L&G Half Year Results 2020 Part 1

RNS Number : 1407V

Legal & General Group Plc

05 August 2020

H1 2020: Resilient operating earnings from continuing divisions of £1.1bn and a robust balance sheet

Financial highlights¹

· Operating profit from continuing divisions² of £1,128m (H1 2019: £1,154m), with 3 of 5 businesses delivering growth

· Operating profit of £946m (H1 2019: £1,005m), demonstrating resilience as specific COVID-19 estimated impacts totalled £(129)m³

· Interim dividend of 4.93p per share (H1 2019: 4.93p), providing flexibility as the economic effect of COVID-19 becomes clearer

· Profit after tax⁴ of £290m (H1 2019: £874m), principally reflecting the formulaic impact of lower interest rates on LGI and the unrealised impact of market movements

· Solvency II operational surplus generation from continuing operations² was £0.8bn (H1 2019: £0.7bn)

H1 2020 highlights

Our balance sheet is robust:

· Solvency II coverage ratio⁵ of 173% (H1 2019: 171%)

· Our traded credit portfolio (excluding gilts), which is actively managed, has had no defaults and has seen net downgrades to sub-investment grade of 0.6% since the start of COVID-19; compared to the market which saw 1.5%. Our £3.5bn IFRS Credit Default Reserve has remained unutilised

And our businesses continue to perform resiliently:

· LGR total annuity assets of £80.7bn (FY 2019: £75.9bn), with total new business premiums of £4.2bn

· Group-wide Direct Investment up 8% at £27.9bn (FY 2019: £25.7bn)

· LGIM AUM up 4% at £1,241bn (FY 2019: £1,196bn)

· LGI GWP up 5% to £1,475m (H1 2019: £1,409m)

We continue to build Inclusive Capitalism as we support our Customers, Colleagues and Communities in the face of COVID-19; for more details of our approach please see page 4.

"In H1, Legal & General delivered resilient operating profits, a robust balance sheet and highly relevant products and services. Our ambition is for a similar performance in H2. We kept all our employees on full pay, executed significant commercial and investment projects, and continued to provide a reliable service to our customers without any government financial support. We are committed to driving forward an investment-led, climate-friendly COVID recovery incorporating the very best aspects of Inclusive Capitalism. "

Nigel Wilson, Group Chief Executive

Financial summary

£m	H1 2020	H1 2019	Growth %

Analysis of operating profit
Legal & General Retirement (LGR)	721	655	10
- LGR Institutional (LGRI)	585	524	12
- LGR Retail (LGRR)	136	131	4
Legal & General Investment Management (LGIM)⁶	196	192	2
Legal & General Capital (LGC)	123	173	(29)
Legal & General Insurance (LGI)	88	134	(34)
Operating profit from continuing divisions⁷	1,128	1,154	(2)
Mature Savings⁸	26	24	8
General Insurance⁹	nil	(5)	n/a

Operating profit from divisions	1,154	1,173	(2)
Group debt costs	(115)	(108)	(6)
Group investment projects and expenses	(72)	(60)	(20)
Exceptional COVID-19 related expenses¹⁰	(21)	nil	n/a

Operating profit	946	1,005	(6)
Investment and other variances (incl. minority interests), excluding LGI	(178)	182	n/a
LGI investment variance¹¹	(483)	(134)	n/a


Profit before tax attributable to equity holders¹²	285	1,053	(73)
Profit after tax attributable to equity holders	290	874	(67)
Earnings per share (p)	4.89	14.74	(66)

Book value per share (p)	148	146	1
Interim dividend per share (p)	4.93	4.93	nil

Net release from continuing operations⁷	730	851	(14)
Net release from discontinued operations	21	15	40

H1 2020 Financial performance

Income statement

Operating profit from continuing divisions[13] was resilient at £1,128m (H1 2019: £1,154m). Where we could perform, we did perform, with three of our five businesses delivering growth over the prior year.

LGR continues to deliver strong operating profit growth, up 10% year on year to £721m (H1 2019: £655m), supported by the consistent performance of the growing annuity portfolio. LGR Institutional (LGRI) contributed to new business surplus through a steady flow of UK Pension Risk Transfer (PRT) new business volumes. LGR Retail's (LGRR) individual annuity and Lifetime Mortgage volumes were down year on year, reflecting stalled demand and initial complications in the sales process following the lockdown. However, the physical constraints of lockdown have accelerated significant technological innovation in underwriting and in customer service for our retail product offerings, and sales are now recovering. For instance, June 2020 retail annuity sales were broadly in line with June 2019.

LGIM delivered operating profit growth of 2% to £196m (H1 2019: £192m), reflecting increased revenues from flows and asset values which were partially offset by LGIM's continued investment in its growth strategy. The cost income ratio (58%) reflects this continued investment in the business, specifically in data analytics, an enhanced digital customer experience and optimised investment platforms.

LGC operating profit decreased 29% to £123m (H1 2019: £173m), principally reflecting lower profits from our direct investment portfolio due to a pause in traditional house-building activities during the UK lockdown. The UK housing market began to improve in June 2020 with sales up 32% compared to May.[14]

LGI operating profit decreased 34% to £88m (H1 2019: £134m), reflecting increased claims experience due to COVID-19, particularly impacting our US Protection business where we retain the majority of the mortality risk. This impact was partially offset by mortality releases in LGR.

As previously indicated, we have continued to make measured investments in technology, resulting in Group investment projects and expenses of £(72)m (H1 2019: £(60)m). The expenditure over the near term primarily relates to augmenting cyber security and upgrading the IT infrastructure, including preparation for IFRS 17, and should reduce towards historical levels once these projects are delivered. Additionally the Group incurred approximately £(21)m of exceptional COVID-19-related costs reflecting, for example, the deployment of hardware to facilitate remote working.

Profit before tax attributable to equity holders[15] was £285m (H1 2019: £1,053m), with investment variance of £(661)m (H1 2019: £48m). The largest contributor to investment variance, £(483)m, is the formulaic impact of falling interest rates reducing the discount rate used to calculate LGI reserves. Investment variance within LGC, where we are long-term investors, was £(307)m reflecting unrealised reductions in asset valuations, primarily in the traded equity portfolio, which would only be realised if we chose to sell assets.

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation from continuing operations¹³ increased to £0.8bn (H1 2019: £0.7bn). New business strain was £0.1bn (H1 2019: £0.3bn) reflecting UK Pension Risk Transfer (PRT) volumes written at a capital strain of circa 4%, which typically has a payback period of approximately five years. This resulted in net surplus generation of £0.7bn (H1 2019: £0.5bn).

After allowing for the non-economic impact of lower interest rates on the valuation of our balance sheet[16], spread widening (including the effect of dispersion, i.e. credit spreads on lower rated assets widening more than spreads on higher rated assets), payment of the 2019 final dividend (which is typically c70% of the dividends paid during the year), and the successful issuance of £0.5bn of subordinated debt and £0.5bn of restricted Tier 1 debt in H1, the Group reported a Solvency II coverage ratio^{^[17]} of 173% at the end of H1 2020 (FY 2019: 184%; H1 2019: 171%).

On a proforma calculation basis^{^[18]}, our Solvency II coverage ratio was 169% at the end of June (FY 2019: 179%; H1 2019: 166%).

Our IFRS return on equity of 6.3% principally reflects the impact of unrealised negative investment variances (H1 2019: 20.2%).[19]

The defensive positioning of our £46bn actively managed traded credit portfolio (excluding gilts) has meant that we have outperformed the downgrade experience of the market, with just 0.6% of the portfolio downgrading to sub-investment grade^{^[20]} and no defaults. The annuity portfolio's direct investments continue to perform strongly, with 99.5% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

COVID-19

COVID-19 is having an unprecedented impact on our customers, employees and society at large. Legal & General Group continues to support all of our stakeholders and we have done everything we can to help our customers through this difficult period without relying on direct Government funding. Our priorities are to look after our customers, to safeguard the wellbeing of our colleagues and to support the needs of the wider community more broadly through Inclusive Capitalism and by investing in the real economy.

Customers: Our commitment to supporting our customers will not waver and we have continued to provide service to our customers, whether it is helping them to keep their family financially secure after the death of a loved one, paying annuities or assisting someone with a long-term illness to meet their mortgage repayments. During H1 we paid £939m of LGI protection claims and, with more than three million people in the UK relying on Legal & General for financial security in retirement, we have maintained our most important business services uninterrupted, which includes paying annuities to over 900,000 customers every year.

Colleagues: We have maintained all Legal & General employees' jobs at full pay without relying on the UK Government's Job Retention Scheme. Our robust, well-embedded remote working solutions have helped keep employees engaged and efficient throughout the shift to home working. We also look to support our employees' mental and physical wellbeing through a number of resources including trained Mental Health First Aiders, a confidential employee assistance helpline and a dedicated COVID-19 intranet hub. Employees appreciate our dedication, and this is demonstrated by a 7 percentage point increase in employee engagement since before the COVID-19 lockdown.

Communities: In support of the wider society, we have launched a range of initiatives to help meet the growing social needs arising from the COVID-19 disruption. This includes supporting research and testing by accelerating components of our £20m partnership with Edinburgh University's research into elderly care and being one of the UK's largest COVID-19 testing sites through our investment in Bruntwood SciTech Alderley Park. Additionally we are looking to address the needs of local communities in respect of COVID-19; this includes establishing a £500,000 Community Fund. We are stepping up support for relevant Corporate Social Responsibility projects which particularly address the impact of the pandemic on the older population and those using social care. For more details of our efforts, please refer to our website: www.legalandgeneralgroup.com/media-centre/in-the-news/our-response-to-covid-19-the-coronavirus/

Our purpose is to provide financial stability to our customers and their dependents in good times and in bad: it is "what we do". The human cost of the pandemic has, regrettably, been high for many Legal & General customers, including holders of life insurance policies and annuitants who have lost their lives prematurely. We continue to pay all valid claims and we have prioritised giving a rapid but sensitive service to bereaved families. The economic impact of COVID-19 related claims for Legal & General has been £(80)m in LGI which includes a provision for future COVID-19 claims, although the tragically disproportionate impact of the pandemic on older people resulted in an offsetting £32m from UK mortality experience in LGR. Furthermore our reinsurance strategy, which reinsures virtually all of LGI's UK retail protection business, has substantially reduced the impact on LGI of higher claims. Further operational impacts included pausing LGC Build-to-Sell Housing operations for 3 months, reducing profits by an estimated £(60)m. Additionally, Group operational costs increased by £(21)m reflecting incremental expenses incurred as a result of COVID-19, including the provision of IT spend on remote working. In all, we estimate COVID-19 related events reduced operating profit by £(129)m.

COVID-19 has increased volatility within asset markets, but the defensive positioning of LGR's £80.7bn asset portfolio has meant that we have performed well in absolute and relative terms as described on pages 1 and 11.

We remain extremely vigilant and will continue to monitor and manage the impact of COVID-19 across our businesses.

Asset valuation approach at 30 June 2020

While recognising the volatility within asset markets, our approach to the valuation of assets as at 30 June 2020 was substantially consistent with our usual processes, policies and methodologies. However, we have applied increased focus on the valuation of those assets more directly impacted by the COVID-19 pandemic, particularly non-traded harder-to-value assets, typically classified as level 3 in the IFRS fair value hierarchy. Given the diversity of our portfolio, the impact has been varied with certain asset classes and market sectors more exposed to the impact of COVID-19 than others, in particular property assets, where a number of property valuations equating to c1.5% of the total £118bn of assets to which shareholders are exposed have been reported on the basis of "material valuation uncertainty" (these clauses do not mean that valuations cannot be relied upon but rather that, in the context of the current environment, less certainty can be attached than would otherwise be the case). Please see note 4.04 (b) on page 55 for further disclosure on our valuation of level 3 assets.

Strategy overview

The Group's strategy continues to align to our six global, long-term growth drivers which are structural rather than cyclical and which remain highly relevant: ageing demographics, globalisation of asset markets, investing in the real economy, welfare reforms, technological innovation, addressing Climate Change.

Responding to these drivers creates sustainable profits and positive social and environmental outcomes as we harness the power of pensions.

To deliver our strategy, Legal & General's operating model comprises five businesses:

1. Legal & General Retirement Institutional (LGRI) offers pension risk transfer (PRT) to institutional clients globally

2. Legal & General Retirement Retail (LGRR) provides individual annuities and lifetime mortgages (LTMs) in the UK

3. Legal & General Investment Management (LGIM) is the 14^th largest global asset manager by AUM[21]

4. Legal & General Capital (LGC) invests shareholder capital and is building an alternative asset pipeline

5. Legal & General Insurance (LGI) sells retail and group protection in the UK and retail protection in the US

Our strategy has positioned us to be a leader in the pension asset management and insurance markets, benefitting from a mutually reinforcing business model and unique synergies in pension de-risking and asset manufacturing and management:

· LGRI, a market leader in UK PRT, and LGRR, a leading provider of UK individual annuities, have £81bn of assets, providing long-term, captive AUM to LGIM. This portfolio is continually being enhanced with direct investments originated by LGC.

· LGIM is the market leader in providing investment management to UK institutional pension scheme clients, specifically through index, fixed income and LDI strategies. This provides LGRI with a strong pipeline: 53% of our pension risk transfer (PRT) transactions over the past three years were from existing LGIM clients.[22] LGIM has leveraged its UK DB capabilities to become a leading asset manager for UK defined contribution (DC) pension scheme clients, and is also successfully growing overseas.

· LGC uses shareholder capital to achieve two clear goals:

1. To deliver attractive financial returns for our shareholders by creating real alternative assets and operating businesses and leveraging Legal & General's existing businesses, network of relationships, brand, and expertise

2. To self-manufacture attractive, Matching Adjustment-eligible direct investments to back LGRI and LGRR's growing annuity liabilities and to create assets for LGIM's clients

· LGI is a market leader in UK protection and US brokerage term life insurance, and provides significant Solvency II benefits to the Group by partially offsetting new business strain in LGRI and LGRR. Additionally, LGI's US business facilitates LGRI's US PRT transactions, which are written onto the existing US balance sheet.

The synergies within our businesses drive profits and fuel future growth.

We think about the long-term, Environmental, Social, and Governance (ESG) impact of our businesses[23], particularly in terms of:

1. How our businesses operate. Our success in this area is demonstrated by our AA rating from MSCI, our 79% Bloomberg Gender Equality score and the 5% reduction in carbon emissions from our direct operations over 2019. During H1 2020 we ran an Addressing Climate Change Accelerator Programme, incubating a number of projects aimed at increasing our involvement in funding the transition to net zero, especially in the built environment, and drawing upon skills from across the Legal & General Group. Additionally, in LGC Homes, we have committed to net zero operational carbon by 2030.

2. How we invest our£118bn of proprietary assets[24]. We consider ESG factors in new investment decisions and in 2019 we reduced the carbon emissions of the Group asset portfolio by 6%. Please see page 11 for more information.

3. How we influence as one of the world's largest asset managers with£1.2tn AUM. We have £174bn AUM in ESG strategies and our Active and Index ESG funds strongly outperform peers.[25] We have taken action against 11 companies named as laggards under our Climate Impact Pledge, as we continue to pressure investee companies to behave responsibly. Please see page 13 for more information.

Our alignment to six long-term growth drivers and our commitment to Inclusive Capitalism have led us to develop a sustainable business model which generates positive outcomes for shareholders, customers, wider society and the environment.

Outlook

Our strategy and growth drivers have delivered strong returns for our shareholders over time and have demonstrated resilience in the current environment. We are confident they will continue to deliver profitable growth into the future as we execute on our strategy based on Inclusive Capitalism. Our focused and consistent strategy has delivered 11% EPS CAGR since 2011.[26] Having achieved our five year ambition of 10% EPS CAGR (58% growth over the period) in just four years, we plan to update the market on our ambitions at a Capital Markets Event on 12 November 2020.

We remain confident in our strategy and our ability to deliver resilient, organic growth through periods of macro-volatility, supported by strong competitive positioning in attractive and growing markets. Our confidence and our dividend paying capacity are underpinned by the Group's strong balance sheet with £7.3bn in surplus regulatory capital, a £3.5bn IFRS credit default reserve, and significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

We intend to be a leader in the post-pandemic economic recovery, supporting our shareholders and customers while delivering Inclusive Capitalism through investments in infrastructure, clean energy, affordable housing, and providing products to support individuals' financial resilience.

LGR's Institutional (LGRI) business participates in the rapidly growing global pension risk transfer (PRT) market, focussing on corporate defined benefit (DB) pension plans in the UK, the US, the Netherlands, Ireland, and Canada, which together have more than £5 trillion of pension liabilities due to ageing demographics.^{^[27]}

During these uncertain times, pension trustees and their sponsors value Legal & General's reputation and commitment to the UK PRT market, where we are the only PRT provider to have operated continuously for more than thirty years. Although the UK is the most mature PRT market globally, it still represents a significant opportunity as only c11% of the £2.1 trillion of UK DB pension liabilities have transferred to insurance companies to date.[28] PRT business generates an attractive and long-term stream of operating surplus, which provides stability to the division's operating performance and means that LGRI is not dependent on new business to deliver stable profits.

Despite COVID-19, 2020 is anticipated to be the second largest on record, with £20bn to £25bn of UK PRT expected to transact, demonstrating the resilience of this market.[29]

The US represents a further, significant market opportunity, with $3.5 trillion of DB liabilities, of which only c6% have transacted to date.[30] Since our market entry in 2015, our US business has written more than $3.9bn of PRT with 56 clients, including four transactions in H1 2020. We are the only insurer providing PRT directly to pension plans globally and in May, during the height of lockdown, we undertook the first international PRT transaction for IHS Markit, securing benefits for their UK and US pension plans. This is anticipated to be "one of the key levers that sponsors with UK and US obligations look to utilise going forwards".[31]

Global demand for PRT has remained resilient and our ability to transact has been unwavering throughout the lockdown; in H1 2020 we wrote 53% more transactions by count than we did in H1 2019 (H1 2020: 29; H1 2019: 19). This trend is true in both the UK, where we wrote 10 more transactions (H1 2020: 25; H1 2019: 15), and in the US (H1 2020: 4; H1 2019: 3). 76% of our UK transactions were with LGIM clients, demonstrating the strength of our client relationships and the resilience provided by our unique position as the only firm operating across the full pension de-risking journey.

Our intention remains to write £40bn to £50bn of new UK PRT over the next five years. As always, we will be disciplined in our pricing and deployment of capital, weighing the interests of all our stakeholders when making new business decisions.

We expect LGR Retail's(LGRR) target market to continue to expand, driven by ageing demographics and welfare reforms. LGRR works closely with LGIM to deliver and develop a broad range of retirement solutions to customers.

The global disruption following the outbreak of coronavirus has caused a temporary dip in demand for retail retirement products, but we do not expect this to alter their long term growth trajectory. Despite lower rates, individuals may place greater value on the certainty of an annuity in these uncertain times, while other people may choose to access home equity through a lifetime mortgage to weather reductions in the value of other assets. Responding with technological innovation, we have improved accessibility to our products through the lockdown and have seen demand rebound over June and July. We are actively seeking solutions to address the needs of the 1.5 million UK workers aged over 50 who report that they intend to delay their retirement as a direct result of the pandemic.

In the UK, our primary market, there are £40bn of personal pension assets coming to maturity each year with the individual annuity market accounting for only £4.5bn of the total maturing assets.[32] LGRR seeks to expand its addressable market through product innovation; as an example, in February we launched our Immediate Needs Annuity, designed to better help clients mitigate the risk of running out of money while in care. Our customer-led product innovation, together with the recent introducer agreement with Prudential, has helped increase our market share to 20.9% in Q1.[33]

The LTM market saw both supply and demand dislocations following the COVID-19 outbreak. The lockdown presented challenges to property valuation, advice and execution, which have been largely overcome through technological innovation, such as virtual valuations and electronic signatures. Demand softened in April and May as consumers postponed many of the catalysts for LTMs, such as vacations and assisting children in purchasing their first homes. However, LTMs continue to be an attractive option for individuals looking to access liquidity by means other than selling pension assets at distressed levels. Consequently, we have seen demand partly recover in June.

We are considering very carefully the current and longer-term impacts of COVID-19, both direct and indirect, on the mortality of our annuitants. Alongside this, we continue to analyse the impact of incorporating the next actuarial table (CMI-18) in our year end reserving which, in isolation, would imply a release of around £200m.

Investment Management (LGIM) benefits from a combination of scale businesses and a diversified asset base, underpinned by structural demand for its products and investment capabilities. This provides the basis for consistent delivery, and the platform to deliver further growth in operating earnings over the medium-term.

Under Michelle Scrimgeour's leadership, LGIM will continue to diversify, modernise and internationalise the business, strategic themes on which Michelle will expand at the Group's Capital Markets event on 12^th November.

LGIM intends to maintain its strong position in the UK, which has been the bedrock of the firm's success to date, while diversifying its capabilities.

LGIM is a leading player in providing UK DB de-risking solutions and is uniquely positioned to support UK DB clients journeying to the full range of pension end game destinations, including PRT and Insured Self Sufficiency with LGRI.

We are the market leader in UK DC - a market with significant growth potential - with total assets of £96.7bn (HY19: £86.4bn). The DC market represents a compelling opportunity with total UK DC assets expected to more than double by 2028 to £955bn.[34] Demonstrating the business' resilience, our UK DC business won 41 pension plans during H1 2020, up 64% from 25 pension plans in H1 2019.

Over the last three years LGIM's international AUM has nearly doubled to reach £385bn - 31% of LGIM's total AUM. LGIM plans to continue growing International AUM profitably and at pace over the medium term, with a particular focus on the US, Asia and Europe.

In addition to diversifying our client-base, we will also expand our product capabilities, focussing on Real Assets, Solutions and Index as we leverage the skills developed within LGC and LGR in managing our £81bn annuity portfolio. To this end we are pleased to announce the launch of LGIM's Secure Income Assets Fund, providing pension funds and other institutional investors with stable, long-term cashflows from a diversified allocation across infrastructure debt, real estate debt and private corporate debt, with co-investment from LGR. We continue to build upon our strong ESG credentials, with ESG reporting across our full AUM and £174bn in responsible investment strategies explicitly linked to ESG criteria.

LGIM continues to invest in the business to achieve the resilience and global scalability critical to its future success. We are automating and simplifying our business through investment in data analytics, providing a digital experience for our customers, and optimising our investment platforms. As noted at the FY 2019 results, £29m of LGIM-related annual project expenditure previously reflected in Group expenses has been allocated to the LGIM segmented results beginning in 2020.

LGIM is well positioned to continue to drive net flows, and to deliver meaningful earnings growth, as it continues to leverage its core strengths and to expand internationally.

Legal & General Capital (LGC), the Group's alternative asset originator, will continue to seek opportunities to deploy patient capital in alternative assets where we see an enduring demand for private long-term investment to support society's need for residential property, specialist commercial real estate, climate & energy infrastructure and alternative credit & venture capital. LGC is well placed to bring together Legal & General Group's sources of on-balance sheet (from LGR and LGC) and third party (via LGIM) patient capital with its development and operational capabilities, thereby deploying the power of pensions to deliver Inclusive Capitalism and address Climate Change. Over the next three to five years we expect to build our diversified direct investment AUM to up to c£5bn (H1 2020: £3.0bn) with a target blended portfolio return of 8% to 10%.

Our Future Cities portfolio has c£1bn invested into the real economy across fifteen UK towns and cities and we expect to invest further in many of these locations and others. The portfolio is primarily comprised of: specialist commercial real estate, which includes urban development, science and technology-focussed real estate, and data centres; and climate & energy investments, which include renewable infrastructure and clean technology. During H1, LGC made further climate & energy investments, expanding its portfolio to cover low carbon heat, transport and power generation. Across the Legal & General Group, clean energy investments have now reached £1.4bn.

LGC's residential property platform is diversified across build-to-rent, build-to-sell, later living, and affordable housing, providing some insulation from cyclical shocks. Responding to the UK COVID-19 lockdown, LGC paused a significant number of its traditional construction operations in March. Since then, all its sites have reopened, facilitated by innovation and collaboration across the business while prioritising health and safety. In line with other house builders, should operating conditions remain largely unchanged from the current state, we expect a 30% reduction in sales across the year, with the majority of this impact experienced in H1. Despite disruptions to construction, planning permissions were secured at pace throughout the period, helping LGC particularly to meet the UK's Later Living and Affordable Housing needs. We expect higher sales in H2 2020 as a result of the UK Government's temporary Stamp Duty reductions. We believe our diversified housing platform makes us more resilient to temporary market slowdowns and we are well positioned to achieve our long-term targets of delivering:

· Over 3,000 traditional build-to-sell homes per annum

· 5,500 build-to-rent homes in our pipeline

· 3,000 affordable homes per year by 2023 to help meet the needs of the more than 1.4 million households on waiting lists for UK social housing

· Over 3,500 Later Living homes in our pipeline to help address the housing requirements of the last time buyers seeking to downsize, estimated at over 3.4m by 2021

In SME Finance, we are continuing to support UK innovation, investing in the real economy by creating a diverse portolio of Venture Capital assets which complement LGIM's ambitions to offer VC investments to DC investors, and growing our alternative credit capabilities. Pemberton, our 40%-owned European mid-market debt originator, has continued to perform well during COVID-19, with deployed funds increasing to €4.5bn (H1 2019: €3.5bn). Over the coming months Pemberton will remain vigilant in monitoring its portfolio and engaging proactively with borrowers. We expect to continue to deploy our capital and focus to support the venture ecosystem to help create and grow the businesses of tomorrow.

In Insurance (LGI), we anticipate continued premium growth across our UK and US businesses as technological innovation makes our products more accessible to customers and supports further product and pricing enhancements.

In the UK, our market leading retail protection business is supported by the strength of our distribution relationships, investment in our systems and platforms, and product enhancements. Our group protection business has gained market share in 2020 and, based on the current market environment, we expect this success to continue into the second half of the year.

In the US, we anticipate our on-going technology investments and new partnerships will position us for new business growth as the market recovers from the initial distribution and underwriting disruptions caused by COVID-19. We plan to use technology to improve customer experience while reducing cost and becoming the partner of choice for a wide range of distribution partners, adding to our successful US offering, where we are already the largest provider of term life assurance in the brokerage channel by policy count.

LGI expects to emerge stronger from the current crisis. In responding to the challenges presented by COVID-19 we have accelerated our use of data analytics in the UK and US, allowing us to enhance our products, optimise our profits, and take proactive risk management actions.

Dividend

Our businesses and balance sheet have shown resilience during the first several months of the COVID-19 pandemic. As a long term company, we act prudently and take into consideration all of our stakeholders. The Board has declared an interim dividend of 4.93p per share, in line with prior year, in order to maintain flexibility as the economic effect of COVID-19 becomes clearer. The Board will set a final dividend that is prudent, consistent with our risk appetite and in line with our dividend policy.

Over the longer term, Legal & General expects to maintain its progressive dividend policy reflecting the Group's expected underlying business growth, including net release from operations and operating earnings.

Legal & General Retirement

FINANCIAL HIGHLIGHTS £m	H1 2020	H1 2019
Operating profit	721	655
- LGR Institutional (LGRI)	585	524
- LGR Retail (LGRR)	136	131

Investment and other variances	80	(17)
Profit before tax	801	638
Release from operations	329	303
New business surplus	98	185
Net release from operations	427	488

UK PRT	3,176	6,316
International PRT	248	361
Individual annuity single premiums	421	497
Lifetime mortgage advances	362	489
Total new business	4,207	7,663
Total annuity assets (£bn)	80.7	72.1

Operating profit up 10% to £721m

LGRcontinues to deliver strong operating profit growth of 10% to £721m (H1 2019: £655m), driven by the consistent performance of the growing annuity portfolio as well as resilient UK Pension Risk Transfer (PRT) new business volumes further bolstered by routine assumption updates. Retail Annuity and Lifetime Mortgage volumes were down, reflecting stalled demand and initial complications in the sales process following the UK lockdown, however technological innovation has helped us overcome these challenges to serve customers and grow market share. As mentioned on page 4, the devastating loss of life from COVID-19 has had impacts across the Group, including LGR.

Solvency II new business margin increased to 10.6% (H1 2019: 7.8%) reflecting more deferred annuitants insured, causing a longer duration in the H1 2020 liabilities compared to H1 2019 liabilities, and continued pricing discipline.

LGR Institutional - Global Pension Risk Transfer

In H1 2020 LGR Institutional (LGRI) completed £3,424m of bulk annuities across 29 deals globally (H1 2019: £6,677m; 19 deals).

Legal & General is a leader in the UK PRT market and in H1 2020 we wrote £3,176m premiums across 25 transactions (H1 2019: £6,316m; 15 deals). Demand for UK PRT has continued largely unabated despite the wider macro-environment. Many pension plans have hedged their interest rate exposure, meaning lower rates do not materially impact their ability to afford a bulk annuity. This has translated into robust demand for PRT, with market participants expecting £20bn to £25bn to transact in 2020.[35]

LGRI's brand, scale and asset origination capabilities through synergies with, and expertise within, LGIM and LGC are critical to our market leadership in the large UK PRT market. Long term client relationships, with many of these fostered through LGIM, have allowed us to help many pension plans achieve their de-risking goals. As an example, in H1 2020, we completed our ninth bulk annuity for ICI, one of our largest PRT clients. Additionally we have used technological innovation to serve smaller pension plans more efficiently; over 40% of our transactions in H1 2020 were transactions less than £25m.

The US PRT business continues to perform with new business premiums increasing 7% to $312m (H1 2020: £248m; H1 2019: $291m; £223m). In May, we wrote our first global PRT transaction, simultaneously insuring IHS Markit's UK and US pension plans for $144m (£122m). IHS Markit has been an LGIM client for fifteen years and we are pleased to have helped usher them through their full de-risking journey. As the only insurer providing PRT directly to pension plans globally, Legal & General is uniquely positioned to offer holistic, global pension de-risking solutions.

LGR Retail - Individual Retirement Solutions

LGR Retail (LGRR) has helped customers weather the economic uncertainty following COVID-19, delivering solutions to retirees through individual annuities and Lifetime Mortgages (LTMs).

Individual annuity sales fell 15% to £421m in H1 (H1 2019: £497m), reflecting transaction frictions in the immediate aftermath of the UK lockdown. Sales began to recover in June, up 27% compared to May, as processes adapted to the current environment and individuals valued the certainty of an annuity in uncertain times. Product innovation and increased intermediary presence allowed us to grow market share to 20.9%.^{^[36]} Despite market volumes falling 16% over Q1, LGRR lifetime annuity new business fell by only 5%.³⁶ Our strong heritage in individual annuities means that LGRR assets account for approximately one quarter of the Group's total annuity assets.

Lifetime mortgage advances were down 26% to £362m (H1 2019: £489m), again reflecting execution challenges during lockdown. Similar to individual annuities, we have seen a rebound in applications in June. We have maintained pricing and underwriting discipline while building customer-focused innovation, such as virtual valuations and electronic signatures. At the end of June 2020, LTMs were 7% of our total annuity assets and our LTM new business portfolio had an average customer age of 71 and a weighted average loan-to-value of c28% at point of sale.

On-going credit and asset management

LGR's £80.7bn 'A minus' rated asset portfolio backing the IFRS annuity liabilities is well diversified by sector and geography.[37]

Credit portfolio management

LGR's £76.4bn fixed income portfolio is comprised of £57.0bn of listed bonds and £19.4bn of direct investments. Approximately two-thirds of this portfolio was rated A or better, 34% rated BBB and 2% sub-investment grade.

The principal objective of our annuity-focused, fixed income fund managers in LGIM is to manage the portfolio to avoid credit downgrades and defaults. We constantly review our asset portfolio, including sector allocations and asset classes, in order to manage portfolio credit quality and to mitigate risks. We have vigorously stress tested our portfolio to build resilience against a range of scenarios and hold a £3.5bn IFRS credit default reserve.

We have kept lower-rated, cyclical exposures to a minimum and only 7% of our BBB assets are BBB-. Our approach has led us to avoid sectors which we believe are at risk of significant disruption, including those directly impacted by COVID-19, for instance traditional retail, airlines, hotels and leisure, which together constitute less than 1% of our portfolio. We have been conducting a deep dive analysis of our BBB exposures over the last year and have taken the opportunity to improve credit quality at attractive pricing levels. We have been able to take significant positive action due to market dynamics. Our defensive positioning and active management have meant that we have outperformed the downgrade experience of the market, with less than £300m of our traded credit assets downgraded to sub-investment grade and no defaults.^{^[38]} We recognise the economic impact of COVID-19 is still developing and we will continue to monitor and safeguard our portfolio.

Additionally, we are continuing to review and manage our portfolio to better integrate and manage climate change risks. When making new investment decisions we have put constraints on companies involved in coal extraction and coal-based electricity production and have set carbon intensity targets to monitor alignment with the Paris Agreement objective.

Direct Investment

LGR originated £1.2bn of new, high quality direct investments in H1 which, along with market movements, brought the direct investment portfolio total to £23.6bn[39] (FY 2019: £21.6bn).

Within the direct investment portfolio, fixed income assets accounted for £19.4bn of AUM, including £5.5bn in LTMs. Consistent with the broader bond portfolio, approximately two-thirds of the direct investment bond portfolio was rated 'A' or above using robust and independent rating processes which take account of long-term stress events to the strong counterparties and the underlying collateral. The portfolio has continued to perform strongly in H1, with 99.5% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure. During H1, approximately 1.4% of our UK direct investments (excluding lifetime mortgages) were downgraded to sub-investment grade. These affected assets are currently under construction and delays have meant that the construction phase has been extended slightly. Our independent rating methodology therefore automatically downgrades these assets. However, we expect them to be upgraded to investment grade once the construction phase has completed.

The Group's long-term illiquid liabilities and large balance sheet enable it to invest in assets of size and term that differentiate it from many other institutional investors. We regularly assess the relative value of our different direct investment asset classes against each other as well as against the risk-reward characteristics of global traded bonds. This approach ensures that our investment strategy supports bulk annuity pricing, delivers robust shareholder returns and, where desirable, preserves opportunities for future portfolio return enhancements by replacing traded bonds with direct investments.

Across the Legal & General Group, our businesses help to meet the societal needs arising from welfare reforms, harnessing the power of pensions to deliver Inclusive Capitalism. We invest in sectors where long term funding is needed, such as government infrastructure. Our ability to self-manufacture attractive, long-term assets to back annuities, such as build-to-rent or affordable housing, working with LGIM, LGC, or through LTMs, is a differentiating feature of LGR's business and remains a key competitive advantage.

Legal & General Investment Management

FINANCIAL HIGHLIGHTS¹ £m	H12020	H1 2019
Management fee revenue	458	425
Transactional revenue	9	9
Total revenue	467	434
Total costs	(270)	(240)
Asset management operating profit²	197	194
Workplace Saving operating result	(1)	(2)
Operating profit	196	192
Investment and other variances	(3)	(5)
Profit before tax	193	187
Net release from operations	162	157
Asset Management cost:income ratio² (%)	58%	55%

NET FLOWS AND ASSETS £bn
External net flows	6.2	60.3
Internal net flows	(0.6)	2.4
Total net flows	5.6	62.7
- Of which international³	(3.2)	44.6
Cash management flows	2.8	0.5
Persistency (%)	86	91
Average assets under management	1,218.4	1,075
Assets under management as at 30 June	1,240.6	1,135
Of which:
- International assets under management⁴	385	343
- UK DC assets under management	97	86

1. Please see disclosure 2.01 for further details. H1 2019 LGIM operating profit restated to include LGIM-related project expenditure formerly reflected in Group expenses.

2. Excludes revenue and costs from the Workplace Savings business.

3. International asset net flows are shown on the basis of client domicile.

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

Operating profit of £196m, revenue up 8% to £467m

LGIM has shown resilience amidst the significant market volatility associated with COVID-19. The business has continued to deliver positive external net flows in the first half of 2020 - £6.2bn (H1 2019: £60.3bn) - and has grown assets under management to £1,240.6bn (FY 2019: £1,196.2bn). Revenues were up 8% to £467m (H1 2019: £434m), supported by good growth in higher margin business. Management fees increased by 8% to £458m (H1 2019: £425m). This demonstrates the benefits of a diversified asset base and the strong structural demand for our products.

Operating profit increased by 2% to £196m (H1 2019: £192m), reflecting increased revenues from flows and asset values which were partially offset by LGIM's continued investment in its growth strategy. LGIM is automating and simplifying the business through investment in data analytics, providing a digital experience for customers and optimising investment platforms. The cost income ratio (58%[40]) reflects this continued investment in the business. As indicated at our FY 2019 results, £29m of annual LGIM-related project expenditure, previously reflected in Group expenses, has been allocated to the LGIM segmented results from 2020.

Falling interest rates have increased the value of fixed income assets, which account for over one third of LGIM's AUM. The low rates environment has also positively impacted flows from global DB pension. As a market leader, LGIM has deep relationships with plan trustees and has continued to support them in their de-risking goals during these uncertain times.

Workplace Savings assets increased by 1% to £41.5bn (FY 2019: £40.3bn) driven by continued client wins and increased contributions. We are focused on improving efficiency as the business grows. The H1 2020 operating result was £(1)m (H1 2019: £(2)m). This relates to the administration business only, as the profits on the fund management services provided are included in LGIM's asset management operating profit.

Strong flows into UK DB and DC

LGIM's UK Defined Benefit (DB) business has delivered robust external net flows of £2.5bn, with outflows of £6.9bn in DB Index more than offset by inflows of £7.2bn into DB LDI solutions. The long term nature of the strategic relationships developed with LGR and LGC continue to be a positive source of funds, particularly to our Real Assets business: we have supported our clients through to end game with 76% of PRT deals transacted by LGR in the last 6 months previously LGIM DB clients, whose pension assets we now look after on LGR's behalf.[41]

The Defined Contribution (DC) business continues to attract flows, with external net flows of £5.5bn. Total UK DC AUM is up 3% over the first six months of the year, with net inflows partly offset by declines in AUM linked to markets: H1 2020 £96.7bn (FY 2019 £94.3bn).

LGIM has experienced a 6% increase in customers on its Workplace pension platform in 2020, with the number of members now at 3.7m. LGIM also has one of the largest and fastest-growing UK Master Trusts, which recently reached £9.3bn in assets under management, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration.

International net flows broadly flat

LGIM experienced international outflows of £(3.2)bn (H1 2019: £44.6bn). We achieved £5.2bn of net flows in Asia reflecting the strong growth potential in the region. This was offset by outflows in the US as some pension plans have rebalanced their portfolios away from fixed income towards other asset classes based on pre-set asset allocation thresholds. International AUM of £385bn is up 4% from FY 2019 (£370bn). Notwithstanding short-term market volatility, we continue to focus on international growth, and to believe in our ability to grow international AUM and earnings over the medium-term.

Resilience in our retail business

The retail business delivered net flows of £1.2bn, notwithstanding significant market volatility. Retail AUM, including Personal Investing, remained broadly flat at £38.5bn (FY 2019: £38.9bn) as we continue to develop our product range and client-service proposition in the UK and broaden our distribution strategy in Europe. LGIM was ranked top 3 in gross UK retail sales in the first half of 2020.^{^[42]} The ETF business has further supported our European retail distribution plans with £0.2bn of net flows in H1. Currently 74% of our ETF offering has experienced net inflows in the first half of 2020 and we rank in the top 10 for pan-European mutual funds and ETF net flows.^{^[43]}

Leading in responsible investing

LGIM continues to build on its credentials as a responsible investor and remains committed to leading the asset management industry in addressing the environmental and social challenges arising from a rapidly changing world. As at 30^th June 2020, LGIM managed £174.4bn in responsible investment strategies explicitly linked to ESG criteria.

Embedded within our processes and decisions, LGIM provides clients:

o Stewardship with impact: LGIM's stewardship team engaged with 210 companies and voted on 48,517 resolutions in H1 2020. Additionally, over 2019 we engaged with about 30 regulators and policy-makers to improve market standards around the world.

o Active corporate engagement: LGIM continues to leverage its Global Research and Engagement Platform to engage with corporations. The Platform brings together the best sector expertise across its investment management business.

o Integration of ESG factors: To meet growing demand for responsible investment products, LGIM extended its industry-leading ESG fund range in H1 2020, while utilising its proprietary ESG scores across a broad range of strategies.

In a market where ESG is becoming increasingly topical especially in light of COVID-19, LGIM has real strength in the longevity and authenticity of our ESG and Investment Stewardship track record, setting us apart from newcomers to the field.

As such, LGIM is demonstrating continued leadership by taking, and pushing for, decisive action on era-defining issues, such as wage inequality and addressing climate change.

To address growing wage inequality we have opposed 35% of pay packages globally and we have pushed companies to adopt a Living Wage for their staff.

Our Climate Impact Pledge has seen us vote against Chairpersons across our Index portfolios and all our equity holdings for those companies we see as doing the least to mobilise on climate change. In 2019 we put sanctions on 11 companies which were laggards on the Pledge. Also, LGIM is developing the modelling technology required to assess climate risk in asset portfolios. LGIM aims to offer its clients (including internal clients, like LGR) end-to-end climate solutions, including measuring and managing carbon exposure, identifying underlying climate risks and seeking temperature alignment.

Breadth of investment management solutions

Asset movements¹ (£bn)	Index	Active Strategies	Multi Asset	Solutions	Real assets	Total AUM
At 1 January 2020	403.6	177.2	58.0	526.6	30.8	1,196.2
External inflows	27.7	9.5	4.3	10.9	0.6	53.0
External outflows	(32.3)	(9.0)	(2.7)	(22.7)	(0.4)	(67.1)
Overlay net flows	-	-	-	20.1	-	20.1
ETF net flows	0.2	-	-	-	-	0.2
External net flows	(4.4)	0.5	1.6	8.3	0.2	6.2
Internal net flows	-	(0.2)	(0.7)	(0.1)	0.4	(0.6)
Total net flows	(4.4)	0.3	0.9	8.2	0.6	5.6
Cash management movements	-	2.8	-	-	-	2.8
Market and other movements	(4.1)	9.2	(1.8)	32.0	0.7	36.0
At 30 June 2020	395.1	189.5	57.1	566.8	32.1	1,240.6

1. Please see disclosure 5.01 for further details.

Total AUM increased 4% to £1,240.6bn (FY 2019: £1,196.2bn), with external net flows of £6.2bn (FY 2019: £60.3bn) and rising asset values driving £44bn of AUM growth. Net flows were driven by strong demand for LDI Solutions, with positive net flows also in Multi-Asset and Real Assets, as well as an 86% persistency rate on our existing AUM.

Our LDI Solutions business continued to see robust external net flows of £8.3bn (H1 2019: £19.8bn) driven by strong demand from UK DB clients as they continue to de-risk, resulting in a shift from Index to LDI strategies. We are in the enviable position of being able to manufacture Solution products in both publicly and privately traded asset classes, and to be able to combine these together in integrated portfolios for UK DB clients. We are well positioned to capitalise on this continuing trend, and together with our Fiduciary business offering and close alignment to LGR's PRT business, we are able to offer tailored solutions to UK DB schemes at all stages of their funding journey.

Our global Index business saw net outflows of £4.4bn (H1 2019: £34.5bn).

LGIM Active Strategies (formerly Global Fixed Income and Active Equities) delivered external net flows of £0.5bn (H1 2019: £0.9bn). The result reflects ongoing demand for Active Fixed Income products from UK DB clients, offset by outflows in the US.

Multi-asset strategies are in high demand from DC schemes and retail customers. External net flows into multi-asset funds were £1.6bn (H1 2019: £5.1bn).

Our Real Assets business saw modest external net inflows of £0.2bn (H1 2019: £0.0bn), with AUM up modestly from FY 2019 to £32.1bn (FY 2019: £30.8bn). The future growth of external flows will be supported by our build-to-rent business, which has a pipeline of over 5,500 homes across the country, and our Private Credit business, which offers clients diversification of secure income and value protection solutions.

We anticipate that LGIM will continue to benefit from global trends in retirement saving and structural shifts in demand in the asset management industry, including ESG strategies.

Legal & General Capital

FINANCIAL HIGHLIGHTS £m	H1 2020	H1 2019
Operating profit	123	173
- Direct investment	36	99
- Traded investment portfolio	86	67
- Treasury assets	1	7
Investment and other variances	(307)	105
Profit before tax attributable to equity holders	(184)	278
Net release from operations	97	142

DIRECT INVESTMENT PORTFOLIO £m
Future Cities	895	905
Homes	1,636	1,313
SME Finance	502	420
	3,033	2,638
TRADED ASSET PORTFOLIO £m
Equities	1,987	1,717
Fixed income	238	161
Multi-asset	242	234
Cash¹	1,388	2,315
	3,855	4,427

LGC investment portfolio	6,888	7,065
Treasury assets at holding company	2,074	749
Total	8,962	7,814

1. Includes short term liquid holdings.

Total operating profit of £123m reflecting pause in home building due to lockdown

LGC operating profit decreased 29% to £123m (H1 2019: £173m), principally reflecting lower profits from our direct investment portfolio (H1 2020: £36m; H1 2019: £99m) as a result of a pause in traditional house-building activities during the UK lockdown. COVID-19 related impacts are estimated at £(60)m.[44] Operating profit from the traded and treasury portfolios increased to £87m (H1 2019: £74m), primarily driven by growth in the traded equity portfolio over 2019.

Profit before tax was £(184)m (H1 2019: £278m), reflecting negative investment variance from asset valuation markdowns, particularly in respect of our traded equity portfolio and our two retail assets (The Lexicon Bracknell and Thorpe Park in Leeds). As long-term investors, we expect much of the £(307)m investment variance to be unrealised.

The impact of the prevailing macro-environment, through the combination of a slowdown in build-to-sell housing and measured retail-related asset write-downs resulted in a direct investment net portfolio return of (5.9)% (H1 2019: 5.6%), which we expect to recover to 8% to 10% over the medium term.

Direct investment portfolio grew 5% over H1 to £3.0bn

LGC has taken a prudent approach to investment over the period, as we continue to deploy cash to support the growth of our existing businesses, including progressing our affordable housing and Later Living activities, as well as sourcing new opportunities that are underpinned by structural growth drivers. Our direct investment portfolio increased to £3,033m (FY 2019: £2,877m; H1 2019: £2,638m) as we added £0.5bn of diversified investments and commitments during H1. Despite the lockdown we have continued to see good progress across the portfolio, securing planning permissions across the UK, including for a Later Living facility on the site of our former head office in Kingswood and, separately, for a new c£18m modular housing scheme.

Our portfolio continues to be well diversified across our business models, with:

· 52% invested in wholly-owned Legal & General operating businesses, principally our investment in CALA;

· 31% in joint ventures or partnerships with other investors, such as the SciTech partnership with Bruntwood; and

· 17% in externally-managed funds, including our investments in Pemberton funds, where we are a significant shareholder.

Investing £895m in the future of UK cities

LGC's Future Cities business is addressing a shortage of investment and innovation in specialist commercial real estate, which includes urban regeneration, science and technology focussed real estate and data centres, and climate & energy investments, which include renewable infrastructure and clean technology. Through our Future Cities' portfolio, we are investing in the real economy, driving technological innovation and addressing climate change, in order to generate returns for shareholders, create attractive Matching Adjustment eligible assets for LGR and supply desirable alternative assets to LGIM clients.

During H1 2020 our LGC Future Cities portfolio remained broadly flat at £895m (H1 2019: £905m) as COVID-19 related valuation impacts (particularly affecting our two retail assets) were largely offset by continued investment in our existing projects over the period. Also, LGC committed to invest £150m in a mixed-use project in Sheffield's city centre, supporting the UK's post crisis growth prospects, jobs and housing needs.

LGC expanded its climate & energy portfolio over the period to include low-carbon heat, transport, and power generation. In April, we took a 36% stake in The Kensa Group, one of the UK's largest players in the ground source heat pump technology sector. We aim to maximise synergies with The Kensa Group by developing and deploying heat strategies across Legal & General's property portfolio, as well as exploring strategic opportunities with LGC's other climate & energy investments.

Through Bruntwood Scitech, our partnership with Bruntwood, we have developed world-class diagnostics infrastructure, such as the Lighthouse Lab at Alderley Park, which has put us at the forefront of the fight against COVID-19. Continuing to support our leadership in UK SciTech innovation districts, we have made further progress in Manchester by both completing the Citylabs 2.0 development and by securing planning permission for 'Base' and Citylabs 4.0, a development for health and medical technology businesses. We have also secured planning permission for Enterprise Wharf, an expansion of the Innovation Birmingham Campus.

Strengthening our UK Housing platform as assets increase to £1,636m

LGC has continued to expand its housing sector investments and capabilities, which are diversified across affordability, tenure and life-stage, meeting the UK's long term need for more homes across all demographics. Its traditional housing activities have been constrained by the early phases of lockdown, with pauses in construction and sales activities. All sites have now reopened and we have seen real innovation and collaboration in allowing this progress, prioritising health and safety through careful social distancing measures. Whilst the market is still returning to normal, we are starting to see more sustained consumer demand for housing of all types and tenures.

Our build-to-sell business, CALA, was the most operationally impacted of our residential property businesses by the lockdown. To counteract the material reduction in revenues, we carefully managed costs through the period, limiting the financial impact. We expect this business to benefit from the UK Government's recent reduction in Stamp Duty from July 2020 to March 2021. While our build-to-sell businesses are more cyclical, LGC's other residential property businesses, namely build-to-rent, affordable homes and Later Living, are more resilient to economic downturns.

Across the Group, the build-to-rent business creates a pipeline of attractive, high quality assets for LGR and LGIM clients, with a £2bn portfolio of over 5,500 homes in planning, development or operation, across seventeen schemes. Our build-to-rent portfolio has shown resilience to the economic slowdown with rent collection remaining robust at 98% during H1 2020. The desire and ability to work from home, if required, is a trend we expect to continue and are well positioned to cater for, with exceptional digital connectivity, and access to communal flexible home-working spaces, private-hire office spaces and options to reconfigure two-bed apartments to provide a home office.

LGC's affordable homes business is delivering a mix of social rent, affordable rent and shared ownership homes through its partnerships with housebuilders, developers and fourteen established housing associations and providers. Now in its second year of operation, the business is generating investment opportunities for LGR and has continued to make important steps forward in growing its development pipeline, acquiring sites and welcoming new residents to its schemes. In the wake of the COVID-19 crisis, LGC's affordable homes business remains robust, working in collaboration with Government and leveraging the countercyclical nature of affordable housing to ensure much needed homes continue to be developed in order to meet the UK's increasing demand.

Our Later Living platform aims to transform what the elderly can expect from later life by providing vibrant communities specifically built to activate retirement living - socially, physically, intellectually, and financially - with a key role to play in combatting loneliness and promoting good health. During the pandemic, our villages have played a vital role in providing a protective shield to our residents, with an infection rate significantly lower than that seen in over 70s across the UK. During lockdown, our ambitious pipeline was cemented with four planning approvals secured to add approximately 800 new homes. Together, these Later Living projects will help in the UK's recovery from lockdown, creating around 500 jobs per annum during construction and up to 250 operational jobs once the facilities are completed, giving a welcome boost to local economies at a time of heightened need.

SME Finance increased to £502m

We are continuing to support UK innovation and growth businesses, investing in the real economy through our alternative credit and venture capital investments, in order to enhance returns and create a portolio of assets which complement LGIM's client requirements over the longer term.

As part of this, we continue to support UK and European mid-market lending via fund investments with Pemberton, in which we own a 40% stake. As a responsible investor and signatory of the Principles for Responsible Investment, Pemberton is committed to financing sustainable companies and seeking to support its borrower clients in building long-term value through sustainable growth. Since the outbreak of COVID-19 Pemberton has taken proactive measures to assess and manage the impact on its portfolio companies. Assets have performed robustly through the period and committed Funds Under Management have increased to €7.4bn, with €4.5bn deployed (H1 2019: €5.5bn, with €3.5bn deployed).

We also invest in start-up businesses across the UK and Europe through fund investments with Venture Capital managers and direct stakes in innovation and growth companies strategically aligned with our business. We have increased our investments in our venture investing platform investing in two new funds with an additional £14m committed year to date; this brings our total Venture Capital commitments to £114m across sixteen individual funds. In addition, we have supported our investment in Accelerated Digital Ventures (ADV), with its own existing fund and portfolio of on-balance sheet investments. We will continue to remain disciplined in our investment decisions as we seek to deploy capital into the real economy at attractive returns.

Legal & General Insurance

FINANCIAL HIGHLIGHTS £m	H1 2020	H1 2019
Operating profit	88	134
- UK	57	93
- US (LGIA)	31	41
Investment and other variances¹	(483)	(134)
Profit before tax attributable to equity holders	(395)	0
Release from operations	163	171
New business surplus / (strain)	(1)	(1)
Net release from operations	162	170

Solvency II New Business Value	138	116

LGI new business annual premiums	192	178

UK Retail Protection gross premiums	680	658
UK Group Protection gross premiums	245	233
US Protection (LGIA) gross premiums	550	518
Total gross premiums	1,475	1,409

1. Investment variance is driven by a fall in UK government bond yields and US Treasury yields which has resulted in a reduction in the discount rate used to calculate the reserves for both our UK and US protection liabilities.

Operating profit of £88m due to COVID-19 mortality claims; new business value growth of 19%

LGI operating profit decreased 34% to £88m (H1 2019: £134m), reflecting increased claims experience due to COVID-19 (£(80)m), particularly impacting our US Protection and UK Group Protection businesses where we retain the majority of the mortality risk. Roughly half of the mortality impact relates to provisions for future COVID-19 claims. Honouring our promises and responding quickly and compassionately to our customers' needs is core to our values at Legal & General. At this difficult time, we are especially aware of the importance of our commitments to our customers; as such, we paid £939m of protection claims in the first six months of the year.

Solvency II New Business Value increase 19% to £138m (H1 2019: £116m) reflecting improved margins in all three parts of the protection business as a result of focused activity leading to business mix changes and cost savings. The protection business continues to generate Solvency II surplus immediately when written and provides diversification benefits to the Group, particularly LGR.

LGI UK operating profit fell by 39% to £57m (H1 2019: £93m) due to adverse mortality experience in Group Protection. The retail protection business was largely insulated from the impact of COVID-19 claims because of the high proportion of reinsurance. As we have mentioned previously, we continue our gradual reduction of the intra-group reinsurance of LGIA into the UK, which segmented profits away from the UK to the US. The UK Protection Solvency II new business value increased 26% to £86m (H1 2019: £68m).

LGIA operating profit decreased by $14m to $39m (H1 2019: $53m) due to adverse mortality experience from COVID-19, consistent with experience across the broader US life sector. The annual dividend paid by LGIA to the Group in March 2020, shown in the accounts within LGIA net release from operations, increased to $109m (H1 2019: $107m). Despite competition in the term market and the disruption brought about by COVID-19, US protection sales delivered an 8% increase in Solvency II new business value to $66m (H1 2019: $61m).

Profit before tax was predominantly impacted by the formulaic change in LGI's discount rates. LGI's negative investment variance of £483m was primarily driven by falls in UK and US government bond yields which have resulted in a reduction in the discount rate used to calculate the reserves. Our UK protection discount rate fell by 74 bps[45] and US 10 year Treasury yields fell by 126 bps[46].

Gross written premium up 5% led by strong new business growth of 8%

UK Retail Protection gross premium income increased 3% to £680m (H1 2019: £658m) with new business annual premiums of £83m (H1 2019: £91m), reflecting the interruption from COVID-19 for a number of our distribution partners, particularly those that depend on the mortgage market or in-person advice. We remain the leading provider of retail protection in the UK, delivering a point of sale decision for more than 80% of our customers. Our innovative approach helped us maintain sales volumes, for instance further enhancements to our Income Protection Benefit attracted new customers in H1. Combined, these factors added resilience to our sales during the turbulence following the emergence of COVID-19 and position us to be the beneficiaries as the retail protection market recovers.

UK Group Protection grew new business annual premiums by 48% to £65m (H1 2019: £44m) with gross written premiums increasing 5% to £245m (H1 2019: £233m). Having completed the turnaround of the Group Protection business, we are now gaining market share and growing new business premiums.

US Protection (LGIA) gross written premiums increased 3% (up 6% on a sterling basis) to $693m (H1 2019: $670m). New business annual premiums increased slightly to $56m (H1 2019: $55m) in spite of the COVID-19 challenges facing the market. Through the brokerage channel, LGIA is the largest provider of US term life assurance by number of policies, and second largest by new business APE.

Legal & General Mortgage Club facilitated £34bn of mortgages, down 6% (H1 2019: £36bn), as a consequence of lower residential housing sales during the UK lockdown. We are well placed for growth as the market recovers, being the largest participant in the UK intermediated mortgage market and involved in over one in five of all UK mortgage transactions. Our Surveying Services were also impacted, delivering only 185k surveys and valuations, compared to more than 250k surveys and valuations in H1 2019. Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a helpful component of our overall offering to customers.

Fintech: Using technological innovation to respond to the changing environment

LGI has continued to grow its expertise in the Fintech sector focusing on innovating in markets adjacent to our life insurance business by building customer-focused solutions and making targeted investments in start-up and scale-up opportunities.

In March, Salary Finance, our employee benefits platform business in which we own a 44% stake, completed the acquisition of Neyber's new business platform and contracts, thereby doubling its reach to nearly 3 million employees in the UK and US. The integration of the businesses is well underway, providing Salary Finance with a strong platform for future growth.

We are making buying and financing a home easier and quicker for our customers and advisors through our technology investments. For example, Legal & General Mortgage Club uses a digital user-friendly criteria search system to help 6,775 mortgage advisers select the best mortgage out of a universe of over 400,000 mortgage outcomes from over 80 lenders. Responding to the changing environment, Legal & General Surveying Services have continued to use technological innovation to make the process of buying a home easier. Newly developed digital valuation technology and leveraging our deep relationships with lenders have helped us gain market share, especially while physical inspections remain more challenging.

Disposed operations

Legal & General Group sold the General Insurance business to Allianz Holdings Plc in 2019.

The Group announced the sale of the Mature Savings business to ReAssure on 6 December 2017 for £650m. The proceeds were received by the Group at the start of January 2018. In H1 2020 we recognised £26m operating profit from the business, resulting from the unwind of the expected underlying profits. We expect to complete the associated Part VII transfer later this year, upon which it is anticipated that an IFRS gain of circa £325m will be generated, which is in addition to profits recognised in 2018, 2019 and H1 2020 (£151m total). The completion of the Part VII transfer is expected to be broadly neutral to the Group's Solvency II coverage ratio.

Borrowings

The Group's outstanding core borrowings totalled £4.7bn at 30 June 2020 (FY 2019: £4.1bn; H1 2019: £3.5bn). There is also a further £1.2bn (FY 2019: £1.0bn; H1 2019: £1.1bn) of operational borrowings including £1.0bn (FY 2019: £0.8bn; H1 2019: £0.7bn) of non-recourse borrowings.

In early May 2020 the Group issued £500m of Tier 2 subordinated debt with a coupon of 4.500% to capitalise on new business opportunities given favourable debt market conditions.

Group debt costs of £115m (H1 2019: £108m) reflect an average cost of debt of 5.0% per annum (H1 2019: 5.3% per annum) on an average nominal value of debt balances of £4.6bn (H1 2019: £4.1bn).

Restricted Tier 1 Notes

In late June 2020 the Group issued an inaugural £500m of Restricted Tier 1 Contingent Convertible notes with a coupon of 5.625% as we capitalised on favourable bond market conditions to provide a further measure of prudence as the longer-term economic impact of COVID-19 remains uncertain. This issuance further positions us strongly for the recovery phase from COVID-19.

The notes are treated as equity under IFRS and coupon payments are recognised directly in equity when paid.

Taxation

Equity holders' Effective Tax Rate (%)	H1 2020	H1 2019


Equity holders' total Effective Tax Rate[47]	4.2	17.9
Annualised rate of UK corporation tax	19.0	19.0

The effective tax rate reflects the impact of losses arising in the period and the different rates of taxation that apply to Legal & General's overseas operations. The tax rate on operating profits, excluding the impacts of losses through investment variance, was 16.8% (H1 2019: 17.8%).

Solvency II

As at 30 June 2020, the Group had an estimated Solvency II surplus of £7.3bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 173% on a shareholder basis.

Capital (£bn)	H1 2020¹	FY 2019¹
Own Funds	17.3	16.1
Solvency Capital Requirement (SCR)	(10.0)	(8.8)
Solvency II surplus	7.3	7.3
SCR coverage ratio (%)	173	184

1. Solvency II position on a shareholder basis is adjusted for the Own Funds and SCR of the With-profits fund and the Group final salary pension schemes, and is before the accrual of the relevant dividend.

Analysis of movement from 1 January 2020 to 30 June 2020¹ (£bn)					Solvency II surplus


Surplus arising from back-book (including release of SCR)					0.7
Release of Risk Margin					0.3
Amortisation of TMTP					(0.2)
Operational surplus generation - continuing operations					0.8
Operational surplus generation - discontinued operations					-
Operational surplus generation					0.8
New business strain					(0.1)
Net surplus generation					0.7
Operating variances					0.1
Mergers, acquisitions and disposals					(0.1)
Market movements					(0.9)
Subordinated debt					0.5
Tier 1 Convertible notes					0.5
Dividends paid					(0.8)
Total surplus movement (after dividends paid in the period)					-

Operational surplus generation from continuing operations increased to £0.8bn (H1 2019: £0.7bn), after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(0.1)bn, primarily reflecting UK PRT volumes written at a capital strain of circa 4%. This resulted in net surplus generation of £0.7bn (H1 2019: £0.5bn).

Dividends paid represent the payment of the 2019 final dividend in June 2020, which is typically circa 70% of the dividends paid during the year.

Operating variances include the impact of experience variances, changes to model calibrations, and management actions. The net impact of operating variances over the period was £0.1bn. Market movements of £(0.9)bn reflect the impact of lower rates on the valuation of our balance sheet, lower asset markets, predominantly in equities, and spread widening (including the effect of dispersion, i.e. credit spreads on lower rated assets widen more than spreads on higher rated assets, thereby increasing the modelled cost of trading those assets after projecting downgrades in a range of scenarios), as well as a number of other, smaller variances.

The movements shown above incorporate management's estimate of the impact of recalculating the TMTP as at 30 June 2020 as we believe this provides the most up to date and meaningful view of our Solvency II position. In line with UK regulatory requirements, a formal recalculation of the TMTP will take place no later than 31 December 2021.

When stated on a proforma basis, including the SCR attributable to our With-profits fund and the Group final salary pension schemes in both the Group's Own Funds and the SCR, the Group's coverage ratio was 169% (FY 2019: 179%; H1 2019: 166%).

Reconciliation of IFRS net release from operations to Solvency II net surplus generation¹

The table below gives a reconciliation of the Group's IFRS Release from operations and Solvency II Operational surplus generation in H1 2020:

	£bn
IFRS Release from operations	0.7
Expected release of IFRS prudential margins	(0.2)
Release of IFRS specific reserves	(0.1)
Solvency II investment margin	0.1
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	0.3
Solvency II Operational Surplus Generation	0.8

The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in H1 2020:

		£bn

IFRS New business surplus		0.1
Removal of requirement to set up prudential margins above best estimate on new business		0.2
Set up of Solvency II Capital Requirement on new business		(0.3)
Set up of Risk Margin on new business		(0.1)

Solvency II New business strain		(0.1)

1. Please see disclosure 6.01 (d) for further details.

Sensitivity analysis¹

	Impact on net of tax Solvency II capital surplus H1 2020 £bn	Impact on net of tax Solvency II coverage ratio H1 2020 %
Credit spreads widen by 100bps assuming an escalating addition to ratings	0.3	7
Credit spreads narrow by 100bps assuming an escalating addition to ratings	(0.3)	(8)
Credit spreads widen by 100bps assuming a flat addition to ratings	0.4	10
Credit spreads of sub-investment grade assets widen by 100bps assuming a flat addition to ratings	(0.3)	(5)
Credit migration	(1.5)	(15)
25% fall in equity markets	(0.5)	(4)
15% fall in property markets	(0.7)	(6)
100bps increase in risk free rates	0.7	15
50bps decrease in risk free rates	(0.4)	(8)

1. Please see disclosure 6.01 (f) for further details.

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

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

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

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 30 June 2020 are shown below¹:


	PVNBP	Contribution from new business	Margin %
LGR - UK annuity business (£m)	3,597	382	10.6
UK Protection Total (£m)	919	86	9.4
- Retail protection	636	61	9.6
- Group protection	283	25	8.8
US Protection (£m)	452	52	11.5

The key economic assumptions as at 30 June 2020 are as follows:

			%
Margin for risk			4.6
Risk free rate
- UK			0.4
- US			0.7

Risk discount rate (net of tax)
- UK			5.0
- US			5.3

Long term rate of return on non-profit annuities in LGR			2.4

1. Please see disclosure 6.02 for further details.

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

Other than updating for recent experience, all other economic and non-economic assumptions and methodologies that would have a material impact on the margin for these contracts are unchanged from those previously used by the group for its European Embedded Value reporting, other than the cost of currency hedging which has been updated to reflect current market conditions and hedging activity in light of Solvency II.

Principal risks and uncertainties

Legal & General runs a portfolio of risk taking businesses; we accept risk in the normal course of business and aim to deliver sustainable returns on risk based capital to our investors in excess of our cost of capital. We manage the portfolio of risk that we accept to build a sustainable franchise for the interests of all our stakeholders; we do not aim to eliminate that risk. We have an appetite for risks that we understand deeply and are rewarded for, and which are consistent with delivery of our strategic objectives. Risk management is embedded within the business. The Group's Principal Risks and Uncertainties summarise key matters that may impact the delivery of Group's strategy earnings or profitability.

Risks and uncertainties	Trend, outlook and mitigation
Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation The pricing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults, as well as the availability of assets with appropriate returns. Actual experience may require recalibration of these assumptions, impacting profitability. Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment, with adjustment necessitated where new data emerges. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.	We regularly appraise the assumptions underpinning the business that we write. We remain, however, inherently exposed to extreme events which could require us to adjust our reserves. For example, in our pensions risk transfer and annuities business, while trend data suggests the rate of longevity improvement may be slowing, a dramatic advance in medical science beyond that anticipated may lead to an unexpected change in life expectancy, requiring adjustment to reserves. In our protection businesses, the emergence of new diseases or reductions in immunology may also require a re-evaluation of reserves to the extent to which underlying liabilities are not reinsured. We are also exposed to lapse risks if our US term policies are not continued in line with our renewal assumptions. We are closely monitoring medical developments and alongside developing our wider understanding of longevity science, we continue to evolve and develop our underwriting capabilities for our protection business. To date mortality rates as a result of COVID-19 have been much lower than the 1-in-200 scenario in our pandemic modelling, and there has been a material offsetting effect in our annuities portfolio; however there remains considerable uncertainty to the occurrence of future waves of the virus and future rates of mortality, as well as the wider health impacts from the deferral of non COVID-19 related medical treatments.
Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and those to meet the obligations from insurance business, with the movement in certain investments directly impacting profitability. Interest rate movements and inflation can also change the value of our obligations. We use a range of techniques to manage mismatches between assets and liabilities. However, loss can still arise from adverse markets. Interest rate expectations leading to falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet than the underlying economic position would dictate, potentially impacting capital requirements and surplus capital. In addition, significant falls in investment values can reduce fee income to our investment management business.	Following the world-wide COVID-19 related "lock downs", the outlook for the global economy is highly uncertain; with the potential for any future waves of the virus reversing any nascent signs of recovery. Financial markets, whilst recovering some of their losses arising at the outset of the global pandemic are also still highly susceptible to shocks and a further re-appraisal of asset valueswith valuation uncertainty also likely to impact commercial property markets for the foreseeable future. As well as COVID-19 related risk factors, geo political events such as a dis-orderly UK withdrawal from EU transition period and deteriorating trade and political relations with China have potential to impact market perceptions and asset pricing. Interest rates also look set to continue for an extended period of ultra-low or negative levels. We cannot eliminate the downside impacts from these or other risk factors on our earnings, profitability or surplus capital; however, we continue to seek to model our business plans across plausible economic scenarios to ensure resilience across a range of outcomes. Our Own Risk and Solvency Assessment (ORSA) plays an integral part in this process ensuring a clear link between capital sufficiency and the nature of risks to which we may be exposed, and confirming that exposures are within our risk appetite.
In dealing with issuers of debt and other types of counterparty the group is exposed to the risk of financial loss Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. A default by a counterparty could expose us to both financial loss and operational disruption of business processes. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.	The significant contraction in global activity has already seen a widening of credit spreads and rating downgrades particularly in sectors directly impacted by the global "lock down", and we are closely monitoring the potential for default and downgrades among the counterparties with which we deal. Our approach of actively managing our exposure to default and downgrade risks within our bond portfolios, includes the setting of selection criteria and exposure limits, and using the capabilities of LGIM's global credit team to ensure the risks are effectively controlled, and if appropriate traded out to improve credit quality. Within our property lending businesses, our loan criteria take account of both the default risk of the borrower and the potential for adverse movements in the value of secured property. We cannot, however, eliminate default and downgrade riskswithin our bond portfolios and property lending businesses, or among the reinsurers with which we deal, and the impacts to profitability and the Solvency II balance sheet.
Changes in regulation or legislation may have a detrimental effect on our strategy Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products; and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.	Regulatory driven change remains a significant factor across our businesses. The UK prudential regulator continues to refine Solvency II rules and its approach to regulation for areas such as the treatment of lifetime mortgages and other illiquid assets, and the matching adjustment for long-term business, and it remains too early to assess how the prudential regulatory regime may evolve once the UK leaves the EU transition period. Conduct regulation continues to focus on consumer protection, market integrity and the promotion of competition, and we are preparing for the FCA's transition in 2021 from LIBOR to SONIA. Alongside regulatory risk, we are also monitoring potential for changes in UK fiscal policy and broader economic policy. Our internal control framework seeks to ensure on-going compliance with relevant legislation and regulation. We cannot, however, completely eliminate the risks that controls may fail or that historic accepted practices may be reappraised by regulators, resulting in sanction against the group.
New entrants, or legislative change, may disrupt the markets in which we operate There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. In particular, as has been seen in other business sectors, it is possible that alternative digitally enabled providers of financial services products emerge with lower cost business models or innovative service propositions and capital structures disrupt the current competitive landscape. Changes in regulation or legislation can also influence the competitive landscape.	We continue to monitor the factors that may impact the markets in which we operate and are maintaining our focus on developing our digital platforms, recognising that the current operating environment is likely to have further hastened the transition by customers to digital business models. We also continue to assess the opportunities presented from evolving governmental initiatives, developing industry practices and competitor activity, including proposed legislative frameworks for defined benefit 'superfund' consolidation schemes, pension dashboards and "collective" pension scheme arrangements.
A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions, personal injury or reputational damage. We are inherently exposed to the risk that third parties may seek to disrupt our online business operations, steal customer data or perpetrate acts of fraud using digital media, and there is strong stakeholder expectation that our core business services are resilient to operational disruption.	Although the COVID-19 lock down has had some impact on our business operations, we continue to service our customers and pay annuities and claims as they arise. . We remain, however, alert to the operational risks in the current environment including the increased risk of cyber threats and the potential for a period of future disruption should a second virus wave occur. We continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient, and that appropriate recovery plans are in place. We also seek to closely manage our property construction and safety risks through robust internal control systems, including training, monitoring and independent assessments. We recognise, however, that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.
We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks, particularly should abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions.	The urgent global response to COVID-19 has illustrated the potential scale of shock that could arise from delays in responding to climate risk with sudden late policy action leading to potentially large and unanticipated shifts in asset valuations for impacted industries and sectors. We recognise that our scale brings a responsibility to act decisively in positioning our balance sheet to the threats from climate change and, as one of the largest global institutional investors, also encouraging others to follow suit. We continue to embed the assessment of climate risks in our investment process and are developing our risk metrics and framework for oversight and taking opportunities. We measure the carbon intensity of our investment portfolios, and along with specific investment exclusions for thermal coal we have set reduction targets aligned with a 1.5 degree Celsius interpretation of the 'Paris' commitment. Alongside additional controls over the acquisition of high carbon investments, we actively invest in energy efficient property, renewables and new science to support de-carbonisation, and have committed within our house building business to deliver low carbon, energy efficient homes, operationally net zero from 2030.

Risks and uncertainties

Trend, outlook and mitigation

Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation

The pricing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults, as well as the availability of assets with appropriate returns. Actual experience may require recalibration of these assumptions, impacting profitability. Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment, with adjustment necessitated where new data emerges. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.

We regularly appraise the assumptions underpinning the business that we write. We remain, however, inherently exposed to extreme events which could require us to adjust our reserves. For example, in our pensions risk transfer and annuities business, while trend data suggests the rate of longevity improvement may be slowing, a dramatic advance in medical science beyond that anticipated may lead to an unexpected change in life expectancy, requiring adjustment to reserves. In our protection businesses, the emergence of new diseases or reductions in immunology may also require a re-evaluation of reserves to the extent to which underlying liabilities are not reinsured. We are also exposed to lapse risks if our US term policies are not continued in line with our renewal assumptions. We are closely monitoring medical developments and alongside developing our wider understanding of longevity science, we continue to evolve and develop our underwriting capabilities for our protection business. To date mortality rates as a result of COVID-19 have been much lower than the 1-in-200 scenario in our pandemic modelling, and there has been a material offsetting effect in our annuities portfolio; however there remains considerable uncertainty to the occurrence of future waves of the virus and future rates of mortality, as well as the wider health impacts from the deferral of non COVID-19 related medical treatments.

Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital

The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and those to meet the obligations from insurance business, with the movement in certain investments directly impacting profitability. Interest rate movements and inflation can also change the value of our obligations. We use a range of techniques to manage mismatches between assets and liabilities. However, loss can still arise from adverse markets. Interest rate expectations leading to falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet than the underlying economic position would dictate, potentially impacting capital requirements and surplus capital. In addition, significant falls in investment values can reduce fee income to our investment management business.

Following the world-wide COVID-19 related "lock downs", the outlook for the global economy is highly uncertain; with the potential for any future waves of the virus reversing any nascent signs of recovery. Financial markets, whilst recovering some of their losses arising at the outset of the global pandemic are also still highly susceptible to shocks and a further re-appraisal of asset valueswith valuation uncertainty also likely to impact commercial property markets for the foreseeable future. As well as COVID-19 related risk factors, geo political events such as a dis-orderly UK withdrawal from EU transition period and deteriorating trade and political relations with China have potential to impact market perceptions and asset pricing. Interest rates also look set to continue for an extended period of ultra-low or negative levels. We cannot eliminate the downside impacts from these or other risk factors on our earnings, profitability or surplus capital; however, we continue to seek to model our business plans across plausible economic scenarios to ensure resilience across a range of outcomes. Our Own Risk and Solvency Assessment (ORSA) plays an integral part in this process ensuring a clear link between capital sufficiency and the nature of risks to which we may be exposed, and confirming that exposures are within our risk appetite.

In dealing with issuers of debt and other types of counterparty the group is exposed to the risk of financial loss

Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. A default by a counterparty could expose us to both financial loss and operational disruption of business processes. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.

The significant contraction in global activity has already seen a widening of credit spreads and rating downgrades particularly in sectors directly impacted by the global "lock down", and we are closely monitoring the potential for default and downgrades among the counterparties with which we deal. Our approach of actively managing our exposure to default and downgrade risks within our bond portfolios, includes the setting of selection criteria and exposure limits, and using the capabilities of LGIM's global credit team to ensure the risks are effectively controlled, and if appropriate traded out to improve credit quality. Within our property lending businesses, our loan criteria take account of both the default risk of the borrower and the potential for adverse movements in the value of secured property. We cannot, however, eliminate default and downgrade riskswithin our bond portfolios and property lending businesses, or among the reinsurers with which we deal, and the impacts to profitability and the Solvency II balance sheet.

Changes in regulation or legislation may have a detrimental effect on our strategy

Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products; and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.

Regulatory driven change remains a significant factor across our businesses. The UK prudential regulator continues to refine Solvency II rules and its approach to regulation for areas such as the treatment of lifetime mortgages and other illiquid assets, and the matching adjustment for long-term business, and it remains too early to assess how the prudential regulatory regime may evolve once the UK leaves the EU transition period. Conduct regulation continues to focus on consumer protection, market integrity and the promotion of competition, and we are preparing for the FCA's transition in 2021 from LIBOR to SONIA. Alongside regulatory risk, we are also monitoring potential for changes in UK fiscal policy and broader economic policy. Our internal control framework seeks to ensure on-going compliance with relevant legislation and regulation. We cannot, however, completely eliminate the risks that controls may fail or that historic accepted practices may be reappraised by regulators, resulting in sanction against the group.

New entrants, or legislative change, may disrupt the markets in which we operate

There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. In particular, as has been seen in other business sectors, it is possible that alternative digitally enabled providers of financial services products emerge with lower cost business models or innovative service propositions and capital structures disrupt the current competitive landscape. Changes in regulation or legislation can also influence the competitive landscape.

We continue to monitor the factors that may impact the markets in which we operate and are maintaining our focus on developing our digital platforms, recognising that the current operating environment is likely to have further hastened the transition by customers to digital business models. We also continue to assess the opportunities presented from evolving governmental initiatives, developing industry practices and competitor activity, including proposed legislative frameworks for defined benefit 'superfund' consolidation schemes, pension dashboards and "collective" pension scheme arrangements.

A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage

We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions, personal injury or reputational damage. We are inherently exposed to the risk that third parties may seek to disrupt our online business operations, steal customer data or perpetrate acts of fraud using digital media, and there is strong stakeholder expectation that our core business services are resilient to operational disruption.

Although the COVID-19 lock down has had some impact on our business operations, we continue to service our customers and pay annuities and claims as they arise. . We remain, however, alert to the operational risks in the current environment including the increased risk of cyber threats and the potential for a period of future disruption should a second virus wave occur. We continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient, and that appropriate recovery plans are in place. We also seek to closely manage our property construction and safety risks through robust internal control systems, including training, monitoring and independent assessments. We recognise, however, that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.

We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses

As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks, particularly should abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions.

The urgent global response to COVID-19 has illustrated the potential scale of shock that could arise from delays in responding to climate risk with sudden late policy action leading to potentially large and unanticipated shifts in asset valuations for impacted industries and sectors. We recognise that our scale brings a responsibility to act decisively in positioning our balance sheet to the threats from climate change and, as one of the largest global institutional investors, also encouraging others to follow suit. We continue to embed the assessment of climate risks in our investment process and are developing our risk metrics and framework for oversight and taking opportunities. We measure the carbon intensity of our investment portfolios, and along with specific investment exclusions for thermal coal we have set reduction targets aligned with a 1.5 degree Celsius interpretation of the 'Paris' commitment. Alongside additional controls over the acquisition of high carbon investments, we actively invest in energy efficient property, renewables and new science to support de-carbonisation, and have committed within our house building business to deliver low carbon, energy efficient homes, operationally net zero from 2030.

Notes

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

A virtual presentation to analysts and fund managers will be available from 8:00am UK time today at www.legalandgeneralgroup.com/investors/interim-results-2020.

A teleconference for analyst questions will take place at 9:00am UK time today. Details of the teleconference below:

Participant dial-in numbers
Location where you are dialling in from	Number you should dial
United Kingdom	+44 20 3936 2999
United States (toll free)	+1 855 9796 654
All other locations	www.legalandgeneralgroup.com/investors/teleconference-details/

Please enter access code 598626 to gain access to the conference.

To ask a question press *1; to remove a question press *2.

Financial Calendar	Date


2020 interim results announcement	5 August 2020
Record date	14 August 2020
Last day for DRIP elections	3 September 2020
Payment date of 2020 interim dividend	24 September 2020
Capital markets event	12 November 2020
2020 preliminary results announcement	10 March 2021

Definitions

Definitions are included in the Glossary on pages 93 to 97 of this release.

Forward looking statements

This announcement may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make.

Going concern statement

The Group's business activities, together with the factors likely to affect its future development, performance and position in the current economic climate are set out in this Interim Management Report. The financial position of the Group, its cash flows, capital and liquidity position and borrowing facilities are described in the Group Results. Principal risks and uncertainties are detailed on pages 24 to 25.

The Directors have made an assessment of the Group's going concern, considering both the current performance and the Group's outlook, which takes account of the current and future impact of the COVID-19 pandemic, using the information available up to the date of issue of this Interim Management Report.

The Group manages and monitors its capital and liquidity under various stresses and adverse scenarios to understand the expected impact of market downturns, and the impact of a number of such capital stresses is disclosed in table 6.01(f). Our liquidity risk appetite requires sufficient sources of liquidity to be maintained to withstand liquidity shocks defined by a 1 in 200 scenario, and as a result of COVID-19 we have actively tested this through a series of simulations based upon an extreme but possible adverse scenario lasting twelve months. In addition, the Group has tested the resilience of the balance sheet under a range of adverse scenarios which may arise as a result of the economic consequences of COVID-19. These scenarios of increasing severity ranged from short term market disruption to a persistence of the crisis into late 2021 and beyond with no successful vaccine development. These stresses, including the additional COVID-19 scenarios, and taking account of the wide range of management actions that are available, do not give rise to any material uncertainties over the ability of the Group to continue as a going concern. Based upon the available information, the directors consider that the Group has the plans and resources to manage its business risks successfully as it has a diverse range of businesses and remains financially strong despite the current increased uncertainty. Furthermore, in June 2020, the Group completed the issuance of £500m of Restricted Tier 1 debt as an additional measure of prudence and to deliver further balance sheet strengthening, both to protect against longer-term economic uncertainty but also to enable the Group to take advantage of opportunities as they arise.

Having reassessed the principal risks and uncertainties (both financial and operational) in light of COVID-19 and the current economic climate, as detailed on pages 24 to 25, the directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

Directors' responsibility statement

We confirm to the best of our knowledge that:

i. The consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

ii. The interim management report includes a fair review of the information required by DTR 4.2.7, namely an indication of important events that have occurred during the first six months of the financial year and their impact on the consolidated interim financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year;

iii. The interim management report includes, as required by DTR 4.2.8, a fair review of material related party transactions that have taken place in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report and Accounts; and

iv. The directors of Legal & General Group Plc are listed in the Legal & General Group Plc Annual Report and Accounts for 31 December 2019. A list of current directors is maintained on the Legal & General Group Plc website: www.legalandgeneralgroup.com/about-us/our-management/group-board/.

By order of the Board

Nigel Wilson Stuart Jeffrey Davies

Group Chief Executive Group Chief Financial Officer

4 August 2020 4 August 2020

Enquiries

Investors

+44 7585 905 799
Edward Houghton, Head of Investor Relations

investor.relations@group.landg.com
legalandgeneralgroup.com

+1 312 964 3034

Sujee Rajah, Investor Relations Director

investor.relations@group.landg.com

legalandgeneralgroup.com

+44 203 1242 047
Alyssa Manning, Investor Relations Director

investor.relations@group.landg.com
legalandgeneralgroup.com

Media


+44 203 1242 090
John Godfrey, Group Corporate Affairs Director

legalandgeneralgroup.com

+44 207 3534 200

Graeme Wilson, Tulchan Communications

+44 207 3534 200

Sheebani Chothani, Tulchan Communications

End Notes

¹The Alternative Performance Measures within the Group's financial highlights are defined in the glossary, on pages 93 to 97 of this report.

² Excludes Mature Savings and General Insurance.

³ Specific COVID-19 impacts of LGR (+£32m); LGC (-£60m); LGI (-£80m); and Group Costs (-£21m). Excluding these, operating profit was up 7%. Please see page 4 for more information.

⁴ Profit after tax attributable to equity holders.

⁵ Solvency II coverage ratio on a shareholder basis, which is adjusted for the Own Funds and SCR of the With-profits fund and the Group final salary pension plans.

⁶ H1 2019 LGIM operating profit restated to include LGIM-related project expenditure (£13m) formerly reflected in Group expenses.

⁷ Excludes Mature Savings and General Insurance.

⁸ Mature Savings sale to ReAssure for £650m was announced on 6 December 2017 and the 2018 and 2019 results reflect the Reinsurance Transfer Agreement.

⁹ General Insurance sale to Allianz completed on 31 December 2019.

¹⁰ COVID-19 costs reflect incremental operational expenses incurred as a result of COVID-19 and include the provision of IT spend on remote working solutions. Please see page 4 for more information.

¹¹ LGI investment variance is the formulaic impact of falling interest rates reducing the discount rate used to calculate LGI reserves.

¹² Profit before tax attributable to equity holders is an alternative performance measure, and represents Adjusted profit before tax attributable to equity holders as defined on page 93.

[13] Excludes Mature Savings and General Insurance.

[14] HM Revenue & Customs, "UK Property Transactions Statistics", 21 July 2020.

[15] Profit before tax attributable to equity holders is an alternative performance measure, and represents Adjusted profit before tax attributable to equity holders as defined on page 93.

[16] 10 year UK swaps rate fell 65bps between 31 December 2019 and 30 June 2020.

[17] Solvency II coverage ratio on a "shareholder view". Incorporates management's estimate of the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2020.

[18] Solvency II coverage ratio on a proforma basis includes the SCR attributable to our With-profits fund and the Group final salary pension plans in both the Group's Own Funds and the SCR. Incorporates management's estimate of the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2020.

[19] Calculated using annualised profit for the year and average equity attributable to the owners of the parent of £9,140m.

[20] We have realised less than £300m of downgrades to sub-investment grade within our actively managed traded credit portfolio; this is less than 40% of the downgrades to sub-investment grade implied by market experience.

[21] WTW, The world's largest 500 asset managers.

[22] Three year average measured by UK PRT deal count. Three year average measured by UK PRT new business volumes from LGIM clients is 66%.

[23] For more information please refer to www.legalandgeneralgroup.com/csr/

[24] Proprietary assets relate to Investments to which shareholders are directly exposed (excluding client, policyholder and non-unit linked with-profits assets), as disclosed in Note 7.01.

[25] State Street R-Factor Research, January 2020.

[26] 2011 Underlying EPS: 12.42p; 2015 Underlying EPS: 18.16p; 2019 Underlying EPS: 28.66p.

[27] Source: Pension Purple Book 2020, PPF; LIMRA, March 2019; https://www.ipe.com/countries/ireland/irish-pension-liabilities-hit-167-of-gdp/10024291.article; "The Coming

Pensions Crisis", Citi Research.

[28] Source: Pension Purple Book 2020, PPF; Hymans Robertson, 2019 Risk Transfer Report.

[29] Lane Clark Peacock, "Pensions de-risking report: Buy-ins, buy-outs and longevity swaps", 1 July 2020.

[30] LIMRA, March 2020.

[31] Professional Pensions, "L&G announces bulk annuities with UK and US schemes", 13 May 2020.

[32] Retirement income market data 2018/19, FCA, 2019, based on 2019 data.

[33] ABI Q1 2020 Report; Q1 2019: 18.3%.

[34] Broadridge, UK Defined Contribution and Retirement Income report 2019. 2019 UK DC Assets: £438bn.

[35] Lane Clark Peacock, "Pensions de-risking report: Buy-ins, buy-outs and longevity swaps", 1 July 2020

[36] ABI Q1 2020 Report; Q1 2016: 6.5%; Q3 2019: 17.2%; Q1 2020: 20.9%

[37] LGR's total annuity asset portfolio excludes Derivative assets (£22.1bn) and Loans and other receivables (£2.9bn). See note 7.01.

[38] 0.6% of our actively managed traded credit portfolio has downgraded to sub-investment grade; this is less than 40% of the downgrades to sub-investment grade implied by market experience.

[39] Includes LGR direct investment bonds (£19,444m), direct investment property (£4,016m), direct investments equity (£16m), and other assets (£89m). Please see note 7.02b for more information.

[40] H1 2019 cost income ratio, restated to include LGIM-related project expenditure (£13m) formerly reflected in Group expenses: 55%.

[41] See also page 6.

[42] Pridham Report, 2020.

[43] Broadridge Pan-European mutual fund and ETF flows Q1 2020.

[44] Excluding this, LGC operating profit was up 6%. Please see page 4 for more information.

[45] UK protection discount rate from 1.48% on 31 December 2019 to 0.74% on 30 June 2020.

[46] US 10 year treasury rate reduced from 1.92% on 31 December 2019 to 0.66% on 30 June 2020.

[47] The equity holders' total Effective Tax Rate excluding discontinued operations is 2.7% (H1 2019: 17.8%).

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

END

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