Euro 1.18 1.11
Average exchange rates 2019 2018
United States dollar 1.28 1.34
Euro 1.14 1.13
3.15 Provisions
(a) Analysis of provisions
2019 2018
Notes GBPm GBPm
Retirement benefit obligations 3.16 (b) 1,107 1,112
Other provisions 114 29
Total provisions 1,221 1,141
Less: liabilities of operations
classified as held for sale(1) (1) (1)
Provisions 1,220 1,140
1. Disclosure related to liabilities of operations classified as
held for sale is included in Note 3.04
(b) Retirement benefit obligations
Fund and CALA Homes Fund and CALA Homes
Scheme and Overseas Scheme and Overseas
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
Gross pension obligations included
in provisions 1,083 24 1,091 21
Annuity obligations insured
by LGAS (944) - (858) -
Gross defined benefit pension
deficit 139 24 233 21
Deferred tax on defined benefit
pension deficit (24) (4) (41) (1)
Net defined benefit pension
deficit 115 20 192 20
The Legal & General Group UK Pension and Assurance Fund (Fund)
and the Legal & General Group UK Senior Pension Scheme (Scheme)
account for the majority of the UK and worldwide assets of, and
contributions to, such arrangements. The Fund and Scheme were closed
to future accrual on 31 December 2015.
IFRS Disclosure Notes Page 58
3.16 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension
Protection Fund compliant guarantees in respect of certain group
companies' liabilities under the group pension fund and scheme.
LGAS has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity
facility in respect of the liabilities of group companies to
facilitate the group's matching adjustment reorganisation pursuant
to Solvency II.
3.17 Related party transactions
(i) Key management personnel transactions
and compensation
There were no material transactions between key management and
the Legal & General group of companies during the year. All transactions
between the group and its key management are on commercial terms
which are no more favourable than those available to employees
in general. Contributions to the post-employment defined benefit
plans were GBP86m (2018: GBP84m) for all employees.
At 31 December 2019 and 31 December 2018 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:
2019 2018
GBPm GBPm
Salaries 12 10
Post-employment benefits - -
Share-based incentive awards 7 6
Key management personnel compensation(1) 19 16
1. Information relating to individual directors' emoluments, interests
and transactions is given in the Directors' Report on Remuneration
in the Annual Report and Accounts.
(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.
Loans and commitments to related parties are made in the normal
course of business.
The group has the following material related party
transactions:
- Annuity contracts issued by Legal and General Assurance
Society Limited for consideration of GBP78m (2018: GBP59m)
purchased by the group's UK defined benefit pension schemes during
the period, priced on an arm's length basis;
- Loans outstanding from related parties at 31 December 2019 of
GBP83m (2018: GBP201m), with a further commitment of GBP16m;
- The group has total other commitments of GBP1,213m to related
parties (2018: GBP837m), of which GBP749m has been drawn at 31
December 2019 (2018: GBP507m).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKNBDKBKBCNK
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