L&G Half Year Results 2021 Part 3

RNS Number : 4745H

Legal & General Group Plc

04 August 2021

Legal & General Group Plc

Half Year Results 2021 Part 3

Asset and premium flows Page 73

5.01 LGIM total assets under management¹ (AUM)

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the six month period to 30 June 2021	£bn	£bn	£bn	£bn	£bn	£bn


As 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 flows³	4.7	2.3	1.8	18.8	(0.2)	27.4
Internal net flows⁴	(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 movements⁵	-	(0.4)	-	-	-	(0.4)
Market and other movements³	37.1	(3.1)	2.8	(14.6)	0.4	22.6



As at 30 June 2021	471.4	190.1	68.1	563.5	33.7	1,326.8

Assets attributable to:
External						1,213.6
Internal						113.2


1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £345.3bn (30 June 2020: £348.3bn; 31 December 2020: £340.1bn) of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2021 was £51.5bn (30 June 2020: £62.3bn; 31 December 2020: £45.8bn) and the movement in these assets is included in market and other movements for Solutions assets.
4. Internal includes legacy assets from the Mature Savings business sold to ReAssure in 2020.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.

Legal & General Group Plc

Half Year Results 2021 Part 3

Asset and premium flows Page 74

5.01 LGIM total assets under management¹ (AUM) (continued)

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the six month period to 30 June 2020	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2020	403.6	177.2	58.0	526.6	30.8	1,196.2
External inflows	27.7	9.5	4.3	10.9	0.6	53.0
External outflows	(32.3)	(9.0)	(2.7)	(22.7)	(0.4)	(67.1)
Overlay net flows	-	-	-	20.1	-	20.1
ETF net flows	0.2	-	-	-	-	0.2


External net flows³	(4.4)	0.5	1.6	8.3	0.2	6.2
Internal net flows	-	(0.2)	(0.7)	(0.1)	0.4	(0.6)


Total net flows	(4.4)	0.3	0.9	8.2	0.6	5.6
Cash management movements⁴	-	2.8	-	-	-	2.8
Market and other movements³	(4.1)	9.2	(1.8)	32.0	0.7	36.0



As at 30 June 2020	395.1	189.5	57.1	566.8	32.1	1,240.6

Assets attributable to:
External						1,134.9
Internal						105.7


1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £348.3bn of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2020 was £62.3bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.

Legal & General Group Plc

Half Year Results 2021 Part 3

Asset and premium flows Page 75

5.01 LGIM total assets under management¹ (AUM) (continued)

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 2020	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2020	403.6	177.2	58.0	526.6	30.8	1,196.2
External inflows	76.6	17.7	8.5	27.0	1.0	130.8
External outflows	(84.7)	(17.8)	(5.3)	(36.6)	(1.4)	(145.8)
Overlay net flows	-	-	-	33.9	-	33.9
ETF net flows	1.5	-	-	-	-	1.5


External net flows³	(6.6)	(0.1)	3.2	24.3	(0.4)	20.4
Internal net flows⁴	(0.2)	2.6	(0.4)	(0.3)	0.4	2.1


Total net flows	(6.8)	2.5	2.8	24.0	-	22.5
Cash management movements⁵	-	2.4	-	-	-	2.4
Market and other movements³	33.1	11.5	2.6	8.9	1.7	57.8



As at 31 December 2020	429.9	193.6	63.4	559.5	32.5	1,278.9

Assets attributable to:
External						1,162.6
Internal						116.3


1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £340.1bn of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2020 was £45.8bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Internal net flows include flows in legacy assets from the Mature Savings business sold to ReAssure in 2020.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.

Legal & General Group Plc

Half Year Results 2021 Part 3

Asset and premium flows Page 76

5.02 LGIM total external assets under management and net flows

	Assets under management				Net flows²


	30 Jun	30 Jun	31 Dec		30 Jun		30 Jun	31 Dec
	2021	2020	2020		2021		2020	2020
	£bn	£bn	£bn		£bn		£bn	£bn


International¹	344.8	289.5	303.5		15.0		(3.2)	(1.0)

UK Institutional
- Defined contribution	125.5	96.7	112.7		4.4		5.5	5.6
- Defined benefit	689.6	706.7	699.4		4.6		2.5	7.7

UK Retail
- Retail intermediary	39.2	33.3	36.0		1.5		1.2	0.6
- Personal investing³	6.3	5.2	5.6		(0.2)		-	-

ETF⁴	8.2	3.5	5.4		2.1		0.2	1.3


Total external	1,213.6	1,134.9	1,162.6		27.4		6.2	14.2

1. International assets are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £434bn as at 30 June 2021 (30 June 2020: £385bn; 31 December 2020: £388bn).
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
3. Personal investing includes £1.6bn as at 30 June 2021 (30 June 2020: £1.4bn; 31 December 2020: £1.4bn) of AUM relating to legacy Banks and Building Society customers which is driving net outflows.
4. ETF reflects external AUM and flows invested on the platform. Total AUM managed on the platform is $13.0bn in H1 21 (H1 20: $4.8bn) and flows of $3.4bn (H1 20: $0.4bn) which include internal investment from other LGIM asset classes.


5.03 Reconciliation of assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents


				30 Jun 2021		30 Jun 2020		31 Dec 2020
				£bn		£bn		£bn

Assets under management				1,327		1,241		1,279
Derivative notionals ¹				(351)		(348)		(340)
Third party assets ²				(441)		(399)		(419)
Other ³				10		72		33


Total financial investments, investment property and cash and cash equivalents				545		566		553
Less: assets of operations classified as held for sale				-		(23)		-
Financial investments, investment property and cash and cash equivalents				545		543		553

1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.

Legal & General Group Plc

Half Year Results 2021 Part 3

Asset and premium flows Page 77

5.04 Assets under administration

	Workplace¹	Annuities²	Workplace	Annuities	Workplace	Annuities
	30 Jun 2021	30 Jun 2021	30 Jun 2020	30 Jun 2020	31 Dec 2020	31 Dec 2020
	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January	50.8	87.0	40.3	75.9	40.3	75.9
Gross inflows	7.5	3.7	3.3	3.8	10.0	10.1
Gross outflows	(1.5)	-	(0.9)	-	(2.2)	-
Payments to pensioners	-	(2.2)	-	(2.1)	-	(4.3)

Net flows	6.0	1.5	2.4	1.7	7.8	5.8
Market and other movements	3.4	(2.7)	(1.2)	3.1	2.7	5.3



As at 30 June/31 December	60.2	85.8	41.5	80.7	50.8	87.0

1. Workplace assets under administration as at 30 June 2021 includes £60.1bn (30 June 2020: £41.5bn; 31 December 2020: £50.7bn) of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2021 includes £77.3bn (30 June 2020: £73.8bn; 31 December 2020: £79.4bn) of assets under management included in Note 5.01.

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Half Year Results 2021 Part 3

Asset and premium flows Page 78

5.05 LGR new business

	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2021	2020	2020	2020
	£m	£m	£m	£m


Pension risk transfer
- UK¹	2,965	3,176	4,417	7,593
- US	107	248	1,002	1,250
Individual annuities	483	421	489	910
Lifetime & Retirement Interest Only mortgage advances	414	362	429	791


Total LGR new business	3,969	4,207	6,337	10,544


1. UK pension risk transfer includes a £925m (H1 20: £nil; H2 20: £397m) Assured Payment Policy (APP).

5.06 LGI new business
	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2021	2020	2020	2020
	£m	£m	£m	£m


UK Retail protection	105	83	92	175
UK Group protection	55	65	52	117
US protection¹	43	44	36	80


Total LGI new business	203	192	180	372


1. In local currency, US protection reflects new business of $59m for H1 2021 (H1 20: $56m; H2 20: $47m).

5.07 Gross written premiums on insurance business
	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2021	2020	2020	2020
	£m	£m	£m	£m


UK Retail protection	714	680	694	1,374
UK Group protection	274	245	137	382
US protection¹	512	550	543	1,093
Longevity insurance	152	159	168	327


Total gross written premiums on insurance business	1,652	1,634	1,542	3,176


1. In local currency, US protection reflects gross written premiums of $712m for H1 2021 (H1 20: $693m; H2 20: $710m).

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Half Year Results 2021 Part 3

Capital Page 79

6.01 Group regulatory capital - Solvency II

The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK and measures and monitors its capital resources on this basis.

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

The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Partial Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.

The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) (recalculated as at 30 June 2021). The TMTP incorporates estimated impacts of end June 2021 economic conditions and changes during 2021 to the Internal Model and Matching Adjustment. This is in line with group's management of the capital position on a dynamic TMTP basis.

(a) Capital position

As at 30 June 2021, and on the above basis, the group had a surplus of £7.5bn (31 December 2020: £7.4bn) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio on a "shareholder view" basis of 183% (31 December 2020: 177%). The shareholder view of the Solvency II capital position is as follows:
	30 Jun 2021	31 Dec 2020
	£bn	£bn


Unrestricted Tier 1 Own Funds	12.3	12.3
Restricted Tier 1 Own Funds¹	0.5	0.5
Tier 2 Subordinated liabilities²	4.3	4.5
Eligibility restrictions³	(0.5)	(0.2)
Solvency II Own Funds^4,5	16.6	17.1
Solvency Capital Requirement	(9.1)	(9.7)


Solvency II surplus	7.5	7.4
-

SCR Coverage ratio⁶	183%	177%


1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1 contingent convertible notes.
2. Tier 2 subordinated liabilities include £0.3bn of subordinated debt issued during 2009, callable in 2021. On 26 May 2021, notification was given that the group intends to redeem these notes in full on 23 July 2021. Effective from the notification date, the notes were no longer treated as Tier 2 own funds for Solvency II purposes.
3. Eligibility restrictions include £0.3bn of subordinated debt, following the notification to redeem the notes in full.
4. Solvency II Own Funds do not include an accrual for the interim dividend of £309m (31 December 2020: £754m) declared after the balance sheet date.
5. Solvency II Own Funds allow for a Risk Margin of £5.5bn (2020: £6.1bn) and TMTP of £4.8bn (2020: £5.6bn).
6. SCR Coverage ratio is based on unrounded inputs.

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

On a proforma basis, which includes the contribution of the final salary pension schemes, the coverage ratio at 30 June 2021 is 182% (31 December 2020: 175%).

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Half Year Results 2021 Part 3

Capital Page 80

6.01 Group regulatory capital - Solvency II (continued)

(b) Methodology and assumptions

The methodology, assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are broadly consistent with those set out in the group's 2020 Annual Report and Accounts and Full Year Results.

Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by the PRA, using risk free rates based on market, LIBOR swap rates net of credit risk adjustment of 10 basis points (31 December 2020: 11 basis points) for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

At 30 June 2021 the Matching Adjustment for UK GBP denominated liabilities was 90 basis points (31 December 2020: 103 basis points) after deducting an allowance for the fundamental spread equivalent to 53 basis points (31 December 2020: 55 basis points).

The table below shows the movement (net of tax) during the six month period ended 30 June 2021 in the group's Solvency II surplus.

	6 months	Full year
	30 Jun 2021	31 Dec 2020
	£bn	£bn


Surplus arising from back-book (including release of SCR)	0.7	1.3
Release of Risk Margin¹	0.3	0.6
Amortisation of TMTP²	(0.2)	(0.4)
Total operational surplus generation³	0.8	1.5
New business strain	(0.2)	(0.3)
Net surplus generation	0.6	1.2
Operating variances⁴	-	0.4
Mergers, acquisitions and disposals⁵	-	(0.1)
Market movements⁶	0.6	(1.4)
Restricted Tier 1 convertible notes⁷	-	0.5
Subordinated liabilities⁸	(0.3)	0.5
Dividends paid⁹	(0.8)	(1.0)

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

1. Based on the Risk Margin in force at 31 December 2020 and does not include the release of any Risk Margin added by new business written in 2021.
2. TMTP amortisation based on a linear run down of the 31 December 2020 TMTP.
3. Release of surplus generated by in-force business and includes management actions which at the start of the year could have been reasonably expected to take place. For 2021 these are primarily related to the planned reinsurance of back-book liabilities.
4. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, other management actions including changes in asset mix, hedging strategies, and Matching Adjustment optimisation.
5. 2020 primarily reflected the impacts of the sale of the Mature Savings business, which completed in H2 2020.
6. Market movements represent the impact of changes in investment market conditions over the year and changes to future economic assumptions. Market movements in 2021 include a decrease in the Risk Margin of £0.5bn net of tax (2020: increase of £0.7bn) and a decrease to TMTP of £0.5bn net of tax (2020: increase of £0.7bn).
7. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1 contingent convertible notes, issued in 2020. No additional issuance in 2021.
8. Subordinated liabilities reflect the restriction applied to the £0.3bn debt issued in 2009, which is no longer available as capital following the group's announcement in May 2021 to redeem these notes in full on 23 July 2021 (2020: Issuance of £0.5bn).
9. Dividends paid are the amounts from the 2020 final dividend paid in H1 2021 (2020: 2019 final dividend and 2020 interim dividend).

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Half Year Results 2021 Part 3

Capital Page 81

6.01 Group regulatory capital - Solvency II (continued)

Operational Surplus Generation is the expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.

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



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

(i) The table below provides a reconciliation of the group's IFRS Release from operations to Solvency II Operational surplus generation.
	6 months	Full year
	2021	2020
	£bn	£bn


IFRS Release from operations	0.8	1.3
Expected release of IFRS prudential margins	(0.2)	(0.5)
Releases of IFRS specific reserves¹	(0.1)	(0.2)
Solvency II investment margin^2,3	-	0.3
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	0.3	0.6

Solvency II Operational surplus generation⁴	0.8	1.5

1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined Fundamental Spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk-free rates over 2021.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2021 were reasonably expected to be implemented over the year.

(ii) The table below provides a reconciliation of the group's IFRS New business surplus to Solvency II New business strain.
	6 months	Full year
	2021	2020
	£bn	£bn


IFRS New business surplus	0.1	0.3
Removal of requirement to set up prudential margins above best estimate on new business	0.2	0.3
Set up of SCR on new business	(0.4)	(0.7)
Set up of Risk Margin on new business	(0.1)	(0.2)
Solvency II New business strain¹	(0.2)	(0.3)
1. UK PRT new business volume during 2021 was £3.0bn, compared to £7.6bn over 2020.

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


A reconciliation of the group's IFRS equity to Solvency II Own Funds is given below:
	30 Jun 2021	31 Dec 2020
	£bn	£bn
IFRS equity¹	10.3	10.0
Remove DAC, goodwill and other intangible assets and associated liabilities	(0.4)	(0.4)
Add IFRS carrying value of subordinated borrowings²	4.0	4.0
Insurance contract valuation differences³	4.0	4.5
Difference in value of net deferred tax liabilities	(0.7)	(0.6)
SCR for final salary pension schemes	(0.1)	(0.2)
Eligibility restrictions⁴	(0.5)	(0.2)
Solvency II Own Funds⁵	16.6	17.1
1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible debt note as per the Consolidated Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS and Solvency II.
4. Eligibility restrictions include the impact of redemption of £0.3bn of subordinated debt as announced by the group on 26 May 2021, in addition to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.
5. Solvency II Own Funds do not include an accrual for the interim dividend of £309m (31 December 2020: £754m) declared after the balance sheet date.

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Half Year Results 2021 Part 3

Capital Page 82

6.01 Group regulatory capital - Solvency II (continued)

(f) Sensitivity analysis The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2021 would have changed in a variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market risks, adverse stresses will happen together.

	Impact on	Impact on	Impact on	Impact on
	net of tax	net of tax	net of tax	net of tax
	Solvency II	Solvency II	Solvency II	Solvency II
	capital	coverage	capital	coverage
	surplus	ratio	surplus¹	ratio¹
	2021	2021	2020	2020
	£bn	%	£bn	%


Credit spreads widen by 100bps assuming an escalating addition to ratings^1,2	0.5	11	0.5	11
Credit spreads narrow by 100bps assuming an escalating addition to ratings^1,2	(0.7)	(12)	(0.7)	(12)
Credit spreads widen by 100bps assuming a level addition to ratings¹	0.6	12	0.7	13
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings^1,3	(0.3)	(5)	(0.4)	(5)
Credit migration⁴	(0.8)	(9)	(1.2)	(13)
25% fall in equity markets⁵	(0.5)	(4)	(0.5)	(4)
15% fall in property markets⁶	(0.8)	(7)	(0.6)	(6)
50bps increase in risk-free rates⁷	0.5	11	0.6	11
100bps increase in risk-free rates⁷	1.0	21	1.0	20
50bps decrease in risk-free rates^7,8	(0.7)	(12)	(0.7)	(11)
50bps increase in future inflation expectations⁷	(0.1)	(3)	-	(2)
Substantially reduced Risk Margin⁹	0.6	6	0.5	5

1. The spread sensitivity applies to the group's corporate bond (and similar) holdings, with no change in long-term default expectations. Restructured lifetime mortgages are excluded as the underlying exposure is mostly to property.
2. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is 100 basis points. To give a 100bps increase on the total portfolio, the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.
3. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is 2bps as the group holds less than 2% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress scenarios in the SCR calculation.
4. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, and sale and leaseback rental strips; lifetime mortgage senior notes are excluded). Downgraded assets are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet date.
5. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.
6. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.
7. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.
8. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
9. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an equivalent reduction in the Transitional Measure on Technical Provisions.

The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate and inflation stresses, we have not allowed for the recalculation of TMTP. 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.

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Half Year Results 2021 Part 3

Capital Page 83

6.02 Estimated Solvency II new business contribution

(a) New business by product ¹
Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:


		Contribution			Contribution
		from new			from new
	PVNBP²	business³	Margin⁴	PVNBP²	business³	Margin⁴
	6 months	6 months	6 months	Full year	Full year	Full year
	2021	2021	2021	2020	2020	2020
	£m	£m	%	£m	£m	%


LGR - UK annuity business	3,269	274	8.4	8,503	901	10.6

UK Protection Total	1,089	83	7.6	1,887	160	8.5
- Retail Protection	828	65	7.8	1,359	123	9.1
- Group Protection	261	18	7.1	528	37	7.0

US Protection⁵	413	48	11.5	829	94	11.2


1. Selected lines of business only.
2. PVNBP excludes quota share reinsurance single premium of £0.2bn relating to LGR new business, where the treaty was finalised after the balance sheet date.
3. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the year using the risk discount rate applicable at the end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US Protection reflects PVNBP of $574m (31 December 2020: $1,064m) and a contribution from new business of $66m (31 December 2020: $120m).

The decrease in LGR margin was driven by the shorter average duration for the schemes written in the first six months of the year, compared to the schemes written in prior year. For UK Protection the contribution from new business is supported by strong volumes in Retail Protection where the reduction in margin is largely due to pricing action, movements in product mix and changes in market conditions in H1 2021. The US Protection margin improved compared to the prior full year. The increase is driven by business mix and modified reinsurance terms on digital products.

(b) Basis of preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2020 Annual Report and Accounts and Full Year Results.

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGR, LGI and LGA.

Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The LGA new business margin assumes that the new business will continue to be reinsured in 2021 and looks through the intra-group arrangements.

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Capital Page 84

6.02 Estimated Solvency II new business contribution (continued)

The key economic assumptions are as follows:

	30 Jun 2021	31 Dec 2020
	%	%


Margin for Risk	3.6	3.9

Risk-free rate
- UK	1.1	0.5
- US	1.5	0.9
Risk discount rate (net of tax)
- UK	4.7	4.4
- US	5.1	4.8

Long-term rate of return on non-profit annuities in LGR	2.4	2.1

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. In particular:

· The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2021 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 15 basis points.

· Non-economic assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding development costs). An allowance is made for future mortality improvement. For new business, mortality assumptions may be modified to take certain scheme specific features into account.

The profits on the new business are presented gross of tax.

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Capital Page 85

6.02 Estimated Solvency II new business contribution (continued)

(d) Reconciliation of PVNBP to gross written premium

A reconciliation of PVNBP and gross written premium is given below:
		6 months	Full year
		2021	2020
	Notes	£bn	£bn


PVNBP	6.02 (a)	4.8	11.2
Effect of capitalisation factor		(1.3)	(2.3)


New business premiums from selected lines		3.5	8.9
Other¹		0.7	2.0


Total LGR and LGI new business	5.05,5.06	4.2	10.9
Annualisation impact of regular premium long-term business		(0.2)	(0.2)
IFRS gross written premiums from existing long-term insurance business		1.6	3.0
Deposit accounting for investment products		(1.3)	(1.2)


Total gross written premiums²		4.3	12.5


1. Other principally includes annuity sales in the US, lifetime and retirement interest only mortgage advances and the reversal of a quota share reinsurance single premium of £0.2bn relating to LGR new business, where the treaty was finalised after the balance sheet date.
2. Total gross written premiums include £55m of gross written premiums relating to a residual reinsurance treaty following the disposal of the General Insurance business.

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Investments Page 87

7.01 Investment portfolio

	Market	Market	Market
	value	value	value
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	£m	£m	£m


Worldwide total assets under management^1,2	1,333,203	1,247,960	1,285,489
Client and policyholder assets	(1,218,560)	(1,119,803)	(1,161,631)
Non-unit linked with-profits assets	-	(9,854)	-


Investments to which shareholders are directly exposed	114,643	118,303	123,858


1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.
2. As part of a change in accounting policy in 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balance for Worldwide total assets under management has been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

Analysed by investment class:

			Other
			non-profit		Other
		LGR	insurance	LGC	shareholder
		investments	investments	investments	investments	Total	Total	Total
		30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec
		2021	2021	2021	2021	2021	2020	2020
	Notes	£m	£m	£m	£m	£m	£m	£m


Equities		11	31	2,739	307	3,088	2,812	3,086
Bonds ³	7.03	78,226	2,366	1,827	280	82,699	81,337	85,502
Derivative assets ⁴		13,987	-	32	-	14,019	22,388	20,936
Property	7.04	4,639	-	464	-	5,103	4,250	4,672
Loans ^3,5		3,472	29	789	11	4,301	2,000	4,248


Financial investments	4.04 (a)	100,335	2,426	5,851	598	109,210	112,787	118,444


Cash and cash equivalents		1,866	242	1,222	410	3,740	3,777	3,616
Other assets ⁶		100	-	1,593	-	1,693	1,739	1,798


Total investments		102,301	2,668	8,666	1,008	114,643	118,303	123,858


3. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Bonds and Loans have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.
4. Derivative assets are shown gross of derivative liabilities of £17.7bn (30 June 2020: £24.9bn; 31 December 2020: £21.2bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for assets and liability management.
5. Loans include reverse repurchase agreements of £4,152m (30 June 2020: £1,868m; 31 December 2020: £4,117m).
6. Other assets include finance leases of £87m (30 June 2020: £89m; 31 December 2020: £88m), associates and joint ventures of £314m (30 June 2020: £328m; 31 December 2020: £288m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

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Half Year Results 2021 Part 3

Investments Page 88

7.02 Direct investments

(a) Analysed by asset class


	Direct¹	Traded²		Direct¹	Traded²		Direct¹	Traded²
	investments	securities	Total	investments	securities	Total	investments	securities	Total
	30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec	31 Dec	31 Dec
	2021	2021	2021	2020	2020	2020	2020	2020	2020
	£m	£m	£m	£m	£m	£m	£m	£m	£m


Equities	1,202	1,886	3,088	1,142	1,670	2,812	1,145	1,941	3,086
Bonds ^3,5	22,218	60,481	82,699	20,612	60,725	81,337	21,555	63,947	85,502
Derivative assets	-	14,019	14,019	-	22,388	22,388	-	20,936	20,936
Property ⁴	5,103	-	5,103	4,250	-	4,250	4,672	-	4,672
Loans and other receivables ⁵	119	4,182	4,301	145	1,855	2,000	99	4,149	4,248

Financial investments	28,642	80,568	109,210	26,149	86,638	112,787	27,471	90,973	118,444

Cash and cash equivalents	221	3,519	3,740	69	3,708	3,777	42	3,574	3,616
Other assets	1,693	-	1,693	1,739	-	1,739	1,798	-	1,798


Total investments	30,556	84,087	114,643	27,957	90,346	118,303	29,311	94,547	123,858
1. Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £6,325m (30 June 2020: £5,478m; 31 December 2020: £6,036m).
4. A further breakdown of property is provided in Note 7.04.
5. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Bonds and Loans and other receivables have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

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Half Year Results 2021 Part 3

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7.02 Direct investments (continued)

(b) Analysed by segment

		LGR	LGC ¹	LGI	Total
		30 Jun	30 Jun	30 Jun	30 Jun
		2021	2021	2021	2021
		£m	£m	£m	£m
	-

Equities		9	1,077	116	1,202
Bonds²		21,023	3	1,192	22,218
Property		4,639	464	-	5,103
Loans and other receivables		-	119	-	119
Financial investments		25,671	1,663	1,308	28,642
Other assets, cash and cash equivalents		100	1,814	-	1,914
Total direct investments		25,771	3,477	1,308	30,556

1. LGC includes £52m of equities that belong to other shareholder funds.
2. Bonds include lifetime mortgage loans of £6,325m.


	LGR	LGC¹	LGI	Total
	30 Jun	30 Jun	30 Jun	30 Jun
	2020	2020	2020	2020
	£m	£m	£m	£m


Equities	-	1,068	74	1,142
Bonds ^2,3	19,444	3	1,165	20,612
Property	4,016	234	-	4,250
Loans and other receivables ³	-	145	-	145
Financial investments	23,460	1,450	1,239	26,149
Other assets, cash and cash equivalents	104	1,700	4	1,808
Total direct investments	23,564	3,150	1,243	27,957

1. LGC includes £48m of equities that belong to other shareholder funds.
2. Bonds include lifetime mortgage loans of £5,478m.
3. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were classified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Bonds and Loans and other receivables have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.



	LGR	LGC¹	LGI	Total
	31 Dec	31 Dec	31 Dec	31 Dec
	2020	2020	2020	2020
	£m	£m	£m	£m


Equities	-	1,043	102	1,145
Bonds²	20,306	3	1,246	21,555
Property	4,319	353	-	4,672
Loans and other receivables	-	99	-	99
Financial investments	24,625	1,498	1,348	27,471
Other assets, cash and cash equivalents	106	1,730	4	1,840
Total direct investments	24,731	3,228	1,352	29,311

1. LGC included £47m of equities that belong to other shareholder funds.
2. Bonds include lifetime mortgage loans of £6,036m.

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7.03 Bond portfolio summary

(a) Sectors analysed by credit rating



					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 30 June 2021	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,925	10,091	1,249	335	10	-	13,610	17
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	-	58	39	4	-	101	-
- Senior	-	1,024	3,490	790	2	-	5,306	6
- Covered	151	-	-	-	-	-	151	-
Financial Services:
- Tier 2 and other subordinated	-	113	57	21	-	-	191	-
- Senior	55	443	406	393	9	-	1,306	2
Insurance:
- Tier 2 and other subordinated	64	196	31	58	-	-	349	-
- Senior	-	221	405	542	-	-	1,168	1
Consumer Services and Goods:
- Cyclical	-	84	1,135	1,772	193	-	3,184	4
- Non-cyclical	338	1,052	2,658	3,936	344	-	8,328	10
- Health Care	-	605	851	690	5	-	2,151	3
Infrastructure:
- Social	208	746	4,669	916	77	-	6,616	8
- Economic	311	51	766	4,053	183	-	5,364	6
Technology and Telecoms	174	209	1,462	3,085	22	1	4,953	6
Industrials	-	31	672	694	22	-	1,419	2
Utilities	-	207	5,629	5,861	27	-	11,724	14
Energy	-	-	468	589	16	-	1,073	1
Commodities	-	-	365	910	8	-	1,283	2
Oil and Gas	-	560	1,047	389	274	-	2,270	3
Real estate	-	11	1,728	1,591	177	-	3,507	4
Structured finance ABS / RMBS / CMBS / Other	423	798	403	603	24	1	2,252	3
Lifetime mortgage loans¹	3,852	1,509	524	427	-	13	6,325	8
CDOs	-	55	-	13	-	-	68	-


Total £m	7,501	18,006	28,073	27,707	1,397	15	82,699	100


Total %	9	22	34	33	2	-	100


1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring. 2. The group's bond portfolio is dominated by LGR investments. These account for £78,226m, representing 95% of the total group portfolio.

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Half Year Results 2021 Part 3

Investments Page 91

7.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)
					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 30 June 2020	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	2,521	11,299	738	449	26	-	15,033	19
Banks:
- Tier 1	-	-	-	1	-	1	2	-
- Tier 2 and other subordinated	-	-	69	42	5	-	116	-
- Senior	-	1,335	2,192	545	1	-	4,073	5
- Covered	187	-	4	-	-	-	191	-
Financial Services:
- Tier 2 and other subordinated	-	120	70	11	-	4	205	-
- Senior	2	447	176	267	9	-	901	1
Insurance:
- Tier 2 and other subordinated	56	139	8	63	-	-	266	-
- Senior	-	257	538	311	-	-	1,106	1
Consumer Services and Goods:					-	-		-
- Cyclical	-	354	1,089	1,961	333	2	3,739	5
- Non-cyclical	305	883	2,803	4,006	316	1	8,314	10
- Health Care	-	376	856	636	7	-	1,875	2
Infrastructure:
- Social	216	771	4,331	877	89	-	6,284	8
- Economic	332	58	920	3,626	337	-	5,273	7
Technology and Telecoms	206	204	1,612	2,844	41	-	4,907	6
Industrials	-	12	847	681	27	-	1,567	2
Utilities	-	221	5,540	5,733	6	-	11,500	15
Energy	-	-	424	859	12	-	1,295	2
Commodities	-	-	286	748	17	-	1,051	1
Oil and Gas	-	649	1,037	539	274	-	2,499	3
Real estate	-	7	1,685	1,608	101	-	3,401	4
Structured finance ABS / RMBS / CMBS / Other³	372	767	294	519	225	1	2,178	2
Lifetime mortgage loans¹	3,427	1,384	304	350	-	13	5,478	7
CDOs	-	57	11	15	-	-	83	-


Total £m	7,624	19,340	25,834	26,691	1,826	22	81,337	100


Total %	9	24	32	33	2	-	100


1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These account for £76,406m, representing 94% of the total group portfolio.
3. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS / Other have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

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Half Year Results 2021 Part 3

Investments Page 92

7.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)



					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2020	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	2,747	12,187	903	398	9	-	16,244	19
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	-	61	43	3	-	107	-
- Senior	-	1,182	3,314	678	1	-	5,175	6
- Covered	158	-	-	-	-	-	158	-
Financial Services:
- Tier 2 and other subordinated	-	120	71	10	-	3	204	-
- Senior	55	488	202	323	9	-	1,077	1
Insurance:
- Tier 2 and other subordinated	65	161	8	59	-	-	293	-
- Senior	-	273	492	401	-	-	1,166	1
Consumer Services and Goods:
- Cyclical	-	24	1,158	1,771	288	-	3,241	4
- Non-cyclical	366	1,153	2,849	4,057	324	-	8,749	10
- Health care	-	437	886	669	5	-	1,997	2
Infrastructure:
- Social	217	766	4,579	814	79	-	6,455	8
- Economic	328	61	784	4,006	290	-	5,469	7
Technology and Telecoms	193	229	1,633	3,080	31	1	5,167	6
Industrials	-	16	709	759	26	-	1,510	2
Utilities	-	207	6,034	5,526	27	-	11,794	14
Energy	-	-	429	784	19	-	1,232	1
Commodities	-	-	351	919	7	-	1,277	2
Oil and Gas	-	773	958	467	276	-	2,474	3
Real estate	-	8	1,622	1,675	93	-	3,398	4
Structured finance ABS / RMBS / CMBS / Other	429	772	400	578	27	1	2,207	3
Lifetime mortgage loans¹	3,611	1,533	494	385	-	13	6,036	7
CDOs	-	58	-	14	-	-	72	-


Total £m	8,169	20,448	27,937	27,416	1,514	18	85,502	100


Total %	9	24	33	32	2	-	100


1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring. 2. The group's bond portfolio is dominated by LGR investments. These account for £80,438m, representing 94% of the total group portfolio.

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Half Year Results 2021 Part 3

Investments Page 93

7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile



			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 30 June 2021	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	9,937	1,900	861	912	13,610
Banks	1,807	1,828	1,241	682	5,558
Financial Services	532	344	555	66	1,497
Insurance	103	1,239	60	115	1,517
Consumer Services and Goods:
- Cyclical	446	2,088	503	147	3,184
- Non-cyclical	1,952	5,822	382	172	8,328
- Health care	285	1,785	80	1	2,151
Infrastructure:
- Social	5,826	582	160	48	6,616
- Economic	3,941	847	226	350	5,364
Technology and Telecoms	407	2,981	707	858	4,953
Industrials	186	815	351	67	1,419
Utilities	6,834	2,230	2,075	585	11,724
Energy	229	622	96	126	1,073
Commodities	6	564	183	530	1,283
Oil and Gas	213	634	792	631	2,270
Real estate	2,089	562	620	236	3,507
Structured Finance ABS / RMBS / CMBS / Other	919	1,237	11	85	2,252
Lifetime mortgage loans	6,325	-	-	-	6,325
CDOs	-	-	-	68	68


Total	42,037	26,080	8,903	5,679	82,699

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Half Year Results 2021 Part 3

Investments Page 94

7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)

			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 30 June 2020	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	11,035	2,603	859	536	15,033
Banks	998	1,696	1,181	507	4,382
Financial Services	415	189	490	12	1,106
Insurance	111	934	203	124	1,372
Consumer Services and Goods:
- Cyclical	539	2,666	367	167	3,739
- Non-cyclical	1,715	6,037	424	138	8,314
- Health care	204	1,603	68	-	1,875
Infrastructure:
- Social	5,670	452	111	51	6,284
- Economic	3,945	830	190	308	5,273
Technology and Telecoms	593	2,677	755	882	4,907
Industrials	78	1,075	348	66	1,567
Utilities	6,597	2,332	2,055	516	11,500
Energy	228	813	112	142	1,295
Commodities	4	346	167	534	1,051
Oil and Gas	253	644	796	806	2,499
Real estate	2,196	381	618	206	3,401
Structured Finance ABS / RMBS / CMBS / Other ¹	941	1,210	12	15	2,178
Lifetime mortgage loans	5,478	-	-	-	5,478
CDOs	-	-	-	83	83


Total	41,000	26,488	8,756	5,093	81,337


1. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS / Other have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

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Half Year Results 2021 Part 3

Investments Page 95

7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)



			EU
			excluding	Rest of
	UK	US	UK	the World	Total
As at 31 December 2020	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	11,797	2,425	1,176	846	16,244
Banks	1,687	1,907	1,463	383	5,440
Financial Services	391	298	525	67	1,281
Insurance	109	1,049	181	120	1,459
Consumer Services and Goods
- Cyclical	543	2,201	360	137	3,241
- Non-cyclical	1,789	6,403	389	168	8,749
- Health care	209	1,694	94	-	1,997
Infrastructure
- Social	5,809	487	112	47	6,455
- Economic	4,071	853	231	314	5,469
Technology and Telecoms	485	3,098	754	830	5,167
Industrials	191	927	330	62	1,510
Utilities	6,886	2,236	2,097	575	11,794
Energy	244	758	105	125	1,232
Commodities	3	596	165	513	1,277
Oil and Gas	232	642	832	768	2,474
Real estate	2,168	384	634	212	3,398
Structured finance ABS / RMBS / CMBS / Other	944	1,207	11	45	2,207
Lifetime mortgage loans	6,036	-	-	-	6,036
CDOs	-	-	-	72	72


Total	43,594	27,165	9,459	5,284	85,502

Legal & General Group Plc

Half Year Results 2021 Part 3

Investments Page 96

7.03 Bond portfolio summary (continued)

(c) Bond portfolio analysed by credit rating

	Externally	Internally
	rated	rated¹	Total
As at 30 June 2021	£m	£m	£m


AAA	3,254	4,247	7,501
AA	14,732	3,274	18,006
A	20,595	7,478	28,073
BBB	21,462	6,245	27,707
BB or below	970	427	1,397
Other	1	14	15


Total	61,014	21,685	82,699



	Externally	Internally
	rated	rated^1,2	Total
As at 30 June 2020	£m	£m	£m


AAA	3,808	3,816	7,624
AA	15,720	3,620	19,340
A	19,457	6,377	25,834
BBB	20,835	5,856	26,691
BB or below	1,114	712	1,826
Other	8	14	22


Total	60,942	20,395	81,337



	Externally	Internally
	rated	rated¹	Total
As at 31 December 2020	£m	£m	£m


AAA	4,101	4,068	8,169
AA	17,101	3,347	20,448
A	21,235	6,702	27,937
BBB	21,307	6,109	27,416
BB or below	1,049	465	1,514
Other	4	14	18


Total	64,797	20,705	85,502


1. Where external ratings are not available an internal rating has been used where practicable to do so.
2. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity reserves, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS / Other have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

Legal & General Group Plc

Half Year Results 2021 Part 3

Investments Page 97

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded




	Direct
	investments	Traded	Total
As at 30 June 2021	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	991	12,619	13,610
Banks	628	4,930	5,558
Financial Services	396	1,101	1,497
Insurance	162	1,355	1,517
Consumer Services and Goods:
- Cyclical	469	2,715	3,184
- Non-cyclical	386	7,942	8,328
- Health care	339	1,812	2,151
Infrastructure:
- Social	3,507	3,109	6,616
- Economic	3,696	1,668	5,364
Technology and Telecoms	129	4,824	4,953
Industrials	58	1,361	1,419
Utilities	1,656	10,068	11,724
Energy	331	742	1,073
Commodities	57	1,226	1,283
Oil and Gas	57	2,213	2,270
Real estate	2,109	1,398	3,507
Structured Finance ABS / RMBS / CMBS / Other	925	1,327	2,252
Lifetime mortgage loans	6,325	-	6,325
CDOs	-	68	68


Total	22,221	60,478	82,699

Legal & General Group Plc

Half Year Results 2021 Part 3

Investments Page 98

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded (continued)




	Direct
	investments	Traded	Total
As at 30 June 2020	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	846	14,187	15,033
Banks	482	3,900	4,382
Financial Services	250	856	1,106
Insurance	318	1,054	1,372
Consumer Services and Goods:
- Cyclical	230	3,509	3,739
- Non-cyclical	469	7,845	8,314
- Health care	325	1,550	1,875
Infrastructure:
- Social	3,417	2,867	6,284
- Economic	3,521	1,752	5,273
Technology and Telecoms	191	4,716	4,907
Industrials	78	1,489	1,567
Utilities	1,346	10,154	11,500
Energy	347	948	1,295
Commodities	58	993	1,051
Oil and Gas	55	2,444	2,499
Real estate	2,272	1,129	3,401
Structured Finance ABS / RMBS / CMBS / Other ¹	929	1,249	2,178
Lifetime mortgage loans	5,478	-	5,478
CDOs	-	83	83


Total	20,612	60,725	81,337


1. As part of a change in accounting policy in the second half of 2020 for LGIA universal life and annuity liabilities, certain financial investments were reclassified from designated as amortised cost to designated as fair value through profit or loss. Accordingly, the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS / Other have been restated to reflect the fair value of those assets. Further details on the impact of the 2020 change in accounting policy are provided in Note 4.01.

Legal & General Group Plc

Half Year Results 2021 Part 3

Investments Page 99

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded (continued)




	Direct
	investments	Traded	Total
As at 31 December 2020	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	889	15,355	16,244
Banks	644	4,796	5,440
Financial Services	310	971	1,281
Insurance	282	1,177	1,459
Consumer Services and Goods:
- Cyclical	351	2,890	3,241
- Non-cyclical	396	8,353	8,749
- Health care	363	1,634	1,997
Infrastructure:
- Social	3,283	3,172	6,455
- Economic	3,726	1,743	5,469
Technology and Telecoms	93	5,074	5,167
Industrials	64	1,446	1,510
Utilities	1,475	10,319	11,794
Energy	355	877	1,232
Commodities	59	1,218	1,277
Oil and Gas	58	2,416	2,474
Real estate	2,301	1,097	3,398
Structured Finance ABS / RMBS / CMBS / Other	870	1,337	2,207
Lifetime mortgage loans	6,036	-	6,036
CDOs	-	72	72


Total	21,555	63,947	85,502

Legal & General Group Plc

Half Year Results 2021 Part 3

Investments Page 100

7.04 Property analysis

Property exposure within Direct investments by status



	LGR¹	LGC²	Total
As at 30 June 2021	£m	£m	£m	%


Fully let	4,035	-	4,035	79
Development	604	323	927	18
Land	-	141	141	3

Total	4,639	464	5,103	100




	LGR¹	LGC²	Total
As at 30 June 2020	£m	£m	£m	%


Fully let	3,663	-	3,663	86
Development	353	104	457	11
Land	-	130	130	3

Total	4,016	234	4,250	100




	LGR¹	LGC²	Total
As at 31 December 2020	£m	£m	£m	%

Fully let	3,974	-	3,974	85
Development	345	224	569	12
Land	-	129	129	3

Total	4,319	353	4,672	100

1. The fully let LGR property includes £4.0bn (30 June 2020: £3.5bn; 31 December 2020: £3.8bn) let to investment grade tenants.
2. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Receivables and other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2021 the group held a total of £2,190m (30 June 2020: £2,261m; 31 December 2020: £2,179m) of such assets.

Legal & General Group Plc

Half Year Results 2021 Part 3

Alternative Performance Measures Page 101

An alternative performance measure (APM) is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. APMs offer investors and stakeholders additional information on the company's performance and the financial effect of 'one-off' events, and the group uses a range of these metrics to enhance understanding of the group's performance. However, APMs should be viewed as complementary to, rather than as a substitute for, the figures determined according to other regulations. The APMs used by the group are listed in this section, along with their definition/explanation, their closest IFRS measure and reference to reconciliations to those IFRS measures.

Group adjusted operating profit

Definition

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

Group adjusted operating profit was previously described as 'operating profit'. In order to maintain a consistent understanding of the group's performance the term 'operating profit' will continue to be used throughout the Interim Management Report, the Annual Report and Accounts, and other external reporting, as a substitute for group adjusted operating profit.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 2.01 Operating profit.

Return on Equity (ROE)

Definition

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

Closest IFRS measure

Calculated using:

- Profit attributable to equity holders

- Equity attributable to owners of the parent

Reconciliation

Calculated using annualised profit attributable to equity holders for the period of £2,130m (30 June 2020: £580m; 31 December 2020: £1,607m) and average equity attributable to the owners of the parent of £9,677m (30 June 2020: £9,140m; 31 December 2020: £9,270m).

Assets under Management

Definition

Funds which are managed by our fund managers on behalf of investors. It represents the total amount of money investors have trusted with our fund managers to invest across our investment products.

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

Reconciliation

Note 5.03 Reconciliation of assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents.

Net release from operations

Definition

Release from operations plus new business surplus/(strain). Net release from operations was previously referred to as net cash, and includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Notes 2.01 Operating profit and 2.02 Reconciliation of release from operations to operating profit before tax .

Adjusted profit before tax attributable to equity holders

Definition

The APM measures profit before tax attributable to shareholders incorporating actual investment returns experienced during the year and the pre-tax results of discontinued operations.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 2.01 Operating profit.

Legal & General Group Plc

Half Year Results 2021 Part 3

Glossary Page 102

* These items represent an alternative performance measure (APM)

Ad valorem fees

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

Adjusted profit before tax attributable to equity holders*

Refer to the alternative performance measures section.

Advisory assets

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

Alternative performance measures (APMs)

An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II.

Annual premium

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

Annual premium equivalent (APE)

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

Annuity

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

Assets under administration (AUA)

Assets administered by Legal & General which are beneﬁcially owned by clients and are therefore not reported on the Consolidated Balance Sheet. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.

Assets under management (AUM)*

Refer to the alternative performance measures section.

Back book acquisition

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

Bundled DC solution

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

Bundled pension schemes

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

CAGR

Compound annual growth rate.

Credit rating

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

Deduction and aggregation (D&A)

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

Defined benefit pension scheme (DB scheme)

A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.

Defined contribution pension scheme (DC scheme)

A type of pension plan where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer. They provide benefits based upon the money held in each individual's plan specifically on behalf of each member. The amount in each plan at retirement will depend upon the investment returns achieved and on the member and employer contributions.

Derivatives

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

Direct investments

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

Dividend cover

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

Legal & General Group Plc

Half Year Results 2021 Part 3

Glossary Page 103

Earnings per share (EPS)

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

Eligible Own Funds

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

Employee engagement index

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

ETF

LGIM's European Exchange Traded Fund platform.

Euro Commercial paper

Short term borrowings with maturities of up to 1 year typically issued for working capital purposes.

FVTPL

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

Full year dividend

Full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).

Generally accepted accounting principles (GAAP)

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

by the accounting community to report financial information.

Gross written premiums (GWP)

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

Group adjusted operating profit*

Refer to the alternative performance measures section.

ICAV - Irish Collective Asset-Management Vehicle

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

Index tracker (passive fund)

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

International financial reporting standards (IFRS)

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

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

groups in the UK are required to use.

Key performance indicators (KPIs)

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

LGA

Legal & General America.

LGAS

Legal and General Assurance Society Limited.

LGC

Legal & General Capital.

LGI

Legal & General Insurance.

LGI new business

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

LGIA

Legal & General Insurance America.

LGIM

Legal & General Investment Management

LGR

Legal & General Retirement, which includes Legal & General Retirement Institutional (LGRI) and Legal & General Retirement Retail (LGRR).

LGR new business

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

Legal & General Group Plc

Half Year Results 2021 Part 3

Glossary Page 104

Liability driven investment (LDI)

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent in final salary pension plans, whose liabilities can often reach into billions of pounds for the largest of plans.

Lifetime mortgages

An equity release product aimed at people aged 55 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.

Matching adjustment

An adjustment to the discount rate used for annuity liabilities in Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.

Mortality rate

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

Net release from operations*

Refer to the alternative performance measures section.

New business surplus/strain

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

Open architecture

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

Overlay assets

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

Pension risk transfer (PRT)

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

Persistency

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

Platform

Online services used by intermediaries and consumers to view and administer their investment portfolios. Platforms usually provide facilities for buying and selling investments (including, in the UK products such as Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life insurance) and for viewing an individual's entire portfolio to assess asset allocation and risk exposure.

Present value of future new business premiums (PVNBP)

PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the new business value at the end of the financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums are calculated on a net of reinsurance basis to enable a more representative margin figure. PVNBP therefore provides an estimate of the present value of the premiums associated with new business written in the year.

Purchased interest in long term business (PILTB)

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

acquired via a business combination.

Real assets

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

Release from operations

The expected IFRS surplus generated in the period from the difference between IFRS prudent assumptions and our best estimate of future experience for in-force LGR and UK Insurance businesses, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from LGIA.

Return on Equity (ROE)*

Refer to the alternative performance measures section.

Risk appetite

The aggregate level and types of risk a company is willing to assume in its exposures and business activities in order to achieve its business objectives.

Single premiums

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

Solvency II

The Solvency II regulatory regime is a harmonised prudential framework for insurance ﬁrms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to appropriately align insurers' risk with the capital they hold to safeguard the policyholders' interest.

Legal & General Group Plc

Half Year Results 2021 Part 3

Glossary Page 105

Solvency II capital coverage ratio

The Eligible Own Funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by Eligible Own Funds.

Solvency II capital coverage ratio (proforma basis)

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

Solvency II capital coverage ratio (shareholder view basis)

In order to represent a shareholder view of group solvency position, the contribution of the defined benefit pension scheme are excluded from both, the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 30 June 2021. This will be submitted to the PRA in August 2021.

Solvency II new business contribution

Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.

Solvency II risk margin

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

Solvency II surplus

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

Solvency Capital Requirement (SCR)

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

Total shareholder return (TSR)

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

Transitional Measures on Technical Provisions (TMTP)

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

Unbundled DC solution

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

With-profits funds

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

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

Yield

A measure of the income received from an investment compared to the price paid for the investment. It is usually expressed as a percentage.

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