L&G Half Year Results 2022 Part 1

RNS Number : 3247V

Legal & General Group Plc

09 August 2022

H1 2022 Results: Continued strong performance -
8% growth in Operating profit and EPS, 21% ROE and
SII coverage ratio of 212%

Continued delivery of strong financial performance[1]

· Operating profit of £1,160m, up 8% (H1 2021: £1,079m)

· Earnings per share of 19.28p, up 8% on H1 2021 (17.78p)

· Profit after tax[2] of £1,153m (H1 2021: £1,065m) and R eturn on equity of 21.3% (H1 2021: 22.0%)

· Solvency II coverage ratio[3] of 212% (H1 2021: 182%)

· Interim dividend of 5.44p, up 5% (H1 2021: 5.18p)

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

· Cash generation of £1.0bn, up 22% year on year. Capital generation of £0.9bn, up 14% year on year

· Cumulative cash and capital generation of £4.3bn and £4.1bn respectively , against our ambition of £8.0-9.0bn by 2024

· Cumulative dividends declared £2.5bn (H1 2022: £324m, 2020-21 £2,147m) against our ambition of £5.6-5.9bn by 2024

Strong PRT new business volumes and LGIM net flows

· Global PRT new business premiums of £4.4bn (H1 2021: £3.1bn), including our largest ever US transaction

· LGIM record H1 external net flows of £65.6bn (H1 2021: £27.4bn), with AUM down to £1.3tn due to market movements

· Protection premiums of £1,605m (H1 2021: £1,500m) and Individual annuity premiums of £453m (H1 2021: £483m)

A strong and resilient balance sheet

· No defaults in H1 or for the last 13 years. £2.7bn credit default provision remains unutilised[5]

· 99% investment grade £73.2bn annuity bond portfolio

· 100% of scheduled cashflows received from our Direct Investments

· Strong and growing IFRS and Solvency II balance sheet

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

· An established track record: HY11 to HY22 CAGR of 11% in EPS, 11% in DPS and 8% in book value per share

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

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

· Attractive global growth markets: retirement solutions ($57tn), asset management ($149tn), climate change ($20tn)[6]

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

"We've made a good start to the year, with operating profit and EPS up 8%, cash and capital generation up double digits, DPS up 5% and a return on equity of 21%. We have delivered for our institutional clients and retail customers, while generating good volumes and margins in a buoyant PRT market and continuing to scale LGC at pace - both in the UK and now also in the US - originating assets for our own business and for third parties, whilst also delivering a positive outcome for the economies where we invest. Our balance sheet is strong and highly resilient, with a solvency ratio of 212% and with 100% of cash flows received from our Direct Investments. We are committed to providing financial security for our customers and colleagues in a tough economic climate and remain confident in our ability to grow profits sustainably and at attractive returns over the long-term."

Sir Nigel Wilson, Group Chief Executive

Financial summary

£m	H1 2022	H1 2021	Growth %

Analysis of operating profit
Legal & General Retirement Institutional (LGRI)	560	525	7
Legal & General Capital (LGC)	263	250	5
Legal & General Investment Management (LGIM)	200	204	(2)
Retail[7]	332	292	14
Operating profit from divisions	1,355	1,271	7

Group debt costs	(108)	(120)	10
Group investment projects and expenses	(87)	(72)	(21)

Operating profit[8]	1,160	1,079	8

Investment and other variances (incl. minority interests)	207	241	n/a

Profit before tax attributable to equity holders[9]	1,367	1,320	4
Profit after tax attributable to equity holders	1,153	1,065	8

Earnings per share (p)	19.28	17.78	8

Book value per share (p)	186	164	13
Interim dividend per share (p)	5.44	5.18	5

H1 2022 Financial performance

Income statement

Year to date operating performance is in line with our expectations, with H1 2022 operating profit up 8% to £1,160m (H1 2021: £1,079m). All four of our divisions are well positioned to execute on compelling structural market opportunities to deliver further profitable growth over the medium and long-term, notwithstanding market volatility.

LGRI delivered operating profit growth of 7% to £560m (H1 2021: £525m), underpinned by the performance of our annuity portfolio. We executed well, writing £4,449m of global PRT at attractive Solvency II new business margins of 8.7%.[10]

LGC operating profit increased 5% to £263m (H1 2021: £250m), driven by strong performance in our alternative asset portfolio. Our housing businesses - notably CALA and Affordable Homes - have delivered another period of strong trading performance. Our Alternative Finance (Pemberton) and Venture Capital investments also continue to perform strongly.

LGIM delivered operating profit of £200m (H1 2021: £204m), a resilient result in light of market conditions. Assets under management decreased to £1,289.7bn (H1 2021: £1,326.8bn). However, external net flows were strong: £65.6bn (H1 2021: £27.4bn), of which over half were from International clients, and with continued growth in higher margin areas such as thematic ETFs, fixed income, and multi-asset. The cost income ratio (59%) reflects the impact of challenged markets on revenue (H1 2021: 58%).

Retail operating profit increased 14% to £332m (H1 2021: £292m), driven by the on-going release from operations from the growing UK protection and individual annuity portfolios, in addition to valuation uplifts in two of our retail Fintech businesses over H1 2022. In the US, after significant claims in Q1 2022, mortality returned to normal levels in Q2. Total Covid claims over H1 2022 were in line with the £57m provision set up at year end.

Profit before tax attributable to equity holders[11] was £1,367m (H1 2021: £1,320m), reflecting positive investment variance of £207m (H1 2021: £241m). The key drivers of this positive investment variance are from the formulaic impact of rising interest rates on the Insurance reserves and strong portfolio performance in the annuity portfolio, partially offset by volatile global equity markets impacting LGC.

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation was up 14% at £946m (H1 2021: £831m). New business strain was £(121)m (H1 2021: £(158)m) which results in net surplus generation of £825m (H1 2021: £673m). UK PRT business has been written at a capital strain of less than 4%. We achieved self-sustainability on the UK annuity portfolio in 2020 and 2021 and expect to be self-sustaining again in 2022.

The Group reported a Solvency II coverage ratio[12] of 212% at H1 2022 (FY 2021: 187%, H1 2021: 182%) which, in addition to the contribution from net surplus generation, reflects the impact of market movements, principally from the non-economic impact of higher interest rates on the valuation of our balance sheet[13], partially offset by payment of the 2021 final dividend (£792m).

Our IFRS return on equity of 21.3% (H1 2021: 22.0%) reflects the continued strong performance of our business.[14]

Our diversified, actively managed annuity portfolio has continued to perform resiliently with no defaults. The annuity portfolio's direct investments continue to perform strongly, with 100% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

Group Strategy

Legal & General has established expertise in asset origination (LGC) and asset management (LGIM), and in the provision of retirement and protection solutions to corporates and individuals (LGRI and Retail). We operate at scale and are strongly positioned to capitalise on significant growth opportunities across our chosen markets through our four main divisions:

Division	Provision	Description
LGRI	Retirement Solutions	A leading international manager of institutional Pension Risk Transfer (PRT) business
LGC	Asset Origination	An alternative asset origination platform generating attractive shareholder returns
LGIM	Asset Management	A global £1.3tn asset manager with deep expertise in DB and DC pensions
Retail*	Retirement & Protection Solutions	A leading provider of UK retail retirement and protection solutions and US brokerage term life insurance

* Note: as of 1^st January 2022, and as highlighted previously, LGRR and LGI (our two retail businesses) were combined into one division, Retail. Under the leadership of Bernie Hickman, this division covers the savings, protection and retirement needs of our c12 million retail policyholders and workplace members.

A powerful business model

We have a unique and highly synergistic business model, which continues to drive our strong return on equity. Legal & General provides powerful asset origination and management capabilities directly to clients. These capabilities also underpin our leading retirement and protection solutions:

· LGRI is a market leader in UK PRT and a top ten player in the US PRT market, with annuity assets of £78.8bn.It provides long-term, captive AUM to LGIM. As noted, the annuity portfolio is continually being enhanced through the supply of alternative assets originated by LGC.

· LGC invests across four main asset classes (Specialist Commercial Real Estate, Clean Energy, Housing and SME Finance) to generate attractive risk-adjusted shareholder returns and to create alternative assets with which to back our annuity portfolio. LGC is also increasingly attracting third party capital investment directly and through collaboration with LGIM to meet the growing client demand for alternative assets.

· LGIM is a leading global asset manager, ranking 11th in the world[15] with £1.3tn of AUM of which £468bn, or 36%, are International assets. LGIM is a leading provider of UK and US Defined Benefit (DB) de-risking solutions. It is uniquely positioned to support DB clients across the full range of pension endgame destinations, including PRT with LGRI. 78% of LGRI's PRT transactions over the past three years were from existing LGIM clients.[16] LGIM is also the market leader in UK Defined Contribution ( DC) pension scheme clients with DC AUM of £129.4bn - the leading player in a market with significant growth potential, with total UK DC assets expected to surpass £1.2tn by 2031.[17]

· Retail is a leading provider of UK retail retirement and protection solutions, and US brokerage term life insurance. The UK retail retirement business offers Workplace Savings, annuities, income drawdown and lifetime mortgages (LTM). Our UK and US insurance businesses generate day one surplus capital which partially offsets annuity new business strain. Retail is also an internal centre of excellence in technology, and manages a portfolio of successful, strategic Fintech business investments.

The synergies within and across our businesses drive profits and fuel future growth. The establishment of our Retail division is enabling us to better serve the needs of our retail customers and drive further synergies.

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

The Group continues to build out, in a measured fashion, its international retirement solutions franchise. We have made excellent progress in the US over the last decade and will continue to build out our established businesses (LGRI, LGIM, Retail) in that market. LGIM continues to make good progress against its international expansion plans in Europe. Kerrigan Procter is co-ordinating the Group's expansion plans in Asia.

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

Our purpose is to improve the lives of customers, build a better society for the long-term and create value for our shareholders. This inspires us to use our assets in an economically, environmentally and socially useful way to benefit society - what we call Inclusive Capitalism. At a time when many in society are facing increasing economic hardship, we believe Inclusive Capitalism matters more than ever.

Our philosophy underpins our approach to Sustainability and to ESG ( Environmental, Social, and Governance factors).[18] We think about Sustainability, and the long-term ESG impact of our business, in terms of:

1. How we invest proprietary assets . [19] Our ambition is to reduce our proprietary asset portfolio greenhouse gas emission intensity by half by 2030 and to net zero carbon by 2050 and we are on track to set our full suite of science-based targets in 2022 for publication in 2023. In 2021 we reduced the greenhouse gas intensity of the Group's balance sheet by 17.0% versus 2020, although this has been driven in part by COVID-19 and market volatility impacts.[20] We continue to make environmentally and socially useful investments. As at H1 2022, we have invested £1.4bn in clean energy and £8.0bn in social infrastructure. For more information please see our latest Climate Report, compliant with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD)[21], and our latest Sustainability Report, which describes our activity in investing for positive social, economic and health outcomes. ¹⁵

2. How we influence as one of the world's largest asset managers with £ 1.3 trillion AUM . We have £271.2bn AUM in ESG strategies and in H1 2022 we cast over 45,000 stewardship votes as we continued to encourage investee companies to behave responsibly.[22]^,[23] LGIM is rated A+ for responsible investment strategy & active ownership from the UN Principles for Responsible Investment and ranked as one of the highest performers among asset managers for its approach to stewardship and holding companies to account on climate change by both FinanceMap and Majority Action.

3. How our businesses operate . We are committed to supporting our customers, employees, suppliers, shareholders and society at large. In the current economic environment, we recognise that support is more critical now than ever. For information on how we are supporting our stakeholders, see pages 38-52 of our Sustainability report.[24] We have committed to reducing the carbon emission intensity of our operating businesses. Our ambition is to operate our offices and business travel with net zero emissions from 2030, and for all our new homes to be net zero operational carbon from 2030. ESG criteria are included in executives' objectives and remuneration schemes.

Outlook

Medium-term growth: ambitious and deliverable

Our strategy has delivered strong returns for our shareholders over time. It has demonstrated resilience through the pandemic and positions us well to navigate - and even benefit from - the prevailing market environment. We are confident we can continue to deliver profitable growth as we execute on our strategy .

We set out our five-year ambitions at our Capital Markets event in November 2020. Cumulatively, over the period 2020-2024, our financial ambitions are for[25] :

1. Cash and capital generation significantly to exceed dividends (we intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay dividends of £5.6bn - £5.9bn).[26]

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

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

We are now half-way through our ambition period and are on track to achieve or beat our cumulative cash and capital ambitions. In H1 2022, we have achieved 22% growth in cash generation and 14% growth in capital generation. Since the beginning of 2020 to date, we have achieved £4.3bn of cash generation, £4.1bn of capital generation and declared £2.5bn of dividends. We are confident that we will consistently grow cash and capital faster than our dividend commitment. The jaws between net capital surplus generation and the dividend are widening, providing attractive capital optionality. Even zero growth in cash and capital generation from now to 2024 would still see us meet our cash and capital generation ambitions.

We aim to deliver long-term, profitable growth across the Group . Our asset origination and asset management businesses, LGC and LGIM, operate in attractive and profitable markets, and maintain a strong commitment to ESG-aligned investing. With proven asset expertise in specialist commercial real estate, clean energy, housing and SME finance, LGC provides unique asset origination capabilities in sectors that have significant growth potential, which produce yield-creating assets that drive our annuity business and which appeal to third party investors. LGIM offers a range of investment solutions for institutional and wholesale clients and is expanding geographically and into new channels. The annuity portfolios provide highly predictable, stable cash flows from their growing back-books. Retail is applying technological innovation to sustain its UK leadership, to grow in the US and to continue to expand into adjacent markets. The creation of a new Retail division enables us to increase our focus on serving the savings, protection and retirement needs of our retail customers.

We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets. Our confidence in our dividend paying capacity is underpinned by the Group's strong balance sheet, which has a £2.7bn IFRS credit default reserve and Solvency II surplus regulatory capital of £9.2bn, significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

Confident in achieving our ambitions

We remain confident in achieving our five-year (2020-2024) cumulative financial ambitions. In H1 2022, we continued to build on the good start we made in 2020 and 2021,delivering double digit growth in both cash and capital generation.

LGC and LGIM provide powerful asset origination and asset management capabilities directly to clients. These same capabilities also underpin our leading retirement and protection solutions. LGC has numerous investment opportunities across underserved asset classes and is continuing to scale the portfolio at pace. LGC intends to grow shareholder alternative AUM to c£5bn, with a blended portfolio return of 10-12%, by 2025. It also aspires to grow third party AUM to £25-30bn and to grow LGC operating profit to £600-700m by 2025. LGIM continues to focus on attracting higher margin net flows and on diversifying and further internationalising its business. The business seeks to grow profits in the range of 3-6% per annum, absent market shocks such as that experienced in the first half of this year.

LGRI wrote good levels of business at strong margins in H1 2022. Demand for global PRT is growing, as rising interest rates and widening credit spreads reduce pension deficits and allow more funds to consider de-risking. As such, advisers such as WTW and LCP are bullish on the prospects for PRT for the rest of 2022 and beyond.[27] We are well placed to participate. We continue to expect to write £40-50bn of UK PRT and $10bn of International PRT over a five-year period. More generally, a key competitive advantage is our ability to originate direct investments. This provides us with significant optionality. We can use these direct investments to create value in writing new annuity business, and/or by using them to increase returns on the back-book.

In Retail, we continue to target mid-single digit growth in revenues across our UK protection businesses, and to target average double digit growth in US new business sales out to 2025. The longer-term outlook for workplace savings, individual annuities and lifetime mortgages remains attractive, driven respectively by ongoing growth in the DC market and by an increasing consumer requirement to look to multiple sources of wealth to fund retirement. However, the lifetime mortgage market is becoming more competitive, and we will maintain pricing discipline at the expense of volumes if required.

We are pleased with the further progress we have made in H1 2022 and are confident in our ability to deliver further profitable growth going forwards. We are well-positioned to support the UK Government's two flagship policies of "Levelling Up" and "Addressing Climate Change".

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

Business segment outlook

Legal & General Institutional Retirement (LGRI)

LGRI participates in the global pension risk transfer (PRT) market, focusing on corporate defined benefit (DB) pension plans in the UK, the US, Canada, Ireland and the Netherlands, which together have around £8 trillion of pension liabilities due to ageing demographics.

We write direct business in the UK and US and are market leaders in the UK. We are supported by LGIM's long-standing DB client relationships and investment capabilities and LGC's asset origination capabilities, as well as wide-ranging skills across the Group which enhance our asset strategy and product innovation. During H1 2022, 74% by volume (40% by count) of our UK transactions were with LGIM clients, demonstrating the strength of our client relationships and the competitive advantage provided by our unique position as the only firm operating across the full pension de-risking journey.

The UK is our primary market and it is the most mature PRT market globally with £2.4 trillion of UK DB pension liabilities, of which only c13% have been transferred to insurance companies to date.[28] This leaves a sizeable opportunity for future market growth, which has been fuelled by rising interest rates and widening credit spreads reducing pension deficits and allowing more schemes to consider de-risking sooner than anticipated. Improved funding levels has seen an acceleration in demand for de-risking solutions from companies and pension plans: we expect the total UK PRT market to be c£35bn in 2022, with scope for a larger market dependent on a handful of bigger schemes.[29] In terms of medium-term outlook, market commentators anticipate between £30bn-£50bn of UK PRT demand per annum over the period to 2025, again highlighting the size of the opportunity.[30] We continue to expect to write £40bn to £50bn of new UK PRT over 5 years, but will continue to remain disciplined in our pricing and deployment of capital.

The US represents a further, significant market opportunity, with $3.8 trillion of DB liabilities, of which only c7% have transacted to date.[31] Since our market entry in 2015, our US business has written more than $7bn of PRT spanning 80 clients with 6 repeat clients. In H1 2022 we wrote our largest ever US deal (over $550m). We also actively quoted on selective Canadian, Irish and Dutch PRT opportunities and wrote our third Canadian deal in H1 2022. We are the only insurer providing PRT directly to pension plans across the UK and US. Our ambition is to write more than $10bn of international PRT over the five years from 2020-2024.

In addition to our source of new business emerging from LGIM LDI clients, our other competitive advantage is in originating assets via LGC, lifetime mortgages via Retail and sourcing assets via LGIM. LGC's asset creation is now beginning to scale and it is on track to deliver c£1bn of new assets by the end of 2022. This strong asset creation capability across the Group provides us with optionality to maximise shareholder value, either by deploying assets against new business - to improve pricing and margins - or by applying them to increase the returns on the back-book.

As the annuity portfolio scales, the growing amount of capital generated by the in-force book offsets both the capital investment required to fund new business and the portfolio's contribution to a progressive Group dividend, i.e. it is self-sustaining. The UK annuity portfolio achievedself-sustainability in both 2020 and 2021. Whilst we expect to achieve self-sustainability again in 2022, driven by our growing operational surplus generation, it is not something we necessarily aim to achieve in every year. The achievement of self-sustainability in any one year will vary depending on new business volumes and asset yields. Our ambition is, however, for net surplus generation to exceed dividends for the Group over the period 2020-2024.

Legal & General Capital (LGC)

LGC , the Group's alternative asset origination platform, will continue to deploy shareholder capital in a range of underserved areas of the real economy that are backed by long-term structural trends. LGC has three fundamental objectives: 1) profit and value generation within LGC for shareholders; 2) asset creation to back the Group's annuity liabilities and meet demand from LGIM's third party clients; and 3) a focus on ESG, securing long lasting value for society. LGC continues to make a substantial contribution to shareholder value creation and is well positioned to drive further meaningful growth as its underlying businesses and investments continue to scale and mature.

LGC is on track against its ambition to invest and manage over £30bn of alternative AUM by 2025, with an upgraded blended portfolio return target of 10-12% (previously 8-10%). In combination with the contribution from the Traded Portfolio, LGC aims to deliver operating profit of £600-700m in 2025. Additionally, we plan to increase fee-generating third party capital to £25-30bn (H1 2022: £15.6bn). We expect our existing platforms (Pemberton, Build-to-Rent, NTR) to continue to manage the majority of third-party AUM, building on their impressive growth to-date , but our ambition also includes incremental opportunities in Clean Energy, Later Living, Data Centres and our exciting new investment in the US, Ancora L&G, which is focused on working with anchor institutions (such as universities or research facilities) to acquire, manage and develop life science and technology focused real estate and innovation districts.

LGC's asset classes that include specialist commercial real estate, housing, clean energy, and SME finance have all been selected given the long term need for capital in these sectors, giving us a long-term opportunity to create assets: In the UK an estimated 340,000 new homes are needed each year, there are 1.2m people on the social housing list and 21% of homes in the private rented sector fail Decent Homes standard. Globally, an estimated $5tn a year is needed to fund measures to fight climate change. Through place-based social investment, LGC is creating much needed jobs, homes and infrastructure, driving growth, skills and innovation, and contributing towards a cleaner, greener future:

· The specialist commercial real estate portfolio includes capital-light urban regeneration (funded by LGRI or LGIM third parties), digital infrastructure and science and technology-focused real estate in the UK through Bruntwood SciTech and more recently in the US through Ancora L&G. Partnering with universities, local authorities and private sector experts, we have invested across twenty UK towns and cities, creating jobs, driving economic growth and revitalising local communities.

· As a leading provider of homes, with a commitment to tackling the affordability gap and the undersupply of housing (estimated to be around 340,000 homes required annually) across the UK, LGC's housing platform continues to expand across all tenures, ages and demographics, leveraging both traditional and modular construction in order to revolutionise and speed up delivery for all. We are well positioned to scale in order to achieve our long-term ambitions: 1) to deliver 10,000 multi-tenure homes per year (including over 3,000 traditional build to sell homes, 3,000 affordable and modular homes each, and 1,000 suburban rental homes); and 2) to develop c5,000 build to rent homes in our urban pipeline and 5,000 later living homes in our JV pipeline with NatWest Group Pension Fund. To ensure that the homes we build are future-proofed and sustainable, we have committed that all our new homes will be operationally carbon emission-free from 2030.

· In the clean energy sector, we are focused on investing selectively into attractive growth equity and low-carbon infrastructure opportunities. We are confident that our considered and selective approach to clean energy investing will continue to yield results in what can be a highly competitive sector. Growth equity targets early-stage scale-up companies that deliver innovative clean technologies required for a successful energy transition. Low-carbon infrastructure targets the renewable energy infrastructure investments needed to accelerate progress towards a low-cost and low-carbon economy.

· In SME Finance, we are continuing to support UK and European innovation, investing in the real economy and technological innovation in two SME Finance business areas: Alternative Finance - via our 40% stake in Pemberton, an alternative credit manager - and Venture Capital - via our Fund of Funds platform and via LGC's ownership of Accelerated Digital Ventures (ADV), a direct investment platform . Our SME Finance businesses are well positioned to scale in these highly attractive structural growth segments.

Legal & General Investment Management (LGIM)

LGIM is a globally recognised investment leader, benefiting from a combination of scale and a diversified asset and client base, underpinned by clear structural demand for our capabilities. As L&G's asset manager, LGIM also plays a critical role in supporting our leading retirement and protection solutions.

Our purpose is to create a better future through responsible investing, and we are a global leader in ESG. Our five-year growth ambition is driven by the three pillars of our strategy to modernise, diversify and internationalise the business. The first half of 2022 saw significant moves in interest rates, inflation and global equity markets which impacted asset values across the board. We continue to adopt a disciplined approach to cost management and selectively invest for growth against this challenging backdrop. Our strategy remains to: 1) to growprofits in the range of 3% to 6% per annum, in normalised market conditions; 2) increase AUM in international and higher-margin areas; and 3) diversify AUM by client, channel and geography. We maintain our ambition for the cost income ratio to trend downwards after the period of investment over the near-term, and as markets and inflation normalise.

LGIM is one of the largest managers of corporate pension funds globally; we are a UK leader in corporate DB pensions, the UK's number-one DC manager, and ranked third for UK gross and net retail sales in Q2 2022.[32] We intend to maintain our strong position in the UK, which has been the bedrock of our success to date, while continuing to diversify our capabilities and broaden our reach internationally.

Modernise: LGIM continues to invest in the business to achieve the resilience and agility critical to future success. We are laying the foundations for continued global growth by investing in our people, our operating platform and our data capabilities . We are currently implementing a transformation of our strategic operating model to build a globally scalable platform and deliver best in class client service. This will be achieved by expanding our partnership with State Street and use of their Charles River technology.

Diversify: We are continuing to expand our investment offering, with a focus on higher-margin product areas such as Real Assets, ETFs, Multi-asset and Fixed Income. We see a sizeable opportunity in Real Assets and are expanding our distribution footprint and our range of capabilities: for example, we are launching a new renewable infrastructure equity offering in 2022 in partnership with NTR. As UK and US DB schemes approach funding maturity, many clients will look for self-sufficiency or buy-out options and, together with LGRI, our 'endgame' Solutions offering means we are well positioned to deliver on these options. We continue to demonstrate our leadership in ESG investing through our award-winning Investment Stewardship team and, in addition to offering a wide range of ESG-specific products, are driving further integration of ESG into our mainstream investment portfolios. Climate change remains a key issue and priority for LGIM and our leadership is underscored by the contribution of our CEO, Michelle Scrimgeour as Co-Chair of the Business Leaders Group at COP26, and the integration of our market-leading Destination@Risk tool into a number of net-zero aligned investment strategies.

Internationalise: LGIM aims to be an innovator in regions and countries where our strengths align to client needs. Over the last five years LGIM's International AUM has more than doubled to reach £468bn - 36% of LGIM's total AUM. Our ambition is to continue growing International AUM profitably and at pace in the US, Europe and Asia. In the US, we are deepening our strong client relationships through innovation in DC retirement income solutions and leadership in ESG. In Europe, we are building on our recent success, aiming to penetrate new markets and grow AUM across a broader range of investment capabilities. We are also well placed to realise growth in Asia, where we are expanding our distribution footprint across key markets and channels.

Retail

As of 1^st January 2022, LGI and LGRR (our two retail businesses) were combined into one division, Retail. Under the leadership of Bernie Hickman, this division covers the savings, protection and retirement needs of our c12 million retail policyholders and workplace members. The combined division will strengthen its propositions by adopting best practices in customer experience development, digital transformation and agile culture.

Insurance

We anticipate continued premium growth across our UK and US protection businesses as technological innovation makes our products more accessible to customers and supports further product and pricing enhancements.

In the UK, our market leading retail protection business is supported by the strength of our distribution relationships, investment in our systems and platforms, and product enhancements, leading to robust delivery in H1 2022. We expect the total protection market to be slightly smaller in 2022, as the market benefited from the UK housing stamp duty relief in 2021. Our group protection business has also performed well, increasing premium income by 6% year-on year. In line with our five-year ambition, we are targeting mid-single digit growth in revenues across our UK protection businesses.

In the US, we anticipate our on-going technology investments and new partnerships will position us for premium growth as the market continues to recover from the distribution and underwriting disruptions caused by COVID-19. We are using technology to improve customer experience while reducing cost and becoming the partner of choice for a wide range of distribution partners. We are already the largest provider of term life assurance in the brokerage channel[33], and our digital first approach is aiming to achieve, on average, double digit growth in new business sales out to 2025.

We invest in Fintech start-ups and scale-ups that operate in adjacent markets where we have the relationships, capital or expertise to accelerate their growth and value creation. One such investment is Salary Finance, an employee benefits platform business, in which we have a 48% holding. Salary Finance remains one of the UK's fastest growing Fintechs and is well positioned for international growth. Other key investments like Smartr365 and Onto are growing rapidly. We are targeting double digit growth for our Fintech businesses.

Retirement

Workplace savings is a core part of the Group's retail proposition. The business is a growth area for the Group and we expect the market to continue to expand, driven by ageing demographics and welfare reforms. Our core focus is on better assisting our 4.7 million Workplace members to plan for their retirement whilst they are saving with us, as well as when they come to retirement. This will drive better customer outcomes and, at the same time, help us to retain more of our customers in retirement.

There are currently c£600bn in UK Defined Contribution (DC) accumulation assets and this is expected to more than double over the next ten years.[34] As a market leading provider in Workplace Savings, we are well placed to benefit from this expected increase in DC pension assets, and to grow administration revenues for the Retail division and fund management revenues for LGIM.

Prior to Covid-19, around £40bn of these DC assets were coming to maturity each year, with the individual annuity market accounting for just over 10% of these assets. The size of the individual annuity market dipped slightly during the pandemic as people deferred making retirement decisions. This trend has continued into 2022, given the current market environment. Over the medium-term, we do expect the market to recover as the DC market continues to grow, and as fewer people reach retirement with defined benefit pensions and so seek the longevity protection that an annuity provides. Retail Retirement has a strong market share in individual annuities, with a 20.5% market share at Q1 2022[35] and continues to explore and develop new product ideas to meet the needs of people reaching retirement.

The UK lifetime mortgage (LTM) market continues to represent a sizeable opportunity, with UK housing equity in over 55s at £2.6 trillion.[36] At present only c£5bn per year is being released through the LTM market. While we maintain a strong focus on the traditional LTM market, where we are focused on offering high levels of flexibility and choice, we are increasingly also focused on the "wealth" sector: those with higher value properties increasingly see the benefit in lifetime mortgages when planning the distribution of their estate to future generations. We continue to remain disciplined on pricing in order to deliver good margin assets to back our long-term annuity liabilities.

Across all our Retail businesses we continue to focus on our customers, with a particular focus on the technology that supports providing a more efficient and more personalised service.

A commitment to capital discipline

The Board maintains a strong commitment to capital discipline and continues carefully to assess the options for capital investment and return.

The Group has a track record of generating strong returns and has numerous compelling investment opportunities, not least in Legal & General Capital, which is investing to drive shareholder value and to originate assets for L&G, and for third parties.

The Group continues to invest to deliver further profitable growth over the medium and long-term, whilst maintaining a strong balance sheet and growing the dividend in line with the Group's stated ambition.

If at any point the Board believes that capital would be better deployed by returning it to shareholders, then it would not hesitate to do so.

Dividend

In line with our stated formulaic interim dividend policy, whereby the interim dividend grows at the same percentage as the total prior year dividend, the Board has declared an interim dividend of 5.44p, up 5% from the prior year (5.18p). This is consistent with our stated ambition to grow the dividend at 3-6% per annum between 2021 and 2024.

Legal & General Institutional Retirement (LGRI)

FINANCIAL HIGHLIGHTS £m	H1 2022	H1 2021
Operating Profit	560	525
Investment and other variances	133	75
Profit before tax attributable to equity holders	693	600
Release from operations	310	252
New business surplus	156	68
Net release from operations	466	320

UK PRT	3,715	2,040
International PRT	734	107
Other PRT (longevity insurance, Assured Payment Policy, Insured Self-Sufficiency)	-	925
Total new business	4,449	3,072

Operating profit of £560m

LGRI continues to deliver strong operating profit of £560m, up 7% (H1 2021: £525m). Profit was underpinned by the performance of our annuity portfolio and supported by strong global pension risk transfer (PRT) new business volumes of £4.4bn (H1 2021: £3.1bn). The H1 2021 result included a positive contribution from COVID-related mortality that was not repeated to the same extent in H1 2022.

Release from operations increased 23% to £310m (H1 2021: £252m), reflecting the scale of the business as prudential margins unwind from the Group's sizeable £78.8bn annuity portfolio (FY 2021: £89.9bn) supported by good asset origination.

Net release from operations was £466m (H1 2021: £320m) with new business surplus of £156m (H1 2021: £68m), reflecting successful execution in writing £4.4bn of new business volumes, supported by continued positive asset sourcing and attractive reinsurance terms.

During H1 2022 we wrote £3,715m of UK PRT which, delivered an 8.7% UK Solvency II new business margin (H1 2021: 8 .7%). We continue to be disciplined in our pricing and deployment of capital. UK PRT volumes were written at a capital strain of less than 4%.

Successful execution over H1 2022

During H1 2022 LGRI underwrote £4,449m of PRT across 25 deals globally (H1 2021: £3,072m, 20 deals) .

Legal & General has demonstrated successful execution, whilst remaining focused on value creation, and continues to play a key role in the UK PRT market. The UK market saw significant activity in H1, compared to the slower start to 2021. For the full year we are expecting c£35bn of volume to transact, with the potential for market volumes to be higher if a handful of bigger transactions come to market. We are well placed to capitalise on this opportunity.

LGRI's brand, scale and asset origination capabilities - through synergies and expertise within LGIM and LGC - are critical to our market leadership in the UK PRT market. Long-term client relationships, typically created and fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals. In H1 2022 we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:

· c£2bn+ follow-on transaction with British Steel Pension scheme, executed under an umbrella agreement.

· c£420m buy-out with Innospec Limited Pension Plan scheme, securing benefits for around 2,400 members.

· c£370m buy-in with Heathrow's BAA Pension scheme securing benefits for more than 1,400 retirees.

· c£225m buy-in with Newell Rubbermaid UK Pension scheme, securing benefits for c1,700 retirees.

· Small scheme solutions. With 80% of our transactions falling into this category, we leveraged technological innovation to serve smaller pension plans efficiently.

Looking forward to H2 2022 and into 2023, we currently have a strong and active pipeline of c£25bn.

Well positioned to execute in H2 in the US and International markets

Despite a more competitive market in the US, which is typically slower over H1, LGRI delivered US PRT new business premiums of $729m (H1 2022: £593m; H1 2021: $149m; £107m). This included our biggest ever transaction at over $550m, which is our third transaction with this client, reflecting the credentials of our offering.

As in the UK, our international focus is on value creation. In addition to the fantastic start to the year in the US, in Bermuda we secured our third Canadian deal for CAD$230m, as we start to build momentum through our strategic partnerships in Canada.

As the only insurer providing PRT to pension plans globally, Legal & General is uniquely positioned to offer holistic, global pension de-risking solutions.

Total Annuity Asset Portfolio

	H1 2022	H1 2021
Total annuity assets (£bn)	78.8	85.8
Of which: Direct investments (£bn)	26.3	25.8

Annuity asset portfolio

The 'A minus' rated annuity asset portfolio of £78 .8 bn [37] , which backs the IFRS annuity liabilities in LGRI and Retail, is well diversified by sector and geography. Our ambition is to continue to collaborate with LGC, Retail and LGIM to strengthen our asset sourcing capabilities, including both self-manufactured and public assets with a strong ESG focus. This core competitive advantage provides our annuity portfolio with long duration direct investments with higher risk-adjusted returns and optionality in asset deployment. We remain focused on reducing the carbon intensity of the portfolio and have set a target of 12% reduction against the 2019 baseline for 2022. We remain on track to achieve our portfolio decarbonisation target of 18.5% by 2025 and remain committed to reducing GHGs emission intensity by 50% by 2030.

Credit portfolio management

The fixed income portfolio of £73.2bn is comprised of £52.7bn of listed bonds and £20.5bn of Direct Investments. Approximately two-thirds of the portfolio is rated A or better, 35% rated BBB and 1% sub-investment grade.

The key objective of our annuity-focused, fixed income fund managers in LGIM is to manage the portfolio to match liabilities, while minimising credit downgrades and avoiding defaults. We constantly review our asset portfolio, including sector allocations and asset classes, in order to manage portfolio credit quality and to mitigate risks. We have vigorously stress-tested our portfolio to build resilience against a range of scenarios. In addition, we hold a £ 2.7 bn IFRS credit default reserve .

We have kept lower-rated, cyclical exposures to a minimum and only 12% of our BBB assets are BBB-. We actively manage our asset portfolio and continue to take opportunities to improve credit quality at attractive pricing levels.

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

Direct Investment

Within the asset portfolio, we originated £1 .6 bn of new, high quality direct investments during H1 2022 which, along with market movements, brought the direct investment portfolio total to £26 .3 bn[38] , including £5 .8 bn in Lifetime mortgages . Consistent with the broader bond portfolio, approximately two-thirds of the direct investment bond portfolio was rated 'A' or above using robust and independent rating processes which take account of long-term stress events on counterparties and the underlying collateral.

Our Direct Investment strategy is centred on ensuring the safety of policyholders' benefits. We believe, and have proved, that we can protect our policyholders and invest to deliver Inclusive Capitalism across our UK towns and cities. By accessing the power of pensions, we can generate positive societal impacts and drive economic growth.

During H1 2022 we have consciously allocated some Direct Investment assets to our back-book. This, complemented by a rotation of some of our excess gilts to high quality credit assets, has increased the total yield on our portfolio. We will continue selectively to allocate appropriate assets over the coming years to increase the portfolio's yield.

We have seen progress in the flow of asset creation from LGC to date and remain on track to source close to £1bn of new assets over 2022 through various LGC initiatives such as Build to Rent, Alternative Finance, Affordable Homes and Urban Regeneration schemes.

Legal & General Capital (LGC)

FINANCIAL HIGHLIGHTS £m	H1 2022		H1 2021
Operating profit	263		250
- Alternative asset portfolio	202		195
- Traded investment portfolio & Treasury	61		55
Investment and other variances	(308)		48
Profit before tax attributable to equity holders	(45)		298
Net release from operations	208		213

ALTERNATIVE ASSET PORTFOLIO £m
Specialist commercial real estate	662		733
Clean energy	199		218
Residential property	2,190		1,914
SME Finance	688		561
	3,739		3,426
TRADED ASSET PORTFOLIO £m
Equities	1,714		1,731
Fixed income	66		426
Multi-asset	199		223
Cash¹	1,285		1,220
	3,264		3,600

LGC investment portfolio		7,003	7,026
Treasury assets at holding company		1,247	1,630
Total		8,250	8,656

1. Includes short term liquid holdings.

Total operating profit increased 5% to £263m

LGC operating profit increased 5% to £263m (H1 2021: £250m). This result principally reflects profits from our alternative asset portfolio of £202m (H1 2021: £195m). H1 2021 included a conservative Pod Point valuation increase ahead of last year's stock market listing.

The portfolio has continued to see valuation increases over H1 2022, notably in the Venture Capital portfolio and in Pemberton, complemented by another period of strong trading performance from CALA and Affordable Homes. Operating profit from the traded & treasury portfolio increased to £61m (H1 2021: £55m), driven by higher opening assets as a result of the strength in equity markets over 2021.

Profit before tax was £(45)m, driven by investment and other variances of £(308)m, compared to £48m in H1 2021, which largely reflects volatile global equity market performance in the traded portfolio.

Our growing alternative asset portfolio achieved a net portfolio return of 9.3% (H1 2021: 10.7%). In line with our business model, we expect to deliver a net portfolio return of 8-10% for the full year, growing to 10-12% by 2025 as our early-stage businesses continue to mature.

Alternative asset portfolio grew 9% to £3.7bn

LGC has continued to strengthen its capabilities across a diversified range of alternative assets that are underpinned by structural growth drivers. Our alternative asset portfolio increased to £3,739m (H1 2021: £3,426m) as we deployed a further £0.3bn into new and existing investments. Additionally, over H1 2022, we made new undrawn commitments of £0.1bn across our existing asset classes. Through these investments we originate assets that generate returns for shareholders, create attractive Matching Adjustment (MA)-eligible assets for our annuity portfolio, and supply attractive alternative assets to third party clients.

We have recently successfully originated assets for LGRI and Retail Retirement in Urban regeneration, Build to Rent, Affordable homes and Alternative Finance. We remain on track to deliver close to £1bn of new assets for the annuity portfolio over 2022.

Specialist commercial real estate: ongoing support of the levelling up agenda through strategic partnerships

Supporting the need to "Level Up" towns and cities across the UK, we continue to invest in partnership with public and private sector experts, to drive forward some of the largest urban transformation schemes, back digital infrastructure and fund the next generation of science and innovation centres. Supporting this objective, in H1 2022, we began construction on our £100m regeneration scheme in Sunderland Riverside and announced our ambition to expand our project Sky Elstree to include a further 10 stages over 65 acres, with 470,000 sq ft of stage space for filming.

Building on our flagship commitments in Oxford and Manchester, we signed in May a seven year £4bn commitment, working in partnership with West Midlands Combined Authority (WMCA) to invest in regeneration, net zero neighbourhoods, housing and levelling up across the West Midlands. The programme is designed to create vibrant, dynamic communities in the region which, by providing attractive environments for people to work, live and play, will further enhance the West Midlands as a driver of UK economic growth. This latest investment is a great example of how we bring together LGC's divisional specialisms to create a range of MA-eligible assets for the Group.

Through Bruntwood SciTech, we have continued to develop world-leading diagnostics and life sciences infrastructure. With a gross asset value of c£800m, Bruntwood SciTech now operates in 11 UK locations, across 7 cities, with a portfolio of over 2.4m sqft. Over H1 2022, we made our first investment in Scotland, the Met Tower, Glasgow, which is set to become a new hub for tech and digital businesses.

Another milestone achievement in H1 2022 was our first investment in the US. Our 50:50 partnership with US real estate developer, Ancora will create a real estate platform dedicated to driving life science, research and technology growth across the US. Ancora L&G will be capitalised by LGC to deliver $4 billion (£3.2bn) of existing pipeline and planned acquisition and development activity over the next five years. To support future growth, the partnership will be seeking third party co-investment partners to accelerate scaling the portfolio. LGC also continued to diversify into the digital infrastructure sector, acquiring an industrial landsite in Canning Town, London, to develop a new state-of-the-art datacentre. This latest scheme has the opportunity to support Group-wide synergies across Legal & General, working with LGIM as development advisor and providing a potential future investment opportunity for our annuity business.

Our specialist commercial real estate portfolio decreased to £662m (H1 2021: £733m), primarily driven by the sale of MediaCity in H2 2021.

Our Clean Energy portfolio expanded into new sectors

Supporting the Group's climate ambitions, we invest in early-stage innovative clean technology companies and low carbon energy infrastructure needed to meet UK and global UN climate targets and Sustainable Development Goals. We have a substantial pipeline of new investment opportunities including energy storage, electric vehicle technology and renewables and anticipate expanding our growth equity portfolio further through H2 after a busy H1 in which we completed several transactions.

During H1 2022, we began working with our new investee, Sero Technologies, and made multiple additional investments, entering new sectors through Rovco, Vaarst and Brill Power. We also secured investment in a portfolio of renewable energy projects that will create future assets for the annuity portfolio.

Sero Technologies is an energy technology and service company which creates tailored, net zero-energy retrofit plans for the residential sector. Residential retrofitting represents a significant market opportunity to achieve the UK's legally mandated target of net zero by 2050: almost every home will need to be improved or retrofitted with some combination of enhanced energy efficiency and low carbon heating.

Vaarst is a leading provider of subsea 3D computer vision technologies; supporting the offshore wind, wave & tidal, scientific, maritime security, and civil engineering industries. It is bringing forward ground-breaking AI-based technology, seeking to revolutionise how energy companies manage subsea infrastructure and improve asset integrity. Rovco delivers this technology into the energy transition space, focusing mainly on its use for subsea surveys in offshore wind and oil field decommissioning.

In June 2022, LGC led a Series-A funding round to support the expansion of Brill Power, a battery management system improving battery performance for energy storage. Batteries are crucial to the electrification of transport, and to powering our homes, businesses, and key infrastructure. Through extended lifetimes, improved safety, and waste reduction, Brill Power's work will help to support the net zero transition.

We also announced an additional investment into Kensa Group, a UK manufacturer and installer of ground source heat pumps. This investment brings LGC's total investment to £15.7 million over two years, continuing to support Kensa to scale up rapidly and accelerate the deployment of ground source heat pump networks to meet demand.

Our nuclear fusion business, Tokamak Energy, also reached a key milestone in H1 2022, moving closer to commercial fusion by reaching 100 million degrees celsius, a world record for a spherical tokamak.

Housing: platform continues to grow as LGC targets multi tenure opportunities

LGC continues to scale up its delivery across all housing tenures. Diversified across affordability and life stage, LGC's investments meet the UK's long-term social and economic need for quality housing for all demographics. During H1 2022, our housing portfolio grew to £2,190m (H1 2021: £1,914m) reflecting sustained long-term demand.

LGC's Build to Sell business, CALA, has continued to perform exceptionally over H1 2022. Having grown to become the 10th largest housebuilder in the UK by revenue, during H1 2022 CALA has delivered revenue of £701m (H1 2021: £610m) and operating profit of £98m (H1 2021: £78m) through the sale of 1,527 units (H1 2021: 1,479 units). Reservations on private units currently stand at a record 93% of the full year target, giving confidence in delivering the targets set out at the 2021 full year results of c3,000 homes delivered, £1.3bn revenue and £170m operating profit for 2022.

Our Affordable Homes business has continued to establish itself as one of the UK's leading institutional developers and managers of affordable housing. Delivering £22m of operating profit (H1 2021: £7m), our business continues to grow and over 2022 we increased our total number of operational affordable homes by 624 to a total of 2,291. Our development and operation pipeline now stands at over 7,726 homes, with a Gross Asset Value of around £1.2bn. In March 2022, we entered a partnership with Lovell Partnerships to increase the delivery of affordable homes and mixed tenure sites. The partnerships aims to deliver 3,000 multi-tenure properties over a five year period. To further boost our development plans, we secured an additional £150m revolving credit facility, bringing in external capital through a 'social loan' to support the continued growth of the platform .

Our Modular Housing business is making significant progress with projects and partners, designing and manufacturing homes in an innovative way which will transform the way homes are built. In H1 2022, we delivered a major independent scheme in Selby, where our first residents have now moved in, and progressed at pace with construction at sites in Bristol and Broadstairs for the delivery of 450 homes. H1 2022 revenues have already exceeded the revenue generated over 2021, highlighting the progress of the business. We are already delivering some of the most energy efficient homes in the country and are planning to release our first net zero carbon homes for sale at our site in Bristol in September.

Our urban Build to Rent business joint venture with PGGM has continued to make strong development progess across the UK's major towns and cities. Across the Group, we now have a £3.0bn portfolio of c8,200 homes with 24 schemes in operation or development, creating a strong pipeline of attractive, high quality assets for LGRI and LGIM clients. Our Suburban Build to Rent business has built its pipeline to over 1,000 homes across the UK, including schemes in North Horsham and Peterborough.

Growth in our Inspired Villages business continues at pace, driven by the partnership with Natwest Group Pension Fund . Our Later Living platform has made good planning and development progress, and Inspired Villages is on track to deliver over 5,000 homes for older people over the next 14 years. Over H1 2022, we acquired a new site in Horndean and secured planning permission for the third phase of our development Ledian Gardens, Kent, with construction also underway for our first two operationally net-zero carbon developments, bringing forward over 350 energy efficient homes .

SME Finance AUM increased to £688m (H1 2021: £561m)

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

In the Alternative Finance sector we support UK and European mid-market lending through our investments in Pemberton, our asset manager specialising in private debt, in which we hold a 40% stake. The Pemberton platform has raised over €14.9bn (H1 2021: €10.9bn) across four strategies, since we first invested in 2014, with 172 investors globally. It currently has €11.8bn (H1 2021: €8.3bn) deployed across 88 companies, delivering €45m in revenue (H1 2021: €31m).

Our Venture Capital Funds platform backs over c500 start-up businesses across the UK and Europe through our fund-of-funds programme and via LGC's ownership in direct investment platform Accelerated Digital Ventures (ADV).

In light of its strategy to invest at seed, pre-seed and early stage funding rounds, LGC's Venture Capital Fund-of-Funds programme saw strong performance, with NAV growing by 16% to £198m over the six months to H1 2022.^{^[39]} Many of the funds we invested in early in the programme are now maturing, with the strongest companies securing new funding rounds at increased valuations. Demonstrating the value of our patient investment approach, the portfolio has now delivered a 23% IRR after fees since inception in 2016, despite a period of volatility over H1 2022.

Legal & General Investment Management (LGIM)

FINANCIAL HIGHLIGHTS £m	H1 2022	H1 2021
Management fee revenue	485	471
Transactional revenue	9	9
Total revenue	494	480
Total costs	(294)	(276)
Operating profit	200	204
Investment and other variances	(7)	(7)
Profit before tax	193	197
Net release from operations	162	163
Asset Management cost:income ratio (%)	59	58

NET FLOWS AND ASSETS £bn
External net flows	65.6	27.4
Total net flows	64.7	22.0
- Of which international¹	34.5	15.0
Persistency[40] (%)	91	89
Average assets under management	1,361	1,281
Assets under management as at 30 June	1,290	1,327
Of which:
- International assets under management²	468	434
- UK DC assets under management	129	125

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

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

Operating profit resilient at £200m

Operating profit was slightly down at £200m (H1 2021: £204m), reflecting the impact of recent market volatility on assets under management.

Assets under management decreased by 3% to £1,289.7bn (H1 2021: £1,326.8bn), despite record half year external net flows of £65.6bn (H1 2021: £27.4bn). Annualised net new revenue (ANNR) of £13m (H1 2021: £11m) represents 3% (annualised) of prior year revenue and demonstrates the growth in higher-margin areas including thematic ETFs and Multi-asset.

Revenues increased by 3% to £494m (H1 2021: £480m) in response to strong flows, although growth in 2022 has been curtailed by the recent decline in assets under management due to falling markets and the sale of the Personal Investing business in 2021.

The cost income ratio of 59% continues to reflect a balanced approach to cost management, with careful cost control combined with considered ongoing investment in the business.

Growing International footprint

External net flows of £65.6bn represents 10% of opening external assets under management (annualised) and included strong International net flows of £34.5bn, reflecting our deep relationships with a number of leading international clients and underpinning our conviction in our ability to grow international AUM and earnings.

LGIM saw £22.5bn of net flows from Japanese clients and we are now Japan's 7^th largest asset manager.[41] Asia (ex-Japan) saw flows of £11bn from multiple clients across the region, with combined Asia/Japan AUM reaching £124bn ($151bn). In Europe our ETF business continues to grow and we have signed several new distribution agreements in the European wholesale market. Our US DB de-risking business had a very strong start to the year, with net flows of $7.1bn representing the strength of our capabilities and client/consultant relationships in helping pension plans achieve their investment objectives. Improved funding ratios due to higher rates and wider credit spreads have increased demand for fixed income and customised liability hedging strategies.

International AUM of £468bn is up 8% (H1 2021: £434bn) and now constitutes 36% of total AUM.

Ongoing strength in UK

The Defined Contribution (DC) business continues to attract new assets, with external net flows of £6.9bn, supported by ongoing growth in Retail's Workplace pension business, which now has 4.7 million members. Total UK DC AUM is up 3% with total AUM of £129.4bn (H1 2021: £125.5bn). This success is underpinned by LGIM's strong customer focus, as shown by a 93% persistency rate among our DC customers.

L&G also has one of the largest and fastest-growing UK Master Trusts, which now has £18.2bn AUM, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration. Growth in our UK Master Trust business continues to support growth in Multi-asset flows, since this is the default option for many of our clients. Our ability to offer investors an integrated blend of high-quality investment solutions, pensions administration and Master Trust governance for a value bundled price maintains a significant source of competitive advantage for LGIM's DC business.

Our UK Defined Benefit business delivered £22.5bn of net flows as improved funding positions enabled our clients to de-risk. In addition, we continue to provide a range of hedging solutions against a backdrop of market volatility.

In Wholesale, we ranked third for both gross and net fund sales in Q2 2022. We also continued to expand our Model Portfolio Service (MPS), further extending our successful Multi-asset proposition into the maturing advisory market, and with addition of two new funds, completing the build of our Future World Multi-Index ESG range. We believe our scale and expertise can disrupt this market while helping clients meet their investment objectives. The launch of our Global Thematic unit trust also makes our thematic strategies available to a wider client base. Our property fund for retail investors continues to be one of the market leaders with over £2bn of AUM and our higher margin Multi-asset funds now collectively have over £10bn in AUM from UK retail investors.

Growth in ETFs

Our ETF business continues to grow strongly following our acquisition of the Canvas business in March 2018. Over this period, revenue has more than tripled. The business has shown resilience in the first half of the year, against a challenging backdrop, with $0.4bn of external net flows delivering an annualised net new revenue of $2.6m.

A focus on thematic and fixed income ETFs have supported our strategy of growth into higher-margin areas, whilst our thematic equities continue to be the largest contributor of revenues. A diversified product mix with fixed income and commodities exposures have supported AUM/revenues so far this year.

LGIM continues to be ranked second on both AUM and net flows in the European thematic ETF market. We are also in the top 10 for fixed income flows, and in the top 10 by overall flows.

Breadth of investment management solutions

			Active	Multi		Real	Total
Asset movements¹ (£bn)	Index	strategies		asset	Solutions	assets	AUM
As at 1 January 2022	502.4	198.8		78.0	605.1	37.2	1,421.5
External inflows	63.2	7.0		6.8	21.3	1.4	99.7
External outflows	(38.2)	(4.2)		(3.7)	(12.5)	(1.1)	(59.7)
Overlay net flows	-	-		-	25.6	-	25.6
External net flows	25.0	2.8		3.1	34.4	0.3	65.6
PRT transfers²	-	-		-	(0.4)	-	(0.4)
Internal net flows	(0.4)	0.2		-	(0.7)	0.4	(0.5)
Total net flows	24.6	3.0		3.1	33.3	0.7	64.7
Market movements	(57.8)	(25.2)		(8.0)	(102.4)	(1.9)	(195.3)
Other movements	0.4	1.6		-	(3.2)	-	(1.2)
As at 30 June 2022	469.6	178.2		73.1	532.8	36.0	1,289.7

1. Please see disclosure 5.01 for further details.

2. PRT transfers reflect outflows in respect of LGIM clients who have moved to PRT with LGRI

Solutions continued to deliver positive external net flows of £34.4bn (H1 2021: £18.8bn) driven by strong demand from UK, US and APAC DB clients as they continue to de-risk. We manufacture Solutions products in both publicly and privately traded asset classes and combine these together in integrated portfolios for our DB clients. We are well positioned to capitalise on this continuing trend. Together with our fiduciary business offering, and working closely with LGRI's PRT business, we can tailor solutions to DB schemes at all stages of their funding journey. We have recently signed an agreement with the British Steel Pension Scheme to manage the £9.9bn[42] assets of its DB scheme, which we believe is competitively differentiated in the market and provides a template for similar future deals.

Multi-asset strategies continue to be in demand from DC schemes and retail customers . External net flows into Multi-asset funds were £3.1bn (H1 2021: £1.8bn), and we have seen positive initial market sentiment following the completion of our Future World Multi-Index range.

Index reported positive external net flows of £25.0bn (H1 2021: £4.7bn) driven by new international flows into Japan (£22.7bn) and Asia (£7.9bn), partially offset by Index outflows in the UK and US, reflecting the structural trend of DB schemes de-risking and therefore shifting from index to LDI strategies.

Active Strategies delivered external net flows of £2.8bn (H1 2021: £2.3bn) as a result of positive net inflows from US and UK DB clients.

Real Assets saw total net flows of £0.7bn (H1 2021: £0.8bn) driven by additional Private Credit transactions to support LGRI's PRT proposition. We expect future growth in flows to be supported by our Build to Rent business and by Private Credit, which offers clients diversification of secure income and value protection solutions, and which UK DB investors are now accessing through our successful SIAF and STAFF private credit funds.[43] We are continuing to build on our partnership with NTR, a leading renewable energy specialist, to provide institutional investors in the UK, Europe and Asia access to the €1 trillion European energy transition, with first close expected in Q4 2022.

Investment performance

The market backdrop year-to-date in 2022, has been very challenging. War in Ukraine has led to an Energy crisis and contributed to spiralling inflation. This, in turn, has led to considerable volatility and weakness in both fixed income and equity markets with key benchmark indices posting double-digit negative total returns, leaving very little respite for investors. As a result, our short-term performance across some of our active strategies has been challenging.

In Solutions and Index investment success is driven by matching, for example liability driven strategies, or tracking indices predefined by our clients. We continue to consistently and successfully deliver against these target returns, evidenced by increasing client flows.

Performance of our UK-managed Active Fixed Income strategies remains strong with 94% of strategies out-performing over 3 years and 91%[44] over 5 years. Our US-managed Active Fixed Income strategies have also performed strongly.

Within Private Markets, 77%[45] of our Real Estate Equity funds have outperformed over 3 years and our Private Credit performance remains strong.

Our investment success is also evident in the number of independent awards we have won over H1 2022 for investment performance, including ESG award at the City AM Awards 2022, Investment Manager of the Year and Passive Manager of the Year at the European Pensions Awards 2022, and Residential Asset Manager of the Year at the Property Week Resi awards.

Leading in responsible investing

LGIM continues to build on its credentials as a responsible investor and remains committed to leading the asset management industry in addressing the environmental and social challenges arising from a rapidly changing world.

As at 30^th June 2022, LGIM managed £271.2bn (H1 2021: £252.3bn) in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.[46]

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

· Commitment to net zero:

1. LGIM has committed to work in partnership with our clients to align 70% of eligible assets to net-zero carbon emissions by 2030, and to reach net-zero greenhouse gas emissions by 2050 or sooner across all eligible assets under management, in the same way that L&G has already committed to with its own balance sheet.

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

3. LGIM Real Assets has committed to achieve net-zero carbon emissions across its UK real estate portfolio by 2050.

· Product innovation : The size of the global ESG market, currently $8 trillion, is expected to grow to $30 trillion by 2030.[47] We believe we are well positioned to benefit from this flow of AUM thanks to our authentic and differentiated proposition. We continue to build on our strong heritage in using index and active ESG investing insights to develop innovative new products, with 57% of our EU domiciled UCITS funds classified as ESG-incorporated (articles 8 or 9) under the EU annual Sustainable Finance Disclosure Regulation (SFDR) exercise. Around 85% of all new product development activity at LGIM is ESG-related, reflecting clients' belief in our heritage and strength in this area. Recent examples of ESG product innovation that place us at the forefront of growing client demand include:

· The launch of a Global Diversified Credit fund aligned to the UN's Sustainable Development Goals.

· The launch of a new Net Zero corporate bond fund, helping Fixed Income investors on their transition of their portfolios to Net Zero.

· Continued bespoke ESG segregated account offerings for multiple clients, reflecting their individual ESG drivers and preferences.

· Stewardship with impact : LGIM is rated A+ for responsible investment strategy and governance, listed equity-incorporation, listed equity-active ownership and fixed income-SSA (supranational, sovereign, government agencies and subnational debt instruments) by the UN Principles for Responsible Investment. LGIM is ranked as one of the highest performers among asset managers for its approach to stewardship and holding companies to account on climate change by both FinanceMap and Majority Action, and in 2021 the Financial Reporting Council (FRC) recognised LGIM as a signatory to the UK Stewardship Code for our high standards of stewardship. We also recently published the sixth annual iteration of our market-leading Climate Impact Pledge, driving positive momentum to address climate risk, across approximately 1,000 companies and 15 climate-critical sectors. LGIM's voting decisions are guided by policies that are painstakingly researched, set and fine-tuned every year. We cast over 45,000 votes in H1 2022, and we publish all of our voting actions on our dedicated website. We also publicly disclose all rationales for votes against management and continue to publicly pre-declare our voting intentions on certain votes, for example where we consider the vote to be contentious, or as part of a specific engagement programme.

· Investment in Tumelo : In H1 2022 we acquired a minority stake in Tumelo, an ESG digital engagement platform, which we are providing to many of our DC pension clients. The technology enables pension scheme members to vote on the AGM proposals of companies they are invested in, driving greater consumer engagement and enabling LGIM to better understand members' views and therefore acting as an input to LGIM's engagement themes and voting stance.

Retail

FINANCIAL HIGHLIGHTS £m	H1 2022	H1 2021
Operating profit	332	292
- UK Insurance & Other	139	96
- US Insurance	46	38
- Retail Retirement	147	158
Investment and other variances	670	260
Profit / (loss) before tax attributable to equity holders	1,002	552
Release from operations¹	345	262
New business surplus / (strain)	(2)	23
Net release from operations	343	285

Protection new business annual premiums	196	203
Individual annuities single premium	453	483
Workplace Savings net flows (£bn)[48]	4.3	6.0
Lifetime & Retirement Interest Only mortgage advances	338	414

UK Retail protection gross premiums	740	714
UK Group protection gross premiums	291	274
US protection gross premiums	574	512
Total protection gross premiums	1,605	1,500

Protection New Business Value	92	131
Annuities New Business Value	32	33
Solvency II New Business Value	124	164

1. Includes the annual dividend of $114m (H1 2021: $111m) paid by LGIA to the Group in March 2022.

Operating profit up £40m to £332m

During the first half of 2022, Retail operating profit increased 14% to £332m (H1 2021: £292m), driven by the on-going release from operations from the growing UK protection and individual annuity portfolios, valuation uplifts in both Salary Finance and Smartr365 and improvements in the discount rate for our US term liabilities. In the US, after significant adverse mortality experience over Q1 2022 (in line with the wider market), mortality returned to normal levels in Q2. Total Covid claims over H1 2022 were in line with the £57m Covid claims provision set up at year end.

Profit before tax was predominantly impacted by the formulaic change in discount rates. The positive investment variance of £670m was driven primarily by an increase in UK and US government bond yields which have resulted in a higher discount rate used to calculate the Insurance reserves. The UK 10 year gilt rate increased by 126bps and US 10 year Treasury yields increased by 150bps.

Solvency II New Business Value decreased by £40m to £124m (H1 2021: £164m) reflecting lower volumes in Retail protection after a strong first half in 2021, aided by the buoyant housing market. The Insurance business continues to generate Solvency II surplus immediately when written and provides diversification benefits to the Group, particularly the annuity business.

Robust trading performance in H1

UK Retail protection gross premium income increased to £740m (H1 2021: £714m), with new business annual premiums of £85m (H1 2021: £105m) in a smaller market (2021 benefitted from a buoyant housing market driven by stamp duty relief). L&G leads the UK protection market with a market share of 22%[49], delivering a point of sale decision for more than 80% of our customers.

UK Group protection new business annual premiums were £63m (H1 2021: £55m) with gross written premiums increasing 6% to £291m (H1 2021: £274m). Our online quote and apply platform for smaller schemes launched last year and we are seeing strong growth in this part of the market. Group Protection supported 1,574 members of income protection schemes to return to work during the first half of the year.

US protection (LGIA) gross written premiums increased 5% (up 12% on a sterling basis, benefiting from FX movements) to $746m (H1 2021: $712m). New business annual premiums increased 5% to $62m (H1 2021: $59m), with strong new business margins of 10.7% (H1 2021: 11.5%). LGIA ranked number one in the brokerage general agency channel in the first quarter by new policies issued and number two in new premium. We continue to develop our market-leading, digital new business platform (Horizon) which is starting to deliver in line with expectation, and we expect to drive further sales growth and to reduce unit costs over the coming years. Two thirds of new business is now submitted through our Horizon platform and we expect this to increase over H2.

Legal & General Mortgage Club facilitated £50bn of mortgages, up 6% (H1 2021: £47bn), driven by continued strong demand in the mortgage/remortgage market. We remain the largest participant in the UK intermediated mortgage market and are involved in around one in five of all UK mortgage transactions. Our Surveying Services business facilitated over 276,000 surveys and valuations (H1 2021: 263,000). Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a supporting component of our overall offering to customers.

Individual annuity sales were £453m (H1 2021: £483m) in what has been a smaller overall market during 2022, as we expect retirees have been choosing to defer annuity retirement options, given the volatile macro-economic environment. Our relative performance has remained strong: our operational service, competitive pricing and intermediary presence allowed us broadly to maintain our market share at 20.5%. ⁴⁰

Lifetime mortgage advances, including Retirement Interest Only mortgages, were £338m (H1 2021: £414m). Throughout this period, we have maintained pricing and underwriting discipline. At H1 2022, LTMs were 7% of our total annuity assets and our LTM new business portfolio had an average customer age of 72 and a weighted average loan-to-value of c34% at point of sale.

Workplace Savings net flows were £4.3bn (H1 2021: £6.0bn), driven by continued client wins and increased contributions. Members on the Workplace pension platform increased to 4.7 million in H1 2022. We are continuing to focus on improving efficiency and scale as the business grows.

Scaling up our Fintech businesses

Retail has continued with its strategy to invest in and scale up innovative fintech businesses in adjacent markets.

Salary Finance, an employee benefits platform in which we have a 48% holding, continues to grow rapidly, with the platform now connected to over 4.2 million employees across the UK and US. Gross revenue grew to £20.5m, an increase of just over 60% year on year. It remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond. Salary Finance completed a transaction to sell Work Report to Experian in H1 2022, generating a substantial cash injection as a result. The proceeds of this transaction, places Salary Finance in a strong position for continued growth.

Our c49% investment in Smartr365, a complete end-to-end mortgage platform designed to simplify the mortgage process for brokers, introducers, networks and consumers, has moved from start up to scale up across the UK mortgage broking market, also achieving a successful funding round over H1 2022. We now have around 3,400 licences signed up and continue to receive strong feedback on the proposition.

A new investment was made in Onto, an all-inclusive electric car subscription provider. Onto's growth plans include opportunities for a salary deduction workplace offering which L&G is ideally placed to support given our multiple, workplace-focused businesses and investments. Onto's business model also aligns well with our ambitions to help the UK economy transition to net zero.

The strategy of platform ownership and influence has continued to serve us well in the mortgage and home-financing "ecosystem". Our mortgage research tools for affordability, criteria and product reach over 19k advisers in the mortgage broking market following a focus on user growth through active promotion over the last six months. Within our Legal & General surveying business, our work to digitise the market has proved invaluable for lenders, primarily banks, through the pandemic and this trend has continued into 2022. Our digital valuation services have been used by many of our key clients with over 153k completed since 2019.

Borrowings

The Group's outstanding core borrowings totalled £4.4bn at 30 June 2022 (FY 2021: £4.3bn; H1 2021: £4.5bn). There is also a further £1.2bn (FY 2021: £0.9bn; H1 2021: £1.1bn) of operational borrowings including £1.0bn (FY 2021: £0.9bn; H1 2021: £1.1bn) of non-recourse borrowings.

Group debt costs of £108m (H1 2021: £120m) reflect an average cost of debt of 4.9% per annum (H1 2021: 5.1% per annum) on an average nominal value of debt balances of £4.5bn (H1 2021: £4.8bn).

Taxation

Equity holders' Effective Tax Rate (%)	H1 2022	H1 2021



Equity holders' total Effective Tax Rate	15.7	19.5
Annualised rate of UK corporation tax	19.0	19.0

The H1 2022 effective tax rate reflects the different rates of taxation that apply to Legal & General's overseas operations, as well as applying the future enacted UK tax rate of 25% (which applies from 1 April 2023) on deferred tax movements in the period.

The tax rate on operating profits, excluding the impact of investment variance, was 17.2% (H1 2021: 16.1%).

Solvency II

As at 30 June 2022, the Group had an estimated Solvency II surplus of £9.2bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 212%.

Capital (£m)	H1 2022	2021
Own Funds	17,374	17,561
Solvency Capital Requirement (SCR)	(8,193)	(9,376)
Solvency II surplus	9,181	8,185
SCR coverage ratio (%)	212	187

Analysis of movement from 1 January 2022 to 30 June 2022¹ (£m)	Solvency II Own Funds	Solvency II SCR	Solvency II Surplus

Operational surplus generation	748	198	946
New business strain	175	(296)	(121)
Net surplus generation	923	(98)	825
Operating variances			(231)
Mergers, acquisitions and disposals			-
Market movements			1,194
Subordinated debt			-
Dividends paid			(792)

Total surplus movement (after dividends paid in the period)	(187)	1,183	996

1. Please see disclosure note 6.01(c) for further detail.

Operational surplus generation increased to £946m (H1 2021: £831m) , after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin.

New business strain was £(121)m, primarily reflecting UK PRT volumes written at a capital strain of less than 4%. This resulted in net surplus generation of £825m (H1 2021: £673m).

Dividends paid represent the payment of the 2021 final dividend in June 2022, which is the larger of the two dividends paid during the year.

Operating variances include the impact of experience variances, changes to assumptions, and management actions. The net impact of operating variances over the period was negative and predominantly reflects timing differences which we expect to reverse in H2. Market movements of £1,194m primarily reflect the impact of rising rates on the valuation of our balance sheet, partially offset by weaker asset markets, predominantly in equities, credit spread dispersion in sub-investment grade assets, as well as a number of other, smaller variances.

The movements shown above incorporate the impact of recalculating the TMTP as at 30 June 2022.

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

The table below gives a reconciliation of the Group's IFRS Release from operations and Solvency II Operational surplus generation in H1 2022:

	£bn
IFRS Release from operations	892
Expected release of IFRS prudential margins	(273)
Release of IFRS specific reserves	(83)
Solvency II investment margin	67
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	343
Solvency II Operational Surplus Generation	946

The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in H1 2022:

		£bn

IFRS New business surplus		153
Removal of requirement to set up prudential margins above best estimate on new business		94
Set up of Solvency II Capital Requirement on new business		(296)
Set up of Risk Margin on new business		(72)
Solvency II New business strain		(121)

1. Please see disclosure 2.02 and 6.01 (d) for further details.

Sensitivity analysis²

	Impact on net of tax Solvency II capital surplus H1 2022 £bn	Impact on net of tax Solvency II coverage ratio H1 2022 %
100bps increase in risk free rates	0.5	19
50bps decrease in risk free rates	(0.3)	(9)
Credit spreads widen by 100bps assuming an escalating addition to ratings	0.4	12
Credit spreads narrow by 100bps assuming an escalating addition to ratings	(0.4)	(15)
Credit spreads widen by 100bps assuming a flat addition to ratings	0.4	14
Credit spreads of sub-investment grade assets widen by 100bps assuming a level addition to ratings	(0.3)	(8)
Credit migration	(1.2)	(14)
25% fall in equity markets	(0.4)	(3)
15% fall in property markets	(0.9)	(9)
50bps increase in future inflation expectations	-	(3)
Substantially reduced Risk Margin	0.5	7

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

The above analysis does not reflect all possible management actions which could be taken to reduce the impact of each sensitivity due to the complex nature of the modelling. In practice, the Group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate 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.

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

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 30 June 2022 are shown below¹:


	PVNBP	Contribution from new business	Margin %

LGRI - UK annuity business (£m)	3,715	323	8.7
Retail Retirement - UK annuity business	453	32	7.1
UK Protection Total (£m)	870	50	5.7
- Retail protection	578	28	4.8
- Group protection	292	22	7.5
US Protection (£m)	391	42	10.7

The key economic assumptions as at 30 June 2022 are as follows:

		%
Margin for risk		4.1
Risk free rate
- UK		2.3
- US		3.0

Risk discount rate (net of tax)
- UK		6.4
- US		7.1

Long-term rate of return on non-profit annuities		4.4

1. Please see disclosure 6.02 for further details.

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

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

Principal risks and uncertainties

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

RISKS AND UNCERTAINTIES	TREND, OUTLOOK AND MITIGATION



Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital. The performance and liquidity of financial and property markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and to meet the obligations from insurance business; the movement in certain investments directly impacts profitability. Interest rate movements and inflation can also change the value of our obligations and although we seek to match assets and liabilities, losses can still arise from adverse markets. Falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet, potentially impacting capital requirements and surplus capital. Falls in investment values can reduce our investment management fee income.	Whilst global and UK economic activity is returning to pre-pandemic levels, there remains significant uncertainty to the impacts of inflation on the sustainability of the recovery, particularly should current inflationary pressures become deep seated or should policy responses prove ineffective in response. Financial markets, as well as being impacted by the economic outlook also continue to be susceptible to shocks from a range of geo-political factors including the on-going war in Ukraine and potential further ruptures in the US-China relationship. The world also remains vulnerable to the emergence of new Covid-19 variants. Within the UK, uncertainty persists in certain elements of commercial property markets, and within our construction businesses supply chain and labour shortages are significant risks. We cannot eliminate the downside impacts on our earnings, profitability or surplus capital from investment market volatility and adverse economic conditions, although we seek to position our investment portfolios and wider business plans for a range of plausible economic scenarios and investment market conditions to ensure their resilience across a range of outcomes.

In dealing with issuers of debt and other types of counterparty, the group is exposed to the risk of financial loss. Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.	Although the wider economy has largely recovered from the direct effects of global lockdowns, a range of industries remain vulnerable to further Covid-19 disease control measures including the leisure, transport, travel and retail consumer cyclical sectors, with the risk of downgrade and default remaining particularly as governments refocus economic support packages on ameliorating the effects of the current high rates of inflation in many economies. A period of sustained inflation with increases in interest rate suppressing economic activity in sectors reliant on discretionary spending could compound the effects. We continue to actively manage our exposure to downgrade and default risks within our chiefly investment-grade credit portfolios, through setting selection criteria and exposure limits, and using LGIM's global credit team's capabilities to ensure risks are effectively controlled, and where appropriate trading out to improve credit quality. In our property lending businesses, our loan criteria take account of borrower default and movements in the value of security. We manage our reinsurer exposures dealing only with those with a strong investment-grade rating at outset, setting rating based exposure limits, and where appropriate taking collateral. Whilst we manage risks to our Solvency II balance sheet, we can never eliminate downgrade or default risks, although we seek to hold a strong balance sheet that we believe to be resilient to a range of adverse scenarios.

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION


We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses. As a significant investor in financial markets, commercial real estate and housing, we are exposed to climate related transition risks, particularly should abrupt shifts in the political and technological landscape impact the value of those investment assets associated with higher levels of greenhouse gas emissions. Our interests in property assets may also expose us to physical climate change related risks, including flood risks. We are also exposed to the risk of adverse perceptions of the group and climate risk related litigation should our responses not align with environment, social and governance (ESG) rating expectations.	Climate change and failure to transition to a low carbon economy remains a significant risk that we believe has still to be fully priced in by financial markets, with delays in responding to the threats increasing the risk of sudden late policy action, leading to potentially large and unanticipated shifts in asset valuations for impacted industries. We continue to embed the assessment of climate risks in our investment process, including in the management of real assets. At the aggregate level we measure the carbon intensity targets of our investment portfolios, and along with specific investment exclusions for carbon intensive industries, we have set overall reduction targets aligned with a 1.5°C interpretation of the Paris Agreement, including setting near term science based targets to support our long term emission reduction goals. We are also closely monitoring the political and regulatory landscape, and as part of our climate strategy we engage with regulators and investee companies in support of climate action. We remain vigilant to ensure there is a resonance between what we say and what we do on ESG issues, and are alert to the risks of "greenwashing" while acknowledging we are a complex and multi-faceted business, and there are strongly-held but often conflicting views among our key stakeholders.

Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation. The pricing of long-term business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults as well as the availability of assets with appropriate returns. Actual experience may require recalibration of these assumptions, increasing the level of reserves and impacting reported profitability. Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.	We undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that reserves continue to remain appropriate for factors including mortality, lapse rates, valuation interest rates, and expenses, as well as credit default in the assets backing our insurance liabilities. In seeking a comprehensive understanding of longevity, we continue to evaluate how Covid-19 may impact wider trends in life expectancy. In our protection business, as part of our continuous evolution of our underwriting capabilities, we seek to ensure we fairly assess Covid-19 and associated impacts it has had on healthcare systems, including the deferral of medical treatments, as a risk factor. We cannot remove the risk that adjustment to reserves may be required as a result of these and other factors, although the selective use of reinsurance acts to reduce the impacts to us of significant variations in life expectancy and mortality. Other risk factors that may impact future reserving requirements include a sustained and rapid advances in medical science, beyond that anticipated, requiring adjustment to our longevity assumptions; and the emergence of new diseases and changes in immunology impacting mortality and morbidity assumptions. At present we do not believe climate change to be a material driver for mortality and longevity risk in the medium term, but we will continue to keep this under review.

Changes in regulation or legislation may have a detrimental effect on our strategy. Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products, and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.	Regulatory driven change remains a significant risk factor across our businesses. Areas of future change include HM Treasury's consultation on Solvency II and the Future Regulatory Framework post Brexit; and the UK's financial conduct regulator's proposal for a new Consumer Duty which will place obligations to evidence the delivery of good customer outcomes. We also continue to prepare in readiness for IFRS 17, which will introduce a new suite of financial reporting metrics. Within our property construction businesses, the Building Safety Bill and the Environment Act 2021 will also introduce new operating requirements. Our internal control framework seeks to ensure on-going compliance with relevant legislation and regulation. Residual risk remains, however, that controls may fail or that historic financial services industry accepted practices may be reappraised by regulators, resulting in sanctions against the group.

RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION


New entrants may disrupt the markets in which we operate. There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. It is possible that alternative digitally enabled financial services providers emerge with lower cost business models or innovative service propositions and disrupt the current competitive landscape. We are also cognisant of competitors who may have lower return on capital requirements or be unconstrained by Solvency II.	We continue to monitor the factors that may impact the markets in which we operate, including evolving domestic and international capital standards, and are maintaining our focus on developing our digital platforms. We have a number of direct investments in strategically important market segments to enhance delivery of our core businesses and LGIM continue to invest in technology to achieve the resilience and agility critical to future success. We observe a continued acceleration of a number of trends, including greater consumer engagement in digital business models and on-line servicing tools. It has also seen businesses like ours transform working practices, and we expect to continue to invest in automation, using robotics to improve business efficiency. Our businesses are also well positioned for changes in the competitive landscape that may arise from the roll out of defined benefit 'superfund' consolidation schemes, pension dashboards and 'collective' pension scheme arrangements. We continue to be supportive of the opportunity for reform of the Solvency II capital regime post Brexit.
A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage. We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions or reputational damage. We are also inherently exposed to cyber threats including the risks of data theft and fraud. There is also strong stakeholder expectation that our core business services are resilient to operational disruption.	Our risk governance model seeks to ensure that business management are actively engaged in maintaining an appropriate control environment, supported by risk functions led by the Group Chief Risk Officer, with independent assurance from Group Internal Audit. Whilst we seek to maintain a control environment commensurate with our risk profile we recognise that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed in a timely fashion. We remain, alert to evolving operational risks and continue to invest in our system capabilities, including those for the management of cyber risks, and continue to evolve our operational resilience capabilities in line with financial services regulatory requirements.

The success of our operations is dependent on the ability to attract and retain highly qualified professional people. The Group aims to recruit, develop and retain high quality individuals. We are inherently exposed to the risk that key personnel or teams of expertise may leave the Group, with an adverse effect on the Group's businesses. As we increasingly focus on the digitalisation of our businesses, we are also competing for data and digital skill sets with other business sectors as well as our peers.	Competition for talent across the full range of capabilities and qualifications remains intense and demands that the Group offers competitive compensation arrangements as well as opportunities for development and an attractive work environment. People with skills in areas such as technology and digital are particularly sought after across many business sectors, including those in which we operate. We also recognise the risks posed by the outlook for inflation in salary expectations across the wider employment market. Market-wide approaches to hybrid working are still evolving, and although we believe we are taking the right steps, there remains a risk that our model does not align with the expectations of those we seek to attract or retain. We continue to seek to ensure that key personnel dependencies do not arise, through employee training and development programmes, remuneration strategies and succession planning. Our processes include the active identification and development of talent within our workforce, and by highlighting our values and social purpose, promoting Legal & General as a great place to work. We also engage our people on new ways of working under our hybrid home:office model and are investing in technology and upgrading our buildings to support a range of working styles.

Notes

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

A presentation to analysts and investors will take place at 10:30am UK time today at One Coleman Street, London, EC2R 5AA. There will also be a live webcast of the presentation that can be accessed at www.legalandgeneralgroup.com/investors/results-reports-and-presentations .

A replay of the presentation will be made available on this website by 12^th August 2022.

Financial Calendar	Date
2022 interim results announcement	9 August 2022
Ex-dividend date (2022 interim dividend)	18 August 2022
Record date	19 August 2022
Dividend payment date	26 September 2022
2022 preliminary results announcement	8 March 2023

Definitions

Definitions are included in the Glossary on pages 101 to 105 of this release.

Forward-looking statements

This announcement may contain 'forward-looking statements' with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Company and the Group that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning. By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements.

There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions; future exchange and interest rates; changes in environmental, social or physical risks; legislative, regulatory and policy developments; risks arising out of health crises and pandemics; changes in tax rates, future business combinations or dispositions; and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future. No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

Caution about climate information

This announcement contains climate and ESG disclosures which use a large number of judgments, assumptions and estimates. These judgments, assumptions and estimates are likely to change over time. In addition, the Group's climate risk analysis and net zero strategy remain under development and the data underlying the analysis and strategy remain subject to evolution. As a result, certain climate and ESG disclosures made in this announcement are likely to be amended, updated, recalculated or restated in future announcements. This statement should be read together with the Cautionary statement contained in the Group's 2021 Climate Report.

The information, statements and opinions contained in this announcement do not constitute an offer to sell or buy or the solicitation of an offer to sell or buy any securities or financial instruments nor do they constitute any advice or recommendation with respect to such securities or other financial instruments or any other matter

Going concern statement

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

Directors' responsibility statement

We confirm to the best of our knowledge that:

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

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

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

iv. The directors of Legal & General Group Plc are listed in the Legal & General Group Plc Annual Report and Accounts for 31 December 2021. A list of current directors is maintained on the Legal & General Group Plc website: www.legalandgeneralgroup.com/about-us/our-management/group-board/ .

By order of the Board

Sir Nigel Wilson Stuart Jeffrey Davies

Group Chief Executive Group Chief Financial Officer

8 August 2022 8 August 2022

Enquiries

Investors

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	Edward Houghton, Group Strategy & Investor Relations Director

8	investor.relations@group.landg.com
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)	+44 203 124 2054
	Nim Ilankovan, Investor Relations Director

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

)	+1 240 397 0053
	Blake Carr, Investor Relations Director

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	legalandgeneralgroup.com

Media

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	John Godfrey, Group Corporate Affairs Director

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	Guy Bates, Tulchan Communications

[1] The Group uses a number of Alternative Performance Measures (including adjusted operating profit, net release from operations, return on equity and LGIM AUM) to enhance understanding of the Group's performance. These are defined in the glossary, on pages 99 to 105 of this report. Operating profit represents adjusted operating profit.

[2] Profit after tax attributable to equity holders.

[3] Solvency II coverage ratio of 212% is post £0.8bn payment of 2021 final dividend.

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

[5] The reduction since FY21 (£3.4bn) reflects the formulaic impact to the discount rate as a consequence of rising interest rates and widening credit spreads.

[6] $57tn retirement solutions market, Willis Towers Watson, 2022 Global Pension Assets Study; $149tn asset management market, BCG, Global Asset Management 2022; $20tn climate change market based on forecast that $130tn of investment is needed to 2050 in order to achieve zero emissions, scaled pro-rata to 2025. BloombergNEF: New energy outlook 2021 https://about.bnef.com/new-energy-outlook/

[7] From 1 January 2022, our insurance (LGI) and retail retirement (LGRR) businesses have come together to form Retail. The new division will focus on the savings, protection and retirement needs of our c12m retail policyholders and workplace members.

[8] Operating profit is an Alternative Performance Measure and represents Adjusted operating profit as defined on page 99 .

[9] Profit before tax attributable to equity holders is an Alternative Performance Measure and represents Adjusted profit before tax attributable to equity holders as defined on page 100 .

[10] Solvency II margin represents UK pension risk transfer volume only.

[11] Profit before tax attributable to equity holders is an Alternative Performance Measure and represents Adjusted profit before tax attributable to equity holders as defined on page 101.

[12] Solvency II coverage ratio incorporates the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2022.

[13] For example, UK 10 year Gilts at 2.23% at the end of the period, having increased 126bps between 31 December 2021 and 30 June 2022.

[14] Calculated using annualised profit for the year and average equity attributable to the owners of the parent of £10,835m.

[15] IPE, Top 500 Asset Managers 2021.

[16] Three year average (H2 2019-H1 2022) measured by UK PRT new business volumes. Three year average measured by UK PRT deal count from LGIM clients is 62%.

[17] Broadridge, UK Defined Contribution and Retirement Income report 2021. 2021 UK DC Assets: £515bn.

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

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

[20] This reduction is well ahead of the original -2% target over the same period, although it has been driven in part by COVID-19 and market volatility impacts. In particular, the impact of COVID-19 on 2020 emissions is partially seen in the 2021 numbers, due to the carbon data lag within the calculation, and we may see a partial reversal of this movement in future years. For more information, see our 2021 Climate report which is available on our website.

[21] Climate Report (TCFD) 2021 | Legal & General (legalandgeneral.com)

[22] AUM in responsible investment strategies represents only the AUM from funds or client mandates that feature a deliberate and positive expression of ESG criteria in the fund documentation for pooled fund structures or in a client's Investment Management Agreement.

[23] Represents voting instructions for main FTSE pooled index funds.

[24] Sustainability & Inclusive Capitalism report 2021 (legalandgeneral.com)

[25] The ambitions are based on the aggregate performance over a five-year period. Performance may vary from year to year and individual statements may not be met in each year on a standalone basis. Dividend decisions are subject to final Board approval.

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

[27] WTW: Pension risk settlement: a review of 2021 & LCP: Rise of new market leaders and 'mega' transactions could be on the cards for the de-risking market in 2022 .

[28] LCP Pensions De-risking report 2021, PPF; Hymans Robertson, 2022 Risk Transfer Report.

[29] LGRI market view based on discussions with external Employee Benefit consultants.

[30] LCP Pensions De-risking report 2021.

[31] ICI Q4 retirement market data.

[32] Pridham Report, Q2 2022.

[33] R anked number one in the brokerage channel in Q1 2022 by new policies issued

[34] Broadridge, UK Defined Contribution and Retirement Income report 2021.

[35] ABI Q1 2022 Report.

[36] Lifetime Mortgages | Legal & General (legalandgeneral.com) .

[37] Total annuity asset portfolio represents our UK and US annuity businesses (LGRI + Retail Retirement). See note 5.04 and note 7.01 for more detail.

[38] Includes annuity direct investment bonds (£20,498m), direct investment property (£5,632m), direct investments equity (£42m), and other assets (£94m). Please see note 7.02b for more information.

[39] 16% growth rate excludes new investment and distributions.

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

[41] Ranked seventh by AUM, Japanese industry publication (Pension News) March 2022.

[42] £9.9bn of assets as at 31^st March 2022.

[43] SIAF = Secure Income Assets Fund. STAFF = Short Term Alternative Fund.

[44] Net fund performance data versus key comparators (benchmark or generic peer groups as per the relevant prospectuses, and benchmark per the relevant prospectus or custom peer group for Multi-asset) sourced from Lipper for the LGIM UCITS. All data as at 30 June 2022.

[45] Based on Q1 2022 position.

[46] AUM in responsible investment strategies represents only the AUM from funds or client mandates that feature a deliberate and positive expression of ESG criteria, in the fund documentation for pooled fund structures or in a client's Investment Management Agreement.

[47] Broadridge Financial Solutions, November 2021.

^{^[48]} This represents the Workplace Savings administration business. Profits on the fund management services we provide are included in LGIM's asset management operating profit.

[49] ABI Q1 2022 Report.

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