Capital Reorganisation

Legal & General Grp
                  

                     Legal & General - balance sheet changes

Capital review: structural changes completed

Legal & General is pleased to announce the implementation of the proposals set
out on 8 November 2007(1), and the completion of the major structural components
of our broad-ranging capital review. Regular review and communication of the
balance sheet will continue and we remain committed to returning any excess
capital to shareholders.

The capital review has:

    --  put in place a modern, flexible capital structure, in support of long
        term earnings growth.

    --  delivered an uplift to embedded value of around £0.3bn(2).

    --  extended and enhanced the range of capital instruments used to finance
        our businesses, including the issue of £600m of Innovative Tier 1
        capital in May 2007

    --  addressed the level of excess capital through the initiation of a £1bn
        share buy-back programme.

Andrew Palmer, Group Director (Finance), said 'The completion in just over a
year of the major elements of our capital review reflects our commitment to
effective capital management. I am delighted that we have achieved so much in
such a short period of time. We now have a more modern, transparent capital
structure, further enhancing our capability to finance the substantial
opportunities we see ahead for Legal & General.

Our £1bn share buy-back programme and dividend policy are unaffected by this
announcement and we will continue to publish our Capital Balanced Scorecard with
each set of results, keeping the market informed of our capital position.
Excellence in capital management and a commitment to a strong balance sheet are,
we believe, attributes which set Legal & General apart. We will continue to work
to ensure that the Group has the right amount of capital, of the right type and
in the right place.'

Increased transfer for 2007

In addition to the implementation of the structural changes to the balance
sheet, the Board expects, subject to market conditions and satisfactory
completion of year-end valuations, to make an initial transfer of £1.7bn from
the long term fund to Society's shareholders' funds for the year ending 31
December 2007. This is higher than historic transfers and includes the reserves
released by the implementation of new regulatory rules for term assurance in
2006. Tax implications of the transfer are expected to be limited to the
acceleration of payments of tax on any gains on the transferred assets. We
expect to update the target ranges on our Capital Balanced Scorecard to reflect
today's announcements, which are not expected to have an impact on our
assessment of excess capital. Assets transferred to Society's shareholders funds
remain available to meet our AA financial strength rating.

As a result of the restructuring and as set out below, we are redefining IFRS
operating profit. Under this revised definition, operating profit at Interims
2007 would have been £386m instead of the £342m reported.

All financial impacts in this release are unaudited management estimates. The
notes below provide further information on these changes. There will be a
briefing for analysts at 9.30am on 10 January.

(1) RIS dated 8 November 2007 'Policyholder Communication'. Further detail is
below in Notes to Editors 'Structural changes implemented'

(2) Includes benefits reported in the Preliminary Results 2006

Notes to Editors

Structural changes implemented

The proposals were set out on 8 November 2007, as follows:

    --  To merge the 1996 Sub-Fund, which wholly comprised shareholder assets
        (£316m at 30 June 2007), with shareholder retained capital ('SRC')
        within the long term fund.

    --  To establish alternative capital support for the with-profits business.
        This initially comprises £500m of shareholders' assets within Society
        and will gradually reduce to zero over a period not exceeding ten years.

    --  To remove the formula which determined distributions to shareholders
        from the UK non profit business, allowing management greater flexibility
        over transfers from the SRC.

These changes are expected to have a broadly neutral effect on embedded value
and a small negative impact on new business profits as a result of an increase
in the assumed cost of capital. This increased cost arises from the assumption
that the solvency margin will be covered from all the shareholder assets
supporting the UK non profit life and pensions business with a higher
fixed-interest component than previously assumed. The overall capital
requirements of our business are not affected by these changes.

The changes to the structure of the long term fund of Society summarised above
have the following effects:

1) Merger of the 1996 Sub-Fund

a) There is no material effect on EEV reporting from the merger of the 1996
Sub-Fund with the other shareholders' assets in the long term fund as it already
forms part of the shareholder net worth.

b) Under IFRS, the 1996 Sub-Fund is transferred from unallocated divisible
surplus to the SRC. As a result, there will be a one-off profit below the
operating profit line amounting to the value of the 1996 Sub-Fund assets.

c) There is no impact on our Insurance Groups Directive (IGD) and Society
Regulatory surplus position from this change.

2) Alternative capital support

There will be no impact on reported IGD and Society Regulatory surplus measures,
and no impact on reported EEV or IFRS profitability.

The alternative capital support for the with-profits business can be met from
within the existing solvency resources of Society and will not increase the
required capital modelled under EEV.

3) Removal of the transfer formula

The transfer formula determined distributions from the non profit part of
Society's long term fund to shareholders. The transfer was based on the embedded
value of the UK non profit life and pensions business and was described in
detail on page 67 of our 2006 Annual Report and Accounts. It gave rise to a
transfer of £272m net of tax for 2006.

The removal of the transfer formula gives greater capital flexibility, and has a
number of financial reporting effects:

a) Aggregation of shareholder assets within Society for reporting purposes

The removal of the formula and the merger of the 1996 Sub-Fund with the SRC
remove significant dividing lines between the pools of shareholder capital
within Society. From 2007, all the assets supporting the UK non profit life and
pensions businesses will be aggregated for reporting purposes and designated 'UK
Life and Pensions shareholder capital'. This comprises the SRC, the 1996
Sub-Fund, the Society Shareholders' Capital (SSC) and shareholder capital held
within Legal & General Pensions Limited (LGPL).

b) Impact on embedded value

Definition of covered business assets

Covered business, for EEV reporting purposes, will now include all assets in the
UK Life and Pensions shareholder capital. Previously the covered business
included only those shareholder assets held within the long term fund and LGPL.

Removal of discount

The SRC was previously considered to be locked-in capital, and so was included
in shareholder net worth on a discounted basis reflecting an assumed
distribution over 20 years. The discount comprised the time value of money and
assumed future tax on the modelled distributions. The SRC will no longer be
considered as locked-in capital.

Following the removal of the transfer formula all shareholder assets in excess
of the required solvency margin will be held at face value, less an allowance
for tax on the assumed future distribution of assets remaining in the long term
fund.

Increased reported cost of capital

The solvency margin will now be met from the total UK Life and Pensions
shareholder capital. As a result, the cost of capital will reflect a higher
assumed fixed income asset mix than was previously the case.

c) Impact on IFRS

Redefinition of IFRS operating profit

Under our previous structure, operating profit for the UK non profit life and
pensions business was defined as the formula transfer.

Following the removal of the formula, we have redefined IFRS operating profit to
reflect underlying profits.

From 2007, UK non profit life and pensions operating profit will be:

    --  The net contribution from all UK non profit Life and Pensions business,
        including expected inforce releases, new business strain and other
        reserving movements and variances. This was reported in note 5.02 of the
        Interim results 2007 and amounted to £153m for that period.

    --  The longer term investment return on total UK Life and Pensions
        shareholder capital. This will be calculated using opening embedded
        value assumptions for investment returns.

There will be a corresponding reduction in Other Operating Income reflecting the
reclassification of the longer term investment return on SSC assets.

All other elements of operating profit remain unchanged.

Under this revised definition, operating profit at Interims 2007 would have been
£386m (unaudited estimate) instead of the reported £342m.

Deferred tax on SRC

It is expected that no incremental deferred tax will be provided in respect of
the SRC remaining in the long term fund.

4) Value of the SRC

The IFRS reported value of the SRC at 30 June 2007 was £3.3bn. This included
£2.4bn of invested assets, split 63% equities, 3% bonds and 22% property and 12%
cash. The remainder comprised other asset types, including contingent loan,
deferred acquisition costs, deferred tax and other non cash items. The
regulatory value of the assets in the SRC was estimated at £2.5bn as at 30 June
2007.

Capital review

November 2006:

    --  Set out the framework for the capital review.

    --  Introduced balanced scorecard measures for capital management to enable
        analysts and investors to monitor Legal & General's financial strength.

    --  Identified AA financial strength rating as a strategic differentiator
        and a key financial constraint.

December 2006:

    --  Ceded the non-linked non profit pensions and annuity business of Society
        to a new, wholly owned, reinsurance subsidiary, LGPL.

    --  Implemented the FSA's Policy Statement 06/14 across its UK individual
        protection business.

    --  Reviewed the asset liability matching policy for annuity business during
        2006 and made a number of investment changes to achieve a closer asset
        liability match.

March 2007:

    --  Updated the market on our balanced scorecard.

May 2007:

    --  Issued £600m Innovative tier 1 perpetual capital securities. Later
        awarded IFR 'Sterling Bond of the year' and 'Best Sterling Investment
        Grade Deal of the Year' by Credit Magazine.

July 2007:

    --  Updated the market on our balanced scorecard.

    --  Announced and began a £1billion on-market share buyback, alongside an
        increase in interim dividend growth rate to 7.5%.

November 2007:

    --  Converted LGPL to the UK's first Insurance Special Purpose Vehicle.

December 2007:

    --  Merged the 1996 Sub-Fund and the SRC

    --  Created alternative capital support for the with-profits business

    --  Removed the transfer formula limiting transfers from the long term fund.

About Legal & General

Legal & General is a leading UK risk, savings and investment group. Founded over
170 years ago, Legal & General today provides life assurance and other financial
protection products, annuities and long-term savings products including ISA's
and pensions. With over £250 billion in funds under management, it is also the
largest investor for UK pension funds. Legal & General has over 5.5 million UK
customers. Our products are sold through over 30 bank and building society
relationships, through Independent Financial Advisers and also directly to
customers. Legal & General Assurance Society Limited, our principal operating
company, is one of Europe's top rated life companies for financial strength,
with an AA+ rating from Standard & Poor's and Aa1 from Moody's.

Enquiries to:

Investors:

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Jonathan Maddock, Head of Investor Relations             020 3124 2150
Nicola Marshall, Investor Relations Manager              020 3124 2151
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Media:

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John Godfrey, Corporate Communications Director          020 3124 2090
Anthony Carlisle, Citigate Dewe Rogerson                 07973 611888
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Forward-looking statements:

This document may contain certain forward-looking statements with respect to
certain of Legal & General Group Plc's plans and its current goals and
expectations relating to future financial condition, performance and results. By
their nature forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances which are beyond Legal & General
Group Plc's control, including, among others, UK domestic and global economic
and business conditions, market related risks such as fluctuations in interest
rates and exchange rates, the policies and actions of governmental and
regulatory authorities, the impact of competition, the timing impact and other
uncertainties of future mergers or combinations within relevant industries. As a
result, Legal & General Group Plc's actual future condition, performance and
results may differ materially from the plans, goals and expectations set out in
Legal & General Group Plc's forward-looking statements. Legal & General Group
Plc does not undertake to update forward-looking statements contained in this
document or any other forward-looking statement it may make.