L&G Half-year Report 2018 Part 3

RNS Number : 2646X

Legal & General Group Plc

09 August 2018

Legal & General Half-year Report 2018 Part 3

Asset and premium flows Page 67

5.01 LGIM total assets under management (AUM)


		Global
		fixed		Real	Active	Total
	Index	income	Solutions¹	assets	equities	AUM
For the six month period to 30 June 2018	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2018	340.9	148.8	462.7	23.8	7.1	983.3

Canvas acquisition²	2.4	-	-	-	-	2.4

External inflows	22.4	8.7	18.2	0.6	0.5	50.4
External outflows	(41.2)	(2.2)	(8.7)	(0.5)	(0.1)	(52.7)
Overlay net flows	-	-	16.7	-	-	16.7
ETF net flows	0.2	-	-	-	-	0.2


External net flows³	(18.6)	6.5	26.2	0.1	0.4	14.6
Internal net flows	(0.3)	(2.5)	(0.3)	0.6	(0.1)	(2.6)


Total net flows	(18.9)	4.0	25.9	0.7	0.3	12.0
Cash management movements⁴	-	1.0	-	-	-	1.0
Market and other movements³	1.9	(1.4)	(14.9)	0.8	(0.3)	(13.9)



At 30 June 2018	326.3	152.4	473.7	25.3	7.1	984.8

Assets attributable to:
External						888.8
Internal						96.0


1. Solutions include liability driven investments, multi-asset funds, and include £277.2bn of derivative notionals associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. 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. The total value of these assets was £48.3bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.

		Global
		fixed		Real	Active	Total
	Index	income	Solutions¹	assets	equities	AUM
For the six month period to 30 June 2017	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	25.4	8.3	16.0	0.8	0.1	50.6
External outflows	(29.7)	(3.0)	(9.0)	(0.5)	(0.1)	(42.3)
Overlay/advisory net flows	-	-	13.4	-	-	13.4


External net flows²	(4.3)	5.3	20.4	0.3	-	21.7
Internal net flows	(0.3)	(0.4)	0.4	0.5	(1.3)	(1.1)
Disposal of LGN⁴	(0.3)	(0.5)	-	-	-	(0.8)


Total net flows	(4.9)	4.4	20.8	0.8	(1.3)	19.8
Cash management movements³	-	4.1	-	-	-	4.1
Market and other movements²	16.6	1.7	13.4	0.8	0.5	33.0



At 30 June 2017	331.5	145.0	446.1	21.2	7.3	951.1

Assets attributable to:
External						853.2
Internal						97.9


1. Solutions include liability driven investments, multi-asset funds, and include £280.0bn of derivative notionals associated with the Solutions business.
2. 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. The total value of these assets was £81.7bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017.

Asset and premium flows Page 68

5.01 LGIM total assets under management (AUM) (continued)


		Global
		fixed		Real	Active	Total
	Index	income	Solutions¹	assets	equities	AUM
For the year ended 31 December 2017	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	51.1	15.1	33.2	1.5	0.1	101.0
External outflows	(61.4)	(6.4)	(15.7)	(1.2)	(0.1)	(84.8)
Overlay/advisory net flows	-	-	27.3	-	-	27.3


External net flows²	(10.3)	8.7	44.8	0.3	-	43.5
Internal net flows	(0.4)	(2.0)	(1.1)	1.5	(0.7)	(2.7)
Disposal of LGN⁴	(0.3)	(0.5)	-	-	-	(0.8)


Total net flows	(11.0)	6.2	43.7	1.8	(0.7)	40.0
Cash management movements³	-	3.0	-	-	-	3.0
Market and other movements²	32.1	4.8	7.1	2.4	(0.3)	46.1



At 31 December 2017	340.9	148.8	462.7	23.8	7.1	983.3

Assets attributable to:
External						883.8
Internal						99.5


1. Solutions include liability driven investments, multi-asset funds, and include £272.8bn of derivative notionals associated with the Solutions business.
2. 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. The total value of these assets was £47.0bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017.

5.02 LGIM total external assets under management and net flows


	Assets under management¹			Net flows²


	30 June	30 June	31 December	6 months	6 months	6 months
	2018	2017	2017	30 June 2018	30 June 2017	31 December 2017
	£bn	£bn	£bn	£bn	£bn	£bn


International^1,3	165.8	135.8	160.1	9.9	17.9	15.1

UK Institutional
- Defined contribution	64.0	55.3	60.1	3.5	1.7	1.3
- Defined benefit³	625.4	635.3	633.9	(0.3)	0.4	4.1

UK Retail
- Retail intermediary	25.1	21.4	24.2	1.4	1.8	1.4
- Personal investing⁴	5.7	5.4	5.5	(0.1)	(0.1)	(0.1)

ETF⁵	2.8	-	-	0.2	-	-


Total external	888.8	853.2	883.8	14.6	21.7	21.8

1. International asset are shown on the basis of client domicile. International AUM is £229.3bn when assets managed in the US on behalf of UK clients are included.
2. 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.
3. Defined benefit includes £63.5bn of assets managed in the US on behalf of UK clients.
4. Personal investing includes £2.0bn of legacy Banks and Building Society customers which is driving net outflows.
5. ETF reflects the acquisition of Canvas that completed in March 2018.

Asset and premium flows Page 69

5.03 LGIM investment performance


Investment performance across our AUM as at 30 June 2018 is set out in the table below. This has been calculated internally by LGIM to provide general guidance as to how our assets under management are performing. The data is aggregated and is not intended for clients or potential clients investing in our products.
Performance against success measures - benchmark or performance criteria
For the six month period to 30 June 2018	One year period	Three year period	Five year period


Actively Managed AUM¹	88%	85%	81%
Index Managed AUM²	98%	98%	97%
Client Solutions AUM³	100%	100%	100%
Percentage of AUM reported⁴	89%	64%	55%

1. Actively Managed AUM: actively managed products measured against applicable benchmark or peer group performance.
2. Index Managed AUM: assets managed against benchmark within applicable tolerance.
3. Client solutions AUM: products managed against specific risk target or client outcome.
4. Excluded from the performance measurement are non-discretionary accounts, funds on our investment only platform with external manager holdings, funds with insufficient performance history and transition management accounts.

Performance is measured on a gross-of-fee basis for institutional accounts and net-of-fee for retail funds, and is measured against benchmarks, peer group performance or risk based metrics.

5.04 Assets under management reconciliation to Consolidated Balance Sheet financial assets

	30 June 2018	30 June 2017	31 December 2017
	£bn	£bn	£bn

Assets under management	985	951	983
Derivative notionals¹	(277)	(281)	(273)
Third party assets²	(275)	(233)	(261)
Other³	44	8	42


Total financial investments, investment property and cash and cash equivalents	477	445	491

Less: financial assets classified as held for sale⁴	(21)	-	(22)
Financial investments, investment property and cash and cash equivalents	456	445	469

1. Derivative notionals are included in the assets under management but not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others, to which the group is not exposed to the risks or rewards and thus are not included on the IFRS balance sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.
4. Details relating to assets classified as held for sale is provided in Note 4.03.

Asset and premium flows Page 70

5.05 Assets under administration



	Workplace¹	Annuities²	Workplace	Annuities	Workplace	Annuities
	30 June 2018	30 June 2018	30 June 2017	30 June 2017	31 December 2017	31 December 2017
	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January	27.7	58.2	20.8	54.4	20.8	54.4
Gross inflows	2.7	1.1	3.4	2.0	5.9	4.6
Gross outflows	(0.8)	-	(0.6)	-	(1.4)	-
Payments to pensioners	-	(1.7)	-	(1.6)	-	(3.3)

Net flows	1.9	(0.6)	2.8	0.4	4.5	1.3
Market and other movements	0.1	(1.2)	1.3	0.8	2.4	2.5



At 30 June/31 December	29.7	56.4	24.9	55.6	27.7	58.2

1. Workplace assets under administration includes £29.5bn of assets under management included in Note 5.01.
2. Annuities assets under administration includes £52.0bn of assets under management included in Note 5.01.

5.06 LGR new business

	6 months	6 months	6 months
	30 June	30 June	31 December
	2018	2017	2017
	£m	£m	£m


Pension risk transfer
- UK	507	1,504	1,901
- US	220	115	428
- Bermuda	8	-	-
Individual Annuities	337	345	326
Lifetime Mortgage Advances	521	424	580
Longevity Insurance¹	-	800	-


Total LGR new business	1,593	3,188	3,235


1. Represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve.

5.07 Insurance new business

	6 months	6 months	6 months
	30 June 2018	30 June 2017	31 December 2017
	£m	£m	£m


UK Retail Protection	87	86	86
UK Group Protection	34	28	21
Netherlands Protection¹	-	1	-
US Protection	42	38	41


Total LGI new business	163	153	148


1. Legal & General Netherlands was sold on 6 April 2017.

Asset and premium flows Page 71

5.08 Gross written premiums on Insurance business

	6 months	6 months	6 months
	30 June 2018	30 June 2017	31 December 2017
	£m	£m	£m


UK Retail Protection	633	609	623
UK Group Protection	223	224	102
General Insurance	193	173	196
Netherlands Protection¹	-	14	-
US Protection	461	491	482
Longevity insurance	187	175	186


Total gross written premiums on Insurance business	1,697	1,686	1,589


1. Legal & General Netherlands was sold on 6 April 2017.

Asset and premium flows Page 72

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Capital Page 73

6.01 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 to measure and monitor its capital resources on this basis.

The Solvency II results are estimated for 30 June 2018. Further explanation of the underlying methodology and assumptions are set out in the sections below.

The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the group's Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (recalculated as at 30 June 2018).

(a) Capital position


As at 30 June 2018 the group had a surplus of £6.9bn (31 December 2017: £6.9bn) over its Solvency Capital Requirement, corresponding to a coverage ratio on a "shareholder view" basis of 193% (31 December 2017: 189%). The shareholder view of the Solvency II capital position is as follows:
	30 June 2018	31 December 2017
	£bn	£bn


Core tier 1 Own Funds	11.3	11.6
Tier 2 subordinated liabilities	3.1	3.1
Eligibility restrictions	(0.1)	(0.1)
Solvency II Own Funds^1,2	14.3	14.6
Solvency Capital Requirement³	(7.4)	(7.7)


Solvency II surplus	6.9	6.9


SCR coverage ratio⁴	193%	189%

1. Solvency II Own Funds do not include an accrual for the interim dividend of £274m (31 December 2017: £658m) declared after the balance sheet date.
2. Solvency II Own Funds allow for a risk margin of £5.2bn (31 December 2017: £5.9bn) and TMTP of £5.3bn (31 December 2017: £6.2bn).
3. The SCR is not subject to audit.
4. Coverage ratio is based on unrounded inputs.

The "shareholder view" basis excludes the contribution that the with-profits fund and the final salary pension scheme would normally make to the group position. This is reflected by reducing the group's Own Funds and the group's SCR by the amount of the SCR for the with-profits fund and the final salary pension scheme.

On a proforma basis, which includes the contribution of with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR in group's SCR, the coverage ratio at 30 June 2018 is 186% (31 December 2017: 181%).

On 6 December 2017 the group announced its intention to sell the Mature Savings business to Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in 2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement had been reflected in the Own Funds at the end of 2017. The impact in SCR has now been incorporated as at 30 June 2018.

Capital Page 74

6.01 Group regulatory capital - Solvency II (continued)

(b) Methodology and assumptions

The methodology and assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are consistent with those set out in the group's 2017 Annual Reports and Accounts and Full Year Results.

Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates net of credit risk adjustment of 10 basis points (31 December 2017: 10 basis points) for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

At 30 June 2018 the Matching Adjustment for UK GBP denominated liabilities was 111 basis points (31 December 2017: 106 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 53 basis points (31 December 2017: 51 basis points). The increase in Fundamental Spread was driven by changes in the asset portfolio.

The table below shows the movement (net of tax) during the period ended 30 June 2018 in the group's Solvency II surplus.

	30 June 2018	31 December 2017
	£bn	£bn


Surplus arising from back-book (including release of SCR)	0.7	1.3
Release of Risk Margin¹	0.2	0.4
Amortisation of TMTP²	(0.2)	(0.4)
Operational Surplus Generation³	0.7	1.3
New Business Strain	(0.1)	(0.1)
Net Surplus Generation	0.6	1.2
Dividends paid⁴	(0.7)	(0.9)
Operating variances⁵	-	0.4
Mergers, acquisitions and disposals⁶	-	-
Market movements⁷	0.1	-
Subordinated debt	-	0.5

Total Surplus movement (after dividends paid in the period)	-	1.2

1. Based on the risk margin in force at end 2017 and does not include the release of any risk margin added by new business written in 2018.
2. TMTP amortisation based on a linear run down of the end-2017 TMTP of £5.3bn (net of tax, £6.2bn before tax).
3. Release of surplus generated by in-force business and includes management actions which at the start of the year could have been reasonably expected to take place. For 2018 these are primarily to deliver further eligible assets and liabilities into the Matching Adjustment portfolio and an increase in direct investments allocation to the annuity back-book.
4. Dividends paid are the amounts from the 2017 final dividend declaration paid in H1 18 (FY 17: 2016 final and 2017 interim dividend declarations).
5. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, other management actions including changes in asset mix, hedging strategies, and Matching Adjustment optimisation.
6. Mergers, acquisitions and disposals include the impact of the sale of Mature Savings (in excess of the amount which came through in 2017) and purchase of 100% of CALA Homes.
7. Market movements represents the impact of changes in investment market conditions over the period and changes to future economic assumptions. Market movements in half year ended 30 June 2018 include a reduction in the risk margin of £0.4bn (net of tax) and a reduction to TMTP of £0.4bn. 31 December 2017 included a reduction in the risk margin of £2.0bn (net of tax).

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

Capital Page 75

6.01 Group regulatory capital - Solvency II (continued)

(d) Reconciliation of IFRS Net Release from Operations to Solvency II Net Surplus Generation

(i) The table below provides a reconciliation of the group's IFRS Release from Operations to Solvency II Operational Surplus Generation.
	6 months	Full year
	2018	2017
	£bn	£bn


IFRS Release from Operations	0.7	1.3
Expected release of IFRS prudential margins	(0.2)	(0.5)
Releases of IFRS specific reserves¹	(0.1)	(0.1)
Solvency II investment margin^2,3	0.1	0.2
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation⁴	0.2	0.4

Solvency II Operational Surplus Generation	0.7	1.3

1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term expenses and longevity margins).
2. Release of prudence related to differences between the EIOPA-defined fundamental spread and L&G's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk free rates over 2018.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2018 were expected to take place within the group plan.

(ii) The table below provides a reconciliation of the group's IFRS New Business Surplus to Solvency II New Business Strain.
	6 months	Full year
	2018	2017
	£bn	£bn
IFRS New Business Surplus	-	0.2
Removal of requirement to set up prudential margins above best estimate on New Business	-	0.2
Set up of Solvency II Capital Requirement on New Business¹	(0.1)	(0.3)
Set up of Risk Margin on New Business	-	(0.2)
Solvency II New Business Strain	(0.1)	(0.1)
1. The lower Solvency II capital requirement on new business in 2018 reflects lower premiums written and the success of our strategy to source direct investments (including lifetime mortgages) to back new annuity sales.

(e) Reconciliation of IFRS shareholders' equity to Solvency II Own Funds

A reconciliation of the group's IFRS shareholders' equity to Own Funds is given below:
	30 Jun 2018	31 Dec 2017¹
	£bn	£bn
IFRS shareholders' equity	7.7	7.6
Remove DAC, goodwill and other intangible assets and liabilities	(0.7)	(0.6)
Add IFRS carrying value of subordinated debt treated as available capital under Solvency II²	2.9	2.9
Insurance contract valuation differences³	6.3	6.4
Difference in value of net deferred tax liabilities	(0.9)	(0.7)
SCR for with-profits fund and final salary pension schemes	(0.8)	(0.7)
Other⁴	(0.1)	(0.2)
Eligibility restrictions⁵	(0.1)	(0.1)
Solvency II Own Funds⁶	14.3	14.6
1. Following a change in accounting policy for LGIA term life reserves, specific IFRS balance sheet items have been restated, notably deferred acquisition costs, non-participating insurance contracts and deferred tax liabilities. The overall net impact on the group's IFRS shareholders' equity as at 31 December 2017 is a reduction of £354m. Further details on the change in accounting policy is provided in Note 4.01.
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. Reflects valuation differences on other assets and liabilities, predominately in respect of borrowings measured at fair value under Solvency II.
5. Relating to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.
6. Own Funds do not include an accrual for the interim dividend of £274m (31 December 2017: £658m) declared after the balance sheet date.

Capital Page 76

6.01 Group regulatory capital - Solvency II (continued)

(f) Sensitivity analysis

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2018 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
	surplus⁵	ratio⁵	surplus⁵	ratio⁵
	30 Jun 2018	30 Jun 2018	31 Dec 2017	31 Dec 2017
	£bn	%	£bn	%


Credit spreads widen by 100bps assuming an escalating addition to ratings^1,2	0.4	12	0.2	8
Credit migration³	(0.5)	(7)	(0.5)	(6)
15% fall in property markets	(0.5)	(6)	(0.4)	(4)
100bps increase in risk free rates	0.8	22	0.8	20
50bps decrease in risk free rates⁴	(0.5)	(11)	(0.5)	(10)
1. The spread sensitivity applies to Legal & General's corporate bond (and similar) holdings, with no change in the firm's long term default expectations.
2. 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.
3. 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, sale and leaseback rental strips and LTM senior notes).
4. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
5. Both the 2017 and 2018 sensitivities exclude the impact from the Mature Savings business (including the with-profits fund) as the risks have been transferred to the ReAssure division of Swiss Re from 1 January 2018.

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. These results all allow (on an approximate basis) for the recalculation of TMTP as at 30 June 2018 where the impact of the stress would cause this to change materially. 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.

Capital Page 77

6.02 Estimated Solvency II new business contribution

(a) New business by product¹

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


		Contri-			Contri-
		bution			bution
		from new			from new
	PVNBP	business²	Margin³	PVNBP	business²	Margin³
	6 months	6 months	6 months	Full year	Full year	Full year
	2018	2018	2018	2017	2017	2017
	£m	£m	%	£m	£m	%


LGR - UK annuity business	844	65	7.7	4,083	346	8.5

UK Protection Total	788	56	7.1	1,496	129	8.6
- Retail Protection	652	49	7.6	1,293	111	8.6
- Group Protection	136	7	5.2	203	18	8.7

US Protection^4,5	411	48	11.6	764	89	11.7


1. Selected lines of business only.
2. 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 period using the risk discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $543m (31 December 2017: $985m) and a contribution from new business of $63m (31 December 2017: $115m).
5. Assumes reassurance is enacted during 2018.

As in previous years the reported LGR margin includes all of LGR's new business costs including those incurred in quoting on business we expect to conclude in H2 and beyond. The margin increases to 10.3% by only including the costs associated with the business written in H1. This is a better comparator to 2017. The increase reflects the higher long term value generated from the smaller sized schemes written in H1, as well as our ability to source attractive DI assets from bespoke deals such as the buy-in transaction with the BAA Pension Scheme. Additionally, the 2017 margin includes a £250m scheme where the group passes on all of the risk and retains a small facilitation fee. In UK Protection business we have seen competitive pricing pressure combined with a shift in the mix of business towards lower margin products. For US Protection, the new business contribution has increased relative to the 2017 position due to higher new business volumes and more favourable business mix. The change in Solvency II new business margin reflects the significant increase in US risk free rates over the first half of the year. This has more than offset the contribution from a more favourable business mix.

Capital Page 78

6.02 Estimated Solvency II new business contribution (continued)

(b) Basis of preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2017 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, LGR, LGI and LGA.

Intra-group reinsurance arrangements are in place between US and UK businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The LGA new business margin assumes that the new business will be reinsured in 2018 and looks through the intra-group arrangements.

The key economic assumptions are as follows:

	30 June 2018	31 December 2017
	%	%


Margin for risk	3.1	3.0

Risk free rate
- UK	1.7	1.6
- US	2.8	2.4
Risk discount rate (net of tax)
- UK	4.8	4.6
- US	5.9	5.4

Long-term rate of return on non profit annuities in LGR	3.0	3.0

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

Tax

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

The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19% and subsequent enacted future tax rate of 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.

US covered business profits are grossed up using the long term corporate tax rate of 21%.

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, which reflects the residual risks inherent in the group's businesses, after taking account of margins in the statutory technical provisions, the required capital and the specific allowance for financial options and guarantees.

The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment 10 basis points for GBP and 14 basis points for USD (31 December 2017: 10 basis points for GBP and for USD).

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.

Capital Page 79

6.02 Estimated Solvency II new business contribution (continued)

(d) Reconciliation of PVNBP to gross written premiums

A reconciliation of PVNBP and gross written premium is given below:
	6 months 2018	Full year 2017
	£bn	£bn


PVNBP	2.0	6.3
Effect of capitalisation factor	(1.0)	(2.0)


New business premiums from selected lines	1.0	4.3
Other¹	0.8	2.4


Total LGR and LGI new business	1.8	6.7
Annualisation impact of regular premium long-term business	(0.1)	(0.2)
IFRS gross written premiums from existing long-term insurance business	1.4	2.8
Deposit accounting for lifetime mortgage advances	(0.5)	(1.0)
General Insurance gross written premiums	0.2	0.4
Future premiums on longevity swap new business	-	(0.8)


Total gross written premiums	2.8	7.9


1. Other principally includes annuity sales in the US, lifetime mortgage advances and discounted future cash flows on longevity swap new business.
2. This excludes gross written premiums from discontinued operations.

Capital Page 80

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Investments Page 81

7.01 Investment portfolio

	Market	Market	Market
	value	value	value
	30 June 2018	30 June 2017	31 December 2017
	£m	£m	£m


Worldwide total assets under management¹	990,379	952,100	984,120
Client and policyholder assets²	(907,834)	(870,400)	(900,904)
Non-unit linked with-profits assets	(10,673)	(11,551)	(11,113)


Investments to which shareholders are directly exposed	71,872	70,149	72,103


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

Analysed by investment class:

			Other
			non profit		Other
		LGR	insurance	LGC³	shareholder
		investments	investments	investments	investments	Total	Total	Total
		30 June 2018	30 June 2018	30 June 2018	30 June 2018	30 June 2018	30 June 2017	31 December 2017
	Notes	£m	£m	£m	£m	£m	£m	£m


Equities^4,7		285	15	2,246	181	2,727	2,876	2,960
Bonds	7.03	50,847	1,569	2,930	480	55,826	56,093	57,075
Derivative assets⁵		4,213	-	11	1	4,225	3,823	4,062
Property	7.04	2,791	-	80	-	2,871	2,887	2,832
Cash, cash equivalents and loans		2,147	482	1,461	262	4,352	3,893	4,084


Financial investments		60,283	2,066	6,728	924	70,001	69,572	71,013


Other assets^2,6,7		490	-	1,373	8	1,871	577	1,090


Total investments		60,773	2,066	8,101	932	71,872	70,149	72,103


2. At 30 June 2017, the group held £5,660m of reverse repurchase agreements, which were disclosed within Other assets in the above analysis in the interim financial statements for the period then ended. These assets back unit-linked liabilities and hence were incorrectly classified as Investments to which shareholders are directly exposed, rather than Client and policyholder assets. The 30 June 2017 disclosures have been adjusted to reflect this restatement. There is no impact on total assets in the Consolidated Balance Sheet as a result of this reallocation.
3. LGC property includes £23m of shareholder investment property.
4. Equity investments include a total of £125m in respect of Peel Media Holdings Limited (MediaCityUK) and Access Development Partnership (30 June 2017: £256m; 31 December 2017: £260m).
5. Derivative assets are shown gross of derivative liabilities of £3.3bn (30 June 2017: £2.4bn; 31 December 2017: £2.3bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.
6. Other assets include reverse repurchase agreements of £752m (30 June 2017: £542m; 31 December 2017: £679m).
7. Other assets includes the consolidated net asset value of the group's investments in CALA Homes and other housing businesses, previously disclosed within Financial investments.

Investments Page 82

7.02 Direct Investments

(a) Analysed by asset class

	Direct¹	Traded²		Direct¹	Traded²		Direct¹	Traded²
	Investments	securities	Total	Investments	securities	Total	Investments	securities	Total
	30 June	30 June	30 June	30 June	30 June	30 June	31 December	31 December	31 December
	2018	2018	2018	2017	2017	2017	2017	2017	2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m


Equities	890	1,837	2,727	650	2,226	2,876	930	2,030	2,960
Bonds³	10,800	45,026	55,826	7,722	48,371	56,093	9,726	47,349	57,075
Derivative assets	-	4,225	4,225	-	3,823	3,823	-	4,062	4,062
Property⁴	2,871	-	2,871	2,887	-	2,887	2,832	-	2,832
Cash, cash equivalents and loans	580	3,772	4,352	496	3,397	3,893	474	3,610	4,084

Financial investments	15,141	54,860	70,001	11,755	57,817	69,572	13,962	57,051	71,013

Other assets⁵	1,119	752	1,871	35	542	577	411	679	1,090


Total investments	16,260	55,612	71,872	11,790	58,359	70,149	14,373	57,730	72,103
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 exclude 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 mortgages of £2,674m (30 June 2017: £1,433; 31 December 2017: £2,023m).
4. A further breakdown of property is provided in Note 7.04.
5. At 30 June 2017, the group held £5,660m of reverse repurchase agreements, which were disclosed as Other assets in the above analysis in the interim financial statements for the period then ended. These assets back unit-linked liabilities and hence were incorrectly included in the analysis. The 30 June 2017 disclosures have been adjusted to exclude these assets reflecting this restatement. There is no impact on total assets in the Consolidated Balance Sheet as a result of this reallocation.

Investments Page 83

7.02 Direct Investments (continued)

(b) Analysed by segment

		LGR	LGC¹	LGI²	Total
		30 June 2018	30 June 2018	30 June 2018	30 June 2018
		£m	£m	£m	£m
	-

Equities		-	851	39	890
Bonds³		10,432	30	338	10,800
Property⁴		2,791	80	-	2,871
Cash, cash equivalents and loans		175	77	328	580
Financial investments		13,398	1,038	705	15,141
Other assets⁵		92	1,027	-	1,119
Total direct investments		13,490	2,065	705	16,260

1. LGC includes £40m of equities, £27m of bonds and £23m of property that belong to other shareholder funds.
2. LGI includes £18m of equity investments in LGI UK. The bonds and loans and receivables are in the US business.
3. Bonds include lifetime mortgages of £2,674m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets include finance leases of £92m.


	LGR	LGC¹	LGI	Total
	30 June 2017	30 June 2017	30 June 2017	30 June 2017
	£m	£m	£m	£m


Equities	-	650	-	650
Bonds²	7,094	267	361	7,722
Property³	2,687	200	-	2,887
Cash, cash equivalents and loans	31	123	342	496
Financial investments	9,812	1,240	703	11,755
Other assets	-	35	-	35
Total direct investments	9,812	1,275	703	11,790

1. LGC included £27m of equities, £33m of bonds and £25m of property that belong to other shareholder funds.
2. Bonds included lifetime mortgages of £1,433m.
3. A further breakdown of property is provided in Note 7.04.



	LGR	LGC¹	LGI²	Total
	31 December 2017	31 December 2017	31 December 2017	31 December 2017
	£m	£m	£m	£m


Equities	-	922	8	930
Bonds³	9,272	22	432	9,726
Property⁴	2,722	110	-	2,832
Cash, cash equivalents and loans	88	150	236	474
Financial investments	12,082	1,204	676	13,962
Other assets⁵	92	319	-	411
Total direct investments	12,174	1,523	676	14,373

1. LGC included £30m of equities, £19m of bonds and £23m of property that belong to other shareholder funds.
2. LGI included £8m of equity investments in LGI UK. The bonds and loans are in the US business.
3. Bonds included lifetime mortgages of £2,023m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets included finance leases of £92m.

Investments Page 84

7.03 Bond portfolio summary

(a) LGR analysed by sector

Sectors analysed by credit rating

					BB or		Total	Total
	AAA	AA	A	BBB	below	Other	LGR	LGR
As at 30 June 2018	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,020	7,732	128	233	2	-	9,115	19
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	-	66	28	-	-	94	-
- Senior	-	554	1,483	32	-	4	2,073	4
- Covered	117	-	-	-	-	-	117	-
Financial Services:
- Tier 2 and other subordinated	-	187	104	15	-	-	306	1
- Senior	-	76	329	42	-	-	447	1
Insurance:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	106	-	43	-	-	149	-
- Senior	-	150	449	84	-	-	683	1
Consumer Services and Goods:
- Cyclical	-	501	775	1,406	172	-	2,854	6
- Non-cyclical	195	479	1,284	1,908	267	-	4,133	8
- Health care	3	49	249	312	-	-	613	1
Infrastructure:
- Social	95	788	3,273	905	127	-	5,188	11
- Economic	180	23	1,068	2,333	43	-	3,647	7
Technology and Telecoms	75	138	707	1,994	25	-	2,939	6
Industrials	-	-	751	264	7	-	1,022	2
Utilities	-	98	4,854	3,603	-	17	8,572	17
Energy	-	-	103	520	-	-	623	1
Commodities	-	-	242	479	-	-	721	1
Oil and Gas	-	322	536	586	80	-	1,524	3
Real estate	-	-	1,036	1,091	48	-	2,175	4
Structured finance ABS / RMBS / CMBS / Other	171	621	158	121	8	-	1,079	2
Lifetime mortgage loans¹	1,533	588	219	211	-	123	2,674	5
CDOs	-	24	61	14	-	-	99	-


Total £m	3,389	12,436	17,875	16,224	779	144	50,847	100


Total %	7	24	35	32	2	-	100



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

Investments Page 85

7.03 Bond portfolio summary (continued)

(a) LGR analysed by sector (continued)

Sectors analysed by credit rating (continued)

					BB or	Total	Total
	AAA	AA	A	BBB	below	LGR	LGR
As at 30 June 2017	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,058	9,718	297	230	31	11,334	23
Banks:
- Tier 1	-	-	-	-	-	-	-
- Tier 2 and other subordinated	211	49	58	35	-	353	1
- Senior	3	363	1,227	34	-	1,627	3
- Covered	254	-	-	-	-	254	-
Financial Services:
- Tier 2 and other subordinated	-	129	109	58	-	296	1
- Senior	-	580	66	114	-	760	1
Insurance:
- Tier 1	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	110	-	52	-	162	-
- Senior	-	55	487	76	-	618	1
Consumer Services and Goods
- Cyclical	-	335	1,071	1,676	160	3,242	6
- Non-cyclical	177	558	1,329	2,050	97	4,211	8
- Health care	3	32	195	155	-	385	1
Infrastructure:
- Social	86	841	3,380	1,005	20	5,332	10
- Economic	-	29	913	1,402	43	2,387	5
Technology and Telecoms	56	139	724	2,014	86	3,019	6
Industrials	-	148	705	381	12	1,246	2
Utilities	-	80	4,867	3,370	16	8,333	16
Energy	-	-	102	482	16	600	1
Commodities	-	-	302	523	20	845	2
Oil and Gas	-	278	481	670	163	1,592	3
Real estate	-	369	482	1,199	53	2,103	4
Structured finance ABS / RMBS / CMBS / Other	134	588	485	47	55	1,309	3
Lifetime mortgage loans¹	721	522	99	91	-	1,433	3
CDOs	-	21	60	14	-	95	-


Total £m	2,703	14,944	17,439	15,678	772	51,536	100


Total %	5	30	34	30	1	100


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

Investments Page 86

7.03 Bond portfolio summary (continued)

(a) LGR analysed by sector (continued)

Sectors analysed by credit rating (continued)

					BB or		Total	Total
	AAA	AA	A	BBB	below	Other	LGR	LGR
As at 31 December 2017	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,220	8,604	186	238	10	-	10,258	20
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	142	-	63	31	-	-	236	1
- Senior	-	682	1,740	47	-	-	2,469	5
- Covered	193	-	-	-	-	-	193	-
Financial Services:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	123	113	9	-	-	245	1
- Senior	-	307	348	187	-	-	842	2
Insurance:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	124	1	46	-	-	171	-
- Senior	-	116	458	65	-	-	639	1
Consumer Services and Goods:
- Cyclical	-	271	798	1,510	213	-	2,792	5
- Non-cyclical	201	574	1,239	2,031	126	-	4,171	8
- Health care	3	32	232	176	-	-	443	1
Infrastructure:
- Social	93	708	3,442	1,111	21	-	5,375	10
- Economic	179	30	937	2,179	43	-	3,368	6
Technology and Telecoms	60	148	777	1,941	26	-	2,952	6
Industrials	-	-	774	274	9	-	1,057	2
Utilities	-	107	4,800	3,666	11	-	8,584	17
Energy	-	-	106	538	16	-	660	1
Commodities	-	-	246	490	19	-	755	1
Oil and Gas	-	304	616	541	170	-	1,631	3
Real estate	-	22	1,044	1,166	49	-	2,281	4
Structured finance ABS / RMBS / CMBS / Other	176	681	172	151	55	-	1,235	2
Lifetime mortgage loans¹	1,141	403	207	159	-	113	2,023	4
CDOs	-	22	60	14	-	-	96	-


Total £m	3,408	13,258	18,359	16,570	768	113	52,476	100


Total %	6	25	35	32	2	-	100


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

Investments Page 87

7.03 Bond portfolio summary (continued)

(a) LGR analysed by sector (continued)

Sectors analysed by domicile

			EU	Rest of	Total
	UK	US	excluding UK	the World	LGR
As at 30 June 2018	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	7,383	723	734	275	9,115
Banks	878	604	495	307	2,284
Financial Services	290	79	382	2	753
Insurance	127	507	111	87	832
Consumer Services and Goods:
- Cyclical	524	1,800	430	100	2,854
- Non-cyclical	1,272	2,517	338	6	4,133
- Health care	1	612	-	-	613
Infrastructure:
- Social	4,857	294	-	37	5,188
- Economic	2,998	371	53	225	3,647
Technology and Telecoms	684	1,234	593	428	2,939
Industrials	188	503	256	75	1,022
Utilities	4,440	1,281	2,147	704	8,572
Energy	36	530	5	52	623
Commodities	8	250	35	428	721
Oil and Gas	267	422	327	508	1,524
Real estate	1,580	277	54	264	2,175
Structured finance ABS / RMBS / CMBS / Other	942	105	9	23	1,079
Lifetime mortgages	2,674	-	-	-	2,674
CDOs	-	24	-	75	99


Total	29,149	12,133	5,969	3,596	50,847

Investments Page 88

7.03 Bond portfolio summary (continued)

(a) LGR analysed by sector (continued)

Sectors analysed by domicile (continued)

			EU	Rest of	Total
	UK	US	excluding UK	the World	LGR
As at 30 June 2017	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	9,024	704	1,105	501	11,334
Banks	931	688	497	118	2,234
Financial Services	383	68	605	-	1,056
Insurance	154	555	16	55	780
Consumer Services and Goods:
- Cyclical	772	2,049	290	131	3,242
- Non-cyclical	1,359	2,564	279	9	4,211
- Health care	1	384	-	-	385
Infrastructure:
- Social	5,012	284	-	36	5,332
- Economic	1,917	205	29	236	2,387
Technology and Telecoms	591	1,356	659	413	3,019
Industrials	204	568	335	139	1,246
Utilities	3,862	1,237	2,322	912	8,333
Energy	-	498	6	96	600
Commodities	8	290	22	525	845
Oil and Gas	187	396	465	544	1,592
Real estate	1,686	379	10	28	2,103
Structured finance ABS / RMBS / CMBS / Other	947	42	302	18	1,309
Lifetime mortgages	1,433	-	-	-	1,433
CDOs	-	21	-	74	95


Total	28,471	12,288	6,942	3,835	51,536

Investments Page 89

7.03 Bond portfolio summary (continued)

(a) LGR analysed by sector (continued)

Sectors analysed by domicile (continued)

			EU	Rest of	Total
	UK	US	excluding UK	the World	LGR
As at 31 December 2017	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	8,052	925	978	303	10,258
Banks	1,351	690	662	195	2,898
Financial Services	364	68	655	-	1,087
Insurance	135	531	91	53	810
Consumer Services and Goods:
- Cyclical	597	1,919	210	66	2,792
- Non-cyclical	1,298	2,553	314	6	4,171
- Health care	1	442	-	-	443
Infrastructure:
- Social	5,051	287	-	37	5,375
- Economic	2,658	310	34	366	3,368
Technology and Telecoms	686	1,300	556	410	2,952
Industrials	195	523	263	76	1,057
Utilities	3,997	1,233	2,280	1,074	8,584
Energy	-	583	5	72	660
Commodities	8	263	34	450	755
Oil and Gas	259	418	429	525	1,631
Real estates	1,600	359	44	278	2,281
Structured finance ABS / RMBS / CMBS / Other	1,011	192	10	22	1,235
Lifetime mortgages	2,023	-	-	-	2,023
CDOs	-	22	-	74	96


Total	29,286	12,618	6,565	4,007	52,476

Investments Page 90

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector

Sectors analysed by credit rating

					BB or
	AAA	AA	A	BBB	below	Other	Total	Total
As at 30 June 2018	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,266	9,102	160	323	43	-	10,894	20
Banks:
- Tier 1	-	-	-	-	-	1	1	-
- Tier 2 and other subordinated	-	-	76	38	2	-	116	-
- Senior	-	1,184	2,411	62	-	8	3,665	7
- Covered	173	-	-	-	-	-	173	-
Financial Services:
- Tier 1	1	-	-	-	-	1	2	-
- Tier 2 and other subordinated	-	187	104	17	-	-	308	1
- Senior	-	84	354	59	10	-	507	1
Insurance:
- Tier 1	-	-	-	1	-	-	1	-
- Tier 2 and other subordinated	-	109	1	48	-	-	158	-
- Senior	-	168	456	91	-	-	715	1
Consumer Services and Goods:
- Cyclical	-	512	825	1,435	220	1	2,993	5
- Non-cyclical	209	498	1,360	2,006	295	1	4,369	8
- Health Care	3	52	276	325	3	-	659	1
Infrastructure:
- Social	95	788	3,276	905	127	-	5,191	9
- Economic	180	23	1,079	2,353	43	-	3,678	7
Technology and Telecoms	84	151	759	2,035	52	1	3,082	6
Industrials	-	3	817	374	43	-	1,237	2
Utilities	-	105	4,912	3,657	5	19	8,698	16
Energy	-	-	103	548	15	-	666	1
Commodities	-	-	248	491	13	-	752	1
Oil and Gas	-	341	557	617	111	-	1,626	3
Real estate	-	-	1,048	1,145	56	-	2,249	4
Structured finance ABS / RMBS / CMBS / Other	324	656	195	128	10	-	1,313	2
Lifetime mortgage loans¹	1,533	588	219	211	-	123	2,674	5
CDOs	-	24	61	14	-	-	99	-


Total £m	3,868	14,575	19,297	16,883	1,048	155	55,826	100


Total %	7	26	35	30	2	-	100


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

Investments Page 91

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector (continued)

Sectors analysed by credit rating (continued)

					BB or
	AAA	AA	A	BBB	below	Other	Total	Total
As at 30 June 2017	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,334	10,381	322	314	81	-	12,432	22
Banks:
- Tier 1	-	-	-	1	1	-	2	-
- Tier 2 and other subordinated	211	49	70	46	4	-	380	1
- Senior	11	992	2,233	51	1	-	3,288	6
- Covered	310	-	-	-	-	-	310	-
Financial Services:
- Tier 1	2	-	-	-	-	-	2	-
- Tier 2 and other subordinated	-	129	109	64	-	-	302	1
- Senior	-	591	100	132	11	-	834	1
Insurance:
- Tier 1	-	-	-	1	-	-	1	-
- Tier 2 and other subordinated	-	113	4	56	-	-	173	-
- Senior	-	71	493	80	-	-	644	1
Consumer Services and Goods:
- Cyclical	-	358	1,124	1,698	230	-	3,410	6
- Non-cyclical	191	591	1,398	2,143	134	-	4,457	7
- Health Care	3	31	222	172	6	-	434	1
Infrastructure:
- Social	86	841	3,383	1,005	20	-	5,335	10
- Economic	-	29	940	1,405	43	-	2,417	4
Technology and Telecoms	71	158	779	2,062	122	-	3,192	6
Industrials	-	151	786	482	68	-	1,487	3
Utilities	-	87	4,931	3,428	34	-	8,480	15
Energy	-	-	102	515	31	-	648	1
Commodities	-	-	312	537	41	-	890	2
Oil and Gas	-	287	514	695	204	-	1,700	3
Real estate	-	369	491	1,254	63	-	2,177	4
Structured finance ABS / RMBS / CMBS / Other	305	620	531	59	55	-	1,570	3
Lifetime mortgage loans¹	721	522	99	91	-	-	1,433	3
CDOs	-	21	60	14	-	-	95	-


Total £m	3,245	16,391	19,003	16,305	1,149	-	56,093	100


Total %	6	29	34	29	2	-	100


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

Investments Page 92

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector (continued)

Sectors analysed by credit rating (continued)

					BB or
	AAA	AA	A	BBB	below	Other	Total	Total
As at 31 December 2017	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,477	9,376	210	328	59	-	11,450	20
Banks:
- Tier 1	-	-	-	1	1	2	4	-
- Tier 2 and other subordinated	142	-	74	42	2	-	260	-
- Senior	-	1,366	2,782	90	-	-	4,238	8
- Covered	221	-	-	-	-	-	221	-
Financial Services:
- Tier 1	1	-	-	-	-	-	1	-
- Tier 2 and other subordinated	-	123	118	10	-	-	251	-
- Senior	-	323	368	205	9	-	905	2
Insurance:
- Tier 1	-	-	-	1	-	-	1	-
- Tier 2 and other subordinated	-	127	4	51	-	-	182	-
- Senior	-	128	464	68	-	-	660	1
Consumer Services and Goods:
- Cyclical	-	289	841	1,542	271	2	2,945	5
- Non-cyclical	215	601	1,313	2,114	165	1	4,409	8
- Health care	3	32	262	189	4	-	490	1
Infrastructure:
- Social	93	708	3,445	1,111	21	-	5,378	9
- Economic	179	30	949	2,182	44	-	3,384	6
Technology and Telecoms	73	167	833	1,988	57	2	3,120	6
Industrials	-	3	851	376	52	1	1,283	2
Utilities	-	115	4,860	3,725	21	-	8,721	16
Energy	-	-	106	567	31	-	704	1
Commodities	-	-	260	494	39	-	793	1
Oil and Gas	-	322	640	566	213	1	1,742	3
Real estate	-	22	1,053	1,221	59	-	2,355	4
Structured finance ABS / RMBS / CMBS / Other	318	717	208	161	55	-	1,459	3
Lifetime mortgage loans¹	1,141	403	207	159	-	113	2,023	4
CDOs	-	22	60	14	-	-	96	-


Total £m	3,863	14,874	19,908	17,205	1,103	122	57,075	100


Total %	7	26	35	30	2	-	100


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

Investments Page 93

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector (continued)

Sectors analysed by domicile

			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 30 June 2018	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	8,702	1,005	774	413	10,894
Banks	1,643	703	932	677	3,955
Financial Services	291	127	397	2	817
Insurance	132	541	113	88	874
Consumer Services and Goods:
- Cyclical	530	1,888	467	108	2,993
- Non-cyclical	1,284	2,717	350	18	4,369
- Health care	10	649	-	-	659
Infrastructure:
- Social	4,860	294	-	37	5,191
- Economic	3,000	381	71	226	3,678
Technology and Telecoms	690	1,352	599	441	3,082
Industrials	199	690	264	84	1,237
Utilities	4,449	1,377	2,162	710	8,698
Energy	36	572	5	53	666
Commodities	10	272	38	432	752
Oil and Gas	272	471	348	535	1,626
Real estate	1,582	341	58	268	2,249
Structured Finance ABS / RMBS / CMBS / Other	947	295	48	23	1,313
Lifetime mortgages	2,674	-	-	-	2,674
CDOs	-	24	-	75	99


Total	31,311	13,699	6,626	4,190	55,826

Investments Page 94

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector (continued)

Sectors analysed by domicile (continued)

			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 30 June 2017	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	9,600	965	1,236	631	12,432
Banks	1,858	793	920	409	3,980
Financial Services	384	124	630	-	1,138
Insurance	161	583	19	55	818
Consumer Services and Goods:
- Cyclical	782	2,153	336	139	3,410
- Non-cyclical	1,374	2,769	291	23	4,457
- Health care	10	424	-	-	434
Infrastructure:
- Social	5,015	283	-	37	5,335
- Economic	1,920	232	29	236	2,417
Technology and Telecoms	597	1,499	668	428	3,192
Industrials	218	775	345	149	1,487
Utilities	3,874	1,344	2,341	921	8,480
Energy	-	546	6	96	648
Commodities	10	313	27	540	890
Oil and Gas	193	436	496	575	1,700
Real estate	1,687	444	14	32	2,177
Structured Finance ABS / RMBS / CMBS / Other	950	246	349	25	1,570
Lifetime mortgages	1,433	-	-	-	1,433
CDOs	-	21	-	74	95


Total	30,066	13,950	7,707	4,370	56,093

Investments Page 95

7.03 Bond portfolio summary (continued)

(b) Total group analysed by sector (continued)

Sectors analysed by domicile (continued)

			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 31 December 2017	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	8,689	1,204	1,114	443	11,450
Banks	2,326	794	1,187	416	4,723
Financial Services	365	111	681	-	1,157
Insurance	143	555	92	53	843
Consumer Services and Goods
- Cyclical	604	2,015	251	75	2,945
- Non-cyclical	1,313	2,752	324	20	4,409
- Health care	10	480	-	-	490
Infrastructure
- Social	5,054	287	-	37	5,378
- Economic	2,661	321	34	368	3,384
Technology and Telecoms	692	1,435	563	430	3,120
Industrials	209	714	274	86	1,283
Utilities	4,008	1,334	2,296	1,083	8,721
Energy	-	626	5	73	704
Commodities	10	287	38	458	793
Oil and Gas	265	462	458	557	1,742
Real estate	1,602	422	48	283	2,355
Structured finance ABS / RMBS / CMBS / Other	1,017	366	54	22	1,459
Lifetime mortgage loans	2,023	-	-	-	2,023
CDOs	-	22	-	74	96


Total	30,991	14,187	7,419	4,478	57,075

Investments Page 96

7.03 Bond portfolio summary (continued)

	Externally	Internally	Total	Externally	Internally	Total
	rated	rated¹	LGR	rated	rated¹	group
As at 30 June 2018	£m	£m	£m	£m	£m	£m


AAA	1,640	1,749	3,389	2,117	1,751	3,868
AA	10,858	1,578	12,436	12,901	1,674	14,575
A	14,720	3,155	17,875	16,062	3,235	19,297
BBB	12,635	3,589	16,224	13,045	3,838	16,883
BB or below	507	272	779	730	318	1,048
Other	4	140	144	15	140	155


Total	40,364	10,483	50,847	44,870	10,956	55,826



	Externally	Internally	Total	Externally	Internally	Total
	rated	rated¹	LGR	rated	rated¹	group
As at 30 June 2017	£m	£m	£m	£m	£m	£m


AAA	1,573	1,130	2,703	2,115	1,130	3,245
AA	13,205	1,739	14,944	14,579	1,812	16,391
A	14,511	2,928	17,439	15,971	3,032	19,003
BBB	13,103	2,575	15,678	13,516	2,789	16,305
BB or below	691	81	772	989	160	1,149
Other	-	-	-	-	-	-


Total	43,083	8,453	51,536	47,170	8,923	56,093



	Externally	Internally	Total	Externally	Internally	Total
	rated	rated¹	LGR	rated	rated¹	group
As at 31 December 2017	£m	£m	£m	£m	£m	£m


AAA	1,783	1,625	3,408	2,238	484	2,722
AA	11,617	1,641	13,258	13,024	3,419	16,443
A	15,174	3,185	18,359	16,609	3,143	19,752
BBB	12,979	3,591	16,570	13,389	3,657	17,046
BB or below	690	78	768	965	138	1,103
Other	-	113	113	9	-	9


Total	42,243	10,233	52,476	46,234	10,841	57,075


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

Investments Page 97

7.04 Property analysis

Property exposure within direct investments by status


	LGR¹	LGC^2,3	Total
As at 30 June 2018	£m	£m	£m	%


Fully let	2,791	11	2,802	97
Development	-	23	23	1
Land	-	46	46	2

	2,791	80	2,871	100


1. The fully let LGR property includes £2.6bn let to investment grade tenants.
2. Development includes £23m of shareholder investment property as noted in Note 7.01.
3. 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 Other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2018 the group held a total of £1,427m of such assets.



	LGR¹	LGC²	Total
As at 30 June 2017	£m	£m	£m	%

Fully let	2,687	8	2,695	93
Development	-	144	144	5
Land	-	48	48	2

	2,687	200	2,887	100

1. The fully let LGR property included £2.3bn let to investment grade tenants.
2. Development included £25m of shareholder investment property.



	LGR¹	LGC²	Total
As at 31 December 2017	£m	£m	£m	%

Fully let	2,722	30	2,752	97
Development	-	32	32	1
Land	-	48	48	2

	2,722	110	2,832	100

1. The fully let LGR property included £2.4bn let to investment grade tenants.
2. Development included £23m of shareholder investment property.

Investments Page 98

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Glossary Page 99

* These items represent an alternative performance measure (APM)

Ad valorem fees

Ongoing management fees earned on assets under management, overlay assets and advisory assets as defined below.

Adjusted earnings per share

Calculated by dividing profit after tax from continuing operations, attributable to equity holders of the company, excluding recognised gains and losses associated with held for sale and completed business disposals, by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares. Excluding the impact of anticipated and completed disposals provides an indication of the earnings per share from continuing operations.

Adjusted return on equity

ROE measures the return earned by shareholders on shareholder capital retained within the business. Adjusted ROE is calculated as IFRS proﬁt after tax divided by average IFRS shareholders' funds excluding recognised gains and losses associated with held for sale and completed business disposals. Excluding the impact of anticipated and completed disposals provides an indication of the return on equity from on-going operations.

Adjusted operating profit*

Operating proﬁt measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Adjusted operating profit further removes exceptional restructuring costs to demonstrate the profitability before these costs which are non-recurring in nature.

Advisory assets

These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are beneﬁcially owned by GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different from Assets under Management (AUM) deﬁned below.

Alternative performance measures (APMs)

An alternative performance measure 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. The group uses a range of these metrics to provide a better understanding of the underlying performance of the group. Where appropriate, reconciliations of alternative performance measures to IFRS measures are provided. All APMs defined within this glossary are marked with an asterisk.

Annuity

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

Annual premium

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

Annual premium equivalent (APE)

A standardised measure of the volume of new life insurance business written. It is calculated as the sum of (annualised) new recurring premiums and 10% of the new single premiums written in an annual reporting period.

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)*

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.

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.

Glossary Page 100

Bundled DC solution

Where investment and administration services are provided to a scheme by the same service provider. Typically, all investment and administration costs are passed onto the scheme members.

Bundled pension schemes

Where the fund manager bundles together the investment provider role and third-party administrator role, together with the role of selecting funds and providing investment education, into one proposition.

Combined operating ratio (COR)

The COR is a measure of the underwriting profitability of the general insurance business. It is calculated as the sum of the net incurred claims, expenses and net commission, divided by the net earned premium for the period.

Credit rating

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

Deduction and aggregation (D&A)

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

Derivatives

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

Direct investments

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

Dividend cover

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

Earnings per share (EPS)

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

Eligible Own Funds

Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group. Eligible own funds (shareholder view basis) excludes the contribution to the groups solvency capital requirement of with-profits fund and final salary pension schemes.

Glossary Page 101

Employee engagement index

The Employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst at the same time working with their manager to enhance their own sense of development and well-being.

Escape of Water

Escape of water is a type of home insurance claim relating to leakage from fixed water tanks, apparatus (e.g. washing machine) or pipes

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.

FVTPL

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

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).

General insurance combined operating ratio

The combined operating ratio is calculated as the sum of incurred losses and expenses, including commission, divided by net earned premium.

Generally accepted accounting principles (GAAP)

These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used

by the accounting community to report financial information.

Gross written premiums (GWP)

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

ICAV - Irish Collective Asset-Management Vehicle

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

Index tracker (passive fund)

Index tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 index. Index tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds'.

International financial reporting standards (IFRS)

These are accounting guidelines and rules that companies and organisations follow when completing financial statements.

They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed

groups in the European Union (EU) are required to use.

Key performance indicators (KPIs)

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

LGA

Legal & General America.

LGAS

Legal and General Assurance Society Limited

Glossary Page 102

LGC

Legal & General Capital.

LGI

Legal & General Insurance.

LGIM

Legal & General Investment Management

LGR

Legal & General Retirement

LGR new business

Single premiums arising from annuity sales and back book acquisitions (including individual annuity and pension risk transfer), the volume of lifetime mortgage lending and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the LIBOR 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 60 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.

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.

Mortality rate

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

Net release from operations*

Net release from operations is deﬁned as release from operations plus new business surplus/(strain). Net release from operations was previously referred to as net cash and provides information on the underlying release of prudent margins from the back book.

New business surplus/(strain)

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

Operating proﬁt*

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects the IFRS profit before tax) and LGA non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the period, such as merger and acquisition, and start-up costs, are also excluded from operating profit.

Glossary Page 103

Overlay assets

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

Open architecture

Where a company offers investment products from a rang of other companies in addition to its own products. This gives customers a wider choice of funds to invest in and access to a larger pool of money management professionals.

Pension risk transfer (PRT)

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

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.

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.

Profit before tax attributable to equity holders (PBT)*

Profit attributable to shareholders incorporating actual investment returns experienced during the year but before

the payment of tax.

Purchased interest in long term business (PILTB)

An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been

acquired via a business combination.

Real assets

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

Release from operations

The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from LGA. Release from operations was previously referred to as operational cash generation.

Return on equity (ROE)*

ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS proﬁt after tax divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds in the period).

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.

Glossary Page 104

SCR coverage ratio

The eligible own funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by eligible own funds.

SCR coverage ratio (proforma basis)

The proforma basis solvency II SCR coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of with-profits fund and our defined benefit pension schemes in both Own Funds and the SCR in the calculation of the SCR coverage ratio.

SCR coverage ratio (shareholder view basis)

In order to represent a shareholder view of group solvency position, the contribution of with-profits fund and our defined benefit pension schemes is excluded from both the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 30 June 2018. This will be submitted to the PRA in August 2018.

Single premiums

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

Solvency II

Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance ﬁrms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to appropriately align insurers' risk with the capital they hold to safeguard policyholder.

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 Risk Margin

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

Solvency II Surplus

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

Solvency Capital Requirement (SCR)

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

Total shareholder return (TSR)

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

Transitional Measures on Technical Provisions (TMTP)

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

Unbundled DC solution

When investment services and administration services are supplied by separate providers. Typically the sponsoring employer will cover administration costs and scheme members the investment costs.

With-profits funds

Individually identifiable portfolios where policyholders have a contractual right to receive additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. An insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or

may have discretion as to the timing and the amount of the additional benefits.

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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR UWAWRWOAWRAR

Companies

Legal & General Group (LGEN)

Friday, 20th December 2024

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Serco extends Thursday’s gains as upbeat mood prevails and Raspberry Pi also advances off the back of stake building news, but Neometals under pressure as it plans cancellation of AIM listing to focus on ASX.

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