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.

 

 

Legal & General Group Plc

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).

 

 

Legal & General Group Plc

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 Funds4,5

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%).

 

 

Legal & General Group Plc

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).

 

 

(c) Analysis of change

 

 

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).

 

 

 

Legal & General Group Plc

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 margin2,3

-

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.

 

 

 

Legal & General Group Plc

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 ratings1,2

0.5

11

0.5

11

 

Credit spreads narrow by 100bps assuming an escalating addition to ratings1,2

(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 ratings1,3

(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 rates7,8

(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.

 

 

 

Legal & General Group Plc

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.

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

Capital   Page 84

 

6.02 Estimated Solvency II new business contribution (continued)

 

(c) Assumptions

 

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.

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

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.

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

   Page 86

 

 

 

 

 

 

 

 

 

 

 

 

 

This page is intentionally left blank

 

 

 

 

 

 

 

 

 

 

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

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 management1,2

 

 

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.

 

 

Legal & General Group Plc

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

1,739

-

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.

 

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

Investments   Page 89

 

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.

 

 

 

 

Legal & General Group Plc

Half Year Results 2021 Part 3

 

Investments   Page 90

 

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.

 

 

Legal & General Group Plc

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.

 

 

Legal & General Group Plc

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.

 

 

 

Legal & General Group Plc

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal & General Group Plc

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.

 

 

Legal & General Group Plc

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

rated1,2

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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