L&G Full Year Results 2023 Part 1

Legal & General Group Plc

06 March 2024

Full Year 2023 Results

Set to achieve our 5 year ambitions, with record new business volumes and resilient in-year profit generation

António Simões, CEO

"Everything I have seen since joining the business in January has confirmed what attracted me to Legal & General. We have an authentic sense of purpose and stand out for our market-leading businesses, performance track record and strong balance sheet, delivered by talented colleagues.

Our 2023 performance reflects these strengths. We are on course to achieve our five-year targets, and demonstrated resilience in challenging markets to achieve record new business volumes in pension risk transfer, UK annuities and US protection, increasing our store of future profit. Our international assets under management and alternative assets portfolio continue to grow, as does our position in the UK defined contribution pensions market.

We must be as ambitious for Legal & General's future as we are proud of our history. This is the right moment to take a fresh perspective, build on our track record and set out a vision for profitable and sustainable growth. I look forward to outlining our strategy and plans at our Capital Markets Event on 12 June."

Resilient financial performance¹

· Operating profit of £1,667m (2022: £1,663m)

· Profit after tax² of £457m (2022: £783m)

· Solvency II capital generation of £1.8bn (2022: £1.8bn)

· Solvency II coverage ratio³ of 224%, with surplus of £9.2bn (2022: 236%, £9.9bn)

· Dividend per share of 20.34p, up 5% (2022: 19.37p)

Growth in our store of future profit: up 9% to £14.7bn⁴

· Record volumes across our insurance businesses:

‒ £13.7bn of institutional annuities (£10.5bn retained premium⁵)

‒ £1.4bn of individual annuities

‒ $175m of US protection new business premium

· New business CSM contributed £1.2bn (2022: £0.9bn)

· CSM has grown 9% to £13.0bn (2022: £11.9bn)

Set to achieve our five-year (2020-2024) ambitions

· Cumulative Solvency II capital generation of £6.8bn (£8-9bn by 2024)

· Cumulative dividends declared of £4.5bn (£5.6-5.9bn by 2024)

· Cumulative net surplus generation over dividends of £0.8bn

· The Board's intention is to grow the dividend at 5% for the year FY24⁶, as previously communicated

1. The Group uses a number of Alternative Performance Measures (including adjusted operating profit) to enhance understanding of the Group's performance. These are defined in the glossary, on pages 83 to 83 of this report. IFRS 17 was introduced on 1st January 2023, comparatives have been restated accordingly.

2. Profit after tax attributable to equity holders.

3. Solvency II coverage ratio before the payment of 2023 final dividend.

4. Store of future profit refers to the gross of tax combination of established Contractual Service Margin "CSM" and Risk Adjustment "RA" (net of reinsurance) under IFRS 17.

5. Net premium after deducting for funded reinsurance relating to 2023 PRT transactions.

6. Absent market shocks / events outside of our control.

Financial summary¹

£m	2023	2022	Growth (%)

Analysis of operating profit
Legal & General Retirement Institutional (LGRI)	886	807	10
Retail	408	415	(2)
Legal & General Capital (LGC)	510	509	-
Legal & General Investment Management (LGIM)	274	340	(19)
Operating profit from divisions	2,078	2,071	-

Group debt costs	(212)	(214)	1
Group investment projects and expenses	(199)	(194)	(3)

Operating profit	1,667	1,663	-

Investment and other variances (incl. minority interests) Investment variance excluding longevity and internal pension scheme accounting²	(1,591) (1,106)	(795) (628)	(100) (76)

Profit before tax attributable to equity holders	76	868	(91)
Profit before tax excluding longevity and internal pension scheme accounting	561	1,035	(46)

Profit after tax attributable to equity holders	457	783	(42)
Profit after tax excluding longevity and internal pension scheme accounting	848	927	(9)

Earnings per share (p)	7.35	12.84	(43)
Earnings per share (p) excluding longevity and internal pension scheme accounting	13.96	15.28	(9)
Contractual Service Margin (CSM)	12,994	11,938	9
CSM (net of tax) + Book Value	14,720	14,589	1
CSM (net of tax) + Book value per share (p)	246	244	1

Solvency II
Operational surplus generation	1,821	1,805	1
Coverage ratio (%)	224	236	(12)

Full year dividend per share (p)	20.34	19.37	5

1. IFRS 17 was introduced on 1 January 2023, comparatives have been restated accordingly. For further information please see Note 1.01

2. Excludes the accounting impacts of a longevity assumption change (see page 6 and 8) and the buyout of the L&G pension scheme (see note 3.14.iii).

2023 Financial performance

Income statement

2023 operating performance was resilient, with operating profit from divisions of £2,078m (2022: £2,071m). Our business remains well-positioned to execute on compelling structural market opportunities to deliver further profitable growth over the medium and long-term.

LGRI operating profit increased by 10% to £886m (2022: £807m) underpinned by the growing scale of back-book earnings and the consistent investment performance of our annuity portfolio. LGRI executed record new business volumes, addressing growing demand while maintaining pricing discipline, writing £13,719m of global PRT (2022: £9,541m) at a Solvency II new business margin of 7.4%[1] in line with our long-term expectation. This has added c£1.0bn to our store of future profit in 2023.

Retail operating profit decreased by 2% to 408m (2022: £415m). Whilst insurance operating profit was up 22% (2023: £436m, 2022: £357m), driven by ongoing profit releases in the UK and US, total operating profit was down given the lower contribution from the Fintech businesses, as valuation uplifts from 2022 did not repeat.

LGC operating profit was flat against prior year earnings at £510m (2022: £509m), reflecting a good performance in a challenging macro-economic environment for alternative assets. In 2023, we grew our third-party managed capital by 9% to £18.1bn (2022: £16.6bn). We remain on track to meet our ambition of £25-30bn by 2025.

LGIM delivered operating profit of £274m (2022: £340m), primarily reflecting the impact of higher interest rates on the value of assets under management: average assets under management were 12% lower year-on-year. Despite significant inflationary impacts, we have taken action to keep absolute costs flat.

Profit before tax attributable to equity holders, excluding longevity and internal pension scheme accounting, was £561m (2022: £1,035m), reflecting investment and other variances of £(1,106)m (2022: £(628)m). Investment variance was driven by the unrealised mark-to-market impact of higher rates on asset valuations, the cost relating to our announced Modular Homes closure and the write-down of our investment in Onto.

Balance sheet and asset portfolio

Solvency II operational surplus generation (OSG) was level at £1,821m (2022: £1,805m). Net surplus generation (NSG) was £1,383m (2022: £1,453m) reflecting the impact of higher volumes of PRT business with strain levels in line with our long-term average. The UK annuity portfolio was self-sustaining again for the 4^th year in a row, and we continue to have optionality to further enhance profitability through back-book asset optimisation.

Solvency II coverage ratio[2] is strong at 224% (2022: 236%).

Our IFRS return on equity[3] of 9.7% (2022: 15.6%) reflects the impact of investment and other variances on the total result. Looking at the result before these variances, return on equity would be 27.1%[4] (2022: 26.9%). We expect investment variance to average to zero over the longer term.

Our store of future profit increased 9% to £14.7bn (2022: £13.5bn), with CSM up 9% to £13.0bn (2022: £11.9bn), reflecting contributions from our growing annuity businesses and the routine longevity review in H2, and by the Risk Adjustment (£1.7bn) up 11% from 2022 (£1.5bn).

Our diversified, actively managed annuity portfolio has continued to perform resiliently with no defaults. The annuity portfolio's direct investments have received 100% of scheduled cash-flows year to date, reflecting the high quality of our counterparty exposure.

Group Outlook

Confident in achieving our ambitions; well-positioned to deliver long-term profitable growth

Our strategy has delivered strong compounding returns for our shareholders over time. It has demonstrated resilience and positions us well to navigate the prevailing market environment, and to deliver on our current five-year ambitions.

Cumulatively, over the period 2020-2024, we have an ambition to generate capital of £8-9bn, with net capital surplus generation (i.e., including new business strain) to exceed dividends of £5.6-5.9bn.[5]

We made further progress against these ambitions in 2023 and are set to achieve them in 2024. From the start of the ambition period to 2023, we have achieved £6.8bn of cumulative capital generation while declaring dividends of £4.5bn. Even with no growth in capital generation in 2024, the cumulative capital generation would still be comfortably within our stated ambition of £8-9bn. We have generated cumulative net surplus generation over dividends of £0.8bn from 2020 to date.

We remain confident in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets. Our confidence in our dividend paying capacity is underpinned by the Group's strong earnings and strong balance sheet, which has Solvency II regulatory capital of £16.6bn: a surplus of £9.2bn in excess of a capital requirement of £7.4bn.

Business segment outlook

Legal & General Retirement Institutional (LGRI)

LGRI participates actively in the global pension risk transfer (PRT) market, focusing on corporate defined benefit (DB) pension plans in the UK, the US, Canada and the Netherlands. Together, these markets have more than £6 trillion of pension liabilities of which c10% have transacted to date.[6] The addressable market therefore remains significant.

Our stated ambition for UK PRT is to write circa £8-10bn per annum under typical market volumes. With up to £355 billion of UK PRT demand over the next five years anticipated and an increase in £1bn+ size individual transactions coming to market [7], we are expecting a period of heightened market volumes. We believe we are well positioned to address this need and have appetite to write higher volumes where commercial conditions support. We will continue to be proactive in managing the capital we deploy on this business, including use of reinsurance, to generate strong margins over time.

We are also well-positioned to execute internationally, having written over $7.5bn of PRT in the US and Canada between 2020 and 2023. In 2023, we announced our strategic relationship with Lifetri which looks to capitalise on proposed pension reforms in the Netherlands.

Legal & General Retail (Retail)

Our Workplace Savings business administers one of the largest and fastest-growing UK Master Trusts, which now has £25.4bn of AUM, and was the first commercial Master Trust to surpass £20bn of assets under management. It is well positioned to benefit from the trend of consolidation in the market as well as from contributions from existing schemes. Our focus remains on improving efficiency and scalability as the business continues to grow.

We expect demand for retail annuities to remain strong, providing substantial long-term profits to the Group. In protection, we expect our US business to continue to build on the technological and distribution advantages that have delivered record sales in 2023, and in the UK, we see opportunities to further grow our distribution reach and profitability.

Legal & General Capital (LGC)

In LGC, we continue to focus on delivering financial performance through responsible and impactful investing whilst increasing our international diversification. Our unique asset origination capabilities continue to be a key differentiator for L&G in PRT as we manufacture bespoke investments, tailored to create attractive long-term returns for the annuity portfolio.

We continue to benefit from our reputation and unique partnerships to access opportunities across key sectors including Housing, Specialist Commercial Real Estate, Clean Energy, General Partners Investing and Venture Capital Platforms. This year, we are looking to invest alongside an increasing number of third-party capital partners to create long-term income streams, underpinned by societal demand. LGC will further scale its impact, whilst securing additional revenue for the Group as a result of third-party management and advisory fees.

Legal & General Investment Management (LGIM)

LGIM competes in the global asset management market and invests both on behalf of L&G and for third party clients; the latter contributes around 80% of global revenues. Asset management is a long-term business, and we remain confident in our strategy which positions LGIM for sustainable future growth, supported by industry tailwinds.

Our medium-term ambition is underpinned by the three strategic pillars, to modernise, diversify and internationalise:

· Modernise: We are evolving the business, investing in our people, platform and data capabilities to improve operating effectiveness and deliver scale benefits. This includes transformation of our operating model, using State Street/Charles River to build a global investment and middle office platform.

· Diversify: We are building on our core capabilities to improve business mix by selectively adding to our investment offering, with a focus on higher-margin areas such as private markets, active fixed income and wholesale distribution channels. We continue to focus on sustainable investing.

· Internationalise: LGIM aims to be an innovator in regions and countries where our strengths align to client needs and continues to expand globally. Since 2018, LGIM's International AUM has grown by 81% to £465.4bn, representing 40% of AUM.

Our approach to capital allocation

The Board believes it has considerable opportunities available to deliver attractive returns to shareholders by retaining and investing capital within the Group.

The Board will at the same time continually assess these investment opportunities against the relative attractiveness of returning capital to shareholders either through a buyback or a programme of buybacks.

If, at any point, the Board believes that capital would be best deployed in this way, or if the Board believed it had surplus capital, it would not hesitate to return capital to shareholders. Any incremental capital investment could also, over time, increase the likelihood of these returns to shareholders.

We will provide further detail on our approach to capital allocation and distribution at the Capital Markets Event on the 12 June, 2024.

Dividend

The Group's dividend policy states: "We are a long-term business and set our dividend annually, according to agreed principles. The Board's intention for the future is to maintain its progressive dividend policy, reflecting the Group's expected medium-term underlying business growth, including measurement of capital generation and adjusted operating profit."

The Board has recommended a final dividend of 14.63p, giving a full year dividend of 20.34p, up 5% from the prior year (19.37p). The Board's intention is to grow the dividend at 5% until FY24.

Legal & General Retirement Institutional

FINANCIAL HIGHLIGHTS¹ £m	2023	2022
Contractual service margin release	591	497
Risk adjustment release	119	136
Expected investment margin	344	280
Experience variances	(13)	16
Non-attributable expenses	(160)	(130)
Other	5	8
Operating profit	886	807
Investment variance from longevity assumption change	(249)	(131)
Other investment variance	(200)	(6)
Profit before tax attributable to equity holders	437	670

Contractual service margin (CSM)	8,350	7,448
Risk adjustment (RA)	807	649
Total store of future profit	9,157	8,097

CSM release as a % of closing CSM pre release	6.6%	6.3%

New business CSM	865	613
New business RA	161	80
Total new business future profit	1,026	693

UK PRT	12,048	7,319
International PRT	1,671	2,222
Total new business (Gross Premiums)	13,719	9,541
Funded reinsurance premiums	(3,189)	(955)
Total new business (net of Funded Reinsurance)	10,530	8,586

Institutional annuity assets² (£bn)	68.9	60.1

1. IFRS 17 was introduced on 1 January 2023, comparatives have been restated accordingly. For further information please see Note 1.01.

2. In the UK, annuity assets across LGRI and Retail are managed together. We show here LGRI estimated annuity assets. Excludes derivative assets.

LGRI continued to deliver strong operating profit, up 10% to £886m

Contractual Service Margin (CSM) release increased 19% to £591m (2022: £497m). This reflects the growth in our store of future profit which is supported by profitable new business written and the routine longevity review. In 2023, 6.6% of the closing CSM pre-release (£8.9bn) was released into profit. Overall, the CSM grew 12.1% to £8.4bn (2022: £7.4bn).

Investment related operating profits increased 23% to £344m (2022: £280m). This increase is driven by higher interest rates increasing the expected return on surplus assets. In addition, this number also includes asset optimisation actions which routinely fine-tune our annuity backing asset portfolio to replace previously sourced assets with newly sourced higher return investments.

Non-attributable expenses of £(160)m (2022: £(130)m) reflect increasing investment in operational capacity and resilience to meet heightened global demand.

Profit before tax of £437m (2022: £670m) was impacted by investment and other variances of (£(449)m). This is partly driven by the impact of the longevity assumption change in H2 where the IFRS 17 contractual service margin is calculated using the locked-in discount rate at inception, whilst the best estimate liabilities are calculated using the current, higher discount rate. This effect will unwind in future years as higher CSM releases. The remaining portion largely relates to the unrealised mark-to-market impact of higher rates on the surplus assets in our annuity portfolio.

SII & IFRS margins consistent with long-term expectation while adding £1.0bn of future profit

During 2023, we wrote £13.7bn (£10.5bn net of reinsurance) of global pension risk transfer (PRT) new business across 43 deals (2022: £9.5bn, 61 deals). UK gross volumes increased by 65% to £12.0bn (2022: (£7.3bn) and international volumes were £1.7bn (2022: £2.2bn).

Under IFRS 17, new business profits are now deferred into the CSM and RA on the balance sheet and recognised in operating profit over the lifetime of the contract. New business added £1.0bn of future profit to the CSM and RA, making a strong contribution to the growth of our store of future profit over 2023.

The £12.0bn of UK PRT delivered a 7.4% UK Solvency II new business margin (2022: 8.9%) in line with our long-term expectation. We continue to be disciplined in our pricing and deployment of capital. We have successfully executed transactions over the last few years at initial strain levels below our 4% target. We actively optimise the back-book in the course of normal business by matching newly sourced, higher-return assets to back-book liabilities, resulting in additional margin and profit generation post-sale.

Successful execution in the UK leveraging internal synergies

LGRI's brand, scale and asset origination capabilities - through synergies and expertise within LGIM and LGC - are critical to our market leadership in the UK PRT market. Long-term client relationships, typically created and fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals, including the recent £4.8 billion full buy-in with the Boots Pension Scheme, and the earlier £2.7bn follow-on transaction with the British Steel Pension Scheme, executed under an umbrella agreement.

Well positioned to execute in international markets

LGRI delivered US PRT new business premiums of $1,882m (2023: £1,463m, 2022: $2,096m; £1,763m). In H2, we surpassed $10 billion of total written premium with over 100 deals in the US since our launch in 2015. This includes roughly $5 billion secured in just the past three years and our largest ever US transaction in July for $789m USD.

In 2023, we have written c$350m CAD of Canadian liabilities through our reinsurance entity, L&G Re. This brings L&G Re's total reinsured premium in the Canadian PRT market to over $1.5bn CAD. We continue to actively price in the Canadian and Dutch markets and remain disciplined on price with a focus on long-term profitability and shareholder returns.

Legal & General remains strongly positioned to offer holistic, multinational pension de-risking solutions, leveraging skills and capabilities across geographies.

Retail

FINANCIAL HIGHLIGHTS¹ £m	2023	2022
Contractual service margin release	446	424
Risk adjustment release	74	85
Expected investment margin	81	60
Experience variances	(44)	(99)
Non-attributable expenses	(121)	(113)
Insurance profit	436	357
Other (Non-insurance profit)	(28)	58
Operating profit	408	415
- US/UK Insurance²	138	165
- Retail Retirement³	270	250
Investment variance from longevity assumption change	(69)	(36)
Other investment variance	(131)	58
Profit before tax attributable to equity holders	208	437

Contractual service margin (CSM)	4,644	4,490
Risk adjustment (RA)	891	883
Total store of future profit	5,535	5,373

New business CSM	320	287
New business RA	32	28
Total new business future profit	352	315

Protection new business annual premiums	412	382
Individual annuities single premium	1,431	954
Workplace Savings net flows⁴ (£bn)	6.3	7.3
Lifetime & Retirement Interest Only mortgage advances	299	632
Retail retirement annuity assets⁵ (£bn)	17.2	16.5

UK Retail protection gross premiums	1,512	1,485
UK Group protection gross premiums	479	427
US protection gross premiums	1,273	1,222
Total protection gross premiums	3,264	3,134

Protection New Business Value	165	166
Annuities New Business Value	100	60
Solvency II New Business Value	265	226

1. IFRS 17 was introduced on 1 January 2023, comparatives have been restated accordingly. For further information please see Note 1.01.

2. UK Insurance includes Retail Protection, Group Protection, Fintech and Mortgage Services.

3. Retail Retirement includes Individual Annuities, Lifetime Mortgages, Workplace Admin.

4. This represents the Workplace Savings administration business. Profits on the fund management services we provide are included in LGIM's asset management operating profit.

5. In the UK, annuity assets across LGRI and Retail are managed together. Estimated proportion of annuity assets belonging to Retail Retirement. Excludes derivative assets.

Operating profit of £408m

In 2023, Retail operating profit was £408m (2022: £415m). Whilst insurance operating profit of £436m is up 22% (2022: £357m), driven by resilient on-going profit releases and improved mortality experience in the US, total operating profit is down given non-repeating gains on Fintech investments in 2022 and macro-driven challenges in mortgage-related businesses (reflected in "Other" above).

The Contractual Service Margin (CSM) release was £446m (2022: £424m), reflecting the release of previously stored insurance profits. Growth in the CSM release was driven by profitable new business written and the routine longevity review in H2. In 2023, 8.8% of the closing CSM pre-release (£5.1bn) was released into profit (2022: 8.6%, £4.9bn) and, overall, the CSM grew by 3.4% to £4.6bn (2022: £4.5bn).

Experience variances of £(44)m (2022: £(99)m) relate to less adverse mortality in the US (for which we fully utilised the $40m provision setup in 2022) and the impact of persistency experience and assumption changes in the UK protection business that negatively impact onerous contracts. Although better persistency is a net positive for the portfolio, the benefit on profitable contracts is deferred and reflected in the change in CSM, whereas the impact on onerous contacts is recognised in the P&L under IFRS17.

Profit before tax was £208m (2022: £437m), significantly impacted by investment variances from longevity assumption changes in our annuity portfolio in H2, and the write-down of our investment in Onto.

Solvency II New Business Value increased 17% to £265m (2022: £226m) with growth in Retail Annuities and US protection being offset by lower margins in UK protection, due to higher interest rates and lower new business volumes. We continue to operate with a focus on disciplined pricing and on maintaining strong distribution channels.

Succeeding in a competitive landscape in 2023

Retail annuity sales were £1,431m (2022: £954m), a record year, surpassing £1bn for the first time since Pension Freedoms reform in 2015. Both Lifetime Annuity and Fixed Term Annuity sales performed well throughout the year as higher interest rates have made these products more attractive to our customers.

Lifetime mortgage advances, including Retirement Interest Only mortgages, were £299m (2022: £632m) reflecting a decline in demand as a result of higher interest rates. Throughout this period, we have maintained pricing and underwriting discipline.

Workplace Savings net flows were £6.3bn (2022: £7.3bn), as a result of continued client wins and increased member contributions. Workplace pension platform members increased to 5.2 million in 2023.

UK Retail protection gross premium income increased to £1,512m (2022: £1,485m), with new business annual premiums of £150m (2022: £171m) in what remained a highly competitive market. L&G continues to be a leader in this market with a share of 18.4%[8], delivering a point-of-sale underwriting decision for more than 80% of our customers.

UK Group protection gross premium income increased 12% to £479m (2022: £427m) as a result of good retention and new business annual premiums of £121m (2022: £107m). Our online "quote and apply" platform for smaller schemes continues to perform well, processing c900 new clients over the year (2022: c600), and we continue to see growth in this part of the market. Group Protection saw 2,929 income protection scheme members return to work during the year.

US protection (LGIA) new business annual premiums increased 36% to $175m (2022: $129m), with robust Solvency II new business margins of 11.4 % (2022: 10.6%). Gross premiums increased 5% to $1,584m (2022: $1,512m). Our digital new business platform is making it easier for customers and their advisors to apply and buy our term products, resulting in our best-ever single year sales volumes in 2023. This is driving up our market share: LGIA ranked number one in the independent broker channel and third in the overall US term market in Q3 2023, up from fifth in 2022.[9] We expect to drive further sales growth and to reduce unit costs over the coming years. Over 90% of eligible new business is now submitted through our digital new business platform.

Legal & General Capital (LGC)

FINANCIAL HIGHLIGHTS £m	2023	2022
Operating profit	510	509
- Alternative asset portfolio	371	400
- Traded investment portfolio & Treasury	139	109
Investment and other variances^1,2	(381)	(428)
Profit before tax attributable to equity holders²	129	81

ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate	868	811
Clean energy	374	272
Residential property²	2,319	2,248
Alternative Finance	933	811
	4,494	4,142
TRADED ASSET PORTFOLIO £m
Equities	964	1,159
Bonds	212	348
Derivative assets	16	34
Cash and loans³	1,118	1,145
Total	2,310	2,686

LGC investment portfolio	6,804	6,828
Treasury assets at holding company	1,219	1,588
Total	8,023	8,416

1. Excludes 2023 costs relating to the announced Modular Homes closure.

2. 2022 restated to reflect the impact of the implementation of IFRS 9 on certain intra-segment assets.

3. Includes short term liquid holdings and loans at FV.

Total operating profit of £510m

LGC operating profit is flat at £510m versus prior year earnings (2022: £509m). Our alternative asset portfolio contributed £371m of operating profit (2022: £400m), reflecting a resilient performance in the higher interest rate environment.

LGC's alternative asset portfolio grew 8.5% to £4.5bn as we deployed £0.6bn into new and existing investments in the UK and internationally, further strengthening our capabilities across a diversified range of alternative assets that are underpinned by structural growth drivers.

Through its investments, LGC originates assets that generate attractive returns for shareholders, creates Matching Adjustment (MA)-eligible assets for the Group's annuity portfolio, and supplies valuable alternative assets to third-party clients. Third-party AUM increased to £18.1bn (2022: £16.6bn) and is on track to grow to £25-30bn by 2025.

Profit before tax was £129m, with investment and other variances of £(381)m, driven primarily by the mark-to-market impact of higher interest rates on LGC's portfolio. Whilst market conditions can drive short-term volatility in valuations, we remain confident in the long-term profitability of our alternative asset portfolio.

Specialist commercial real estate: supporting the levelling up agenda through strategic partnerships

Across the UK and US, we are investing in Specialist Commercial Real Estate (SCRE), including laboratory and flexible best-in-class facilities for innovation-based, high-growth start-ups, scale-ups and global businesses in the life sciences and technology sectors Building on our track record to deliver place-based regeneration, we are delivering mixed-use redevelopment for towns and cities, including our £4bn partnership with Oxford University and our JV, English Cities Fund.

Bruntwood SciTech is now the largest dedicated property platform serving the UK's innovation economy and aims to create a £5 billion UK-wide portfolio that can support 2,600 high-growth businesses by 2032. In 2023, it secured £500m of additional investment and welcomed Greater Manchester Pension Fund (GMPF), the UK's largest local authority pension fund, to the partnership.

LGC's 50:50 partnership with Ancora, a US real estate developer and asset manager dedicated to driving life sciences, research and technology growth in North America, continues to grow with three sites across the US, providing a valuable ecosystem for universities including Yale, Brown and Georgia Tech.

We are also helping to meet society's increasing need for data warehousing and computer processing. As a compelling strategic growth opportunity, LGC has provided further investment into its data centre platform Kao Data, alongside leading infrastructure investment firm Infratil. In January 2024, Kao Data secured a £206m debt facility, provided by Deutsche Bank. This further demonstrates its growth from a start-up to a scale-up, its industry leading reputation, and the demand for world-class infrastructure, engineered for artificial intelligence (AI).

Our Clean Energy portfolio expanded into new sectors

The transition to net zero requires significant capital investment in new technologies, assets and infrastructure. LGC's approach is deliberate in combining both early-stage technology development and scale-up for adoption, supported through our growth equity portfolio alongside investment into both new and established clean energy infrastructure assets.

In our clean energy infrastructure portfolio, we continue to scale our strategic partnership with NTR, leveraging LGIM's distribution capabilities and NTR's sector expertise to raise and deploy significant capital into new and existing renewable energy projects. In 2023, Legal & General launched the L&G NTR Clean Power (Europe) Fund which raised €390m in its first close, bringing NTR's total assets under management to over €900m across its three funds and putting third party capital to work to drive Europe's decarbonisation and energy security agenda.

In May 2023, Kensa (the country's leading manufacturer and installer of ground source heat pumps), secured an additional £70m investment and welcomed Octopus Energy as partners alongside LGC. Recognising the market opportunity that decarbonising residential real estate presents, we have now committed £49m across a range of investments in support of numerous initiatives, including reducing construction emissions and developing technologies to retrofit existing housing stock.

Housing: A multi tenure platform, diversified across affordability and life stages

LGC's Build to Sell business, Cala, has performed well over 2023, in the face of a challenging market. Having grown to become the 10th largest housebuilder in the UK by revenue, Cala sold 2,917 units in 2023, delivering revenue of £1.3bn and profit before tax of £112m. Cala's performance was good compared to the wider market with sales rates remaining stable over 2023 and close to our long-term norm. Reservations on private units currently stand at 43% of the full year, providing confidence in H1 2024 revenues.

Our Affordable Homes business has continued to establish itself as one of the UK's leading institutional developers and managers of affordable housing, with a total operational pipeline of 7,464 units and a Gross Asset Value of around £1.2bn. It was given the highest ratings by its regulator for both financial viability and governance, and is a strategic partner of Homes England. The business is well placed to create assets which provide robust, inflation-linked income for both our annuity portfolio and, increasingly, third party investors.

Accelerating the growth of private asset managers through Alternative Finance

By investing in the real economy and technological advancements through our General Partners (GP) Investing and Venture Capital platforms, we are continuing to support growth businesses and deliver enhanced returns, whilst boosting job creation and innovation.

The Pemberton platform has raised over €19bn (2022: €16.5bn) from a global pool of 227 investors across seven strategies since we first invested in 2014. As the market evolves, Pemberton continues to innovate and add new products to its platform. In February 2023, Pemberton's Working Capital Finance Strategy hit the milestone of $1 billion of committed funds, helping to create further value in the business. Pemberton manages Limited Partner (LP) capital on behalf of both LGC and LGRI, delivering direct investments which strengthen the Group's competitive position in pricing to win large global PRT deals.

In March 2023, we invested in ImpactA Global, a women-led Impact asset management firm established to provide debt financing for sustainable infrastructure projects in emerging markets. LGC committed up to $100m in further funding to ImpactA as they secure opportunities to invest in sustainable infrastructure that delivers attractive returns, alongside positive social and environmental impact.

Our Venture Capital funds portfolio supports the growth of around 700 companies. The university spin-out market is an area of particular focus for us, and a sector where we are seeing increasing appetite from third-party capital partners to invest alongside us. Our unique proposition benefits from long-standing relationships with the UK's leading research institutions, helping create the outstanding businesses of the future.

Legal & General Investment Management (LGIM)

FINANCIAL HIGHLIGHTS £m	2023	2022
Management fee revenue	876	944
Transactional revenue	26	26
Total revenue	902	970
Total costs	(628)	(630)
Operating profit	274	340
Investment and other variances	(76)	(81)
Profit before tax	198	259
Asset Management cost:income ratio (%)	70	65

NET FLOWS AND ASSETS £bn
External net flows	(38.4)	49.6
PRT Transfers	(15.2)	(3.1)
Internal net flows	1.6	0.1
Total net flows	(52.0)	46.6
Persistency¹ (%)	86	88
Average assets under management	1,155	1,309
Assets under management	1,159	1,196
Of which:
- International assets under management²	465	441
- UK DC assets under management	163	135

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

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

Operating profit of £274m

Operating profit of £274m (2022: £340m) reflects the ongoing impact of higher interest rates on the value of assets under management, with average AUM 12% lower year-over-year. Revenue of £902m (2022: £970m) is down 7%, impacted to a lesser extent by the decline in AUM, reflecting LGIM's conscious shift towards higher margin business.

We are maintaining a disciplined approach to cost management whilst continuing to invest deliberately and for the long-term. We took expense actions over 2023, including selective reshaping of the workforce and restraint on recruitment and variable compensation. This led to flat costs in 2023 compared to the prior year, despite significant inflationary pressure.

Assets under management (AUM) decreased by 3% year-on-year to £1,159.2bn (2022: £1,195.7bn). External net flows of £(38.4)bn reflects UK Defined Benefit clients adjusting their portfolios in response to improved funding ratios, with many now positioning for PRT. LGIM is a beneficiary when our clients undertake PRT with LGRI. Excluding UK Defined Benefit, LGIM's external net flows were positive at £0.9bn, generating annualised net new revenue of £24m. This reflects our focus on attracting flows into higher margin areas such as ETF, Multi-Asset and Real Assets.

LGIM is a leader in responsible investment, and we continue to innovate and be recognised for our strength in this growing area of the market, winning the prestigious Pensions Age 'Sustainability Advisor of the Year' award in 2023. As at 31 December 2023, LGIM managed £378.1bn (2022: £332.2bn) in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.[10] We now assess over 5,000 companies across 20 'climate-critical' sectors, and we can apply exclusions to over £176bn of assets.

Expanding our global footprint with International AUM

We are successfully building the business, growing international AUM by 81% since 2018 to £465.4bn (40% of overall AUM). We are a leading corporate pension manager in the US, working with clients to implement pensions' de-risking strategies. We have refocused our index capabilities, creating bespoke indices for clients via our Index Solutions team and have seen early success with £6.4bn in higher margin Index Plus mandates in 2023. US assets grew by 4% to £205.0bn over 2023.

In Europe, our growth is being led by expertise in ETFs, Active Fixed Income and responsible investing. We have expanded the number of relationships with clients and partners in our core markets of Germany, Italy, Switzerland and the Nordics, and have recently opened an office in Zurich. In May, we announced a partnership with AP7 to establish an innovative climate transition strategy, raising £400m. Our AUM across mainland Europe is £85.7bn representing a 11% annual increase.

Our AUM in Asia, including Japan, has reached £139.1bn, and we now have clients across 9 countries in the region. AUM in Asia, excluding Japan, grew by 12% over 2023 and included new mandates in Thailand, Korea and Taiwan. In Japan, our AUM has almost doubled since 2019, and we are now Japan's 7^th largest asset manager.[11] In September we opened a new Singapore office to serve clients in south-east Asia, building connectivity with our London and Zurich offices to serve the important Global Financial Institutions channel.

Supporting our institutional Defined Benefit clients to achieve their objectives

As the UK DB market matures, we are supporting over 2,000 LGIM clients to achieve their buyout objective, with many likely to choose LGRI as a pension risk transfer partner. Over the last three years, 88% of LGRI UK PRT new business premiums have come from LGIM clients, meaning LGIM will continue to manage assets backing the pension liabilities for many years. Recent examples include the British Steel Pension Scheme and the Boots Pension Scheme, which insured a combined £13.5bn of pension liabilities with LGRI. In the US, improved funding ratios due to higher interest rates have increased demand for our customised liability hedging strategies. With over 75%[12] of Defined Benefit pension schemes now targeting buy-out as their ultimate end-state, we expect to increase revenue by providing a full range of investment solutions across the de-risking journey.

Ongoing strength in Defined Contribution

Our Defined Contribution (DC) business continues to attract new assets with AUM of £163bn (2022: £135bn), and external net flows of £12.4bn contributing to annualised net new revenue of £16m. This growth was supported by Retail's Workplace pension business, which now has 5.2 million members. This success is underpinned by LGIM's strong customer focus and innovative product proposition, as shown by a 92% persistency rate among our DC customers. AUM has more than doubled since 2018. In January 2024, we submitted our application to the FCA for a new fund that will hold private assets for DC investors. The fund will launch later this year, subject to regulatory approval, and underlines our commitment to providing innovative solutions to our DC investors' needs.

L&G also has one of the largest and fastest-growing UK Master Trusts, which now has £25.4bn of AUM, and was the first commercial Master Trust to surpass £20bn of AUM. The growth reflects the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration. Our ability to offer investors an integrated blend of high-quality investment solutions, pensions administration and Master Trust governance is a significant source of competitive advantage. In June, L&G's Master Trust won the coveted Corporate Advisor award for Best Master Trust for the third year in a row.

Accelerating growth in Wholesale

We ended 2023 with record levels of Wholesale AUM at £68bn, growing 20% over 2023. In UK Wholesale, we achieved our highest ever gross sales and ranked 2nd across the industry. We launched new Active Fixed Income (AFI) funds, and saw renewed client interest across our AFI strategies following the normalisation of interest rates, including strong performance in our Strategic Bond Fund. Our Multi-Asset capabilities continue to attract net inflows, with AUM now totalling £11bn.

Since acquisition of the Canvas ETF business in 2018, revenue has more than tripled. Our focus is on thematic strategies, with the range continuing to show resilience, with £1.9bn of external net flows in 2023. This year we launched an ETF partnership with Gerd Kommer in Germany, with a co-branded ETF being distributed into the German Savings Plan market, raising £112m. LGIM is ranked second based on AUM in the European thematic ETF market.[13]

Growing our Real Assets Platform

Real Assets saw total net flows of £1.5bn (2022: £3.2bn) driven by £2.9bn of Private Credit transactions of which the majority support LGRI's PRT proposition. Private Credit AUM reached £18.6bn[14] in 2023, and we expect it to be core to future growth in flows as clients seek diversification of secure income and value protection. UK Defined Benefit investors are now accessing these capabilities through our successful SIAF and STAFF[15] private credit funds, and DC investors are increasingly considering our illiquid strategies.

Our Real Estate and Infrastructure Equity platform remains strong with AUM of £18.3bn. In 2023, and as noted previously, we raised €390m in the first close of the Clean Power (Europe) Fund working in partnership with NTR. We have hired a team in the US to focus on real estate markets where we see potential. Our property fund for UK retail investors is one of the market leaders with over £1.2bn of AUM. We worked closely with LGC to build client offerings across affordable housing, operational real assets and UK university spin-outs, that we expect to launch with significant interest in 2024. Our strategy is to externalise capabilities that we have built in collaboration with other parts of Legal & General.

Investment Performance

Investment performance has been strong across our range of matching, tracking and active strategies. For our UK-managed Active Fixed Income strategies, 64% of strategies out-performed over 1 year, 83% over 3 years and 95% over 5 years. US-managed Active Fixed Income strategies also performed well with 60% of strategies out-performing over 1 year, 75% over 3 years and 73% over 5 years. Multi-Asset strategies outperformed by 63% over 1 year, 36% over 3 years and 62% over 5 years. Within Private Markets, 71% of our Real Estate Equity funds outperformed over 1 year, 100% over 3 years and 86% over 5 years.

Subsidiary remittances to Group

Subsidiary remittances¹ (£m)	2023	2022



LGAS	752	784
LGIM	140	279
LGA	185	97
Other²	472	394
Total	1,549	1,554

1. Represents cash remittances from subsidiaries to Group in respect of the year's financial performance.

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

The level of subsidiary dividends ensures coverage of external dividends (2023: £1,212m; 2022: £1,153m), Group related costs, with excess liquidity being held within our regulated subsidiaries.

Borrowings

The Group's outstanding core borrowings totalled £4.3bn at 31 December 2023 (2022: £4.3bn). There is also a further £1.8bn (2022: £1.2bn) of operational borrowings including £1.4bn (2022: £0.9bn) of non-recourse borrowings.

Group debt costs of £212m (2022: £214m) reflect an average cost of debt of 4.8% per annum (2022: 4.8% per annum) on an average nominal value of debt balances of £4.5bn (2022: £4.5bn).

Taxation

Equity holders' Effective Tax Rate (%)	2023	2022



Equity holders' total Effective Tax Rate¹	11.9	10.4
Annualised rate of UK corporation tax	23.5	19.0

¹ Excluding the impact of the Bermudan corporate income tax enacted in 2023, the investment variance from longevity assumption changes (see page 6 and 8) and the buyout of the L&G pension scheme (see note 3.14.iii). Including this impact, the effective tax rate in 2023 is (482.9)%

The Group has a credit for the year of £367m which includes a material one-off tax credit of £340m on the recognition of a deferred tax asset relating to the introduction of a new Bermuda corporate income tax regime. Absent this impact, the effective tax rate reflects the varying rates of tax that we pay on our businesses in different territories and the mixture of profits and losses across those territories.

Solvency II

As at 31 December 2023, the Group had an estimated Solvency II surplus of £9.2bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 224%.

Capital (£m)	2023	2022
Own Funds	16,556	17,226
Solvency Capital Requirement (SCR)	(7,389)	(7,311)
Solvency II surplus	9,167	9,915
SCR coverage ratio (%)	224	236

Analysis of movement from 1 January to 31 December 2023¹ (£m)	Solvency II Own Funds	Solvency II SCR	Solvency II Surplus

Operational surplus generation	1,596	225	1,821
New business strain²	551	(989)	(438)
Net surplus generation	2,147	(764)	1,383
Operating variances			(307)
Mergers, acquisitions and disposals			(140)
Market movements			(512)
Subordinated debt			-
Dividends paid			(1,172)

Total surplus movement (after dividends paid in the period)	(670)	(78)	(748)

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

2. Reported new business strain includes impact from SII risk margin reform.

Operational surplus generation increased to £1,821m (2022: £1,805m), after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(438)m, primarily reflecting elevated PRT volumes written at capital strain levels in line with our long-term average. This resulted in net surplus generation of £1,383m (2022: £1,453m), which was in excess of the dividends paid during the year.

Operating variances include the impact of experience variances, changes to assumptions and management actions.

Market movements of £(512)m primarily reflect the impact of higher rates on the mark to market valuation of our assets, partially offset by other, smaller variances such as credit spread dispersion in sub-investment grade assets, and inflation.

The movements shown above incorporate the impact of recalculating the TMTP as at 31 December 2023.

Sensitivity analysis³

	Impact on net of tax Solvency II capital surplus 2023 £bn		Impact on net of tax Solvency II coverage ratio 2023 %
100bps increase in risk-free rates		0.1	10
100bps decrease in risk-free rates		(0.2)	(11)
Credit spreads widen by 100bps assuming an escalating addition to ratings		0.4	14
Credit spreads narrow by 100bps assuming an escalating deduction from ratings		(0.6)	(18)
Credit spreads widen by 100bps assuming a flat addition to ratings		0.5	15
Credit spreads of sub-investment grade assets widen by 100bps assuming a level addition to ratings		(0.2)	(7)
Credit migration		(0.7)	(10)
25% fall in equity markets		(0.4)	(3)
15% fall in property markets		(0.9)	(10)
50bps increase in future inflation expectations		(0.1)	(3)
10% increase in maintenance expenses	(0.3)		(4)

3. Please see disclosure 5.01 (vii) for further details.

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

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

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

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 31 December 2023 are shown below¹:


£m	PVNBP	Contribution from new business	Margin %

LGRI - UK annuity business	8,859	654	7.4
Retail Retirement - UK annuity business	1,431	100	7.0
UK Protection Total	1,337	37	2.8
US Protection	1,123	128	11.4

The key economic assumptions as at 31 December 2023 are as follows:

			%
Margin for risk			4.2
Risk-free rate
- UK			3.3
- US			3.9

Risk discount rate (net of tax)
- UK			7.5
- US			8.1

Long-term rate of return on non-profit annuities			4.9

1. Please see disclosure 5.02 for further details.

The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk-free rate and a flat margin for risk. The risk-free rate shown above is a weighted average based on the projected cash flows.

Economic and non-economic assumptions are set to best estimates of their real-world outcomes, including a risk premium for asset returns where appropriate. In particular:

· The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the yield on the relevant backing assets, net of an allowance for default risk which takes into account the credit rating and the outstanding term of the assets. The weighted average deduction for business written in 2023 equates to a level rate deduction from the expected returns of 19 basis points. The calculated return takes account of derivatives and other credit instruments in the investment portfolio.

· 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.

Principal risks and uncertainties

The directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.

The principal risks are set out below including details of how they have been managed or mitigated. Further details of the Group's inherent risk exposures are set out at Notes 7 and 15 to 17 of the financial statements.

RISKS AND UNCERTAINTIES	RISK MITIGATION	OUTLOOK



Investment market performance and conditions in the broader economy may adversely impact earnings, profitability, or surplus capital. The performance and liquidity of financial and property markets, interest rate movements and inflation impact the value of investments we hold in both shareholders' funds and to meet the obligations from insurance business; the movement in certain investments directly impacts profitability. Interest rate movements and inflation can also change the value of our obligations and although we seek to match assets and liabilities, losses can still arise from adverse markets. Falls in the risk-free yield curve can also create a greater degree of inherent volatility to be managed in the solvency balance sheet, potentially impacting capital requirements and surplus capital. Falls in investment values can reduce our investment management fee income.	We cannot completely eliminate the downside impacts on our earnings, profitability or surplus capital from investment market volatility and adverse economic conditions, although we seek to position our investment portfolios and wider business plans for a range of plausible economic scenarios and investment market conditions to ensure their resilience across a range of outcomes. This includes setting risk limits on exposures to different asset classes and where hedging instruments exist, we seek to limit our exposure on a financial reporting basis. Our Own Risk Solvency Assessment (ORSA) is integral to our risk management approach, and includes an assessment of the financial impacts of risks associated with investment market volatility and adverse economic scenarios for our solvency balance sheet, capital sufficiency, and liquidity requirements.	The global economic outlook remains uncertain with the potential for interest rates to remain at current levels for longer than anticipated by the markets and longer than required to subdue inflation. This could lead to significant unintended damage to the broader economy, including a sustained period of low investment and growth, reduced consumer spending, and higher unemployment. Our businesses are primarily exposed to the UK and US economies. Asset values, including commercial and residential property prices, remain susceptible to reappraisal should the current economic outlook deteriorate, as well as from a range of geo-political factors including the on-going war in Ukraine and conflict in the Middle East. Towards the end of 2023 commercial property markets stabilised to an extent and some confidence returned. Within our construction businesses supply chain, cost inflation and labour shortages continue to present risk.
In dealing with issuers of debt and other types of counterparty, the Group is exposed to the risk of financial loss. Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our balance sheet surplus, despite already having set aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody, and other bespoke business services. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.	We manage our exposure to downgrade and default risks within our bond portfolios, through setting selection criteria and exposure limits, and using LGIM's global credit team's capabilities to ensure risks are effectively controlled, where appropriate trading out to improve credit quality. In our property lending businesses, our loan criteria take account of borrower creditworthiness and the potential for movements in the value of security. We manage our reinsurer exposures tightly with the vast majority of our reinsurers having a minimum A- rating, setting rating-based exposure limits, and where appropriate taking collateral. Similarly, we seek to limit aggregate exposure to banking, money market and service providers. Whilst we manage risks to our balance sheet, we can never eliminate downgrade or default risks, although we seek to hold a strong balance sheet that we believe to be prudent for a range of adverse scenarios.	The risk of credit default increases in periods of low economic growth, and we continue to closely monitor the factors that may lead to a widening of credit spreads including the outlook for the real economy and fiscal and monetary policy. Although real incomes in the UK have risen in 2023, any reversal of this would particularly impact economic activity in sectors reliant on discretionary spending. We remain vigilant, closely monitoring all the names/assets in our portfolio in the short-term, as well as forming views on the medium to long -term outlook. Our credit portfolio remains overwhelmingly (99%) investment grade, and our office property lending continues to focus on high-grade assets let to investment grade or government tenants.


RISKS AND UNCERTAINTIES	RISK MITIGATION	OUTLOOK
We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses. As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks. Abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions. Physical risks, stemming from extreme climate outcomes, could impact the valuation of at-risk assets, for example flood could impact the value of our property assets; and could also potentially have longer-term effects on mortality rates. We are also exposed to reputation and climate related litigation risks should our responses to the threats from climate change be judged not to align with the expectations of environment, social and governance (ESG) groups. Our risk management approach is also reliant upon the availability of verifiable consistent and comparable emissions data.	We recognise our scale brings a responsibility to act decisively in positioning our balance sheet to address climate change risks We assess climate change risks in our investment process, including the management of real assets and measure the carbon intensity targets of our investment portfolios. Along with specific investment exclusions for carbon intensive sectors, we have set overall reduction targets aligned with the 1.5°C Paris Agreement. This includes setting near term science-based targets to support our long-term emission reduction goals in line with our Climate transition plan. We continue to develop how we incorporate the potential physical impacts of the climate change on both assets and liabilities into our modelling and projects, while also evolving our approach to include nature and biodiversity in our climate risk work. Alongside managing climate exposures, we closely monitor the political and regulatory landscape, and as part of our climate strategy we engage with regulators and investee companies in support of climate action. As we change how we invest, the products and services we offer, and how we operate, we are also mindful of the need to ensure that we have the right skills for the future.	Over the next decade, the change necessary to meet global carbon reduction targets will require societal adjustments on an unprecedented scale. The events of 2023, particularly the increasing frequency of record-breaking heat events and the extreme summer weather events experienced in the northern hemisphere, have demonstrated that the impacts of increased climate volatility can be significant and may emerge rapidly. If governments fail to ensure an orderly transition to low carbon economies, it increases the risk of sudden late policy action and large, unanticipated shifts in the asset values of impacted industries. Our transition plans aims to minimise exposure to this risk, but its success is dependent on the delivery of the policy actions and the climate reduction targets of the firms we invest in. The actions governments take will also, significantly impact our ability to meet our climate targets, and as the science of climate change evolves, we may need to adapt our actions. Additionally anti ESG sentiment, particularly within countries with a high dependency on fossil fuel related industries, may limit global efforts to address climate change and investment opportunities. Although a broad set of actions to limit global warming is underway, we are moving to a situation where the path to achieving a sub-1.5 temperature increase is becoming narrower. This could also have an impact on our ability to meet the climate-related targets we have set ourselves. We expect a continuing and increased focus on nature and biodiversity risks going forward.
A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage. We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions, or reputational damage. We are also inherently exposed to cyber threats including the risks of data theft and fraud and more generally it is imperative that we maintain the privacy of our customers' personal data. There is also strong stakeholder expectation that our core business services are resilient to operational disruption.	Our risk governance model seeks to ensure that business management are actively engaged in maintaining an appropriate control environment, supported by risk functions led by the Group Chief Risk Officer, with independent assurance from Group Internal Audit. We continue to evolve our risk management approach for IT, operational resilience and data access and privacy. Whilst we seek to maintain a control environment commensurate with our risk profile, we recognise that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.	We continue to remain alert to evolving operational risks and invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient. We also remain cognisant of the risks as we implement a new global operating model and IT platform for LGIM and have structured the migration in phases to minimise change risks.

RISKS AND UNCERTAINTIES

RISK MITIGATION

OUTLOOK

Changes in experience, regulation or legislation may require revisions to our reserves and capital requirements, and could also impact our reported solvency position and dividend policy.

The pricing of long-term business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, expenses, interest rates and credit defaults. Actual experience may require recalibration of these assumptions, changing the level of provisions and impacting reported profitability.

Regulation defines the overall framework for the design, marketing, taxation and distribution of our products, and the prudential provisions and capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues, impact profitability or require us to hold more capital.

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

Changes in these areas can affect our reported solvency position and dividend policy.

We undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that provisions continue to remain appropriate for factors including mortality, lapse rates, expenses, valuation interest rates and credit defaults in the assets backing our insurance liabilities.

We seek to have a comprehensive understanding of longevity, mortality and morbidity risks, and we continue to evaluate wider trends in life expectancy. However, we cannot remove the risk that adjustment to reserves may be required, although the selective use of reinsurance acts to reduce the impacts to us of significant variations in life expectancy and mortality.

We actively engage with government and regulatory bodies to assist in the evaluation of regulatory change to promote outcomes that meet the needs of all stakeholders. To influence policy our interactions with government and policy teams at regulators include face-to-face and virtual meetings, written responses to discussion papers and consultations, ad-hoc communications and attendance at roundtables with industry peers. With our experience in various sectors, we can explain how proposed policy translates into practice and identify potential issues or unintended consequences that might arise.

When such regulatory changes move to the implementation stage, we undertake detailed gap analysis work and depending on the scale of the work required, establish project management arrangements with first and second-line teams working together. This is to ensure we delivery regulatory change effectively and efficiently, minimising disruption to our operations.

We have seen continued elevated levels of mortality in both the UK and the US. The causes are unclear, but may reflect indirect impacts of Covid 19 related illness, and the deferral of diagnostics and medical treatments for other conditions. There remains continued uncertainty as to the impacts of "long covid". Continued cost of living pressures and government spending decisions also have the potential to affect mortality outcomes.

Along with the emergence of new diseases and changes in immunology impacting mortality and morbidity assumptions, other risk factors that may impact future reserving requirements include a significant advance in medical science leading to more effective treatments, beyond that anticipated, requiring adjustment to our longevity assumptions.

Beginning 2024, the UK will enforce a 15% global minimum tax to multi-national firms, following OECD rules. Bermuda's new Corporate Income Tax will be effective from 1 January 2025. The Group is expected to be liable to UK top-up tax in 2024 and Bermuda corporate tax from 2025 on profits arising from its Bermuda reinsurance hub. We are actively working with relevant bodies on the implementation of these new legislations.

Changes in capital standards, both in the UK and elsewhere, could impact our reported solvency position and dividend policy.

Post-Brexit, the UK is reforming its capital regime to move from Solvency II to Solvency UK. The key changes are designed to enable annuity product providers to invest more broadly to diversify risk and support investment in the UK economy. A 65% reduction in the Risk Margin took effect at the end of 2023, with reform of the Matching Adjustment due in 2024. We are actively engaging with the PRA on the new regime's details and working to implement the required changes.

The Bermuda Monetary Authority ("BMA") revised its capital regime for life insurers in 2023, with changes effective from March 2024. The impact of the proposed changes on L&G's business is expected to be modest.

The International Association of Insurance Supervisors ("IAIS") is finalising the Insurance Capital Standards ("ICS"), a global minimum standard capital for Internationally Active Insurance Groups ("IAIGs"). The ICS is expected to be adopted end-2024. L&G Group, designated an IAIG by the PRA, has actively participated in consultations on the standard. If Solvency UK is considered as strong as the ICS, it may be used for ICS compliance and therefore would result in little impact on L&G Group. We will continue to engage with both the PRA and the IAIS during this period.

RISKS AND UNCERTAINTIES

RISK MITIGATION

OUTLOOK

Failure to effectively implement financial services regulatory or legislative change in a timely manner could lead to regulatory censure, reputational damage and deteriorating customer outcomes.

We are exposed to several risks where effective identification and implementation of regulatory changes are particularly important. These include changes relating to our management of operational risk, conduct risk, climate risk and health & safety risk. The magnitude or scope of some regulatory changes can have a bearing on our ability to deliver our overall strategy.

Regulatory or legislative changes can have a significant impact on our business. Such changes could limit our ability to operate in certain markets or sectors, potentially leading to a reduction in our customer base and revenue.

There is a risk that regulatory policies could develop in a manner that is detrimental to our business and/or customers. Alternatively, it could develop in a way that presents opportunities, but we fail to revise our strategy and adapt quickly enough to benefit.

Non-compliance with new regulations or legislation could potentially damage our reputation. This could lead to a loss of customer trust and result in regulatory sanctions.

We identify, track and review the impact of regulatory change through our internal control processes, with material updates being considered at the Executive and Group Risk Committees and the Group Board. Our processes are designed to ensure compliance with all new and developing regulation.

We actively engage with appropriate regulatory bodies to ensure we maintain high standards of business and deliver for our customers.

In 2023 we successfully implemented the Consumer Duty for open products, with our work on legacy products well underway. We have also made progress on our implementation of the UK's operational resilience rules which are due to come into force in March 2025.

We seek to influence the direction of travel on various regulatory policy themes at government and regulator level for the benefit of our customers and other stakeholders. We have advocated on the development of the Consumer Duty, pension reforms, sustainability and diversity and inclusion.

The volume and burden of regulatory change remains high across the sectors we operate in. We analyse, interpret and implement all relevant financial services legislation and regulation impacting our business units ensuring appropriate levels of governance and assurance.

Key forthcoming developments in our risk areas include:

Operational risk: work is underway to comply with the UK's new operational resilience rules by 31 March 2025 and similar developing rules in other jurisdictions

Conduct risk: the FCA continues to focus on Consumer Duty, with closed book products in scope from 31 July 2024. Discussions are ongoing about the advice/guidance boundary and a proposal for 'targeted support' to close the advice gap. In 2024, new rules on diversity and inclusion in financial services are expected, likely leading to increased data collection, disclosure and reporting requirements. We maintain a focus on minimising the risks of financial crime for our customers and on our financial results.

Climate risk: there are a variety of moving pieces in the development of climate regulation at the UK, the US and EU level. We anticipate more focus on scenario testing and scrutiny on sustainability claims following the FCA's new anti-greenwashing rule and Sustainability Disclosure Regulations effective from 31 May 2024. We're awaiting the UK Green Taxonomy and implementation of ISSB disclosure standards.

Health & Safety: we have enhanced our governance processes and developed a 3-year strategy focusing on culture, quality, consistency, technology, and keeping pace with change. Registration requirements for the new Buildings Safety Act were met by the October 2023 deadline.

Strategic risk: we continue to follow the development of the government's Mansion House reforms and wider pensions reforms, such as the Pensions Dashboard work.

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

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

We seek to ensure that key personnel dependencies do not arise, through employee training and development programmes, remuneration strategies and succession planning.

Our processes include the active identification and development of talent within our workforce, and by the highlighting our values and social purpose, promoting Legal & General as a great place to work. As well as investing in our people, we are also transforming how we engage and develop capabilities, with new technologies and tools to support globalisation, increase productivity and provide an exceptional employee experience.

Competition for talent remains strong with skills in areas such as technology and digital particularly sought after across many business sectors, including those in which we operate. We also recognise the risks posed by the outlook for inflation in salary expectations across the wider employment market, and internally we have taken steps to help our employees through direct financial support and by providing advice and resources to help them manage their financial well-being.

RISKS AND UNCERTAINTIES

RISK MITIGATION

OUTLOOK

New entrants and/or technology may disrupt the markets in which we operate.

There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low-cost products, we recognise that markets remain attractive to new entrants.

We are also cognisant of competitors who may have lower return on capital requirements or be unconstrained by Solvency II.

The continued evolution of AI has the potential to be a significant disrupting force across our businesses, for example by enabling new entrants to compete with potentially lower costs, and more efficient processes. The technology itself could have an impact on asset valuations, and on our liabilities including through its impact on the effectiveness of life sciences and health care systems.

We continuously monitor the factors that may impact the markets in which we operate, including evolving domestic and internal capital standards, and are maintaining our focus on our digital platforms.

We have responded to the rapid advancement and accessibility of generative AI capabilities from third parties by launching a central AI Accelerator programme. This initiative brought together colleagues across the Group to shape and incubate our generative AI approaches, raise awareness and educate our business, and deliver a secure environment for internal test and learn use cases.

Our regulatory developments team keeps a close watch on the AI landscape across all our regulators. We are actively engaged in numerous consultations in relation to AI and generative AI.

We observe a continued acceleration of a number of trends, including greater consumer engagement in digital business models and on-line servicing tools. In the current operating environment, businesses like ours have transformed working practices, and we anticipate further investment in automation, using robotics and machine learning to enhance business efficiency. We are deepening our understanding of the impacts of AI on our businesses and in the wider sector.

Our businesses are also well positioned for changes in the competitive landscape that may arise from pensions-related changes. We welcome innovation in the market, such as the proposed roll out of defined benefit 'superfund' consolidation schemes, as long as the security of members' benefits is prioritised. We may see alternative de-risking offerings coming to the market targeting a similar segment to superfunds.

The pension dashboards initiative will also be a positive development. Legislation is being introduced in 2024 to make providing a qualifying pensions dashboard service a regulated activity, and it is likely we will see firms apply for this.

On the 'collective' defined contribution reform, while we have seen limited demand for this to date, it holds the potential to disrupt both the workplace and retirement income market.

Notes

A copy of this announcement can be found in "Results, Reports and Presentations", under the "Investors" section of our shareholder website at https://group.legalandgeneral.com/en/investors/results-reports-and-presentations.

A presentation to analysts and investors will take place at 10:00am UK time today at One Coleman Street, London, EC2R 5AA. There will also be a live webcast of the presentation that can be accessed at https://group.legalandgeneral.com/en/investors.

A replay of the presentation will be made available on this website by 7 March 2024.

Financial Calendar	Date
Ex-dividend date (2023 final dividend)	25 April 2024
Record date	26 April 2024
Annual General Meeting	23 May 2024
Dividend payment date	6 June 2024
2024 interim results announcement	7 August 2024
Ex-dividend date (2024 interim dividend)	22 August 2024
Record date	23 August 2024
Dividend payment date	27 September 2024

Definitions

Definitions are included in the Glossary in L&G Full Year Results 2023 Part 2.

Forward-looking statements

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

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

Caution about climate information

Annual Report and Accounts contains climate and ESG disclosures which use a large number of judgments, assumptions and estimates in connection with involved complex issues. The ESG disclosures should be treated with special caution, as ESG and climate data, models and methodologies are often relatively new, are rapidly evolving and are not of the same standard as those available in the context of other financial information, nor are they subject to the same or equivalent disclosure standards, historical reference points, benchmarks, market consensus or globally accepted accounting principals. These judgments, assumptions and estimates are likely to change over time, in particular given the uncertainty around the evolution and impact of climate change. In addition, the Group's climate risk analysis and net zero strategy remain under development and the data underlying the analysis and strategy remain subject to evolution. As a result, certain climate and ESG disclosures made in this report are likely to be amended, updated, recalculated or restated in future reports. This statement should be read together with the Cautionary statement contained in the Group's latest Climate and nature report. The information, statements and opinions contained in the Annual Report and Accounts

do not constitute an offer to sell or buy or the solicitation of an offer to sell or buy any securities or financial instruments nor do they

constitute any advice or recommendation with respect to such securities or other financial instruments or any other matter.

Going concern statement

The Group's business activities, together with the factors likely to affect its future development, performance and position in the current economic environment are set out in the Annual Report & Accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Group Results. Principal risks and uncertainties are detailed on pages 56 to 59.

The directors have made an assessment of the Group's going concern, considering both the current performance and the outlook for a period of at least, but not limited to, 12 months from the date of approval of the consolidated financial statements, using the information available up to the date of issue of the Annual Report & Accounts.

The Group manages and monitors its capital and liquidity, and applies various stresses, including adverse inflation and interest rate scenarios, to those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range of stresses are disclosed in section 5.01 of the Capital section of the Full year results in this 2023 Preliminary Management Report. These stresses do not give rise to any material uncertainties over the ability of the Group to continue as a going concern. Based upon the available information, the directors consider that the Group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.

Having reassessed the principal risks and uncertainties (both financial and operational) in light of the current economic environment, as detailed on pages 56 to 59, the directors are confident that the Group and company will have sufficient funds to continue to meet its liabilities as they fall due for a period of, but not limited to, 12 months from the date of approval of the financial statements and therefore have considered it appropriate to adopt the going concern basis of accounting when preparing the financial statements.

Directors' responsibility statement

We confirm to the best of our knowledge that:

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

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

The directors of Legal & General Group Plc are listed in the Legal & General Group Plc website:

https://group.legalandgeneral.com/en/about-us/our-management/group-board

By order of the Board

António Pedro dos Santos Simões

Group Chief Executive Officer

5 March 2024

Stuart Jeffrey Davies

Group Chief Financial Officer

5 March 2024

Enquiries

Investors

+44 203 124 2091

Edward Houghton, Group Strategy & Investor Relations Director

investor.relations@group.landg.com

+44 203 124 4415

Gregory Franck, Investor Relations Director

investor.relations@group.landg.com

+1 240 397 0053

Blake Carr, Investor Relations Director

investor.relations@group.landg.com

Media

+44 738 443 5692

Natalie Whitty, Group Corporate Affairs Director

+44 794 651 4627

Lauren Kemp, Group Head of Corporate Media & Issues

+44 778 857 7637 / +44 780 069 4425

Lucy Legh / Nigel Prideaux, Headland Consultancy

LandG@headlandconsultancy.com

[1] Solvency II margin on UK PRT business only.

[2] Solvency II coverage ratio incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 31 December 2023.

[3] Calculated using profit for the year and average equity attributable to the owners of the parent of £4,699m (2022: £5,014m).

[4] Calculated using the annualised UK corporation tax rate.

[5] Capital generation is Solvency II operational surplus generation. Dividends on a declared basis and originally on the basis of a flat final 2020 dividend, and 3-6% annual growth thereafter. Note: dividends have grown at 5% since HY21 and the Board stated publicly in November 2022 its aim to "continue to grow the dividend at 5% per annum to FY 2024": ifrs17-rns-final.pdf (legalandgeneral.com). Dividend decisions are subject to final Board approval. Note: we previously also had an ambition to generate cumulatively £8-9bn cash over the period. However, under IFRS 17 it is not possible to produce 'Net release from operations' on which our cash generation metric was based. We therefore chose to retire the cash generation ambition from FY 2022.

[6] PPF 7800 Index at 31 December 2023, LIMRA Q3 2023 retirement market data, Statistics Canada, Mercer Pension Health Pulse 2022, WTW Group Annuity Market Pulse - 2022 Annual Review, De Nederlandsche Bank (DNB) as at Q3 2023 and L&G estimates.

[7] LCP report: Insurance enters a new phase: a skyrocketing market, October 2022.

[8] ABI Q3 2023 Report.

[9] LIMRA Q3 2023 Ranking.

[10] AUM in responsible investment strategies represents only the AUM from funds or client mandates that feature a deliberate and positive expression of ESG criteria, in the fund documentation for pooled fund structures or in a client's Investment Management Agreement. Mandates which only invest in government bonds are not included, however where LGIM manages a mandate (for a third-party client) which is invested in a broad asset exposure that includes, but is not limited to, government bonds, these mandates would be included subject to that mandate having a deliberate and positive expression of ESG criteria.

[11] Ranked seventh by AUM, Japanese industry publication (Pension News) March 2022.

[12] Hymans Robertson Risk Transfer Report 2023.

[13] Etfbook Rankings 2023.

[14] Figures reflect total managed assets including AUM from fund of fund structures. As at 31 December 2023 of the total Real Assets AUM (£36.9bn), £35.5bn was invested directly by clients in Real Assets funds.

[15] SIAF = Secure Income Assets Fund. STAFF = Short Term Alternative Finance Fund.

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