L&G 2009 Final Results Part 2

RNS Number : 9796I

Legal & General Group Plc

23 March 2010

 



International Financial Reporting Standards												Page 27
Operating profit income statement
For the year ended 31 December 2009
											2009	2008
												Restated
								Notes			£m	£m
From continuing operations
Risk								2.02(a)			735	222
Savings								2.03(a)			55	7
Investment management								2.04			167	165
International								2.05			127	59
Group capital and financing								2.07			57	139
Investment projects1											(32)	-
Operating profit											1,109	592
Variation from longer term investment return								2.08			(16)	(2,020)
Property losses attributable to minority interests											(19)	(63)
Profit/(loss) from continuing operations before tax attributable to
equity holders of the Company											1,074	(1,491)
Tax (expense)/credit attributable to equity holders of the Company								2.09			(230)	361
Profit/(loss) for the year											844	(1,130)
Loss attributable to minority interests								2.17			19	63
Profit/(loss) attributable to equity holders of the Company											863	(1,067)
											p	p
Earnings per share								2.10
Based on operating profit from continuing operations after tax attributable to
equity holders of the Company											13.82	7.19
Based on profit/(loss) attributable to equity holders of the Company											14.82	(17.88)
Diluted earnings per share								2.10
Based on operating profit from continuing operations after tax attributable to
equity holders of the Company											13.74	7.16
Based on profit/(loss) attributable to equity holders of the Company											14.73	(17.88)
1. Investment projects relate to strategic investments including Solvency II.
This supplementary operating profit information provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business. Supplementary IFRS operating profit is one of the Group's key performance indicators.  The definition of operating profit has been amended during the year.  Note 2.01 provides more detail on the restatement.
Operating profit for the Risk segment represents the net capital invested/released from the non profit Risk businesses (individual and group protection, and individual and bulk purchase annuities) and the profit of our General insurance business.  Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within our General insurance business.
Operating profit for the Savings segment represents the net capital invested/released from the non profit Savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer and the profit of our core retail investments business. Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business.
Operating profit for the Investment management and International segments reflects the profits from these operations and includes a longer term expected investment return on the shareholders' funds within the Investment management and Netherlands' operations.
Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a quarterly basis.  Profits or losses arising from actuarial movements on annuities held by the Group's defined benefit pension schemes are excluded from operating profit. Profits or losses arising on the elimination of own debt holdings are also excluded from operating profit.
International Financial Reporting Standards												Page 28
Consolidated income statement
For the year ended 31 December 2009
											2009	2008
								Notes			£m	£m
Revenue
Gross written premiums								2.11			5,275	5,895
Outward reinsurance premiums											(574)	(569)
Net change in provision for unearned premiums											11	1
Net premiums earned											4,712	5,327
Fees from fund management and investment contracts											786	740
Investment return											38,201	(37,749)
Operational income											91	38
Total revenue											43,790	(31,644)
Expenses
Claims and change in insurance liabilities											7,614	3,287
Reinsurance recoveries											(520)	(587)
Net claims and change in insurance liabilities											7,094	2,700
Change in provisions for investment contract liabilities											33,186	(33,313)
Acquisition costs											780	776
Finance costs											179	379
Other expenses											882	773
Transfers to/(from) unallocated divisible surplus											430	(806)
Total expenses											42,551	(29,491)
Profit/(loss) before income tax											1,239	(2,153)
Income tax (expense)/credit attributable to policyholder returns											(165)	662
Profit/(loss) from continuing operations before income tax attributable to
equity holders of the Company											1,074	(1,491)
Total income tax (expense)/credit											(395)	1,023
Income tax expense/(credit) attributable to policyholder returns											165	(662)
Income tax (expense)/credit attributable to equity holders								2.09			(230)	361
Profit/(loss) for the year											844	(1,130)
Attributable to:
Minority interests											(19)	(63)
Equity holders of the Company											863	(1,067)
Dividend distributions to equity holders of the Company during the year											185	367
Dividend distributions to equity holders of the Company proposed after the year end											160	120
											p	p
Earnings per share
Based on profit/(loss) attributable to equity holders of the Company								2.10			14.82	(17.88)
Diluted earnings per share
Based on profit/(loss) attributable to equity holders of the Company								2.10			14.73	(17.88)
International Financial Reporting Standards												Page 29
Consolidated statement of comprehensive income
For the year ended 31 December 2009
											2009	2008
											£m	£m
Profit/(loss) for the year											844	(1,130)
Other comprehensive income after tax
Exchange differences on translation of overseas operations											(63)	139
Actuarial (losses)/gains on defined benefit pension schemes											(154)	18
Actuarial losses/(gains) on defined benefit pension schemes transferred to unallocated divisible surplus											62	(8)
Net change in financial investments designated as available-for-sale											66	(56)
Total comprehensive income/(expense) for the year											755	(1,037)
Total comprehensive income/(expense) attributable to:
Minority interests											(19)	(63)
Equity holders of the Company											774	(974)
International Financial Reporting Standards												Page 30
Consolidated balance sheet
As at 31 December 2009
											2009	2008
								Notes			£m	£m
Assets
Investment in associates											45	14
Plant and equipment											61	75
Investment property											3,839	3,969
Financial investments								2.13			276,016	234,514
Reinsurers' share of contract liabilities											2,093	1,997
Purchased interest in long term businesses and other intangible assets											146	227
Deferred acquisition costs											1,957	2,112
Deferred tax asset											796	988
Income tax recoverable											1	8
Other assets											1,440	2,135
Cash and cash equivalents											10,650	10,688
Total assets											297,044	256,727
Equity
Share capital								2.14			147	147
Share premium								2.14			936	936
Employee scheme shares											(38)	(46)
Capital redemption and other reserves											41	(42)
Retained earnings											3,110	2,593
Shareholders' equity								2.15			4,196	3,588
Minority interests								2.17			2	144
Total equity											4,198	3,732
Liabilities
Subordinated borrowings								2.16			1,870	1,657
Participating insurance contracts								2.18			9,404	9,384
Participating investment contracts								2.19			7,139	6,992
Unallocated divisible surplus											1,284	913
Value of in-force non-participating contracts											(367)	(171)
Participating contract liabilities											17,460	17,118
Non-participating insurance contracts								2.18			28,583	25,841
Non-participating investment contracts								2.19			234,502	196,698
Non-participating contract liabilities											263,085	222,539
Senior borrowings								2.16			1,407	2,314
Provisions								2.21			757	555
Deferred tax liabilities											303	259
Income tax liabilities											140	5
Payables and other financial liabilities											5,003	6,799
Other liabilities											892	997
Net asset value attributable to unit holders											1,929	752
Total liabilities											292,846	252,995
Total equity and liabilities											297,044	256,727
International Financial Reporting Standards												Page 31
Consolidated statement of changes in equity
							Capital
						redemption
						Employee	and
				Share	Share	scheme	other	Retained			Minority	Total
For the year ended				capital	premium	shares	reserves	earnings		Total	interests	equity
31 December 2009				£m	£m	£m	£m	£m		£m	£m	£m
As at 1 January				147	936	(46)	(42)	2,593		3,588	144	3,732
Profit/(loss) for the year				-	-	-	-	863		863	(19)	844
Exchange differences on translation
of overseas operations				-	-	-	(63)	-		(63)	-	(63)
Actuarial (losses) on defined benefit
pension schemes				-	-	-	-	(154)		(154)	-	(154)
Actuarial losses on defined benefit pension
schemes transferred to unallocated
divisible surplus				-	-	-	-	62		62	-	62
Net change in financial investments
designated as available-for-sale				-	-	-	66	-		66	-	66
Total comprehensive income/(expense)
for the year				-	-	-	3	771		774	(19)	755
Options exercised under share option schemes:
- Executive share option schemes				-	-	-	-	-		-	-	-
- Savings related share
option scheme				-	-	-	-	-		-	-	-
Shares purchased				-	-	(2)	-	-		(2)	-	(2)
Shares vested				-	-	10	(18)	-		(8)	-	(8)
Employee share schemes:
- Value of employee services				-	-	-	21	-		21	-	21
Transfer to retained earnings				-	-	-	-	8		8	-	8
Dividends				-	-	-	-	(185)		(185)	-	(185)
Movement in third party interests				-	-	-	-	-		-	(123)	(123)
Currency translation differences				-	-	-	77	(77)		-	-	-
As at 31 December				147	936	(38)	41	3,110		4,196	2	4,198
For the year ended
31 December 2008
As at 1 January				157	927	(42)	59	4,345		5,446	178	5,624
Loss for the year				-	-	-	-	(1,067)		(1,067)	(63)	(1,130)
Exchange differences on translation of
overseas operations				-	-	-	139	-		139	-	139
Actuarial gains on defined benefit
pension schemes				-	-	-	-	18		18	-	18
Actuarial (gains) on defined benefit pension
schemes transferred to unallocated
divisible surplus				-	-	-	-	(8)		(8)	-	(8)
Net change in financial investments
designated as available-for-sale				-	-	-	(56)	-		(56)	-	(56)
Total comprehensive income/(expense)
for the year				-	-	-	83	(1,057)		(974)	(63)	(1,037)
Share buyback1				(11)	-	-	11	(523)		(523)	-	(523)
Options exercised under share option schemes:
- Executive share option schemes				-	1	-	-	-		1	-	1
- Savings related share
option scheme				1	8	-	-	-		9	-	9
Shares purchased				-	-	(10)	-	-		(10)	-	(10)
Shares vested				-	-	6	(17)	-		(11)	-	(11)
Employee share schemes:
- Value of employee services				-	-	-	14	-		14	-	14
Transfer to retained earnings				-	-	-	-	3		3	-	3
Dividends				-	-	-	-	(367)		(367)	-	(367)
Movement in third party interests				-	-	-	-	-		-	29	29
Currency translation differences				-	-	-	(192)	192		-	-	-
As at 31 December				147	936	(46)	(42)	2,593		3,588	144	3,732
1. During 2008, shares were repurchased and cancelled under a share buyback programme at a cost of £523m including expenses.
International Financial Reporting Standards												Page 32
Consolidated cash flow statement
For the year ended 31 December 2009
											2009	2008
								Notes			£m	£m
Cash flows from operating activities
Profit/(loss) for the year											844	(1,130)
Adjustments for non cash movements in net profit/(loss) for the year
Realised and unrealised (gains)/losses on financial investments and investment properties											(29,180)	48,376
Investment income											(8,813)	(10,086)
Interest expense											179	379
Income tax expense/(credit)											395	(1,023)
Other adjustments											104	77
Net (increase)/decrease in operational assets
Investments designated as held for trading or fair value through profit or loss											(5,822)	2,161
Investments designated as available-for-sale											(61)	(93)
Other assets											477	(1,702)
Net increase/(decrease) in operational liabilities
Insurance contracts											3,143	(1,479)
Transfer to/(from) unallocated divisible surplus											368	(798)
Investment contracts											29,337	(43,485)
Value of in-force non-participating contracts											(196)	105
Other liabilities											1,121	541
Cash used in operations											(8,104)	(8,157)
Interest paid											(160)	(377)
Interest received											5,074	5,214
Income tax received/(paid)											52	(208)
Dividends received											3,896	4,614
Net cash flows from operating activities											758	1,086
Cash flows from investing activities
Net acquisition of plant and equipment											(7)	(14)
Acquisitions (net of cash acquired)								2.12			-	1,004
Capital injection into overseas joint ventures											(36)	-
Net cash flows from investing activities											(43)	990
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the Company during the year											(185)	(367)
Proceeds from issue of ordinary share capital											-	10
Purchase of employee scheme shares											(2)	(9)
Purchase of shares under share buyback programme								2.14			-	(523)
Proceeds from borrowings											2,124	3,568
Repayment of borrowings											(2,629)	(2,960)
Net cash flows from financing activities											(692)	(281)
Net increase in cash and cash equivalents											23	1,795
Exchange (losses)/gains on cash and cash equivalents											(61)	156
Cash and cash equivalents at 1 January											10,688	8,737
Cash and cash equivalents at 31 December											10,650	10,688
The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.
International Financial Reporting Standards												Page 33
Notes to the Financial Statements
2.01		Changes to the definition of supplementary operating profit
Supplementary IFRS operating profit is one of the Group's key performance indicators. We provide this measure because we believe it gives shareholders a better understanding of the Group's underlying performance.  In order to further enhance this understanding, we have amended the definition of IFRS operating profit to remove the impact of investment volatility from the non profit Risk and Savings and the Group capital and financing results.
The key changes to our definition of IFRS operating profit are:
i. Operating profit for the Risk and Savings businesses is now based on the investment returns that the Group expects to make on the financial investments that back the non profit business over the reporting period, rather than the actual returns on these investments. The difference between the expected return and the actual return on investments, and the corresponding impact on liabilities, is shown below the operating profit line.  This adjustment includes the removal of accounting volatility arising from the mismatch of asset and liability valuations for deferred tax balances within unit linked funds under IFRS.
ii. Group capital and financing operating profit now excludes the profit or loss arising from actuarial gains and losses on annuities held by the Group's defined benefit pension schemes.  As this is driven by bond market yields the effect has been classified as variation from longer term investment return.
iii. The profit or loss impact arising from the elimination of own debt holdings is reflected below operating profit.  In previous reporting periods this amount has been £nil.
The amended definition more closely aligns the results of non profit Risk and Savings and Group capital and financing with our other UK businesses and is closer to the European Embedded Value (EEV) definition of operating profit. It changes the allocation of profit between operating and non-operating elements, but it does not affect underlying performance, the economics of our business, the profit before tax attributable to shareholders or the profit for the year.
The table below sets out the effect of the above changes to IFRS supplementary operating profit for the year ended 31 December 2008, and the six months ended 30 June 2009:
							Effect of				Effect of
							restating				restating
							the				the
							definition				definition
						As	of IFRS			As	of IFRS
						reported	operating	Restated		reported	operating	Restated
						2008	profit	2008		30.06.09	profit	30.06.09
						£m	£m	£m		£m	£m	£m
From continuing operations
Risk						(603)	825	222		(128)	351	223
Savings						66	(59)	7		(5)	26	21
Investment management						165	-	165		70	-	70
International						59	-	59		65	-	65
Group capital and financing						124	15	139		29	(4)	25
Operating (loss)/profit						(189)	781	592		31	373	404
Variation from longer term investment return						(1,239)	(781)	(2,020)		(154)	(373)	(527)
Property losses attributable to minority interests						(63)	-	(63)		(20)	-	(20)
Loss from continuing operations before tax attributable
to equity holders of the Company						(1,491)	-	(1,491)		(143)	-	(143)
Tax credit attributable to equity holders of the Company						361	-	361		52	-	52
Loss for the period						(1,130)	-	(1,130)		(91)	-	(91)
Loss attributable to minority interests						63	-	63		20	-	20
Loss attributable to equity holders of the Company						(1,067)	-	(1,067)		(71)	-	(71)
International Financial Reporting Standards												Page 34
Notes to the Financial Statements
2.02		Risk
(a)		Risk operating profit									2009	2008
												Restated
								Notes			£m	£m
Non profit Risk								2.02(b)			717	223
General insurance								2.02(f)			17	(2)
Other1											1	1
Total Risk operating profit											735	222
1. Other comprises estate agencies and housing related business conducted through our regulated mortgage network. It also includes Nationwide Life Risk business and business unit costs of £3m (2008: £3m) allocated to the Risk business.
(b)		Analysis of net capital released from non profit Risk business
											2009	2008
												Restated
								Notes			£m	£m
Non profit business operating profit comprises:
		Operational cash generation									438	376
		New business strain									50	(173)
		Net cash generation									488	203
		Experience variances						2.02(c)			113	2
		Changes to valuation assumptions						2.02(d)			169	(42)
		Changes to FSA reporting and capital rules									15	-
		Movements in non-cash items						2.02(e)			(229)	16
		Other									(41)	(20)
											515	159
		Tax gross-up									202	64
											717	223
Non profit business operational cash generation represents the capital and profit expected to be generated in the period from the in-force non profit business if the embedded value and valuation assumptions are borne out in practice. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
The 2008 net capital released analysis has been restated in accordance with the new definition of operating profit (see Note 2.01).
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.
In 2006, the FSA introduced a more realistic reserving framework for certain non profit business (Policy statement (PS) 06/14). In July 2009, a Part VII transfer of the Nationwide Life Risk business to Society took place and the Group chose to adopt PS06/14 for this business.  The impact of this, offset by the amortisation of associated intangible assets, is reflected within changes to FSA reporting and capital rules above.
An analysis of the experience variances, valuation assumption changes and non cash items, all net of tax, is provided below:
(c)		Experience variances
											2009	2008
												Restated
											£m	£m
Persistency											(9)	(5)
Mortality/morbidity											(9)	26
Expenses											1	18
BPA data loading											48	22
Project and development costs1											(21)	(53)
Tax2											79	(15)
Other											24	9
											113	2
1. Project and development costs in 2009 relate to continued investment in internal and other customer facing systems (£15m) and redundancy costs (£6m).
2. The current tax charge was lower than expected due to the utilisation of brought forward tax losses.
International Financial Reporting Standards												Page 35
Notes to the Financial Statements
2.02		Risk (continued)
(d)		Changes to valuation assumptions
											2009	2008
												Restated
											£m	£m
Persistency											(5)	4
Mortality/morbidity											101	(25)
Expenses											54	(55)
Other											19	34
											169	(42)
(e)		Movements in non-cash items
											2009	2008
												Restated
											£m	£m
Deferred tax1											(221)	19
Other											(8)	(3)
											(229)	16
1. The movement in deferred tax reflects the profitability of the non profit Risk business in 2009 and the consequent utilisation of brought forward losses from 2008.
(f)		General insurance operating profit, underwriting result and combined operating ratios
						Operating	Under-	Combined		Operating	Under-	Combined
						profit	writing	operating		(loss)/	writing	operating
							result	ratio		profit	result	ratio
						2009	2009	2009		2008	2008	2008
						£m	£m	%		£m	£m	%
From continuing operations
Household						12	1	98		(12)	(26)	110
Other business						5	4	79		10	8	86
						17	5	96		(2)	(18)	108
The combined operating ratio is:
	Net incurred claims + Expenses + Net commission x 100 Net earned premiums Net written premiums
International Financial Reporting Standards												Page 36
Notes to the Financial Statements
2.03		Savings
(a)		Savings operating profit									2009	2008
												Restated
								Notes			£m	£m
Non profit Savings1								2.03(b)			(4)	(79)
With-profits business2											64	107
											60	28
Core retail investments											9	-
Other3											(14)	(21)
Total Savings operating profit											55	7
1. Non profit Savings business includes non profit investment bonds and non profit pensions (including SIPPs).
2. With-profits business operating profit is the shareholders' share of total with-profits bonuses.
3. Other includes Suffolk Life, International (Ireland), Nationwide Life Savings business and business unit costs of £3m (2008: £3m), allocated to the Savings business.
(b)		Analysis of net capital released from non profit Savings business
											2009	2008
												Restated
								Notes			£m	£m
Non profit business operating profit/(loss) comprises:
		Operational cash generation									58	77
		New business strain									(77)	(161)
		Net cash generation									(19)	(84)
		Experience variances						2.03(c)			(1)	(35)
		Changes to valuation assumptions						2.03(d)			9	32
		Changes to FSA reporting and capital rules									50	-
		Movements in non-cash items						2.03(e)			(64)	(14)
		Other									22	45
											(3)	(56)
		Tax gross-up									(1)	(23)
											(4)	(79)
Non profit business operational cash generation represents the capital and profit expected to be generated in the period from the in-force non profit business if the embedded value and valuation assumptions are borne out in practice. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
The 2008 net capital released analysis has been restated in accordance with the new definition of operating profit (see Note 2.01).
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.
In 2006, the FSA introduced a more realistic reserving framework for certain non profit business (Policy statement (PS) 06/14). In 2009, the Group has chosen to implement PS 06/14 rule changes relating to the calculation of the regulatory sterling reserves on non profit unit linked contracts. The impact of this is reflected within changes to FSA reporting and capital rules above. However, sterling reserves on investment contracts are eliminated from IFRS reporting and the corresponding reduction is reported through non-cash items.
International Financial Reporting Standards												Page 37
Notes to the Financial Statements
2.03		Savings (continued)
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:
(c)		Experience variances
											2009	2008
												Restated
											£m	£m
Persistency											(1)	12
Mortality/morbidity											-	(1)
Expenses											-	(7)
Project and development costs1											(23)	(42)
Tax2											22	3
Other											1	-
											(1)	(35)
1. Project and development costs in 2009 relate to continued investment in internal and other customer facing systems (£16m) and redundancy costs (£7m).
2. The current tax charge was lower than expected due to the utilisation of brought forward tax losses.
(d)		Changes to valuation assumptions
											2009	2008
											£m	£m
Persistency											1	8
Mortality/morbidity											(2)	(1)
Expenses											(1)	(2)
Other											11	27
											9	32
(e)		Movements in non-cash items
											2009	2008
												Restated
											£m	£m
Deferred tax											(33)	16
Deferred acquisition costs											(5)	20
Deferred income liabilities											35	30
Other1											(61)	(80)
											(64)	(14)
1. In 2009, Other includes the elimination of £55m of sterling reserves following the adoption of PS06/14.
International Financial Reporting Standards												Page 38
Notes to the Financial Statements
2.04		Investment management
											2009	2008
											£m	£m
Managed pension funds											128	117
Private equity											(1)	(1)
Property											4	4
Other income1											41	52
Legal & General Investment Management											172	172
Institutional unit trusts2											(5)	(7)
Total Investment management operating profit											167	165
1. Other income includes £28m of profits arising from the provision of investment management services charged to the Group's Risk and Savings businesses (2008: £35m).
2. Investment management operating profit excludes core retail investments of £9m (2008: £nil), which has been disclosed as part of Savings.
2.05		International
											2009	2008
											£m	£m
USA											86	39
Netherlands											42	6
France											4	14
Other1											(5)	-
Total International operating profit											127	59
1. Other includes our joint venture operations in Egypt, the Gulf and India.
2.06		Foreign exchange rates
Principal rates of exchange used for translation are:
								01.01.09-			01.01.08-
								31.12.09		2009	31.12.08	2008
								Average		Year end	Average	Year end
United States Dollar								1.57		1.62	1.85	1.44
Euro								1.12		1.13	1.26	1.03
2.07		Group capital and financing
											2009	2008
												Restated
											£m	£m
Investment return1											191	298
Interest expense2											(127)	(145)
Investment expenses											(3)	(5)
Unallocated corporate expenses											(4)	(9)
Total Group capital and financing operating profit											57	139
1. The longer term expected investment return of £191m (2008: £298m) reflects an average return of 6% (2008: 7%) on the average balance of invested assets of £3.0bn (2008: £4.5bn) held within Group capital and financing calculated on a quarterly basis. The invested assets held within Group capital and financing amounted to £2.8bn at 31 December 2009 (31 December 2008: £3.9bn).
2. Interest expense excludes interest on non-recourse financing (see Note 2.16).
International Financial Reporting Standards												Page 39
Notes to the Financial Statements
2.08		Variation from longer term investment return
											2009	2008
												Restated
											£m	£m
Risk1											(218)	(854)
Savings2											127	59
Investment management											(4)	7
International											26	4
Group capital and financing3											53	(1,236)
Total variation from longer term investment return											(16)	(2,020)
1. At half-year 2009, non profit Risk business reflected a small reduction in yield from action taken to sell some of the Group's holdings of tier 1 and upper tier 2 bank securities. These actions have contributed £75m to the negative investment variance.  The cash and overlay strategy executed on the portfolio resulted in adverse effects on the assumed yields at the half year which are reflected within IFRS profit. As expected these half-year yield impacts have been reversed by action taken in further diversifying the credit portfolio in the second half of the year. The impact of  strengthening assumptions for reinvestment of cashflows, variability in currency hedging costs and inflation is also reflected here, in addition to the negative impact from default provisioning of £50m. The 2008 Risk investment return variance includes £(650)m relating to the increase in the non profit annuity credit default reserve.
2. Savings investment variances reflect management action taken in the second half of the year to optimise the tax position of unit linked business.
3. Comprises £7m (2008: £(1,096)m) relating to Society shareholder capital, £26m (2008: £(125)m) relating to the Group's treasury function, £14m (2008: £(15)m) actuarial gains and losses arising on annuity assets held by the defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited and £6m (2008: £nil) from the impact of Legal & General debt owned by the Group.
Investment return is allocated to operating profit by reference to a longer term rate of investment return for the respective invested funds. The difference between the amount allocated to operating profit and actual investment return is the variation from longer term investment return analysed above.
2.09		Analysis of tax
								Profit/			Profit
								(loss)		Tax	(loss)	Tax
								before		(expense)/	before	(expense)/
								tax		credit	tax	credit
								2009		2009	2008	2008
											Restated	Restated
								£m		£m	£m	£m
From continuing operations
Risk								735		(204)	222	(71)
Savings								55		(14)	7	10
Investment management								167		(46)	165	(50)
International								127		(41)	59	(20)
Group capital and financing								57		(8)	139	(32)
Investment projects								(32)		9	-	-
Operating profit/(loss)								1,109		(304)	592	(163)
Variation from longer term investment return								(16)		74	(2,020)	524
Property losses attributable to minority interests								(19)		-	(63)	-
Profit/(loss) for the year/Tax								1,074		(230)	(1,491)	361
Only the element of total tax attributable to equity holders' profit/loss is shown explicitly in the analysis above; the tax attributable to policyholder returns is included within reported operating profit.
A surplus of £469m has been declared in the period by Society's LTF, which represents the full balance of the Shareholder Retained Capital (SRC). As such, no deferred tax liability exists at the balance sheet date.
At 31 December 2009, a partial provision is held for a dispute with HMRC relating to the basis of recognition of taxable profit within Society's LTF.  The matter is being progressed through the Tax Tribunals Service.  The maximum exposure in relation to this issue is £232m, plus  interest of £98m.
International Financial Reporting Standards												Page 40
Notes to the Financial Statements
2.10		Earnings per share
(a)		Earnings per share
				Profit		Profit		Loss			Loss
				before	Tax	after	Earnings	before		Tax	after	Earnings
				tax	expense	tax	per share	tax		credit	tax	per share
				2009	2009	2009	2009	2008		2008	2008	2008
								Restated		Restated	Restated	Restated
				£m	£m	£m	p	£m		£m	£m	p
Operating profit/(loss) from
continuing operations				1,109	(304)	805	13.82	592		(163)	429	7.19
Variation from longer term
investment return				(16)	74	58	1.00	(2,020)		524	(1,496)	(25.07)
Earnings per share based on profit/
(loss) attributable to equity holders				1,093	(230)	863	14.82	(1,428)		361	(1,067)	(17.88)
(b)		Diluted earnings per share
(i)		Based on operating profit/(loss) from continuing operations after tax
						Profit	Number	Earnings		Profit	Number	Earnings
						after tax	of shares1	per share		after tax	of shares1	per share
						2009	2009	2009		2008	2008	2008
										Restated		Restated
						£m	m	p		£m	m	p
Operating profit/(loss) from continuing operations after tax						805	5,824	13.82		429	5,968	7.19
Net shares under options allocable
for no further consideration2						-	33	(0.08)		-	22	(0.03)
Diluted earnings per share						805	5,857	13.74		429	5,990	7.16
(ii)		Based on profit/(loss) attributable to equity holders
						Profit	Number	Earnings		Loss	Number	Earnings
						after tax	of shares1	per share		after tax	of shares1	per share
						2009	2009	2009		2008	2008	2008
						£m	m	p		£m	m	p
Profit/(loss) attributable to equity holders of the Company						863	5,824	14.82		(1,067)	5,968	(17.88)
Net shares under options allocable
for no further consideration2						-	33	(0.09)		-	22	-
Diluted earnings per share						863	5,857	14.73		(1,067)	5,990	(17.88)
The number of shares in issue at 31 December 2009 was 5,862,216,780 (31 December 2008: 5,861,627,994).
1. Weighted average number of shares.
2. At 31 December 2008, net shares under options allocable for no further consideration were anti-dilutive and were therefore excluded from the diluted earnings per share calculation.
International Financial Reporting Standards												Page 41
Notes to the Financial Statements
2.11		Gross written premiums on insurance contracts
											2009	2008
											£m	£m
From continuing operations
Risk
Non-participating Risk business											3,057	4,038
General insurance
- Household											247	267
- Other business											26	29
Total Risk											3,330	4,334
Savings
Non-participating Savings business											45	49
Participating business											772	551
Total Savings											817	600
International
USA											487	397
Netherlands											270	278
France											371	286
Total International											1,128	961
Total gross written premiums											5,275	5,895
2.12		Acquisitions
												Total net
							Date of	Cash		Transaction	Total	assets
							acquisition	paid		costs	cost	acquired
Company name								£m		£m	£m	£m
Nationwide Life Limited							31/01/08	250		2	252	252
Nationwide Unit Trust Managers Limited							31/01/08	49		1	50	50
Suffolk Life Group Plc							06/05/08	62		1	63	63
On 31 January 2008, the Group acquired 100% of the shares of Nationwide Life Limited and Nationwide Unit Trust Managers Limited. In addition, on 6 May 2008 the Group acquired 100% of the shares of Suffolk Life Group Plc. The total cost of these acquisitions was £365m. Full details are provided in the 2008 full year financial statements.
International Financial Reporting Standards												Page 42
Notes to the Financial Statements
2.13		Financial investments
											2009	2008
											£m	£m
Equities											139,296	107,408
Unit trusts											6,329	5,456
Debt securities											123,511	112,013
Accrued interest											1,688	1,607
Derivative assets1											3,749	6,130
Loans and receivables											1,443	1,900
											276,016	234,514
1. Derivative assets include £2,160m (2008: £3,765m) held on behalf of unit linked policyholders.  Derivative assets are shown gross of derivative liabilities. Exposures arise from:
a. The use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.
b. Derivatives matching Guaranteed Equity Bonds within the Nationwide Life portfolio.
2.14		Share capital and share premium
							2009				2008
							Number				Number
							of	2009			of	2008
Authorised share capital							shares	£m			shares	£m
At 31 December: ordinary shares of 2.5p each						9,200,000,000		230		9,200,000,000		230
										Number	Share	Share
										of	capital	premium
Issued share capital, fully paid										shares	£m	£m
As at 1 January 2009								5,861,627,994			147	936
Options exercised under share option schemes
- Executive share option scheme								20,000			-	-
- Savings related share option scheme								568,786			-	-
As at 31 December 2009								5,862,216,780			147	936
										Number	Share	Share
										of	capital	premium
Issued share capital, fully paid										shares	£m	£m
As at 1 January 2008								6,296,321,160			157	927
Shares cancelled under share buyback programme1								(449,891,914)			(11)	-
Options exercised under share option schemes
- Executive share option scheme								640,846			-	1
- Savings related share option scheme								14,557,902			1	8
As at 31 December 2008								5,861,627,994			147	936
1. During 2008, 449,891,914 shares were repurchased and cancelled under the share buyback programme representing 7.1% of opening issued share capital, at a cost of £523m including expenses.
There is one class of ordinary shares. All shares issued carry equal voting rights.
The holders of the Company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.
International Financial Reporting Standards												Page 43
Notes to the Financial Statements
2.15		Segmental analysis of shareholders' equity
											2009	2008
											£m	£m
Risk
General insurance											120	99
Other											-	2
Total Risk											120	101
Savings
Core retail investments											66	59
Other											13	14
Total Savings											79	73
Investment management											339	322
International
USA											1,002	932
Netherlands											158	135
France											178	193
Emerging markets											34	12
Total International											1,372	1,272
Group capital and financing											2,286	1,820
Shareholders' equity											4,196	3,588
The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.
The Risk segment comprises individual and group protection, individual and bulk purchase annuities, and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.
The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products.  'Other' principally comprises the Group's interest in Cofunds.
The Investment management segment comprises institutional fund management and institutional unit trust business.
The International segment comprises businesses in the United States, France, the Netherlands and emerging markets.
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 Group capital and financing.  This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
The Group assesses performance and allocates resources on the basis of IFRS operating profit before tax. Segmental IFRS operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax.
International Financial Reporting Standards												Page 44
Notes to the Financial Statements
2.16		Analysis of borrowings
											2009	2008
											£m	£m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)											666	692
5.875% Sterling undated subordinated notes (Tier 2)											425	426
4.0% Euro subordinated notes 2025 (Tier 2)											498	539
10% Sterling subordinated notes 2041 (Tier 2)											308	-
Client fund holdings of Group debt1											(27)	-
Total subordinated borrowings											1,870	1,657
Senior borrowings
Sterling medium term notes 2031-2041											608	608
Euro Commercial paper 2010											98	609
Bank loans 2010											12	160
Non recourse financing
- US Dollar Triple X securitisation 2025											262	369
- US Dollar Triple X securitisation 2037											274	308
- Sterling property partnership loans 2011											-	101
- Suffolk Life unit linked borrowings											158	159
- LGV 6 Private Equity Fund Limited Partnership											40	-
Client fund holdings of Group debt1											(45)	-
Total senior borrowings											1,407	2,314
Total borrowings											3,277	3,971
Total borrowings (excluding non recourse financing)											2,543	3,034
1. £72m of the Group's subordinated and senior debt is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the tables above.   The prior year has not been restated.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital.  These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes.  These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
4.0% Euro subordinated notes 2025
In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.
10% Sterling subordinated notes 2041
On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.
International Financial Reporting Standards												Page 45
Notes to the Financial Statements
2.16		Analysis of borrowings (continued)
Non recourse financing
US Dollar Triple X securitisation 2025
In 2004, a subsidiary of Legal & General America Inc issued US$550m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business.
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of Legal & General America Inc issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.
Sterling property partnership loans 2011
The property partnership loans are secured on specific properties.
Suffolk Life unit linked borrowings
These borrowings relate solely to client investments.
LGV6 Private Equity Fund Limited Partnership
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 31 December 2009, the Group had in place a £960m syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2012.
Holding company short term assets
Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £107m (Euro Commercial Paper and Bank Loans).
2.17		Minority interests
Minority interests represent third party interests in property investment vehicles which are consolidated in the Group's results.  The reduction in the minority interest in 2009 arises from the dilution of the Group's ownership of St Giles Limited Partnership and The Leisure Fund Limited Partnership below 50%.
International Financial Reporting Standards												Page 46
Notes to the Financial Statements
2.18		Insurance contract liabilities
(a)		Analysis of insurance contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
							Notes	£m		£m	£m	£m
Participating insurance contracts							2.18(b)	9,404		(1)	9,384	(1)
Non-participating insurance contracts1							2.18(c)	28,353		(1,902)	25,582	(1,847)
General insurance contracts							2.08(d)	230		(9)	259	(11)
Insurance contract liabilities								37,987		(1,912)	35,225	(1,859)
1. Excluding General insurance contracts.
(b)		Movement in participating insurance contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
As at 1 January								9,384		(1)	11,663	(1)
New liabilities in the year								658		-	333	-
Liabilities discharged in the year								(1,157)		-	(1,628)	-
Unwinding of discount rates								92		-	383	-
Effect of change in non-economic assumptions								48		-	58	-
Effect of change in economic assumptions								430		-	(1,348)	-
Other								(51)		-	(77)	-
As at 31 December								9,404		(1)	9,384	(1)
(c)		Movement in non-participating insurance contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
As at 1 January								25,582		(1,847)	22,568	(1,302)
New liabilities in the year								2,339		(312)	3,020	(262)
Liabilities discharged in the year								(2,004)		136	(1,493)	79
Unwinding of discount rates								1,233		(103)	1,022	(88)
Effect of change in non-economic assumptions								(319)		188	(87)	121
Effect of change in economic assumptions1								1,871		(2)	(1,366)	(26)
Foreign exchange adjustments								(363)		33	946	(82)
Acquisitions								-		-	1,172	(286)
Other								14		5	(200)	(1)
As at 31 December								28,353		(1,902)	25,582	(1,847)
1. The economic assumptions changes in 2009 principally reflect the narrowing of credit spreads.  Movements in credit spreads also increased the value of the corresponding backing assets.
In 2008, the Effect of changes in economic assumptions includes the impact arising from the prevailing interest rate environment and increased credit spreads reducing liabilities, partially offset by £650m of additional reserves for non profit annuity credit default.
International Financial Reporting Standards												Page 47
Notes to the Financial Statements
2.18		Insurance contract liabilities (continued)
(d)		Analysis of General insurance contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
Outstanding claims								87		(3)	99	(4)
Claims incurred but not reported								23		-	29	-
Unearned premiums								120		(6)	131	(7)
General insurance contract liabilities								230		(9)	259	(11)
(e)		Movement in General insurance claim liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
As at 1 January								128		(4)	172	(12)
Claims arising								188		(1)	231	(4)
Claims paid								(177)		2	(235)	6
Adjustments to prior year liabilities								(29)		-	(40)	6
As at 31 December								110		(3)	128	(4)
2.19		Investment contract liabilities
(a)		Analysis of investment contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
Participating investment contracts								7,139		(1)	6,992	(12)
Non-participating investment contracts								234,502		(180)	196,698	(126)
Investment contract liabilities								241,641		(181)	203,690	(138)
(b)		Movement in investment contract liabilities
										Re-		Re-
								Gross		insurance	Gross	insurance
								2009		2009	2008	2008
								£m		£m	£m	£m
As at 1 January								203,690		(138)	232,368	(208)
Reserves in respect of new business								37,618		(750)	38,583	(741)
Amounts paid on surrenders and maturities during the year								(32,382)		571	(36,852)	504
Investment return and related benefits								33,221		136	(33,500)	307
Management charges								(313)		-	(378)	-
Foreign exchange adjustments								(193)		-	527	-
Acquisitions								-		-	2,942	-
As at 31 December								241,641		(181)	203,690	(138)
International Financial Reporting Standards												Page 48
Notes to the Financial Statements
2.20		Sensitivity analysis
											Impact on	Impact
											pre-tax	on
											profit	equity
											net of re-	net of re-
											insurance	insurance
											2009	2009
UK long term business											£m	£m
Sensitivity test
1% increase in interest rates											(92)	(66)
1% decrease in interest rates											71	51
Credit spread widens by 100 bps with no change in expected defaults											(141)	(101)
1% increase in inflation											(3)	(2)
Default of largest reinsurer											(589)	(424)
5% decrease in annuitant mortality											(281)	(202)
* In calculating the alternative values, all other assumptions are left unchanged.  In practice, items of the Group's experience may be correlated.
* The Group seeks to actively manage its asset and liability position.  A change in market conditions may lead to changes in the asset allocation or charging structure which may have a more, or less, significant impact on the value of the liabilities.  The analysis also ignores any second order effects of the assumption change, including the potential impact on the Group asset and liability position and any second order tax effects.
* These stresses use the assets that back the liabilities.  Any excess assets have not been stressed in these calculations.
* The sensitivity of the profit to changes in assumptions may not be linear.  They should not be extrapolated to changes of a much larger order.
* The change in interest rate test assumes a 100 basis point change in the gross redemption yield on fixed interest securities together with a 100 basis point change in the real yields on variable securities.  Valuation interest rates are assumed to move in line with market yields adjusted to allow for the impact of FSA regulations.
* In the sensitivity for credit spreads corporate bond yields have increased by 100bps, gilt and approved security yields unchanged, and there has been no adjustment to the default assumptions.
* The inflation stress adopted is a 1% pa increase in inflation resulting in a 1% pa reduction in real yield and no change to the nominal yield. In addition the expense inflation rate is increased by 1% pa.
* The reinsurer stress shown is equal to the technical provisions ceded to that insurer.
* The annuitant mortality stress is a 5% reduction in the mortality rates for immediate and deferred annuitants with no change to the mortality improvement rates (so for example a rate that was 80% of a standard table would become 76% of that standard table).
											Impact on	Impact
											pre-tax	on
											profit	equity
											net of re-	net of re-
											insurance	insurance
											2009	2009
General insurance											£m	£m
Sensitivity test
Single storm event with 1 in 200 year probability											(50)	(36)
Subsidence event - worst claims ratio in last 30 years											(41)	(29)
Economic downturn											(39)	(28)
5% decrease in overall claims ratio											8	6
5% surplus over claims liabilities											5	4
International Financial Reporting Standards												Page 49
Notes to the Financial Statements
2.21		Provisions
(i) Analysis of provisions
											2009	2008
										Notes	£m	£m
Retirement benefit obligations										(ii)	746	551
Other provisions											11	4
											757	555
(ii) Retirement benefit obligations
								Fund and			Fund and
								Scheme		Overseas	Scheme	Overseas
								2009		2009	2008	2008
								£m		£m	£m	£m
Gross pension obligations included in provisions								(747)		1	(551)	-
Annuity obligations insured by Society								465		-	411	-
Gross defined benefit pension deficit								(282)		1	(140)	-
Deferred tax on defined benefit pension deficit								79		-	39	-
Net defined benefit pension deficit								(203)		1	(101)	-
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 31 December 2009, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £203m (2008: £101m). These amounts have been recognised in the financial statements with £121m charged against shareholder equity (2008: £59m) and £82m against the unallocated divisible surplus (2008: £42m).
2.22		Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the FSA, ombudsman rulings, industry compensation schemes and court judgments.
Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the Group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.
In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society.  In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition.  Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability, is uncertain.  The Society has made no payment or provision in respect of this matter.
Group companies have given indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions. Legal & General Group plc has provided indemnities and guarantees in respect of the liabilities of Group companies in support of their business activities.
International Financial Reporting Standards												Page 50
Notes to the Financial Statements
2.23		Basis of preparation
Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Commission (EC) for use in the European Union. The Group's financial statements also comply with IFRS as issued by the IASB.
The Group presents its balance sheet broadly in order of liquidity. Given the long term nature of the Group's core business, this is considered to be more relevant than a presentation that distinguishes between before or after twelve months. However, for each asset and liability line item which combines amounts expected to be recovered or settled before and after twelve months from the balance sheet date, disclosure of the split is made by way of notes in the annual report and accounts.
Financial assets and financial liabilities are disclosed gross in the balance sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the income statement unless required or permitted by an accounting standard or International Financial Reporting Interpretations Committee (IFRIC) interpretation, as detailed in the applicable accounting policies of the Group.
Estimates are based on management's best knowledge of current circumstances and future events and actions, however, actual results may differ from those estimates, possibly significantly.
The Group has adopted the revised presentation under Revised IAS 1, 'Presentation of financial statements' and accordingly included a separate statement of comprehensive income. The revision prohibits the presentation of items of income and expenses in the statement of changes in equity and requires changes in equity attributable to shareholders to be presented separately from those that are not attributable to shareholders. The changes are purely presentational and the comparatives have been restated to reflect the new presentation.
In 2009, the Group adopted amendments to IFRS 2 'Share-based payments' and IAS 23 'Borrowing costs' with no impact to the Group's results.
Reportable segments
The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.
The Risk segment comprises individual and group protection, individual and bulk purchase annuities, and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.
The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products.  'Other' principally comprises the Group's interest in Cofunds.
The Investment management segment comprises institutional fund management and institutional unit trust business.
The International segment comprises businesses in the United States, France, the Netherlands and emerging markets.
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 Group capital and financing.  This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
The Group assesses performance and allocates resources on the basis of IFRS operating profit before tax. Segmental IFRS operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax.

 

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