L&G 2002 Interim Results Pt 2

Legal & General Group PLC 25 July 2002 Part 2 Legal & General Group Plc P1 Consolidated Profit and Loss Account - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- Notes Full year 30.6.02 30.6.01 2001 Restated Restated Â£m Â£m Â£m Profit on continuing operations Life and pensions 1 313 319 633 Institutional fund management 40 31 76 General insurance 4 22 16 37 Other operational income 5 (13) 1 1 -------- -------- -------- 362 367 747 Profit on discontinuing operations Other operational income - Banking 3 2 4 -------- -------- -------- Operating profit 365 369 751 Variation from longer term investment return 7 (492) (217) (688) Change in equalisation provision (3) (3) (6) Effect of economic assumption changes 8 (1) 36 (3) Profit on sale of Fairmount Group 9 - 8 8 -------- -------- -------- (Loss)/profit on ordinary activities before tax (131) 193 62 Tax on (loss)/profit on ordinary activities 10 (6) (88) (98) -------- -------- -------- (Loss)/profit for the financial (137) 105 (36) period Dividends (86) (83) (261) -------- -------- -------- Retained (loss)/profit (223) 22 (297) ======================================================================================================================== Earnings per share p p p Based on operating profit after tax 5.00 5.15 10.73 Based on (loss)/profit for the financial period (2.66) 2.03 (0.70) Diluted earnings per share Based on operating profit after tax 4.86 5.14 10.22 Based on (loss)/profit for the financial period (2.66) 2.03 (0.70) Dividend per share 1.67 1.63 5.09 ======================================================================================================================== These financial statements were approved by the Board on 24 July 2002 and have been prepared for long term business using the Achieved Profits (AP) basis. The Modified Statutory Solvency (MSS) results are included in Part 3. The results for the year ended 2001 and the six months to 30 June 2001 have been restated following the adoption of Financial Reporting Standard 19 (FRS19) Deferred tax (see note 10). Other than in respect of the FRS 19 restatement, the results for the six months to 30 June 2002 and 30 June 2001 have been prepared on a basis which is consistent with the financial statements for the year ended 31 December 2001, and constitute non statutory accounts within the meaning of Section 240 of the Companies Act 1985. The results are unaudited, but have been subject to a review by the auditors. The results for year ended 2001 have been taken from the financial statements for the year ended 2001 and restated for the adoption of FRS 19 as referred to above. The 2001 financial statements have been filed with the Registrar of Companies and include an auditors' report which is unqualified and does not contain a statement under either Sections 237(2) or 237(3) of the Companies Act 1985. ======================================================================================================================== Legal & General Group Plc P2 Consolidated Balance Sheet - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- Notes At At At 30.6.02 30.6.01 31.12.01 Restated Restated Assets Â£m Â£m Â£m Investments 11 34,234 34,011 34,464 Assets held to cover linked liabilities 72,162 70,692 70,982 Long term in-force business asset 2,190 2,145 2,147 Other assets 3,431 2,953 2,804 -------- -------- -------- 112,017 109,801 110,397 ======== ======== ======== Liabilities Shareholders' funds 13 4,775 5,311 4,994 Fund for future appropriations 1,078 2,497 1,845 Technical provisions '''''''' '''''''' '''''''' - Technical provisions for linked 72,011 70,592 70,848 liabilities - Long term business provisions 29,697 27,551 28,536 - General insurance provisions 327 329 336 '''''''' '''''''' '''''''' 102,035 98,472 99,720 Borrowings 14 1,762 773 1,642 Bank customer deposits 1,130 1,186 1,043 Other creditors 1,237 1,562 1,153 -------- -------- -------- 112,017 109,801 110,397 ======================================================================================================================== Statement of Total Recognised Gains and Losses At At At 30.6.02 30.6.01 31.12.01 Restated Restated Â£m Â£m Â£m (Loss)/profit for the financial (137) 105 (36) period Exchange gains/(losses) 2 (1) (1) -------- -------- -------- Total recognised gains and losses (135) 104 (37) ======================================================================================================================== Legal & General Group Plc P3 New business Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- New Annual Premium Equivalent Full year 30.6.02 30.6.01 2001 Â£m Â£m Â£m Insurance business Life 163 133 294 Pensions 155 133 290 -------- -------- -------- UK 318 266 584 '''''''' '''''''' '''''''' USA 29 26 52 Netherlands 10 10 17 France 8 10 18 '''''''' '''''''' '''''''' 47 46 87 -------- -------- -------- Insurance total 365 312 671 Retail investment business UK 131 59 126 France 2 2 4 -------- -------- -------- Total new business 498 373 801 ======== ======== ======== International insurance new business expressed at 30 June 2002 exchange rates: USA 29 24 50 Netherlands 10 11 18 France 8 11 19 -------- -------- -------- 47 46 87 ======== ======== ======== Annual Premium Equivalent (APE) is calculated for total new business, including unit trusts and ISAs but excluding institutional fund management, and comprises the new annual premiums together with 10% of single premiums. Full year 30.6.02 30.6.01 2001 Institutional fund management Â£m Â£m Â£m Managed pension funds * - Pooled funds 6,325 5,597 10,608 - Segregated funds 477 402 2,571 - Limited partnerships 103 - - -------- -------- -------- 6,905 5,999 13,179 Other funds 312 13 40 -------- -------- -------- 7,217 6,012 13,219 ======== ======== ======== * New monies from pension fund clients of Legal & General Assurance (Pensions Management) Ltd. Additional funds which are held on a temporary basis, generally as part of portfolio reconstructions, amounting to Â£0.7bn (1H01: Â£0.4bn; FY01: Â£2.6bn) have been excluded from the above figures. ======================================================================================================================== Legal & General Group Plc P4 New business Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 6 3 3 6 3 3 months months months months months months 30.6.02 30.6.02 31.3.02 30.6.01 30.6.01 31.3.01 Â£m Â£m Â£m Â£m Â£m Â£m UK annual premiums Insurance business Life - Mortgage-related 49 25 24 51 28 23 - Protection 22 12 10 16 9 7 - Group risk 14 8 6 16 7 9 Pensions - Individual pensions 93 50 43 50 28 22 - Group pensions 4 2 2 4 2 2 -------- -------- -------- -------- -------- -------- 182 97 85 137 74 63 Retail investment business ISAs 26 17 9 16 11 5 Unit trusts 5 3 2 - - - -------- -------- -------- -------- -------- -------- Total 213 117 96 153 85 68 ======================================================================================================================== UK single premiums Insurance business Bonds - With-profits 665 312 353 459 280 179 - Other 111 63 48 39 22 17 Pensions - Individual pensions 150 72 78 158 71 87 - Annuities - individual 185 86 99 160 57 103 - Annuities - bulk purchase 175 87 88 397 268 129 - Other group business 28 15 13 37 15 22 - DSS rebates 43 20 23 35 11 24 -------- -------- -------- -------- -------- -------- 1,357 655 702 1,285 724 561 Retail investment business ISAs 536 330 206 310 140 170 Unit trusts 469 251 218 120 45 75 -------- -------- -------- -------- -------- -------- Total 2,362 1,236 1,126 1,715 909 806 ======================================================================================================================== UK APE Individual life and pensions 279 142 137 202 109 93 Retail investments 131 78 53 59 29 30 by channel '''''''' '''''''' '''''''' '''''''' '''''''' '''''''' - Independent financial advisers 180 98 82 155 81 74 - Business partnerships 164 83 81 64 35 29 - Business partnerships direct 29 16 13 1 0 1 - Direct 37 23 14 41 22 19 '''''''' '''''''' '''''''' '''''''' '''''''' '''''''' Total UK individual 410 220 190 261 138 123 Group 39 21 18 64 38 26 -------- -------- -------- -------- -------- -------- Total 449 241 208 325 176 149 ======================================================================================================================== Legal & General Group Plc P5 New business Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 2002 2001 6 3 3 6 3 3 months months months months months months 30.6.02 30.6.02 31.3.02 30.6.01 30.6.01 31.3.01 Â£m Â£m Â£m Â£m Â£m Â£m International annual premiums Insurance business USA 29 14 15 26 14 12 Netherlands 5 3 2 4 2 2 France 3 2 1 5 3 2 -------- -------- -------- -------- -------- -------- Total 37 19 18 35 19 16 ======================================================================================================================== International single premiums Insurance business Netherlands 53 21 32 62 15 47 France 53 24 29 55 26 29 -------- -------- -------- -------- -------- -------- 106 45 61 117 41 76 Retail investment business France 16 9 7 22 8 14 -------- -------- -------- -------- -------- -------- Total 122 54 68 139 49 90 ======================================================================================================================== Legal & General Group Plc P6 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 1. Operating profit from long term business Life and pensions Managed Intern- pension UK ational Total funds * Total Six months ended 30.6.02 Â£m Â£m Â£m Â£m Â£m Contribution from: New business 94 18 112 15 127 In-force business - expected return 128 23 151 7 158 - experience variances (18) (14) (32) 7 (25) - operating assumption changes (7) 1 (6) 2 (4) Development costs (3) 0 (3) (1) (4) Shareholder net worth 83 8 91 2 93 -------- -------- -------- -------- -------- Operating profit 277 36 313 32 345 ======== ======== ======== ======== ======== Six months ended 30.6.01 Contribution from: New business 77 20 97 17 114 In-force business - expected return 118 22 140 7 147 - experience variances 19 5 24 9 33 - operating assumption changes 0 0 0 (5) (5) Development costs (10) 0 (10) 0 (10) Shareholder net worth 61 7 68 - 68 -------- -------- -------- -------- -------- Operating profit 265 54 319 28 347 ======== ======== ======== ======== ======== Full year ended 31.12.01 Contribution from: New business 183 34 217 27 244 In-force business - expected return 242 45 287 14 301 - experience variances 43 (5) 38 20 58 - operating assumption changes (33) 11 (22) 11 (11) Development costs (26) 0 (26) (2) (28) Shareholder net worth 123 16 139 - 139 -------- -------- -------- -------- -------- Operating profit 532 101 633 70 703 ======== ======== ======== ======== ======== â€¢ Included in the Institutional fund management result of Â£40m (1H01: Â£31m; FY01: Â£76m). ======================================================================================================================== Legal & General Group Plc P7 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 2. Life and pensions gross premiums and operating profit Full Full year year 30.6.02 30.6.02 30.6.01 30.6.01 2001 2001 Premiums Operating Premiums Operating Premiums Operating written profit written profit written profit Â£m Â£m Â£m Â£m Â£m Â£m UK 2,085 277 2,012 265 4,250 532 USA 142 20 130 33 272 67 Netherlands 78 11 82 12 131 18 France 74 5 73 9 146 16 -------- -------- -------- -------- -------- -------- 2,379 313 2,297 319 4,799 633 ======== ======== ======== ======== ======== ======== International life and pensions gross premiums and operating profit expressed at 30 June 2002 exchange rates are: Full Full year year 30.6.01 30.6.01 2001 2001 Premiums Operating Premiums Operating written profit written profit Â£m Â£m Â£m Â£m USA 121 31 261 64 Netherlands 88 13 139 19 France 79 10 155 17 ======================================================================================================================== 3. Sterling exchange rates used 30.6.02 30.6.01 31.12.01 United States dollar 1.52 1.41 1.46 Euro 1.54 1.66 1.63 ======================================================================================================================== 4. General insurance net premiums and operating profit Full Full year year 30.6.02 30.6.02 30.6.01 30.6.01 2001 2001 Premiums Operating Premiums Operating Premiums Operating written profit written profit written profit Â£m Â£m Â£m Â£m Â£m Â£m Household 108 8 90 6 204 15 Mortgage indemnity 1 5 1 6 1 14 Other business (including overseas) 32 9 33 4 64 8 -------- -------- -------- -------- -------- -------- Total 141 22 124 16 269 37 ======================================================================================================================== Legal & General Group Plc P8 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 5. Other operational income Full year 30.6.02 30.6.01 2001 Â£m Â£m Â£m Shareholders' other income - Investment return on shareholders' funds 21 26 52 - Interest expense (21) (12) (24) -------- -------- -------- 0 14 28 Other operations (8) (8) (17) Unallocated corporate and development expenses (5) (5) (10) -------- -------- -------- (13) 1 1 ======================================================================================================================== 6. General insurance and shareholder investment return Full year 30.6.02 30.6.01 2001 Â£m Â£m Â£m Investment income 22 34 62 Interest expense and charges (21) (12) (25) Realised investment losses 0 (2) (12) Unrealised investment depreciation (22) (29) (42) -------- -------- -------- (21) (9) (17) ======== ======== ======== reported within: General insurance 9 9 18 Other operational income 0 14 28 Variation from longer term investment return '''''''' '''''''' '''''''' - General insurance (9) (14) (25) - Other operational income (21) (18) (38) '''''''' '''''''' '''''''' (30) (32) (63) The investment return shown represents the return on the General insurance and Corporate funds. Shareholders' other income, reported within Other operational income, has been allocated based on a longer term rate of investment return with the variation from the actual return being reported as Variation from longer term investment return. ======================================================================================================================== Legal & General Group Plc P9 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 7. Variation from longer term investment return Full year 30.6.02 30.6.01 2001 Â£m Â£m Â£m Life and pensions - UK (425) (154) (579) - International (13) (15) (15) -------- -------- -------- Total life and pensions (438) (169) (594) Managed pension funds (24) (16) (31) -------- -------- -------- Total long term business (462) (185) (625) General insurance (9) (14) (25) Other operational income (21) (18) (38) -------- -------- -------- (492) (217) (688) ======== ======== ======== For long term business, the variation from longer term investment return represents the effect of the investment performance in respect of shareholder net worth and in-force business, compared with embedded value assumptions at the beginning of the period. ======================================================================================================================== 8. Effect of economic assumption Full changes year 30.6.02 30.6.01 2001 Â£m Â£m Â£m Life and pensions - UK 1 44 2 - International (2) (7) (5) -------- -------- -------- Total life and pensions (1) 37 (3) Managed pension funds 0 (1) 0 -------- -------- -------- Total long term business (1) 36 (3) ======================================================================================================================== Legal & General Group Plc P10 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ------------------------------------------------------------------------------------------------------------------------ 9. Sale of Fairmount Group The sale of Fairmount Group plc, a wholly owned subsidiary, to Brown Shipley & Co Ltd was completed on 16 August 2001. This transaction resulted in an exceptional profit before tax of Â£8m (Â£8m after tax). The results to the date of sale were not material and hence were not separately reported as discontinued business. This transaction, after an interim dividend of Â£2m, generated net proceeds of Â£35m against which goodwill of Â£20m, previously written off against reserves, had been charged. ======================================================================================================================== 10. Analysis of tax Full Full year year 30.6.02 30.6.02 30.6.01 30.6.01 2001 2001 Profit Tax Profit Tax Profit Tax /(loss) (charge)/ before (charge)/ before (charge)/ before credit tax credit tax credit tax Restated Restated Profit on continuing operations Â£m Â£m Â£m Â£m Â£m Â£m UK life and pensions 277 (76) 265 (69) 532 (137) International life and pensions '''''''' '''''''' '''''''' '''''''' '''''''' '''''''' - USA 20 (7) 33 (11) 67 (24) - Netherlands 11 (4) 12 (4) 18 (6) - France 5 (2) 9 (3) 16 (5) '''''''' '''''''' '''''''' '''''''' '''''''' '''''''' 36 (13) 54 (18) 101 (35) -------- -------- -------- -------- -------- -------- 313 (89) 319 (87) 633 (172) Institutional fund management 40 (13) 31 (9) 76 (21) General insurance 22 (7) 16 (5) 37 (8) Other operational income (13) 4 1 0 1 6 -------- -------- -------- -------- -------- -------- 362 (105) 367 (101) 747 (195) Profit on discontinuing operations Other operational income - Banking 3 (1) 2 (1) 4 (1) -------- -------- -------- -------- -------- -------- Operating profit 365 (106) 369 (102) 751 (196) Variation from longer term investment return (492) 97 (217) 22 (688) 90 Change in equalisation provision (3) 1 (3) 1 (6) 2 Effect of economic assumption changes (1) 2 36 (9) (3) 6 Profit on sale of Fairmount Group - - 8 - 8 - -------- -------- -------- -------- -------- -------- (Loss)/profit on ordinary activities and tax (131) (6) 193 (88) 62 (98) ======== ======== ======== ======== ======== ======== FRS19, Deferred tax, has been adopted and the 2001 comparatives restated accordingly. Profits after tax for 1H01 and FY01 increased by Â£Nil and Â£7m respectively. Shareholders' funds were reduced by Â£7m and Â£Nil respectively. The achieved profits methodology effectively requires expected future tax provisions for long term business to be discounted. Deferred tax provisions for other than long-term business operations have not been discounted. ======================================================================================================================== Legal & General Group Plc P11 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 11. Funds under management At At At 30.6.02 30.6.01 31.12.01 Â£m Â£m Â£m Land and buildings 3,266 3,555 3,526 Shares, variable yield securities and unit trusts 11,964 13,722 12,964 Debt and other fixed income securities 15,029 13,525 14,270 Loans secured by mortgages 1,670 1,308 1,394 Other loans and investments 338 550 382 Deposits with credit institutions 1,967 1,351 1,928 -------- -------- -------- Total investments 34,234 34,011 34,464 Assets held to cover linked liabilities 72,162 70,692 70,982 -------- -------- -------- Funds included in the consolidated balance sheet 106,396 104,703 105,446 Segregated funds 8,334 4,677 7,561 Unit trusts, ISAs and PEPs 5,353 3,830 4,535 -------- -------- -------- Total funds under management 120,083 113,210 117,542 ======== ======== ======== representing: Managed in the UK - Active 34,204 32,499 33,832 - Index tracking 80,353 76,129 78,255 - For overseas subsidiaries 1,109 1,163 1,161 -------- -------- -------- 115,666 109,791 113,248 Managed overseas 2,626 1,487 2,661 -------- -------- -------- 118,292 111,278 115,909 Mortgages and other 1,791 1,932 1,633 -------- -------- -------- 120,083 113,210 117,542 ======== ======== ======== including Institutional funds under management: Managed pension funds - Pooled 62,522 61,958 61,675 - Segregated 5,702 2,274 5,130 -------- -------- -------- 68,224 64,232 66,805 Other funds 2,632 2,403 2,575 -------- -------- -------- 70,856 66,635 69,380 ======== ======== ======== The reported asset mix shown above does not reflect the use of derivatives. The effect of outstanding futures contracts is to change the mix as if the value reported for shares, variable yield securities and unit trusts increased by Â£83m (1H01: decrease Â£44m; FY01: increase Â£136m); deposits would be changed by corresponding amounts. The effect of other derivatives is not considered significant enough to be reported separately. ======================================================================================================================== Legal & General Group Plc P12 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ------------------------------------------------------------------------------------------------------------------------ 12. Embedded value Life and pensions Managed Intern- pension UK ational Total funds Total Â£m Â£m Â£m Â£m Â£m Six months ended 30.6.02 At 1 January 4,432 633 5,065 252 5,317 Exchange rate movements - (11) (11) - (11) -------- -------- -------- -------- -------- 4,432 622 5,054 252 5,306 (Loss)/profit after tax (141) 14 (127) 6 (121) Capital movements 100 - 100 - 100 Distributions (140) (1) (141) - (141) -------- -------- -------- -------- -------- At end of period 4,251 635 4,886 258 5,144 ======== ======== ======== ======== ======== comprising: Value of in-force business 2,474 401 2,875 129 3,004 Shareholder net worth * 1,777 234 2,011 129 2,140 -------- -------- -------- -------- -------- 4,251 635 4,886 258 5,144 ======== ======== ======== ======== ======== Six months ended 30.6.01 At 1 January 3,868 578 4,446 134 4,580 Exchange rate movements - 18 18 - 18 -------- -------- -------- -------- -------- 3,868 596 4,464 134 4,598 Profit after tax 86 20 106 8 114 Capital movements 35 - 35 - 35 Distributions (123) (1) (124) (14) (138) -------- -------- -------- -------- -------- At end of period 3,866 615 4,481 128 4,609 ======== ======== ======== ======== ======== comprising: Value of in-force business 2,457 369 2,826 128 2,954 Shareholder net worth * 1,409 246 1,655 - 1,655 -------- -------- -------- -------- -------- 3,866 615 4,481 128 4,609 ======================================================================================================================== Legal & General Group Plc P13 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 12. Embedded value (continued) Life and pensions Managed Intern- pension UK ational Total funds Total Â£m Â£m Â£m Â£m Â£m Full year ended 31.12.01 At 1 January 3,868 578 4,446 134 4,580 Exchange rate movements - 6 6 - 6 -------- -------- -------- -------- -------- 3,868 584 4,452 134 4,586 (Loss)/profit after tax (109) 52 (57) 26 (31) Capital movements ** 920 (1) 919 116 1,035 Distributions (247) (2) (249) (24) (273) -------- -------- -------- -------- -------- At 31 December 4,432 633 5,065 252 5,317 ======== ======== ======== ======== ======== comprising: Value of in-force business 2,439 394 2,833 136 2,969 Shareholder net worth * 1,993 239 2,232 116 2,348 -------- -------- -------- -------- -------- 4,432 633 5,065 252 5,317 ======== ======== ======== ======== ======== * For the UK life and pensions business, shareholder net worth comprises the shareholder retained capital (SRC) on the MSS basis, adjusted for deferred acquisition costs, and the sub-fund, both net of an appropriate allowance for tax. It also includes intra-group subordinated debt capital of Â£602m (1H01: Â£197m; FY01: Â£502m) but excludes the net assets of Â£71m (1H01: Â£228m; FY01: Â£68m) of the UK long term fund (LTF) operational subsidiaries. ** Following the transfer of the investment management businesses in December 2001 the LTF subsidiaries, which were the holding companies for these businesses, were no longer considered as operational. Their net assets of Â£580m were attributed to UK life and pensions. This impact, together with the further increase in subordinated debt of Â£355m less net capital invested in operational subsidiaries of Â£15m, was reported as a capital movement. Also following this transfer, the shareholder net worth attributable to managed pension funds was the shareholders' funds on the MSS basis of Â£116m which was reported as a capital movement which took place at the year end. ======================================================================================================================== Legal & General Group Plc P14 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 13. Shareholders' funds Segmental analysis At At At 30.6.02 30.6.01 31.12.01 Restated Restated Embedded value of life and pensions Â£m Â£m Â£m businesses: - UK* 4,251 3,866 4,432 - USA 486 481 492 - Netherlands 84 70 74 - France 65 64 67 -------- -------- -------- 4,886 4,481 5,065 Institutional fund management** 294 262 284 -------- -------- -------- 5,180 4,743 5,349 General insurance 95 88 91 Banking 96 93 93 Corporate funds *** (596) 387 (539) -------- -------- -------- 4,775 5,311 4,994 ======== ======== ======== Movement At 1 January 4,994 5,267 5,267 (Loss)/profit for the financial period (137) 105 (36) Exchange movements 2 (1) (1) Dividends (86) (83) (261) Increase in share capital/share premium 2 3 5 Goodwill written back on sale of Fairmount Group plc - 20 20 -------- -------- -------- At end of period 4,775 5,311 4,994 ======== ======== ======== * Including Â£602m (1H01: Â£197m; FY01: Â£502m) of intra-group subordinated debt capital attributed to the SRC. ** Including Â£258m (1H01: Â£232m; FY01: Â£252m) net assets of managed pension funds business. *** Corporate funds include the convertible debt of Â£515m (1H01: Â£Nil; FY01 Â£515m) and the senior debt of Â£602m (1H01: Â£197m; FY01: Â£502m) which has been onlent to the UK LTF. ======================================================================================================================== Legal & General Group Plc P15 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 14. Borrowings At At At 30.6.02 30.6.01 31.12.01 Â£m Â£m Â£m 2.75% Convertible bond 2006 515 - 515 Medium Term Notes 2031-2041 597 197 402 Medium Term Notes 2002-2004 454 211 334 Commercial paper 2002 179 337 321 Bank loans 2002 17 28 70 -------- -------- -------- Total borrowings 1,762 773 1,642 ======== ======== ======== The convertible bond is due in 2006 with a coupon of 2.75% p.a. and is convertible into ordinary shares of the Company at 204p per share. If converted, this bond would give rise to the issue of 257.4m new ordinary shares which represents approximately 5% of the current issued share capital. ======================================================================================================================== 15. Contingent liability In June 2001 Legal & General Assurance Society Limited ('the Society') reinsured certain new individual term assurance business with the UK life branch of Munich Reinsurance Company ('the reinsurer'). On 11 July 2002 the Society received notification that the reinsurer considers the reinsurance to be void on the basis of mistaken pricing by the reinsurer. Were the reinsurer's contention to be upheld, the reported profit on an AP basis would be adversely affected. On an MSS basis there would be no impact on operating profit, although there would be an adverse effect on the reported change in the SRC and profit before tax. However it is not yet practicable to estimate the resultant financial impact as this would depend on the terms of the alternative arrangements that would be made. Having taken advice from Leading Counsel, the directors are confident that there is no valid basis for the reinsurer's claim and that it is unlikely that a material loss will arise.. ======================================================================================================================== 16. Post balance sheet events The Group agreed on 4 July 2002 to sell Legal & General Bank Ltd and Legal & General Mortgage Services Ltd, two wholly owned subsidiaries, to Northern Rock plc, subject to regulatory approval. The results to the date of sale have been reported in these financial statements as discontinuing business. This transaction will result in an exceptional profit before tax of Â£36m (Â£36m after tax) and will generate net proceeds estimated to be Â£131m. On 24 July 2002 the Group also agreed to acquire Alliance & Leicester Life Assurance Company Ltd, subject to regulatory approval, from Alliance & Leicester plc. The consideration, estimated to be approximately, Â£84m represents approximately Â£30m for the value of the in-force business and Â£54m for the net assets of the company. The results will be accounted for as an acquisition in the Group's consolidated financial statements. ======================================================================================================================== Legal & General Group Plc P16 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2002 ----------------------------------------------------------------------------------------------------------------------- 17. Embedded value assumptions UK life and pensions Key economic assumptions are set out below and should be read in conjunction with the notes to the supplementary financial statements in the 2001 Report and Accounts. The assumed future pre-tax return on fixed interest securities is set by reference to redemption yields available in the market at the end of the reporting period. The corresponding return on equities and property and the risk discount rate have been set by reference to the gilt assumption. 30.6.02 30.6.01 31.12.01 31.12.00 % p.a. % p.a. % p.a. % p.a. UK Investment return - Gilts - Fixed interest 5.0 5.3 5.0 4.7 - RPI linked 5.0 5.3 5.0 4.7 - Non-gilts - Fixed interest 5.4-6.2 5.8-6.9 5.4-6.3 5.3-6.5 - RPI linked 5.2-5.6 5.4-6.3 5.1-5.8 5.0-6.0 - Equities and property 7.6 7.9 7.6 7.3 Risk discount rate (after tax) 7.5 7.8 7.5 7.2 Inflation - Expenses/earnings 3.7 3.7 3.5 3.6 - Indexation 2.7 2.7 2.5 2.6 USA Reinvestment rate 5.9 8.0 6.5 7.0 Risk discount rate (after tax) 7.4 9.0 7.6 7.7 Europe Government bond return 5.2 5.2 5.0 5.0 Risk discount rate (after tax) 8.5 8.5 8.5 8.5 Operational assumptions, which are reviewed annually to reflect recent operating experience, are largely unchanged from those made at the end of 2001. The value of new business has been calculated using actual acquisition costs. ======================================================================================================================== 18. Alternative assumptions The discount rate appropriate to any investor will depend on the investor's own requirements, tax and perception of the risks associated with the anticipated cash flows to shareholders. The table below shows the effect of alternative discount rates and equity and property yields on the UK life and pensions embedded value and new business contribution for the period. 1% 1% 1% lower higher higher risk risk equities/ As discount discount property published rate rate yields Effect on embedded value at 30 June 2002 4,251 +Â£270m -Â£230m +Â£250m Effect on new business contribution for the period 94 +Â£18m -Â£15m +Â£11m It should be noted that in calculating the alternative values all other assumptions are left unchanged. ======================================================================================================================== This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW IR PUUMAMUPPGQC

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