L&G Full Year Results 2022 Part 2

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UK 100

RNS Number : 2123S

Legal & General Group Plc

08 March 2023

Legal & General Group Plc

Full Year Results 2022

Part 2

IFRS Disclosures on performance and Release from operations

1.01 Operating profit^#

		2022	2021
For the year ended 31 December 2022	Notes	£m	£m
Legal & General Retirement Institutional (LGRI)¹	1.03	1,257	1,154
Legal & General Capital (LGC)	1.04	509	461
Legal & General Investment Management (LGIM)	1.05	340	422
Retail	1.03	825	620
- Insurance²		341	268
- Retail Retirement¹		484	352

Operating profit from divisions		2,931	2,657
Group debt costs³		(214)	(230)
Group investment projects and expenses		(194)	(165)
Operating profit		2,523	2,262
Investment and other variances	1.06	137	233
Losses attributable to non-controlling interests		(1)	(7)
Adjusted profit before tax attributable to equity holders		2,659	2,488
Tax expense attributable to equity holders	3.04	(369)	(445)
Profit for the year	2.01	2,290	2,043
Total tax expense	2.01	440	589
Profit before tax	2.01	2,730	2,632
Profit attributable to equity holders		2,291	2,050
Earnings per share:
Basic (pence per share)⁴	1.07	38.33p	34.19p
Diluted (pence per share)⁴	1.07	36.49p	32.57p

1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior year comparatives have been restated to reflect this change in segmentation. Further details are provided in Note 1.08.

2. Insurance operating profit includes £168m (2021: £(52)m) related to the group's US Insurance business.

3. Group debt costs exclude interest on non-recourse financing.

4. All earnings per share calculations are based on profit attributable to equity holders of the company.

This supplementary operating profit information (one of the group's key performance indicators) provides additional analysis of the results reported under IFRS, and the group believes it provides stakeholders with useful information to enhance their understanding of the performance of the business in the year.

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by

changes in market conditions or expectations and exceptional items. It therefore reflects longer-term economic assumptions for the

group's insurance businesses and shareholder funds, including the traded portfolio in LGC. For the group's direct investments,

operating profit reflects the expected long-term economic return for those assets which are developed with the intention of sale, or the

IFRS profit before tax for the early stage and mature businesses. Variances between actual and long-term expected investment return on

traded and real assets (including direct investments where applicable) are excluded from operating profit, as well as economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the actual allocated asset

mix and the target long-term asset mix on new pension risk transfer business. Operating profit also excludes the yield associated with

assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities. Exceptional

income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs,

are also excluded from operating profit.

The group reports its results across the following business segments:

• LGRI represents worldwide pension risk transfer business including longevity insurance.

• LGC represents shareholder assets invested in direct investments primarily in the areas of specialist commercial real estate, clean energy, housing and SME finance, as well as traded and treasury assets.

• LGIM represents institutional and retail investment management.

• Insurance primarily represents UK protection (both group and retail) and Fintech business, as well as US retail protection business (US Insurance).

• Retail Retirement primarily represents retail annuity and drawdown products, workplace savings and lifetime mortgage loans.

# All references to 'Operating profit' throughout this report represent 'Adjusted operating profit', an alternative performance measure defined in the glossary.

1.02 Reconciliation of release from operations to operating profit^# before tax

	Release from operations¹	New business surplus/ (strain)	Net release from operations		Changes in valuation assump- tions			Operating profit/(loss) after tax		Operating profit/(loss) before tax
				Expe- rience variances		Non-cash items	Other²		Tax expense/ (credit)

For the year ended
31 December 2022	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGRI³	620	298	918	(15)	177	(2)	-	1,078	179	1,257
LGC	404	-	404	-	-	-	-	404	105	509
LGIM	293	-	293	-	-	-	-	293	47	340
Retail	554	(4)	550	(45)	205	(16)	(24)	670	155	825
- Insurance	308	(12)	296	(12)	7	(14)	(24)	253	88	341
- Retail Retirement³	246	8	254	(33)	198	(2)	-	417	67	484

Total from divisions	1,871	294	2,165	(60)	382	(18)	(24)	2,445	486	2,931
Group debt costs	(173)	-	(173)	-	-	-	-	(173)	(41)	(214)
Group investment projects and expenses	(73)	-	(73)	-	-	-	(79)	(152)	(42)	(194)
Total	1,625	294	1,919	(60)	382	(18)	(103)	2,120	403	2,523

1. Release from operations within Insurance includes £85m of dividends from the US Insurance business.

2. Other within Insurance includes experience variances, changes in valuation assumptions (including changes to assumed asset allocation) and non-cash items relating to US Insurance.

3. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Further details are provided in Note 1.08.

Release from operations for LGRI, and the UK protection and retail annuity businesses within Retail represents the expected IFRS surplus generated in the year from the difference between the prudent assumptions underlying the IFRS liabilities and our best estimate of future experience. For workplace savings within Retail Retirement, the release from operations represents the expected annual management charges generated from the in-force business less expected expenses. The Insurance release from operations also includes dividends remitted from US Insurance business and IFRS profit after tax for the Fintech business.

New business surplus/(strain) for LGRI, and the UK protection and retail annuity businesses within Retail represents the initial profit or loss from writing new business. This includes the costs associated with acquiring new business and setting up prudent reserves, net of tax. Similarly for workplace savings, this includes the cost of acquiring new business in the year less the annual management charges generated by the assets under administration (AUA), net of tax. The new business surplus and release from operations for LGRI and Retail excludes any capital held in excess of the prudent reserves from the liability calculation.

LGRI and Retail Retirement's annuity new business metrics are presented based on a single target long-term asset portfolio. At certain year ends,

depending upon the quantum and timing of pension risk transfer (PRT) volumes, the group may have sourced more or less of the high quality assets targeted to support that business. At year end, the profit impact of the difference between actual assets held (including alternative surplus

assets where suitable) and the long-term asset mix is reflected in investment variance.

Net release from operations for LGRI and Retail is defined as release from operations plus new business surplus/(strain).

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

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

# All references to 'Operating profit' throughout this report represent 'Adjusted operating profit', an alternative performance measure defined in the glossary.

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

		New business surplus/ (strain)	Net release from operations		Changes in valuation assump- tions			Operating profit/(loss) after tax		Operating profit/(loss) before tax
	Release from operations¹			Expe- rience variances		Non-cash items	Other²		Tax expense/ (credit)

For the year ended
31 December 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGRI³	512	193	705	40	212	27	-	984	170	1,154
LGC	379	-	379	-	-	-	-	379	82	461
LGIM	342	-	342	-	-	-	-	342	80	422
Retail	463	54	517	28	121	2	(138)	530	90	620
- Insurance	236	27	263	14	82	6	(138)	227	41	268
- Retail Retirement³	227	27	254	14	39	(4)	-	303	49	352

Total from divisions	1,696	247	1,943	68	333	29	(138)	2,235	422	2,657
Group debt costs	(186)	-	(186)	-	-	-	-	(186)	(44)	(230)
Group investment projects and expenses	(69)	-	(69)	-	-	-	(68)	(137)	(28)	(165)
Total	1,441	247	1,688	68	333	29	(206)	1,912	350	2,262

1. Release from operations within Insurance includes £80m of dividends from the US Insurance business.

2. Other within Insurance includes experience variances, changes in valuation assumptions (including changes to assumed asset allocation) and non-cash items relating to US Insurance.

# All references to 'Operating profit' throughout this report represent 'Adjusted operating profit', an alternative performance measure defined in the glossary.

1.03 Analysis of LGRI and Retail operating profit

	LGRI¹	Retail¹	LGRI¹	Retail¹
	2022	2022	2021	2021
For the year ended 31 December 2022	£m	£m	£m	£m
Net release from operations	918	550	705	517
Experience variances
- Persistency	(1)	(7)	1	(5)
- Mortality/morbidity	37	17	24	29
- Expenses	(15)	(15)	6	(1)
- Project and development costs	(16)	(6)	(11)	(19)
- Other	(20)	(34)	20	24
Total experience variances	(15)	(45)	40	28
Changes in valuation assumptions
- Persistency	-	(10)	-	(5)
- Mortality/morbidity^2,3	174	229	153	46
- Expenses	-	(13)	-	(1)
- Other⁴	3	(1)	59	81
Total changes in valuation assumptions	177	205	212	121
Movement in non-cash items	(2)	(16)	27	2
Other⁵	-	(24)	-	(138)
Operating profit after tax	1,078	670	984	530
Tax expense	179	155	170	90
Operating profit before tax	1,257	825	1,154	620

2. The positive impact of changes in Mortality/morbidity valuation assumptions in Retail is driven by routine longevity assumption changes in 2022, for which an update to the base mortality assumption is the largest component of the movement. We have adopted a modified CMI 2020 model, with no weight given to 2020 data due to the uncertainty in the data created by Covid-19.

3. In both 2022 and 2021, changes in valuation assumptions for Mortality/morbidity in LGRI reflect updates to UK longevity trend and spouse demography assumptions.

4. In 2021, the £81m positive Other changes in valuation assumptions in Retail reflected the benefit of modelling improvements in UK retail protection, including the introduction of an illiquidity premium in the liability discount rate.

5. Other includes experience variances, changes in valuation assumptions (including changes to assumed asset allocation) and non-cash items relating to US Insurance, which also includes the benefits from reinsuring the in-force universal life book of protection business.

1.04 LGC operating profit

	2022	2021
	£m	£m
Direct investments¹	400	350
Traded investment portfolio including treasury assets²	109	111
Total LGC operating profit	509	461

1. Direct investments represent LGC's portfolio of assets across specialist commercial real estate, clean energy, housing and SME finance. Direct investments include operating profit in relation to CALA Homes of £172m (2021: £132m).

2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

1.05 LGIM operating profit

	2022	2021
	£m	£m
Asset management revenue (excluding 3rd party market data)¹	944	980
Asset management transactional revenue²	26	32
Asset management expenses (excluding 3rd party market data)¹	(630)	(590)
Total LGIM operating profit	340	422

1. Asset management revenue and expenses exclude income and costs of £30m in relation to the provision of third party market data (2021: £32m).

2. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.

1.06 Investment and other variances

	2022	2021
	£m	£m
Investment variance related to protection liabilities¹	841	111
Investment variance related to the traded investment portfolio and direct investments²	(408)	19
Other investment variance³	(164)	211
Investment variance	269	341
M&A related and other variances⁴	(132)	(108)
Total investment and other variances	137	233

1. The positive investment variance in protection liabilities of £841m reflects the formulaic impact of the increases in UK and US government bond yields which have resulted in higher discount rates being used to calculate the group's protection liabilities.

2. The negative investment variance in the traded investment portfolio and direct investments of £408m largely reflects volatile global equity market performance in the traded investment portfolio, as well as the revaluation of some land assets and development projects as a result of higher interest rates.

3. Other investment variance includes the IAS 19 movements in respect of the group's defined benefit pension schemes.

4. M&A related and other variances include gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring as well as business start-up costs.

Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including direct investments developed with intention of sale), the impact of economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation), the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business, and the yield associated with assets held for future new pension risk transfer business from the valuation discount rate.

The long-term expected investment return is based on opening economic assumptions applied to the assets under management at the start of the reporting year. The assumptions underlying the calculation of the expected returns for traded equity, commercial property and residential property are based on market consensus forecasts and long-term historic average returns expected to apply through the cycle.

The long-term expected investment returns are:


	2022	2021
Equities	7%	7%
Commercial property	5%	5%
Residential property¹	3.5%	RPI + 50bps

1. In previous years the assumption RPI + 50bps was in line with average historical returns. Due to the current spike in inflation and in order to keep the rate aligned to average historical returns, it was updated to 3.5% in 2022.

Additionally, the LGC alternative asset portfolio comprises investments in specialist commercial real estate, clean energy, housing and SME finance. The long-term expected investment return across the portfolio is on average between 10% and 12% (2021: 8% and 10%), in line with our stated investment objectives. Rates of return specific to each asset are determined at the point of underwriting and reviewed and updated annually. The expected investment return includes assumptions on appropriate discount rates and inflation as well as sector specific assumptions including retail and commercial property yields and power prices.

1.07 Earnings per share

(a) Basic earnings per share

	After tax	Per share¹	After tax	Per share¹
	2022	2022	2021	2021
	£m	p	£m	p
Profit for the year attributable to equity holders	2,291	38.72	2,050	34.58
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	(23)	(0.39)	(23)	(0.39)
Total basic earnings	2,268	38.33	2,027	34.19

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

(b) Diluted earnings per share

	After tax	Weighted average number of shares	Per share¹
	2022	2022	2022
	£m	m	p
Profit for the year attributable to equity holders	2,291	5,917	38.72
Net shares under options allocable for no further consideration	-	55	(0.36)
Conversion of restricted Tier 1 notes	-	307	(1.87)
Total diluted earnings	2,291	6,279	36.49

		Weighted
		average
		number of
	After tax	shares	Per share¹
	2021	2021	2021
	£m	m	p
Profit for the year attributable to equity holders	2,050	5,929	34.58
Net shares under options allocable for no further consideration	-	59	(0.34)
Conversion of restricted Tier 1 notes	-	307	(1.67)
Total diluted earnings	2,050	6,295	32.57

1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees and conversion of restricted Tier 1 notes.

1.08 Segmental analysis

In 2021, the group operated five core businesses across four reportable segments that are continuing operations, with Legal & General Retirement Retail (LGRR) and Legal & General Retirement Institutional (LGRI) combined into a single segment for reporting purposes, being Legal & General Retirement.

From 1 January 2022, the group announced changes to the business unit responsibilities within the Executive Committee. Andrew Kail became the Chief Executive Officer of LGRI, succeeding Laura Mason who had previously moved to become CEO of Legal & General Capital (LGC). Our two retail businesses, LGRR and LGI, came together under the leadership of Bernie Hickman. Reportable segments have therefore been aligned to the group's five core businesses. Group expenses and debt costs continue to be reported separately. Transactions between segments are on normal commercial terms, and are included within the reported segments. To enable comparison, segmental information for the prior year has been restated accordingly.

In the UK, annuity liabilities relating to LGRI and Retail Retirement are backed by a single portfolio of assets, and once a transaction has been

completed the assets relating to any particular transaction are not tracked to the related liabilities. Investment variance is allocated to the two

business segments based on the relative average size of the underlying insurance contract liabilities across the year.

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

Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.

(a) Profit/(loss) for the year

						Group
						expenses
				Retail		and debt
	LGRI¹	LGC	LGIM	Retirement¹	Insurance	costs	Total
For the year ended 31 December 2022	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	1,257	509	340	484	341	(408)	2,523
Investment and other variances	(21)	(408)	(81)	(24)	841	(170)	137
Losses attributable to non-controlling interests	-	-	-	-	-	(1)	(1)
Profit/(loss) before tax attributable to equity holders	1,236	101	259	460	1,182	(579)	2,659
Tax (expense)/credit attributable to equity holders	(155)	(30)	(30)	(41)	(247)	134	(369)
Profit/(loss) for the year	1,081	71	229	419	935	(445)	2,290


						Group
						expenses
				Retail		and debt
	LGRI¹	LGC	LGIM	Retirement¹	Insurance	costs	Total
For the year ended 31 December 2021	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	1,154	461	422	352	268	(395)	2,262
Investment and other variances	193	19	(11)	49	111	(128)	233
Losses attributable to non-controlling interests	-	-	-	-	-	(7)	(7)
Profit/(loss) before tax attributable to equity holders	1,347	480	411	401	379	(530)	2,488
Tax (expense)/credit attributable to equity holders	(213)	(93)	(79)	(63)	(59)	62	(445)
Profit/(loss) for the year	1,134	387	332	338	320	(468)	2,043

# Operating profit for total continuing operations represents 'Adjusted operating profit', an alternative performance measure defined in the glossary.

1.08 Segmental analysis (continued)

(b) Total income


			Retail		LGC and
	LGRI¹	LGIM^2,3	Retirement¹	Insurance	other⁴	Total
For the year ended 31 December 2022	£m	£m	£m	£m	£m	£m
Internal income	-	178	-	-	(178)	-
External income	(9,874)	(78,636)	(4,017)	1,371	1,862	(89,294)
Total income	(9,874)	(78,458)	(4,017)	1,371	1,684	(89,294)

			Retail		LGC and
	LGRI¹	LGIM^2,3	Retirement¹	Insurance	other⁴	Total
For the year ended 31 December 2021	£m	£m	£m	£m	£m	£m
Internal income	-	179	-	-	(179)	-
External income	4,842	35,738	1,117	2,029	1,724	45,450
Total income	4,842	35,917	1,117	2,029	1,545	45,450

2. LGIM internal income relates to investment management services provided to other segments.

3. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.

4. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.

IFRS Primary Financial Statements

2.01 Consolidated Income Statement

		2022	2021
For the year ended 31 December 2022	Notes	£m	£m
Income
Gross written premiums		13,691	10,375
Outward reinsurance premiums		(5,167)	(3,446)
Net change in provision for unearned premiums		10	42
Net premiums earned		8,534	6,971
Fees from fund management and investment contracts		899	959
Investment return		(100,365)	35,927
Other operational income		1,638	1,593
Total income	1.08	(89,294)	45,450
Expenses
Claims and change in insurance contract liabilities		(13,573)	7,353
Reinsurance recoveries		(2,864)	(2,968)
Net claims and change in insurance contract liabilities		(16,437)	4,385
Change in investment contract liabilities		(80,043)	34,206
Acquisition costs		834	825
Finance costs		290	294
Other expenses		3,332	3,108
Total expenses		(92,024)	42,818
Profit before tax		2,730	2,632
Tax expense attributable to policyholder returns		(71)	(144)
Profit before tax attributable to equity holders		2,659	2,488
Total tax expense		(440)	(589)
Tax expense attributable to policyholder returns		71	144
Tax expense attributable to equity holders	3.04	(369)	(445)
Profit for the year		2,290	2,043

Attributable to:
Non-controlling interests		(1)	(7)
Equity holders		2,291	2,050

Dividend distributions to equity holders during the year	3.02	1,116	1,063
Dividend distributions to equity holders proposed after the year end	3.02	829	790


		p	p
Total basic earnings per share ¹	1.07	38.33	34.19
Total diluted earnings per share ¹	1.07	36.49	32.57

1. All earnings per share calculations are based on profit attributable to equity holders of the company.

2.02 Consolidated Statement of Comprehensive Income

	2022	2021
For the year ended 31 December 2022	£m	£m
Profit for the year	2,290	2,043
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes	(77)	53
Tax credit/(expense) on actuarial remeasurements on defined benefit pension schemes	19	(7)
Total items that will not be reclassified subsequently to profit or loss	(58)	46
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	77	(11)
Movement in cross-currency hedge	40	20
Tax expense on movement in cross-currency hedge	(10)	(7)
Movement in financial investments designated as available-for-sale	2	(3)
Total items that may be reclassified subsequently to profit or loss	109	(1)
Other comprehensive income after tax	51	45
Total comprehensive income for the year	2,341	2,088
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests	(1)	(7)
Equity holders	2,342	2,095

2.03 Consolidated Balance Sheet

		2022	2021
As at 31 December 2022	Notes	£m	£m
Assets
Goodwill		71	68
Other intangible assets		441	365
Deferred acquisition costs		30	26
Investment in associates and joint ventures accounted for using the equity method		554	375
Property, plant and equipment		326	316
Investment property	3.03	9,372	10,150
Financial investments	3.03	445,475	538,374
Reinsurers' share of contract liabilities		6,955	7,180
Deferred tax assets	3.04	180	2
Current tax assets		802	670
Receivables and other assets		13,286	8,625
Cash and cash equivalents		35,784	16,487
Total assets		513,276	582,638
Equity
Share capital	3.05	149	149
Share premium	3.05	1,018	1,012
Employee scheme treasury shares		(144)	(99)
Capital redemption and other reserves		318	196
Retained earnings		10,332	9,228
Attributable to owners of the parent		11,673	10,486
Restricted Tier 1 convertible notes	3.06	495	495
Non-controlling interests	3.07	(29)	(38)
Total equity		12,139	10,943
Liabilities
Insurance contract liabilities		70,337	89,825
Investment contract liabilities		286,830	372,954
Core borrowings	3.08	4,338	4,256
Operational borrowings	3.09	1,219	932
Provisions	3.13	890	1,238
Deferred tax liabilities	3.04	428	251
Current tax liabilities		69	84
Payables and other financial liabilities	3.10	95,052	74,264
Other liabilities		723	925
Net asset value attributable to unit holders		41,251	26,966
Total liabilities		501,137	571,695
Total equity and liabilities		513,276	582,638

2.04 Consolidated Statement of Changes in Equity

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the year ended 31 December 2022	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the year ended 31 December 2022	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2022	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943
Profit for the year	-	-	-	-	2,291	2,291	-	(1)	2,290
Exchange differences on translation of overseas operations	-	-	-	77	-	77	-	-	77
Net movement in cross-currency hedge	-	-	-	30	-	30	-	-	30
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	(58)	(58)	-	-	(58)
Net movement in financial investments designated as available-for-sale	-	-	-	2	-	2	-	-	2
Total comprehensive income for the year	-	-	-	109	2,233	2,342	-	(1)	2,341
Options exercised under share option schemes	-	6	-	-	-	6	-	-	6
Shares purchased	-	-	(59)	-	-	(59)	-	-	(59)
Shares vested	-	-	14	(41)	-	(27)	-	-	(27)
Employee scheme treasury shares: - Value of employee services	-	-	-	54	-	54	-	-	54
Share scheme transfers to retained earnings	-	-	-	-	10	10	-	-	10
Dividends	-	-	-	-	(1,116)	(1,116)	-	-	(1,116)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(23)	(23)	-	-	(23)
Movement in third party interests	-	-	-	-	-	-	-	10	10
As at 31 December 2022	149	1,018	(144)	318	10,332	11,673	495	(29)	12,139

1. Capital redemption and other reserves as at 31 December 2022 include share-based payments £99m, foreign exchange £123m, capital redemption £17m, hedging £78m and available-for-sale reserves £1m.

2.04 Consolidated Statement of Changes in Equity (continued)

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the year ended 31 December 2021	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the year ended 31 December 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2021	149	1,006	(75)	198	8,224	9,502	495	(31)	9,966
Profit for the year	-	-	-	-	2,050	2,050	-	(7)	2,043
Exchange differences on translation of overseas operations	-	-	-	(11)	-	(11)	-	-	(11)
Net movement in cross-currency hedge	-	-	-	13	-	13	-	-	13
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	46	46	-	-	46
Net movement in financial investments designated as available-for-sale	-	-	-	(3)	-	(3)	-	-	(3)
Total comprehensive income for the year	-	-	-	(1)	2,096	2,095	-	(7)	2,088
Options exercised under share option schemes	-	6	-	-	-	6	-	-	6
Shares purchased	-	-	(34)	-	-	(34)	-	-	(34)
Shares vested	-	-	10	(48)	-	(38)	-	-	(38)
Employee scheme treasury shares: - Value of employee services	-	-	-	33	-	33	-	-	33
Share scheme transfers to retained earnings	-	-	-	-	8	8	-	-	8
Dividends	-	-	-	-	(1,063)	(1,063)	-	-	(1,063)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(23)	(23)	-	-	(23)
Currency translation differences	-	-	-	14	(14)	-	-	-	-
As at 31 December 2021	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943

1. Capital redemption and other reserves as at 31 December 2021 include share-based payments £86m, foreign exchange £46m, capital redemption £17m, hedging £48m and available-for-sale reserves £(1)m.

2.05 Consolidated Statement of Cash Flows

		2022	2021
For the year ended 31 December 2022	Notes	£m	£m
Cash flows from operating activities
Profit for the year		2,290	2,043
Adjustments for non cash movements in net profit for the year
Net losses/(gains) on financial investments and investment property		109,405	(26,062)
Investment income		(9,040)	(9,865)
Interest expense		290	294
Tax expense		440	589
Other adjustments		113	137
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or loss		20,887	4,616
Investments designated as available-for-sale		43	(21)
Other assets		(4,672)	139
Net (decrease)/increase in operational liabilities
Insurance contracts		(20,282)	726
Investment contracts		(86,132)	29,409
Other liabilities		(638)	(11,161)
Cash generated from/(utilised in) operations		12,704	(9,156)
Interest paid		(290)	(301)
Interest received¹		3,525	5,060
Rent received		404	373
Tax paid²		(570)	(564)
Dividends received		4,691	4,419
Net cash flows from operations		20,464	(169)
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets		(187)	(205)
Acquisition of operations, net of cash acquired		(2)	-
Disposal of subsidiaries and other operations, net of cash transferred		-	217
Investment in joint ventures and associates		(101)	(56)
Disposal of joint ventures and associates		64	177
Net cash flows (utilised in)/generated from investing activities		(226)	133
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year	3.02	(1,116)	(1,063)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax	3.06	(28)	(28)
Options exercised under share option schemes	3.05	6	6
Treasury shares purchased for employee share schemes		(59)	(34)
Payment of lease liabilities		(44)	(37)
Proceeds from borrowings		945	449
Repayment of borrowings		(737)	(798)
Net cash flows utilised in financing activities		(1,033)	(1,505)
Net increase/(decrease) in cash and cash equivalents		19,205	(1,541)
Exchange gains on cash and cash equivalents		92	8
Cash and cash equivalents at 1 January		16,487	18,020
Total cash and cash equivalents at 31 December		35,784	16,487

1. Interest received comprises of net interest received from financial instruments at fair value through profit or loss and other financial instruments.

2. Tax paid comprises UK corporation tax of £358m (2021: £368m), withholding tax of £204m (2021: £188m) and overseas corporate tax of £8m (2021: £8m).

IFRS Disclosure Notes

3.01 Basis of preparation

The preliminary announcement for the year ended 31 December 2022 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information in this preliminary announcement has been derived from the group financial statements within the group's 2022 Annual Report and Accounts, which will be made available on the group's website on 15 March 2023. The group's 2021 Annual Report and Accounts have been filed with the Registrar of Companies, and those for 2022 will be delivered in due course. KPMG have reported on the 2022 and 2021 Annual Report and Accounts. Both their reports were: (i) unqualified; (ii) did not include a reference to any matters to which they drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The group financial statements have been prepared in accordance with UK-adopted international accounting standards, comprising International Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and related interpretations issued by the IFRS Interpretations Committee. Endorsement is granted by the UK Endorsement Board. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment property, available-for-sale financial assets, and certain financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

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

Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

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

Critical accounting policies and the use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the valuation of insurance and investment contract liabilities, unquoted illiquid assets, investment property, and the determination of defined benefit pension plan assumptions. From a policy application perspective, the major areas of judgement are the assessment of whether a contract transfers significant insurance risk to the group, and whether the group controls underlying entities and should therefore consolidate them. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2022 Annual Report and Accounts.

Key technical terms and definitions

The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary.

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and equity holders. This has been split between tax attributable to policyholders' returns and equity holders' profits. Policyholder tax comprises the tax suffered on policyholder investment returns, while equity holder tax is corporation tax charged on equity holder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

3.02 Dividends and appropriations

	Dividend	Per share¹	Dividend	Per share¹
	2022	2022	2021	2021
	£m	p	£m	p
Ordinary dividends paid and charged to equity in the year:
- Final 2020 dividend paid in June 2021	-	-	754	12.64
- Interim 2021 dividend paid in September 2021	-	-	309	5.18
- Final 2021 dividend paid in June 2022	792	13.27	-	-
- Interim 2022 dividend paid in September 2022	324	5.44	-	-
Total dividends	1,116	18.71	1,063	17.82
Ordinary share dividend proposed	829	13.93	790	13.27

1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.

Subsequent to 31 December 2022, the directors declared a final dividend for 2022 of 13.93 pence per ordinary share. This dividend will be paid on 5 June 2023. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2023 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2022.

3.03 Financial investments and investment property

	2022	2021
	£m	£m
Equities¹	167,335	213,049
Debt securities^2,3	218,402	296,930
Derivative assets⁴	45,427	16,792
Loans⁵	14,311	11,603
Financial investments	445,475	538,374
Investment property	9,372	10,150
Total financial investments and investment property	454,847	548,524

1. Equity securities include investments in unit trusts of £16,524m (31 December 2021: £18,248m).

2. Debt securities include accrued interest of £1,635m (31 December 2021: £1,420m).

3. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 6.03.

4. Derivatives are used for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, currency swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities of £51,190m (31 December 2021: £15,718m).

5. Loans include £28m (31 December 2021: £92m) of loans valued at amortised cost.

3.04 Tax

(a) Tax expense in the Consolidated Income Statement

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

	2022	2021
	£m	£m
Profit before tax attributable to equity holders	2,659	2,488
Tax calculated at 19.00%	505	473

Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higher rate of tax on profits taxed overseas¹	(84)	(104)
Income not subject to tax	(3)	-
Non-deductible expenses	(1)	6
Differences between taxable and accounting investment gains	(9)	(13)
Other taxes on property and foreign income	6	-
Unrecognised tax losses	17	1
Double tax relief²	(20)	-

Non-recurring reconciling items:
Adjustments in respect of prior years³	(21)	24
Impact of the revaluation of deferred tax balances⁴	(21)	58
Tax expense/(credit) attributable to equity holders	369	445
Equity holders' effective tax rate	13.9%	17.9%

1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides the group with regulatory capital flexibility for both our PRT business and our US term insurance business. This also includes the impact of our US operations which are taxed at 21%.

2. Double tax relief represents a UK tax credit available for overseas withholding tax suffered on dividend income.

3. Adjustments in respect of prior years relate to revisions of prior estimates.

4. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year remained at 19%. The future enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities, as the rate of corporation tax that is expected to apply when the majority of those deferred tax balances reverse.

3.04 Tax (continued)

(b) Deferred tax

	2022	2021
Deferred tax (liabilities)/assets	£m	£m
Deferred acquisition expenses¹	116	95
Difference between the tax and accounting value of insurance contracts	(986)	(695)
- UK	(132)	(269)
- Overseas	(854)	(426)
Realised and unrealised gains on investments	144	(83)
Excess of depreciation over capital allowances	21	22
Accounting provisions and other	22	55
Trading losses²	463	348
Pension fund deficit	(26)	9
Acquired intangibles	(2)	-
Net deferred tax (liabilities)/assets	(248)	(249)

Presented on the Consolidated Balance Sheet as:
- Deferred tax assets³	180	2
- Deferred tax liabilities	(428)	(251)
Net deferred tax (liabilities)/assets	(248)	(249)

1. Deferred tax assets arising on deferred acquisition expenses relates solely to US balances as at 31 December 2022 and 2021.

2. Trading losses consist solely of US operating losses (2021: £346m). The losses are not time restricted, and we expect to recover them over a period of 15 to 20 years, commensurate with the lifecycle of the underlying insurance contracts. In reaching this conclusion, we have considered past results, the different basis under which US companies are taxed, temporary differences that are expected to generate future profits against which the deferred tax can be offset, management actions, and future profit forecasts. The recoverability of deferred tax assets is routinely reviewed by management.

3. The deferred tax asset represents £168m of US unrealised losses on investments (2021: £nil), £7m of UK unrealised losses on investments (2021: £nil) and £5m of other deferred tax assets (2021: £nil). These are not capable of being offset against any deferred tax liabilities or future trading profits.

3.05 Share capital and share premium

		2022			2021
		Number of	2022		Number of	2021
Authorised share capital		shares	£m		shares	£m
At 31 December: ordinary shares of 2.5p each	9,200,000,000		230	9,200,000,000		230

			Share	Share
		Number of	capital	premium
Issued share capital, fully paid		shares	£m	£m
As at 1 January 2022	5,970,415,817		149	1,012
Options exercised under share option schemes		2,837,683	-	6
As at 31 December 2022	5,973,253,500		149	1,018

		Share	Share
	Number of	capital	premium
Issued share capital, fully paid	shares	£m	£m
As at 1 January 2021	5,967,358,713	149	1,006
Options exercised under share option schemes	3,057,104	-	6
As at 31 December 2021	5,970,415,817	149	1,012

There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.

The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.

3.06 Restricted Tier 1 convertible notes

On 24 June 2020, Legal & General Group Plc issued £500m of 5.625% perpetual restricted Tier 1 contingent convertible notes. The notes are callable at par between 24 March 2031 and 24 September 2031 (the First Reset Date) inclusive and every 5 years after the First Reset Date. If not called, the coupon from 24 September 2031 will be reset to the prevailing five year benchmark gilt yield plus 5.378%.

The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is upon the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity when paid. During the year coupon payments of £28m were made (2021: £28m). The notes rank junior to all other liabilities and senior to equity attributable to owners of the parent. On the occurrence of certain conversion trigger events the notes are convertible into ordinary shares of the issuer at the prevailing conversion price.

The notes are treated as restricted Tier 1 own funds for Solvency II purposes.

3.07 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments, including private equity, which are consolidated in the group's results.

As at 31 December 2022, non-controlling interests primarily represent third party ownership in Thorpe Park Holdings, a mixed residential/commercial retail space in which the group holds 50%.

3.08 Core borrowings

	Carrying	Coupon		Carrying	Coupon
	amount	rate	Fair value	amount	rate	Fair value
	2022	2022	2022	2021	2021	2021
	£m	%	£m	£m	%	£m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)	590	5.50	541	590	5.50	776
5.375% Sterling subordinated notes 2045 (Tier 2)	605	5.38	593	604	5.38	673
5.25% US Dollar subordinated notes 2047 (Tier 2)	712	5.25	665	635	5.25	694
5.55% US Dollar subordinated notes 2052 (Tier 2)	417	5.55	389	373	5.55	428
5.125% Sterling subordinated notes 2048 (Tier 2)	400	5.13	377	400	5.13	461
3.75% Sterling subordinated notes 2049 (Tier 2)	599	3.75	507	598	3.75	632
4.5% Sterling subordinated notes 2050 (Tier 2)	500	4.50	439	500	4.50	558
Client fund holdings of group debt (Tier 2)¹	(74)	-	(67)	(44)	-	(51)
Total subordinated borrowings	3,749	-	3,444	3,656	-	4,171

Senior borrowings
Sterling medium term notes 2031-2041	609	5.87	649	609	5.87	846
Client fund holdings of group debt¹	(20)	-	(19)	(9)	-	(11)
Total senior borrowings	589	-	630	600	-	835
Total core borrowings	4,338	-	4,074	4,256	-	5,006

1. £94m (2021: £53m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as Level 1 in the fair value hierarchy.

3.08 Core borrowings (continued)

Subordinated borrowings

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June 2064.

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These notes mature on 27 October 2045.

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes mature on 21 March 2047.

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes mature on 24 April 2052.

5.125% Sterling subordinated notes 2048

On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65% p.a. These notes mature on 14 November 2048.

3.75% Sterling subordinated notes 2049

On 26 November 2019, Legal & General Group Plc issued £600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November 2029 and every five years thereafter. If not called, the coupon from 26 November 2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05% p.a. These notes mature on 26 November 2049.

4.5% Sterling subordinated notes 2050

On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated subordinated notes. The notes are callable at par on 1 November 2030 and every five years thereafter. If not called, the coupon from 1 November 2030 will be reset to the prevailing five year benchmark gilt yield plus 5.25% p.a. These notes mature on 1 November 2050.

All of the above subordinated notes are treated as Tier 2 own funds for Solvency II purposes unless stated otherwise.

Senior borrowings

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

3.09 Operational borrowings

	Carrying	Interest		Carrying	Interest
	amount	rate	Fair value	amount	rate	Fair value
	2022	2022	2022	2021	2021	2021
	£m	%	£m	£m	%	£m
Short-term operational borrowings
Euro Commercial Paper	50	1.60	50	50	0.16	50
Bank loans and overdrafts	3	-	3	-	-	-
Non-recourse borrowings
Cardiff Interchange Limited credit facility	64	5.63	64	45	2.29	45
CALA revolving credit facility	24	5.50	24	100	1.96	100
Class B Surplus Notes	788	6.62	788	664	1.72	664
Affordable Homes revolving credit facility	19	4.38	19	56	2.08	56
Homes Modular revolving credit facility	15	6.62	15	9	3.27	9
Operational borrowings ¹	963	-	963	924	-	924

1. Unit linked borrowings with a carrying value of £256m (31 December 2021: £8m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,219m (31 December 2021: £932m).

Syndicated credit facility

As at 31 December 2022, the group had in place a £1.5bn (31 December 2021: £1.0bn) syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in August 2027. No amounts were outstanding at 31 December 2022.

3.10 Payables and other financial liabilities

	2022	2021
	£m	£m
Derivative liabilities	51,190	15,718
Repurchase agreements¹	31,533	46,331
Other financial liabilities²	12,329	12,215
Total payables and other financial liabilities	95,052	74,264
Due within 12 months	41,064	53,250
Due after 12 months	53,988	21,014

1. Repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The significant majority of repurchase agreements are unit linked.

2. Other financial liabilities includes trail commission, lease liabilities, FX spots and the value of short positions taken out to cover reverse repurchase agreements. The value of short positions as at 31 December 2022 was £4,960m (2021: £5,418m).

Fair value hierarchy

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 31 December 2022	£m	£m	£m	£m	£m
Derivative liabilities	51,190	448	50,717	25	-
Repurchase agreements	31,533	-	31,533	-	-
Other financial liabilities	12,329	4,533	644	39	7,113
Total payables and other financial liabilities	95,052	4,981	82,894	64	7,113

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 31 December 2021	£m	£m	£m	£m	£m
Derivative liabilities	15,718	331	15,316	71	-
Repurchase agreements	46,331	-	46,331	-	-
Other financial liabilities	12,215	5,438	55	-	6,722
Total payables and other financial liabilities	74,264	5,769	61,702	71	6,722

1. The carrying value of payables and other financial liabilities at amortised cost approximates its fair value.

Significant transfers between levels

There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2022 (2021: no significant transfers).

3.11 Sensitivity analysis

	Impact on		Impact on
	pre-tax	Impact on	pre-tax	Impact on
	group profit	group equity	group profit	group equity
	net of	net of	net of	net of
	reinsurance	reinsurance	reinsurance	reinsurance
	2022	2022	2021	2021
	£m	£m	£m	£m
Economic sensitivity
100bps increase in interest rates	(98)	(66)	55	188
100bps decrease in interest rates	44	16	(195)	(317)
50bps increase in future inflation expectations	(45)	(33)	(41)	(60)
50bps decrease in future inflation expectations	82	65	39	58
Credit spreads widen by 100bps with no change in expected defaults	(345)	(352)	(311)	(234)
25% rise in equity markets	381	316	513	423
25% fall in equity markets	(381)	(316)	(513)	(423)
15% rise in property values	1,177	974	1,299	1,084
15% fall in property values	(1,233)	(1,022)	(1,368)	(1,144)
10bps increase in credit default assumptions	(545)	(465)	(765)	(651)
10bps decrease in credit default assumptions	546	465	754	642
Non-economic sensitivity
1% increase in annuitant mortality	141	122	166	146
1% decrease in annuitant mortality	(139)	(121)	(170)	(150)
5% increase in assurance mortality	(398)	(315)	(451)	(357)
10% increase in maintenance expenses	(224)	(185)	(254)	(208)

The table above shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario. The group pre-tax profit and equity impacts may arise from asset and / or liability movements under the sensitivities. The current disclosure reflects management's view of key risks in current economic conditions.

In calculating the alternative values, all other assumptions are left unchanged. In practice, items of the group's experience may be correlated.

The sensitivity analyses do not take into account management actions that could be taken to reduce the impacts. The group seeks to actively manage its asset and liability position. A change in market conditions may lead to changes in the asset allocation or charging structure which may have a more, or less, significant impact on the value of the liabilities. The analysis also ignores any second order effects of the assumption change, including the potential impact on the group asset and liability position and any second order tax effects.

The sensitivity of profit to changes in assumptions may not be linear. They should not be extrapolated to changes of a much larger order.

The change in interest rate stresses assume a 100 basis point increase/decrease in the gross redemption yield on fixed interest securities together with the same change in the real yields on variable securities. Valuation interest rates are assumed to move in line with market yields, adjusted to allow for prudence calculated in a manner consistent with the base results.

The inflation stresses adopted are a 0.5% per annum (p.a.) increase / decrease in inflation, resulting in a 0.5% p.a. reduction / rise in real yield and no change to the nominal yield. In addition, the expense inflation rate is increased / decreased by 0.5% p.a.

In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields unchanged, and there has been no adjustment to the default assumptions. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured under the property stress above.

The equity stresses are a 25% rise and 25% fall in listed equity market values.

The property stresses adopted are a 15% rise and 15% fall in property market values including lifetime mortgages. Rental income is assumed to be unchanged. Where property is being used to back liabilities, valuation interest rates move with property yields, and so the value of the liabilities will also move.

The credit default assumption is set based on the credit rating of individual bonds and their outstanding term using Moody's global credit default rates. The credit default stress assumes a +/-10bps stress to the current unapproved credit default assumption, which will have an impact on the valuation interest rates used to discount liabilities. Other credit default allowances are unchanged. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured under the property stress above.

3.11 Sensitivity analysis (continued)

The annuitant mortality stresses are a 1% increase and 1% decrease in the mortality rates for immediate and deferred annuitants with no change to the mortality improvement rates.

The assurance mortality stress is a 5% increase in the mortality and morbidity rates with no change to the mortality and morbidity improvement rates.

The maintenance expense stress is a 10% increase in all types of maintenance expense in future years.

3.12 Foreign exchange rates

Principal rates of exchange used for translation are:

Year end exchange rates	2022	2021
United States dollar	1.21	1.35
Euro	1.13	1.19

Average exchange rates	2022	2021
United States dollar	1.24	1.38
Euro	1.17	1.16

3.13 Provisions

(a) Analysis of provisions

		2022	2021
	Notes	£m	£m
Other provisions	3.13(b)	273	213
Retirement benefit obligations	3.13(c)	617	1,025
Total provisions		890	1,238

(b) Other provisions

Included within Other provisions are amounts relating to new and existing M&A and restructuring transactions. These include costs that Legal & General Investment Management (LGIM) is committed to incur on the extension of its existing partnership with State Street announced in 2021, to increase the use of Charles River technology across the front office and to deliver middle office services going forward. Costs include the transfer of data and operations to State Street, as well as the implementation of the new operating model. The amounts included in the provision have been determined on a best estimate basis by reference to a range of plausible scenarios, taking into account the multi-year implementation period for the project. As at 31 December 2022, the outstanding provision was £111m (31 December 2021: £89m).

	Fund and	CALA Homes	Fund and	CALA Homes
	Scheme	and Overseas	Scheme	and Overseas
	2022	2022	2021	2021
	£m	£m	£m	£m
Gross pension obligations included in provisions	612	5	1,020	5
Annuity obligations insured by LGAS	(718)	-	(990)	-
Gross defined benefit pension (surplus)/deficit	(106)	5	30	5
Deferred tax on defined benefit pension (surplus)/deficit	27	(1)	(8)	(1)
Net defined benefit pension (surplus)/deficit	(79)	4	22	4

The Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) account for the majority of the UK and worldwide assets of, and contributions to, such arrangements. The Fund and Scheme were closed to future accrual on 31 December 2015.

3.14 Contingent liabilities, guarantees and indemnities

Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court judgments.

Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.

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

3.15 Related party transactions

(a) Key management personnel transactions and compensation

All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. There were no material transactions between key management and the Legal & General group of companies during the year. Contributions to the post-employment defined benefit plans were £105m (2021: £109m) for all employees.

At 31 December 2022 and 31 December 2021 there were no loans outstanding to officers of the company.

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

(b) Services provided to and by related parties

All transactions between the group and associates, joint ventures and other related parties during the year are on commercial terms which are no more favourable than those available to companies in general.

The group has the following material related party transactions during the year:

- Annuity contracts issued by Legal and General Assurance Society Limited (LGAS), a group company, for consideration of £61m (2021: £82m) have been purchased by the group's UK defined benefit pension schemes, priced on an arm's length basis;

- Assured Payment Policies (APPs) have been transacted between the group's defined benefit pension schemes and LGAS including £83m of top-ups in 2022 under the existing contracts. An APP is an investment contract product sold by LGRI which, issued to a pension scheme, provides the scheme with a fixed or inflation-linked schedule of payments to match the scheme's expected liabilities. As at 31 December 2022, LGAS recognised a liability related to the APP transactions of £820m (2021: £1,214m) which is included in the group's investment contract liabilities. The UK defined benefit pension schemes hold transferable plan assets of the same amounts, which do not eliminate on consolidation.

Loans and commitments to related parties are made in the normal course of business. As at 31 December 2022, the group had:

- Loans outstanding from related parties of £58m (2021: £15m), with a further commitment of £6m; and

- Total other commitments of £1,265m to related parties (2021: £1,158m), of which £1,010m has been drawn at 31 December 2022 (2021: £726m).

Asset and premium flows

4.01 LGIM total assets under management¹ (AUM)


		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2022	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2022	502.4	198.8	78.0	605.1	37.2	1,421.5
External inflows³	95.8	16.0	13.5	90.0	2.5	217.8
External outflows³	(102.6)	(23.5)	(9.3)	(27.2)	(2.1)	(164.7)
Overlay net flows	-	-	-	(3.5)	-	(3.5)
External net flows ⁴	(6.8)	(7.5)	4.2	59.3	0.4	49.6
PRT transfers⁵	(0.2)	(0.4)	-	(2.5)	-	(3.1)
Internal net flows⁶	(1.1)	(0.4)	(0.2)	(1.2)	3.0	0.1
Total net flows	(8.1)	(8.3)	4.0	55.6	3.4	46.6
Market movements	(50.2)	(33.1)	(8.1)	(173.9)	(6.2)	(271.5)
Other movements⁷	0.6	(0.6)	-	(0.9)	-	(0.9)
As at 31 December 2022	444.7	156.8	73.9	485.9	34.4	1,195.7
Assets attributable to:
External						1,103.4
Internal						92.3

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2021	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2021	429.9	193.6	65.7	557.2	32.5	1,278.9
External inflows³	99.4	18.7	15.1	34.4	1.7	169.3
External outflows³	(94.5)	(15.8)	(8.1)	(25.5)	(1.8)	(145.7)
Overlay net flows	-	-	-	11.0	-	11.0
External net flows⁴	4.9	2.9	7.0	19.9	(0.1)	34.6
PRT transfers⁵	(0.6)	(0.7)	-	(2.9)	-	(4.2)
Internal net flows⁶	(1.0)	(1.8)	0.2	(1.5)	2.0	(2.1)
Total net flows	3.3	0.4	7.2	15.5	1.9	28.3
Market movements	68.7	1.8	5.1	8.6	2.8	87.0
Other movements⁷	0.5	3.0	-	23.8	-	27.3
As at 31 December 2021	502.4	198.8	78.0	605.1	37.2	1,421.5
Assets attributable to:
External						1,306.3
Internal						115.2

1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.

2. Solutions include liability driven investments and £336.6bn (31 December 2021: £383.2bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £3.9bn (31 December 2021: £5.5bn) of external investments and £3.3bn (31 December 2021: £3.0bn) of redemptions in the ETF business.

4. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2022 was £69.1bn (31 December 2021: £71.2bn).

5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.

6. Internal net flows includes legacy assets from the Mature Savings business sold to ReAssure in 2020.

7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

4.02 LGIM total assets under management¹ half-yearly progression


		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2022	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2022	502.4	198.8	78.0	605.1	37.2	1,421.5
External inflows³	63.2	7.0	6.8	21.3	1.4	99.7
External outflows³	(38.2)	(4.2)	(3.7)	(12.5)	(1.1)	(59.7)
Overlay net flows	-	-	-	25.6	-	25.6
External net flows ⁴	25.0	2.8	3.1	34.4	0.3	65.6
PRT transfers⁵	-	-	-	(0.4)	-	(0.4)
Internal net flows⁶	(0.4)	0.2	-	(0.7)	0.4	(0.5)
Total net flows	24.6	3.0	3.1	33.3	0.7	64.7
Market movements	(57.8)	(25.2)	(8.0)	(102.4)	(1.9)	(195.3)
Other movements⁷	0.4	1.6	-	(3.2)	-	(1.2)
As at 30 June 2022	469.6	178.2	73.1	532.8	36.0	1,289.7
External inflows	32.6	9.0	6.7	68.7	1.1	118.1
External outflows	(64.4)	(19.3)	(5.6)	(14.7)	(1.0)	(105.0)
Overlay net flows	-	-	-	(29.1)	-	(29.1)
External net flows ⁴	(31.8)	(10.3)	1.1	24.9	0.1	(16.0)
PRT transfers⁵	(0.2)	(0.4)	-	(2.1)	-	(2.7)
Internal net flows⁶	(0.7)	(0.6)	(0.2)	(0.5)	2.6	0.6
Total net flows	(32.7)	(11.3)	0.9	22.3	2.7	(18.1)
Market movements	7.6	(7.9)	(0.1)	(71.5)	(4.3)	(76.2)
Other movements⁷	0.2	(2.2)	-	2.3	-	0.3
As at 31 December 2022	444.7	156.8	73.9	485.9	34.4	1,195.7

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2021	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2021	429.9	193.6	65.7	557.2	32.5	1,278.9
External inflows³	47.8	10.0	4.9	20.2	0.6	83.5
External outflows³	(43.1)	(7.7)	(3.1)	(8.0)	(0.8)	(62.7)
Overlay net flows	-	-	-	6.6	-	6.6
External net flows⁴	4.7	2.3	1.8	18.8	(0.2)	27.4
PRT transfers⁵	(0.4)	(0.5)	-	(2.8)	-	(3.7)
Internal net flows⁶	(0.3)	(2.3)	0.1	(0.2)	1.0	(1.7)
Total net flows	4.0	(0.5)	1.9	15.8	0.8	22.0
Market movements	37.9	(4.3)	4.2	(19.2)	0.4	19.0
Other movements⁷	(0.4)	1.3	-	6.0	-	6.9
As at 30 June 2021	471.4	190.1	71.8	559.8	33.7	1,326.8
External inflows³	51.6	8.7	10.2	14.2	1.1	85.8
External outflows³	(51.4)	(8.1)	(5.0)	(17.5)	(1.0)	(83.0)
Overlay net flows	-	-	-	4.4	-	4.4
External net flows⁴	0.2	0.6	5.2	1.1	0.1	7.2
PRT transfers⁵	(0.2)	(0.2)	-	(0.1)	-	(0.5)
Internal net flows⁶	(0.7)	0.5	0.1	(1.3)	1.0	(0.4)
Total net flows	(0.7)	0.9	5.3	(0.3)	1.1	6.3
Market movements	30.8	6.1	0.9	27.8	2.4	68.0
Other movements⁷	0.9	1.7	-	17.8	-	20.4
As at 31 December 2021	502.4	198.8	78.0	605.1	37.2	1,421.5

1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.

2. Solutions include liability driven investments and £336.6bn (30 June 2022: £386.9bn; 31 December 2021: £383.2bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £3.9bn (30 June 2022: £2.3bn; 31 December 2021: £5.5bn) of external investments and £3.3bn (30 June 2022: £2.0bn; 31 December 2021: £3.0bn) of redemptions in the ETF business.

5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.

6. Internal net flows includes legacy assets from the Mature Savings business sold to ReAssure in 2020.

7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

4.03 LGIM total external assets under management and net flows

	Assets under management at				Net flows for the six months ended¹
	31 December	30 June	31 December	30 June	31 December	30 June	31 December	30 June
	2022	2022	2021	2021	2022	2022	2021	2021
	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
International ²	363.6	377.0	377.3	344.8	(13.1)	34.5	14.5	15.0
UK Institutional
- Defined contribution	135.2	129.7	137.7	125.5	4.6	7.0	5.0	4.4
- Defined benefit	547.8	630.1	733.3	689.6	(10.0)	22.4	(13.9)	4.6
Wholesale ³	48.3	45.5	49.1	45.5	2.2	1.4	1.2	1.3
ETF ⁴	8.5	8.4	8.9	8.2	0.3	0.3	0.4	2.1
Total external	1,103.4	1,190.7	1,306.3	1,213.6	(16.0)	65.6	7.2	27.4

1. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.

2. International assets are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £441bn as at 31 December 2022 (31 December 2021: £479bn).

3. Wholesale represents assets from the Retail Intermediary business and £0.3bn of assets from Personal Investing customers that did not migrate to Fidelity International Limited.

4. ETF reflects external AUM and Flows invested on the platform. Total AUM managed on the platform is £10.2bn ($12.3bn) in 2022 (£10.1bn ($13.7bn) in 2021) and Flows are £1.0bn ($1.3bn) (£2.9bn ($3.9bn) in 2021) which include internal investment from other LGIM asset classes.

4.04 Reconciliation of assets under management to Consolidated Balance Sheet

	2022	2021
	£bn	£bn
Assets under management¹	1,196	1,421
Derivative notionals^1,2	(337)	(383)
Third party assets^1,3	(412)	(480)
Other^1,4	44	7
Total financial investments, investment property and cash and cash equivalents	491	565

1. These balances are unaudited.

2. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.

3. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.

4. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.

4.05 Assets under administration

	Workplace¹	Annuities²	Workplace¹	Annuities²
	2022	2022	2021	2021
	£bn	£bn	£bn	£bn
As at 1 January	65.7	89.9	50.8	87.0
Gross inflows	10.7	10.7	11.9	8.7
Gross outflows	(3.4)	-	(3.4)	-
Payments to pensioners	-	(5.0)	-	(4.6)
Net flows	7.3	5.7	8.5	4.1
Market and other movements	(6.4)	(23.2)	6.4	(1.2)
As at 31 December	66.6	72.4	65.7	89.9

1. Workplace assets under administration as at 31 December 2022 includes £66.4bn (2021: £65.6bn) of assets under management included in Note 4.01.

2. Annuities assets under administration as at 31 December 2022 includes £63.8bn (2021: £80.6bn) of assets under management included in Note 4.01.

4.06 Assets under administration half-yearly progression

	Workplace	Annuities	Workplace	Annuities
	2022	2022	2021	2021
	£bn	£bn	£bn	£bn
As at 1 January	65.7	89.9	50.8	87.0
Gross inflows	6.1	5.0	7.5	3.7
Gross outflows	(1.8)	-	(1.5)	-
Payments to pensioners	-	(2.4)	-	(2.2)
Net flows	4.3	2.6	6.0	1.5
Market and other movements	(6.9)	(13.7)	3.4	(2.7)
As at 30 June	63.1	78.8	60.2	85.8
Gross inflows	4.6	5.7	4.4	5.0
Gross outflows	(1.6)	-	(1.9)	-
Payments to pensioners	-	(2.6)	-	(2.4)
Net flows	3.0	3.1	2.5	2.6
Market and other movements	0.5	(9.5)	3.0	1.5
As at 31 December	66.6	72.4	65.7	89.9

4.07 LGRI new business

		6 months	6 months		6 months	6 months
	Total	31 December	30 June	Total	31 December	30 June
	2022	2022	2022	2021	2021	2021
	£m	£m	£m	£m	£m	£m
UK¹	7,319	3,604	3,715	6,240	3,275	2,965
US	1,763	1,170	593	789	682	107
Bermuda	459	318	141	147	147	-
Total LGRI new business	9,541	5,092	4,449	7,176	4,104	3,072

1. UK includes £93m (H1 22: £nil; H2 22: £93m) (H1 21: £925m; H2 21: £nil) of Assured Payment Policies (APPs).

4.08 Retail new business

		6 months	6 months		6 months	6 months
	Total	31 December	30 June	Total	31 December	30 June
	2022	2022	2022	2021	2021	2021
	£m	£m	£m	£m	£m	£m
Individual annuities	954	501	453	957	474	483
Lifetime mortgage loans and retirement interest only mortgages	632	294	338	848	434	414
Total Retail Retirement new business	1,586	795	791	1,805	908	897
UK Retail protection	171	86	85	200	95	105
UK Group protection	107	44	63	88	33	55
US protection¹	104	56	48	91	48	43
Total Insurance new business	382	186	196	379	176	203
Total Retail new business	1,968	981	987	2,184	1,084	1,100

1. In local currency, US protection reflects new business of $129m for 2022 (H1 22: $62m; H2 22: $67m), and $124m for 2021 (H1 21: $59m; H2 21: $65m).

4.09 Gross written premiums on insurance business

		6 months	6 months		6 months	6 months
	Total	31 December	30 June	Total	31 December	30 June
	2022	2022	2022	2021	2021	2021
	£m	£m	£m	£m	£m	£m
UK Retail protection	1,485	745	740	1,444	730	714
UK Group protection	427	136	291	405	131	274
US protection¹	1,222	648	574	1,053	541	512
Longevity insurance	309	155	154	307	155	152
Total gross written premiums on insurance business	3,443	1,684	1,759	3,209	1,557	1,652

1. In local currency, US protection reflects gross written premiums of $1,512m for 2022 (H1 22: $746m; H2 22: $766m), and $1,449m for 2021 (H1 21: $712m; H2 21: $737m).

Capital

5.01 Group regulatory capital - Solvency II

The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK, and measures and monitors its capital resources on this basis.

The Solvency II results are estimated and unaudited. Further explanation of the underlying methodology and assumptions are set out in the sections below.

The group calculates its Solvency II capital requirements using a Partial Internal Model.

The table below shows the group's Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 31 December 2022.

(a) Capital position

As at 31 December 2022, and on the above basis, the group had a surplus of £9,915m (31 December 2021: £8,185m) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio of 236% (31 December 2021: 187%). The Solvency II capital position is as follows:

	2022	2021
	£m	£m
Unrestricted Tier 1 Own Funds	13,393	13,254
Restricted Tier 1 Own Funds¹	495	495
Tier 2 Subordinated liabilities	3,448	3,995
Eligibility restrictions	(110)	(183)
Solvency II Own Funds^2,3	17,226	17,561
Solvency Capital Requirement	(7,311)	(9,376)
Solvency II surplus	9,915	8,185
SCR Coverage ratio	236%	187%

1. Restricted Tier 1 Own Funds represent perpetual restricted Tier 1 contingent convertible notes.

2. Solvency II Own Funds do not include an accrual for the final dividend of £829m (31 December 2021: £790m) declared after the balance sheet date.

3. Solvency II Own Funds allow for a Risk Margin of £2,753m (31 December 2021: £5,488m) and TMTP of £2,136m (31 December 2021: £4,736m).

5.01 Group regulatory capital - Solvency II (continued)

(b) Methodology

Own Funds comprise the excess of the value of assets over the liabilities, as valued on a Solvency II basis. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims. Own Funds include deductions in relation to fungibility and transferability restrictions, to the extent that the surplus Own Funds of a specific group entity cannot be freely transferred around the group due to local legal or regulatory constraints.

Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Solvency II balance sheet.

Liabilities are valued on a best estimate market consistent basis, with the application of a Solvency II Matching Adjustment for valuing annuity liabilities. Own Funds incorporate changes to the Internal Model and Matching Adjustment during 2022 and the impacts of a recalculation of the TMTP as at end December 2022. The recalculated TMTP of £2,136m (31 December 2021: £4,736m) is net of amortisation to 31 December 2022.

The liabilities include a Risk Margin of £2,753m (31 December 2021: £5,488m) which represents an allowance for the cost of capital for a purchasing insurer to take on the portfolio of liabilities and residual risks that are deemed to be non-hedgeable under Solvency II. This is calculated using a cost of capital of 6% as prescribed by the Solvency II regulations.

The Solvency Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks to which they are exposed.

All material EEA insurance firms, including Legal and General Assurance Society Limited (LGAS) and Legal and General Assurance (Pensions Management) Limited, are incorporated into the group's Solvency II Internal Model assessment of required capital, assuming diversification of the risks between and within those firms. These firms, as well as the non-EEA insurance firm (Legal & General Reinsurance Company Limited (L&G Re) based in Bermuda) contribute over 90% of the group's SCR.

Insurance firms for which the capital requirements are less material are valued on a Solvency II Standard Formula basis. Firms which are not regulated but which carry material risks to the group's solvency are modelled in the Internal Model on the basis of applying an appropriate stress to their net asset value.

Legal & General America's insurance entities (LGA) are incorporated into the calculation of group solvency using a Deduction & Aggregation (D&A) basis. All risk exposure in these firms is valued on a local statutory basis, with capital requirements set to a multiple of local statutory Risk Based Capital (RBC) and further restrictions on the surplus contribution to the group. The US regulatory regime is considered to be equivalent to Solvency II by the European Commission. The contribution to group SCR is 150% of the local Company Action Level RBC (CAL RBC). The contribution to group's Own Funds is the SCR together with any surplus capital in excess of 250% of CAL RBC.

Legal & General Reinsurance Company No.2 Limited (L&G Re 2) and Legal & General America Reinsurance Limited (a new subsidiary incorporated in 2022) are also incorporated into the calculation of group solvency using a D&A basis. All risk exposure in these firms is valued on a Bermudan capital basis, with capital requirements set equal to the Bermudan capital requirement and Own Funds contribution restricted by 20% of the capital. The Bermuda regulatory regime is also considered to be equivalent to Solvency II by the European Commission.

All non-insurance regulated firms are included using their current regulatory surplus.

Allowance is made within the Solvency II balance sheet for the group's defined benefit pension schemes using results on an IFRS basis. Within the SCR an allowance is made by stressing the IFRS position using the same Internal Model basis as for the insurance firms.

The calculation of the Solvency II balance sheet and associated capital requirements requires a number of assumptions, including:

i. Demographic assumptions required to project best estimate liability cash flows are consistent with those underlying the group's IFRS disclosures, but with the removal of any prudence margins.

ii. Future investment returns and discount rates to derive the present value of best estimate liability cash flows are those defined by the PRA. The risk-free rates used to discount UK Sterling cashflows are SONIA-based market swap rates. For non-UK Sterling liabilities, the risk-free rates used to discount cash flows include a credit risk adjustment that varies by currency.

iii. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and L&G Re and by the currency of the relevant liabilities. At 31 December 2022 the Matching Adjustment for UK Sterling was 141 basis points (31 December 2021: 104 basis points) after deducting an allowance for the fundamental spread equivalent to 55 basis points (31 December 2021: 54 basis points).

iv. Assumptions regarding management actions and policyholder behaviour across the full range of scenarios. The only management actions allowed for are those that have been approved by the Board and are in place at the balance sheet date.

v. Assumptions regarding the volatility of the risks to which the group is exposed. Assumptions have been set using a combination of historic market, demographic and operating experience data. In areas where data is not considered robust, expert judgement has been used.

vi. Assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.

5.01 Group regulatory capital - Solvency II (continued)

(d) Analysis of change

Operational Surplus Generation (OSG) is the expected surplus generated from the assets and liabilities in force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.

New Business Strain is the cost of acquiring business and setting up Technical Provisions and SCR (net of any premium income), on actual new business written over the year. It is based on economic conditions at the point of sale.

The table below shows the movement (net of tax) during the year ended 31 December 2022 in the group's Solvency II surplus.

	2022	2022	2022
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening position	17,561	(9,376)	8,185
Operational Surplus Generation¹	1,409	396	1,805
New business strain	333	(685)	(352)
Net surplus generation	1,742	(289)	1,453
Operating variances²			(327)
Market movements³			1,720
M&A, portfolio and business transfers			-
Subordinated liabilities			-
Dividends paid⁴			(1,116)
Total surplus movement (after dividends paid in the year)	(335)	2,065	1,730
Closing position	17,226	(7,311)	9,915

1. Operational Surplus Generation includes a £358m release of Risk Margin and £(342)m amortisation of the TMTP.

2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix.

3. Market movements represent the impact of changes in investment market conditions during the year and changes to future economic assumptions. The movement during the year primarily reflects the impact of rising rates on the valuation of the balance sheet, partially offset by weaker asset markets, predominantly in equities, credit spread dispersion in sub-investment grade assets, as well as a number of other, smaller variances.

4. Dividends paid are the amounts from the 2021 final dividend and the 2022 interim dividend.

5.01 Group regulatory capital - Solvency II (continued)

(d) Analysis of change (continued)

The table below shows the movement (net of tax) during the year ended 31 December 2021 in the group's Solvency II surplus.

	2021	2021	2021
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening position	17,316	(9,880)	7,436
Operational Surplus Generation¹	1,144	492	1,636
New business strain	330	(684)	(354)
Net surplus generation	1,474	(192)	1,282
Operating variances²			26
Market movements³			727
M&A, portfolio and business transfers⁴			77
Subordinated liabilities⁵			(300)
Dividends paid⁶			(1,063)
Total surplus movement (after dividends paid in the year)	245	504	749
Closing position	17,561	(9,376)	8,185

1. Operational Surplus Generation includes a £612m release of Risk Margin and £(433)m amortisation of the TMTP.

2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix.

3. Market movements represent the impact of changes in investment market conditions over the year and changes to future economic assumptions.

4. M&A, portfolio and business transfers include the impact of the sale of the Personal Investment business.

5. Subordinated liabilities reflect the redemption of £300m debt issued in 2009.

6. Dividends paid are the amounts from the 2020 final dividend and the 2021 interim dividend.

(e) Future Solvency II surplus generation - UK annuities

The table below shows a projection of future OSG expected from the £66.2bn (2021: £85.7bn) UK annuity portfolio as at 31 December 2022. The projection excludes any allowance for future new business.

The table shows the OSG from all of the group's divisions that are involved in the management of the annuity business, i.e. Retail, Legal & General Capital and Legal & General Investment Management. The impact of management actions is excluded; we expect management actions to contribute up to £200m each year.



								Total
	2022	2023	2024	2025	2026	2027-2031	2032-2040	2022-2040
	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Annuity back book OSG¹	0.7	0.6	0.6	0.6	0.5	2.3	4.7	10.0
L&G Other	0.2	0.2	0.2	0.2	0.1	0.6	0.7	2.2
Total OSG for UK Annuity back book	0.9	0.8	0.8	0.8	0.6	2.9	5.4	12.2

1. Annuity back book OSG does not include new business.

5.01 Group regulatory capital - Solvency II (continued)

(f) Reconciliation of IFRS Release from operations to Solvency II Operational surplus generation

(i) The table below provides a reconciliation of the group's IFRS Release from operations to Solvency II OSG:

	2022	2021
	£m	£m
IFRS Release from operations	1,625	1,441
Expected release of IFRS prudential margins	(577)	(496)
Releases of IFRS specific reserves¹	(158)	(162)
Solvency II investment margin^2,3	198	213
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	717	640
Solvency II Operational surplus generation⁴	1,805	1,636

1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long-term longevity and expense margins).

2. Release of prudence related to differences between the PRA defined Fundamental Spread and the prudent IFRS default assumption.

3. Expected market returns earned on LGRI's free assets in excess of risk-free rates over 2022.

4. Solvency II OSG includes management actions which at the start of 2022 were reasonably expected to be implemented over the year.

(ii) The table below provides a reconciliation of the group's IFRS New business surplus to Solvency II New business strain:

	2022	2021
	£m	£m
IFRS New business surplus	294	247
Removal of requirement to set up prudential margins above best estimate on new business	222	280
Set up of SCR on new business	(685)	(684)
Set up of Risk Margin on new business	(183)	(197)
Solvency II New business strain¹	(352)	(354)

1. UK PRT PVNBP during 2022 was £6.5bn (2021: £6.1bn).

(g) Reconciliation of IFRS equity to Solvency II Own Funds

A reconciliation of the group's IFRS equity to Solvency II Own Funds is given below:

	2022	2021
	£m	£m
IFRS equity¹	12,168	10,981
Remove DAC, goodwill and other intangible assets and associated liabilities	(502)	(406)
Add IFRS carrying value of subordinated borrowings²	3,823	3,700
Insurance contract valuation differences³	2,518	4,132
Difference in value of net deferred tax liabilities	(608)	(716)
Other	(63)	53
Eligibility restrictions	(110)	(183)
Solvency II Own Funds⁴	17,226	17,561

1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible debt note as per the Consolidated Balance Sheet.

2. The IFRS carrying value of subordinated borrowings are treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.

3. Insurance contract valuation differences are differences in the measurement of technical provisions between IFRS and Solvency II.

4. Solvency II Own Funds do not include an accrual for the final dividend of £829m (31 December 2021: £790m) declared after the balance sheet date.

5.01 Group regulatory capital - Solvency II (continued)

(h) Sensitivity analysis

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 31 December 2022 would have changed in a variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market risks, adverse stresses will happen together.


	Impact on	Impact on	Impact on	Impact on
	net of tax	net of tax	net of tax	net of tax
	Solvency II	Solvency II	Solvency II	Solvency II
	capital	coverage	capital	coverage
	surplus	ratio	surplus	ratio
	2022	2022	2021	2021
	£bn	%	£bn	%
100bps increase in risk-free rates¹	0.5	18	0.9	19
100bps decrease in risk-free rates^1,2	(0.6)	(19)	(1.3)	(22)
Credit spreads widen by 100bps assuming an escalating addition to ratings^3,4	0.3	13	0.6	13
Credit spreads narrow by 100bps assuming an escalating deduction from ratings^3,4	(0.4)	(16)	(0.6)	(14)
Credit spreads widen by 100bps assuming a flat addition to ratings³	0.3	14	0.7	14
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings^3,5	(0.3)	(7)	(0.4)	(7)
Credit migration⁶	(0.8)	(10)	(0.9)	(10)
25% fall in equity markets⁷	(0.4)	(3)	(0.5)	(3)
15% fall in property markets⁸	(0.9)	(11)	(0.8)	(7)
50bps increase in future inflation expectations¹	(0.1)	(3)	-	(2)
10% increase in maintenance expenses⁹	(0.3)	(4)	(0.3)	(3)
Substantially reduced Risk Margin¹⁰	0.5	7	0.6	7

1. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.

2. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.

3. The spread sensitivity applies to the group's corporate bond (and similar) holdings, with no change in long-term default expectations, post management actions. Restructured lifetime mortgages are excluded as the underlying exposure is mostly to property.

4. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is 100 basis points. To give a 100bps increase on the total portfolio, the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.

5. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is 2bps as the group holds less than 2% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress scenarios in the SCR calculation.

6. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, and sale and leaseback rental strips; lifetime mortgage senior notes are excluded). Downgraded assets in our annuities portfolio are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet date.

7. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.

8. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.

9. A 10% increase in the assumed unit costs and future costs of investment management across all long-term insurance business.

10. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an equivalent reduction in the Transitional Measure on Technical Provisions.

The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate and inflation stresses, we have not allowed for the recalculation of TMTP. Allowance is made for the recalculation of the Loss Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity remains available post stress.

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.

5.01 Group regulatory capital - Solvency II (continued)

(i) Analysis of Group Solvency Capital Requirement

The table below shows a breakdown of the group's SCR by risk type. The split is shown before the effects of diversification and tax.

	2022	2021
	%	%
Interest rate	3	4
Equity	6	5
Property	12	8
Credit¹	27	25
Currency	2	2
Inflation	5	7
Total Market risk ²	55	51
Counterparty risk	2	4
Life mortality	3	2
Life longevity³	18	27
Life mass lapse	3	2
Life non-mass lapse	2	2
Life catastrophe	6	4
Expense	3	2
Total Insurance risk	35	39
Non-life underwriting	-	-
Operational risk	5	4
Miscellaneous⁴	3	2
Total SCR	100	100

1. Credit risk is one of the group's most significant exposures, arising predominantly from the portfolio of bonds and bond-like assets backing the group's annuity business.

2. In addition to credit risk the group also has significant exposure to other market risks, primarily due to the investment holdings within the shareholder funds but also the risk to fee income from assets backing unit linked business.

3. Longevity risk is the group's most significant insurance risk exposure, arising from the annuity book on which the majority of the longevity risk on the back-book is retained. However, we expect this to reduce over time as we continue to reinsure the majority of the exposure on the new business written post the implementation of Solvency II. Longevity SCR reduced significantly over the year as a result of the increase in risk-free rates.

4. Miscellaneous includes LGA and L&G Re 2 on a Deduction and Aggregation basis and the sectoral capital requirements for non-insurance regulated firms.

5.02 Estimated Solvency II new business contribution

(a) New business by product¹

Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:

		Contribution			Contribution
		from new			from new
	PVNBP²	business³	Margin⁴	PVNBP²	business³	Margin⁴
	2022	2022	2022	2021	2021	2021
	£m	£m	%	£m	£m	%
LGRI - UK annuity business	6,484	575	8.9	6,059	574	9.5
Retail Retirement - UK annuity business	954	60	6.3	957	61	6.4
UK Protection Total	1,512	82	5.4	1,883	149	7.9
- Retail Protection	1,073	51	4.7	1,476	120	8.1
- Group Protection	439	31	7.0	407	29	7.1
US Protection ⁵	796	84	10.6	842	113	13.4

1. New business includes selected lines of business only.

2. PVNBP is net of quota share reinsurance single premium of £835m (31 December 2021: £181m) relating to LGRI new business.

3. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the year using the risk discount rate applicable at the end of the year.

4. Margin is based on unrounded inputs.

5. In local currency, US protection business reflects PVNBP of $985m (31 December 2021: $1,159m) and a contribution from new business of $104m (31 December 2021: $155m).

The decrease in the LGRI margin was driven by a shorter average duration for schemes written in 2022 compared to the schemes written in 2021.

The UK Protection margin decrease was driven by changes in the expense ratio, movements in product mix and changes in market conditions in 2022.

The US Protection business margin, whilst remaining strong, reduced compared to 2021. The decrease was driven by product and premium rate changes.

5.02 Estimated Solvency II new business contribution (continued)

(b) Assumptions

The key economic assumptions are as follows:

	2022	2021
	%	%
Margin for Risk	4.4	4.1
Risk-free rate
- UK	3.6	0.9
- US	3.9	1.5
Risk discount rate (net of tax)
- UK	8.0	5.0
- US	8.3	5.6
Long-term rate of return on annuities	5.7	2.5

The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk-free rate and a flat margin for risk. The risk-free rates have been based on a swap curve net of the 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. In particular:

• The assumed future pre-tax returns on fixed interest and RPI-linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2022 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 19 basis points.

• Non-economic assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding development costs). An allowance is made for future mortality improvement. For new business, mortality assumptions may be modified to take certain scheme specific features into account.

The profits on the new business are presented gross of tax.

5.02 Estimated Solvency II new business contribution (continued)

Basis of preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies as set out in the group's 2022 Annual Report and Accounts.

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGRI, Retail Retirement and Insurance.

Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The US protection new business margin assumes that the new business will continue to be reinsured in 2022 and looks through the intra-group arrangements.

Description of methodology

The objective of the Solvency II new business contribution is to provide shareholders with information on the long-term contribution of new business written in 2022.

The Solvency II new business contribution has been calculated as the present value of future shareholder profits arising from business written in 2022. Cash flow projections are determined using best estimate assumptions for each component of cash flow and for each policy group. Best estimate assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience.

The PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the calculation of the new business contribution for the financial period.

The new business margin is defined as new business contribution divided by the PVNBP. The premium volumes used to calculate the PVNBP are the same as those used to calculate new business contribution.

LGA is consolidated into the group solvency balance sheet on a US Statutory solvency basis. Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover future new business. The LGA new business margin looks through the intra-group arrangements.

Projection assumptions

Cash flow projections are determined using best estimate assumptions for each component of cash flow for each line of business. Future economic and investment return assumptions are based on conditions at the end of the financial period.

Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

All costs relating to new business, even if incurred elsewhere in the group, are allocated to the new business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

Tax

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with substantively enacted future changes.

Risk discount rate

The risk discount rate (RDR) is duration-based and is a combination of the risk-free curve and a flat Margin for Risk.

The GBP risk-free rates have been based on a SONIA-based swap curve with no Credit Risk Adjustment. The USD swap curve includes a credit risk adjustment of 10 basis points (2021: credit risk adjustment of 10 basis points)

The Margin for Risk has been determined based on an assessment of the group's Weighted Average Cost of Capital (WACC). This assessment incorporates a beta for the group, which measures the correlation of movements in the group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.

5.02 Estimated Solvency II new business contribution (continued)

The WACC is derived from the group's cost of equity, cost of debt, and the proportion of equity to debt in the group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk-free rate plus the equity risk premium for the chosen index multiplied by the company's beta.

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long-term debt. All debt interest attracts tax relief at a time adjusted rate of 25% (31 December 2021: 24%).

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital and the inherent strength of the group's regulatory reserves, is appropriate to reflect the risks within the covered business.

(d) Reconciliation of PVNBP to gross written premium

		2022	2021
	Notes	£bn	£bn
PVNBP	5.02(a)	9.7	9.7
Effect of capitalisation factor		(1.5)	(2.1)
New business premiums from selected lines		8.2	7.6
Other¹		3.3	1.8
Total LGRI and Retail new business	4.07,4.08	11.5	9.4
Annualisation impact of regular premium long-term business		(0.2)	(0.2)
IFRS gross written premiums from existing long-term insurance business		3.5	3.3
Deposit accounting for investment products		(1.1)	(2.1)
Total gross written premiums²		13.7	10.4

1. Other principally includes annuity sales in the US, lifetime mortgage loans and retirement interest only mortgages, and quota share reinsurance premiums.

2. Total gross written premiums include £118m (2021: £109m) of gross written premiums relating to a residual reinsurance treaty following the disposal of the General Insurance business in 2019.

Investments

6.01 Investment portfolio

	Market	Market
	value	value
	2022	2021
	£m	£m
Worldwide total assets under management¹	1,202,676	1,426,462
Client and policyholder assets	(1,073,126)	(1,309,772)
Investments to which shareholders are directly exposed	129,550	116,690

1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.

Analysed by investment class:

				Other
		Annuity ¹	LGC²	shareholder
		investments	investments	investments	Total	Total
		2022	2022	2022	2022	2021
	Notes	£m	£m	£m	£m	£m
Equities		95	2,576	400	3,071	3,185
Bonds	6.03	66,825	1,249	2,589	70,663	86,803
Derivative assets³		41,641	337	-	41,978	13,203
Property	6.04	5,037	607	-	5,644	5,710
Loans⁴		785	238	77	1,100	2,332
Financial investments		114,383	5,007	3,066	122,456	111,233
Cash and cash equivalents		2,631	1,418	785	4,834	3,596
Other assets⁵		110	2,133	17	2,260	1,861
Total investments		117,124	8,558	3,868	129,550	116,690

1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans and retirement interest only mortgages.

2. LGC investments includes £95m (2021: £nil) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £122m (31 December 2021: £54m) of bonds and equities that belong to other shareholder funds.

3. Derivative assets are shown gross of derivative liabilities of £46.1bn (31 December 2021: £14.1bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, currency swaps and foreign exchange forward contracts for assets and liability management.

4. Loans include reverse repurchase agreements of £1,072m (31 December 2021: £2,240m).

5. Other assets include finance leases of £110m (31 December 2021: £86m), associates and joint ventures of £554m (31 December 2021: £375m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

6.02 Direct investments

(a) Total investments analysed by asset class

	Direct¹	Traded²		Direct¹	Traded²
	investments	securities	Total	investments	securities	Total
	2022	2022	2022	2021	2021	2021
	£m	£m	£m	£m	£m	£m
Equities	1,704	1,367	3,071	1,248	1,937	3,185
Bonds³	22,070	48,593	70,663	24,237	62,566	86,803
Derivative assets	-	41,978	41,978	-	13,203	13,203
Property⁴	5,644	-	5,644	5,710	-	5,710
Loans	-	1,100	1,100	63	2,269	2,332
Financial investments	29,418	93,038	122,456	31,258	79,975	111,233
Cash and cash equivalents	56	4,778	4,834	114	3,482	3,596
Other assets	2,260	-	2,260	1,861	-	1,861
Total investments	31,734	97,816	129,550	33,233	83,457	116,690

1. Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but excluded hedge funds.

2. Traded securities are defined by exclusion. If an instrument is not a direct investment, then it is classed as a traded security.

3. Bonds include lifetime mortgage loans of £4,844m (31 December 2021: £6,857m).

4. A further breakdown of property is provided in Note 6.04.

6.02 Direct investments (continued)

(b) Direct investments analysed by asset portfolio

	Annuity ¹	Shareholder ²	Insurance ³	Total
	2022	2022	2022	2022
	£m	£m	£m	£m
Equities	51	1,417	236	1,704
Bonds⁴	20,736	71	1,263	22,070
Property	5,037	607	-	5,644
Loans	-	-	-	-
Financial investments	25,824	2,095	1,499	29,418
Other assets, cash and cash equivalents	110	2,189	17	2,316
Total direct investments	25,934	4,284	1,516	31,734


	Annuity¹	Shareholder²	Insurance³	Total
	2021	2021	2021	2021
	£m	£m	£m	£m
Equities	12	1,124	112	1,248
Bonds⁴	23,029	3	1,205	24,237
Property	5,286	424	-	5,710
Loans	-	63	-	63
Financial investments	28,327	1,614	1,317	31,258
Other assets, cash and cash equivalents	96	1,879	-	1,975
Total direct investments	28,423	3,493	1,317	33,233

1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans & retirement interest only mortgages.

2. Shareholder primarily includes the LGC direct investment portfolio and £95m (2021: £nil) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £122m (31 December 2021: £54m) of bonds and equities that belong to other shareholder funds.

3. Insurance primarily includes assets backing the group's US protection business.

4. Bonds include lifetime mortgage loans of £4,844m (31 December 2021: £6,857m).

6.03 Bond portfolio summary

(a) Sectors analysed by credit rating

					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2022	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,718	5,548	805	111	7	3	8,192	12
Banks:
- Tier 1	-	-	-	-	-	1	1	-
- Tier 2 and other subordinated	-	-	83	66	3	-	152	-
- Senior	-	1,179	2,300	998	2	-	4,479	6
- Covered	114	-	-	-	-	-	114	-
Financial Services:
- Tier 2 and other subordinated	32	94	52	20	7	4	209	-
- Senior	49	235	592	561	-	-	1,437	2
Insurance:
- Tier 2 and other subordinated	53	138	23	53	-	-	267	-
- Senior	6	186	342	407	-	-	941	1
Consumer Services and Goods:
- Cyclical	-	18	1,128	1,870	161	8	3,185	5
- Non-cyclical	310	830	2,431	3,300	166	-	7,037	10
- Healthcare	-	611	916	754	4	-	2,285	3
Infrastructure:
- Social	170	800	3,402	1,079	70	-	5,521	8
- Economic	244	151	993	3,343	173	-	4,904	7
Technology and Telecoms	134	365	1,201	2,687	17	1	4,405	6
Industrials	-	60	702	677	23	-	1,462	2
Utilities	531	582	4,648	4,971	27	-	10,759	15
Energy	-	-	322	801	42	-	1,165	2
Commodities	-	-	301	658	25	15	999	1
Oil and Gas	-	483	805	302	67	52	1,709	3
Real estate	-	24	1,865	1,850	90	2	3,831	6
Structured finance ABS / RMBS / CMBS / Other	683	851	565	585	21	8	2,713	4
Lifetime mortgage loans¹	3,246	824	428	336	-	10	4,844	7
CDOs	-	41	-	11	-	-	52	-
Total £m	7,290	13,020	23,904	25,440	905	104	70,663	100
Total %	11	18	34	36	1	-	100

1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring.

2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £66,825m, representing 95% of the total group portfolio.

6.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)

					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2021	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	2,008	10,348	1,302	360	9	-	14,027	16
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	-	56	36	3	-	95	-
- Senior	95	1,858	3,998	738	1	-	6,690	8
- Covered	138	-	-	-	-	-	138	-
Financial Services:
- Tier 2 and other subordinated	-	111	60	72	-	8	251	-
- Senior	57	416	422	315	-	-	1,210	1
Insurance:
- Tier 2 and other subordinated	61	192	32	62	-	-	347	-
- Senior	4	196	460	535	-	-	1,195	1
Consumer Services and Goods:
- Cyclical	-	33	1,399	1,760	206	-	3,398	4
- Non-cyclical	350	1,003	2,737	3,836	346	-	8,272	10
- Healthcare	-	690	837	889	5	-	2,421	3
Infrastructure:
- Social	215	780	5,001	900	79	-	6,975	8
- Economic	303	50	1,121	4,294	191	-	5,959	7
Technology and Telecoms	177	307	1,530	3,024	22	2	5,062	6
Industrials	-	31	688	558	30	-	1,307	2
Utilities	27	206	5,666	5,947	30	-	11,876	14
Energy	-	-	385	840	16	-	1,241	1
Commodities	-	-	365	889	8	-	1,262	1
Oil and Gas	-	546	971	387	271	-	2,175	3
Real estate	-	16	1,802	1,587	122	-	3,527	4
Structured finance ABS / RMBS / CMBS / Other	450	860	445	668	28	-	2,451	3
Lifetime mortgage loans¹	4,238	1,550	584	470	-	15	6,857	8
CDOs	-	-	54	13	-	-	67	-
Total £m	8,123	19,193	29,915	28,180	1,367	25	86,803	100
Total %	9	22	35	32	2	-	100

1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring.

2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £81,812m, representing 94% of the total group portfolio.

6.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile

				Rest of
	UK	USA	EU	the World	Total
As at 31 December 2022	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	5,209	1,754	614	615	8,192
Banks	1,089	1,899	721	1,037	4,746
Financial Services	399	539	520	188	1,646
Insurance	108	1,007	20	73	1,208
Consumer Services and Goods:
- Cyclical	549	2,130	298	208	3,185
- Non-cyclical	1,809	4,764	296	168	7,037
- Healthcare	234	1,986	64	1	2,285
Infrastructure:
- Social	4,610	704	150	57	5,521
- Economic	3,444	832	256	372	4,904
Technology and Telecoms	363	2,963	577	502	4,405
Industrials	192	823	292	155	1,462
Utilities	5,579	2,840	1,855	485	10,759
Energy	266	670	13	216	1,165
Commodities	35	415	113	436	999
Oil and Gas	158	508	642	401	1,709
Real estate	1,805	1,225	571	230	3,831
Structured finance ABS / RMBS / CMBS / Other	641	1,666	44	362	2,713
Lifetime mortgage loans	4,801	-	43	-	4,844
CDOs	-	-	-	52	52
Total	31,291	26,725	7,089	5,558	70,663

6.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)

				Rest of
	UK	USA	EU	the World	Total
As at 31 December 2021	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	9,829	1,892	1,244	1,062	14,027
Banks	2,253	1,799	1,956	915	6,923
Financial Services	425	429	517	90	1,461
Insurance	113	1,291	15	123	1,542
Consumer Services and Goods:
- Cyclical	473	2,213	442	270	3,398
- Non-cyclical	1,879	5,828	391	174	8,272
- Healthcare	284	2,054	82	1	2,421
Infrastructure:
- Social	6,141	628	154	52	6,975
- Economic	4,348	902	309	400	5,959
Technology and Telecoms	412	3,025	782	843	5,062
Industrials	190	681	354	82	1,307
Utilities	6,963	2,158	2,217	538	11,876
Energy	415	667	1	158	1,241
Commodities	20	537	175	530	1,262
Oil and Gas	196	626	785	568	2,175
Real estate	1,895	734	602	296	3,527
Structured finance ABS / RMBS / CMBS / Other	861	1,395	10	185	2,451
Lifetime mortgage loans	6,857	-	-	-	6,857
CDOs	-	-	-	67	67
Total	43,554	26,859	10,036	6,354	86,803

6.03 Bond portfolio summary (continued)

	Externally	Internally
	rated	rated¹	Total
As at 31 December 2022	£m	£m	£m
AAA	3,741	3,549	7,290
AA	10,577	2,443	13,020
A	15,875	8,029	23,904
BBB	18,476	6,964	25,440
BB or below	529	376	905
Other	17	87	104
Total	49,215	21,448	70,663

	Externally	Internally
	rated	rated¹	Total
As at 31 December 2021	£m	£m	£m
AAA	3,506	4,617	8,123
AA	15,544	3,649	19,193
A	21,240	8,675	29,915
BBB	20,715	7,465	28,180
BB or below	950	417	1,367
Other	10	15	25
Total	61,965	24,838	86,803

1. Where external ratings are not available an internal rating has been used where practicable to do so.

6.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded securities

	Direct
	investments	Traded	Total
As at 31 December 2022	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	763	7,429	8,192
Banks	789	3,957	4,746
Financial Services	930	716	1,646
Insurance	111	1,097	1,208
Consumer Services and Goods:
- Cyclical	596	2,589	3,185
- Non-cyclical	605	6,432	7,037
- Healthcare	420	1,865	2,285
Infrastructure:
- Social	3,027	2,494	5,521
- Economic	3,600	1,304	4,904
Technology and Telecoms	123	4,282	4,405
Industrials	118	1,344	1,462
Utilities	1,938	8,821	10,759
Energy	355	810	1,165
Commodities	67	932	999
Oil and Gas	81	1,628	1,709
Real estate	2,445	1,386	3,831
Structured finance ABS / RMBS / CMBS / Other	1,258	1,455	2,713
Lifetime mortgage loans	4,844	-	4,844
CDOs	-	52	52
Total	22,070	48,593	70,663

6.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded securities (continued)


	Direct
	investments	Traded	Total
As at 31 December 2021	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	1,037	12,990	14,027
Banks	665	6,258	6,923
Financial Services	432	1,029	1,461
Insurance	119	1,423	1,542
Consumer Services and Goods:
- Cyclical	498	2,900	3,398
- Non-cyclical	512	7,760	8,272
- Healthcare	357	2,064	2,421
Infrastructure:
- Social	3,699	3,276	6,975
- Economic	4,267	1,692	5,959
Technology and Telecoms	153	4,909	5,062
Industrials	60	1,247	1,307
Utilities	1,883	9,993	11,876
Energy	475	766	1,241
Commodities	55	1,207	1,262
Oil and Gas	56	2,119	2,175
Real estate	2,091	1,436	3,527
Structured finance ABS / RMBS / CMBS / Other	1,021	1,430	2,451
Lifetime mortgage loans	6,857	-	6,857
CDOs	-	67	67
Total	24,237	62,566	86,803

6.04 Property analysis

Property exposure within Direct investments by status



	Annuity	Shareholder¹	Total
As at 31 December 2022	£m	£m	£m	%
Fully let²	4,568	462	5,030	89
Development	469	83	552	10
Land	-	62	62	1
Total	5,037	607	5,644	100



	Annuity	Shareholder¹	Total
As at 31 December 2021	£m	£m	£m	%
Fully let²	4,746	-	4,746	83
Development	540	293	833	15
Land	-	131	131	2
Total	5,286	424	5,710	100

1. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Receivables and other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 31 December 2022 the group held a total of £1,973m (31 December 2021: £2,044m) of such assets.

2. £4.5bn (31 December 2021: £4.7bn) fully let property were let to corporate clients, out of which £4.0bn (31 December 2021: £4.5bn) were let to investment grade tenants.

Alternative Performance Measures

An alternative performance measure (APM) is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. APMs offer investors and stakeholders additional information on the company's performance and the financial effect of 'one-off' events, and the group uses a range of these metrics to enhance understanding of the group's performance. However, APMs should be viewed as complementary to, rather than as a substitute for, the figures determined according to other regulations. The APMs used by the group are listed in this section, along with their definition/explanation, their closest IFRS measure and reference to the reconciliations to those IFRS measures.

The APMs used by the group may not be the same as, or comparable to, those used by other companies, both in similar and different industries. The calculation of APMs is consistent with previous periods, unless otherwise stated.

Adjusted operating profit

Definition

Adjusted operating profit is an APM that supports the internal performance management and decision making of the group's operating businesses, and accordingly underpins the remuneration outcomes of the executive directors and senior management. The group considers this measure meaningful to stakeholders as it enhances the understanding of the group's operating performance over time by separately identifying non-operating items.

Adjusted operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by changes in market conditions or expectations and exceptional items. It therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, including the traded portfolio in LGC. For direct investments, operating profit reflects the expected long-term economic return for those assets which are developed with the intention of sale, or the IFRS profit before tax for the early stage and mature businesses.

Variances between actual and long-term expected investment return on traded and real assets (including direct investments) are excluded from adjusted operating profit, as well as economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business. Adjusted operating profit also excludes the yield associated with assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs, are also excluded from adjusted operating profit.

In certain disclosures, the group may use the term 'operating profit' as a substitute for adjusted operating profit, but in all circumstances it carries the same definition and meaning.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 1.01 Operating profit.

Return on Equity (ROE)

Definition

ROE measures the return earned by shareholders on shareholder capital retained within the business.

ROE is calculated as IFRS proﬁt after tax divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds as provided in the IFRS consolidated statement of changes in equity for the year).

Closest IFRS measure

Calculated using:

- Profit attributable to equity holders

- Equity attributable to owners of the parent

Reconciliation

Calculated using profit attributable to equity holders for the year of £2,291m (2021: £2,050m) and average equity attributable to the owners of the parent of £11,079m (31 December 2021: £9,994m), based on an opening balance of £10,486m and a closing balance of £11,673m (2021: based on an opening balance of £9,502m and a closing balance of £10,486m).

Assets under Management

Definition

Funds which are managed by our fund managers on behalf of investors. It represents the total amount of money investors have trusted with our fund managers to invest across our investment products.

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

Reconciliation

Note 4.04 Reconciliation of assets under management to Consolidated Balance Sheet.

Net release from operations

Definition

Release from operations plus new business surplus/(strain). Net release from operations is also referred to as cash generation and includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business. Net release from operations is a component of adjusted operating profit (after tax) and excludes predominantly the impact of experience variances and changes in valuation assumptions.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Notes 1.01 Operating profit and 1.02 Reconciliation of release from operations to operating profit before tax.

Adjusted profit before tax attributable to equity holders

Definition

The APM measures profit before tax attributable to shareholders incorporating actual investment returns experienced during the year.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 1.01 Operating profit.

Glossary

* These items represent an alternative performance measure (APM)

Adjusted operating profit*

Refer to the alternative performance measures section.

Adjusted profit before tax attributable to equity holders*

Refer to the alternative performance measures section.

Alternative performance measures (APMs)

An APM is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II.

Annual premium

Premiums that are paid regularly over the duration of the contract such as protection policies.

Annuity

Regular payments from an insurance company made for an agreed period of time (usually up to the death of the recipient) in return for either a cash lump sum or a series of premiums which the policyholder has paid to the insurance company during their working lifetime.

Assets under administration (AUA)

Assets administered by Legal & General which are beneﬁcially owned by clients and are therefore not reported on the Consolidated Balance Sheet. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.

Assets under management (AUM)*

Refer to the alternative performance measures section.

Assured Payment Policy (APP)

An APP is a long-term contract under which the policyholder (a registered UK pension scheme) pays a day-one premium and in return receives a contractually fixed and/or inflation-linked set of payments over time from the insurer.

CAGR

Compound annual growth rate.

Cash generation

Cash generation is an alternative term for net release from operations.

CCF - Common Contractual Fund

An Irish-regulated asset pooling fund structure. It enables institutional investors to pool assets into a single fund vehicle with the aim of achieving cost savings, enhanced returns and operational efficiency through economies of scale. A CCF is an unincorporated body established under a deed where investors are "co-owners" of underlying assets which are held pro rata with their investment. The CCF is authorised and regulated by the Central Bank of Ireland.

Credit rating

A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA and the lowest Unrated. Ratings are usually issued by a credit rating agency (e.g. Moody's or Standard & Poor's) or a credit bureau.

Deduction and aggregation (D&A)

A method of calculating group solvency on a Solvency II basis, whereby the assets and liabilities of certain entities are excluded from the group consolidation. The net contribution from those entities to group Own Funds is included as an asset on the group's Solvency II balance sheet. Regulatory approval has been provided to recognise the (re)insurance subsidiaries in the US and Bermuda on this basis.

Defined benefit pension scheme (DB scheme)

A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.

Defined contribution pension scheme (DC scheme)

A type of pension plan where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer. They provide benefits based upon the money held in each individual's plan specifically on behalf of each member. The amount in each plan at retirement will depend upon the investment returns achieved as well as the member and employer contributions.

Derivatives

Derivatives are not a separate asset class but are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk to which a fund is exposed.

Direct investments

Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.

Dividend cover

Dividend cover measures how many times over the net release from operations in the year could have paid the full year dividend. For example, if the dividend cover is 3, this means that the net release from operations was three times the amount of dividend paid out.

Early stage business

A recently created company in the early stage of its life cycle (typically up to 18 to 24 months since establishment), which has not broken even yet. This usually means the entity is not fully operational yet, and the management team is still being developed.

Earnings per share (EPS)

EPS is a common ﬁnancial metric which can be used to measure the proﬁtability and strength of a company over time. It is the total shareholder proﬁt after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.

Eligible Own Funds

Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group.

Employee satisfaction index

The Employee satisfaction index measures the extent to which employees report that they are happy working at Legal & General. It is measured as part of our Voice surveys, which also include questions on commitment to the goals of Legal & General and the overall success of the company.

ETF - Exchange-Traded Fund

LGIM's European Exchange-Traded Fund platform.

Euro Commercial paper

Short-term borrowings with maturities of up to 1 year typically issued for working capital purposes.

Full year dividend

Full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).

Fair value through profit or loss (FVTPL)

A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet reports gains and losses arising from movements in fair value within the Consolidated Income Statement as part of the profit or loss for the year.

Generally accepted accounting principles (GAAP)

These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used by the accounting community to report financial information.

Gross written premiums (GWP)

GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the reporting period, before any deductions for reinsurance.

ICAV - Irish Collective Asset-Management Vehicle

A legal structure investment fund, based in Ireland and aimed at European investment funds looking for a simple, tax-efficient investment vehicle.

Insurance new business

New business arising from new policies written on retail protection products and new deals and incremental business on group protection products.

International financial reporting standards (IFRS)

These are accounting guidelines and rules that companies and organisations follow when completing financial statements. They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed groups in the UK are required to use.

Key performance indicators (KPIs)

These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.

LGA

Legal & General America.

LGAS

Legal and General Assurance Society Limited.

LGC

Legal & General Capital.

LGIM

Legal & General Investment Management

LGRI

Legal & General Retirement Institutional.

LGRI new business

Single premiums arising from pension risk transfers and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the SONIA curve.

Liability driven investment (LDI)

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent in final salary pension plans, whose liabilities can often reach into billions of pounds for the largest of plans.

Lifetime mortgages

An equity release product aimed at people aged 55 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long-term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.

Longevity

Measure of how long policyholders will live, which affects the risk profile of pension risk transfer, annuity and protection businesses.

Matching adjustment

An adjustment to the discount rate used for annuity liabilities in Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.

Mature business

A company which has been operative for more than three to five years. It generates regular revenue streams but the growth rate in its earnings is expected to remain broadly flat in the future. At this point in its life cycle, a complete and experienced management team is in place.

Morbidity rate

Rate of illness, influenced by age, gender and health, used in pricing and calculating liabilities for policyholders of life products, which contain morbidity risk.

Mortality rate

Rate of death, influenced by age, gender and health, used in pricing and calculating liabilities for future policyholders of life and annuity products, which contain mortality risks.

Net release from operations*

Refer to the alternative performance measures section.

Net zero carbon

Achieving an overall balance between anthropogenic carbon emissions produced and carbon emissions removed from the atmosphere.

New business surplus/strain

The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the setting up of reserves, for UK non-profit annuities, workplace savings and protection, net of tax. This metric provides an understanding of the impact of new contracts on the IFRS profit for the year.

OEIC - Open Ended Investment Company

A type of investment fund domiciled in the United Kingdom that is structured to invest in stocks and other securities, authorised and regulated by the Financial Conduct Authority (FCA).

Overlay assets

Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include interest rate swaps, inﬂation swaps, equity futures and options. These are typically used to hedge risks associated with pension scheme assets during the derisking stage of the pension life cycle.

Paris Agreement

The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change effective 4 November 2016. The Agreement aims to limit the increase in average global temperatures to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels.

Pension risk transfer (PRT)

PRT represents bulk annuities bought by entities that run ﬁnal salary pension schemes to reduce their responsibilities by closing the schemes to new members and passing the assets and obligations to insurance providers.

Persistency

Persistency is a measure of LGIM client asset retention, calculated as a function of net flows and opening AUM.

For insurance, persistency is the rate at which policies are retained over time and therefore continue to contribute premium income and assets under management.

Platform

Online services used by intermediaries and consumers to view and administer their investment portfolios. Platforms usually provide facilities for buying and selling investments (including, in the UK products such as Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life insurance) and for viewing an individual's entire portfolio to assess asset allocation and risk exposure.

Present value of future new business premiums (PVNBP)

PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the new business value at the end of the financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums are calculated on a net of reinsurance basis to enable a more representative margin figure. PVNBP therefore provides an estimate of the present value of the premiums associated with new business written in the year.

Proprietary assets

Total investments to which shareholders are directly exposed, minus derivative assets, loans, and cash and cash equivalents.

QIAIF - Qualifying Investor Alternative Investment Fund

An alternative investment fund regulated in Ireland targeted at sophisticated and institutional investors, with minimum subscription and eligibility requirements. Due to not being subject to many investment or borrowing restrictions, QIAIFs present a high level of flexibility in their investment strategy.

Real assets

Real assets encompass a wide variety of tangible debt and equity investments, primarily real estate, infrastructure and energy. They have the ability to serve as stable sources of long-term income in weak markets, while also providing capital appreciation opportunities in strong markets.

Release from operations

The expected IFRS surplus generated in the period from the difference between IFRS prudent assumptions and our best estimate of future experience for in-force LGRI, Retail Retirement and UK Insurance businesses, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from US insurance.

Retail Retirement new business

Single premiums arising from annuity sales and the volume of lifetime and retirement interest-only mortgage lending.

Retirement Interest Only (RIO) mortgage

A RIO mortgage is a standard retirement mortgage available for non-commercial borrowers above 55 years old. A RIO mortgage is very similar to a standard interest-only mortgage, with two key differences:

- The loan is usually only paid off on death, move into long-term care or sale of the house.

- The borrowers only have to prove they can afford the monthly interest repayments and not the capital remaining at the end of the mortgage term.

No repayment solution is required as repayment defaults to sale of property.

Return on Equity (ROE)*

Refer to the alternative performance measures section.

Risk appetite

The aggregate level and types of risk a company is willing to assume in its exposures and business activities in order to achieve its business objectives.

SICAV - Société d'Investissement à Capital Variable

A publicly traded open-ended investment fund structure offered in Europe and regulated under European law.

SIF - Specialised Investment Fund

An investment vehicle regulated in Luxembourg targeted to well-informed investors, providing a great degree of flexibility in organization, investment policy and types of underlying assets in which it can invest.

Single premiums

Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium being paid over its lifetime, such as in individual and bulk annuity deals.

Solvency II

These are insurance regulations designed to harmonise EU insurance regulation. Primarily this concerns the amount of capital that European insurance companies must hold under a measure of capital and risk. Solvency II became effective from 1 January 2016. The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK, and measures and monitors its capital resources on this basis.

Solvency II capital coverage ratio

The Eligible Own Funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by Eligible Own Funds.

The Solvency II coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions in the Own Funds.

Solvency II new business contribution

Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.

Solvency II Operational Surplus Generation (OSG)

The expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.

Solvency II risk margin

An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the insurance and reinsurance obligations over the lifetime thereof.

Solvency II surplus

The excess of Eligible Own Funds on a regulatory basis over the SCR. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.

Solvency Capital Requirement (SCR)

The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event.

Total shareholder return (TSR)

TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to the shareholder.

Transitional Measures on Technical Provisions (TMTP)

This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the relevant business, subject to agreement with the PRA.

Yield

A measure of the income received from an investment compared to the price paid for the investment. It is usually expressed as a percentage.

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FR NKOBNFBKDPNK

Legal & General Group (LGEN)

Friday, 20th December 2024

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