L&G 2009 Final Results Part 3

RNS Number : 9802I

Legal & General Group Plc

23 March 2010

 



Cash Flow and Capital									Page 51
3.01  Operational cash generation1
The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to IFRS profit after tax.
		Operational	New				Investment		IFRS
		cash	business	Net	Inter-		gains and		profit
		generation	strain	cash	national2	Variances	losses3	Other4	after tax
Year ended 31 December 2009		£m	£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit		454	50	504	-	27	-	-	531
Total Savings operating profit		110	(77)	33	-	16	-	(8)	41
Investment management
operating profit		121	-	121	-	-	-	-	121
International		8	-	8	78	-	-	-	86
Group capital and financing		33	-	33	-	-	16	-	49
Investment projects		-	-	-	-	-	-	(23)	(23)
Operating profit		726	(27)	699	78	43	16	(31)	805
Investment variance		-	-	-	-	-	58	-	58
Property losses attributable
to minority interests		-	-	-	-	-	-	(19)	(19)
Total		726	(27)	699	78	43	74	(50)	844
Dividends paid in the year				(185)
Net cash available for reinvestment				514
Year ended 31 December 2008
Total Risk operating profit		379	(173)	206	-	(44)	-	(11)	151
Total Savings operating profit		138	(161)	(23)	-	28	-	12	17
Investment management
operating profit		115	-	115	-	-	-	-	115
International		-	-	-	39	-	-	-	39
Group capital and financing		22	-	22	-	-	74	11	107
Operating profit		654	(334)	320	39	(16)	74	12	429
Investment variance		-	-	-	-	-	(1,496)	-	(1,496)
Property losses attributable
to minority interests		-	-	-	-	-	-	(63)	(63)
Total		654	(334)	320	39	(16)	(1,422)	(51)	(1,130)
Dividends paid in the year				(239)
Net cash available for reinvestment				81
Variances5
				Risk	Savings	Total NP	Risk	Savings	Total NP
				£m	£m	£m	£m	£m	£m
		Notes		2009	2009	2009	2008	2008	2008
Experience variances		2.02(b)/2.03(b)		113	(1)	112	2	(35)	(33)
Changes to valuation assumptions		2.02(b)/2.03(b)		169	9	178	(42)	32	(10)
Changes to FSA reporting
and capital rules		2.02(b)/2.03(b)		15	50	65	-	-	-
Movements in non-cash items		2.02(b)/2.03(b)		(229)	(64)	(293)	16	(14)	2
Other		2.02(b)/2.03(b)		(41)	22	(19)	(20)	45	25
Total				27	16	43	(44)	28	(16)
1.  The operational cash generation analysed above is available to replenish the capital stock, reinvest back into the business and finance the dividend.  In 2009, the business generated operational cashflow of £726m (2008: £654m) before investing £27m (2008: £334m) in non profit new business strain, resulting in net cash generated of £699m (2008: £320m).  In 2009, £120m has been used to pay the 2008 final dividend and £65m to pay the half-year dividend, resulting in £514m (2008: £81m) being retained, augmenting the IGD surplus.
2.  Profits arising in the international businesses that are not paid out in dividends are retained locally to support growth and are treated as not being available for distribution.
3.  Investment gains and losses have been excluded from operational cash generation in order to reflect an expected net of tax income on shareholders' investments.
4.  Other includes the removal of amortisation on acquired intangibles in our Savings business for 2009.   Costs relating to one-off investment projects are also excluded for 2009.  Other in 2008 reflects adjustments arising on restatement of the 2008 operating profit and minor definitional changes in net cash.
5.  Non-recurring experience variances and assumption changes are absorbed directly by the Group's IGD surplus.  Movements in non-cash items do not generate cash in the period and are therefore not available for distribution.
Cash Flow and Capital									Page 52
3.02  Regulatory capital resources
(a)	Insurance Group's Directive (IGD)
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates.  At Group level, Legal & General must comply with the requirements of the IGD.  The table below shows the estimated total Group capital resources, Group capital resources requirement and the surplus based on unaudited regulatory returns.
								2009	2008
								£bn	£bn
Core tier 1								4.8	3.9
Innovative tier 1								0.6	0.6
Upper tier 2								0.4	0.4
Lower tier 21								0.8	0.6
Deductions2								(1.0)	(1.1)
Group capital resources								5.6	4.4
Group capital resources requirement								2.5	2.6
IGD surplus3								3.1	1.8
Coverage ratio (Group capital resources / Group capital resources requirement)								2.24 times	1.69 times
1.  The increase in lower tier 2 capital reflects £0.3bn of capital raised in July 2009 , which has been offset by foreign exchange movements in translating the Group's euro denominated lower tier 2 debt.
2.  Deductions comprises inadmissible assets in L&G America of £0.8bn (2008: £0.8bn),  in Society of £0.1bn (2008: £0.2bn) and in other subsidiaries of £0.1bn (2008: £0.1bn).
3.  The IGD surplus is stated after accruing for the period end dividend.
A segmental analysis is given below.
								2009	2008
								£bn	£bn
Society long term fund1								2.1	1.9
Society shareholder capital								2.2	1.6
General insurance								0.1	0.1
France								0.2	0.2
Netherlands								0.2	0.2
Nationwide Life								0.1	0.1
USA								0.2	0.1
Investment management								0.3	0.3
Other2								0.9	1.3
Innovative tier 1								0.6	0.6
Tier 2								1.2	1.0
Debt								(2.5)	(3.0)
Group capital resources								5.6	4.4
Society long term fund1								2.1	2.1
Other								0.4	0.5
Group capital resources requirement								2.5	2.6
1. The Society long term fund (LTF) capital requirement of £2.1bn (2008: £2.1bn) is met by £2.1bn (2008: £1.9bn) of capital resources in the LTF and £nil  (2008: £0.2bn) from other Society shareholder capital.
2. Other includes corporate assets held within the Group's Treasury function.
Cash Flow and Capital									Page 53
3.02  Regulatory capital resources (continued)
(a)	Insurance Group's Directive (IGD) (continued)
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.
								2009	2008
								£bn	£bn
Capital and reserves attributable to equity holders on an IFRS basis								4.2	3.6
Innovative tier 1								0.6	0.6
Tier 2								1.2	1.0
Proposed dividends								(0.2)	(0.1)
Additional capital available from Society								0.6	0.3
Adjustment to reflect regulatory value of the USA operation								(0.8)	(0.8)
Other regulatory adjustments								-	(0.2)
Group capital resources								5.6	4.4
(b)	With-profits realistic balance sheet
The table below summarises the realistic position of the with-profits part of Society's LTF:
								2009	2008
								£m	£m
With-profits surplus								841	641
Risk capital margin								241	373
Surplus								600	268
Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (peak 2).  The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the FSA. The surplus includes the present value of future shareholder transfers of £326m (2008: £212m) as a liability in the calculation.
(c)	Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis.
						2009	2009	2008	2008
						Long term	General	Long term	General
						business	insurance	business	insurance
						£bn	£bn	£bn	£bn
Available capital resources - Tier 1						4.8	0.1	4.0	0.1
Insurance capital requirement						2.1	0.1	1.9	0.1
Capital requirements of regulated related undertakings						0.2	-	0.3	-
With-profits Insurance Capital Component						-	-	0.2	-
Capital resources requirement						2.3	0.1	2.4	0.1
Regulatory capital surplus						2.5	-	1.6	-
Movement in Society long term insurance capital requirement
							2009	2008	Change
Pillar 1 capital requirement							£bn	£bn	£bn
Protection							0.6	0.5	0.1
Annuities							0.8	0.7	0.1
Non profit pensions and unit linked bonds							0.1	0.1	-
Non profit							1.5	1.3	0.2
With-profits							0.6	0.6	-
Long term insurance capital requirement							2.1	1.9	0.2
On a regulatory basis (peak 1), Society long term business regulatory capital surplus of £2.5bn (2008: £1.6bn) comprises capital resources within the long term fund of £2.1bn (2008: £1.9bn) and capital resources outside the long term fund of £2.7bn (2008: £2.1bn) less the capital resources requirement of £2.3bn (2008: £2.4bn).
The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a peak 2 basis is lower than on a peak 1 basis and represents the difference in the surplus between the two bases.  It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b).  A further adjustment is made to the Peak 2 surplus to remove the present value of future shareholder transfers which is treated as a liability in Society's with-profits realistic surplus.  At 31 December 2009, this adjustment amounted to £326m (2008: £212m); however the adjustment to the WPICC has been restricted by £178m as the Peak 1 surplus is lower than the Peak 2 surplus.
Cash Flow and Capital									Page 54
3.03  Group capital resources
								Share-
								holders'
				UK non				equity and
			UK with-	profit		Overseas	Total	other
			profits	and SRC1	LGPL	and PMC	life	activities	Total
As at 31 December 2009			£m	£m	£m	£m	£m	£m	£m
Ordinary shareholders' equity outside the LTF			-	157	703	1,553	2,413	492	2,905
Ordinary shareholders' equity in the LTF			-	1,291	-	-	1,291	-	1,291
Capital and reserves attributable to equity holders of
the Company			-	1,448	703	1,553	3,704	492	4,196
Adjustments onto regulatory basis:
Unallocated divisible surplus			1,249	-	-	35	1,284	-	1,284
Other2			(408)	(609)	-	(763)	(1,780)	(227)	(2,007)
Other qualifying capital:
Subordinated borrowings			-	-	-	-	-	1,815	1,815
Internal loans3			-	-	981	-	981	(981)	-
Proposed dividend			-	-	-	-	-	(160)	(160)
Total available capital resources			841	839	1,684	825	4,189	939	5,128
IFRS liability analysis:
UK participating liabilities on realistic basis
- Options and guarantees			723	-	-	-	723	-	723
- Other policyholder obligations			13,447	33	-	-	13,480	-	13,480
Overseas participating liabilities			-	-	-	2,340	2,340	-	2,340
Unallocated divisible surplus			1,249	-	-	35	1,284	-	1,284
Value of in-force non-participating contracts			(367)	-	-	-	(367)	-	(367)
Participating contract liabilities			15,052	33	-	2,375	17,460	-	17,460
Unit linked non-participating life assurance liabilities			554	491	-	1,404	2,449	-	2,449
Non-linked non-participating life assurance liabilities			1,953	21,878	-	2,073	25,904	-	25,904
Unit linked non-participating
investment contract liabilities			8,152	18,341	-	208,009	234,502	-	234,502
General insurance liabilities			-	-	-	-	-	230	230
Non-participating contract liabilities			10,659	40,710	-	211,486	262,855	230	263,085
1. UK non profit and SRC includes Nationwide Life Limited and Suffolk Life Annuities Limited.
2. Other consists of shareholders' share in realistic liabilities of £307m and changes to the values of assets and liabilities on a regulated basis of £1,700m.
3. Internal loans wholly comprises the contingent loan (£981m) from Society shareholders' equity to LGPL, which is reflected in the value of LGPL for regulatory purposes.
Cash Flow and Capital									Page 55
3.04  Movements in life business capital resources
						UK non
					UK with-	profit		Overseas	Total
					profits	and SRC	LGPL	and PMC	life
					£m	£m	£m	£m	£m
As at 1 January 2009					641	673	565	687	2,566
Effect of investment variations					241	75	(47)	3	272
Effect of changes in valuation assumptions					11	52	121	-	184
Changes in regulatory requirements					-	26	39	139	204
New business					(44)	(95)	67	(75)	(147)
Cash distributions					-	(108)	-	(87)	(195)
Capital contributions					-	-	600	48	648
Other factors					(8)	216	339	110	657
As at 31 December 2009					841	839	1,684	825	4,189

 

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