L&G Full Year Results 2021 Part 1

RNS Number : 1064E

Legal & General Group Plc

09 March 2022

2021 Results: Post tax profit exceeds £2bn for the first time, with EPS of 34p, up 19% on 2019, and ROE of 20%

Strong financial performance[1]

· Profit after tax[2] of £2,050m, up 28% (2020: £1,607m)

· EPS[3] of 34.19p, up 72% on 2020 ( 19.84p) and up 19% on 2019 (28.66p)

· R eturn on equity of 20.5% (2020: 17.3%)

· Operating profit of £2,262m, up 11% (2020: £2,041m)[4]

· Solvency II coverage ratio[5] of 187% (2020: 175%)

· As at 7^th March 2022 we estimate the coverage ratio was 198%[6]

· Full year dividend of 18.45p, up 5% (2020: 17.57p), consistent with our stated ambition

Growing contribution to our five-year (2020-2024) ambitions[7]

· Cash generation of £1.7bn, up 12%. Capital generation of £1.6bn, up 12%

· On track to achieve our cumulative cash and capital ambitions of £8.0-9.0bn by 2024

· On track to achieve our cumulative dividend ambition of £5.6-5.9bn by 2024

Good new business volumes and strong net flows

· Global PRT new business premiums of £7.2bn (2020: £8.8bn)

· LGC alternative AUM up 10% to £3.4bn (2020: £3.1bn)

· LGIM AUM up 11% to £1.4tn, of which £479bn (34%) is International

· LGIM external net flows of £34.6bn, 85% from International clients, up 70% (2020: £20.4bn)

· Individual annuity premiums up 5% to £957m (2020: £910m)

· Lifetime mortgage and retirement interest only advances up 7% to £848m (2020: £791m)

· LGI UK & US retail protection annual premiums up 14% to £291m (2020: £255m)

" In 2021, cash and capital generation and book value per share were all up over 10% year on year, and we delivered EPS of 34.19p, DPS of 18.45p and a return on equity of 20.5%. We have a track record of value creation and a longstanding commitment to Inclusive Capitalism and ESHG. The expected reform of Solvency II, the roll-out of the UK government's levelling up programme, and our growing international businesses underscore our confidence in our ability to continue delivering on a broad range of profitable growth opportunities."

Sir Nigel Wilson, Group Chief Executive

Financial summary

£m	2021		2020		Growth %

Analysis of operating profit
Legal & General Retirement Institutional (LGRI)	1,154		1,229		(6)
Legal & General Capital (LGC)	461	275		68
Legal & General Investment Management (LGIM)[8]	422	407		4
Legal & General Retirement Retail (LGRR) ⁸	352	322		9
Legal & General Insurance (LGI)	268	189		42
Operating profit from continuing divisions[9]	2,657	2,422		10

Mature Savings[10]	nil	34		n/a

Operating profit from divisions	2,657	2,456		8
Group debt costs	(230)	(233)		1
Group investment projects and expenses	(165)	(155)		(6)
Exceptional COVID-19 related expenses[11]	nil	(27)		n/a

Operating profit excl. mortality reserve release	2,262	2,041		11
Mortality reserve release[12]	nil	177		n/a
Operating profit[13]	2,262	2,218		2
Investment and other variances (incl. minority interests), excluding LGI	115	29		n/a
LGI investment variance[14]	111	(459)		n/a


Profit before tax attributable to equity holders[15]	2,488	1,788		39
Profit after tax attributable to equity holders	2,050	1,607		28
Of which:
Mortality reserve releases (post-tax)	nil	153
Mature Savings profit on disposal	nil	271
Profit after tax excl. mortality reserve release and Mature Savings disposal	2,050	1,183		73

Reported EPS (p)	34.19	27.00		27
Of which:
Mortality reserve releases (post-tax)	nil	2.58
Mature Savings profit on disposal	nil	4.58
Adjusted EPS (p)	34.19	19.84		72

Book value per share (p)	174	158		10
Full year dividend per share (p)	18.45	17.57		5

Net release from continuing operations ⁹	1,688	1,511		12
Net release from discontinued operations	nil	28		n/a

2021 Financial performance

Income statement

Legal & General has delivered another strong set of results, with operating profit excluding mortality releases up 11% to £2,262m (2020: £2,041m), consistent with the "double-digit" guidance we provided at H1. This marks a return to our long-term rate of growth, having been resilient through the pandemic. Our diversified business model benefitted from the post pandemic economic recovery and easing of restrictions over 2021 to deliver strong earnings. All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth.

LGRI delivered operating profit of £1,154m (2020: £1,229m), underpinned by the performance of our growing annuity portfolio. We remained disciplined on pricing and executed well, writing £7,176m[16] of global PRT at attractive Solvency II new business margins. Our ability to originate alternative assets provides us with optionality and a strong competitive advantage. We can use these assets to win new business at attractive margins and / or to increase yields on our back-book.

LGC operating profit increased by 68% to £461m (2020: £275m) and is up 27% on pre-COVID levels (2019: £363m). This growth is driven by strong performance in our alternative asset portfolio, where operating profit increased to £350m (2020: £112m) as a result of a bounce-back in the housebuilding market and valuation increases from the continued maturing of the underlying investments in our clean energy and venture capital portfolios.

LGIM delivered operating profit growth of 4% to £422m (2020: £407m), reflecting increased revenues, which surpassed £1bn for the first time. Revenue growth was driven by strong external net flows of £34.6bn (2020: £20.4bn), and an increased focus on higher margin areas such as thematic ETFs, Multi-asset and Real Assets. LGIM is continuing to grow internationally, with 85% (£29.5bn) of external net flows originated outside the UK. Assets under management increased by 11% to £1,421.5bn (2020: £1,278.9bn), of which £479bn (34%) is International AUM. The cost income ratio (58%) remains broadly flat as we continue to invest in and modernise the business, whilst balancing this with careful cost control (2020: 57%).

LGRR operating profit increased 9% to £352m (2020: £322m), supported by the ongoing release from the retail annuity portfolio. Individual annuities delivered 5% growth in new business against 2020, and retirement lending volumes 7% growth, as these markets continued to recover following the impact of the COVID pandemic. Workplace Savings net flows were up £0.7bn to £8.5bn (2020: £7.8bn), driven by continued client wins and increased contributions.

LGI operating profit increased 42% to £268m (2020: £189m), reflecting strong new business growth in UK retail protection supported by a benefit from modelling refinements to the liability discount rate in the UK. This was partially offset by adverse mortality claims in the US where experience exceeded the provision set up in 2020. This trend has been consistently reported across the US life sector. Our 2021 result includes a £57m provision for potential COVID mortality impacts in 2022.

Profit before tax attributable to equity holders[17] was £2,488m (2020: £1,788m), reflecting positive investment variance of £233m (2020: £(394)m). The positive investment variance in LGI (£111m) is from the formulaic impact of rising interest rates on LGI reserves. However, the negative investment variance of 2020 has not been fully reversed as longer-duration interest rates have not moved meaningfully in 2021. We have also seen strong portfolio performance in the annuity portfolio.

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation from continuing operations was up 12% at £1,636m (2020: £1,460m). New business strain was £(354)m (2020: £(302)m) which results in a net surplus generation of £1,282m (2020: £1,190m). UK PRT volume has been written at a capital strain of less than 4%.

The Group reported a Solvency II coverage ratio[18] of 187% at the end of 2021 (FY 2020: 175%) which, in addition to the contribution from net surplus generation, reflects the impact of market movements, principally from the non-economic impact of higher interest rates on the valuation of our balance sheet[19], partially offset by payment of the 2020 final and 2021 interim dividend (£1,063m) and the redemption of £300m of subordinated debt.

Our IFRS return on equity of 20.5% reflects the impact of operating profit growth and underlying positive investment performance (2020: 17.3%).[20]

Our diversified, actively managed annuity portfolio has continued to perform resiliently with no defaults. The annuity portfolio's direct investments continue to perform strongly, with 99.8% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

Group Strategy

Legal & General has established expertise in asset origination (LGC) and asset management (LGIM), and in the provision of retirement and protection solutions to corporates and individuals (LGRI, LGRR and LGI). We operate at scale and are strongly positioned to capitalise on significant growth opportunities across our chosen markets through our five main divisions:

Division	Provision	Description
LGRI	Retirement Solutions	A leading international manager of institutional Pension Risk Transfer (PRT) business
LGC	Asset Origination	An alternative asset origination platform generating attractive shareholder returns
LGIM	Asset Management	A global £1.4tn asset manager with deep expertise in DB and DC pensions
LGRR	Retirement Solutions*	A leading provider of UK retail retirement solutions
LGI	Protection Solutions*	A market leading provider of UK protection and US brokerage term life insurance

* Note: as of 1^st January 2022, LGRR and LGI (our two retail businesses) have been combined into one division, Legal & General Retail. Under the leadership of Bernie Hickman, this division will cover the savings, protection and retirement needs of our c12 million retail policyholders and workplace members.

A powerful business model

We have a unique and highly synergistic business model, which continues to drive our strong return on equity. Legal & General provides powerful asset origination and management capabilities directly to clients. These capabilities also underpin our leading retirement and protection solutions:

· LGRI is a market leader in UK PRT and a top ten player in the US PRT market. It forms the majority of our £89.9bn annuity portfolio which provides long-term, captive AUM to LGIM. As noted, the annuity portfolio is continually being enhanced through the supply of alternative assets originated by LGC.

· LGC invests across four main asset classes (Specialist Commercial Real Estate, Clean Energy, Housing and SME Finance) to generate attractive risk-adjusted shareholder returns and to create alternative assets with which to back our annuity portfolio (LGRI and LGRR). LGC is also increasingly attracting third party capital investment.

· LGIM is a leading global asset manager, ranking 11th in the world[21] with £1.4tn of AUM of which £479bn, or 34%, are International assets. LGIM is a leading provider of UK and US Defined Benefit (DB) de-risking solutions. It is uniquely positioned to support DB clients across the full range of pension endgame destinations, including PRT with LGRI. 84% of LGRI's PRT transactions over the past three years were from existing LGIM clients.[22] LGIM is also the market leader in UK Defined Contribution ( DC) pension scheme clients - a market with significant growth potential, with total UK DC assets expected to surpass £1tn by 2029.[23]

· LGRR is a leading provider of UK retail retirement solutions, offering annuities, income drawdown, pension pot consolidation, lifetime mortgages (LTM) and LTM advice. To further complement LGRR's customer retirement and savings proposition, the Workplace Savings administration business was transferred from LGIM to LGRR at the beginning of 2021.

· LGI is a market leader in UK protection and US brokerage term life insurance. The day one Solvency II surplus it generates partially offsets new business strain in LGRI and LGRR. Further, LGI's US business facilitates LGRI's US PRT transactions, which are written onto the existing US balance sheet. LGI is a centre of internal excellence in technology and is working closely with other divisions to drive further tech synergies. LGI also manages a portfolio of successful, strategic Fintech businesses.

The synergies within and across our businesses drive profits and fuel future growth. The bringing together of LGRR and LGI into a new Retail division will enable us to better serve the needs of our retail customers and drive further synergies.

The integrated nature of our business model means that we have relationships with clients and customers that can and do last for decades. For example, an Index or Liability Driven Investing DB corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30 to 40 years. Equally, LGRR and LGIM may have a 30-40-year relationship with a customer during the DC accumulation phase, and then extend that relationship for another 15-30 years during the decumulation phase across a suite of decumulation products including individual annuities, lifetime mortgages and drawdown.

The Group continues to build out, in a measured fashion, its international retirement solutions franchise. We have made excellent progress in the US over the last decade and will continue to build out our established businesses (LGRI, LGIM, LGI) in that market. LGIM continues to make good progress against its international expansion plans in Europe. Kerrigan Procter is co-ordinating the Group's expansion plans in Asia.

A long-term commitment to Sustainability, ESG and Inclusive Capitalism

Our purpose is to improve the lives of customers, build a better society for the long-term and create value for our shareholders. This inspires us to use our assets in an economically, environmentally and socially useful way to benefit society - what we call Inclusive Capitalism.

This philosophy underpins our approach to Sustainability and to ESG ( Environmental, Social, and Governance factors).[24] We think about Sustainability, and the long-term ESG impact of our business, in terms of:

1. How we invest proprietary assets . [25] Our ambition is to reduce our proprietary asset portfolio carbon emission intensity by half by 2030 and to net zero by 2050. In 2021 we reduced the carbon intensity of the Group's balance sheet by 17.0% versus 2020, although this has been driven in part by COVID-19 and market volatility impacts.[26] We continue to make environmentally and socially useful investments. As at FY 2021, we have invested £1.4bn in clean energy and £8.1bn in social infrastructure. For more information, please see our forthcoming Climate Report, which is in line with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).

2. How we influence as one of the world's largest asset managers with £ 1.4 trillion AUM . We have £290bn AUM in ESG strategies and during 2021 we cast over 60,000 stewardship votes as we continued to encourage investee companies to behave responsibly.[27][28] LGIM is rated A+ for responsible investment strategy and active ownership from the UN Principles for Responsible Investment, and ranked as one of the highest performers among asset managers for its approach to climate change by both ShareAction and InfluenceMap.

3. How our businesses operate . We are committed to supporting our customers, employees, suppliers, shareholders and society at large. For information on what we are doing to support our key stakeholders, see pages 15-17 of our Sustainability report.[29] We have committed to reducing the carbon emission intensity of our operating businesses. Our ambition is to operate our offices and business travel with net zero emissions from 2030, and for all our new homes to be net zero operational carbon from 2030. ESG criteria are included in executives' objectives and remuneration targets.

Addressing climate change

Addressing Climate Change is one of Legal & General's six strategic growth drivers[30] and is increasingly embedded throughout the group, supported by a rigorous governance framework and transparent metrics.

Climate change is the biggest challenge and the biggest investment opportunity of our lifetimes. For context, it is estimated that $20 trillion of investment is needed by 2025 alone to put the world on the path to achieving global net zero emissions by 2050.[31]

Our own commitment to addressing climate change is reflected increasingly in: 1) our own asset allocation and risk management frameworks, 2) in our balance sheet investments, 3) in how we manage and steward money for external clients, 4) in our Real Asset, housing, regeneration and VC portfolios, and 5) in our direct operational emissions. Our approach is set out in more detail in our Climate Report which describes how we invest, influence and operate. This also covers progress made to date and sets out the staging-posts we have set ourselves on the journey to our goal of net zero by 2050, including the adoption of science-based targets.

COP26, which took place in November last year, was another important milestone in the global journey to net zero. We were involved in several ways, notably through LGIM CEO Michelle Scrimgeour's role as co-chair of the COP26 Business Leaders Group alongside the President for COP26, Rt Hon Alok Sharma MP, and through LGIM's participation in the Glasgow Financial Alliance for Net Zero (GFANZ). The principal challenge for governments, business and finance, however, remains one of implementation.

Legal & General is a thought leader on Climate stewardship and has a number of important policy roles. Sir Nigel Wilson has led the Workstream on investment for the Insurance Sustainable Market Initiative for the Bank of England/FCA's Climate Financial Risk Forum. Many senior Legal & General employees, including Group CFO Jeff Davies and LGC CEO Laura Mason, provide expertise in specialist areas including, for example, through HM Treasury and the Bank of England's Productive Finance Committee, the Green Finance Institute and the Green Buildings Council.

Levelling Up

The UK government's focus on levelling up creates an additional opportunity for Legal & General to further expand the work Legal & General has been doing in recent years to create new assets across housing, physical and digital infrastructure, urban regeneration, SME finance and venture capital. Partnerships with cities and universities, for example in Newcastle, Oxford and Manchester enable the development of projects including the £200m Life and Mind Building in Oxford and the £1.5bn IDManchester development. Our Bruntwood SciTech joint venture has driven the expansion of Alderley Park, the former Astra Zeneca research facility which is now home to over 200 life science and technology companies and is actively developing a range of other projects including the £210m Birmingham Health Innovation Campus scheduled to open in 2023. Levelling up enables us to develop new asset classes; for example, data centres, build to rent and affordable housing. Sir Nigel Wilson is a member of the government's Levelling Up Council, and we expect that the greater empowerment of city mayors and local government will enable Legal & General to create new partnerships to develop multiple productive assets across UK cities which are suitable investments for both our own balance sheet and for our pension clients and customers.

People

At Legal & General our greatest strength is our people. We believe strongly that moving our people around the business drives our collaborative culture and fosters innovation and growth. To capitalise on the opportunities ahead of us, and on the expertise of our leaders, we have made a number of leadership changes.

As previously indicated, Chris Knight took over the role of Group Chief Risk Officer from Simon Gadd in March 2021, having led LGRR through a strong period of growth during his three years as CEO of the division. During Chris' twelve years at Legal & General he has held a number of Group and Divisional leadership roles. He has also served as the Group's Customer Champion, representing retail customers' interests across the whole product range; a perspective he is bringing to his CRO role.

After 8 years as Group Chief Risk Officer, Simon Gadd took on the new role of Group Climate Change Director in May 2021. The role was created to develop and oversee the implementation of a coherent group climate strategy, managing both the risks and the opportunities it presents. He coordinates the wide range of activities undertaken to address climate change across our businesses to ensure they are aligned and consistent with delivering our climate goals and strategy. He also chairs the Group Environment Committee.

Laura Mason, formerly CEO of LGRI, was appointed CEO of LGC, effective 1^st July 2021. This move saw Laura return to LGC where she was part of the original leadership team involved in setting up the division. Laura is focused on growing LGC's asset origination capabilities, and on attracting third party capital.

Kerrigan Procter, formerly CEO of LGC, was appointed President of Asia for the Group, effective 1^st July 2021. Kerrigan's remit involves working hand in hand with our divisions to develop their strategies for growth in Asia and then implementing them in the region, with a particular focus on China.

Andrew Kail, formerly CEO of LGRR, was appointed CEO of LGRI, effective 1^st January 2022. Prior to joining Legal & General in 2021, Andrew was 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.

Bernie Hickman became CEO of our new Retail division on 1^st January 2022, retaining responsibility for LGI and taking on responsibility for LGRR. Bernie has led LGI for 5 years, during which time he has focused on driving technology and efficiency improvements in the business and on identifying and executing on new adjacent Fintech investment opportunities such as Salary Finance and Smartr365.

John Godfrey, Group Corporate Affairs Director, will be taking on a new role building on his public policy experience to coordinate and further strengthen Legal & General's group-wide engagement with the Levelling-Up agenda.

Outlook

Medium-term growth: ambitious and deliverable

Our strategy has delivered strong returns for our shareholders over time. It has demonstrated resilience through the pandemic, and strength as we come out of it. We are confident we can continue to deliver profitable growth as we execute on our strategy .

We set out our five-year ambitions at our Capital Markets event in November 2020. Cumulatively, over the period 2020-2024, our financial ambitions are for[32] :

1. Cash and capital generation significantly to exceed dividends (we intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay dividends of £5.6bn - £5.9bn).[33]

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 are on track to deliver against these ambitions. In 2021, we have achieved 12% growth in both cash and capital generation. Since the beginning of 2020 to date, we have achieved £3.2bn of cash generation, £3.1bn of capital generation and declared £2.1bn of dividends.

We aim to deliver long-term, profitable growth across the Group . Our asset origination and asset management businesses, LGC and LGIM, operate in attractive and profitable markets, and maintain a strong commitment to ESG-aligned investing. With proven asset expertise in specialist commercial real estate, clean energy, housing and SME finance, LGC provides unique asset origination capabilities in sectors that have significant growth potential, which produce yield-creating assets that drive our annuity business and which appeal to third party investors. LGRI and LGRR provide highly predictable, stable cash flows from their growing back-books. LGI is applying technological innovation to sustain its UK leadership, to grow in the US and to continue to expand into adjacent markets. The bringing together of LGRR and LGI into a new Retail division will enable us to focus on serving the savings, protection and retirement needs of our retail customers.

We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets. Our confidence in our dividend paying capacity is underpinned by the Group's strong balance sheet, which has a £3.4bn IFRS credit default reserve and Solvency II surplus regulatory capital of £8.2bn, in addition to significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

Confident in achieving our ambitions

We remain confident in achieving our five-year (2020-2024) cumulative financial ambitions. In 2021, we continued to build on the good start we made in 2020,delivering double digit growth in both cash and capital generation.

LGC and LGIM provide powerful asset origination and asset management capabilities directly to clients. These same capabilities also underpin our leading retirement and protection solutions. LGC intends to grow shareholder alternative AUM to c£5bn, with a blended portfolio return of 10-12%, by 2025. It also aspires to grow third party AUM to £25-30bn and to grow LGC operating profit to £600-700m by 2025. LGIM continues to focus on attracting higher margin net flows and on diversifying and further internationalising its business. The business remains confident of achieving its ambition of growing cumulative profits in the range of 3-6%.

LGRI maintained pricing discipline in the face of greater competition in PRT markets in 2021 and will continue to prioritise shareholder value creation. Advisers such as WTW and LCP are bullish on the prospects for PRT in 2022 and beyond.[34] We are well placed to participate whilst maintaining our pricing discipline. We continue to expect to write £40-50bn of UK PRT and $10bn of International PRT over a five year period. A key competitive advantage is in our ability to originate direct investments. This provides us with significant optionality. We can use these direct investments to create value in writing new annuity business, and/or by using them to increase returns on the back-book.

In LGI, we continue to target mid-single digit growth in revenues across our UK protection businesses, and to achieve double digit growth in US new business sales. In LGRR, the longer-term outlook for individual annuities and lifetime mortgages remains attractive, driven respectively by ongoing growth in the DC market and by an increasing consumer requirement to look to multiple sources of wealth to fund retirement. However, the lifetime mortgage market is becoming more competitive and we will maintain pricing discipline at the expense of volumes if required.

We are pleased with the progress we have made in 2021 and are confident in our ability to deliver further profitable growth going forwards. We are well-positioned to support the UK Government's two flagship policies of "Levelling Up" and "Address Climate Change".

We will continue to maintain a defensive asset portfolio and a long-term investment horizon, supporting all our stakeholders by delivering Inclusive Capitalism through investments - both for our own portfolio and for clients - in areas such as infrastructure, clean energy and affordable housing, and by providing products to support individuals' financial resilience.

Business segment outlook

Legal & General Institutional Retirement (LGRI)

LGRI participates in the global pension risk transfer (PRT) market, focusing on corporate defined benefit (DB) pension plans in the UK, the US, Canada, Ireland and the Netherlands, which together have nearly £7 trillion of pension liabilities due to ageing demographics. ^{^[35]}

We write direct business in the UK and US and are market leaders in the UK. We are supported by LGIM's long-standing DB client relationships and investment capabilities and LGC's asset origination capabilities, as well as wide-ranging skills across the Group which enhance our asset strategy and product innovation. During 2021, 58% of our UK transactions were with LGIM clients, demonstrating the strength of our client relationships and the competitive advantage 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 £2.3 trillion of UK DB pension liabilities, of which only c13% have been transferred to insurance companies to date.[36] This leaves a sizeable opportunity for future market growth. Demand from companies and pension plans for PRT remains robust. Market commentators believe the total UK PRT market was just under £30bn in 2021 despite the relatively subdued first half of the year.[37] In terms of medium-term outlook, they anticipate between £150bn-£250bn of UK PRT demand over the next five years, again highlighting the size of the opportunity.[38] We continue to expect to write £40bn to £50bn of new UK PRT over 5 years, but will remain disciplined in our pricing and deployment of capital. Over the last 4 years we have written £32bn of new UK PRT in line with these ambitions.

The US represents a further, significant market opportunity, with $3.7 trillion of DB liabilities, of which only c7% have transacted to date.[39] Since our market entry in 2015, our US business has written more than $6bn of PRT with 84 clients. We also actively quote on selective Canadian, Irish and Dutch PRT opportunities and wrote our second Canadian deal in 2021. We are the only insurer providing PRT directly to pension plans across the UK and US. Our ambition is to write more than $10bn of international PRT over the five years from 2020-2024.

During 2021 we maintained pricing discipline in the face of increased competition in both the UK and US. Despite writing slightly lower volumes than in 2020, new business profits were resilient due to our competitive advantage in originating assets via LGC, lifetime mortgages via LGRR and sourcing assets via LGIM. Going forwards, strong asset creation capability across the Group provides us with optionality to maximise shareholder value, either by deploying assets against new business - to improve pricing and margins - or by applying them to increase the returns on the back-book.

As the annuity portfolio scales, the growing amount of capital generated by the in-force book offsets both the capital investment required to fund new business and the portfolio's contribution to a progressive Group dividend. This is what we call self-sustainability. The UK annuity portfolio achievedself-sustainability in both 2020 and 2021. Whilst we expect to achieve self-sustainability again in 2022, driven by our growing operational surplus generation, it is not something we necessarily aim to achieve in every year. It will vary depending on new business volumes and asset yields. Our ambition is, however, for net surplus generation to exceed dividends for the Group over the period 2020-2024.

Legal & General Capital (LGC)

LGC , the Group's alternative asset origination platform, will continue to deploy shareholder capital in a range of underserved areas of the UK's real economy that are backed by long-term structural trends. LGC has three fundamental objectives: 1) profit and value generation within LGC for shareholders; 2) asset creation to back LGRI and LGRR's annuity liabilities and meet demand from LGIM's third party clients; and 3) a focus on ESG, securing long lasting value for society. LGC continues to make a substantial contribution to shareholder value creation and is well positioned to drive further meaningful growth as its businesses continue to scale and mature.

As communicated at the capital markets event last October, our ambition is to build LGC's diversified alternative AUM to c£5bn by 2025 (2021: £3.4bn), with an upgraded blended portfolio return target of 10-12% (previously 8-10%). In combination with the contribution from the Traded Portfolio, LGC's ambition is to deliver operating profit of £600-700m in 2025. Additionally, we plan to increase fee-generating third party capital to £25-30bn (2021: £12.9bn). We expect our existing platforms (Pemberton, Build-to-Rent, NTR) to continue to manage the majority of third-party AUM, building on their impressive growth to-date , but this also includes incremental opportunities in Clean Energy, Later Living and Data Centres. Excluding assets originated to back our annuity liabilities, LGC expects to invest and manage over £30bn of alternative AUM by 2025. As part of the ambition, we will also target international opportunities, with a primary focus on the US.

Supporting the UK government's two flagship policies, LGC's asset classes include specialist commercial real estate, housing, clean energy, and SME finance. Our alternative asset strategy is made up of sectors where our investments change lives and drives Inclusive Capitalism. We are creating much needed jobs, homes and infrastructure, driving growth, skills and innovation, and contributing towards a cleaner, greener future:

· The specialist commercial real estate portfolio includes capital-light urban regeneration (funded by LGRI or LGIM third parties), digital infrastructure and science and technology-focused real estate. Partnering with universities, local authorities and private sector experts, we have invested across nineteen UK towns and cities, creating jobs, driving economic growth and revitalising local communities.

· As a leading provider of homes, with a commitment to tackling the affordability gap and the undersupply of housing (estimated to be around 345,000 homes required annually) across the UK, LGC's housing platform continues to expand across all tenures, ages and demographics, leveraging both traditional and modular construction in order to revolutionise and speed up delivery for all. We are well positioned to scale in order to achieve our long-term ambitions: 1) to deliver 10,000 multi-tenure homes per year (including over 3,000 traditional build to sell homes, up to 3,000 affordable and modular homes, and 1,000 suburban rental homes); and 2) to develop c5,200 build to rent homes in our urban pipeline and 5,100 later living homes in our JV pipeline with NatWest Group Pension Fund. To ensure that the homes we build are future-proofed and sustainable, we have committed that all our new homes will be operationally carbon emission-free from 2030.

· In the clean energy sector, we are focused on investing selectively into attractive growth equity and low carbon infrastructure opportunities. We are confident that our considered and selective approach to clean energy investing will continue to yield results in what can be a highly competitive sector. Growth equity targets early-stage scale-up companies that deliver innovative clean technologies required for a successful energy transition. Low carbon infrastructure targets the renewable energy infrastructure investments needed to accelerate progress towards a low-cost and low-carbon economy.

· In SME Finance, we are continuing to support UK and European innovation, investing in the real economy and technological innovation in two SME Finance business areas: Alternative Finance - via our 40% stake in Pemberton, an alternative credit manager - and Venture Capital - via our Fund of Funds platform and via LGC's ownership of Accelerated Digital Ventures (ADV), a direct investment platform . Our SME Finance businesses are well positioned to scale in these highly attractive structural growth segments. We also continue to work with LGIM to develop a viable solution for Defined Contribution clients which will democratise access to the venture capital asset class.

Legal & General Investment Management (LGIM)

LGIM is a globally recognised investment leader, benefiting from a combination of scale and a diversified asset and client base, underpinned by clear structural demand for our capabilities. As L&G's asset manager, LGIM also plays a critical role in supporting our leading retirement and protection solutions.

Our purpose is to create a better future through responsible investing and we are a global 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: 1) to grow cumulative profits in the range of 3% to 6%, absent market shocks; 2) to increase AUM in international and higher-margin areas; and 3) to diversify AUM by client, channel and geography. We expect to maintain a cost income ratio in the high 50 percent range in the near term as we invest for growth , after which we expect it to trend downwards.

LGIM is one of the largest managers of corporate pension funds globally; we are a UK leader in corporate DB pensions, the UK's number-one DC manager, and ranked second for UK gross retail sales in 2021.[40] We intend to maintain our strong position in the UK, which has been the bedrock of our success to date, while continuing to diversify our capabilities and broaden our reach internationally.

Modernise: LGIM continues to invest in the business to achieve the resilience and agility critical to future success. We are laying the foundations for continued global growth by investing in our people, our operating platform and our data capabilities, and by refining our organisational structure . During 2021 we rebuilt and fully brought in house LGIM's proprietary Climate Risk model, Destination@Risk. This capability allows us to engage with clients to help them understand the climate risks and opportunities across their portfolios, enabling us to design solutions and funds to help them achieve their climate objectives, such as Net Zero alignment.

Diversify: We are continuing to expand our investment offering, with a focus on higher-margin product areas such as Real Assets, ETFs, Multi-asset and Solutions. We see a sizeable opportunity in Real Assets - we are well known for our UK Real Estate Equity expertise and, increasingly, are also providing investors with access to our leading private-credit capabilities. As UK and US DB schemes approach funding maturity, many clients will look for self-sufficiency or buy-out options. Together with LGRI, we are well positioned to deliver on these options through our 'endgame' Solutions offering. We continue to demonstrate our leadership in ESG investing through our award-winning Investment Stewardship team and, in addition to offering a wide range of ESG-specific products, are driving further integration of ESG into our mainstream investment portfolios to reflect current and future client demand.

Internationalise: LGIM aims to 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 doubled to reach £479bn - 34% of LGIM's total AUM. Our ambition is to continue growing International AUM profitably and at pace in the US, Europe and Asia. In the US, we are deepening our strong client relationships through innovation in DC and leadership in ESG. In Europe, we are building on our successes in Germany and Italy, to expand further into European markets and channels through our higher-margin thematic ETFs and active fixed income strategies. 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 and delivering investment solutions that address key market trends.

Legal & General Retail

As of 1^st January 2022, LGRR and LGI (our two retail businesses) have been combined into one division, Legal & General Retail. Under the leadership of Bernie Hickman, this division will cover the savings, protection and retirement needs of our c12 million retail policyholders and workplace members.

Retirement (LGRR)

Workplace savings is a core part of the Group's retail proposition. The business is a growth area for the Group and we expect its target market to continue to expand, driven by ageing demographics and welfare reforms . To further complement LGRR's customer retirement and savings proposition, the Workplace Savings administration business was transferred from LGIM to LGRR at the beginning of 2021. This enables us to better assist the 4.4 million Workplace members in planning their retirement whilst they are saving with us, rather than when they come to retirement. This will drive better customer outcomes and, at the same time, help us to retain more of our customers in retirement.

There are currently c£500bn in UK Defined Contribution (DC) accumulation assets and this is expected to broadly double by the end of the decade.[41] As a market leading provider in Workplace Savings, we are well placed to benefit from this expected increase in DC pension assets, and to grow administration revenues for LGRR and fund management revenues for LGIM.

Prior to Covid-19, around £40bn of these DC assets were coming to maturity each year, with the individual annuity market accounting for just over 10% of these assets. The size of the individual annuity market dipped slightly during the pandemic as people deferred making retirement decisions. We do expect the market to recover as the DC market continues to grow, and as fewer people reach retirement with defined benefit pensions and so seek the longevity protection that an annuity provides. LGRR has a strong market share in individual annuities, with a 21.4% market share at Q3 2021.[42] We are building on the strength of that position by providing other retirement income products and services, such as our recently launched drawdown product, recognising that each customer will have different needs and requirements.

The UK lifetime mortgage (LTM) market continues to represent a sizeable opportunity, with UK housing equity in over 55s at £1.7 trillion across approximately 5.5m houses.[43] At present only c£5bn per year is being released through the LTM market. While we maintain our focus on the traditional LTM market and continue to offer greater flexibility and choice, we continue to see interest from the "wealth" sector as those with higher value properties increasingly see the benefit in lifetime mortgages when planning the distribution of their estate to future generations.

Across all our businesses we continue to focus on our customers and the technology that supports providing a more efficient but personalised service.

Insurance (LGI)

We anticipate continued premium growth across our UK and US Protection 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, aided by the UK housing stamp duty relief, contributed significantly to strong performance in 2021, with record new business of £200m, up 14% against 2020 (£175m). We expect the total protection market to be slightly smaller in 2022. Our group protection business has also performed well, increasing premium income by 6%. During 2021 we launched a digital application portal which will drive growth, particularly for smaller schemes. 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 continues to recover from the distribution and underwriting disruptions caused by COVID-19. We are using 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, and our digital first approach is aiming to achieve double digit growth in new business sales out to 2025.

We invest in Fintech start-ups and scale-ups that operate in adjacent markets where we have the relationships, capital or expertise to accelerate their growth and value creation. One such investment is Salary Finance, an employee benefits platform business, in which we have a 48% holding. Salary Finance remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond. Gross revenue grew to £30m in 2021[44], an increase of 85% year on year and the fourth year in a row with a near doubling in revenue growth. In addition, other key investments like Smartr365 and Asanto are growing rapidly. We are targeting double digit growth for our Fintech businesses.

Dividend

The Board has declared a final dividend of 13.27p, giving a full year dividend of 18.45p, up 5% from the prior year (17.57p). This is consistent with our stated ambition to grow the dividend at 3-6% per annum between 2021 and 2024.

Going forward, and as announced at HY21, the Board intends to adopt a formulaic approach to the dividend whereby the interim dividend grows by the same percentage as the total dividend for the prior year.

LGR - Institutional

FINANCIAL HIGHLIGHTS £m	2021	2020
Operating profit excluding mortality reserve release	1,154	1,229
Mortality reserve release	nil	102
Operating Profit	1,154	1,331

Release from operations	512	492
New business surplus	193	220
Net release from operations	705	712

New business premiums £m
UK PRT	5,315	7,196
International PRT	936	1,250
Other PRT (longevity insurance, Assured Payment Policy)	925	397
Total new business	7,176	8,843

Operating profit of £1,154m

LGRI continues to deliver strong operating profit of £1,154m (2020: £1,229m). Profit was underpinned by the performance of our growing annuity portfolio and robust pension risk transfer (PRT) new business volumes.

As communicated at H1 2021, we have not recognised an explicit release from adopting CMI 2019, given the uncertainty in the data created by the pandemic. We anticipate any resulting additional prudence will be released through experience variances over the next 2-3 years until we have more certainty and clarity over the data. In H2 2020 we conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRI's annuity book, resulting in a £102m reserve release.

Release from operations increased 4% to £512m (2020: £492m), reflecting the scale of the business as prudential margins unwind from LGRI's growing £89.9bn annuity portfolio (2020: £87.0bn).

Net release from operations was £705m (2020: £712m) with new business surplus of £193m (2020: £220m), reflecting successful execution, coupled with a disciplined approach to new business.

During 2021 we wrote £5,315m of UK PRT which, combined with Assured Payment Policy of £925m and £957m of individual annuities written in LGRR, delivered a 9.1% UK Solvency II new business margin (2020: 10 .6%, 2019: 7.9%). This is a strong result: 2020 benefitted from wider credit spreads and good asset sourcing during the pandemic, as well as longer duration schemes. UK PRT volumes were written at a capital strain of less than 4%.

Gross longevity exposure was £89bn across LGRI and LGRR's annuity and longevity insurance businesses. We have reinsured £39.4bn of longevity risk with sixteen reinsurance counterparties, leaving a net exposure of £49.6bn. The reinsurance market continues to grow and innovate, and we expect it to continue to offer sufficient capacity to meet the demand from insurers.

Successful execution coupled with a disciplined approach for value

During 2021 LGRI underwrote £7,176m of business across 57 deals globally (2020: £8,843m, 61 deals) .

Legal & General has demonstrated successful execution, whilst remaining focused on value creation, and continues to play a key role in the UK PRT market. Despite a slow start to the year, the market is anticipated to close at just below £30bn, the third largest on record. As in 2020, the market saw a high number of smaller and mid-sized pension scheme transactions and a handful of larger scheme transactions.

LGRI's brand, scale and asset origination capabilities - through synergies and expertise within LGIM and LGC - are critical to our market leadership in the UK PRT market. Long-term client relationships, typically created and fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals. In 2021 we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:

· Small scheme solutions. With 69 % of our transactions falling into this category, we leveraged technological innovation to serve smaller pension plans efficiently.

· A new umbrella agreement with a major UK corporation signed. Now 11 agreements in place to allow for efficient future execution.

· c£800m buy-in with TUI group UK Pension Trust. This transaction marks the scheme's first PRT transaction with Legal & General.

· c£760m buy-in with Sanofi Pension scheme, securing benefits for c2,900 retirees.

· c£650m buy-in with Mitchells & Butlers executive pension plan, which marked the Plan's first pension risk transfer.

· A c£925m Assured Payment Policy for Legal & General's Group UK Pension and Assurance Fund. 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.

· First conversion of an Assured Payment Policy (APP) to a buy-in. A c£63m transaction agreed with AIB Group UK Pension Scheme, converted c20% of the original APP transaction completed in December 2019. This was followed by a second APP conversion in 2021 of c£38m with Legal & General Group UK Senior Pension Scheme. These transactions reflect our commitment in helping schemes along their de-risking journey, every step of the way, offering flexible solutions and enabling them to seize de-risking opportunities as they arise.

Looking forward to 2022, we have already won or are exclusive on c£1bn of premium. We have a pipeline of c£20bn.

Solid US volumes in a competitive market

Despite a more competitive market in the US, LGRI delivered US new business volume of $1,095m (2021: £789m; 2020: $1,614m; £1,250m). Market commentators expect the US market in 2021 to be the biggest on record at $38bn.[45] However, most of the year-on-year growth is attributable to the >$1bn segment, with the <$500m segment that we currently participate in reducing by c$3bn.

As in the UK, our focus was on value creation. Despite the market conditions, we wrote our second largest US PRT transaction at $293m and in Bermuda we secured our second Canadian deal through a new strategic partnership with a second Canadian insurer.

As the only insurer providing PRT directly to pension plans across the UK and US, Legal & General is strongly positioned to offer international pension de-risking solutions.

Total Annuity Asset Portfolio

FINANCIAL HIGHLIGHTS £m	2021	2020
Operating Profit	1,506	1,728
Investment and other variances	242	15
Profit before tax	1,748	1,743

Total annuity assets (£bn)	89.9	87.0
Of which: Direct investments (£bn)	28.4	24.7

Profit before tax was £1,748m, with investment variance contributing positively due to the unwind of margins, arising as a result of no defaults, and strong underlying performanc e, including trading profits from the profitable disposal of some bespoke derivatives and other assets.

Annuity asset portfolio

The 'A minus' rated annuity asset portfolio of £ 89.9 bn [46] , which backs the IFRS annuity liabilities in LGRI and LGRR, is well diversified by sector and geography. Our ambition is to continue to collaborate with LGC, LGRR and LGIM to strengthen our asset sourcing capabilities, including both self-manufactured and public assets with a strong ESG focus. This core competitive advantage provides LGRI and LGRR with long duration direct investments with higher risk-adjusted returns and optionality in asset deployment. We remain on track to achieve our portfolio decarbonisation target of 18.5% by 2025.

Credit portfolio management

The fixed income portfolio of £81.8bn is comprised of £58.8bn of listed bonds and £23.0bn of Direct Investments. Approximately two-thirds of the portfolio is rated A or better, 33 % rated BBB and 1% 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. In addition, we hold a £ 3.4 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.

This two-pronged approach, comprising defensive positioning and active management, has helped us to mitigate downgrade and default risk. Again, we have had no defaults in 2021.

Direct Investment

Within the asset portfolio, we originated £4 .6 bn of new, high quality direct investments during 2021 which, along with market movements, brought the direct investment portfolio total to £28 .4 bn[47] , including £6 .9 bn in Lifetime mortgages . 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 counterparties and the underlying collateral.

Our Direct Investment strategy is centred on ensuring the safety of policyholders' benefits. We believe, and have proved, that we can protect our policyholders and invest to deliver Inclusive Capitalism across our UK towns and cities. By accessing the power of pensions, we can generate positive societal impacts and drive economic growth.

During 2021 LGRI committed to fund its first L&G Affordable Homes investment of £270m over 2021 to 2023, with £77m being funded in late 2021. This partnership is forecasted to generate around £1.7bn of assets by 2025. In addition, we sourced £489m of Urban Build to Rent assets through our partnership with LGIM and executed a US Corporate Real Estate external mandate, whilst LGIMA builds capability, which led to £106m of assets being sourced.

Legal & General Capital

FINANCIAL HIGHLIGHTS £m	2021	2020
Operating profit	461	275
- Alternative asset portfolio	350	112
- Traded investment portfolio & Treasury	111	163
Investment and other variances	19	(299)
Profit before tax attributable to equity holders	480	(24)
Net release from operations	303	224

ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate	625	694
Clean energy	224	182
Residential property	1,979	1,738
SME Finance	611	525
	3,439	3,139
TRADED ASSET PORTFOLIO £m
Equities	1,853	1,770
Fixed income	54	138
Multi-asset	221	209
Cash¹	1,427	1,809
	3,555	3,926

LGC investment portfolio	6,994	7,065
Treasury assets at holding company	1,621	1,982
Total	8,615	9,047

1. Includes short-term liquid holdings.

Total operating profit of £461m increased 68% over 2021, beating capital markets estimate

LGC operating profit increased 68% to £461m (2020: £275m). This growth principally reflects increased profits from our alternative asset portfolio of £350m (2020: £112m) as a result of a bounce-back in the housebuilding market and the continued maturing of the underlying investments in our clean energy and venture capital portfolios. Operating profit from the traded & treasury portfolio decreased to £111m (2020: £163m), primarily driven by the continued sell down of listed equities to fund the increasing expansion of the alternative asset portfolio.

Profit before tax was £480m, driven by investment and other variances of £19m, compared to £(299)m in 2020, which reflects the rebound in alternative asset portfolio profits and equity market performance, partially offset by early-stage development costs.

Our growing alternative asset portfolio achieved a net portfolio return of 8.5% (2020: (4.0)%). In line with our business model, we expect to deliver a net portfolio return of 8-10%, growing to 10-12% by 2025, as our early-stage businesses continue to mature.

Alternative asset portfolio grew 10% over 2021 to £3.4bn

LGC has continued to strengthen its capabilities across a diversified range of alternative assets that are underpinned by our structural growth drivers. Our alternative asset portfolio increased to £3,439m (2020: £3,139m) as we deployed a further £0.4bn and made new undrawn commitments of £0.5bn across our existing investment platforms. Through these investments we create assets that generate returns for shareholders, create attractive yield-generating Matching Adjustment-eligible assets for LGRI and LGRR and supply attractive alternative assets to LGIM and other third party clients. As we are maturing, we have also divested £0.4bn in assets, with the capital to be recycled into exciting new sectors and projects which will help to drive future growth potential.

Strong value creation in 2021

LGC provided five notable, value-creating proof-points in 2021, demonstrating that our strategy is being executed effectively to generate significant shareholder returns:

1. MediaCity - Land Securities Group acquired our 50% stake in November. The purchase price received, together with the £40m of net distributions received through the period of ownership since 2015, have resulted in a total return of 1.6x on the initial investment. We plan to recycle the capital back into Manchester through our University and Alderley Park developments.

2. Inspired Villages Group - Announced in August 2021, we established a 15-year joint venture (JV) with Natwest Group Pension Fund Limited (NWPTL). As part of the new JV, LGC sold a 50% stake in Inspired Villages' first 11 sites to NWPTL based on an enterprise value of over £300m, resulting in a return of 1.3x on the initial investment. This investment will support our future pipeline of 34 sites, which will deliver c5,100 homes, housing c8,000 residents and create an estimated Gross Development Value of c£4bn. The transaction is unique as it sees one of the largest UK pension funds investing directly into UK private social infrastructure.

3. Pod Point - First backed by LGC in 2019, Pod Point listed on the Main Market of the London Stock Exchange in November 2021 raising £120m of gross proceeds to support the ambitious growth plans of this innovative UK company and generating a return of 3.8x on LGC's initial investment.

4. Current Health - First backed by LGC in 2018 and LGRR in 2019, this innovative Scottish "healthcare at home" company was acquired by Best Buy in October, generating a 5.3x return on our initial investment.

5. Kao Data Centres - LGC secured accretive co-investment from the £11bn infra fund HRL Morrison through its Infratil investment vehicle to drive ambitious growth plans. Kao has exchanged on the acquisition of two UK prime data centres with a long-term anchor lease from a large financial services business, thereby becoming a multi-site data centre platform with expansion capacity of c55MW.

Specialist commercial real estate: ongoing support of the levelling up agenda

Supporting the need to "Level Up" towns and cities across the UK, we continue to invest in partnership with public and private sector experts, to drive forward some of the largest urban transformation schemes, back digital infrastructure and fund the next generation of science and innovation centres. During 2021 our specialist commercial real estate portfolio decreased to £625m (2020: £694m) as we realised exit strategies from some existing assets including MediaCity. We are in the process of recycling this capital into new and existing projects to support future growth potential.

Through Bruntwood SciTech, we have continued to develop world-leading diagnostics infrastructure, growing our portfolio to over 2.5m sq ft. Home to over 500 science and tech businesses, the Bruntwood SciTech network includes nine sector-specialist campuses across the midlands and the North of England. Its development pipeline of over 6m sq ft includes Birmingham Health Innovation Campus, where construction of Birmingham's first smart-enabled building, Enterprise Wharf, is now well underway, and - as announced in June 2021 - a development partnership with the University of Manchester to deliver ID (Innovation District) Manchester, a new £1.5bn innovation district across 4m sq ft in the city centre which forms an ambitious plan to make Manchester the heart of innovation in Europe.

As a part of our £4 billion partnership with Oxford University, and in conjunction with LGRI and LGIM, we began construction in 2021 on the £200m 'Life and Mind Building' in Oxford; the largest building project ever undertaken on behalf of the University. We also announced that we will fund and deliver a new innovation district with the University, extending Oxford's existing Begbroke Science Park across a 14-hectare site.

Our Clean Energy portfolio expanded into new sectors, increasing in value to £224m (2020: £182m)

Supporting the Group's climate ambitions, we invest in early-stage innovative clean technology companies and low carbon renewable energy infrastructure needed to meet UK and global UN climate targets and Sustainable Development Goals.

During 2021, our portfolio continued to make excellent progress in scaling up. Pod Point, in which we hold a c14% stake post the IPO, is rapidly building its business to meet increased consumer demand for electric vehicles. By April 2021, Pod Point's partnership with Volkswagen and Tesco had provided more than 500,000 free top-ups at Tesco stores across the UK and powered more than 10 million miles of travel, helping to make electric vehicle charging accessible for all drivers and accelerate the adoption of electric vehicles. Pod Point has also expanded its partnership with Lidl to install rapid chargers at 350 stores.

In October 2021, NTR and LGIM annonunced an exciting strategic partnership. The partnership will provide institutional investors in the UK, Europe and Asia access to the €1-trillion European energy transition in 2022 by combining LGIM's 50-year experience in Real Assets and NTR's 20-year expertise in renewables.

We recently announced a new investment in Sero Technologies, an energy technology and service company, which creates tailored net zero enegy retrofit plans for the residential sector. Residential retrofitting represents a significant market opportunity to achieve the UK's legally mandated target of net zero by 2050: almost every home will need to be improved or retrofitted with some combination of enhanced energy efficiency and low carbon heating.

Housing: platform continues to grow as LGC targets multi tenure opportunities

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. During 2021, our housing property portfolio grew to £1,979m (2020: £1,738m) reflecting a bounceback in the housebuilding sector and sustained long-term demand.

LGC's Build to Sell business, CALA, has performed exceptionally in 2021, rebounding strongly from its position in 2020 when it was impacted by a pause in construction and sales activity following the first COVID-19 lockdown. Having grown to the 10th largest housebuilder in the UK by revenue, during 2021 CALA has delivered revenue of £1.24bn (2020: £713m) and operating profit of £132m (2020: £6.9m) through the sale of more than 2,900 units, significantly higher than 2020 and 2019 levels (2020: 1,835 units; 2019: 2,482 units). Reservations on private units currently stand at a record 60% of the full year target, giving confidence in the full year outcome for 2022.

Our Affordable Homes business has continued to establish itself as one of the UK's leading institutional developers and managers of affordable housing. Delivering £26.4m of operating profit, our business continues to grow and over 2021 we increased our total number of operational affordable homes by 997 to a total of 1,667. Our development and operation pipeline now stands at over 7,000 homes, with a Gross Asset Value of around £1.2bn. During the year we set up four additional Registered Providers to extend our funding approach and, as part of that strategy, brought in a £270m commitment from LGRI to support the growth of the business, which we expect to grow materially over time.

Our Modular Housing business is making significant progress with projects and partners, designing and manufacturing homes in an innovative way which will transform the way homes are built. In 2021, Legal & General Modular Homes' innovative approach to housing delivery has gained significant momentum, commencing construction on sites in Selby, Bristol and Broadstairs for the delivery of 440 homes. The business is currently seeking planning permission to deliver a further c.400 homes across three sites, with construction expected to commence early in 2022. We are creating some of the most energy efficient homes in the country with all homes from 2020 onwards achieving an Energy Performance Certificate (EPC) A rating, a standard met by only around 1% of new and existing dwellings in England & Wales.

Our urban Build to Rent business joint venture with PGGM has continued to make strong development progess across the UK's major towns and cities. Across the Group, we now have a £1.9bn portfolio of c5,200 homes with 14 schemes in operation or development, creating a strong pipeline of attractive, high quality assets for LGRI and LGIM clients

Our Suburban Build to Rent business has put in a planning application for its first site in North Horsham. This site is being developed in partnership with LGC's other housing businesses, delivering 124 new homes for suburban families, a selection of affordable housing, modular housing, CALA homes and infrastructure including schools, sports and medical facilities. This multi-tenure collaboration showcases the unique competitive advantage of our housing property platform. SBTR also acquired a site in Peterborough, building its pipeline to over 750 homes across the UK.

Growth in our Inspired Villages business continues at pace. Our Later Living platform has made good planning and development progress. It has secured planning permission for 141 homes in West Sussex and 194 homes in South Oxfordshire. It has also broken ground on its first two operationally net-zero carbon developments, bringing forward over 350 energy efficient homes. To support continued growth, LGC entered a 15-year joint venture partnership with NatWest Group Pension Fund in 2021 to invest £500m of equity to build later living communities, which will be developed and operated by Inspired Villages. The partnership aims to expand Inspired's portfolio to 34 villages supporting around 8,000 residents, with a particular focus on creating net-zero carbon regulated energy schemes.

SME Finance AUM increased to £611m (2020: £525m)

Investing in the real economy and technological innovation through our Alternative Finance and our Venture Capital 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 through our investments in Pemberton, our asset manager specialising in private debt, in which we hold a 40% stake. The Pemberton platform has raised over €13.5bn (2020: €9.3bn) across four strategies, since we first invested in 2014, with 170 investors globally. It has deployed €12.8bn (2020: €8.3bn) across 114 companies, actively engaging with borrowers to support sustainable growth.

Our Venture Capital Funds platform backs over 330 start-up businesses across the UK and Europe through our fund-of-funds programme and via LGC's ownership in direct investment platform Accelerated Digital Ventures (ADV).

The Venture Capital Fund-of-Funds programme saw strong performance over the period, with NAV growing by 65% to £171m during 2021.[48] Many of the funds we invested in early in the programme are now maturing, with the strongest companies securing new funding rounds at increased valuations. Demonstrating the value of our patient investment approach, the portfolio has now delivered a 23% IRR after fees, since inception in 2016.

We continue to work with LGIM to develop a viable solution for Defined Contribution clients which will democratise access to the venture capital asset class.

Legal & General Investment Management

FINANCIAL HIGHLIGHTS £m	2021	2020
Management fee revenue	980	929
Transactional revenue	32	27
Total revenue	1,012	956
Total costs	(590)	(549)
Operating profit	422	407
Investment and other variances	(11)	1
Profit before tax	411	408
Net release from operations	342	327
Asset Management cost:income ratio (%)	58	57

NET FLOWS AND ASSETS £bn
External net flows	34.6	20.4
Internal net flows	(2.1)	2.1
Total net flows	32.5	22.5
- Of which international¹	29.5	(4.0)
Cash management flows	1.1	2.4
Persistency[49] (%)	87	85
Average assets under management	1,336	1,222
Assets under management as at 31 December	1,421	1,279
Of which:
- International assets under management²	479	388
- UK DC assets under management	138	113

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

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

Operating profit growth of 4% to £422m, with revenues surpassing £1bn

Operating profit increased by 4% to £422m (2020: £407m), reflecting increased revenues from flows, favourable business mix and disciplined cost management.

Assets under management increased by 11% to £1,421.5bn (2020: £1,278.9bn), benefitting from strong external net flows of £34.6bn (2020: £20.4bn).

Revenues increased by 6% to £1,012m (2020: £956m), supported by growth in higher-margin areas including thematic ETFs and Multi-asset. Our strengths in ESG led to several ESG mandate wins in 2021, including transitioning over £3bn of an institutional client's assets to a new range of Paris-aligned benchmarks. We have continued to see good flows into our ESG products. Overall revenue growth was lower than AUM growth, as average AUM (which drives revenues) grew more modestly as a result of the sharp rise in interest rates in the first half of the year.

The cost income ratio of 58% reflects our careful cost control as we continue to invest in the business.

Strong international flows

International external net flows of £29.5bn constituted 85% of LGIM's total external net flows.

LGIM saw £7.4bn of net flows from Japanese clients and we are now Japan's 8^th largest asset manager.[50] Europe saw flows of £13.6bn from multiple clients across the region, with European institutional AUM reaching €100bn. We also saw good flows in the US (£4.5bn), the rest of Asia (£6.5bn) and ETFs (£2.5bn). Our US DB de-risking business had a very strong year, with net flows of $9bn in 2021.

International AUM of £479bn is up 23% from 2020 (£388bn) and now constitutes 34% of total AUM. Our deep relationships with a number of leading international clients underpin our conviction in our ability to grow international AUM and earnings.

Ongoing strength in UK DC and Retail

The Defined Contribution (DC) business continues to attract new assets, with external net flows of £9.4bn, supported by ongoing growth in LGRR's Workplace pension business, which now has 4.4 million members. Total UK DC AUM is up 22% over 2021 with total AUM of £137.7bn (2020: £112.7bn). This success is underpinned by LGIM's strong customer focus, as shown by a 91% persistency rate among our DC customers. We continue to innovate in this market: for example, we recently launched a Sustainable DC Property Fund in response to growing demand from DC schemes to align with members' ESG values.

L&G also has one of the largest and fastest-growing UK Master Trusts, which now has £17.1bn AUM, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration. Growth in our UK Master Trust business continues to support growth in Multi-asset flows, since this is the default option for many of our clients.

In UK Retail, we ranked second for gross fund sales in 2021. We also launched our Model Portfolio Service (MPS), further extending our successful Multi-asset proposition into the maturing advisory market. We believe our scale and expertise can disrupt this market while helping clients meet their objectives. The launch of our Global Thematic unit trust also makes our thematic strategies available to a wider client base.

Growth in ETFs

2021 marked the third anniversary of the acquisition of the Canvas ETF business in March 2018. Over this period, revenue has more than doubled. The business has continued to grow at a strong pace, with $3.9bn of net flows delivering annualised net new revenue of $11.9m (£8.4m) in 2021.

A focus on thematic ETFs has supported our strategy of growth into higher-margin areas. This has been the key driver of the more than 50% increase in ETF AUM over 2021 to $13.7bn. In 2021, LGIM launched thematic ETFs to cover the emerging hydrogen economy and the digital payments evolution, with both products being first to market in Europe. We also expanded our fixed income range into higher-margin areas such as Europe's first local-currency India government bond ETF. We now have c$1.3bn AUM in fixed income ETFs at the end of 2021.

LGIM continues to be ranked second on both AUM and net flows in the European thematic ETF market, with over 16% market share.

Breadth of investment management solutions


Asset movements¹ (£bn)	Index		Active strategies	Multi-asset		Solutions	Real assets		Total AUM
As at 1 January 2021	429.9		193.6	65.7		557.2	32.5		1,278.9
External inflows	93.9		18.7	15.1		34.4	1.7		163.8
External outflows	(91.5)		(15.8)	(8.1)		(25.5)	(1.8)		(142.7)
Overlay net flows	-		-	-		11.0	-		11.0
ETF net flows	2.5		-	-		-	-		2.5
External net flows	4.9		2.9	7.0		19.9	(0.1)		34.6
Internal net flows	(1.0)		(1.8)	0.2		(1.5)	2.0		(2.1)
Total net flows	3.9		1.1	7.2		18.4	1.9		32.5
Cash management movements	-		1.1	-		-	-		1.1
Market and other movements	68.6		3.0	5.1		29.5	2.8		109.0
As at 31 December 2021	502.4	198.8		78.0	605.1		37.2	1,421.5

1. Please see disclosure 4.01 for further details.

Solutions continued to deliver positive external net flows of £ 19.9 bn (2020: £23.2bn) driven by strong demand from UK and US 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 our DB clients. We are well positioned to capitalise on this continuing trend. Together with our fiduciary business offering, and working closely with LGRI's PRT business, we can tailor solutions to DB schemes at all stages of their funding journey.

Multi-asset strategies continue to be in demand from DC schemes and retail customers . External net flows into Multi-asset funds were £7.0bn (2020: £4.3bn).

Index reported positive external net flows of £ 4.9 bn (2020: £(6.6)bn) driven by new international flows, partially offset by Index outflows in the UK and US, reflecting the structural trend of DB schemes de-risking, and therefore shifting from index to LDI strategies.

Active Strategies delivered external net flows of £2.9bn (2020: £(0.1)bn) as a result of positive net inflows from US and UK DB clients.

Real Assets saw external net flows of £(0.1)bn (2020: £(0.4)bn) , as the market continues to assess the longer-term impact of COVID-19 on demand. LGIM Real Assets is, however, well positioned and enjoyed notable successes in 2021 such as raising £365m for the Secure Income Assets Fund while initiatives such as an innovative digital occupier engagement platform help future-proof the portfolio. We expect future growth in flows to be supported by our Build to Rent business, and by Private Credit, which offers clients diversification of secure income and value protection solutions. In 2021, we also announced a partnership with NTR, a leading renewable energy specialist, to provide institutional investors in the UK, Europe and Asia access to the €1 trillion European energy transition.

Investment performance

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 2021 LGIM's active teams delivered strong performance across multiple asset classes. The below table uses our regulated UCITS funds as a proxy for the performance returns² of our mainstream investment strategies:

	% of outperforming funds
	1 year	3 year	5 year
Actively managed UCITS funds	61%	81%	76%

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 from Lipper for the LGIM UCITS. All data as at 31 December 2021.

Our success is also evident in the number of independent awards we won in 2021 for investment performance, including Investment Manager of the Year at the European Pensions Awards, Professional Adviser's Best Multi-asset Group/Fund for ESG, and Pensions Expert's LDI Manager of the Year.

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 2021, LGIM managed £290.0bn (2020: £206.8bn) in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.[51]

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 largest global asset managers. LGIM is, for example, a founding signatory of the Net Zero Asset Managers Initiative. Recent achievements include:

· Commitment to net zero:

1. LGIM has committed to work in partnership with our clients to align 70% of eligible assets to net-zero carbon emissions by 2030, and to reach net-zero greenhouse gas emissions by 2050 or sooner across all eligible assets under management, in the same way that L&G has already committed to with its own balance sheet.

2. Our DC default funds - available to over four million members across L&G Workplace Pensions and the L&G Mastertrust - have set interim targets to support their 2050 net-zero ambitions.

3. LGIM Real Assets has committed to achieve net-zero carbon emissions across its UK real estate portfolio by 2050.

· Product innovation : The size of the global ESG market, currently $8 trillion, is expected to grow to $30 trillion by 2030.[52] We believe we are positioned to benefit from this flow of AUM thanks to our authentic and differentiated proposition. We continue to build on our strong heritage in using index and active ESG investing insights to develop innovative new products, with 55% of our EU domiciled UCITS funds classified as ESG-incorporated (articles 8 or 9) in the EU's first annual Sustainable Finance Disclosure Regulation (SFDR) exercise. Recent examples of ESG product innovation that place us at the forefront of growing client demand include:

1. A low carbon transition index equity fund suite for UK pension clients, designed by LGIM in partnership with a key consultant, to reduce exposure to carbon emissions in alignment with 2050 net-zero goals, whilst also being aligned to LGIM's market leading engagement and voting activities.

2. A multi-factor developed equity index fund with a strong focus on climate, which adheres to the EU's Climate Transition Benchmark framework.

3. The launch of the ESG Paris-Aligned World Equity Index Fund, offering broad (ESG) exposure to developed market equities, while also integrating Paris-aligned reductions in carbon emissions and UN SDG principles. This secured the support of some key institutional investors at launch, including the London Borough of Newham Pension Fund which invested approximately £520m.

4. The successful launch of a number of ESG ETFs, including a Green Bond strategy, a Hydrogen Economy thematic ETF, and a range of Quality Dividend ETFs with ESG exclusions.

· Stewardship with impact : LGIM has consistently received A+ rankings for responsible investment strategy and active ownership by the UN-backed Principles for Responsible Investment (UN PRI), and in 2021 the Financial Reporting Council (FRC) recognised LGIM as a successful signatory to the UK Stewardship Code for our high standards of stewardship.

LGR - Retail

FINANCIAL HIGHLIGHTS £m	2021	2020
Operating profit excluding mortality reserve release	352	322
Mortality reserve release	nil	75
Operating Profit	352	397

Release from operations	227	193
New business surplus	27	42
Net release from operations	254	235

Workplace Savings net flows (£bn)[53]	8.5	7.8

Individual single premium annuities	957	910
Lifetime & Retirement Interest Only mortgage advances	848	791
Total new business	1,805	1,701

Operating profit excluding mortality reserve releases up 9% to £352m

LGRR operating profit increased 9 % t o £352m during 2021 (2020: £322m), driven by the ongoing release from operations, positive mortality experience due to the continued tragic impact of COVID-19, and routine updates to our valuation assumptions.

As communicated at H1 21, we have not recognised an explicit release from adopting CMI2019, given the uncertainty in the data created by the pandemic. We anticipate any resulting additional prudence will be released through experience variances over the next 2-3 years until we have more certainty and clarity over the data. In H2 2020 we conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRR's annuity book, resulting in a £75m reserve release.

Release from operations was £227m (2020: £193m), an increase of 18%, reflecting the unwind of prudential margins from the annuity portfolio and increasing administration fees from the growth in workplace assets.

Net release from operations was £254m (2020: £235m) with new business surplus of £27m (2020: £42m). The annuity new business surplus reduced from the level seen last year due to competitive market pricing.

Resilient new business volumes in 2021

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 up 5% to £957m in 2021 (2020: £910m), as markets started to recover following the impact of the COVID pandemic last year. Our relative performance remained strong: our operational service, competitive pricing and focus on partners and intermediaries allowed us to grow external market share to 38.4%.^{^[54]}

Lifetime mortgage advances, including Retirement Interest Only mortgages, were up 7 % to £848m (2020: £791m) in an increasingly competitive market. Throughout this period, we have maintained pricing and underwriting discipline whilst increasing advances. At the end of 2021, LTMs were 8% 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 c31% at point of sale.

Workplace Savings net flows were up £0.7bn to £8.5bn (2020: £7.8bn), driven by continued client wins and increased contributions. Members on the Workplace pension platform increased to 4.4 million in 2021. We are continuing to focus on improving efficiency and scale as the business grows.

Legal & General Insurance

FINANCIAL HIGHLIGHTS £m	2021	2020
Operating profit	268	189
- UK	320	205
- US (LGIA)	(52)	(16)
Investment and other variances	111	(459)
Profit / (loss) before tax attributable to equity holders	379	(270)
Release from operations¹	236	250
New business surplus / (strain)	27	8
Net release from operations	263	258

Solvency II New Business Value	262	254

LGI new business annual premiums	379	372

UK Retail Protection gross premiums	1,444	1,374
UK Group Protection gross premiums	405	382
US Protection (LGIA) gross premiums	1,053	1,093
Total gross premiums	2,902	2,849

1. Includes the annual dividend of $111m (2020: $109m) paid by LGIA to the Group in March 2021.

Operating profit up £79m to £268m; higher mortality claims in the US

During 2021, LGI operating profit increased 42% to £268m (2020: £189m), reflecting strong new business growth and modelling refinements to the liability discount rate in UK retail protection.

This was partially offset by adverse US mortality experience. COVID-related claims in the US reached approximately $189m, significantly exceeding the $82m provision set up at year end 2020. This experience has extended into 2022 and is consistent across the US life sector. In addition, adverse non-COVID claims impacted the industry during the year. Our 2021 result includes a £57m provision for potential COVID impacts in the US and UK in 2022.

Honouring our promises and responding quickly and compassionately to our customers' needs is core to our values at Legal & General. LGI is especially aware of the importance of our commitments to our customers: we paid £2.1bn of protection claims during the year.

Profit before tax was predominantly impacted by the formulaic change in LGI's discount rates. LGI's positive investment variance of £111m was driven primarily by an increase in UK and US government bond yields at shorter durations which have resulted in a higher discount rate used to calculate the reserves. The negative impact seen in 2020 has only been partly reversed as yields at longer durations have remained broadly flat year on year.

Solvency II New Business Value increased by £8m to £262m , up £15m to £269m on a constant currency basis (2020: £254m). UK New Business Value of £149m is supported by strong volumes in Retail Protection, but is £12m lower than prior year (£160m) due to lower volumes in Group Protection, margin pressure in Retail Protection caused by pricing action, and movements in product mix. New Business Value for US Protection was $155m, up 29% on 2020 ($120m) driven by sales growth of 20% and margin growth from favourable business mix.

Gross written premium at £2.9bn; good trading performance in the US and UK

UK Retail Protection gross premium income increased to £1,444m (2020: £1,374m), with new business annual premiums of £200m (2020: £175m), up 14% on prior year driven by strong customer demand following COVID-related disruption in 2020. Protection sales were particularly strong during H1 with both a strong housing market and the increased customer awareness of protection needs during the pandemic driving up demand. We held a market share of c.25% in Q3 2021[55], maintaining our position as the leading provider of retail protection in the UK, whilst achieving a point of sale decision rate of 83% for all our major product lines. Our new business premium growth was supported by our innovation over the period, including enhancements to our income protection and critical illness benefits that broaden our scope in the market.

UK Group Protection gross premium income increased to £405m (2020: £382m), with new business annual premiums of £88m (2020: £117m). As previously guided, as a result of the renewal cycle for larger schemes, 2021 new business volumes did not reach the record levels of 2020. However, retention was strong resulting in premium income growth of 6% on 2020. Through 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. During H2 we launched an automated application portal which will further support growth in the smaller scheme segment.

US Protection (LGIA) gross written premiums increased 3% (down 6% on a sterling basis) to $1,449m (2020: $1,403m). New business annual premiums increased 20% to $124m (2020: $103m), with strong new business margins of 13.4% (2020: 11.2%). LGIA ranked number one in the brokerage general agency channel through Q3 2021 by both new premium and new policies issued. We continue to develop our market-leading, digital new business platform (Horizon) which is starting to deliver in line with expectation, and we expect to drive further sales growth and to reduce unit costs over the coming years. Two thirds of new business is now written onto our Horizon platform and we expect this to increase in 2022.

Legal & General Mortgage Club facilitated £98bn of mortgages, up 26% ( 2020: £77bn), driven by the buoyant housing market due to the extension of the Stamp Duty holiday in H1. We remain the largest participant in the UK intermediated mortgage market and are involved in around one in five of all UK mortgage transactions. Our Surveying Services business facilitated 528k surveys and valuations, compared to 440k surveys and valuations in the prior year. Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a supporting component of our overall offering to customers.

Scaling up our Fintech businesses

LGI has continued with its strategy to invest in and scale up innovative fintech businesses in adjacent markets. Our strategy of "digital first" has proved to be resilient through the COVID period, driving further growth in value and revenue. Salary Finance, an employee benefits platform, in which we have a 48% holding, continues to grow rapidly, with the platform now connected to 4.1 million employees across the UK and US. Gross revenue grew to £30m, an increase of 85% year on year. This trend is expected to continue with growing employee awareness and increasing platform engagement. It remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond.

The strategy of platform ownership and influence has continued to serve us well in the mortgage and home-financing "ecosystem". Our mortgage research tools for affordability, criteria and product reach nearly 10,000 advisers in the mortgage broking market. Within our Legal & General surveying business, our work to digitise the market has proved invaluable for banks through the lockdown period. Our digital valuation services have been used by many of our key clients with over 119k completed since 2019. Elsewhere in the ecosystem, our c40% investment in Smartr365, a complete end-to-end mortgage platform used to unite mortgage advisers and their clients, has moved from start up to scale up across the UK mortgage broking market. With licence numbers having grown more than 7x since the start of the year, we now have just over 3,300 licences signed up. We have received strong feedback on the proposition which hugely simplifies the mortgage advice journey for brokers and customers.

Subsidiary dividends to Group

£m	2021	2020


Subsidiary dividends remitted¹:
LGAS	902	935
LGIM	276	215
LGA	85	80
Other²	219	181
Total	1,482	1,411
Total excluding mortality release³	1,482	1,261

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 in 2020 due to mortality reserve releases in recent years.

The level of subsidiary dividends ensures coverage of external dividends (2021: £1,099m; 2020: £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 £4.3bn at 31 December 2021 (FY 2020: £4.6bn). There is also a further £0.9bn (FY 2020: £1.0bn) of operational borrowings including £0.9bn (FY 2020: £0.9bn) of non-recourse borrowings.

Group debt costs of £230m (2020: £233m) reflect an average cost of debt of 5.0% per annum (2020: 5.0% per annum) on an average nominal value of debt balances of £4.6bn (2020: £4.7bn).

£300m of 10% dated subordinated notes were called at par on 23 July 2021.

Taxation

Equity holders' Effective Tax Rate (%)	2021	2020



Equity holders' total Effective Tax Rate	17.9	12.1
Annualised rate of UK corporation tax	19.0	19.0

The effective tax rate reflects the impact of revaluing UK deferred tax assets and liabilities at 25%, following the announcement of an increase in the headline rate of UK corporation tax from 1 April 2023, and the different rates of tax that apply to Legal & General's overseas operations. The effective tax rate at FY 2020 was below the headline rate as a result of the impact of losses arising in the period through investment variance.

The tax rate on operating profits, excluding the impact of investment variance, was 15.5% (2020: 15.0%).

Solvency II

In previous years, the capital position was shown on a "shareholder view", where the contribution from the final salary pension schemes was excluded from the group position. The impact of excluding the contribution is now less than 1% and so the results below include the impact of the final salary pension schemes. The 2020 results have been adjusted to be consistent with 2021.

As at 31 December 2021, the Group had an estimated Solvency II surplus of £8.2bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 187% on a shareholder basis. As at 7^th March 2022, we estimate the coverage ratio was 198%[56], primarily driven by an increase in interest rates.

Capital (£m)	2021	2020
Own Funds	17,561	17,316
Solvency Capital Requirement (SCR)	(9,376)	(9,880)
Solvency II surplus	8,185	7,436
SCR coverage ratio (%)	187	175

Analysis of movement from 1 January 2021 to 31 December 2021¹ (£m)	Solvency II Own Funds	Solvency II SCR	Solvency II Surplus


Operational surplus generation (continuing operations)	1,144	492	1,636
Operational surplus generation (discontinued operations)
Operational surplus generation	1,144	492	1,636
New business strain	330	(684)	(354)
Net surplus generation	1,474	(192)	1,282
Operating variances			26
Mergers, acquisitions and disposals			77
Market movements			727
Subordinated debt			(300)
Dividends paid			(1,063)

Total surplus movement (after dividends paid in the period)	245	504	749

1. Please see disclosure note 5.01(d) for further detail.

Operational surplus generation from continuing operations increased to £1,636m (2020: £1,460m) , after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(354)m, primarily reflecting UK PRT volumes written at a capital strain of c4%. This resulted in net surplus generation of £1,282m (2020: £1,174m), which was in excess of the £1,063m of dividends declared (and paid) during the year. Note: our ambition is for n et surplus generation to exceed dividends cumulatively over the period 2020-2024.

Operating variances include the impact of experience variances, changes to assumptions, and management actions. The net impact of operating variances over the period was neutral. Market movements of £727m reflect the impact of rising rates on the valuation of our balance sheet, and improved asset markets, predominantly in equities, as well as a number of other, smaller variances.

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 2021:

	£bn
IFRS Release from operations	1,441
Expected release of IFRS prudential margins	(496)
Release of IFRS specific reserves	(162)
Solvency II investment margin	213
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	640
Solvency II Operational Surplus Generation	1,636

The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in 2021:

	£bn

IFRS New business surplus	247
Removal of requirement to set up prudential margins above best estimate on new business	280
Set up of Solvency II Capital Requirement on new business	(684)
Set up of Risk Margin on new business	(197)
Solvency II New business strain	(354)

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

Sensitivity analysis²

	Impact on net of tax Solvency II capital surplus 2021 £bn	Impact on net of tax Solvency II coverage ratio 2021 %
100bps increase in risk free rates	0.9	19
50bps decrease in risk free rates	(0.6)	(10)
Credit spreads widen by 100bps assuming an escalating addition to ratings	0.6	13
Credit spreads narrow by 100bps assuming an escalating addition to ratings	(0.6)	(14)
Credit spreads widen by 100bps assuming a level addition to ratings	0.7	14
Credit spreads of sub-investment grade assets widen by 100bps assuming a level addition to ratings	(0.4)	(7)
Credit migration	(0.9)	(10)
25% fall in equity markets	(0.5)	(3)
15% fall in property markets	(0.8)	(7)
50bps increase in future inflation expectations	-	(2)
Substantially reduced Risk Margin	0.6	7

2. Please see disclosure 5.01 (h) 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 spreads 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 2021 are shown below¹:


	PVNBP		Contribution from new business	Margin %
UK annuity business (£m)	7,016		635	9.1
UK Protection Total (£m)	1,883		149	7.9
- Retail protection	1,476		120	8.1
- Group protection		407	29	7.1
US Protection (£m)		842	113	13.4

The key economic assumptions as at 31 December 2021 are as follows:

			%
Margin for risk			4.1
Risk free rate
- UK			0.9
- US			1.5

Risk discount rate (net of tax)
- UK			5.0
- US			5.6

Long-term rate of return on non-profit annuities			2.5

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 UK risk free rates have been based on a SONIA-based swap curve (2020: Libor-based swap curve net of the PRA-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 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


Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital. The performance and liquidity of financial and property 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 and although we seek to match assets and liabilities, losses can still arise from adverse markets. 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.	We cannot eliminate the downside impacts on our earnings, profitability or surplus capital from investment market volatility and adverse economic conditions, although we seek to position our investment portfolios 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 setting risk limits on exposures to different asset classes and where hedging instruments exist, we seek to remove interest rate and inflation risk on a financial reporting basis. Our Own Risk & Solvency Assessment (ORSA) is integral to our risk management approach, supporting assessment of the financial impacts of risks associated with investment market volatility and adverse economic scenarios for our Solvency II balance sheet, capital sufficiency, and liquidity requirements. Whilst global and UK economic activity is returning to pre-pandemic levels, there remains significant uncertainty to the impacts of inflation on the sustainability of the recovery, particularly should current inflationary pressures become deep seated or from misjudged central bank monetary policies in response. Financial markets, as well as being impacted by the economic outlook also continue to be susceptible to shocks and re-appraisal of asset values from a range of other factors including geo-political crisis in eastern Europe; a collapse in China's property sector; and the emergence of further Covid-19 variants that may be resistant to current vaccines. Within the UK, uncertainty persists in certain elements of commercial property markets, and within our construction businesses supply chain and labour shortages are evolving risks.
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. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.	We manage our exposure to downgrade and default risks within our bond portfolios, through setting selection criteria and exposure limits, and using LGIM's global credit team's capabilities to ensure risks are effectively controlled, where appropriate trading out to improve credit quality. 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 rating based exposure limits, and where appropriate taking collateral. Similarly, we seek to limit aggregate exposure to banking, money market and service providers. 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. Although the wider economy is recovering from the effects of global lockdowns, a range of industries have been directly impacted by Covid-19 disease control measures including the leisure, transport, travel and retail consumer cyclical sectors, with the risk of downgrade and default remaining particularly as governments withdraw economic support packages. A period of sustained inflation with increases in interest rate suppressing economic activity in sectors reliant on discretionary spending could compound the effects. Covid-19 related impacts for reinsurance counterparties also remains a risk factor, albeit we assess strongly rated reinsurer default to be a more remote risk.
n

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION


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. Our interests in property assets may also expose us to physical climate change related risks, including flood risks. We are also exposed to the risk of adverse perceptions of the group and climate risk related litigation should our responses not align with environment, social and governance (ESG) rating expectations.	We recognise that our scale brings a responsibility to act decisively in positioning our balance sheet to the threats from climate change. We continue to embed the assessment of climate risks in our investment process, including in the management of real assets, and broader risk management framework. At the aggregate level we measure the carbon intensity targets of our investment portfolios, and along with specific investment exclusions for carbon intensive industries, we have set overall reduction targets aligned with a 1.5°C interpretation of the Paris Agreement, including setting near term science based targets to support our long-term emission reduction goals. We also closely monitor the political and regulatory landscape, and as part of our climate strategy we engage with regulators and investee companies in support of climate action. Following COP26, we are still encouraged about the possibility of limiting global temperature rises to 1.5°C. However, this will require societal change on an unprecedented scale over the next decade. We are dependent on the delivery of policy actions, and the climate reduction targets of the firms we invest in. The actions that the world is taking will also to some extent inform the actions that we can take. Climate change and failure to transition to a low carbon economy remains a significant risk that we believe has still to be fully priced in by financial markets, with delays in responding to the threats increasing the risk of sudden late policy action, leading to potentially large and unanticipated shifts in asset valuations for impacted industries.

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 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 reported 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. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.	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 to us of significant variations in life expectancy and mortality. Although vaccines have had a significant effect in reducing mortality rates from the most recent variant of Covid-19, uncertainty remains to future virus mutations and their virulence, the long-term efficacy of vaccines and the effects of 'long Covid' on morbidity. The deferral of some non-Covid-19 medical treatments during the course of the pandemic may also impact mortality and morbidity rates in our UK and US markets. Alongside Covid-19 related matters, other risk factors that may impact future reserving requirements include a dramatic advance in medical science, beyond that anticipated, requiring adjustment to our longevity assumptions; and the emergence of new diseases and changes in immunology impacting mortality and morbidity assumptions.

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION

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.

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 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.

Regulatory driven change remains a significant risk factor across our businesses. Areas of future change include HM Treasury's consultation on Solvency II and the Future Regulatory Framework post Brexit; and the UK's financial conduct regulators proposal for a new Consumer Duty will place obligations to evidence the delivery of good customer outcomes. Regulatory focus also continues on operational resilience, the management of third parties and the transition risks presented to the financial service sector from climate change.

We are also monitoring potential for changes in UK fiscal policy arising from the need to fund government borrowing in response to Covid-19; and the likelihood of a global move towards a higher tax environment. We also continue to prepare in readiness for IFRS 17, which will introduce a new suite of financial reporting metrics. Within our property construction businesses, the Building Safety Bill and the Environment Act 2021 will also introduce new operating requirements.

New entrants 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 disrupt the current competitive landscape. We are also cognisant of competitors who may have lower return on capital requirements or be unconstrained by Solvency II.

We continuously monitor the factors that may impact the markets in which we operate, including evolving domestic and international capital standards, and are maintaining our focus on developing our digital platforms. We have a number of direct investments in strategically important market segments to enhance delivery of our core businesses including workplace benefits, insurtech, mortgages, health and care and equity funding. LGIM continue to invest in technology to achieve the resilience and agility critical to future success.

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. Our businesses are well positioned for changes in the competitive landscape that may arise from the roll out of defined benefit 'superfund' consolidation schemes, pension dashboards and 'collective' pension scheme arrangements. We also continue to be supportive of the opportunity for reform of the Solvency II capital regime post Brexit.

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 cyber threats including the risks of data theft and fraud. There is also strong stakeholder expectation that our core business services are resilient to operational disruption.

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.

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.

Although Covid-19 lockdowns in 2021 had some impact for our business operations, the majority of our business services have operated normally, and we expect to transition in 2022 to a hybrid office:home working environment that will seek to maintain high standards of customer service and internal control.

We remain, alert to evolving operational risks and continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient. We are also cognisant of the risks as we implement a new global operating model and IT platform for LGIM, and have structured the migration in phases to minimise change risks.

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION

The success of our operations is dependent on the ability to attract and retain highly qualified professional people.

The Group aims to recruit, develop and retain high quality individuals. We are inherently exposed to the risk that key personnel or teams of expertise may leave the Group, with an adverse effect on the Group's businesses. As we increasingly focus on the digitalisation of our businesses, we are also competing for data and digital skill sets with other business sectors as well as our peers.

We seek to ensure that key personnel dependencies do not arise, through employee training and development programmes, remuneration strategies and succession planning. Our processes include the active identification and development of talent within our workforce, and by highlighting our values and social purpose, promoting Legal & General as a great place to work. We also engage our people on new ways of working under our hybrid home:office model and are investing in technology and upgrading our buildings to support a range of working styles.

Competition for talent across the full range of capabilities and qualifications is intense and demands that the Group offers competitive compensation arrangements as well as opportunities for development and an attractive work environment. People with skills in areas such as technology and digital are particularly sought after across many business sectors, including those in which we operate. We also recognise the risks posed by the outlook for inflation in salary expectations across the wider employment market. Market-wide approaches to hybrid working are still evolving, and although we believe we are taking the right steps, there remains a risk that our model does not align with the expectations of those we seek to attract or retain.

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 presentation to analysts and investors will take place at 11:00am UK time today at One Coleman Street, London, EC2R 5AA. There will also be a live webcast of the presentation that can be accessed at www.legalandgeneralgroup.com/investors/results-reports-and-presentations .

A replay of the presentation will be made available on this website by 11^th March 2022.

Financial Calendar	Date
Ex-dividend date (2021 final dividend)	21 April 2022
Record date	22 April 2022
Annual General Meeting	26 May 2022
Dividend payment date	01 June 2022
2022 interim results announcement	10 August 2022
Ex-dividend date (2022 interim dividend)	18 August 2022
Record date	19 August 2022
Dividend payment date	26 September 2022

Definitions

Definitions are included in the Glossary on pages 96 to 98 of this release

Forward-looking statements

This announcement may contain 'forward-looking statements' with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Company and the Group that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning. By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements.

There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions; future exchange and interest rates; changes in environmental, social or physical risks; legislative, regulatory and policy developments; risks arising out of health crises and pandemics; changes in tax rates, future business combinations or dispositions; and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future. No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Caution about climate information

This announcement contains climate and ESG disclosures which use a large number of judgments, assumptions and estimates. These judgments, assumptions and estimates are likely to change over time. In addition, the Group's climate risk analysis and net zero strategy remain under development and the data underlying the analysis and strategy remain subject to evolution. As a result, certain climate and ESG disclosures made in this announcement are likely to be amended, updated, recalculated or restated in future announcements. This statement should be read together with the Cautionary statement contained in the Group's 2021 Climate Report.

The information, statements and opinions contained in this announcement do not constitute an offer to sell or buy or the solicitation of an offer to sell or buy any securities or financial instruments nor do they constitute any advice or recommendation with respect to such securities or other financial instruments or any other matter.

Going concern statement

The group's business activities, together with the factors likely to affect its future development, performance and position in the current economic environment are set out in this Annual Report & Accounts. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in these consolidated financial statements. Principal risks and uncertainties are detailed on pages 29 to 32.

The directors have made an assessment of the group's going concern, considering both the current performance and the 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 this Annual Report & Accounts.

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 in section 5.01 of the Capital section of the Full year report 2021. These stresses, including additional considerations relating 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 the current economic environment, as detailed on pages 29 to 32, 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 UK-adopted IFRSs, 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

Sir Nigel Wilson Stuart Jeffrey Davies

Group Chief Executive Group Chief Financial Officer

8 March 2022 8 March 2022

Enquiries

Investors

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	investor.relations@group.landg.com
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+1 312 964 3034
Sujee Rajah, Investor Relations Director

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

+44 203 124 2054
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legalandgeneralgroup.com

Media


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John Godfrey, Group Corporate Affairs Director

legalandgeneralgroup.com +44 207 353 4200 Graeme Wilson, Tulchan Communications +44 7812 935 831 Guy Bates, Tulchan Communications

[1] The Group uses a number of Alternative Performance Measures (including operating profit, net release from operations, return on equity and LGIM AUM) to enhance understanding of the Group's performance. These are defined in the glossary, on pages 94 to 98 of this report.

[2] Profit after tax attributable to equity holders.

[3] EPS excludes 2019/2020 mortality reserve releases and the financial impact of the Mature Savings disposal in 2020.

[4] 2020 operating profit of £2,041m excludes one-off mortality release of £177m.

[5] Solvency II coverage ratio on a "proforma view". In previous years, the capital position was shown on a "shareholder view", where the contribution from the final salary pension schemes was excluded from the group position. The impact of excluding the contribution is now less than 1% and so, going forward we will just report on a proforma basis.

[6] Coverage ratio before the payment of the 2021 final dividend.

[7] Cash generation defined as net release from operations and Capital generation defined as Solvency II operational surplus generation. Growth shown on continuing operations.

[8] From 1 January 2021, the Workplace Savings administration business has transferred to LGRR, where it complements LGRR's retirement solutions offering and retail customer focus; LGIM continues to manage the assets and earn the asset management profit from this business. 2020 financials have been restated accordingly.

[9] Excludes Mature Savings.

[10] The sale of the Mature Savings business completed on 7 September 2020.

[11] COVID-19 costs reflect incremental operational expenses incurred in 2020 as a result of COVID-19 and include the provision of IT spend on remote working solutions.

[12] One-off mortality reserve release for 2020 relates to an update in the longevity trend assumption from adjusted CMI 2017 to adjusted CMI 2018

[13] Operating profit is an Alternative Performance Measure and represents Group adjusted operating profit as defined on page 94.

[14] LGI investment variance is the formulaic impact of rising (positive) and falling (negative) interest rates on the discount rate (both UK and US) used to calculate LGI reserves.

[15] 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 94.

[16] £7.2bn of global PRT includes a £925m Assured Payment Policy (An insurance policy that provides the pension scheme with protection against investment-related risk) for Legal & General's Group UK Pension.

[17] 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 94.

[18] Solvency II coverage ratio on a "proforma view". Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 31 December 2021.

[19] For example, UK 10 year Gilts at 0.97% at the end of the period, having increased 77bps between 31 December 2020 and 30 December 2021.

[20] Calculated using annualised profit for the year and average equity attributable to the owners of the parent of £9,994m.

[21] IPE, Top 500 Asset Managers 2021.

[22] Three year average (2019-2021) measured by UK PRT new business volumes. Three year average measured by UK PRT deal count from LGIM clients is 68%.

[23] Broadridge, UK Defined Contribution and Retirement Income report 2020. 2020 UK DC Assets: £524bn.

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

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

[26] This reduction is well ahead of the original -2% target over the same period, although it has been driven in part by COVID-19 and market volatility impacts. In particular, the impact of COVID-19 on 2020 emissions is partially seen in the 2021 numbers, due to the carbon data lag within the calculation, and we may see a partial reversal of this movement in future years. For more information, see our forthcoming 2021 Climate report which will be available on our website from 16^th March 2022.

[27] AUM in responsible investment strategies represents only the AUM from funds or client mandates that feature a deliberate and positive expression of ESG criteria in the fund documentation for pooled fund structures or in a client's Investment Management Agreement.

[28] Represents voting instructions for main FTSE pooled index funds.

[29] Sustainability and Inclusive Capitalism 2020-21

[30] For more information on our six strategic growth drivers, see pp10-11 of the forthcoming 2021 annual report and accounts

[31] $130tn investment needed to 2050 in order to achieve zero emissions, scaled pro-rata to 2025. BloombergNEF: New energy outlook 2021 https://about.bnef.com/new-energy-outlook/

[32] The ambitions are 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.

[33] Cash generation is 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.

[34] WTW: Pension risk settlement: a review of 2021 & LCP: Rise of new market leaders and 'mega' transactions could be on the cards for the de-risking market in 2022 .

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

[36] Pension Purple Book 2021, PPF; Hymans Robertson, 2022 Risk Transfer Report.

[37] WTW: Pension risk settlement: a review of 2021

[38] Pension buy-ins/outs: Predictions for 2021 and beyond; LCP.

[39] ICI Q3 retirement market data.

[40] Pridham Report, 2021.

[41] WTW FTSE 350 Defined Contribution Survey Pension Survey 2021.

[42] ABI Q3 2021 Report.

[43] Legal & General 2020 Capital Markets Event, slide 79.

[44] Gross revenues includes revenue generated in the group's joint venture with Virgin Money .

[45] LIMRA, March 2021.

[46] LGR's total annuity asset portfolio represents our UK and US annuities businesses. See note 4.05 and note 6.01 for more detail.

[47] Includes LGR direct investment bonds (£ 23,029m), direct investment property (£5,286m), direct investments equity (£12m), and other assets (£96m). Please see note 6.02b for more information.

[48] 65% growth rate excludes new investment and distributions.

[49] Persistency is a measure of LGIM client asset retention, calculated as a function of net flows and closing AUM.

[50] Ranked eighth by AUM, Japanese industry publication Nenkin joho (Pension News) 27 September 2021.

[51] AUM in responsible investment strategies represents only the AUM from funds or client mandates that feature a deliberate and positive expression of ESG criteria, in the fund documentation for pooled fund structures or in a client's Investment Management Agreement.

[52] Broadridge Financial Solutions, November 2021.

^{^[53]} From 1 January 2021, the Workplace Savings administration business was transferred from LGIM to LGRR, building out LGRR's retail retirement proposition. Profits on the fund management services we provide are included in LGIM's asset management operating profit.

^{^[54]} ABI Q3 2021 Report.

^{^[55]} ABI Q3 2021 Report.

^{^[56]} Coverage ratio before the payment of the 2021 final dividend.

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