L&G 2003 Final Results Pt 1

Legal & General Group PLC
26 February 2004


Stock Exchange Release - Part 1


                            Legal & General Group Plc
                            =========================
                   Results for the year ended 31 December 2003
                   ===========================================

• Strong market share growth

• Improved profitability

• Capital strength reinforced - free asset ratio increased to 12.9% (1)


                                           Achieved Profits   Modified Statutory
                                                      basis       Solvency basis
                                              2003   Change        2003   Change

Operating profit before tax (2)              £759m      +9%       £555m     +13%
Profit on ordinary activities before tax   £1,117m      N/A       £469m      N/A
Shareholders' funds (3)                    £5,596m     +11%     £3,260m      +2%
Earnings per share (diluted) (4)             8.26p       -        5.99p      +4%

Worldwide new business APE (5)               £886m      -2%       £886m      -2%
Contribution from new business (6)           £305m     +22%         N/A      N/A

Group funds under management                £138bn     +19%      £138bn     +19%
Total dividend per share                     4.90p    +2.5%       4.90p    +2.5%



Group Chief Executive, David Prosser, said: 'Legal & General has again produced
significant gains in market share and improved profitability in our core UK
retail business despite the tough market conditions. This reflects the strength
and breadth of our products and distribution together with our pricing
discipline and cost management. The overall growth in profits and the diversity
of sources of profit enabled us to maintain our progressive dividend policy.

Our industry continues to consolidate, becoming increasingly focused on those
companies that are financially and operationally strong. Our financial strength
will be further demonstrated with the publication of a realistic balance sheet
in April. This will show that our UK with-profits business has assets
comfortably in excess of its realistic liabilities. The Risk Capital Margin is
covered at least four times by Society's surplus assets.

Looking ahead, Legal & General has the strengths and market position to continue
profitably to build its market share.'



Footnotes:

(1) Management's estimate of the Form 9 ratio for UK business based on all Legal
& General Assurance Society Ltd (Society) assets including an implicit item of
£1bn but without use of the realistic waivers granted by the FSA in 2003.

(2) From continuing operations.

(3) Shareholders' funds after providing for dividends.

(4) Based on operating profit from continuing operations after tax and assuming
full dilution from the convertible bond issued in 2001.

(5) Annual Premium Equivalent (APE) is total new annual premiums + 10% of single
premiums, including ISAs and unit trusts.

(6) Contribution before tax from new worldwide life and pensions business.

The Achieved Profits highlights are based on the methodology issued by the
Association of British Insurers in December 2001. Full details of the results
can be found in Parts 2 Achieved Profits (AP), 3 Modified Statutory Solvency
basis (MSS) and 4 Legal & General Investment Management.



Overview of results - Achieved Profits basis
============================================

Legal & General's UK strategy continues to be focused on providing a broad range
of competitive products through multi-channel distribution with good customer
service. In a period in which new business volumes declined for the market as a
whole, the success of this strategy was reflected by further profitable growth
in market share. Our market share of individual new business, including ISAs and
unit trusts, has now reached 8.6%.

• The Group's operating profit before tax from continuing operations was
£759m (2002: £695m) driven by increased life and pensions profit and an improved
result from other operational income.

• The contribution before tax from new life and pensions business grew
by 22% to £305m reflecting pricing discipline, a favourable business mix and
careful cost management.

• Legal & General Investment Management again delivered impressive
results, winning £13.1bn (2002: £14.0bn) of new funds. Operating profit was
lower at £80m (2002: £92m).

• In general insurance, all classes of business were profitable again in
2003, but operating profit reduced to £41m (2002: £46m) with a lower release of
reserves.

• Group funds under management at the year end grew by 19% to £138bn
reflecting both new business success and equity market recovery.

• Shareholders' funds increased to £5,596m (2002: £5,061m), equivalent
to 86p per share (2002: 78p per share).

• The Board has recommended a final dividend of 3.33p per share, an
increase of 2.5%. The total dividend for the year has, therefore, also increased
by 2.5% to 4.90p per share.



Analysis of results - Achieved Profits basis
============================================


UK life and pensions
--------------------

Operating profit was £537m (2002: £501m). The contribution before tax from new
business increased by 28% to £271m (2002: £211m). We have again achieved
attractive returns on the investment in new business reflecting continued
pricing discipline, a favourable business mix and careful cost management. The
net of tax return on capital supporting new business grew to 22% (2002: 19%).

The contribution from in-force business was £117m (2002: £134m). This reflected
the lower value of in-force business brought forward and the unwind of a lower
discount rate. There was a negative impact from operating assumption changes
largely relating to the mortgage endowment book, where the tightening of
assumptions reflected current persistency. Within our annuity business,
assumption changes have been broadly neutral. Favourable mortality experience in
our dominant bulk purchase and retained money annuity books has, together with
some demographic assumption changes, offset the impact of prudent assumption
strengthening on our smaller compulsory purchase annuity business.


International life and pensions
-------------------------------

Operating profit from international life and pensions business increased to £83m
(2002: £80m), with an unchanged contribution from the USA, despite dollar
weakness, and a modest improvement in the results from the Netherlands and
France.


USA
---
New business in the USA was 7% lower in local currency terms but was 16% lower
in sterling terms at £48m APE (2002: £57m). New business volumes were impacted
by the move by some competitors away from savings related products, leading them
to price term assurance aggressively for a limited period in the latter part of
the year.

Legal & General America remains a top 10 provider in the term assurance market
for upper income customers.


Operating profit increased 13% in local currency terms but was unchanged in
sterling terms at £50m. Mortality experience in our term assurance business
improved significantly in 2003 although it remained above the expected level. In
response we have strengthened our future mortality assumptions. The impact of
this has been offset by improved persistency and unit cost reductions.


Europe
------
Our European businesses produced £44m APE including unit trust sales, a 16%
increase over the year (2002: £38m). Operating profit increased to £33m (2002:
£30m).


Legal & General Investment Management
-------------------------------------

Operating profit from external client funds managed by Legal & General
Investment Management fell to £80m (2002: £92m). This included a profit of £71m
(2002: £83m) from the UK managed pension funds business where the contribution
from new business was broadly unchanged but the contribution from in-force
business declined to £38m from £45m. The 2002 result benefited from better than
assumed business losses and benefit payments whereas 2003 experience was in line
with assumptions.

Over the year, Legal & General Investment Management maintained its highly
successful track record, winning new funds of £13.1bn (2002: £14.0bn). This
result, which included increased volumes of active bond business, has ensured
that our record of averaging over £1bn of new UK pension fund investment
business per month has now extended over six years.

Funds managed by Legal & General Investment Management grew by 18% over the year
to £135bn reflecting both new business success and equity market recovery.


General insurance
-----------------

Net written premiums grew 27% to £387m (2002: £304m) as the existing joint
venture with the Woolwich was extended to Barclays' customers. All classes of
business have been profitable again in 2003, but operating profit reduced to
£41m (2002: £46m). The household account, which represented 80% of net premiums
written, produced an operating profit of £17m (2002: £18m), despite increased
subsidence claims of £25m (2002: £9m) following the exceptionally dry summer.


Other operational income
------------------------

Other operational income comprises the longer term investment return arising
from investments held outside the UK Long Term Fund, interest expense, the
results of the Group's other operations and unallocated corporate expenses.

The 2003 result of £18m (2002: £24m loss) included a full year's benefit from
the investment return on the proceeds of the 2002 Rights Issue. The additional
return was partly offset by the full year impact of increased interest expense
on a higher level of shareholder debt taken on in 2002. The 2003 result also
included a lower reported loss from our retail investment business where lower
fee income in the first half was offset by operational cost savings in the
second half of the year.


Profit on ordinary activities
-----------------------------

The Group's operating profit from continuing operations before tax was £759m
(2002: £695m). The profit on ordinary activities before tax of £1,117m (2002:
£450m loss) included the variation in investment return from the longer term
return assumed at the end of the previous year, together with economic
assumption changes. The positive investment return variation of £424m (2002:
negative variation of £1,174m) reflected the recovery in equity markets. The
largest impact came from UK life and pensions, where the investment return on
the UK long term fund equity and property portfolio was 11.4% above the
assumption for the period (2002: 23.4% below assumption).

The effect of economic assumption and budget tax changes together resulted in a
decrease of £59m, compared with a £6m decrease for economic assumption changes
in 2002.


Balance sheet
-------------

At 31 December 2003, the embedded value of the Group's long term businesses was
£5,215m (2002: £4,779m). Shareholders' funds on the Achieved Profits basis
increased to £5,596m (2002: £5,061m), equivalent to 86p per share (2002: 78p per
share).



Overview of results - Modified Statutory Solvency (MSS) basis
=============================================================

Operating profit before tax from continuing operations grew by 13% to £555m
(2002: £493m), with improvements in most areas. The profit on ordinary
activities before tax was £469m (2002: £106m loss).

The UK life and pensions operating profit before tax was broadly unchanged at
£369m (2002: £366m), despite a reduced contribution from with-profits business
as a consequence of lower levels of bonuses. The accrued transfer from
non-profit business has been calculated as a smoothed investment return on the
shareholder net worth and the embedded value of non-profit business, augmented
by the distribution in respect of the intra-group subordinated debt capital
attributed to the shareholder retained capital. The external servicing cost of
that debt has been reflected in interest expense reported within other
operational income.

Results for the USA and the Netherlands have benefited from strong growth in the
book of business over recent years.

The contribution from shareholder retained capital in the UK Long Term Fund was
negative £137m (2002: negative £571m). This reflected significantly better
investment returns, the net capital invested to support our growing non-profit
book and an increased transfer to shareholders from this business. The net
capital invested reflected new business strain partly offset by the release of
capital and strain from non-profit business. The net capital invested was
further increased by some additional reserving for compulsory purchase annuities
and by the impact of tactical investment actions taken at the year end, which
had the effect of reducing the statutory valuation rate of interest.



Capital strength
================

Legal & General Assurance Society Limited (Society), the Group's main UK
operating subsidiary, continues to be highly rated by the major rating agencies
and is one of the top two major European life assurers in terms of financial
strength.

Management's estimate of the Form 9 free asset ratio for Society's UK long term
business, including an implicit item, was 12.9% at 31 December 2003 (2002:
12.1%).

Society's returns to the FSA for 2003 will be submitted at the end of March and
will include a balance sheet, constructed on realistic principles, for our UK
with-profits business. Further details will be provided early in April, but at
this stage we are confident that our UK with-profits business has assets 
comfortably in excess of its realistic liabilities. The Risk Capital Margin is
covered at least four times by Society's surplus assets.




Enquiries to:


Investors:
----------
Andrew Palmer, Group Director (Finance)          020 7528 6286

Peter Horsman, Head of Investor Relations        020 7528 6362


Media:
------
John Morgan, Head of Public Relations            020 7528 6213

Anthony Carlisle, Citigate Dewe Rogerson         020 7638 9571
                                                 07973 611888


Notes:
------

1. The statements in Part 2 of this release have been prepared in all material
aspects in accordance with the methodology for Supplementary Accounting for long
term insurance business (The Achieved Profits Method) issued in December 2001 by
the Association of British Insurers. This methodology sets out a more realistic
method for recognising shareholders' profits from long term business than the 
MSS basis contained in Part 3. These financial statements have been reviewed by
PricewaterhouseCoopers and prepared in conjunction with our consulting 
actuaries - Tillinghast Towers-Perrin and, in the USA, Milliman USA.

2. The annual report will be sent to shareholders on 23 March 2004 and
delivered to the Registrar of Companies after the Annual General Meeting on 28
April 2004.

3. Issued share capital at 31 December 2003: 6,503,861,912 shares of 2.5p each.

4. A copy of this announcement can be found in the News and Results section of 
our Shareholder web site at http://investor.legalandgeneral.com/releases.cfm

5. A presentation of the results will be made to analysts and fund managers at 
Temple Court, 11 Queen Victoria Street, London EC4N 4TP at 9.30 today. A webcast
of the presentation to analysts and fund managers will be available later today 
at http://investor.legalandgeneral.com/presentations.cfm

6. There will be a conference call for investors chaired by Andrew Palmer, Group
Director (Finance) at 15.00 UK time. Please access the conference call by
dialling [phone]. Investors in the USA may call 1866 220 1452.

7. A recording of this call will be available for one week at +44 (0)1452 
550 000 (in the USA call 1866 247 4222). The access number is 1044844#.

8. Financial Calendar:
   Ex dividend date for 2003 final dividend                31 March 2004
   Record date for 2003 final dividend                     2 April 2004
   AGM and first quarter new business                      28 April 2004
   Payment date for 2003 final dividend                    4 May 2004
   Interim results / second quarter new business           29 July 2004
   Ex dividend date for interim dividend                   8 September 2004
   Record date for interim dividend                        10 September 2004
   Payment date for interim dividend                       1 October 2004

9. A Dividend Re-investment Plan is available to shareholders. Details and
a mandate form can be found at http://investor.legalandgeneral.com/drip.cfm










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