L&G Half Year Results 2021 Part 1

RNS Number : 4753H

Legal & General Group Plc

04 August 2021

H1 2021 Results: Strong financial performance -
14% growth in operating profit and 22% ROE

Strong financial performance[1], now well above pre-COVID 2019 levels

· Operating profit of £1,079m, up 14% (H1 2020: £946m), with double-digit growth or higher in LGC, LGI and LGRR

· Earnings per share of 17.78p, up 21% on H1 2019 (14.74p) and up significantly on H1 2020 ( 4.89p)

· Profit after tax[2] of £1,065m (H1 2020: £290m) and R eturn on equity of 22.0% (H1 2020: 6.3%)

· Solvency II coverage ratio[3] of 183% (H1 2020: 173%)

· Interim dividend of 5.18p, up 5% (H1 2020: 4.93p), consistent with our stated ambition

Growing contribution to our five-year (2020-2024) ambitions[4]

· Cash generation of £0.9bn, up 14% year on year. Capital generation of £0.8bn, up 9% year on year

· Cumulative cash and capital generation of £2.4bn and £2.3bn respectively , against our ambition of £8.0-9.0bn by 2024

· Cumulative dividends declared £1.4bn (H1 2021: £309m, 2020: £1,048m) against our ambition of £5.6-5.9bn by 2024

Good PRT new business volumes and strong net flows

· Global PRT new business premiums of £3.1bn (H1 2020: £3.4bn) with £2bn already won/in exclusive negotiations for H2

· LGIM external net flows of £27.4bn (H1 2020: £6.2bn), with AUM up 7% to £1.3tn

· Individual annuity premiums up 15% and LGI new business annual premiums up 6%

Unique and growing alternative asset origination capabilities

· Legal & General Capital (LGC) operating profit doubled to £250m (H1 2020: £123m)

· ESG-aligned asset origination expertise in clean energy, residential property, digital infrastructure and SME finance

· Third party capital AUM of £6.8bn against our ambition of £14bn by 2025

Long-term, growth-oriented and highly synergistic business model

· An established track record: HY11 to HY21 CAGR of 11% in EPS, 12% in DPS and 7% in book value per share

· Highly synergistic: five focused divisions that create a virtuous circle of internal demand and supply, supporting c20% ROE

· Long-term and predictable value creation : 40+ year duration business with earnings driven by a growing stock of assets

· Attractive global growth markets: retirement solutions ($53tn), asset management ($136tn), climate change ($20tn) [5]

· A longstanding commitment to Inclusive Capitalism and a leader in ESG : rated #1 Life & Health insurer by ShareAction

"Thanks to the hard work and dedication of my colleagues across Legal & General, we have delivered a strong set of financial results, with EPS up 21% since H1 2019. And we expect to deliver double digit growth in operating profit at the full year.

We're continuing to make investments that are economically, environmentally and socially valuable, in line with our long-term commitment to delivering Inclusive Capitalism and supporting the Building Back Better and Levelling Up agenda.

We are already a leading asset manager and we remain focused on continuing to scale-up our asset origination capabilities which are a unique and important component of our synergistic business model which has driven our 22% ROE."

Nigel Wilson, Group Chief Executive

Financial summary

£m	H1 2021	H1 2020	Growth %

Analysis of operating profit
Legal & General Retirement (LGR)[6]	683	720	(5)
- LGR - Institutional (LGRI)	525	585	(10)
- LGR - Retail (LGRR) ⁶	158	135	17
Legal & General Investment Management (LGIM) ⁶	204	197	4
Legal & General Capital (LGC)	250	123	103
Legal & General Insurance (LGI)	134	88	52
Operating profit from continuing divisions ⁶ ^,[7]	1,271	1,128	13

Mature Savings[8]	nil	26	n/a

Operating profit from divisions	1,271	1,154	10
Group debt costs	(120)	(115)	(4)
Group investment projects and expenses	(72)	(72)	-
Exceptional COVID-19 related expenses[9]	nil	(21)	n/a

Operating profit[10]	1,079	946	14
Investment and other variances (incl. minority interests), excluding LGI	11	(178)	n/a
LGI investment variance[11]	230	(483)	n/a


Profit before tax attributable to equity holders[12]	1,320	285	363
Profit after tax attributable to equity holders	1,065	290	267

Earnings per share (p)	17.78	4.89	264

Book value per share (p)	164	148	11
Interim dividend per share (p)	5.18	4.93	5

Net release from continuing operations ⁷	854	730	17
Net release from discontinued operations	nil	21	n/a

H1 2021 Financial performance

Income statement

Legal & General has made a strong start to the year, with H1 2021 operating profit up 14% to £1,079m (H1 2020: £946m). The strength of our diversified business model meant we were able to weather the volatility of 2020 and were well positioned to deliver profitable growth again in the first half of 2021. LGC, LGI and LGRR delivered at least double-digit growth, with strong contributions from LGRI and LGIM. All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth.

LGRI delivered operating profit of £525m (H1 2020: £585m), underpinned by the performance of our growing annuity portfolio. In what was a somewhat quieter first half for the PRT market, we executed well, writing £3,072m[13] of global PRT at attractive Solvency II new business margins of 8.4%.[14]

LGRR operating profit increased 17% to £158m (H1 2020: £135m), supported by the ongoing release from the retail annuity portfolio. Individual annuities delivered 15% growth in new business against H1 2020, and retirement lending volumes 14% growth, as these markets started to recover following the impact of the COVID pandemic last year.

LGIM delivered operating profit growth of 4% to £204m (H1 2020: £197m), reflecting increased revenues from strong external net flows of £27.4bn (H1 2020: £6.2bn), and an increased focus on higher margin areas such as thematic ETFs and multi-asset. Assets under management increased by 7% to £1,326.8bn (H1 2020: £1,240.6bn), of which 33% is International AUM. The cost income ratio (58%) reflects our continued investment in the business, balanced with careful cost control (H1 2020: 58%).

LGC operating profit doubled to £250m (H1 2020: £123m) and is up 45% on pre-COVID levels (H1 2019: £173m). This growth is driven by strong performance in our alternative asset portfolio, where operating profit increased to £195m (H1 2020: £36m) predominantly as a result of a bounce-back in the housebuilding market. The portfolio has also seen valuation increases over H1 2021, notably in the Venture Capital portfolio and Pod Point (electric vehicle charging) in recognition of strong performance and increasing revenues.

LGI operating profit increased 52% to £134m (H1 2020: £ 88m), reflecting strong new business growth in UK retail protection, and the fact that adverse COVID-19 related claims during the period were provided for in the 2020 results. We previously provisioned for £110m of future COVID-19 related claims, c£30m of which remains unutilised as at the end of June, highlighting the significant impact of the second wave in both the UK and US over Q1 2021.

Profit before tax attributable to equity holders[15] was £1,320m (H1 2020: £285m), reflecting positive investment variance of £241m (H1 2020: £(661)m). The key drivers of this positive investment variance are from the formulaic impact of rising interest rates on LGI reserves, which has a £230m impact (compared to a £(483)m impact in H1 2020), and strong portfolio performance in both LGR and LGC.

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation from continuing operations was up 9% at £0.8bn (H1 2020: £0.8bn). New business strain was £(0.2)bn (H1 2020: £(0.1)bn) reflecting UK annuity new business written at a capital strain broadly in line with that of 2019, resulting in net surplus generation of £0.6bn (H1 2020: £0.7bn).

The Group reported a Solvency II coverage ratio[16] of 183% at the end of H1 2021 (FY 2020: 177%; H1 2020: 173%), principally reflecting the non-economic impact of higher interest rates on the valuation of our balance sheet[17], partially offset by payment of the 2020 final dividend and the provisioned redemption of £0.3bn of subordinated debt.

On a proforma calculation basis[18], our Solvency II coverage ratio was 182% at the end of June (FY 2020: 175%; H1 2020: 169%).

Our IFRS return on equity of 22.0% reflects the impact of operating profit growth and unrealised positive investment variances (H1 2020: 6.3%).[19]

Our diversified balance sheet, and actively-managed asset portfolio, has continued to perform resiliently with no defaults. The annuity portfolio's direct investments continue to perform strongly, with 99.7% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

COVID-19

Whilst we remain confident in our collective and successful emergence from the pandemic, COVID-19 is continuing to have a significant impact on our customers and our people, and on society at large. The Group has continued to support all our stakeholders, without relying on direct Government funding. Our priorities remain to look after our customers, to safeguard the wellbeing of our people and to support the development of the wider community through Inclusive Capitalism and by investing in the real economy.

Our purpose is to provide financial stability to our customers and their dependants in good times and in bad: it is "what we do". During H1 2021 we paid £1bn in gross protection claims and continued to provide financial stability through regular payments to over 1 million pensioners.

We continue to support our employees' mental and physical wellbeing through a range of resources including trained Mental Health First Aiders, a confidential employee assistance helpline, access to "Unmind" (a workplace mental health platform) and a dedicated COVID-19 intranet hub.

To support the communities around us, we have, amongst other initiatives, funded the expansion of the Samaritan's existing training programmes, as the charity looks at new volunteering models to improve their ability to assist those struggling to cope with mental health issues. We continue to support the elderly in isolation through our befriending scheme with Independent Age, the Royal Voluntary Service and Carers First. We have also worked closely with Let's Localise, which has seen hundreds of our recycled laptops donated to schools in need.

Legal & General experienced £79m of COVID-19-related claims in LGI in H1 2021, which were absorbed by the £110m provision raised at FY 2020. Our reinsurance strategy, which reinsures virtually all LGI's UK retail protection business, has substantially reduced the impact on LGI of higher claims, although we retain the majority of our exposure in the US and in UK group protection. During H1, LGR recognised a £49m reserve release in light of 2021 COVID-19 mortality experience.

Group Strategy

Legal & General is primarily a global provider of retirement solutions to corporates and individuals, with core skills in asset management and origination, longevity risk and technological innovation. We operate at scale and are strongly positioned to capitalise on significant growth opportunities across our chosen markets through our five businesses:

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

2. Legal & General Retirement - Retail (LGRR) is a waterfront provider of UK retail retirement solutions, including individual annuities, lifetime mortgages (LTMs) and workplace savings.

3. Legal & General Investment Management (LGIM) is the 11^th largest global asset manager by AUM[20], primarily serving institutional pension clients.

4. Legal & General Capital (LGC) invests shareholder capital and originates alternative assets.

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

A unique, synergistic and long-duration business model

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

· LGRI , a market leader in UK PRT, and LGRR, a leading provider of UK individual annuities, have £85.8bn of annuity assets, providing long-term, captive AUM to LGIM. This portfolio is continually being enhanced with alternative assets originated by LGC.

· LGIM is a leading player in providing UK and US DB de-risking solutions and is uniquely positioned to support DB clients journeying to the full range of pension endgame destinations, including PRT and Assured Payment Policy with LGRI. 69% of LGRI's PRT transactions over the past three years were from existing LGIM clients.[21] Furthermore, when DB clients de-risk assets and liabilities through PRT with LGRI, LGIM then manages the associated assets. LGIM is also the market leader in UK DC pension scheme clients - a market with significant growth potential. Total UK DC assets are expected to more than double by 2028 to £955bn.[22]

· LGC invests shareholders' capital for society's benefit. As a core component of our retirement solutions business, LGC creates assets to back pensions (notably in LGRI and LGRR) and invests our shareholder funds to achieve more attractive risk adjusted returns. LGC is building alternative asset creation platforms, benefitting LGIM clients, and increasingly attracting third party capital investment.

· 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. LGI is a centre of excellence in technology, particularly in retail, and is working closely with other divisions to drive further tech synergies. Further, LGI's US business facilitates LGRI's US PRT transactions, which are written onto the existing US balance sheet.

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

The integrated nature of our business model means that we have relationships with clients and customers that can and do last for decades. For example, an Index or Liability Driven Investing DB corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30-40 years. Equally, LGRR and LGIM may have a 30-40 year relationship with a customer during the DC accumulation phase, and then extend that relationship for another 15-30 years during the decumulation phase across a suite of decumulation products including individual annuities, lifetime mortgages and drawdown.

The Group continues to build out, in a measured fashion, its international retirement solutions franchise. We have made tremendous progress in the US over the last decade and will continue to build out our established businesses (LGRI, LGIM, LGI) in that market. LGIM is also making good progress against its international expansion plans in Europe. Kerrigan Procter has now moved to Hong Kong to co-ordinate the Group's expansion plans in Asia.

A long-term commitment to Sustainability, ESG and Inclusive Capitalism

Our purpose is to improve the lives of customers, build a better society for the long term and create value for our shareholders. This inspires us to use our assets in an economically, environmentally and socially useful way to benefit society - what we call Inclusive Capitalism.

This philosophy underpins our approach to Sustainability and to ESG ( Environmental, Social, and Governance factors).[23] We think about Sustainability, and the long-term ESG impact of our business, in terms of:

1. How we invest our £93bn of proprietary assets . [24] Our ambition is to reduce our portfolio carbon emission intensity by half by 2030 and to net zero by 2050. In 2020 we reduced the carbon intensity of the Group's balance sheet by 2% versus 2019. We continue to make environmentally and socially useful investments. As at H1 2021, we have invested £1.4bn in clean energy and £7.8bn in social infrastructure. For more information, please see our latest Task Force on Climate-related Financial Disclosures (TCFD) report.[25]

2. How we influence as one of the world's largest asset managers with £ 1.3 trillion AUM . We have £252.3bn AUM in ESG strategies and during H1 2021 we cast over 50,000 stewardship votes as we continued to encourage investee companies to behave responsibly.[26] LGIM is rated A+ for responsible investment strategy and active ownership from the UN Principles for Responsible Investment, and ranked #1 among asset managers for its approach to climate change by both ShareAction and InfluenceMap.

3. How our businesses operate . We are committed to supporting our customers, employees, suppliers, shareholders and society at large. For information on what we are doing to support our key stakeholders, see pages 15-17 of our Sustainability report.[27] We have committed to reducing the carbon emission intensity of our operating businesses. Our ambition is to operate our offices and business travel with net zero emissions from 2030, and for all our new homes to be net zero operational carbon from 2030. From 2021, ESG criteria have been included in executives' objectives and remuneration targets.

Climate and COP26

Addressing Climate Change is one of Legal & General's six strategic growth drivers and is increasingly embedded throughout the group, supported by a rigorous governance framework and transparent metrics.

Climate change is not only the biggest challenge, but also the biggest investment opportunity, of our lifetimes, and we are committed to achieving net zero by 2050. It's a challenge and an opportunity that starts now. For context, it is estimated that $20 trillion of investment is needed by 2025 alone to put us on the path to achieving global net zero emissions by 2050.[28]

Our commitment to addressing climate change is increasingly reflected in our own asset allocation and risk management frameworks, in our balance sheet investments, in how we manage and steward money for external clients, in our real asset, housing, regeneration and VC portfolios, and in our direct operational emissions. Our approach is set out in more detail in our TCFD Report which describes how we invest, influence and operate. This also covers progress made to date and sets out the staging-posts we have set ourselves on the journey to our goal of net zero by 2050, including the adoption of science-based targets.

COP26, which will take place in November this year, will be a major milestone in the global journey to net zero. We are involved in several ways, notably through Michelle Scrimgeour's role as co-chair of the COP26 Business Leaders Group alongside the President for COP26, Rt Hon Alok Sharma MP, and through LGIM's participation in the Glasgow Financial Alliance for Net Zero (GFANZ). The principal challenge for governments, business and finance, however, remains not just agreeing the next global priorities and targets for climate, but implementing them. Here, Legal & General has a number of important technical roles. Nigel Wilson leads the Innovation Workstream for the Bank of England/FCA's Climate Financial Risk Forum and the Workstream on investment for the Insurance Sustainable Market Initiative, both of which will contribute to the work of COP26 and beyond. Many Legal & General employees provide expertise in specialist areas including, for example, through HM Treasury and the Bank of England's Productive Finance Committee, the Green Finance Institute and the Green Buildings Council.

Outlook

Medium term growth: ambitious and deliverable

Our strategy has delivered strong returns for our shareholders over time and has demonstrated resilience through the pandemic. We are confident we can continue to deliver profitable growth as we execute on our strategy .

We set out our five-year ambitions at our Capital Markets event last November. Cumulatively, over the period 2020-2024, our financial ambitions are for[29] :

1. Cash and capital generation significantly to exceed dividends (we intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay dividends of £5.6bn - £5.9bn).[30]

2. Earnings per Share to grow faster than dividends, with the dividend growing at low to mid-single digits from 2021.

3. Net capital surplus generation (i.e. including new business strain) to exceed dividends.

We aim to deliver long-term, profitable growth across the Group . LGRI and LGRR provide highly predictable, stable cash flows from their growing back-books. The UK annuity portfolio will be fully self-financing[31] at c£100bn of AUM (H1 2021: £81.8bn) which we expect to achieve in the next three to five years. Our asset management and origination businesses, LGIM and LGC, operate in attractive and profitable markets, and maintain a strong commitment to ESG-aligned investing. With proven asset expertise in clean energy, residential property, digital infrastructure and SME finance, LGC provides unique asset origination capabilities in sectors that have significant growth potential, which produce yield-creating assets that drive our LGR business, and appeal to third party investors. LGI is applying technological innovation to sustain its UK leadership, to grow in the US and to continue to expand into adjacent markets.

We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets. Our confidence and our dividend paying capacity are underpinned by the Group's strong balance sheet, which has a £3.4bn IFRS credit default reserve and, for Solvency II, £7.5bn in surplus regulatory capital, in addition to significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

Confident in achieving our ambitions

We remain confident in achieving our five-year cumulative financial ambitions. In the first half of 2021, we continued to build on the good start we made in 2020. We expect to deliver double digit growth in operating profit at the full year.

Whilst PRT markets have been relatively subdued in the first half of 2021, we executed well in the UK at stable margins, and expect a stronger market in the second half of the year. At the UK market level, we are expecting around £20-£25bn to transact in 2021 for the year as a whole. We have already won or are in exclusive negotiations on £2bn of UK PRT business in the second half. We continue to anticipate long-term institutional demand to de-risk DB pension portfolios and remain confident in achieving our five-year ambition of writing £40-50bn of UK PRT and $10bn of International PRT.

LGIM continues to focus on attracting higher margin net flows and on diversifying and further internationalising its business. The business remains confident of achieving its ambition of growing cumulative profits in the range of 3-6%. LGC continues to grow Alternative AUM towards £5bn, with a blended portfolio return of 8-10%, creating assets for LGR and attracting third party capital. LGIM and LGC have benefited from rising equity markets and valuations and, in the case of LGC, a continuation of the rebound in the UK residential property market, which has also increased demand for UK retail protection from LGI, which we expect to persist.

In LGI, we continue to target mid-single digit growth in revenues across our UK protection businesses, and to achieve double digit growth in US new business sales. In line with previous years, we expect LGI's H2 to deliver greater operating profits than H1.

In LGRR, the markets for individual annuities and lifetime mortgages started to recover in H1 2021, following the impact of the pandemic last year. The longer-term outlook for both these markets remains attractive, driven respectively by ongoing growth in the DC market and by an increasing consumer requirement to look to multiple sources of wealth to fund retirement. However, the lifetime mortgage market is becoming more competitive and we will maintain pricing discipline at the expense of volumes if required.

We are pleased with the progress we have made year to date and are confident in our ability to deliver further profitable growth in the second half of the year. The immediate outlook for the broader economy is positive and we are well-positioned to support the UK Government's three flagship policies of "Build Back Better", "Levelling Up" and "Address Climate Change".

We will continue to maintain a defensive asset portfolio and a long-term investment horizon, supporting all our stakeholders by delivering Inclusive Capitalism through investments in infrastructure, clean energy and affordable housing, and by providing products to support individuals' financial resilience.

Business segment outlook

LGR Institutional (LGRI)

LGRI participates in the rapidly growing global PRT market, focusing on corporate defined DB pension plans in the UK, the US, the Netherlands, Ireland, and Canada, which together have nearly £7 trillion of pension liabilities due to ageing demographics. ^{^[32]}

We are the only global player in PRT, writing direct business in the UK and US, and are market leaders in the UK. We are supported by LGIM's long-standing client relationships and LGC's asset manufacturing capabilities, as well as wide-ranging skills across the Group which enhance our asset strategy and product innovation. During H1 2021, 53% 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.

The UK is our primary market and it is the most mature PRT market globally with £2.3 trillion of UK DB pension liabilities, of which only c12% have been transferred to insurance companies to date.[33] This leaves a sizeable opportunity for future growth in this market. Demand from companies and pension plans for insurance remains robust: we expect the total UK PRT market to be around £20-£25bn in 2021 despite the relatively subdued first half of the year.[34] Market commentators anticipate between £150bn-£250bn of UK PRT demand over the next five years.[35] Our ambition is to write £40bn to £50bn of new UK PRT over the next five years, whilst remaining disciplined in our pricing and deployment of capital.

The US represents a further, significant market opportunity, with $3.4 (£2.5) trillion of DB liabilities, of which only c7% have transacted to date.[36] Since our market entry in 2015, our US business has written more than $5bn of PRT with 70 clients. We are the only insurer providing PRT directly to pension plans globally. This is anticipated by market commentators to be "one of the key levers that sponsors with UK and US obligations look to utilise going forwards".[37] Our ambition is to write more than $10bn of international PRT over the next five years.

Whilst new PRT business requires solvency capital on day one, this capital commitment pays back quickly, generating an attractive and long-term stream of operating surplus, which provides stability to the division's operating performance and means that LGRI is not solely dependent on new business to deliver profits. Our UK annuity portfolio (including LGRR individual annuities) is expected to be self-sustaining within 3-5 years as it reaches c£100bn AUM (H1 2021: £81.8bn). At that point, it will be able to fund new business, while both (a) paying its share of a progressive Group dividend and (b) contributing to an increase in the Group solvency coverage ratio over time.

LGR Retail (LGRR)

LGRR is a growth area for the Group and we expect its target market to continue to expand, driven by ageing demographics and welfare reforms . LGRR is a waterfront provider of UK retail retirement solutions, offering annuities, income drawdown, pension pot consolidation, lifetime mortgages (LTM) and LTM advice. To further complement LGRR's customer retirement and savings proposition, the Workplace Savings administration business was transferred from LGIM to LGRR at the start of the year. This enables us to better assist the 4.2 million Workplace customers in planning their retirement whilst they are saving with us, rather than when they come to retirement. This will provide better customer outcomes and, at the same time, help us to retain more of our customers and allow us to more easily offer them a wider range of L&G products. Our ambition is to be the UK's leading retirement brand, enabling all our customers to have a secure retirement whilst generating long duration assets and profits for the Group and, over time, to expand internationally.

Our primary market is the UK where currently, each year, there are £40bn of personal pension assets coming to maturity.[38] This is expected to grow to £50bn by 2024.[39] The individual annuity market currently accounts for just £4.2bn of total maturing assets, i.e. a little over 10%. 26 However, we expect the individual annuity market to grow in absolute and relative terms, as the DC market continues to grow, and as fewer people reach retirement with defined benefit pensions and so seek the longevity protection that an annuity provides. LGRR has a strong and growing market share in individual annuities. As at Q1 2021, we have a 22.6% market share in individual annuities.[40] We are building on the strength of that position by providing other retirement income products and services, recognising that each customer will have different needs and requirements.

The UK lifetime mortgages (LTM) market continues to represent a sizeable opportunity for LGRR, with UK housing equity in over 55s at £1.7 trillion across approximately 5.5m houses.[41] At present only c£4bn per year is being released through the LTM market. While we maintain our focus on the traditional LTM market, we continue to see interest from the "wealth" sector as those with higher value properties increasingly see the benefit in lifetime mortgages when planning the distribution of their estate to future generations.

There are currently £400bn in UK DC accumulation assets and this is expected to more than double to £955bn by 2028. As a market leading provider in Workplace Savings, we are well placed to benefit from this expected increase in DC pension assets, to grow administration revenues for LGRR, and fund management revenues for LGIM.

Legal & General Investment Management (LGIM)

LGIM benefits from a combination of scale businesses and a diversified asset base, underpinned by structural demand for our products and investment capabilities. Our purpose is to create a better future through responsible investing, and we are recognised as a global leader in ESG. Our five-year growth ambition is driven by the three pillars of our strategy to modernise, diversify and internationalise the business. We seek (i) to grow cumulative profits in the range of 3% to 6%, absent market shocks, (ii) to increase AUM in international and higher margin areas, and (iii) to continue to diversify AUM by client, channel and geography. We expect to maintain a cost income ratio in the high 50 percent range over the next two to three years as we invest for growth , after which we expect it to trend downwards.

LGIM plays a critical role in Legal & General's position as a leading, global pension solutions provider, as well as a significant UK leader in retail investment management. As such, LGIM intends to maintain its strong position in the UK, which has been the bedrock of its success to date, while continuing to diversify its capabilities and broaden its reach internationally.

Modernise: LGIM continues to invest in the business to achieve the resilience and global scalability critical to its future success. We are laying the foundations for continued global growth by investing in our people and our operating platform, and by refining our organisational structure . Our recently announced technology and Middle Office partnership with State Street further supports our strategic commitment to Modernise. It will support our ambition to scale, internationalise and diversify and enable us to better serve our clients.[42] We have also strengthened our senior leadership team, with the recent appointments of a Chief Technology Officer and a Chief Data Officer.

Diversify: We continue to cement our leadership in ESG investing and, in addition to offering a wide range of ESG-specific products, are driving further integration of ESG into our mainstream investment portfolios. We will continue to expand our investment offering, with a focus on higher margin areas such as Real Assets, ETFs, Multi Asset and Solutions. We see a sizeable opportunity in Real Assets - we are well known for our UK Real Estate Equity expertise and, increasingly, will also provide investors with access to our leading private credit capabilities. As UK and US DB schemes approach funding maturity, many clients will look for self-sufficiency or buy-out options that, together with LGRI, we are well positioned to deliver through our 'endgame' Solutions offering.

Internationalise: LGIM aims to be a disruptor in regions and countries where our strengths align to client needs. Over the last five years LGIM's international AUM has more than doubled to reach £434bn - 33% of LGIM's total AUM. Our ambition is to continue growing International AUM profitably and at pace in the US, Europe and Asia. In the US, we are deepening our strong client relationships through innovation in DC and leadership in ESG. In Europe, we will build on our successes in Germany and Italy, to expand further into European markets and channels. In Asia, our strategy is to retain and increase our share of wallet with existing clients and deepen our footprint in existing markets - Japan, China, Hong Kong, Taiwan and Korea - by showcasing investment solutions that address key market trends.

Legal & General Capital (LGC)

LGC , the Group's alternative asset platform, will continue to deploy capital in a range of underserved areas of the UK's real economy that are backed by long-term structural trends. LGC has built strong, scalable platforms which create attractive pipelines of investable assets that match LGR's annuity liabilities and the demands of LGIM's third party clients. Making a substantial contribution to shareholder value creation, LGC is well positioned to drive further meaningful growth as its businesses continue to scale and mature. Supporting the Levelling Up agenda, and society's need to Build Back Better and Address Climate Change, LGC's asset classes include residential property, specialist commercial real estate, clean energy and SME finance.

Over the next five years we expect to build LGC's diversified alternative AUM towards c£5bn using shareholder equity (H1 2021: £3.4bn), with a target blended portfolio return of 8% to 10%. Additionally, we plan to increase fee-generating third party capital to over £14bn (H1 2021: £6.8bn). Excluding LGR asset creation, LGC expects to manage close to £20bn of alternative AUM by 2025.

Supporting the Group's focus on climate and inclusive capitalism, our alternative asset strategy is made up of sectors where our investments change lives. We are creating much needed jobs, homes and infrastructure, driving growth, skills and innovation, and contributing towards a clean and green future:

· Through our specialist commercial real estate portfolio, which includes data centres, urban development, and science and technology-focused real estate, we are levelling-up, transforming our regions and growing the UK knowledge economy. Partnering with universities, local authorities and private sector experts, we have invested across sixteen UK towns and cities, creating jobs, driving economic growth and boosting local communities as the UK looks to build back better.

· As a leading provider of homes, with a commitment to tackling the structural shortages across the UK's housing market, LGC's residential property platform continues to expand across all tenures, ages and demographics, leveraging both traditional and modular construction in order to revolutionise and speed up delivery. We recognise the vital role that safe, quality housing plays in a healthy, equitable society and that the UK continues to fall far short of the over 300,000 new homes required annually. With a pressing need to ensure that the homes we build are also future-proofed and sustainable, we have committed that all our new homes will be operationally carbon emission-free from 2030.

We are well positioned to achieve our long-term targets of delivering:

o Over 3,000 traditional build to sell homes per annum, with the expected delivery of c2,900 new homes in 2021

o 5,500 build to rent homes in our urban pipeline and an ambition to deliver 1,000 suburban rental homes each year

o Up to 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

o Around 4,500 Later Living homes in our pipeline to help address the housing requirements of last time buyers seeking to downsize

o 670 new modular homes in our pipeline and creating up to 300 new jobs at our Leeds factory this year in order to support our ambition to deliver up to 3,000 modular homes a year by 2024

· In the clean energy sector, more than $130tn of investment is needed globally by 2050 to address climate change.[43] We are investing in early-stage scale-up companies to deliver the innovation, clean technologies and renewable energy infrastructure needed to accelerate progress towards a low-cost and low-carbon economy.

· In SME Finance, we are continuing to support UK and European innovation, investing in the real economy by creating a diverse portfolio of assets. We expect to continue to deploy our capital and focus to support the venture capital ecosystem to help create and grow the businesses of tomorrow.

Legal & General 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. These strengths led to a strong performance in H1 2021. Our group protection business has also performed well. Note, however, that 2021 group protection new business volumes may not reach the record levels of 2020 as, typically, fewer large schemes are tendered in odd years than in even years. In line with our five-year ambition, we are targeting mid-single digit growth in revenues across our UK protection businesses.

In the US, we anticipate our on-going technology investments and new partnerships will position us for premium growth as the market continues to recover from the distribution and underwriting disruptions caused by COVID-19. We are using technology to improve customer experience while reducing cost and becoming the partner of choice for a wide range of distribution partners. We are already the largest provider of term life assurance in the brokerage channel, and our digital first approach is aiming to achieve double digit growth in new business sales out to 2025.

As we look to transform adjacent markets, we are also accelerating growth in our digital platforms. Salary Finance, our employee benefits platform business in which we have a 41% holding, continues to grow rapidly, with the platform now connected to over 3.8 million employees across the UK and US. Annualised run-rate gross revenue grew to £29m as at 30 June 2021, growth of 75% year on year. This trend is expected to continue with growing employee awareness and increasing platform engagement. Salary Finance remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond.

In line with previous years, we expect H2 operating profit to be greater than H1.

Dividend

The Board has declared an interim dividend of 5.18p, up 5% from the prior year (4.93p). This is consistent with our stated ambition to grow the dividend at 3-6% per annum between 2021 and 2024.

Going forward, the Board intends to adopt a formulaic approach to the dividend whereby the interim dividend grows by the same percentage as the total dividend for the prior year.

LGR - Institutional

FINANCIAL HIGHLIGHTS £m	H1 2021	H12020
Operating Profit	525	585

Release from operations	252	246
New business surplus	68	71
Net release from operations	320	317

UK PRT	2,040	3,176
International PRT	107	248
Other PRT (longevity insurance, Assured Payment Policy, Insured Self-Sufficiency)	925	-
Total new business	3,072	3,424

Operating profit of £525m

LGRI continues to deliver strong operating profit of £525m (H1 2020: £585m). Profit was underpinned by the performance of our growing annuity portfolio, robust pension risk transfer (PRT) new business volumes and positive mortality experience due to the continued tragic impact of COVID-19 . Note: a review of late retirement factors was undertaken in H1 2020, releasing £124m (net of tax).

Release from operations increased 2% to £252m (H1 2020: £246m), reflecting the scale of the business as prudential margins unwind from LGR's growing £85.8bn annuity portfolio (2020: £87.0bn).

Net release from operations was £320m (H1 2020: £317m) with new business surplus of £68m (H1 2020: £71m), reflecting successful execution with broadly consistent volume and new business profitability despite subdued PRT market volumes.

During H1 2021 we wrote £2,040m of UK PRT which, combined with Other PRT of £925m and £483m of individual annuities written in LGRR, delivered an 8.4% UK Solvency II new business margin (H1 2020: 10 .6%). UK PRT capital strain remains broadly at the 4% mark.

Successful execution in a slower H1 market

During H1 2021 LGRI underwrote £3,072m of PRT across 20 deals globally (H1 2020: £3,424m, 29 deals) .

Legal & General has demonstrated its resilience and continues to play a key role in the UK PRT market, despite the market being relatively subdued in the first half. However, we are still expecting around £20-£25bn to transact in the 2021 market and we are well placed to execute on this opportunity in H2, with £2bn already won or in exclusive negotiations. As the only whole-of-market provider in the UK we see nearly all deals coming to market and are well positioned to preserve (or build) market share.

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 UK PRT market. Long term client relationships, typically fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals. In H1 2021 we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:

· Small scheme solutions. With over 60 % of our transactions smaller than £100m, we leveraged technological innovation to serve smaller pension plans more efficiently.

· c£800m buy-in with TUI group UK Pension Trust. This transaction marks the Scheme's first PRT transaction with Legal & General.

· A £925m Assured Payment Policy, our capital-light PRT product, for Legal & General's Group UK Pension and Assurance Fund. The policy provides asset yield, interest rate and inflation risk protection to the pension plan, paving a more secure path to buyout over a planned timeframe.

· First conversion of an Assured Payment Policy (APP) to a buy-in. A £61m transaction agreed with AIB Group UK Pension Scheme, converted c20% of the original APP transaction completed in December 2019. The transaction is a testament to our commitment in helping schemes along their de-risking journey, every step of the way, offering flexible solutions and enabling them to seize de-risking opportunities as they arise.

Well positioned to execute in H2 in the US

US PRT new business premiums of $149m (H1 2021: £107m; H1 2020: $312m; £248m) , with the US PRT market typically slower in H1, and seeing relatively high levels of competition. As normal, we expect a much larger market in the second half, with activity typically concentrated in Q4 although, in fact, we have recently won a $181m US PRT deal. Market commentators expect US PRT volumes for 2021 to be higher than for 2020 ($27bn).[44]

Since entering the market in 2015, we have underwritten more than $5bn of premium with 70 clients. [45] As the only insurer providing PRT to pension plans globally, Legal & General is uniquely positioned to offer holistic, global pension de-risking solutions.

LGR - Retail

FINANCIAL HIGHLIGHTS £m	H1 2021	H1 2020
Operating Profit	158	135

Release from operations	111	98
New business surplus	15	16
Net release from operations	126	114

Workplace Savings net flows (£bn)	6.0	2.4

Individual single premium annuities	483	421
Lifetime & Retirement Interest Only mortgage advances	414	362
Total new business	897	783

Operating profit up 17% to £158m

LGRR operating profit increased 17 % t o £158m during H1 2021 (H1 2020: £135m), driven by the ongoing release from operations, and positive mortality experience due to the continued tragic impact of COVID-19.

Release from operations was £111m (H1 2020: £98m), an increase of 13%, reflecting the unwind of prudential margins from the annuity portfolio and increasing administration fees from the growing workplace assets.

Net release from operations was £126m (H1 2020: £114m) with new business surplus of £15m (H1 2020: £16m).

From 1 January 2021, the Workplace Savings administration business was transferred from LGIM to LGRR, building out LGRR's retail retirement proposition. Profits on the fund management services we provide are included in LGIM's asset management operating profit.

Resilient new business volumes in H1 2021

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 were up 15% to £483m in H1 2021 (H1 2020: £421m), as markets started to recover following the impact of the COVID pandemic last year. Our relative performance remained strong: our operational service, competitive pricing and increased intermediary presence allowed us to grow market share to 22.6%.^{^[46]}

Lifetime mortgage advances, including Retirement Interest Only mortgages, were up 14 % to £414m (H1 2020: £362m). Throughout this period, we have maintained pricing and underwriting discipline whilst increasing advances. At the end of June 2021, LTMs were 7% of our total annuity assets and our LTM new business portfolio had an average customer age of 72 and a weighted average loan-to-value of c30% at point of sale.

Workplace Savings net flows were up 150% to £6.0bn (H1 2020: £2.4bn), driven by continued client wins and increased contributions. Members on the Workplace pension platform increased to 4.2 million in H1 2021. We are continuing to focus on improving efficiency and scale as the business grows.

Legal & General Retirement - Total Annuity Asset Portfolio

FINANCIAL HIGHLIGHTS £m	H1 2021	H1 2020
Operating Profit	683	720
Investment and other variances	105	73
Profit before tax	788	793

Total annuity assets (£bn)	85.8	80.7
Of which: Direct investments (£bn)	25.8	23.6

Profit before tax was £788m, with investment variance contributing positively due to standard unwind of margins and strong underlying performanc e.

Annuity asset portfolio

Legal & General Retirement's (LGR) £85 .8 bn [47] 'A minus' rated asset portfolio, which backs the IFRS annuity liabilities in LGRI and LGRR, is well diversified by sector and geography. Our ambition is to continue to strengthen our asset sourcing capabilities (a core competitive advantage), including both self-manufactured and public assets with a strong ESG focus, as outlined in LGR's ESG strategy launched in 2020. Current examples include Build to Rent and Affordable housing.

Credit portfolio management

LGR's £78.2bn fixed income portfolio is comprised of £57.2bn of listed bonds and £21.0bn of Direct Investments. Approximately two-thirds of the portfolio is rated A or better, 34 % rated BBB and 2 % sub-investment grade.

The key objective of our annuity-focused, fixed income fund managers in LGIM is to manage the portfolio to match liabilities, while minimising credit downgrades and avoiding 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. In addition, we hold a £ 3.4 bn IFRS credit default reserve .

We have kept lower-rated, cyclical exposures to a minimum and only 13% of our BBB assets are BBB-. We actively manage our asset portfolio and continue to take opportunities to improve credit quality at attractive pricing levels.

This two-pronged approach, comprising defensive positioning and active management, has helped us mitigate downgrade and default risk. Again, we have had no defaults.

Direct Investment

LGR originated £1 .4 bn of new, high quality direct investments during H1 2021 which, along with market movements, brought the direct investment portfolio total to £25 .8 bn[48] , including £6 .3 bn 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 on the strong counterparties and the underlying collateral.

Across the Group, our businesses help to meet the societal needs arising from welfare reforms by harnessing the power of pensions to deliver Inclusive Capitalism and to support the UK to Build back Better. We aim to invest in sectors where long term funding is needed, for example, in assets providing social infrastructure, housing and clean energy across our UK towns and cities. 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 HIGHLIGHTS £m	H1 2021		H1 2020
Management fee revenue	471	458
Transactional revenue	9	9
Total revenue	480	467
Total costs	(276)	(270)
Operating profit	204	197
Investment and other variances	(7)	4
Profit before tax	197	201
Net release from operations	163	158
Asset Management cost:income ratio (%)	58	58

NET FLOWS AND ASSETS £bn
External net flows	27.4	6.2
Internal net flows	(1.7)	(0.6)
Total net flows	25.7	5.6
- Of which international¹	15.0	(3.2)
Cash management flows	(0.4)	2.8
Persistency[49] (%)	89	86
Average assets under management	1,280.5	1,218.4
Assets under management as at 30 June	1,326.8	1,240.6
Of which:
- International assets under management²	434	385
- UK DC assets under management	125	97

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

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

Operating profit growth of 4% to £204m

Operating profit increased by 4% to £204m (H1 2020: £197m), reflecting increased revenues from flows and favourable business mix.

Assets under management increased by 7% to £1,326.8bn (H1 2020: £1,240.6bn), benefitting from strong external net flows of £27.4bn (H1 2020: £6.2bn). Market movements were positive in H1 2021, reflecting our diverse asset base. Whilst rising interest rates reduced the value of fixed income assets, this was offset by an increase in equity markets.

Revenues increased 3% to £480m (H1 2020: £467m), supported by growth in higher margin areas including thematic ETFs and multi-asset, partially offset by the strengthening pound which reduced the value of our International revenues. Our strengths in ESG led to several ESG mandate wins in H1 2021, and we have continued to see good flows into our ESG products. The cost income ratio (58%) reflects our continued investment in the business, balanced with careful cost control.

Strong international flows

International external net flows of £15.0bn constituted over half of LGIM's total external net flows.

LGIM saw £8.8bn of further net flows from Japanese clients and we are now Japan's 9^th largest asset manager.[50] The US saw net flows of £3.5bn, primarily into LDI and Fixed Income products, as US clients re-focused on long term de-risking objectives, reversing the trend seen last year. We continue to make good progress against our European growth strategy.

International AUM of £434bn is up 13% from H1 2020 (£385bn) and now constitutes 33% of total AUM. On a constant currency basis, International AUM is up 23% year on year. Our deep relationships with a number of leading international clients underpin our conviction in our ability to grow international AUM and earnings over the next five years.

Ongoing strength in UK institutional business

LGIM's UK Institutional business delivered strong external net flows of £9.0bn (H1 2020: £8.0bn).

As a leading Solutions provider, LGIM can support clients at all stages of their funding journey, eventually helping them transition into a PRT relationship with LGRI. At this point, these assets are returned to LGIM as captive AUM to manage for the long term. This means that as the UK DB market gradually de-risks, LGIM will continue to be a key participant, benefitting from a virtuous circle with LGRI. Within our suite of DB investment solutions, the Secure Income Assets Fund (SIAF) launched in 2020, offering DB clients the chance to invest in infrastructure debt, real estate debt and private corporate debt. The SIAF now has total commitments of over £300m.

The Defined Contribution (DC) business continues to attract flows, with external net flows of £4.4bn, supported by ongoing growth in LGRR's Workplace pension business, which now has 4.2 million members. Total UK DC AUM is up 30% since H1 2020 with total AUM of £125.5bn (H1 2020: £96.7bn). This success was made possible by LGIM's strong customer focus, as shown by our 2020 Global Investor Award and a 91% persistency rate among our DC customers.

LGIM also has one of the largest and fastest-growing UK Master Trusts, which now has £15.1bn AUM, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration. Growth in our UK Master Trust business continues to support growth in multi-asset flows, since multi-asset is the default option for many of our UK Master Trust clients.

Good growth in ETFs

2021 has marked the third anniversary following the acquisition of the Canvas ETF business in March 2018. Over this period, revenue has more than doubled. The business has continued to grow at a strong pace in 2021 (H1 2021: $3.4bn net flows) with the focus on thematic ETFs supporting our strategy of growth into higher margin areas. This has been the key driver of the more than 50% increase in ETF AUM over H1 2021 to $13.0bn. This builds on our position in 2020, a year in which we had the largest percentage increase in AUM (+89%) of any of the top 20 largest ETF issuers in Europe.[51]

LGIM is committed to growth via innovation and we have continued to develop ETFs with our proactive design approach. H1 2021 included a number of fund launches, including the expansion of our fixed income range. We now have over $1.3bn AUM in fixed income ETFs at the end of H1 2021.

LGIM has also continued to develop and grow its equities range and thematic expertise through ETFs. As at the end of H1 2021, the thematic range of ETFs exceeded $6bn in AUM. LGIM continues to be ranked second on both AUM and net flows in the European thematic ETF market, with over 16% market share. LGIM has launched two further thematic ETFs in H1 2021 to cover the emerging hydrogen economy and the digital payments evolution, with both products being first to market in Europe. These two ETFs have contributed over $450m in net flows in H1 2021. A range of equity ETFs focused on high quality dividend paying companies has also been launched in H1 2021 to target continued demand for income generating products.

Breadth of investment management solutions

Asset movements ¹ (£bn)	Index	Active Strategies	Multi Asset	Solutions	Real assets	Total AUM
At 1 January 2021	429.9	193.6	63.4	559.5	32.5	1,278.9
External inflows	44.5	10.0	4.9	20.2	0.6	80.2
External outflows	(41.9)	(7.7)	(3.1)	(8.0)	(0.8)	(61.5)
Overlay net flows	-	-	-	6.6	-	6.6
ETF net flows	2.1	-	-	-	-	2.1
External net flows	4.7	2.3	1.8	18.8	(0.2)	27.4
Internal net flows	(0.3)	(2.3)	0.1	(0.2)	1.0	(1.7)
Total net flows	4.4	-	1.9	18.6	0.8	25.7
Cash management movements	-	(0.4)	-	-	-	(0.4)
Market and other movements	37.1	(3.1)	2.8	(14.6)	0.4	22.6
At 30 June 2021	471.4	190.1	68.1	563.5	33.7	1,326.8

1. Please see disclosure 5.01 for further details.

LDI Solutions continued to deliver positive external net flows of £ 18.8 bn (H1 2020: £8.3bn) driven by strong demand from UK and US DB clients as they continue to de-risk. We manufacture Solutions products in both publicly and privately traded asset classes and combine these together in integrated portfolios for UK DB clients. We are well positioned to capitalise on this continuing trend. Together with our fiduciary business offering, and working closely with LGR's PRT business, we can tailor solutions to DB schemes at all stages of their funding journey.

Index reported external net flows of £ 4.7 bn (H1 2020: £(4.4)bn) driven by new international flows, partially offset by Index outflows in the UK and US, reflecting the structural trend of DB schemes de-risking, and therefore shifting from index to LDI strategies.

Active Strategies (formerly Global Fixed Income and Active Equities) delivered external net flows of £ 2.3 bn (H1 2020: £0.5bn) as a result of positive net inflows from US and UK DB clients.

Multi-asset strategies continue to be in demand from DC schemes and retail customers . External net flows into multi-asset funds were £1.8bn (H1 2020: £1.6bn).

Real Assets saw external net flows of £(0.2)bn (H1 2020: £0.2bn), as the market continues to assess the longer-term impact of COVID-19 on demand. LGIM Real Assets is, however, well positioned. We expect future growth in flows to be supported by our Build to Rent business, which now has a pipeline of c5,500 homes across the country, and by Private Credit, which offers clients diversification of secure income and value protection solutions.

Investment performance

In Solutions and Index, clients rely on us to deliver their target returns against defined benchmarks. For actively managed portfolios, investment outperformance versus either benchmarks or peer groups is an important driver of current and future client flows, and in 2021 LGIM's active teams delivered strong performance across multiple asset classes. Using our regulated UCITS and US Composites as a proxy for the performance returns² of our mainstream investment strategies, the vast majority of our strategies outperformed over 1, 3 and 5 year periods to 30 June 2021 as follows:

	% of outperforming funds
Strategies	1 year	3 year	5 year
Multi asset	88%	86%	90%
Active Fixed Income (UK)	100%	100%	92%
Active Fixed Income (US)	71%	82%	82%
Active Equities	75%	55%	56%

2. Net fund performance data versus key comparators (benchmark or generic peer groups for bonds and equities as per the relevant prospectuses, and benchmark per the relevant prospectus or custom peer group for Multi Asset) sourced from Lipper for the LGIM UCITS and calculated internally for the U.S. composites. All data as at 30 June 2021.

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 June 2021, LGIM managed £252.3bn in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.

LGIM has a strong, unified sense of purpose: to create a better future through responsible investing. To that end, we work to raise ESG standards on important global issues, leveraging our position as one of the largest global asset managers. LGIM is, for example, a founding signatory of the Net Zero Asset Managers Initiative. Recent achievements include:

· Commitment to net zero:

1. In December 2020 we announced our intention to help our clients achieve net zero across their portfolios by 2050, in the same way that L&G has already committed to with its own balance sheet.

2. Our DC default funds - available to over four million members across L&G Workplace Pensions and the L&G Mastertrust - have set interim targets to support their 2050 net-zero ambitions.

3. At the end of 2020, LGIM Real Assets published a roadmap to help achieve its commitment to net zero emissions by 2050 or sooner across real estate assets.

· Integration of ESG factors : Using technological innovation to address climate change, LGIM has developed a bespoke climate risk framework, Destination@Risk. This has initially been used to analyse around 2,000 companies globally. A climate risk and temperature scenario alignment dashboard is now available to portfolio managers and analysts within LGIM, enabling LGIM to embed climate risk and alignment in a consistent way throughout the entire global investment function and into our product range.

· Product innovation : LGIM is committed to developing ESG-focused investment products that integrate the most forward-thinking ideas in the space. We continue to build on our strong heritage in using index and active ESG investing insights to develop innovative new products, with 55% of our EU domiciled UCITS funds classified as ESG-incorporated (articles 8 or 9) in the EU's first annual Sustainable Finance Disclosure Regulation (SFDR) exercise. Recent examples of ESG product innovation include:

1. A low carbon transition index equity fund suite for UK pension clients, designed by LGIM in partnership with a key consultant, to reduce exposure to carbon emissions in alignment with 2050 net-zero goals, whilst also being aligned to LGIM's market leading engagement and voting activities.

2. A multi-factor developed equity index fund with a strong focus on climate, which adheres to the EU's Climate Transition Benchmark framework.

3. Successful launch of a number of ESG ETFs, including a Green Bond strategy, a Hydrogen Economy thematic ETF, and a range of Quality Dividend ETFs with ESG exclusions.

· Stewardship with impact : LGIM's Investment Stewardship team aim to protect clients' assets through raising market standards and best practice, and engaging with consequences. The team has engaged with over 300 companies and voted on over 50,000 resolutions in H1 2021. We also celebrated the fourth anniversary of our climate impact pledge, which has now grown to cover 1,000 global companies, responsible for more than half of the greenhouse-gas emissions from listed companies, across 15 climate-critical sectors. Companies falling short of LGIM's minimum standards are subject to voting sanctions and potential divestment. Encouragingly, since we launched the Pledge in 2018, we have seen positive progress being made across the most climate-critical areas of the global economy, with 22% of companies on LGIM's priority list setting a net-zero target this year.

· Driving our industry forward: Recognising the crucial role of international leadership and collaboration in the decarbonisation initiative, Legal & General is at the heart of the COP26 programme in 2021, with LGIM CEO, Michelle Scrimgeour, co-chairing COP26 Business Leaders alongside the President for COP26 , Rt Hon Alok Sharma MP.

Legal & General Capital

FINANCIAL HIGHLIGHTS £m	H1 2021		H1 2020
Operating profit	250		123
- Alternative asset portfolio	195		36
- Traded investment portfolio & Treasury	55		87
Investment and other variances	48		(307)
Profit before tax attributable to equity holders	298		(184)
Net release from operations	213		97

ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate	733		716
Clean energy	218		179
Residential property		1,914	1,636
SME Finance		561	502
		3,426	3,033
TRADED ASSET PORTFOLIO £m
Equities		1,731	1,987
Fixed income		426	238
Multi-asset		223	242
Cash¹		1,220	1,388
		3,600	3,855

LGC investment portfolio		7,026	6,888
Treasury assets at holding company		1,630	2,074
Total		8,656	8,962

1. Includes short term liquid holdings.

Total operating profit of £250m reflecting rebound to pre-pandemic growth targets

LGC operating profit doubled to £250m (H1 2020: £123m). This growth principally reflects increased profits from our alternative asset portfolio (H1 2020: £36m) as a result of a bounce-back in the housebuilding market and the continued maturing of our venture capital and clean energy businesses. Operating profit from the traded & treasury portfolio decreased to £55m (H1 2020: £87m), primarily driven by the continued sell down of listed equities in order to fund the increasing expansion of the alternative asset portfolio.

Profit before tax was £298m, driven by investment and other variances of £48m, compared to £(307)m in H1 2020, which reflects the rebound in alternative asset portfolio profits and equity market performance.

Our growing alternative asset portfolio achieved a net portfolio return of 10.7% (H1 2020: (5.9)%). In line with our business model, we expect to deliver a return of 8% to 10% over the medium term as our early stage businesses continue to mature.

Alternative asset portfolio grew 13% over H1 2021 to £3.4bn

LGC has continued to strengthen its capabilities across an increasingly established range of alternative assets that are underpinned by our structural growth drivers. Our alternative asset portfolio increased to £3,426m (H1 2020: £3,033m) as we deployed a further £0.2bn and made new undrawn commitments of £0.5bn across our existing investment platforms. Through these investments we create assets that generate returns for shareholders, create attractive yield-generating Matching Adjustment-eligible assets for LGRI and LGRR and supply desirable alternative assets to LGIM and other third party clients.

Our portfolio continues to be well diversified across the sectors we invest in:

· 55% invested in wholly-owned operating businesses, including our investments in Affordable Housing and CALA;

· 29% in joint ventures or partnerships with other investors, such as the Bruntwood SciTech partnership and our Oxford University Development partnership; and

· 16% in externally managed funds, including our investments in Pemberton funds and NTR, where in both cases we are a significant shareholder.

As we set out below, our Alternative asset portfolio is creating value for shareholders, driving growth in our LGR businesses and creating assets for third party clients, with a focus on ESG and delivering Inclusive Capitalism.

Investment in specialist commercial real estate: ongoing support of the levelling up agenda

Addressing a shortage of investment in specialist commercial real estate, we continue to invest in partnership with the public sector to drive forward some of the UK's largest urban transformation schemes, back digital infrastructure and fund the next generation of science and innovation centres. During H1 2021 our specialist commercial real estate portfolio increased marginally to £733m (H1 2020: £716m) as a result of continued investment in new and existing projects, and overall portfolio value growth.

Through Bruntwood SciTech, we have continued to develop world leading diagnostics infrastructure, growing our portfolio to over 2.5m sq ft. Valued at more than £600m and home to over 500 science and tech businesses, the Bruntwood SciTech network includes nine sector-specialist campuses across Manchester, Liverpool, Birmingham, Alderley Park and, most recently, Melbourn Science Park. Its development pipeline of over 6m sq ft includes Birmingham Health Innovation Campus, where construction of Birmingham's first smart-enabled building, Enterprise Wharf, is now well underway, and - as announced in June - a development partnership with the University of Manchester to deliver ID (Innovation District) Manchester, a new £1.5bn innovation district across 4m sq ft in the city centre which forms an ambitious plan to make Manchester the heart of innovation in Europe. To be delivered over a 15-year period and setting new benchmarks for mixed-use, net-zero carbon development, Manchester ID will create 10,000 full time jobs and facilitate the commercialisation of knowledge, ideas and innovation generated from one of the world's leading universities.

Our Clean Energy portfolio expanded to £218m (H1 2020: £179m)

Supporting the Group's climate ambitions, we invest in early-stage scale-up companies, across low-carbon heat, transport, and power generation, to deliver the innovation, clean technology and renewable energy infrastructure needed to meet UK and global UN climate targets and Sustainable Development Goals.

During H1 2021, our portfolio continued to make excellent progress in scaling up. One of our investee companies, Pod Point, in which we hold a c22% stake, is rapidly building its business to meet increased consumer demand for electric vehicles. By April 2021, Pod Point's partnership with Volkswagen and Tesco had provided more than 500,000 free top-ups at Tesco stores across the UK and powered more than 10 million miles of travel, helping to make electric vehicle charging accessible for all drivers and accelerate the adoption of electric vehicles. Pod Point has also expanded its partnership with Lidl to install rapid chargers at 350 stores.

Through another of our investee companies, NTR - a specialist clean energy fund manager - we are continuing to source, build and operate new renewable energy assets to create attractive returns for investors over the medium to long term. In January, the NTR Renewable Energy Income Fund II (NTR REIF II), acquired the 48.4 MW Artigues et Ollières wind park in France, which will provide sufficient electricity for 25,000 households. In February, NTR REIF II completed a 54MW solar & battery transaction for €29m which represents the Fund's first in the energy storage space. The battery element will help support the stability of the Irish grid and, once constructed in 2022, the solar park will provide sufficient power for 1,650 households.

Bounceback in housebuilding supports growth of our residential property platform

LGC continues to scale up its ambitions across all housing tenures, making good progress with projects and partners, and seeing a strong rebound in sales and reservations levels. Diversified across affordability and life stage, LGC's investments meet the UK's long term social and economic need for quality housing for all demographics. During H1 2021, our residential property portfolio grew to £1,914m (H1 2020: £1,636m) reflecting a bounceback in the housebuilding sector and sustained long term demand.

LGC's Build to Sell business, CALA, has performed exceptionally in H1 2021, rebounding strongly from its position in 2020 when it was impacted by a pause in construction and sales activity following the first COVID-19 lockdown. During H1 2021 CALA has delivered revenue of £610m (H1 2020: £205m) and profit before tax of £70m (H1 2020: £(19)m) through the sale of more than 1,450 units, significantly higher than H1 2020 and H1 2019 levels (H1 2020: 468 units; H1 2019: 1,025 units). Reservations on private units currently stand at 93% of the full year target, giving confidence in the full year outcome for 2021. The strong rebound has been supported by the extension of the Government's tax breaks, rising consumer confidence and a relatively limited supply of housing stock.

Our Affordable Homes business has continued to establish itself as one of the UK's leading institutional developers and managers of affordable housing. We now have a total of 1,066 homes in operation (H1 2020: 221) and have completed 100 shared ownership sales (H1 2020: 63). In only its second full year of operation, the business delivered £12m of profit in H1 2021 and we expect this to grow as we contine to scale. Our pipeline stands at over 6,000 homes across the UK, with a Gross Asset Value of around £1bn.

Our Modular Housing business, which made a £16m loss in H1 2021, is making good progress with projects and partners, gaining planning consent to deliver a further 153 homes at a site in Broadstairs in East Kent, delivering show homes to its 102 home site in Selby, and acquiring and starting on site at a 185 home scheme in Lockleaze, Bristol, developed in conjunction with Bristol City Council. We are creating some of the most energy efficient homes in the country with all homes from 2020 onwards achieving an Energy Performance Certificate (EPC) A rating, a standard met by only around 1% of new and existing dwellings in England & Wales.

Our Build to Rent business has a £1.9bn portfolio of c5,500 homes with 15 schemes in operation or development across the UK's major towns and cities. Our Urban Build to Rent portfolio is creating a strong pipeline of attractive, high quality assets for LGRI and LGRR, and for LGIM clients. We have continued to make strong development progress, with over 1,700 homes having completed or under management. We have also now appointed our Suburban Build to Rent senior leadership team, bringing in skills from across some of the UK's leading property companies, and put in a planning application for its first site in North Horsham. This is designed to deliver 124 new homes for suburban families, alongside a selection of affordable housing options, delivering a multi-tenure community in partnership with LGC's other housing businesses, including our modular homes business.

Our JV with NatWest Group Pension Fund enables our Later Living business to keep scaling at pace

Our Later Living platform addresses the growing demand for specialist age-appropriate homes. Delivering on our ambitious third party capital strategy, we recently announced that we have entered into a 15-year joint venture (JV) partnership with NatWest Pension Trustee Limited (NWPTL), as trustee of the £53bn defined benefit pension scheme of NatWest Group, to invest £500m of equity in later living communities to be developed by Inspired Villages. As part of the JV, Legal & General sold a 50% stake in Inspired Villages' first 11 sites to NWPTL based on an enterprise value of over £300m. This investment will support our future pipeline of 34 sites, which will deliver c5,100 homes, housing c8,000 residents and create an estimated Gross Development Value of c£4bn. The transaction is unique as it sees one of the largest UK pension funds investing directly into UK private social infrastructure.

In the meantime, growth in our Inspired Villages business continues at pace. The business has reserved 38% off plan for the first phase of its seventh scheme in Kent, ahead of completion at the end of the year. Our Later Living platform has also made good planning and development progress. It has secured planning permission for 141 homes in West Sussex, 133 homes in South Oxfordshire, 222 homes in Walton-on-Thames and 194 homes and care suites in Uxbridge. It has also broken ground on its first two operationally net-zero carbon developments, located in Bedfordshire and Hampshire, together bringing forward over 350 energy efficient homes.

SME Finance AUM increased to £561m (H1 2020: £502m)

Investing in the real economy through our Alternative Finance and our Venture Capital platforms, we are continuing to support growth businesses, delivering enhanced returns while boosting job creation, innovation, and science and technology advancements.

In the Alternative Finance sector we support UK and European mid-market lending through our investments in Pemberton, our asset manager specialising in private debt, in which we hold a 40% stake. The Pemberton platform has raised over €10.9bn (H1 2020: €7.4bn) across four strategies in the six years since we first invested in 2014, with 126 investors globally. It has deployed €8.3bn (H1 2020: €4.5bn) across 91 companies, actively engaging with borrowers to support sustainable growth.

Our Venture Capital Funds business backs over 300 start-up businesses across the UK and Europe through our fund-of-funds programme and via LGC's ownership in direct investment platform Accelerated Digital Ventures (ADV).

The venture capital fund-of-funds programme saw strong performance over the period, with NAV growing by 43% to £129m over the six months to end of Q1 2021. Many of the funds we invested in early in the programme are now maturing, with the strongest assets achieving new funding rounds at increased valuations. Demonstrating the value of our patient investment approach, the portfolio has now delivered an 18% IRR after fees, since inception.

We continue to work with LGIM to develop a viable solution for Defined Contribution clients which will democratise access to the venture capital asset class.

Legal & General Insurance

FINANCIAL HIGHLIGHTS £m	H1 2021		H1 2020
Operating profit	134		88
- UK	96		57
- US (LGIA)	38		31
Investment and other variances	230		(483)
Profit / (loss) before tax attributable to equity holders	364		(395)
Release from operations¹	151		163
New business surplus / (strain)	8		(1)
Net release from operations	159		162

Solvency II New Business Value	131		138

LGI new business annual premiums		203	192

UK Retail Protection gross premiums		714	680
UK Group Protection gross premiums		274	245
US Protection (LGIA) gross premiums		512	550
Total gross premiums		1,500	1,475

1. Includes the annual dividend of $111m (H1 2020: $109m) paid by LGIA to the Group in March 2021.

Operating profit up £46m to £134m; strong new business growth in the UK

During the first half of 2021, LGI operating profit increased 52% to £134m (H1 2020: £ 88m), reflecting strong new business growth in UK retail protection, and adverse COVID-related claims during the period, which were provided for in the 2020 results. We previously provisioned for £110m of future COVID-19 related claims, c£30m of which remains unutilised, highlighting the significant impact of the second wave in both the UK and US over Q1 2021. As in previous years, we expect H2 operating profit to be greater than H1.

Honouring our promises and responding quickly and compassionately to our customers' needs is core to our values at Legal & General. LGI is especially aware of the importance of our commitments to our customers: we paid £ 1bn of protection claims in the first half of the year.

Profit before tax was predominantly impacted by the formulaic change in LGI's discount rates. LGI's positive investment variance of £230m was driven primarily by an increase in UK and US government bond yields which have resulted in a higher discount rate used to calculate the reserves. The UK 10 year gilt rate increased by 52 bps and US 10 year Treasury yields increased by 52bps.

Solvency II New Business Value decreased by £7m to £131m (H1 2020: £138m) reflecting the negative impacts of USD exchange rate weakening and lower volumes in Group Protection after a strong first half in 2020. Retail Protection new business value increased as a result of strong volumes. The protection business continues to generate Solvency II surplus immediately when written and provides diversification benefits to the Group, particularly LGR.

Gross written premium at £1,500m; good trading performance in the US and UK in H1

UK Retail Protection gross premium income increased to £714m (H1 2020: £680m), with new business annual premiums of £105m (H1 2020: £83m), up 27% on prior year as the market continues to recover from COVID-related disruption. We increased our market share to 26% in Q1 2021[52], up from 22% in Q1 2020, and strengthened our position as the leading provider of retail protection in the UK, delivering a point of sale decision for more than 80% of our customers. Our market share growth was supported by our innovation over the period. For instance, further enhancements to our Income Protection Benefit and good progress on critical illness cover attracted new customers in the first half and helped us achieve market leadership for these products.

UK Group Protection new business annual premiums were £55m (H1 2020: £65m) with gross written premiums increasing 12% to £274m (H1 2020: £245m). Through improved service and more refined pricing we are attracting a wider range of scheme sizes and actively dealing with more advisers in the group protection market, enabling us to gain market share and grow new business premiums. We anticipate that full year 2021 new business volumes may not reach the record levels of 2020 as typically fewer large schemes are tendered in odd years than in even years.

US Protection (LGIA) gross written premiums increased 3% (down 7% on a sterling basis) to $712m (H1 2020: $693m). New business annual premiums increased 5% to $59m (H1 2020: $56m), with strong new business margins of 11.5%. LGIA ranked number one in the brokerage general agency channel in the first quarter by both new premium and new policies issued. We continue to develop our market-leading, digital new business platform (Horizon) which we expect to drive further sales growth and to reduce unit costs over the coming years. Adoption of our Horizon platform is now above 50% of new business and we expect this to increase towards 100% by the end of the year. We have significantly reduced usage of physical examinations, from 85% of all applications needing an exam at the start of 2020 to less than 50% of Horizon applications currently. This has been achieved without a material expected impact to mortality through the use of alternative data sources. In addition, we have a range of further underwriting innovations being deployed to reduce usage of physical exams and shorten the time taken to provide an underwriting decision, which will in turn improve placement rates and so increase business volumes.

Legal & General Mortgage Club facilitated £47bn of mortgages, up 39% (H1 2020: £34bn), driven by the buoyant housing market due to the extension of the Stamp Duty holiday. We remain the largest participant in the UK intermediated mortgage market and are involved in around one in five of all UK mortgage transactions. Our Surveying Services business facilitated 263,000 surveys and valuations, compared to 185,000 surveys and valuations in the prior year. Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a supporting component of our overall offering to customers.

Scaling up our Fintech businesses

LGI has continued with its strategy to scale up its innovative fintech businesses in adjacent markets. Our strategy of "digital first" has proved to be resilient through the COVID period, driving further growth in value and revenue. Salary Finance, our employee benefits platform, in which we have a 41% holding, continues to grow rapidly, with the platform now connected to over 3.8 million employees across the UK and US. Annualised run-rate gross revenue grew to £29m as at June 2021, an increase of 75% year on year. This trend is expected to continue with growing employee awareness and increasing platform engagement. It remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond.

The strategy of platform ownership and influence has continued to serve us well in the mortgage and home financing "ecosystem". Our SmartrFit mortgage criteria and sourcing system now reaches over 3,400 brokers in the mortgage broking market. Within our Legal & General surveying business, our work to digitise the market has proved invaluable for banks through the lockdown period. Our digital valuation services have been used by many of our key clients with over 90,000 completed since 2019. Elsewhere in the ecosystem, our c40% investment in Smartr365, a complete end-to-end mortgage and protection platform used to unite mortgage advisers and their clients, has moved from start up to scale up across the UK mortgage broking market. With licence numbers having grown fourfold since the start of the year, we now have just under 2,000 licences in place. We have received strong feedback on the proposition, and how it simplifies the mortgage advice journey for brokers and customers.

Borrowings

The Group's outstanding core borrowings totalled £4.5bn at 30 June 2021 (FY 2020: £4.6bn; H1 2020: £4.7bn). There is also a further £1.1bn (FY 2020: £1.0bn; H1 2020: £1.2bn) of operational borrowings including £1.1bn (FY 2020: £0.9bn; H1 2020: £1.0bn) of non-recourse borrowings.

Group debt costs of £120m (H1 2020: £115m) reflect an average cost of debt of 5.1% per annum (H1 2020: 5.0% per annum) on an average nominal value of debt balances of £4.8bn (H1 2020: £4.6bn).

In late May 2021, we gave notification of our intention to redeem £300m of 10% dated subordinated notes and they were subsequently called at par on 23 July 2021.

Taxation

Equity holders' Effective Tax Rate (%)	H1 2021	H1 2020



Equity holders' total Effective Tax Rate	19.5	4.2
Annualised rate of UK corporation tax	19.0	19.0

The effective tax rate reflects the impact of revaluing UK deferred tax assets and liabilities at 25%, following the announcement of an increase in the headline rate of UK corporation tax from 1 April 2023, and the different rates of tax that apply to Legal & General's overseas operations. This is higher than the effective tax rate at H1 2020 which was below the headline rate as a result of the impact of losses arising in the period through investment variance.

The tax rate on operating profits, excluding the impact of investment variance, was 16.1% (H1 2020: 16.8%).

Solvency II

As at 30 June 2021, the Group had an estimated Solvency II surplus of £7.5bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 183% on a shareholder basis.

Capital (£bn)	H1 2021¹	FY 2020¹
Own Funds	16.6	17.1
Solvency Capital Requirement (SCR)	(9.1)	(9.7)
Solvency II surplus	7.5	7.4
SCR coverage ratio (%)	183	177

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

Analysis of movement from 1 January 2021 to 30 June 2021¹ (£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		0.8
New business strain		(0.2)
Net surplus generation		0.6
Operating variances		-
Mergers, acquisitions and disposals		-
Market movements		0.6
Subordinated debt		(0.3)
Dividends paid		(0.8)

Total surplus movement (after dividends paid in the period)		0.1

Operational surplus generation from continuing operations increased to £0.8bn (H1 2020: £0.8bn) , after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(0.2)bn, primarily reflecting UK PRT volumes written at a capital strain of c4%. This resulted in net surplus generation of £0.6bn (H1 2020: £0.7bn).

Dividends paid represent the payment of the 2020 final dividend in June 2021, which is the larger of the two 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 neutral. Market movements of £0.6bn reflect the impact of rising rates on the valuation of our balance sheet, and improved asset markets, predominantly in equities, 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 2021 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 the Group final salary pension schemes in both the Group's Own Funds and the SCR, the Group's coverage ratio was 182% (FY 2020: 175%; H1 2020: 169%).

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 2021:

		£bn
IFRS Release from operations	0.8
Expected release of IFRS prudential margins	(0.2)
Release of IFRS specific reserves	(0.1)
Solvency II investment margin	-
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 2021:

	£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	(0.4)
Set up of Risk Margin on new business	(0.1)
Solvency II New business strain	(0.2)

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

Sensitivity analysis²

	Impact on net of tax Solvency II capital surplus H1 2021 £bn		Impact on net of tax Solvency II coverage ratio H1 2021 %
Credit spreads widen by 100bps assuming an escalating addition to ratings	0.5		11
Credit spreads narrow by 100bps assuming an escalating addition to ratings	(0.7)		(12)
Credit spreads widen by 100bps assuming a level addition to ratings		0.6	12
Credit spreads of sub-investment grade assets widen by 100bps assuming a level addition to ratings		(0.3)	(5)
Credit migration		(0.8)	(9)
25% fall in equity markets		(0.5)	(4)
15% fall in property markets		(0.8)	(7)
100bps increase in risk free rates		1.0	21
50bps decrease in risk free rates		(0.7)	(12)
50bps increase in future inflation expectations		(0.1)	(3)
Substantially reduced Risk Margin		0.6	6

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

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 30 June 2021 are shown below¹:


	PVNBP	Contribution from new business	Margin %
LGR - UK annuity business (£m)	3,269	274	8.4
UK Protection Total (£m)	1,089	83	7.6
- Retail protection	828	65	7.8
- Group protection	261	18	7.1
US Protection (£m)	413	48	11.5

The key economic assumptions as at 30 June 2021 are as follows:

		%
Margin for risk		3.6
Risk free rate
- UK		1.1
- US		1.5

Risk discount rate (net of tax)
- UK		4.7
- US		5.1

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 PRA-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 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. The risks are expected to remain applicable for the remaining six months of the year.

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, increasing the level of reserves and 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 undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that reserves continue to remain appropriate for factors including mortality, morbidity, lapse rates, valuation interest rates, and expenses, as well as credit default in the assets backing our insurance liabilities. We continue to closely monitor the impacts of Covid-19 on the lives we insure and the impacts for longevity and other insurance assumptions. To date Covid-19 mortality has been lower than our 1-in-200 pandemic modelling scenario, and we have seen an offsetting effect in our annuity portfolios. Areas of uncertainty remain, however, including future virus mutations, the long-term efficacy of vaccines, the effects of 'long Covid' on morbidity and any impacts created by the deferral of some non-Covid-19 medical treatments during the course of the pandemic. Other risk factors remain, including dramatic advances in medical science, beyond that anticipated requiring adjustment to our longevity assumptions; the emergence of new diseases and changes in immunology impacting mortality and morbidity assumptions; and for our US term policies variances in the rate of policy renewal compared to our assumptions.

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 to meet the obligations from insurance business; the movement in certain investments directly impacts profitability. Interest rate movements and inflation changes can also change the value of our obligations. Losses can arise from market movements although we seek to match assets and liabilities. 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, potentially impacting capital requirements and surplus capital. Falls in investment values can reduce our investment management fee income.	Whilst the outlook for developed economies continues to improve, there remains significant uncertainty to the depth and sustainability of the recovery, with financial markets highly susceptible to shocks and the re-appraisal of asset values. Risk factors include the outlook for inflation and shifts in monetary policy by central banks should the current rates of growth in inflation become deep seated; as well as geo-political risks, including US - China tensions and disruptions to global supply chains. Uncertainty is also likely to persist in elements of commercial property markets pending easing from the effects of the pandemic restrictions. 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.

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 some 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.	Despite recovery in the wider economy, a range of industries remain directly impacted by global lockdowns including the leisure, transport, travel and retail consumer cyclical sectors, with risk of downgrade and default persisting particularly as governments withdraw current economic support measures. We continue to actively manage our exposure to default risks within our bond portfolios, monitoring positions relative to our exposure limits, and using the capabilities of LGIM's global credit team to ensure the risks are effectively controlled, and if appropriate trade 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 are also monitoring the effect of Covid-19 on reinsurance counterparties, although default generally remains a more remote risk, which we seek to mitigate through selectively collateralising significant exposures. We cannot, however, eliminate default risks or their impacts to our Solvency II and IFRS balance sheets, although we seek to hold a strong balance sheet that we believe to be prudent for a range of adverse scenarios.
n

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION


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 risk factor across our businesses. Key drivers of future change include HM Treasury's consultation on Solvency II and the Future Regulatory Framework post Brexit. The FCA's proposal for a new Consumer Duty has also been published and we are preparing for transition from LIBOR to SONIA at the end of 2021. Regulatory focus also continues on operational resilience, the management of third parties and the financial risks presented from climate change. Alongside regulatory risk, we are monitoring potential for changes in UK fiscal policy arising from the need to fund government borrowing in response to Covid-19, and progressing our readiness for IFRS 17, which will introduce new financial reporting metrics. As part of our internal control framework we seek to ensure on-going compliance with relevant legislation and regulation and ensure we are proactive in addressing change. We cannot, however, fully 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 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, including those domiciled overseas. It is possible that alternative digitally enabled financial services providers emerge with lower cost business models or innovative service propositions and capital structures, and disrupt the current competitive landscape, and that changes in legislation or regulation impact operating models	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 to greater digital engagement with our customers. We also continue to invest in automation to improve business efficiency, and our businesses are well positioned for changes in the competitive landscape that may arise from the roll out of 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 or reputational damage. We are also inherently exposed to the risk that third parties may seek to 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	We are planning our future ways of working post Covid-19 to include a hybrid office:home working model that will maintain high standards of customer service and internal control. We remain vigilant to the associated operational risks and we continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient. 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 .	Climate change and failure to transition to a low carbon economy remains a significant risk that we believe has still to be fully priced in by financial markets, with delays in responding to the threats increasing the risk of sudden late policy action, leading to potentially large and unanticipated shifts in asset valuations for impacted industries. We continue to embed the assessment of climate risks in our investment process and have developed risk tolerances to manage our exposures to the risk. We also continue to seek investments in new technologies that offer good returns whilst meeting global goals for net zero carbon emissions and engage with regulators and investee companies in support of increased climate action.

Notes

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

A virtual presentation to analysts, fund managers and investors will be available from 7:00am UK time today at www.legalandgeneralgroup.com/investors/results-reports-and-presentations .

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 110278 to gain access to the conference.

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

Financial Calendar	Date
2021 interim results announcement	4 August 2021
Ex-dividend date (2021 interim dividend)	12 August 2021
Record date	13 August 2021
Dividend payment date	20 September 2021
LGC Capital markets day	14 October 2021
2021 preliminary results announcement	9 March 2022

Definitions

Definitions are included in the Glossary on pages 102 to 105 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

Going concern statement is included on disclosure note 4.01(b) on page 52 of this release.

Directors' responsibility statement

We confirm to the best of our knowledge that:

i. The consolidated interim financial statements have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting;

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 2020. 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 2021 4 August 2021

Enquiries

Investors

+44 203 124 2091
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 054
Nim Ilankovan, Investor Relations Director

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

Media


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

legalandgeneralgroup.com

[1]The Group uses a number of Alternative Performance Measures (including operating profit, net release from operations, return on equity and LGIM AUM) to enhance understanding of the Group's performance. These are defined in the glossary, on pages 101 to 105 of this report.

[2]Profit after tax attributable to equity holders. Performance driven by strong business and market performance, in addition to partial reversal of formulaic impact of rates on LGI.

[3]Solvency II coverage ratio on a shareholder basis, which is adjusted for the Own Funds and SCR of the Group final salary pension plans. 183% coverage ratio is post £0.8bn payment of 2020 final dividend and provision for £0.3bn sub-debt redemption.

[4]Cash generation defined as net release from operations and Capital generation defined as Solvency II operational surplus generation.

[5]$53tn retirement solutions market, Willis Towers Watson, 2021 Global Pension Assets Study; $136tn asset management market, BCG, Global Asset Management 2021; $20tn climate change market based on forecast that $130tn of investment is needed to 2050 in order to achieve zero emissions, scaled pro-rata to 2025. BloombergNEF: New energy outlook 2021 https://about.bnef.com/new-energy-outlook/

[6]From 1 January 2021, the Workplace Savings administration business has transferred to LGRR, where it complements LGRR's retirement solutions offering and retail customer focus; LGIM continues to manage the assets and earn the asset management profit from this business. 2020 financials have been restated accordingly.

[7]Excludes Mature Savings.

[8]The sale of the Mature Savings business completed on 7 September 2020.

[9]COVID-19 costs reflect incremental operational expenses incurred in 2020 as a result of COVID-19 and include the provision of IT spend on remote working solutions.

[10]Operating profit is an Alternative Performance Measure and represents Group adjusted operating profit as defined on page 101.

[11]LGI investment variance is the formulaic impact of rising (positive) and falling (negative) interest rates on the discount rate (both UK and US) 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 101.

[13] £3.1bn of global PRT includes a £925m Assured Payment Policy for Legal & General's Group UK Pension.

[14] 8.4% Solvency II margin represents UK pension risk transfer volume (LGRI) and individual annuity volume (LGRR).

[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 101.

[16] Solvency II coverage ratio on a "shareholder view". Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2021.

[17] For example, UK 10 year Gilts at 0.72% at the end of the period, having increased 52bps between 31 December 2020 and 30 June 2021.

[18] Solvency II coverage ratio on a proforma basis includes the SCR attributable to our Group final salary pension plans in both the Group's Own Funds and the SCR. Incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2021.

[19] Calculated using annualised profit for the year and average equity attributable to the owners of the parent of £9,677m.

[20] IPE, Top 500 Asset Managers 2021.

[21] Three year average (2018-2020) measured by UK PRT new business volumes. Three year average measured by UK PRT deal count from LGIM clients is 67%.

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

[23] For more information please refer to www.legalandgeneralgroup.com/investors/esg-investors/

[24] Proprietary assets relate to Investments to which shareholders are directly exposed (excluding client and policyholder assets, derivatives, cash, cash equivalents and loans), as disclosed in Note 7.01.

[25] www.legalandgeneralgroup.com/media/18377/fy2020-lg-tcfd-report.pdf

[26] Represents voting instructions for main FTSE pooled funds.

[27] 2020 Sustainability and Inclusive Capitalism 2020-2021

[28] $130tn investment needed to 2050 in order to achieve zero emissions, scaled pro-rata to 2025. BloombergNEF: New energy outlook 2021 https://about.bnef.com/new-energy-outlook/

[29] The ambition is based on the aggregate performance over a five-year period. Performance may vary from year to year and individual statements may not be met in

each year on a standalone basis. Dividend decisions are subject to final Board approval.

[30] Cash generation is net release from operations, capital generation is Solvency II operational surplus generation. Dividends on a declared basis. On the basis of a flat final 2020 dividend, and 3-6% annual growth thereafter.

[31] Self-financing means that LGR can write up to £10-11bn of UK annuity new business volume per annum, while contributing to a) its share of a progressive Group dividend, and b) the Group Solvency coverage ratio increasing over time.

[32] Legal & General 2020 Capital Markets Event, slide 26.

[33] Pension Purple Book 2020, PPF; Hymans Robertson, 2019 Risk Transfer Report; 2021 de-risking report, Willis Towers Watson.

[34] LGR market view based on discussions with external Employee Benefit consultants.

[35] Pension buy-ins/outs: Predictions for 2021 and beyond; LCP.

[36] LIMRA, March 2020.

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

[38] FCA Retirement Income Data Apr 2018 - March 2020.

[39] Broadridge DC Report 2019.

[40] ABI Q1 2021 Report.

[41] Legal & General 2020 Capital Markets Event, slide 79.

[42] Note: We expect a neutral financial impact. LGIM's financial ambitions remain as stated in previous market guidance.

[43] $130tn investment needed to 2050 in order to achieve net zero emissions (midpoint of estimated range), BloombergNEF: New energy outlook 2021 https://about.bnef.com/new-energy-outlook/

[44] LGRA market view based on discussions with external Employee Benefit consultants.

[45] 2015: $445m, 1; 2016: $448m, 6; 2017: $713m, 15; 2018: $844m, 21; 2019: $1,140m, 10; 2020: $1,614m, 17; H1 2021: $149m, 3.

[46] ABI Q1 2021 Report.

[47] LGR's total annuity asset portfolio represents our UK and US annuities businesses. See note 5.04 and note 7.01 for more detail.

[48] Includes LGR direct investment bonds (£21,023m), direct investment property (£4,639m), direct investments equity (£9m), and other assets (£100m). Please see note 7.02b for more information.

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

[50] Ranked ninth by AUM, Japanese industry publication Nenkin joho (Pension News) 5 Apr 2021.

[51] ETFBook. This source also applies to other references to market data, and to market shares, in this section.

[52] ABI Q1 2021 Report.

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