L&G Half Year Results 2022 Part 3

RNS Number : 3229V

Legal & General Group Plc

09 August 2022

 

Legal & General Group Plc

Half Year Results 2022 Part 3

Asset and premium flows    Page 73

5.01 LGIM total assets under management¹ (AUM)

			Active	Multi		Real	Total
		Index	strategies	asset	Solutions2	assets	AUM
For the six month period to 30 June 2022		£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2022		502.4	198.8	78.0	605.1	37.2	1,421.5
External inflows3		63.2	7.0	6.8	21.3	1.4	99.7
External outflows3		(38.2)	(4.2)	(3.7)	(12.5)	(1.1)	(59.7)
Overlay net flows		-	-	-	25.6	-	25.6
External net flows4		25.0	2.8	3.1	34.4	0.3	65.6
PRT transfers5		-	-	-	(0.4)	-	(0.4)
Internal net flows6		(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 movements7		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
Assets attributable to:
External							1,190.7
Internal							99.0

			Active	Multi		Real	Total
		Index	strategies	asset	Solutions2	assets	AUM
For the six month period to 30 June 2021		£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2021		429.9	193.6	65.7	557.2	32.5	1,278.9
External inflows3		47.8	10.0	4.9	20.2	0.6	83.5
External outflows3		(43.1)	(7.7)	(3.1)	(8.0)	(0.8)	(62.7)
Overlay net flows		-	-	-	6.6	-	6.6
External net flows4		4.7	2.3	1.8	18.8	(0.2)	27.4
PRT transfers5		(0.4)	(0.5)	-	(2.8)	-	(3.7)
Internal net flows6		(0.3)	(2.3)	0.1	(0.2)	1.0	(1.7)
Total net flows		4.0	(0.5)	1.9	15.8	0.8	22.0
Market movements		37.9	(4.3)	4.2	(19.2)	0.4	19.0
Other movements7		(0.4)	1.3	-	6.0	-	6.9
As at 30 June 2021		471.4	190.1	71.8	559.8	33.7	1,326.8
Assets attributable to:
External							1,213.6
Internal							113.2
1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £386.9bn (30 June 2021: £345.3bn) of derivative notionals associated with the Solutions business.
3. External inflows and outflows include £2.3bn (30 June 2021: £3.3bn) of external investments and £2.0bn (30 June 2021: £1.2bn) of redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2022 was £68.8bn (30 June 2021: £51.5bn).
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.
6. Internal net flows includes legacy assets from the Mature Savings business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

Legal & General Group Plc

Half Year Results 2022 Part 3

Asset and premium flows    Page 74

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

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions2	assets	AUM
For the year ended 31 December 2021	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2021	429.9	193.6	65.7	557.2	32.5	1,278.9
External inflows3	99.4	18.7	15.1	34.4	1.7	169.3
External outflows3	(94.5)	(15.8)	(8.1)	(25.5)	(1.8)	(145.7)
Overlay net flows	-	-	-	11.0	-	11.0
External net flows4	4.9	2.9	7.0	19.9	(0.1)	34.6
PRT transfers5	(0.6)	(0.7)	-	(2.9)	-	(4.2)
Internal net flows6	(1.0)	(1.8)	0.2	(1.5)	2.0	(2.1)
Total net flows	3.3	0.4	7.2	15.5	1.9	28.3
Market movements	68.7	1.8	5.1	8.6	2.8	87.0
Other movements7	0.5	3.0	-	23.8	-	27.3
As at 31 December 2021	502.4	198.8	78.0	605.1	37.2	1,421.5
Assets attributable to:
External						1,306.3
Internal						115.2
1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £383.2bn of derivative notionals associated with the Solutions business.
3. External inflows and outflows include £5.5bn of external investments and £3.0bn of redemptions in the ETF business.
4. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2021 was £71.2bn.
5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.
6. Internal net flows include flows in legacy assets from the Mature Savings business sold to ReAssure in 2020.
7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

5.02 LGIM total external assets under management and net flows
	Assets under management at				Net flows for the six months ended1
	30 Jun	30 Jun	31 Dec		30 Jun	30 Jun	31 Dec
	2022	2021	2021		2022	2021	2021
	£bn	£bn	£bn		£bn	£bn	£bn
International2	377.1	344.8	377.3		34.5	15.0	14.5
UK Institutional
- Defined contribution	129.4	125.5	137.7		6.9	4.4	5.0
- Defined benefit	630.3	689.6	733.3		22.5	4.6	(13.9)
Wholesale3	45.5	45.5	49.1		1.4	1.3	1.2
ETF4	8.4	8.2	8.9		0.3	2.1	0.4
Total external	1,190.7	1,213.6	1,306.3		65.6	27.4	7.2
1. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
2. International assets are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £468bn as at 30 June 2022 (30 June 2021: £434bn; 31 December 2021: £479bn).
3. Wholesale represents assets from the Retail Intermediary business and £0.3bn of assets from Personal Investing customers that did not migrate to Fidelity International Limited.
4. ETF reflects external AUM and flows invested on the platform. Total AUM managed on the platform is £9.9bn ($12.0bn) in H1 22 (H1 21: £9.4bn ($13.0bn); FY 21: £10.1bn ($13.7bn)) and flows of £0.6bn ($0.8bn) in H1 22 (H1 21: £2.5bn ($3.4bn); FY 21: £2.9bn ($3.9bn)) which include internal investment from other LGIM asset classes.

Legal & General Group Plc

Half Year Results 2022 Part 3

Asset and premium flows    Page 75

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

	30 Jun 2022	30 Jun 2021	31 Dec 2021
	£bn	£bn	£bn
Assets under management	1,290	1,327	1,421
Derivative notionals 1	(387)	(351)	(383)
Third party assets 2	(429)	(441)	(480)
Other 3	24	10	7
Financial investments, investment property and cash and cash equivalents	498	545	565
1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.

5.04 Assets under administration
	Workplace1	Annuities2	Workplace	Annuities	Workplace	Annuities
	30 Jun 2022	30 Jun 2022	30 Jun 2021	30 Jun 2021	31 Dec 2021	31 Dec 2021
	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January	65.7	89.9	50.8	87.0	50.8	87.0
Gross inflows	6.1	5.0	7.5	3.7	11.9	8.7
Gross outflows	(1.8)	-	(1.5)	-	(3.4)	-
Payments to pensioners	-	(2.4)	-	(2.2)	-	(4.6)
Net flows	4.3	2.6	6.0	1.5	8.5	4.1
Market and other movements	(6.9)	(13.7)	3.4	(2.7)	6.4	(1.2)
As at 30 June/31 December	63.1	78.8	60.2	85.8	65.7	89.9
1. Workplace assets under administration as at 30 June 2022 includes £63.0bn (30 June 2021: £60.1bn; 31 December 2021: £65.6bn) of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2022 includes £69.9bn (30 June 2021: £77.3bn; 31 December 2021: £80.6bn) of assets under management included in Note 5.01.

Legal & General Group Plc

Half Year Results 2022 Part 3

Asset and premium flows    Page 76

5.05 LGRI new business

	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2022	2021	2021	2021
	£m	£m	£m	£m
Pension risk transfer
- UK1	3,715	2,965	3,275	6,240
- US	593	107	682	789
- Bermuda	141	-	147	147
Total LGRI new business	4,449	3,072	4,104	7,176
1. UK pension risk transfer includes a £nil (H1 21: £925m; H2 21: £nil) Assured Payment Policy (APP).

5.06 Retail new business
	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2022	2021	2021	2021
	£m	£m	£m	£m
Individual annuities	453	483	474	957
Lifetime mortgage loans and retirement interest only mortgages	338	414	434	848
Total Retail Retirement new business	791	897	908	1,805
UK Retail protection	85	105	95	200
UK Group protection	63	55	33	88
US protection1	48	43	48	91
Total Insurance new business	196	203	176	379
Total Retail new business	987	1,100	1,084	2,184
1. In local currency, US protection reflects new business of $62m (H1 21: $59m; H2 21: $65m).

5.07 Gross written premiums on insurance business
	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2022	2021	2021	2021
	£m	£m	£m	£m
UK Retail protection	740	714	730	1,444
UK Group protection	291	274	131	405
US protection1	574	512	541	1,053
Longevity insurance	154	152	155	307
Total gross written premiums on insurance business	1,759	1,652	1,557	3,209
1. In local currency, US protection reflects gross written premiums of $746m (H1 21: $712m; H2 21: $737m).

Legal & General Group Plc

Half Year Results 2022 Part 3

Capital    Page 77

6.01 Group regulatory capital - Solvency II

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

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

The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Partial Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses and Legal & General Reinsurance Company No. 2 are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.

The table below shows the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 30 June 2022.

(a) Capital position
As at 30 June 2022 the group had a surplus of £9,181m (31 December 2021: £8,185m) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio of 212% (31 December 2021: 187%). The Solvency II capital position is as follows:
						30 Jun 2022		31 Dec 2021
						£m		£m
Unrestricted Tier 1 Own Funds						13,255		13,254
Restricted Tier 1 Own Funds1						495		495
Tier 2 Subordinated liabilities						3,733		3,995
Eligibility restrictions						(109)		(183)
Solvency II Own Funds2,3						17,374		17,561
Solvency Capital Requirement						(8,193)		(9,376)
Solvency II surplus						9,181		8,185
SCR Coverage ratio						212%		187%
1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1 contingent convertible notes.
2. Solvency II Own Funds do not include an accrual for the interim dividend of £324m (31 December 2021: £790m) declared after the balance sheet date.
3. Solvency II Own Funds allow for a Risk Margin of £3,782m (2021: £5,488m) and TMTP of £3,291m (2021: £4,736m).

(b) Methodology and assumptions

The methodology, assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are broadly consistent with those set out in the group's 2021 Annual Report and Accounts and Full Year Results.

Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by the PRA, using risk-free rates based on SONIA market swap rates for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

At 30 June 2022 the Matching Adjustment for UK GBP denominated liabilities was 138 basis points (31 December 2021: 104 basis points) after deducting an allowance for the fundamental spread equivalent to 57 basis points (31 December 2021: 54 basis points).

Legal & General Group Plc

Half Year Results 2022 Part 3

Capital    Page 78

6.01 Group regulatory capital - Solvency II (continued)

(c) Analysis of change

The table below shows the movement (net of tax) during the six month period ended 30 June 2022 in the group's Solvency II surplus.
	6 months	6 months	6 months
	30 Jun 2022	30 Jun 2022	30 Jun 2022
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening Position	17,561	(9,376)	8,185
Operational Surplus Generation1	748	198	946
New business strain	175	(296)	(121)
Net surplus generation	923	(98)	825
Operating variances2			(231)
Market movements3			1,194
M&A, portfolio and business transfers			-
Subordinated liabilities			-
Dividends paid4			(792)
Total surplus movement (after dividends paid in the period)	(187)	1,183	996
Closing Position	17,374	(8,193)	9,181
1. Operational Surplus Generation includes a £176m release of Risk Margin and £(173)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix. The net impact of operating variances over the period was negative and predominantly reflects timing differences which we expect to reverse in H2.
3. Market movements represent the impact of changes in investment market conditions during the period and changes to future economic assumptions. The movement during the period primarily reflects the impact of rising rates on the valuation of the 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.
4. Dividends paid are the amounts from the 2021 final dividend paid in H1 2022.
The table below shows the movement (net of tax) during the year ended 31 December 2021 in the group's Solvency II surplus.
	Full year	Full year	Full year
	31 Dec 2021	31 Dec 2021	31 Dec 2021
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening Position	17,316	(9,880)	7,436
Operational Surplus Generation1	1,144	492	1,636
New business strain	330	(684)	(354)
Net surplus generation	1,474	(192)	1,282
Operating variances2			26
Market movements3			727
M&A, portfolio and business transfers4			77
Subordinated liabilities5			(300)
Dividends paid6			(1,063)
Total surplus movement (after dividends paid in the period)	245	504	749
Closing Position	17,561	(9,376)	8,185
1. Operational Surplus Generation includes a £612m release of Risk Margin and £(433)m amortisation of the TMTP.
2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix.
3. Market movements represent the impact of changes in investment market conditions over the year and changes to future economic assumptions.
4. Includes the impact of the sale of the Personal Investment business.
5. Reflects the redemption of £300m debt issued in 2009.
6. Dividends paid are the amounts from the 2020 final dividend and the 2021 interim dividend.

Legal & General Group Plc

Half Year Results 2022 Part 3

Capital    Page 79

6.01 Group regulatory capital - Solvency II (continued)

(c) Analysis of change (continued)

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

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

(d) Reconciliation of IFRS Release from operations to Solvency II Operational surplus generation
(i) The table below provides a reconciliation of the group's IFRS Release from operations to Solvency II Operational surplus generation.
			6 months	Full year
			2022	2021
			£m	£m
IFRS Release from operations			892	1,441
Expected release of IFRS prudential margins			(273)	(496)
Releases of IFRS specific reserves1			(83)	(162)
Solvency II investment margin2,3			67	213
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation			343	640
Solvency II Operational surplus generation4			946	1,636
1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long-term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined Fundamental Spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk-free rates over 2022.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2022 were reasonably expected to be implemented over the year.
(ii) The table below provides a reconciliation of the group's IFRS New business surplus to Solvency II New business strain.
			6 months	Full year
			2022	2021
			£m	£m
IFRS New business surplus			153	247
Removal of requirement to set up prudential margins above best estimate on new business			94	280
Set up of SCR on new business			(296)	(684)
Set up of Risk Margin on new business			(72)	(197)
Solvency II New business strain1			(121)	(354)
1. UK PRT new business volume during the first half of 2022 was £3.7bn (Full year 2021: £6.2bn).

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

A reconciliation of the group's IFRS equity to Solvency II Own Funds is given below:
			30 Jun 2022	31 Dec 2021
			£m	£m
IFRS equity1			11,679	10,981
Remove DAC, goodwill and other intangible assets and associated liabilities			(428)	(406)
Add IFRS carrying value of subordinated borrowings2			3,813	3,700
Insurance contract valuation differences3			2,808	4,132
Difference in value of net deferred tax liabilities			(494)	(716)
Other			105	53
Eligibility restrictions			(109)	(183)
Solvency II Own Funds4			17,374	17,561
1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible notes as per the Consolidated Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS and Solvency II.
4. Solvency II Own Funds do not include an accrual for the interim dividend of £324m (31 December 2021: £790m) declared after the balance sheet date.

Legal & General Group Plc

Half Year Results 2022 Part 3

Capital    Page 80

6.01 Group regulatory capital - Solvency II (continued)

(f) Sensitivity analysis The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2022 would have changed in a variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market risks, adverse stresses will happen together.
			Impact on	Impact on	Impact on	Impact on
			net of tax	net of tax	net of tax	net of tax
			Solvency II	Solvency II	Solvency II	Solvency II
			capital	coverage	capital	coverage
			surplus	ratio	surplus	ratio
			2022	2022	2021	2021
			£bn	%	£bn	%
50bps increase in risk-free rates1			0.3	9	0.5	10
100bps increase in risk-free rates1			0.5	19	0.9	19
50bps decrease in risk-free rates1,2			(0.3)	(9)	(0.6)	(10)
Credit spreads widen by 100bps assuming an escalating addition to ratings3,4			0.4	12	0.6	13
Credit spreads narrow by 100bps assuming an escalating deduction from ratings3,4			(0.4)	(15)	(0.6)	(14)
Credit spreads widen by 100bps assuming a flat addition to ratings3			0.4	14	0.7	14
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings3,5			(0.3)	(8)	(0.4)	(7)
Credit migration6			(1.2)	(14)	(0.9)	(10)
25% fall in equity markets7			(0.4)	(3)	(0.5)	(3)
15% fall in property markets8			(0.9)	(9)	(0.8)	(7)
50bps increase in future inflation expectations1			-	(3)	-	(2)
Substantially reduced Risk Margin9			0.5	7	0.6	7
1. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond (and similar) holdings, with no change in long-term default expectations, post management actions. Restructured lifetime mortgages are excluded as the underlying exposure is mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is 100 basis points. To give a 100bps increase on the total portfolio, the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is smaller than 2bps as the group holds less than 2% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress scenarios in the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, and sale and leaseback rental strips; lifetime mortgage senior notes are excluded). Downgraded assets in our annuities portfolio are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet date.
7. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.
8. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.
9. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an equivalent reduction in the Transitional Measure on Technical Provisions.
The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate and inflation stresses, we have not allowed for the recalculation of TMTP following a stress.
The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress. The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if performed at an alternative reporting date.

Legal & General Group Plc

Half Year Results 2022 Part 3

Capital    Page 81

6.02 Estimated Solvency II new business contribution

(a) New business by product 1
Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:
			Contribution			Contribution
			from new			from new
		PVNBP	business2	Margin3	PVNBP	business2	Margin3
		6 months	6 months	6 months	Full year	Full year	Full year
		2022	2022	2022	2021	2021	2021
		£m	£m	%	£m	£m	%
LGRI - UK annuity business		3,715	323	8.7	6,059	574	9.5
Retail Retirement - UK annuity business		453	32	7.1	957	61	6.4
UK protection business		870	50	5.7	1,883	149	7.9
- retail protection		578	28	4.8	1,476	120	8.1
- group protection		292	22	7.5	407	29	7.1
US protection business4		391	42	10.7	842	113	13.4
1. Selected lines of business only.
2. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the year using the risk discount rate applicable at the end of the year.
3. Margin is based on unrounded inputs.
4. In local currency, US protection business reflects PVNBP of $508m (31 December 2021: $1,159m) and a contribution from new business of $54m (31 December 2021: $155m).
The decrease in LGRI margin was driven by the shorter average duration for the schemes written in the first six months of the year, compared to the schemes written in prior year. The increase in Retail Retirement margin is driven by pricing that is focused on both value and volume in light of the lack of growth in the overall retail market. There was also a benefit from the rise in interest rates over the first half of the year. The UK protection contribution from new business is supported by robust volumes, particularly in the group protection business. Retail protection business is impacted by a smaller market (2021 benefitted from a buoyant housing market driven by stamp duty relief) and competitive conditions in 2022. The US protection business margin, whilst still very strong, reduced compared to the prior full year. The decrease is driven by pricing actions and an increase in acquisition expenses.

(b) Basis of preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2021 Annual Report and Accounts and Full Year Results.

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGRI, Retail Retirement and Insurance.

Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The US protection new business margin assumes that the new business will continue to be reinsured in 2022 and looks through the intra-group arrangements.

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Capital    Page 82

6.02 Estimated Solvency II new business contribution (continued)

(c) Assumptions

The key economic assumptions are as follows:

	30 Jun 2022	31 Dec 2021
	%	%
Margin for Risk	4.1	4.1
Risk-free rate
- UK	2.3	0.9
- US	3.0	1.5
Risk discount rate (net of tax)
- UK	6.4	5.0
- US	7.1	5.6
Long-term rate of return on non-profit annuities	4.4	2.5

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

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

· The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2022 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 19 basis points.

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

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

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Capital    Page 83

6.02 Estimated Solvency II new business contribution (continued)

(d) Reconciliation of PVNBP to gross written premium
A reconciliation of PVNBP and gross written premium is given below:
		6 months	Full year
		2022	2021
	Notes	£bn	£bn
PVNBP	6.02 (a)	5.4	9.7
Effect of capitalisation factor		(0.9)	(2.1)
New business premiums from selected lines		4.5	7.6
Other1		0.9	1.8
Total LGRI and Retail new business	5.05,5.06	5.4	9.4
Annualisation impact of regular premium long-term business		(0.2)	(0.2)
IFRS gross written premiums from existing long-term insurance business		1.8	3.3
Deposit accounting for investment products		(0.4)	(2.1)
Total gross written premiums2		6.6	10.4
1. Other principally includes annuity sales in the US, lifetime mortgage loans and retirement interest only mortgages, and quota share reinsurance premiums.
2. Total gross written premiums includes £55m (2021: £109m) of gross written premiums relating to a residual reinsurance treaty following the disposal of the General Insurance business in 2019.

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Investments    Page 85

7.01 Investment portfolio

				Market	Market	Market
				value	value	value
				30 Jun	30 Jun	31 Dec
				2022	2021	2021
				£m	£m	£m
Worldwide total assets under management1				1,295,640	1,333,203	1,426,462
Client and policyholder assets				(1,175,344)	(1,218,560)	(1,309,772)
Investments to which shareholders are directly exposed				120,296	114,643	116,690
1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.

Analysed by investment class:
				Other
		Annuity1	LGC2	shareholder
		investments	investments	investments	Total	Total	Total
		30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec
		2022	2022	2022	2022	2021	2021
	Notes	£m	£m	£m	£m	£m	£m
Equities		65	3,071	356	3,492	3,088	3,185
Bonds	7.03	73,174	947	2,693	76,814	82,699	86,803
Derivative assets 3		24,832	239	-	25,071	14,019	13,203
Property	7.04	5,632	524	-	6,156	5,103	5,710
Loans 4		1,346	377	79	1,802	4,301	2,332
Financial investments	4.03 (a)	105,049	5,158	3,128	113,335	109,210	111,233
Cash and cash equivalents		2,665	1,276	1,032	4,973	3,740	3,596
Other assets 5		94	1,894	-	1,988	1,693	1,861
Total investments		107,808	8,328	4,160	120,296	114,643	116,690
1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans & retirement interest only mortgages.
2. LGC investments includes £60m (30 June 2021: £52m; 31 December 2021: £54m) of equities that belong to Legal & General Reinsurance Company Limited.
3. Derivative assets are shown gross of derivative liabilities of £28.4bn (30 June 2021: £17.7bn; 31 December 2021: £14.1bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for assets and liability management.
4. Loans include reverse repurchase agreements of £1,701m (30 June 2021: £4,152m; 31 December 2021: £2,240m).
5. Other assets include finance leases of £85m (30 June 2021: £87m; 31 December 2021: £86m), associates and joint ventures of £387m (30 June 2021: £314m; 31 December 2021: £375m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

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7.02 Direct investments

(a) Total investments analysed by asset class
	Direct1	Traded2		Direct1	Traded2		Direct1	Traded2
	investments	securities	Total	investments	securities	Total	investments	securities	Total
	30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec	31 Dec	31 Dec
	2022	2022	2022	2021	2021	2021	2021	2021	2021
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Equities	1,431	2,061	3,492	1,202	1,886	3,088	1,248	1,937	3,185
Bonds 3	21,773	55,041	76,814	22,218	60,481	82,699	24,237	62,566	86,803
Derivative assets	-	25,071	25,071	-	14,019	14,019	-	13,203	13,203
Property 4	6,156	-	6,156	5,103	-	5,103	5,710	-	5,710
Loans and other receivables	71	1,731	1,802	119	4,182	4,301	63	2,269	2,332
Financial investments	29,431	83,904	113,335	28,642	80,568	109,210	31,258	79,975	111,233
Cash and cash equivalents	116	4,857	4,973	221	3,519	3,740	114	3,482	3,596
Other assets	1,988	-	1,988	1,693	-	1,693	1,861	-	1,861
Total investments	31,535	88,761	120,296	30,556	84,087	114,643	33,233	83,457	116,690
1. Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of £5,758m (30 June 2021: £6,325m; 31 December 2021: £6,857m).
4. A further breakdown of property is provided in Note 7.04.

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7.02 Direct investments (continued)

(b) Direct investments analysed by asset portfolio
					Annuity1	Shareholder2	Insurance3	Total
					30 Jun	30 Jun	30 Jun	30 Jun
					2022	2022	2022	2022
					£m	£m	£m	£m
	-
Equities					42	1,192	197	1,431
Bonds4					20,498	3	1,272	21,773
Property					5,632	524	-	6,156
Loans and other receivables					-	71	-	71
Financial investments					26,172	1,790	1,469	29,431
Other assets, cash and cash equivalents					94	2,010	-	2,104
Total direct investments					26,266	3,800	1,469	31,535

										Annuity1		Shareholder2		Insurance3		Total
										30 Jun		30 Jun		30 Jun		30 Jun
										2021		2021		2021		2021
										£m		£m		£m		£m
Equities										9		1,077		116		1,202
Bonds 4										21,023		3		1,192		22,218
Property										4,639		464		-		5,103
Loans and other receivables										-		119		-		119
Financial investments										25,671		1,663		1,308		28,642
Other assets, cash and cash equivalents										100		1,814		-		1,914
Total direct investments										25,771		3,477		1,308		30,556
									Annuity1		Shareholder2		Insurance3		Total
									31 Dec		31 Dec		31 Dec		31 Dec
									2021		2021		2021		2021
									£m		£m		£m		£m
Equities									12		1,124		112		1,248
Bonds4									23,029		3		1,205		24,237
Property									5,286		424		-		5,710
Loans and other receivables									-		63		-		63
Financial investments									28,327		1,614		1,317		31,258
Other assets, cash and cash equivalents									96		1,879		-		1,975
Total direct investments									28,423		3,493		1,317		33,233
1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans & retirement interest only mortgages.
2. Shareholder primarily includes the LGC direct investment portfolio along with £60m (30 June 2021: £52m; 31 December 2021: £54m) of equities that belong to other shareholder funds.
3. Insurance primarily includes assets backing the group's US protection business.
4. Bonds include lifetime mortgage loans of £5,758m (30 June 2021: £6,325m; 31 December 2021: £6,857m).

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7.03 Bond portfolio summary

(a) Sectors analysed by credit rating
					BB or
	AAA	AA	A	BBB	below	Other	Total2	Total2
As at 30 June 2022	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,696	8,049	1,169	294	11	1	11,220	15
Banks:
- Tier 2 and other subordinated	-	-	68	52	3	1	124	-
- Senior	-	1,336	2,336	942	1	-	4,615	6
- Covered	120	-	-	-	-	-	120	-
Financial Services:
- Tier 2 and other subordinated	-	118	50	32	-	17	217	-
- Senior	51	307	439	368	-	-	1,165	2
Insurance:
- Tier 2 and other subordinated	59	175	32	51	-	-	317	-
- Senior	5	166	416	462	-	-	1,049	1
Consumer Services and Goods:
- Cyclical	-	39	1,360	1,877	159	3	3,438	4
- Non-cyclical	323	880	2,531	3,732	247	-	7,713	10
- Health care	-	608	808	761	4	-	2,181	3
Infrastructure:
- Social	184	891	3,660	882	79	-	5,696	7
- Economic	273	173	891	3,744	180	-	5,261	7
Technology and Telecoms	141	325	1,546	2,801	20	1	4,834	6
Industrials	-	52	613	659	29	-	1,353	2
Utilities	386	628	4,711	5,523	28	-	11,276	15
Energy	-	-	331	765	16	-	1,112	1
Commodities	-	-	337	781	25	8	1,151	2
Oil and Gas	-	505	873	316	226	24	1,944	3
Real estate	-	23	1,906	1,677	107	-	3,713	5
Structured finance ABS / RMBS / CMBS / Other	539	771	463	695	30	-	2,498	3
Lifetime mortgage loans1	3,721	1,146	497	381	-	13	5,758	8
CDOs	-	47	-	12	-	-	59	-
Total £m	7,498	16,239	25,037	26,807	1,165	68	76,814	100
Total %	10	21	33	35	1	-	100
1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring. 2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £73,174m, representing 95% of the total group portfolio.

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7.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)
					BB or
	AAA	AA	A	BBB	below	Other	Total2	Total2
As at 30 June 2021	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,925	10,091	1,249	335	10	-	13,610	17
Banks:
- Tier 2 and other subordinated	-	-	58	39	4	-	101	-
- Senior	-	1,024	3,490	790	2	-	5,306	6
- Covered	151	-	-	-	-	-	151	-
Financial Services:
- Tier 2 and other subordinated	-	113	57	21	-	-	191	-
- Senior	55	443	406	393	9	-	1,306	2
Insurance:
- Tier 2 and other subordinated	64	196	31	58	-	-	349	-
- Senior	-	221	405	542	-	-	1,168	1
Consumer Services and Goods:					-	-		-
- Cyclical	-	84	1,135	1,772	193	-	3,184	4
- Non-cyclical	338	1,052	2,658	3,936	344	-	8,328	10
- Health care	-	605	851	690	5	-	2,151	3
Infrastructure:
- Social	208	746	4,669	916	77	-	6,616	8
- Economic	311	51	766	4,053	183	-	5,364	6
Technology and Telecoms	174	209	1,462	3,085	22	1	4,953	6
Industrials	-	31	672	694	22	-	1,419	2
Utilities	-	207	5,629	5,861	27	-	11,724	14
Energy	-	-	468	589	16	-	1,073	1
Commodities	-	-	365	910	8	-	1,283	2
Oil and Gas	-	560	1,047	389	274	-	2,270	3
Real estate	-	11	1,728	1,591	177	-	3,507	4
Structured finance ABS / RMBS / CMBS / Other	423	798	403	603	24	1	2,252	3
Lifetime mortgage loans1	3,852	1,509	524	427	-	13	6,325	8
CDOs	-	55	-	13	-	-	68	-
Total £m	7,501	18,006	28,073	27,707	1,397	15	82,699	100
Total %	9	22	34	33	2	-	100
1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £78,226m, representing 95% of the total group portfolio.

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7.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)
					BB or
	AAA	AA	A	BBB	below	Other	Total2	Total2
As at 31 December 2021	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	2,008	10,348	1,302	360	9	-	14,027	16
Banks:
- Tier 2 and other subordinated	-	-	56	36	3	-	95	-
- Senior	95	1,858	3,998	738	1	-	6,690	8
- Covered	138	-	-	-	-	-	138	-
Financial Services:
- Tier 2 and other subordinated	-	111	60	72	-	8	251	-
- Senior	57	416	422	315	-	-	1,210	1
Insurance:
- Tier 2 and other subordinated	61	192	32	62	-	-	347	-
- Senior	4	196	460	535	-	-	1,195	1
Consumer Services and Goods:
- Cyclical	-	33	1,399	1,760	206	-	3,398	4
- Non-cyclical	350	1,003	2,737	3,836	346	-	8,272	10
- Health care	-	690	837	889	5	-	2,421	3
Infrastructure:
- Social	215	780	5,001	900	79	-	6,975	8
- Economic	303	50	1,121	4,294	191	-	5,959	7
Technology and Telecoms	177	307	1,530	3,024	22	2	5,062	6
Industrials	-	31	688	558	30	-	1,307	2
Utilities	27	206	5,666	5,947	30	-	11,876	14
Energy	-	-	385	840	16	-	1,241	1
Commodities	-	-	365	889	8	-	1,262	1
Oil and Gas	-	546	971	387	271	-	2,175	3
Real estate	-	16	1,802	1,587	122	-	3,527	4
Structured finance ABS / RMBS / CMBS / Other	450	860	445	668	28	-	2,451	3
Lifetime mortgage loans1	4,238	1,550	584	470	-	15	6,857	8
CDOs	-	-	54	13	-	-	67	-
Total £m	8,123	19,193	29,915	28,180	1,367	25	86,803	100
Total %	9	22	35	32	2	-	100
1. The credit ratings attributed to lifetime mortgage loans are allocated in accordance with the internal Matching Adjustment structuring. 2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £81,812m, representing 94% of the total group portfolio.

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7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile
				Rest of
	UK	US	EU	the World	Total
As at 30 June 2022	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	7,685	1,774	768	993	11,220
Banks	1,514	1,849	812	684	4,859
Financial Services	341	403	380	258	1,382
Insurance	101	1,131	19	115	1,366
Consumer Services and Goods:
- Cyclical	473	2,299	395	271	3,438
- Non-cyclical	1,888	5,311	354	160	7,713
- Health care	275	1,842	63	1	2,181
Infrastructure:
- Social	4,965	524	158	49	5,696
- Economic	3,711	881	264	405	5,261
Technology and Telecoms	403	3,080	699	652	4,834
Industrials	189	799	313	52	1,353
Utilities	6,303	2,583	1,877	513	11,276
Energy	312	633	1	166	1,112
Commodities	37	449	151	514	1,151
Oil and Gas	167	567	686	524	1,944
Real estate	1,938	934	544	297	3,713
Structured Finance ABS / RMBS / CMBS / Other	704	1,503	11	280	2,498
Lifetime mortgage loans	5,758	-	-	-	5,758
CDOs	-	-	-	59	59
Total	36,764	26,562	7,495	5,993	76,814

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7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)
				Rest of
	UK	US	EU	the World	Total
As at 30 June 2021	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	9,937	1,900	861	912	13,610
Banks	1,807	1,828	1,241	682	5,558
Financial Services	532	344	555	66	1,497
Insurance	103	1,239	60	115	1,517
Consumer Services and Goods:
- Cyclical	446	2,088	503	147	3,184
- Non-cyclical	1,952	5,822	382	172	8,328
- Health care	285	1,785	80	1	2,151
Infrastructure:
- Social	5,826	582	160	48	6,616
- Economic	3,941	847	226	350	5,364
Technology and Telecoms	407	2,981	707	858	4,953
Industrials	186	815	351	67	1,419
Utilities	6,834	2,230	2,075	585	11,724
Energy	229	622	96	126	1,073
Commodities	6	564	183	530	1,283
Oil and Gas	213	634	792	631	2,270
Real estate	2,089	562	620	236	3,507
Structured Finance ABS / RMBS / CMBS / Other	919	1,237	11	85	2,252
Lifetime mortgage loans	6,325	-	-	-	6,325
CDOs	-	-	-	68	68
Total	42,037	26,080	8,903	5,679	82,699

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7.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)
				Rest of
	UK	US	EU	the World	Total
As at 31 December 2021	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	9,829	1,892	1,244	1,062	14,027
Banks	2,253	1,799	1,956	915	6,923
Financial Services	425	429	517	90	1,461
Insurance	113	1,291	15	123	1,542
Consumer Services and Goods
- Cyclical	473	2,213	442	270	3,398
- Non-cyclical	1,879	5,828	391	174	8,272
- Health care	284	2,054	82	1	2,421
Infrastructure
- Social	6,141	628	154	52	6,975
- Economic	4,348	902	309	400	5,959
Technology and Telecoms	412	3,025	782	843	5,062
Industrials	190	681	354	82	1,307
Utilities	6,963	2,158	2,217	538	11,876
Energy	415	667	1	158	1,241
Commodities	20	537	175	530	1,262
Oil and Gas	196	626	785	568	2,175
Real estate	1,895	734	602	296	3,527
Structured finance ABS / RMBS / CMBS / Other	861	1,395	10	185	2,451
Lifetime mortgage loans	6,857	-	-	-	6,857
CDOs	-	-	-	67	67
Total	43,554	26,859	10,036	6,354	86,803

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7.03 Bond portfolio summary (continued)

(c) Bond portfolio analysed by credit rating
				Externally	Internally
				rated	rated1	Total
As at 30 June 2022				£m	£m	£m
AAA				3,449	4,049	7,498
AA				13,439	2,800	16,239
A				17,049	7,988	25,037
BBB				19,723	7,084	26,807
BB or below				777	388	1,165
Other				19	49	68
Total				54,456	22,358	76,814
				Externally	Internally
				rated	rated1	Total
As at 30 June 2021				£m	£m	£m
AAA				3,254	4,247	7,501
AA				14,732	3,274	18,006
A				20,595	7,478	28,073
BBB				21,462	6,245	27,707
BB or below				970	427	1,397
Other				1	14	15
Total				61,014	21,685	82,699
				Externally	Internally
				rated	rated1	Total
As at 31 December 2021				£m	£m	£m
AAA				3,506	4,617	8,123
AA				15,544	3,649	19,193
A				21,240	8,675	29,915
BBB				20,715	7,465	28,180
BB or below				950	417	1,367
Other				10	15	25
Total				61,965	24,838	86,803
1. Where external ratings are not available an internal rating has been used where practicable to do so.

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Half Year Results 2022 Part 3

Investments    Page 95

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded securities
			Direct	Traded
			investments	securities	Total
As at 30 June 2022			£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns			747	10,473	11,220
Banks			742	4,117	4,859
Financial Services			507	875	1,382
Insurance			116	1,250	1,366
Consumer Services and Goods:
- Cyclical			579	2,859	3,438
- Non-cyclical			489	7,224	7,713
- Health care			283	1,898	2,181
Infrastructure:
- Social			2,953	2,743	5,696
- Economic			3,762	1,499	5,261
Technology and Telecoms			192	4,642	4,834
Industrials			99	1,254	1,353
Utilities			1,679	9,597	11,276
Energy			368	744	1,112
Commodities			70	1,081	1,151
Oil and Gas			61	1,883	1,944
Real estate			2,287	1,426	3,713
Structured Finance ABS / RMBS / CMBS / Other			1,081	1,417	2,498
Lifetime mortgage loans			5,758	-	5,758
CDOs			-	59	59
Total			21,773	55,041	76,814

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Half Year Results 2022 Part 3

Investments    Page 96

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded securities (continued)
			Direct	Traded
			investments	securities	Total
As at 30 June 2021			£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns			991	12,619	13,610
Banks			628	4,930	5,558
Financial Services			396	1,101	1,497
Insurance			162	1,355	1,517
Consumer Services and Goods:
- Cyclical			469	2,715	3,184
- Non-cyclical			386	7,942	8,328
- Health care			339	1,812	2,151
Infrastructure:
- Social			3,507	3,109	6,616
- Economic			3,696	1,668	5,364
Technology and Telecoms			129	4,824	4,953
Industrials			58	1,361	1,419
Utilities			1,656	10,068	11,724
Energy			331	742	1,073
Commodities			57	1,226	1,283
Oil and Gas			57	2,213	2,270
Real estate			2,109	1,398	3,507
Structured Finance ABS / RMBS / CMBS / Other			925	1,327	2,252
Lifetime mortgage loans			6,325	-	6,325
CDOs			-	68	68
Total			22,221	60,478	82,699

Legal & General Group Plc

Half Year Results 2022 Part 3

Investments    Page 97

7.03 Bond portfolio summary (continued)

(d) Sectors analysed by Direct investments and Traded securities (continued)
			Direct	Traded
			investments	securities	Total
As at 31 December 2021			£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns			1,037	12,990	14,027
Banks			665	6,258	6,923
Financial Services			432	1,029	1,461
Insurance			119	1,423	1,542
Consumer Services and Goods:
- Cyclical			498	2,900	3,398
- Non-cyclical			512	7,760	8,272
- Health care			357	2,064	2,421
Infrastructure:
- Social			3,699	3,276	6,975
- Economic			4,267	1,692	5,959
Technology and Telecoms			153	4,909	5,062
Industrials			60	1,247	1,307
Utilities			1,883	9,993	11,876
Energy			475	766	1,241
Commodities			55	1,207	1,262
Oil and Gas			56	2,119	2,175
Real estate			2,091	1,436	3,527
Structured Finance ABS / RMBS / CMBS / Other			1,021	1,430	2,451
Lifetime mortgage loans			6,857	-	6,857
CDOs			-	67	67
Total			24,237	62,566	86,803

Legal & General Group Plc

Half Year Results 2022 Part 3

Investments    Page 98

7.04 Property analysis

Property exposure within Direct investments by status
				Annuity1	Shareholder2	Total
As at 30 June 2022				£m	£m	£m	%
Fully let				5,190	-	5,190	84
Development				442	403	845	14
Land				-	121	121	2
Total				5,632	524	6,156	100
				Annuity1	Shareholder2	Total
As at 30 June 2021				£m	£m	£m	%
Fully let				4,035	-	4,035	79
Development				604	323	927	18
Land				-	141	141	3
Total				4,639	464	5,103	100
				Annuity1	Shareholder2	Total
As at 31 December 2021				£m	£m	£m	%
Fully let				4,746	-	4,746	83
Development				540	293	833	15
Land				-	131	131	2
Total				5,286	424	5,710	100
1. The fully let annuity property exposure includes £4.9bn (30 June 2021: £4.0bn; 31 December 2021: £4.5bn) let to investment grade tenants.
2. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Receivables and other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2022 the group held a total of £2,072m (30 June 2021: £2,190m; 31 December 2021: £2,044m) of such assets.

Legal & General Group Plc

Half Year Results 2022 Part 3

Alternative Performance Measures    Page 99

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

The APMs used by the group may not be the same as, or comparable to, those used by other companies, both in similar and different industries. The calculation of APMs is consistent with previous periods, unless otherwise stated.

Adjusted operating profit

Definition

Adjusted operating profit is an APM that supports the internal performance management and decision making of the group's operating businesses, and accordingly underpins the remuneration outcomes of the executive directors and senior management. The group considers this measure meaningful to stakeholders as it enhances the understanding of the group's operating performance over time by separately identifying non-operating items.

Adjusted operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by changes in market conditions or expectations and exceptional items. It therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, including the traded portfolio in LGC. For direct investments, operating profit reflects the expected long-term economic return for those assets which are developed with the intention of sale, or the IFRS profit before tax for the early stage and mature businesses. Variances between actual and long-term expected investment return on traded and real assets (including direct investments) are excluded from adjusted operating profit, as well as economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business. Adjusted operating profit also excludes the yield associated with assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs, are also excluded from adjusted operating profit.

In certain disclosures, the group may use the term 'operating profit' as a substitute for adjusted operating profit, but in all circumstances it carries the same definition and meaning.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 2.01 Operating profit.

Return on Equity (ROE)

Definition

ROE measures the return earned by shareholders on shareholder capital retained within the business.

ROE is calculated as IFRS profit after tax divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds as provided in the IFRS consolidated statement of changes in equity for the period).

Closest IFRS measure

Calculated using:

- Profit attributable to equity holders

- Equity attributable to owners of the parent

Reconciliation

Calculated using annualised profit attributable to equity holders for the period of £2,306m (30 June 2021: £2,130m; 31 December 2021: £2,050m) and average equity attributable to the owners of the parent of £10,835m (30 June 2021: £9,677m; 31 December 2021: £9,994m), based on an opening balance of £10,486m and a closing balance of £11,184m (30 June 2021: based on an opening balance of £9,502m and a closing balance of £9,852m; 31 December 2021: based on an opening balance of £9,502m and a closing balance of £10,486m).

Assets under Management

Definition

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

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

Reconciliation

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

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Half Year Results 2022 Part 3

Alternative Performance Measures    Page 100

Net release from operations

Definition

Release from operations plus new business surplus/(strain). Net release from operations is also referred to as cash generation, and includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business. Net release from operations is a component of adjusted operating profit (after tax), and excludes predominantly the impact of experience variances and changes in valuation assumptions.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

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

Adjusted profit before tax attributable to equity holders

Definition

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

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 2.01 Operating profit.

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Half Year Results 2022 Part 3

Glossary    Page 101

* These items represent an alternative performance measure (APM)

Adjusted operating profit*

Refer to the alternative performance measures section.

Adjusted profit before tax attributable to equity holders*

Refer to the alternative performance measures section.

Alternative performance measures (APMs)

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

Annual premium

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

Annuity

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

Assets under administration (AUA)

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

Assets under management (AUM)*

Refer to the alternative performance measures section.

Assured Payment Policy (APP)

An Assured Payment Policy (APP) is a long-term contract under which the policyholder (a registered UK pension scheme) pays a day-one premium and in return receives a contractually fixed and/or inflation-linked set of payments over time from the insurer.

Back book acquisition

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

CAGR

Compound annual growth rate.

Cash generation

Cash generation is an alternative term for net release from operations.

CCF - Common Contractual Fund

An Irish regulated asset pooling fund structure. It enables institutional investors to pool assets into a single fund vehicle with the aim of achieving cost savings, enhanced returns and operational efficiency through economies of scale. A CCF is an unincorporated body established under a deed where investors are "co-owners" of underlying assets which are held pro rata with their investment. The CCF is authorised and regulated by the Central Bank of Ireland.

Credit rating

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

Deduction and aggregation (D&A)

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

Defined benefit pension scheme (DB scheme)

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

Defined contribution pension scheme (DC scheme)

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

Derivatives

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

Direct investments

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

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Half Year Results 2022 Part 3

Glossary    Page 102

Dividend cover

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

Early stage business

A recently created company in the early stage of its life cycle (typically up to 18 to 24 months since establishment), which has not broken even yet. This usually means the entity is not fully operational yet, and the management team is still being developed.

Earnings per share (EPS)

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

Eligible Own Funds

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

Employee satisfaction index

The Employee satisfaction index measures the extent to which employees report that they are happy working at Legal & General. It is measured as part of our Voice surveys, which also include questions on commitment to the goals of Legal & General and the overall success of the company.

ETF

LGIM's European Exchange Traded Fund platform.

Euro Commercial paper

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

Full year dividend

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

FVTPL

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

Generally accepted accounting principles (GAAP)

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

by the accounting community to report financial information.

Gross written premiums (GWP)

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

ICAV - Irish Collective Asset-Management Vehicle

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

Insurance new business

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

International financial reporting standards (IFRS)

These are accounting guidelines and rules that companies and organisations follow when completing financial statements. They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed groups in the UK are required to use.

Key performance indicators (KPIs)

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

LGA

Legal & General America.

LGAS

Legal and General Assurance Society Limited.

LGC

Legal & General Capital.

LGIM

Legal & General Investment Management.

LGRI

Legal & General Retirement Institutional.

LGRI new business

Single premiums arising from pension risk transfers and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the SONIA curve.

Liability driven investment (LDI)

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

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Half Year Results 2022 Part 3

Glossary    Page 103

Lifetime mortgages

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

Longevity

Measure of how long policyholders will live, which affects the risk profile of pension risk transfer, annuity and protection businesses.

Matching adjustment

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

Mature business

A company which has been operative for more than three to five years. It generates regular revenue streams but the growth rate in its earnings is expected to remain broadly flat in the future. At this point in its life cycle, a complete and experienced management team is in place.

Morbidity rate

Rate of illness, influenced by age, gender and health, used in pricing and calculating liabilities for policyholders of life products, which contain morbidity risk.

Mortality rate

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

Net release from operations*

Refer to the alternative performance measures section.

Net zero carbon

Achieving an overall balance between anthropogenic carbon emissions produced and carbon emissions removed from the atmosphere.

New business surplus/strain

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

OEIC - Open Ended Investment Company

A type of investment fund domiciled in the United Kingdom that is structured to invest in stocks and other securities, authorised and regulated by the Financial Conduct Authority (FCA).

Overlay assets

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

Paris Agreement

The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change effective 4 November 2016. The Agreement aims to limit the increase in average global temperatures to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels.

Pension risk transfer (PRT)

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

Persistency

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

Platform

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

Present value of future new business premiums (PVNBP)

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

Proprietary assets

Total investments to which shareholders are directly exposed, minus derivative assets, loans, and cash and cash equivalents.

QIAIF - Qualifying Investor Alternative Investment Fund

An alternative investment fund regulated in Ireland targeted at sophisticated and institutional investors, with minimum subscription and eligibility requirements. Due to not being subject to many investment or borrowing restrictions, QIAIFs present a high level of flexibility in their investment strategy.

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Half Year Results 2022 Part 3

Glossary    Page 104

Real assets

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

Release from operations

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

Retail Retirement new business

Single premiums arising from annuity sales and individual annuity back book acquisitions and the volume of lifetime and retirement interest only mortgage lending.

Retirement interest only mortgage (RIO)

A Retirement Interest Only (RIO) mortgage is a standard retirement mortgage available for non-commercial borrowers above 55 years old. A RIO mortgage is very similar to a standard interest-only mortgage, with two key differences:

- The loan is usually only paid off on death, move into long-term care or sale of the house.

- The borrowers only have to prove they can afford the monthly interest repayments and not the capital remaining at the end of the mortgage term.

No repayment solution is required as repayment defaults to sale of property.

Return on Equity (ROE)*

Refer to the alternative performance measures section.

Risk appetite

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

to achieve its business objectives.

SICAV - Société d'Investissement à Capital Variable

A publicly traded open-end investment fund structure offered in Europe and regulated under European law.

SIF - Specialised Investment Fund

An investment vehicle regulated in Luxembourg targeted to well-informed investors, providing a great degree of flexibility in organization, investment policy and types of underlying assets in which it can invest.

Single premiums

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

Solvency II

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

Solvency II capital coverage ratio

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

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

Solvency II new business contribution

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

Solvency II Operational Surplus Generation

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

Solvency II risk margin

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

Solvency II surplus

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

Solvency Capital Requirement (SCR)

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

Total shareholder return (TSR)

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

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Half Year Results 2022 Part 3

Glossary    Page 105

Transitional Measures on Technical Provisions (TMTP)

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

Yield

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

 

END

 

 

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