Half Yearly Report - Part 3

RNS Number : 4255J

Legal & General Group Plc

07 August 2012

Notes to the Financial Statements

5.01 Profit/(loss) for the period
								Invest-				Group
								ment				capital
					Risk and			manage-	Inter-			and
					Savings			ment	national			financing	Total
For the six months ended 30 June 2012				Notes	£m			£m	£m			£m	£m


Business reported on an EEV basis:
Contribution from new business after cost of capital				5.03/5.05	121				46				167
Contribution from in-force business:
- expected return¹					169				54				223
- experience variances				5.07	13				(42)				(29)
- operating assumption changes				5.07	(8)				(1)				(9)
Development costs					(9)				-				(9)
Contribution from shareholder net worth									5			67	72


Operating profit on covered business					286			-	62			67	415

Business reported on an IFRS basis:
Risk non-covered business²					10								10
Savings non-covered business³					8								8
Investment management⁴				5.08				106					106
Group capital and financing				5.10								(56)	(56)
Investment projects⁵												(23)	(23)
International non-covered business⁶									(4)				(4)


Total operating profit					304			106	58			(12)	456
Variation from longer term investment return				5.11	(2)			(2)	6			(15)	(13)
Effect of economic assumption changes				5.12	(73)			-	(53)			-	(126)
Property losses attributable to non-controlling interests					-			-	-			1	1


Profit/(loss) before tax					229			104	11			(26)	318
Tax (expense)/credit on profit from ordinary activities				5.14	(50)			(19)	(6)			25	(50)
Effect of tax rate changes⁷				5.14	48			-	-			-	48


Profit/(loss) for the period					227			85	5			(1)	316



Operating profit attributable to:
Risk					263
Savings					41


1. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the Risk and Savings business was £4,247m in 2012 (H1 11: £3,886m; FY 11: £3,886m). This is adjusted for the effects of opening model changes of £45m
(H1 11: £193m; FY 11: £200m) to give an adjusted opening base VIF of £4,292m (H1 11: £4,079m; FY 11: £4,086m). This is then multiplied by the opening risk discount rate of 6.2% (H1 11: 7.3%; FY 11: 7.3%) and the result grossed up at the notional attributed tax rate of 22% (H1 11: 23%; FY 11: 23%) to give a return of £169m (H1 11: £190m; FY 11: £387m).
2. Risk non-covered business primarily reflects GI operating profit of £8m (H1 11: £17m; FY 11: £42m). See Note 2.01(f).
3. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland) and Nationwide.
4. Investment management operating profit excludes £13m (H1 11: £13m; FY 11: £24m) 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, Savings and Group capital and financing covered business on an EEV basis.
5. Investment projects predominately relates to Solvency II and other strategic investments.
6. International non-covered business includes our joint venture operations in Egypt, the Gulf, India and business unit costs of £3m (H1 11: £2m; FY 11: £5m) allocated to the International segment.
7. Primarily reflects the implementation of the UK planned future reductions in corporation tax to 22% on 1 April 2014.


								Invest- ment				Group capital
					Risk and			manage-	Inter-			and
					Savings			ment	national			financing	Total
For the six months ended 30 June 2011				Notes	£m			£m	£m			£m	£m


Business reported on an EEV basis:
Contribution from new business after cost of capital				5.03/5.05	109				28				137
Contribution from in-force business:
- expected return¹					190				54				244
- experience variances				5.07	70				(4)				66
- operating assumption changes				5.07	48				(2)				46
Development costs					(7)				-				(7)
Contribution from shareholder net worth									13			82	95


Operating profit on covered business					410			-	89			82	581

Business reported on an IFRS basis:
Risk non-covered business²					18								18
Savings non-covered business³					10								10
Investment management⁴				5.08				104					104
Group capital and financing				5.10								(52)	(52)
Investment projects⁵												(25)	(25)
International non-covered business⁶									(2)				(2)


Total operating profit					438			104	87			5	634
Variation from longer term investment return				5.11	16			(3)	(6)			(38)	(31)
Effect of economic assumption changes				5.12	(42)			-	29			-	(13)
Property losses attributable to non-controlling interests					-			-	-			(1)	(1)


Profit/(loss) before tax					412			101	110			(34)	589
Tax (expense)/credit on profit from ordinary activities				5.14	(96)			(22)	(37)			16	(139)
Effect of tax rate changes⁷				5.14	155			-	1			-	156


Profit/(loss) for the period					471			79	74			(18)	606



Operating profit attributable to:
Risk					344
Savings					94


1. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the Risk and Savings business was £3,886m. This is adjusted for the effects of opening model changes of £193m to give an adjusted opening base VIF of £4,079m. This is then multiplied by the opening risk discount rate of 7.3% and the result grossed up at the notional attributed tax rate of 23% to give a return of £190m.
2. Risk non-covered business primarily reflects GI operating profit of £17m (see Note 2.01(f)).
3. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland) and Nationwide.
4. Investment management operating profit excludes £13m 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, Savings and Group capital and financing covered business on an EEV basis.
5. Investment projects predominately relates to Solvency II and other strategic investments.
6. International non-covered business includes our joint venture operations in Egypt, the Gulf, India and business unit costs of £2m allocated to the International segment.
7. Primarily reflects the implementation of the UK planned future reductions in corporation tax to 23% on 1 April 2014.

								Invest-				Group
								ment				capital
					Risk and			manage-	Inter-			and
					Savings			ment	national			financing	Total
For the year ended 31 December 2011				Notes	£m			£m	£m			£m	£m


Business reported on an EEV basis:
Contribution from new business after cost of capital				5.03/5.05	376				65				441
Contribution from in-force business:
- expected return¹					387				107				494
- experience variances				5.07	112				125				237
- operating assumption changes				5.07	101				(68)				33
Development costs					(10)				-				(10)
Contribution from shareholder net worth									21			157	178


Operating profit on covered business					966			-	250			157	1,373

Business reported on an IFRS basis:
Risk non-covered business²					36								36
Savings non-covered business³					27								27
Investment management⁴				5.08				210					210
Group capital and financing				5.10								(113)	(113)
Investment projects⁵												(56)	(56)
International non-covered business⁶									(8)				(8)


Total operating profit					1,029			210	242			(12)	1,469
Variation from longer term investment return				5.11	124			(7)	(6)			(222)	(111)
Effect of economic assumption changes				5.12	43			-	(64)			-	(21)
Property losses attributable to non-controlling interests					-			-	-			(3)	(3)


Profit/(loss) before tax					1,196			203	172			(237)	1,334
Tax (expense)/credit on profit from ordinary activities				5.14	(279)			(38)	(63)			121	(259)
Effect of tax rate changes⁷				5.14	155			-	1			-	156


Profit/(loss) for the year					1,072			165	110			(116)	1,231



Operating profit attributable to:
Risk					801
Savings					228


1. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the Risk and Savings business was £3,886m in 2011. This is adjusted for the effects of opening model changes of £200m to give an adjusted opening base VIF of £4,086m. This is then multiplied by the opening risk discount rate of 7.3% and the result grossed up at the notional attributed tax rate of 23% to give a return of £387m.
2. Risk non-covered business primarily reflects GI operating profit of £42m (see note 2.01(f)).
3. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland) and Nationwide.
4. Investment management operating profit excludes £24m 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, Savings and Group capital and financing covered business on an EEV basis.
5. Investment projects predominately relates to Solvency II and other strategic investments.
6. International non-covered business includes our joint venture operations in Egypt, the Gulf, India and business unit costs of £5m allocated to the International segment.
7. Primarily reflects the segmentation of the UK planned future reductions in corporation tax to 23% on 1 April 2014.
5.02 New business summary¹
				APE²	PVNBP³			Margin⁴	APE			PVNBP	Margin
				30.06.12	30.06.12			30.06.12	30.06.11			30.06.11	30.06.11
		Notes		£m	£m			%	£m			£m	%


Risk⁵		5.03		168	1,135			9.6	170			1,222	7.6
Savings		5.03		320	2,082			0.6	303			2,032	0.8
International		5.05		91	794			5.8	76			645	4.3


				579	4,011			4.2	549			3,899	3.5



									APE			PVNBP	Margin
									Full year			Full year	Full year
									31.12.11			31.12.11	31.12.11
		Notes							£m			£m	%


Risk⁵		5.03							498			3,446	9.8
Savings		5.03							590			3,896	0.8
International		5.05							131			1,174	5.5


									1,219			8,516	5.1


1. Covered business only.
2. Annual Premium Equivalent (APE) comprises the new annual premiums together with 10% of single premiums.
3. The present value of new business premiums (PVNBP) on the EEV basis is defined as the present value of annual premiums plus single premiums for any given period. It is calculated using the same assumptions as for the contribution from new business but determined as at the point of sale.
4. The new business margin is defined as the contribution from new business (including the cost of solvency capital) divided by the PVNBP.
5. Longevity insurance has been excluded from the Risk PVNBP and new business margin measures.
5.03 Risk and Savings¹new business by product
			Present								Contri-
			value of			Capital-					bution
	Annual		annual			isation	Single				from new
	premiums		premiums			factor²	premiums			PVNBP	business³			Margin
For the six months ended 30 June 2012	£m		£m				£m			£m	£m			%


Protection	109		546			5.0	-			546	59			10.8
Annuities	-		-			-	589			589	50			8.5
Longevity insurance⁴	-		n/a			n/a	-			n/a	-			n/a


Total Risk	109		546			5.0	589			1,135	109			9.6


Unit linked bonds	-		-			-	266			266	2			0.8
Pensions, stakeholder and other non profit	139		512			3.7	967			1,479	6			0.4
With-profits savings	35		110			3.1	227			337	4			1.2


Total Savings	174		622			3.6	1,460			2,082	12			0.6


Total Risk and Savings	283		1,168			4.1	2,049			3,217	121			3.8
Cost of capital											17


Contribution from new business before cost of capital											138




			Present								Contri-
			value of			Capital-					bution
	Annual		annual			isation	Single				from new
	premiums		premiums			factor²	premiums			PVNBP	business³			Margin
For the six months ended 30 June 2011	£m		£m				£m			£m	£m			%


Protection	94		466			5.0	-			466	30			6.4
Annuities	-		-			-	756			756	63			8.4
Longevity insurance⁴	-		n/a			n/a	-			n/a	-			n/a


Total Risk	94		466			5.0	756			1,222	93			7.6


Unit linked bonds	-		-			-	320			320	5			1.6
Pensions, stakeholder and other non profit	120		469			3.9	808			1,277	3			0.2
With-profits savings	39		118			3.0	317			435	8			1.8


Total Savings	159		587			3.7	1,445			2,032	16			0.8


Total Risk and Savings	253		1,053			4.2	2,201			3,254	109			3.3
Cost of capital											14


Contribution from new business before cost of capital											123


1. Covered business only.
2. The capitalisation factor is the present value of annual premiums divided by the amount of annual premiums.
3. The contribution from new business is defined as the present value at point of sale of assumed profits from new business written in the period and then rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.
4. The PVNBP measure is not applicable.


		Present				Contri-
		value of	Capital-			bution
	Annual	annual	isation	Single		from new
	premiums	premiums	factor²	premiums	PVNBP	business³	Margin
For the year ended 31 December 2011	£m	£m		£m	£m	£m	%


Protection	177	931	5.3	-	931	86	9.3
Annuities	-	-	-	2,515	2,515	252	10.0
Longevity insurance⁴	70	n/a	n/a	-	n/a	7	n/a


Total Risk	247	931	5.3	2,515	3,446	345	9.8


Unit linked bonds	-	-	-	623	623	8	1.3
Pensions, stakeholder and other non profit	244	902	3.7	1,620	2,522	10	0.4
With-profits savings	69	226	3.3	525	751	13	1.8


Total Savings	313	1,128	3.6	2,768	3,896	31	0.8


Total Risk and Savings	560	2,059	4.2	5,283	7,342	376	5.0
Cost of capital						49


Contribution from new business before cost of capital						425


1. Covered business only.
2. The capitalisation factor is the present value of annual premiums divided by the amount of annual premiums.
3. The contribution from new business is defined as the present value at point of sale of assumed profits from new business written in the period and then rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.
4. The PVNBP measure is not applicable.

5.04 Non profit internal rate of return (IRR) and payback period¹by product

							Payback								Payback							Payback
				IRR			period			IRR					period			IRR				period
				30.06.12			30.06.12			30.06.11					30.06.11			31.12.11				31.12.11
				%			years			%					years			%				years


Protection				>15			3			>15					4			>15				4
Annuities²				>30			<0			>30					<0			>30				<0
Unit linked bonds				8			8			13					6			10				7
Pensions, stakeholder and other non profit				8			11			8					12			8				12


1. The payback period is calculated on an undiscounted basis.
2. Given negative strain on annuity business and an immediate IFRS payback, the IRR calculation is infinite. The IRRs and payback period for FY 11 includes longevity insurance.
5.05 International¹new business
																Contri-
																bution
																from new				Cost of
								APE				PVNBP				business²				capital				Margin
For the six months ended 30 June 2012								£m				£m				£m				£m				%


USA (LGA)³								42				384				42				1				10.9
Netherlands (LGN)								11				88				1				2				0.9
France (LGF)								38				322				3				4				1.0


Total								91				794				46				7				5.8




																Contri-
																bution
																from new				Cost of
								APE				PVNBP				business²				capital				Margin
For the six months ended 30 June 2011								£m				£m				£m				£m				%


USA (LGA)								32				261				25				2				9.8
Netherlands (LGN)								8				69				-				1				-
France (LGF)								36				315				3				3				0.8


Total								76				645				28				6				4.3




																Contri-
																bution
																from new				Cost of
								APE				PVNBP				business²				capital				Margin
For the year ended 31 December 2011								£m				£m				£m				£m				%


USA (LGA)								69				637				69				2				10.7
Netherlands (LGN)								15				130				(2)				2				(1.3)
France (LGF)								47				407				(2)				6				(0.4)


Total								131				1,174				65				10				5.5


1. Excludes core retail investments in LGF and new business from joint operations in Egypt, India and Gulf which are reported on an IFRS basis.
2. Contribution from new business is reported after the cost of capital.
3. The increased new business contribution in the USA compared to the first half of 2011 reflects the increase in new business volumes. The results for LGA include the groupwide impact of US new business including the expected impact of internal reinsurance arrangements with the UK.

5.06 International¹new business in local currency
		Present												Contri-
		value of			Capital-									bution
	Annual	annual			isation		Single							from new					Cost of
	premiums	premiums			factor		premiums				PVNBP			business²					capital		Margin
For the six months ended 30 June 2012	m	m					m				m			m					m		%


USA (LGA)³	$66	$606			9.2		-				$606			$66					$2		10.9
Netherlands (LGN)	€8	€60			7.5		€54				€114			€1					€2		0.9
France (LGF)	€32	€243			7.6		€150				€393			€4					€5		1.0




		Present												Contri-
		value of			Capital-									bution
	Annual	annual			isation		Single							from new					Cost of
	premiums	premiums			factor		premiums				PVNBP			business²					capital		Margin
For the six months ended 30 June 2011	m	m					m				m			m					m		%


USA (LGA)	$52	$422			8.1		-				$422			$41					$3		9.8
Netherlands (LGN)	€2	€13			6.4		€67				€80			-					€1		-
France (LGF)	€27	€219			8.1		€143				€362			€3					€4		0.8




		Present												Contri-
		value of			Capital-									bution
	Annual	annual			isation		Single							from new					Cost of
	premiums	premiums			factor		premiums				PVNBP			business²					capital		Margin
For the year ended 31 December 2011	m	m					m				m			m					m		%


USA (LGA)	$111	$1,028			9.3		-				$1,028			$110					$3		10.7
Netherlands (LGN)	€6	€40			6.7		€109				€149			(€2)					€2		(1.3)
France (LGF)	€27	€201			7.5		€267				€468			(€2)					€7		(0.4)


1. Excludes core retail investments in LGF and new business from joint operations in Egypt, India and Gulf which are reported on an IFRS basis.
2. Contribution from new business is reported after the cost of capital.
3. The increased new business contribution in the USA compared to the first half of 2011 reflects the increase in new business volumes. The results for LGA include the groupwide impact of US new business including the expected impact of internal reinsurance arrangements with the UK.
5.07 Analysis of experience variances and operating assumption changes
			Risk and Savings										International
						Operating											Operating
			Experience			assumption							Experience				assumption
			variances			changes			Total				variances				changes						Total
For the six months ended 30 June 2012			£m			£m			£m				£m				£m						£m


Persistency			(1)			-			(1)				(13)				-						(13)
Mortality/morbidity			(11)			-			(11)				(13)				-						(13)
Expenses			(10)			(18)			(28)				(2)				-						(2)
Other
- US capital restructure			-										-
- Bulk purchase annuity data loading			17										-
- UK cost of capital unwind			28										-
- Modelling changes and other experience variances			(10)										(14)
			35			10			45				(14)				(1)						(15)


			13			(8)			5				(42)				(1)						(43)


Full experience investigations are not undertaken at the half-year. An estimate is made of both positive and negative variances.

H1 12 Risk and Savings mortality experience variances primarily relates to adverse experience in group protection. This continues to trend back to assumptions.

H1 12 Risk and Savings operating assumption changes reflect higher investment expenses during the period driven by a change in the investment mix in the underlying funds.

Adverse International mortality experience variances mainly relate to the higher number of LGA term assurance claims during the period. Persistency variance relates to higher lapses on existing term business in the Netherlands and in the USA.

The H1 12 UK cost of capital unwind includes the impact of the release of capital relating to the in-force book of £14m. The balance also includes the reversal of the cost of capital impact from the unwind of the discount rate on opening adjusted VIF. This is calculated as the opening cost of capital of £372m, multiplied by the opening risk discount rate of 6.2% for half a year, and grossed up for the notional attributed tax rate of 22% to give £14m.

	Risk and Savings			International
		Operating				Operating
	Experience	assumption		Experience		assumption
	variances	changes	Total	variances		changes			Total
For the six months ended 30 June 2011	£m	£m	£m	£m		£m			£m


Persistency	2	-	2	5		-			5
Mortality/morbidity	(35)	-	(35)	(13)		-			(13)
Expenses	7	30	37	-		(1)			(1)
Other
- US capital restructure	-			-
- Bulk purchase annuity data loading	19			-
- UK cost of capital unwind	27			-
- Modelling changes and other experience variances	50			4
	96	18	114	4		(1)			3


	70	48	118	(4)		(2)			(6)


H1 11 Risk and Savings mortality experience variance includes £27m relating to the group protection business, of which half is due to a small number of high value claims. H1 11 Risk and Savings expense operating assumption changes reflects the lower unit costs in individual protection. The H1 11 UK cost of capital unwind includes the impact of the release of capital relating to the in-force book of £11m. The balance also includes the reversal of the cost of capital impact from the unwind of the risk discount rate on opening adjusted VIF. This is calculated as the opening cost of capital of £334m, multiplied by the opening risk discount rate of 7.3% for half a year, and grossed up for the notional attributed tax rate of 23% to give £16m.
	Risk and Savings			International
		Operating				Operating
	Experience	assumption		Experience		assumption
	variances	changes	Total	variances		changes			Total
For the year ended 31 December 2011	£m	£m	£m	£m		£m			£m


Persistency	5	9	14	3		(24)			(21)
Mortality/morbidity	(25)	(7)	(32)	(27)		(55)			(82)
Expenses	-	55	55	(7)		1			(6)
Other
- US capital restructure	15			163
- Bulk purchase annuity data loading	42			-
- UK cost of capital unwind	54			-
- Modelling changes and other experience variances	21			(7)
	132	44	176	156		10			166


	112	101	213	125		(68)			57


2011 Risk and Savings mortality experience variances primarily relates to our group protection business which was impacted by a number of high value claims which predominately occurred during H1 11. 2011 Risk and Savings expense operating assumption changes reflects the change in long term expense assumptions in protection business and changes in the modelled long term unit cost and investment expenses assumptions in non profit savings and pensions.
Adverse International persistency and mortality operating assumptions changes mainly relate to LGA term assurances in the period after the end of the ordinary level premium period when policyholders may choose to continue their policies at reviewable rates. The domicile of a US captive structure was moved from Bermuda to Vermont which results in an acceleration of the emergence of surplus, and as a consequence increases the present value of the in-force business.
5.08 Investment management operating profit
								Full year
					30.06.12		30.06.11	31.12.11
					£m		£m	£m


Pension funds (managed and segregated)¹					89		87	172
Other non-pension²					11		12	25
Investment management services for internal funds³					6		5	13


Total Investment management operating profit					106		104	210


1. The managed pension funds business within Investment management has been reported on an IFRS basis as is consistent with prior years.
2. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £3m (H1 11: £5m; FY 11: £9m) on an average asset balance of £0.4bn (H1 11: £0.4bn; FY 11: £0.4bn) has been included within other non-pension operating profit.
3. Investment management services for internal funds excludes £13m (H1 11: £13m; FY 11: £24m) 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 within the Risk and Savings covered business on an EEV basis.

5.09 International operating profit
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


USA (LGA)¹	50	75	242


Netherlands (LGN)	2	11	6
France (LGF)	10	3	2


Total Europe operating profit²	12	14	8
Other³	(4)	(2)	(8)


Total International operating profit	58	87	242


1. FY 11 US operating profit reflected improved new business contribution and the impact of the captive reinsurance structure, which was moved from Bermuda to Vermont during 2011. The H1 12 reduction in US operating profit reflects adverse persistency and mortality variances in H1 12, partially compensated by improved new business contribution.
2. The Netherlands operating profit has been affected by adverse persistency. In France, the adverse mortality variance experienced by the group risk business in H1 11 did not recur in 2012 therefore giving an improved result.
3. Other includes our joint venture operations in Egypt, the Gulf, India and business unit costs of £3m (H1 11: £2m; FY 11: £5m) allocated to the International segment.

5.10 Group capital and financing operating profit¹
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Investment return	84	102	191
Interest expense²	(63)	(62)	(123)
Investment expenses	(3)	(2)	(5)
Unallocated corporate expenses	(5)	(5)	(11)
Other	(2)	(3)	(8)


Total Group capital and financing operating profit	11	30	44

Analysed as:
On an EEV basis	67	82	157
On an IFRS basis	(56)	(52)	(113)


1. Group capital and financing represents operating profit on the shareholder assets held within the covered business, reported on an embedded value basis, and operating profit on the shareholder assets held outside the covered business reported on an IFRS basis. Operating profit for the group capital and financing segment includes lower assumed returns on cash and LIBOR benchmarked bonds as reported in the FY 11 results. This has been applied to the H1 11 operating profit comparatives as if these changes had been in effect since 1 January 2011. The impact was to reduce H1 11 operating profit by £28m. There is no impact on EEV profit before tax from these changes.
2. Interest expense excludes non recourse financing (see Note 2.16).
5.11 Variation from longer term investment return
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Business reported on an EEV basis:
Risk and Savings	(7)	12	124
International	6	(6)	(6)
Group capital and financing¹	(11)	(16)	(152)


	(12)	(10)	(34)
Business reported on an IFRS basis:
Risk and Savings	5	4	-
Investment management	(2)	(3)	(7)
Group capital and financing¹	(4)	(22)	(70)


	(13)	(31)	(111)


1. Group capital and financing investment returns primarily consists of negative equity and debt related investment variance. (See Note 2.06).

5.12 Effect of economic assumption changes
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Business reported on an EEV basis:
Risk and Savings¹	(73)	(42)	43
International²	(53)	29	(64)


	(126)	(13)	(21)


1. The Risk and Savings economic assumptions primarily reflects the impact of changes in LIBOR on reinvestment and disinvestment rates and lower future expected investment returns which are partially offset by a lower risk discount rate.
2. Includes the impact of the increase in risk margin from 3.7% to 3.8% and the impact of lower interest rates on future investment returns and investment margins.

5.13 Time value of financial options and guarantees
											Full year
							30.06.12		30.06.11		31.12.11
							£m		£m		£m


Risk and Savings¹							24		15		21
International							5		13		10


							29		28		31


1. Includes £19m (H1 11: £10m; FY 11: £16m) relating to UK with-profits business, and £5m (H1 11: £5m; FY 11: £5m) relating to UK non profit business.
5.14 Tax
			Profit/	Tax	Profit/	Tax		Profit/		Tax
			(loss)	(exp-	(loss)	(exp-		(loss)		(exp-
			before	ense)/	before	ense)/		before		ense)/
			tax	credit	tax	credit		tax		credit
								Full year		Full year
			30.06.12	30.06.12	30.06.11	30.06.11		31.12.11		31.12.11
			£m	£m	£m	£m		£m		£m


From continuing operations
Risk			263	(58)	344	(79)		801		(187)
Savings			41	(9)	94	(22)		228		(54)
Investment management			106	(19)	104	(23)		210		(40)
International			58	(20)	87	(30)		242		(85)
Group capital and financing			11	(1)	30	(3)		44		(6)
Investment projects			(23)	6	(25)	7		(56)		15


Operating profit			456	(101)	634	(150)		1,469		(357)
Variation from longer term investment return			(13)	19	(31)	11		(111)		87
Effect of economic assumption changes			(126)	32	(13)	-		(21)		11
Property losses attributable to non-controlling interests			1	-	(1)	-		(3)		-
Effect of tax rate changes			-	48	-	156		-		156


Profit/(loss) before tax / Tax			318	(2)	589	17		1,334		(103)


The UK EEV calculations assume a tax basis which reflects the annualised current tax rate of 24.5% and the planned future reductions in corporation tax to 24% from 1 April 2012, 23% from 1 April 2013, and 22% from 1 April 2014. The tax rate used for grossing up in the income statement is based on a UK corporation tax rate of 22% (H1 11: 23%; FY 11: 23%).
5.15 Earnings per share
(a) Earnings per share
		Tax				Tax
		(exp-				(exp-
	Profit	ense)/	Profit	Per	Profit	ense)/		Profit		Per
	before tax	credit	after tax	share	before tax	credit		after tax		share
	30.06.12	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11		30.06.11		30.06.11
	£m	£m	£m	p	£m	£m		£m		p


Operating profit	456	(101)	355	6.09	634	(150)		484		8.30
Variation from longer term
investment return	(13)	19	6	0.10	(31)	11		(20)		(0.34)
Effect of economic assumption changes	(126)	32	(94)	(1.61)	(13)	-		(13)		(0.22)
Effect of tax rate changes	-	48	48	0.82	-	156		156		2.68


Earnings per share based on profit
attributable to equity holders	317	(2)	315	5.40	590	17		607		10.42



						Tax
						(exp-
					Profit	ense)/		Profit		Per
					before tax	credit		after tax		share
					Full year	Full year		Full year		Full year
					31.12.11	31.12.11		31.12.11		31.12.11
					£m	£m		£m		p


Operating profit					1,469	(357)		1,112		19.08
Variation from longer term investment return					(111)	87		(24)		(0.41)
Effect of economic assumption changes					(21)	11		(10)		(0.17)
Effect of tax rate changes					-	156		156		2.67


Earnings per share based on profit
attributable to equity holders					1,337	(103)		1,234		21.17

	(b) Diluted earnings per share
	(i) Based on operating profit after tax

			Profit		Number		Per		Profit		Number		Per
			after tax		of shares¹		share		after tax		of shares¹		share
			30.06.12		30.06.12		30.06.12		30.06.11		30.06.11		30.06.11
			£m		m		p		£m		m		p


	Operating profit after tax		355		5,832		6.09		484		5,828		8.30
	Net shares under options allocable for no further consideration		-		96		(0.10)		-		97		(0.14)


	Diluted earnings per share		355		5,928		5.99		484		5,925		8.16




									Profit		Number		Per
									after tax		of shares¹		share
									Full year		Full year		Full year
									31.12.11		31.12.11		31.12.11
									£m		m		p


	Operating profit after tax								1,112		5,828		19.08
	Net shares under options allocable for no further consideration								-		97		(0.31)


	Diluted earnings per share								1,112		5,925		18.77




	(ii) Based on profit attributable to equity holders of the Company

			Profit		Number		Per		Profit		Number		Per
			after tax		of shares¹		share		after tax		of shares¹		share
			30.06.12		30.06.12		30.06.12		30.06.11		30.06.11		30.06.11
			£m		m		p		£m		m		p


	Profit attributable to equity holders of the Company		315		5,832		5.40		607		5,828		10.42
	Net shares under options allocable for no further consideration		-		96		(0.09)		-		97		(0.18)


	Diluted earnings per share		315		5,928		5.31		607		5,925		10.24



											Number
									Profit		of		Per
									after tax		shares¹		share
									Full year		Full year		Full year
									31.12.11		31.12.11		31.12.11
									£m		m		p


	Profit attributable to equity holders of the Company								1,234		5,828		21.17
	Net shares under options allocable for no further consideration								-		97		(0.34)


	Diluted earnings per share								1,234		5,925		20.83


	1. Weighted average number of shares.

	The number of shares in issue at 30 June 2012 was 5,905,704,992 (30 June 2011: 5,870,748,796; 31 December 2011: 5,872,166,893).
	5.16 Group embedded value reconciliation
		Covered business
		UK		UK		UK		Total		Inter-		Non-		Total
		free		required		value of		UK		national		covered
		surplus		capital		in-force						business
	For the six months ended 30 June 2012	£m		£m		£m		£m		£m		£m		£m


	At 1 January
	Value of in-force business (VIF)	-		-		4,247		4,247		1,130		-		5,377
	Shareholder net worth (SNW)	1,461		1,757		-		3,218		401		(388)		3,231


		1,461		1,757		4,247		7,465		1,531		(388)		8,608
	Exchange rate movements	-		-		-		-		(29)		8		(21)


		1,461		1,757		4,247		7,465		1,502		(380)		8,587
	Operating profit/(loss) for the period:
	- New business contribution¹	(117)		54		158		95
	- Expected return on VIF	-		-		132		132
	- Expected transfer from Non profit VIF to SNW²	364		(83)		(281)		-
	- With-profits transfer	26		-		(26)		-
	- Expected return on SNW	26		32		-		58
	Generation of embedded value	299		3		(17)		285
	- Experience variances	(6)		4		4		2
	- Operating assumption changes	29		-		(35)		(6)
	- Development costs	(7)		-		-		(7)
	Variances	16		4		(31)		(11)


	Operating profit after tax for the period	315		7		(48)		274		41		40		355
	Non-operating profit/(loss) for the period:
	- Investment variances	16		-		(12)		4
	- Economic assumption changes	(33)		18		(43)		(58)
	- Effect of UK Budget tax changes	-		-		48		48
	Non-operating (loss)/profit for the period:	(17)		18		(7)		(6)		(33)		-		(39)


	Profit for the period	298		25		(55)		268		8		40		316
	Capital movements	-		-		-		-		-		-		-
	Intra-group distributions³	30		-		-		30		(39)		9		-
	Dividends to equity holders of the Company	-		-		-		-		-		(278)		(278)
	Net movements in employee share schemes	-		-		-		-		-		(4)		(4)
	Loss attributable to non-controlling interests	-		-		-		-		-		(1)		(1)
	Transfer to non-covered business⁴	(10)		-		-		(10)		-		10		-
	Other reserve movements including pension deficit	(32)		-		(8)		(40)		-		1		(39)


	Embedded value	1,747		1,782		4,184		7,713		1,471		(603)		8,581


	Represented by:
	- Non profit					3,773
	- With-profits					411


	Value of in-force business	-		-		4,184		4,184		1,135		-		5,319
	Shareholder net worth	1,747		1,782		-		3,529		336		(603)		3,262


	1. The free surplus reduction of £117m to finance new business includes £64m IFRS new business strain and £54m additional required capital. Other items have a net negative impact of £1m.
	2. The increase in free surplus of £364m from the expected transfer from the in-force non profit business includes £281m of IFRS operational cash generation and a £83m reduction in required capital.
	3. Dividends of $60m from LGA and €2m from LGF were also paid to the group.
	4. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.


		Covered business
		UK		UK		UK		Total		Interna-		Non-		Total
		free		required		value of		UK		tional		covered
		surplus		capital		in-force						business
	For the six months ended 30 June 2011	£m		£m		£m		£m		£m		£m		£m


	At 1 January
	Value of in-force business (VIF)	-		-		3,886		3,886		1,015		-		4,901
	Shareholder net worth (SNW)	1,395		1,640		-		3,035		748		(954)		2,829


		1,395		1,640		3,886		6,921		1,763		(954)		7,730
	Exchange rate movements	-		-		-		-		(2)		12		10


		1,395		1,640		3,886		6,921		1,761		(942)		7,740
	Operating profit/(loss) for the period:
	- New business contribution¹	(150)		79		155		84
	- Expected return on VIF	-		-		146		146
	- Expected transfer from Non profit VIF to SNW²	372		(98)		(274)		-
	- With-profits transfer	26		-		(26)		-
	- Expected return on SNW	35		39		-		74
	Generation of embedded value	283		20		1		304
	- Experience variances	(9)		1		53		45
	- Operating assumption changes	33		-		4		37
	- Development costs	(5)		-		-		(5)
	Variances	19		1		57		77


	Operating profit/(loss) after tax for the period	302		21		58		381		59		44		484
	Non-operating profit/(loss) for the period:
	- Investment variances	(26)		16		9		(1)
	- Economic assumption changes	-		-		(32)		(32)
	- Effect of UK Budget tax changes	-		-		155		155
	Non-operating profit/(loss) for the period:	(26)		16		132		122		16		(16)		122


	Profit/(loss) for the period	276		37		190		503		75		28		606
	Capital movements³	-		-		-		-		(271)		271		-
	Intra-group distributions⁴	20		-		-		20		(35)		15		-
	Dividends to equity holders of the Company	-		-		-		-		-		(201)		(201)
	Loss attributable to non-controlling interests	-		-		-		-		-		1		1
	Transfer to non-covered business⁵	(10)		-		-		(10)		-		10		-
	Other reserve movements including pension deficit	(22)		-		-		(22)		-		23		1


	Embedded value	1,659		1,677		4,076		7,412		1,530		(795)		8,147


	Represented by:
	- Non profit					3,560
	- With-profits					516


	Value of in-force business	-		-		4,076		4,076		1,075		-		5,151
	Shareholder net worth	1,659		1,677		-		3,336		455		(795)		2,996


	1. The free surplus reduction of £150m to finance new business includes £71m IFRS new business strain and £79m additional required capital.
	2. The increase in free surplus of £372m from the expected transfer from the in-force non proft business includes £274m of IFRS operational cash generation and a £98m reduction in required capital.
	3. The capital movement of £(271)m reflects the capital contribution made to the US to enable the repurchase of Potomac securitites.
	4. UK intra-group distributions reflect a £20m dividend paid from Nationwide Life to Society. Dividends of $55m from the USA were also received.
	5. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.


		Covered business
		UK		UK		UK		Total		Interna-		Non-		Total
		free		required		value of		UK		tional		covered
		surplus		capital		in-force						business
	For the year ended 31 December 2011	£m		£m		£m		£m		£m		£m		£m


	At 1 January
	Value of in-force business (VIF)	-		-		3,886		3,886		1,015		-		4,901
	Shareholder net worth (SNW)	1,395		1,640		-		3,035		748		(954)		2,829


		1,395		1,640		3,886		6,921		1,763		(954)		7,730
	Exchange rate movements	-		-		-		-		(4)		3		(1)


		1,395		1,640		3,886		6,921		1,759		(951)		7,729
	Operating profit/(loss) for the year:
	- New business contribution¹	(258)		167		381		290
	- Expected return on VIF	-		-		298		298
	- Expected transfer from Non profit VIF to SNW²	745		(185)		(560)		-
	- With-profits transfer	51		-		(51)		-
	- Expected return on SNW	58		67		-		125
	Generation of embedded value	596		49		68		713
	- Experience variances	(52)		20		108		76
	- Operating assumption changes	34		3		41		78
	- Development costs	(8)		-		-		(8)
	Variances	(26)		23		149		146


	Operating profit after tax for the year	570		72		217		859		164		89		1,112
	Non-operating profit/(loss) for the year:
	- Investment variances	81		-		(47)		34
	- Economic assumption changes	(65)		45		53		33
	- Effect of UK Budget tax changes	-		-		155		155
	Non-operating profit/(loss) for the year:	16		45		161		222		(48)		(55)		119


	Profit for the year	586		117		378		1,081		116		34		1,231
	Capital movements³	-		-		-		-		(262)		262		-
	Intra-group distributions⁴	(437)		-		-		(437)		(82)		519		-
	Dividends to equity holders of the Company	-		-		-		-		-		(298)		(298)
	Net movements in employee share schemes	-		-		-		-		-		4		4
	Loss attributable to non-controlling interests	-		-		-		-		-		3		3
	Transfer to non-covered business⁵	(19)		-		-		(19)		-		19		-
	Other reserve movements including pension deficit	(64)		-		(17)		(81)		-		20		(61)


	Embedded value	1,461		1,757		4,247		7,465		1,531		(388)		8,608


	Represented by:
	- Non profit					3,808
	- With-profits					439


	Value of in-force business	-		-		4,247		4,247		1,130		-		5,377
	Shareholder net worth	1,461		1,757		-		3,218		401		(388)		3,231


	1. The free surplus reduction of £258m to finance new business includes £94m IFRS new business strain and £167m additional required capital. Other items have a net negative impact of £3m.
	2. The increase in free surplus of £745m from the expected transfer from the in-force non profit business includes £560m of IFRS operational cash generation and a £185m reduction in required capital.
	3. The capital movement of £262m reflects the capital contribution made to LGA to enable the repurchase of Potomac securities of £271m.
	4. UK intra-group distributions reflect a £500m dividend paid from Society to Group and dividends of £20m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of $57m from LGA, €50m from LGN and €2m from LGF were also paid to the group.
	5. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.

	5.17 Analysis of shareholders' equity
								Invest-				Group
								ment				capital
						Risk and		manage-		Inter-		and
						Savings		ment		national		financing		Total
	As at 30 June 2012					£m		£m		£m		£m		£m


	Analysed as:
	IFRS basis shareholders' equity¹					331		439		1,271		3,116		5,157
	Additional retained profit/(loss) on an EEV basis					4,184		-		238		(998)		3,424


	Shareholders' equity on an EEV basis					4,515		439		1,509		2,118		8,581


	Comprising:
	Business reported on an IFRS basis					331		439		38		(1,411)		(603)

	Business reported on an EEV basis:
	Shareholder net worth
	- Free surplus²									72		1,747		1,819
	- Required capital to cover solvency margin									264		1,782		2,046
	Value of in-force
	- Value of in-force business					4,573				1,219				5,792
	- Cost of capital					(389)				(84)				(473)



								Invest-				Group
								ment				capital
						Risk and		manage-		Inter-		and
						Savings		ment		national		financing		Total
	As at 30 June 2011 (Restated)					£m		£m		£m		£m		£m


	Analysed as:
	IFRS basis shareholders' equity¹					282		409		1,261		2,896		4,848
	Additional retained profit/(loss) on an EEV basis					4,076		-		304		(1,081)		3,299


	Shareholders' equity on an EEV basis					4,358		409		1,565		1,815		8,147


	Comprising:
	Business reported on an IFRS basis					282		409		35		(1,521)		(795)

	Business reported on an EEV basis:
	Shareholder net worth
	- Free surplus²									187		1,659		1,846
	- Required capital to cover solvency margin									268		1,677		1,945
	Value of in-force
	- Value of in-force business					4,391				1,158				5,549
	- Cost of capital					(315)				(83)				(398)


	1. Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the Group capital and financing segment.
	2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.

	Further analysis of shareholders' equity is included in Note 5.18.

							Invest-				Group
							ment				capital
					Risk and		manage-		Inter-		and
					Savings		ment		national		financing		Total
As at 31 December 2011 (Restated)					£m		£m		£m		£m		£m


Analysed as:
IFRS basis shareholders' equity¹					309		351		1,263		3,133		5,056
Additional retained profit/(loss) on an EEV basis					4,247		-		307		(1,002)		3,552


Shareholders' equity on an EEV basis					4,556		351		1,570		2,131		8,608


Comprising:
Business reported on an IFRS basis					309		351		39		(1,087)		(388)

Business reported on an EEV basis:
Shareholder net worth
- Free surplus²									148		1,461		1,609
- Required capital to cover solvency margin									253		1,757		2,010
Value of in-force
- Value of in-force business					4,620				1,211				5,831
- Cost of capital					(373)				(81)				(454)


1. Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the Group capital and financing segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.

Further analysis of shareholders' equity is included in Note 5.18.
	5.18 Segmental analysis of shareholders' equity
				Covered		Other				Covered		Other
				business		business				business		business
				EEV		IFRS				EEV		IFRS
				basis		basis		Total		basis		basis		Total
				30.06.12		30.06.12		30.06.12		30.06.11		30.06.11		30.06.11
				£m		£m		£m		£m		£m		£m


	Risk
	- Risk reported on an EEV basis			2,947		-		2,947		2,743		-		2,743
	- General insurance			-		156		156		-		133		133
	- Other			-		12		12		-		5		5


	Total Risk			2,947		168		3,115		2,743		138		2,881



	Savings
	- Savings reported on an EEV basis			1,237		-		1,237		1,333		-		1,333
	- Savings investments			-		137		137		-		126		126
	- Other			-		26		26		-		18		18


	Total Savings			1,237		163		1,400		1,333		144		1,477



	Investment management			-		439		439		-		409		409



	International
	- USA (LGA)			1,024		-		1,024		940		-		940
	- Netherlands (LGN)			248		-		248		364		-		364
	- France (LGF)			199		-		199		226		-		226
	- Emerging markets			-		38		38		-		35		35


	Total International			1,471		38		1,509		1,530		35		1,565



	Group capital and financing			3,529		(1,411)		2,118		3,336		(1,521)		1,815


				9,184		(603)		8,581		8,942		(795)		8,147



									Covered		Other
									business		business
									EEV		IFRS
									basis		basis
									At		At		Total
									31.12.11		31.12.11		31.12.11
									£m		£m		£m


Risk
- Risk reported on an EEV basis									2,995		-		2,995
- General insurance									-		148		148
- Other									-		6		6


Total Risk									2,995		154		3,149



Savings
- Savings reported on an EEV basis									1,252		-		1,252
- Savings investments									-		136		136
- Other									-		19		19


Total Savings									1,252		155		1,407



Investment management									-		351		351



International
- USA (LGA)									1,062		-		1,062
- Netherlands (LGN)									271		-		271
- France (LGF)									198		-		198
- Emerging markets									-		39		39


Total International									1,531		39		1,570



Group capital and financing									3,218		(1,087)		2,131


									8,996		(388)		8,608

5.19 Reconciliation of shareholder net worth
	UK		UK		UK
	covered		covered		covered
	business	Total	business	Total	business	Total
	30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
				Restated		Restated
	£m	£m	£m	£m	£m	£m


SNW of long term operations (IFRS basis)	4,548	5,760	4,416	5,643	4,209	5,444
Other liabilities (IFRS basis)	-	(603)	-	(795)	-	(388)


Shareholders' equity on the IFRS basis	4,548	5,157	4,416	4,848	4,209	5,056
Purchased interest in long term business	(69)	(70)	(80)	(82)	(76)	(77)
Deferred acquisition costs/deferred income liabilities	(205)	(1,028)	(253)	(1,019)	(252)	(1,071)
Contingent loan¹	-	-	(212)	(212)	(210)	(210)
Deferred tax²	(200)	119	(227)	57	(235)	87
Other³	(545)	(916)	(308)	(596)	(218)	(554)


Shareholder net worth on the EEV basis	3,529	3,262	3,336	2,996	3,218	3,231


1. During H1 12, the contingent loan was settled between Society and LGPL. On an EEV basis, the contingent loan was modelled within the VIF. On an IFRS basis, the contingent loan asset was included within the Group capital and financing net assets. 2. Deferred tax represents all tax which is expected to be paid under current legislation. 3. Other in the UK covered business relates primarily to the different treatment of annuities and non profit pension results under EEV compared with IFRS. Other total business also includes the different treatment of the LGA Triple X securitisation on an EEV and IFRS basis.

5.20 Assumptions

UK assumptions

The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. Indicative yields on the portfolio, excluding annuities within Legal & General Pensions Limited (LGPL), but after allowance for long term default risk, are shown below.

For LGPL annuities, separate returns are calculated for new and existing business. Indicative combined yields, after allowance for long term default risk and the following additional assumptions, are also shown below. These additional assumptions are:

i. Where cash balances are held at the reporting date in excess of, or below strategic investment guidelines, then it is assumed that these cash balances are immediately invested or disinvested at current yields.

ii. Where interest rate swaps are used to reduce risk, it is assumed that these swaps will be sold before expiry and the proceeds reinvested in corporate bonds with a redemption yield 0.70% p.a. (0.70% p.a. at 30 June 2011; 0.70% p.a. at 31 December 2011) greater than the swap rate at that time (i.e. the long term credit rate).

iii. Where reinvestment or disinvestment is necessary to rebalance the asset portfolio in line with projected outgo, this is also assumed to take place at the long term credit rate above the swap rate at that time.

The returns on fixed and index-linked securities are calculated net of an allowance for default risk which takes account of the credit rating, outstanding term of the securities, and increase in the expectation of credit defaults over the economic cycle. The allowance for corporate securities expressed as a level rate deduction from the expected returns for annuities was 26bps at 30 June 2012 (27bps at 30 June 2011; 26bps at 31 December 2011).

Economic assumptions

	As at	As at	As at	As at
	30.06.12	30.06.11	31.12.11	31.12.10
	% p.a.	% p.a.	% p.a.	% p.a.

Equity risk premium	3.3	3.3	3.3	3.5
Property risk premium	2.0	2.0	2.0	2.0

Investment return (excluding annuities in LGPL)
- Gilts:
- Fixed interest	1.6 - 2.3	3.3 - 4.0	1.8 - 2.5	3.4 - 4.0
- RPI linked	2.5	4.1	2.6	4.1
- Non gilts:
- Fixed interest	3.0 - 4.1	3.6 - 5.1	3.0 - 4.6	3.6 - 5.0
- Equities	5.6	7.3	5.8	7.5
- Property	4.3	6.0	4.5	6.0

Long-term rate of return on non profit annuities in LGPL	4.8	5.6	5.0	5.5

Risk free rate¹	2.3	4.0	2.5	4.0
Risk margin	3.8	3.3	3.7	3.3
Risk discount rate (net of tax)	6.1	7.3	6.2	7.3

Inflation
- Expenses/earnings	3.3	4.2	3.5	4.1
- Indexation	2.8	3.7	3.0	3.6

1. The risk free rate is the gross redemption yield on the 15 year gilt index.

UK covered business

i. Assets are valued at market value.

ii. Future bonus rates have been set at levels which would fully utilise the assets supporting the policyholders' portion of the with-profits business. The proportion of profits derived from with-profits business allocated to shareholders has been assumed to be 10% throughout.

iii. The value of in-force business reflects the cost, including administration expenses, of providing for benefit enhancement or compensation in relation to certain products.

iv. Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding the development costs referred to below). These are normally reviewed annually.

An allowance is made for future improvements in annuitant mortality based on experience and externally published data. Male annuitant mortality is assumed to improve in accordance with 100% of CMI2009 Working Paper 41, with a Long Term Rate of improvement of 1.5% for future experience, and 2.0% for statutory reserving. Female annuitant mortality is assumed to improve in accordance with 100% of CMI2009, with a Long Term Rate of improvement of 1.0% for future experience and 1.5% for statutory reserving. In each case, the annual improvement is assumed to reduce linearly after age 85 to zero at age 120.

On this basis, the best estimate of the expectation of life for a new 65 year old Male CPA annuitant is 24.2 years (30 June 2011: 24.4 years; 31 December 2011: 24.2 years). The expectation of life on the regulatory reserving basis is 25.9 years (30 June 2011: 26 years; 31 December 2011: 25.8 years).

v. Development costs relate to investment in strategic systems and development capability that are charged to the covered business. Projects charged to the non-covered business are included within Investment projects in Group capital and financing.

International

vi. Key assumptions:

	As at	As at	As at	As at
	30.06.12	30.06.11	31.12.11	31.12.10
	% p.a.	% p.a.	% p.a.	% p.a.
LGA
Reinvestment rate	4.0	5.5	4.2	5.5
Risk free rate¹	1.7	3.1	1.9	3.3
Risk margin	3.8	3.3	3.7	3.3
Risk discount rate (net of tax)	5.5	6.4	5.6	6.6

Europe
Risk free rate¹	2.2	3.3	2.6	3.2
Risk margin	3.8	3.3	3.7	3.3
Risk discount rate (net of tax)	6.0	6.6	6.3	6.5

1. The LGA risk free rate is the 10 year US Treasury effective yield. The Europe risk free rate is the 10 year ECB AAA-rated euro area central government bond par yield.

vii. Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses.

Tax

viii. The profits on the covered business, except for the profits on the Society shareholder capital held outside the long term fund, are calculated on an after tax basis and are grossed up by the notional attributed tax rate for presentation in the income statement. For the UK, the after tax basis assumes the annualised current tax rate of 24.5% and the subsequent planned future reductions in corporation tax to 24% from 1 April 2012, 23% from 1 April 2013, and 22% from 1 April 2014. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 22% (30 June 2011: 23%; 31 December 2011: 23%) taking into account the expected further rate reductions to 22% by 1 April 2014. The profits on the Society shareholder capital held outside the long term fund are calculated before tax and therefore tax is calculated on an actual basis.

Stochastic calculations

i. The time value of options and guarantees is calculated using economic and non-economic assumptions consistent with those used for the deterministic embedded value calculations.

This section describes the models used to generate future investment simulations, and gives some sample statistics for the simulations used. A single model has been used for UK and international business, with different economic assumptions for each territory.

Government nominal interest rates are generated using a LIBOR Market Model projecting full yield curves at annual intervals. The model provides a good fit to the initial yield curve.

The total annual returns on equities and property are calculated as the return on 1 year bonds plus an excess return. The excess return is assumed to have a lognormal distribution. Corporate bonds are modelled separately by credit rating using stochastic credit spreads over the risk free rates, transition matrices and default recovery rates. The real yield curve model assumes that the real short rate follows a mean-reverting process subject to two normally distributed random shocks.

Asset classes

The significant asset classes are:

- UK with-profits business - equities, property and fixed rate bonds of various durations;

- UK annuity business - fixed rate and index-linked bonds of various durations; and

- International business - fixed rate bonds of various durations.

Summary statistics:

The following table sets out means and standard deviations (StDev) of future returns as at 30 June 2012 for the most significant asset classes. Correlations between asset classes have been set based on an internal assessment of historical data.

	10-year return		20-year return
	Mean¹	StDev²	Mean¹	StDev²
UK Business (Sterling)
Government bonds	1.9%	3.3%	3.3%	3.6%
Corporate bonds	3.9%	3.8%	4.9%	4.1%
Property (excess returns)	2.0%	15.1%	2.0%	15.0%
Equities (excess returns)	3.4%	20.7%	3.4%	20.5%

European Business (Euro)
Long Government bonds³	2.4%	3.6%	3.0%	3.6%
Short Government bonds⁴	2.4%	2.9%	3.0%	5.7%

US Business (US Dollar)
Long Government bonds³	1.8%	4.0%	2.8%	4.3%

1. For asset classes other than for equities and property, mean returns are calculated as the mean return in excess of 1 year government bonds plus the mean return on 1 year government bonds. Mean excess returns for the equities and property are calculated as the mean return in excess of 1 year government bonds. Each mean return is derived by calculating the accumulated value of a unit asset invested to time n years for each simulation, averaging the resultant values across all simulations, then calculating the equivalent annual return required to give this average accumulation (by taking the nth root of the average accumulation and deducting 1).

2. Standard deviations are calculated by accumulating a unit investment for n years in each simulation, taking the natural logarithm of the result, calculating the variance of this statistic, dividing by n and taking the square root. Equities and property values use excess returns. The results are comparable to implied volatilities quoted in investment markets.

3. Long term bonds are defined to be 10 year par-coupon bonds.

4. Short term bonds are defined to be 1 year duration bonds.

Risk discount rate:

The risk discount rate is scenario dependent within the stochastic projection. It is calculated by applying the deterministic risk margin to the risk free rate in each stochastic projection.

5.21 Methodology

Basis of preparation

The supplementary financial statements have been prepared in accordance with the European Embedded Value (EEV) Principles issued in May 2004 by the European Insurance CFO Forum.

The supplementary financial statements have been reviewed under ISRE 2410 by PricewaterhouseCoopers LLP and prepared with assistance from our consulting actuaries; Towers Watson in the UK and Milliman in the USA.

Change to accounting policy - US deferred acquisition costs

During 2012 the Group has changed its accounting policy for deferred acquisition costs in the US, details of which can be found within Note 2.08. There is no impact on European embedded value reported profit in either the 2011 interim and annual income statements resulting from this change. The impact on the consolidated balance sheet in each of these periods is outlined below:

	As reported 30.06.11	Change in US DAC treatment 30.06.11	Restated 30.06.11	As reported 31.12.11	Change in US DAC treatment 31.12.11	Restated 31.12.11
Consolidated Balance Sheet	£m	£m	£m	£m	£m	£m


Assets
Long term in-force business asset	3,305	139	3,444	3,556	144	3,700
Other assets (Deferred acquisition costs)	7,540	(212)	7,328	6,900	(220)	6,680
Liabilities
Other liabilities and provisions (Deferred tax)	13,681	(73)	13,608	16,030	(76)	15,954
Total equity	8,196	-	8,196	8,674	-	8,674

Covered business

The Group uses EEV methodology to value individual and group life assurance, pensions and annuity business written in the UK, Continental Europe and the US. The UK covered business also includes non-insured self invested personal pension (SIPP) business.

The managed pension funds business has been excluded from covered business and is reported on an IFRS basis.

All other businesses are accounted for on the IFRS basis adopted in the primary financial statements.

There is no distinction made between insurance and investment contracts in our covered business as there is under IFRS.

Description of methodology

The objective of EEV is to provide shareholders with realistic information on the financial position and current performance of the Group.

The methodology requires assets of an insurance company, as reported in the primary financial statements, to be attributed between those supporting the covered business and the remainder. The method accounts for assets in the covered business on an EEV basis and the remainder of the Group's assets on the IFRS basis adopted in the primary financial statements.

The EEV methodology recognises profit from the covered business as the total of:

i. cash transfers during the relevant period from the covered business to the remainder of the Group's assets; and

ii. the movement in the present value of future distributable profits to shareholders arising from the covered business over the relevant reporting period.

Embedded value

Shareholders' equity on the EEV basis comprises the embedded value of the covered business plus the shareholders' equity of other businesses, less the value included for purchased interests in long term business.

The embedded value is the sum of the shareholder net worth (SNW) and the value of the in-force business (VIF). SNW is defined as those amounts, within covered business (both within the long term fund and held outside the long term fund but used to support long term business), which are regarded either as required capital or which represent free surplus.

The VIF is the present value of future shareholder profits arising from the covered business, projected using best estimate assumptions, less an appropriate deduction for the cost of holding the required level of capital and the time value of financial options and guarantees (FOGs).

Service companies

All services relating to the UK covered business are charged on a cost recovery basis, with the exception of investment management services provided to Legal & General Pensions Limited (LGPL) and to Legal & General Assurance Society Limited (Society). Profits arising on the provision of these services are valued on a look through basis.

As the EEV methodology incorporates the future capitalised cost of these internal investment management services, the equivalent IFRS profits have been removed from the Investment management segment and are instead included in the results of the Risk and Savings segments on an EEV basis.

The capitalised value of future profits emerging from internal investment management services are therefore included in the embedded value and new business contribution calculations for the Risk and Savings segments. However, the historical profits which have emerged continue to be reported in the shareholders' equity of the Investment management segment on an IFRS basis. Since the look through into service companies includes only future profits and losses, current intra-group profits or losses must be eliminated from the closing embedded value and in order to reconcile the profits arising in the financial period within each segment with the net assets on the opening and closing balance sheet, a transfer of IFRS profits for the period from the UK SNW is deemed to occur.

New business

New business premiums reflect income arising from the sale of new contracts during the reporting period and any changes to existing contracts, which were not anticipated at the outset of the contract.

In-force business comprises previously written single premium, regular premium and recurrent single premium contracts. Department of Work and Pensions rebates have not been treated as recurring and are included in single premium new business when received. Longevity insurance fixed leg payments have been treated as regular premiums.

New business contribution arising from the new business premiums written during the reporting period has been calculated on the same economic and operating assumptions used in the embedded value at the end of the financial period. This has then been rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.

The present value of future new business premiums (PVNBP) has been calculated and expressed at the point of sale. The PVNBP is equivalent to the total single premiums plus the discounted value of regular premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the embedded value at the end of the financial period, with the exception of longevity insurance. Longevity insurance product comprises the exchange of a stream of fixed leg payments for a stream of floating payments, with the value of the income stream being the difference between the two legs. For longevity insurance, PVNBP is not an appropriate measure of expected income stream and as such, the PVNBP has not been applied for this product.

The new business margin is defined as new business contribution at the end of the reporting period divided by the PVNBP, with the exception of longevity insurance. The new business margin has not been applied to longevity insurance for the reason above. The premium volumes and projection assumptions used to calculate the PVNBP are the same as those used to calculate new business contribution.

Intra-group reinsurance arrangements are in place between the US and UK businesses, and it is expected that these arrangements will be periodically extended to cover recent new business. US new business premiums and contribution reflect the groupwide expected impact of US directly-written business.

Projection assumptions

Cash flow projections are determined using best estimate assumptions for each component of cash flow and for each policy group. Future economic and investment return assumptions are based on conditions at the end of the financial period. Future investment returns are projected by one of two methods. The first method is based on an assumed investment return attributed to assets at their market value. The second, which is used by LGA, where the investments of that subsidiary are substantially all fixed interest, projects the cash flows from the current portfolio of assets and assumes an investment return on reinvestment of surplus cash flows. The assumed discount and inflation rates are consistent with the investment return assumptions.

Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

All costs relating to the covered business, whether incurred in the covered business or elsewhere in the Group, are allocated to that business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

Tax

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with known future changes. The impact of the changes to the taxation regime for life assurance companies has been estimated as immaterial and therefore no amendment is considered necessary.

Allowance for risk

Aggregate risks within the covered business are allowed for through the following principal mechanisms:

i. setting required capital levels with reference to both the Group's internal risk based capital models, and an assessment of the strength of regulatory reserves in the covered business;

ii. allowing explicitly for the time value of financial options and guarantees within the Group's products; and

iii. setting risk discount rates by deriving a Group level risk margin to be applied consistently to local risk free rates.

Required capital and free surplus

Regulatory capital for the Risk and Savings businesses is provided by assets backing the with-profits business or by the SNW. The SNW comprises all shareholders' capital within Society, including those funds retained within the long term fund and the excess assets in LGPL (collectively Society shareholder capital).

Society shareholder capital is either required to cover EU solvency margin or is free surplus as its distribution to shareholders is not restricted.

For UK with-profits business, the required capital is covered by the surplus within the with-profits part of the fund and no effect is attributed to shareholders except for the burn-through cost, which is described later. This treatment is consistent with the Principles and Practices of Financial Management for this part of the fund.

For UK non profit business, the required capital will be maintained at no less than the level of the EU minimum solvency requirement. This level, together with the margins for adverse deviation in the regulatory reserves, is, in aggregate, in excess of internal capital targets assessed in conjunction with the Individual Capital Assessment (ICA) and the with-profits support account.

The initial strains relating to new non profit business, together with the related EU solvency margin, are supported by releases from existing non profit business and the Society shareholder capital. As a consequence, the writing of new business defers the release of capital to free surplus. The cost of holding required capital is defined as the difference between the value of the required capital and the present value of future releases of that capital. For new business, the cost of capital is taken as the difference in the value of that capital assuming it was available for release immediately and the present value of the future releases of that capital. As the investment return, net of tax, on that capital is less than the risk discount rate, there is a resulting cost of capital which is reflected in the value of new business.

For LGA, the Company Action Level (CAL) of capital has been treated as required capital for modelling purposes. The CAL is the regulatory capital level at which the company would have to take prescribed action, such as submission of plans to the State insurance regulator, but would be able to continue operating on the existing basis. The CAL is currently twice the level of capital at which the regulator is permitted to take control of the business.

For LGN, required capital has been set at 100% of EU minimum solvency margin for all products without FOGs. For those products with FOGs, capital of between 100% and 275% of the EU minimum solvency margin has been used. The level of capital has been determined using risk based capital techniques.

For LGF, 100% of EU minimum solvency margin has been used for EV modelling purposes for all products both with and without FOGs. The level of capital has been determined using risk based capital techniques.

The contribution from new business for our International businesses reflects an appropriate allowance for the cost of holding the required capital.

Financial options and guarantees

Under the EEV Principles an allowance for time value of FOGs is required where a financial option exists which is exercisable at the discretion of the policyholder. These types of option principally arise within the with-profits part of the fund and their time value is recognised within the with-profits burn-through cost described below. Additional financial options for non profit business exist only for a small amount of deferred annuity business where guaranteed early retirement and cash commutation terms apply when the policyholders choose their actual retirement date.

Further financial guarantees exist for non profit business, in relation to index-linked annuities where capped or collared restrictions apply. Due to the nature of these restrictions and the manner in which they vary depending on the prevailing inflation conditions, they are also treated as FOGs and a time value cost recognised accordingly.

The time value of FOGs has been calculated stochastically using a large number of real world economic scenarios derived from assumptions consistent with the deterministic EEV assumptions and allowing for appropriate management actions where applicable. The management action primarily relates to the setting of bonus rates. Future regular and terminal bonuses on participating business within the projections are set in a manner consistent with expected future returns available on assets deemed to back the policies within the stochastic scenarios.

In recognising the residual value of any projected surplus assets within the with-profits part of the fund in the deterministic projection, it is assumed that terminal bonuses are increased to exhaust all of the assets in the part of the fund over the future lifetime of the in-force with-profits policies. However, under stochastic modelling, there may be some extreme economic scenarios when the total projected assets within the with-profits part of the fund are insufficient to pay all projected policyholder claims and associated costs. The average additional shareholder cost arising from this shortfall has been included in the time value cost of financial options and guarantees and is referred to as the with-profits burn-through cost.

Economic scenarios have been used to assess the time value of the financial guarantees for non profit business by using the inflation rate generated in each scenario. The inflation rate used to project index-linked annuities will be constrained in certain real world scenarios, for example, where negative inflation occurs but the annuity payments do not reduce below pre-existing levels. The time value cost of FOGs allows for the projected average cost of these constrained payments for the index-linked annuities. It also allows for the small additional cost of the guaranteed early retirement and cash commutation terms for the minority of deferred annuity business where such guarantees have been written.

LGA FOGs relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is based on the accumulated value of the contract including accrued interest. The crediting rates are discretionary but related to the accounting income for the amortising bond portfolio. The majority of the guaranteed minimum crediting rates are between 3% and 4%. The assets backing these contracts are invested in US Dollar denominated fixed interest securities.

LGN separately provides for two types of guarantees: interest rate guarantees and maturity guarantees. Certain contracts provide an interest rate guarantee where there is a minimum crediting rate based on the higher of 1-year Euribor and the policy guarantee rate. This guarantee applies on a monthly basis. Certain unit linked contracts provide a guaranteed minimum value at maturity where the maturity amount is the higher of the fund value and a guarantee amount. The fund values for both these contracts are invested in Euro denominated fixed interest securities.

For LGF, FOGs which have been separately provided for relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is the accumulated value of the contract including accrued bonuses. The bonuses are based on the accounting income for the amortising bond portfolios plus income and releases from realised gains on any equity type investments. Policy liabilities equal guaranteed surrender values. Local statutory accounting rules require the establishment of a specific liability when the accounting income for a company is less than 125% of the guaranteed minimum credited returns, although this has never been required. In general, the guaranteed annual bonus rates are between 0% and 4.5%.

Risk free rate

The risk free rate is set to reflect both the pattern of the emerging profits under EEV and the relevant duration of the liabilities where backing assets reflect this assumption (e.g. equity returns). For the UK, it is set by reference to the gross redemption yield on the 15 year gilt index. For LGA, the risk free rate is the 10 year US Treasury effective yield, while the 10 year ECB AAA-rated Euro area central government bond par yield is used for LGN and LGF.

Risk discount rate

The risk discount rate (RDR) is a combination of the risk free rate and a risk margin, which reflects the residual risks inherent in the Group's covered businesses, after taking account of prudential margins in the statutory provisions, the required capital and the specific allowance for FOGs. The Group's 2011 Annual Report and Accounts provides sensitivities for a plus or minus one percent change in the risk discount rate as at 31 December 2011.

The risk margin has been determined based on an assessment of the Group's weighted average cost of capital (WACC). This assessment incorporates a beta for the Group, which measures the correlation of movements in the Group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.

The WACC is derived from the Group's cost of equity and debt, and the proportion of equity to debt in the Group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the Company's beta. Forward-looking or adjusted betas make allowance for the observed tendency for betas to revert to 1 and therefore a weighted average of the historic beta and 1 tends to be a better estimate of the Company's beta for the future period. We have computed the WACC using an arithmetical average of forward-looking betas against the FTSE 100 index.

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a rate of 22.5%.

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital, the inherent strength of the Group's regulatory reserves and the explicit deduction for the cost of options and guarantees, is appropriate to reflect the risks within the covered business.

Analysis of profit

Operating profit is identified at a level which reflects an assumed longer term level of investment return.

The contribution to operating profit in a period is attributed to four sources:

i. new business;

ii. the management of in-force business;

iii. development costs; and

iv. return on shareholder net worth.

Further profit contributions arise from actual investment return differing from the assumed long term investment return (investment return variances), and from the effect of economic assumption changes.

The contribution from new business represents the value recognised at the end of each period from new business written in that period, after allowing for the actual cost of acquiring the business and of establishing the required technical provisions and reserves and after making allowance for the cost of capital. New business contributions are calculated using closing assumptions.

The contribution from in-force business is calculated using opening assumptions and comprises:

i. expected return - the discount earned from the value of business in-force at the start of the year;

ii. experience variances - the variance in the actual experience over the reporting period from that assumed in the value of business in-force as at the start of the year; and

iii. operating assumption changes - the effects of changes in future assumptions, other than changes in economic assumptions from those used in valuing the business at the start of the year. These changes are made prospectively from the end of the year.

Development costs relate to investment in strategic systems and development capability.

The contribution from shareholder net worth comprises the increase in embedded value based on assumptions at the start of the year in respect of the expected investment return on the Society shareholder capital.

Further profit contributions arise from investment return variances and the effect of economic assumption changes.

Investment return variances represent the effect of actual investment performance and changes to investment policy on SNW and VIF business from that assumed at the beginning of the period.

Economic assumption changes comprise the effect of changes in economic variables on SNW and VIF business from that assumed at the beginning of the period, which are beyond the control of management, including associated changes to valuation bases to the extent that they are reflected in revised assumptions.

Independent review report to Legal & General Group Plc - EEV

Introduction

We have been engaged by the company to review the supplementary interim financial information in the Half-year report for the six months ended 30 June 2012, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet as at 30 June 2012 and related notes prepared on the European Embedded Value ("EEV") basis on pages 87 to 118. We have read the other information contained in the Half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the supplementary interim financial information.

Directors' responsibilities

The Half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the supplementary interim financial information in accordance with the EEV basis set out in note 5.21.

Our responsibility

Our responsibility is to express to the company a conclusion on the supplementary interim financial information in the Half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of supplementary financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the supplementary interim financial information in the Half-year report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the EEV basis set out in note 5.21.

PricewaterhouseCoopers LLP

Chartered Accountants

London

6 August 2012

Notes:

(a) The supplementary interim financial information is published on the website of Legal & General Group Plc, legalandgeneralgroup.com. The maintenance and integrity of the Legal & General Group Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Half-year report since it was initially presented on the web site.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

New Business 6.01 Investment management new business
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Managed pension funds¹
Pooled funds	9,017	12,791	22,094
Segregated funds	2,853	1,893	4,676


Total managed pension funds	11,870	14,684	26,770
Other funds²	3,207	3,573	6,711


Total new funds	15,077	18,257	33,481


Attributable to:
Legal & General Investment Management	14,966	17,852	32,844
Legal & General Retail Investments	111	405	637


LGIM net flows	3,963	3,004	2,983


1. New monies from pension fund clients of Legal & General Assurance (Pension Management) exclude £1.6bn held through the year on a temporary basis, generally as part of portfolio reconstructions.
2. Includes segregated property, property partnerships, private equity partnerships and institutional clients funds managed by Legal & General Investment Management and institutional investments in unit trust funds managed by Legal & General Retail Investments.

6.02 Investment management new business quarterly progression

	3	3	3	3	3	3
	months to	months to	months to	months to	months to	months to
	30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
	£m	£m	£m	£m	£m	£m


Managed pension funds¹
Pooled funds	4,596	4,421	4,084	5,219	6,712	6,079
Segregated funds	1,193	1,660	973	1,810	255	1,638


Total managed pension funds	5,789	6,081	5,057	7,029	6,967	7,717
Other funds	1,708	1,499	2,807	331	920	2,653


Total new funds	7,497	7,580	7,864	7,360	7,887	10,370


Attributable to:
Legal & General Investment
Management	7,449	7,517	7,741	7,251	7,764	10,088
Legal & General Retail Investments	48	63	123	109	123	282


LGIM net flows	1,376	2,587	(607)	586	1,005	1,999


1. New monies from pension fund clients of Legal & General Assurance (Pension Management) exclude £1.6bn held through the year on a temporary basis, generally as part of portfolio reconstructions.

6.03 Legal & General Investment Management new business by investment approach

		30.06.12		30.06.11		31.12.11
		%		%		%


Indexed equities		36		43		44
Indexed bonds (including index linked funds and cash)		19		26		23
Active bonds (including index linked funds and cash)		23		15		14
Liability driven investments		22		15		18
Property		-		1		1


Total		100		100		100


6.04 Assets under management


	At		At		At
	30.06.12		30.06.11		31.12.11
	£m		£m		£m


Legal & General Investment Management assets under management	381,297		362,438		371,211
Other assets under management¹	7,115		7,900		7,362


Worldwide assets under management	388,412		370,338		378,573


1. Other assets under management comprises retail investments and additional funds managed overseas.



Legal & General Investment Management's assets under management are analysed below:

Represented by
Index tracking funds:
- UK equities	62,141		69,647		63,228
- Overseas equities	88,367		87,271		82,200
- Fixed interest	38,541		38,505		37,515
- Index linked	37,275		35,855		40,554
- Cash/deposits	691		1,501		671


Total index tracking funds	227,015		232,779		224,168
Actively managed funds	93,067		84,743		88,684
Liability driven investments	61,215		44,916		58,359


	381,297		362,438		371,211



By investment approach
Index equities	150,508		156,918		145,428
Index bonds (including index linked funds and cash)	76,507		75,861		78,740
Active bonds (including index linked funds and cash)	77,219		67,233		72,355
Liability driven investments	61,215		44,916		58,359
Active equities	6,969		8,826		7,229
Property	8,536		8,307		8,757
Private equity	343		377		343


	381,297		362,438		371,211



By source of business
Institutional assets under management¹:
- Managed pension funds pooled	208,204		208,895		205,174
- Liability driven investments	61,233		44,904		58,367
- Other	20,808		18,706		16,920
- Managed pension funds segregated	5,081		4,103		5,136


Total institutional assets under management	295,326		276,608		285,597
UK businesses (life and general insurance funds)	71,089		69,735		70,630
UK businesses (unit trusts - excluding life fund investment)	14,882		16,095		14,984


	381,297		362,438		371,211


1. Excludes institutional investments in unit trust funds.
6.05 Savings net flows

		30.06.12		30.06.11		31.12.11
		£m		£m		£m


Investments		555		1,703		2,490
Insured		154		220		424
With-profits		(829)		(787)		(1,736)


Total Savings net flows		(120)		1,136		1,178

6.06 Savings net flows quarterly progression

		3	3	3	3	3	3
		months	months	months	months	months	months
		to	to	to	to	to	to
		30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
		£m	£m	£m	£m	£m	£m


Investments		571	(16)	165	622	804	899
Insured		56	98	200	4	107	113
With-profits		(358)	(471)	(381)	(568)	(387)	(400)


Total Savings net flows		269	(389)	(16)	58	524	612



6.07 Worldwide new business

	Annual	Single		Annual	Single
	premiums	premiums	APE	premiums	premiums	APE	APE
	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11	31.12.11
	£m	£m	£m	£m	£m	£m	£m


Protection
- Individual	72	-	72	65	-	65	131
- Group	37	-	37	29	-	29	46


	109	-	109	94	-	94	177
Annuities
- Individual (non profit)	-	514	51	-	505	51	103
- Individual (with-profits)	-	8	1	-	11	1	2
- Bulk purchase	-	67	7	-	240	24	146


	-	589	59	-	756	76	251


Longevity insurance¹	-	-	-	-	-	-	70


Total Risk	109	589	168	94	756	170	498



Investments²	38	2,756	314	30	3,415	371	688
Insured business	139	1,034	242	121	991	220	445
With-profits	35	227	58	39	317	71	122


Total Savings	212	4,017	614	190	4,723	662	1,255




- USA (LGA)	42	-	42	32	-	32	69
- Netherlands (LGN)	6	45	11	2	58	8	15
- France (LGF)	26	123	38	24	125	36	47
- India (26% share)	4	17	6	3	13	4	7
- Egypt (55% share)	8	-	8	3	-	3	9
- Gulf (50% share)	2	2	2	1	-	1	2


	88	187	107	65	196	84	149
France (LGF) retail investment business	-	3	-	-	18	2	5


Total International	88	190	107	65	214	86	154




Total worldwide new business	409	4,796	889	349	5,693	918	1,907


1. As announced on 9 January 2012, the Group entered into its first longevity insurance transaction during December 2011.
2. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
6.08 Worldwide new business APE quarterly progression

		3	3	3	3	3	3
		months	months	months	months	months	months
		to	to	to	to	to	to
		30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
		£m	£m	£m	£m	£m	£m


Protection
- Individual		36	36	33	33	32	33
- Group		25	12	7	10	14	15


		61	48	40	43	46	48
Annuities
- Individual (non profit)		25	26	21	31	30	21
- Individual (with-profits)		1	-	-	1	-	1
- Bulk purchase		3	4	119	3	22	2


		29	30	140	35	52	24


Longevity insurance		-	-	70	-	-	-


Total Risk		90	78	250	78	98	72



Investments¹		174	140	133	184	195	176
Insured business		110	132	128	97	112	108
With-profits		30	28	26	25	35	36


Total Savings		314	300	287	306	342	320



- USA (LGA)		22	20	19	18	16	16
- Netherlands (LGN)		5	6	4	3	3	5
- France (LGF)		18	20	5	6	21	15
- India (26% share)		1	5	1	2	1	3
- Egypt (55% share)		4	4	3	3	2	1
- Gulf (50% share)		1	1	-	1	1	-


		51	56	32	33	44	40
France (LGF) retail investment business		-	-	2	1	1	1


Total International		51	56	34	34	45	41




Total worldwide new business		455	434	571	418	485	433


1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
6.09 Worldwide new business annual premium quarterly progression

		3	3	3	3	3	3
		months	months	months	months	months	months
		to	to	to	to	to	to
		30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
		£m	£m	£m	£m	£m	£m


Protection
- Individual		36	36	33	33	32	33
- Group		25	12	7	10	14	15


		61	48	40	43	46	48
Annuities
- Individual (non profit)		-	-	-	-	-	-
- Individual (with-profits)		-	-	-	-	-	-
- Bulk purchase		-	-	-	-	-	-


		-	-	-	-	-	-


Longevity insurance		-	-	70	-	-	-


Total Risk		61	48	110	43	46	48



Investments¹		25	13	18	20	19	11
Insured business		64	75	72	51	62	59
With-profits		17	18	14	16	17	22


Total Savings		106	106	104	87	98	92



- USA (LGA)		22	20	19	18	16	16
- Netherlands (LGN)		3	3	1	2	1	1
- France (LGF)		11	15	-	-	15	9
- India (26% share)		1	3	1	1	1	2
- Egypt (55% share)		4	4	3	3	2	1
- Gulf (50% share)		1	1	1	-	1	-


		42	46	25	24	36	29
France (LGF) retail investment business		-	-	-	-	-	-


Total International		42	46	25	24	36	29




Total worldwide new business		209	200	239	154	180	169


1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
6.10 Worldwide new business single premium quarterly progression

		3	3	3	3	3	3
		months	months	months	months	months	months
		to	to	to	to	to	to
		30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
		£m	£m	£m	£m	£m	£m


Protection
- Individual		-	-	-	-	-	-
- Group		-	-	-	-	-	-


		-	-	-	-	-	-
Annuities
- Individual (non profit)		250	264	212	313	293	212
- Individual (with-profits)		4	4	7	6	5	6
- Bulk purchase		31	36	1,190	31	217	23


		285	304	1,409	350	515	241


Longevity insurance		-	-	-	-	-	-


Total Risk		285	304	1,409	350	515	241



Investments¹		1,487	1,269	1,153	1,632	1,761	1,654
Insured business		461	573	568	456	502	489
With-profits		129	98	112	96	177	140


Total Savings		2,077	1,940	1,833	2,184	2,440	2,283



- USA (LGA)		-	-	-	-	-	-
- Netherlands (LGN)		16	29	20	17	19	39
- France (LGF)		71	52	51	56	69	56
- India (26% share)		2	15	5	4	2	11
- Egypt (55% share)		-	-	-	-	-	-
- Gulf (50% share)		1	1	-	5	-	-


		90	97	76	82	90	106
France (LGF) retail investment business		2	1	13	15	9	9


Total International		92	98	89	97	99	115




Total worldwide new business		2,454	2,342	3,331	2,631	3,054	2,639


1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
6.11 International new business in local currency

	Annual	Single		Annual	Single
	premiums	premiums	APE	premiums	premiums	APE	APE
	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11	31.12.11


USA (LGA) ($m)	66	-	66	52	-	52	111

Netherlands (LGN) (€m)	8	54	13	2	67	9	17

France (LGF) (€m):
- Life and pensions	32	150	47	27	143	41	54
- Unit trusts	-	3	-	-	20	2	5

India (Rs m) - Group's 26% interest	353	1,381	491	224	959	320	536

Egypt (Pounds m) - Group's 55% interest	73	1	73	30	-	30	87

Gulf (US$m) - Group's 50% interest	3	7	4	1	-	1	4

6.12 UK APE by channel quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.12	31.03.12	31.12.11	30.09.11	30.06.11	31.03.11
	£m	£m	£m	£m	£m	£m


Retail IFA	146	145	137	173	170	166
Employee benefit consultants	120	131	300	84	120	104
Tied agents	11	8	8	9	13	8
Bancassurance	113	85	86	107	123	100
Direct	11	11	6	11	14	14


Total	401	380	537	384	440	392


6.13 UK APE by channel

			Annual	Single
			premiums	premiums	APE	% of
For the six months ended 30 June 2012			£m	£m	£m	total


Retail IFA			44	2,465	291	37
Employee benefit consultants			196	547	251	33
Tied agents			14	54	19	2
Bancassurance			55	1,434	198	25
Direct			11	107	22	3


Total			320	4,607	781	100




			Annual	Single
			premiums	premiums	APE	% of
For the six months ended 30 June 2011			£m	£m	£m	total


Retail IFA			41	2,955	336	40
Employee benefit consultants			170	538	224	27
Tied agents			15	57	21	3
Bancassurance			44	1,791	223	27
Direct			14	138	28	3


Total			284	5,479	832	100




			Annual	Single
			premiums	premiums	APE	% of
For the year ended 31 December 2011			£m	£m	£m	total


Retail IFA			81	5,649	646	37
Employee benefit consultants			394	2,140	608	35
Tied agents			30	77	38	2
Bancassurance			97	3,195	416	23
Direct			26	194	45	3


Total			628	11,255	1,753	100

This information is provided by RNS

The company news service from the London Stock Exchange

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