L&G Full Year Results 2017 Part 2

RNS Number : 9079G

Legal & General Group Plc

07 March 2018

Legal & General Group Plc

Full year results 2017 Part 2

IFRS and Release from Operations Page 29

1.01 Operating profit

		2017	2016
For the year ended 31 December 2017	Notes	£m	£m


From continuing operations
Legal & General Retirement (LGR)	1.03	1,247	809
- LGR Institutional (LGRI)		906	651
- Legal & General Retail Retirement (LGRR)		341	158
Legal & General Investment Management (LGIM)	1.04	400	366
Legal & General Capital (LGC)	1.06	272	257
Legal & General Insurance (LGI)	1.03	303	303
- UK and Other		209	218
- US (LGIA)		94	85
General Insurance	1.05	37	52


Continuing operating profit from divisions		2,259	1,787
Discontinued operating profit from divisions¹		107	115


Operating profit from divisions		2,366	1,902
Group debt costs²		(191)	(172)
Group investment projects and expenses	1.07	(120)	(168)


Operating profit		2,055	1,562
Investment and other variances	1.08	24	13
Gains on non-controlling interests		11	7


Profit before tax attributable to equity holders		2,090	1,582
Tax expense attributable to equity holders of the company	3.06	(188)	(317)


Profit for the year		1,902	1,265



Profit attributable to equity holders of the company		1,891	1,258


		p	p


Earnings per share³	1.10	31.87	21.22
Diluted earnings per share³	1.10	31.73	21.13


1. Discontinued operating profit from divisions primarily reflects the operating profit of the Savings division following the announcement in December 2017 to sell the Mature Savings business to Swiss Re. For these operating profit disclosures, discontinued operations also includes the results of Legal & General Netherlands and Cofunds. These businesses were sold during 2017 and were components of the LGI (UK and Other) and Savings divisions respectively. Profit before tax attributable to equity holders in the Consolidated Income Statement of £1,991m excludes the profit before tax associated with discontinued operations of £99m, as this is included in the Profit after tax from discontinued operations of £80m.
2. Group debt costs exclude interest on non recourse financing.
3. All earnings per share calculations are based on profit attributable to equity holders of the company.

This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the year.

· For LGR, worldwide pension risk transfer business (including longevity insurance) is within LGRI, and individual retirement and lifetime mortgages is within LGRR.

· LGIM represents institutional and retail investment management and workplace savings businesses.

· LGC represents shareholder assets invested in direct investments, and traded and treasury assets.

· LGI represents business in retail and group protection written in the UK, networks, and protection business written in the US (LGIA).

· General Insurance comprises short-term household and other personal insurance.

· Discontinued operations represent businesses that have either been sold or announced to sell in 2017, namely Mature Savings (including with-profits), Legal & General Netherlands (LGN) (sold in April 2017) and Cofunds (sold in January 2017). LGN and Cofunds were not classified as discontinued in 2016.

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which includes the IFRS profit before tax) and LGA (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition, and start-up costs, are also excluded from operating profit.

Sale of Mature Savings

In December 2017, the group announced the sale of its Mature Savings business to the ReAssure division of Swiss Re Limited (Swiss Re) for £650m. The sale is subject to regulatory approval and the Part VII transfer is planned to complete in 2019. As a result of the announcement the assets and liabilities of the Mature Savings business are classified as held for sale on the Consolidated Balance Sheet, and its results are included within discontinued operations in the Consolidated Income Statement and any associated disclosures.

IFRS and Release from Operations Page 30

1.02 Reconciliation of release from operations to operating profit before tax


					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations¹	(strain)	operations	variances	tions	other	and other²	after tax	(credit)	tax
31 December 2017	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


LGR³	508	180	688	72	274	3	-	1,037	210	1,247
- LGRI	347	152	499	66	190	1	-	756	150	906
- LGRR	161	28	189	6	84	2	-	281	60	341
LGIM	342	(21)	321	(4)	(1)	2	-	318	82	400
- LGIM excluding
Workplace Savings	318	-	318	-	-	-	-	318	82	400
- Workplace Savings⁴	24	(21)	3	(4)	(1)	2	-	-	-	-
LGC	224	-	224	-	-	-	-	224	48	272
LGI	273	2	275	(50)	48	(25)	(26)	222	81	303
- UK and Other³	193	2	195	(50)	48	(25)	1	169	40	209
- US (LGIA)	80	-	80	-	-	-	(27)	53	41	94
General Insurance	30	-	30	-	-	-	-	30	7	37


From continuing
operations	1,377	161	1,538	18	321	(20)	(26)	1,831	428	2,259
From discontinued
operations⁵	107	(5)	102	(1)	3	(21)	3	86	21	107


Total from divisions	1,484	156	1,640	17	324	(41)	(23)	1,917	449	2,366


Group debt costs	(154)	-	(154)	-	-	-	-	(154)	(37)	(191)
Group investment projects
and expenses	(32)	-	(32)	-	-	-	(64)	(96)	(24)	(120)


Total	1,298	156	1,454	17	324	(41)	(87)	1,667	388	2,055


1. Release from operations includes dividends from the US of £80m within the LGIA line.
2. International and other includes £48m of restructuring costs (£59m before tax) within the group investment projects and expenses line.
3. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this transfer has been to reduce LGR 2016 release from operations by £1m and increase LGI (UK and Other) 2016 release from operations by £1m.
4. Workplace Savings represents administration business only. Profits on fund management services are included within LGIM (excluding Workplace Savings).
5. Discontinued operations primarily reflects the result from the Savings division following the announcement in December 2017 to sell the Mature Savings business to Swiss Re. For this Reconciliation of release from operations to operating profit before tax disclosure, discontinued operations also includes the results of Legal & General Netherlands (sold in April 2017) and Cofunds (sold in January 2017). These businesses were sold during 2017 and were previously reflected in the LGI (UK and Other) and Savings divisional results respectively.

Release from operations for LGR, LGIM and LGI represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings and protection businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA and operating profit after tax from the remaining LGI businesses. The release from operations within discontinued operations reflects the shareholders' share of bonuses on with-profits business, operating profit after tax from the Mature Savings business, and dividends remitted from Legal & General Netherlands (LGN).

New business surplus/strain for LGR, LGIM and LGI represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.

Net release from operations for LGR, LGIM, LGI and discontinued operations is defined as release from operations plus/(less) new business surplus/(strain).

Release from operations and net release from operations for LGC and General Insurance represents the operating profit (net of tax).

See Note 1.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.

IFRS and Release from Operations Page 31

1.02 Reconciliation of release from operations to operating profit before tax (continued)


					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations¹	(strain)	operations	variances	tions	other	and other²	after tax	(credit)	tax
31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


LGR³	432	159	591	34	40	6	-	671	138	809
- LGRI	297	147	444	27	80	(9)	-	542	109	651
- LGRR	135	12	147	7	(40)	15	-	129	29	158
LGIM	308	(22)	286	(1)	-	-	-	285	81	366
- LGIM excluding Workplace
Savings	290	-	290	-	-	-	-	290	82	372
- Workplace Savings ⁴	18	(22)	(4)	(1)	-	-	-	(5)	(1)	(6)
LGC	214	-	214	-	-	-	-	214	43	257
LGI	248	23	271	(11)	5	(29)	(21)	215	88	303
- UK and Other³	185	23	208	(11)	5	(29)	1	174	44	218
- US (LGIA)	63	-	63	-	-	-	(22)	41	44	85
General Insurance	42	-	42	-	-	-	-	42	10	52


From continuing
operations	1,244	160	1,404	22	45	(23)	(21)	1,427	360	1,787
From discontinued
operations⁵	174	(5)	169	4	8	(32)	(58)	91	24	115


Total from divisions	1,418	155	1,573	26	53	(55)	(79)	1,518	384	1,902


Group debt costs	(138)	-	(138)	-	-	-	-	(138)	(34)	(172)
Group investment projects
and expenses	(24)	-	(24)	-	-	-	(112)	(136)	(32)	(168)


Total	1,256	155	1,411	26	53	(55)	(191)	1,244	318	1,562


1. Release from operations includes US dividends of £63m within the LGIA line and dividends remitted from LGN of £70m within the discontinued operations line.
2. International and other includes £43m of restructuring costs (£54m before tax) within the group investment projects and expenses line.
3. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this transfer has been to reduce LGR 2016 release from operations by £1m and increase LGI (UK and Other) 2016 release from operations by £1m.
4. Workplace Savings represents administration business only. Profits on fund management services are included within LGIM (excluding Workplace Savings).
5. Discontinued operations primarily reflects the results from the Savings division following the announcement in December 2017 to sell the Mature Savings business to Swiss Re. For this Reconciliation of release from operations to operating profit before tax disclosure, discontinued operations also includes the results of Legal & General Netherlands and Cofunds. These businesses were sold during 2017 and were previously reflected in the LGI (UK and Other) and Savings divisional results respectively.

IFRS and Release from Operations Page 32

1.03 Analysis of LGR and LGI operating profit



	LGR	LGI	LGR¹	LGI¹
	2017	2017	2016	2016
	£m	£m	£m	£m


Net release from operations	688	275	591	271


Experience variances
Persistency	9	(18)	2	(2)
Mortality/morbidity	30	(26)	47	(34)
Expenses	(21)	3	(9)	4
Project and development costs	(15)	(3)	(21)	2
Other²	69	(6)	15	19


Total experience variances	72	(50)	34	(11)


Changes to valuation assumptions
Persistency	-	(11)	-	(52)
Mortality/morbidity³	303	51	40	4
Expenses	(20)	9	-	53
Other	(9)	(1)	-	-


Total changes in valuation assumptions	274	48	40	5


Movement in non-cash items
Acquisition expense tax relief	-	(18)	-	(27)
Other	3	(7)	6	(2)


Total movement in non-cash items	3	(25)	6	(29)


International and other	-	(26)	-	(21)


Operating profit after tax	1,037	222	671	215


Tax gross up	210	81	138	88


Operating profit before tax	1,247	303	809	303


1. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this classification has been to reduce LGR 2016 release from operations by £1m and increase LGI 2016 release from operations by £1m.
2. Other experience variances for LGR includes the impact of an improvement in the quality of scheme data relating to bulk annuities.
3. Mortality assumption changes for LGR include a one-off longevity release of £274m in relation to an update of the portfolio base mortality assumptions as noted at H1 17, as well as the impact of moving trend assumptions from adjusted CMI 2014 to adjusted CMI 2015. The LGI assumption change reflects the impact of actual experience as well as refinements in the treatment of insured persons with sub-standard health.

IFRS and Release from Operations Page 33

1.04 LGIM operating profit


	2017	2016
	£m	£m


Investment management revenue (excluding 3rd party market data)¹	780	700
Investment management transactional revenue²	25	30
Investment management expenses (excluding 3rd party market data)¹	(405)	(358)
Workplace Savings operating loss³	-	(6)


Total LGIM operating profit	400	366

1. Investment management revenue and expenses excludes income and costs of £17m in relation to provision of third party market data (2016: £14m each).
2. Transactional revenue includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees for property funds.
3. Workplace Savings represents administration business only.

1.05 General Insurance operating profit and combined operating ratio


	2017		2016
	£m		£m


General Insurance operating profit¹	37		52


General Insurance combined operating ratio ²	93	%	89	%


1. Includes the General Insurance underwriting result and smoothed investment return.
2. The calculation of the General Insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.

1.06 LGC operating profit


	2017	2016
	£m	£m


Direct investments¹	124	121
Traded investment portfolio including treasury assets²	148	136


Total LGC operating profit	272	257


1. Direct investments represents LGC's portfolio of assets across infrastructure, housing and SME Finance.
2. The traded book holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

1.07 Group investment projects and central expenses


	2017	2016
	£m	£m


Group investment projects and central expenses	(61)	(48)
Restructuring and other costs¹	(59)	(120)


Total group investment projects and expenses	(120)	(168)


1. Restructuring and other costs in 2016 include the Kingswood office closure costs of £66m.

1.08 Investment and other variances


	2017	2016
	£m	£m


Investment variance¹	129	147
M&A related and other variances²	(105)	(134)


Total investment and other variances	24	13


1. Includes a positive variance in respect of the defined benefit pension scheme of £94m (2016: £29m) reflecting the impact of the acquisition of annuity assets from LGR, and the beneficial rate difference between the IAS19 and annuity discount rates.
2. Includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2017 includes the £17m net gain resulting from the disposal of Legal & General Netherlands. (2016: includes the £60m net loss resulting from the classification of Cofunds as held for sale (£64m loss) and the disposal of Suffolk Life (£4m gain)).

IFRS and Release from Operations Page 34

1.09 Segmental analysis

Reportable segments

The group has five reportable segments comprising LGR, LGIM, LGC, LGI and General Insurance, as set out in the Operating profit section.

Central group expenses and debt costs are reported separately.

Discontinued operations primarily reflect the results of the Mature Savings division following the announcement in December 2017 to sell the business to Swiss Re. For these disclosures, discontinued operations also include the results of Legal & General Netherlands and Cofunds, which were sold during 2017 and were components of the LGI and Savings divisions respectively.

Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.

Reporting of assets and liabilities by reportable segment has not been included as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.

IFRS and Release from Operations Page 35

1.09 Segmental analysis (continued)
(a) Profit/(loss) for the year

						Group
						expenses		Discont-
					General	and debt	Continuing	inued
For the year ended	LGR	LGIM	LGC	LGI	Insurance	costs	operations¹	operations^1,2	Total
31 December 2017	£m	£m	£m	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	1,247	400	272	303	37	(311)	1,948	107	2,055
Investment and other variances²	4	(9)	91	(60)	6	(14)	18	6	24
Gains attributable to non-controlling interests	-	-	-	-	-	11	11	-	11

Profit/(loss) before tax attributable to equity holders	1,251	391	363	243	43	(314)	1,977	113	2,090

Tax (expense)/credit attributable to equity holders of the company⁴	(225)	(84)	(77)	182	(8)	43	(169)	(19)	(188)


Profit/(loss) for the year	1,026	307	286	425	35	(271)	1,808	94	1,902


						Group
						expenses		Discont-
					General	and debt	Continuing	inued
For the year ended	LGR³	LGIM	LGC	LGI³	Insurance	costs	operations¹	operations^1,2	Total
31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	809	366	257	303	52	(340)	1,447	115	1,562
Investment and other variances²	37	(32)	162	(130)	16	5	58	(45)	13
Gains attributable to non-controlling interests	-	-	-	-	-	7	7	-	7


Profit/(loss) before tax attributable to equity holders	846	334	419	173	68	(328)	1,512	70	1,582
Tax (expense)/credit attributable to equity holders of the company	(148)	(68)	(52)	(66)	(13)	58	(289)	(28)	(317)


Profit/(loss) for the year	698	266	367	107	55	(270)	1,223	42	1,265



1. Discontinued operations primarily reflects the profit for the year from the Savings division following the announcement in December 2017 to sell the Mature Savings business to Swiss Re. For this segmental analysis, discontinued operations also includes the profit for the year of Legal & General Netherlands and Cofunds (2017: £14m; 2016: £(49)m). These businesses (which were not previously classified as discontinued in 2016) were sold during 2017 and were components of the LGI (UK and Other) and Savings divisions respectively.
2. Investment and other variances in relation to discontinued operations includes a £17m net gain resulting from the disposal of subsidiaries during the year (2016: £60m net loss).
3. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been restated accordingly. The impact of this transfer has been to reduce LGR 2016 operating profit by £2m and profit before tax by £1m and increase the LGI operating profit and profit before tax by equal amounts.
4. The LGI tax credit of £182m in 2017 primarily reflects the impact of a one-off US tax benefit of £246m arising from the revaluation of net deferred tax liabilities as a result of the reduction in the US corporate income tax rate.

IFRS and Release from Operations Page 36

1.09 Segmental analysis (continued)
(b) Income

					LGC		Discont-
				General	and	Continuing	inued
	LGR	LGIM^1,6	LGI	Insurance	other²	operations³	operations³	Total
For the year ended 31 December 2017	£m	£m	£m	£m	£m	£m	£m	£m


Internal income	-	158	-	-	(158)	-	-	-
External income	6,862	28,779	1,509	342	2,900	40,392	3,098	43,490


Total income	6,862	28,937	1,509	342	2,742	40,392	3,098	43,490



					LGC		Discont-
				General	and	Continuing	inued
	LGR⁴	LGIM^1,5	LGI⁴	Insurance	other²	operations³	operations^3,5	Total
For the year ended 31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m


Internal income	-	139	-	-	(139)	-	-	-
External income	13,831	49,812	2,000	326	7,036	73,005	4,964	77,969


Total income	13,831	49,951	2,000	326	6,897	73,005	4,964	77,969


1. LGIM internal income relates to investment management services provided to other segments.
2. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
3. Discontinued operations income primarily reflects the income from the Savings division following the announcement in December 2017 to sell the mature savings business to Swiss Re. For this segmental analysis, discontinued operations also includes the income of Legal & General Netherlands and Cofunds (2017: £99m; 2016: £464m). These businesses (which were not previously classified as discontinued in 2016) were sold during 2017 and were components of the LGI (UK and Other) and Savings divisions respectively.
4. During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this transfer has been to reduce LGR 2016 external income by £20m with corresponding increases in LGI external income.
5. An internal transaction in 2016 of £175m has been reclassified between LGIM, Discontinued operations and LGC and other internal and external income.
6. LGIM external income includes fees from fund management and investment return.

IFRS and Release from Operations Page 37

1.10 Earnings per share

(a) Earnings per share




	After tax	Per share¹	After tax	Per share¹
	2017	2017	2016	2016
	£m	p	£m	p


Operating profit	1,667	28.10	1,244	20.98
Investment and other variances	224	3.77	14	0.24


Total earnings based on profit attributable to equity holders	1,891	31.87	1,258	21.22
Less earnings derived from discontinued operations	(80)	(1.35)	(91)	(1.54)
Earnings derived from continuing operations	1,811	30.52	1,167	19.68

1. Earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.

(b) Diluted earnings per share


	Number
	of shares	After tax	Per share¹
	2017	2017	2017
	m	£m	p


Profit attributable to equity holders of the company	5,933	1,891	31.87
Net shares under options allocable for no further consideration	27	-	(0.14)


Total diluted earnings	5,960	1,891	31.73
Less diluted earnings derived from discontinued operations	-	(80)	(1.35)
Diluted earnings derived from continuing operations	5,960	1,811	30.38



	Number	Profit	Earnings
	of shares	after tax	per share¹
	2016	2016	2016
	m	£m	p


Profit attributable to equity holders of the company	5,929	1,258	21.22
Net shares under options allocable for no further consideration	24	-	(0.09)


Total diluted earnings	5,953	1,258	21.13
Less diluted earnings derived from discontinued operations	-	(91)	(1.54)
Diluted earnings derived from continuing operations	5,953	1,167	19.59
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.

IFRS and Release from Operations Page 38

2.01 Consolidated Income Statement

		2017	2016
For the year ended 31 December 2017	Notes	£m	£m


Income
Gross written premiums		7,932	10,252
Outward reinsurance premiums		(1,858)	(1,568)
Net change in provision for unearned premiums		(23)	4


Net premiums earned		6,051	8,688
Fees from fund management and investment contracts		771	851
Investment return		33,457	63,742
Operational income		212	188


Total income	1.09	40,491	73,469


Expenses
Claims and change in insurance liabilities		8,326	16,908
Reinsurance recoveries		(1,776)	(2,740)


Net claims and change in insurance liabilities		6,550	14,168
Change in provisions for investment contract liabilities		29,848	55,579
Acquisition costs		734	739
Finance costs		212	191
Other expenses		1,086	1,275


Total expenses		38,430	71,952


Profit before tax		2,061	1,517
Tax expense attributable to policyholder returns		(70)	(52)


Profit before tax attributable to equity holders		1,991	1,465


Total tax expense		(239)	(343)
Tax expense attributable to policyholder returns		70	52


Tax expense attributable to equity holders	3.06	(169)	(291)


Profit after tax from continuing operations		1,822	1,174
Profit after tax from discontinued operations¹		80	91


Profit for the year	1.09	1,902	1,265


Attributable to:
Non-controlling interests		11	7
Equity holders of the company		1,891	1,258



Dividend distributions to equity holders of the company during the year	3.08	872	830
Dividend distributions to equity holders of the company proposed after the year end	3.08	658	616




		p	p


Total earnings per share²	1.10	31.87	21.22
Total diluted earnings per share²	1.10	31.73	21.13

Earnings per share derived from continuing operations³	1.10	30.52	19.68
Diluted earnings per share derived from continuing operations³	1.10	30.38	19.59


1. Detailed disclosure of discontinued operations and held for sale balances is included in Note 30 of the group annual report and accounts.
2. All total earnings per share calculations are based on profit attributable to equity holders of the company.
3. All earnings per share derived from continuing operations calculations are based on profit from continuing operations attributable to equity holders of the company.

IFRS and Release from Operations Page 39

2.02 Consolidated Statement of Comprehensive Income

		2017	2016
For the year ended 31 December 2017	Notes	£m	£m


Profit for the year		1,902	1,265

Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes		(55)	(87)
Tax on actuarial losses on defined benefit pension schemes		10	11


Total items that will not be reclassified to profit or loss subsequently		(45)	(76)


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		(99)	190
Movement in cross-currency hedge		(12)	-
Tax on movement in cross-currency hedge		2	-
Net change in financial investments designated as available-for-sale		27	(4)
Tax on net change in financial investments designated as available-for-sale		(4)	1


Total items that may be reclassified to profit or loss subsequently		(86)	187


Other comprehensive (expense)/income after tax		(131)	111


Total comprehensive income for the year		1,771	1,376


Total comprehensive income for the year attributable to:
Continuing operations		1,691	1,285
Discontinued operations		80	91
		1,771	1,376
Total comprehensive income attributable to:
Non-controlling interests		11	7
Equity holders of the company		1,760	1,369

IFRS and Release from Operations Page 40

2.03 Consolidated Balance Sheet

		2017	2016¹
As at 31 December 2017	Notes	£m	£m


Assets
Goodwill		11	11
Purchased interest in long term businesses and other intangible assets		138	155
Deferred acquisition costs		1,507	2,105
Investment in associates and joint ventures		252	283
Property, plant and equipment		59	76
Investment property	3.05	7,110	8,150
Financial investments	3.05	443,162	430,435
Reinsurers' share of contract liabilities		5,703	5,593
Deferred tax assets	3.06	7	5
Current tax assets		342	297
Other assets		6,083	3,131
Assets of operations classified as held for sale	3.03	22,584	2,265
Cash and cash equivalents		18,919	15,348


Total assets		505,877	467,854



Equity
Share capital	3.09	149	149
Share premium	3.09	988	981
Employee scheme treasury shares		(40)	(30)
Capital redemption and other reserves		168	212
Retained earnings		6,578	5,633


Attributable to owners of the parent		7,843	6,945
Non-controlling interests	3.15	76	338


Total equity		7,919	7,283



Liabilities
Participating insurance contracts		-	5,794
Participating investment contracts		-	5,271
Unallocated divisible surplus		-	661
Value of in-force non-participating contracts		-	(206)


Participating contract liabilities		-	11,520



Non-participating insurance contracts		62,318	60,779
Non-participating investment contracts		315,651	321,177


Non-participating contract liabilities		377,969	381,956


Core borrowings	3.10	3,459	3,071
Operational borrowings	3.11	538	430
Provisions	3.18	1,335	1,328
UK deferred tax liabilities	3.06	13	291
Overseas deferred tax liabilities	3.06	337	522
Current tax liabilities		223	117
Payables and other financial liabilities	3.07	52,246	37,347
Other liabilities		563	594
Net asset value attributable to unit holders		27,317	21,573
Liabilities of operations classified as held for sale	3.03	33,958	1,822


Total liabilities		497,958	460,571


Total equity and liabilities		505,877	467,854


1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £10,369m and the analysis above has been restated to reflect this reclassification.

IFRS and Release from Operations Page 41

2.04 Consolidated Statement of Changes in Equity


			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
For the year ended	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
31 December 2017	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January 2017	149	981	(30)	212	5,633	6,945	338	7,283
Profit for the year	-	-	-	-	1,891	1,891	11	1,902
Exchange differences on translation of
overseas operations	-	-	-	(99)	-	(99)	-	(99)
Movement in cross-currency hedge	-	-	-	(10)	-	(10)	-	(10)
Actuarial losses on defined benefit
pension schemes	-	-	-	-	(45)	(45)	-	(45)
Net change in financial investments
designated as available-for-sale	-	-	-	23	-	23	-	23


Total comprehensive (expense)/income
for the year	-	-	-	(86)	1,846	1,760	11	1,771
Options exercised under share option
schemes:
- Savings related share option scheme	-	7	-	-	-	7	-	7
Shares purchased	-	-	(16)	-	-	(16)	-	(16)
Shares vested	-	-	6	(19)	-	(13)	-	(13)
Employee scheme treasury shares:
- Value of employee services	-	-	-	28	-	28	-	28
Share scheme transfers to retained earnings	-	-	-	-	4	4	-	4
Dividends	-	-	-	-	(872)	(872)	-	(872)
Movement in third party interests	-	-	-	-	-	-	(273)	(273)
Currency translation differences	-	-	-	33	(33)	-	-	-


As at 31 December 2017	149	988	(40)	168	6,578	7,843	76	7,919



1. Capital redemption and other reserves include share-based payments £69m, foreign exchange £69m, capital redemption £17m, available-for-sale reserves £22m and hedging reserves £(9)m.

IFRS and Release from Operations Page 42

2.04 Consolidated Statement of Changes in Equity (continued)


			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
For the year ended	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January 2016	149	976	(30)	89	5,220	6,404	289	6,693
Profit for the year	-	-	-	-	1,258	1,258	7	1,265
Exchange differences on translation of
overseas operations	-	-	-	190	-	190	-	190
Movement in cross-currency hedge	-	-	-	-	-	-	-	-
Actuarial losses on defined benefit
pension schemes	-	-	-	-^-	(76)	(76)	-	(76)
Net change in financial investments
designated as available-for-sale	-	-	-	(3)	-	(3)	-	(3)


Total comprehensive income
for the year	-	-	-	187	1,182	1,369	7	1,376
Options exercised under share option schemes:
- Savings related share option scheme	-	5	-	-	-	5	-	5
Shares purchased	-	-	(10)	-	-	(10)	-	(10)
Shares vested	-	-	10	(33)	-	(23)	-	(23)
Employee scheme treasury shares
- Value of employee services	-	-	-	24	-	24	-	24
Share scheme transfers to retained earnings	-	-	-	-	6	6	-	6
Dividends	-	-	-	-	(830)	(830)	-	(830)
Movement in third party interests	-	-	-	-	-	-	42	42
Currency translation differences	-	-	-	(55)	55	-	-	-


As at 31 December 2016	149	981	(30)	212^-	5,633	6,945	338	7,283


1. Capital redemption and other reserves include Share-based payments £60m, Foreign exchange £135m, Capital redemption £17m, Available-for-sale reserves £(1)m and Hedging reserves £1m.

IFRS and Release from Operations Page 43

2.05 Consolidated Cash Flow Statement

		2017	2016¹
For the year ended 31 December 2017	Notes	£m	£m


Cash flows from operating activities
Profit for the year		1,902	1,265
Adjustments for non cash movements in net profit for the year
Realised and unrealised (gains) on financial investments and investment properties		(25,024)	(53,262)
Investment income		(9,953)	(9,390)
Interest expense		220	198
Tax expense		377	602
Other adjustments		154	(45)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss		11,794	(11,210)
Investments designated as available-for-sale		277	246
Other assets		(2,344)	(2,658)
Net increase/(decrease) in operational liabilities
Insurance contracts		(3,989)	12,910
Investment contracts		(10,798)	39,747
Value of in-force non-participating contracts		206	(22)
Other liabilities		20,444	16,791
Net increase in held for sale liabilities		12,139


Cash used in operations		(4,595)	(4,828)
Interest paid		(221)	(198)
Interest received		4,528	4,863
Tax paid²		(497)	(424)
Dividends received		5,196	4,676


Net cash flows from operating activities		4,411	4,089


Cash flows from investing activities
Net acquisition of plant, equipment, intangibles and other assets		(230)	(45)
Acquisitions³	3.01	(63)	-
Disposal of subsidiaries⁴	3.02	286	(272)
Investment in joint ventures and associates		(7)	(63)


Net cash flows used in investing activities		(14)	(380)


Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the year	3.08	(872)	(830)
Issue of ordinary share capital		7	5
Purchase of employee scheme shares (net)		10	-
Proceeds from borrowings		1,232	219
Repayment of borrowings		(600)	(342)
Movement in non-controlling interests		(262)	-


Net cash flows used in financing activities		(485)	(948)


Net increase in cash and cash equivalents		3,912	2,761
Exchange (losses)/gains on cash and cash equivalents		(19)	182
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)		15,348	12,544


Total cash and cash equivalents		19,241	15,487
Cash and cash equivalents classified as held for sale	3.03	(322)	(139)


Cash and cash equivalents at 31 December		18,919	15,348


1. Following a review of certain short dated instruments held by the group, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their tenure is greater than 3 months. These amounts totalled £10,369m at 2016. There is a net nil impact on the Consolidated Income Statement. The reclassification has resulted in an adjustment to the Investments held for trading or designated as fair value through profit or loss in the Consolidated Cash Flow Statement of (£1,847m) at 2016.
2. Tax comprises UK corporation tax paid of £290m (2016: £249m), overseas corporate taxes of £12m (2016: £16m), and withholding tax of £195m (2016: £159m).
3. Net cash flows from acquisitions includes cash paid of £64m (2016: £nil) less cash and cash equivalents received of £1m (2016: £nil).
4. Net cash flows from disposals includes cash received of £286m (2016: £144m) less cash and cash equivalents disposed of £nil (2016: £416m).

Further information in relation to the cash flows of the discontinued operations can be found in Note 30 of the group annual report & accounts.

IFRS and Release from Operations Page 44

2.06 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 Union, and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS and interpretations by the IFRS Interpretations Committee as issued by the IASB and as adopted by the European Union. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented.

Financial assets and financial liabilities are disclosed gross in the Consolidated 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 Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group's foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for the income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.

Critical accounting policies and the use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the valuation of insurance and investment contract liabilities, unquoted illiquid assets, investment property, and the determination of defined benefit pension plan assumptions. From a policy application perspective, the major areas of judgement are the assessment of whether a contract transfers significant insurance risk to the group, and whether the group controls underlying entities and should therefore consolidate them. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2017 Annual Report and Accounts.

Key technical terms and definitions

The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary of the group's 2017 Annual Report and Accounts.

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.

IFRS and Release from Operations Page 45

3.01 Acquisitions

During 2017 the group completed a number of small acquisitions, including 100% of Renaissance Villages (later living sector) for a consideration of £51m and 100% of English Care Villages (later living accommodation) for a consideration of £39m. These businesses have therefore been consolidated in the group financial statements for the year ended 31 December 2017.

3.02 Disposals

During 2017, the group made the following disposals:

· On 1 January 2017, the group completed the disposal of Cofunds Limited (Cofunds) to Aegon for £141m, net of transaction costs. The sale included the Investor Portfolio Service (IPS) platform as well as Cofunds' retail and institutional business. The group carrying value of the investment was £141m resulting in a net nil current year impact to the group.

· On 6 April 2017, the group completed the sale of Legal & General Netherland Levensverzekering Maatschappij N.V. (LGN) to Chesnara plc (Chesnara) for €161m (£137m). The group carrying value of the investment was £118m, resulting in a current year profit of £17m, net of transaction costs of £2m.

3.03 Held for sale

On 6 December 2017 the group announced the sale of its Mature Savings business to the ReAssure division of Swiss Re Limited (Swiss Re) for £650m, which is expected to be final in 2019 following the completion of the Part VII transfer. As a result of the announcement, the Mature Savings business has been classified as held for sale. The group also initiated the planned disposal of a number of investments which are expected to finalise in 2018. These have also been classified as held for sale and the associated assets and liabilities included in the below analysis. Total assets and liabilities classified as held for sale are set out below. The 2016 balances include the planned disposals of LGN and Cofunds (as noted in 2.12), and certain investment property.
	2017	2016
	£m	£m




Total assets of the disposal groups¹	33,649	2,265

Total liabilities of the disposal groups	33,958	1,822


Total net assets of the disposal groups	(309)	443

1. Total assets of the disposal groups includes £11,065m of assets in consolidated funds, disclosed within Financial investments on the Consolidated Balance Sheet. The group controls these funds and therefore consolidates 100% of the assets with any non-controlling interest recognised in the Net asset value attributable to unit holders. Following the disposal of the Mature Savings business, the group currently anticipates that it will retain control of these funds and so will continue to recognise 100% of the assets while increasing its non-controlling interest in the Net asset value attributable to unit holders.

IFRS and Release from Operations Page 46

3.04 Post balance sheet events

Mature Savings

Risk transfer agreement

Following the announcement of the sale of the Mature Savings business to the ReAssure division of Swiss Re, on 1 January 2018 the group entered into a risk transfer agreement with ReAssure Limited (a subsidiary of Swiss Re), whereby the group will transfer all economic risks and rewards of the Mature Savings business to Swiss Re from that date. The risk transfer agreement will stay in place until the business is transferred under a court approved scheme under Part VII of the Financial Services and Markets Act 2000, which is expected to complete in 2019.

With profits pension scheme contributions

On 4 January 2018, the with profits fund, which forms part of the Mature Savings business being sold to Swiss Re, paid a one-off sum to the shareholder fund in exchange for the removal of all future obligations in respect of both deficit repair contributions and ongoing trustee expenses for the Legal & General Group UK Pensions & Assurance Fund and Legal & General Group UK Senior Pension Scheme.

Acquisitions

The acquisition of Buddies Enterprises Limited (announced on 17 October 2017) completed after the year-end.

IFRS and Release from Operations Page 47

3.05 Financial investments and investment property

	2017	2016¹
	£m	£m


Equities	199,858	191,025
Unit trusts	9,147	6,969
Debt securities²	230,941	215,331
Accrued interest	1,518	1,536
Derivative assets³	12,595	13,121
Loans⁴	9,165	2,453


Financial investments	463,224	430,435


Investment property⁵	8,337	8,150


Total financial investments and investment property⁶	471,561	438,585
Less financial investments and investment property classified as held for sale	(21,289)
Financial investments and investment property	450,272	438,585
1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £10,369m and the analysis above has been restated to reflect this reclassification.
2. A detailed analysis of debt securities, which shareholders are directly exposed to, is disclosed in note 5.06.
3. Derivatives are used 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. Derivative assets are shown gross of derivative liabilities of £8,173m (2016: £8,294m).
4. As at 31 December 2016 £1,891m of reverse repurchase agreements were classified in Other assets. On review, we have determined that these instruments meet the definition of a financial asset and therefore should have been included within Financial investments. Accordingly, the prior year numbers have been restated resulting in a decrease in Other assets of £1,891m and an increase in Financial investments of £1,891m. The instruments have been classified as Loans at fair value, and assessed as fair value Level 2. The restatement has nil impact on the valuation of the instruments, and a net nil impact on Total assets in the Consolidated Balance Sheet.
5. A detailed analysis of investment property, which shareholders are directly exposed to, is disclosed in note 5.07.
6. Total Financial investments and investment property is presented gross of held for sale assets in 2017 and net of held for sale assets in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the group's annual report and accounts.

IFRS and Release from Operations Page 48

3.06 Tax

(a) Tax charge in the Consolidated Income Statement

The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:

	Continuing		Continuing
	operations	Total	operations	Total
	2017	2017	2016	2016
	£m	£m	£m	£m


Profit before tax attributable to equity holders	1,991	2,090	1,465	1,582
Tax calculated at 19.25% (2016: 20.00%)	383	402	293	316

Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax	(11)	(11)	(12)	(12)
Higher rate of tax on overseas profits	1	1	7	7
Non-deductible expenses	1	1	4	4
Differences between taxable and accounting investment gains	(3)	(3)	(11)	(11)
Unrecognised tax losses	1	1	-	-

Non-recurring reconciling items:
Income not subject to tax	(4)	(4)	(1)	(1)
Non-deductible expenses	10	10	17	17
Differences between taxable and accounting investment gains	10	10	(14)	(14)
Adjustments in respect of prior years	23	23	10	13
Impact of reduction in UK and US corporate tax rates on deferred tax balances¹	(242)	(242)	(2)	(2)


Tax attributable to equity holders	169	188	291	317


Equity holders' effective tax rate²	8.5%	9.0%	19.9%	20.0%


1. The US federal corporate income tax rate has reduced from 35% to 21% from 1 January 2018. The enacted rate of 21% has been applied to US temporary differences to calculate US deferred assets and liabilities on the basis of when temporary differences are expected to reverse. 2017 includes the impact of the one-off US tax benefit of £246m arising from the revaluation of net deferred tax liabilities as a result of the reduction in the US corporate income tax rate. Excluding the impact of the US tax rate change, the effective tax rate was 20.8%.
2. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders. Refer to note 2.06 for detail on the methodology of the split of policyholder and equity holders' tax.

IFRS and Release from Operations Page 49

3.06 Tax (continued)

(b) Deferred tax

	2017	2016
Deferred tax (liabilities)/assets	£m	£m


Deferred acquisition expenses	(257)	(429)
- UK	(40)	(45)
- Overseas	(217)	(384)
Difference between the tax and accounting value of insurance contracts	(178)	(286)
- UK	(69)	(123)
- Overseas	(109)	(163)
Realised and unrealised gains on investments	(282)	(255)
Excess of depreciation over capital allowances	15	15
Excess expenses	31	49
Accounting provisions and other	(33)	(51)
Trading losses¹	31	80
Pension fund deficit	70	82
Purchased interest in long-term business	(2)	(13)

Total net deferred tax liabilities²	(605)	(808)
Less net deferred tax liabilities classified as held for sale	262


Net deferred tax liabilities	(343)	(808)


Analysed by:

- UK deferred tax assets
- UK deferred tax assets	2	5
- UK deferred tax liabilities	(13)	(291)
- Overseas deferred tax assets	5	-
- Overseas deferred tax liabilities	(337)	(522)


Net deferred tax liabilities³	(343)	(808)


1. Trading losses include UK trade and US operating losses of £4m (2016: £5m) and £27m (2016: £75m) respectively.
2. Total net deferred tax liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure on these held for sale items is included in Note 30 of the annual report and accounts.
3. On the Consolidated Balance Sheet, the net deferred tax liabilities have been split between an asset of £7m and liabilities of £350m where the relevant items cannot be offset.

IFRS and Release from Operations Page 50

3.07 Payables and other financial liabilities

				2017	2016
				£m	£m


Derivative liabilities				8,173	9,014
Repurchase agreements¹				32,357	23,206
Other²				12,026	5,127

Total payables and other financial liabilities³				52,556	37,347
Less liabilities classified as held for sale				(310)

Payables and other financial liabilities				52,246	37,347



Due within 12 months⁴				47,212	34,517
Due after 12 months⁴				5,344	2,830
1. The repurchase agreements are presented gross, however they and their related assets, included within Debt securities, are subject to master netting arrangements.
2. Other includes trail commission, future commission costs, FX spots and collateral repayable on short position reverse repurchase agreements. The value of FX spots and collateral repayable on short position reverse repurchase agreements increased by £2.3bn and £4.0bn, respectively, within the financial year.
3. Total payables and other financial liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30.
4. The maturity analysis of the liabilities between less and more than 12 months is based on the Total payables and other financial liabilities as at 31 December.

Fair value hierarchy

	Total	Level 1	Level 2	Level 3	Amortised cost
As at 31 December 2017	£m	£m	£m	£m	£m


Derivative liabilities	8,173	193	7,969	11	-
Repurchase agreements	32,357	-	32,357	-	-
Other	12,026	4,793	7	140	7,086

Total payables and other financial liabilities	52,556	4,986	40,333	151	7,086

					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2016	£m	£m	£m	£m	£m


Derivative liabilities¹	9,014	45	8,969	-	-
Repurchase agreements²	23,206	-	23,206	-	-
Other²	5,127	806	8	177	4,136


Total payables and other financial liabilities	37,347	851	32,183	177	4,136


1. Within derivative assets as at 31 December 2016, £839m of forward currency contracts have been reclassified from Level 1 to Level 2, following a review of the inputs required in their valuation. The reclassification has nil impact on the valuation of the instruments, and therefore nil impact on the Consolidated Balance Sheet.
2. £23,163m of repurchase agreements have been restated from amortised cost to fair value (Level 2) to properly reflect their classification as fair value through profit and loss. At the same time £43m of accrued interest on repurchase agreements has been reclassified from Other to Repurchase agreements.

Future commission costs are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the Consolidated Income Statement during the year. A reasonably possible alternative persistency assumption would have the effect of increasing the liability (including held for sale liabilities) by £4m (2016: £5m).

Significant transfers between levels There have been no significant transfers between Levels 1, 2 and 3 for the year ended 31 December 2017 (31 December 2016: no significant transfers), other than those noted above.

IFRS and Release from Operations Page 51

3.08 Dividends

		Per¹		Per¹
	Dividend	share	Dividend	share
	2017	2017	2016	2016
	£m	p	£m	p


Ordinary share dividends paid in the year:
- Prior year final dividend	616	10.35	592	9.95
- Current year interim dividend	256	4.30	238	4.00


	872	14.65	830	13.95


Ordinary share dividend proposed²	658	11.05	616	10.35


1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. Subsequent to 31 December 2017, the directors proposed a final dividend for 2017 of 11.05 pence per ordinary share. Subject to approval at the AGM, the dividend will be accounted for as an appropriation of retained earnings during the year ended 31 December 2018, and is not included as a liability in the Consolidated Balance Sheet.

IFRS and Release from Operations Page 52

3.09 Share capital and share premium

		2017			2016
		Number of	2017		Number of	2016
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



					Share	Share
				Number of	capital	premium
Issued share capital, fully paid				shares	£m	£m


As at 1 January 2017			5,954,656,466		149	981
Options exercised under share option schemes:
- Savings related share option scheme			3,781,727		-	7


As at 31 December 2017			5,958,438,193		149	988


					Share	Share
				Number of	capital	premium
Issued share capital, fully paid				shares	£m	£m


As at 1 January 2016			5,948,788,480		149	976
Options exercised under share option schemes:
- Savings related share option scheme			5,867,986		-	5


As at 31 December 2016			5,954,656,466		149	981


There is one class of ordinary shares of 2.5p each. 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.

IFRS and Release from Operations Page 53

3.10 Core borrowings

	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	2017	2017	2016	2016
	£m	£m	£m	£m


Subordinated borrowings
5.875% Sterling undated subordinated notes (Tier 2)	408	428	411	418
6.385% Sterling perpetual capital securities (Tier 1)	-	-	615	609
10% Sterling subordinated notes 2041 (Tier 2)	311	397	310	403
5.5% Sterling subordinated notes 2064 (Tier 2)	589	710	589	603
5.375% Sterling subordinated notes 2045 (Tier 2)	603	694	602	627
5.25% US Dollar subordinated notes 2047 (Tier 2)	628	679	-	-
5.55% US Dollar subordinated notes 2052 (Tier 2)	369	397	-	-
Client fund holdings of group debt¹	(32)	(38)	(31)	(31)


Total subordinated borrowings	2,876	3,267	2,496	2,629


Senior borrowings
Sterling medium term notes 2031-2041	609	857	609	845
Client fund holdings of group debt¹	(26)	(37)	(34)	(34)


Total senior borrowings	583	820	575	811


Total core borrowings	3,459	4,087	3,071	3,440


1. £58m (2016: £65m) of the group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

Subordinated borrowings

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 tier 2 own funds for Solvency II purposes.

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. These securities were called at par on 2 May 2017.

10% Sterling subordinated notes 2041

In 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. They are treated as tier 2 own funds for Solvency II purposes.

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% pa. These notes mature on 27 June 2064. They are treated as tier 2 own funds for Solvency II purposes.

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% pa. These notes mature on 27 October 2045. They are treated as tier 2 own funds for Solvency II purposes.

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047. They are treated as tier 2 own funds for Solvency II purposes.

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052. They are treated as tier 2 own funds for Solvency II purposes.

Senior borrowings

Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.

IFRS and Release from Operations Page 54

3.11 Operational borrowings

	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	2017	2017	2016	2016
	£m	£m	£m	£m


Short term operational borrowings
Euro Commercial paper	349	349	216	216
Bank loans and overdrafts	87	87	6	6


Total short term operational borrowings	436	436	222	222




Non recourse borrowings	102	102	208	208




Total operational borrowings	538	538	430	430

The presented fair values of the group's operational borrowings reflect observable market information and have been classified as level 2 in the fair value hierarchy.

Short term operational borrowings

Short term assets available at the holding company level exceeded the amount of short term operational borrowings of £436m (2016: £216m).

Syndicated credit facility

As at 31 December 2017, the group had in place a £1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2022. No amounts were outstanding at 31 December 2017.

IFRS and Release from Operations Page 55

3.12 Insurance contract liabilities

(a) Analysis of insurance contract liabilities


		Re-		Re-
	Gross	insurance	Gross	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


Participating insurance contracts	5,437	(1)	5,794	(1)
Non-participating insurance contracts	63,155	(5,474)	60,511	(5,297)
General insurance contracts	291	(8)	268	(9)


Total insurance contract liabilities¹	68,883	(5,483)	66,573	(5,307)


Less of classified as held for sale	(6,565)	49


Insurance contract liabilities	62,318	(5,434)	66,573	(5,307)

1. Total insurance contract liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the annual report and accounts.

During the year, the group continued utilising prospective reinsurance arrangements which resulted in a profit of £505m (2016: £535m). This profit has been reflected in the Consolidated Income Statement for the year and arises from new reinsurance arrangements or the reinsurance of new business under existing arrangements.

(b) Movement in participating insurance contract liabilities


		Re-		Re-
	Gross	insurance	Gross	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


As at 1 January	5,794	(1)	5,618	(1)
New liabilities in the year	41	-	40	-
Liabilities discharged in the year	(702)	-	(749)	-
Unwinding of discount rates	20	-	27	-
Effect of change in non-economic assumptions	(5)	-	(3)	-
Effect of change in economic assumptions	233	-	642	-
Modelling and methodology changes	63	-	202	-
Other	(7)	-	17	-


Total as at 31 December¹	5,437	(1)	5,794	(1)


Less liabilities classified as held for sale	(5,437)	1


As at 31 December	-	-	5,794	(1)


1. Total insurance contract liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the group annual report and accounts.

IFRS and Release from Operations Page 56

3.12 Insurance contract liabilities (continued)

		Re-		Re-
	Gross	insurance	Gross	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


As at 1 January	60,511	(5,297)	49,470	(3,861)
New liabilities in the year	4,809	(932)	6,273	(613)
Liabilities discharged in the year	(3,006)	208	(2,890)	86
Unwinding of discount rates	1,458	(154)	1,574	(129)
Effect of change in non-economic assumptions	(663)	193	51	(43)
Effect of change in economic assumptions	789	(123)	6,870	(546)
Foreign exchange adjustments	(306)	35	795	(66)
Transfer of liabilities classified as held for sale			(1,709)	1
Modelling and methodology changes	(456)	568	61	(127)
Other	19	28	16	1


Total as at 31 December¹	63,155	(5,474)	60,511	(5,297)


Less liabilities of operations classified as held for sale	(1,127)	48


As at 31 December	62,028	(5,426)	60,511	(5,297)

1. Total insurance contract liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 in the group annual report and accounts.

IFRS and Release from Operations Page 57

3.13 Investment contract liabilities

(a) Analysis of investment contract liabilities


		Re-		Re-
	Gross	insurance	Gross	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


Participating investment contracts	5,168	-	5,271	-
Non-participating investment contracts	336,628	(317)	321,177	(286)


Total investment contract liabilities¹	341,796	(317)	326,448	(286)


Less investment contract liabilities classified as held for sale	(26,145)	48


Investment contract liabilities	315,651	(269)	326,448	(286)

1. Total investment contract liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the group annual report and accounts.

(b) Movement in investment contract liabilities

		Re-		Re-
	Gross	insurance	Gross	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


As at 1 January	326,448	(286)	283,466	(250)
Reserves in respect of new business	46,096	(36)	27,832	(27)
Amounts paid on surrenders and maturities during the year	(58,073)	31	(43,217)	35
Investment return and related benefits	27,576	(26)	58,622	(44)
Management charges	(251)	-	(251)	-
Other	-	-	(4)	-


Total as at 31 December¹	341,796	(317)	326,448	(286)


1. Total investment contract liabilities are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the group annual report and accounts.

IFRS and Release from Operations Page 58

3.14 IFRS sensitivity analysis

	Impact on		Impact on
	pre-tax	Impact on	pre-tax	Impact on
	group profit	group equity	group profit	group equity
	net of re-	net of re-	net of re-	net of re-
	insurance	insurance	insurance	insurance
	2017	2017	2016	2016
	£m	£m	£m	£m


Economic sensitivity
Long-term insurance
100bps increase in interest rates	195	59	173	42
50bps decrease in interest rates	(126)	(45)	(111)	(9)
50bps increase in future inflation expectations	6	5	3	2
Credit spreads widen by 100bps with no change in expected defaults	(108)	(172)	(19)	(100)
25% rise in equity markets	514	456	406	475
25% fall in equity markets	(443)	(399)	(308)	(397)
15% rise in property values	408	346	278	234
15% fall in property values	(441)	(373)	(278)	(234)
10bps increase in credit default assumptions	(477)	(383)	(426)	(339)
10bps decrease in credit default assumptions	469	377	437	348

Non-economic sensitivity
Long-term insurance
1% increase in annuitant mortality	186	197	189	194
1% decrease in annuitant mortality	(178)	(191)	(200)	(202)
5% increase in assurance mortality	(49)	(37)	(62)	(47)

General insurance
Single storm event with 1 in 200 year probability	(58)	(47)	(62)	(50)

The table above shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario. For 2017 the group has aligned sensitivity analysis disclosure requirements across various reported metrics, primarily for interest rate, equity, property value, and annuitant mortality. The current disclosure also reflects management's view of key risks in current economic conditions.

The interest rate sensitivity assumes a 100bps increase, and 50bps decrease, in the gross redemption yield on fixed interest securities together with a 100bps and 50bps change in the real yields on variable securities for respective sensitivity analyses. For the UK with-profit funds, valuation interest rates are assumed to move in line with market yields adjusted to allow for the impact of PRA regulations. The impact of economic sensitivities on shareholders' share of with-profit bonus declared in the year is relatively nominal for its insensitivity to market movements due to the smoothing policies applied.The interest rate sensitivities reflect the impact of the regulatory restrictions on the reinvestment rate used to value the liabilities of the long term business. No yield floors have been applied in the estimation of the stresses, despite the current low interest rate environment.

The inflation stress adopted is a 50bps p.a. increase in inflation resulting in a 50bps p.a. reduction in real yield and no change to the nominal yield. In addition the expense inflation rate is increased by 50bps p.a. In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields are unchanged, and there has been no adjustment to the default assumptions.

The equity stress is a +/- 25% in equity values. The property stress adopted is a +/-15% in property market value. Rental income is assumed to be unchanged; however the vacant possession value is stressed down by 15% in line with the market value stress. Where property is being used to back liabilities, the valuation interest rate used to place a value on the liabilities moves with the implied change in property yields.

The credit default stress assumes a +/-10bps stress to the current credit default assumptions for unapproved corporate bonds which will have an impact on the valuation interest rates used to discount liabilities. The credit default assumption is set based on the credit rating of the individual bonds in the asset portfolio and their outstanding term using Moody's global credit default rates.

The annuitant mortality stress is a +/-1% in the mortality rates for immediate and deferred annuitants with no change to the mortality improvement rates. The assurance mortality stress represents an increase in mortality/morbidity rates for assurance contracts by 5%.

For any single weather event with claims in excess of £30m (2016: £30m) but less than £520m (2016: £509m) the ultimate cost to Legal & General Insurance Limited would be £30m plus 50% of the £5m XS £30m layer (2016: £30m plus 50% of the £5m XS £30m layer) plus the cost of the reinsurance reinstatement premium. The ultimate cost to the group is greater as a proportion of the catastrophe reinsurance cover is placed with Legal & General Assurance Society Limited, which is exposed to 93% of claims between £35m and £105m and Legal & General Reinsurance Limited, which is exposed to 71% of claims between £105 and £225m, a new participant in the Legal & General Insurance Limited catastrophe reinsurance cover in 2017. The impact of a 1 in 500 year modelled windstorm and coastal flood event would exceed the upper limit of the catastrophe cover by approximately £295m (2016: £280m), with an estimated total cost to Legal & General Insurance Limited of £350m (2016: £335m) and to the group of £490m (2016: £590m).

The above sensitivity analyses do not reflect management actions which could be taken to reduce the impacts. 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 analyses also ignore 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. In calculating the alternative values, all other assumptions are left unchanged, though in practice, items may be correlated. The sensitivity of the profit and equity to changes in assumptions may not be linear. These results should not be extrapolated to changes of a much larger order, which could be significantly more or less than the amounts shown above.

IFRS and Release from Operations Page 59

3.15 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results.

The decrease in non-controlling interest to £76m (2016: £338m) reflects the deconsolidation of the Leisure Fund Unit Trust following a reduction in the group's equity holding in the fund which, taking into account all other factors associated with the group's investment in that fund, led to the judgement that as at 31 December 2017, the group no longer exercised control over the fund.

No individual non-controlling interest is considered to be material on the basis of the year end carrying value or share of profit or loss.

3.16 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	2017	2016


United States Dollar	1.35	1.24
Euro	1.13	1.17




Average exchange rates	2017	2016


United States Dollar	1.29	1.36
Euro	1.14	1.22

3.17 Related party transactions
There were no material transactions between key management and the Legal & General group of companies during the year. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £93m (2016: £75m) for all employees.

At 31 December 2017 and 31 December 2016 there were no loans outstanding to officers of the company.

(i) Key management personnel compensation
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:

	2017	2016¹
	£m	£m


Salaries	10	9
Post-employment benefits	-	-
Share-based incentive awards	4	5


Key management personnel compensation	14	14


Number of key management personnel	15	15


1. For the year ended 31 December 2016, Key management personnel compensation included social security costs. These costs should not have been included in the analysis, as they are not an employee benefit. The table has therefore been restated to exclude these costs. The restatement has no impact on either Total expenses nor Profit before income tax in the Company's Statement of Comprehensive Income for the year ended 31 December 2016.

IFRS and Release from Operations Page 60

3.18 Provisions

(a) Analysis of provisions


			2017	2016
			£m	£m


Retirement benefit obligations			1,266	1,239
Other provisions			73	89


Total provisions¹			1,339	1,328


Less provisions classified as held for sale¹			(4)


Provisions			1,335	1,328


1. Total provisions are presented gross of held for sale liabilities in 2017 and net of held for sale liabilities in 2016. Detailed disclosure relating to these held for sale items is included in Note 30 of the group annual report and accounts.

(b) Retirement benefit obligations
	Fund and		Fund and
	Scheme	Overseas	Scheme	Overseas
	2017	2017	2016	2016
	£m	£m	£m	£m


Gross pension obligations included in provisions	1,261	5	1,234	5
Annuity obligations insured by LGAS	(875)	-	(779)	-


Gross defined benefit pension deficit	386	5	455	5
Deferred tax on defined benefit pension deficit	(69)	(1)	(81)	(1)


Net defined benefit pension deficit	317	4	374	4

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. The schemes were closed to future accrual on 31 December 2015. At 31 December 2017, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Legal & General Assurance Society) has been estimated at £317m (31 December 2016: £374m).

3.19 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 PRA, FCA, 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 (LGAS) 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 LGAS. 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 LGAS against any liability LGAS may have as a result of the ILU's requirement, and the ILU agreed that its requirement of LGAS 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 LGAS has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. LGAS has made no payment or provision in respect of this matter.

Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of group companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain group companies' liabilities under the group pension fund and scheme. LGAS has provided indemnities, a liquidity and expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of group companies to facilitate the group's matching adjustment reorganisation pursuant to Solvency II.

Asset and premium flows Page 61

4.01 Legal & General investment management total assets under management (AUM)

		Active
		fixed	Solu-	Real	Active	Total
	Index	income	tions¹	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	51.1	15.1	33.2	1.5	0.1	101.0
External outflows	(61.4)	(6.4)	(15.7)	(1.2)	(0.1)	(84.8)
Overlay/advisory net flows	-	-	27.3	-	-	27.3


External net flows²	(10.3)	8.7	44.8	0.3	-	43.5
Internal net flows	(0.4)	(2.0)	(1.1)	1.5	(0.7)	(2.7)
Disposal of LGN⁴	(0.3)	(0.5)	-	-	-	(0.8)


Total net flows	(11.0)	6.2	43.7	1.8	(0.7)	40.0
Cash management movements³	-	3.0	-	-	-	3.0
Market and other movements²	32.1	4.8	7.1	2.4	(0.3)	46.1



At 31 December 2017	340.9	148.8	462.7	23.8	7.1	983.3

Assets attributable to:
External						883.8
Internal						99.5


Assets attributable to:
UK						755.3
International						228.0




		Active
		fixed	Solu-	Real	Active	Total
	Index	income	tions¹	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2016	274.3	106.8	338.2	18.3	8.5	746.1
External inflows	35.2	10.8	19.9	1.4	-	67.3
External outflows	(45.0)	(6.5)	(12.4)	(1.2)	(0.2)	(65.3)
Overlay/advisory net flows	-	-	27.2	-	-	27.2


External net flows²	(9.8)	4.3	34.7	0.2	(0.2)	29.2
Internal net flows	(0.3)	1.5	-	0.7	0.1	2.0


Total net flows	(10.1)	5.8	34.7	0.9	(0.1)	31.2

Cash management movements³	-	(0.7)	-	-	-	(0.7)
Market and other movements²	55.6	22.9	39.0	0.4	(0.3)	117.6



At 31 December 2016	319.8	134.8	411.9	19.6	8.1	894.2


Assets attributable to:
External						796.7
Internal						97.5


Assets attributable to:
UK						716.8
International						177.4


1. Solutions include liability driven investments, multi-asset funds and include £272.8bn at 31 December 2017 (31 December 2016: £251.8bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, as their maturity dates are determined by client agreements and subject to a higher degree of variability. The total value of these assets at 31 December 2017 was £47.0bn (31 December 2016: £52.6bn), and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

Asset and premium flows Page 62

4.02 Legal & General investment management total assets under management half-yearly progression

		Active
		fixed	Solu-	Real	Active	Total
	Index	income	tions¹	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	25.4	8.3	16.0	0.8	0.1	50.6
External outflows	(29.7)	(3.0)	(9.0)	(0.5)	(0.1)	(42.3)
Overlay/ advisory net flows	-	-	13.4	-	-	13.4


External net flows²	(4.3)	5.3	20.4	0.3	-	21.7
Internal net flows	(0.3)	(0.4)	0.4	0.5	(1.3)	(1.1)
Disposal of LGN⁴	(0.3)	(0.5)	-	-	-	(0.8)

Total net flows	(4.9)	4.4	20.8	0.8	(1.3)	19.8
Cash management movements³	-	4.1	-	-	-	4.1
Market and other movements²	16.6	1.7	13.4	0.8	0.5	33.0


At 30 June 2017	331.5	145.0	446.1	21.2	7.3	951.1


External inflows	25.7	6.8	17.2	0.7	-	50.4
External outflows	(31.7)	(3.4)	(6.7)	(0.7)	-	(42.5)
Overlay / advisory net flows	-	-	13.9	-	-	13.9


External net flows²	(6.0)	3.4	24.4	-	-	21.8
Internal net flows	(0.1)	(1.6)	(1.5)	1.0	0.6	(1.6)


Total net flows	(6.1)	1.8	22.9	1.0	0.6	20.2
Cash management movements³	-	(1.1)	-	-	-	(1.1)
Market and other movements²	15.5	3.1	(6.3)	1.6	(0.8)	13.1


At 31 December 2017	340.9	148.8	462.7	23.8	7.1	983.3

1. Solutions include liability driven investments, multi-asset funds, and include £272.8bn at 31 December 2017 (30 June 2017: £280.8bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, as their maturity dates are determined by client agreements and subject to a higher degree of variability. The total value of these assets at 31 December 2017 was £47.0bn (30 June 2017: £81.7bn) and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

Asset and premium flows Page 63

4.02 Legal & General investment management total assets under management half-yearly progression (continued)

		Active
		fixed	Solu-	Real	Active	Total
	Index	income	tions¹	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2016	274.3	106.8	338.2	18.3	8.5	746.1
External inflows	17.6	4.8	9.3	0.8	-	32.5
External outflows	(20.0)	(2.2)	(6.6)	(0.7)	(0.1)	(29.6)
Overlay/ advisory net flows	-	-	6.7	-	-	6.7


External net flows²	(2.4)	2.6	9.4	0.1	(0.1)	9.6
Internal net flows	(0.4)	0.7	(0.1)	0.1	-	0.3


Total net flows	(2.8)	3.3	9.3	0.2	(0.1)	9.9
Cash management movements³	-	(0.6)	-	-	-	(0.6)
Market and other movements²	28.9	16.3	41.6	(0.1)	(0.6)	86.1


At 30 June 2016	300.4	125.8	389.1	18.4	7.8	841.5


External inflows	17.6	6.0	10.6	0.6	-	34.8
External outflows	(25.0)	(4.3)	(5.8)	(0.5)	(0.1)	(35.7)
Overlay / advisory net flows	-	-	20.5	-	-	20.5


External net flows²	(7.4)	1.7	25.3	0.1	(0.1)	19.6
Internal net flows	0.1	0.8	0.1	0.6	0.1	1.7


Total net flows	(7.3)	2.5	25.4	0.7	-	21.3
Cash management movements³	-	(0.1)	-	-	-	(0.1)
Market and other movements²	26.7	6.6	(2.6)	0.5	0.3	31.5


At 31 December 2016	319.8	134.8	411.9	19.6	8.1	894.2

1. Solutions include liability driven investments, multi-asset funds, and include £251.8bn at 31 December 2016 (30 June 2016: £244.0bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short term solutions assets, as their maturity dates are determined by client agreements and subject to a higher degree of variability. The total value of these assets at 31 December 2016 was £52.6bn (30 June 2016: £71.0bn) and the movement in these assets is included in Market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.



	31 December	30 June	31 December	30 June
	2017	2017	2016	2016
	£bn	£bn	£bn	£bn


Total assets under management attributable to:
External	883.8	853.2	796.7	749.8
Internal	99.5	97.9	97.5	91.7


Total assets under management attributable to:
UK	755.3	752.8	716.8	689.6
International	228.0	198.3	177.4	151.9

Asset and premium flows Page 64

4.03 Legal & General investment management total external assets under management net flows


	6 months to	6 months to	6 months to	6 months to
	31 December	30 June	31 December	30 June
	2017	2017	2016	2016
	£bn	£bn	£bn	£bn


LGIM total external AUM net flows¹	21.8	21.7	19.6	9.6
Attributable to:
International	15.1	17.9	7.8	6.7

UK Institutional
- Defined contribution	1.3	1.7	1.2	0.8
- Defined benefit	4.1	0.4	9.9	1.4

UK Retail	1.3	1.7	0.7	0.7


1. External net flows exclude movements in short term overlay assets, with maturity as determined by client agreements and cash management movements.

4.04 Legal & General investment management investment performance

Investment performance across our AUM as at 31 December 2017 is set out in the table below. This has been calculated internally by LGIM to provide general guidance as to how our AUM is performing. The data is aggregated and is not intended for clients or potential clients investing in our products.
Performance against success measures - benchmark or performance criteria
For the year ended 31 December 2017	One year period	Three year period	Five year period


Actively Managed AUM¹	85%	82%	71%
Index Managed AUM²	98%	97%	97%
Client Solutions AUM³	99%	100%	100%
Percentage of AUM reported ⁴	89%	72%	61%

1. Actively Managed AUM: actively managed products measured against applicable benchmark or peer group performance.
2. Index Managed AUM: assets managed against benchmark within applicable tolerance.
3. Client solutions AUM: products managed against specific risk target or client outcome.
4. Excluded from the performance measurement are non-discretionary accounts, funds on our investment only platform with external manager holdings, funds with insufficient performance history and transition management accounts.

Performance is measured on a gross-of-fee basis for institutional accounts and net-of-fee for retail funds, and is measured against benchmarks, peer group performance or risk based metrics.

Asset and premium flows Page 65

4.05 Assets under management reconciliation to Consolidated Balance Sheet financial assets


	2017	2016¹
	£bn	£bn


Assets under management	983	894
Derivative notionals²	(273)	(252)
Third party assets³	(261)	(235)
Other⁴	42	49


Total financial investments, investment property and cash and cash equivalents	491	456

Less financial assets classified as held for sale⁵	(22)	(2)
Financial investments, investment property and cash and cash equivalents	469	454

1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £10,369m and the analysis above has been restated to reflect this reclassification.
2. Derivative notionals are included in the assets under management but not for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others, for which the group does not have the risks or rewards and thus are not included on the IFRS balance sheet.
4. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets, cash and broker balances.
5. Detailed disclosure relating to these held for sale items is included in Note 30 of the group annual report and accounts.

4.06 Assets under administration




	2017		2016
	Work-	2017	Work-	2016
	place	Annuities	place	Annuities
	£bn	£bn	£bn	£bn


At 1 January	20.8	54.4	14.7	43.4
Gross inflows	5.9	4.6	4.4	7.3
Gross outflows	(1.4)	-	(1.1)	-
Payments to pensioners	-	(3.3)	-	(3.0)

Net flows	4.5	1.3	3.3	4.3
Market and other movements	2.4	2.5	2.8	6.7



At 31 December 2017	27.7	58.2	20.8	54.4

Asset and premium flows Page 66

4.07 Assets under administration half-yearly progression


	2017	2017	2016	2016
	Work-		Work-
	place	Annuities	place	Annuities
	£bn	£bn	£bn	£bn


At 1 January	20.8	54.4	14.7	43.4

Gross inflows	3.4	2.0	2.3	4.0
Gross outflows	(0.6)	-	(0.5)	-
Payments to pensioners	-	(1.6)	-	(1.4)

Net flows	2.8	0.4	1.8	2.6
Market and other movements	1.3	0.8	0.8	5.0
Disposals	-	-	-	-


At 30 June	24.9	55.6	17.3	51.0


Gross inflows	2.5	2.6	2.1	3.3
Gross outflows	(0.8)	-	(0.6)	-
Payments to pensioners	-	(1.7)	-	(1.6)

Net flows	1.7	0.9	1.5	1.7
Market and other movements	1.1	1.7	2.0	1.7


At 31 December	27.7	58.2	20.8	54.4

Asset and premium flows Page 67

4.08 LGR new business



	6 months to	6 months to	6 months to	6 months to
	31 December	30 June	31 December	30 June
	2017	2017	2016	2016
	£m	£m	£m	£m


Backbook acquisitions	-	-	-	2,945
Pension risk transfer
- UK	1,901	1,504	2,698	640
- US	428	115	302	45
Individual Annuities	326	345	220	158
Lifetime Mortgage Advances	580	424	389	231
Longevity Insurance¹	-	800	900	-


Total LGR new business	3,235	3,188	4,509	4,019

1. Represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve.

4.09 Insurance new business
	6 months to	6 months to	6 months to	6 months to
	31 December	30 June	31 December	30 June
	2017	2017	2016	2016
	£m	£m	£m	£m


UK Retail Protection	86	86	88	82
UK Group Protection	21	28	22	36
Netherlands Protection¹	-	1	2	2
US Protection	41	38	34	28

Total LGI new business	148	153	146	148

1. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

4.10 Gross written premiums on Insurance business
	6 months to	6 months to	6 months to	6 months to
	31 December	30 June	31 December	30 June
	2017	2017	2016	2016
	£m	£m	£m	£m


UK Retail Protection	623	609	597	582
UK Group Protection	102	224	100	233
General Insurance	196	173	170	156
Netherlands Protection¹	-	14	27	25
US Protection	482	491	477	420
Longevity insurance	186	175	160	161


Total gross written premiums on Insurance business	1,589	1,686	1,531	1,577


1. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

Asset and premium flows Page 68

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