Final Results

RNS Number : 9828I

Legal & General Group Plc

23 March 2010

 



Stock Exchange Release. 

23 March 2010

Legal & General delivers £1.1bn IFRS operating profit, Generates £699m net cash and increases final dividend by 33%

·      IFRS operating profit up 87% at £1,109m (2008: £592m)

·      Final dividend up by 33% to 2.73p per share

·      Net cash up 118% at £699m (2008: £320m)

·      International IFRS operating profit up 115% to £127m (2008: £59m)

·      Annual cost reduction of £69m VS £50m target

·      EEV operating profit up 51% at £1,319m (2008: £875m)

·      Worldwide EEV new business contribution up 10% to £328m (2008: £297m)

·      IGD surplus¹ up by £1.3bn to £3.1bn (2008: £1.8bn)

Tim Breedon, Group Chief Executive, said:

"IFRS operating profit of £1.1 billion is considerably higher this year and the balance sheet has been further strengthened with an IGD surplus of £3.1 billion after accruing for an increased final dividend of 2.73 pence per share.  This increased dividend reflects underlying growth in net cash and the Board's confidence in its sustainability over the medium term. 

 "Today's results demonstrate the significant progress we continue to make in transforming the Group into a lower cost, capital efficient, cash generative business.  This focus has helped us to exceed our full year target for net cash generation by nearly £250 million in 2009. In difficult markets, sales were down 7% in 2009 but each of our businesses delivered higher profits and generated more cash than in 2008.

 "We expect modest growth in the UK economy in 2010.  However, UK Risk and Savings markets which were depressed in 2009 are expected to rebound.  These results show that Legal & General is in excellent health and is ideally placed to take advantage of new opportunities as they emerge in a financial services sector which is undergoing rapid change."

Financial Highlights £m	2009	2008
IFRS operating profit2	1,109	592
IFRS profit/(loss) from ordinary activities after tax	844	(1,130)
Net cash3	699	320
IFRS diluted earnings per share (pence)	13.74	7.16
Final dividend per share (pence)	2.73	2.05

1 Estimated unaudited IGD surplus after accrual of the final dividend of £160 million (2008: £120m).

2 2008 reported IFRS operating loss of £189m has been restated to largely remove from non profit Risk and Savings businesses the impact of investment variances which is now reported below the line in Variation from longer term investment return.

3 Net cash generation includes the operational cash generated less new business strain for the UK non profit Risk and Savings businesses, plus the shareholders' share of bonuses on With-profits business, the post-tax IFRS operating profit of LGIM and other UK businesses, the expected investment return (excluding expected gains/losses on equities) on Group capital and financing invested assets and dividends remitted from international businesses.

Key Performance Indicators

IFRS - operating profit up 87% to £1.1bn

£m	Risk	Savings	Inv Mmgt	International	Group capital & financing	Group Projects	2009	2008
Operational cash	454	110	121	8	33	-	726	654
New business strain	50	(77)	-	-	-	-	(27)	(334)
Net cash	504	33	121	8	33		699	320
IFRS Operating profit	735	55	167	127	57	(32)	1,109	-
IFRS Operating profit 20081	222	7	165	59	139	-	-	592
Return of Equity							22.2	(23.6)
Number of shares - diluted (m)							5,857	5,990
Diluted earnings per share (pence)							13.74	7.16
Full year dividend per share (pence)							3.84	4.06

Assets - £315bn in LGIM, £55bn in savings, £22bn in annuities

£bn	2009	2008
LGIM2	315	264
Savings	55	46
Annuities (non profit)	22	19

Balance sheet - IGD surplus up 72%

£bn	2009	2008
IGD Surplus3	3.1	1.8
Coverage ratio %	224	169
Credit default provisions	1.5	1.2

EEV Results - embedded value per share 114p

£m	2009	2008
Worldwide PVNBP	7,280	9,429
Worldwide new business margin %	4.5	3.1
EEV Operating profit	1,319	875
Number of shares - year end (m)	5,862	5,862
Shareholders' equity	6,695	6,521
Equity per share (pence)	114.2	111.2

1 2008 reported IFRS operating loss of £189m has been restated to largely remove from non profit Risk and Savings businesses the impact of investment variance which is now reported below the line in Variation from longer term investment return.

2. Includes Annuities and some Savings assets

3. Estimated unaudited IGD surplus after accrual of the final dividend of £160 million (2008: £120m).

Group Results

Summary IFRS income statement £m
£m	2009	2008
Risk	735	222
Savings	55	7
Investment Management	167	165
International	127	59
Group capital and financing	57	139
Group projects	(32)	-
Operating profit	1,109	592
Variation from longer term investment return	(16)	(2,020)
Property losses attributable to minority interests	(19)	(63)
Profit/(loss) from ordinary activities before tax	1,074	(1,491)
Net cash	699	320

IFRS operating profit up 87%

The Risk division made significant progress in an environment of exceptionally adverse economic conditions and volatile markets. Its contribution to Group operational cash generation was £454 million.  This reflected its scale and the growth achieved in recent years. Net cash generation was 145 per cent up on last year at £504 million after positive new business strain of £50 million resulting from favourable pricing conditions in the annuity market.  Operating profit of £735 million (2008: £222m) reflects the improved underlying cash dynamics of both the Protection and Annuity businesses and the higher contribution from General Insurance.  

UK corporate pension clients continue to be attracted to LGIM's range of good value, passive funds, active fixed income funds and excellent service proposition. LGIM has continued to diversify into non-UK markets with new business gains in Ireland, Continental Europe and America during the year.  Market recovery and strong new business flows in the second half contributed to an Investment management IFRS operating profit of £167 million (2008: £165m).  Encouragingly the contribution from the active fixed income and LDI businesses increased to 21 per cent of full year operating profits (2008: 12%).  Investment management net cash improved by 5 per cent to £121 million (2008: £115m).

In 2009 the Savings division took a series of key repositioning steps to transform the business. This produced a strong business performance with all key business indicators reflecting improvement. New business volumes have grown 3 per cent, net fund flows have increased materially and net cash generation has improved to £33 million      (2008: negative £23m).  Operating profit was significantly higher at £55 million (2008: £7m).  Underpinning these improvements has been a continuing shift in the sales mix towards more modern, less capital intensive offerings allied with significant cost rationalisation and commission reductions.

During the year substantial progress was made in international operations.  The bancassurance joint ventures in India and the Gulf States were launched and the search for similar opportunities in attractive emerging markets is ongoing.  The three established international businesses performed well delivering £127 million of operating profit in 2009      (2008: £59m) and generated positive net cash in the form of dividend payments of £8 million to the Group.

Below operating profit, the recovery in economic markets in the second half of the year has led to a reduction in the variation from longer term investment return to negative £16 million from negative £2,020 million last year.  After allowing for the payment of £185 million of dividends in the year, shareholders' equity increased by 17 per cent to £4.2 billion (2008: £3.6bn) equating to 71.6 pence per share (2008: 61.2p per share).

Net cash up 118%

During 2009 Legal & General has made material progress in cash generation and cost management.  A 17 per cent reduction in UK headcount was the primary cause for an overall annual reduction in costs of £69 million.  Action to reduce commission and focus on capital efficient new business led to a material reduction in new business strain to only £27 million (2008: £334m).  These effects and improvements in the operating profit of LGIM, General Insurance and Retail Investments produced operational cash generation of £726 million (2008: £654m) and net cash generation of  £699 million in 2009, a 118 per cent improvement on 2008 (£320m) and substantially ahead of the £450 million target set in Q1 2009. At the end of 2009, the undiscounted value in force (VIF) of the back book amounted to £10.2 billion and further details of its monetisation are disclosed on page 12.

Cost base

In 2009, the continued examination of the cost base resulted in a further reduction in UK headcount of 17 per cent.  The largest impact was experienced in the Savings business which dramatically changed the economics of that business. This has enabled the Savings business to deliver IFRS profits in 2009.  Overall, the cost measures have reduced the core Risk and Savings cost base by £69 million against a target of £50 million representing 11 per cent of the 2008 business as usual cost base.

Final dividend increased by 33% to 2.73 pence per share

The strength of the Groups medium term cash generation underpinned the Board's decision to increase the final dividend by 33 per cent to 2.73 pence per share at a cost of £160 million (08 Final: £120m), making the full year dividend 3.84 pence per share.  The Board is confident in our ability to continue to deliver healthy operational cash and we intend to grow future dividends reflecting the strong cash generation of the Group.  We expect the dividend to continue to be comfortably covered by net cash.

Balance Sheet and Capital - IGD coverage ratio 224%

The Group maintains and benefits from a strong balance sheet.  The asset portfolio backing the annuity business continues to perform well and remains of high quality.  Worldwide assets under management at the end of 2009 were £334 billion.  Shareholders have direct exposure to 9 per cent of worldwide assets under management, of £30 billion. Of this, the assets within Legal & General Pensions Limited (LGPL) which back the UK non profit annuity business represent £22.5 billion and make up the majority of fixed interest exposure. 

In the first half of 2009, the bonds backing the non profit annuity liabilities experienced downgrades, mainly as a consequence of the deteriorating outlook for UK and Irish banks.  As a result the long term default assumption for statutory and IFRS reporting was increased to 36bps (2008: 30bps). The second half of the year saw a significant improvement in the credit markets and a consequential narrowing of spreads. There was a limited reversal of the downgrade experience and the long term default provision was therefore maintained at 36bps. Despite challenging financial conditions in 2009 for the non profit annuity portfolio, the actual default loss amounted to just £1m net of expected recoveries.  Given our view that credit markets have not completely normalised, there have been no material releases of the provisions established at end 2008. As a consequence of new business, strengthening the long term provision and market movements, the total credit default provision in LGPL has increased to £1.5 billion from £1.2 billion at end 2008. This is equivalent to 68bps in 2009 (2008: 68bps) of defaults per annum over the life of the non profit annuity credit portfolio.

Substantial profit and cash generation together with recovery in financial markets helped increase the estimated IGD surplus to £3.1 billion (after accrual of the final dividend).  This includes the benefit of the £0.3 billion of qualifying lower tier two securities issued in July.  IGD coverage ratio at end 2009 was 224 per cent, up from 169 per cent at the end of 2008. 

The impact of Solvency II is a key uncertainty for the business. Legal & General is actively engaged in promoting understanding of the potential impact of Solvency II on the UK and European insurance sector and its customers. Discussions have intensified with the UK Government and Opposition, the FSA and with the European Commission.  These discussions have been productive and progress over the past six months is encouraging.

Strategy and outlook

Legal & General's Risk, Savings and Investment management model continues to be successful with multiple levels of synergies across our businesses.  The sharing of customers and distribution across the Group continues.  For instance, over 40 per cent of BPA new business customers were previously customers of LGIM and over 40 per cent of individual annuity customers come from the Savings business.  A primary focus of cost management has been central services which have reduced by almost a fifth during 2009. 

Legal & General is a balanced manufacturer of Risk, Savings, and Investment management products.  In Risk, market leading positions in Protection and Annuities are generating significant, sustainable cash flows. Investment management has established a top ranked position in the UK pensions fund market.  The turnaround in Savings is ahead of schedule with emergence of sustainable cash flow and profit in the second half of 2009.  The General Insurance business is now delivering healthy returns.  We expect to generate around £600 million of net cash in 2010.

Recovery in the UK economy in 2010 is likely to be slow and we expect the UK housing market to remain subdued.  UK unemployment is unlikely to fall which will restrict growth in our markets.  Nonetheless we expect our core UK Risk and Savings markets to recover in 2010 from depressed levels in 2009.  We are optimistic about the Group's medium term growth prospects.  We aim to capitalise on our market leading positions in Risk, further build the LGIM franchise in the UK and overseas, deliver additional improvements in Savings and continue to develop our existing International portfolio whilst exploring opportunities to expand into other attractive markets.

Business review - Risk

Financial highlights £m	2009	2008
IFRS Operating profit	735	222
Operational cash	454	379
New business strain	50	(173)
Net cash	504	206
Protection new business EEV margin (%)	7.9	6.2
Protection Gross Premiums (£m)	1,109	1,090
Annuity earned interest margin on new business (bps)	124	101
Annuity assets under administration (£bn)	22.5	19.4

 

Operational cash generation and operating profit

The increase of over half a billion pounds in Risk operating profit was driven by exceptional pricing conditions in the first half of the year for Annuities and lower volumes in the second half compared to those achieved in the prior year. Total net cash generated in the Risk business increased by 145 per cent to £504 million in 2009.  

The Protection business generated a 31 per cent increase in net cash to £124 million (2008: £95m) while gross premiums increased by 2 per cent in 2009.  New business strain was 36 per cent lower in 2009 compared with 2008 reflecting reduced volumes (reflecting a weakened housing market and the effect of economic conditions on levels of employment), a focus on lower strain products and the benefits of cost management initiatives.  Operating profit of    £172 million (2008: £263m) was impacted by adverse changes in mortality assumptions and one off expense charges that occurred in 2008 not being repeated.  Despite continued price competition, the new business EEV margin increased to 7.9 per cent (2008: 6.2%) benefiting from cost management initiatives and higher margin product mix together with improved reinsurance terms.  Lapses in 2009 were higher than assumptions due to the impact of economic conditions on individual and corporate customers.

The net cash generated in the Annuity business was significantly ahead of that delivered in 2008 at £364 million     (2008: £108m). In the first half of the year, atypical pricing conditions allowed business to be secured without generating new business strain which materially enhanced net cash generation.  The strength of the cash flow and higher than assumed mortality in 2009 contributed to a turnaround of nearly £600 million in operating profit to £545 million (2008: £40m loss).

The General insurance and other risk businesses contributed a further £16 million to net cash (2008: £3m).  In General insurance the result of management action on costs, a review of underwriting criteria and the introduction of a new claims management approach contributed to profits of £17 million in 2009 (2008: £2m loss).  

Outlook

The housing market is expected to remain depressed this year and this will impact sales of mortgage related protection products.  Returning employer confidence will drive growth in the Group protection market.  New systems implementations are expected to drive further efficiency gains in the protection businesses and build on the cost savings delivered in 2009, however delivering volume growth will remain challenging.

More normal Annuity pricing conditions are expected to return in 2010.  As pension scheme deficits reduce, trustees are expected to return to a de-risking strategy generating growth across the pension buyout, buy-in and the longevity swap markets.

Business review - Investment management

Financial highlights £m	2009	2008
Investment management IFRS Operating profit	167	165
Net cash	121	115
LGIM highlights
Total revenue	316	313
Total costs	(144)	(141)
IFRS Operating profit	172	172
Average ad valorem fee margin (bps)	9.8	9.7
Average expense margin (bps)	5.2	5.2
Gross new fund management mandates (£bn)	31.5	30.9
Closing funds under management (£bn)	315	264

Operational cash generation and Operating profit

Investment management operating profit increased to £167 million despite the impact of market volatility on revenues in early 2009.  Within this result, LGIM's profit in the second half was 32 per cent higher than in the first half of the year as markets rallied and gross inflows increased. 

Average ad valorem fee margin increased from 9.7bps to 9.8bps due to change in business mix. LGIM's strategy continues to support the growth of its passive management business whilst diversifying its revenue streams through the delivery of superior active fixed income performance and innovative liability driven investment (LDI) solutions. In 2009 24 per cent of new business inflows came from non-index fund clients up from 14 per cent in 2008. LGIM has continued to diversify into non-UK markets with new mandate wins from Europe, the Gulf and America. Total funds under management ended the year at a record £315 billion, 19 per cent up on last year (2008: £264bn).

During the year, LGIM continued to invest in strategic initiatives, in particular enhancing its LDI proposition and broadening its UK and US distribution capability. In other areas business efficiency programs and appropriate cost control meant that overall expense margin remained stable at 5.2bps and despite LGIM changing business mix, the operational focus on pooled products ensured that the cost income ratio remained unchanged at 49 per cent.

Fifty eight per cent of unitised fund returns were above the benchmark performance over one year. The UK Alpha fund remained in the first percentile for investment performance over 1 and 3 years while the Growth Trust performance was ranked in the top quartile for 3 and 5 years. LGIM's new fixed income funds, Dynamic Bond Trust and Diversified Absolute Return Trust, were both above benchmark and continue to attract client monies.

Outlook

Driven by markets, regulation and affordability, UK pension scheme's appetite for risk continues to diminish, placing LGIM's scalable product set of passive, active fixed interest and LDI at the heart of the opportunities that are likely to arise. LGIM enters 2010 with record assets under management of £315 billion and will look to maintain the momentum in attracting overseas clients and capitalise on cross-selling opportunities. It will also seek to benefit from strong active retail equity and fixed income fund performance across a broad product range. 

Business review - Savings

Financial highlights £m	2009	2008
IFRS Operating profit	55	7
Operational cash	110	138
New business strain	(77)	(161)
Net cash	33	(23)
Assets under Administration £bn	55	46

Operating profit and Operational cash generation

The transformation of the Savings business accelerated through 2009 and is clearly evidenced by positive net cash generation of £33 million from negative £23 million in 2008 and an increase in IFRS operating profit to £55 million (2008: £7m) and growth in net fund inflows to £1.7 billion.

The £56 million turnaround in net cash was delivered largely through a substantial reduction in new business strain from £161 million in 2008 to £77 million in 2009. Operational cash reduced to £110 million (2008: £138m) with improvements in non insured business lines partially offsetting a reduced With-profits contribution. The costs of running the Savings division have been reduced materially during the year driven by reductions in direct headcount of approximately 700. Excluding With Profits, expenses now represent 72bps of assets under administration (2008: 109bps).

More specifically, net cash flow from non profit products (pensions and unit linked bonds) improved from negative £84 million in 2008 to negative £19 million in 2009. This improvement was the result of significantly reduced operating expenditure, lower commission terms and de-listing certain products with unattractive payback characteristics. Total net flows into non profit products of £0.5 billion contributed to assets under administration of £20.4 billion. Management actions limited the sale of older style Stakeholder pension products with a continued focus on SIPP sales. The changes to commission structures and a focus on fee based intermediaries continue across the Corporate Pensions business.

The With-profits contribution to net cash fell to £46 million in 2009 (2008: £77m) in line with lower bonuses paid to policyholders.  Net outflows of With-profits assets reduced to £0.9 billion (2008: outflow £1.6bn) whilst overall With-profits assets under administration grew 10 per cent to £21.4 billion.

The significant growth of 64 per cent in the Unit Trusts, ISAs and Structured Products new business volumes resulted in assets under administration increasing substantially to £13 billion and a contribution to net cash of £9 million (2008: nil).

Outlook

The Savings market is expected to experience a subdued recovery in 2010.  Legal & General has the scale in assets to deliver sustained profits and the focus will continue to be growing sales in profitable business lines. The shift in business mix, towards modern capital efficient SIPP, Unit Trust and Structured products will accelerate. To support the growth strategy, further investment in building additional infrastructure capabilities for platform driven business will be required. 

Business review - International

Financial highlights £m	2009	2008
USA	86	39
Europe (France and Netherlands)	46	20
Middle East and Asia (Egypt, the Gulf and India)	(5)*	-
IFRS Operating profit	127	59
Net cash	8	-

Trading Performance and operating profit

Operating profits of £127 million were more than double those reported in the previous year. 

In the US, an operating profit of £86 million was up 121 per cent on 2008.  The underlying improvement was driven by the return to more normal investment conditions and positive mortality experience.  L&G America, trading as Banner Life and William Penn, is the 8th largest term life insurer in the US and a leading player in the Broker General Agent channel.

Profits in European operations also more than doubled in 2009. In the Netherlands, a focus on term insurance and unit linked savings contracts has helped weather the financial storms better than many larger market players. Sales were down across the board, but despite this a 5 per cent market share in the valuable term insurance market and 22 per cent share of the single premium unit linked market segment were achieved. The increase in profit came from higher interest margins and favourable mortality experience.  In France, margins in the savings business were squeezed by competitive pressures, despite total written premiums growing by 25 percent, over twice the market rate. In Group Protection, total premium income was maintained at 2008 levels despite difficult trading conditions as employers shed staff and payrolls reduced. Profitability of the Group risk business was maintained by a combination of strong pricing and underwriting.

In the final quarter of 2009, new businesses in India and the Gulf were launched. In India, IndiaFirst is a joint venture with Bank of Baroda and Andhra Bank (both majority state owned banks) with a combined network of 4,500 branches.  National coverage is a key differentiator for the business.  The business is performing well ahead of its launch plan and achieved Rs100 Crores of premium income in its first 100 days of operations, making it the fastest start ever for an Indian life insurer.  In Q1, the joint venture with Ahli United Bank (AUB) in the Gulf was launched and in December retail bancassurance distribution commenced in AUB's branches in Bahrain.  This business has both Takaful and conventional licenses and is set to expand throughout the Gulf region over time.

The International businesses contribution to operational cash is represented by dividends remitted from sustainable operational cash flows.  In 2009 the USA paid a dividend of $6 million and the Netherlands also paid a dividend of €5 million.

Outlook

Investments in the International businesses and the disciplined approaches consistently taken to pricing, underwriting and asset liability management are now paying off both in terms of reported profits and cash flow to the Group. As the mature businesses gain scale, they are generating cash to fund their own new business growth and that of the current joint venture businesses in emerging markets.

Mature markets are expected to remain subdued in 2010.  An encouraging start in the emerging markets of India and the Gulf coupled with an established and profitable Egyptian business is proving the benefits of expanding using a bancassurance model built on Legal & General’s expertise in the UK. Bancassurance is likely to be at the heart of further developments in emerging markets.

* Including head office costs

Business Review - Group

Group capital and financing

£m	2009	2008  Restated
Investment return	191	298
Interest expense	(127)	(145)
Investment expenses	(3)	(5)
Unallocated corporate expenses	(4)	(9)
Group capital and financing	57	139

The Group capital and financing operating profit primarily reflects the smoothed investment return on shareholders' assets held at Group level and in the Risk and Savings businesses less interest charges on Group debt.

Investment return decreased to £191 million (2008: £298m) and is calculated by taking the average smoothed investment return of 6 per cent (2008: 7%) on the average balance of invested assets of £3 billion (2008: £4.5bn). The amount of invested assets at the end of the year was £2.8 billion (2008: £3.9bn). The decrease in invested assets is the result of equity sales made in 2008 and early 2009 plus the £650 million moved into short term default reserves at the end of 2008.

Variation from longer term investment return

£m	2009	2008 Restated
Operating profit	1,109	592
Variation from longer term investment return	(16)	(2,020)
Property losses attributable to minority interests	(19)	(63)
Profit from ordinary activities before tax	1,074	(1,491)

Below the operating profit line, the 2009 investment variance was £16 million negative (2008: negative £2,020m), a significant improvement from 2008 and the first half of 2009. 

At half-year 2009 the non profit annuity business reported a small reduction in yield from action taken to sell some holdings, primarily of Tier 1 and Upper tier 2 bank securities. These actions account for £75 million of the negative investment variance. The cash and overlay strategy executed on the non profit annuity portfolio would, in normal conditions, have an immaterial impact on the yield assumption. However, in volatile market conditions such as those experienced in the first half of 2009 the strategy had a negative effect on the assumed yields which were reflected within IFRS profit.  As expected these negative half-year yield impacts have been largely reversed.  As a consequence of the 2009 experience, the opportunity was taken to strengthen the assumptions for reinvestment of cash flows, variability in currency hedging costs and inflation.

The effect of variations from longer term investment returns in the other businesses was positive, reflecting the impact from recovering investment markets over the second half of the year. 

Restatement of IFRS operating profit

As indicated at the half year, we have reviewed the definition of operating profit on an IFRS basis which is one of the Group's key performance indicators.

These changes do not affect the underlying performance of the Group but better reflect the profit which is under management's control. 

Under the new definition, IFRS operating profit provides a more accurate measure of management performance, more closely aligning with operating profit on the European Embedded Value (EEV) basis.  Operating profit reflects the long term nature of operations within the businesses.  There are four components to the restatement:

Removal of investment variances

For the non profit Risk and Savings businesses, the difference between the actual investment return (net of the corresponding liability movement) and the expected investment return will be reported below operating profit in the Variation from longer term investment return. For 2008 this includes removing the £650 million credit default provision from Risk operating profit. This is consistent with the treatment of investment return on shareholder assets and the treatment of investment return on an EEV basis.

Removal of deferred tax variances

IFRS reporting requires deferred tax balances to be presented on an undiscounted basis. This, coupled with market value unit pricing structure, creates an accounting mismatch within unit linked funds which will be presented below operating profit.

Removal of pension scheme movements

Movements in the accounting value of annuities held by defined benefit pension schemes are driven by interest rate changes which are outside of management control. These will be removed from the Group capital and financing element of operating profit on an IFRS and EEV basis.

Removal of own debt holdings

The impact of eliminating own debt holdings is reflected below operating profit.  This arises from the difference between the carrying value of the debt and the fair value of the asset held in the balance sheet.  In previous reporting periods this amount has been nil.

The financial effect of the adjustments is provided below.

IFRS profit restatement £m	H1 2009 Restated	H1 2009 Reported	FY 2008 Restated	FY 2008 Reported
Risk	223	(128)	222	(603)
Savings	21	(5)	7	66
Investment management	70	70	165	165
International	65	65	59	59
Group capital and financing	25	29	139	124
Operating profit/(loss)	404	31	592	(189)
Variation from longer term investment return	(527)	(154)	(2,020)	(1,239)
Property losses attributable to minority interests	(20)	(20)	(63)	(63)
Loss from ordinary activities before tax	(143)	(143)	(1,491)	(1,491)
Tax credit	52	52	361	361
Loss for the period	(91)	(91)	(1,130)	(1,130)

Business review - Cash generation & sustainability

Sustainability of cash generation

1.  Long term Risk and savings business

The sustainability of future operational cash generation is underpinned by the monetisation profile of the in-force business; at the end of 2009 the undiscounted value of the worldwide value in force (VIF) amounted to £10.2 billion. This value crystallises in the following way:

·      The expected cash flows from UK non profit business - this is broadly equivalent to the release of profit from the non profit Risk and Savings business using best estimate assumptions;

·      The modelled capital releases from UK non profit business - these are one-off, separately identifiable items which are modelled within the EEV reporting but are generally short term in nature and have the characteristics of experience variances. These are therefore taken directly to the capital stock;

·      For UK With-profits business - the shareholders' share of With-profits bonuses; and

·      For international in-force business - this cash release is used to fund the investment in international new business and to pay dividends to Group.

Monetisation of worldwide value in force (VIF)

The profile in the table below shows that around £860 million of the worldwide VIF is expected to monetise in 2010.  This comprises the business in-force at the end of 2008 plus new cash flows from business written in 2009. The 2010 total comprises £710 million relating to the total expected release from UK non profit business, £60 million from the With-profits business (from which the shareholders' share of policyholders bonuses are paid) and £90 million from the international businesses (from which dividends are remitted to Group).

Monetisation of worldwide VIF (undiscounted)1 £m	Total	2010	2011	2012
Business in-force at start of year2	7,200	700	630	560
2009 new business cash flows	700	70	50	50
UK VIF monetisation	7,900	770	680	610
International VIF monetisation	2,300	90	90	80
Total	10,200	860	770	690
UK VIF monetisation:
Non profit	7,000	710	620	540
With-profits	900	60	60	70
Total	7,900	770	680	610

1. Management estimates

2. Based on 2009 year end assumptions.

In 2009, the undiscounted release from non profit business was £701 million split between expected cash flow of £496 million and the modelled capital release of £205 million. The estimated 2010 expected release of £710 million results in operational cash generated of £520 million and an enhancement to the IGD surplus of £190 million.

Analysis of estimated non profit monetisation £m	2009	2010
Expected cash release (operational cash generated)	496	520
Expected capital release (capital stock)1	205	190
Total expected release (VIF monetisation)	701	710

2.  Other risk and savings businesses

Other Risk and Savings operational cash is primarily generated by the General insurance and Retail investments businesses. The focus on cost and claims management in the General insurance business and the continuation of the trend towards sales of unit trusts and ISAs will, if successful, deliver greater profitability and cash in future periods.

3.  LGIM

Legal & General's Investment management franchise has achieved strong growth in funds under management to date. Its strong track record suggests that it can continue winning new mandates, retain existing clients and benefit from the recovery in markets. Future growth in the operational cash generation of Investment management depends primarily on the net fee income on funds under management.

4.  International

The mature International businesses have previously been managed as self funding. In future periods, we anticipate the monetisation of VIF from the International businesses will allow us to start remitting dividends to Group from sustainable cash flow. These dividends are expected to exceed the investment in the current portfolio of new international business over the medium term.

Reconciliation of operational cash generation to IFRS operating profit

The following table shows the relevance of the £496 million expected cash release in 2009 in the composition of total operational cash generation.

Reconciliation of non profit expected cash release to Group operational cash £m	2009
Expected cash release - non profit	496
Investment management	121
With-profits	46
Other Risk and Savings businesses	22
International dividends	8
Group capital and financing	33
Operational cash	726

¹These capital items primarily relate to the mechanical release of the margins in the short term default provision and the brought forward tax position in Society resulting in zero assumed tax charges on investment return in 2009.

Net cash generation is calculated net of tax and forms an integral component of IFRS profit. IFRS profit in the year also includes non-recurring experience variances and changes to valuation assumptions which are managed to be positive over the medium term.

Reconciliation of operational cash to operating profit after tax £m	2009
Operational cash	726
New business strain	(27)
Net cash	699
International profit (share of dividends paid)	78
Experience variances, assumption changes and movements in non-cash items	43
Investment gains and losses	16
Group projects	(31)
Operational profit (net of tax)	805
	58
Property losses attributable to minority interests	(19)
Operational profit after tax	844

New Business IRR and Payback Periods

The following table shows the internal rate of return (IRR) and undiscounted payback periods for new business.

The IRR on protection business increased to 17 per cent (2008: 14%) reflecting an increased proportion of higher margin new business volumes and lower expenses. The favourable pricing in the annuities market resulted in an infinite IRR and immediate payback.

In unit linked bonds, the focus in sales of more profitable products coupled with lower initial commissions improved the IRR to 8 per cent (2008: 6%) and decreased the payback period to 9 years (2008: 10 years). In pensions, whilst business mix and pricing initiatives have improved the margin, the reductions in new business expenses are yet to fully compensate for the volume reductions resulting in a decrease in IRR and a longer payback period. 

New business IRR and payback periods	2009 PVNBP £m	2009 Internal Rate of Return2 %	2009 Undiscounted payback period (years)	2008 PVNBP £m	2008 Internal Rate of Return2 %	2008 Undiscounted payback period (years)
Protection	866	17	5	1,005	14	5
Annuities	1,862	>302	>02	2,806	>15	6
Unit linked bonds	677	8	9	1,306	6	10
Pensions	1,804	6	14	2,183	7	12

1. Internal Rate of Return on new business.

2. Given negative strain on annuity business in 2009 and an immediate IFRS payback, the IRR was infinite

Business review - balance sheet

Capital resources - healthy IGD¹ coverage ratio of 224%

As at 31 December 2009 the Insurance Groups Directive (IGD) capital resources were £5.6 billion, while the capital resources requirement was £2.5 billion generating an estimated surplus of £3.1 billion and a coverage ratio of 224 per cent.

Capital £m	2009	2008
Group capital resources	5.6	4.4
Group capital resources requirement	2.5	2.6
IGD surplus	3.1	1.8
Coverage ratio	224	169

The year end 2009 IGD surplus of £3.1 billion increased from £1.8 billion at the end of 2008 due to retained profits in the Group and the issue of £300 million of lower Tier 2 debt in July 2009. The reconciliation from 2008 to 2009 is shown below.

IGD Surplus £m	2009	2008
At 1 January	1.8	4.1
Net cash generated	0.7	0.3
Profit after tax less net cash	0.2	(1.4)
Lower Tier II debt	0.3	-
Dividends declared in period	(0.2)	(0.2)
Other2	0.3	(0.7)2
At 31 December	3.1	1.8

For the With-profits business, the surplus calculated on both a Peak 1 and Peak 2 basis both increased with Peak 2 particularly benefiting from the reduction in credit spreads and actions taken during 2009 to reduce capital requirements. As a result within the group's IGD calculation Peak 1 became the more onerous basis and therefore the With-profits insurance capital component (WPICC) is nil (2008: £0.2bn).

Other includes regulatory changes in the USA have enabled the business to apply updated mortality tables to the existing in-force book. This has resulted in a release of reserves of £0.1 billion ($0.1bn).

A 40 per cent fall in equities would reduce the IGD surplus by an estimated £0.6 billion.

1. All IGD amounts are estimated, unaudited and after accrual of the final dividend of £160m (2008: £120m).

2. Includes changes in solvency capital, and in 2008 the impact of the share buyback (-£0.5bn) and acquisitions (-£0.3bn).

Movements in UK solvency capital

Movements in net solvency capital requirements are not revenue or expense flows and therefore do not impact profit, distributable reserves or the dividend paying capacity of the Group. As such the movement does not form part of net cash generation but instead is absorbed by or released into the capital stock. Changes in solvency capital requirements are therefore considered in the adequacy of the capital stock and how that impacts potential dividend levels.

Pillar 1 capital requirement £bn	2009	2008	Change
Risk	1.4	1.2	0.2
Savings	0.1	0.1	-
With-profits	0.6	0.6	-
With-profits insurance capital component (WPICC)	-	0.2	(0.2)
Society long term fund	2.1	2.1	-
Other subsidiaries	0.4	0.5	(0.1)
Group capital resources requirement	2.5	2.6	(0.1)

The increase in the Risk capital requirement to £1.4 billion (2008: £1.2bn) is primarily due to the increase in annuity reserves and the integration of the Nationwide Life risk business into Legal & General Assurance Society. This was previously reported in other subsidiaries.

Liquidity

Legal & General has a limited appetite for liquidity risk and maintains at Group level sufficient liquid assets and standby facilities to meet a prudent estimate of the Group's cash outflows over a period of two years, as identified through annual planning processes.  The liquidity position across our operational business units is very strong. On average during 2009 a daily average cash balance in excess of £1 billion of overnight cash deposits and significant holdings of liquid assets such as Gilts was maintained.

The Group liquidity position is also very strong with circa £1 billion of an undrawn committed syndicated bank credit facility maturing in December 2012. The Group also has access to liquid funds under our US$2 billion Commercial Paper programme as well as holdings of £0.6 billion of highly rated short term liquid assets.  The Group has no outstanding bonds that mature before 2015. There are no restrictive covenants and no credit rating or share price triggers in respect of debt or liquidity positions.

Business review - Asset portfolio

Worldwide assets under management at 31 December 2009 were £334 billion of which shareholders have direct exposure to 9 per cent or circa £30 billion. The shareholder portfolio remains of high quality. The assets backing the UK non profit annuity business within Legal & General Pensions Limited (LGPL) represent the majority of Group fixed interest exposure.

Asset classes1 £bn	LGPL	Other UK non profit insurance business	Other insurance business	Society shareholder capital	Other Group capital	Total
Bonds	21.4	0.4	2.0	0.8	1.1	25.7
Equities	-	-	-	0.9	-	0.9
Derivative assets	0.8	0.5	-	-	0.2	1.5
Property	-	-	-	0.1	-	0.1
Cash (including cash equivalents)	0.3	0.3	0.4	0.5	0.6	2.1
Total	22.5	1.2	2.4	2.3	1.9	30.3

Bond investments

The credit quality of the portfolio remains high, with the vast majority of the rated bonds being investment grade following credit rating downgrades during 2009.  The sector and geographic diversification of the annuity portfolio has been broadened in the last three years.  Of the LGPL credit portfolio assets, 64 per cent are now domiciled outside the UK including 33 per cent held in North America and 25 per cent in Europe.  This compares with just over half being domiciled outside the UK as at the end of 2008.  Exposure to overseas currency and interest rate risk is managed through the use of derivative programmes.  

Bank securities

The strategy of diversifying the portfolio continued in 2009, actively reducing exposure to the junior subordinated bonds of UK banks since the start of the year and maintaining a relative underweight position in banks in comparison to both global and local market index weightings. At the end of 2009 total Group subordinated bank exposure was £2,549 million compared to £3,060 million at the end of 2008.

Collateralised Debt Obligations (CDO)

The value of our CDO investments at 31 December 2009 was £1.2 billion.  Of this total, £1.1 billion relates to internally managed CDOs which are super senior tranches of bespoke structures constructed and managed by Legal & General to provide enhanced yield with significant protection against default.  Despite the difficult financial conditions earlier in 2009, the underlying reference portfolios have experienced no reference entity defaults in 2009.

Analysis of EEV results £m	PVNBP		Margin %)			Contribution
	2009	2008	2009	2008		2009	2008
Risk	2,728	3,811	10.4	7.1		285	271
Savings	3,676	4,722	0.5	(0.1)		20	(6)
International	876	896	2.6	3.6		23	32
Total	7,280	9,429	4.5	3.1
Contribution from new business						328	297
Expected return from in-force business						614	470
Persistency						(62)	(133)
Mortality / morbidity						147	(26)
Expenses						22	18
Other						113	4
Experience variances and assumption changes						120	(137)
Development costs						(30)	(51)
Contribution from shareholder net worth (International)						16	17
Other Risk and Savings operations						17	(7)
Operating profit						1,165	589
			H1 20091	H2 2009		2009	20081
Risk			460	453		913	439
Savings			28	54		82	50
International			87	83		170	100
			575	590		1,165	589
Investment management			58	81		139	130
Group capital and financing			23	24		47	156
Group Projects			-	(32)		(32)	-
Operating profit			656	663		1,319	875
Variation from longer term investment return			(1,018)	605		(143)	(1,584)
Effect of economic assumption changes			(630)	295		(335)	(609)
Property losses attributable to minority interests			(20)	1		(19)	(63)
Profit from ordinary activities before tax			(1,012)	1,564		552	(1,381)
Tax and other			292	(347)		(55)	408
Profit from ordinary activities after tax			(720)	1,217		497	(973)
Diluted earnings per share based on operating profit after tax (p)						16.19	10.68
Shareholders' equity						6,695	6,521
Number of shares (m)						5,862	5,862
Shareholders' equity per share (p)			94.8		114.2	114.2	111.2

Asset Backed Securities (ABS)

Within the bond portfolio, ABS investments stood at a market value of £4.4 billion at 31 December 2009 compared to £3.4 billion at the end of 2008. The portfolio of ABS investments remains defensive, with the majority of the structured finance exposure to either UK based infrastructure or secured bonds. These are high quality assets that were selected for their long duration and risk diversification.  Within this total, £1.5 billion are categorised as traditional ABS investments, including RMBS (of which only £22m is sub prime) and CMBS. 

Supplementary EEV disclosure

1. Restated for the revised IFRS definition of operating profit.

Operating profit

The EEV operating profit increased by 51 per cent to £1,319 million in 2009 (2008: £875m). This increase reflects the unwind of a higher opening discount rate on a higher opening in-force value in the UK coupled with favourable mortality experience in the Risk business. Operating profit from the international businesses grew to £170 million (2008: £100m) in part due to favourable currency movements.

New business contribution

Contribution from worldwide new business increased to £328 million (2008: £297m), growth of 10 per cent. The margin on this business improved significantly from 3.1 per cent in 2008 to 4.5 per cent in 2009 benefiting from favourable annuity pricing in the year.

Risk: margin of 10.4 per cent (2008: 7.1%). Protection new business margin of 7.9 per cent in 2009 compares to 6.2 per cent in 2008 reflecting a change in mix towards higher margin business and lower expenses. The IRR on protection new business was 17 per cent (2008: 14%) with a payback period of 5 years (2008: 5 years). The annuities margin increased to 11.7 per cent (2008: 7.4%). The improved pricing conditions noted in the IFRS results analysis above are reflected in EEV new business margins. Given positive strain on this business, annuities has an immediate IFRS payback.

Savings: margin of 0.5 per cent (2008: negative 0.1%). The underlying mix of unit linked bond business improved in the second half  with an increased proportion of Portfolio Bond sales coupled with reduced commission and allocation rates resulting in a negative margin of 0.6 per cent (2008: negative 1%). IRR was 8 per cent (2008: 6%) with a payback period of 9 years (2008: 10 years). The pensions margin of negative 0.6 per cent in 2009 compares to negative 0.4 per cent in 2008. Whilst business mix and pricing initiatives have improved the margin, the reductions in new business expenses are yet to fully compensate for the volume reductions.  The IRR on this business was 6 per cent (2008: 7%) with a payback period of 14 years (2008: 12 years). The With-profits margin improved to 2.9 per cent (2008: 1.2%) buoyed by the volume of With-profits bonds business written in the period.

International: margin of 2.6 per cent (2008: 3.6%). The decrease in the new business margin is primarily due to the increase in the risk discount rate in the USA and depressed market conditions in the Netherlands.

In-force contribution

The expected return from in-force business increased to £614 million (2008: £470m) due primarily to the unwind of a higher opening discount rate (8.3% vs 7.5%) on a higher opening in-force value in the UK.

Experience variances and assumption changes in our worldwide Risk and Savings businesses of £220 million (2008: negative £137m) included:

Persistency: negative £62 million (2008: negative £133m). Reflects the strengthening of lapse assumptions for individual protection and unit linked bond business.

Mortality/morbidity/longevity: £147 million (2008: negative £26m). Reflects favourable mortality experience in the UK and France.

Expenses: £22 million (2008: £18m). Reflects the capitalisation of the 2009 cost reductions partially offset by higher assumed future investment expenses.

Other: £113 million (2008: £4m). Reflects a reassessment of future BPA reserve release as data is loaded onto the BPA system (£44m) and one off modelling improvements (£43m).

Investment management

The Investment management business is reported on an IFRS basis; operating profit of £139 million (2008: £130m) excludes £28 million (2008: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a "look through" basis and as a consequence are included in the Risk and Savings covered businesses on an EEV basis.

Group Capital and financing

Operating profit from Group capital and financing represents profit on the shareholder assets held within the covered business, reported on an embedded value basis and profit on the shareholder assets held outside the covered business reported on an IFRS basis. The profit from Group capital and financing fell to £47 million in 2009 (2008: £156m) as a result of lower average invested assets throughout 2009.

Profit before tax

Profit before tax includes the variation from longer term investment return and the effect of economic assumption changes. EEV profit before tax was £552 million (2008: loss of £1,381m)

The variation from longer term investment return improved by £605 million during the second half of 2009 as a result of investment actions taken within the non profit annuity credit portfolios and the general improvements in all investment markets. The reported negative variance of £413 million (2008: negative £1,584m) includes an adverse variance of £335 million relating to the EEV impact of swap transactions undertaken in the first half to improve the IFRS matching of annuity business which reduced the assumed future yield on the annuity assets for EEV purposes, £77 million loss is due to the increased cost of capital arising from de-risking activity to reduce the equity ratio for assets backing solvency capital and £50 million is the negative EEV impact of holding additional cash balances, largely to back the short term default provision. This is partially offset by the impact of investment performance relative to assumptions and investment transactions within the credit portfolios in the second half of the year.

The negative effect of economic assumption changes amounted to £335 million (2008: negative £609m) includes      £125 million relating to the decrease in the UK risk discount rate in 2009 from 8.3 per cent to 8.0 per cent offset by higher assumed future inflation and higher cost of capital on increased annuity reserves (negative £250m), increases in the realistic and statutory long term default provisions for the assets backing annuity business (negative £124m) and the increase in the US risk discount rate in 2009 from 6.8 per cent to 7.4 per cent (negative £62m).

Enquiries

Investors:
Matt Hotson	Director, Investor Relations & Strategy	020 3124 2150
Damian O'Reilly	Investor Relations Manager	020 3124 2151
Adrian Liew	Investor Relations Manager	020 3124 2044
Ching-Yee Chan	Investor Relations Co-ordinator	020 3124 2345
Media:
John Godfrey	Group Communications Director	020 3124 2090
Richard King	Head of Media Relations	020 3124 2095
James Bradley	Tulchan Communications	020 7353 4200
Mal Patel	Tulchan Communications	020 7353 4200

Notes

A copy of this announcement can be found in "Results", under the "Financial information" section of our shareholder website at http://www.legalandgeneralgroup.com/investors/results.cfm.

A presentation to analysts and fund managers will take place at 09.30 GMT today at One Coleman Street, London, EC2R 5AA. There will be a live webcast of the presentation which can be accessed at

http://investor.legalandgeneral.com/investors/results.cfm. A replay will be available on this website later today.

There will be a live listen only teleconference link to the presentation.  Investors should dial [phone].  The passcode is "Results".

There will be a further teleconference at 14.00 GMT (09.00 EST) to answer specific technical and accounting questions. Investors should dial [phone].

Financial Calendar 2010	Date
Ex dividend date	14 April 2010
Record Date	16 April 2010
Q1 Interim Management Statement	5 May 2010
Annual General Meeting	26 May 2010
Payment date of 2009 final dividend	1 June 2010
Half Year Interim Management Statement 2010

Forward looking statements

This document may contain certain forward-looking statements relating to Legal & General Group, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General'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 regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisition or combinations within relevant industries. As a result, Legal & General Group's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and 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.

Principle risks and uncertainties

REGULATION AND LEGISLATION	Changes in regulation or legislation may have a detrimental effect on our strategy or profitability. Regulation defines the overall framework for the design, marketing and distribution of our products; the acceptance and administration of business; and the prudential capital that we hold. Current areas of significant regulatory change include Solvency II and the Retail Distribution Review. In addition to these known areas of change, there remains potential for new regulation in response to recent market events as well as possible changes in the regulatory landscape following the 2010 general election. Legislation and government fiscal policy can also influence our product design, the retention of existing business and our required reserves for future liabilities. Areas of new insurance law include that being developed by the Law Commission. Potential changes to personal and corporate taxation also present uncertainty with respect to the profitability and continued attractiveness of our products.	The Group bases its business strategy upon prevailing regulation and legislation, and known/anticipated change. To mitigate the risk of legislation or regulation adversely impacting the sectors in which we operate, the Group seeks to engage with regulatory and legislative authorities to assist in the evaluation of change and develop outcomes that meet the needs of all stakeholders.
FINANCIAL MARKET AND ECONOMIC CONDITIONS	Investment market performance or conditions in the broader economy may adversely impact our results. The Group holds a broad range of investment assets to meet the obligations arising from writing insurance business. The performance and liquidity of investment markets, interest rate movements and inflation can impact the value of these assets as well as the value of the underlying obligations. The income derived by our investment management activities can also be impacted by significant falls in investment asset values, whilst broader economic conditions can influence the purchase by customers of retail financial services products and how long they are retained. Whilst 2009 has seen a recovery of major markets from their position in 2008, broader economic conditions remain less certain, with possible consequences to investment values. Investment markets may also suffer considerable disruption should a significant macro-economic event e.g. a sovereign debt crisis occur within a developed world economy	The Group seeks to reduce the impact of these risks through ensuring the profile of cash flows of our assets and liabilities are appropriately matched. Matching techniques include using financial instruments as part of formal risk management strategies to reduce volatility in returns from investment assets, the effect of changes in interest rates and inflation, and the broader effects of adverse market conditions. We seek to reduce the impact of market and economic conditions upon our investment businesses through the utilisation of a low cost scalable business model and by maintaining a diversified portfolio of products
COUNTERPARTY AND THIRD PARTY RISKS	In dealing with issuers of debt and other types of counterparty, the Group is exposed to the risk of default. As part of our strategies to appropriately match long term assets and liabilities, exposures can arise to the issuers of corporate debt and other financial instruments. As part of our day to day business we also have exposures to banking, money market and reinsurance counterparties, as well as the providers of investment settlement and custody services. Third party risks also arise through reliance upon external suppliers for certain administration and IT development services.	Recent market events have demonstrated the importance of sound counterparty management. In this context the Group seeks to limit the potential exposure to loss from counterparty and third party failure through setting robust selection criteria and exposure limits covering factors such as counterparty financial strength, sectors and geography. Exposures against limits are actively monitored, with trigger levels being set and management action being taken to pre-empt loss from default events.
UK FINANCIAL SERVICES SECTOR CONTAGION RISKS	As a UK based Group, earnings are influenced by the perception of the UK financial services sector as a whole. Factors such as investment market performance, actions by regulators against organisations operating in the sector and shock events, including matters such as significant market failures, can impact the confidence of retail investors in the sector as a whole and their purchase or retention of financial service products.	2009 has seen a general downturn in business volumes across the sectors in which the Group operates. We continue to seek to differentiate our business model from that of our competitors. This includes a diversified portfolio of risk, savings and investment management businesses in the UK, further details of which are set out on pages 2 and 3, and a broad distribution mix. In addition, as set out on page 32, we are focused on developing our international businesses, with joint ventures in India and the Gulf being established in 2009, complementing our existing portfolio of overseas activities, as well as our investment management business winning its first mandates in the US
MORTALITY CATASTROPHE AND OTHER ASSUMPTION UNCERTAINTIES	Revisions to assumptions may require adjustments to reserves. The writing of long term insurance business necessarily requires the setting of assumptions for long term trends in factors such as mortality, persistency, valuation interest rates and credit defaults. The writing of household insurance business also requires assumptions to be set for factors such as extreme weather and other catastrophic events. Whilst a prudent approach is taken to evaluating required reserves for these risks, extreme events, such as a rapid advance in medical science leading to significantly enhanced annuitant longevity or an event causing widespread mortality/morbidity, coupled with a reinsurer default may require assumptions to be recalibrated impacting profitability and capital	The Group uses its pricing capabilities and the significant experience data it has accumulated to assess and charge an appropriate premium for known risk factors, and to ensure that reserves remain appropriate on an ongoing basis. The evaluation of reserves is supported by stress and scenario testing which seeks to validate the appropriateness of key assumptions to combinations of extreme events, including economic conditions, investment performance and product specific matters.
INDUSTRY CHANGE	The Group may not maximise opportunities from structural changes within the financial services sector. The financial services sector is going through a period of change and consolidation. This presents a range of challenges as well as opportunities to providers of sufficient scale such as Legal & General. Recent examples have included the merger of banks and building societies resulting in a change to the distribution landscape. The emergence of niche product providers with new business models continues to drive innovation within a number of the sectors in which the Group operates.	Legal & General seeks to ensure it has market leading expertise in the core fields in which it operates, and actively focuses on retaining the best personnel with the knowledge to design and support our products, and manage their evolution as market and consumer expectations change. In response to consolidation by banks and building societies, we have established a number of new distribution partnerships. Within our annuities business, a disciplined and selective approach to pension buyout business was maintained throughout 2009, and whilst we continue to lead in the traditional smaller schemes bulk purchase market, increased product and pricing sophistication and increased distribution opportunities helped individual annuities sales to grow. Our savings business has seen a transformation of the mix of products sold towards more modern, less capital intensive offerings.

Directors' Responsibility Statement (extracted from the 2009 annual report and accounts)

Each of the directors listed below confirms that to the best of their knowledge:

(a)           the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group as a whole; and

(b)           the directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group as a whole, together with a description of the principal risks and uncertainties that they face.

J. M Stewart                          -               Chairman

T.J. Breedon                         -               Group Chief Executive

Dame C Furse                     -               Non-Executive Director

F.A. Heaton                           -               Non-Executive Director

M.J. Gregory                          -               Group Executive Director (Savings)

R.H.P. Markham                  -               Non-Executive Director

J.B. Pollock                           -               Group Executive Director (Risk)

Dr. R.H Schmitz                   -               Non-Executive Director

H.E. Staunton                       -               Non-Executive Director

J.M. Strachan                        -               Non-Executive Director

Sir D Walker                         -               Vice Chairman

N.D. Wilson                          -               Group Chief Financial Officer

 

END

 

 

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