International Financial Reporting Standards Page 27
Supplementary operating profit information
For the six months ended 30 June 2013
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Full year |
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30.06.13 |
30.06.121 |
31.12.121 |
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Notes |
£m |
£m |
£m |
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From continuing operations |
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Annuities |
2.01(a) |
151 |
139 |
281 |
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Housing and Protection |
2.01(a) |
168 |
150 |
359 |
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Savings |
2.02(a) |
62 |
72 |
133 |
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Investment management |
2.03 |
135 |
119 |
243 |
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US Protection |
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53 |
48 |
99 |
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L&G Capital |
2.04 |
86 |
81 |
163 |
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Operating profit from divisions |
|
655 |
609 |
1,278 |
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Group debt costs2 |
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(64) |
(63) |
(127) |
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Group Investment projects and expenses3 |
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(20) |
(28) |
(64) |
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Operating profit |
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571 |
518 |
1,087 |
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Investment and other variances |
2.05 |
16 |
4 |
(42) |
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Gains/(losses) attributable to non-controlling interests |
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5 |
1 |
(12) |
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Profit before tax |
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592 |
523 |
1,033 |
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Tax expense attributable to equity holders of the Company |
2.06 |
(128) |
(118) |
(235) |
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Profit for the period |
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464 |
405 |
798 |
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Profit attributable to equity holders of the Company |
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459 |
404 |
810 |
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p |
p1 |
p1 |
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Earnings per share |
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Based on profit attributable to equity holders of the Company |
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7.82 |
6.93 |
13.84 |
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Diluted earnings per share |
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Based on profit attributable to equity holders of the Company |
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7.72 |
6.82 |
13.61 |
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1. Investment and other variances has been adjusted to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12 offset by a corresponding change in the Consolidated Statement of Comprehensive Income. |
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2. Group debt costs excludes interest on non recourse financing. |
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3. Investment projects of £14m (H1 12: £23m; FY 12: £50m) predominantly relate to the Economic Capital programme and other strategic investments. Group expenses of £6m (H1 12: £5m; FY 12: £14m) includes the operating profit/(loss) attributable to our joint venture operations in Egypt and the Gulf. |
This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business. Income and expenses arising outside the normal course of business, such as merger and acquisition and restructuring costs, are excluded from operating profit.
During 2012, the Group changed the reportable segments to reflect the development of our international strategy. In addition, during 2013, the Group has changed the presentation of operating profit in order to separately highlight the operating profit from divisions from Group operating costs and expenses. The prior period segmental information has been represented to reflect these changes.
Operating profit for the annuities business represents the profit from individual and bulk purchase annuities and longevity insurance. Operating profit from the housing and protection business includes general insurance, and UK individual and group protection business. It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN). Operating profit reflects the longer term investment return that the business expects to make on the financial investments that back this business and on shareholder funds retained within our general insurance business. LGN operating profit reflects a longer term expected return on shareholders' funds and index linked policies.
Operating profit for the Savings segment represents the profit from the insured savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer, the profit of our savings investments business, and our joint venture operation in India. Operating profit for the insured savings business reflects the longer term investment return that the business expects to make on the financial investments that back this business.
Operating profit for the Investment management segment includes a longer term expected investment return on the shareholders' funds within the segment, and operating profit for the US Protection segment comprises the profit before tax from Legal & General America (LGA).
Operating profit for the L&G Capital segment represents the longer term investment return (less investment expenses) on Group invested assets, which incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a monthly basis. Profits or losses arising from actuarial movements on annuities held by the Group's defined benefit pension schemes are excluded from operating profit. Profits or losses arising on the elimination of own debt holdings are also excluded from operating profit.
International Financial Reporting Standards Page 28
Supplementary operating profit information
2.01 Protection and Annuities
(a) Protection and Annuities operating profit |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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Note |
£m |
£m |
£m |
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Annuities |
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151 |
139 |
281 |
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Protection |
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119 |
124 |
289 |
General insurance and other |
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29 |
9 |
27 |
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Total UK Housing and Protection operating profit |
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148 |
133 |
316 |
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Total UK Protection and Annuities operating profit |
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2.01(b) |
299 |
272 |
597 |
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Netherlands |
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17 |
9 |
28 |
France |
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3 |
8 |
15 |
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Total Protection and Annuities operating profit |
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319 |
289 |
640 |
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(b) Analysis of UK Protection and Annuities operating profit |
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Housing |
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Housing |
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and |
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and |
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Annui- |
Protec- |
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Annui- |
Protec- |
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ties |
tion |
Total |
ties |
tion |
Total |
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30.06.13 |
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
30.06.12 |
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Notes |
£m |
£m |
£m |
£m |
£m |
£m |
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UK Protection and Annuities business segment |
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operating profit comprises: |
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Operational cash generation |
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|
130 |
148 |
278 |
121 |
114 |
235 |
New business surplus/(strain) |
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|
17 |
(23) |
(6) |
1 |
(33) |
(32) |
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Net cash generation |
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|
147 |
125 |
272 |
122 |
81 |
203 |
Experience variances |
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2.01(c) |
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(2) |
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|
6 |
Changes to valuation assumptions |
|
2.01(d) |
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|
14 |
|
|
18 |
Movements in non-cash items |
|
2.01(e) |
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|
(55) |
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(22) |
Other |
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- |
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- |
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|
229 |
|
|
205 |
Tax gross up |
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|
70 |
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|
67 |
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Total UK Protection and Annuities operating profit |
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|
299 |
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|
272 |
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International Financial Reporting Standards Page 29
Supplementary operating profit information
2.01 Protection and Annuities (continued) |
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(b) Analysis of UK Protection and Annuities operating profit (continued) |
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Housing |
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and |
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Annui- |
Protec- |
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ties |
tion |
Total |
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Full year |
Full year |
Full year |
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31.12.12 |
31.12.12 |
31.12.12 |
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Notes |
£m |
£m |
£m |
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UK Protection and Annuities business segment operating profit comprises: |
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Operational cash generation |
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243 |
265 |
508 |
New business surplus/(strain) |
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|
14 |
(45) |
(31) |
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Net cash generation |
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257 |
220 |
477 |
Experience variances |
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2.01(c) |
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14 |
Changes to valuation assumptions |
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2.01(d) |
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(2) |
Movements in non-cash items |
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2.01(e) |
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(41) |
Other |
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2 |
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450 |
Tax gross up |
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|
147 |
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Total UK Protection and Annuities operating profit |
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597 |
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During the period, Netherlands and France paid £1m (H1 12: £1m; FY 12: £14m) of sustainable dividends to the Group, which has been included in net cash generation for the Protection and Annuities segment.
The UK protection and annuities (non profit business) operational cash generation represents the expected surplus to be generated in the period from the in-force non profit business which is broadly equivalent to the expected release of profit from the non profit UK protection and annuities business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation. |
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An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below: |
(c) Experience variances |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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£m |
£m |
£m |
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Persistency |
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- |
(1) |
(4) |
Mortality/morbidity |
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2 |
(10) |
3 |
Expenses |
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1 |
- |
2 |
Bulk purchase annuity data loading |
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2 |
16 |
37 |
Project and development costs |
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(8) |
(3) |
(10) |
Tax |
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(6) |
(6) |
(14) |
Other |
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7 |
10 |
- |
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(2) |
6 |
14 |
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International Financial Reporting Standards Page 30
Supplementary operating profit information
2.01 Protection and Annuities (continued)
(d) Changes to valuation assumptions |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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£m |
£m |
£m |
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Persistency |
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- |
- |
(8) |
Mortality/morbidity1 |
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11 |
- |
(14) |
Expenses |
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6 |
- |
(2) |
Other2 |
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(3) |
18 |
22 |
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14 |
18 |
(2) |
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1. The 2013 positive mortality/morbidity change relates to an update of the assumptions in retail protection, while in 2012 the negative assumption change primarily related to the update of assumptions in the annuities business. |
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2. Other valuation assumption changes in 2012 primarily relate to a reduction to the retail protection reserve for reinsurance default and a reduction in reserves applying PS06/14 to a retail protection product. |
(e) Movements in non-cash items |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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£m |
£m |
£m |
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Utilisation of brought forward trading losses |
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(38) |
(30) |
(72) |
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Retail protection acquisition expense tax relief |
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(25) |
2 |
14 |
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Other |
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8 |
6 |
17 |
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(55) |
(22) |
(41) |
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Net cash generation recognises the utilisation of previous trading losses and the relief of prior year acquisition expenses, spread evenly over seven years under Income-Expenses ('I-E') tax legislation, in the period the cash flows actually occur. In contrast, IFRS profit typically recognises the value of these future cash flows in the same period as the underlying loss or expense as deferred tax amounts. The non-cash reconciliation amounts arising from these items are included in the table above.
Following the removal of new retail protection business from the I-E tax regime at the end of 2012, no deferred tax assets arise on new acquisition expenses. From 2013, as the deferred tax asset on prior period acquisition expenses unwinds, no replacement asset is created resulting in an increase to net cash in this period and the following 6 years. |
(f) General insurance combined operating ratio1 |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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% |
% |
% |
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General insurance combined operating ratio2 |
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81 |
99 |
95 |
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1. The calculation of the general insurance combined operating ratio incorporates commission and expenses as a percentage of earned premiums. |
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2. This reflects effective underwriting and the general benign weather experienced during the first six months of 2013. |
2.02 Savings
(a) Savings operating profit |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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Note |
£m |
£m |
£m |
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Savings investments1 |
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11 |
9 |
16 |
Insured savings2 |
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14 |
28 |
48 |
With-profits3 |
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37 |
35 |
69 |
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Total Savings operating profit |
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2.02(b) |
62 |
72 |
133 |
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1. Savings investments operating profit includes collective investments, Cofunds platform business, Suffolk Life SIPPs and structured products. |
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2. Insured savings includes non profit investment bonds and pensions (including workplace savings and SIPPs), Nationwide Life savings business, International (Ireland) and our joint venture operation in India. |
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3. With-profits business operating profit is the shareholders' share of total with-profits bonuses. |
International Financial Reporting Standards Page 31
Supplementary operating profit information
2.02 Savings (continued) |
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(b) Analysis of Savings operating profit |
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Savings |
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invest- |
Insured |
With- |
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ments |
savings |
profits |
Total |
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30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
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Notes |
£m |
£m |
£m |
£m |
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Savings business segment operating profit comprises: |
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Operational cash generation |
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11 |
55 |
29 |
95 |
New business strain |
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- |
(31) |
- |
(31) |
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Net cash generation |
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11 |
24 |
29 |
64 |
Insured savings |
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Experience variances |
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2.02(c) |
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(5) |
Changes to valuation assumptions |
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2.02(d) |
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|
11 |
Movements in non-cash items and other |
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2.02(e) |
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(19) |
Savings investments |
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Movements in non-cash items and other |
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|
|
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
Tax gross up |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings operating profit |
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
|
|
|
|
|
|
invest- |
Insured |
With- |
|
|
|
|
|
|
ments |
savings |
profits |
Total |
|
|
|
|
|
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
|
Notes |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings business segment operating profit comprises: |
|
|
|
|
||||
Operational cash generation |
|
|
|
|
9 |
53 |
26 |
88 |
New business strain |
|
|
|
|
- |
(32) |
- |
(32) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generation |
|
|
|
|
9 |
21 |
26 |
56 |
Insured savings |
|
|
|
|
|
|
|
|
Experience variances |
|
|
|
2.02(c) |
|
|
|
(15) |
Changes to valuation assumptions |
|
|
|
2.02(d) |
|
|
|
2 |
Movements in non-cash items and other |
|
|
|
2.02(e) |
|
|
|
14 |
Savings investments |
|
|
|
|
|
|
|
|
Movements in non-cash items and other |
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
Tax gross up |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings operating profit |
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Financial Reporting Standards Page 32
Supplementary operating profit information
2.02 Savings (continued)
(b) Analysis of Savings operating profit (continued)
|
|
|
|
|
Savings |
|
|
|
|
|
|
|
|
invest- |
Insured |
With- |
|
|
|
|
|
|
ments |
savings |
profits |
Total |
|
|
|
|
|
Full year |
Full year |
Full year |
Full year |
|
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
Notes |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings business segment operating profit comprises: |
|
|
|
|
|
|
||
Operational cash generation |
|
|
|
|
19 |
108 |
52 |
179 |
New business strain |
|
|
|
|
- |
(62) |
- |
(62) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generation |
|
|
|
|
19 |
46 |
52 |
117 |
Insured savings |
|
|
|
|
|
|
|
|
Experience variances |
|
|
|
2.02(c) |
|
|
|
(39) |
Changes to valuation assumptions |
|
|
|
2.02(d) |
|
|
|
20 |
Movements in non-cash items and other |
|
|
2.02(e) |
|
|
|
11 |
|
Savings investments |
|
|
|
|
|
|
|
|
Movements in non-cash items and other |
|
|
|
|
|
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
Tax gross up |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings operating profit |
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The insured savings operational cash generation represents the expected surplus generated in the period from the in-force investment bonds and pensions business (non profit savings) which is broadly equivalent to the expected release of profit from non profit savings business using best estimate assumptions and the IFRS profit after tax of the Nationwide Life savings business and International (Ireland). The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation. |
||||||||
|
|
|
|
|
|
|
|
|
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below: |
(c) Experience variances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Persistency |
|
|
|
|
|
- |
- |
(3) |
Expenses |
|
|
|
|
|
(1) |
(1) |
(1) |
Project and development costs1 |
|
|
|
|
|
(9) |
(10) |
(33) |
Tax |
|
|
|
|
|
- |
1 |
1 |
Other |
|
|
|
|
|
5 |
(5) |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
(15) |
(39) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. The project and development costs mainly relate to expenditure on Retail Distribution Review. |
International Financial Reporting Standards Page 33
Supplementary operating profit information
2.02 Savings (continued)
(d) Changes to valuation assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Persistency |
|
|
|
|
|
- |
- |
- |
Expenses1 |
|
|
|
|
|
(1) |
- |
17 |
Other2 |
|
|
|
|
|
12 |
2 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
2 |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. In 2012 the expense valuation assumptions related to efficiency improvements in workplace pensions. |
||||||||
2. The 2013 favourable variance is driven by a reduction in regulatory pension reserves. An equal and opposite movement in investment contract reserves is noted in the movements in non-cash items and other line. |
(e) Movements in non-cash items and other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
(1) |
6 |
(6) |
Deferred acquisition costs (DAC)1 |
|
|
|
|
|
(28) |
(5) |
(9) |
Deferred income liabilities (DIL)2 |
|
|
|
|
|
24 |
7 |
14 |
Other3 |
|
|
|
|
|
(14) |
6 |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19) |
14 |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. The £28m movement in DAC comprised of a £34m charge offset by new acquisitions costs deferred in the period of £6m (H1 12: £31m; FY 12: £42m). The decrease in deferred costs reflects the removal of commission payable on savings and investment business following the implementation of the requirements of the Retail Distribution Review on 1 January 2013. |
||||||||
2. DIL amortisation reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided. |
||||||||
3. Other mainly includes elimination of a reduction in regulatory pension reserves in line with IFRS methodology. An equal and opposite movement in investment contract reserves is noted in the changes to valuation assumptions. |
International Financial Reporting Standards Page 34
Supplementary operating profit information
2.03 Investment management
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension funds (managed and segregated) |
|
|
|
|
102 |
89 |
181 |
|
Other non-pension1 |
|
|
|
|
|
12 |
11 |
22 |
Investment management services for internal funds |
|
|
|
|
21 |
19 |
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment management operating profit |
|
|
|
|
135 |
119 |
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £4m (H1 12: £3m; FY 12: £6m) on an average asset balance of £0.5bn (H1 12: £0.4bn; FY 12: £0.4bn) has been included within other non-pension operating profit. |
2.04 L&G Capital
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment return |
|
|
|
|
|
89 |
84 |
168 |
Investment expenses |
|
|
|
|
|
(3) |
(3) |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total L&G Capital operating profit |
|
86 |
81 |
163 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.05 Investment and other variances
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment variance1 |
|
|
|
|
|
42 |
5 |
(23) |
M&A related2 |
|
|
|
|
|
(11) |
- |
- |
Other3 |
|
|
|
|
|
(15) |
(1) |
(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
16 |
4 |
(42) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Investment variance is positive due to strong equity returns in shareholder funds and a positive impact from the increase in exposure to Direct Investments in LGPL. This has been partly offset by the defined pension benefit scheme variance of £(24)m (H1 12: £10m; FY 12: £40m), that comprises the actuarial gains and losses and valuation difference arising on annuity assets held by defined pension schemes that have been purchased from Legal & General Assurance Society Limited. All other actuarial gains and losses on the defined benefit scheme assets and liabilities are presented in the Consolidated Statement of Comprehensive Income. |
||||||||
2. M&A related includes gains and costs related to the acquisitions and amortisation of intangibles in the first half of 2013. |
||||||||
3. Other includes new business start up costs, restructuring costs, and other non-investment related variance items. |
International Financial Reporting Standards Page 35
Supplementary operating profit information
2.06 Analysis of tax attributable to equity holders
|
|
|
|
|
|
|
|
|
|
|
|
Profit/ |
Tax |
Profit/ |
Tax |
Profit/ |
Tax |
|
|
|
(loss) |
(exp- |
(loss) |
(exp- |
(loss) |
(exp- |
|
|
|
before |
ense)/ |
before |
ense)/ |
before |
ense)/ |
|
|
|
tax |
credit |
tax |
credit |
tax |
credit |
|
|
|
|
|
|
|
Full year |
Full year |
|
|
|
30.06.13 |
30.06.13 |
30.06.121 |
30.06.12 |
31.12.121 |
31.12.12 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities |
|
|
151 |
(35) |
139 |
(34) |
281 |
(69) |
Protection |
|
|
168 |
(39) |
150 |
(38) |
359 |
(90) |
Savings |
|
|
62 |
(15) |
72 |
(18) |
133 |
(33) |
Investment management |
|
|
135 |
(29) |
119 |
(22) |
243 |
(46) |
US Protection |
|
|
53 |
(18) |
48 |
(19) |
99 |
(37) |
L&G Capital |
|
|
86 |
(18) |
81 |
(19) |
163 |
(40) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit from divisions/Tax expense on divisions |
655 |
(154) |
609 |
(150) |
1,278 |
(315) |
||
Group debt costs |
|
|
(64) |
15 |
(63) |
16 |
(127) |
31 |
Group Investment projects and expenses |
(20) |
5 |
(28) |
7 |
(64) |
16 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/Tax expense |
|
|
571 |
(134) |
518 |
(127) |
1,087 |
(268) |
Investment variances |
|
|
16 |
5 |
4 |
12 |
(42) |
40 |
Impact of change in UK tax rates |
|
|
- |
1 |
- |
(3) |
- |
(7) |
Losses attributable to non-controlling interests |
5 |
- |
1 |
- |
(12) |
- |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period/Tax expense for the period |
592 |
(128) |
523 |
(118) |
1,033 |
(235) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Operating profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12. |
||||||||
|
|
|
|
|
|
|
|
|
The equity holders' effective tax rate for the period is 21.6% (H1 12: 22.4%; FY 12: 22.6%). The Group's effective tax rate remains slightly below the UK corporation tax rate due to differences between the measurement of accounting and taxable profits. |
International Financial Reporting Standards Page 36
Consolidated Income Statement
For the six months ended 30 June 2013
|
|
|
|
Full year |
|
|
30.06.13 |
30.06.121 |
31.12.121 |
|
Notes |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
Gross written premiums |
2.09 |
3,136 |
2,321 |
5,668 |
Outward reinsurance premiums |
|
(388) |
(352) |
(718) |
Net change in provision for unearned premiums |
|
(19) |
(16) |
(25) |
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
2,729 |
1,953 |
4,925 |
Fees from fund management and investment contracts |
|
480 |
433 |
875 |
Investment return |
|
15,515 |
9,464 |
28,828 |
Operational income |
|
348 |
135 |
342 |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
19,072 |
11,985 |
34,970 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
Claims and change in insurance liabilities |
|
2,168 |
3,310 |
8,588 |
Reinsurance recoveries |
|
(500) |
(482) |
(779) |
|
|
|
|
|
|
|
|
|
|
Net claims and change in insurance liabilities |
|
1,668 |
2,828 |
7,809 |
Change in provisions for investment contract liabilities |
|
15,286 |
7,597 |
23,656 |
Acquisition costs |
|
399 |
405 |
784 |
Finance costs |
|
85 |
75 |
165 |
Other expenses |
|
853 |
507 |
1,194 |
Transfers to/(from) unallocated divisible surplus |
|
4 |
(25) |
155 |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
18,295 |
11,387 |
33,763 |
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
777 |
598 |
1,207 |
Tax expense attributable to policyholder returns |
|
(185) |
(75) |
(174) |
|
|
|
|
|
|
|
|
|
|
Profit before tax attributable to equity holders of the Company |
|
592 |
523 |
1,033 |
|
|
|
|
|
|
|
|
|
|
Total tax expense |
|
(313) |
(193) |
(409) |
Tax expense attributable to policyholder returns |
|
185 |
75 |
174 |
|
|
|
|
|
|
|
|
|
|
Tax expense attributable to equity holders |
2.06 |
(128) |
(118) |
(235) |
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
464 |
405 |
798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Non-controlling interests |
|
5 |
1 |
(12) |
Equity holders of the Company |
|
459 |
404 |
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend distributions to equity holders of the Company during the period |
2.15 |
337 |
278 |
394 |
Dividend distributions to equity holders of the Company proposed after the period end |
2.15 |
142 |
116 |
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
p |
p 1 |
p 1 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Based on profit attributable to equity holders of the Company |
2.10 |
7.82 |
6.93 |
13.84 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
Based on profit attributable to equity holders of the Company |
2.10 |
7.72 |
6.82 |
13.61 |
|
|
|
|
|
|
|
|
|
|
1. The Consolidated Income Statement has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12. |
International Financial Reporting Standards Page 37
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2013
|
|
|
|
Full year |
|
|
30.06.13 |
30.06.121 |
31.12.121 |
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
464 |
405 |
798 |
|
|
|
|
|
Items that will not be reclassified subsequently to profit or loss |
|
|
|
|
Actuarial losses on defined benefit pension schemes |
|
(7) |
(67) |
(101) |
Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus |
3 |
27 |
38 |
|
|
|
|
|
|
|
|
|
|
|
Total items that will not be reclassified to profit or loss subsequently |
|
(4) |
(40) |
(63) |
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
Exchange differences on translation of overseas operations |
|
12 |
(9) |
(13) |
Net change in financial investments designated as available-for-sale |
|
(43) |
15 |
32 |
|
|
|
|
|
|
|
|
|
|
Total items that may be reclassified to profit or loss subsequently |
|
(31) |
6 |
19 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income after tax |
|
(35) |
(34) |
(44) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period |
|
429 |
371 |
754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
Non-controlling interests |
|
5 |
1 |
(12) |
Equity holders of the Company |
|
424 |
370 |
766 |
|
|
|
|
|
|
|
|
|
|
1. The Consolidated Statement of Comprehensive Income has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12, offset by a corresponding change in the Consolidated Statement of Comprehensive Income.
International Financial Reporting Standards Page 38
Consolidated Balance Sheet
As at 30 June 2013
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
Notes |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
Goodwill |
|
2.12 |
65 |
- |
- |
Purchased interest in long term businesses and other intangible assets |
|
|
291 |
150 |
211 |
Deferred acquisition costs |
|
|
1,979 |
1,864 |
1,904 |
Investment in associates |
|
|
121 |
60 |
87 |
Property, plant and equipment |
|
|
138 |
77 |
92 |
Investment property |
|
2.13 |
5,377 |
5,087 |
5,143 |
Financial investments |
|
2.13 |
326,079 |
303,272 |
316,748 |
Reinsurers' share of contract liabilities |
|
|
2,745 |
2,474 |
2,499 |
Deferred tax asset |
|
|
138 |
478 |
316 |
Current tax recoverable |
|
|
205 |
80 |
194 |
Other assets |
|
|
3,506 |
2,565 |
1,564 |
Assets of operations classified as held for sale1 |
|
|
- |
- |
891 |
Cash and cash equivalents |
|
|
16,759 |
16,757 |
16,652 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
357,403 |
332,864 |
346,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
148 |
148 |
148 |
Share premium |
|
|
958 |
953 |
956 |
Employee scheme treasury shares |
|
|
(38) |
(44) |
(43) |
Capital redemption and other reserves |
|
|
84 |
130 |
153 |
Retained earnings |
|
|
4,353 |
3,970 |
4,227 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
5,505 |
5,157 |
5,441 |
Non-controlling interests |
|
2.19 |
58 |
67 |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
5,563 |
5,224 |
5,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Participating insurance contracts |
|
|
7,479 |
8,506 |
8,116 |
Participating investment contracts |
|
|
7,523 |
7,229 |
7,403 |
Unallocated divisible surplus |
|
|
1,163 |
966 |
1,153 |
Value of in-force non-participating contracts |
|
|
(235) |
(206) |
(242) |
|
|
|
|
|
|
|
|
|
|
|
|
Participating contract liabilities |
|
|
15,930 |
16,495 |
16,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-participating insurance contracts |
|
|
38,021 |
34,786 |
37,728 |
Non-participating investment contracts |
|
|
273,545 |
254,768 |
264,958 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-participating contract liabilities |
|
|
311,566 |
289,554 |
302,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core borrowings |
|
2.17 |
2,457 |
2,436 |
2,445 |
Operational borrowings |
|
2.18 |
958 |
826 |
920 |
Provisions |
|
|
968 |
968 |
983 |
Deferred tax liabilities |
|
|
400 |
359 |
382 |
Current tax liabilities |
|
|
5 |
1 |
68 |
Payables and other financial liabilities |
|
2.14 |
8,160 |
8,335 |
8,083 |
Other liabilities |
|
|
901 |
857 |
959 |
Net asset value attributable to unit holders |
|
|
10,495 |
7,809 |
7,702 |
Liabilities of operations classified as held for sale1 |
|
|
- |
- |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
351,840 |
327,640 |
340,821 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
357,403 |
332,864 |
346,301 |
|
|
|
|
|
|
|
|
|
|
|
|
1. Assets and liabilities of operations classified as held for sale relate to seed capital the Group has invested into newly established funds. They are classified as held for sale when the Group expects its ownership to reduce below the level for control within 12 months of classification.
International Financial Reporting Standards Page 39
Condensed Consolidated Statement of Changes in Equity |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
Capital |
|
|
|
|
|
|
|
scheme |
redemption |
|
|
Non- |
|
|
Share |
Share |
treasury |
and other |
Retained |
|
controlling |
Total |
|
capital |
premium |
shares |
reserves |
earnings |
Total |
interests |
equity |
For the six months ended 30 June 2013 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2013 |
148 |
956 |
(43) |
153 |
4,227 |
5,441 |
39 |
5,480 |
Total comprehensive (expense)/income |
|
|
|
|
|
|
|
|
for the period |
- |
- |
- |
(31) |
455 |
424 |
5 |
429 |
Options exercised under |
|
|
|
|
|
|
|
|
share option schemes: |
- |
2 |
- |
- |
- |
2 |
- |
2 |
Net movement in employee scheme |
|
|
|
|
|
|
|
|
treasury shares |
- |
- |
5 |
(5) |
(25) |
(25) |
- |
(25) |
Dividends |
- |
- |
- |
- |
(337) |
(337) |
- |
(337) |
Movement in third party interests |
- |
- |
- |
- |
- |
- |
14 |
14 |
Currency translation differences |
- |
- |
- |
(33) |
33 |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2013 |
148 |
958 |
(38) |
84 |
4,353 |
5,505 |
58 |
5,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended 30 June 2012 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2012 |
147 |
941 |
(48) |
117 |
3,899 |
5,056 |
66 |
5,122 |
Total comprehensive income |
|
|
|
|
|
|
|
|
for the period |
- |
- |
- |
6 |
364 |
370 |
1 |
371 |
Options exercised under |
|
|
|
|
|
|
|
|
share option schemes |
1 |
12 |
- |
- |
- |
13 |
- |
13 |
Net movement in employee scheme |
|
|
|
|
|
|
|
|
treasury shares |
- |
- |
4 |
(3) |
(5) |
(4) |
- |
(4) |
Dividends |
- |
- |
- |
- |
(278) |
(278) |
- |
(278) |
Movement in third party interests |
- |
- |
- |
- |
- |
- |
- |
- |
Currency translation differences |
- |
- |
- |
10 |
(10) |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2012 |
148 |
953 |
(44) |
130 |
3,970 |
5,157 |
67 |
5,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 December 2012 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2012 |
147 |
941 |
(48) |
117 |
3,899 |
5,056 |
66 |
5,122 |
Total comprehensive income/(expense) |
|
|
|
|
|
|
|
|
for the year |
- |
- |
- |
19 |
747 |
766 |
(12) |
754 |
Options exercised under |
|
|
|
|
|
|
|
|
share option schemes: |
1 |
15 |
- |
- |
- |
16 |
- |
16 |
Net movement in employee scheme |
|
|
|
|
|
|
|
|
treasury shares |
- |
- |
5 |
(2) |
(6) |
(3) |
- |
(3) |
Dividends |
- |
- |
- |
- |
(394) |
(394) |
- |
(394) |
Movement in third party interests |
- |
- |
- |
- |
- |
- |
(15) |
(15) |
Currency translation differences |
- |
- |
- |
19 |
(19) |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2012 |
148 |
956 |
(43) |
153 |
4,227 |
5,441 |
39 |
5,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Financial Reporting Standards Page 40
Consolidated Cash Flow Statement
For the six months ended 30 June 2013
|
|
|
|
Full year |
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
Profit for the period |
|
464 |
405 |
798 |
Adjustments for non cash movements in net profit for the period |
|
|
|
|
Realised and unrealised gains on financial investments and investment properties |
|
(10,863) |
(3,904) |
(18,429) |
Investment income |
|
(5,116) |
(5,135) |
(9,470) |
Interest expense |
|
85 |
75 |
165 |
Tax expense |
|
313 |
193 |
409 |
Other adjustments |
|
47 |
30 |
67 |
Net (increase)/decrease in operational assets |
|
|
|
|
Investments held for trading or designated as fair value through profit or loss |
|
(2,087) |
(882) |
(1,118) |
Investments designated as available-for-sale |
|
(5) |
(28) |
30 |
Other assets |
|
(2,097) |
108 |
(3,008) |
Net increase/(decrease) in operational liabilities |
|
|
|
|
Insurance contracts |
|
(351) |
623 |
3,221 |
Transfer from unallocated divisible surplus |
|
10 |
(69) |
118 |
Investment contracts |
|
8,584 |
3,450 |
13,795 |
Value of in-force non-participating contracts |
|
7 |
36 |
- |
Other liabilities |
|
7,000 |
3,127 |
7,026 |
|
|
|
|
|
|
|
|
|
|
Cash used in operations |
|
(4,009) |
(1,971) |
(6,396) |
Interest paid |
|
(75) |
(74) |
(164) |
Interest received |
|
2,482 |
2,529 |
5,013 |
Tax paid1 |
|
(199) |
(115) |
(193) |
Dividends received |
|
2,399 |
2,477 |
4,539 |
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
598 |
2,846 |
2,799 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Net acquisition of plant, equipment and intangibles |
|
(43) |
(4) |
(59) |
Acquisitions (net of cash acquired)2 |
|
(109) |
- |
(27) |
Acquisition of joint ventures |
|
(58) |
- |
- |
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
(210) |
(4) |
(86) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Dividend distributions to ordinary equity holders of the Company during the period |
|
(337) |
(278) |
(394) |
Proceeds from issue of ordinary share capital |
|
2 |
13 |
16 |
Purchase of employee scheme shares |
|
(5) |
(4) |
(3) |
Proceeds from borrowings |
|
747 |
639 |
1,318 |
Repayment of borrowings |
|
(687) |
(560) |
(1,105) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
(280) |
(190) |
(168) |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
108 |
2,652 |
2,545 |
Exchange (losses)/gains on cash and cash equivalents |
|
(1) |
(8) |
(6) |
Cash and cash equivalents at 1 January |
|
16,652 |
14,113 |
14,113 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at 30 June / 31 December |
|
16,759 |
16,757 |
16,652 |
|
|
|
|
|
|
|
|
|
|
1. Tax comprises UK corporation tax paid of £101m (H1 12: £24m; FY 12: £60m), overseas corporate taxes of £2m (H1 12: £nil; FY 12: £8m) and overseas withholding tax of £96m (H1 12: £91m; FY 12: £125m). |
||||
2. Net cash flows from acquisitions includes cash paid of £131m (H1 12: £nil; FY 12: £33m) less cash and cash equivalents acquired of £22m (H1 12: £nil; FY 12: £6m). |
||||
|
||||
The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders. |
International Financial Reporting Standards Page 41
Notes to the Financial Statements
2.07 Basis of preparation
The Group's financial information for the period ended 30 June 2013 has been prepared in accordance with the Listing Rules of the Financial Conduct Authority. The 2013 Half-year report has also been prepared in accordance with IAS 34, 'Interim Financial Reporting'. The Group's financial information has been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2013 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2012 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union, except in relation to IAS 19 changes, as explained below.
The preparation of the Half-year report 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. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2012 financial statements except for the changes outlined in sections 2.01(d) and 2.02(d).
There has been no impact from the adoption of other IFRSs and interpretations that have come into force during the period, other than those outlined below.
Changes to accounting policy- IAS 19 'Employee Benefits'
During 2013 the Group has changed its accounting policy on the recognition and measurement of defined benefit pension expense and termination benefits following the publication by the IASB in June 2011 of an amendment to IAS 19 'Employee Benefits'. This is compulsory for periods beginning on or after 1 January 2013. The impact of the amendment is to reduce profit for the period by £2m, following the allocation of the with profit element to the unallocated divisible surplus, with an equivalent increase in Other Comprehensive Income. Total Comprehensive Income therefore remains unchanged.
The impact of this change upon the 2012 interim and annual income statement, statement of comprehensive income, and cash flow statement is shown below. As the impact of the change is shown within investment variances there is no impact upon Group Operating Profit.
As the change has no balance sheet impact, an additional balance sheet for 31 December 2011 and related notes have not been presented.
|
|
|
|
|
|
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period as previously reported
|
|
|
|
|
407 |
801 |
|
Investment return |
|
|
|
|
|
|
|
IAS 19 'Employee Benefits' amendment |
|
|
|
|
|
(4) |
(6) |
Expenses |
|
|
|
|
|
|
|
Transfers to unallocated divisible surplus |
|
|
|
|
|
2 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised profit for the period (after tax) |
|
|
|
|
|
405 |
798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain on defined benefit pension schemes |
|
|
|
|
4 |
6 |
|
Actuarial gain on defined benefit pension schemes transferred to unallocated divisible surplus |
(2) |
(3) |
|||||
Other items in other comprehensive income |
|
|
|
|
|
(36) |
(47) |
Total Comprehensive Income for the period |
|
|
|
|
371 |
754 |
The consolidated cash flow statement has been restated in line with these changes.
Changes to accounting policy- IFRS 13 'Fair Value Measurement'
On 1 January 2013 the Group adopted IFRS 13 'Fair Value Measurement'. This Standard defines fair value, sets out in a single IFRS a framework for measuring fair value, and requires disclosure about fair value measurements. The main impact on the Group for the full year lies in the expansion of the fair value disclosure requirements. For interim reporting Note 2.13 has been expanded to reflect the new requirements.
Key technical terms and definitions
The Half-year report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary of the Group's 2012 Annual Report and Accounts.
International Financial Reporting Standards Page 42
Notes to the Financial Statements
2.08 Segmental analysis
Reportable segments
The Group has five reporting segments comprising Protection and Annuities, Savings, Investment management, US Protection, and L&G Capital and group expenses as at 30 June 2013.
The Protection and Annuities segment comprises individual and group protection, individual and bulk purchase annuities, longevity and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network. It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN).
The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, retail platform businesses, all with-profits products, as well as our joint venture operation in India.
The Investment management segment comprises institutional fund management and LGIM America (LGIMA).
The US Protection segment comprises individual protection and universal life contracts written by Legal & General America (LGA).
Shareholders' equity supporting the non profit Protection and Annuities and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within L&G Capital. This also includes capital and borrowings within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
The Group assesses performance and allocates resources on the basis of supplementary operating profit before tax. Segmental supplementary operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax. For further detail on operating profit by segment, refer to the Supplementary Operating Profit Statement at the front of this section.
We announced changes in our organisational structure effective from 1 July 2013. This creates an integrated Protection and Savings business. Our segmental analysis for 2013 year end will reflect this change. The current presentation in Supplementary Operating Profit Statement shows Annuities separately from Protection to assist with the transition.
(i) Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L&G |
|
|
|
|
|
Invest- |
|
Capital |
|
|
|
Protection |
|
ment |
|
and |
|
|
|
and |
|
manage- |
US |
group |
|
|
|
Annuities |
Savings |
ment |
Protection |
expenses |
Total |
For the six months ended 30 June 2013 |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal revenue |
|
106 |
- |
73 |
(74) |
(105) |
- |
External revenue |
|
1,763 |
2,558 |
13,807 |
598 |
346 |
19,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
1,869 |
2,558 |
13,880 |
524 |
241 |
19,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended 30 June 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal revenue |
|
37 |
- |
75 |
(20) |
(92) |
- |
External revenue |
|
2,219 |
2,190 |
6,695 |
770 |
111 |
11,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
2,256 |
2,190 |
6,770 |
750 |
19 |
11,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 December 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal revenue |
|
69 |
- |
149 |
(54) |
(164) |
- |
External revenue |
|
6,790 |
5,457 |
20,804 |
1,461 |
458 |
34,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
6,859 |
5,457 |
20,953 |
1,407 |
294 |
34,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue includes investment return of £15,515m (H1 12: £9,464m; FY 12: £28,828m). |
International Financial Reporting Standards Page 43
Notes to the Financial Statements
2.08 Segmental analysis (continued) |
|||||||
(ii) Consolidated balance sheet |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L&G |
|
|
|
Protection |
|
|
|
Capital |
|
|
|
and |
|
Investment |
US |
and group |
|
|
|
Annuities |
Savings |
management |
Protection |
expenses1 |
Total |
As at 30 June 2013 |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investments |
|
37,823 |
46,082 |
245,325 |
2,221 |
16,885 |
348,336 |
Other assets |
|
4,407 |
6,322 |
2,137 |
2,499 |
(6,298) |
9,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
42,230 |
52,404 |
247,462 |
4,720 |
10,587 |
357,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
602 |
203 |
459 |
935 |
3,306 |
5,505 |
Non-controlling interests |
|
- |
- |
- |
- |
58 |
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
602 |
203 |
459 |
935 |
3,364 |
5,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Core borrowings |
|
- |
- |
- |
- |
2,457 |
2,457 |
Operational borrowings2 |
|
- |
244 |
10 |
293 |
411 |
958 |
Participating contract liabilities |
|
2,833 |
13,104 |
- |
- |
(7) |
15,930 |
Non-participating contract liabilities |
|
33,757 |
36,680 |
240,091 |
1,828 |
(790) |
311,566 |
Other liabilities |
|
5,038 |
2,173 |
6,902 |
1,664 |
5,152 |
20,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
41,628 |
52,201 |
247,003 |
3,785 |
7,223 |
351,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
42,230 |
52,404 |
247,462 |
4,720 |
10,587 |
357,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. L&G Capital and group expenses includes inter-segmental eliminations. |
|
|
|||||
2. Includes non recourse financing. |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L&G |
|
|
|
Protection |
|
|
|
Capital |
|
|
|
and |
|
Investment |
US |
and group |
|
|
|
Annuities |
Savings |
management |
Protection |
expenses1 |
Total |
As at 30 June 2012 |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investments |
|
35,720 |
45,943 |
229,134 |
2,298 |
12,081 |
325,176 |
Other assets |
|
3,923 |
3,869 |
1,428 |
2,197 |
(3,729) |
7,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
39,643 |
49,812 |
230,562 |
4,495 |
8,352 |
332,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
425 |
192 |
439 |
977 |
3,124 |
5,157 |
Non-controlling interests |
|
- |
- |
- |
- |
67 |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
425 |
192 |
439 |
977 |
3,191 |
5,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Core borrowings |
|
- |
- |
- |
- |
2,436 |
2,436 |
Operational borrowings2 |
|
- |
218 |
5 |
283 |
320 |
826 |
Participating contract liabilities |
|
2,463 |
14,032 |
- |
- |
- |
16,495 |
Non-participating contract liabilities |
|
30,560 |
33,264 |
224,813 |
1,690 |
(773) |
289,554 |
Other liabilities |
|
6,195 |
2,106 |
5,305 |
1,545 |
3,178 |
18,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
39,218 |
49,620 |
230,123 |
3,518 |
5,161 |
327,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
39,643 |
49,812 |
230,562 |
4,495 |
8,352 |
332,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. L&G Capital and group expenses includes inter-segmental eliminations. |
|
|
|||||
2. Includes non recourse financing. |
|
|
|
International Financial Reporting Standards Page 44
Notes to the Financial Statements
2.08 Segmental analysis (continued) |
|
|
|
|
|||
(ii) Consolidated balance sheet (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L&G |
|
|
|
Protection |
|
|
|
Capital |
|
|
|
and |
|
Investment |
US |
and group |
|
|
|
Annuities |
Savings |
management |
Protection |
expenses1 |
Total |
As at 31 December 2012 |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investments |
|
38,591 |
46,503 |
238,514 |
2,151 |
12,871 |
338,630 |
Other assets |
|
3,937 |
4,891 |
1,386 |
2,280 |
(4,823) |
7,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
42,528 |
51,394 |
239,900 |
4,431 |
8,048 |
346,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
550 |
190 |
360 |
919 |
3,422 |
5,441 |
Non-controlling interests |
|
- |
- |
- |
- |
39 |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
550 |
190 |
360 |
919 |
3,461 |
5,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Core borrowings |
|
- |
- |
- |
- |
2,445 |
2,445 |
Operational borrowings2 |
|
3 |
250 |
2 |
272 |
393 |
920 |
Participating contract liabilities |
|
2,686 |
13,744 |
- |
- |
- |
16,430 |
Non-participating contract liabilities |
|
33,483 |
35,320 |
233,069 |
1,644 |
(830) |
302,686 |
Other liabilities |
|
5,806 |
1,890 |
6,469 |
1,596 |
2,579 |
18,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
41,978 |
51,204 |
239,540 |
3,512 |
4,587 |
340,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
42,528 |
51,394 |
239,900 |
4,431 |
8,048 |
346,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. L&G Capital and group expenses includes inter-segmental eliminations. |
|
||||||
2. Includes non recourse financing. |
|
|
|
|
|
International Financial Reporting Standards Page 45
Notes to the Financial Statements
2.09 Gross written premiums
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
|
|
|
|
|
|
|
Protection and Annuities |
|
|
|
|
|
|
|
|
Non-participating UK business |
|
|
|
|
|
2,221 |
1,344 |
3,782 |
Netherlands (LGN) |
|
|
|
|
|
111 |
95 |
172 |
France (LGF) |
|
|
|
|
|
212 |
202 |
406 |
General insurance |
|
|
|
|
|
|
|
|
- Household |
|
|
|
|
|
172 |
156 |
327 |
- Other business |
|
|
|
|
|
11 |
10 |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Protection and Annuities |
|
|
|
|
|
2,727 |
1,807 |
4,709 |
|
|
|
|
|
|
|
|
|
Savings |
|
|
|
|
|
|
|
|
Non-participating Savings business |
|
|
|
|
|
19 |
21 |
39 |
Participating business |
|
|
|
|
|
64 |
205 |
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings |
|
|
|
|
|
83 |
226 |
375 |
|
|
|
|
|
|
|
|
|
US Protection |
|
|
|
|
|
326 |
288 |
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross written premiums |
|
|
|
|
|
3,136 |
2,321 |
5,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.10 Earnings per share
(a) Earnings per share
|
Profit |
Tax |
Profit |
Earnings |
Profit |
Tax |
Profit |
Earnings |
|
before tax |
expense |
after tax |
per share |
before tax |
expense |
after tax |
per share |
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
30.06.121 |
30.06.12 |
30.06.121 |
30.06.12 |
|
£m |
£m |
£m |
p |
£m |
£m |
£m |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
571 |
(134) |
437 |
7.44 |
518 |
(127) |
391 |
6.70 |
Investment and other variances |
16 |
5 |
21 |
0.36 |
4 |
12 |
16 |
0.28 |
Impact of change in UK tax rates |
- |
1 |
1 |
0.02 |
- |
(3) |
(3) |
(0.05) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share based on profit |
|
|
|
|
|
|
|
|
attributable to equity holders |
587 |
(128) |
459 |
7.82 |
522 |
(118) |
404 |
6.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit |
Tax |
Profit |
Earnings |
|
|
|
|
|
before tax |
expense |
after tax |
per share |
|
|
|
|
|
Full year |
Full year |
Full year |
Full year |
|
|
|
|
|
31.12.121 |
31.12.12 |
31.12.121 |
31.12.12 |
|
|
|
|
|
£m |
£m |
£m |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
|
|
1,087 |
(268) |
819 |
14.00 |
Investment and other variances |
|
|
|
|
(42) |
40 |
(2) |
(0.04) |
Impact of change in UK tax rates |
|
|
|
|
- |
(7) |
(7) |
(0.12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share based on profit |
|
|
|
|
|
|
|
|
attributable to equity holders |
|
|
|
|
1,045 |
(235) |
810 |
13.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Operating profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.
International Financial Reporting Standards Page 46
Notes to the Financial Statements
2.10 Earnings per share (continued)
(b) Diluted earnings per share
(i) Based on profit attributable to equity holders
|
|
|
Profit |
Number |
Earnings |
Profit |
Number |
Earnings |
|
|
|
after tax |
of shares1 |
per share |
after tax |
of shares1 |
per share |
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.122 |
30.06.12 |
30.06.12 |
|
|
|
£m |
m |
p |
£m |
m |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to equity holders of the Company |
459 |
5,875 |
7.82 |
404 |
5,832 |
6.93 |
||
Net shares under options allocable for no further consideration |
- |
70 |
(0.10) |
- |
96 |
(0.11) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
459 |
5,945 |
7.72 |
404 |
5,928 |
6.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit |
Number |
Earnings |
|
|
|
|
|
|
after tax |
of shares1 |
per share |
|
|
|
|
|
|
Full year |
Full year |
Full year |
|
|
|
|
|
|
31.12.122 |
31.12.12 |
31.12.12 |
|
|
|
|
|
|
£m |
m |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to equity holders of the Company |
|
|
|
810 |
5,851 |
13.84 |
||
Net shares under options allocable for no further consideration |
|
|
|
- |
99 |
(0.23) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
810 |
5,950 |
13.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Weighted average number of shares. |
|
|
|
|
|
|
|
|
2. Profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.
|
International Financial Reporting Standards Page 47
Notes to the Financial Statements
2.11 Disclosure of tax effects relating to each component of other comprehensive income |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
Tax |
|
|
|
|
|
credited/ |
|
|
credited/ |
|
|
|
|
Before |
(charg- |
After |
Before |
(charg- |
After |
|
|
|
tax |
ed) |
tax |
tax |
ed) |
tax |
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified subsequently to |
|
|
|
|
|
|
||
profit or loss |
|
|
|
|
|
|
|
|
Actuarial (losses)/gains on defined benefit pension schemes |
(9) |
2 |
(7) |
(83) |
16 |
(67) |
||
Actuarial losses/(gains) on defined benefit pension schemes |
|
|
|
|
|
|
||
transferred to unallocated divisible surplus |
4 |
(1) |
3 |
33 |
(6) |
27 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total items that will not be reclassified to profit or loss |
|
|
|
|
|
|
||
subsequently |
|
|
(5) |
1 |
(4) |
(50) |
10 |
(40) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
|
|
||
Exchange differences on translation of overseas operations |
12 |
- |
12 |
(9) |
- |
(9) |
||
Net change in financial investments |
|
|
|
|
|
|
||
designated as available-for-sale |
(66) |
23 |
(43) |
22 |
(7) |
15 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total items that may be reclassified to profit or loss |
|
|
|
|
|
|
||
subsequently |
|
|
(54) |
23 |
(31) |
13 |
(7) |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (expense)/income |
(59) |
24 |
(35) |
(37) |
3 |
(34) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
credited/ |
|
|
|
|
|
|
|
Before |
(charg- |
After |
|
|
|
|
|
|
tax |
ed) |
tax |
|
|
|
|
|
|
Full year |
Full year |
Full year |
|
|
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified subsequently to profit or loss |
|
|
|
|
|
|||
Actuarial (losses)/gains on defined benefit pension schemes |
|
|
|
(114) |
13 |
(101) |
||
Actuarial losses/(gains) on defined benefit pension schemes |
|
|
|
|
|
|
||
transferred to unallocated divisible surplus |
|
|
|
43 |
(5) |
38 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total items that will not be reclassified to profit or loss subsequently |
|
(71) |
8 |
(63) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
||||
Exchange differences on translation of overseas operations |
|
|
|
(13) |
- |
(13) |
||
Net change in financial investments |
|
|
|
|
|
|
||
designated as available-for-sale |
|
|
|
58 |
(26) |
32 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total items that may be reclassified to profit or loss subsequently |
|
45 |
(26) |
19 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive expense |
|
|
|
|
|
(26) |
(18) |
(44) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Financial Reporting Standards Page 48
Notes to the Financial Statements
2.12 Acquisitions |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
(a) Cofunds (Holdings) Limited
On 22 May 2013, the Group increased its holding in the ordinary share capital of Cofunds (Holdings) Limited, the UK's largest platform by assets under administration. This increased the Group's holding in Cofunds (Holdings) Limited from 25% to 100%. The acquisition provides the Group with scale and distribution in the investment platform market.
Goodwill arising on acquisition was £65m. This represents the value of the consideration in excess of the recognised tangible assets, liabilities and intangible assets, primarily relating to future profits in excess of those recognised on current business or those expected to arise from current relationships with financial advisors.
In the period since acquisition of 100% of the ordinary share capital of Cofunds (Holdings) Limited, the pre-tax profit was £nil before deduction of restructuring expenses. Cofunds (Holdings) Limited would have contributed £3m to Group consolidated pre-tax profits before restructuring expenses if the acquisition had occurred on 1 January 2013. |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.06.13 |
|
|
|
|
|
|
|
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration at date of acquisition |
|
|
|
|
|
|
||
Cash payment for 75% holding |
|
|
|
|
|
|
|
131 |
Acquisition date fair value of the 25% holding immediately prior to the acquisition |
|
|
|
44 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration for 100% holding |
|
|
|
|
175 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognised amounts of identifiable assets transferred and liabilities assumed at fair value |
||||||||
Purchased interest in long term business and other intangible assets |
|
|
|
|
88 |
|||
Other assets |
|
|
|
|
|
|
|
44 |
Cash and cash equivalents |
|
|
|
|
|
|
|
22 |
Other liabilities |
|
|
|
|
|
|
|
(44) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets attributable to equity holders of the Company |
|
|
|
110 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill arising on acquisition |
|
|
|
65 |
||||
|
|
|
|
|
|
|
|
|
|
||||||||
In accordance with IFRS 3, Business Combinations, the acquisition has been treated as an acquisition achieved in stages. Revaluation of the previous carrying value of the Group's 25% holding in Cofunds (Holdings) Limited to acquisition date fair value has resulted in the recognition of a gain of £21m reported within operational income in the Consolidated Income Statement. |
||||||||
|
|
|
|
|
|
|
|
|
(b) CALA Group Limited |
||||||||
On 18 March 2013, the Group paid £58m with an additional £7m deferred consideration for a 46.5% equity stake in CALA Group Ltd. This investment has been accounted for as a joint venture applying the equity method. |
||||||||
|
|
|
|
|
|
|
|
|
(c) Lucida Ltd - Post balance sheet event
On 26th June 2013, the Group announced the agreement to acquire the entire share capital of Lucida Ltd, the closed UK annuity buy-out company, for an estimated consideration of £151m. This acquisition forms part of the Group's strategy of accelerating organic growth with selective acquisitions.
The initial accounting for the business combination will be incorporated into the year end financial reporting once the acquired insurance liabilities have been valued in accordance with the Group's accounting policies. Accordingly, the acquisition date assets and liabilities and profit relating to the current financial year have not been disclosed in these financial statements. |
International Financial Reporting Standards Page 49
Notes to the Financial Statements
2.13 Financial investments and Investment property
|
|
|
|
|
|
|
|
Full Year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
|
|
|
|
|
160,298 |
138,443 |
148,488 |
Unit trusts |
|
|
|
|
|
7,767 |
6,876 |
7,238 |
Debt securities1 |
|
|
|
|
|
151,310 |
149,544 |
152,526 |
Accrued interest |
|
|
|
|
|
1,575 |
1,595 |
1,669 |
Derivative assets2 |
|
|
|
|
|
4,768 |
6,475 |
6,445 |
Loans and receivables |
|
|
|
|
|
361 |
339 |
382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
|
|
|
|
326,079 |
303,272 |
316,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment property |
|
|
|
|
|
5,377 |
5,087 |
5,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial investments and investment property |
|
|
|
331,456 |
308,359 |
321,891 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.02. |
||||||||
2. Derivative exposures arise from efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps, foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities and include £2,427m (H1 12: £3,128m; FY 12: £3,296m) held on behalf of unit linked policyholders. |
International Financial Reporting Standards Page 50
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|
||||||||||||||
(a) Fair value hierarchy |
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflects the Group's view of market assumptions in the absence of observable market information. The Group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.
The levels of fair value measurement bases are defined as follows: Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).
All of the Group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have prudently classified them as level 2.
These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2.
The following table presents the Group's assets by IFRS 13 hierarchy levels:
|
|
||||||||||||||||
|
|
|
|
Amortised |
|
||||||||||||
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
|
||||||||
For the six months ended 30 June 2013 |
|
£m |
£m |
£m |
£m |
£m |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Shareholder |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
1,387 |
1,165 |
70 |
152 |
- |
|
||||||||
Debt securities |
|
|
|
5,959 |
2,388 |
3,571 |
- |
- |
|
||||||||
Accrued interest |
|
|
|
53 |
25 |
28 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
237 |
35 |
202 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
80 |
- |
- |
- |
80 |
|
||||||||
Investment property |
|
|
|
136 |
- |
- |
136 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Non profit non-unit linked |
|
|
|
|
|
|
|
|
|||||||||
Debt securities |
|
|
|
28,089 |
3,736 |
24,328 |
25 |
- |
|
||||||||
Accrued interest |
|
|
|
370 |
29 |
341 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
2,077 |
18 |
2,059 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
- |
- |
- |
- |
- |
|
||||||||
Investment property |
|
|
|
924 |
- |
- |
924 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
With-profits |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
4,482 |
3,933 |
8 |
541 |
- |
|
||||||||
Debt securities |
|
|
|
11,039 |
4,524 |
6,510 |
5 |
- |
|
||||||||
Accrued interest |
|
|
|
159 |
59 |
100 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
27 |
17 |
10 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
26 |
- |
- |
- |
26 |
|
||||||||
Investment property |
|
|
|
1,010 |
- |
- |
1,010 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Unit linked |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
162,196 |
159,794 |
2,078 |
324 |
- |
|
||||||||
Debt securities |
|
|
|
106,223 |
67,093 |
39,129 |
1 |
- |
|
||||||||
Accrued interest |
|
|
|
993 |
333 |
660 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
2,427 |
168 |
2,259 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
255 |
- |
- |
- |
255 |
|
||||||||
Investment property |
|
|
|
3,307 |
- |
- |
3,307 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Total financial investments and investment property |
331,456 |
243,317 |
81,353 |
6,425 |
361 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
International Financial Reporting Standards Page 51
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|
||||||||||||||
(a) Fair value hierarchy (continued) |
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Amortised |
|
||||||||||||
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
|
||||||||
For the six months ended 30 June 2012 |
|
£m |
£m |
£m |
£m |
£m |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Shareholder |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
919 |
607 |
192 |
120 |
- |
|
||||||||
Debt securities |
|
|
|
5,994 |
2,044 |
3,945 |
5 |
- |
|
||||||||
Accrued interest |
|
|
|
63 |
27 |
36 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
179 |
28 |
151 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
75 |
- |
- |
- |
75 |
|
||||||||
Investment property |
|
|
|
116 |
- |
- |
116 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Non profit non-unit linked |
|
|
|
|
|
|
|
|
|||||||||
Debt securities |
|
|
|
26,559 |
3,382 |
23,177 |
- |
- |
|
||||||||
Accrued interest |
|
|
|
361 |
22 |
339 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
3,004 |
56 |
2,923 |
25 |
- |
|
||||||||
Loans and receivables |
|
|
|
- |
- |
- |
- |
- |
|
||||||||
Investment property |
|
|
|
568 |
- |
- |
568 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
With-profits |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
4,256 |
3,638 |
16 |
602 |
- |
|
||||||||
Debt securities |
|
|
|
12,110 |
4,119 |
7,964 |
27 |
- |
|
||||||||
Accrued interest |
|
|
|
196 |
57 |
139 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
164 |
11 |
148 |
5 |
- |
|
||||||||
Loans and receivables |
|
|
|
1 |
- |
- |
- |
1 |
|
||||||||
Investment property |
|
|
|
1,200 |
- |
- |
1,200 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Unit linked |
|
|
|
|
|
|
|
|
|
||||||||
Equity securities |
|
|
|
140,144 |
138,121 |
1,700 |
323 |
- |
|
||||||||
Debt securities |
|
|
|
104,881 |
66,615 |
38,262 |
4 |
- |
|
||||||||
Accrued interest |
|
|
|
975 |
313 |
662 |
- |
- |
|
||||||||
Derivative assets |
|
|
|
3,128 |
314 |
2,814 |
- |
- |
|
||||||||
Loans and receivables |
|
|
|
263 |
- |
- |
- |
263 |
|
||||||||
Investment property |
|
|
|
3,203 |
- |
- |
3,203 |
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Total financial investments and investment property |
308,359 |
219,354 |
82,468 |
6,198 |
339 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
International Financial Reporting Standards Page 52
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|||||||
(a) Fair value hierarchy (continued) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised |
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
For the year ended 31 December 2012 |
|
£m |
£m |
£m |
£m |
£m |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder |
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
1,235 |
972 |
162 |
101 |
- |
Debt securities |
|
|
|
5,608 |
2,623 |
2,984 |
1 |
- |
Accrued interest |
|
|
|
61 |
38 |
23 |
- |
- |
Derivative assets |
|
|
|
190 |
44 |
146 |
- |
- |
Loans and receivables |
|
|
|
54 |
- |
- |
- |
54 |
Investment property |
|
|
|
117 |
- |
- |
117 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non profit non-unit linked |
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
28,712 |
3,973 |
24,648 |
91 |
- |
Accrued interest |
|
|
|
379 |
29 |
349 |
1 |
- |
Derivative assets |
|
|
|
2,913 |
111 |
2,802 |
- |
- |
Loans and receivables |
|
|
|
- |
- |
- |
- |
- |
Investment property |
|
|
|
656 |
- |
- |
656 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With-profits |
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
4,159 |
3,551 |
9 |
599 |
- |
Debt securities |
|
|
|
11,557 |
4,733 |
6,819 |
5 |
- |
Accrued interest |
|
|
|
173 |
76 |
97 |
- |
- |
Derivative assets |
|
|
|
46 |
14 |
32 |
- |
- |
Loans and receivables |
|
|
|
22 |
- |
- |
- |
22 |
Investment property |
|
|
|
1,179 |
- |
- |
1,179 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit linked |
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
150,332 |
148,244 |
1,823 |
265 |
- |
Debt securities |
|
|
|
106,649 |
66,571 |
40,077 |
1 |
- |
Accrued interest |
|
|
|
1,056 |
325 |
731 |
- |
- |
Derivative assets |
|
|
|
3,296 |
445 |
2,851 |
- |
- |
Loans and receivables |
|
|
|
306 |
- |
- |
- |
306 |
Investment property |
|
|
|
3,191 |
- |
- |
3,191 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial investments and investment property |
|
321,891 |
231,749 |
83,553 |
6,207 |
382 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Financial Reporting Standards Page 53
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued)
(b) Assets measured at fair value based on level 3
Level 3 assets, where internal models are used to represent a small proportion of assets to which shareholders are exposed, comprise both property and unquoted equities, the latter including investments in private equity, property vehicles and suspended securities.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the Group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the Group has classified within level 3.
The Group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The Group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the Group's credit standing, liquidity and risk margins on unobservable inputs.
Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted in inactive markets for certain of the Group's financial instruments. As a result, there is generally no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have been used had a ready market existed, and the differences could be material. As a result, such calculated fair value estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee.
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2013 (2012: No significant transfers between levels 1, 2 and 3).
International Financial Reporting Standards Page 54
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|
||||||||||||||
(b) Assets measured at fair value based on level 3 (continued) |
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Other |
|
|
|
Other |
|
|
|
||||||||
|
|
financial |
|
|
|
financial |
|
|
|
||||||||
|
Equity |
invest- |
Investment |
|
Equity |
invest- |
Investment |
|
|
||||||||
|
securities |
ments1 |
property |
Total |
securities |
ments1 |
property |
Total |
|
||||||||
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
As at 1 January |
965 |
99 |
5,143 |
6,207 |
1,138 |
46 |
4,894 |
6,078 |
|
||||||||
Total (losses) or gains for the period |
|
- |
|
|
|
|
|
||||||||||
recognised in profit |
(15) |
(1) |
51 |
35 |
(5) |
- |
(53) |
(58) |
|
||||||||
Purchases |
258 |
- |
494 |
752 |
14 |
2 |
326 |
342 |
|
||||||||
Sales |
(212) |
- |
(311) |
(523) |
(107) |
(2) |
(80) |
(189) |
|
||||||||
Transfers into level 3 |
21 |
1 |
- |
22 |
8 |
16 |
- |
24 |
|
||||||||
Transfers out of level 3 |
- |
(67) |
- |
(67) |
(6) |
- |
- |
(6) |
|
||||||||
Other |
- |
(1) |
- |
(1) |
3 |
4 |
- |
7 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
As at 30 June |
1,017 |
31 |
5,377 |
6,425 |
1,045 |
66 |
5,087 |
6,198 |
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
1. Other financial investments comprise debt securities and derivative assets. |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
Other |
|
|
|
||||||||
|
|
|
|
|
|
financial |
|
|
|
||||||||
|
|
|
|
|
Equity |
invest- |
Investment |
|
|
||||||||
|
|
|
|
|
securities |
ments1 |
property |
Total |
|
||||||||
|
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
||||||||
|
|
|
|
|
£m |
£m |
£m |
£m |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
As at 1 January |
|
|
|
|
1,138 |
46 |
4,894 |
6,078 |
|
||||||||
Total losses for the period recognised in profit |
|
|
(50) |
- |
(107) |
(157) |
|
||||||||||
Purchases |
|
|
|
|
14 |
87 |
712 |
813 |
|
||||||||
Sales |
|
|
|
|
(137) |
(6) |
(356) |
(499) |
|
||||||||
Transfers into level 3 |
|
|
|
|
2 |
1 |
- |
3 |
|
||||||||
Transfers out of level 3 |
|
|
|
|
- |
(35) |
- |
(35) |
|
||||||||
Other |
|
|
|
|
(2) |
6 |
- |
4 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
As at 31 December |
|
|
|
|
965 |
99 |
5,143 |
6,207 |
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
1. Other financial investments comprise debt securities and derivative assets. |
|
||||||||||||||||
International Financial Reporting Standards Page 55
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|||||||||||||||
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the level 3 financial instruments carried at fair value as at the balance sheet date, the valuation basis, main assumptions used in the valuation of these instruments and reasonably possible increases or decreases in fair value based on reasonably possible alternative assumptions. |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
Reasonably possible |
|
||||||||||
|
|
|
|
|
|
alternative assumptions |
|
||||||||||
|
|
|
|
|
|
Current |
Increase |
Decrease |
|
||||||||
|
|
|
|
|
|
fair |
in fair |
in fair |
|
||||||||
For the six months ended 30 June 2013 |
|
|
|
Main |
value |
value |
value |
|
|||||||||
Financial instruments |
|
|
|
|
assumptions |
£m |
£m |
£m |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||||||||
Shareholder |
|
|
|
|
|
|
|
|
|
||||||||
- Private equity investment vehicles1 |
Price earnings multiple |
15 |
1 |
(1) |
|
||||||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
137 |
8 |
(8) |
|
||||||||||||
- Investment property2 |
Property yield; occupancy |
136 |
7 |
(7) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Non profit non-linked |
|
|
|
|
|
|
|
|
|
||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
25 |
1 |
(1) |
|
||||||||||||
- Investment property2 |
Property yield; occupancy |
924 |
46 |
(46) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
With-profits |
|
|
|
|
|
|
|
|
|
||||||||
- Private equity investment vehicles1 |
Price earnings multiple |
211 |
14 |
(14) |
|
||||||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
335 |
17 |
(17) |
|
||||||||||||
- Investment property2 |
Property yield; occupancy |
1,010 |
50 |
(50) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Unit linked |
|
|
|
|
|
|
|
|
|
||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
288 |
14 |
(14) |
|
||||||||||||
- Suspended securities |
|
|
Estimated recoverable amount |
16 |
6 |
(6) |
|
||||||||||
- Asset backed securities |
|
|
Cash flows; expected defaults |
21 |
7 |
(7) |
|
||||||||||
- Investment property2 |
Property yield; occupancy |
3,307 |
165 |
(165) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
|
|
|
|
6,425 |
336 |
(336) |
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples. |
|
||||||||||||||||
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions. |
|
||||||||||||||||
International Financial Reporting Standards Page 56
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|||||||||||||||
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued) |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
Reasonably possible |
|
||||||||||
|
|
|
|
|
|
alternative assumptions |
|
||||||||||
|
|
|
|
|
|
Current |
Increase |
Decrease |
|
||||||||
|
|
|
|
|
|
fair |
in fair |
in fair |
|
||||||||
For the six months ended 30 June 2012 |
|
|
|
Main |
value |
value |
value |
|
|||||||||
Financial instruments |
|
|
|
|
assumptions |
£m |
£m |
£m |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||||||||
Shareholder |
|
|
|
|
|
|
|
|
|
||||||||
- Private equity investment vehicles1 |
Price earnings multiple |
15 |
1 |
(1) |
|
||||||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
103 |
6 |
(6) |
|
||||||||||||
- Suspended securities |
|
|
Estimated recoverable amount |
2 |
2 |
(2) |
|
||||||||||
- Asset backed securities |
|
|
Cash flows; expected defaults |
5 |
- |
- |
|
||||||||||
- Investment property2 |
Property yield; occupancy |
116 |
6 |
(6) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Non profit non-linked |
|
|
|
|
|
|
|
|
|
||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
25 |
- |
- |
|
||||||||||||
- Investment property2 |
Property yield; occupancy |
568 |
28 |
(28) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
With-profits |
|
|
|
|
|
|
|
|
|
||||||||
- Private equity investment vehicles1 |
Price earnings multiple |
156 |
10 |
(10) |
|
||||||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
478 |
24 |
(24) |
|
||||||||||||
- Investment property2 |
Property yield; occupancy |
1,200 |
60 |
(60) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Unit linked |
|
|
|
|
|
|
|
|
|
||||||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
294 |
3 |
(3) |
|
||||||||||||
- Suspended securities |
|
|
Estimated recoverable amount |
11 |
6 |
(6) |
|
||||||||||
- Asset backed securities |
|
|
Cash flows; expected defaults |
22 |
6 |
(6) |
|
||||||||||
- Investment property2 |
Property yield; occupancy |
3,203 |
196 |
(196) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
|
|
|
|
6,198 |
348 |
(348) |
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|||||||||||||||||
1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples. |
|
||||||||||||||||
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions. |
|
||||||||||||||||
International Financial Reporting Standards Page 57
Notes to the Financial Statements
2.13 Financial investments and Investment property (continued) |
|
|
|
|||||
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reasonably possible |
||
|
|
|
|
|
|
alternative assumptions |
||
|
|
|
|
|
|
Current |
Increase |
Decrease |
|
|
|
|
|
|
fair |
in fair |
in fair |
For the year ended 31 December 2012 |
|
|
|
|
Main |
value |
value |
value |
Financial instruments |
|
|
|
|
assumptions |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Shareholder |
|
|
|
|
|
|
|
|
- Private equity investment vehicles1 |
Price earnings multiple |
14 |
1 |
(1) |
||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
87 |
4 |
(4) |
||||
- Asset backed securities |
|
|
Cash flows; expected defaults |
1 |
- |
- |
||
- Investment property2 |
Property yield; occupancy |
117 |
6 |
(6) |
||||
|
|
|
|
|
|
|
|
|
Non profit non-linked |
|
|
|
|
|
|
|
|
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
92 |
5 |
(5) |
||||
- Investment property2 |
Property yield; occupancy |
656 |
33 |
(33) |
||||
|
|
|
|
|
|
|
|
|
With-profits |
|
|
|
|
|
|
|
|
- Private equity investment vehicles1 |
Price earnings multiple |
220 |
20 |
(20) |
||||
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
384 |
19 |
(19) |
||||
- Investment property2 |
Property yield; occupancy |
1,179 |
59 |
(59) |
||||
|
|
|
|
|
|
|
|
|
Unit linked |
|
|
|
|
|
|
|
|
- Unquoted investments in property vehicles2 |
Property yield; occupancy |
233 |
12 |
(12) |
||||
- Suspended securities |
|
|
Estimated recoverable amount |
13 |
2 |
(2) |
||
- Asset backed securities |
|
|
Cash flows; expected defaults |
20 |
7 |
(7) |
||
- Investment property2 |
Property yield; occupancy |
3,191 |
196 |
(196) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
6,207 |
364 |
(364) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples. |
||||||||
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions. |
International Financial Reporting Standards Page 58
Notes to the Financial Statements
2.14 Payables and other financial liabilities |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Full year |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
|
|
4,148 |
6,353 |
5,729 |
Collateral received from banks |
|
|
|
|
|
- |
105 |
21 |
Other |
|
|
|
|
|
4,012 |
1,877 |
2,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and other financial liabilities |
|
|
8,160 |
8,335 |
8,083 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other includes future commission payments which have contingent settlement provisions of £183m (H1 12: £181m; FY 12: £189m). This liability has been determined using the net present value of the future commission which will be payable on fund values. This valuation technique uses assumptions which are consistent with the Group's effective rate of interest, investment return assumptions and persistency assumptions used in other valuations, but it is not determined by reference to published price quotations. |
||||||||
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised |
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
As at 30 June 2013 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
4,148 |
394 |
3,754 |
- |
- |
Collateral received from banks |
|
|
- |
- |
- |
- |
- |
|
Other |
|
|
|
4,012 |
174 |
129 |
183 |
3,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and other financial liabilities |
|
8,160 |
568 |
3,883 |
183 |
3,526 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised |
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
As at 30 June 2012 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities1 |
|
|
|
6,353 |
259 |
5,898 |
196 |
- |
Collateral received from banks |
|
|
|
105 |
105 |
- |
- |
- |
Other |
|
|
|
1,877 |
130 |
8 |
181 |
1,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and other financial liabilities |
|
8,335 |
494 |
5,906 |
377 |
1,558 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Derivative liabilities of £196m classified as level 3 comprised non profit non-linked interest rate contracts, which were transferred into Level 3 in 2011 due to the use of measurement inputs that were not based on observable market data. The pricing of these derivatives was dependant on interest rate assumptions. Using reasonably alternative assumptions would have resulted in an increase or decrease in fair value of £10m. |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised |
|
|
|
|
Total |
Level 1 |
Level 2 |
Level 3 |
cost |
As at 31 December 2012 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
5,729 |
214 |
5,515 |
- |
- |
Collateral received from banks |
|
|
|
21 |
21 |
- |
- |
- |
Other |
|
|
|
2,333 |
108 |
29 |
189 |
2,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and other financial liabilities |
|
8,083 |
343 |
5,544 |
189 |
2,007 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trail commissions are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the income statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing or decreasing the liability by £5m (H1 12: £5m; FY 12: £6m). |
||||||||
|
|
|
|
|
|
|
|
|
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2013 (2012: No significant transfers between levels 1, 2 and 3). |
International Financial Reporting Standards Page 59
Notes to the Financial Statements
2.15 Dividends
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
Per |
|
Per |
|
|
|
|
share |
Total |
share |
Total |
share |
Total |
|
|
|
|
|
|
|
Full year |
Full year |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
|
p |
£m |
p |
£m |
p |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary share dividends paid in the period |
|
|
|
|
|
|
|
|
- Prior year final dividend |
|
|
5.69 |
337 |
4.74 |
278 |
4.74 |
278 |
- Current year interim dividend |
|
|
- |
- |
- |
- |
1.96 |
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.69 |
337 |
4.74 |
278 |
6.70 |
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary share dividend proposed1 |
|
|
2.40 |
142 |
1.96 |
116 |
5.69 |
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. The dividend proposed has not been included as a liability in the balance sheet. |
2.16 Ordinary shares |
|
|
|
|
|
|
|
|
Number of |
Number of |
Number of |
|
|
|
shares |
shares |
shares |
|
|
|
|
|
Full year |
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January |
|
|
5,912,782,826 |
5,872,166,893 |
5,872,166,893 |
Options exercised under share option schemes |
|
|
|
|
|
- Executive share option scheme |
|
|
1,261,956 |
1,077,517 |
1,626,478 |
- Savings related share option scheme |
|
|
1,400,587 |
32,460,582 |
38,989,455 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June / 31 December |
|
|
5,915,445,369 |
5,905,704,992 |
5,912,782,826 |
|
|
|
|
|
|
|
|
|
|
|
|
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. |
International Financial Reporting Standards Page 60
Notes to the Financial Statements
2.17 Core Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
Fair |
Carrying |
Fair |
Carrying |
Fair |
|
|
|
amount |
value |
amount |
value |
amount |
value |
|
|
|
|
|
|
|
Full year |
Full year |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated borrowings |
|
|
|
|
|
|
|
|
6.385% Sterling perpetual capital securities (Tier 1) |
690 |
620 |
711 |
486 |
700 |
636 |
||
5.875% Sterling undated subordinated notes (Tier 2) |
418 |
425 |
420 |
326 |
419 |
425 |
||
4.0% Euro subordinated notes 2025 (Tier 2) |
498 |
523 |
462 |
446 |
479 |
502 |
||
10% Sterling subordinated notes 2041 (Tier 2) |
309 |
411 |
309 |
375 |
309 |
425 |
||
Client fund holdings of Group borrowings1 |
(11) |
(11) |
(16) |
(16) |
(17) |
(17) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subordinated borrowings |
|
|
1,904 |
1,968 |
1,886 |
1,617 |
1,890 |
1,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior borrowings |
|
|
|
|
|
|
|
|
Sterling medium term notes 2031-2041 |
|
602 |
712 |
602 |
668 |
608 |
767 |
|
Client fund holdings of Group debt1 |
(49) |
(49) |
(52) |
(52) |
(53) |
(53) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior borrowings |
553 |
663 |
550 |
616 |
555 |
714 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core borrowings |
2,457 |
2,631 |
2,436 |
2,233 |
2,445 |
2,685 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. £60m (H1 12: £68m; FY 12: £70m) of the Group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above. |
All of the Group's core borrowings are measured using quoted prices in active markets and have been classified as level 1.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
4.0% Euro subordinated notes 2025
In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.
10% Sterling subordinated notes 2041
On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.
International Financial Reporting Standards Page 61
Notes to the Financial Statements
2.18 Operational Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
Fair |
Carrying |
Fair |
Carrying |
Fair |
|
|
|
amount |
value |
amount |
value |
amount |
value |
|
|
|
|
|
|
|
Full year |
Full year |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term operational borrowings |
|
|
|
|
|
|
||
Euro Commercial paper |
|
|
346 |
346 |
320 |
320 |
333 |
333 |
Bank loans/other |
|
|
25 |
25 |
13 |
13 |
6 |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short term operational borrowings |
371 |
371 |
333 |
333 |
339 |
339 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non recourse borrowings |
|
|
|
|
|
|
|
|
US Dollar Triple X securitisation 2037 |
|
|
293 |
293 |
283 |
283 |
272 |
272 |
Suffolk Life unit linked borrowings |
|
|
109 |
109 |
123 |
123 |
123 |
123 |
LGV 6/LGV 7 Private Equity Fund Limited Partnership |
127 |
127 |
87 |
87 |
128 |
128 |
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Consolidated Property Limited Partnerships |
58 |
58 |
- |
- |
58 |
58 |
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Total non recourse borrowings |
587 |
587 |
493 |
493 |
581 |
581 |
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|
|
Total operational borrowings |
958 |
958 |
826 |
826 |
920 |
920 |
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All of the Group's operational borrowings are measured using observable market information and have been classified as level 2.
Short term operational borrowings
Short term assets available at the holding company level exceeded the amount of short term operational borrowings of £371m (H1 12: £333m; FY 12: £339m). They comprise Euro Commercial paper and bank loans and overdrafts.
Non recourse borrowings
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of LGA issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.
Suffolk Life unit linked borrowings
All of these non recourse borrowings are in relation to commercial properties held within SIPP plans and the borrowings solely relate to client investments.
LGV6/LGV7 Private Equity Fund Limited Partnerships
These borrowings are non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2013, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in October 2017. No drawings were made under this facility during 2013.
2.19 Non-controlling interests
Non-controlling interests represent third party interests in private equity and property investment vehicles which are consolidated in the Group's results. The net increase in the non-controlling interests in 2013 arises from the additional investment and revaluation of the third party interests in the UK Property Ungeared Fund Limited Partnership.
International Financial Reporting Standards Page 62
Notes to the Financial Statements
2.20 Foreign exchange rates
Principal rates of exchange used for translation are: |
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Period end exchange rates |
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At 30.06.13 |
At 30.06.12 |
At 31.12.12 |
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United States Dollar |
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1.52 |
1.57 |
1.63 |
Euro |
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1.17 |
1.24 |
1.23 |
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01.01.13 - |
01.01.12 - |
01.01.12 - |
Average exchange rates |
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30.06.13 |
30.06.12 |
31.12.12 |
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United States Dollar |
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1.54 |
1.58 |
1.58 |
Euro |
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1.18 |
1.22 |
1.23 |
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2.21 Related party transactions |
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There were no material transactions between key management and the Legal & General group of companies. 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. Contributions to the post-employment defined benefit plans were £53m (H1 12: £30m; FY 12: £61m), for all employees. |
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At 30 June 2013, 30 June 2012 and 31 December 2012 there were no loans outstanding to officers of the Company. |
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Key management personnel compensation |
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The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows: |
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Full year |
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30.06.13 |
30.06.12 |
31.12.12 |
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£m |
£m |
£m |
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Salaries |
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3 |
3 |
7 |
Social security costs |
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2 |
1 |
1 |
Post-employment benefits |
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1 |
- |
3 |
Share-based incentive awards |
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2 |
2 |
4 |
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Key management personnel compensation |
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8 |
6 |
15 |
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Number of key management personnel |
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23 |
18 |
17 |
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The Group UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £27m (H1 12: £19m; FY 12: £60m) during the period, priced on an arm's length basis. |
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The Group's investment portfolio includes investments in venture capital, property and financial investments which are held via collective investment vehicles. Net investments into associate investment vehicles totalled £771m during the period (H1 12: £578m; FY 12: £690m). The Group has outstanding loans to these associates of £1m (H1 12: £1m; FY 12: £1m) and received investment management fees of £11m during the period (H1 12: £13m; FY 12: £26m). Distributions from these investment vehicles to the Group totalled £24m (H1 12: £28m; FY 12: £49m). |
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On 22 May 2013, the Group increased its holding in the ordinary share capital of Cofunds (Holdings) Limited from 25% to 100%. For the period to 22 May 2013, the Group paid platform hosting fees to Cofunds (Holdings) Limited of £5m (H1 12: £8m; FY 12: £12m). Creditors outstanding at 22 May 2013 were £3m (H1 12: £3m; FY 12: £1m). |
International Financial Reporting Standards Page 63
Notes to the Financial Statements
2.22 Pension cost
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2013, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £269m (H1 12: £258m; FY 12: £255m). These amounts have been recognised in the financial statements with £160m charged against shareholder equity (H1 12: £153m; FY 12: £152m) and £109m against the unallocated divisible surplus (H1 12: £105m; FY 12: £103m).
2.23 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.
In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or provision in respect of this matter.
Group companies have given indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of Group companies in support of their business activities, including Pension Protection Fund compliant guarantees in respect of certain Group companies' liabilities under the Group pension fund and scheme.
International Financial Reporting Standards Page 64
Notes to the Financial Statements
Independent review report to Legal & General Group Plc - IFRS
Introduction
We have been engaged by the company to review the consolidated interim financial statements in the half-year report for the six months ended 30 June 2013, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, Supplementary Operating Profit Information, and related notes. We have read the other information contained in the half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 2.07, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-year report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-year report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
5 August 2013
Notes:
(a) The interim financial statements is published on the website of Legal & General Group Plc, legalandgeneralgroup.com. The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Net Cash and Capital Page 65
3.01 Operational cash generation |
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The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to profit after tax. |
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Investment |
|
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|
|
Opera- |
|
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|
Changes |
Non- |
gains and |
|
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|
tional |
New |
|
Exper- |
in |
cash |
losses, |
|
Tax |
Profit/ |
|
cash |
busi- |
|
ience |
valuation |
items |
inter- |
Profit/ |
exp- |
(loss) |
|
gene- |
ness |
Net |
var- |
assump- |
and |
national |
(loss) |
ense/ |
before |
For the six months ended |
ration |
strain |
cash |
iances |
tions |
other |
and other |
after tax |
(credit) |
tax |
30 June 2013 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities |
130 |
17 |
147 |
4 |
- |
(35) |
- |
116 |
35 |
151 |
UK Housing and Protection |
148 |
(23) |
125 |
(6) |
14 |
(20) |
- |
113 |
35 |
148 |
Netherlands and France |
1 |
- |
1 |
- |
- |
- |
15 |
16 |
4 |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Protection and Annuities |
279 |
(6) |
273 |
(2) |
14 |
(55) |
15 |
245 |
74 |
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings |
95 |
(31) |
64 |
(5) |
11 |
(23) |
- |
47 |
15 |
62 |
Investment management |
106 |
- |
106 |
- |
- |
- |
- |
106 |
29 |
135 |
US Protection |
43 |
- |
43 |
- |
- |
- |
(8) |
35 |
18 |
53 |
L&G Capital |
68 |
- |
68 |
- |
- |
- |
- |
68 |
18 |
86 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit from |
|
|
|
|
|
|
|
|
|
|
divisions |
591 |
(37) |
554 |
(7) |
25 |
(78) |
7 |
501 |
154 |
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group debt costs |
(49) |
- |
(49) |
- |
- |
- |
- |
(49) |
(15) |
(64) |
Group Investment projects |
|
|
|
|
|
|
|
|
|
|
and expenses |
(5) |
- |
(5) |
- |
- |
- |
(10) |
(15) |
(5) |
(20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
537 |
(37) |
500 |
(7) |
25 |
(78) |
(3) |
437 |
134 |
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other variances |
- |
- |
- |
- |
- |
- |
21 |
21 |
(5) |
16 |
Impact of change |
|
|
|
|
|
|
|
|
|
|
in UK tax rates |
- |
- |
- |
- |
- |
- |
1 |
1 |
(1) |
- |
Gains/(losses) attributable to |
|
|
|
|
|
|
|
|
|
|
non-controlling interests |
- |
- |
- |
- |
- |
- |
5 |
5 |
- |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS profit |
537 |
(37) |
500 |
(7) |
25 |
(78) |
24 |
464 |
128 |
592 |
|
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
Operational cash generation represents the expected surplus from in-force business for the UK non profit Protection and Annuities and Savings businesses, the shareholders' share of bonuses on with-profits businesses, including an expected investment return on L&G Capital invested assets, and dividends remitted from our international businesses from sustainable cash generation. |
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Net cash generation is defined as operational cash generation less new business strain for the UK non profit Protection and Annuities and Savings businesses. |
Net Cash and Capital Page 66
3.01 Operational cash generation (continued) |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
Opera- |
|
|
|
Changes |
Non- |
gains and |
|
|
|
|
tional |
New |
|
Exper- |
in |
cash |
losses, |
|
Tax |
Profit/ |
|
cash |
busi- |
|
ience |
valuation |
items |
inter- |
Profit/ |
exp- |
(loss) |
|
gene- |
ness |
Net |
var- |
assump- |
and |
national |
(loss) |
ense/ |
before |
For the six months ended |
ration |
strain |
cash |
iances |
tions |
other |
and other |
after tax |
(credit) |
tax |
30 June 2012 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities |
121 |
1 |
122 |
16 |
- |
(33) |
- |
105 |
34 |
139 |
UK Housing and Protection |
114 |
(33) |
81 |
(10) |
18 |
11 |
- |
100 |
33 |
133 |
Netherlands and France |
1 |
- |
1 |
- |
- |
- |
11 |
12 |
5 |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Protection and Annuities |
236 |
(32) |
204 |
6 |
18 |
(22) |
11 |
217 |
72 |
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings |
88 |
(32) |
56 |
(15) |
2 |
11 |
- |
54 |
18 |
72 |
Investment management |
97 |
- |
97 |
- |
- |
- |
- |
97 |
22 |
119 |
US Protection |
38 |
- |
38 |
- |
- |
- |
(9) |
29 |
19 |
48 |
L&G Capital |
62 |
- |
62 |
- |
- |
- |
- |
62 |
19 |
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit from |
|
|
|
|
|
|
|
|
|
|
divisions |
521 |
(64) |
457 |
(9) |
20 |
(11) |
2 |
459 |
150 |
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group debt costs |
(47) |
- |
(47) |
- |
- |
- |
- |
(47) |
(16) |
(63) |
Group Investment projects |
|
|
|
|
|
|
|
|
|
|
and expenses |
(3) |
- |
(3) |
- |
- |
- |
(18) |
(21) |
(7) |
(28) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
471 |
(64) |
407 |
(9) |
20 |
(11) |
(16) |
391 |
127 |
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other variances |
- |
- |
- |
- |
- |
- |
16 |
16 |
(12) |
4 |
Impact of change |
|
|
|
|
|
|
|
|
|
|
in UK tax rates |
- |
- |
- |
- |
- |
- |
(3) |
(3) |
3 |
- |
Gains/(losses) attributable to |
|
|
|
|
|
|
|
|
|
|
non-controlling interests |
- |
- |
- |
- |
- |
- |
1 |
1 |
- |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS profit |
471 |
(64) |
407 |
(9) |
20 |
(11) |
(2) |
405 |
118 |
523 |
|
|
|
|
|
|
|
|
|
|
|
Net Cash and Capital Page 67
3.01 Operational cash generation (continued) |
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|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
Opera- |
|
|
|
Changes |
Non- |
gains and |
|
|
|
|
tional |
New |
|
Exper- |
in |
cash |
losses, |
|
Tax |
Profit/ |
|
cash |
busi- |
|
ience |
valuation |
items |
inter- |
Profit/ |
exp- |
(loss) |
|
gene- |
ness |
Net |
var- |
assump- |
and |
national |
(loss) |
ense/ |
before |
For the year ended |
ration |
strain |
cash |
iances |
tions |
other |
and other |
after tax |
(credit) |
tax |
31 December 2012 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities |
243 |
14 |
257 |
43 |
(24) |
(71) |
7 |
212 |
69 |
281 |
UK Housing and Protection |
265 |
(45) |
220 |
(29) |
22 |
30 |
(5) |
238 |
78 |
316 |
Netherlands and France |
14 |
- |
14 |
- |
- |
- |
17 |
31 |
12 |
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Protection and Annuities |
522 |
(31) |
491 |
14 |
(2) |
(41) |
19 |
481 |
159 |
640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Savings |
179 |
(62) |
117 |
(39) |
20 |
2 |
- |
100 |
33 |
133 |
Investment management |
197 |
- |
197 |
- |
- |
- |
- |
197 |
46 |
243 |
US Protection |
40 |
- |
40 |
- |
- |
- |
22 |
62 |
37 |
99 |
L&G Capital |
123 |
- |
123 |
- |
- |
- |
- |
123 |
40 |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit from |
|
|
|
|
|
|
|
|
|
|
divisions |
1,061 |
(93) |
968 |
(25) |
18 |
(39) |
41 |
963 |
315 |
1,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group debt costs |
(96) |
- |
(96) |
- |
- |
- |
- |
(96) |
(31) |
(127) |
Group Investment projects |
|
|
|
|
|
|
|
|
|
|
and expenses |
(7) |
- |
(7) |
- |
- |
- |
(41) |
(48) |
(16) |
(64) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
958 |
(93) |
865 |
(25) |
18 |
(39) |
- |
819 |
268 |
1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other variances |
- |
- |
- |
- |
- |
- |
(2) |
(2) |
(40) |
(42) |
Impact of change |
|
|
|
|
|
|
|
|
|
|
in UK tax rates |
- |
- |
- |
- |
- |
- |
(7) |
(7) |
7 |
- |
Gains/(losses) attributable to |
|
|
|
|
|
|
|
|
|
|
non-controlling interests |
- |
- |
- |
- |
- |
- |
(12) |
(12) |
- |
(12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS profit |
958 |
(93) |
865 |
(25) |
18 |
(39) |
(21) |
798 |
235 |
1,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash and Capital Page 68
3.02 Regulatory capital resources |
|
|
|
|
|
|
(a) Insurance Group's Directive (IGD) |
|
|
|
|
|
|
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 Group level, Legal & General must comply with the requirements of the IGD. The table below shows the estimated total Group capital resources, Group capital resources requirement and the Group surplus. |
||||||
|
|
|
|
|
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core tier 1 |
|
|
|
6.6 |
5.9 |
6.2 |
Innovative tier 1 |
|
|
|
0.6 |
0.6 |
0.6 |
Upper tier 2 |
|
|
|
0.4 |
0.4 |
0.4 |
Lower tier 2 |
|
|
|
0.8 |
0.8 |
0.8 |
Deductions1 |
|
|
|
(1.0) |
(0.8) |
(0.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group capital resources |
|
|
|
7.4 |
6.9 |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group capital resources requirement2 |
|
|
|
3.3 |
3.1 |
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IGD surplus |
|
|
|
4.1 |
3.8 |
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coverage ratio (Group capital resources / |
|
|
|
2.26 |
2.24 |
2.34 |
Group capital resources requirement)3 |
|
|
|
times |
times |
times |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. The increase in deductions in H1 13 is driven by intangibles related to the Cofunds acquisition. |
||||||
2. The Group capital resources requirement includes a With-profits Insurance Capital Component (WPICC) of £0.3bn (FY 12: £0.1bn). 3. Coverage ratio is calculated on unrounded values. |
||||||
|
|
|
|
|
|
|
A further analysis is given below. |
|
|
|
|
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Society long term fund1 |
|
|
|
2.8 |
2.6 |
2.7 |
Society shareholder capital1 |
|
|
|
2.7 |
2.7 |
2.3 |
General insurance |
|
|
|
0.2 |
0.1 |
0.2 |
France (LGF) |
|
|
|
0.3 |
0.3 |
0.3 |
Netherlands (LGN) |
|
|
|
0.2 |
0.1 |
0.2 |
USA (LGA) |
|
|
|
0.2 |
0.1 |
0.3 |
Investment management |
|
|
|
0.5 |
0.4 |
0.4 |
Other2 |
|
|
|
1.5 |
1.5 |
1.7 |
Innovative tier 1 |
|
|
|
0.6 |
0.6 |
0.6 |
Tier 2 |
|
|
|
1.2 |
1.2 |
1.2 |
Debt |
|
|
|
(2.8) |
(2.7) |
(2.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group capital resources |
|
|
|
7.4 |
6.9 |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Society long term fund3 |
|
|
|
2.8 |
2.7 |
2.7 |
Other |
|
|
|
0.5 |
0.4 |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group capital resources requirement |
|
|
|
3.3 |
3.1 |
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Legal & General Assurance Society Ltd which is the principal insurance regulated entity in the Group. 2. Other includes corporate assets held within the Group's treasury function. 3. The Society LTF capital requirement of £2.8bn (H1 12: £2.7bn; FY 12: £2.7bn) is met by £2.8bn (H1 12: £2.6bn; FY 12: £2.7bn) of capital resources in the LTF and £nil (H1 12: £0.1bn; FY 12: £nil) of capital outside the LTF. |
Net Cash and Capital Page 69
3.02 Regulatory capital resources (continued) |
|
|
|
|
|
|
(a) Insurance Group's Directive (IGD) (continued) |
|
|
|
|
|
|
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below. |
||||||
|
|
|
|
|
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves attributable to equity holders on an IFRS basis |
|
|
|
5.5 |
5.2 |
5.4 |
Innovative tier 1 |
|
|
|
0.6 |
0.6 |
0.6 |
Tier 2 |
|
|
|
1.2 |
1.2 |
1.2 |
Proposed dividends |
|
|
|
(0.1) |
(0.1) |
(0.3) |
Additional capital available from Society |
|
|
|
0.9 |
0.6 |
0.9 |
Adjustment to reflect regulatory value of the LGA operation |
|
|
|
(0.6) |
(0.5) |
(0.6) |
Other regulatory adjustments |
|
|
|
(0.1) |
(0.1) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group capital resources |
|
|
|
7.4 |
6.9 |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) With-profits realistic balance sheet |
|
|
|
|
|
|
The table below summarises the realistic position of the with-profits part of Legal & General Assurance Society's LTF: |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With-profits surplus |
|
|
|
0.7 |
0.7 |
0.7 |
Risk capital margin |
|
|
|
0.1 |
0.1 |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surplus |
|
|
|
0.6 |
0.6 |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal & General Assurance Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (Peak 2). The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the PRA. The surplus includes the present value of future shareholder transfers of £0.3bn (H1 12: £0.2bn; FY 12: £0.3bn) as a liability in the calculation. |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Legal & General Assurance Society capital surplus |
|
|
|
|
||
Legal & General Assurance Society is required to measure and monitor its capital resources on a regulatory basis. |
||||||
|
|
|
|
|
|
|
|
At |
At |
At |
At |
At |
At |
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
Long |
General |
Long |
General |
Long |
General |
|
term |
insu- |
term |
insu- |
term |
insu- |
|
business |
rance |
business |
rance |
business |
rance |
|
£bn |
£bn |
£bn |
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available capital resources - Tier 1 |
6.0 |
0.2 |
5.7 |
0.1 |
5.5 |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance capital requirement |
2.5 |
0.1 |
2.4 |
0.1 |
2.6 |
0.1 |
Capital requirements of regulated related undertakings |
0.2 |
- |
0.2 |
- |
0.2 |
- |
With-profits Insurance Capital Component |
0.3 |
- |
0.3 |
- |
0.1 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital resources requirement |
3.0 |
0.1 |
2.9 |
0.1 |
2.9 |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory capital surplus |
3.0 |
0.1 |
2.8 |
- |
2.6 |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash and Capital Page 70
3.02 Regulatory capital resources (continued) |
|
|
|
|
|
|
(c) Legal & General Assurance Society capital surplus (continued) |
|
|
||||
Movement in Legal & General Assurance Society long term insurance capital requirement |
|
|
|
|||
|
|
|
|
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
Pillar 1 capital requirement |
|
|
|
£bn |
£bn |
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protection |
|
|
|
0.7 |
0.7 |
0.7 |
Annuities |
|
|
|
1.2 |
1.0 |
1.2 |
Non profit pensions and unit linked bonds |
|
|
|
0.1 |
0.1 |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non profit |
|
|
|
2.0 |
1.8 |
2.0 |
With-profits |
|
|
|
0.5 |
0.6 |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term insurance capital requirement |
|
|
|
2.5 |
2.4 |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a regulatory basis (Peak 1), Society long term business regulatory capital surplus of £3bn (H1 12: £2.8bn; FY 12: £2.6bn) comprises capital resources within the long term fund of £2.8bn (H1 12: £2.6bn; FY 12: £2.7bn) and capital resources outside the long term fund of £3.2bn |
||||||
(H1 12: £3.1bn; FY 12: £2.8bn) less the capital resources requirement of £3bn (H1 12: £2.9bn; FY 12: £2.9bn). |
||||||
|
|
|
|
|
|
|
The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a Peak 2 basis is lower than on a Peak 1 basis and represents the difference in the surplus between the two bases. It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b). |
Asset Disclosures Page 71
4.01 Investment portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
Market |
Market |
|
|
|
|
|
|
value |
value |
value |
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide assets under management |
|
|
|
|
440,152 |
388,412 |
413,152 |
|
Client and policyholder assets |
|
|
|
|
|
(380,599) |
(329,536) |
(351,663) |
Non-unit linked with-profits assets1 |
|
|
|
|
(17,895) |
(18,749) |
(18,605) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets to which shareholders are directly exposed |
|
|
|
|
41,658 |
40,127 |
42,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprising: |
|
|
|
|
|
|
|
|
Assets held to back the UK non-linked non profit business: |
|
|
|
|
|
|||
Legal & General Pensions Limited (LGPL)2 |
|
|
|
|
32,226 |
30,670 |
33,289 |
|
Other UK non profit insurance business3 |
|
|
|
|
- |
237 |
76 |
|
|
|
|
|
|
|
32,226 |
30,907 |
33,365 |
Assets held to back other insurance businesses (including Triple-X reserves) |
|
3,200 |
3,182 |
2,993 |
||||
L&G Capital |
|
|
|
|
4,684 |
4,529 |
4,741 |
|
Other shareholder assets |
|
|
|
|
1,548 |
1,509 |
1,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,658 |
40,127 |
42,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Includes assets backing participating business in LGF of £2,434m (H1 12: £2,297m; FY 12: £2,304m). |
||||||||
2. LGPL is the main operating subsidiary for the UK's annuity business. |
||||||||
3. This represents the completed run off of the acquired Nationwide Guaranteed Equity Bond portfolio. |
Analysed by asset class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Other |
|
share- |
|
|
|
|
|
|
|
insurance |
L&G |
holder |
|
|
|
|
|
|
LGPL |
business |
Capital |
assets |
Total |
Total |
Total |
|
|
|
At |
At |
At |
At |
At |
At |
At |
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
30.06.12 |
31.12.12 |
|
|
Note |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities1 |
|
|
- |
- |
1,447 |
8 |
1,455 |
919 |
1,432 |
Bonds |
|
4.02 |
28,635 |
3,007 |
1,887 |
1,118 |
34,647 |
32,958 |
34,923 |
Derivative assets2 |
|
|
2,077 |
31 |
206 |
- |
2,314 |
3,183 |
3,103 |
Property |
|
|
924 |
- |
122 |
14 |
1,060 |
684 |
773 |
Cash (including cash |
|
|
|
|
|
|
|
|
|
equivalents) |
|
|
590 |
162 |
1,022 |
408 |
2,182 |
2,383 |
2,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,226 |
3,200 |
4,684 |
1,548 |
41,658 |
40,127 |
42,884 |
|
|
|
|
|
|
|
|
|
|
|
|||||||||
1. Includes £68m equity investment in CALA Group Limited. |
|||||||||
2. Derivative assets are shown gross of derivative liabilities. Exposures arise from the 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. |
Asset Disclosures Page 72
4.02 Bond portfolio summary |
|
|
|
|
|
|
||
(a) Analysed by sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
|
|
|
|
Notes |
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sovereigns, Supras and Sub-Sovereigns |
|
|
|
4.02(b) |
4,292 |
15 |
6,573 |
19 |
Banks: |
|
|
|
|
|
|
|
|
- Tier 11 |
|
|
|
4.04 |
180 |
1 |
189 |
1 |
- Tier 2 and other subordinated |
|
|
|
4.04 |
482 |
2 |
549 |
2 |
- Senior |
|
|
|
|
1,508 |
5 |
2,304 |
7 |
Utilities |
|
|
|
|
3,902 |
14 |
4,155 |
12 |
Consumer Services and Goods |
|
|
|
|
2,387 |
8 |
2,813 |
8 |
Financial Services |
|
|
|
|
966 |
3 |
1,208 |
3 |
Technology and Telecoms |
|
|
|
|
1,961 |
7 |
2,301 |
6 |
Insurance |
|
|
|
|
1,173 |
4 |
1,281 |
4 |
Industrials |
|
|
|
|
1,453 |
5 |
1,732 |
5 |
Oil and Gas |
|
|
|
|
1,707 |
6 |
1,927 |
6 |
Health Care |
|
|
|
|
790 |
3 |
861 |
2 |
Property |
|
|
|
|
636 |
2 |
703 |
2 |
Traditional and secured asset backed securities |
|
4.03 |
6,079 |
21 |
6,932 |
20 |
||
CDO |
|
|
|
4.02(d) |
1,119 |
4 |
1,119 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
28,635 |
100 |
34,647 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
|
Notes |
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sovereigns, Supras and Sub-Sovereigns |
|
|
|
4.02(b) |
4,011 |
15 |
6,045 |
18 |
Banks: |
|
|
|
|
|
|
|
|
- Tier 11 |
|
|
|
4.04 |
223 |
1 |
240 |
1 |
- Tier 2 and other subordinated |
|
|
|
4.04 |
911 |
3 |
1,039 |
3 |
- Senior |
|
|
|
|
1,434 |
5 |
2,367 |
7 |
Utilities |
|
|
|
|
3,718 |
14 |
3,961 |
12 |
Consumer Services and Goods |
|
|
|
|
2,436 |
9 |
2,845 |
8 |
Financial Services |
|
|
|
|
970 |
4 |
1,208 |
4 |
Technology and Telecoms |
|
|
|
|
1,869 |
7 |
2,174 |
6 |
Insurance |
|
|
|
|
1,076 |
4 |
1,215 |
4 |
Industrials |
|
|
|
|
1,363 |
5 |
1,661 |
5 |
Oil and Gas |
|
|
|
|
1,635 |
6 |
1,847 |
6 |
Health Care |
|
|
|
|
772 |
3 |
836 |
3 |
Property |
|
|
|
|
572 |
2 |
643 |
2 |
Traditional and secured asset backed securities |
|
4.03 |
4,915 |
18 |
5,881 |
18 |
||
CDO |
|
|
|
4.02(d) |
996 |
4 |
996 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
26,901 |
100 |
32,958 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Disclosures Page 73
4.02 Bond portfolio summary (continued) |
|
|
|
|
|
|
||
(a) Analysed by sector (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
Notes |
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sovereigns, Supras and Sub-Sovereigns |
|
|
4.02(b) |
4,543 |
16 |
6,328 |
18 |
|
Banks: |
|
|
|
|
|
|
|
|
- Tier 11 |
|
|
|
4.04 |
212 |
1 |
223 |
1 |
- Tier 2 and other subordinated |
|
|
|
4.04 |
707 |
2 |
776 |
2 |
- Senior |
|
|
|
|
1,399 |
5 |
2,243 |
6 |
Utilities |
|
|
|
|
3,928 |
13 |
4,177 |
12 |
Consumer Services and Goods |
|
|
|
|
2,624 |
9 |
3,040 |
9 |
Financial Services |
|
|
|
|
980 |
3 |
1,198 |
3 |
Technology and Telecoms |
|
|
|
|
2,010 |
7 |
2,337 |
7 |
Insurance |
|
|
|
|
1,225 |
4 |
1,362 |
4 |
Industrials |
|
|
|
|
1,512 |
5 |
1,816 |
5 |
Oil and Gas |
|
|
|
|
1,782 |
6 |
2,009 |
6 |
Health Care |
|
|
|
|
860 |
3 |
926 |
3 |
Property |
|
|
|
|
628 |
2 |
698 |
2 |
Traditional and secured asset backed securities |
|
4.03 |
5,747 |
20 |
6,693 |
19 |
||
CDO |
|
|
|
4.02(d) |
1,097 |
4 |
1,097 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
29,254 |
100 |
34,923 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Tier 1 holdings include £51m (H1 12: £56m; FY 12: £56m) of preference shares. |
Asset Disclosures Page 74
4.02 Bond portfolio summary (continued) |
|
|
|
|
|
|
||
(b) Analysed by domicile |
||||||||
|
|
|
|
|
|
|
|
|
The tables below are based on the legal domicile of the security. |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
Total |
LGPL |
Total |
LGPL |
Total |
|
|
|
At |
At |
At |
At |
At |
At |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
Note |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value by region |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
11,696 |
12,708 |
10,422 |
11,696 |
11,569 |
12,578 |
USA |
|
|
7,834 |
10,555 |
8,268 |
10,926 |
8,394 |
10,856 |
Netherlands |
|
|
1,671 |
2,289 |
1,303 |
1,975 |
1,661 |
2,267 |
France |
|
|
1,190 |
1,581 |
1,100 |
1,485 |
1,313 |
1,742 |
Italy |
|
|
644 |
792 |
507 |
612 |
636 |
744 |
Germany |
|
|
337 |
650 |
428 |
687 |
316 |
651 |
Ireland1 |
|
|
249 |
287 |
215 |
227 |
271 |
289 |
Spain |
|
|
195 |
290 |
164 |
208 |
192 |
260 |
Belgium |
|
|
29 |
77 |
31 |
81 |
27 |
84 |
Portugal |
|
|
15 |
28 |
10 |
10 |
13 |
16 |
Greece |
|
|
- |
3 |
- |
- |
- |
- |
Europe - Other |
|
|
1,146 |
1,506 |
1,109 |
1,508 |
1,164 |
1,552 |
Rest of World |
|
|
2,510 |
2,762 |
2,348 |
2,547 |
2,601 |
2,787 |
CDO |
|
4.02(d) |
1,119 |
1,119 |
996 |
996 |
1,097 |
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,635 |
34,647 |
26,901 |
32,958 |
29,254 |
34,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Within LGPL, out of the £249m of bonds domiciled in Ireland, £183m relate to financing vehicles where the underlying exposure lies outside Ireland. |
Additional analysis of sovereign debt exposures |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Sovereigns, Supras and Sub-Sovereigns |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
Total |
LGPL |
Total |
LGPL |
Total |
|
|
|
At |
At |
At |
At |
At |
At |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value by region |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
2,884 |
3,279 |
2,675 |
3,160 |
3,158 |
3,552 |
USA |
|
|
325 |
889 |
359 |
748 |
323 |
470 |
Netherlands |
|
|
1 |
387 |
- |
432 |
1 |
423 |
France |
|
|
89 |
312 |
77 |
284 |
80 |
299 |
Italy |
|
|
253 |
368 |
198 |
279 |
240 |
312 |
Germany |
|
|
189 |
382 |
143 |
330 |
165 |
380 |
Ireland |
|
|
- |
14 |
- |
5 |
- |
6 |
Spain |
|
|
1 |
58 |
- |
29 |
- |
47 |
Belgium |
|
|
- |
37 |
- |
40 |
- |
38 |
Portugal |
|
|
- |
12 |
- |
- |
- |
4 |
Greece |
|
|
- |
3 |
- |
- |
- |
- |
Europe - Other |
|
|
453 |
654 |
445 |
624 |
459 |
631 |
Rest of World |
|
|
97 |
178 |
114 |
114 |
117 |
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,292 |
6,573 |
4,011 |
6,045 |
4,543 |
6,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Disclosures Page 75
4.02 Bond portfolio summary (continued) |
|
|
|
|
||||
(c) Analysed by credit rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
|
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA1 |
|
|
|
|
1,235 |
4 |
3,502 |
10 |
AA |
|
|
|
|
6,263 |
22 |
7,373 |
21 |
A |
|
|
|
|
10,080 |
35 |
11,507 |
33 |
BBB |
|
|
|
|
8,321 |
29 |
9,422 |
27 |
BB or below |
|
|
|
|
448 |
2 |
528 |
2 |
Unrated: Bespoke CDOs |
|
|
|
|
991 |
3 |
991 |
3 |
Other2 |
|
|
|
|
1,297 |
5 |
1,324 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,635 |
100 |
34,647 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
4,471 |
16 |
7,033 |
21 |
AA |
|
|
|
|
3,012 |
11 |
3,889 |
12 |
A |
|
|
|
|
9,597 |
36 |
11,324 |
34 |
BBB |
|
|
|
|
7,423 |
28 |
8,239 |
25 |
BB or below |
|
|
|
|
474 |
2 |
525 |
2 |
Unrated: Bespoke CDOs |
|
|
|
|
874 |
3 |
874 |
3 |
Other2 |
|
|
|
|
1,050 |
4 |
1,074 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,901 |
100 |
32,958 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
|
At |
At |
At |
At |
|
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
4,899 |
17 |
6,892 |
20 |
AA |
|
|
|
|
3,240 |
11 |
4,087 |
12 |
A |
|
|
|
|
9,810 |
34 |
11,466 |
33 |
BBB |
|
|
|
|
8,625 |
29 |
9,595 |
27 |
BB or below |
|
|
|
|
467 |
2 |
521 |
1 |
Unrated: Bespoke CDOs |
|
|
|
|
975 |
3 |
975 |
3 |
Other2 |
|
|
|
|
1,238 |
4 |
1,387 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,254 |
100 |
34,923 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. In the first six months of 2013, UK government was downgraded from AAA to AA+. |
||||||||
2. Other unrated bonds have been assessed and rated internally and are all assessed as investment grade (BBB and above). |
||||||||
|
Asset Disclosures Page 76
4.02 Bond portfolio summary (continued) |
|
|
|
|
||||
(d) CDOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group holds collateralised debt obligations (CDOs) with a market value of £1,119m at 30 June 2013 (H1 12: £996m; FY 12: £1,097m). |
||||||||
|
|
|
|
|
|
|
|
|
These holdings include £962m (H1 12: £848m; FY 12: £948m) relating to four CDOs that were constructed in 2007 and 2008 in accordance with terms specified by Legal & General as part of a strategic review of the assets backing the annuity portfolio. These CDOs mature in 2017 and |
||||||||
2018. The Group selected at outset and manages the reference portfolios underlying the CDOs to give exposure to globally diversified portfolios of investment grade corporate bonds. The Group is able to substitute the constituents of the original reference portfolios with new reference assets, allowing the management of the underlying credit risk although no substitutions were made in 2012 or 2013. A breakdown of the underlying CDO reference portfolio by sector is provided below: |
||||||||
|
|
|
|
|
|
|
|
|
Sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.06.13 |
At 30.06.12 |
At 31.12.12 |
|
|
|
|
|
|
% |
% |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks |
|
|
|
|
|
14 |
14 |
14 |
Utilities |
|
|
|
|
|
10 |
10 |
10 |
Consumer Services & Goods |
|
|
|
|
|
25 |
25 |
25 |
Financial Services |
|
|
|
|
|
6 |
6 |
6 |
Technology & Telecoms |
|
|
|
|
|
9 |
9 |
9 |
Insurance |
|
|
|
|
|
6 |
6 |
6 |
Industrials |
|
|
|
|
|
20 |
20 |
20 |
Oil & Gas |
|
|
|
|
|
6 |
6 |
6 |
Health Care |
|
|
|
|
|
4 |
4 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
100 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The CDOs are termed as super senior since default losses on the reference portfolio have to exceed 27.5%, on average across the four CDOs, before the CDOs incur any default losses. Assuming an average recovery rate of 30%, then over 39% of the reference names would have to default before the CDOs incur any default losses. |
||||||||
|
|
|
|
|
|
|
|
|
Beyond 27.5% of default losses on the reference portfolio, losses to the CDO would occur at a rate that is a multiple of the loss rate on the reference portfolio. For illustration a £200m loss could be incurred if default losses to the reference portfolios exceeded 30.4% or if 43.5% of the names in the diversified global investment grade portfolio defaulted, with an average 30% recovery rate. (All figures are averages across the four CDOs.) |
||||||||
|
|
|
|
|
|
|
|
|
The underlying reference portfolio has had no reference entity defaults in 2012 or 2013. |
||||||||
|
|
|
|
|
|
|
|
|
Losses are limited under the terms of the CDOs to assets and collateral invested. |
||||||||
|
|
|
|
|
|
|
|
|
These CDOs also incorporate features under which, in certain circumstances, the Group can choose either to post additional cash collateral or to allow wind up of the structures. These features are dependant on the portfolios' weighted average spreads, default experience to date and time to maturity. No additional collateral was posted to any of the CDOs during the period ended 30 June 2013 (2012: £nil). During the period, the Group received £nil (2012: £nil) of previously posted collateral. |
||||||||
|
||||||||
These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation. |
||||||||
|
|
|
|
|
|
|
|
|
For the purposes of valuing the non profit annuity regulatory and IFRS liabilities the yield on the CDOs is included within the calculation of the yield used to calculate the valuation discount rate for the annuity liabilities. An allowance for the risks, including default, is also made. For EEV purposes, the yield on the CDOs, reduced by the realistic default assumption, is similarly included in assumed future investment returns. |
||||||||
|
|
|
|
|
|
|
|
|
The balance of £157m (H1 12: £148m; FY 12: £149m) of CDO holdings includes a £29m (H1 12: £26m; FY 12: £27m) exposure to an equity tranche of a bespoke CDO. |
Asset Disclosures Page 77
4.03 Traditional and secured asset backed securities summary |
|
||||||
(a) By security |
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional asset backed securities: |
|
|
|
|
|
||
Residential Mortgage-Backed Securities - Prime1 |
|
|
|
483 |
8 |
714 |
10 |
Residential Mortgage-Backed Securities - Sub-prime2 |
|
|
|
- |
- |
3 |
- |
Commercial Mortgage-Backed Securities |
|
|
|
217 |
4 |
426 |
6 |
Credit Card |
|
|
|
5 |
- |
118 |
2 |
Auto |
|
|
|
4 |
- |
106 |
2 |
Consumer Loans |
|
|
|
25 |
- |
25 |
- |
Student Loans |
|
|
|
20 |
- |
59 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754 |
12 |
1,451 |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitisations and debentures: |
|
|
|
|
|
||
Secured Bond |
|
|
|
2,197 |
36 |
2,275 |
33 |
Commercial Property Backed Bonds |
|
|
|
552 |
9 |
552 |
8 |
Infrastructure / Private Finance Initiative / Social housing |
|
|
1,913 |
32 |
1,920 |
27 |
|
Whole Business Securitisation |
|
|
|
467 |
8 |
478 |
7 |
Other secured holdings3 |
|
|
|
196 |
3 |
256 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,325 |
88 |
5,481 |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional and secured asset backed securities |
|
6,079 |
100 |
6,932 |
100 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The two categories above are based on the following definitions: Traditional asset backed securities are securities, often with variable expected redemption profiles issued by Special Purpose Vehicles and typically backed by pools of receivables from loans or personal credit. Debentures are securities with fixed redemption profiles issues by firms typically secured on property and Securitisations are securities with fixed redemption profiles that are issued by Special Purpose Vehicles and secured on revenues from specific assets or operating companies. |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional asset backed securities: |
|
|
|
|
|
|
|
Residental Mortgage-Backed Securities- Prime1 |
|
|
|
335 |
7 |
560 |
9 |
Residential Mortgage-Backed Securities- Sub-prime2 |
|
|
|
- |
- |
20 |
- |
Commercial Mortgage-Backed Securities |
|
|
|
218 |
4 |
468 |
8 |
Credit Card |
|
|
|
1 |
- |
163 |
3 |
Auto |
|
|
|
4 |
- |
114 |
2 |
Consumer Loans |
|
|
|
36 |
1 |
39 |
1 |
Student Loans |
|
|
|
17 |
- |
63 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611 |
12 |
1,427 |
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitisations and debentures: |
|
|
|
|
|
|
|
Secured Bond |
|
|
|
2,108 |
43 |
2,178 |
37 |
Commercial Property Backed Bonds |
|
|
|
382 |
8 |
382 |
6 |
Infrastructure / Private Finance Initiative / Social housing |
|
1,317 |
27 |
1,321 |
23 |
||
Whole Business Securitisation |
|
|
|
342 |
7 |
346 |
6 |
Other secured holdings3 |
|
|
|
155 |
3 |
227 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,304 |
88 |
4,454 |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional and secured asset backed securities |
|
|
|
4,915 |
100 |
5,881 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Disclosures Page 78
4.03 Traditional and secured asset backed securities summary (continued) |
|
||||||
(a) By security (continued) |
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional asset backed securities: |
|
|
|
|
|
|
|
Residential Mortgage-Backed Securities - Prime1 |
|
|
|
469 |
8 |
674 |
10 |
Residential Mortgage-Backed Securities - Sub-prime2 |
|
|
|
- |
- |
17 |
- |
Commercial Mortgage-Backed Securities |
|
|
213 |
4 |
457 |
7 |
|
Credit Card |
|
|
|
11 |
- |
162 |
2 |
Auto |
|
|
|
2 |
- |
113 |
2 |
Consumer Loans |
|
|
|
30 |
1 |
30 |
- |
Student Loans |
|
|
|
17 |
- |
59 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
742 |
13 |
1,512 |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitisations and debentures: |
|
|
|
|
|
|
|
Secured Bond |
|
|
|
2,230 |
39 |
2,294 |
34 |
Commercial Property Backed Bonds |
|
|
|
573 |
10 |
575 |
9 |
Infrastructure / Private Finance Initiative / Social housing |
|
|
1,559 |
27 |
1,570 |
24 |
|
Whole Business Securitisation |
|
|
|
425 |
7 |
431 |
6 |
Other secured holdings3 |
|
|
|
218 |
4 |
311 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,005 |
87 |
5,181 |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional and secured asset backed securities |
|
5,747 |
100 |
6,693 |
100 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. 55% (H1 12: 53%; FY 12: 54%) of Prime RMBS holdings relate to UK mortgages. 2. 47% (H1 12: 54%; FY 12: 60%) of Sub-prime RMBS holdings have a credit rating of AAA and 61% (H1 12: 76%; FY 12: 94%) relate to the UK. 3. Other secured holdings in LGPL include covered bonds of £194m (H1 12: £143m; FY 12: £207m). |
|||||||
|
|
|
|
|
|
|
|
Of the £697m (H1 12: £816m; FY 12: £770m) of traditional ABS holdings held outside of LGPL, 73% are rated AAA (H1 12: 70%; FY 12: 72%). |
Asset Disclosures Page 79
4.03 Traditional and secured asset backed securities summary (continued) |
|||||||
(b) By credit rating |
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
30.06.13 |
30.06.13 |
30.06.13 |
30.06.13 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA1 |
|
|
|
413 |
7 |
1,040 |
15 |
AA1 |
|
|
|
1,321 |
22 |
1,429 |
21 |
A |
|
|
|
2,550 |
42 |
2,617 |
37 |
BBB |
|
|
|
1,052 |
17 |
1,096 |
16 |
BB or below |
|
|
|
143 |
2 |
149 |
2 |
Unrated2 |
|
|
|
600 |
10 |
601 |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
6,079 |
100 |
6,932 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
30.06.12 |
30.06.12 |
30.06.12 |
30.06.12 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
830 |
17 |
1,507 |
26 |
AA |
|
|
|
1,215 |
25 |
1,358 |
23 |
A |
|
|
|
1,568 |
32 |
1,635 |
28 |
BBB |
|
|
|
847 |
17 |
895 |
15 |
BB or below |
|
|
|
122 |
2 |
152 |
3 |
Unrated |
|
|
|
333 |
7 |
334 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
4,915 |
100 |
5,881 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGPL |
LGPL |
Total |
Total |
|
|
|
|
At |
At |
At |
At |
|
|
|
|
31.12.12 |
31.12.12 |
31.12.12 |
31.12.12 |
|
|
|
|
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
908 |
16 |
1,587 |
24 |
AA |
|
|
|
1,327 |
23 |
1,456 |
22 |
A |
|
|
|
1,851 |
32 |
1,927 |
29 |
BBB |
|
|
|
998 |
17 |
1,039 |
16 |
BB or below |
|
|
|
144 |
3 |
150 |
2 |
Unrated2 |
|
|
|
519 |
9 |
534 |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
5,747 |
100 |
6,693 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Downgrade of asset backed securities ('ABS') from AAA to AA is largely driven by ABS guaranteed by the UK Government. The majority of the ABS downgrades from AA to A are due to a downgrade of the UK Housing Association sector, due to perceived weakening of UK Government support. |
|||||||
2. The rise in unrated asset backed securities predominantly relates to an increase in commercial backed property and social housing assets. |
|||||||
|
|
|
|
|
|
|
|
The credit ratings of monoline wrapped bonds are based on the rating of the underlying securities. |
Asset Disclosures Page 80
4.04 Group subordinated bank exposures |
|
|
|
|
|
|
||
|
|
|
Total |
Total |
Total |
Total |
Total |
Total |
|
|
|
At |
At |
At |
At |
At |
At |
|
|
|
30.06.13 |
30.06.13 |
30.06.12 |
30.06.12 |
31.12.12 |
31.12.12 |
|
|
|
£m |
% |
£m |
% |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
|
|
|
|
|
|
|
United Kingdom1 |
|
|
136 |
19 |
139 |
11 |
161 |
16 |
USA |
|
|
11 |
1 |
29 |
2 |
10 |
1 |
Europe |
|
|
40 |
6 |
60 |
5 |
52 |
5 |
Others |
|
|
2 |
- |
12 |
1 |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tier 1 |
|
|
189 |
26 |
240 |
19 |
223 |
22 |
|
|
|
|
|
|
|
|
|
Lower tier 2 |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
225 |
30 |
423 |
33 |
235 |
24 |
USA |
|
|
116 |
16 |
333 |
26 |
312 |
31 |
Europe |
|
|
80 |
11 |
113 |
9 |
100 |
10 |
Others |
|
|
27 |
4 |
67 |
5 |
26 |
3 |
|
|
|
|
|
|
|
|
|
Upper tier 2 |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
67 |
9 |
58 |
5 |
66 |
7 |
USA |
|
|
2 |
- |
2 |
- |
2 |
- |
Europe |
|
|
3 |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
Other subordinated |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
1 |
- |
1 |
- |
1 |
- |
USA |
|
|
26 |
4 |
39 |
3 |
32 |
3 |
Europe |
|
|
2 |
- |
3 |
- |
2 |
- |
Others |
|
|
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tier 2 and other subordinated |
|
|
549 |
74 |
1,039 |
81 |
776 |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
738 |
100 |
1,279 |
100 |
999 |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. The exposure to UK tier 1 debt includes issuances from the UK subsidiaries of European banks where there is no explicit parental guarantee. |
4.05 Value of policyholder assets held in Society and LGPL |
||||||||
|
|
|
|
|
|
At |
At |
At |
|
|
|
|
|
|
30.06.13 |
30.06.12 |
31.12.12 |
|
|
|
|
|
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With-profits business |
|
|
|
|
|
24,027 |
24,652 |
24,656 |
Non profit business |
|
|
|
|
|
47,150 |
43,437 |
46,869 |
|
|
|
|
|
|
|
|
|
|
|
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71,177 |
68,089 |
71,525 |
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|
Asset Disclosures Page 81
4.06 With-profits non-linked business invested asset mix and investment return |
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Fund level |
UK with- |
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|
invest- |
profits |
UK with- |
UK with- |
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|
ment |
asset |
profits |
profits |
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return |
share |
non par |
other |
As at 30 June 2013 |
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% |
% |
% |
% |
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Equities |
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|
8 |
44 |
4 |
(46) |
Bonds |
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(2) |
34 |
84 |
138 |
Property |
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|
2 |
11 |
- |
(2) |
Cash |
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|
- |
11 |
12 |
10 |
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100 |
100 |
100 |
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Investment return (% pa) |
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1 |
3 |
(1) |
(9) |
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Invested assets (£bn): |
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Net of derivative liabilities |
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11.5 |
2.4 |
1.6 |
Gross of derivative liabilities |
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11.5 |
2.4 |
1.6 |
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As at 30 June 2012 |
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Equities |
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4 |
40 |
2 |
(46) |
Bonds |
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4 |
44 |
83 |
136 |
Property |
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1 |
13 |
- |
- |
Cash |
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- |
3 |
15 |
10 |
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100 |
100 |
100 |
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Investment return (% pa) |
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4 |
4 |
5 |
2 |
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Invested assets (£bn): |
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Net of derivative liabilities |
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12.0 |
2.5 |
1.9 |
Gross of derivative liabilities |
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12.1 |
2.5 |
1.9 |
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As at 31 December 2012 |
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Equities |
|
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|
11 |
41 |
3 |
(53) |
Bonds |
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|
10 |
37 |
82 |
143 |
Property |
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|
2 |
13 |
- |
- |
Cash |
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1 |
9 |
15 |
10 |
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|
100 |
100 |
100 |
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Investment return (% pa) |
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9 |
10 |
12 |
- |
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Invested assets (£bn): |
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Net of derivative liabilities |
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|
12.0 |
2.6 |
1.8 |
Gross of derivative liabilities |
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12.0 |
2.6 |
1.8 |
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Investment return percentages reflect the actual investment return by asset class over the average assets held in that asset class over the period. Each sub fund may however have different underlying assets, and hence returns from the fund average. |
Asset Disclosures Page 82