L&G Full Year Results 2020 Part 1

RNS Number : 7168R

Legal & General Group Plc

10 March 2021

2020 Results: Resilient operating earnings (£2.2bn) and a robust balance sheet deliver 17.3 % ROE; performance provides good start to new 5 year ambitions

Financial highlights[1]

· Operating profit[2] broadly flat at £2,218m (2019: £2,286m), with 3 of 5 businesses delivering growth

· Operating profit excluding mortality reserve release down £90m to £2,041m (2019: £2,131m) , with the reduction driven by specific COVID-19 estimated impacts of £(228)m[3]

· Profit after tax[4] down 12% to £1,607m (2019: £1,834m) , principally reflecting the formulaic impact of lower interest rates on LGI and the unrealised impact of market movements, partially offset by profit on disposal from our Mature Savings business

· Return on equity of 17.3% (2019: 20.4%), resilient in light of market volatility

· Despite COVID-19 we delivered financial metrics in line with our five year ambitions (2020-2024):

§ Full year dividend of 17.57p per share (2019: 17.57p)

§ Net release from operations of £1,539m (2019: £1,597m)

§ Solvency II operational surplus generation from continuing operations of £1.5bn (2019: £1.5bn)

Business highlights

We remain committed to Inclusive Capitalism as we support our customers, our people and communities in the face of COVID-19; for more details of our approach please see page 4.

Our businesses continue to perform resiliently:

· LGRI global Pension Risk Transfer (PRT) new business premiums of £8,843m , including record US PRT volumes of $1,614m (2019: £11,392m; $1,140m)

· LGRR annuity premiums of £910m (2019: £970m), initially impacted by COVID-19, but recovering to be up 3% during H2 compared to prior year

· LGC Direct Investment origination of £0.6bn, with AUM growth of 9% to £3.1bn (2019: £2.9bn)

· LGIM external net flows of £20.4bn, with AUM up 7% at £1,279bn (2019: £86.4bn; £1,196bn)

· LGI new business annual premiums up 10% to £372m , supporting £2,849m gross written premiums (2019: £339m; £2,729m)

Our balance sheet is robust:

· Solvency II coverage ratio[5] of 177% (2019: 184%) and as at 5 March 2021, we estimate the ratio was 192%[6]

· Our traded credit portfolio (excluding gilts), which is actively managed, has had no defaults and has seen net downgrades to sub-investment grade of 0.9 % during 2020; just half of that experienced by the index. Our £3.5bn IFRS Credit Default Reserve has remained unutilised

· 99.9% of scheduled cash-flows on our annuity portfolio's direct investments were paid during the year, reflecting the high quality of our counterparty exposure

"Legal & General delivered a robust and resilient performance for all stakeholders, providing stability to our people, customers and shareholders. Our balance sheet remains strong, with the Solvency II coverage ratio currently over 190%, and trading remains consistent with delivering our growth ambitions which are supported by six long term growth drivers. Our commitment to Inclusive Capitalism, ESG and investing in climate change means we intend to play an important role in the post pandemic recovery."

Nigel Wilson, Group Chief Executive

Financial summary

£m	2020	2019	Growth %

Analysis of operating profit
Legal & General Retirement (LGR) excl. mortality reserve release ⁷	1,554	1,414	10
- LGR - Institutional (LGRI)	1,229	1,116	10
- LGR - Retail (LGRR)	325	298	9
Legal & General Investment Management (LGIM) ⁸	404	394	3
Legal & General Capital (LGC)	275	363	(24)
Legal & General Insurance (LGI)	189	314	(40)
Operating profit from continuing divisions[7]^,[8],[9]	2,422	2,485	(3)
Mature Savings[10]	34	46	(26)
General Insurance[11]	nil	(35)	n/a

Operating profit from divisions ⁷ ^, ⁸	2,456	2,496	(2)
Group debt costs	(233)	(208)	12
Group investment projects and expenses	(155)	(157)	(1)
Exceptional COVID-19 related expenses[12]	(27)	nil	n/a

Operating profit excl. mortality reserve release ⁷	2,041	2,131	(4)
LGR mortality reserve release	177	155	n/a
Operating profit	2,218	2,286	(3)
Investment and other variances (incl. minority interests), excluding LGI	29	60	n/a
LGI investment variance[13]	(459)	(234)	n/a


Profit before tax attributable to equity holders[14]	1,788	2,112	(15)
Profit after tax attributable to equity holders	1,607	1,834	(12)
Of which:
Mortality reserve releases (post-tax)	153	134	n/a
Mature Savings profit on disposal	271
Profit after tax excl. mortality reserve release and disposals	1,183	1,700	(30)

Reported earnings per share (p)	27.00	30.92	(13)
Of which:
Mortality reserve releases (post-tax)	2.58	2.26	n/a
Mature Savings profit on disposal	4.58	nil	n/a
Earnings per share (p) excl. mortality reserve release and Mature Savings disposal	19.84	28.66	(31)

Book value per share (p)	158	150	5
Full year dividend per share (p)	17.57	17.57	nil

Net release from continuing operations ⁹	1,511	1,588	(5)
Net release from discontinued operations	28	9	211

2020 Financial performance

Income statement

Legal & General demonstrated the stability of its business model against a challenging macroeconomic backdrop, delivering operating profit of £2,218m, broadly in line with prior year (2019: £2,286m) . The strength of our diversified business model meant we were able to weather the volatility of 2020 with three of our five businesses delivering growth.

Despite the impacts of COVID-19, we delivered financial metrics consistent with our five year ambitions (2020-2024). Cash generation of £1,539m (2019: £1,597m) and capital generation from continuing operations of £1.5bn (2019: £1.5bn) were both consistent with our goals of £8bn to £9bn over five years. Both exceeded our full year dividends declared (and paid) of £1.0bn (2019: £1.0bn), which is on track for our five year cumulative dividend ambition of £5.6bn to £5.9bn. Supporting this robust financial performance, our new business and balance sheet have again proven to be resilient against shocks, with LGRI's US business achieving record PRT volumes and LGI new business annual premiums up 10% year on year.

LGRI delivered strong operating profit[15] growth, up 10% year on year to £1,229m (2019: £1,116m). New business continued to make a sizeable contribution to profit, with record US PRT volumes of $1.6bn (2019: $1.1bn) and a steady flow of UK PRT new business written at attractive Solvency II new business margins of 10.6% (including LGRR individual annuities) as we were rewarded for putting capital at risk in volatile times.

LGRR operating profit 15 increased 9% to £325m (2019: £298m), supported by the consistent performance of the growing annuity portfolio. Whilst individual annuity and Lifetime Mortgage volumes were down year on year, primarily reflecting stalled demand, the swift use of technological innovation immediately following the first lockdown meant that our retail annuity business was able to support customers in their time of need and to win market share.

LGIM delivered operating profit growth of 3% to £404m (2019: £394m) driven by revenue growth of 5% to £956m (2019: £912m). This was supported by growth in higher margin areas, partially offset by LGIM's continued investment in its growth strategy. Management actions on cost in H1 helped to deliver profit improvements in H2. Benefitting from a diversified asset base, LGIM grew its AUM by 7% to £1,279bn during 2020.

LGC operating profit decreased 24% to £275m (2019: £363m), principally reflecting a pause in traditional house-building and sales activities during the UK lockdowns and lower profits from our direct investment portfolio .

LGI operating profit decreased 40% to £189m (2019: £ 314m), reflecting increased claims experience due to COVID-19, particularly impacting our US Protection business where we retain the majority of the mortality risk, and a £110m increase in reserves for potential future COVID-19 related claims in 2021.

Group costs were elevated compared to prior year, largely as a result of exceptional COVID-19-related costs (£27m) primarily related to the deployment of IT hardware to facilitate remote working and other operational workplace costs. Higher debt costs reflected debt raised in H1 2020. The Group will continue to make measured investments in technology, in order to augment cyber security and upgrade the IT infrastructure, including preparation for IFRS 17. This expenditure should reduce towards historical levels once these projects are delivered.

Profit before tax attributable to equity holders[16] was £1,788m (2019: £2,112m), reflecting investment variance of £(430)m (2019: £(174)m). The largest contributor to the investment variance, £(459)m, is the formulaic impact of falling interest rates reducing the discount rate used to calculate LGI reserves. Investment variance within LGC, where we are long-term investors, was £(299)m, reflecting equity market volatility, early stage development costs and a prudent approach to asset valuations within the direct investment portfolio . These were partly offset by the profit on disposal following the completion of the sale of our Mature Savings business (£335m).

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation from continuing operations was up 4% at £1.5bn (2019: £1.5bn). New business strain was £0.3bn (2019: £0.6bn) reflecting UK annuity new business written at lower strains and good margins (10.6%), resulting in net surplus generation of £1.2bn (2019: £1.0bn).

Our Solvency II coverage ratio on a shareholder basis^{^[17]} was 177% at 31 December 2020 (2019: 184%). On a proforma calculation basis^{^[18]}, our Solvency II coverage ratio was 175% at the end of December (2019: 179%). As at 5 March 2021, we estimate the ratio was 192%.[19]

Our IFRS return on equity of 17.3% reflects the impact of unrealised negative investment variances (2019: 20.4%).[20]

Our balance sheet and asset portfolio performed resiliently through a turbulent year. The defensive positioning of our £47.7bn actively managed traded credit portfolio (excluding gilts) has meant that we have outperformed the downgrade experience of the market, with just 0.9 % of the portfolio downgrading to sub-investment grade ^{^[21]} and no defaults . The annuity portfolio's direct investments continue to perform strongly, with 99.9 % of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

COVID-19

COVID-19 is having an unprecedented impact on our customers, people and society at large. Legal & General Group continues to support all of our stakeholders through this difficult period, without relying on direct Government funding. Our priorities remain to look after our customers, to safeguard the wellbeing of our people and to support the needs of the wider community more broadly through Inclusive Capitalism and by investing in the real economy.

Our purpose is to provide financial stability to our customers and their dependents in good times and in bad: it is "what we do". During 2020 we paid £1.9bn in gross protection claims and provided financial stability through regular payments to over 1 million pensioners. To support and protect the residents in LGC's Later Living communities, we enacted a comprehensive action plan which kept rates of infection below that of the national average for over-70s, whilst also focussing on mental wellbeing.

We rapidly facilitated remote working for our people by distributing an initial block of 1,700 laptops, enabling a remote contact centre and building a cloud based desktop solution within just 10 weeks of the initial March 2020 lockdown. Subsequently, we distributed an additional 2,000 laptops to further enhance our operational resilience. Additionally, we have supported our employees' mental and physical wellbeing through a number of resources including trained Mental Health First Aiders, a confidential employee assistance helpline and a dedicated COVID-19 intranet hub.

To support the communities around us through the pandemic, we donated £5m to Newcastle City Council to build a prototype care home which incorporates learnings from COVID-19 on infection control. We supported the UK's National Health Service (NHS) by offering key workers free accommodation at our build to rent sites, offering our Bracknell site for training and storage and 25 of our other sites for COVID-19 testing, and financial support for NHS charities.

The human cost of the pandemic has been high. It has impacted our own customers, including holders of life insurance policies and annuitants who have lost their lives prematurely. We continue to pay all valid claims and we have prioritised giving rapid but sensitive service to bereaved families. Legal & General experienced £76m of COVID-19-related claims in LGI. Since our H1 2020 results, a number of additional COVID-19 variants have emerged and uncertainty regarding the viruses' trajectory remains, therefore, we are making a further £110m provision for future COVID-19 claims in LGI, including incurred but not reported (IBNR) claims. This provision allows us to ensure our year end 2020 reserves adequately reflect the higher expected incidence of 2021 claims compared to our own long term assumptions. Our reinsurance strategy, which reinsures virtually all LGI's UK retail protection business, has substantially reduced the impact on LGI of higher claims, although we retain exposure in the US. During the year, LGR recognised an £85m reserve release in light of 2020 COVID-19 mortality experience. Further operational impacts included pausing LGC Build to Sell Housing operations for several months, which was the primary factor in the £100m COVID-19 impact to LGC's operating profit during the year. Additionally, Group operational costs increased by £27m reflecting incremental expenses incurred as a result of COVID-19, including the provision of IT spend for remote working. In all, we estimate COVID-19 related events reduced operating profit by £228m.

COVID-19 has increased volatility within asset markets, but the defensive positioning of LGR's £87.0bn asset portfolio has meant that we have performed well in absolute and relative terms as described on pages 16 and 17 .

The immediate outlook for the broader economy over the near term is still highly uncertain and will depend on a number of factors, including vaccine efficacy and distribution, as well as government responses to the challenges ahead. We remain highly risk-aware, alert both to potential challenges and opportunities, while prudently managing our businesses, including making provisions for future COVID-19 impacts as described above. With long-term businesses and a defensive asset portfolio, we believe we are well positioned to navigate further macroeconomic uncertainty and to seize future opportunities that may arise.

Group Strategy

Legal & General is primarily a global provider of retirement solutions to corporates and individuals, with core skills in asset management and origination, longevity risk and technological innovation. We operate at scale and are strongly positioned to capitalise on significant structural growth opportunities across our chosen markets through our five businesses:

1. Legal & General Retirement - Institutional (LGRI) offers pension risk transfer (PRT) to institutional clients globally

2. Legal & General Retirement - Retail (LGRR) is a waterfront provider of UK retail retirement solutions, including individual annuities and lifetime mortgages (LTMs)

3. Legal & General Investment Management (LGIM) is the 11^th largest global asset manager by AUM[22], primarily serving institutional pension clients

4. Legal & General Capital (LGC) invests shareholder capital and is building an alternative asset pipeline

5. Legal & General Insurance (LGI) sells retail and group protection in the UK and retail protection in the US

Six growth drivers

Inclusive Capitalism is at the foundation of Legal & General's strategy. By identifying and addressing long-term secular trends, we are able to generate attractive, sustainable returns while delivering products that are economically, socially, and environmentally useful.

Since 2011 we have delivered total shareholder returnsof 366%[23] while at the same time, providing security in retirement to more than 3m people. As a retirement solutions provider we invest pension savings and shareholder assets into £29.3bn high quality direct investments that deliver positive social and environmental impacts, such as clean energy and affordable housing; this is the core of our approach to Inclusive Capitalism.

Our strategy is focussed on six global, long-term growth drivers which are structural rather than cyclical, providing resilience through periods of macro volatility. Responding to these drivers creates sustainable profits and positive social and environmental outcomes as we harness the power of pensions.

1. Ageing demographics

As populations live longer their pensions need to last longer too. Companies are increasingly seeking solutions to their ongoing pension commitments. At the same time, individuals need to ensure that their retirement funds and other assets can finance longer retirements. The opportunity is vast, with global private Defined Benefit (DB) and Defined Contribution (DC) pension assets nearly doubling over the last decade to reach $53 trillion.[24]

LGRI and LGRR meet a key customer need arising from ageing demographics, providing financial security in retirement.

2. Globalisation of asset markets

Asset markets are increasingly globalised and growing - worldwide AUM is currently $89 trillion and is expected to increase to around $106 trillion by 2024[25], representing an enormous opportunity for international asset managers. North America, Europe and Asia Pacific are all attractive markets which continue to expand.

Legal & General looks for selective opportunities to build and expand its successful UK business model abroad into markets where we believe we can thrive. The globalisation of asset markets has been a cornerstone of LGIM's growth strategy, where international AUM has more than tripled over the past five years to £388bn , and a driver for LGRI's US expansion, which has written more than $5bn of premium since the business started in 2015.

3. Investing in the Real Economy

Throughout the UK and beyond, there has been a long-term trend of underinvestment in major towns and cities, and we continue to experience a serious housing shortage, while Small and Medium Enterprises (SMEs) can also struggle to achieve scale without access to long-term capital. At the same time, the ageing demographic creates a need for new investable assets for pension funds.

Across the Legal & General Group we harness the power of pensions by investing pension assets into the Real Economy, delivering financial security for pensioners and fostering growth in cities and towns across the UK. Furthermore, in LGC we invest in alternative assets such as affordable housing and SME growth equity, as well as create high quality assets for the broader Group.

4. Welfare reforms

The need to protect people from financial uncertainty has never been more pertinent. This includes helping people take personal responsibility for saving for their retirements and safeguarding their financial wellbeing and resilience.

LGI offers life insurance, income protection and critical illness cover, and, through our stake in Salary Finance, salary savings and lending services, providing financial stability to customers' families and dependents. As fewer companies offer DB pensions and a greater burden is placed on social security programmes, LGIM helps individuals save for the future while LGRR provides financial security in retirement.

5. Technological innovation

Consumers, clients and businesses look to digital platforms to help organise their finances and working lives. Technological solutions can increase security and improve the way we work and how we access information, whilst also unlocking opportunities in adjacent business areas.

Throughout the Legal & General Group , our businesses look for opportunities to improve customer service and efficiency through technology. During 2020, our swift technological response in the immediate wake of the March lockdown meant our businesses were able to provide continuity to customers and grow market share.

6. Addressing Climate Change

Scientists, policy-makers, markets and regulators increasingly agree that we must move to a global warming trajectory below 1.5°C to avoid potentially catastrophic physical risks which will impact global economies, markets, companies and people. This implies massive transition to a lower-carbon economy, which in turn creates risk management challenges but also substantial new growth opportunities, including in renewables and innovative technologies.

Across the Legal & General Group we seek ways to address Climate Change by building scalable, profitable businesses to reduce carbon emissions. LGIM continues to build on its strong heritage in Environmental, Social and Governance (ESG) investing for its clients and, increasingly, we see opportunities in LGC, LGRI, and LGRR to make investment decisions informed by Climate Change. To date, we have invested more than £1.4bn of Legal & General's own assets into renewable energy investments and over the next five years we intend to develop three business areas aligned to Addressing Climate Change.

Together these drivers have led us to participate in material, high growth markets where we are leaders or where we can leverage our expertise to increase our market share.

A unique, synergistic business model

Our strategy has positioned us to be a leader in the global retirement solutions and insurance markets, benefitting from a mutually reinforcing business model with unique synergies in pension de-risking and asset manufacturing and management:

· LGRI , a market leader in UK PRT, and LGRR, a leading provider of UK individual annuities, have £87.0bn of assets, providing long-term, captive AUM to LGIM. This portfolio is continually being enhanced with direct investments originated by LGC.

· LGIM is a leading player in providing UK and US DB de-risking solutions and is uniquely positioned to support DB clients journeying to the full range of pension endgame destinations, including PRT and Insured Self Sufficiency with LGRI; 69% of LGRI's PRT transactions over the past three years were from existing LGIM clients.[26] Furthermore, as DB clients de-risk assets and liabilities through PRT with LGRI, LGIM then manages the associated assets for decades to come. LGIM is also the market leader in UK DC pension scheme clients - a market with significant growth potential. Total UK DC assets are expected to more than double by 2028 to £955bn.[27]

· LGC invests society's capital for society's benefit. As a core component of our retirement solutions business, LGC creates assets to back pensions (notably in LGRI and LGRR) and invests our shareholder funds to achieve more attractive risk adjusted returns. LGC is building an alternative asset creation platform, benefitting LGIM clients, and leveraging third party capital to invest client funds directly and via acquired boutiques.

· LGI is a market leader in UK protection and US brokerage term life insurance, and provides significant Solvency II benefits to the Group by partially offsetting new business strain in LGRI and LGRR. Additionally, LGI's US business facilitates LGRI's US PRT transactions, which are written onto the existing US balance sheet.

The synergies within our businesses drive profits and fuel future growth.

Delivering Inclusive Capitalism and ESG

Our business strategy is focused on Inclusive Capitalism, and, accordingly, our Environmental, Social, and Governance (ESG) impact[28], particularly in terms of:

1. How our businesses operate. Our commitment to ESG is evident from our ambition to operate our offices and business travel with net zero emissions from 2030, to build 3,000 affordable homes by 2023 and for all of our new homes to be net zero operational carbon from 2030. During 2020 we ran an Addressing Climate Change Accelerator Programme, incubating a number of cross-functional projects aimed at increasing our involvement in funding the transition to net zero, especially in the built environment.

2. How we invest our £ 95.1bn of proprietary assets[29] . We consider ESG factors in new investment decisions and in 2020 we reduced the carbon intensity of the Group balance sheet by 2%. Please see pages 16 to 17 for more information and our Task Force on Climate-related Financial Disclosures to be published on 22 March 2021.

3. How we influence as one of the world's largest asset managers with £ 1.3 trillion AUM . We have £206.8bn AUM in ESG strategies and during 2020 we cast 139,000 stewardship votes as we continued to pressure investee companies to behave responsibly.[30] Please see page 20 for more information.

Our alignment to six long-term growth drivers and our commitment to Inclusive Capitalism have led us to develop a sustainable business model which generates positive outcomes for shareholders, customers, wider society and the environment.

Outlook

Medium term growth ambitions unchanged

Our strategy has delivered strong returns for our shareholders over time and has demonstrated resilience in the current environment. We are confident our focus on our 6 growth drivers will continue to deliver profitable growth into the future as we execute on our strategy based on Inclusive Capitalism .

In November we set out our five year ambitions. Cumulatively, over the period 2020-2024, our financial ambitions are for[31] :

1. Cash and capital generation to significantly exceed dividends (we intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay dividends of £5.6bn - £5.9bn)[32]

2. Earnings per Share to grow faster than dividends, with the dividend growing at low to mid-single digits from 2021

3. Net capital surplus generation (i.e. including new business strain) to exceed dividends

We expect to deliver long-term, diversified growth across the Group . LGRI and LGRR provide highly predictable, stable cash flows from their growing back-books and we expect the annuity portfolio to be fully self-financing in the next three to five years. Our asset management and origination businesses, LGIM and LGC, operate in attractive and profitable markets, and maintain a strong commitment to ESG-aligned investing. LGI is applying technology best practices to sustain its UK leadership, to grow in the US and to continue to expand into adjacent markets.

We remain confident in our strategy and in our ability to deliver resilient, organic growth through periods of macro-volatility, supported by strong competitive positioning in attractive and growing markets. Our confidence and our dividend paying capacity are underpinned by the Group's strong balance sheet with £7.4bn in surplus regulatory capital, a £3.5bn IFRS credit default reserve, and significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

2021 Group outlook consistent with medium term ambitions

We have made a good start to our five year cumulative financial ambitions and we remain confident of making further progress in 2021. Global PRT markets have remained buoyant in Q1 2021, while LGIM has benefited from continued asset market recoveries. LGC has seen a continuation of the rebound in the UK residential property market, which has also increased demand for UK retail protection from LGI. H2 2020 momentum in LGRR has continued into 2021, as customers look to buy annuities and lifetime mortgages. Although macro-economic uncertainty remains, we are pleased with the progress we have made year to date.

Whilst recognising the significant near-term challenges that remain over 2021, we intend to be a leader in the post-pandemic economic recovery. Our strategy and experience are strongly aligned to the UK Government's three flagship policies of "Build back Better", "Levelling Up" and Climate. We will continue to support our shareholders and customers while delivering Inclusive Capitalism through investments in infrastructure, clean energy, affordable housing, and providing products to support individuals' financial resilience.

Business segment outlook

LGR Institutional (LGRI)

LGRI participates in the rapidly growing global PRT market, focussing on corporate defined DB pension plans in the UK, the US, the Netherlands, Ireland, and Canada, which together have nearly £7 trillion of pension liabilities due to ageing demographics. ^{^[33]}

We are the only global player in PRT, writing direct business in the UK and US, and are market leaders in the UK. We are supported by LGIM's long-standing client relationships and LGC's asset manufacturing capabilities, as well as wide-ranging skills across the Group which enhance our asset strategy and product innovation. During 2020, 75% of our UK transactions were with LGIM clients, demonstrating the strength of our client relationships and the resilience provided by our unique position as the only firm operating across the full pension de-risking journey.

The UK is our primary market and it is the most mature PRT market globally with £2.2 trillion of UK DB pension liabilities, of which only c.11% have been transferred to insurance companies to date.[34] This leaves a sizeable opportunity for future growth in this market. Demand from companies and pension plans for insurance remains robust. Market commentators expect that the total UK PRT market was more than £30bn in 2020[35], and they anticipate as much as £240bn of PRT demand potentially arising in the UK during the next five years.[36] Our ambition is to write £40bn to £50bn of new UK PRT over the next five years, as we remain disciplined in our pricing and deployment of capital.

The US represents a further, significant market opportunity, with $3.5 (£2.8) trillion of DB liabilities, of which only c.6% have transacted to date.[37] Since our market entry in 2015, our US business has written more than $5bn of PRT with 67 clients. We are the only insurer providing PRT directly to pension plans globally and during 2020 we undertook our first international PRT transactions, securing pension benefits for the UK and US pension plans of two multinational companies. This is anticipated by market commentators to be "one of the key levers that sponsors with UK and US obligations look to utilise going forwards".[38] Our ambition is to write more than $10bn of international PRT over the next five years.

Whilst new PRT business requires solvency capital on day one, this capital commitment pays back quickly, generating an attractive and long-term stream of operating surplus, which provides stability to the division's operating performance and means that LGRI is not dependent on new business to deliver stable profits. Our annuity portfolio (including LGRR individual annuities) is expected to be self-sustaining within 3-5 years as it reaches £90bn-£110bn AUM (2020: £87.0bn). At this point, it will be able to fund new business, while both (a) paying its share of a progressive Group dividend and (b) contributing to an increase in the Group solvency coverage ratio over time.

LGR Retail (LGRR)

LGRR is a growth engine of the firm and we expect its target market to continue to expand, driven by ageing demographics and welfare reforms . LGRR is a waterfront provider of UK retail retirement solutions offering annuities, income drawdown, pot consolidation, lifetime mortgages, and advice. LGRR works closely with LGIM to deliver and develop a broad range of retirement solutions for customers.

The retirement market continues to be a key area of growth for Legal & General and we are uniquely placed to capitalise on this opportunity, leveraging our brand, customer relationships, capabilities and people. LGRR is building out offerings in retirement income, lifetime mortgages and care. Additionally, in early 2021, the Workplace Savings business and its four million customers was transferred from LGIM to LGRR, further building out LGRR's retail retirement proposition. Associated in-house assets will continue to be managed by LGIM. Our ambition is to be the UK's leading retirement brand, enabling all our customers to have a secure retirement whilst generating lasting profit for the Group and, over time, to expand internationally.

Our primary market is the UK, where currently, each year, there are £40bn of personal pension assets coming to maturity and this is expected to grow to £50bn by 2024.[39] Within this, the individual annuity market accounts for just £4.2bn of total maturing assets, i.e. a little over 10%.[40] LGRR is building on its strong market position in annuities, having grown its market share to 20.3% in the first nine months of 2020 ⁴⁰ , while expanding its addressable market through product innovation, such as drawdown and Retirement Interest Only mortgages.

The UK Lifetime Mortgages (LTM) market continues to represent a sizeable opportunity for LGRR, with UK housing equity in over 55s at £1.7 trillion across approximately 5.5m houses.[41] At present only £4bn per year is being released through the LTM market. While we maintain our focus on the traditional market (those with houses of average value of £400k, which accounts for around a third of over 55's housing equity, or c.£680bn) a further £600bn of housing equity is with people who still owe money on their house when they reach retirement age. We are starting to serve this market better through our Retirement Interest Only mortgages. £420bn of housing equity is represented by owners of houses worth £1m or more. This "wealth" sector has been under-served, but we expect to see lending to this segment increasing year-on-year from 2021 onwards. Additionally, we are looking at overseas opportunities, particularly in Australia, where we acquired a 20% stake in Household Capital in early 2020.

The global disruption following the outbreak of coronavirus caused a temporary dip in demand for retail retirement products, but we do not expect this to alter the long-term growth trajectory. Despite lower rates, many individuals place greater value on the certainty of an annuity in these uncertain times, while other people may choose to access home equity through a lifetime mortgage to weather reductions in the value of other assets. We are actively seeking solutions to address the needs of the 1.5m UK workers aged over 50 who report that they intend to significantly delay their retirement as a direct result of the pandemic.

Legal & General Investment Management (LGIM)

LGIM benefits from a combination of scale businesses and a diversified asset base, underpinned by structural demand for our products and investment capabilities. Our purpose is to create a better future through responsible investing, and we are recognised as a global market leader in ESG. Our five year growth ambition is driven by the three pillars of our strategy to modernise, diversify and internationalise the business. We seek (i) to grow cumulative profits at least in line with the Group's dividend growth rate of 3% to 6%, absent of market shocks, (ii) to increase AUM in international and higher margin areas, and (iii) to diversify AUM by client, channel and geography. We expect to maintain a cost income ratio in the high 50 percent range over the next two to three years as we invest for growth , after which we expect it to trend downwards.

LGIM plays a critical role in Legal & General Group's position as a leading, global pension solutions provider. As such, LGIM intends to maintain its strong position in the UK, which has been the bedrock of the firm's success to date, while diversifying its capabilities and broadening its reach.

Modernise: LGIM continues to invest in the business to achieve the resilience and global scalability critical to our future success. We are laying the foundations for continued global growth by investing in our people, operating platform, and refining our organisational structure . In the past year we have significantly strengthened our senior leadership team, with the addition of experienced new hires in the positions of Chief Risk Officer, Chief Compliance Officer, Global Chief Operating Officer, Global Head of Human Resources, Chief Technology Officer and Chief Data Officer. We continue to invest in our front office systems capabilities, driving efficiencies in the investment process.

Diversify: We continue to cement our leadership in ESG investing, and plan to expand our product ranges globally, as well as driving further integration of ESG into our mainstream investment portfolios. We will expand our investment offering, with particular focus on higher margin areas such as Real Assets, Multi Asset and Solutions. We see a sizeable opportunity in Real Assets - we are well known for our UK Real Estate Equity expertise, and will increasingly also provide investors with access to our leading private credit capabilities. As UK and US DB schemes come closer to funding maturity, we have an opportunity to extend our strong market position by enhancing our 'endgame' Solutions offering, thereby helping many clients to either self-sufficiency or to buy out with LGRI.

Internationalise: LGIM will be a disruptor in regions and countries where our strengths align to client needs. Over the last five years LGIM's international AUM has more than tripled to reach £ 388 bn - 30 % of LGIM's total AUM. Our ambition is to continue growing International AUM profitably and at pace, with a focus on the US, Europe and Asia. In the US, we will deepen our strong client relationships through innovation in DC and leadership in ESG. In Europe, we will build on our successes in Germany and Italy, to lay the foundation for expansion into other European markets, aiming to be a leading asset manager in Europe by 2025. In Asia, our strategy is to retain and increase our share of wallet with existing clients and deepen our footprint in existing markets - Japan, China, Hong Kong, Taiwan and Korea - by showcasing investment solutions that address key market trends.

LGIM's strategy strongly positions us to achieve our five-year ambitions and to grow cumulative profits at least in line with the Group's dividend growth rate of 3% to 6%, absent of market shocks.

Legal & General Capital (LGC)

LGC, the Group's alternative asset platform, makes substantial contributions to shareholder value creation and is positioned to drive further meaningful growth in the future.

LGC's alternative asset capabilities have grown out of a strategic desire to create assets to back LGRI and LGRR annuities, and to invest our shareholder funds to achieve more attractive risk adjusted returns. LGC's success in creating and scaling alternative asset capabilities has resulted in a pipeline of opportunities that exceeds the demands of Legal & General's balance sheet. As a result, as we continue to expand our balance sheet assets, we will increasingly create alternative assets for third party investors. By scaling up our asset distribution platform, we can accelerate the speed with which we recycle capital and deliver returns. This strategic expansion is additive to shareholder value and supports LGIM's diversification plans. Over the next five years we expect to build our diversified direct investment AUM towards c.£5bn (2020: £3.1bn) with a target blended portfolio return of 8% to 10%. Additionally, we plan to increase third party capital to over £14bn (2020: £5.2bn) through (i) capital raised by our part-owned boutique fund managers, (ii) co-investment in new and existing LGC assets, (iii) real assets manufactured for LGRI and LGRR, and (iv) LGC-originated real assets distributed by LGIM.

LGC continues to build its capabilities in a range of sectors, which are all supported by long-term structural growth drivers, meeting a financing gap and responding to a scarcity of supply that is underpinned by enduring societal needs. With c.£1bn invested in the real economy, supporting the Group's focus on climate and inclusive capitalism, our investments create jobs, change lives and contribute towards a net zero carbon future.

· Our specialist commercial real estate portfolio, which includes data centres, urban development, and science and technology-focussed real estate, has c.£0.7bn currently invested across sixteen UK towns and cities, creating jobs, driving economic growth and boosting local communities as the UK looks to build back better.

· In the clean energy sector, more than $130 trillion of investment is needed globally by 2050 to address climate change. LGC has invested £0.2bn in clean energy to date, including in the Kensa Group, a ground source heat pump technology firm, and a stake in Pod Point, one of the UK's largest electric vehicle charge point operators. We are committed to scaling-up investments in the clean energy sector to accelerate progress towards a low-cost and low-carbon economy .

· LGC's residential property platform is diversified across build to rent, build to sell, later living, and affordable housing, providing some insulation from cyclical shocks. The long term need for UK housing is well established: each year delivery of new homes falls short of demand, leading to increased levels of overcrowding, affordability issues, impaired labour mobility and increased levels of homelessness. Supporting our climate ambitions, we have committed that our homes will all be operationally carbon emission-free from 2030.

We are well positioned to achieve our long-term targets of delivering:

o Over 3,000 traditional build to sell homes per annum

o 5,500 build to rent homes in our pipeline

o 3,000 affordable homes per year by 2023 to help meet the needs of the more than 1.4m households on waiting lists for UK social housing

o Over 3,000 Later Living homes in our pipeline to help address the housing requirements of last time buyers seeking to downsize, estimated at over 3.4m by 2021

· In SME Finance, we are continuing to support UK innovation, investing in the real economy by creating a diverse portolio of assets. We expect to continue to deploy our capital and focus to support the venture ecosystem to help create and grow the businesses of tomorrow.

Legal & General Insurance (LGI)

We anticipate continued premium growth across our UK and US businesses as technological innovation makes our products more accessible to customers and supports further product and pricing enhancements.

In the UK, our market leading retail protection business is supported by the strength of our distribution relationships, investment in our systems and platforms, and product enhancements; these strengths led to a strong performance in H2 2020 which is continuing into 2021. Our group protection business has gained market share in 2020, however, 2021 new business volumes may not reach the record levels from 2020 as, typically, fewer large schemes are tendered in odd years than in even years. In line with our five year ambition, we are targeting mid-single digit growth in revenues across our UK protection businesses.

In the US, we anticipate our on-going technology investments and new partnerships will position us for premium growth as the market recovers from the distribution and underwriting disruptions caused by COVID-19. We plan to use technology to improve customer experience while reducing cost and becoming the partner of choice for a wide range of distribution partners. We are already the largest provider of term life assurance in the brokerage channel by policy count, and our digital first approach is aiming to achieve double digit growth in new business sales over the next five years.

As we look to transform adjacent markets, we are also accelerating growth in our digital platforms such as Salary Finance, where the loan book has quadrupled since 2018.

LGI expects to emerge stronger from the current crisis. In responding to the challenges presented by COVID-19 we have accelerated our use of data analytics in the UK and US, allowing us to enhance our products, optimise our profits, and take proactive risk management actions.

People

At Legal & General our greatest strength is our people, and that includes ensuring we have the right leaders across our business. To capitalise on the opportunities ahead of us and the expertise of our leaders, we are making a number of leadership changes in 2021.

Simon Gadd will step down as Group Chief Risk Officer in 2021 after a 34 year career with the Group, and move into an advisory role for the firm. We would like to thank Simon for his leadership and his enormous technical ability demonstrated during his time with us.

Chris Knight will take over the role of Group Chief Risk Officer from March, subject to PRA approval, having led LGRR through a strong period of growth during his three years as CEO of the division. During Chris's twelve years at Legal & General he has held a number of Group and Divisional leadership roles throughout the firm. He has also served as the Group's Customer Champion, representing retail customers' interests across the whole product range: a perspective he will bring to his CRO role.

Chris is succeeded as CEO of LGRR by Andrew Kail who was previously the Head of PwC's Financial Services practice and was Legal & General's Group engagement audit partner for five years. Andrew spent thirty years with PwC and, as a long-standing senior auditor and advisor, brings significant financial services experience as well as expertise in regulation, risk and technology. He is well placed to lead LGRR into the next stage of its mission to bring the best retirement products and services to UK consumers.

To facilitate our internationalisation objectives, Kerrigan Procter (currently CEO of LGC) has been appointed President of Asia, Legal & General Group, based in Hong Kong. The dynamism of the Asia-Pacific markets provides significant opportunities for not only LGIM, which is already established in the region with ambition to grow, but also across the Group. Kerrigan's remit will involve working hand in hand with our divisions to develop their strategies for growth in Asia and then implementing them in the region.

Laura Mason, who is currently serving as the CEO of LGRI, has been named as Kerrigan's successor as CEO of LGC. This move sees Laura return to LGC where she was part of the original leadership team involved in setting up the division. Laura is already heavily involved in LGC's work to invest in the real economy, with board positions overseeing our Oxford and Pemberton investments.

We will announce Laura's successor as CEO of LGRI in due course.

Dividend

Our businesses and balance sheet have shown resilience during the COVID-19 pandemic. As a long-term company, we act prudently and take into consideration all of our stakeholders. As indicated at the Capital Markets event in November, the Board has declared a final dividend of 17.57p per share, flat against the prior year.

Over the longer term, Legal & General expects to maintain its progressive dividend policy reflecting the Group's expected underlying business growth, including net release from operations and operating earnings.

LGR - Institutional

FINANCIAL HIGHLIGHTS £m	2020	2019
Operating profit excluding mortality reserve release	1,229	1,116

Mortality reserve release	102	100
Operating Profit	1,331	1,216

Release from operations	492	418
New business surplus	220	265
Net release from operations	712	683

UK PRT	7,196	10,075
International PRT	1,250	1,067
Other PRT (longevity insurance, Assured Payment Policy, Insured Self-Sufficiency)	397	250
Total new business	8,843	11,392

Operating profit up 10% to £1,229m^{^[42]}

LGRI continues to deliver consistent operating profit growth, with a 10% increase in operating profit over 2020 t o £1,229m ⁴² (2019: £1,116m ⁴² ). Growth was underpinned by the performance of our growing annuity portfolio and by resilient pension risk transfer (PRT) new business volumes, which saw particularly robust growth in our US business. As mentioned on page 4, the devastating loss of life from COVID-19 has had impacts across the Group, including LGR.

In H2 2020 we reviewed our future longevity improvement assumptions and have conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRI's annuity book, resulting in a £ 102 m reserve release. Including the reserve release, operating profit increased 9 % to £ 1,331 m (2019: £1,216m).

Release from operations increased 18% to £492m (2019: £418m), reflecting the scale of the business as prudential margins unwind from LGR's growing £ 87.0 bn annuity fund (2019: £75.9bn).

Net release from operations was £712m (2019: £683m) with new business surplus of £220m (2019: £265m). Higher release from operations was offset by lower new business surplus due to lower volumes in 2020, although at higher margins, compared with record bulk annuity new business volumes in 2019.

During 2020 we wrote £7,196m of UK bulk annuities, which combined with the Other PRT of £397m and £910m of individual annuities written in LGRR, delivered a 10.6% Solvency II new business margin (2019: 7.9%) with UK PRT capital strain of less than 4%. PRT business written during 2020 was especially capital efficient due to markets, reducing strain.

Gross longevity exposure was £88.9bn across LGRI and LGRR's annuity and longevity insurance businesses. We have reinsured £37.1bn of longevity risk with fourteen reinsurance counterparties, leaving a net exposure of £51.8bn. The reinsurance market is growing and innovating, and we expect it to continue to offer sufficient capacity to meet the demand from insurers.

57% increase in number of UK PRT transactions

During 2020 LGRI underwrote £8,843m of PRT across 61 deals globally (2019: £11,392m; 42 deals) .

Legal & General maintained its position as a leader in the UK PRT market, having written £ 7,593m of premiums across 44 transactions (2019: £10,325m; 28 deals). The UK PRT market was robust during 2020, with new business volumes the second highest on record and surpassed only by 2019 volumes. [43] Whilst there was a surge of mega-deals in 2019 driving higher market volumes in that year, 2020 saw more transactions as a whole, but concentrated on smaller and mid-sized pension schemes. As the only whole-of-market provider in the UK we see nearly all deals coming to market and are well positioned to preserve market share.

LGRI's brand, scale and asset origination capabilities - through synergies with, and expertise within, LGIM and LGC - are critical to our market leadership in the large UK PRT market. Long term client relationships, typically fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals. In 2020 we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:

· Small scheme solutions, with over 65 % of our transactions smaller than £100m as we leveraged technological innovation to serve smaller pension plans more efficiently.

· £1.1bn bulk annuity with Maersk Retirement Benefit Scheme which secures the pension benefits of around 1,900 deferred members and 3,000 retirees.

· A £397m Assured Payment Policy, our capital-light PRT product, for Legal & General Group UK Senior Pension Scheme. The policy provides asset yield, interest rate and inflation risk protection to the pension plan, paving a more secure path to buyout over a planned timeframe.

· A ninth bulk annuity for ICI, one of our largest PRT clients.

Record new business as US PRT volumes increased 42%

Our US PRT new business premiums increased 42% to $1,614m (2020: £1,250m; 2019: $1,140m; £893m) , as we grew market share from 4% in 2019 to 6% in 2020.[44] Since entering the market in 2015, we have underwritten more than $5bn of premium with 67 clients. [45] During 2020, the business broke new ground, writing:

· Our largest ever US PRT transaction independent of reinsurance, at more than $350m;

· Our first global PRT transaction, with LGRI simultaneously insuring IHS Markit's UK and US pension plans for $144m (£122m). As the only insurer providing PRT to pension plans globally, Legal & General is uniquely positioned to offer holistic, global pension de-risking solutions; and

· The largest global PRT transaction for Evonik Industries, insuring both their US and UK pensions plans for $826m (£617m) during H2 2020.

LGR - Retail

FINANCIAL HIGHLIGHTS £m	2020	2019
Operating profit excluding mortality reserve release	325	298

Mortality reserve release	75	55
Operating Profit	400	353

Release from operations	163	180
New business surplus	57	62
Net release from operations	220	242

Individual single premium annuities	910	970
Lifetime & Retirement Interest Only mortgage advances	791	965
Total new business	1,701	1,935

Operating profit up 9% to £325m^{^[46]}

LGRR operating profit growth excluding mortality reserve release increased 9% t o £325m during 2020 ⁴⁶ (2019: £298m ⁴⁶ ). Experience variances, primarily related to the tragic human cost of COVID-19[47], offset the reduction in net release from operations.

In H2 2020 we reviewed our future longevity improvement assumptions and have conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRR's annuity book, resulting in a £ 75 m reserve release. Including the reserve release, operating profit was up 13 % to £ 400 m (2019: £353m).

Release from operations was £163m (2019: £180m), a decrease of 9 %, reflecting reduced lifetime mortgage lending in 2020 .

Net release from operations was £220m (2019: £242m) with new business surplus of £57m (2019: £62m). New business surplus fell reflecting a reduction in annuity sales due to the market-wide slow down following the UK March 2020 lockdown.

Lower new business volumes in 2020, but both businesses have bounced back from early pandemic disruptions

LGRR has helped customers weather the economic uncertainty following COVID-19, delivering solutions to retirees through individual annuities and Lifetime Mortgages (LTMs).

Individual annuity sales were down 6% to £ 910 m in 2020 (2019: £970m), reflecting COVID impacts on new business volumes, particularly the desire of potential customers to postpone formal retirement in the immediate aftermath of the UK lockdown. Sales recovered over H2 2020, up 3% compared to H2 2019, as demand rebounded and technological innovation helped operational adaptation to the current environment. Our relative performance remained strong: our swift operational response, product innovation and increased intermediary presence allowed us to grow market share to 20.9%.^{^[48]}

Lifetime mortgage advances, including Retirement Interest Only mortgages, were down 18 % to £ 791 m (2019: £965m), again reflecting COVID impacts on new business volumes, and the particular challenges which affected the working of the end-to-end housing market. Throughout this period, we have maintained pricing and underwriting discipline while building customer-focused innovation, such as virtual valuations and electronic signatures. At the end of 2020, LTMs were 7% of our total annuity assets and our LTM new business portfolio had an average customer age of 71 and a weighted average loan-to-value of c.28% at point of sale.

Product innovation as a foundation for future growth

In addition to further growing its market leading annuity and lifetime mortgage business, LGRR seeks to achieve its five year ambitions by expanding its addressable market through product innovation.

As an example, during Q2 2020, we launched our non-advised drawdown to compete in the £28bn UK income drawdown market and in Q4 we launched our market-leading pension pot tracing and consolidation service.

Additionally, from 1 January 2021, the Workplace Savings business and its four million customers was transferred from LGIM to LGRR, building out LGRR's retail retirement proposition. Associated in-house assets will continue to be managed by LGIM.

We are expanding our product range to create a holistic decumulation proposition, and developing a digitally-led customer journey, offering flexible and guaranteed income options as well as pensions tracing and consolidation. As we develop our retail retirement proposition to expand our addressable market, we expect incremental growth to be increasingly capital light.

Legal & General Retirement - Total Annuity Asset Portfolio

FINANCIAL HIGHLIGHTS £m	2020	2019
Operating Profit	1,731	1,569
Investment and other variances	19	43
Profit before tax	1,750	1,612

Total annuity assets (£bn)	87.0	75.9
Of which: Direct investments (£bn)	24.7	21.6

Legal & General Retirement's (LGR) £ 87.0 bn 'A minus' rated asset portfolio backing the IFRS annuity liabilities in LGRI and LGRR is well diversified by sector and geography (2019: £75.9bn).[49] Our ambition is to continue to strengthen our asset sourcing capabilities (a core competitive advantage), including both self-manufactured and public assets with a strong ESG focus.

During 2020 LGR published its asset portfolio ESG strategy[50]. This includes:

Environmental - Portfolio decarbonisation (reducing portfolio carbon emission intensity by 18.5% by 2025) and influencing the transition to a low-carbon economy

We are decarbonising our portfolio through three primary mechanisms:

1. Investing new business premiums at a lower carbon intensity than our current portfolio

2. Increasing portfolio allocation towards companies that are themselves aligned to the Paris carbon emissions trajectory

3. Trading out of issuers (companies) within our current portfolio which are decarbonising too slowly

Social impact - Creating new investments for the future economy

When allocating capital towards investments, our primary aim is to ensure the safety of our policyholders' benefits, but we also look to invest to generate positive societal impacts, to drive local and global economic growth, and to contribute to reliable dividends for our shareholders.

Governance - Measuring and managing financial related risks including ESG to make society more resilient with our financial solutions

LGR and LGIM aim to develop and analyse ESG data in an efficient way to identify, measure and manage the most salient risk factors for our investments, and integrate these assessments into the investment process. We measure and mitigate ESG risks in our portfolio at both individual security and portfolio levels.

Credit portfolio management

Approximately two-thirds of LGR's fixed income portfolio is rated A or better, 33 % rated BBB and 2 % sub-investment grade.

The key objective of our annuity-focused, fixed income fund managers in LGIM is to manage the portfolio to match liabilities while minimising credit downgrades and avoiding defaults. We constantly review our asset portfolio, including sector allocations and asset classes, in order to manage portfolio credit quality and to mitigate risks. We have vigorously stress-tested our portfolio to build resilience against a range of scenarios and we hold a £ 3.5 bn IFRS credit default reserve .

We have kept lower-rated, cyclical exposures to a minimum and only 13% of our BBB assets are BBB-. We actively manage our asset portfolio and continue to take opportunities to improve credit quality at attractive pricing levels. Market dynamics during the early stages of COVID-19 allowed us to take significant positive action and we remain vigilant as the economic impact of the pandemic continues to develop.

This two-pronged approach, defensive positioning and active management, has helped us mitigate downgrade and default risk. We have outperformed the downgrade experience of the market, with just 0.9% of our traded credit assets downgraded to sub-investment grade compared to 1.8% of the index. We have had no defaults.

Direct Investment

LGR originated £ 2.6 bn of new, high quality direct investments during 2020 which, along with market movements, brought the direct investment portfolio total to £ 24.7 bn[51] (2019: £21.6bn) , including £ 6.0 bn in LTMs. Consistent with the broader bond portfolio, approximately two-thirds of the direct investment bond portfolio was rated 'A' or above using robust and independent rating processes which take account of long-term stress events on the strong counterparties and the underlying collateral.

The portfolio has been resilient, with 99.9% of scheduled cash-flows paid during the year, reflecting the high quality of our counterparty exposure. During 2020, just four direct investments, representing 2.6% of our UK direct investment portfolio (excluding lifetime mortgages), were downgraded to sub-investment grade. Two of the affected assets were under construction and delays have meant that the construction phase has been extended slightly, resulting in a downgrade under our independent rating methodology. One of these assets has already been upgraded back to investment grade in 2021.

Across the Legal & General Group, our businesses help to meet the societal needs arising from welfare reforms by harnessing the power of pensions to deliver Inclusive Capitalism. We aim to invest in sectors where long term funding is needed, for example, in assets providing housing and clean energy across our UK towns and cities. Our ability to self-manufacture attractive, long-term assets to back annuities, such as build to rent or affordable housing, working with LGIM, LGC, or through LTMs, is a differentiating feature of LGR's business and remains a key competitive advantage.

Legal & General Investment Management

FINANCIAL HIGHLIGHTS¹ £m	2020	2019
Management fee revenue	929	889
Transactional revenue	27	23
Total revenue	956	912
Total costs	(549)	(514)
Asset management operating profit²	407	398
Workplace Saving operating profit / (loss)	(3)	(4)
Operating profit	404	394
Investment and other variances	(3)	(9)
Profit before tax	401	385
Net release from operations	342	328
Asset Management cost:income ratio² (%)	57	56

NET FLOWS AND ASSETS £bn
External net flows	20.4	86.4
Internal net flows	2.1	2.8
Total net flows	22.5	89.2
- Of which international³	(4.0)	59.2
Cash management flows	2.4	(0.6)
Persistency (%)	85	89
Average assets under management	1,222	1,132
Assets under management as 31 December	1,279	1,196
Of which:
- International assets under management⁴	388	370
- UK DC assets under management	113	94

1. Please see disclosure 1.01 for further details. 2019 LGIM operating profit restated to include LGIM-related project expenditure formerly reflected in Group expenses.

2. Excludes revenue and costs from the Workplace Savings business.

3. International asset net flows are shown on the basis of client domicile.

4. International AUM includes assets from internationally domiciled clients plus assets managed internationally on behalf of UK clients.

Operating profit growth of 3% to £404m

LGIM's AUM and profit were resilient through the significant market volatility associated with COVID-19. Assets under management increased to £1,278.9bn (2019: £1,196.2bn), benefitting from the diversified asset base. The business delivered positive external net flows of £20.4bn (2019: £86.4bn), driven by strong structural demand for our products against a prior year comparator which included a £37bn mandate with the Japan Government Pension Investment Fund. Revenues increased 5% to £956m (2019: £912m), supported by growth in higher margin areas like factor based and thematic ETFs and Multi-Asset. LGIM continues to be a strong enabler and beneficiary of growth in LGRI and LGRR, and in 2020 revenue from these divisions totalled £148m (2019: £131m). During 2020 our position as a leader in ESG was acknowledged both through our #1 ranking globally among asset managers by independent NGO ShareAction for our work on climate change, and through our selection into the 'Leaders Group' by the UN Principles for Responsible Investment.

Operating profit increased by 3% to £404m (2019: £394m), reflecting increased revenues from flows and asset values, which were partially offset by LGIM's continued investment in its growth strategy. As outlined in the November 2020 Capital Markets Event, LGIM is continuing to invest across all three strategic areas of focus in order to modernise, diversify and internationalise the business. Key areas of investment are: data analytics, digital customer experience, investment platform optimisation and international expansion, particularly for scaling up our European operations. The cost income ratio (57%) reflects our continued investment in the business. However, we are balancing our investments with a focus on cost, taking decisive actions as necessary. Expense management in H1 2020 benefited our full year result.

Falling interest rates have increased the value of fixed income assets, which account for over one-third of LGIM's AUM. Despite the low rates environment, pension schemes have continued programmes of de-risking which have positively impacted flows from UK DB pension plans and thanks to our deep relationships with plan trustees LGIM has been able to support our clients during these uncertain times.

Workplace Savings assets increased by 2 6 % to £5 0.8 bn (2019: £40. 3 bn) driven by continued client wins and increased contributions. We are focused on improving efficiency as the business grows. The 2020 operating result was £(3)m (2019: £(4)m). This relates to the administration business only, as the profits on the fund management services provided are included in LGIM's asset management operating profit. From 1 January 2021, the Workplace Savings administration business has transferred to LGRR, where it complements their retirement solutions offering and retail customer focus; LGIM continues to manage the assets and earn the asset management profit from this business.

Strong flows into UK DC and UK DB benefitting from increased hedging activity

LGIM's UK Institutional business delivered resilient external net flows of £21.3bn (2019: £22.8bn).

This was led by a robust performance from the Defined Benefit (DB) business, with external net flows of £10.2bn, driven primarily by strong inflows of £22.7bn into DB LDI Solutions. The market volatility and low rates environment have made DB pension plans increasingly aware of their asset risks and, as such, many have sought to hedge these risks. LGIM is both an enabler and a beneficiary of LGRI's PRT business. As a leading Solutions provider, LGIM can support clients at all stages of their funding journey, eventually helping them transition into a PRT relationship with LGRI. At this point, these assets are given to LGIM as captive AUM to manage for the long term. This means that even as the UK DB market gradually de-risks and declines in size, LGIM will continue to meaningfully participate, benefitting from a truly virtuous circle with LGRI. Adding to our suite of DB investment solutions, this year we launched the Secure Income Assets Fund (SIAF), offering DB clients the chance to invest in infrastructure debt, real estate debt and private corporate debt.

The Defined Contribution (DC) business continues to attract flows, with robust external net flows of £11.1bn. Total UK DC AUM is up 20% over prior year driven by net inflows, with total AUM of £112.7bn (2019 £94.3bn). This success was made possible by LGIM's strong customer focus, as shown by our 2020 Global Investor Award and a 93% persistency rate among our DC customers.

LGIM has experienced a 14% increase in customers on its Workplace pension platform in 2020, with the number of members now at four million. LGIM also has one of the largest and fastest-growing UK Master Trusts, which recently reached £12.5bn AUM at its ninth anniversary, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration.

International AUM increased 5% despite slightly negative net flows

LGIM experienced international external net flows of £(4.0)bn, which is down against the exceptional prior year performance (2019: £59.2bn), which reflected a £37bn mandate with the Japan Government Pension Investment Fund.

The low rate environment resulted in rising asset values but saw US external net flows of £(7.2)bn as some US pension plans rebalanced their portfolios away from fixed income towards other asset classes based on pre-set asset allocation thresholds. We expect US growth to resume as clients, particularly DB pensions, continue to focus on long term de-risking objectives. Asia ex-Japan net flows were encouraging, at £11.5bn (2019: £2.6bn).

International AUM of £388bn is up 5% from 2019 (£370bn) with fixed income asset values benefitting from lower rates. Notwithstanding short-term market volatility, we continue to focus on international growth. Our deep relationships with a number of leading international clients underpin our strong belief in our ability to grow international AUM and earnings over the next five years.

Strong growth and product innovation in our retail business

The retail business delivered net flows of £1.6bn, through a period of significant market volatility . Retail AUM increased by 7% to £41.6bn (2019: £38.8bn) as we continue to develop our product range and client-service proposition in the UK and broaden our distribution strategy in Europe. LGIM was ranked top 4 in gross UK retail sales in 2020.^{^[52]} In October, LGIM sold a c.£5.8bn back-book of retail investment products within the Personal Investing business to Fidelity International Ltd. Customers will remain invested in LGIM funds upon transfer (expected in H2 2021) and LGIM will continue to earn an investment management fee on these assets.

Product innovation within our ETF business has helped bolster our retail distribution strategy with £1.5bn of net flows in 2020, and AUM increasing by 74% to £5.4bn (2019: £3.1bn). Currently 79% of our ETF offering by AUM/market type has experienced net inflows in 2020 and we rank in the top 10 for pan-European mutual funds and ETF net flows.^{^[53]} During 2020 we launched a range of ESG aligned ETF's, including a new thematic Clean Energy ETF. Additionally, LGIM launched its Core Fixed Income ETF range with ESG and liquidity considerations integrated into the investment design. The range excludes the bottom quintile of issuers based on their ESG scores, as well as certain industries such as controversial weapons manufacturers, thermal coal miners, tobacco companies, oil sands and violators of the UN Global Compact.

Leading in responsible investing

LGIM continues to build on its credentials as a responsible investor and remains committed to leading the asset management industry in addressing the environmental and social challenges arising from a rapidly changing world. As at 31 December 2020, LGIM managed £206.8bn in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.

LGIM has a strong, unified sense of purpose: to create a better future through responsible investing. To that end, we work to raise ESG standards on important global issues, leveraging our position as one of the 15 largest global asset managers. Examples of our achievements in 2020 include:

· Integration of ESG factors : Building on two of our structural growth drivers, using technological innovation to address climate change, LGIM and Baringa Partners co-developed a bespoke climate risk framework, Destination@Risk. It has initially been used to analyse around 2,000 companies globally, concluding that most companies are not aligned with the Paris objectives. A climate risk dashboard is now available to portfolio managers and analysts within LGIM, enabling LGIM to embed climate risk and alignment in a consistent way throughout the entire global investment function. Destination@Risk was first used to evaluate the climate risk and alignment of Legal & General Group's own balance sheet assets, as detailed in the firm's 2019 Task Force on Climate-related Financial Disclosures (TCFD) report.

· Product innovation : LGIM is committed to meeting clients' demands for ESG-focused investment products. During 2020 we built on our strong heritage in index and ESG investing to develop innovative new products:

1. ESG fossil-fuel free Emerging Market Equity Index Fund, which allocates capital based on transparent ESG scores, incorporates energy and tobacco sector exclusions, while leveraging LGIM's stewardship capabilities

2. Climate transition index equity fund, based on the Transition Pathway Initiative (TPI) analysis of how the world's largest and most carbon intensive public companies are managing the climate transition

3. Social Housing investments: LGIM Real Assets has made a number of affordable housing investments during 2020, including its first investment in an Irish scheme. Across the Group Legal & General has invested to date more than £1.5bn in affordable housing in the UK.

4. In 2020 our launch of the L&G US Equity (Responsible Exclusions) UCITS ETF was recognised as the most successful sustainable fund launch in the market, raising over £1bn AUM in the 12 months after launch.

· Stewardship with impact : LGIM's stewardship team engaged with 65 companies and voted on 139,000 resolutions in 2020. Additionally, during 2020 we engaged with regulators and policymakers around the world on more than 30 topics , in an effort to raise market standards globally. Recognising the crucial role of international leadership and collaboration to the decarbonisation initiative; Legal & General is at the heart of the COP26 programme in 2021, with LGIM CEO, Michelle Scrimgeour, co-chairing COP26 Business Leaders alongside the Secretary of State for Business, Energy and Industrial Strategy, Rt Hon Alok Sharma MP.

Breadth of investment management solutions

Asset movements ¹ (£bn)	Index	Active Strategies	Multi Asset	Solutions	Real assets	Total AUM
At 1 January 2020	403.6	177.2	58.0	526.6	30.8	1,196.2
External inflows	76.6	17.7	8.5	27.0	1.0	130.8
External outflows	(84.7)	(17.8)	(5.3)	(36.6)	(1.4)	(145.8)
Overlay net flows	-	-	-	33.9	-	33.9
ETF net flows	1.5	-	-	-	-	1.5
External net flows	(6.6)	(0.1)	3.2	24.3	(0.4)	20.4
Internal net flows	(0.2)	2.6	(0.4)	(0.3)	0.4	2.1
Total net flows	(6.8)	2.5	2.8	24.0	-	22.5
Cash management movements	-	2.4	-	-	-	2.4
Market and other movements	33.1	11.5	2.6	8.9	1.7	57.8
At 31 December 2020	429.9	193.6	63.4	559.5	32.5	1,278.9

1. Please see disclosure 4.01 for further details.

In Solutions and Index, clients rely on us to deliver their target returns against defined benchmarks. For actively managed portfolios, investment outperformance versus either benchmarks or peer groups is an important driver of current and future client flows, and in 2020 LGIM's active teams delivered strong performance across multiple asset classes. Using our regulated UCITS and US Composites as a proxy for the performance returns² of our mainstream investment strategies, our active teams have delivered 1, 3 and 5 year performance numbers to 31 December 2020 as follows:

Strategies	1 year % outperformance	3 year % outperformance	5 year % outperformance
Multi asset (LGIM)	76%	81%	88%
Active Fixed Income (LGIM)	94%	93%	85%
Active Fixed Income (LGIMA)	86%	73%	83%
Active Equities (LGIM)	50%	36%	44%

2. Net fund performance data versus key comparators (benchmark or generic peer groups for bonds and equities as per the relevant prospectuses and benchmark per the relevant prospectus or custom peer group for Multi Asset) sourced for the LGIM UCITS from Lipper and calculated internally for the U.S. composites, in both cases as at 31 December 2020.

LDI Solutions continued to deliver positive external net flows of £24.3bn (2019: £38.1bn) driven by strong demand from UK DB clients as they continue to de-risk. We manufacture Solutions products in both publicly and privately traded asset classes and combine these together in integrated portfolios for UK DB clients. We are well positioned to capitalise on this continuing trend; and together with our fiduciary business offering, and close alignment to LGR's PRT business, we are able to tailor solutions to UK DB schemes at all stages of their funding journey.

Index reported net flows of £(6.6)bn (2019: £37.7bn) reflecting the structural trend of DB schemes de-risking resulting in a shift from index to LDI strategies, offset by positive flows in Europe and Asia.

Active Strategies (formerly Global Fixed Income and Active Equities) delivered net flows of £(0.1)bn (2019: £2.8bn) . The flows performance in 2020 reflects positive net inflows from UK DB clients, offset by rates driven outflows in the US reflecting rising asset values and clients rebalancing their portfolios.

Multi-asset strategies continue to be in high demand from DC schemes and retail customers . External net flows into multi-asset funds were £3.2bn (2019: £7.7bn).

Real Assets saw external net flows of £(0.4)bn (2019: £0.1bn) reflecting market and regulatory sentiment impacted by COVID-19 . The future growth of external flows will be supported by our Build to Rent business, which now has a pipeline of c.5,500 homes across the country, and Private Credit, which offers clients diversification of secure income and value protection solutions.

Legal & General Capital

FINANCIAL HIGHLIGHTS £m	2020	2019
Operating profit	275	363
- Direct investment	112	217
- Traded investment portfolio	161	135
- Treasury assets	2	11
Investment and other variances	(299)	91
Profit / (loss) before tax attributable to equity holders	(24)	454
Net release from operations	224	295

DIRECT INVESTMENT PORTFOLIO £m
Specialist commercial real estate	694	760 1
Clean energy	182	170
Residential property Homes	1,738	1,483
SME Finance	525	464
	3,139	2,877
TRADED ASSET PORTFOLIO £m
Equities	1,749	1,797
Fixed income	446	499
Multi-asset	209	238
Cash¹	1,522	2,024
	3,926	4,558

LGC investment portfolio	7,065	7,435
Treasury assets at holding company	1,982	1,555
Total	9,047	8,990

1. Includes short term liquid holdings.

Total operating profit of £275m reflecting pause in housebuilding in March lockdown

LGC operating profit decreased 24% to £275m (2019: £363m), principally reflecting lower profits from our direct investment portfolio (2020: £112m; 2019: £217m) as a result of a pause in traditional housebuilding activities during the UK lockdown. O perating profit from the traded and treasury portfolios increased to £163m (2019: £146m), primarily driven by the larger opening traded equity portfolio value at the start of 2020.

Profit before tax of £(24)m includes the impact of equity market volatility, early stage development costs and investment variance from asset valuation markdowns, particularly in respect of our two retail assets (The Lexicon Bracknell and Thorpe Park in Leeds), and a prudent approach to valuations of realisable yields on some of our housing businesses. These markdowns relate to the current value of the portfolio and are not realised losses.

The combination of a slowdown in build to sell housing and measured retail-related asset write-downs, resulted in a direct investment net portfolio return of (4.0)% (2019: 5.2%), which we expect to recover to 8% to 10% over the medium term.

Direct investment portfolio grew 9% over 2020 to £3.1bn

LGC has continued to build its capabilities in a range of alternative assets, delivering depth of resource, track record and intellectual property, while sourcing new opportunities that are underpinned by our structural growth drivers. Taking a prudent approach to investment over the period, our direct investment portfolio increased to £3,139m (2019: £2,877m) as we added £0.6bn of new diversified investments and made further new undrawn commitments of £0.2bn, continuing to deploy cash to support the growth of our existing businesses and access new opportunities. As we are maturing, we have also divested £0.2bn in assets.

Our portfolio continues to be well diversified across our business models, with:

· 55% invested in wholly owned operating businesses, including our investments in Affordable housing and CALA;

· 28% in joint ventures or partnerships with other investors, such as the SciTech partnership with Bruntwood and our Oxford University Development partnership; and

· 17% in externally managed funds, including our investments in Pemberton funds and NTR, where we are a significant shareholder.

Further diversification of our specialist commercial real estate across science and innovation

Addressing a shortage of investment in specialist commercial real estate, we are involved in some of the UK's largest urban transformation schemes and are funding the next generation of science and innovation centres, which have proven crucial in response to COVID-19. Creating jobs, boosting local communities and helping the UK to build back better, these investments generate returns for shareholders, create attractive Matching Adjustment eligible assets for LGRI and LGRR and supply desirable alternative assets to LGIM clients.

During 2020 our portfolio reduced marginally to £694m (2019: £760m) as COVID-19 related valuation impacts (particularly affecting our two retail assets) were largely offset by continued investment in new and existing projects. As a part of our £4bn Oxford University partnership, we facilitated LGR's £200m funding for a new Life and Mind sciences building. We have also worked with LGIM, LGRI and LGRR to finance and develop a state-of-the-art TV and film studio for Sky in Elstree, creating around 2,000 jobs and generating £3bn of production investment.

Through Bruntwood Scitech, we have developed world-class diagnostics infrastructure, such as the Lighthouse Lab at Alderley Park, which has put us at the forefront of the fight against COVID-19. Continuing to support our leadership in UK SciTech innovation districts, we have made further progress in Manchester and have partnered with Birmingham University to deliver the Birmingham Health Innovation Campus, an ambitious 10-year project to establish a new 657,000 sq ft life sciences hub.

Our Clean Energy portfolio expanded to £182m, in line with climate ambitions (2019: £170m)

As we transition to a net zero carbon world, we are investing in SME scale-ups that can deliver the game-changing innovation, renewable technology and momentum needed to meet public targets and decarbonise our economy. During 2020 LGC expanded its clean energy portfolio, which includes renewable infrastructure and clean technology, across low-carbon heat, transport, and power generation.

In February, we increased our stake in Pod Point to c.22%, forming a partnership with EDF. Its growth has been significant, driven by increasing consumer interest in electrical vehicles and it has developed an extensive public netwok across the UK, including the roll-out of charging bays at Tesco and Lidl stores.

In April, we took a 36% stake in The Kensa Group, a leader in the UK ground source heat pump technology sector. During 2020, Kensa announced it is involved in a £41m low carbon transport, power and heat energy superhub being created in a deprived area of Oxford, which is supported by the UK Government's Industrial Strategy Challenge Fund and includes retrofitting ground source heat pumps in over 300 domestic properties.

Additionally, through our boutique fund manager, NTR, we are continuing to source, build and operate new renewable energy assets to create attractive returns for investors over the medium to long term by generating zero carbon electricity, scaling our platform and impact. At the end of 2020, NTR closed its second fund, NTR Renewable Energy Income Fund II, with more than €300m to invest in onshore wind, solar and battery projects in Europe, around 50% of which has already been successfully deployed.

Strengthening our UK residential platform as assets increase to £1,738m (2019: £1,483m)

LGC continues to scale up its ambitions across all housing tenures. Diversified across affordability and life stage, LGC's investments meet the UK's long term social and economic need for quality housing for all demographics.

Now in its second year, LGC's profitable Affordable Homes business has established itself as one of the UK's leading institutional developers and managers of affordable housing, and is generating investment opportunities for LGR. In the wake of the COVID-19 crisis, the business remains highly resilient, in terms of both valuations and income. Working in collaboration with Government and leveraging the countercyclical nature of affordable housing, it is delivering much needed homes to meet increasing demand, growing its development pipeline to over 4,400 homes across 92 sites. Delivering a mix of social rent, affordable rent and shared ownership homes, the business had a total of 670 homes in operation (2019: 117) and has completed 183 shared ownership sales (2019: 8). Customer service standards are an important strength and the business received a Net Promoter Score of 49, compared to a Housing Association sector average of 6.

Having launched an urban Build to Rent business in 2015, across the Group we now have a £1.8bn portfolio of c.5,500 homes with 15 schemes in operation or development across the UK's major towns and cities. Creating a pipeline of attractive, high quality assets for LGRI, LGRR and LGIM clients, our urban Build to Rent portfolio has continued to deliver a stable return throughout the crisis. Showing its resilience and relatively countercyclical nature, rent collection has remained robust at over 97% (as at end of 2020) and occupancy and demand have remained high. In November 2020, LGC launched its Suburban Build to Rent business, which builds on our Group-wide expertise in UK urban build to rent. The Suburban Build to Rent sector has lacked the concentration of institutional investment, with less than 1% of the market having been 'institutionalised' compared to around 6% in the urban sector.

Our Build to Sell business, CALA, was the most operationally impacted of our residential businesses by COVID-19, with a material reduction in revenues and construction progress seen in the first lockdown. To counteract these financial impacts, we carefully managed costs through the period. Performing in line with or ahead of the wider housing maket, we saw strong sales activity during H2, demonstrating the enduring underlying demand for new homes. Underlying sales demand has been supplemented by the Government's stamp duty holiday in England and Land and Buildings Transaction Tax (LBTT) threshold increases in Scotland, in addition to pent up demand from the spring lockdown, when many reassessed their housing needs in light of home working and the need for outdoor space.

Our Modular Housing business has continued to grow, now employing over 300 team members and securing planning approval for nearly 350 homes since May, as it moves towards delivering 3,000 homes a year at maturity. In December planning consent was achieved to deliver 185 homes in Bristol. Developed with Bristol City Council, 50% of the scheme is affordable housing and will form part of the council's affordable housing stock.

Our Later Living platform is transforming what the elderly can expect from later life, with a key role to play in combatting loneliness and promoting good health. COVID-19 has heightened public awareness of later living and our villages have played a vital role in providing a protective shield to our residents, with an infection rate lower than that seen in over 70s across the UK. Despite four months of lockdown, completions were broadly flat on the previous year. Good planning progress was made by the business, with consent for nearly 800 homes added to our pipeline in the first lockdown.

SME Finance increased to £525m (2019: £464m)

Investing in the real economy through our Alternative Finance and SME Growth Equity platforms, we are continuing to support growth businesses, delivering enhanced returns while boosting job creation, innovation, and science and technology advancements.

In the Alternative Finance sector, we support UK and European mid-market lending via our fund investments with Pemberton, in which we own a 40% stake. Notwithstanding the challenges that have been presented by COVID-19, Pemberton has continued to show resilience and make excellent progress, with committed Funds Under Management reaching €9.3bn (2019: €6.1bn) across 4 strategies and €8.3bn deployed since inception. This represents 20x growth in committed AUM since our investment five years ago. As a signatory of the Principles for Responsible Investment, Pemberton is committed to financing sustainable companies and seeking to support its borrower clients in building long-term value through sustainable growth.

Our SME Growth Equity business backs over 300 start-up businesses across the UK and Europe through fund investments with eleven Venture Capital managers. We have increased our investments during the year with the addition of two new funds from leading European managers, as we continue to diversify across stage, vintage and sector, bringing our total Venture Capital commitments to £116m. The portfolio is performing well, with earlier vintages now beginning to generate strong returns. Investments in the underlying portfolio include accuRx, a healthcare communication company with a SMS patient messaging service used by 99% of UK GPs (over 7,000 practices) including supporting vaccine bookings and which has facilitated over 1m video consultations since the start of COVID-19. Looking to share the benefits of the Innovation Economy with retirement savers in the UK, we are working with LGIM to develop a viable solution for Defined Contribution clients which democratises access to the venture capital sector.

Legal & General Insurance

FINANCIAL HIGHLIGHTS £m	2020	2019
Operating profit	189	314
- UK	205	223
- US (LGIA)	(16)	91
Investment and other variances¹	(459)	(234)
Profit / (loss) before tax attributable to equity holders	(270)	80
Release from operations	250	259
New business surplus / (strain)	8	(7)
Net release from operations	258	252

Solvency II New Business Value	254	216

LGI new business annual premiums	372	339

UK Retail Protection gross premiums	1,374	1,327
UK Group Protection gross premiums	382	345
US Protection (LGIA) gross premiums	1,093	1,057
Total gross premiums	2,849	2,729

1. Investment variance is driven by a fall in UK government bond yields and US Treasury yields which has resulted in a reduction in the discount rate used to calculate the reserves for both our UK and US protection liabilities.

Operating profit of £189m impacted by COVID-19 mortality; new business value growth of 18%

Honouring our promises and responding quickly and compassionately to our customers' needs is core to our values at Legal & General. At this difficult time, LGI is especially aware of the importance of our commitments to our customers; we paid £1 ,942m of protection claims in 2020.

During 2020 LGI operating profit decreased 40% to £189m (2019: £ 314m), reflecting adverse COVID-related impacts of £186m, particularly impacting our US Protection and UK Group Protection businesses where we retain the majority of the mortality risk. We have provisioned for £110m of future COVID-19 related claims, having realised £76m of COVID-19-related claims during 2020. For more information please refer to the "COVID-19" section on page 4.

Solvency II New Business Value increased 18% to £254m (2019: £216m) due to strong sales in Group Protection, increased focus on cost optimisation across our retail businesses and favourable business mix in the US, which together delivered improved UK and US Solvency II New Business margins. The protection business continues to generate Solvency II surplus immediately when written and provides diversification benefits to the Group, particularly LGR.

LGI UK operating profit fell by 8% to £205m (2019: £223m) due to adverse mortality experience in Group Protection, partially offset by assumption changes. The retail protection business was largely insulated from the impact of COVID-19 claims because of the high proportion of the business which is reinsured. The UK Protection Solvency II new business value increased 31% to £160m (2019: £122m).

LGIA operating profit decreased to $(21)m (2019: $116m) due to adverse mortality experience from COVID-19, consistent with experience across the broader US life sector. The annual dividend paid by LGIA to the Group in March 2020, shown in the accounts within LGIA net release from operations, increased to $109m (2019: $107m). Despite competition in the term market as well as business disruption and lower new business premium caused by COVID-19, US protection sales delivered higher new business margins resulting in Solvency II new business value of $120m (2019: $120m).

Profit before tax was predominantly impacted by the formulaic change in LGI's discount rates. LGI's negative investment variance of £459m was driven primarily by falls in UK and US government bond yields which have resulted in a reduction in the discount rate used to calculate the reserves. This result reverses as rates rise. The UK 10 year gilts rate fell from 0.82% at the start of 2020 to 0.20% on 31 December 2020. Likewise, US 10 year Treasury yields fell from 1.92% to 0.93% by the end of 2020 .

Gross written premium up 4% led by strong new business growth of 10%

UK Retail Protection gross premium income increased to £1,374m (2019: £1,327m) with new business annual premiums of £175m (2019: £174m), up on prior year despite the interruption from COVID-19 for a number of our distribution partners, particularly those that depend on the mortgage market or in-person advice. We increased our market share to 27% in Q3 2020 (up from 21% a year earlier) and remain the leading provider of retail protection in the UK, delivering a point of sale decision for more than 80% of our customers. Our market share growth was supported by our innovation over the period, for instance, further enhancements to our Income Protection Benefit attracted new customers in 2020. These factors added resilience to our sales during the turbulence following the emergence of COVID-19 and positioned us to be beneficiaries as the retail protection market recovered in the second half of the year.

UK Group Protection grew new business annual premiums by 54% to £117m (2019: £76m) with gross written premiums increasing 11% to £382m (2019: £345m). With improved service and more refined pricing we are attracting a wider range of scheme sizes and actively dealing with more advisers in the group protection market, enabling us to gain market share and grow new business premiums. We anticipate that 2021 new business volumes may not reach the record levels of 2020 as typically fewer large schemes are tendered in odd years than in even years.

US Protection (LGIA) gross written premiums increased 4% (up 3% on a sterling basis) to $1,403m (2019: $1,349m). New business annual premiums reduced to $103m (2019: $113m) as obtaining medical evidence in the pandemic became harder. Through the brokerage channel, LGIA continues to be the largest provider of US term life assurance by number of policies, and second largest by new business APE. We have continued to develop our new business platform to deliver a faster and better customer experience that will lead to further sales growth while reducing unit costs in coming years.

Legal & General Mortgage Club facilitated £77bn of mortgages, down 1% (2019: £78bn), with the result impacted by lower residential housing sales during COVID-related lockdowns in the UK. We are well placed for growth as the market recovers, being the largest participant in the UK intermediated mortgage market and involved in over one in five of all UK mortgage transactions. Our Surveying Services were also impacted, facilitating only 440k surveys and valuations, compared to 550k surveys and valuations in 2019. Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a helpful component of our overall offering to customers.

Fintech: Using technological innovation to respond to the changing environment

LGI has continued to grow its expertise in the Fintech sector focusing on innovating in markets adjacent to our life insurance business by building customer-focused solutions and making targeted investments in start-up and scale-up opportunities.

In March 2020, Salary Finance, our employee benefits platform business, in which we own a 41% stake, completed the acquisition of Neyber's new business platform and contracts, thereby doubling its reach. By the end of 2020 the Salary Finance platform was available to over 3.5m employees in the UK and almost 200,000 in the US. Additionally, in December, Legal & General, alongside Experian, completed a joint £20m capital injection into the business, cementing Salary Finance as one of the UK's fastest growing Fintech platforms.

We are making buying and financing a home easier and quicker for our customers and advisors through our technology investments. For example, Legal & General Mortgage Club launched SmartrFit, a digital tool for mortgage advisors, combining our mortgage search criteria tool with an affordability calculator. Responding to the changing environment, Legal & General Surveying Services have continued to use technological innovation to make the process of buying a home easier. We have extended our Digital Valuation solution to new lenders this year and processed 43k digital valuations in 2020, compared with 27k in 2019.

Disposed operations

The Group announced the sale of the Mature Savings business to ReAssure on 6 December 2017 for £650m. The proceeds were received by the Group at the start of January 2018. In 2020 we recognised £34m operating profit from the business, resulting from the unwind of the expected underlying profits . The Part VII transfer completed in September 2020 and generated an IFRS pre-tax gain of £335m, which is in addition to profits recognised in 2018, 2019 and 2020 (£148m total). The completion of the Part VII transfer was broadly neutral to the Group's Solvency II coverage ratio.

Legal & General Group sold the General Insurance business to Allianz Holdings Plc in 2019.

Subsidiary dividends to Group

£m	2020	2019


Subsidiary dividends remitted¹:
LGAS	935	766
LGIM	215	269
LGA	80	84
Other²	181	124
Total	1,411	1,243
Total excluding mortality release³	1,261	1,093

1. Represents cash that will be remitted from subsidiaries to Group in respect of the year's financial performance.

2. Other includes Legal & General Home Financing, Legal & General Capital Investments Limited, Legal & General Reinsurance, and Legal & General Partnership Services Limited.

3. £150m dividend paid from Legal & General Assurance Society (LGAS) to Group (2019: £150m) due to mortality reserve releases in recent years.

The level of subsidiary dividends ensures coverage of external dividends (2020: £1,048m; 2019: £1,048m), Group related costs, and investment in our businesses, with excess liquidity being held within our regulated subsidiaries.

Borrowings

The Group's outstanding core borrowings totalled £4.6bn at 31 December 2020 (2019: £4.1bn). There is also a further £1.0bn (2019: £1.0bn) of operational borrowings including £0.9bn (2019: £0.8bn) of non-recourse borrowings.

On 1 May 2020 the Group issued £500m of Tier 2 subordinated debt with a coupon of 4.500% to capitalise on new business opportunities given favourable debt market conditions.

Group debt costs of £233m (2019: £208m) reflect an average cost of debt of 5.0% per annum (2019: 5.0% per annum) on an average nominal value of debt balances of £4.7bn (2019: £4.1bn).

Restricted Tier 1 Notes

On 24 June 2020 the Group issued £500m of perpetual Restricted Tier 1 Contingent Convertible notes with a coupon of 5.625% as we capitalised on favourable bond market conditions to provide a further measure of prudence as the longer-term economic impact of COVID-19 remains uncertain. This issuance further positions us strongly for the post-pandemic recovery.

The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is upon the occurrence of certain conditions. Therefore, the notes are treated as equity under IFRS and coupon payments are recognised directly in equity when paid.

Taxation

Equity holders' Effective Tax Rate (%)	2020	2019

Equity holders' total Effective Tax Rate[54]	12.1	14.3
Annualised rate of UK corporation tax	19.0	19.0

The effective tax rate reflects the impact of losses arising in the period and the different rates of taxation that apply to Legal & General's overseas operations. The decrease in the effective tax rate compared to 2019 is a result of losses made in our UK and US businesses reflected in investment variance, as well as one-off adjustments reflecting the finalisation of tax charges relating to prior years. Without these the effective tax rate on operating profits for 2020 is 15.0% (2019: 15.1%).

Solvency II

As at 31 December 2020, the Group had an estimated Solvency II surplus of £7.4bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 177% on a shareholder basis. As at 5 March 2021, we estimate the ratio was 192%.[55]

Capital¹ (£bn)	2020	2019
Own Funds	17.1	16.1
Solvency Capital Requirement (SCR)	(9.7)	(8.8)
Solvency II surplus	7.4	7.3
SCR coverage ratio (%)	177	184

1. Solvency II position on a shareholder basis is adjusted for the Own Funds and SCR of the With-profits fund (2019 only) and the Group final salary pension schemes, and is before the accrual of the relevant dividend. Please see disclosure 5.01 (a) for further details.

Analysis of movement from 1 January 2020 to 31 December 2020¹ (£bn)		Solvency II surplus


Surplus arising from back-book (including release of SCR)		1.3
Release of Risk Margin		0.6
Amortisation of TMTP		(0.4)
Operational surplus generation - continuing operations		1.5
Operational surplus generation - discontinued operations		-
Operational surplus generation		1.5
New business strain		(0.3)
Net surplus generation		1.2
Operating variances		0.4
Mergers, acquisitions and disposals		(0.1)
Market movements		(1.4)
Restricted Tier 1 convertible notes		0.5
Subordinated liabilities		0.5
Dividends paid		(1.0)
Total surplus movement (after dividends paid in the period)		0.1

1. Please see disclosure 5.01 (d) for further details.

Operational surplus generation from continuing operations was £1.5bn (2019: £1.5bn) , after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(0.3)bn, primarily reflecting UK PRT volumes written at a capital strain of less than 4%. This resulted in net surplus generation of £1.2bn (2019: £1.0bn), which, in line with our five year ambitions, was in excess of the £1.0bn of dividends announced (and paid) during the year.

Operating variances include the impact of experience variances, changes to model calibrations, and management actions. The net impact of operating variances over the period was £0.4 bn, benefitting primarily from the LGR mortality reserve release . Market movements of £(1.4)bn reflect the impact of lower rates on the valuation of our balance sheet and spread dispersion, i.e. credit spreads on lower rated assets widen more than spreads on higher rated assets, thereby increasing the modelled cost of trading those assets after projecting downgrades in a range of scenarios , as well as a number of other, smaller variances.

The movements shown above include the impact of recalculating the TMTP as at 31 December 2020.

When stated on a proforma basis, including the SCR attributable to the Group final salary pension schemes in both the Group's Own Funds and the SCR, the Group's coverage ratio was 175 % (2019[56]: 179%).

Reconciliation of IFRS net release from operations to Solvency II net surplus generation¹

The table below gives a reconciliation of the Group's IFRS Release from operations and Solvency II Operational surplus generation in 2020:

	£bn
IFRS Release from operations	1.3
Expected release of IFRS prudential margins	(0.5)
Release of IFRS specific reserves	(0.2)
Solvency II investment margin	0.3
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	0.6
Solvency II Operational Surplus Generation	1.5

The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in 2020:

	£bn

IFRS New business surplus	0.3
Removal of requirement to set up prudential margins above best estimate on new business	0.3
Set up of Solvency II Capital Requirement on new business	(0.7)
Set up of Risk Margin on new business	(0.2)

Solvency II New business strain	(0.3)

1. Please see disclosure 5.01 (e) for further details.

Sensitivity analysis¹

	Impact on net of tax Solvency II capital surplus 2020 £bn	Impact on net of tax Solvency II coverage ratio 2020 %
Credit spreads widen by 100bps assuming an escalating addition to ratings	0.5	11
Credit spreads narrow by 100bps assuming an escalating addition to ratings	(0.7)	(12)
Credit spreads widen by 100bps assuming a level addition to ratings	0.7	13
Credit spreads of sub-investment grade assets widen by 100bps assuming a level addition to ratings	(0.4)	(5)
Credit migration	(1.2)	(13)
25% fall in equity markets	(0.5)	(4)
15% fall in property markets	(0.6)	(6)
100bps increase in risk free rates	1.0	20
50bps decrease in risk free rates	(0.7)	(11)
Substantially reduced Risk Margin	0.5	5

1. Please see disclosure 5.01 (g) for further details.

The above analysis does not reflect all possible management actions which could be taken to reduce the impact of each sensitivity due to the complex nature of the modelling. In practice, the Group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate stresses, we have not allowed for the recalculation of TMTP. The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress.

The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if performed at an alternative reporting date.

The impacts of credit spread and risk free rate sensitivities are primarily non-economic arising from movements in balance sheet items that result from changes in the discount rates used to calculate the value of assets and liabilities. The credit migration stress, in the absence of defaults, delays the emergence of operating surplus generation, but does not reduce the actual quantum of future releases. Similarly, equity and property stresses only result in losses if assets are sold at depressed values.

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 31 December 2020 are shown below¹:


	PVNBP	Contribution from new business	Margin %
LGR - UK annuity business (£m)	8,503	901	10.6
UK Protection Total (£m)	1,887	160	8.5
- Retail protection	1,359	123	9.1
- Group protection	528	37	7.0
US Protection (£m)	829	94	11.2

The key economic assumptions as at 31 December 2020 are as follows:

			%
Margin for risk			3.9
Risk free rate
- UK			0.5
- US			0.9

Risk discount rate (net of tax)
- UK			4.4
- US			4.8

Long term rate of return on assets backing non-profit annuities in LGR			2.1

1. Please see disclosure 5.02 for further details.

The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat Margin for Risk. The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment. The risk free rate shown above is a weighted average based on the projected cash flows.

Other than updating for recent experience, all other economic and non-economic assumptions and methodologies that would have a material impact on the margin for these contracts are unchanged from those previously used by the Group for its European Embedded Value reporting, other than the cost of currency hedging which has been updated to reflect current market conditions and hedging activity in light of Solvency II.

Principal risks and uncertainties

Legal & General runs a portfolio of risk taking businesses; we accept risk in the normal course of business and aim to deliver sustainable returns on risk based capital to our investors in excess of our cost of capital. We manage the portfolio of risk that we accept to build a sustainable franchise for the interests of all our stakeholders; we do not aim to eliminate that risk. We have an appetite for risks that we understand deeply and are rewarded for, and which are consistent with delivery of our strategic objectives. Risk management is embedded within the business. The Group's Principal Risks and Uncertainties summarise key matters that may impact the delivery of Group's strategy earnings or profitability.

Risks and uncertainties	Trend, outlook and mitigation
Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation The pricing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults as well as the availability of assets with appropriate returns. Actual experience may require recalibration of these assumptions, increasing the level of reserves and impacting profitability. Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment, with adjustment necessitated where new data emerges. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.	We are monitoring the impacts of COVID-19 on the lives we insure and the impacts for longevity and other insurance assumptions. To date COVID-19 mortality is lower than our 1-in-200 pandemic modelling scenario, and we have seen an offsetting effect in our annuities portfolio; however, uncertainty remains. While the availability of vaccines and treatments for COVID-19 are increasing, understanding of virus mutations and the efficacy of vaccines is still evolving. The deferral of non-COVID-19 medical treatments may also impact future rates of mortality, and it is too early to assess the effects of 'long COVID' on morbidity. We remain inherently exposed to longevity risk in our pensions risk transfer businesses and a dramatic advance in medical science beyond that anticipated remains a risk factor. For our protection businesses, risk factors include new diseases, changes in immunology and, for our US term policies variances in the rate of policy renewal compared to our assumptions. We undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that reserves continue to remain appropriate for factors including mortality, lapse rates, valuation interest rates, and expenses, as well as credit default in the assets backing our insurance liabilities. We also seek to pre-fund and warehouse appropriate investment assets to support the pricing of long-term business. In seeking a comprehensive understanding of longevity we are evaluating how COVID-19 will impact wider trends in life expectancy. In our protection business, as part of our continuous evolution of our underwriting capabilities, we are seeking to ensure we fairly assess COVID-19 as a risk factor and that our reserves remain appropriate. However, we cannot remove the risk that adjustment to reserves may be required, although the selective use of reinsurance acts to reduce the impacts of significant variations in life expectancy and mortality.
Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and to meet the obligations from insurance business; the movement in certain investments directly impacts profitability. Interest rate movements and inflation can also change the value of our obligations. Losses can still arise from adverse markets although we seek to match assets and liabilities. Falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet, potentially impacting capital requirements and surplus capital. Falls in investment values can reduce our investment management fee income.	The immediate outlook for the global economy is highly uncertain, and whilst the rollout of COVID-19 vaccines and the expectations of renewed US government spending has seen a resurgence in investment markets, they remain highly susceptible to shocks and the reappraisal of asset values, particularly from actions to control COVID-19. Associated valuation uncertainty is likely to persist in commercial property markets for the foreseeable future and interest rates look set to continue at ultra-low or negative levels. In addition, whilst the UK has agreed post Brexit trade terms, the impacts for certain sectors of the UK economy are still to fully emerge. Similarly, although the US presidential elections are likely to result in a more positive stance on global trade, in the wake of COVID-19 there is potential for protectionist behaviours and a reduction on dependency on extended global supply chains. We cannot eliminate the downside impacts on our earnings, profitability or surplus capital from these or other investment market and economic risk factors, although we seek to position our investment portfolio and wider business plans for a range of plausible economic scenarios and investment market conditions to ensure their resilience across a range of outcomes. This includes the economic and asset prices stresses that could arise from extreme measures being taken to control the spread of COVID-19. Our ORSA is integral to this process, evaluating capital sufficiency for the risks to which we may be exposed to in our business plans, and supporting analysis of those exposures relative to our risk appetite. Where appropriate we may also take management actions to take advantage of markets conditions, for example by raising debt at attractive rates during 2020.
In dealing with issuers of debt and other types of counterparty the Group is exposed to the risk of financial loss Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. A default by a counterparty could expose us to both financial loss and operational disruption of business processes. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.	The significant deterioration in the global economic outlook in 2020 saw a widening of credit spreads and rating downgrades, particularly in industries directly impacted by global lockdowns including the leisure, transport, travel and retail consumer cyclical sectors, with the UK Sovereign rating also seeing downgrade in response to greatly increased levels of government debt. Whilst emerging COVID-19 vaccines and treatments are expected to support a gradual economic recovery, as economies emerge from the downturn there remains risk of further downgrade rating actions and debt defaults as governments withdraw current economic support measures. The effect of COVID-19 on reinsurance counterparties, both from mortality payments and unanticipated business interruption claims, also has potential to impact the ratings of weaker reinsurers, although default generally remains a more remote risk. We actively manage our exposure to downgrade and default risks within our bond portfolios, setting selection criteria and exposure limits, and using LGIM's global credit team's capabilities to ensure risks are effectively controlled. We entered the crisis with a well-diversified credit portfolio, and while we have experienced no credit defaults we remain vigilant to downgrade and default risks, and if appropriate trading out to improve credit quality, particularly in those sectors most affected by global lockdowns. In our property lending businesses, our loan criteria take account of borrower default and movements in the value of security. We manage our reinsurer exposures dealing only with those with a minimum A- rating at outset, setting exposure limits, and where appropriate taking collateral. Whilst we manage risks to our Solvency II balance sheet, we can never eliminate downgrade or default risks, although we seek to hold a strong balance sheet that we believe to be prudent for a range of adverse scenarios.
Changes in regulation or legislation may have a detrimental effect on our strategy Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products, and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.	Regulatory driven change remains a significant risk factor across our businesses. In the UK, with the end of the Brexit transition period, responsibility for the future evolution of prudential regulations is now vested in UK regulators, and HMT Treasury have initiated consultation on Solvency II. UK conduct regulation continues to focus on consumer protection, market integrity and the promotion of competition, and we are preparing for the FCA's transition in 2021 from LIBOR to SONIA. Regulatory focus also continues on the financial risks presented from climate change and the readiness of firms to prepare for the transition to a low-carbon economy. Alongside regulatory risk, we are also monitoring potential for changes in UK fiscal policy arising from the need to fund government borrowing in response to COVID-19. We are supportive of regulation in the markets in which we operate where it ensures trust and confidence and can be a positive force on business. We seek to actively participate with government and regulatory bodies to assist in the evaluation of change so as to develop outcomes that meet the needs of all stakeholders. Internally, we evaluate change as part of our formal risk assessment processes, with material matters being considered at the Group Risk Committee and the Group Board. Our activities in readiness for the transition to SONIA are well advanced, and we continue to make good progress in aligning our approach to the management of climate risk with the expectations of our regulators. Our internal control framework seeks to ensure on-going compliance with relevant legislation and regulation. Residual risk remains, however, that controls may fail or that historic financial services industry accepted practices may be reappraised by regulators, resulting in sanctions against the Group.
New entrants, or legislative change, may disrupt the markets in which we operate There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. It is possible that alternative digitally enabled financial services providers emerge with lower cost business models or innovative service propositions and capital structures, and disrupt the current competitive landscape, and that changes in legislation or regulation impact operating models.	The need to adjust to living with COVID-19 has seen the acceleration of a number of trends, including greater consumer engagement in digital business models and on-line servicing tools. It has also seen businesses like ours transform working practices, and we expect to continue to invest in automation, using robotics to improve business efficiency. Evolving governmental initiatives including defined benefit 'superfund' consolidation schemes, pension dashboards and 'collective' pension scheme arrangements also present opportunities. We continuously monitor the factors that may impact the markets in which we operate and are maintaining our focus on developing our digital platforms. In our pensions risk transfer business, our capabilities to assess risk and offer bespoke solutions enable us to differentiate our offer from competitors, and we believe that our investment management and Institutional retirement businesses are well positioned for the evolution of the pensions market.
A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions or reputational damage. We are also inherently exposed to the risk that third parties may seek to steal customer data or perpetrate acts of fraud using digital media, and there is strong stakeholder expectation that our core business services are resilient to operational disruption.	Although COVID-19 lockdowns have had some impact on our business operations, we have been able to continue the majority of our business services without material disruption. We remain, however, alert to the operational risks in the current environment including the increased risk of cyber threats and the potential for on-going disruption from lockdowns. We continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient, and that appropriate recovery plans are in place. We also seek to closely manage our property construction and safety risks through robust internal control systems, including training, monitoring and independent assessments. Our risk governance model seeks to ensure that business management are actively engaged in maintaining an appropriate control environment, supported by risk functions led by the Group Chief Risk Officer, with independent assurance from Group Internal Audit. As part of our move to a remote working model, our risk and internal audit functions have undertaken reviews across our business to ensure that our core control processes remain effective and that key operational risks are being managed. Whilst we seek to maintain a control environment commensurate with our risk profile we recognise that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.
We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks, particularly should abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions.	The science underpinning climate change is clear and the effects can already be seen across the world. We believe, however, that climate change has still to be fully priced in by financial markets. The urgent global response to COVID-19 has illustrated the potential scale of shock that could arise from delays in responding to climate risk with sudden late policy action leading to potentially large and unanticipated shifts in asset valuations for impacted industries and sectors. But alongside the risks, there is an opportunity for investment in new technologies that offer good returns whilst meeting global goals for net zero carbon emissions, including energy efficient property, renewables and new science to support de-carbonisation. We recognise that our scale brings a responsibility to act decisively in positioning our balance sheet to the threats from climate change and, as one of the largest global institutional investors, also encouraging others to follow suit. We continue to embed the assessment of climate risks in our investment process and are developing our risk metrics and framework for oversight and taking opportunities. As set out in our TCFD report, we continue to measure the carbon intensity targets of our investment portfolios, and along with specific investment exclusions we have set reduction targets aligned with a 1.5 degree Celsius interpretation of the Paris commitment.

Risks and uncertainties

Trend, outlook and mitigation

Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation

The pricing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults as well as the availability of assets with appropriate returns. Actual experience may require recalibration of these assumptions, increasing the level of reserves and impacting profitability.

Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment, with adjustment necessitated where new data emerges. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.

We are monitoring the impacts of COVID-19 on the lives we insure and the impacts for longevity and other insurance assumptions. To date COVID-19 mortality is lower than our 1-in-200 pandemic modelling scenario, and we have seen an offsetting effect in our annuities portfolio; however, uncertainty remains. While the availability of vaccines and treatments for COVID-19 are increasing, understanding of virus mutations and the efficacy of vaccines is still evolving.

The deferral of non-COVID-19 medical treatments may also impact future rates of mortality, and it is too early to assess the effects of 'long COVID' on morbidity.

We remain inherently exposed to longevity risk in our pensions risk transfer businesses and a dramatic advance in medical science beyond that anticipated remains a risk factor. For our protection businesses, risk factors include new diseases, changes in immunology and, for our US term policies variances in the rate of policy renewal compared to our assumptions.

We undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that reserves continue to remain appropriate for factors including mortality, lapse rates, valuation interest rates, and expenses, as well as credit default in the assets backing our insurance liabilities. We also seek to pre-fund and warehouse appropriate investment assets to support the pricing of long-term business.

In seeking a comprehensive understanding of longevity we are evaluating how COVID-19 will impact wider trends in life expectancy. In our protection business, as part of our continuous evolution of our underwriting capabilities, we are seeking to ensure we fairly assess COVID-19 as a risk factor and that our reserves remain appropriate. However, we cannot remove the risk that adjustment to reserves may be required, although the selective use of reinsurance acts to reduce the impacts of significant variations in life expectancy and mortality.

Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital

The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and to meet the obligations from insurance business; the movement in certain investments directly impacts profitability. Interest rate movements and inflation can also change the value of our obligations. Losses can still arise from adverse markets although we seek to match assets and liabilities.

Falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet, potentially impacting capital requirements and surplus capital. Falls in investment values can reduce our investment management fee income.

The immediate outlook for the global economy is highly uncertain, and whilst the rollout of COVID-19 vaccines and the expectations of renewed US government spending has seen a resurgence in investment markets, they remain highly susceptible to shocks and the reappraisal of asset values, particularly from actions to control COVID-19. Associated valuation uncertainty is likely to persist in commercial property markets for the foreseeable future and interest rates look set to continue at ultra-low or negative levels.

In addition, whilst the UK has agreed post Brexit trade terms, the impacts for certain sectors of the UK economy are still to fully emerge. Similarly, although the US presidential elections are likely to result in a more positive stance on global trade, in the wake of COVID-19 there is potential for protectionist behaviours and a reduction on dependency on extended global supply chains.

We cannot eliminate the downside impacts on our earnings, profitability or surplus capital from these or other investment market and economic risk factors, although we seek to position our investment portfolio and wider business plans for a range of plausible economic scenarios and investment market conditions to ensure their resilience across a range of outcomes. This includes the economic and asset prices stresses that could arise from extreme measures being taken to control the spread of COVID-19.

Our ORSA is integral to this process, evaluating capital sufficiency for the risks to which we may be exposed to in our business plans, and supporting analysis of those exposures relative to our risk appetite. Where appropriate we may also take management actions to take advantage of markets conditions, for example by raising debt at attractive rates during 2020.

In dealing with issuers of debt and other types of counterparty the Group is exposed to the risk of financial loss

Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk.

We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. A default by a counterparty could expose us to both financial loss and operational disruption of business processes. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.

The significant deterioration in the global economic outlook in 2020 saw a widening of credit spreads and rating downgrades, particularly in industries directly impacted by global lockdowns including the leisure, transport, travel and retail consumer cyclical sectors, with the UK Sovereign rating also seeing downgrade in response to greatly increased levels of government debt.

Whilst emerging COVID-19 vaccines and treatments are expected to support a gradual economic recovery, as economies emerge from the downturn there remains risk of further downgrade rating actions and debt defaults as governments withdraw current economic support measures. The effect of COVID-19 on reinsurance counterparties, both from mortality payments and unanticipated business interruption claims, also has potential to impact the ratings of weaker reinsurers, although default generally remains a more remote risk.

We actively manage our exposure to downgrade and default risks within our bond portfolios, setting selection criteria and exposure limits, and using LGIM's global credit team's capabilities to ensure risks are effectively controlled. We entered the crisis with a well-diversified credit portfolio, and while we have experienced no credit defaults we remain vigilant to downgrade and default risks, and if appropriate trading out to improve credit quality, particularly in those sectors most affected by global lockdowns.

In our property lending businesses, our loan criteria take account of borrower default and movements in the value of security. We manage our reinsurer exposures dealing only with those with a minimum A- rating at outset, setting exposure limits, and where appropriate taking collateral. Whilst we manage risks to our Solvency II balance sheet, we can never eliminate downgrade or default risks, although we seek to hold a strong balance sheet that we believe to be prudent for a range of adverse scenarios.

Changes in regulation or legislation may have a detrimental effect on our strategy

Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products, and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital.

The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.

Regulatory driven change remains a significant risk factor across our businesses. In the UK, with the end of the Brexit transition period, responsibility for the future evolution of prudential regulations is now vested in UK regulators, and HMT Treasury have initiated consultation on Solvency II. UK conduct regulation continues to focus on consumer protection, market integrity and the promotion of competition, and we are preparing for the FCA's transition in 2021 from LIBOR to SONIA.

Regulatory focus also continues on the financial risks presented from climate change and the readiness of firms to prepare for the transition to a low-carbon economy. Alongside regulatory risk, we are also monitoring potential for changes in UK fiscal policy arising from the need to fund government borrowing in response to COVID-19.

We are supportive of regulation in the markets in which we operate where it ensures trust and confidence and can be a positive force on business. We seek to actively participate with government and regulatory bodies to assist in the evaluation of change so as to develop outcomes that meet the needs of all stakeholders. Internally, we evaluate change as part of our formal risk assessment processes, with material matters being considered at the Group Risk Committee and the Group Board. Our activities in readiness for the transition to SONIA are well advanced, and we continue to make good progress in aligning our approach to the management of climate risk with the expectations of our regulators.

Our internal control framework seeks to ensure on-going compliance with relevant legislation and regulation. Residual risk remains, however, that controls may fail or that historic financial services industry accepted practices may be reappraised by regulators, resulting in sanctions against the Group.

New entrants, or legislative change, may disrupt the markets in which we operate

There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. It is possible that alternative digitally enabled financial services providers emerge with lower

cost business models or innovative service propositions and capital structures, and disrupt the current competitive landscape, and that changes in legislation or regulation impact operating models.

The need to adjust to living with COVID-19 has seen the acceleration of a number of trends, including greater consumer engagement in digital business models and on-line servicing tools. It has also seen businesses like ours transform working practices, and we expect to continue to invest in automation, using robotics to improve business efficiency. Evolving governmental initiatives including defined benefit 'superfund' consolidation schemes, pension dashboards and 'collective' pension scheme arrangements also present opportunities.

We continuously monitor the factors that may impact the markets in which we operate and are maintaining our focus on developing our digital platforms. In our pensions risk transfer business, our capabilities to assess risk and offer bespoke solutions enable us to differentiate our offer from competitors, and we believe that our investment management and Institutional retirement businesses are well positioned for the evolution of the pensions market.

A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage

We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions or reputational damage. We are also inherently exposed to the risk that third parties may seek to steal customer data or perpetrate acts of fraud using digital media, and there is strong stakeholder expectation that our core business services are resilient to operational disruption.

Although COVID-19 lockdowns have had some impact on our business operations, we have been able to continue the majority of our business services without material disruption. We remain, however, alert to the operational risks in the current environment including the increased risk of cyber threats and the potential for on-going disruption from lockdowns. We continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient, and that appropriate recovery plans are in place. We also seek to closely manage our property construction and safety risks through robust internal control systems, including training, monitoring and independent assessments.

Our risk governance model seeks to ensure that business management are actively engaged in maintaining an appropriate control environment, supported by risk functions led by the Group Chief Risk Officer, with independent assurance from Group Internal Audit.

As part of our move to a remote working model, our risk and internal audit functions have undertaken reviews across our business to ensure that our core control processes remain effective and that key operational risks are being managed. Whilst we seek to maintain a control environment commensurate with our risk profile we recognise that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.

We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses

As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks, particularly should abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions.

The science underpinning climate change is clear and the effects can already be seen across the world. We believe, however, that climate change has still to be fully priced in by financial markets. The urgent global response to COVID-19 has illustrated the potential scale of shock that could arise from delays in responding to climate risk with sudden late policy action leading to potentially large and unanticipated shifts in asset valuations for impacted industries and sectors. But alongside the risks, there is an opportunity for investment in new technologies that offer good returns whilst meeting global goals for net zero carbon emissions, including energy efficient property, renewables and new science to support de-carbonisation.

We recognise that our scale brings a responsibility to act decisively in positioning our balance sheet to the threats from climate change and, as one of the largest global institutional investors, also encouraging others to follow suit. We continue to embed the assessment of climate risks in our investment process and are developing our risk metrics and framework for oversight and taking opportunities. As set out in our TCFD report, we continue to measure the carbon intensity targets of our investment portfolios, and along with specific investment exclusions we have set reduction targets aligned with a 1.5 degree Celsius interpretation of the Paris commitment.

Notes

A copy of this announcement can be found in "Results, Reports and Presentations", under the "Investors" section of our shareholder we bsite at www.legalandgeneralgroup.com/investors/results-reports-and-presentations .

A virtual presentation to analysts and fund managers will be available shortly after 7:00am UK time today at www.legalandgeneralgroup.com/investors/preliminary-results-2020 .

A teleconference for analyst questions will take place at 9:30am UK time today. Details of the teleconference below:

Participant dial-in numbers
Location where you are dialling in from	Number you should dial
United Kingdom	+44 20 3936 2999
United States (toll free)	+1 855 9796 654
All other locations	www.legalandgeneralgroup.com/investors/teleconference-details/

Please enter access code 766500 to gain access to the conference.

To ask a question press *1; to remove a question press *2.

Financial Calendar	Date
Ex-dividend date (2020 final dividend)	15 April 2021
Record date	16 April 2021
Annual General Meeting	20 May 2021
Dividend payment date	27 May 2021
2021 interim results announcement	4 August 2021
Ex-dividend date (2021 interim dividend)	12 August 2021
Record date	13 August 2021
Dividend payment date	20 September 2021

Definitions

Definitions are included in the Glossary on pages 94 to 97 of this release.

Forward looking statements

This announcement may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make.

Going concern statement

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in this Preliminary Management Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the IFRS Primary Financial Statements and Disclosure Notes of the Full year report 2020. Principal risks and uncertainties are detailed on pages 31 to 33.

The Directors have made an assessment of the Group's going concern, considering both the Group's current performance and the Group's outlook for a period of at least, but not limited to, 12 months from the date of approval of these consolidated financial statements, which takes account of the current and future impact of the COVID-19 pandemic, using the information available up to the date of issue of the Full year report 2020.

The Group manages and monitors its capital and liquidity, and various stresses are applied to those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range of stresses is disclosed on table 5.01 of the Capital section of the Full year report 2020. These stresses, including the additional considerations and stresses applied in response to COVID-19, do not give rise to any material uncertainties over the ability of the Group to continue as a going concern. Based upon the available information, the directors consider that the Group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.

Having reassessed the principal risks and uncertainties (both financial and operational) in light of COVID-19 and the current economic climate, as detailed on pages 31 to 33, the directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for a period of, but not limited to, 12 months from the date of approval of the financial statements and therefore have considered it appropriate to adopt the going concern basis of accounting when preparing the financial statements.

Directors' responsibility statement

We confirm to the best of our knowledge that:

i. The Group financial statements within the full Annual Report and Accounts, from which the financial information within this preliminary announcement has been extracted, and which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

ii. The preliminary announcement includes a fair review of the development, performance and position of the Group, as well as the principal risks and uncertainties faced by the Group; and

iii. The directors of Legal & General Group Plc are listed in the Legal & General Group Plc website: www.legalandgeneralgroup.com/about-us/our-management/group-board/.

By order of the Board

Nigel Wilson Stuart Jeffrey Davies

Group Chief Executive Group Chief Financial Officer

9 March 2021 9 March 2021

Enquiries

Investors

+44 7585 905 799
Edward Houghton, Head of Investor Relations

investor.relations@group.landg.com
legalandgeneralgroup.com

+1 312 964 3034

Sujee Rajah, Investor Relations Director

investor.relations@group.landg.com

legalandgeneralgroup.com

+44 203 1242 054
Nimalan Ilankovan, Investor Relations

investor.relations@group.landg.com
legalandgeneralgroup.com

Media

+44 203 1242 090
John Godfrey, Group Corporate Affairs Director

legalandgeneralgroup.com

+44 207 3534 200

Graeme Wilson, Tulchan Communications

+44 207 3534 200

Sheebani Chothani, Tulchan Communications

[1] The Alternative Performance Measures within the Group's financial highlights are defined in the glossary, on pages 93 to 97 of this report.

[2] Including mortality reserve releases (2020: £177m, 2019: £155m). 2020 mortality release of £177m from LGR's £51.8bn of net longevity exposure relates to changes in longevity improvement assumptions to align to CMI 2018 tables, adjusted to reflect our annuitant portfolio.

[3] Specific COVID-19 impacts of LGRI and LGRR (+£85m combined); LGC (-£100m); LGI (-£186m, which includes -£110m reserve increases for potential future COVID-19 claims); and Group Costs (-£27m). Please see page 4 for more information.

[4] Profit after tax attributable to equity holders.

[5] Solvency II coverage ratio on a shareholder basis, which is adjusted for the Own Funds and SCR of the With-profits fund (2019 only) and the Group final salary pension plans. Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 31 December 2020

[6] Coverage ratio before payment of the 2020 final dividend.

[7] Excludes mortality reserve releases (2020: £177m, 2019: £155m). 2020 mortality release of £177m from LGR's £51.8bn of net longevity exposure relates to changes in longevity improvement assumptions to align to CMI 2018 tables, adjusted to reflect our annuitant portfolio.

[8] 2019 LGIM operating profit restated to include LGIM-related project expenditure (£29m) formerly reflected in Group expenses.

[9] Excludes Mature Savings and General Insurance.

[10] Mature Savings sale to ReAssure for £650m was announced on 6 December 2017, completed in September 2020, and the 2019 and 2020 results reflect the Reinsurance Transfer Agreement.

[11] General Insurance sale to Allianz completed on 31 December 2019.

[12] COVID-19 costs reflect incremental operational expenses incurred as a result of COVID-19 and include the provision of IT spend on remote working solutions. Please see page 4 for more information.

[13] LGI investment variance is the formulaic impact of falling interest rates reducing the discount rate (both UK and US) used to calculate LGI reserves.

[14] Profit before tax attributable to equity holders is an alternative performance measure and represents Adjusted profit before tax attributable to equity holders as defined on page 93.

[15] Excludes aggregate LGRI and LGRR mortality reserve releases (2020: £177m, 2019: £155m). 2020 mortality release of £177m from LGRI and LGRR's £51.8bn of net longevity exposure relates to changes in longevity improvement assumptions to align to CMI 2018 tables, adjusted to reflect our annuitant portfolio.

[16] Profit before tax attributable to equity holders is an alternative performance measure, and represents Adjusted profit before tax attributable to equity holders as defined on page 93.

[17] Solvency II coverage ratio on a "shareholder view". Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 31 December 2020.

[18] Solvency II coverage ratio on a proforma basis includes the SCR attributable to our With-profits fund (2019 only) and the Group final salary pension plans in both the Group's Own Funds and the SCR. Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 31 December 2020.

[19] Coverage ratio before payment of the 2020 final dividend.

[20] Calculated using annualised profit for the year and average equity attributable to the owners of the parent of £9,270m.

[21] We have realised less than £475m of downgrades to sub-investment grade within our actively managed traded credit portfolio; this represents just half of the downgrades to sub-investment grade implied by index experience (1.8%).

[22] WTW, The world's largest 500 asset managers

[23] Bloomberg Total Shareholder Return 4 January 2011; please see "Outlook" section for more information.

[24] WTW, Global Pension Assets Study 2021.

[25] Industry data from Boston Consulting Group, "Global Asset Management 2020".

[26] Three year average measured by UK PRT new business volumes. Three year average measured by UK PRT deal count from LGIM clients is 67%.

[27] Broadridge, UK Defined Contribution and Retirement Income report 2019. 2019 UK DC Assets: £438bn.

[28] For more information please refer to www.legalandgeneralgroup.com/investors/esg-investors/

[29] Proprietary assets relate to Investments to which shareholders are directly exposed (excluding client, policyholder assets, derivatives, cash, cash equivalents and loans), as disclosed in Note 6.01.

[30] State Street R-Factor Research, January 2020.

[31] The ambition is based on the aggregate performance over a five-year period. Performance may vary from year to year and individual statements may not be met in

each year on a standalone basis. Dividend decisions are subject to final Board approval.

[32] Cash generation is IFRS net release from operations, capital generation is Solvency II operational surplus generation. Dividends on a declared basis. On the basis of a flat final 2020 dividend, and 3-6% annual growth thereafter.

[33] Legal & General 2020 Capital Markets Event, slide 26

[34] Pension Purple Book 2020, PPF; Hymans Robertson, 2019 Risk Transfer Report; 2021 de-risking report, Willis Towers Watson

[35] www.ipe.com/news/aon-adds-to-outlooks-for-active-2021-pension-risk-transfer-market/10049888.article

[36] Pensions Policy Institute, October 2019; Aon

[37] LIMRA, March 2020

[38] Professional Pensions, "L&G announces bulk annuities with UK and US schemes", 13 May 2020

[39] FCA Retirement Income Data Oct 2017 - March 2019, Broadridge DC Report 2019

[40] ABI

[41] ABI, FCA Retirement Income Data Oct 2017 - March 2019, Broadridge DC Report 2019

[42]Excluding mortality release (2020: £102m, 2019: £100m).

[43] www.ipe.com/news/aon-adds-to-outlooks-for-active-2021-pension-risk-transfer-market/10049888.article

[44] Legal & General 2020 Capital Markets Event

[45] 2015: $445m, 1; 2016: $448m, 6; 2017: $713m, 15; 2018: $844m, 21; 2019: $1,140m, 10; 2020: $1,614m, 17 (of which 14 are new clients)

[46]Excluding mortality release (2020: £75m, 2019: £55m).

[47] Please see page 4 for more information.

[48] ABI Q3 2020 Report; Q4 2019: 18.6%; Q3 2020: 20.9%

[49] See note 4.05. LGR's total annuity asset portfolio is with respect to our UK and US annuities businesses, and excludes derivative liabilities (£20.8bn) and loans and other receivables (£3.2bn) from the total LGR investments (£111bn) shown in note 6.01.

[50] For more information, please visit www.legalandgeneral.com/institutional/pension-risk-transfer/who-we-are/esg/

[51] Includes LGR direct investment bonds (£20,306m), direct investment property (£4,319m), direct investments equity (£19m), and other assets (£88m). Please see note 6.02b for more information.

[52] Pridham Report, 2021.

[53] Broadridge Pan-European mutual fund and ETF flows Q1 2020.

[54] The equity holders' total Effective Tax Rate excluding discontinued operations is 10.4% (2019: 14.3%).

[55] Coverage ratio before payment of the 2020 final dividend.

[56] 2019 comparator includes the SCR attributable to the With-profits fund, whose sale completed in September 2020.

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