L&G Half Year Results 2023 Part 2

The group has applied IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial Instruments' for the first time from 1 January 2023. These standards have brought significant changes to the accounting for insurance and reinsurance contracts and financial instruments respectively, and have had a material impact on the group's financial statements in the period of initial application.

As at the transition date of 1 January 2022, the impacts on the key line items in the group's Consolidated Balance Sheet are set out below. The restated balances are aligned to those disclosed in the Annual Report and Accounts for the year ended 31 December 2022, with some minor adjustments for rounding.

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L&G Half year results 2023 Part 2

Independent review report to Legal & General Group Plc

Conclusion

Basis for conclusion

Conclusion relating to going concern

Directors' responsibilities

Our responsibility

The purpose of our review work and to whom we owe our responsibilities

UK 100

Legal & General Group Plc

15 August 2023

We have been engaged by Legal & General Group Plc ("the company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2023 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2023 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the company to cease to continue as a going concern, and the above conclusions are not a guarantee that the company will continue in operation.

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in Note 4.01, the annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards.

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

In preparing the condensed set of financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusions, including our conclusion relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Philip Smart

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

14 August 2023

IFRS Disclosures on performance

2.01 IFRS 17 and IFRS 9 restatement

IFRS 17, 'Insurance Contracts' was originally issued in May 2017 by the IASB, and subsequent amendments were issued in June 2020. Endorsement for use in the UK was granted in May 2022. The standard replaced IFRS 4, 'Insurance Contracts', and has been applied retrospectively, in line with the transitional options provided for in the standard. IFRS 17 provides a comprehensive approach for accounting for insurance contracts including their measurement, income statement presentation and disclosure.

IFRS 9, 'Financial Instruments' was issued in July 2014 by the IASB, effective for annual periods beginning on or after 1 January 2018. The IASB subsequently issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which allowed entities that met certain requirements to defer their implementation of IFRS 9 until adoption of IFRS 17, 'Insurance Contracts' or 1 January 2021, whichever is the earlier. In June 2020, the IASB agreed to extend the temporary exemption in IFRS 4 from applying IFRS 9 to annual reporting periods beginning on or after 1 January 2023. The group qualified for, and made use of this deferral option, and has therefore applied IFRS 9 for the first time on 1 January 2023. The standard replaced IAS 39, 'Financial Instruments: Recognition and Measurement'. It includes new principles around classification and measurement of financial instruments, introduces an impairment model based on expected credit losses (replacing the previous model based on incurred losses) and new requirements on hedge accounting. IFRS 9 has been applied retrospectively.

Note 4.01 Basis of preparation includes the new accounting policies adopted by the group for IFRS 17 and IFRS 9, together with information relating to the transition to the new standards.

IFRS 17 and IFRS 9 have been applied retrospectively, and prior period comparative information has been restated. These restatements resulted in comparative figures for the financial year ended 31 December 2022 which are not the group's statutory accounts for that financial year, but are derived from those accounts. Therefore, prior periods comparative information is unaudited. More information is provided in Note 4.01.

Restatements due to the implementation of IFRS 17 and IFRS 9 have been clearly marked as such throughout this report.

Balance sheet item	31 December 2021 (as reported) £m	Reclassification due to adoption of IFRS 9 and IFRS 17 £m	Impact of the adoption of IFRS 9 £m	Impact of the adoption of IFRS 17 £m	1 January 2022 (restated) £m
Financial investments	538,374	(29)	(716)	-	537,629
Net insurance contract liabilities¹	(82,645)	(199)	-	(6,185)	(89,029)
Net deferred tax (liabilities)/assets	(249)	-	178	1,209	1,138
Other	(444,994)	228	-	(31)	(444,797)
Equity attributable to owners of the parent	10,486	-	(538)	(5,007)	4,941

1. Net insurance contract liabilities reflect insurance contract assets and liabilities, net of reinsurance contracts.

The adoption of the new accounting standards does not change the total profit recognised over the life of the group's insurance contracts, nor the underlying economics or cash generation of the group's businesses. It does not change the group's strategy, solvency position nor dividend paying capacity or appetite.

2.02 Operating profit^#


			Restated	Restated
		6 months	6 months	Full year
		2023	2022	2022
For the six month period to 30 June 2023	Notes	£m	£m	£m
Legal & General Retirement Institutional (LGRI)	2.03	471	395	828
Legal & General Capital (LGC)	2.04	296	263	509
Legal & General Investment Management (LGIM)	2.05	142	200	340
Retail	2.03	230	295	416
- Insurance		108	164	165
- Retail Retirement		122	131	251

Operating profit from divisions		1,139	1,153	2,093
Group debt costs¹		(106)	(108)	(214)
Group investment projects and expenses		(92)	(87)	(194)
Operating profit		941	958	1,685
Investment and other variances	2.06	(611)	(261)	(751)
Losses attributable to non-controlling interests		(6)	-	(1)
Adjusted profit before tax attributable to equity holders		324	697	933
Tax expense attributable to equity holders	4.04	(14)	(122)	(88)
Profit for the period	3.01	310	575	845
Total tax expense	3.01	128	195	159
Profit before tax	3.01	438	770	1,004
Profit attributable to equity holders		316	575	846
Earnings per share:
Basic (pence per share)²	2.08	5.16	9.52	13.91
Diluted (pence per share)²	2.08	5.04	9.16	13.47

1. Group debt costs exclude interest on non-recourse financing.

2. All earnings per share calculations are based on profit attributable to equity holders of the company.

This supplementary adjusted operating profit information (one of the group's key performance indicators) provides additional analysis of the results reported under IFRS, and the group believes that it provides stakeholders with useful information to enhance their understanding of the performance of the business in the period. While the calculation of adjusted operating profit has been updated to reflect the accounting and presentational impacts of IFRS 17, the key principles of what is measured by adjusted operating profit, as set out below and except as noted, remain unchanged from the prior year.

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. Key considerations in relation to the calculation of adjusted operating profit for the group's long-term insurance businesses and shareholder funds are set out below.

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 excluded from adjusted operating profit.

Long-term insurance

Adjusted operating profit reflects longer-term economic assumptions for the group's retirement and insurance businesses. Variances between actual and long-term expected investment return on traded and real assets 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. Assets held for future new pension risk transfer business are excluded from the asset portfolio used to determine the discount rate for annuities on insurance contract liabilities. The impact of investment management actions that optimise the yield of the assets backing the back book of annuity contracts is now included within adjusted operating profit; prior to the implementation of IFRS17 the impact of such actions was not included in operating profit.

For the group's long-term insurance businesses, reinsurance mismatches are also excluded from adjusted operating profit. Reinsurance mismatches arise where the reinsurance offset rules in IFRS 17 do not reflect management's view of the net of reinsurance transaction. In particular, during a period of reinsurance renegotiation, reinsurance gains cannot be recognised to offset any inception losses on the underlying contracts where they are recognised before the new reinsurance agreement is signed. In these circumstances, the onerous contract losses are reduced to reflect the net loss (if any) after reinsurance, and future contractual service margin (CSM) amortisation is reduced over the duration of the contracts.

# All references to 'Operating profit' throughout this report represent 'Adjusted operating profit', an alternative performance measure defined in the glossary.

2.02 Operating profit^# (continued)

Shareholder funds

Shareholder funds include both the group's traded equity portfolio and certain direct investments for which adjusted operating profit is based on the long-term economic return expected to be generated. For these direct investments, as well as for the group's traded equity portfolio, deviations from such long-term economic return are excluded from adjusted operating profit. Direct investments for which adjusted operating profit is reflected in this way include the following:

• Development assets, predominantly in the specialist commercial real estate and housing sectors within the LGC alternative asset portfolio: these are assets under construction and contracted to either be sold to other parts of the group or for other commercial usage, and on which LGC accepts development risks and expects to realise profits once construction is complete.

• 'Scale-up' investments, predominantly in the alternative finance sector within the LGC alternative asset portfolio as well as the fintech business within Retail: these are investments in early-stage ventures in a fast-growing phase of their life cycle, but which have not yet reached a steady-state level of earnings.

Shareholder funds also includes other direct investments for which adjusted operating profit reflects the IFRS profit before tax. Direct investments for which adjusted operating profit is reflected in this way include the following:

• 'Start-up' investments: these are companies in the beginning stages of their business lifecycle (i.e. typically less than 24 months) and which therefore have limited operating history available and typically are in a pre-revenue stage.

• Mature assets: these are companies in their final stages of business lifecycle. They are stable businesses and have sustainable streams of income, but the growth rate in their earnings is expected to remain less pronounced in the future.

2.03 Analysis of LGRI and Retail operating profit^#

	LGRI	Retail	LGRI	Retail	LGRI	Retail
	6 months	6 months	6 months	6 months	Full year	Full year
	2023	2023	2022	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Amortisation of the CSM in the period¹	266	210	239	206	522	425
Release of risk adjustment in the period	54	49	68	44	136	85
Experience variances	1	(18)	9	(6)	14	(92)
Development of losses on onerous contracts	-	(8)	-	(5)	1	(7)
Other expenses	(66)	(39)	(65)	(43)	(131)	(113)
Insurance investment margin²	213	49	139	38	277	60
Investment contracts and non-insurance operating profit	3	(13)	5	61	9	58
Total LGRI and Retail operating profit	471	230	395	295	828	416

1. Contractual service margin (CSM) amortisation for Retail has been reduced by £8m (H1 22: £9m; FY 22: £17m) to exclude the impact of reinsurance mismatches.

2. Insurance investment margin comprises the expected investment return on assets backing insurance contract liabilities, the unwind of the discount rate on insurance contract liabilities and the optimisation of the assets backing the annuity back book.

2.04 LGC operating profit^#

	6 months	6 months	Full year
	2023	2022	2022
	£m	£m	£m
Direct investments¹	230	202	400
Traded investment portfolio including treasury assets²	66	61	109
Total LGC operating profit	296	263	509

1. Direct investments represents LGC's portfolio of assets across specialist commercial real estate, clean energy, housing and alternative finance. Direct investments includes operating profit in relation to CALA Homes of £68m (H1 22: £98m; FY 22: £172m).

2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

2.05 LGIM operating profit^#

	6 months	6 months	Full year
	2023	2022	2022
	£m	£m	£m
Asset management revenue (excluding third-party market data)¹	431	485	944
Asset management transactional revenue²	9	9	26
Asset management expenses (excluding third-party market data)¹	(298)	(294)	(630)
Total LGIM operating profit	142	200	340

1. Asset management revenue and expenses exclude income and costs of £13m in relation to the provision of third-party market data (H1 22: £15m; FY 22: £30m).

2. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.

# All references to 'Operating profit' throughout this report represent 'Adjusted operating profit', an alternative performance measure defined in the glossary.

2.06 Investment and other variances

		Restated	Restated
	6 months	6 months	Full year
	2023	2022	2022
	£m	£m	£m
LGRI and Retail
- Net impact of investment returns (less than)/in excess of expectation and change in liability discount rates	(186)	66	(72)
- Other	(36)	8	-
Total LGRI and Retail	(222)	74	(72)
LGC investment variance	(163)	(308)	(428)
Other investment variance¹	(48)	(8)	(119)
Investment variance	(433)	(242)	(619)
M&A related and other variances²	(178)	(19)	(132)
Total investment and other variances	(611)	(261)	(751)

1. Other investment variance includes the current service costs and net interest expense of the group's defined benefit pension schemes.

2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring as well as business start-up costs. The total for the 6 months ended 30 June 2023 includes £163m of costs incurred relating to the announced intent to cease production within the Modular Homes business and impairment of the group's investment in Onto.

Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including development assets and scale-up equity direct investments within LGC and Retail's Insurance business), the impact of economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation), the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business, and the yield associated with assets held for future new pension risk transfer business.

The long-term expected investment return is based on opening economic assumptions applied to the assets at the start of the reporting year. The assumptions underlying the calculation of the expected returns for traded equity, commercial property and residential property are

based on market consensus forecasts and long-term historic average returns expected to apply through the cycle.

The long-term expected investment returns are:

	6 months	6 months	Full year
	2023	2022	2022
Equities	7%	7%	7%
Commercial property	5%	5%	5%
Residential property	3.5%	3.5%	3.5%

For fixed interest securities measured at FVTPL, the expected investment returns are based on average prospective yields for the actual assets held less an adjustment for credit risk (assessed on a best estimate basis). Where securities are measured at amortised cost or FVOCI, the expected investment return comprises interest income on an effective interest rate basis.

For equity direct investments, the LGC alternative asset portfolio and Retail's Insurance business comprise investments in housing, specialist commercial real estate, clean energy, alternative finance and fintech. Where used for the determination of adjusted operating profit, the long-term expected investment return is on average between 10% and 12%, in line with our stated investment objectives. Rates of return specific to each asset are determined at the point of underwriting and reviewed and updated annually. The expected investment return includes assumptions on appropriate discount rates and inflation as well as sector specific assumptions including retail and commercial property yields and power prices.

2.07 Contractual service margin (CSM) analysis

	Gross	Gross	Re- insurance	Re- insurance	Net	Net
	LGRI	Retail	LGRI	Retail	LGRI	Retail
	£m	£m	£m	£m	£m	£m
As at 1 January 2023	9,403	4,224	(1,718)	283	7,685	4,507
CSM recognised for services provided/received	(313)	(215)	47	(3)	(266)	(218)
Changes in estimates which adjust the CSM	(105)	90	38	(42)	(67)	48
Contracts initially recognised in the period	274	185	15	(22)	289	163
Finance expenses/(income) from insurance contracts	123	61	(21)	1	102	62
Effect of movements in exchange rates	(12)	(58)	(1)	5	(13)	(53)
As at 30 June 2023	9,370	4,287	(1,640)	222	7,730	4,509

	Gross	Gross	Re- insurance	Re- insurance	Net	Net
	LGRI	Retail	LGRI	Retail	LGRI	Retail
	£m	£m	£m	£m	£m	£m
As at 1 January 2022	8,349	3,814	(1,294)	355	7,055	4,169
CSM recognised for services provided/received	(273)	(203)	34	(12)	(239)	(215)
Changes in estimates which adjust the CSM	(31)	69	(11)	10	(42)	79
Contracts initially recognised in the period	245	169	86	(11)	331	158
Finance expenses/(income) from insurance contracts	95	46	(15)	4	80	50
Effect of movements in exchange rates	20	112	2	(14)	22	98
As at 30 June 2022	8,405	4,007	(1,198)	332	7,207	4,339

	Gross	Gross	Re- insurance	Re- insurance	Net	Net
	LGRI	Retail	LGRI	Retail	LGRI	Retail
	£m	£m	£m	£m	£m	£m
As at 1 January 2022	8,349	3,814	(1,294)	355	7,055	4,169
CSM recognised for services provided/received	(621)	(418)	99	(24)	(522)	(442)
Changes in estimates which adjust the CSM	913	293	(621)	(11)	292	282
Contracts initially recognised in the year	542	315	126	(28)	668	287
Finance expenses/(income) from insurance contracts	197	98	(29)	7	168	105
Effect of movements in exchange rates	23	122	1	(16)	24	106
As at 31 December 2022	9,403	4,224	(1,718)	283	7,685	4,507

2.08 Earnings per share

(i) Basic earnings per share

			Restated	Restated	Restated	Restated
	After tax	Per share¹	After tax	Per share¹	After tax	Per share¹
	6 months	6 months	6 months	6 months	Full year	Full year
	2023	2023	2022	2022	2022	2022
	£m	p	£m	p	£m	p
Profit for the period attributable to equity holders	316	5.34	575	9.71	846	14.30
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	(11)	(0.18)	(11)	(0.19)	(23)	(0.39)
Total basic earnings	305	5.16	564	9.52	823	13.91

1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the year, excluding employee scheme treasury shares.

(ii) Diluted earnings per share

	After tax	Weighted average number of shares	Per share¹
For the six month period to 30 June 2023	£m	m	p
Profit for the period attributable to equity holders	316	5,913	5.34
Net shares under options allocable for no further consideration	-	53	(0.05)
Conversion of restricted Tier 1 notes	-	307	(0.25)
Total diluted earnings	316	6,273	5.04

	Restated After tax	Weighted average number of shares	Restated Per share¹
For the six month period to 30 June 2022	£m	m	p
Profit for the period attributable to equity holders	575	5,922	9.71
Net shares under options allocable for no further consideration	-	46	(0.07)
Conversion of restricted Tier 1 notes	-	307	(0.48)
Total diluted earnings	575	6,275	9.16

	Restated After tax	Weighted average number of shares	Restated Per share¹
For the year ended 31 December 2022	£m	m	p
Profit for the year attributable to equity holders	846	5,917	14.30
Net shares under options allocable for no further consideration	-	55	(0.13)
Conversion of restricted Tier 1 notes	-	307	(0.70)
Total diluted earnings	846	6,279	13.47

1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees and conversion of restricted Tier 1 notes.

2.09 Segmental analysis

The group has five reportable segments, comprising LGRI, LGC, LGIM, Retail Retirement and Insurance as set out in Note 2.02. Group expenses and debt costs continue to be reported separately. Transactions between segments are on normal commercial terms and are included within the reported segments.

In the UK, annuity liabilities relating to LGRI and Retail Retirement are backed by a single portfolio of assets, and once a transaction has been

completed the assets relating to any particular transaction are not tracked to the related liabilities. Investment variance is allocated to the two

business segments based on the relative average size of the underlying insurance contract liabilities for the period.

Reporting of assets and liabilities by reportable segment has not been included, as this is not information that is provided to key decision makers on a regular basis. The group's asset and liabilities are managed on a legal entity rather than a segment basis, in line with regulatory requirements.

Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.

(i) Profit/(loss) for the period

						Group
						expenses
				Retail		and debt
	LGRI	LGC	LGIM	Retirement	Insurance	costs	Total
For the six month period to 30 June 2023	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	471	296	142	122	108	(198)	941
Investment and other variances	(186)	(291)	(11)	(39)	(47)	(37)	(611)
Losses attributable to non-controlling interests	-	-	-	-	-	(6)	(6)
Profit/(loss) before tax attributable to equity holders	285	5	131	83	61	(241)	324
Tax (expense)/credit attributable to equity holders	(26)	19	(32)	(5)	(23)	53	(14)
Profit/(loss) for the period	259	24	99	78	38	(188)	310


						Group
						expenses
				Retail		and debt
	LGRI	LGC	LGIM	Retirement	Insurance	costs¹	Total
For the six month period to 30 June 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	395	263	200	131	164	(195)	958
Investment and other variances¹	17	(308)	(7)	6	51	(20)	(261)
Losses attributable to non-controlling interests	-	-	-	-	-	-	-
Profit/(loss) before tax attributable to equity holders	412	(45)	193	137	215	(215)	697
Tax (expense)/credit attributable to equity holders	(88)	2	(39)	(28)	(15)	46	(122)
Profit/(loss) for the period	324	(43)	154	109	200	(169)	575


						Group
						expenses
				Retail		and debt
	LGRI	LGC	LGIM	Retirement	Insurance	costs	Total
For the year ended 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)^#	828	509	340	251	165	(408)	1,685
Investment and other variances	(105)	(428)	(81)	(36)	69	(170)	(751)
Losses attributable to non-controlling interests	-	-	-	-	-	(1)	(1)
Profit/(loss) before tax attributable to equity holders	723	81	259	215	234	(579)	933
Tax (expense)/credit attributable to equity holders	(123)	(26)	(30)	(32)	(11)	134	(88)
Profit/(loss) for the year	600	55	229	183	223	(445)	845

1. Investment and other variances within Group expenses and debt costs has been restated for the six month period to 30 June 2022. The restatement reflects a change in approach for the consolidation of the annuities purchased by the group's defined benefit pension schemes from Legal and General Assurance Society Limited (as described in Note 4.15), to better reflect the underlying economics of the pension scheme obligations in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income. The change has no impact on the group's total equity as at 30 June 2022. The approach is consistent with that applied for the six month period to 30 June 2023 and the year ended 31 December 2022.

# Operating profit for total continuing operations represents 'Adjusted operating profit', an alternative performance measure defined in the glossary.

2.09 Segmental analysis (continued)

(ii) Revenue

(a) Total revenue - summary

Total revenue includes insurance revenue, fees from fund management and investment contracts and other operational income from contracts with customers. Further details on the components of insurance revenue are disclosed in Note 4.13. Other operational income from contracts with customers is a component of other operational income, and excludes the share of profit/loss from associates and joint ventures, as well as gains/losses on disposal of subsidiaries, associates, joint ventures and other operations.

		Restated	Restated
	6 months	6 months	Full year
	2023	2022	2022
	£m	£m	£m
Insurance revenue	4,647	4,234	8,708
Fees from fund management and investment contracts	409	461	899
Other operational income from contracts with customers	782	829	1,584
Total revenue	5,838	5,524	11,191

(b) Total revenue - internal/external analysis

			Retail		LGC and
	LGRI	LGIM^1,2	Retirement	Insurance	other³	Total
For the six month period to 30 June 2023	£m	£m	£m	£m	£m	£m
Internal revenue	-	81	-	-	(81)	-
External revenue	2,470	358	703	1,583	724	5,838
Total revenue	2,470	439	703	1,583	643	5,838

			Retail		LGC and
	LGRI	LGIM^1,2	Retirement	Insurance	other³	Total
For the six month period to 30 June 2022 (Restated)	£m	£m	£m	£m	£m	£m
Internal revenue	-	92	-	-	(92)	-
External revenue	2,104	412	675	1,570	763	5,524
Total revenue	2,104	504	675	1,570	671	5,524

			Retail		LGC and
	LGRI	LGIM^1,2	Retirement	Insurance	other³	Total
For the year ended 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m
Internal revenue	-	178	-	-	(178)	-
External revenue	4,518	801	1,334	3,086	1,452	11,191
Total revenue	4,518	979	1,334	3,086	1,274	11,191

1. LGIM internal income relates to investment management services provided to other segments.

2. LGIM external income primarily includes fees from fund management.

3. LGC and other includes LGC income, inter-segmental eliminations and group consolidation adjustments.

(c) Fees from fund management and investment contracts

		Retail	LGC and
	LGIM	Retirement	other¹	Total
For the six month period to 30 June 2023	£m	£m	£m	£m
Investment contracts	-	51	-	51
Investment management fees	430	-	(81)	349
Transaction fees	9	-	-	9
Total fees from fund management and investment contracts	439	51	(81)	409

		Retail	LGC and
	LGIM	Retirement	other¹	Total
For the six month period to 30 June 2022	£m	£m	£m	£m
Investment contracts	-	49	-	49
Investment management fees	495	-	(92)	403
Transaction fees	9	-	-	9
Total fees from fund management and investment contracts	504	49	(92)	461

		Retail	LGC and
	LGIM	Retirement	other¹	Total
For the year ended 31 December 2022	£m	£m	£m	£m
Investment contracts	-	98	-	98
Investment management fees	953	-	(178)	775
Transaction fees	26	-	-	26
Total fees from fund management and investment contracts	979	98	(178)	899

1. LGC and other includes inter-segmental eliminations and group consolidation adjustments.

2.09 Segmental analysis (continued)

(ii) Revenue (continued)

(d) Other operational income from contracts with customers

	Retail		LGC and
	Retirement	Insurance	other	Total
For the six month period to 30 June 2023	£m	£m	£m	£m
House building	-	-	702	702
Professional services fees	4	27	22	53
Insurance broker	-	27	-	27
Total other operational income from contracts with customers	4	54	724	782

	Retail		LGC and
	Retirement	Insurance	other	Total
For the six month period to 30 June 2022	£m	£m	£m	£m
House building	-	-	763	763
Professional services fees	4	41	-	45
Insurance broker	-	21	-	21
Total other operational income from contracts with customers	4	62	763	829

	Retail		LGC and
	Retirement	Insurance	other	Total
For the year ended 31 December 2022	£m	£m	£m	£m
House building	-	-	1,429	1,429
Professional services fees	7	78	23	108
Insurance broker	-	47	-	47
Total other operational income from contracts with customers	7	125	1,452	1,584

IFRS Primary Financial Statements

3.01 Consolidated Income Statement (unaudited)

			Restated	Restated
		6 months	6 months	Full year
		2023	2022	2022
For the six month period to 30 June 2023	Notes	£m	£m	£m
Insurance revenue	4.13	4,647	4,234	8,708
Insurance service expenses	4.13	(3,997)	(3,646)	(7,415)
Insurance service result before reinsurance contracts held		650	588	1,293
Net expense from reinsurance contracts held	4.13	(53)	(8)	(145)
Insurance service result	4.13	597	580	1,148
Investment return		8,288	(74,130)	(98,352)
Finance income from insurance contracts issued		432	12,460	19,136
Finance income/(expense) from reinsurance contracts		67	(47)	24
Change in investment contract liabilities		(8,208)	62,297	80,043
Insurance and investment result		1,176	1,160	1,999
Other operational income		758	846	1,646
Fees from fund management and investment contracts	2.09	409	461	899
Acquisition costs		(55)	(59)	(103)
Other finance costs		(173)	(145)	(290)
Other expenses		(1,677)	(1,493)	(3,147)
Total other income and expenses		(738)	(390)	(995)
Profit before tax		438	770	1,004
Tax expense attributable to policyholder returns		(114)	(73)	(71)
Profit before tax attributable to equity holders		324	697	933
Total tax expense		(128)	(195)	(159)
Tax expense attributable to policyholder returns		114	73	71
Tax expense attributable to equity holders	4.04	(14)	(122)	(88)
Profit for the period		310	575	845

Attributable to:
Non-controlling interests		(6)	-	(1)
Equity holders		316	575	846

Dividend distributions to equity holders during the period	4.02	831	792	1,116
Dividend distributions to equity holders proposed after the period end	4.02	340	324	829


		p	p	p
Total basic earnings per share¹	2.08	5.16	9.52	13.91
Total diluted earnings per share¹	2.08	5.04	9.16	13.47

1. All earnings per share calculations are based on profit attributable to equity holders of the company.

3.02 Consolidated Statement of Comprehensive Income (unaudited)

		Restated	Restated
	6 months	6 months	Full year
	2023	2022	2022
For the six month period to 30 June 2023	£m	£m	£m
Profit for the period	310	575	845
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes	(2)	150	26
Tax expense on actuarial remeasurements on defined benefit pension schemes	-	(38)	(6)
Total items that will not be reclassified subsequently to profit or loss	(2)	112	20
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	(7)	6	(20)
Movement in cross-currency hedge	24	5	40
Tax on movement in cross-currency hedge	(6)	(1)	(10)
Movement in financial investments measured at FVOCI	13	(96)	(132)
Tax on movement in financial investments measured at FVOCI	(2)	20	28
Insurance finance income for insurance contracts issued applying the OCI option	95	1,212	1,753
Reinsurance finance expense for reinsurance contracts issued applying the OCI option	(104)	(655)	(1,030)
Tax on movement in finance income/(expense) for insurance and reinsurance contracts	2	(147)	(169)
Total items that may be reclassified subsequently to profit or loss	15	344	460
Other comprehensive income after tax	13	456	480
Total comprehensive income for the period	323	1,031	1,325
Total comprehensive income/(expense) for the period attributable to:
Non-controlling interests	(6)	-	(1)
Equity holders	329	1,031	1,326

3.03 Consolidated Balance Sheet (unaudited)

			Restated	Restated
		As at	As at	As at
		30 Jun 2023	30 Jun 2022	31 Dec 2022
	Notes	£m	£m	£m
Assets
Goodwill		71	71	71
Other intangible assets		454	406	441
Deferred acquisition costs		5	5	7
Investment in associates and joint ventures accounted for using the equity method		553	387	554
Property, plant and equipment		362	311	326
Investment property	4.03	9,227	10,976	9,372
Financial investments	4.03	454,967	462,807	446,558
Reinsurance contract assets	4.13	5,398	3,969	4,685
Deferred tax assets	4.04	1,367	1,283	1,469
Current tax assets		908	699	802
Receivables and other assets		11,922	17,634	13,202
Cash and cash equivalents		14,537	24,774	35,784
Total assets		499,771	523,322	513,271
Equity
Share capital	4.05	149	149	149
Share premium	4.05	1,027	1,017	1,018
Employee scheme treasury shares		(143)	(138)	(144)
Capital redemption and other reserves		346	201	338
Retained earnings		3,214	3,908	3,751
Attributable to owners of the parent		4,593	5,137	5,112
Restricted Tier 1 convertible notes	4.06	495	495	495
Non-controlling interests	4.07	(35)	(36)	(29)
Total equity		5,053	5,596	5,578
Liabilities
Insurance contract liabilities	4.13	78,378	82,892	78,171
Reinsurance contract liabilities	4.13	138	13	52
Investment contract liabilities		299,135	305,780	286,830
Core borrowings	4.08	4,278	4,356	4,338
Operational borrowings	4.09	1,272	1,182	1,219
Provisions	4.15	1,626	781	890
Deferred tax liabilities	4.04	160	155	206
Current tax liabilities		68	81	69
Payables and other financial liabilities	4.11	91,056	95,824	93,905
Other liabilities		705	654	762
Net asset value attributable to unit holders		17,902	26,008	41,251
Total liabilities		494,718	517,726	507,693
Total equity and liabilities		499,771	523,322	513,271

3.04 Consolidated Statement of Changes in Equity (unaudited)

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the six month period to 30 June 2023	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the six month period to 30 June 2023	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2023	149	1,018	(144)	338	3,751	5,112	495	(29)	5,578
Profit for the period	-	-	-	-	316	316	-	(6)	310
Exchange differences on translation of overseas operations	-	-	-	(7)	-	(7)	-	-	(7)
Net movement in cross-currency hedge	-	-	-	18	-	18	-	-	18
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	(2)	(2)	-	-	(2)
Net movement in financial investments measured at FVOCI	-	-	-	11	-	11	-	-	11
Net insurance finance income/(expense)	-	-	-	(7)	-	(7)	-	-	(7)
Total comprehensive income for the period	-	-	-	15	314	329	-	(6)	323
Options exercised under share option schemes	-	9	-	-	-	9	-	-	9
Shares purchased	-	-	(13)	-	-	(13)	-	-	(13)
Shares vested	-	-	14	(35)	-	(21)	-	-	(21)
Employee scheme treasury shares: - Value of employee services	-	-	-	28	-	28	-	-	28
Share scheme transfers to retained earnings	-	-	-	-	(9)	(9)	-	-	(9)
Dividends	-	-	-	-	(831)	(831)	-	-	(831)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(11)	(11)	-	-	(11)
Movement in third party interests	-	-	-	-	-	-	-	-	-
As at 30 June 2023	149	1,027	(143)	346	3,214	4,593	495	(35)	5,053

1. Capital redemption and other reserves as at 30 June 2023 include share-based payments £92m, foreign exchange £40m, capital redemption £17m, hedging £92m, insurance and reinsurance finance £194m and financial assets at FVOCI reserves £(89)m.

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the six month period to 30 June 2022	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the six month period to 30 June 2022	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January (as previously reported)	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943
Impact of initial application of IFRS 17	-	-	-	(334)	(4,673)	(5,007)	-	-	(5,007)
Impact of initial application of IFRS 9	-	-	-	3	(541)	(538)	-	-	(538)
As at 1 January 2022 (Restated)	149	1,012	(99)	(135)	4,014	4,941	495	(38)	5,398
Profit for the period	-	-	-	-	575	575	-	-	575
Exchange differences on translation of overseas operations	-	-	-	6	-	6	-	-	6
Net movement in cross-currency hedge	-	-	-	4	-	4	-	-	4
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	112	112	-	-	112
Net movement in financial investments measured at FVOCI	-	-	-	(76)	-	(76)	-	-	(76)
Net insurance finance income/(expense)	-	-	-	410	-	410	-	-	410
Total comprehensive income for the period	-	-	-	344	687	1,031	-	-	1,031
Options exercised under share option schemes	-	5	-	-	-	5	-	-	5
Shares purchased	-	-	(50)	-	-	(50)	-	-	(50)
Shares vested	-	-	11	(33)	-	(22)	-	-	(22)
Employee scheme treasury shares: - Value of employee services	-	-	-	25	-	25	-	-	25
Share scheme transfers to retained earnings	-	-	-	-	10	10	-	-	10
Dividends	-	-	-	-	(792)	(792)	-	-	(792)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(11)	(11)	-	-	(11)
Movement in third party interests	-	-	-	-	-	-	-	2	2
As at 30 June 2022 (Restated)	149	1,017	(138)	201	3,908	5,137	495	(36)	5,596

1. Capital redemption and other reserves as at 30 June 2022 include share-based payments £78m, foreign exchange £62m, capital redemption £17m, hedging £52m, insurance and reinsurance finance £71m and financial assets at FVOCI reserves £(79)m.

3.04 Consolidated Statement of Changes in Equity (unaudited) (continued)

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
	capital	premium	shares	reserves¹	earnings	of the parent	notes	interests	equity
For the year ended 31 December 2022	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January (as previously reported)	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943
Impact of initial application of IFRS 17	-	-	-	(334)	(4,673)	(5,007)	-	-	(5,007)
Impact of initial application of IFRS 9	-	-	-	3	(541)	(538)	-	-	(538)
As at 1 January 2022 (Restated)	149	1,012	(99)	(135)	4,014	4,941	495	(38)	5,398
Profit for the year	-	-	-	-	846	846	-	(1)	845
Exchange differences on translation of overseas operations	-	-	-	(20)	-	(20)	-	-	(20)
Net movement in cross-currency hedge	-	-	-	30	-	30	-	-	30
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	20	20	-	-	20
Net movement in financial investments measured at FVOCI	-	-	-	(104)	-	(104)	-	-	(104)
Net insurance finance income/(expense)	-	-	-	554	-	554	-	-	554
Total comprehensive income for the year	-	-	-	460	866	1,326	-	(1)	1,325
Options exercised under share option schemes	-	6	-	-	-	6	-	-	6
Shares purchased	-	-	(59)	-	-	(59)	-	-	(59)
Shares vested	-	-	14	(41)	-	(27)	-	-	(27)
Employee scheme treasury shares: - Value of employee services	-	-	-	54	-	54	-	-	54
Share scheme transfers to retained earnings	-	-	-	-	10	10	-	-	10
Dividends	-	-	-	-	(1,116)	(1,116)	-	-	(1,116)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(23)	(23)	-	-	(23)
Movement in third party interests	-	-	-	-	-	-	-	10	10
As at 31 December 2022 (Restated)	149	1,018	(144)	338	3,751	5,112	495	(29)	5,578

1. Capital redemption and other reserves as at 31 December 2022 include share-based payments £99m, foreign exchange £44m, capital redemption £17m, hedging £78m, insurance and reinsurance finance £205m and financial assets at FVOCI reserves £(105)m.

3.05 Consolidated Statement of Cash Flows (unaudited)

			Restated	Restated
		6 months	6 months	Full year
		2023	2022	2022
For the six month period to 30 June 2023	Notes	£m	£m	£m
Cash flows from operating activities
Profit for the period		310	575	845
Adjustments for non-cash movements in net profit for the period
Net (gains)/losses on financial investments and investment property		(2,125)	78,802	107,469
Investment income		(6,163)	(4,672)	(9,117)
Interest expense		173	145	290
Tax expense		128	195	159
Other adjustments		116	88	113
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss		(7,732)	14,750	22,052
Investments measured at FVOCI		456	(518)	(1,025)
Investments measured at amortised cost		(233)	(33)	(93)
Other assets		1,334	(9,290)	(5,194)
Net (decrease)/increase in operational liabilities
Insurance contracts		(78)	(10,354)	(15,691)
Investment contracts		12,308	(67,182)	(86,132)
Other liabilities		(24,341)	2,492	(972)
Cash (utilised in)/generated from operations		(25,847)	4,998	12,704
Interest paid		(167)	(139)	(290)
Interest received		3,408	1,808	3,525
Rent received		224	185	404
Tax paid¹		(184)	(376)	(570)
Dividends received		2,338	2,491	4,691
Net cash flows from operations		(20,228)	8,967	20,464
Cash flows from investing activities
Acquisition of property, plant and equipment, intangibles and other assets		(171)	(60)	(187)
Acquisition of operations, net of cash acquired		-	(2)	(2)
Investment in joint ventures and associates		(44)	(34)	(101)
Disposal of joint ventures and associates		8	40	64
Net cash flows utilised in investing activities		(207)	(56)	(226)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the period	4.02	(831)	(792)	(1,116)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax	4.06	(14)	(14)	(28)
Options exercised under share option schemes	4.05	9	5	6
Treasury shares purchased for employee share schemes		(13)	(50)	(59)
Payment of lease liabilities		(32)	(18)	(44)
Proceeds from borrowings	4.10	408	385	945
Repayment of borrowings	4.10	(299)	(210)	(737)
Net cash flows utilised in financing activities		(772)	(694)	(1,033)
Net (decrease)/increase in cash and cash equivalents		(21,207)	8,217	19,205
Exchange gains on cash and cash equivalents		(40)	70	92
Cash and cash equivalents at 1 January		35,784	16,487	16,487
Total cash and cash equivalents at 30 June/31 December		14,537	24,774	35,784

1. Tax paid comprises UK corporation tax of £38m (H1 22: £223m; FY 22: £358m), withholding tax of £143m (H1 22: £147m; FY 22: £204m) and overseas corporate tax of £3m (H1 22: £6m; FY 22: £8m).

IFRS Disclosure Notes

4.01 Basis of preparation

The group financial information for the six months ended 30 June 2023 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting'. The group's financial information, a condensed set of financial statements which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related explanatory notes, has also been prepared in line with the accounting policies which the group expects to adopt for the 2023 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2022 consolidated financial statements, except where policy changes have been outlined below in "New standards, interpretations and amendments to published standards that have been adopted by the group". Accounting policies are in line with UK-adopted international accounting standards, as issued by the International Accounting Standards Board and adopted by the UK Endorsement Board for use in the United Kingdom.

The preparation of the Interim Management Report includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Consolidated Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance represent an area of critical accounting judgement on policy application. Following the implementation of IFRS 17, 'Insurance Contracts' on 1 January 2023, economic and non-economic assumptions have been updated in line with the new requirements, and applied for half year financial reporting and retrospectively to comparative periods presented.

The results for the half year ended 30 June 2023 are unaudited but have been reviewed by KPMG LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results from the full year 2022 and half year 2022 have been restated to reflect the retrospective application of IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial Instruments' from 1 January 2023, as outlined below in 'New standards, interpretations and amendments to published standards that have been adopted by the group'. The comparative figures for the financial year ended 31 December 2022 are not the group's statutory accounts for that financial year but are derived from those accounts. Those accounts have been reported on by the company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Key technical terms and definitions

The interim management report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the Glossary of these interim financial statements.

Alternative performance measures

The group uses a number of alternative performance measures (APMs), including adjusted operating profit, in the discussion of its business performance and financial position, as the group believes that they, complemented with figures determined according to other regulations, enhance understanding of the group's performance. Definitions and further information in relation to the group's APMs can be found in the Alternative Performance Measures section of these interim financial statements.

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been split between tax attributable to policyholders' returns and equity holders' profits. Policyholder tax comprises the tax suffered on policyholder investment returns, while shareholder tax is corporation tax charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

Climate change

At the current time, the group does not consider climate risk to represent a significant area of judgement or of estimation uncertainty. As at 30 June 2023, no material impacts on the group's financial position, nor on the valuation of assets or liabilities on the group's Consolidated Balance Sheet as a result of climate change risk have been identified. Further detail on how the group arrives at this determination is disclosed in the basis of preparation of the group's 2022 consolidated financial statements.

(i) Going concern

The group's business activities, together with the factors likely to affect its future development, performance and position in the current economic environment are set out in this Interim Management Report. The financial position of the group, its cash flows, liquidity position and borrowing facilities as at 30 June 2023 are described in the IFRS Primary Financial Statements and IFRS Disclosure Notes. Principal risks and uncertainties are detailed on pages 23 to 26.

The directors have made an assessment of the group's going concern, considering both the current performance and the outlook for a period of at least, but not limited to, 12 months from the date of approval of the interim financial information using the information available up to the date of issue of this Interim Management Report.

The group manages and monitors its capital and liquidity, and applies various stresses, including adverse inflation and interest rate scenarios, to those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range of stresses are disclosed in Note 6.01. These stresses do not give rise to any material uncertainties over the ability of the group to continue as a going concern. Based upon the available information, the directors consider that the group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.

Having reassessed the principal risks and uncertainties (both financial and operational) in light of the current economic environment, as detailed on pages 23 to 26, the directors are confident that the group and company will have sufficient funds to continue to meet its liabilities as they fall due for a period of, but not limited to, 12 months from the date of approval of the financial statements and therefore have considered it appropriate to adopt the going concern basis of accounting when preparing the financial statements.

(ii) New standards, interpretations and amendments to published standards that have been adopted by the group

As introduced in Note 2.01 Restatement of financial information, the group has applied IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial Instruments' on 1 January 2023.

4.01 Basis of preparation (continued)

IFRS 17, 'Insurance Contracts' - material accounting policies

Long term insurance contracts - initial measurement

Insurance contracts are contracts which transfer significant insurance risk to the insurer at the inception of the contract. This is the case if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, other than a scenario which lacks commercial substance. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire.

At inception, the group separates the following components from an insurance or reinsurance contract and accounts for them as if they were stand-alone financial instruments:

• derivatives embedded in the contract whose economic characteristics and risks are not closely related to those of the host contract, and whose terms would not meet the definition of an insurance or reinsurance contract as a stand-alone instrument; and

• distinct investment components, i.e. investment components that are not highly inter-related with the insurance components and for which contracts with equivalent terms are sold, or could be sold, separately in the same market or the same jurisdiction.

After separating any financial instrument components, the group separates any promises to transfer to policyholders distinct goods or services other than insurance coverage and investment services and accounts for them as separate contracts with customers (i.e. not as insurance contracts). A good or service is distinct if the policyholder can benefit from it either on its own or with other resources that are readily available to the policyholder. A good or service is not distinct and is accounted for together with the insurance component if the cash flows and risks associated with the good or service are highly inter-related with the cash flows and risks associated with the insurance component, and the group provides a significant service of integrating the good or service with the insurance component.

All of the group's in scope insurance contracts are accounted for under the general measurement model which measures a group of insurance contracts as the total of:

• fulfilment cash flows; and

• a contractual service margin (CSM) representing the unearned profit the group will recognise as it provides services under the insurance contract.

Fulfilment cash flows

Fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time value of money and financial risks, plus a risk adjustment for non-financial risk. The group's objective in estimating future cash flows is to determine the expected value, or the probability weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort. The group estimates future cash flows considering a range of scenarios which have commercial substance and give a good representation of possible outcomes. The cash flows from each scenario are probability-weighted and discounted using current assumptions.

When estimating future cash flows, the group includes all cash flows that are within the contract boundary. The cash flows include:

• premiums and related cash flows;

• claims and benefits, including reported claims not yet paid, incurred claims not yet reported and expected future claims;

• investment management costs incurred in the provision of an investment return service or to enhance the benefits of an insurance contract;

• payments to policyholders resulting from embedded surrender value options;

• an allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs;

• claims handling costs;

• policy administration and maintenance costs, including recurring commissions that are expected to be paid to intermediaries for future services;

• an allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts; and

• transaction-based taxes.

The group incorporates, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows. The group estimates the probabilities and amounts of future payments under existing contracts based on information obtained, including:

• information about claims already reported by policyholders;

• other information about the known or estimated characteristics of the insurance contracts;

• historical data about the group's own experience, supplemented when necessary, with data from other sources (historical data is adjusted to reflect current conditions); and

• current pricing information, when available.

The measurement of fulfilment cash flows includes insurance acquisition cash flows which are allocated as a portion of premium to profit or loss (through insurance revenue) over the period of the contract. Insurance acquisition cash flows are considered for impairment at each reporting date.

Risk adjustment

The risk adjustment for non-financial risk for a group of insurance contracts reflects the compensation that the group would require for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk after diversification. We have calibrated the group's risk adjustment using a Value at Risk (VAR) methodology. In some cases, the compensation for risk on reinsured business is linked directly to the price paid for reinsurance.

4.01 Basis of preparation (continued)

Discounting

The insurance contract fulfilment cash flows are discounted at rates that reflect the characteristics of the insurance contract liabilities. These have been determined using the top-down approach, starting from an appropriate asset portfolio with deductions to remove risks in the assets that are not present in the insurance liabilities.

Contractual service margin (CSM)

The group's CSM is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the group will recognise as it provides services in the future. The group measures the CSM on initial recognition at an amount that, unless the group of contracts is onerous, results in no income or expenses arising from:

• initial recognition of the fulfilment cash flows;

• any cash flows arising from the contracts in the group at that date;

• the derecognition at the date of initial recognition of:

- any asset for insurance acquisition cash flows; and

- any other asset or liability previously recognised related to the group of insurance contracts.

Recognition and level of aggregation

An insurance contract is recognised at the earliest of the following:

(a) the beginning of the coverage period;

(b) the date when the first payment from a policyholder becomes due; and

The level of aggregation determines the unit of account at which IFRS 17 calculations are performed. This is determined firstly by dividing the business written into portfolios. Portfolios comprise groups of contracts with similar risks which are managed together. Portfolios are further divided based on expected profitability at inception into three categories: onerous contracts, contracts with no significant risk of subsequently becoming onerous, and the remainder. IFRS 17 also requires that no group for level of aggregation purposes may contain contracts issued more than one year apart.

Onerous contracts

For groups of contracts assessed as onerous, the group recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows and the CSM of the group being zero. A loss component is established by the group for the liability for remaining coverage for an onerous group, which represents the losses recognised.

Reinsurance contracts - initial measurement

The initial measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the exception of the following:

• reinsurance contracts are recognised from the earlier of the following:

- the beginning of the coverage period; and

- the date the entity recognises an onerous group of underlying insurance contracts, if the entity entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date.

• measurement of the cash flows includes an allowance on a probability-weighted basis for the effect of any non-performance by the reinsurers, including the effects of collateral and losses from disputes;

• the group determines the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the reinsurer;

• both day one gains and day one losses are not recognised at initial recognition in the statement of financial position but are deferred into the CSM and released to profit or loss as the reinsurer renders services, except for any portion of a day 1 loss that relates to events before initial recognition; and

• if the reinsurance contract is recognised prior to a loss-making underlying contract, the reinsurance CSM can be adjusted to offset a portion of the inception loss (the loss recovery component).

Long term insurance contracts - subsequent measurement

The group measures the carrying amount of a group of insurance contracts at the end of each reporting period as the sum of:

(i) the liability for remaining coverage comprising fulfilment cash flows related to future service allocated to the group at that date and the CSM of the group at that date; and

(ii) the liability for incurred claims for the group reflecting the fulfilment cash flows related to past service allocated to the group at that date.

Contractual service margin - measurement

The CSM at the end of the reporting period represents the profit in the group of insurance contracts that has not yet been recognised in profit or loss, because it relates to future service to be provided.

For a group of insurance contracts the carrying amount of the CSM of that group at the end of the reporting period equals the carrying amount at the beginning of the reporting period adjusted for:

4.01 Basis of preparation (continued)

• the effect of any new contracts added;

• interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition;

• the changes in fulfilment cash flows relating to future service, except to the extent that:

- such increases in the fulfilment cash flows exceed the current carrying amount of the CSM, giving rise to a loss; or

- such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage;

• the amount recognised as insurance revenue because of the transfer of services in the period, determined by allocation of the contractual service margin at the end of the period over the current and remaining coverage period; and

• the effect of any currency exchange differences on the CSM.

The changes in fulfilment cash flows relating to future service that adjust the CSM comprise of:

• experience adjustments that arise from the difference between the premium receipts (net of refunds) and any related cash flows such as insurance acquisition cash flows and insurance premium taxes and the estimate, at the beginning of the period, of the amounts expected. Differences related to premiums received (or due) in respect of current or past services are recognised immediately in profit or loss while differences related to premiums received (or due) for future services are adjusted in the CSM;

• changes in estimates of the present value of future cash flows in the liability for remaining coverage, except those relating to the time value of money and changes in financial risk (which are instead recognised in the statement of profit or loss and other comprehensive income);

• differences between any investment component expected to become payable in the period and the actual investment component that becomes payable in the period; and

• changes in the risk adjustment for non-financial risk that relate to future service.

Adjustments to the CSM noted above are measured at discount rates that reflect the characteristics of the cash flows of the group of insurance contracts at initial recognition (i.e. the weighted average of the rates applicable at the date of initial recognition of contracts that joined a group over a 12-month period).

Onerous contracts

Groups of contracts that were not onerous at initial recognition can subsequently become onerous if assumptions and experience changes. The group establishes a loss component for any onerous group depicting the future losses recognised. The loss component is released based on a systematic allocation of the subsequent changes in the fulfilment cash flows to: (i) the loss component; and (ii) the liability for remaining coverage excluding the loss component. The loss component is also updated for subsequent changes in estimates of the fulfilment cash flows related to future service. The systematic allocation of subsequent changes to the loss component results in the total amounts allocated to the loss component being equal to zero by the end of the coverage period of a group of contracts (since the loss component will have materialised in the form of incurred claims). The loss component ensures that over the duration of the contract, the correct amounts are recognised as insurance revenue and insurance service expenses.

Contractual service margin - recognition

The amount of contractual service margin recognised in the income statement for a group of insurance contracts reflects the insurance contract services provided. The proportion of the CSM earned is calculated as the amount of coverage units provided in the period divided by the sum of all the future and current period coverage units. The group has elected to discount the future coverage units in this calculation. The table below indicates the main insurance contracts services provided under the group's insurance contracts and selected coverage unit(s) used to measure those services.

Insurance contract	Insurance service	Coverage unit(s)
Immediate annuity	Payment of insurance claims	Expected annual claims payments
Deferred annuity	Payment of insurance claims (payment phase) Investment return service (deferral phase) Lump sum death benefits (deferral phase)	Expected annual claims payments Expected investment return on backing assets Sum assured
Longevity swaps	Payment of floating leg of swap	Expected annual floating leg payments
Retail Protection	Potential mortality or morbidity claims	Sum assured
Group Protection	Potential mortality or morbidity claims	Sum assured

Where a specific unit of account contains a mixture of services, and therefore coverage units, it is necessary to weight the coverage units so that the resulting profile of CSM release reflects the overall package of benefits provided. This is particularly pertinent to units of account incorporating a combination of immediate and deferred annuities. Under IFRS 17, deferred annuities usually provide multiple services, split between the two phases of benefit provision (the deferral phase and the payment phase). Significant judgement is therefore required to combine the different coverage units so that they fairly reflect the services provided. The weighting between the deferral phase and the payment phase coverage units is calculated so that the services provided in the deferral phase reflect the investment return provided and the probability weighted delivery of any lump sum death benefits, both adjusted so that all of the CSM is earned in the deferral phase for all contracts which do not enter the payment phase either through transfer out, withdrawal of funds or death.

Investment components

The group identifies the investment component of a contract by determining the amount that it would be required to repay to the policyholder in all scenarios with commercial substance. Investment components are not included in insurance revenue and insurance service expenses.

4.01 Basis of preparation (continued)

Insurance finance income and expense

IFRS 17 requires an accounting policy decision as to whether to recognise all finance income or expense in profit or loss, or whether to disaggregate the income or expense that relates to changes in financial assumptions into other comprehensive income. All finance income and expense will be included in profit or loss except for protection business where this is disaggregated. Changes in the risk adjustment for non-financial risk have been disaggregated between insurance service result and insurance finance income and expenses.

Reinsurance contracts held - subsequent measurement

The subsequent measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued except that changes in the fulfilment cash flows are recognised in profit or loss if the related changes arising from the underlying ceded contracts are recognised in profit or loss.

Derecognition and contract modification of insurance contracts

The group derecognises a contract when it is extinguished, i.e. when the specified obligations in the contract expire or are discharged or cancelled.

The group also derecognises a contract if its terms are modified in a way that would have changed the accounting for the contract significantly had the new terms always existed, in which case a new contract based on the modified terms is recognised. If a contract modification does not result in derecognition, then the group treats the changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows.

If a contract is derecognised because its terms are modified, then the CSM is also adjusted for the premium that would have been charged had the group entered into a contract with the new contract's terms at the date of modification, less any additional premium charged for the modification. The new contract recognised is measured assuming that, at the date of modification, the group received the premium that it would have charged less any additional premium charged for the modification.

Transition to IFRS 17
On transition to IFRS 17, the group has applied the full retrospective approach unless impracticable. The full retrospective approach requires the group to:

• identify, recognise and measure each group of insurance and reinsurance contracts as if IFRS 17 had always applied;

• derecognise any existing balances that would not exist had IFRS 17 always applied; and

• recognise any resulting net difference in equity.

If it was impracticable to apply a full retrospective approach to a group of contracts then the group has chosen between the modified retrospective approach and the fair value approach. If the group could not obtain reasonable and supportable information necessary to apply the modified retrospective approach, then the fair value approach has been chosen.

The group has applied the following transition approaches to its material insurance contract portfolios on transition to IFRS 17, by year of issue:

Transition approach	Annuities	UK Protection	US Protection
Full retrospective	2021	2021	2021
Modified retrospective	2016-2020	2012-2020	2011-2020
Fair value	Pre-2016	Pre-2012	Pre-2011

Full retrospective approach

The full retrospective approach has been determined to be impracticable where the effects of retrospective application are not determinable because information required has not been collected (or not with sufficient granularity), application would require the application of hindsight, or information is unavailable because of system migrations, data retention requirements or other reasons. Specific examples include:

• historic calibration of IFRS 17 specific judgements, such as the scale of the risk adjustment;

• expectations about a contract's profitability and risks of becoming onerous required for identifying groups of contracts;

• information about historical cash flows and discount rates required for determining the estimates of cash flows on initial recognition and their subsequent changes on a retrospective basis;

• information required to allocate fixed and variable overheads to groups of contracts, because the group's current accounting policies do not require such information; and

• information about certain changes in assumptions and estimates because they were not documented on an ongoing basis.

Modified retrospective approach

The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort.

The only modification applied by the group is that for some groups of contracts issued before 2020, the risk adjustment for non-financial risk on initial recognition has been determined by adjusting the amount at 1 January 2022 for the expected release of risk before that date. The expected release has been determined with reference to the release of risk of similar contracts that the group issued in 2022. This modification has been used to avoid the application of hindsight to the calibration of the risk adjustment in prior periods.

4.01 Basis of preparation (continued)

Fair value approach

The group has applied the fair value approach on transition for certain groups of contracts as, prior to transition, it grouped contracts from multiple cohorts and years into a single unit for accounting purposes. Obtaining reasonable and supportable information to apply the full retrospective approach was impracticable without undue cost or effort. The group has determined the CSM of the liability for remaining coverage at the transition date, as the difference between the fair value of the group of insurance contracts and the fulfilment cash flows measured at that date. In determining fair value, the group has applied the requirements of IFRS 13, 'Fair Value Measurement', except for the demand deposit floor requirement. The fair value attributed to the in-scope annuity business is calculated with reference to a price generated using the group's pricing models and pricing assumptions at the transition date. This incorporates an expected internal rate of return that has been validated against relevant market transactions.

The group has aggregated contracts issued more than one year apart in determining groups of insurance contracts under the fair value approach at transition, applying the permitted transition simplification. The group did not have reasonable and supportable information to aggregate groups into those including only contracts issued within one year.

For portfolios of protection contracts, the group has elected to disaggregate insurance finance income or expenses between amounts included in profit or loss and amounts included in other comprehensive income. For these portfolios, the cumulative amount of insurance finance income or expense recognised in other comprehensive income at the transition date and has been reset to zero in line with the provisions of the standard.

Financial impact of transition
The increase in insurance liabilities on adoption of IFRS 17 at 1 January 2022 can be attributed to the following:

	Impact on net insurance contract liabilities on transition to IFRS 17 £m
Remeasurement of liabilities: the IFRS 17 cash flows are best estimate and exclude all prudent margins included in the IFRS 4 liabilities. Removal of these margins coupled with other changes to the insurance contract measurement, including discount rates and the exclusion of non-attributable expenses, results in a lower best estimate liability	7,540
Creation of a risk adjustment: IFRS 17 incorporates a specific risk adjustment for non-financial risk	(2,501)
Creation of CSM: determined using the transition approaches described above and reflecting the unearned profit of these contracts	(11,224)
Total	(6,185)

IFRS 9, 'Financial Instruments' - material accounting policies

Recognition and derecognition

Initial recognition of financial assets and liabilities is on the trade date, which is the date on which the group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is initially measured at fair value plus, for a financial asset

or financial liability not measured at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. When the fair value of financial assets and liabilities differs from the transaction price on initial recognition, the group recognises the difference as follows:

• when the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observable markets, the difference is recognised as a gain or loss; and

• in all other cases, the difference is deferred and the timing of recognition of deferred day one profit or loss is determined individually. It is either amortised over the life of the instrument, deferred until the instrument's fair value can be determined using market observable inputs or realised through settlement.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when the group transfers substantially all the risks and rewards of ownership to another entity. This is the case for cash collateral pledged, where the counterparty has contractual rights to receive the cash flows generated, and which is derecognised from the Consolidated Balance Sheet and a corresponding receivable recognised for its return.

The group enters into transactions whereby it transfers assets recognised in its Consolidated Balance Sheet, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. Examples of such transactions are repurchase agreements and non-cash collateral pledged, unless the group defaults on its obligations under the relevant agreement.

In transactions in which the group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it retains control over the asset, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to

which it is exposed to changes in the value of the transferred asset.

The group derecognises a financial liability when its contractual obligations expire or are discharged or cancelled. The group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial asset or financial liability, the difference between the carrying amount at the date of derecognition and the consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss.

Modification
If the terms of a financial asset are modified, then the group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs.

4.01 Basis of preparation (continued)

Classification and measurement
Financial assets
The group classifies its financial investments on initial recognition as measured at amortised cost (AC), fair value through Other Comprehensive Income (FVOCI) and fair value through profit or loss (FVTPL).

The classification and measurement of financial assets depends on their contractual cash flow characteristics and how they are managed (the entity's business model). The contractual cash flow characteristics test aims to identify those assets with cash flows consistent with a basic lending arrangement, i.e. which are 'solely payments of principal and interest' (SPPI). The business model test refers to how an entity manages its financial assets with the objectives of generating cash flows. These factors determine whether the financial assets are measured at amortised cost, FVOCI or FVTPL. Assets are therefore typically characterised as follows:

• amortised cost: financial assets with contractual terms that give rise solely to interest and principal cash flows, and which are held in a business model whose objective is to hold the assets to collect their cash flows. They are measured at amortised cost using the effective interest method. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss;

• FVOCI: financial assets with contractual terms that give rise solely to interest and principal cash flows, and which are held in a business model whose objective is achieved by holding the assets to collect their cash flows and selling them. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss;

• FVTPL: all other financial assets. Net gains and losses, including any interest or dividend income and foreign exchange gains and losses, are recognised in profit or loss, unless they arise from derivatives designated as hedging instruments in net investment hedges.

Notwithstanding the above, on initial recognition the group may irrevocably designate to FVTPL a financial asset that would otherwise be measured at amortised cost or FVOCI if doing so eliminates or greatly reduces an accounting mismatch.

In making the SPPI assessment, the group considers whether the contractual cash flows are consistent with a basic lending arrangement (that is, interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement). This includes evaluating whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. Examples of such contractual terms to be considered are contingent events that would change the amount or timing of cash flows, leverage features, prepayment and extension features, non-recourse asset arrangements and features that modify consideration for the time value of money (e.g. periodic reset of interest rates).

The business model reflects how the group manages assets in order to generate cash flows, i.e. it reflects whether the group's objective is solely to collect the contractual cash flows from assets or to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is applicable (for example, financial assets are held for trading purposes), the business model is 'other' and the financial asset is measured at FVTPL. Factors considered by the group in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, how the asset's performance is evaluated and reported to key management personnel, how risks are assessed and managed, and how managers are compensated.

The objective of the group's business model for certain debt instruments, in particular those instruments backing annuity or investment contract liabilities, including surplus assets, is to fund its liabilities. Consistent with the group's investment strategy their performance is evaluated on a total return basis, as significant buying and selling activity is undertaken on a regular basis to rebalance its portfolio and to ensure that contractual cash flows from those assets are sufficient to settle the underlying liabilities. These investments do not follow a 'held to collect' or 'held to collect and sell' business model, and are therefore accounted for at FVTPL. This business model is also applicable to reverse repurchase agreements and to derivatives. Equity instruments are accounted for at FVTPL.

Certain debt securities are held in separate portfolios for longer-term yield. These include long dated debt instruments backing annuities liabilities, but in surplus to the IFRS 17 best estimate liability and risk adjustment, used to manage interest and inflation rate exposure, as well as assets backing protection liabilities. These assets represent instruments consistent with the SPPI principles, and are accounted for at amortised cost or FVOCI depending on the expected level of trading. Receivables are accounted for at amortised cost.

Financial liabilities
The group classifies and subsequently measures financial liabilities at amortised cost or FVTPL.

Non-participating investment contract liabilities are measured at FVTPL. This is because these liabilities as well as the related assets are managed and their performance is evaluated on a fair value basis. For unit linked liabilities, fair value is determined by reference to the value of the underlying net asset values of the group's unitised investment funds at the balance sheet date. For non-linked liabilities, fair value is based on a discounted cash flow analysis which incorporates an appropriate allowance for credit default risk. Deposits collected and claims are not included in the income statement but are added or deducted from investment contract liabilities.

Borrowings are recognised initially at fair value, net of transaction costs. Borrowings are subsequently stated at amortised cost. The difference between the net proceeds and the redemption value is recognised in the income statement over the borrowing period using the effective interest rate method.

Other financial liabilities include derivative liabilities, repurchase agreements and trail commission, which are measured at FVTPL, while other payable balances are measured at amortised cost.

4.01 Basis of preparation (continued)

Derivatives
Derivatives are initially recognised at fair value on the date on which the derivative contract is entered into. The group's derivatives, other than those designated as hedging instruments in net investment hedges, are instruments held for trading, as they are held principally for the purpose of selling in the near term or are part of a portfolio of financial instruments that are managed together, and for which there is evidence of a recent actual pattern of short-term profit-taking. They are therefore accounted for at FVTPL.

Derivatives may be embedded in another contractual arrangement. If such a hybrid contract contains a host that is a financial asset, the group assesses the entire contract for classification and measurement purposes. Otherwise, the group accounts for an embedded derivative separately from the host contract when:

• its economic characteristics and risks are not closely related to those of the host contract;

• the terms of the embedded derivative would have met the definition of a derivative if they were contained in a separate contract; and

• the hybrid contract is not measured at FVTPL.

These embedded derivatives are separately accounted for at FVTPL, unless the group chooses to designate the entire hybrid contract at FVTPL.

A derivative embedded in a host insurance or reinsurance contract is not accounted for separately from the host contract if the embedded derivative itself meets the definition of an insurance or reinsurance contract.

Impairment
The group assesses on a forward-looking basis the expected credit loss (ECL) associated with its financial assets measured at amortised cost and FVOCI, and recognises a loss allowance for such losses at each reporting date. Expected credit losses are defined as the present value of the difference between all contractual cash flows that are due and all cash flows that the entity expects to receive (i.e. the cash shortfall), weighted based on their probability of occurrence. The loss allowance recognised under the new standard can be equal to an amount corresponding to a 12-month ECL or a lifetime ECL. A lifetime ECL is the ECL resulting from all possible default events over the expected life of the financial asset; a 12-month ECL is the portion of lifetime ECL resulting from default events on a financial asset that are possible within the 12 months after the reporting date.

The group defines default on a financial asset as the inability to meet in full and on time an original promise of expected cash flows, the amount and timing of which are defined with certainty. Any breach of this promise, by any amount or time (in excess of any potential planned grace period), constitutes a default. This is consistent with the definition of default used for internal credit risk management purposes.

The ECL model is run from the date of initial recognition of a financial asset, and its output updated at every reporting period, even if no actual loss events have taken place. The impact of updating the inputs of the ECL model in the reporting period is recognised in profit or loss directly where it affects the carrying value of financial assets at amortised cost, while for assets at FVOCI an equal and opposite movement is recorded in other comprehensive income.

In order to determine whether the group measures ECLs at an amount equal to 12-month ECL or lifetime ECL, at each reporting period the group is required to assess which 'stage' a financial asset falls into. Stages reflect the general pattern of deterioration in credit risk of a financial instrument that ultimately defaults, as follows:

• Stage 1 includes financially healthy financial assets that are expected to perform in line with their contractual terms, and which have no signs of increased credit risk;

• Stage 2 includes financial assets for which a significant increase in credit risk has occurred since initial recognition, but which are not credit-impaired; and

• Stage 3 applies to credit-impaired financial instruments.

When financial assets are under Stage 1, 12-month ECLs are recognised. When financial assets are under Stage 2 or 3, lifetime ECLs are recognised. An instrument moves down (or up) the stages when a significant increase in credit risk (SICR) has happened (or has reversed).

When determining whether the credit risk of a financial instrument has increased significantly since initial recognition, the group considers reasonable and supportable information, both qualitative and quantitative, that is relevant and is available without undue cost or effort, including forward-looking information at its disposal. Key indicators used in order to determine whether a SICR has occurred (either in isolation or in combination) are:

• deterioration in rating grade between origination date and reporting date. The level of deterioration required by an individual asset is determined using a relative rating matrix;

• exposure is identified on the investment managers' 'watchlist';

• exposure is identified on internal 'credit watchlists'; and

• a manual shift of an exposure to Stage 2 on an exceptional basis (where required, using management judgement).

The provisions of IFRS 9 include a rebuttable presumption that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, which is taken into account for this assessment.

The group makes use of a practical expedient available in IFRS 9 whereby it can be assumed that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date (e.g. investment grade as determined by the group's asset managers). This allows recognition of 12-month ECLs as opposed to, potentially, lifetime ECLs. This is deemed to be the case where assets that have been downgraded remain of good credit quality (i.e. investment grade as determined by the group's asset managers) as at the reporting date, to the extent that the group's internal credit risk ratings are considered to be consistent with a globally understood definition of 'low credit risk'.

4.01 Basis of preparation (continued)

The group estimates ECLs on its financial investments at amortised cost and debt instruments at FVOCI by using the probability of default approach. Based on this method, the ECLs are a probability-weighted estimate of the present value of estimated cash shortfalls, i.e. the weighted average of credit losses, with the respective risks of a default occurring used as the weightings. For this purpose, the key elements to be calculated are the Probability of Default (PD), i.e. the estimate of the likelihood of default over a given time horizon (either 12 months or lifetime); the respective Loss Given Default (LGD); and the Exposure at Default (EAD).

In order to determine 12-month or lifetime PDs the group's models utilise historical data obtained from S&P and Moody's in order to evaluate transitions (i.e. the probability that a security changes rating in a given year) and defaults, plus scenario-specific annual scaling factors which adjust the PDs for forward-looking information. The final PDs produced by the model are unconditional, i.e. they incorporate both the probability of not defaulting until the start of the period, and the subsequent probability of default in that period, conditional on the position not having defaulted to that point. This allows them to be summed over 12 months to provide 12-month PD estimates, or over all remaining months to produce lifetime PD estimates.

LGD is the magnitude of the likely loss if there is a default, based on the history of recovery rates of claims against defaulted counterparties, and taking into account collateral values where applicable.

EAD represents the expected exposure in the event of a default. The group estimates LGD based on the history of recovery rates of claims against defaulted counterparties. Appropriate haircuts are applied to baseline unsecured LGDs and used in conjunction with forecast collateral values to estimate LGD for assets secured by collateral.

The group has adopted a simplified approach for trade receivables, contract assets and finance and operating lease receivables. This allows measurement of lifetime ECLs only, thereby removing the need to identify SICRs. For these balances, the group makes use of provision matrices in order to calculate such lifetime ECLs. This is a practical expedient allowed by IFRS 9 whereby historical credit loss experience and fixed loss rates are applied to the balances outstanding. Historical loss rates are adjusted to allow for forward looking information.

Hedge accounting
The group uses hedge accounting, provided the prescribed criteria are met, to recognise the offsetting effects of changes in the fair value or cash flow of the derivative instrument and the hedged item. Hedge accounting can be applied in order to:

• hedge the exposure to fair value movements of a recognised asset or liability or an unrecognised firm commitment, or a component of any such item, that is attributable to a particular risk and could affect the Consolidated Income Statement;

• hedge the exposure to variability in cash flows attributable to a particular risk associated with all, or a component of, a recognised asset or liability, or a highly probable forecast transaction, that could affect the Consolidated Income Statement; and

• hedge the exposure to the currency risk associated with a net investment in a foreign operation.

The relationship between the hedging instrument and the hedged item, together with the risk management objective and strategy for undertaking the hedge transaction, are documented formally at the inception of the transaction. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

• there is an economic relationship between the hedged item and the hedging instrument;

• the effect of credit risk does not dominate the value changes that result from that economic relationship; and

• the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the group actually hedges and the quantity of the hedging instrument that the group actually uses to hedge that quantity of hedged item.

Currently, the group hedges part of the foreign exchange translation exposure on its net investment in certain overseas subsidiaries, using forward foreign exchange contracts. It recognises the effective portion of the gain or loss on the hedging items, together with the gain or loss on translation of the foreign subsidiaries, in the Consolidated Statement of Comprehensive Income and in a separate reserve within equity. Gains and losses accumulated in equity are included in the Consolidated Income Statement on disposal of the relevant hedged item.

Transition to IFRS 9

On transition, changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively.

In line with IFRS 17 the group has chosen to restate comparative periods under IFRS 9. While the standard does not apply to financial assets already derecognised by 1 January 2023, the group has applied a 'classification overlay' as allowed by the standard. When applying IFRS 9 and IFRS 17 at the same time, the classification overlay permits presentation of comparative information as if the classification, measurement and impairment requirements of IFRS 9 had been applied to such assets, irrespective of derecognition date.

For the purpose of classification and measurement, financial assets' business models have been assessed as at the date of initial application and have been applied consistently in all periods presented. If an asset was in scope of the classification overlay described above, the group aligned the classification and measurement of each financial asset in the comparative periods with what it expected it would have been on 1 January 2023. Such assessment was performed based on reasonable and supportable information available at 1 January 2022, the transition date. Any difference between the IAS 39 carrying amount of a financial asset and the carrying amount at the transition date that results from applying IFRS 9 or the classification overlay was recognised in opening retained earnings.

4.01 Basis of preparation (continued)

For the purpose of impairment, the group assessed whether as at 1 January 2023 there had been a SICR as compared to the date that a financial instrument was initially recognised, and applied a 12-month or lifetime ECL accordingly. The group chose to apply the impairment requirements of IFRS 9 consistently to all of the applicable financial instruments on its books during the comparative periods. To the extent the classification overlay applied and therefore an asset was derecognised by 1 January 2023, any expected credit losses recognised in the comparative periods were reversed upon disposal. The low credit risk practical expedient described previously was also available for the purpose of transition, and the group made use of this in line with set criteria. On transition to IFRS 9, any additional provision recognised when compared to IAS 39 was recognised in opening retained earnings. However, if this related to a financial asset at FVOCI, an equal and opposite movement was reflected in the OCI reserve.

Changes to hedge accounting policies have been applied prospectively from 1 January 2023. All hedging relationships designated under IAS 39 at 31 December 2022 met the criteria for hedge accounting under IFRS 9 at 1 January 2023 and were therefore regarded as continuing hedging relationships.

Classification and measurement
The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the group's financial assets as at 1 January 2023, including the reasons for any reclassifications out of the FVTPL category. No changes to classification and measurement of financial liabilities have resulted from the implementation of IFRS 9.

	31 December 2022 IAS 39 measurement		Reclassification (before remeasurement)	Remeasurement		1 January 2023 IFRS 9 measurement
	Category	Amount		ECL	Other	Category	Amount
		£m	£m	£m	£m		£m
Financial investments at FVTPL
Equity securities	FVTPL	167,335				FVTPL	167,335
Debt securities	FVTPL	217,613	(6,425)			FVTPL	211,188
- To debt securities at amortised cost			(5,946)
- To debt securities at FVOCI			(479)
Loans	FVTPL	14,283				FVTPL	14,283
Derivative assets - held for trading	FVTPL	45,427				FVTPL	45,427
Total financial investments at FVTPL		444,658	(6,425)				438,233

Financial investments - available for sale
Debt securities	AFS¹	789	(789)
- To debt securities at amortised cost			(789)
Total financial investments AFS		789	(789)

Financial investments at FVOCI
Debt securities			479			FVOCI	479
- From debt securities at FVTPL			479
Total financial investments at FVOCI			479				479
Total financial investments at fair value		445,447	(6,735)				438,712

Financial investments at amortised cost
Loans	L&R²	28			(27)³	AC	1
Debt securities			6,735	(35)	1,145	AC	7,845
- From debt securities AFS			789
- From debt securities at FVTPL			5,946
Total financial investments at amortised cost		28	6,735	(35)	1,118		7,846

Other financial assets
Reinsurance receivables	L&R²	291			(291)³	N/A
Insurance and intermediaries receivables	L&R²	76			(76)³	N/A
Other receivables	L&R²	9,632			(9)³	AC	9,623
Cash and cash equivalents	L&R²	35,784				AC	35,784
Total other financial assets		45,783			(376)		45,407
Total financial assets		491,258		(35)	742		491,965

1. Available-for-sale. Under IAS 39, financial assets classified as available-for-sale were measured at fair value with unrealised gains and losses recognised in a separate reserve within equity.

2. Loans and receivables. Under IAS 39, loans and receivables were non-derivative financial assets with fixed or determinable payments not quoted in an active market. These excluded assets held for trading and those designated as available-for sale or fair value through profit or loss.

3. Derecognition of balances that do not exist under IFRS 17 as they are now included in the insurance contract liability on an IFRS 17 basis.

4.01 Basis of preparation (continued)

Remeasurement from FVTPL to amortised cost:

As part of the implementation of IFRS 9, the group has reassessed the classification and measurement of certain financial assets backing annuity liabilities, in order to better match interest rate and inflation sensitivities to IFRS 17 liabilities, and reclassified a portion of its portfolio of debt securities previously held at FVTPL. This is because, while the best estimate liability and risk adjustment under IFRS 17 for annuities are measured with current financial assumptions, the CSM is measured with locked-in discount rates. Therefore, a sub-portfolio of long dated debt instruments amounting to £5,603m (including accrued interest, as at 1 January 2023) backing annuity contracts but in surplus to the IFRS 17 best estimate liability and risk adjustment, and passing the SPPI test, was separately identified. Starting 1 January 2023 these assets have been used to manage interest and inflation rate exposure. They are held to maturity in a 'held to collect' business model and accounted for at amortised cost. Other assets reclassified in the group's Insurance business, notably private placements and commercial mortgage loans in the US business, were previously accounted for at FVTPL in order to eliminate or reduce an accounting mismatch. Following the implementation of IFRS 17 this is no longer required as finance income and expense on the insurance liabilities that these assets are held to back are presented in OCI. The assets pass the SPPI test and are held in a 'held to collect' business model, and are therefore accounted for at amortised cost.

Had such assets remained at FVTPL after 1 January 2023, the group would have recorded fair value losses in the Consolidated Income Statement of £425m during the period. Interest income recognised in the Consolidated Income Statement in the period was £52m, and the effective interest rate as at 1 January 2023 was 3.59%. The fair value as at 30 June 2023 of these assets is £5,627m.

Remeasurement from FVTPL to FVOCI

Under IAS 39, bonds (including US Treasury bonds) backing certain protection liabilities were held at FVTPL in order to eliminate or reduce an accounting mismatch. Following the implementation of IFRS 17 this is no longer required, as finance income and expense on the insurance liabilities that these assets are held to back, are presented in OCI. The assets pass the SPPI test and are held in a 'held to collect and sell' business model, and are therefore accounted for at FVOCI.

Had such assets remained at FVTPL after 1 January 2023, the group would have recorded fair value gains in the Consolidated Income Statement of £7m during the period. Interest income recognised in the Consolidated Income Statement in the period was £8m, and the effective interest rate as at 1 January 2023 was 2.75%. The fair value of these assets as at the end of the reporting period is £427m.

Impairment
The following table reconciles the closing impairment allowance under IAS 39 as at 31 December 2022 with the opening loss allowance under IFRS 9 as at 1 January 2023 for financial assets subject to the impairment requirements of IFRS 9.

	31 December 2022 IAS 39 loan loss provision £m	Remeasurement £m	1 January 2023 IFRS 9 loan loss provision £m
Debt securities at FVOCI / Debt securities AFS	-	3	3
Debt securities at amortised cost	-	35	35
Other receivables	4	-	4
Total	4	38	42

Other standards

The group has also applied the following standards and amendments for the first time in its six months reporting period commencing 1 January 2023, which did not give rise to a material impact on the group's consolidated financial statements.

• International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12);

• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12);

• Definition of Accounting Estimates (Amendments to IAS 8); and

• Disclosure of Accounting policies (Amendments to IAS 1 and IFRS Practice Statement 2).

The group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

4.02 Dividends and appropriations

	Dividend	Per share¹	Dividend	Per share¹	Dividend	Per share¹
	6 months	6 months	6 months	6 months	Full year	Full year
	2023	2023	2022	2022	2022	2022
	£m	p	£m	p	£m	p
Ordinary dividends paid and charged to equity in the period:
- Final 2021 dividend paid in June 2022	-	-	792	13.27	792	13.27
- Interim 2022 dividend paid in September 2022	-	-	-	-	324	5.44
- Final 2022 dividend paid in June 2023	831	13.93	-	-	-	-
Total dividends²	831	13.93	792	13.27	1,116	18.71

1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.

2. The dividend proposed at 31 December 2022 was £829m based on the current number of eligible equity shares on that date.

Subsequent to 30 June 2023, the directors declared an interim dividend of 5.71 pence per ordinary share. This dividend will be paid on 26 September 2023. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2023 and is not included as a liability in the Consolidated Balance Sheet as at 30 June 2023.

4.03 Financial investments and investment property

		Restated	Restated
	30 Jun	30 Jun	31 Dec
	2023	2022	2022
	£m	£m	£m
Equities¹	177,368	182,847	167,335
Debt securities^2,3	218,749	238,483	219,512
Derivative assets⁴	46,749	28,017	45,427
Loans⁵	12,101	13,460	14,284
Financial investments	454,967	462,807	446,558
Investment property	9,227	10,976	9,372
Total financial investments and investment property	464,194	473,783	455,930

1. Equity securities include investments in unit trusts of £18,522m (30 June 2022: £17,572m; 31 December 2022; £16,524m).

2. Debt securities include accrued interest of £1,691m (30 June 2022: £1,497m; 31 December 2022: £1,635m) and include £7,545m (30 June 2022: £7,775m; 31 December 2022: £7,845m) of assets valued at amortised cost.

3. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 7.03.

4. Derivatives are used for efficient portfolio management, particularly the use of interest rate swaps, inflation swaps, currency swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities of £49,939m (30 June 2022: £34,044m; 31 December 2022: £51,190m).

5. Loans include £5m (30 June 2022: £72m; 31 December 2022: £1m) of loans valued at amortised cost.

4.03 Financial investments and investment property (continued)

(i) Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the group's view of market assumptions in the absence of observable market information. The group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.

The levels of fair value measurement bases are defined as follows:

Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).

All of the group's Level 2 assets have been valued using standard market pricing sources, such as IHS Markit, ICE and Bloomberg, or Index Providers such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modelling and multiple source validation in order to determine consensus prices, with the exception of OTC Derivative holdings; OTCs are marked to market using an in-house system (Lombard Oberon), external vendor (IHS Markit), internal model or Counterparty Broker marks. In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have therefore classified them as Level 2.

The group's investment properties are valued by appropriately qualified external valuers using unobservable inputs, resulting in all investment property being classified as Level 3.

The group's policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time. At 30 June 2023 debt securities totalling net £3.7bn transferred from Level 1 to Level 2 in the fair value hierarchy (30 June 2022: net £0.8bn from Level 1 to Level 2; 31 December 2022: net £6.0bn from Level 2 to Level 1).

	Total	Level 1	Level 2	Level 3
For the six month period to 30 June 2023	£m	£m	£m	£m
Shareholder
Equity securities	3,077	1,171	13	1,893
Debt securities	65,818	22,701	25,882	17,235
Derivative assets	42,307	107	42,200	-
Loans at fair value	2,049	-	2,049	-
Investment property	5,762	-	-	5,762
Total Shareholder	119,013	23,979	70,144	24,890
Unit linked
Equity securities	174,291	173,276	527	488
Debt securities	145,386	113,411	30,994	981
Derivative assets	4,442	136	4,306	-
Loans at fair value	10,047	-	10,047	-
Investment property	3,465	-	-	3,465
Total Unit linked	337,631	286,823	45,874	4,934
Total financial investments and investment property at fair value	456,644	310,802	116,018	29,824
Debt securities at amortised cost¹	6,300	-	42	6,258
Loans at amortised cost¹	5	5	-	-

1. This table includes debt securities and loans which are held at amortised cost in the Consolidated Balance Sheet at a total value of £7,550m.

4.03 Financial investments and investment property (continued)

(i) Fair value hierarchy (continued)

	Total	Level 1	Level 2	Level 3
For the six month period to 30 June 2022 (Restated)	£m	£m	£m	£m
Shareholder
Equity securities	3,492	1,995	22	1,475
Debt securities	69,546	27,622	27,213	14,711
Derivative assets	25,071	6	25,065	-
Loans at fair value	1,701	-	1,701	-
Investment property	6,156	-	-	6,156
Total Shareholder	105,966	29,623	54,001	22,342
Unit linked
Equity securities	179,355	178,691	25	639
Debt securities	161,162	129,689	30,836	637
Derivative assets	2,946	125	2,821	-
Loans at fair value	11,687	-	11,687	-
Investment property	4,820	-	-	4,820
Total Unit linked	359,970	308,505	45,369	6,096
Total financial investments and investment property at fair value	465,936	338,128	99,370	28,438
Debt securities at amortised cost¹	7,257	-	52	7,205
Loans at amortised cost¹	72	72	-	-

1. This table includes debt securities and loans which are held at amortised cost in the Consolidated Balance Sheet at a total value of £7,847m.

	Total	Level 1	Level 2	Level 3
For the year ended 31 December 2022 (Restated)	£m	£m	£m	£m
Shareholder
Equity securities	3,071	1,236	41	1,794
Debt securities	63,928	17,239	31,295	15,394
Derivative assets	41,978	106	41,872	-
Loans at fair value	1,072	-	1,072	-
Investment property	5,644	-	-	5,644
Total Shareholder	115,693	18,581	74,280	22,832
Unit linked
Equity securities	164,264	163,727	24	513
Debt securities	147,739	105,955	40,757	1,027
Derivative assets	3,449	164	3,285	-
Loans at fair value	13,211	-	13,211	-
Investment property	3,728	-	-	3,728
Total Unit linked	332,391	269,846	57,277	5,268
Total financial investments and investment property at fair value	448,084	288,427	131,557	28,100
Debt securities at amortised cost¹	6,717	-	44	6,673
Loans at amortised cost¹	1	1	-	-

1. This table includes debt securities and loans which are held at amortised cost in the Consolidated Balance Sheet at a total value of £7,846m.

4.03 Financial investments and investment property (continued)

(ii) Level 3 assets measured at fair value

Level 3 assets, where modelling techniques are used, are comprised of property, unquoted securities, untraded debt securities and securities where unquoted prices are provided by a single broker. Unquoted securities include suspended securities, investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips, retirement interest only and other lifetime mortgages.

In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the group has classified within Level 3.

The group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the group's credit standing, liquidity and risk margins on unobservable inputs.

Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.

						Restated
		Other				Other
	Equity	financial	Investment		Equity	financial	Investment	Restated
	securities	investments	property	Total	securities	investments	property	Total
	2023	2023	2023	2023	2022	2022	2022	2022
	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January	2,307	16,421	9,372	28,100	1,988	16,599	10,150	28,737
Total gains/(losses) for the period
- realised gains or (losses)¹	(19)	(157)	2	(174)	6	(3)	30	33
- unrealised gains or (losses)¹	3	(399)	(510)	(906)	144	(2,489)	571	(1,774)

Purchases/Additions	169	2,929	752	3,850	179	2,110	330	2,619
Sales/Disposals	(78)	(714)	(425)	(1,217)	(266)	(1,069)	(105)	(1,440)
Transfers into Level 3	6	241	-	247	67	-	-	67
Transfers out of Level 3	(3)	-	-	(3)	(10)	-	-	(10)
Foreign exchange rate movements	(4)	(105)	36	(73)	6	200	-	206
As at 30 June	2,381	18,216	9,227	29,824	2,114	15,348	10,976	28,438

		Restated
		Other
	Equity	financial	Investment	Restated
	securities	investments	property	Total
	2022	2022	2022	2022
	£m	£m	£m	£m
As at 1 January	1,988	16,599	10,150	28,737
Total gains/(losses) for the year
- realised gains or (losses)¹	28	(78)	81	31
- unrealised gains or (losses)¹	83	(4,381)	(1,796)	(6,094)

Purchases/Additions	504	10,922	1,307	12,733
Sales/Disposals	(381)	(6,908)	(377)	(7,666)
Transfers into Level 3	84	72	-	156
Transfers out of Level 3	(41)	-	-	(41)
Foreign exchange rate movements	42	195	7	244
As at 31 December	2,307	16,421	9,372	28,100

1. Amounts presented in realised and unrealised gains/(losses) are recognised in Investment return in the Consolidated Income Statement.

4.03 Financial investments and investment property (continued)

(ii) Level 3 assets measured at fair value (continued)

Equity securities

Level 3 equity securities amount to £2,381m (30 June 2022: £2,114m; 31 December 2022: £2,307m), of which the majority is made up of holdings in investment property vehicles and private investment funds. They are valued at the proportion of the group's holding of the Net Asset Value reported by the investment vehicles. Other equity securities are valued by a number of third party specialists using a range of techniques which are often dependent on the maturity of the underlying investment but can also depend on the characteristics of individual assets. Such techniques include transaction values underpinned by analysis of milestone achievement and cash runway for early/start-up stage investments, discounted cash flow models for investments at the next stage of development and earnings multiples for more mature investments.

Other financial investments

Lifetime mortgage (LTM) loans and retirement interest only mortgages amount to £4,937m (30 June 2022: £5,758m; 31 December 2022: £4,844m). Lifetime mortgages are valued using a discounted cash flow model by projecting best-estimate net asset proceeds and discounted using rates inferred from current LTM loan pricing. The inferred illiquidity premiums for the majority of the portfolio range between 100 and 250bps. This ensures the value of loans at outset is consistent with the purchase price of the loan and achieves consistency between new and in-force loans. Lifetime mortgages include a no negative equity guarantee (NNEG) to borrowers. This ensures that if there is a shortfall between the sale proceeds of the property and the outstanding loan balance on redemption of the loan, the value of the loan will be reduced by this amount. The NNEG on loan redemption is valued as a series of put options, which we calculate using a variant of the Black-Scholes formula. Key assumptions in the valuation of lifetime mortgages include short-term and long-term property growth rates, property index volatility, voluntary early repayments and longevity assumptions. The valuation as at 30 June 2023 reflects a combination of short-term and long-term property growth rate assumptions equivalent to a flat rate of 2.9% annually, after allowing for the effects of dilapidation. The values of the properties collateralizing the LTM loans are updated from the date of the last property valuation to the valuation date by indexing using UK regional house price indices.

Private credit loans (including commercial real estate loans) amount to £9,446m (30 June 2022: £5,984m; 31 December 2022: £7,858m). Their valuation is determined by discounted future cash flows which are based on the yield curve of the LGIM approved comparable bonds and the initial spread, both of which are agreed by IHS Markit who also provide an independent valuation of comparable bonds. Unobservable inputs that go into the determination of comparators include rating, sector, sub-sector, performance dynamics, financing structure and duration of investment. Existing private credit investments, which were executed as far back as 2011, are subject to a range of interest rate formats, although the majority are fixed rate. The weighted average duration of the portfolio is 7.4 years, with a weighted average life of 10.1 years. Maturities in the portfolio currently extend out to 2061. The private credit portfolio of assets has internal ratings assigned by an independent credit team in line with internally developed methodologies. These credit ratings range from AAA to BB-.

Private placements held by the US business amount to £1,309m (30 June 2022: £976m; 31 December 2022: £1,320m). They are valued using a pricing matrix comprised of a public spread matrix, internal ratings assigned to each holding, average life of each holding, and a premium spread matrix. These are added to the risk-free rate to calculate the discounted cash flows and establish a market value for each investment grade private placement. The valuation as at 30 June 2023 reflects illiquidity premiums between 20 and 70bps.

Income strip assets amount to £1,350m (30 June 2022: £1,580m; 31 December 2022: £1,414m). Their primary valuation is provided by appropriately qualified external valuers who apply a yield to maturity to discounted future cash flows to derive valuations. The overall valuation takes into account the property location, tenant details, tenure, rent, rental break terms, lease expiries and underlying residual value of the property. The valuation as at 30 June 2023 reflects equivalent yield ranges between 3% and 9% and estimated rental values (ERV) between £10 and £310 per sq.ft.

Commercial mortgage loans amount to £771m (30 June 2022: £814m; 31 December 2022: £768m) and are determined by incorporating credit risk for performing loans at the portfolio level and adjusted for loans identified to be distressed at the loan level. The projected cash flows of each loan are discounted along stochastic risk-free rate paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best observable inputs. The valuation as at 30 June 2023 reflects illiquidity premiums between 20 and 30bps.

Other debt securities which are not traded in an active market amount to £403m (30 June 2022: £236m; 31 December 2022: £217m). They have been valued using third party or counterparty valuations, and these prices are considered to be unobservable due to infrequent market transactions.

Investment property

Level 3 investment property amounting to £9,227m (30 June 2022: £10,976m; 31 December 2022: £9,372m) is valued with the involvement of external valuers. All property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are undertaken by appropriately qualified valuers as defined therein. Whilst transaction evidence underpins the valuation process, the definition of market value, including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market knowledge and professional judgement and not rely only upon market sentiment based on historic transactional comparables. The valuation of investment properties also includes an income approach that is based on current rental income plus anticipated uplifts, where the uplift and discount rates are derived from rates implied by recent market transactions. These inputs are deemed unobservable. The valuation as at 30 June 2023 reflects equivalent yield ranges between 2% and 20% and ERV between £1 and £357 per sq.ft.

The table below shows the valuation of investment property by sector:

	30 Jun	30 Jun	31 Dec
	2023	2022	2022
	£m	£m	£m
Retail	1,257	951	780
Leisure	460	505	461
Distribution	1,071	1,613	1,104
Office space	3,117	4,688	4,069
Industrial and other commercial	1,815	2,005	1,624
Accommodation	1,507	1,214	1,334
Total	9,227	10,976	9,372

4.03 Financial investments and investment property (continued)

(iii) Effect of changes in assumptions on Level 3 assets

Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data.

Where material, the group assesses the sensitivity of fair values of Level 3 investments to changes in unobservable inputs to reasonable alternative assumptions. The table below shows the impact of applying these sensitivities to the fair value of Level 3 assets as at 30 June 2023. Further disclosure on how these sensitivities have been applied can be found in the descriptions following the table.

		Sensitivities
	Fair value 30 June 2023 £m	Positive impact £m	Negative impact £m
Lifetime mortgages	4,937	176	(247)
Private credit portfolios	11,526	501	(501)
Investment property	9,227	748	(738)
Other investments¹	4,134	478	(432)
Total Level 3 assets	29,824	1,903	(1,918)

1. Other investments include equity securities, income strip assets and other traded debt securities.

The sensitivities are not a function of sensitising a single variable relating to the valuation of the asset, but rather a function of flexing multiple factors often at individual asset level. The following sets out a number of key factors by asset type, and how they have been flexed to derive reasonable alternative valuations.

Lifetime mortgages

Key assumptions used in the valuation of lifetime mortgage assets are listed in Note 4.03 (ii) and sensitivities are applied to each assumption which are used to derive the values in the above table. The most significant decrease in value is an instantaneous 10% reduction in property valuations across the portfolio which, applied in isolation produces a sensitised value of £(126)m. The most significant increase in value is a 20bps reduction to the discount rate which, applied in isolation produces a sensitised value of £124m.

Private credit portfolios

The sensitivity in the private credit portfolio has been determined through a method which estimates investment spread value premium differences as compared to the institutional investment market. Individual investment characteristics of each holding, such as credit rating and duration are used to determine spread differentials for the purposes of determining alternate values. Spread differentials are determined to be lower for highly rated and/or shorter duration assets as compared to lower rated and/or longer duration assets. A significant component of the spread differential is in relation to the selection of comparator bonds, which is the potential difference in spread of the basket of relevant comparators determined by respective investors. If we were to take an AA rated asset it may attract a spread differential of 15bps on the selection of comparator bonds as opposed to 40bps for a similar duration BBB rated asset. Applied in isolation the sensitivity used to reflect the spread in comparator bond selection results in sensitised values of £166m and £(166)m.

Investment property

Investment property holdings are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors (RICS). As such, sensitivities are calculated through a mixture of asset level and portfolio level methodologies which make reference to individual investment characteristics of the holding but do not flex individual assumptions used by the independent expert in valuing the holdings. Each method is applied individually and aggregated with equal weighting to determine the overall sensitivity determined for the portfolio. One method is similar to that used in the private credit portfolio as it determines the impact of an alternate property yield determined in reference to credit ratings, remaining term and other characteristics of each holding. In this methodology we would apply a lower yield sensitivity to a highly rated and/or shorter remaining term asset compared with a lower rated and/or longer remaining term asset. If we were to take an AA rated asset with remaining term of 25 years in normal market conditions this would lead to a 15bps yield flex (as opposed to a 35bps yield flex for a BBB rated asset with 30 year remaining term). The methodology which leads to the most significant sensitivity at the balance sheet date is related to an example in case law where it was found that an acceptable margin of error in a valuation dispute is 10% either way, subject to the valuation being undertaken with due care. If this sensitivity were to be taken without a weighting it would produce sensitised values of £593m and £(593)m.

It should be noted that some sensitivities described above are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

4.04 Tax

(i) Tax expense in the Consolidated Income Statement

The tax expense attributable to equity holders differs from the tax calculated on profit before tax at the standard UK corporation tax rate as follows:

		Restated	Restated
	6 months	6 months	Full year
	2023	2022	2022
	£m	£m	£m
Profit before tax attributable to equity holders	324	697	933
Tax calculated at 23.5%¹	76	132	177

Adjusted for the effects of:
Recurring reconciling items:
Different rate of tax on profits and losses taxed overseas²	(53)	29	9
Income not subject to tax	(2)	-	(3)
Non-deductible expenses	8	-	(4)
Differences between taxable and accounting investment gains	(9)	(6)	(9)
Other taxes on property and foreign income	1	4	6
Unrecognised tax losses	1	1	17
Double tax relief³	-	-	(20)

Non-recurring reconciling items:
Adjustments in respect of prior years⁴	(6)	(1)	(21)
Impact of the revaluation of deferred tax balances¹	(2)	(37)	(64)
Tax expense/(credit) attributable to equity holders	14	122	88
Equity holders' effective tax rate	4.3%	17.5%	9.4%

1. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year has increased to 23.5% (H1 22: 19.0%; FY 22: 19.0%). The enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities, as the rate of corporation tax that is expected to apply when the majority of those deferred tax balances reverse.

2. The lower rate of tax on overseas profits and losses is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides the group with regulatory capital flexibility for both our PRT business and our US term insurance business. This also includes the impact of our US operations which are taxed at 21%.

3. Double tax relief represents a UK tax credit available for overseas withholding tax suffered on dividend income.

4. Adjustments in respect of prior years relate to revisions of prior estimates.

The Organisation for Economic Co-operation and Development (OECD) released a framework in December 2021 to address concerns at a global level about tax contributions of large multinational corporations, and to introduce a global minimum tax rate of 15%. The UK has enacted legislation to implement these new rules, which will take effect from 1 January 2024. Under these rules, the group is expected to be liable to top-up tax on profits arising from our operations in territories with low tax rates. The group is assessing the impact of this in the UK and other territories in which it operates.

4.04 Tax (continued)

(ii) Deferred tax

		Restated	Restated
	30 Jun 2023	30 Jun 2022	31 Dec 2022
Deferred tax (liabilities)/assets	£m	£m	£m
Overseas deferred acquisition expenses¹	116	110	116
Difference between the tax and accounting value of insurance contracts	413	515	487
- UK²	1,148	1,188	1,266
- Overseas	(735)	(673)	(779)
Realised and unrealised gains on investments	128	79	145
Excess of depreciation over capital allowances	22	20	21
Accounting provisions and other	58	36	59
Trading losses³	474	410	463
Pension fund deficit	(1)	(42)	(26)
Acquired intangibles	(3)	-	(2)
Net deferred tax asset	1,207	1,128	1,263

Presented on the Consolidated Balance Sheet as:
- Deferred tax assets	1,367	1,283	1,469
- Deferred tax liabilities⁴	(160)	(155)	(206)
Net deferred tax asset	1,207	1,128	1,263

1. Deferred tax assets arising on deferred acquisition expenses relate solely to US balances as at 30 June 2023.

2. The UK deferred tax asset reflects the impact of transition to IFRS 17.

3. Trading losses consist solely of US operating losses. The losses are not time restricted, and we expect to recover them over a period of 15 to 20 years, commensurate with the lifecycle of the underlying insurance contracts. In reaching this conclusion, we have considered past results, the different basis under which US companies are taxed, temporary differences that are expected to generate future profits against which the deferred tax can be offset, management actions, and future profit forecasts. The recoverability of deferred tax assets is routinely reviewed by management.

4. The deferred tax liability is comprised of balances of £157m relating to the US (H1 22: £155m; FY 22: £206m), and £3m relating to the UK (H1 22: £nil; FY 22: £nil) that are not capable of being offset against other deferred tax assets.

4.05 Share capital and share premium


			Number of
Authorised share capital			shares	£m
At 30 June 2023, 30 June 2022 and 31 December 2022: ordinary shares of 2.5p each		9,200,000,000		230

			Share	Share
		Number of	capital	premium
Issued share capital, fully paid		shares	£m	£m
As at 1 January 2023	5,973,253,500		149	1,018
Options exercised under share option schemes	4,560,068		-	9
As at 30 June 2023	5,977,813,568		149	1,027

			Share	Share
		Number of	capital	premium
Issued share capital, fully paid		shares	£m	£m
As at 1 January 2022	5,970,415,817		149	1,012
Options exercised under share option schemes		2,162,898	-	5
As at 30 June 2022	5,972,578,715		149	1,017
Options exercised under share option schemes		674,785	-	1
As at 31 December 2022	5,973,253,500		149	1,018

There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.

The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.

4.06 Restricted Tier 1 convertible notes

On 24 June 2020, Legal & General Group Plc issued £500m of 5.625% perpetual restricted Tier 1 contingent convertible notes. The notes are callable at par between 24 March 2031 and 24 September 2031 (the First Reset Date) inclusive and every 5 years after the First Reset Date. If not called, the coupon from 24 September 2031 will be reset to the prevailing five year benchmark gilt yield plus 5.378%.

The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is upon the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity when paid. During the period coupon payments of £14m were made (H1 22: £14m; FY 22: £28m). The notes rank junior to all other liabilities and senior to equity attributable to owners of the parent. On the occurrence of certain conversion trigger events the notes are convertible into ordinary shares of the Issuer at the prevailing conversion price.

The notes are treated as restricted Tier 1 own funds for Solvency II purposes.

4.07 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments, including private equity, which are consolidated in the group's results.

As at 30 June 2023, non-controlling interests primarily represent third party ownership in Thorpe Park Holdings, a mixed residential/commercial retail space in which the group holds 50%.

4.08 Core borrowings

	Carrying		Carrying		Carrying
	amount	Fair value	amount	Fair value	amount	Fair value
	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec	31 Dec
	2023	2023	2022	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)	590	549	590	546	590	541
5.375% Sterling subordinated notes 2045 (Tier 2)	605	577	604	610	605	593
5.25% US Dollar subordinated notes 2047 (Tier 2)	678	648	707	690	712	665
5.55% US Dollar subordinated notes 2052 (Tier 2)	397	376	414	416	417	389
5.125% Sterling subordinated notes 2048 (Tier 2)	400	364	400	391	400	377
3.75% Sterling subordinated notes 2049 (Tier 2)	599	489	598	523	599	507
4.5% Sterling subordinated notes 2050 (Tier 2)	500	424	500	456	500	439
Client fund holdings of group debt (Tier 2)¹	(77)	(69)	(50)	(46)	(74)	(67)
Total subordinated borrowings	3,692	3,358	3,763	3,586	3,749	3,444
Senior borrowings
Sterling medium term notes 2031-2041	603	613	602	707	609	649
Client fund holdings of group debt¹	(17)	(16)	(9)	(10)	(20)	(19)
Total senior borrowings	586	597	593	697	589	630
Total core borrowings	4,278	3,955	4,356	4,283	4,338	4,074

1. £94m (30 June 2022: £59m; 31 December 2022: £94m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as Level 1 in the fair value hierarchy.

4.08 Core borrowings (continued)

Subordinated borrowings

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. These notes mature on 27 June 2064.

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. These notes mature on 27 October 2045.

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. These notes mature on 21 March 2047.

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. These notes mature on 24 April 2052.

5.125% Sterling subordinated notes 2048

On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. These notes mature on 14 November 2048.

3.75% Sterling subordinated notes 2049

On 26 November 2019, Legal & General Group Plc issued £600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November 2029 and every five years thereafter. These notes mature on 26 November 2049.

4.5% Sterling subordinated notes 2050

On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated subordinated notes. The notes are callable at par on 1 November 2030 and every five years thereafter. These notes mature on 1 November 2050.

All of the above subordinated notes are treated as Tier 2 own funds for Solvency II purposes unless stated otherwise.

Senior borrowings

Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.

4.09 Operational borrowings

	Carrying		Carrying		Carrying
	amount	Fair value	amount	Fair value	amount	Fair value
	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec	31 Dec
	2023	2023	2022	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Euro Commercial Paper	50	50	50	50	50	50
Bank loans and overdrafts	7	7	91	91	3	3
Non-recourse borrowings	1,050	1,050	1,004	1,004	910	910
Operational borrowings¹	1,107	1,107	1,145	1,145	963	963

1. Unit linked borrowings with a carrying value of £165m (30 June 2022: £37m; 31 December 2022: £256m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,272m (30 June 2022: £1,182m; 31 December 2022: £1,219m).

Syndicated credit facility

The group has in place a £1.5bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in August 2028. No amounts were outstanding at 30 June 2023.

4.10 Movement in borrowings

	30 Jun	30 Jun	31 Dec
	2023	2022	2022
	£m	£m	£m
As at 1 January	5,557	5,188	5,188
Cash movements:
- Proceeds from borrowings	408	265	691
- Repayment of borrowings	(227)	(210)	(737)
- Net (decrease)/increase in bank loans and overdrafts	(72)	120	254
Non-cash movements:
- Amortisation	1	1	2
- Foreign exchange rate movements	(93)	184	201
- Other	(24)	(10)	(42)
Core and operational borrowings	5,550	5,538	5,557

4.11 Payables and other financial liabilities

	30 Jun 2023	30 Jun 2022	31 Dec 2022
	£m	£m	£m
Derivative liabilities	49,939	34,044	51,190
Repurchase agreements¹	28,347	47,103	31,533
Other financial liabilities²	12,770	14,677	11,182
Total payables and other financial liabilities	91,056	95,824	93,905

1. Repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The significant majority of repurchase agreements are unit linked.

2. Other financial liabilities includes trail commission, lease liabilities, FX spots and the value of short positions taken out to cover reverse repurchase agreements. The value of short positions as at 30 June 2023 was £4,966m (30 June 2022: £4,779m; 31 December 2022: £4,960m). Other financial liabilities have been restated for 30 June 2022 and 31 December 2022.

Fair value hierarchy

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 30 June 2023	£m	£m	£m	£m	£m
Derivative liabilities	49,939	445	49,472	22	-
Repurchase agreements	28,347	-	28,347	-	-
Other financial liabilities	12,770	4,933	29	-	7,808
Total payables and other financial liabilities	91,056	5,378	77,848	22	7,808

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 30 June 2022	£m	£m	£m	£m	£m
Derivative liabilities	34,044	291	33,713	40	-
Repurchase agreements	47,103	-	47,103	-	-
Other financial liabilities²	14,677	4,815	81	-	9,781
Total payables and other financial liabilities	95,824	5,106	80,897	40	9,781

					Amortised
	Total	Level 1	Level 2	Level 3	cost¹
As at 31 December 2022	£m	£m	£m	£m	£m
Derivative liabilities	51,190	448	50,717	25	-
Repurchase agreements	31,533	-	31,533	-	-
Other financial liabilities²	11,182	4,319	253	-	6,610
Total payables and other financial liabilities	93,905	4,767	82,503	25	6,610

1. The carrying value of payables and other financial liabilities at amortised cost approximates its fair value.

2. Other financial liabilities have been restated for 30 June 2022 and 31 December 2022.

Significant transfers between levels

There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the period ended 30 June 2023 (30 June 2022 and 31 December 2022: no significant transfers).

4.12 Long-term insurance valuation assumptions

The group's insurance assumptions, described below, relate to the UK insurance (both annuities and protection) business and material lines of the US insurance (both annuities and protection) business. Other non-UK businesses do not constitute a material component of the group's operations and consideration of geographically determined assumptions is therefore not included.

The 31 December 2022 assumptions have been rebased to those used for the preparation of the restated comparatives under IFRS 17 and hence differ from the IFRS 4 assumptions published in the 2022 Annual Report and Accounts. For the purpose of producing IFRS 17 best estimate liabilities, the group seeks to make best estimate assumptions about future experience based on current market conditions and recent experience.

(i) Mortality and morbidity

Mortality and morbidity assumptions for the UK businesses are set with reference to standard tables drawn up by the Continuous Mortality Investigation Bureau (CMI), a subsidiary of the Institute and Faculty of Actuaries, and/or UK death registrations. US assumptions are set with reference to standard tables drawn up by the American Academy of Actuaries. Tables are based on industry-wide mortality and morbidity experience for insured lives.

The group conducts statistical investigations of its mortality and morbidity experience, the majority of which are carried out at least annually. Investigations determine the extent to which the group's experience differs from that underpinning the standard tables and suggest appropriate adjustments which need to be made to the valuation assumptions.

The higher mortality experience observed in 2020 as a result of Covid-19 is considered to be mostly exceptional and potential endemic impacts on long-term mortality assumptions are still under investigation. Long-term mortality assumptions have not been revised to reflect this experience. Most allowances made in respect of higher expected short-term mortality were released in 2022.

In most cases, mortality rates are set separately for gender and smoker status, and the percentage of mortality table will vary for the first 2-5 years of the policy's duration to allow for underwriting selection. Demographic assumptions are generally updated on an annual basis and are unchanged from those used at 31 December 2022.


Mortality tables	30 June 2023	31 December 2022
Non-linked individual assurance business
UK term assurances¹	90% - 92% TM08/TF08 Sel 5	90% - 92% TM08/TF08 Sel 5
UK term assurances with terminal illness¹	58% - 86% TM08/TF08 Sel 5	58% - 86% TM08/TF08 Sel 5
UK term assurances with critical illness²	89% - 132% ACL08 Sel 2	89% - 132% ACL08 Sel 2
US term assurances³	Adjusted SOA 2014 VBT	Adjusted SOA 2014 VBT
Whole of Life Protection Plan⁴	Bespoke Tables based on TM08/TF08 and UK death registrations	Bespoke Tables based on TM08/TF08 and UK death registrations
Whole of Life over 50⁴	Bespoke Tables based on ELT15 and Whole of Life Protection Plan assumptions	Bespoke Tables based on ELT15 and Whole of Life Protection Plan assumptions
Annuity business
UK Annuities in deferment⁵	75.7%-85.6% PNMA00/PNFA00	75.7%-85.6% PNMA00/PNFA00
UK Vested annuities⁶
Pension risk transfer	75.7%-85.6% PCMA00/PCFA00	75.7%-85.6% PCMA00/PCFA00
Other annuities	66.4%-105.5% PCMA00/PCFA00	66.4%-105.5% PCMA00/PCFA00
US annuities⁷	Bespoke tables based on RP-2014 Healthy Annuitant Total table	Bespoke tables based on RP-2014 Healthy Annuitant Total table

1. Improvement assumptions applied of 1.0% p.a. for males and females.

2. Morbidity rates are assumed to deteriorate at a rate of 0.5% p.a. for males and 0.75% p.a. for females.

3. Adjustments are made for gender, select period, smoker status, policy size, policy duration and year, issue year and age.

4. Mortality rates are assumed to reduce based on CMI 2020 model with a long-term annual improvement rate of 1.5% for males and 1.0% for females.

5. Table created by blending PCXA00 with PNXA00 tables. The base table to be used for bulk purchase annuity policies in deferment is PNMA00 up to and including age 55 and PCMA00 for age 65 and above for males. The identical method is applied to females using PNFA00 and PCFA00.

6. Mortality rates are assumed to reduce according to an adjusted version of the mortality improvement model CMI 2020 with the following parameters:

Males: Long-term Rate of 1.5% p.a. up to age 85 tapering to 0% at 110.

Females: Long-term Rate of 1.0% p.a. up to age 85 tapering to 0% at 110.

Smoothing is applied to derive initial rates using a smoothing parameter (Sk) value of 7.5 applied to Legal & General bespoke population data up to 2020. The resulting initial rates are then adjusted to reflect socio economic class.

For individual annuities distributed through retail channels, a further allowance is made for the effect of initial selection.

The basis above is applicable up to age 90. After age 90 the basis is blended towards a bespoke table from age 105 onwards.

7. Improvement table is MP2018 for Females and MP2019 for Males.

4.12 Long-term insurance valuation assumptions (continued)

(ii) Valuation rates of interest and discount rates

The interest rates used to discount the cash flows for the purpose of valuing insurance contract liabilities should reflect the timing and liquidity characteristics of those insurance liability cash flows and current market conditions. The valuation interest rate assumptions are derived as interest rate curves with full term structure.

In deriving the valuation interest rate assumptions for annuity business, an explicit allowance for risk is deducted from the yield on the assets backing annuity liabilities. The allowance for risk comprises long-term assumptions about defaults and the market risk premiums for taking credit risk. In the case of lifetime mortgage assets a best estimate expectation of losses arising from the no negative equity guarantee, and the market risk premiums for this risk, are deducted from the yield. For the UK annuity business, the deduction for risk of default for corporate bonds and direct investments equated to 40bps (31 December 2022: 42bps). For lifetime mortgages the deductions equated to £0.3bn (31 December 2022: £0.3bn).

For US and UK protection business, the yield is calculated based on notional asset portfolios of AA rated corporate bonds and cash, which reflect the characteristics of the liability cashflows. An explicit allowance for risk is deducted from the yield, to reflect the default risk associated with the notional portfolio assets.

The discount rate curves used for the material product lines are shown below. The discount rate curves are used to discount the cashflows on the underlying contracts and the reinsurance cashflows on those contracts. The graph displays the underlying spot rates:

4.12 Long-term insurance valuation assumptions (continued)

(iii) Persistency

The group monitors its persistency experience and carries out detailed investigations annually. Persistency experience can be volatile and past experience may not be an appropriate future indicator. The group tries to balance past experience and assessments of potential future conditions in setting assumptions about expected long-term average persistency levels.


Lapse Rates	30 June 2023	31 December 2022
UK Level term	2.0% - 29.1%	2.0% - 29.1%
UK Decreasing term	4.4% - 15.0%	4.4% - 15.0%
UK Accelerated critical illness cover	3.2% - 31.5%	3.2% - 31.5%
Pensions term	2.9% - 3.3%	2.9% - 3.3%
Whole of Life (conventional non profit)	0.6% - 8.5%	0.6% - 8.5%
US term - 10 year guarantee period	7.1% - 8.1%	7.1% - 8.1%
US term - 15 year guarantee period	4.2% - 5.8%	4.2% - 5.8%
US term - 20 year guarantee period	3.0% - 6.1%	3.0% - 6.1%
US term - 30 year guarantee period	2.1% - 6.5%	2.1% - 6.5%
US Universal Life	2.7%	2.7%

(iv) Expenses

The group monitors its expense experience and carries out detailed investigations regularly to determine the expenses directly incurred in writing and administering the different products and classes of business. Adjustments may be made for known future changes in the administration processes, in line with the group's business plan, as well as for changes in allocations. An allowance for expense inflation in the future is also made in line with best estimate inflation assumptions, taking account of both salary and price information.

(v) Risk Adjustment

The group calculates its risk adjustment using a Provision for Adverse Deviations (PADs) approach, where adjustments are applied to best estimate non-financial risk assumptions to calculate the risk adjustment required over and above the best estimate liability. The size of adjustments and approach vary by risk depending on the group's attitude to the compensation required for that risk. For the majority of risks, the group's view on the compensation required for non-financial risks is calibrated to an 85th percentile confidence level, calculated using a one-year Value-at-Risk (VaR) measure. The calculation uses capital bases appropriate for the territory, the type of business and how the risk is priced.

4.13 Insurance contracts

(i) Insurance service results

For the six month period to 30 June 2023	Annuities £m	Protection £m	Total £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided	397	131	528
- Expected incurred claims and other insurance service expenses	2,536	1,319	3,855
- Change in the risk adjustment for non-financial risk for the risk expired	174	23	197
Recovery of insurance acquisition cashflows	8	65	73
Premium experience variance relating to past and current service	2	(8)	(6)
Total insurance revenue	3,117	1,530	4,647
Total insurance service expenses	(2,472)	(1,525)	(3,997)
Allocation of reinsurance premiums	(1,310)	(501)	(1,811)
Amounts recoverable from reinsurers for incurred claims	1,139	619	1,758
Net (expense)/income from reinsurance contracts held	(171)	118	(53)
Total insurance service result	474	123	597

For the six month period to 30 June 2022	Annuities £m	Protection £m	Total £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided	347	129	476
- Expected incurred claims and other insurance service expenses	2,193	1,304	3,497
- Change in the risk adjustment for non-financial risk for the risk expired	181	19	200
Recovery of insurance acquisition cashflows	6	59	65
Premium experience variance relating to past and current service	-	(4)	(4)
Total insurance revenue	2,727	1,507	4,234
Total insurance service expenses	(2,156)	(1,490)	(3,646)
Allocation of reinsurance premiums	(1,113)	(396)	(1,509)
Amounts recoverable from reinsurers for incurred claims	994	507	1,501
Net (expense)/income from reinsurance contracts held	(119)	111	(8)
Total insurance service result	452	128	580

For the year ended 31 December 2022	Annuities £m	Protection £m	Total £m
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
- CSM recognised for services provided	788	251	1,039
- Expected incurred claims and other insurance service expenses	4,585	2,557	7,142
- Change in the risk adjustment for non-financial risk for the risk expired	359	31	390
Recovery of insurance acquisition cashflows	14	123	137
Premium experience variance relating to past and current service	2	(2)	-
Total insurance revenue	5,748	2,960	8,708
Total insurance service expenses	(4,494)	(2,921)	(7,415)
Allocation of reinsurance premiums	(2,331)	(803)	(3,134)
Amounts recoverable from reinsurers for incurred claims	2,060	929	2,989
Net (expense)/income from reinsurance contracts held	(271)	126	(145)
Total insurance service result	983	165	1,148

4.13 Insurance contracts (continued)

(ii) Insurance and reinsurance contracts

	Assets 30 Jun 2023 £m	Liabilities 30 Jun 2023 £m	Assets 30 Jun 2022 £m	Liabilities 30 Jun 2022 £m	Assets 31 Dec 2022 £m	Liabilities 31 Dec 2022 £m
Insurance contracts issued
Annuities
Insurance contract balances	-	74,061	-	77,944	-	73,686
Assets for insurance contract acquisition cash flows¹	-	(39)	-	(18)	-	(20)
Protection
Insurance contract balances	-	4,391	-	4,991	-	4,533
Assets for insurance contract acquisition cash flows¹	-	(35)	-	(25)	-	(28)
Total insurance contracts issued	-	78,378	-	82,892	-	78,171

Reinsurance contracts held
Annuities
Reinsurance contracts balances	3,174	13	1,376	4	2,467	-
Assets for insurance contract acquisition cash flows¹	8	-	2	-	5	-
Protection
Reinsurance contracts balances	2,216	125	2,591	9	2,213	52
Assets for insurance contract acquisition cash flows¹	-	-	-	-	-	-
Total reinsurance contracts held	5,398	138	3,969	13	4,685	52

1. In accordance with IFRS 17, assets for insurance and reinsurance acquisition cash flows are presented within the carrying amount of the related insurance and reinsurance contract liabilities.

4.14 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	30 Jun 2023	30 Jun 2022	31 Dec 2022
United States dollar	1.27	1.22	1.21
Euro	1.16	1.16	1.13

	6 months	6 months	Full year
Average exchange rates	2023	2022	2022
United States dollar	1.23	1.30	1.24
Euro	1.14	1.19	1.17

4.15 Provisions

(i) Analysis of provisions

		30 Jun 2023	30 Jun 2022	31 Dec 2022
	Notes	£m	£m	£m
Other provisions	4.15(ii)	210	182	273
Retirement benefit obligations	4.15(iii)	1,416	599	617
Total provisions		1,626	781	890

(ii) Other provisions

Included within Other provisions are amounts relating to new and existing M&A and restructuring transactions. These include costs that Legal & General Investment Management (LGIM) is committed to incur on the extension of its existing partnership with State Street announced in 2021, to increase the use of Charles River technology across the front office and to deliver middle office services going forward. Costs include the transfer of data and operations to State Street, as well as the implementation of the new operating model. The amounts included in the provision have been determined on a best estimate basis by reference to a range of plausible scenarios, taking into account the multi-year implementation period for the project. As at 30 June 2023, the outstanding provision was £75m (30 June 2022: £69m; 31 December 2022: £111m).

(iii) Retirement benefit obligations

	Fund and	CALA Homes	Fund and	CALA Homes	Fund and	CALA Homes
	Scheme	and Overseas	Scheme	and Overseas	Scheme	and Overseas
	30 Jun 2023	30 Jun 2023	30 Jun 2022	30 Jun 2022	31 Dec 2022	31 Dec 2022
	£m	£m	£m	£m	£m	£m
Gross pension obligations included in provisions	1,411	5	594	5	612	5
Annuity obligations insured by LGAS	(1,420)	-	(769)	-	(718)	-
Gross defined benefit pension (surplus)/deficit	(9)	5	(175)	5	(106)	5
Deferred tax on defined benefit pension (surplus)/deficit	2	(1)	44	(1)	27	(1)
Net defined benefit pension (surplus)/deficit	(7)	4	(131)	4	(79)	4

The Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) account for the majority of the UK and worldwide assets of, and contributions to, such arrangements. The Fund and Scheme were closed to future accrual on 31 December 2015.

Assured Payment Policies (APPs), previously transacted between the group's defined benefit pension schemes and Legal and General Assurance Society Limited (LGAS), have now been surrendered and converted to annuity contracts. Unlike APPs, these annuity contracts are not admissible as assets of the schemes, and both the gross pension obligation and obligations insured by LGAS have increased accordingly.

4.16 Contingent liabilities, guarantees and indemnities

Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court judgments.

Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.

Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of group companies in support of their business activities. Legal and General Assurance Society Limited has provided indemnities, a liquidity and expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of group companies to facilitate the group's matching adjustment reorganisation pursuant to Solvency II.

4.17 Related party transactions

(i) Key management personnel transactions and compensation

All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. There were no material transactions between key management and the Legal & General group of companies during the period. Contributions to the post-employment defined benefit plans were £128m (30 June 2022: £51m; 31 December 2022: £105m) for all employees.

At 30 June 2023, 30 June 2022 and 31 December 2022 there were no loans outstanding to officers of the company.

The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:

(ii) Services provided to and by related parties

All transactions between the group and associates, joint ventures and other related parties during the period are on commercial terms which are no more favourable than those available to companies in general.

The group has the following material related party transactions:

• Assured Payment Policies (APPs), previously transacted between the group's UK defined benefit pension schemes and Legal and General Assurance Society Limited (LGAS), were surrendered at their carrying value of £839m and converted into annuity contracts. An additional top-up consideration of £178m, priced on an arm's length basis, was paid to LGAS by the defined benefit pension schemes as part of the transaction, making a total contribution for new annuities of £1,017m (30 June 2022: £nil; 31 December 2022: £61m); and

• Total payments by LGAS to the pension schemes for insured pension benefits were £25m (30 June 2022: £29m; 31 December 2022: £56m).

Loans and commitments to related parties are made in the normal course of business. As at 30 June 2023, the group had:

• Loans outstanding from related parties of £46m (30 June 2022: £20m; 31 December 2022: £58m), with a further commitment of £5m; and

• Total other commitments of £1,232m to related parties (30 June 2022: £1,061m; 31 December 2022: £1,265m), of which £1,048m has been drawn (30 June 2022: £736m; 31 December 2022: £1,010m).

Asset flows and new business

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 2023	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2023	444.7	156.8	73.9	485.9	34.4	1,195.7
External inflows³	37.6	8.8	5.5	13.6	0.8	66.3
External outflows³	(35.1)	(9.2)	(3.4)	(10.6)	(1.0)	(59.3)
Overlay net flows	-	-	-	(19.3)	-	(19.3)
External net flows⁴	2.5	(0.4)	2.1	(16.3)	(0.2)	(12.3)
PRT transfers⁵	(0.3)	(0.3)	-	(4.5)	-	(5.1)
Internal net flows⁶	(0.5)	(3.1)	(0.1)	0.1	1.7	(1.9)
Total net flows	1.7	(3.8)	2.0	(20.7)	1.5	(19.3)
Market movements	24.4	2.6	1.1	(32.4)	(0.3)	(4.6)
Other movements⁷	(0.8)	(1.7)	-	(11.2)	-	(13.7)
As at 30 June 2023	470.0	153.9	77.0	421.6	35.6	1,158.1
Assets attributable to:
External						1,068.6
Internal						89.5

		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

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 £285.3bn (30 June 2022: £386.9bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £2.1bn (30 June 2022: £2.3bn) of external investments and £1.1bn (30 June 2022: £2.0bn) 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 30 June 2023 was £62.3bn (30 June 2022: £68.8bn).

5. PRT transfers represent the reduction in AUM associated with UK defined benefit pension schemes that transacted PRT business with LGRI in the reporting period.

6. Internal net flows include flows associated with legacy Mature Savings business that were 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.

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

		Active	Multi		Real	Total
	Index	strategies	asset	Solutions²	assets	AUM
For the year ended 31 December 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	95.8	16.0	13.5	90.0	2.5	217.8
External outflows³	(102.6)	(23.5)	(9.3)	(27.2)	(2.1)	(164.7)
Overlay net flows	-	-	-	(3.5)	-	(3.5)
External net flows⁴	(6.8)	(7.5)	4.2	59.3	0.4	49.6
PRT transfers⁵	(0.2)	(0.4)	-	(2.5)	-	(3.1)
Internal net flows⁶	(1.1)	(0.4)	(0.2)	(1.2)	3.0	0.1
Total net flows	(8.1)	(8.3)	4.0	55.6	3.4	46.6
Market movements	(50.2)	(33.1)	(8.1)	(173.9)	(6.2)	(271.5)
Other movements⁷	0.6	(0.6)	-	(0.9)	-	(0.9)
As at 31 December 2022	444.7	156.8	73.9	485.9	34.4	1,195.7
Assets attributable to:
External						1,103.4
Internal						92.3

1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.

2. Solutions include liability driven investments and £336.6bn of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £3.9bn of external investments and £3.3bn of redemptions in the ETF business.

5. PRT transfers represent the reduction in AUM associated with UK defined benefit pension schemes that transacted PRT business with LGRI in the reporting period.

6. Internal net flows include flows associated with legacy Mature Savings business that were 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
	2023	2022	2022	2023	2022	2022
	£bn	£bn	£bn	£bn	£bn	£bn
International²	371.8	377.0	363.6	(2.7)	34.5	(13.1)
UK Institutional
- Defined contribution	146.1	129.7	135.2	5.5	7.0	4.6
- Defined benefit	489.6	630.1	547.8	(17.3)	22.4	(10.0)
Wholesale³	51.2	45.5	48.3	1.3	1.4	2.2
ETF⁴	9.9	8.4	8.5	0.9	0.3	0.3
Total external	1,068.6	1,190.7	1,103.4	(12.3)	65.6	(16.0)

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 £457bn as at 30 June 2023 (30 June 2022: £468bn; 31 December 2022: £441bn).

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 £11.7bn ($14.9bn) in H1 23 (H1 22: £9.9bn ($12.0bn); FY 22: £10.2bn ($12.3bn)) and Flows of £1.0bn ($1.3bn) in H1 23 (H1 22: £0.6bn ($0.8bn); FY 22: £1.0bn ($1.3bn)) which include internal investment from other LGIM asset classes.

5.03 Reconciliation of assets under management to Consolidated Balance Sheet

		Restated	Restated
	30 Jun 2023	30 Jun 2022	31 Dec 2022
	£bn	£bn	£bn
Assets under management¹	1,158	1,290	1,196
Derivative notionals²	(285)	(387)	(337)
Third party assets³	(446)	(429)	(412)
Other⁴	52	24	45
Total financial investments, investment property and cash and cash equivalents	479	498	492

1. These balances are unaudited.

2. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.

3. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.

4. 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. It also includes measurement differences between assets under management, which are on a market value basis, and total investments on an IFRS basis.

5.04 Assets under administration

	Workplace¹	Annuities²	Workplace¹	Annuities²	Workplace¹	Annuities²
	30 Jun 2023	30 Jun 2023	30 Jun 2022	30 Jun 2022	31 Dec 2022	31 Dec 2022
	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January	66.6	72.4	65.7	89.9	65.7	89.9
Gross inflows	4.9	5.5	6.1	5.0	10.7	10.7
Gross outflows	(1.9)	-	(1.8)	-	(3.4)	-
Payments to pensioners	-	(3.6)	-	(2.4)	-	(5.0)
Net flows	3.0	1.9	4.3	2.6	7.3	5.7
Market and other movements	2.1	(1.7)	(6.9)	(13.7)	(6.4)	(23.2)
As at 30 June	71.7	72.6	63.1	78.8	66.6	72.4

1. Workplace assets under administration as at 30 June 2023 includes £71.5bn (30 June 2022: £63.0bn; 31 December 2022: £66.4bn) of assets under management included in Note 5.01.

2. Annuities assets under administration as at 30 June 2023 includes £63.3bn (30 June 2022: £69.9bn; 31 December 2022: £63.8bn) of assets under management included in Note 5.01.

5.05 LGRI new business

	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2023	2022	2022	2022
	£m	£m	£m	£m
UK^1,2	4,866	3,715	3,604	7,319
US	126	593	1,170	1,763
Bermuda	-	141	318	459
Total LGRI new business	4,992	4,449	5,092	9,541

1. UK includes £nil (H1 22: £nil; H2 22: £93m) of Assured Payment Policies (APPs).

2. UK includes a transaction with the group's UK defined benefit pension schemes as disclosed in Note 4.17 Related party transactions.

5.06 Retail new business

	6 months	6 months	6 months	Full year
	30 Jun	30 Jun	31 Dec	31 Dec
	2023	2022	2022	2022
	£m	£m	£m	£m
Individual annuities	575	453	501	954
Lifetime mortgage loans and retirement interest only mortgages	163	338	294	632
Total Retail Retirement new business	738	791	795	1,586
UK Retail protection	76	85	86	171
UK Group protection	53	63	44	107
US protection¹	70	48	56	104
Total Insurance new business	199	196	186	382
Total Retail new business	937	987	981	1,968

1. In local currency, US protection reflects new business of $87m for 2023 (H1 22: $62m; H2 22: $67m).

Capital

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 II 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 2023.

(i) Capital position

As at 30 June 2023, and on the above basis, the group had a surplus of £9,161m (31 December 2022: £9,915m) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio of 230% (31 December 2022: 236%). The Solvency II capital position is as follows:

	30 Jun	31 Dec
	2023	2022
	£m	£m
Unrestricted Tier 1 Own Funds	12,631	13,393
Restricted Tier 1 Own Funds¹	495	495
Tier 2 Subordinated liabilities	3,304	3,448
Eligibility restrictions	(233)	(110)
Solvency II Own Funds^2,3	16,197	17,226
Solvency Capital Requirement	(7,036)	(7,311)
Solvency II surplus	9,161	9,915
SCR Coverage ratio	230%	236%

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 £340m (31 December 2022: £829m) declared after the balance sheet date.

3. Solvency II Own Funds allow for a Risk Margin of £2,729m (2022: £2,753m) and TMTP of £1,901m (2022: £2,136m).

6.01 Group regulatory capital - Solvency II (continued)

(ii) 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 2022 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 2023 the Matching Adjustment for UK GBP denominated liabilities was 144 basis points (31 December 2022: 141 basis points) after deducting an allowance for the fundamental spread equivalent to 56 basis points (31 December 2022: 55 basis points).

(iii) Analysis of change

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 period.

New Business Strain is the cost of acquiring business 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.

The table below shows the movement (net of tax) during the six month period ended 30 June 2023 in the group's Solvency II surplus.

	6 months	6 months	6 months
	30 Jun 2023	30 Jun 2023	30 Jun 2023
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening Position	17,226	(7,311)	9,915
Operational Surplus Generation¹	835	112	947
New business strain	188	(383)	(195)
Net surplus generation	1,023	(271)	752
Operating variances²			(543)
Mergers, acquisitions and disposals³			(150)
Market movements⁴			18
Dividends paid⁵			(831)
Total surplus movement (after dividends paid in the period)	(1,029)	275	(754)
Closing Position	16,197	(7,036)	9,161

1. Operational Surplus Generation includes a £104m release of Risk Margin and £(103)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. Mergers, acquisitions and disposals for the 6 months ended 30 June 2023 includes costs incurred relating to the announced intent to cease production within the Modular Homes business and impairment of the group's investment in Onto, along with the associated change in SCR.

4. 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 a number of other, smaller variances.

5. Dividends paid are the amounts from the 2022 final dividend paid in H1 2023.

6.01 Group regulatory capital - Solvency II (continued)

(iii) Analysis of change (continued)

The table below shows the movement (net of tax) during the year ended 31 December 2022 in the group's Solvency II surplus.

	Full year	Full year	Full year
	31 Dec 2022	31 Dec 2022	31 Dec 2022
	Own Funds	SCR	Surplus
	£m	£m	£m
Opening Position	17,561	(9,376)	8,185
Operational Surplus Generation¹	1,409	396	1,805
New business strain	333	(685)	(352)
Net surplus generation	1,742	(289)	1,453
Operating variances²			(327)
Mergers, acquisitions and disposals			-
Market movements³			1,720
Dividends paid⁴			(1,116)
Total surplus movement (after dividends paid in the period)	(335)	2,065	1,730
Closing Position	17,226	(7,311)	9,915

1. Operational Surplus Generation includes a £358m release of Risk Margin and £(342)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. Dividends paid are the amounts from the 2021 final dividend and the 2022 interim dividend.

(iv) 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:

		Restated
	30 Jun	31 Dec
	2023	2022
	£m	£m
IFRS equity¹	5,088	5,607
CSM net of tax	9,812	9,766
IFRS equity plus CSM net of tax	14,900	15,373
Remove DAC, goodwill and other intangible assets and associated liabilities	(502)	(502)
Add IFRS carrying value of subordinated borrowings²	3,769	3,823
Insurance contract valuation differences³	(1,793)	(1,668)
Difference in value of net deferred tax liabilities	74	335
Other	(18)	(25)
Eligibility restrictions	(233)	(110)
Solvency II Own Funds⁴	16,197	17,226

1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible debt note as per the Consolidated Balance Sheet.

2. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.

3. Differences in the measurement of technical provisions between IFRS and Solvency II.

4. Solvency II Own Funds do not include an accrual for the interim dividend of £340m (31 December 2022: £829m) declared after the balance sheet date.

6.01 Group regulatory capital - Solvency II (continued)

(v) Sensitivity analysis

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2023 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
	30 Jun	30 Jun	31 Dec	31 Dec
	2023	2023	2022	2022
	£bn	%	£bn	%
100bps increase in risk-free rates¹	0.3	15	0.5	18
100bps decrease in risk-free rates^1,2	(0.4)	(16)	(0.6)	(19)
Credit spreads widen by 100bps assuming an escalating addition to ratings^3,4	0.4	13	0.3	13
Credit spreads narrow by 100bps assuming an escalating deduction from ratings^3,4	(0.6)	(17)	(0.4)	(16)
Credit spreads widen by 100bps assuming a flat addition to ratings³	0.4	14	0.3	14
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings^3,5	(0.2)	(7)	(0.3)	(7)
Credit migration⁶	(0.7)	(10)	(0.8)	(10)
25% fall in equity markets⁷	(0.4)	(3)	(0.4)	(3)
15% fall in property markets⁸	(0.9)	(11)	(0.9)	(11)
50bps increase in future inflation expectations	(0.1)	(4)	(0.1)	(3)
Substantially reduced Risk Margin⁹	0.6	8	0.5	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. 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 1bps as the group holds less than 1% 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. Allowance is made for the recalculation of the Loss Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity remains available post 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.

6.02 Estimated Solvency II new business contribution

(i) New business by product¹

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

		Contribution			Contribution
		from new			from new
	PVNBP²	business³	Margin⁴	PVNBP²	business³	Margin⁴
	6 months	6 months	6 months	Full year	Full year	Full year
	2023	2023	2023	2022	2022	2022
	£m	£m	%	£m	£m	%
LGRI - UK annuity business⁵	4,050	326	8.0	6,484	575	8.9
Retail Retirement - UK annuity business	575	34	5.9	954	60	6.3
UK Protection Total	621	17	2.8	1,512	82	5.4
US Protection⁶	605	68	11.2	796	84	10.6

1. Selected lines of business only.

2. PVNBP excludes a quota share reinsurance single premium of £816m (31 December 2022: £835m) relating to LGRI new business.

3. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the year using the risk discount rate applicable at the end of the year.

4. Margin is based on unrounded inputs.

5. LGRI UK annuity business includes a transaction with the group's UK defined benefit pension schemes as disclosed in Note 4.17 Related party transactions.

6. In local currency, US protection business reflects PVNBP of $748m (31 December 2022: $985m) and a contribution from new business of $84m (31 December 2022: $104m).

(ii) 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 adopted in the group's 2022 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 2023 and looks through the intra-group arrangements.

6.02 Estimated Solvency II new business contribution (continued)

(iii) Assumptions

The key economic assumptions are as follows:

	30 Jun 2023	31 Dec 2022
	%	%
Margin for Risk	4.1	4.4
Risk-free rate
- UK	3.9	3.6
- US	3.8	3.9
Risk discount rate (net of tax)
- UK	8.0	8.0
- US	7.9	8.3
Long-term rate of return on annuities	5.5	5.7

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 2023 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 20 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.

(iv) Reconciliation of PVNBP to total LGRI and Retail new business

		6 months	Full year
		2023	2022
	Notes	£bn	£bn
PVNBP	6.02 (i)	5.9	9.7
Effect of capitalisation factor		(1.1)	(1.5)
New business premiums from selected lines		4.8	8.2
Other¹		1.1	3.3
Total LGRI and Retail new business	5.05, 5.06	5.9	11.5

1. Other principally includes annuity sales in the US, lifetime mortgage loans and retirement interest only mortgages, and quota share reinsurance premiums.

Investments

7.01 Investment portfolio

		Restated	Restated
	30 Jun	30 Jun	31 Dec
	2023	2022	2022
	£m	£m	£m
Worldwide total assets under management¹	1,165,186	1,295,640	1,202,676
Client and policyholder assets	(1,034,454)	(1,175,344)	(1,073,126)
Investments to which shareholders are directly exposed (market value)	130,732	120,296	129,550
Adjustment from market value to IFRS carrying value²	1,245	478	1,083
Investments to which shareholders are directly exposed (IFRS carrying value)	131,977	120,774	130,633

1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.

2. Adjustments reflect measurement differences for a portion of the group's financial investments designated as amortised cost.

Analysed by investment class:

				Other
		Annuity¹	LGC²	shareholder		Restated	Restated
		investments	investments	investments	Total	Total	Total
		30 Jun	30 Jun	30 Jun	30 Jun	30 Jun	31 Dec
		2023	2023	2023	2023	2022	2022
	Notes	£m	£m	£m	£m	£m	£m
Equities		112	2,557	408	3,077	3,492	3,071
Bonds	7.03	69,361	1,354	2,648	73,363	77,321	71,773
Derivative assets³		42,033	274	-	42,307	25,071	41,978
Property	7.04	5,123	639	-	5,762	6,156	5,644
Loans⁴		1,727	287	40	2,054	1,773	1,073
Financial investments		118,356	5,111	3,096	126,563	113,813	123,539
Cash and cash equivalents		1,622	1,051	641	3,314	4,973	4,834
Other assets⁵		157	1,931	12	2,100	1,988	2,260
Total investments		120,135	8,093	3,749	131,977	120,774	130,633

1. Annuity investments includes products held within the LGRI and Retail Retirement annuity portfolios, and includes lifetime mortgage loans & retirement interest only mortgages.

2. LGC investments includes £89m (30 June 2022: £Nil; 31 December 2022: £95m) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £169m (30 June 2022: £60m; 31 December 2022: £122m) of bonds and equities that belong to other shareholder funds.

3. Derivative assets are shown gross of derivative liabilities of £46.0bn (30 June 2022: £28.4bn; 31 December 2022: £46.1bn). Exposures arise from use of derivatives for efficient portfolio management, particularly the use of interest rate swaps, inflation swaps, currency swaps and foreign exchange forward contracts for assets and liability management.

4. Loans include reverse repurchase agreements of £2,049m (30 June 2022: £1,701m; 31 December 2022: £1,072m).

5. Other assets include finance leases of £157m (30 June 2022: £85m; 31 December 2022: £110m), associates and joint ventures of £553m (30 June 2022: £387m; 31 December 2022: £554m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

7.02 Direct investments

(i) Total investments analysed by asset class

				Restated	Restated		Restated	Restated
	Direct¹	Traded²		Direct¹	Traded²	Restated	Direct¹	Traded²	Restated
	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
	2023	2023	2023	2022	2022	2022	2022	2022	2022
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Equities	1,782	1,295	3,077	1,431	2,061	3,492	1,704	1,367	3,071
Bonds³	24,596	48,767	73,363	22,280	55,041	77,321	23,171	48,602	71,773
Derivative assets	-	42,307	42,307	-	25,071	25,071	-	41,978	41,978
Property⁴	5,762	-	5,762	6,156	-	6,156	5,644	-	5,644
Loans	4	2,050	2,054	71	1,702	1,773	-	1,073	1,073
Financial investments	32,144	94,419	126,563	29,938	83,875	113,813	30,519	93,020	123,539
Cash and cash equivalents	213	3,101	3,314	116	4,857	4,973	56	4,778	4,834
Other assets	2,100	-	2,100	1,988	-	1,988	2,260	-	2,260
Total investments	34,457	97,520	131,977	32,042	88,732	120,774	32,835	97,798	130,633

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 £4,937m (30 June 2022: £5,758m; 31 December 2022: £4,844m).

4. A further breakdown of property is provided in Note 7.04.

7.02 Direct investments (continued)

(ii) Direct investments analysed by asset portfolio

	Annuity¹	Shareholder²	Insurance³	Total
	30 Jun	30 Jun	30 Jun	30 Jun
	2023	2023	2023	2023
	£m	£m	£m	£m
Equities	54	1,491	237	1,782
Bonds⁴	23,224	119	1,253	24,596
Property	5,123	639	-	5,762
Loans	-	4	-	4
Financial investments	28,401	2,253	1,490	32,144
Other assets, cash and cash equivalents	157	2,136	20	2,313
Total direct investments	28,558	4,389	1,510	34,457

	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	21,014	5	1,261	22,280
Property	5,632	524	-	6,156
Loans	-	71	-	71
Financial investments	26,688	1,792	1,458	29,938
Other assets, cash and cash equivalents	94	2,010	-	2,104
Total direct investments (restated)	26,782	3,802	1,458	32,042

	Annuity¹	Shareholder²	Insurance³	Total
	31 Dec	31 Dec	31 Dec	31 Dec
	2022	2022	2022	2022
	£m	£m	£m	£m
Equities	51	1,417	236	1,704
Bonds⁴	21,840	88	1,243	23,171
Property	5,037	607	-	5,644
Loans	-	-	-	-
Financial investments	26,928	2,112	1,479	30,519
Other assets, cash and cash equivalents	110	2,189	17	2,316
Total direct investments (restated)	27,038	4,301	1,496	32,835

1. Annuity includes products held within the LGRI and Retail Retirement annuity portfolios.

2. Shareholder primarily includes the LGC direct investment portfolio and £89m (30 June 2022: £Nil; 31 December 2022: £95m) of Legal & General Reinsurance Company Limited's assets managed by LGC, along with £169m (30 June 2022: £60m; 31 December 2022: £122m) of bonds and 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 £4,937m (30 June 2022: £5,758m; 31 December 2022: £4,844m).

7.03 Bond portfolio summary

(i) Sectors analysed by credit rating

					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 30 June 2023	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	908	6,259	857	101	2	2	8,129	11
Banks:
- Tier 1	-	-	-	-	-	1	1	-
- Tier 2 and other subordinated	-	95	93	59	1	-	248	-
- Senior	-	1,488	2,995	820	-	-	5,303	7
- Covered	79	-	-	-	-	-	79	-
Financial Services:
- Tier 2 and other subordinated	-	449	160	22	7	4	642	1
- Senior	139	235	610	714	-	-	1,698	3
Insurance:
- Tier 2 and other subordinated	56	124	23	40	1	-	244	1
- Senior	9	183	294	393	-	-	879	1
Consumer Services and Goods:
- Cyclical	-	13	1,321	1,669	35	20	3,058	4
- Non-cyclical	293	836	2,988	3,075	78	-	7,270	10
- Healthcare	12	733	933	734	3	-	2,415	3
Infrastructure:
- Social	167	867	3,974	1,104	67	-	6,179	9
- Economic	264	148	967	3,758	59	-	5,196	7
Technology and Telecoms	121	331	1,382	2,610	12	3	4,459	6
Industrials	-	58	664	668	24	-	1,414	2
Utilities	547	660	4,546	4,612	17	-	10,382	14
Energy	-	13	370	916	32	-	1,331	2
Commodities	-	-	329	582	24	20	955	1
Oil and Gas	-	500	673	316	14	60	1,563	2
Real estate	-	20	2,171	2,066	31	-	4,288	6
Structured finance ABS / RMBS / CMBS / Other	565	912	538	575	45	8	2,643	3
Lifetime mortgage loans¹	3,235	887	449	353	-	13	4,937	7
CDOs	-	40	-	10	-	-	50	-
Total £m	6,395	14,851	26,337	25,197	452	131	73,363	100
Total %	9	20	36	34	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 £69,374m, representing 95% of the total group portfolio.

7.03 Bond portfolio summary (continued)

(i) Sectors analysed by credit rating (continued)


					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 30 June 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,696	8,059	1,184	292	11	1	11,243	15
Banks:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	-	68	52	3	1	124	-
- Senior	-	1,334	2,336	941	1	-	4,612	6
- Covered	120	-	-	-	-	-	120	-
Financial Services:
- Tier 2 and other subordinated	-	118	50	32	-	17	217	-
- Senior	51	315	439	368	-	-	1,173	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	1,361	1,877	159	3	3,439	4
- Non-cyclical	323	886	2,536	3,733	247	-	7,725	10
- Healthcare	-	612	808	761	4	-	2,185	3
Infrastructure:
- Social	184	895	3,750	927	79	-	5,835	8
- Economic	296	173	894	3,862	180	-	5,405	7
Technology and Telecoms	141	325	1,546	2,801	20	1	4,834	6
Industrials	-	52	613	660	29	-	1,354	2
Utilities	386	628	4,735	5,537	28	-	11,314	15
Energy	-	-	347	765	16	-	1,128	1
Commodities	-	-	337	781	25	8	1,151	2
Oil and Gas	-	505	873	320	226	24	1,948	3
Real estate	-	23	1,973	1,729	108	-	3,833	5
Structured finance ABS / RMBS / CMBS / Other	539	772	460	695	32	-	2,498	3
Lifetime mortgage loans¹	3,721	1,146	497	381	-	13	5,758	7
CDOs	-	47	-	12	-	-	59	-
Total £m	7,521	16,270	25,255	27,039	1,168	68	77,321	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 £73,692m, representing 95% of the total group portfolio.

7.03 Bond portfolio summary (continued)

(i) Sectors analysed by credit rating (continued)


					BB or
	AAA	AA	A	BBB	below	Other	Total²	Total²
As at 31 December 2022 (Restated)	£m	£m	£m	£m	£m	£m	£m	%
Sovereigns, Supras and Sub-Sovereigns	1,718	5,561	844	111	7	3	8,244	12
Banks:
- Tier 1	-	-	-	-	-	1	1	-
- Tier 2 and other subordinated	-	-	83	66	3	-	152	-
- Senior	-	1,179	2,300	996	2	-	4,477	6
- Covered	114	-	-	-	-	-	114	-
Financial Services:
- Tier 2 and other subordinated	32	94	52	20	7	4	209	-
- Senior	49	246	592	561	-	-	1,448	2
Insurance:
- Tier 2 and other subordinated	53	138	23	53	-	-	267	-
- Senior	6	186	342	407	-	-	941	1
Consumer Services and Goods:
- Cyclical	-	18	1,129	1,871	161	8	3,187	5
- Non-cyclical	310	830	2,441	3,322	166	-	7,069	10
- Healthcare	-	634	916	754	4	-	2,308	3
Infrastructure:
- Social	170	808	3,580	1,173	70	-	5,801	8
- Economic	288	151	999	3,606	173	-	5,217	7
Technology and Telecoms	134	365	1,201	2,687	17	1	4,405	6
Industrials	-	60	702	679	23	-	1,464	2
Utilities	531	582	4,699	4,997	27	-	10,836	15
Energy	-	-	351	802	42	-	1,195	2
Commodities	-	-	301	658	25	15	999	1
Oil and Gas	-	483	805	310	67	52	1,717	3
Real estate	-	24	2,004	1,984	91	2	4,105	6
Structured finance ABS / RMBS / CMBS / Other	683	855	566	587	22	8	2,721	4
Lifetime mortgage loans¹	3,246	824	428	336	-	10	4,844	7
CDOs	-	41	-	11	-	-	52	-
Total £m	7,334	13,079	24,358	25,991	907	104	71,773	100
Total %	10	18	34	36	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 £67,955m, representing 95% of the total group portfolio.

7.03 Bond portfolio summary (continued)

(ii) Sectors analysed by domicile

				Rest of
	UK	US	EU	the World	Total
As at 30 June 2023	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	6,127	1,283	266	453	8,129
Banks	1,521	1,979	1,021	1,110	5,631
Financial Services	302	595	1,266	177	2,340
Insurance	61	966	15	81	1,123
Consumer Services and Goods:
- Cyclical	335	2,155	360	208	3,058
- Non-cyclical	1,711	4,683	346	530	7,270
- Healthcare	278	2,078	59	-	2,415
Infrastructure:
- Social	5,269	690	144	76	6,179
- Economic	3,729	840	249	378	5,196
Technology and Telecoms	377	3,010	558	514	4,459
Industrials	194	783	295	142	1,414
Utilities	5,086	3,011	1,809	476	10,382
Energy	313	715	12	291	1,331
Commodities	46	402	132	375	955
Oil and Gas	248	425	542	348	1,563
Real estate	1,888	1,469	618	313	4,288
Structured finance ABS / RMBS / CMBS / Other	678	1,497	46	422	2,643
Lifetime mortgage loans	4,871	-	66	-	4,937
CDOs	-	-	-	50	50
Total	33,034	26,581	7,804	5,944	73,363

7.03 Bond portfolio summary (continued)

(ii) Sectors analysed by domicile (continued)

				Rest of
	UK	US	EU	the World	Total
As at 30 June 2022 (Restated)	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	7,708	1,774	768	993	11,243
Banks	1,514	1,846	812	684	4,856
Financial Services	349	403	380	258	1,390
Insurance	101	1,131	19	115	1,366
Consumer Services and Goods:
- Cyclical	473	2,300	395	271	3,439
- Non-cyclical	1,894	5,316	355	160	7,725
- Healthcare	279	1,842	63	1	2,185
Infrastructure:
- Social	5,104	524	158	49	5,835
- Economic	3,855	881	264	405	5,405
Technology and Telecoms	403	3,080	699	652	4,834
Industrials	189	800	313	52	1,354
Utilities	6,341	2,583	1,877	513	11,314
Energy	327	634	1	166	1,128
Commodities	37	449	151	514	1,151
Oil and Gas	167	567	690	524	1,948
Real estate	2,019	935	573	306	3,833
Structured Finance ABS / RMBS / CMBS / Other	704	1,503	11	280	2,498
Lifetime mortgage loans	5,758	-	-	-	5,758
CDOs	-	-	-	59	59
Total	37,222	26,568	7,529	6,002	77,321

7.03 Bond portfolio summary (continued)

(ii) Sectors analysed by domicile (continued)

				Rest of
	UK	US	EU	the World	Total
As at 31 December 2022 (Restated)	£m	£m	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	5,261	1,754	614	615	8,244
Banks	1,089	1,897	717	1,041	4,744
Financial Services	410	539	520	188	1,657
Insurance	108	1,007	20	73	1,208
Consumer Services and Goods:
- Cyclical	549	2,132	298	208	3,187
- Non-cyclical	1,830	4,775	296	168	7,069
- Healthcare	257	1,986	64	1	2,308
Infrastructure:
- Social	4,890	704	150	57	5,801
- Economic	3,756	833	256	372	5,217
Technology and Telecoms	363	2,963	577	502	4,405
Industrials	192	824	292	156	1,464
Utilities	5,656	2,840	1,855	485	10,836
Energy	294	671	13	217	1,195
Commodities	35	415	113	436	999
Oil and Gas	158	508	650	401	1,717
Real estate	2,011	1,228	636	230	4,105
Structured Finance ABS / RMBS / CMBS / Other	641	1,674	44	362	2,721
Lifetime mortgage loans	4,801	-	43	-	4,844
CDOs	-	-	-	52	52
Total	32,301	26,750	7,158	5,564	71,773

7.03 Bond portfolio summary (continued)

(iii) Bond portfolio analysed by credit rating

	Externally	Internally
	rated	rated¹	Total
As at 30 June 2023	£m	£m	£m
AAA	2,828	3,567	6,395
AA	12,285	2,566	14,851
A	16,753	9,584	26,337
BBB	17,781	7,416	25,197
BB or below	219	233	452
Other	16	115	131
Total	49,882	23,481	73,363

	Externally	Internally
	rated	rated¹	Total
As at 30 June 2022 (Restated)	£m	£m	£m
AAA	3,472	4,049	7,521
AA	13,469	2,801	16,270
A	17,268	7,987	25,255
BBB	19,964	7,075	27,039
BB or below	777	391	1,168
Other	19	49	68
Total	54,969	22,352	77,321

	Externally	Internally
	rated	rated¹	Total
As at 31 December 2022 (Restated)	£m	£m	£m
AAA	3,741	3,593	7,334
AA	10,577	2,502	13,079
A	15,883	8,475	24,358
BBB	18,554	7,437	25,991
BB or below	529	378	907
Other	17	87	104
Total	49,301	22,472	71,773

1. Where external ratings are not available an internal rating has been used where practicable to do so.

7.03 Bond portfolio summary (continued)

(iv) Sectors analysed by Direct investments and traded securities

	Direct
	investments	Traded	Total
As at 30 June 2023	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	659	7,470	8,129
Banks	829	4,802	5,631
Financial Services	1,737	603	2,340
Insurance	98	1,025	1,123
Consumer Services and Goods:
- Cyclical	641	2,417	3,058
- Non-cyclical	629	6,641	7,270
- Healthcare	512	1,903	2,415
Infrastructure:
- Social	3,630	2,549	6,179
- Economic	3,945	1,251	5,196
Technology and Telecoms	213	4,246	4,459
Industrials	125	1,289	1,414
Utilities	1,960	8,422	10,382
Energy	460	871	1,331
Commodities	139	816	955
Oil and Gas	84	1,479	1,563
Real estate	2,857	1,431	4,288
Structured finance ABS / RMBS / CMBS / Other	1,141	1,502	2,643
Lifetime mortgage loans	4,937	-	4,937
CDOs	-	50	50
Total	24,596	48,767	73,363

7.03 Bond portfolio summary (continued)

(iv) Sectors analysed by Direct investments and traded securities (continued)


	Direct
	investments	Traded	Total
As at 30 June 2022 (Restated)	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	770	10,473	11,243
Banks	739	4,117	4,856
Financial Services	515	875	1,390
Insurance	116	1,250	1,366
Consumer Services and Goods:
- Cyclical	580	2,859	3,439
- Non-cyclical	501	7,224	7,725
- Healthcare	287	1,898	2,185
Infrastructure:
- Social	3,092	2,743	5,835
- Economic	3,906	1,499	5,405
Technology and Telecoms	192	4,642	4,834
Industrials	100	1,254	1,354
Utilities	1,717	9,597	11,314
Energy	384	744	1,128
Commodities	70	1,081	1,151
Oil and Gas	65	1,883	1,948
Real estate	2,407	1,426	3,833
Structured Finance ABS / RMBS / CMBS / Other	1,081	1,417	2,498
Lifetime mortgage loans	5,758	-	5,758
CDOs	-	59	59
Total	22,280	55,041	77,321

7.03 Bond portfolio summary (continued)

(iv) Sectors analysed by Direct investments and traded securities (continued)


	Direct
	investments	Traded	Total
As at 31 December 2022 (Restated)	£m	£m	£m
Sovereigns, Supras and Sub-Sovereigns	816	7,428	8,244
Banks	787	3,957	4,744
Financial Services	941	716	1,657
Insurance	111	1,097	1,208
Consumer Services and Goods:
- Cyclical	598	2,589	3,187
- Non-cyclical	637	6,432	7,069
- Healthcare	443	1,865	2,308
Infrastructure:
- Social	3,300	2,501	5,801
- Economic	3,913	1,304	5,217
Technology and Telecoms	123	4,282	4,405
Industrials	120	1,344	1,464
Utilities	2,012	8,824	10,836
Energy	385	810	1,195
Commodities	67	932	999
Oil and Gas	89	1,628	1,717
Real estate	2,719	1,386	4,105
Structured Finance ABS / RMBS / CMBS / Other	1,266	1,455	2,721
Lifetime mortgage loans	4,844	-	4,844
CDOs	-	52	52
Total	23,171	48,602	71,773

7.04 Property analysis

Property exposure within Direct investments by status



	Annuity	Shareholder¹	Total
As at 30 June 2023	£m	£m	£m	%
Fully let²	4,566	492	5,058	87
Development	557	111	668	12
Land	-	36	36	1
Total	5,123	639	5,762	100



	Annuity	Shareholder¹	Total
As at 30 June 2022	£m	£m	£m	%
Fully let²	5,190	-	5,190	84
Development	442	403	845	14
Land	-	121	121	2
Total	5,632	524	6,156	100



	Annuity	Shareholder¹	Total
As at 31 December 2022	£m	£m	£m	%
Fully let²	4,568	462	5,030	89
Development	469	83	552	10
Land	-	62	62	1
Total	5,037	607	5,644	100

1. 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 2023, the group held a total of £2,022m (30 June 2022: £2,072m; 31 December 2022: £1,973m) of such assets.

2. £4.4bn (30 June 2022: £5.1bn; 31 December 2022: £4.5bn) fully let property were let to corporate clients, out of which £3.9bn (30 June 2022: £4.9bn; 31 December 2022: £4.0bn) were let to investment grade tenants.

Alternative Performance Measures

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 Note, along with their definition/explanation, their closest IFRS or Solvency II measure and, where relevant, the reference to the reconciliations to those 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.

APMs derived from IFRS measures

Adjusted operating profit

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.

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 excluded from adjusted operating profit.

Long-term insurance

Shareholder funds

• 'Start-up' investments: these are companies in the beginning stages of their business lifecycle (i.e. typically less than 24 months), which therefore have limited operating history available and typically are in a pre-revenue stage.

Note 2.02 Operating profit reconciles adjusted operating profit with its closest IFRS measure, which is profit before tax attributable to equity holders. Further details on reconciling items between adjusted operating profit and profit before tax attributable to equity holders are presented in Note 2.06 Investment and other variances.

Return on Equity (ROE)

ROE measures the return earned by shareholders on shareholder capital retained within the business. It is a measure of performance of the business, which shows how efficiently we are using our financial resources to generate a return for shareholders. 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). In the current period, ROE was quantified using annualised profit attributable to equity holders of £632m (30 June 2022: £1,150m; 31 December 2022: £846m) and average equity attributable to the owners of the parent of £4,853m (30 June 2022: £5,039m; 31 December 2022: £5,027m), based on an opening balance of £5,112m and a closing balance of £4,593m (30 June 2022: based on an opening balance of £4,941m and a closing balance of £5,137m; 31 December 2022: based on an opening balance of £4,941m and a closing balance of £5,112m).

Assets under Management

Assets under management represent 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. AUM include assets which are reported in the group Consolidated Balance Sheet as well as third-party assets that LGIM manage on behalf of others, and assets managed by third parties on behalf of the group.

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

Adjusted profit before tax attributable to equity holders

Adjusted profit before tax attributable to equity holders measures the actual distributable earnings before tax attributable to shareholders of the group. It therefore incorporates actual investment returns experienced during the year. Adjusted profit before tax attributable to equity holders is equal to profit before tax attributable to equity holders plus the pre-tax results of discontinued operations.

Note 2.02 Operating profit reconciles adjusted profit before tax attributable to equity holders to profit for the year. In absence of discontinued operations, adjusted profit before tax attributable to equity holders is equal to profit before tax attributable to equity holders.

APMs derived from Solvency II measures

The group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates. At a group level, Legal & General has to comply with the requirements established by the Solvency II Framework Directive, as adopted by the PRA.

Solvency II surplus

Solvency II surplus is the excess of Eligible Own Funds over the Solvency Capital Requirements. It represents the amount of capital available to the group in excess of that required to sustain it in a 1-in-200 year risk event. The group's Solvency II surplus is based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP).

Differences between the Solvency II surplus and its related regulatory basis include the impact of TMTP recalculation when it is not approved by the PRA, incorporating impacts of economic conditions as at the reporting date, and the inclusion of unaudited profits (or losses) of financial firms, which are excluded from regulatory Own Funds. This view of Solvency II is considered to be representative of the shareholder risk exposure and the group's real ability to cover the Solvency Capital Requirement (SCR) with Eligible Own Funds. It also aligns with management's approach to dynamically manage its capital position.

Further details on Solvency II surplus and its calculation are included in Note 6.01 Group regulatory capital - Solvency II. This note also includes a reconciliation between IFRS equity and Solvency II Own Funds.

Solvency II capital coverage ratio

Solvency II capital coverage ratio is one of the indicators of the group's balance sheet strength. It is determined as Eligible Own Funds divided by the SCR, and therefore represents the number of times the SCR is covered by Eligible Own Funds. The group's Solvency II capital coverage ratio is based on the Partial Internal Model, Matching Adjustment and TMTP.

Differences between the Solvency II capital coverage ratio and its related regulatory basis include the impact of TMTP recalculation when it is not approved by the PRA, incorporating impacts of economic conditions as at the reporting date, and the inclusion of unaudited profits (or losses) of financial firms, which are excluded from regulatory Own Funds. This view of Solvency II is considered to be representative of the shareholder risk exposure and the group's real ability to cover the SCR with Eligible Own Funds. It also aligns with management's approach to dynamically manage its capital position.

Further details on Solvency II capital coverage ratio and its calculation are included in Note 6.01 Group regulatory capital - Solvency II.

Solvency II operational surplus generation

Solvency II 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, and 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.

It excludes operating variances, such as the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix. It also excludes market movements, which represent the impact of changes in investment market conditions during the period and changes to future economic assumptions. The group considers this measure meaningful to stakeholders as it enhances the understanding of its operating performance over time, and serves as an indicator on the longer-term components of the movements in the group's Solvency II surplus.

Note 6.01 Group regulatory capital - Solvency II includes an analysis of change for the group's Solvency II surplus, showing the contribution of Solvency II operational surplus generation as well as other items to the Solvency II surplus during the reporting period.

Glossary

* 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)

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 premiums

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)

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.

Common Contractual Fund (CCF)

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.

Contract boundaries

Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the group can compel the policyholder to pay the premiums or has a substantive obligation to provide the policyholder with insurance contract services.

Contractual Service Margin (CSM)

The CSM represents the unearned profit the group will recognise for a group of insurance contracts, as it provides services under the insurance contract. It is a component of the asset or liability for the contracts and it results in no income or expense arising from initial recognition of an insurance contract. Therefore, together with the risk adjustment, the CSM provides a view of both stored value of our in-force insurance business, and the growth derived from new business in the current year. A CSM is not set up for groups of contracts assessed as onerous.

The CSM is released as profit as the insurance services are provided.

Coverage Period

The period during which the group provides insurance contract services. This period includes the insurance contract services that relate to all premiums within the boundary of the insurance contract.

Credit rating

A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA. 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 as well as the member and employer contributions.

Derivatives

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.

Earnings per share (EPS)

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

Eligible Own Funds

The capital available to cover the group's Solvency 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.

Expected credit losses (ECL)

For financial assets measured at amortised cost or FVOCI, a loss allowance defined as the present value of the difference between all contractual cash flows that are due and all cash flows expected to be received (i.e. the cash shortfall), weighted based on their probability of occurrence.

Fair value through other comprehensive income (FVOCI)

A financial asset that is measured at fair value in the Consolidated Balance Sheet and reports gains and losses arising from movements in fair value within the Consolidated Statement of Comprehensive Income as part of the total comprehensive income or expense for the year.

Fair value through profit or loss (FVTPL)

A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet and 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.

Fulfilment cash flows

Full year dividend

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

Generally accepted accounting principles (GAAP)

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)

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

Insurance new business

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

Irish Collective Asset-Management Vehicle (ICAV)

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

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.

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.

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 zero carbon

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

Onerous contracts

An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract, any previously recognised acquisition cash flows and any cash flows arising from the contract at the date of initial recognition, in total are a net outflow.

Open Ended Investment Company (OEIC)

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

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

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)

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. For insurance, persistency is the rate at which policies are retained over time and therefore continue to contribute premium income and asset under management.

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.

Qualifying Investor Alternative Investment Fund (QIAIF)

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.

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.

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 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 adjustment

The risk adjustment reflects the compensation that the group would require for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk after diversification. We have calibrated the group's risk adjustment using a Value at Risk (VAR) methodology. In some cases, the compensation for risk on reinsured business is linked directly to the price paid for reinsurance. The risk adjustment is a component of the insurance contract liability, and it is released as profit if experience plays out as expected.

Risk appetite

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

Single premiums

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

Société d'Investissement à Capital Variable (SICAV)

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

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*

Refer to the alternative performance measures section.

Solvency II capital coverage ratio - regulatory basis

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

Solvency II 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*

Refer to the alternative performance measures section.

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*

Refer to the alternative performance measures section.

Solvency II surplus - regulatory basis

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.

Specialised Investment Fund (SIF)

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.

Total shareholder return (TSR)

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

Transitional Measures on Technical Provisions (TMTP)

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 decreases 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.

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Legal & General Group (LGEN)

Tuesday, 3rd December 2024

COMPANIES COVERED:

MARS SSPG OTB

A positive start for a number of reporting stocks on Tuesday with double digit gains for SSP Group and On The Beach, whilst investors in pub operator Marston’s also found cause for cheer after market outperformance.

Full Archive

Share-based incentive awards

Key management personnel compensation

1 hour ago Molten Ventures
1 hour ago Touchstone Exploration Inc NPV (DI)
1 hour ago Team Internet Group plc
1 hour ago Ondo Insurtech
1 hour ago Wilmington

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