L&G Full Year Results 2023 Part 2

Legal & General Group Plc

06 March 2024

IFRS Disclosures on performance

1.01 IFRS 17 and IFRS 9 restatement

The group has applied IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial Instruments' for the first time from 1 January 2023. These standards have brought significant changes to the accounting for insurance and reinsurance contracts and financial instruments respectively, and have had a material impact on the group's financial statements in the period of initial application.

IFRS 17, 'Insurance Contracts' was originally issued in May 2017 by the IASB, and subsequent amendments were issued in June 2020. Endorsement for use in the UK was granted in May 2022. The standard replaced IFRS 4, 'Insurance Contracts', and has been applied retrospectively, in line with the transitional options provided for in the standard. IFRS 17 provides a comprehensive approach for accounting for insurance contracts including their measurement, income statement presentation and disclosure.

IFRS 9, 'Financial Instruments' was issued in July 2014 by the IASB, effective for annual periods beginning on or after 1 January 2018. The IASB subsequently issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which allowed entities that met certain requirements to defer their implementation of IFRS 9 until adoption of IFRS 17, 'Insurance Contracts' or 1 January 2021, whichever is the earlier. In June 2020, the IASB agreed to extend the temporary exemption in IFRS 4 from applying IFRS 9 to annual reporting periods beginning on or after 1 January 2023. The group qualified for, and made use of this deferral option, and has therefore applied IFRS 9 for the first time on 1 January 2023. The standard replaced IAS 39, 'Financial Instruments: Recognition and Measurement'. It includes new principles around classification and measurement of financial instruments, introduces an impairment model based on expected credit losses (replacing the previous model based on incurred losses) and new requirements on hedge accounting.

The new accounting policies adopted by the group for IFRS 17 and IFRS 9, together with information relating to the transition to the new standards, are included in the group's 2023 Annual Report and Accounts.

IFRS 17 and IFRS 9 have been applied retrospectively and prior period comparative information has been restated, with all restatements clearly labelled as such throughout this report.

Prior period comparative information reflecting the implementation of IFRS 17 and IFRS 9 was initially provided in the group's interim financial statements for the period ending 30 June 2023. This information was unaudited. Since that time, and in particular as a result of the detailed work and review undertaken to finalise the numbers included in this report and in the group's 2023 Annual Report and Accounts, which has now been audited, certain adjustments have been identified which have now been reflected in the prior period comparatives. This includes a £154m reclassification between Change in investment contract liabilities and Other expenses in the Consolidated Income Statement, with no impact on profit. In total, the impact of these adjustments on equity attributable to owners of the parent was an increase of £19m as at 1 January 2022, and a decrease of £45m as at 31 December 2022.

As at the transition date of 1 January 2022, the impacts on the key line items in the group's Consolidated Balance Sheet are set out below.

Balance sheet item	31 December 2021 (as reported) £m	Reclassification due to adoption of IFRS 9 and IFRS 17 £m	Impact of the adoption of IFRS 9 £m	Impact of the adoption of IFRS 17 £m	1 January 2022 (restated) £m
Financial investments	538,374	(29)	(716)	-	537,629
Net insurance contract liabilities¹	(82,645)	(199)	-	(6,133)	(88,977)
Net deferred tax (liabilities)/assets	(249)	-	178	1,178	1,107
Other	(444,994)	228	-	(33)	(444,799)
Equity attributable to owners of the parent	10,486	-	(538)	(4,988)	4,960

1. Net insurance contract liabilities reflect insurance contract assets and liabilities, net of reinsurance contracts.

The adoption of the new accounting standards does not change the total profit recognised over the life of the group's insurance contracts, nor the underlying economics or cash generation of the group's businesses. It does not change the group's strategy, solvency position nor dividend paying capacity or appetite.

1.02 Operating profit^#


			Restated
		2023	2022
For the year ended 31 December 2023	Notes	£m	£m
Legal & General Retirement Institutional (LGRI)	1.03	886	807
Legal & General Capital (LGC)	1.04	510	509
Legal & General Investment Management (LGIM)	1.05	274	340
Retail	1.03	408	415
- Insurance		138	165
- Retail Retirement		270	250

Operating profit from divisions		2,078	2,071
Group debt costs¹		(212)	(214)
Group investment projects and expenses		(199)	(194)
Operating profit		1,667	1,663
Investment and other variances	1.06	(1,577)	(794)
Losses attributable to non-controlling interests		(14)	(1)
Adjusted profit before tax attributable to equity holders		76	868
Tax credit/(expense) attributable to equity holders	3.04	367	(86)
Profit for the year	2.01	443	782
Total tax (credit)/expense	2.01	(248)	157
Profit before tax	2.01	195	939
Profit attributable to equity holders		457	783
Earnings per share:
Basic (pence per share)²	1.08	7.35	12.84
Diluted (pence per share)²	1.08	7.28	12.47

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

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

This supplementary adjusted operating profit information (one of the group's key performance indicators) provides additional analysis of the results reported under IFRS, and the group believes that it provides stakeholders with useful information to enhance their understanding of the performance of the business in the year. While the calculation of adjusted operating profit has been updated to reflect the accounting and presentational impacts of IFRS 17, the key principles of what is measured by adjusted operating profit, as set out below and except as noted, remain unchanged from the prior year.

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. Key considerations in relation to the calculation of adjusted operating profit for the group's long-term insurance businesses and shareholder funds are set out below.

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 excluded from adjusted operating profit.

Long-term insurance

Adjusted operating profit reflects longer-term economic assumptions for the group's retirement and insurance businesses. Variances between actual and long-term expected investment return on traded and real assets 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. Assets held for future new pension risk transfer business are excluded from the asset portfolio used to determine the discount rate for annuities on insurance contract liabilities. The impact of investment management actions that optimise the yield of the assets backing the back book of annuity contracts is now included within adjusted operating profit; prior to the implementation of IFRS17 the impact of such actions was not included in operating profit.

For the group's long-term insurance businesses, reinsurance mismatches are also excluded from adjusted operating profit. Reinsurance mismatches arise where the reinsurance offset rules in IFRS 17 do not reflect management's view of the net of reinsurance transaction. In particular, during a year of reinsurance renegotiation, reinsurance gains cannot be recognised to offset any inception losses on the underlying contracts where they are recognised before the new reinsurance agreement is signed. In these circumstances, the onerous contract losses are reduced to reflect the net loss (if any) after reinsurance, and future contractual service margin (CSM) amortisation is reduced over the duration of the contracts.

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

1.02 Operating profit^# (continued)

Shareholder funds

Shareholder funds include both the group's traded investments portfolio and certain direct investments for which adjusted operating profit is based on the long-term economic return expected to be generated. For these direct investments, as well as for the group's traded investments portfolio, deviations from such long-term economic return are excluded from adjusted operating profit. Direct investments for which adjusted operating profit is reflected in this way include the following:

• Development assets, predominantly in the specialist commercial real estate and housing sectors within the LGC alternative asset portfolio: these are assets under construction and contracted to either be sold to other parts of the group or for other commercial usage, and on which LGC accepts development risks and expects to realise profits once construction is complete.

• 'Scale-up' investments, predominantly in the alternative finance sector within the LGC alternative asset portfolio as well as the fintech business within Retail: these are investments in early-stage ventures in a fast-growing phase of their life cycle, but which have not yet reached a steady-state level of earnings.

Shareholder funds also includes other direct investments for which adjusted operating profit reflects the IFRS profit before tax. Direct investments for which adjusted operating profit is reflected in this way include the following:

• 'Start-up' investments: these are companies in the beginning stages of their business lifecycle (i.e. typically less than 24 months) and which therefore have limited operating history available and typically are in a pre-revenue stage.

• Mature assets: these are companies in their final stages of business lifecycle. They are stable businesses and have sustainable streams of income, but the growth rate in their earnings is expected to remain less pronounced in the future.

1.03 Analysis of LGRI and Retail operating profit^#

	LGRI	Retail	LGRI	Retail
	2023	2023	2022	2022
	£m	£m	£m	£m
Amortisation of the CSM in the year¹	591	446	497	424
Release of risk adjustment in the year	119	74	136	85
Experience variances	(14)	(17)	15	(92)
Development of losses on onerous contracts	1	(27)	1	(7)
Other expenses²	(160)	(121)	(130)	(113)
Insurance investment margin³	344	81	280	60
Investment contracts and non-insurance operating profit	5	(28)	8	58
Total LGRI and Retail operating profit	886	408	807	415

1. Contractual service margin (CSM) amortisation for Retail has been reduced by £16m (2022: £17m) to exclude the impact of reinsurance mismatches.

2. Other expenses are non-attributable expenses on both new business and existing business. These are overhead costs which are not allowed for in the CSM or the best estimate liability unit cost assumptions, and instead are reported within the Consolidated Income Statement as part of the profit or loss for the year.

3. Insurance investment margin comprises the expected investment return on assets backing insurance contract liabilities, the unwind of the discount rate on insurance contract liabilities and the optimisation of the assets backing the annuity back book.

1.04 LGC operating profit^#

	2023	2022
	£m	£m
Direct investments¹	371	400
Traded investment portfolio including treasury assets²	139	109
Total LGC operating profit	510	509

1. Direct investments represents LGC's portfolio of assets across specialist commercial real estate, clean energy, housing and alternative finance. Direct investments includes operating profit in relation to CALA Homes of £106m (2022: £172m).

2. The traded investment portfolio holds a diversified set of exposures across equities, bonds, derivative assets, loans and cash.

1.05 LGIM operating profit^#

	2023	2022
	£m	£m
Asset management revenue (excluding third-party market data)¹	876	944
Asset management transactional revenue²	26	26
Asset management expenses (excluding third-party market data)¹	(628)	(630)
Total LGIM operating profit	274	340

1. Asset management revenue and expenses exclude income and costs of £26m in relation to the provision of third-party market data (2022: £30m).

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

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

1.06 Investment and other variances

		Restated
	2023	2022
	£m	£m
LGRI and Retail
- Net impact of investment returns less than expectation and change in liability discount rates¹	(584)	(115)
- Other	(16)	-
Total LGRI and Retail	(600)	(115)
LGC investment variance	(351)	(428)
Other investment variance²	(427)	(119)
Investment variance	(1,378)	(662)
M&A related and other variances³	(199)	(132)
Total investment and other variances	(1,577)	(794)

1. Investment variance for LGRI and Retail includes a £318m expense (2022: £167m expense) arising from rate differences on longevity assumption changes in the period.

2. Other investment variance includes the £167m one-off settlement cost associated with the buy-out of the group's UK defined benefit pension schemes (see Note 3.14 (iii) for further information) along with the current service costs and net interest expense up until that transaction. It also includes costs that 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.

3. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring as well as business start-up costs. The total for the year ended 31 December 2023 includes £181m of costs incurred relating to the announced intent to cease production within the Modular Homes business and impairment of the group's investment in Onto.

Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including development assets and scale-up equity direct investments within LGC and Retail's Insurance business), 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. Changes in non-financial assumptions, including longevity, recalibrate the CSM at locked-in point-of-sale discount rates whilst the fulfilment cash flows are measured at current discount rates, thereby creating a component of investment variance between these different bases.

The long-term expected investment return is based on opening economic assumptions applied to the assets 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:

	2023	2022
Equities	7%	7%
Commercial property	5%	5%
Residential property	3.5%	3.5%

For fixed interest securities measured at FVTPL, the expected investment returns are based on average prospective yields for the actual assets held less an adjustment for credit risk (assessed on a best estimate basis). Where securities are measured at amortised cost or FVOCI, the expected investment return comprises interest income on an effective interest rate basis.

For equity direct investments, the LGC alternative asset portfolio and Retail's Insurance business comprise investments in housing, specialist commercial real estate, clean energy, alternative finance and fintech. Where used for the determination of adjusted operating profit, the long-term expected investment return is on average between 10% and 12%, 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 Risk adjustment (RA) and Contractual service margin (CSM) analysis

	Net of reinsurance RA	Net of reinsurance RA	Net of reinsurance CSM	Net of reinsurance CSM
	LGRI	Retail	LGRI	Retail
	£m	£m	£m	£m
As at 1 January 2023	649	883	7,448	4,490
CSM recognised for services provided/received	-	-	(591)	(462)
Release of risk adjustment	(119)	(74)	-	-
Changes in estimates which adjust the CSM	6	(26)	424	204
Changes in estimates that result in losses or reversal of losses on underlying onerous contracts	-	(1)	-	8
Contracts initially recognised in the year	161	32	865	320
Finance expenses from insurance contracts	114	105	220	134
Effect of movements in exchange rates	(4)	(28)	(16)	(50)
As at 31 December 2023	807	891	8,350	4,644

	Net of reinsurance RA	Net of reinsurance RA	Net of reinsurance CSM	Net of reinsurance CSM
	LGRI	Retail	LGRI	Retail
	£m	£m	£m	£m
As at 1 January 2022	1,230	1,271	6,946	4,170
CSM recognised for services provided/received	-	-	(497)	(441)
Release of risk adjustment	(136)	(85)	-	-
Changes in estimates which adjust the CSM	(34)	3	197	264
Changes in estimates that result in losses or reversal of losses on underlying onerous contracts	-	(2)	-	-
Contracts initially recognised in the year	80	28	613	287
Finance (income)/expenses from insurance contracts	(498)	(408)	165	105
Effect of movements in exchange rates	7	76	24	105
As at 31 December 2022	649	883	7,448	4,490

The amounts presented reflect the net CSM amortisation expected to be recognised in operating profit in future periods from the business in-force at the end of the year, excluding the adjustment for reinsurance mismatches relating to protection business (described in Note 1.03). Actual CSM amortisation in future periods will differ from that presented due to the impacts of future new business, recalibrations of the CSM and changes in the future coverage units. The total amount presented exceeds the carrying value of the CSM as it incorporates the future accretion of interest.

1.08 Earnings per share

(i) Basic earnings per share

			Restated	Restated
	After tax	Per share¹	After tax	Per share¹
	2023	2023	2022	2022
	£m	p	£m	p
Profit for the year attributable to equity holders	457	7.73	783	13.23
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	(22)	(0.38)	(23)	(0.39)
Total basic earnings	435	7.35	760	12.84

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.

(ii) Diluted earnings per share

	After tax	Weighted average number of shares	Per share¹
For the year ended 31 December 2023	£m	m	p
Profit for the year attributable to equity holders	457	5,915	7.73
Net shares under options allocable for no further consideration	-	59	(0.08)
Conversion of restricted Tier 1 notes	-	307	(0.37)
Total diluted earnings	457	6,281	7.28

	Restated After tax	Weighted average number of shares	Restated Per share¹
For the year ended 31 December 2022	£m	m	p
Profit for the year attributable to equity holders	783	5,917	13.23
Net shares under options allocable for no further consideration	-	55	(0.12)
Conversion of restricted Tier 1 notes	-	307	(0.64)
Total diluted earnings	783	6,279	12.47

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.

1.09 Segmental analysis

The group has five reportable segments, comprising LGRI, LGC, LGIM, Insurance and Retail Retirement as set out in Note 1.02. Group expenses and debt costs are reported separately. Transactions between segments are on normal commercial terms and are included within the reported segments.

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 for 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.

(i) Profit/(loss) for the year

						Group
						expenses
					Retail	and debt
	LGRI	LGC	LGIM	Insurance	Retirement	costs	Total
For the year ended 31 December 2023	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	886	510	274	138	270	(411)	1,667
Investment and other variances	(449)	(487)	(76)	(81)	(119)	(365)	(1,577)
Losses attributable to non-controlling interests	-	-	-	-	-	(14)	(14)
Profit/(loss) before tax attributable to equity holders	437	23	198	57	151	(790)	76
Tax credit/(expense) attributable to equity holders	244	18	(49)	(40)	63	131	367
Profit/(loss) for the year	681	41	149	17	214	(659)	443


						Group
						expenses
					Retail	and debt
	LGRI	LGC	LGIM	Insurance	Retirement	costs	Total
For the year ended 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	807	509	340	165	250	(408)	1,663
Investment and other variances	(137)	(428)	(81)	69	(47)	(170)	(794)
Losses attributable to non-controlling interests	-	-	-	-	-	(1)	(1)
Profit/(loss) before tax attributable to equity holders	670	81	259	234	203	(579)	868
Tax (expense)/credit attributable to equity holders	(121)	(26)	(30)	(11)	(32)	134	(86)
Profit/(loss) for the year	549	55	229	223	171	(445)	782

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

1.09 Segmental analysis (continued)

(ii) Revenue

Total revenue includes insurance revenue, fees from fund management and investment contracts and other operational income from contracts with customers. Further details on the components of insurance revenue are disclosed in Note 3.11. Other operational income from contracts with customers is a component of other operational income and excludes the share of profit/loss from associates and joint ventures, as well as gains/losses on disposal of subsidiaries, associates, joint ventures and other operations.

				Retail	LGC and
	LGRI	LGIM^1,2	Insurance	Retirement	other³	Total
For the year ended 31 December 2023	£m	£m	£m	£m	£m	£m
Internal revenue	-	169	-	-	(169)	-
External revenue	5,255	720	3,114	1,469	1,553	12,111
Total revenue	5,255	889	3,114	1,469	1,384	12,111

				Retail	LGC and
	LGRI	LGIM^1,2	Insurance	Retirement	other³	Total
For the year ended 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m
Internal revenue	-	178	-	-	(178)	-
External revenue	4,492	801	3,086	1,335	1,452	11,166
Total revenue	4,492	979	3,086	1,335	1,274	11,166

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

2. LGIM external income primarily includes fees from fund management.

3. LGC and other includes LGC income, inter-segmental eliminations and group consolidation adjustments.

IFRS Primary Financial Statements

2.01 Consolidated Income Statement

			Restated¹
		2023	2022
For the year ended 31 December 2023	Notes	£m	£m
Insurance revenue	3.11	9,624	8,683
Insurance service expenses	3.11	(8,373)	(7,497)
Insurance service result before reinsurance contracts held		1,251	1,186
Net expense from reinsurance contracts held	3.11	(137)	(145)
Insurance service result	3.11	1,114	1,041
Investment return		32,973	(98,352)
Finance (expense)/income from insurance contracts		(5,830)	19,114
Finance income from reinsurance contracts		584	6
Change in investment contract liabilities		(27,116)	79,889
Insurance and investment result		1,725	1,698
Other operational income		1,571	1,646
Fees from fund management and investment contracts		825	899
Acquisition costs		(149)	(103)
Other finance costs		(347)	(290)
Other expenses		(3,430)	(2,911)
Total other income and expenses		(1,530)	(759)
Profit before tax		195	939
Tax expense attributable to policyholder returns		(119)	(71)
Profit before tax attributable to equity holders		76	868
Total tax credit/(expense)		248	(157)
Tax expense attributable to policyholder returns		119	71
Tax credit/(expense) attributable to equity holders	3.04	367	(86)
Profit for the year		443	782

Attributable to:
Non-controlling interests		(14)	(1)
Equity holders		457	783

Dividend distributions to equity holders during the year	3.02	1,172	1,116
Dividend distributions to equity holders proposed after the year end	3.02	871	829


		p	p
Total basic earnings per share²	1.08	7.35	12.84
Total diluted earnings per share²	1.08	7.28	12.47

1. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period comparatives that were included in the group's interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1.01. These corrections have been applied consistently to all affected disclosure notes in this report and in the group's consolidated financial statements.

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

2.02 Consolidated Statement of Comprehensive Income

		Restated¹
	2023	2022
For the year ended 31 December 2023	£m	£m
Profit for the year	443	782
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes	(29)	26
Tax on actuarial remeasurements on defined benefit pension schemes	8	(6)
Total items that will not be reclassified subsequently to profit or loss	(21)	20
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	(6)	(21)
Movement in cross-currency hedge	(37)	40
Tax on movement in cross-currency hedge	9	(10)
Movement in financial investments measured at FVOCI	75	(132)
Tax on movement in financial investments measured at FVOCI	(18)	28
Insurance finance (expense)/income for insurance contracts applying the OCI option	(73)	1,753
Reinsurance finance income/(expense) for reinsurance contracts applying the OCI option	43	(1,030)
Tax on movement in finance income/(expense) for insurance and reinsurance contracts	6	(169)
Total items that may be reclassified subsequently to profit or loss	(1)	459
Other comprehensive (expense)/income after tax	(22)	479
Total comprehensive income for the year	421	1,261
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests	(14)	(1)
Equity holders	435	1,262

2.03 Consolidated Balance Sheet

			Restated¹	Restated¹
		2023	2022	2021
As at 31 December 2023	Notes	£m	£m	£m
Assets
Goodwill		73	71	68
Intangible assets		477	441	365
Investment in associates and joint ventures accounted for using the equity method		616	554	375
Property, plant and equipment		433	326	316
Investment property	3.03	8,893	9,372	10,150
Financial investments	3.03	471,405	446,558	537,629
Reinsurance contract assets	3.11	7,306	4,713	4,652
Deferred tax assets	3.04	1,714	1,440	1,167
Current tax assets		885	802	670
Receivables and other assets		9,780	13,209	8,543
Cash and cash equivalents		20,513	35,784	16,487
Total assets		522,095	513,270	580,422
Equity
Share capital	3.05	149	149	149
Share premium	3.05	1,030	1,018	1,012
Employee scheme treasury shares		(147)	(144)	(99)
Capital redemption and other reserves		326	337	(135)
Retained earnings		2,973	3,707	4,033
Attributable to owners of the parent		4,331	5,067	4,960
Restricted Tier 1 convertible notes	3.06	495	495	495
Non-controlling interests	3.07	(42)	(29)	(38)
Total equity		4,784	5,533	5,417
Liabilities
Insurance contract liabilities	3.11	91,446	78,214	93,627
Reinsurance contract liabilities	3.11	220	52	2
Investment contract liabilities		316,872	286,830	372,954
Core borrowings	3.08	4,280	4,338	4,256
Operational borrowings	3.09	1,840	1,219	932
Provisions	3.14	258	890	1,238
Deferred tax liabilities	3.04	107	206	60
Current tax liabilities		77	69	84
Payables and other financial liabilities	3.10	78,439	93,905	73,858
Other liabilities		680	763	1,028
Net asset value attributable to unit holders		23,092	41,251	26,966
Total liabilities		517,311	507,737	575,005
Total equity and liabilities		522,095	513,270	580,422

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 2023	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the year ended 31 December 2023	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2023	149	1,018	(144)	337	3,707	5,067	495	(29)	5,533
Profit/(loss) for the year	-	-	-	-	457	457	-	(14)	443
Exchange differences on translation of overseas operations	-	-	-	(6)	-	(6)	-	-	(6)
Net movement in cross-currency hedge	-	-	-	(28)	-	(28)	-	-	(28)
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	(21)	(21)	-	-	(21)
Net movement in financial investments measured at FVOCI	-	-	-	57	-	57	-	-	57
Net insurance finance expense	-	-	-	(24)	-	(24)	-	-	(24)
Total comprehensive (expense)/income for the year	-	-	-	(1)	436	435	-	(14)	421
Options exercised under share option schemes	-	12	-	-	-	12	-	-	12
Shares purchased	-	-	(18)	-	-	(18)	-	-	(18)
Shares vested	-	-	15	(69)	-	(54)	-	-	(54)
Employee scheme treasury shares: - Value of employee services	-	-	-	59	-	59	-	-	59
Share scheme transfers to retained earnings	-	-	-	-	24	24	-	-	24
Dividends	-	-	-	-	(1,172)	(1,172)	-	-	(1,172)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(22)	(22)	-	-	(22)
Movement in third party interests	-	-	-	-	-	-	-	1	1
As at 31 December 2023	149	1,030	(147)	326	2,973	4,331	495	(42)	4,784

1. Capital redemption and other reserves as at 31 December 2023 include share-based payments £89m, foreign exchange £41m, capital redemption £17m, hedging £46m, insurance and reinsurance finance for contracts applying the OCI option £176m and financial assets at FVOCI £(43)m.

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
	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 (as previously reported)	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943
Impact of initial application of IFRS 17	-	-	-	(334)	(4,654)	(4,988)	-	-	(4,988)
Impact of initial application of IFRS 9	-	-	-	3	(541)	(538)	-	-	(538)
As at 1 January 2022 (Restated)²	149	1,012	(99)	(135)	4,033	4,960	495	(38)	5,417
Profit/(loss) for the year	-	-	-	-	783	783	-	(1)	782
Exchange differences on translation of overseas operations	-	-	-	(21)	-	(21)	-	-	(21)
Net movement in cross-currency hedge	-	-	-	30	-	30	-	-	30
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	20	20	-	-	20
Net movement in financial investments measured at FVOCI	-	-	-	(104)	-	(104)	-	-	(104)
Net insurance finance income	-	-	-	554	-	554	-	-	554
Total comprehensive income/(expense) for the year	-	-	-	459	803	1,262	-	(1)	1,261
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 (Restated)²	149	1,018	(144)	337	3,707	5,067	495	(29)	5,533

1. Capital redemption and other reserves as at 31 December 2022 include share-based payments £99m, foreign exchange £43m, capital redemption £17m, hedging £78m, insurance and reinsurance finance for contracts applying the OCI option £205m and financial assets at FVOCI £(105)m.

2. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period comparatives that were included in the group's interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1.01. These corrections have been applied consistently to all affected disclosure notes in this report and in the group's consolidated financial statements.

2.05 Consolidated Statement of Cash Flows

			Restated¹
		2023	2022
For the year ended 31 December 2023	Notes	£m	£m
Cash flows from operating activities
Profit for the year		443	782
Adjustments for non-cash movements in net profit for the year
Net (gains)/losses on financial investments and investment property		(21,567)	107,469
Investment income		(11,406)	(9,117)
Interest expense		347	290
Tax (credit)/expense		(248)	157
Other adjustments		112	113
Net (increase)/decrease in operational assets
Investments mandatorily measured at FVTPL		(7,478)	22,052
Investments measured at FVOCI		(1,344)	(1,025)
Investments measured at amortised cost		(126)	(93)
Other assets		3,218	(5,215)
Net increase/(decrease) in operational liabilities
Insurance contracts and reinsurance contracts held		11,153	(15,625)
Investment contracts		30,045	(86,132)
Other liabilities		(26,682)	(952)
Cash (utilised in)/generated from operations		(23,533)	12,704
Interest paid		(469)	(290)
Interest received²		5,210	3,525
Rent received		437	404
Tax paid³		(186)	(570)
Dividends received		4,297	4,691
Net cash flows from operations		(14,244)	20,464
Cash flows from investing activities
Acquisition of property, plant and equipment, intangibles and other assets		(237)	(187)
Acquisition of operations, net of cash acquired		(9)	(2)
Investment in joint ventures and associates		(184)	(101)
Disposal of joint ventures and associates		8	64
Net cash flows utilised in investing activities		(422)	(226)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year	3.02	(1,172)	(1,116)
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	12	6
Treasury shares purchased for employee share schemes		(18)	(59)
Payment of lease liabilities		(32)	(44)
Proceeds from borrowings		1,226	945
Repayment of borrowings		(544)	(737)
Net cash flows utilised in financing activities		(556)	(1,033)
Net (decrease)/increase in cash and cash equivalents		(15,222)	19,205
Exchange (losses)/gains on cash and cash equivalents		(49)	92
Cash and cash equivalents at 1 January		35,784	16,487
Total cash and cash equivalents at 31 December		20,513	35,784

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

3. Tax paid comprises UK corporation tax of £nil (2022: £358m), withholding tax of £179m (2022: £204m) and overseas corporate tax of £7m (2022: £8m).

IFRS Disclosure Notes

3.01 Basis of preparation

The preliminary announcement for the year ended 31 December 2023 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 2023 Annual Report and Accounts (including financial information for 31 December 2022 as restated for the adoption of IFRS 17 and IFRS 9), which will be made available on the group's website on 13 March 2024. The group's 2022 Annual Report and Accounts have been filed with the Registrar of Companies, and those for 2023 will be delivered in due course. KPMG have reported on the 2023 and 2022 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, certain financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss and financial assets at fair value through other comprehensive income.

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 judgements 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 contract liabilities, unquoted illiquid assets and investment property. 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 2023 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
	2023	2023	2022	2022
	£m	p	£m	p
Ordinary dividends paid and charged to equity in the year:
- Final 2021 dividend paid in June 2022	-	-	792	13.27
- Interim 2022 dividend paid in September 2022	-	-	324	5.44
- Final 2022 dividend paid in June 2023²	831	13.93	-	-
- Interim 2023 dividend paid in September 2023	341	5.71	-	-
Total dividends	1,172	19.64	1,116	18.71

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

2. The dividend proposed at 31 December 2022 was £829m based on the current number of eligible equity shares at that date.

Subsequent to 31 December 2023, the directors declared a final dividend for 2023 of 14.63 pence per ordinary share. This dividend will be paid on 6 June 2024. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2024 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2023.

3.03 Financial investments and investment property

		Restated
	2023	2022
	£m	£m
Equities¹	185,982	167,335
Debt securities^2,3	233,980	219,512
Derivative assets⁴	41,140	45,427
Loans⁵	10,303	14,284
Financial investments	471,405	446,558
Investment property	8,893	9,372
Total financial investments and investment property	480,298	455,930

1. Equities include investments in unit trusts of £19,660m (31 December 2022: £16,524m).

2. Debt securities include accrued interest of £1,852m (31 December 2022: £1,635m) and include £8,032m (31 December 2022: £7,845m) of assets valued at amortised cost.

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, particularly 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 £43,821m (31 December 2022: £51,190m).

5. Loans include £13m (31 December 2022: £1m) of loans valued at amortised cost.

3.04 Tax

(i) Tax (credit)/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:

		Restated
	2023	2022
	£m	£m
Profit before tax attributable to equity holders	76	868
Tax calculated at 23.5%¹	18	165

Adjusted for the effects of:
Recurring reconciling items:
Different rate of tax on profits and losses taxed overseas²	(68)	12
Income not subject to tax	(4)	(3)
Non-deductible expenses	27	(2)
Differences between taxable and accounting investment gains	(9)	(9)
Other taxes on property and foreign income	4	6
Unrecognised tax losses	19	17
Double tax relief³	(2)	(20)

Non-recurring reconciling items:
Adjustments in respect of prior years⁴	(11)	(21)
Impact of the revaluation of deferred tax balances	(1)	(59)
Impact of law changes on deferred tax balances⁵	(340)	-
Tax (credit)/expense attributable to equity holders⁶	(367)	86
Equity holders' effective tax rate⁷	(483)%	10%

1. 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 has increased to 23.5% (2022: 19.0%). The 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.

2. The lower rate of tax on overseas profits and losses 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%.

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

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

5. The tax credit relates to the introduction of a new corporate income tax regime in Bermuda, which was enacted in December 2023.

6. The tax credit for the year includes a material one-off tax credit arising from the recognition of a deferred tax asset relating to the introduction of a new Bermuda corporate income tax regime. The net tax credit for the year excluding this one-off credit is £27m and 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.

7. The equity holders' effective tax rate excluding the impact of expenses arising from rate differences on longevity assumption changes, the one-off settlement cost associated with the buy-out of the group's UK defined benefit pension schemes and the one-off Bermuda tax credit is 11.9%.

During the year the UK Government enacted legislation to apply a global minimum tax rate of 15% to multinational businesses headquartered in the UK as well as a new domestic UK minimum tax rate of 15%, in line with the Model Rules agreed by the Organisation for Economic Co-operation and Development (OECD). These rules apply from 1 January 2024, and will apply to all of the group's businesses globally.

During 2023 the Bermudan Government consulted on introducing a local corporate income tax with effect from 1 January 2025, which would apply to our Bermudan reinsurance businesses. This has been substantively enacted as at 31 December 2023 and deferred tax on temporary differences relating to the new regime have been valued at 15%.

The group is expected to be liable to UK top-up tax in 2024 in respect of profits arising in our global reinsurance hub in Bermuda. From 2025, we anticipate that the group will be liable for local Bermudan corporate income tax at 15%, instead of top-up tax under the global minimum tax rules, on Bermudan profits. Further guidance on both the new UK and new Bermuda rules is expected and will be kept under review for any further impact.

3.04 Tax (continued)

(ii) Deferred tax

		Restated
	2023	2022
Deferred tax assets/(liabilities)	£m	£m
Overseas deferred acquisition expenses¹	121	116
Difference between the tax and accounting value of insurance contracts	736	458
- UK²	1,149	1,237
- Bermuda³	340	-
- US	(753)	(779)
Realised and unrealised gains on investments	72	145
Excess of depreciation over capital allowances	17	21
Accounting provisions and other	52	59
Trading losses	609	463
- UK	76	-
- US⁴	533	463
Pension fund deficit	3	(26)
Acquired intangibles	(3)	(2)
Net deferred tax asset	1,607	1,234

Presented on the Consolidated Balance Sheet as:
- Deferred tax assets	1,714	1,440
- Deferred tax liabilities⁵	(107)	(206)
Net deferred tax asset	1,607	1,234

1. Deferred tax assets arising on deferred acquisition expenses relate solely to US balances.

2. The UK deferred tax asset reflects the impact of transition to IFRS 17 (see Note 1.01 for further details).

3. The Bermuda deferred tax asset relates to the introduction of a new corporate income tax regime in Bermuda, which was enacted in December 2023 (see Note 3.04 (i)).

4. This deferred tax asset relates to US operating losses. 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.

5. The deferred tax liability is comprised of balances of £107m relating to the US (2022: £206m), that are not capable of being offset against other deferred tax assets.

3.05 Share capital and share premium


			Number of
Authorised share capital			shares	£m
As at 31 December 2023 and 31 December 2022: ordinary shares of 2.5p each		9,200,000,000		230

			Share	Share
		Number of	capital	premium
Issued share capital, fully paid		shares	£m	£m
As at 1 January 2023	5,973,253,500		149	1,018
Options exercised under share option schemes	6,324,780		-	12
As at 31 December 2023	5,979,578,280		149	1,030

			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

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 (2022: £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 2023, 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
	2023	2023	2023	2022	2022	2022
	£m	%	£m	£m	%	£m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)	590	5.50	600	590	5.50	541
5.375% Sterling subordinated notes 2045 (Tier 2)	605	5.38	603	605	5.38	593
5.25% US Dollar subordinated notes 2047 (Tier 2)	676	5.25	656	712	5.25	665
5.55% US Dollar subordinated notes 2052 (Tier 2)	396	5.55	382	417	5.55	389
5.125% Sterling subordinated notes 2048 (Tier 2)	401	5.13	395	400	5.13	377
3.75% Sterling subordinated notes 2049 (Tier 2)	599	3.75	545	599	3.75	507
4.5% Sterling subordinated notes 2050 (Tier 2)	501	4.50	467	500	4.50	439
Client fund holdings of group debt (Tier 2)¹	(80)	-	(77)	(74)	-	(67)
Total subordinated borrowings	3,688	-	3,571	3,749	-	3,444
Senior borrowings
Sterling medium term notes 2031-2041	609	5.87	666	609	5.87	649
Client fund holdings of group debt¹	(17)	-	(17)	(20)	-	(19)
Total senior borrowings	592	-	649	589	-	630
Total core borrowings	4,280	-	4,220	4,338	-	4,074

1. £97m (31 December 2022: £94m) 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.

Subordinated borrowings

5.5% Sterling subordinated notes 2064

On 27 June 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. These notes mature on 27 June 2064.

5.375% Sterling subordinated notes 2045

On 27 October 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. 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. 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. 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. 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. 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. 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
	2023	2023	2023	2022	2022	2022
	£m	%	£m	£m	%	£m
Short-term operational borrowings
Euro Commercial Paper	49	4.73	49	50	1.60	50
Bank loans and overdrafts	12	-	12	3	-	3
Non-recourse borrowings
Cardiff Interchange Limited credit facility	-	-	-	64	5.63	64
CALA revolving credit facility	149	7.15	149	24	5.50	24
Class B Surplus Notes¹	1,176	8.27	1,176	788	6.62	788
Affordable Homes revolving credit facility	41	7.15	41	19	4.38	19
Homes Modular revolving credit facility	11	8.30	11	15	6.62	15
Suburban Build to Rent revolving credit facility	19	6.00	19	-	-	-
Total operational borrowings²	1,457	-	1,457	963	-	963

1. The Class B Surplus Notes have been issued by a US subsidiary of the group as part of a coinsurance structure for the purpose of US statutory regulations. The notes were issued in exchange for bonds of the same value from an unrelated party, included within financial investments on the group's Consolidated Balance Sheet.

2. Unit linked borrowings with a carrying value of £383m (31 December 2022: £256m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,840m (31 December 2022: £1,219m).

Syndicated credit facility

As at 31 December 2023, the group has in place a £1.5bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in August 2028. No amounts were outstanding at 31 December 2023.

3.10 Payables and other financial liabilities

	2023	2022
	£m	£m
Derivative liabilities	43,821	51,190
Repurchase agreements¹	25,452	31,533
Other financial liabilities²	9,166	11,182
Total payables and other financial liabilities	78,439	93,905
Due within 12 months	38,175	39,917
Due after 12 months	40,264	53,988

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 2023 was £2,647m (31 December 2022: £4,960m). Other financial liabilities have been restated for 31 December 2022.

Fair value hierarchy

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 31 December 2023	£m	£m	£m	£m	£m
Derivative liabilities	43,821	627	43,147	47	-
Repurchase agreements	25,452	-	25,452	-	-
Other financial liabilities	9,166	3,103	59	-	6,004
Total payables and other financial liabilities	78,439	3,730	68,658	47	6,004

					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 liabilities²	11,182	4,319	253	-	6,610
Total payables and other financial liabilities	93,905	4,767	82,503	25	6,610

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

2. Other financial liabilities have been restated for 31 December 2022.

Significant transfers between levels

There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2023 (2022: no significant transfers).

3.11 Insurance contracts

(i) Insurance contract revenue and expenses

For the year ended 31 December 2023	Annuities £m	Protection £m	Total £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided	943	225	1,168
- Expected incurred claims and other insurance service expenses	5,278	2,597	7,875
- Change in the risk adjustment for non-financial risk for the risk expired	371	16	387
Recovery of insurance acquisition cash flows	19	132	151
Premium experience variance relating to past and current service	1	42	43
Total insurance revenue	6,612	3,012	9,624
Total insurance service expenses	(5,244)	(3,129)	(8,373)
Allocation of reinsurance premiums	(2,847)	(1,044)	(3,891)
Amounts recoverable from reinsurers for incurred claims	2,415	1,339	3,754
Net (expense)/income from reinsurance contracts held	(432)	295	(137)
Total insurance service result	936	178	1,114

For the year ended 31 December 2022	Annuities £m	Protection £m	Total £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided	762	251	1,013
- Expected incurred claims and other insurance service expenses	4,585	2,558	7,143
- Change in the risk adjustment for non-financial risk for the risk expired	359	31	390
Recovery of insurance acquisition cash flows	14	123	137
Premium experience variance relating to past and current service	2	(2)	-
Total insurance revenue	5,722	2,961	8,683
Total insurance service expenses	(4,576)	(2,921)	(7,497)
Allocation of reinsurance premiums	(2,323)	(803)	(3,126)
Amounts recoverable from reinsurers for incurred claims	2,052	929	2,981
Net (expense)/income from reinsurance contracts held	(271)	126	(145)
Total insurance service result	875	166	1,041

(ii) Insurance and reinsurance contracts

	Assets 2023 £m	Liabilities 2023 £m	Assets 2022 £m	Liabilities 2022 £m
Insurance contracts issued
Annuities
Insurance contract balances	-	86,706	-	73,729
Assets for insurance contract acquisition cash flows¹	-	(18)	-	(20)
Protection
Insurance contract balances	-	4,782	-	4,533
Assets for insurance contract acquisition cash flows¹	-	(24)	-	(28)
Total insurance contracts issued²	-	91,446	-	78,214

	Assets 2023 £m	Liabilities 2023 £m	Assets 2022 £m	Liabilities 2022 £m
Reinsurance contracts held
Annuities
Reinsurance contracts balances	4,758	-	2,495	-
Assets for reinsurance contract acquisition cash flows¹	3	-	5	-
Protection
Reinsurance contracts balances	2,545	220	2,213	52
Assets for reinsurance contract acquisition cash flows¹	-	-	-	-
Total reinsurance contracts held²	7,306	220	4,713	52

1. Assets for insurance and reinsurance acquisition cash flows are presented within the carrying amount of the related insurance and reinsurance contract liabilities.

2. £5,119m (2022: £5,122m) of the net insurance balance of £84,360m (2022: £73,553m) is expected to run off within 12 months.

3.12 Sensitivity analysis

			Impact on
	Impact on		post-tax	Impact on
	post-tax	Impact on	group profit	group equity
	group profit	group equity	arising from	arising from	Net impact on
	arising from	arising from	insurance	insurance	post-tax	Net impact on
	financial assets	financial assets	contracts	contracts	group profit	group equity
	2023	2023	2023	2023	2023	2023
Economic sensitivity	£m	£m	£m	£m	£m	£m
Long-term insurance, other group assets and obligations
100bps increase in interest rates¹	(5,909)	(6,151)	5,713	5,892	(196)	(259)
100bps decrease in interest rates¹	6,999	7,318	(6,919)	(7,147)	80	171
50bps increase in future inflation expectations¹	1,778	1,814	(1,831)	(1,801)	(53)	13
50bps decrease in future inflation expectations¹	(1,620)	(1,652)	1,732	1,707	112	55
Credit spreads widen by 100bps with no change in expected defaults	(4,193)	(4,216)	4,041	4,206	(152)	(10)
25% rise in equity markets	297	297	-	-	297	297
25% fall in equity markets	(297)	(297)	-	-	(297)	(297)
15% rise in property values	1,155	1,155	(25)	(25)	1,130	1,130
15% fall in property values	(1,276)	(1,276)	102	102	(1,174)	(1,174)
10bps increase in credit default assumptions	-	-	(494)	(514)	(494)	(514)
10bps decrease in credit default assumptions	-	-	455	471	455	471

			Impact on
	Impact on		post-tax	Impact on
	post-tax	Impact on	group profit	group equity
	group profit	group equity	arising from	arising from	Net impact on
	arising from	arising from	insurance	insurance	post-tax	Net impact on
	financial assets	financial assets	contracts	contracts	group profit	group equity
	2022	2022	2022	2022	2022	2022
Economic sensitivity (Restated)	£m	£m	£m	£m	£m	£m
Long-term insurance, other group assets and obligations
100bps increase in interest rates	(4,775)	(4,802)	4,715	4,876	(60)	74
100bps decrease in interest rates	5,706	5,737	(5,626)	(5,833)	80	(96)
50bps increase in future inflation expectations	1,345	1,346	(1,298)	(1,270)	47	76
50bps decrease in future inflation expectations	(1,233)	(1,234)	1,232	1,207	(1)	(27)
Credit spreads widen by 100bps with no change in expected defaults	(3,990)	(3,993)	3,735	3,885	(255)	(108)
25% rise in equity markets	317	317	-	-	317	317
25% fall in equity markets	(317)	(317)	-	-	(317)	(317)
15% rise in property values	1,032	1,032	53	53	1,085	1,085
15% fall in property values	(1,113)	(1,113)	(3)	(3)	(1,116)	(1,116)
10bps increase in credit default assumptions	(12)	(12)	(449)	(467)	(461)	(479)
10bps decrease in credit default assumptions	12	12	423	438	435	450

1. The group undertook a number of management actions in January 2024 in order to reduce interest rate and inflation sensitivities. Incorporating the impact of these management actions, the sensitivities for the Net impact on post-tax group profit 2023 relating to +/-100bps interest rates are £(153)m and £23m, and to +/-50bps inflation are £(28)m and £84m.

3.12 Sensitivity analysis (continued)

		Impact on
	Impact on	post-tax	Impact on
	CSM	group profit	group equity
	2023	2023	2023
Non-economic sensitivity	£m	£m	£m
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance	352	(52)	(52)
1% increase in annuitant mortality, net of reinsurance	181	(26)	(26)
1% decrease in annuitant mortality, gross of reinsurance	(357)	52	52
1% decrease in annuitant mortality, net of reinsurance	(183)	27	27
5% increase in assurance mortality, gross of reinsurance	(591)	(395)	(308)
5% increase in assurance mortality, net of reinsurance	(307)	(95)	(81)
10% increase in maintenance expenses, gross of reinsurance	(140)	(3)	1
10% increase in maintenance expenses, net of reinsurance	(137)	(4)	1

		Impact on
	Impact on	post-tax	Impact on
	CSM	group profit	group equity
	2022	2022	2022
Non-economic sensitivity	£m	£m	£m
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance	323	(70)	(70)
1% increase in annuitant mortality, net of reinsurance	168	(32)	(32)
1% decrease in annuitant mortality, gross of reinsurance	(324)	70	70
1% decrease in annuitant mortality, net of reinsurance	(168)	32	32
5% increase in assurance mortality, gross of reinsurance	(628)	(344)	(228)
5% increase in assurance mortality, net of reinsurance	(331)	(63)	(39)
10% increase in maintenance expenses, gross of reinsurance	(126)	-	6
10% increase in maintenance expenses, net of reinsurance	(123)	-	6

The economic sensitivity tables above show the impacts on group post tax profit and equity, net of reinsurance, under each sensitivity scenario. The impacts on group post tax profit and equity arising from financial assets and insurance contracts are also shown separately in the tables. The economic sensitivity impacts cover long-term insurance business and other group assets and obligations.

The non-economic sensitivity tables above show the impacts on CSM, group post tax profit and equity, gross and net of reinsurance, under each sensitivity scenario. The non-economic sensitivity impacts cover long-term insurance business only.

The group 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.

The stresses are assumed to occur on the balance sheet date. Both CSM and current year CSM release into profit are assumed to be affected when non-financial assumptions are stressed.

In calculating the alternative values, all other assumptions are left unchanged. In practice, impacts 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 and equity 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. Interest rates used to discount liabilities are assumed to move in line with market yields, adjusted to remove risks in the asset reference portfolios that are not present in the liabilities 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. The expense inflation assumptions are non-financial and therefore recalibrate the CSM under the stresses. These recalibrations are reflected in the impacts shown.

In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, government bond 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.

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

3.12 Sensitivity analysis (continued)

The property stresses adopted are a 15% rise and 15% fall in property market values including lifetime mortgages. Where property is being used to back liabilities, interest rates used to discount liabilities 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 Moody's historical transition matrices. The credit default stress assumes a +/-10bps stress to the current credit default assumptions, which will have an impact on the interest rates used to discount liabilities. Default allowances for assets deemed credit risk free are unchanged. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured under the property stress.

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 expenses in future years.

3.13 Foreign exchange rates

Principal rates of exchange used for translation are:

Year end exchange rates	2023	2022
United States dollar	1.27	1.21
Euro	1.15	1.13

Average exchange rates	2023	2022
United States dollar	1.24	1.24
Euro	1.15	1.17

3.14 Provisions

(i) Analysis of provisions

		2023	2022
	Notes	£m	£m
Other provisions	3.14(ii)	244	273
Retirement benefit obligations	3.14(iii)	14	617
Total provisions		258	890

(ii) Other provisions

Other provisions 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 2023, the outstanding provision was £108m (31 December 2022: £111m).

(iii) Retirement benefit obligations

	Fund and	CALA Homes	Fund and	CALA Homes
	Scheme	and Overseas	Scheme	and Overseas
	2023	2023	2022	2022
	£m	£m	£m	£m
Gross pension obligations included in provisions	-	14	612	5
Annuity obligations insured by LGAS	-	-	(718)	-
Gross defined benefit pension deficit/(surplus)	-	14	(106)	5
Deferred tax on defined benefit pension deficit/(surplus)	-	(3)	27	(1)
Net defined benefit pension deficit/(surplus)	-	11	(79)	4

The Trustees completed a buy-out of the Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) in November 2023, and the existing annuity policies were exchanged for individual policies between LGAS and members. As a result, all the group's obligations under the pension schemes have now been fully extinguished, and the defined benefit obligation as at the settlement date of £1,470m was therefore derecognised. On the same date, the group recognised the direct liability to the pensioners within insurance contract liabilities. The difference between the defined benefit obligation at this date and the fair value of the insurance contract liabilities recognised under IFRS 17 resulted in £167m being recognised in the Consolidated Income Statement as settlement costs. This reflects measurement differences between IFRS 17 and IAS 19, principally comprising of the associated CSM and risk adjustment.

3.15 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. 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.

3.16 Related party transactions

(i) 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 £134m (2022: £105m) for all employees.

At 31 December 2023 and 31 December 2022 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:

	2023	2022
	£m	£m
Salaries	12	11
Share-based incentive awards	8	6
Key management personnel compensation	20	17

(ii) 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:

• A number of transactions between the group's UK defined benefit pension schemes and Legal and General Assurance Society Limited (LGAS) occurred during the year. These include the surrender of Assured Payment Policies (APPs) and their conversion into annuities, as well as a buy-out of the schemes completed by the Trustees, where existing annuity policies were exchanged for individual policies between LGAS and members. Further details are provided in Note 3.14; and

• Total payments by LGAS to the pension schemes for insured pension benefits were £55m (2022: £56m).

Loans and commitments to related parties are made in the normal course of business. As at 31 December 2023, the group had:

• Loans outstanding from related parties of £49m (2022: £58m), with a further commitment of £7m (2022: £6m); and

• Total other commitments of £1,347m to related parties (2022: £1,265m), of which £1,108m has been drawn (2022: £1,010m).

Asset flows and new business

4.01 LGIM total assets under management¹ (AUM)


		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2023	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2023	444.7	156.8	73.9	485.9	34.4	1,195.7
External inflows³	69.4	17.4	12.4	25.5	1.5	126.2
External outflows³	(84.9)	(17.2)	(7.4)	(23.4)	(2.6)	(135.5)
Overlay net flows	-	-	-	(29.1)	-	(29.1)
External net flows⁴	(15.5)	0.2	5.0	(27.0)	(1.1)	(38.4)
PRT transfers⁵	(0.4)	(1.5)	-	(13.1)	(0.2)	(15.2)
Internal net flows⁶	(0.8)	-	(0.2)	0.5	2.1	1.6
Total net flows	(16.7)	(1.3)	4.8	(39.6)	0.8	(52.0)
Market movements	55.3	10.4	5.6	(29.6)	0.3	42.0
Other movements⁷	(1.6)	3.0	-	(27.9)	-	(26.5)
As at 31 December 2023	481.7	168.9	84.3	388.8	35.5	1,159.2
Assets attributable to:
External						1,062.1
Internal						97.1

		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 flows⁴	(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

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 £246.7bn (31 December 2022: £336.6bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £5.3bn (31 December 2022: £3.9bn) of external investments and £3.4bn (31 December 2022: £3.3bn) 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 2023 was £66.9bn (31 December 2022: £69.1bn).

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 2023	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2023	444.7	156.8	73.9	485.9	34.4	1,195.7
External inflows³	37.6	8.8	5.5	13.6	0.8	66.3
External outflows³	(35.1)	(9.2)	(3.4)	(10.6)	(1.0)	(59.3)
Overlay net flows	-	-	-	(19.3)	-	(19.3)
External net flows⁴	2.5	(0.4)	2.1	(16.3)	(0.2)	(12.3)
PRT transfers⁵	(0.3)	(0.3)	-	(4.5)	-	(5.1)
Internal net flows⁶	(0.5)	(3.1)	(0.1)	0.1	1.7	(1.9)
Total net flows	1.7	(3.8)	2.0	(20.7)	1.5	(19.3)
Market movements	24.4	2.6	1.1	(32.4)	(0.3)	(4.6)
Other movements⁷	(0.8)	(1.7)	-	(11.2)	-	(13.7)
As at 30 June 2023	470.0	153.9	77.0	421.6	35.6	1,158.1
External inflows	31.8	8.6	6.9	11.9	0.7	59.9
External outflows	(49.8)	(8.0)	(4.0)	(12.8)	(1.6)	(76.2)
Overlay net flows	-	-	-	(9.8)	-	(9.8)
External net flows⁴	(18.0)	0.6	2.9	(10.7)	(0.9)	(26.1)
PRT transfers⁵	(0.1)	(1.2)	-	(8.6)	(0.2)	(10.1)
Internal net flows⁶	(0.3)	3.1	(0.1)	0.4	0.4	3.5
Total net flows	(18.4)	2.5	2.8	(18.9)	(0.7)	(32.7)
Market movements	30.9	7.8	4.5	2.8	0.6	46.6
Other movements⁷	(0.8)	4.7	-	(16.7)	-	(12.8)
As at 31 December 2023	481.7	168.9	84.3	388.8	35.5	1,159.2

		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 flows⁴	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 flows⁴	(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

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 £246.7bn (31 December 2022: £336.6bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £5.3bn (31 December 2022: £3.9bn) of external investments and £3.4bn (31 December 2022: £3.3bn) 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
	2023	2023	2022	2022	2023	2023	2022	2022
	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
International²	377.7	371.8	363.6	377.0	(14.2)	(2.7)	(13.1)	34.5
UK Institutional
- Defined contribution	163.0	146.1	135.2	129.7	6.9	5.5	4.6	7.0
- Defined benefit	453.4	489.6	547.8	630.1	(22.0)	(17.3)	(10.0)	22.4
Wholesale³	56.6	51.2	48.3	45.5	2.2	1.3	2.2	1.4
ETF⁴	11.4	9.9	8.5	8.4	1.0	0.9	0.3	0.3
Total external	1,062.1	1,068.6	1,103.4	1,190.7	(26.1)	(12.3)	(16.0)	65.6

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 £465bn as at 31 December 2023 (31 December 2022: £441bn).

3. Wholesale represents assets from the Retail Intermediary business and £0.2bn 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 £13.5bn ($17.2bn) in 2023 (£10.2bn/$12.3bn in 2022) and flows are £2.2bn ($2.7bn) in 2023 (£1.0bn/$1.3bn in 2022) which include internal investment from other LGIM asset classes.

4.04 Reconciliation of assets under management to Consolidated Balance Sheet

		Restated
	2023	2022
	£bn	£bn
Assets under management¹	1,159	1,196
Derivative notionals²	(247)	(337)
Third party assets³	(458)	(412)
Other⁴	47	45
Total financial investments, investment property and cash and cash equivalents	501	492

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. It also includes measurement differences between assets under management, which are on a market value basis, and total investments on an IFRS basis.

4.05 Workplace Savings assets under administration¹

	2023	2022
	£bn	£bn
As at 1 January	66.6	65.7
Gross inflows	10.4	10.7
Gross outflows	(4.1)	(3.4)
Net flows	6.3	7.3
Market and other movements	7.0	(6.4)
As at 31 December	79.9	66.6

1. Workplace savings assets under administration as at 31 December 2023 includes £79.7bn (31 December 2022: £66.4bn) of assets under management included in Note 4.01.

4.06 Workplace Savings assets under administration half-yearly progression

	2023	2022
	£bn	£bn
As at 1 January	66.6	65.7
Gross inflows	4.9	6.1
Gross outflows	(1.9)	(1.8)
Net flows	3.0	4.3
Market and other movements	2.1	(6.9)
As at 30 June	71.7	63.1
Gross inflows	5.5	4.6
Gross outflows	(2.2)	(1.6)
Net flows	3.3	3.0
Market and other movements	4.9	0.5
As at 31 December	79.9	66.6

4.07 LGRI new business

		6 months	6 months		6 months	6 months
	Total	31 December	30 June	Total	31 December	30 June
	2023	2023	2023	2022	2022	2022
	£m	£m	£m	£m	£m	£m
UK^1,2	12,048	7,182	4,866	7,319	3,604	3,715
US	1,463	1,337	126	1,763	1,170	593
Bermuda	208	208	-	459	318	141
Total LGRI new business	13,719	8,727	4,992	9,541	5,092	4,449

1. UK includes £nil (H1 23: £nil; H2 23: £nil) (H1 22: £nil; H2 22: £93m) of Assured Payment Policies (APPs).

2. UK includes a transaction with the group's UK defined benefit pension schemes as disclosed in Note 3.16 Related party transactions.

4.08 Retail new business

		6 months	6 months		6 months	6 months
	Total	31 December	30 June	Total	31 December	30 June
	2023	2023	2023	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Individual annuities	1,431	856	575	954	501	453
Lifetime mortgage loans and retirement interest only mortgages	299	136	163	632	294	338
Total Retail Retirement new business	1,730	992	738	1,586	795	791
UK Retail protection	150	74	76	171	86	85
UK Group protection	121	68	53	107	44	63
US protection¹	141	71	70	104	56	48
Total Insurance new business	412	213	199	382	186	196
Total Retail new business	2,142	1,205	937	1,968	981	987

1. In local currency, US protection reflects new business of $175m for 2023 (H1 23: $87m; H2 23: $88m), and $129m for 2022 (H1 22: $62m; H2 22: $67m).

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 regulations were amended in the UK in December 2023 to introduce a change to the calculation of Risk Margin. All other Solvency II regulations remain unchanged.

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 majority of the risk to which the group is exposed is assessed on the Partial Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses and Legal & General Reinsurance Company No. 2 are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group Solvency II calculation.

The table below shows the group 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 2023.

(i) Capital position

As at 31 December 2023, and on the above basis, the group had a surplus of £9,167m (31 December 2022: £9,915m) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio of 224% (31 December 2022: 236%). The Solvency II capital position is as follows:

	2023	2022
	£m	£m
Unrestricted Tier 1 Own Funds	12,845	13,393
Restricted Tier 1 Own Funds¹	495	495
Tier 2 Subordinated liabilities	3,460	3,448
Eligibility restrictions	(244)	(110)
Solvency II Own Funds^2,3	16,556	17,226
Solvency Capital Requirement	(7,389)	(7,311)
Solvency II surplus	9,167	9,915
SCR Coverage ratio	224%	236%

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 £871m (31 December 2022: £829m) declared after the balance sheet date.

3. Solvency II Own Funds allow for a Risk Margin of £1,191m (31 December 2022: £2,753m) and TMTP of £970m (31 December 2022: £2,136m).

5.01 Group regulatory capital - Solvency II (continued)

(ii) 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 reinsurers' 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 2023 and the impacts of a recalculation of the

TMTP as at end December 2023. The recalculated TMTP of £970m (31 December 2022: £2,136m) is net of amortisation to 31 December 2023.

The liabilities include a Risk Margin of £1,191m (31 December 2022: £2,753m) 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 4% and includes a tapering factor of 90% (31 December 2022: 6% cost of capital, with no tapering factor).

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.

Firms which are not regulated but which carry material risks to the group's solvency are also modelled in the Internal Model, with an appropriate stress being applied to their net asset value. There are a small number of insurance firms for which the capital requirements are valued on a Solvency II Standard Formula basis.

Legal & General America's insurance entities (LGA) and Legal and General Reinsurance Company No.2 Limited (L&G Re 2) are incorporated into the calculation of group solvency using a Deduction & Aggregation (D&A) basis. All risk exposure in these firms is valued on local statutory bases.

For LGA (excluding Legal & General America Reinsurance Limited (LGAR)), all risk exposure is valued on a US statutory basis, with capital requirements set to a multiple of US statutory Risk Based Capital (RBC). 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. The US regulatory regime is considered to be equivalent to Solvency II by the European Commission.

For L&G Re 2 and LGAR, all risk exposure is valued on a Bermudan capital basis, with capital requirements set equal to the Bermudan capital requirements. The Own Funds contribution is 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.

(iii) Assumptions

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 mostly consistent with those underlying the group's IFRS disclosures where relevant, subject to minor exceptions.

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 and US Dollar cashflows are SONIA- and SOFR-based market swap rates. For other 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 2023 the Matching Adjustment for UK Sterling was 122 basis

points (31 December 2022: 141 basis points) after deducting an allowance for the fundamental spread equivalent to 53 basis points (31

December 2022: 55 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)

(iv) Analysis of change

Operational Surplus Generation 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 2023 in the group's Solvency II surplus.


	2023	2023	2023
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening Position	17,226	(7,311)	9,915
Operational Surplus Generation¹	1,596	225	1,821
New business strain	551	(989)	(438)
Net surplus generation	2,147	(764)	1,383
Operating variances²			(307)
Mergers, acquisitions and disposals³			(140)
Market movements⁴			(512)
Dividends paid⁵			(1,172)
Total surplus movement (after dividends paid in the year)	(670)	(78)	(748)
Closing Position	16,556	(7,389)	9,167

1. Operational Surplus Generation includes a £208m release of Risk Margin and £(206)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. Mergers, acquisitions and disposals for the year ended 31 December 2023 includes costs incurred relating to the announced intent to cease production within the Modular Homes business and impairment of the group's investment in Onto, along with the associated change in SCR.

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

5. Dividends paid are the amounts from the 2022 final dividend and 2023 interim dividend.

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)
Mergers, acquisitions and disposals			-
Market movements³			1,720
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 over the year and changes to future economic assumptions.

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

5.01 Group regulatory capital - Solvency II (continued)

(v) Future Solvency II surplus generation - UK annuities

The table below shows a projection of future OSG expected from the £78.3bn (2022: £70.1bn) UK annuity portfolio as at 31 December 2023. The projection excludes any allowance for future new business. The table shows the OSG from our UK annuity businesses in the Annuity back book OSG line, L&G Other includes a contribution from LGC assets supporting the SCR and LGIM's asset management fees for managing assets of the UK annuity portfolio. The impact of management actions is excluded; we expect management actions to contribute up to £0.2bn in each year of the projection.

	2023	2024	2025	2026	2027	2028-2032	2033-2042
	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Annuity back book OSG¹	0.7	0.6	0.6	0.6	0.6	2.5	4.2
L&G Other	0.1	0.1	0.1	0.1	0.1	0.3	0.5
Total OSG for UK Annuity back book	0.8	0.7	0.7	0.7	0.7	2.8	4.7

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

(vi) 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:

		Restated
	2023	2022
	£m	£m
IFRS equity¹	4,826	5,562
CSM net of tax	10,462	9,593
IFRS equity plus CSM net of tax	15,288	15,155
Remove DAC, goodwill and other intangible assets and associated liabilities	(525)	(502)
Add IFRS carrying value of subordinated borrowings²	3,768	3,823
Insurance contract valuation differences³	(622)	141
Financial investments valuation differences	(845)	(1,111)
Difference in value of net deferred tax liabilities	(211)	(145)
Other	(53)	(25)
Eligibility restrictions	(244)	(110)
Solvency II Own Funds⁴	16,556	17,226

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. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.

3. 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 £871m (31 December 2022: £829m) declared after the balance sheet date.

5.01 Group regulatory capital - Solvency II (continued)

(vii) Sensitivity analysis

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 31 December 2023 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
	2023	2023	2022	2022
	£bn	%	£bn	%
100bps increase in risk-free rates¹	0.1	10	0.5	18
100bps decrease in risk-free rates^1,2	(0.2)	(11)	(0.6)	(19)
Credit spreads widen by 100bps assuming an escalating addition to ratings^3,4	0.4	14	0.3	13
Credit spreads narrow by 100bps assuming an escalating deduction from ratings^3,4	(0.6)	(18)	(0.4)	(16)
Credit spreads widen by 100bps assuming a flat addition to ratings³	0.5	15	0.3	14
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings^3,5	(0.2)	(7)	(0.3)	(7)
Credit migration⁶	(0.7)	(10)	(0.8)	(10)
25% fall in equity markets⁷	(0.4)	(3)	(0.4)	(3)
15% fall in property markets⁸	(0.9)	(10)	(0.9)	(11)
50bps increase in future inflation expectations¹	(0.1)	(3)	(0.1)	(3)
10% increase in maintenance expenses⁹	(0.3)	(4)	(0.3)	(4)

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. 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 smaller than 1bps as the group holds less than 1% 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 lines.

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)

(viii) 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.

	2023	2022
	%	%
Interest rate¹	10	3
Equity	6	6
Property	12	12
Credit²	22	27
Currency	1	2
Inflation	4	5
Total Market risk³	55	55
Counterparty risk	2	2
Life mortality	3	3
Life longevity⁴	18	18
Life mass lapse	3	3
Life non-mass lapse	2	2
Life catastrophe	6	6
Expense	3	3
Total Insurance risk	35	35
Non-life underwriting	-	-
Operational risk	4	5
Miscellaneous⁵	4	3
Total SCR	100	100

1. Interest rate risk before diversification increased over the year, mainly driven by a lengthening of interest rate exposure and a strengthening in the interest rate stress calibration. However, rates exposure is significantly smaller after allowing for diversification with other risks. The material increase in interest rate risk also resulted in a decrease in other market risks as a percentage of total.

2. 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.

3. 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.

4. 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.

5. 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

(i) 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
	2023	2023	2023	2022	2022	2022
	£m	£m	%	£m	£m	%
LGRI - UK annuity business⁵	8,859	654	7.4	6,484	575	8.9
Retail Retirement - UK annuity business	1,431	100	7.0	954	60	6.3
UK Protection	1,337	37	2.8	1,512	82	5.4
US Protection⁶	1,123	128	11.4	796	84	10.6

1. Selected lines of business only.

2. PVNBP excludes a quota share reinsurance single premium of £3,189m (31 December 2022: £835m) 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. For 2023, the contribution from new business has been calculated using the revised Risk Margin calculation introduced into the UK in December 2023.

4. Margin is based on unrounded inputs.

5. LGRI UK annuity business includes a transaction with the group's UK defined benefit pension schemes as disclosed in Note 3.16 Related party transactions.

6. In local currency, US protection business reflects PVNBP of $1,397m (31 December 2022: $985m) and a contribution from new business of $160m (31 December 2022: $104m).

5.02 Estimated Solvency II new business contribution (continued)

(ii) Assumptions

The key economic assumptions are as follows:

	2023	2022
	%	%
Margin for Risk	4.2	4.4
Risk-free rate
- UK	3.3	3.6
- US	3.9	3.9
Risk discount rate (net of tax)
- UK	7.5	8.0
- US	8.1	8.3
Long-term rate of return on annuities	4.9	5.7

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 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.

5.02 Estimated Solvency II new business contribution (continued)

(iii) Methodology

Basis of Preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the year. It has been calculated in a manner consistent with principles and methodologies which were adopted in the group's 2023 Annual Report and Accounts and Full Year Results.

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 2023 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 2023.

The Solvency II new business contribution has been calculated as the present value of future shareholder profits arising from business written in 2023. 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 Risk Margin included in the new business contribution has been calculated under the Solvency UK rules that came into effect in December 2023, using a 4% cost of capital and a 10% tapering factor.

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 year.

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 new business contribution is calculated on a US statutory basis.

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 year.

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.

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 risk-free rates have been based on a SOFR-based swap curve with no Credit Risk Adjustment.

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)

(iii) Methodology (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 2022: 25%).

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 for Risk, 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.

(iv) Reconciliation of PVNBP to total LGRI and Retail new business

		2023	2022
	Notes	£bn	£bn
PVNBP	5.02 (i)	12.7	9.7
Effect of capitalisation factor		(1.8)	(1.5)
New business premiums from selected lines		10.9	8.2
Other¹		5.0	3.3
Total LGRI and Retail new business	4.07, 4.08	15.9	11.5

1. Other principally includes annuity sales in the US £1.5bn (31 December 2022: £1.8bn), lifetime mortgage loans and retirement interest only mortgages £0.3bn (31 December 2022: £0.6bn), and quota share reinsurance premiums £3.2bn (31 December 2022: £0.8bn).

Investments

6.01 Investment portfolio

		Restated
	2023	2022
	£m	£m
Worldwide total assets under management¹	1,168,269	1,202,676
Client and policyholder assets	(1,032,713)	(1,073,126)
Investments to which shareholders are directly exposed (market value)	135,556	129,550
Adjustment from market value to IFRS carrying value²	848	1,083
Investments to which shareholders are directly exposed (IFRS carrying value)	136,404	130,633

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

2. Adjustments reflect measurement differences for a portion of the group's financial investments designated as amortised cost.

Analysed by investment class:

								Restated
				Other		Restated	Restated	Other
		Annuity¹	LGC²	shareholder		Annuity¹	LGC²	shareholder	Restated
		investments	investments	investments	Total	investments	investments	investments	Total
		2023	2023	2023	2023	2022	2022	2022	2022
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Equities		240	2,513	413	3,166	95	2,576	400	3,071
Bonds	6.03	76,836	1,493	3,001	81,330	67,936	1,229	2,608	71,773
Derivative assets³		37,878	141	-	38,019	41,641	337	-	41,978
Property	6.04	4,764	739	-	5,503	5,037	607	-	5,644
Loans⁴		1,239	325	48	1,612	785	238	50	1,073
Financial investments		120,957	5,211	3,462	129,630	115,494	4,987	3,058	123,539
Cash and cash equivalents		2,573	1,014	648	4,235	2,631	1,418	785	4,834
Other assets⁵		451	2,077	11	2,539	110	2,133	17	2,260
Total investments		123,981	8,302	4,121	136,404	118,235	8,538	3,860	130,633

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

2. LGC investments includes £92m (31 December 2022: £95m) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £279m (31 December 2022: £122m) of bonds and equities that belong to other shareholder funds.

3. Derivative assets are shown gross of derivative liabilities of £40.5bn (31 December 2022: £46.1bn). Exposures arise from use of derivatives for efficient portfolio management, particularly 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 £1,599m (31 December 2022: £1,072m).

5. Other assets include finance leases of £451m (31 December 2022: £110m), associates and joint ventures of £616m (31 December 2022: £554m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

6.02 Direct investments

(i) Total investments analysed by asset class

				Restated	Restated
	Direct¹	Traded²		Direct¹	Traded²	Restated
	investments	securities	Total	investments	securities	Total
	2023	2023	2023	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Equities	1,856	1,310	3,166	1,704	1,367	3,071
Bonds³	27,671	53,659	81,330	23,171	48,602	71,773
Derivative assets	-	38,019	38,019	-	41,978	41,978
Property⁴	5,503	-	5,503	5,644	-	5,644
Loans	13	1,599	1,612	-	1,073	1,073
Financial investments	35,043	94,587	129,630	30,519	93,020	123,539
Cash and cash equivalents	163	4,072	4,235	56	4,778	4,834
Other assets	2,539	-	2,539	2,260	-	2,260
Total investments	37,745	98,659	136,404	32,835	97,798	130,633

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 £5,766m (31 December 2022: £4,844m).

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

6.02 Direct investments (continued)

(ii) Direct investments analysed by asset portfolio

	Annuity¹	Shareholder²	Insurance³	Total
	2023	2023	2023	2023
	£m	£m	£m	£m
Equities	62	1,545	249	1,856
Bonds⁴	25,756	265	1,650	27,671
Property	4,764	739	-	5,503
Loans	-	13	-	13
Financial investments	30,582	2,562	1,899	35,043
Other assets, cash and cash equivalents	480	2,211	11	2,702
Total direct investments	31,062	4,773	1,910	37,745

	Annuity¹	Shareholder²	Insurance³	Total
	2022	2022	2022	2022
	£m	£m	£m	£m
Equities	51	1,417	236	1,704
Bonds⁴	21,840	51	1,280	23,171
Property	5,037	607	-	5,644
Loans	-	-	-	-
Financial investments	26,928	2,075	1,516	30,519
Other assets, cash and cash equivalents	110	2,189	17	2,316
Total direct investments (restated)	27,038	4,264	1,533	32,835

1. Annuity includes products held within the LGRI and Retail Retirement annuity portfolios.

2. Shareholder primarily includes the LGC direct investment portfolio and £92m (31 December 2022: £95m) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £279m (31 December 2022: £122m) 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 £5,766m (31 December 2022: £4,844m).

6.03 Bond portfolio summary

(i) Sectors analysed by credit rating

					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2023	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	399	10,342	1,023	102	1	2	11,869	15
Banks:
- Tier 1	-	-	-	20	-	1	21	-
- Tier 2 and other subordinated	-	-	77	47	1	-	125	-
- Senior	-	1,656	4,270	824	1	-	6,751	8
- Covered	106	-	-	-	-	-	106	-
Financial Services:
- Tier 2 and other subordinated	-	74	57	17	7	3	158	-
- Senior	238	361	828	716	-	3	2,146	3
Insurance:
- Tier 1	-	-	-	9	-	-	9	-
- Tier 2 and other subordinated	31	131	32	44	-	-	238	-
- Senior	10	188	411	379	-	-	988	1
Consumer Services and Goods:
- Cyclical	-	46	1,174	1,843	25	21	3,109	4
- Non-cyclical	314	840	3,176	2,917	65	1	7,313	9
- Healthcare	12	697	1,060	668	4	-	2,441	3
Infrastructure:
- Social	163	822	4,333	1,135	71	-	6,524	8
- Economic	253	157	1,096	4,031	60	13	5,610	7
Technology and Telecoms	97	301	1,611	2,802	12	6	4,829	6
Industrials	-	58	593	651	25	1	1,328	2
Utilities	541	751	4,771	4,384	17	-	10,464	13
Energy	-	26	504	1,033	34	-	1,597	2
Commodities	-	-	210	630	24	21	885	1
Oil and Gas	-	501	618	326	13	59	1,517	2
Real estate	-	32	2,197	2,200	22	-	4,451	5
Structured finance ABS / RMBS / CMBS / Other	656	1,042	697	566	55	15	3,031	4
Lifetime mortgage loans¹	-	4,835	504	402	-	25	5,766	7
CDOs	-	43	-	11	-	-	54	-
Total £m	2,820	22,903	29,242	25,757	437	171	81,330	100
Total %	3	28	36	32	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 £76,836m, representing 94% of the total group portfolio.

6.03 Bond portfolio summary (continued)

(i) Sectors analysed by credit rating (continued)


					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,718	5,561	844	111	7	3	8,244	12
Banks:
- Tier 1	-	-	-	-	-	1	1	-
- Tier 2 and other subordinated	-	-	83	66	3	-	152	-
- Senior	-	1,179	2,300	996	2	-	4,477	6
- Covered	114	-	-	-	-	-	114	-
Financial Services:
- Tier 2 and other subordinated	32	94	52	20	7	4	209	-
- Senior	49	246	592	561	-	-	1,448	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	1,129	1,871	161	8	3,187	5
- Non-cyclical	310	830	2,441	3,322	166	-	7,069	10
- Healthcare	-	634	916	754	4	-	2,308	3
Infrastructure:
- Social	170	808	3,580	1,173	70	-	5,801	8
- Economic	288	151	999	3,606	173	-	5,217	7
Technology and Telecoms	134	365	1,201	2,687	17	1	4,405	6
Industrials	-	60	702	679	23	-	1,464	2
Utilities	531	582	4,699	4,997	27	-	10,836	15
Energy	-	-	351	802	42	-	1,195	2
Commodities	-	-	301	658	25	15	999	1
Oil and Gas	-	483	805	310	67	52	1,717	3
Real estate	-	24	2,004	1,984	91	2	4,105	6
Structured finance ABS / RMBS / CMBS / Other	683	855	566	587	22	8	2,721	4
Lifetime mortgage loans¹	3,246	824	428	336	-	10	4,844	7
CDOs	-	41	-	11	-	-	52	-
Total £m	7,334	13,079	24,358	25,991	907	104	71,773	100
Total %	10	18	34	36	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 £67,936m, representing 95% of the total group portfolio.

6.03 Bond portfolio summary (continued)

(ii) Sectors analysed by domicile

				Rest of
	UK	US	EU	the World	Total
As at 31 December 2023	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	8,790	1,696	849	534	11,869
Banks	1,772	2,360	1,459	1,412	7,003
Financial Services	527	902	649	226	2,304
Insurance	64	1,015	75	81	1,235
Consumer Services and Goods:
- Cyclical	355	2,281	294	179	3,109
- Non-cyclical	1,891	4,697	379	346	7,313
- Healthcare	277	2,093	71	-	2,441
Infrastructure:
- Social	5,605	679	162	78	6,524
- Economic	3,968	909	267	466	5,610
Technology and Telecoms	448	3,226	566	589	4,829
Industrials	199	768	310	51	1,328
Utilities	4,654	3,334	1,951	525	10,464
Energy	335	887	23	352	1,597
Commodities	53	392	134	306	885
Oil and Gas	288	371	530	328	1,517
Real estate	1,955	1,658	539	299	4,451
Structured finance ABS / RMBS / CMBS / Other	768	1,744	62	457	3,031
Lifetime mortgage loans	5,324	-	442	-	5,766
CDOs	-	-	-	54	54
Total	37,273	29,012	8,762	6,283	81,330

6.03 Bond portfolio summary (continued)

(ii) Sectors analysed by domicile (continued)

				Rest of
	UK	US	EU	the World	Total
As at 31 December 2022 (Restated)	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	5,261	1,754	614	615	8,244
Banks	1,089	1,897	717	1,041	4,744
Financial Services	410	539	520	188	1,657
Insurance	108	1,007	20	73	1,208
Consumer Services and Goods:
- Cyclical	549	2,132	298	208	3,187
- Non-cyclical	1,830	4,775	296	168	7,069
- Healthcare	257	1,986	64	1	2,308
Infrastructure:
- Social	4,890	704	150	57	5,801
- Economic	3,756	833	256	372	5,217
Technology and Telecoms	363	2,963	577	502	4,405
Industrials	192	824	292	156	1,464
Utilities	5,656	2,840	1,855	485	10,836
Energy	294	671	13	217	1,195
Commodities	35	415	113	436	999
Oil and Gas	158	508	650	401	1,717
Real estate	2,011	1,228	636	230	4,105
Structured finance ABS / RMBS / CMBS / Other	641	1,674	44	362	2,721
Lifetime mortgage loans	4,801	-	43	-	4,844
CDOs	-	-	-	52	52
Total	32,301	26,750	7,158	5,564	71,773

6.03 Bond portfolio summary (continued)

(iii) Bond portfolio analysed by credit rating

	Externally	Internally
	rated	rated¹	Total
As at 31 December 2023	£m	£m	£m
AAA	2,373	447	2,820
AA	16,323	6,580	22,903
A	18,365	10,877	29,242
BBB	18,458	7,299	25,757
BB or below	195	242	437
Other	20	151	171
Total	55,734	25,596	81,330

	Externally	Internally
	rated	rated¹	Total
As at 31 December 2022 (Restated)	£m	£m	£m
AAA	3,741	3,593	7,334
AA	10,577	2,502	13,079
A	15,883	8,475	24,358
BBB	18,554	7,437	25,991
BB or below	529	378	907
Other	17	87	104
Total	49,301	22,472	71,773

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

6.03 Bond portfolio summary (continued)

(iv) Sectors analysed by Direct investments and traded securities

	Direct
	investments	Traded	Total
As at 31 December 2023	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	1,257	10,612	11,869
Banks	1,228	5,775	7,003
Financial Services	1,481	823	2,304
Insurance	160	1,075	1,235
Consumer Services and Goods:
- Cyclical	550	2,559	3,109
- Non-cyclical	1,017	6,296	7,313
- Healthcare	517	1,924	2,441
Infrastructure:
- Social	3,836	2,688	6,524
- Economic	4,231	1,379	5,610
Technology and Telecoms	307	4,522	4,829
Industrials	127	1,201	1,328
Utilities	2,370	8,094	10,464
Energy	521	1,076	1,597
Commodities	145	740	885
Oil and Gas	102	1,415	1,517
Real estate	2,763	1,688	4,451
Structured finance ABS / RMBS / CMBS / Other	1,293	1,738	3,031
Lifetime mortgage loans	5,766	-	5,766
CDOs	-	54	54
Total	27,671	53,659	81,330

6.03 Bond portfolio summary (continued)

(iv) Sectors analysed by Direct investments and traded securities (continued)


	Direct
	investments	Traded	Total
As at 31 December 2022 (Restated)	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	816	7,428	8,244
Banks	787	3,957	4,744
Financial Services	941	716	1,657
Insurance	111	1,097	1,208
Consumer Services and Goods:
- Cyclical	598	2,589	3,187
- Non-cyclical	637	6,432	7,069
- Healthcare	443	1,865	2,308
Infrastructure:
- Social	3,300	2,501	5,801
- Economic	3,913	1,304	5,217
Technology and Telecoms	123	4,282	4,405
Industrials	120	1,344	1,464
Utilities	2,012	8,824	10,836
Energy	385	810	1,195
Commodities	67	932	999
Oil and Gas	89	1,628	1,717
Real estate	2,719	1,386	4,105
Structured finance ABS / RMBS / CMBS / Other	1,266	1,455	2,721
Lifetime mortgage loans	4,844	-	4,844
CDOs	-	52	52
Total	23,171	48,602	71,773

6.04 Property analysis

Property exposure within Direct investments by status



	Annuity	Shareholder¹	Total
As at 31 December 2023	£m	£m	£m	%
Fully let²	4,304	601	4,905	89
Development	460	104	564	10
Land	-	34	34	1
Total	4,764	739	5,503	100



	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

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 2023, the group held a total £1,932m (31 December 2022: £1,973m) of such assets.

2. £4.2bn (31 December 2022: £4.5bn) fully let property were let to corporate clients, out of which £3.7bn (31 December 2022: £4.0bn) 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 Note, along with their definition/explanation, their closest IFRS or Solvency II measure and, where relevant, the reference to the reconciliations to those measures.

The adoption of IFRS 17 by the group has led to changes in both the definition and/or result of several of the APMs, although the principles underlying them have not changed.

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.

APMs derived from IFRS measures

Adjusted operating profit

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.

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 excluded from adjusted operating profit.

Long-term insurance

For the group's long-term insurance businesses, reinsurance mismatches are also excluded from adjusted operating profit. Reinsurance mismatches arise where the reinsurance offset rules in IFRS 17 do not reflect management's view of the net of reinsurance transaction. In particular, during a period of reinsurance renegotiation, reinsurance gains cannot be recognised to offset any inception losses on the underlying contracts where they are recognised before the new reinsurance agreement is signed. In these circumstances, the onerous contract losses are reduced to reflect the net loss (if any) after reinsurance, and future contractual service margin (CSM) amortisation is reduced over the duration of the contracts.

Application of IFRS 17 has changed the timing of the recognition of profit from insurance contracts. This includes spreading both the day one profit arising on new business and the impact of assumption changes into the contractual service margin. Accordingly, the application of IFRS 17 reduced the reported 2022 operating profit from divisions by £0.9bn in comparison with the result presented under IFRS4.

Shareholder funds

• 'Start-up' investments: these are companies in the beginning stages of their business lifecycle (i.e. typically less than 24 months), which therefore have limited operating history available and typically are in a pre-revenue stage.

Note 1.02 Operating profit reconciles adjusted operating profit with its closest IFRS measure, which is profit before tax attributable to equity holders. Further details on reconciling items between adjusted operating profit and profit before tax attributable to equity holders are presented in Note 1.06 Investment and other variances.

Return on Equity (ROE)

ROE measures the return earned by shareholders on shareholder capital retained within the business. It is a measure of performance of the business, which shows how efficiently we are using our financial resources to generate a return for shareholders. 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). In the current year, ROE was quantified using profit attributable to equity holders of £457m (31 December 2022: £783m) and average equity attributable to the owners of the parent of £4,699m (31 December 2022: £5,014m), based on an opening balance of £5,067m and a closing balance of £4,331m (31 December 2022: based on an opening balance of £4,960m and a closing balance of £5,067m). The methodology for determining the ROE has not changed following the adoption of IFRS 17 and IFRS 9.

Assets under Management

Assets under management represent 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. AUM include assets which are reported in the group Consolidated Balance Sheet as well as third-party assets that LGIM manage on behalf of others, and assets managed by third parties on behalf of the group. AUM has not changed following the adoption of IFRS 9.

Note 4.04 Reconciliation of assets under management to Consolidated Balance Sheet reconciles AUM with Total financial investments, investment property and cash and cash equivalents.

Adjusted profit before tax attributable to equity holders

Adjusted profit before tax attributable to equity holders is equal to profit before tax attributable to equity holders plus the pre-tax results of discontinued operations. There has been no change in definition as a result of the adoption of IFRS 17.

Note 1.02 Operating profit reconciles adjusted profit before tax attributable to equity holders to profit for the year. In absence of discontinued operations, adjusted profit before tax attributable to equity holders is equal to profit before tax attributable to equity holders.

APMs derived from Solvency II measures

The group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates. At a group level, Legal & General has to comply with the requirements established by the Solvency II Framework Directive, as adopted by the PRA.

Solvency II surplus

Solvency II surplus is the excess of Eligible Own Funds over the Solvency Capital Requirements. It represents the amount of capital available to the group in excess of that required to sustain it in a 1-in-200 year risk event. The group's Solvency II surplus is based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP).

Differences between the Solvency II surplus and its related regulatory basis include the impact of TMTP recalculation when it is not approved by the PRA, incorporating impacts of economic conditions as at the reporting date, and the inclusion of unaudited profits (or losses) of financial firms, which are excluded from regulatory Own Funds. This view of Solvency II is considered to be representative of the shareholder risk exposure and the group's real ability to cover the Solvency Capital Requirement (SCR) with Eligible Own Funds. It also aligns with management's approach to dynamically manage its capital position.

Further details on Solvency II surplus and its calculation are included in Note 5.01 Group regulatory capital - Solvency II. This note also includes a reconciliation between IFRS equity and Solvency II Own Funds.

Solvency II capital coverage ratio

Solvency II capital coverage ratio is one of the indicators of the group's balance sheet strength. It is determined as Eligible Own Funds divided by the SCR, and therefore represents the number of times the SCR is covered by Eligible Own Funds. The group's Solvency II capital coverage ratio is based on the Partial Internal Model, Matching Adjustment and TMTP.

Differences between the Solvency II capital coverage ratio and its related regulatory basis include the impact of TMTP recalculation when it is not approved by the PRA, incorporating impacts of economic conditions as at the reporting date, and the inclusion of unaudited profits (or losses) of financial firms, which are excluded from regulatory Own Funds. This view of Solvency II is considered to be representative of the shareholder risk exposure and the group's real ability to cover the SCR with Eligible Own Funds. It also aligns with management's approach to dynamically manage its capital position.

Further details on Solvency II capital coverage ratio and its calculation are included in Note 5.01 Group regulatory capital - Solvency II.

Solvency II operational surplus generation

Solvency II operational surplus generation 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, and 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.

It excludes operating variances, such as the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix. It also excludes market movements, which represent the impact of changes in investment market conditions during the year and changes to future economic assumptions. The group considers this measure meaningful to stakeholders as it enhances the understanding of its operating performance over time, and serves as an indicator on the longer-term components of the movements in the group's Solvency II surplus.

Note 5.01 Group regulatory capital - Solvency II includes an analysis of change for the group's Solvency II surplus, showing the contribution of Solvency II operational surplus generation as well as other items to the Solvency II surplus during the reporting year.

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)

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 premiums

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)

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.

Back book acquisition

New business transacted with an insurance company which allows the business to continue to utilise Solvency II transitional measures associated with the business.

CAGR

Compound annual growth rate.

Common Contractual Fund (CCF)

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.

Contract boundaries

Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the group can compel the policyholder to pay the premiums or has a substantive obligation to provide the policyholder with insurance contract services.

Contractual Service Margin (CSM)

The CSM represents the unearned profit the group will recognise for a group of insurance contracts, as it provides services under the insurance contract. It is a component of the asset or liability for the contracts and it results in no income or expense arising from initial recognition of an insurance contract. Therefore, together with the risk adjustment, the CSM provides a view of both stored value of our in-force insurance business, and the growth derived from new business in the current year. A CSM is not set up for groups of contracts assessed as onerous.

The CSM is released as profit as the insurance services are provided.

Coverage Period

The period during which the group provides insurance contract services. This period includes the insurance contract services that relate to all premiums within the boundary of the insurance contract.

Credit rating

A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA. 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

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.

Earnings per share (EPS)

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

Eligible Own Funds

The capital available to cover the group's Solvency 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

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.

Expected credit losses (ECL)

For financial assets measured at amortised cost or FVOCI, a loss allowance defined as the present value of the difference between all contractual cash flows that are due and all cash flows expected to be received (i.e. the cash shortfall), weighted based on their probability of occurrence.

Fair value through other comprehensive income (FVOCI)

A financial asset that is measured at fair value in the Consolidated Balance Sheet and reports gains and losses arising from movements in fair value within the Consolidated Statement of Comprehensive Income as part of the total comprehensive income or expense for the year.

Fair value through profit or loss (FVTPL)

A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet and 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.

Fulfilment cash flows

Fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time value of money and financial risks, plus the risk adjustment for non-financial risk.

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).

Generally accepted accounting principles (GAAP)

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

Insurance new business

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

Irish Collective Asset-Management Vehicle (ICAV)

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

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.

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 zero carbon

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

Onerous contracts

An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract, any previously uthorized acquisition cash flows and any cash flows arising from the contract at the date of initial recognition, in total are a net outflow.

Open Ended Investment Company (OEIC)

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

Overlay assets

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

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)

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 closing 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.

Qualifying Investor Alternative Investment Fund (QIAIF)

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.

Retail Retirement new business

Single premiums arising from annuity sales and individual annuity back book acquisitions and the volume of lifetime and retirement interest only mortgage lending.

Retirement Interest Only Mortgage (RIO)

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 adjustment

The risk adjustment reflects the compensation that the group would require for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk after diversification. We have calibrated the group's risk adjustment using a Value at Risk (VAR) methodology. In some cases, the compensation for risk on reinsured business is linked directly to the price paid for reinsurance. The risk adjustment is a component of the insurance contract liability, and it is released as profit if experience plays out as expected.

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.

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.

Société d'Investissement à Capital Variable (SICAV)

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

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*

Refer to the alternative performance measures section.

Solvency II capital coverage ratio - regulatory basis

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.

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*

Refer to the alternative performance measures section.

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*

Refer to the alternative performance measures section.

Solvency II surplus - regulatory basis

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.

Specialised Investment Fund (SIF)

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.

Total shareholder return (TSR)

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)

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 decreases 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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