L&G Half-year Results Part 6

RNS Number : 6224A

Legal & General Group Plc

05 August 2008

 



Appendices										Page 67
I  UK funds under management
								At 30.06.08	At 30.06.07	At 31.12.07
								£m	£m	£m
Total investments								285,785	252,935	296,649
Represented by
Index tracking funds:
- UK equities								73,117	75,662	86,294
- Overseas equities								60,794	48,659	63,930
- Fixed interest								35,989	30,917	34,256
- Index linked								30,958	23,116	28,776
- Cash/deposits								523	1,153	860
Total index tracking funds								201,381	179,507	214,116
Actively managed funds								69,287	67,438	70,727
Structured solutions								15,117	5,990	11,806
								285,785	252,935	296,649
By investment approach
Index equities								133,910	124,321	150,224
Index bonds (including index linked funds and cash)								67,470	55,186	63,891
Active bonds (including index linked funds and cash)								51,447	44,834	51,546
Structured solutions								15,117	5,990	11,806
Active equities								9,155	11,528	9,816
Property								8,568	10,847	9,086
Private equity								118	229	280
								285,785	252,935	296,649
By source of business
Institutional funds under management1:
- Managed pension funds pooled								181,279	160,563	194,771
- Structured solutions								15,117	5,990	11,806
- Other								8,473	6,414	7,030
- Managed pension funds segregated								6,769	3,689	5,807
Total institutional funds under management								211,638	176,656	219,414
UK Operations (life and general insurance funds)								63,198	64,390	65,280
UK Operations (unit trusts - excluding life fund investment)								10,949	11,889	11,955
								285,785	252,935	296,649

1. Excludes institutional investments in unit trust funds.

Appendices												Page 68
II  New business
a)	UK life and pensions new business APE by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
Protection							60	50	55	57	55	56
Annuities							87	91	78	38	45	44
Total risk							147	141	133	95	100	100
Unit linked bonds							35	40	53	62	62	74
Pensions, stakeholder and other non profit							93	69	60	60	64	69
With-profits savings							61	43	45	54	69	60
Total savings							189	152	158	176	195	203
Total UK risk and savings							336	293	291	271	295	303
b)	UK life and pensions new business annual premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
Protection							60	50	55	57	55	56
Annuities							-	-	-	-	-	-
Total risk							60	50	55	57	55	56
Unit linked bonds							-	-	-	-	-	-
Pensions, stakeholder and other non profit							51	43	37	34	27	43
With-profits savings							32	25	23	27	45	35
Total savings							83	68	60	61	72	78
Total UK risk and savings							143	118	115	118	127	134
c)	UK life and pensions new business single premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
Protection							-	-	-	-	-	-
Annuities							871	905	780	370	458	437
Total risk							871	905	780	370	458	437
Unit linked bonds							347	402	537	620	616	739
Pensions, stakeholder and other non profit							418	261	229	258	373	262
With-profits savings							304	171	217	278	240	248
Total savings							1,069	834	983	1,156	1,229	1,249
Total UK risk and savings							1,940	1,739	1,763	1,526	1,687	1,686
d)	International life and pensions new business APE by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
USA							12	12	11	12	11	11
Netherlands							7	9	7	6	6	8
France							4	15	6	9	17	10
Total							23	36	24	27	34	29
Appendices												Page 69
II  New business (continued)
e)	International life and pensions new business annual premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
USA							12	12	11	12	11	11
Netherlands							3	3	3	3	2	3
France							-	10	1	5	9	2
Total							15	25	15	20	22	16
f)	International life and pensions new business single premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
USA							-	-	-	-	-	-
Netherlands							37	59	36	30	35	56
France							43	49	47	45	78	78
Total							80	108	83	75	113	134
g)	Core retail investments new business APE by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
UK							73	42	37	38	51	35
France							2	1	-	-	1	1
Total							75	43	37	38	52	36
h)	Core retail investments new business annual premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
UK							14	5	5	5	7	4
France							-	-	-	-	-	-
Total							14	5	5	5	7	4
i)	Core retail investments new business single premiums by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
UK							577	376	316	324	440	319
France							19	7	4	5	9	6
Total							596	383	320	329	449	325
Appendices												Page 70
II  New business (continued)
j)	Analysis of total UK APE
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
Independent financial advisers							234	187	185	206	220	231
Tied							76	53	57	66	72	66
Direct							10	8	5	9	13	9
Total UK individual							320	248	247	281	305	306
Individual life and pensions							247	206	210	243	254	271
Core retail investments							73	42	37	38	51	35
Total UK individual							320	248	247	281	305	306
Group life and pensions							90	86	81	28	41	32
Total UK							410	334	328	309	346	338
k)	Institutional fund management new business by quarter
							3 months	3 months	3 months	3 months	3 months	3 months
							30.06.08	31.03.08	31.12.07	30.09.07	30.06.07	31.03.07
							£m	£m	£m	£m	£m	£m
Managed pension funds1
Pooled funds							8,254	5,308	19,903	13,989	10,646	4,922
Segregated funds							141	223	230	1,925	380	68
Total managed funds							8,395	5,531	20,133	15,914	11,026	4,990
Other funds2							3,151	568	871	492	506	499
Total							11,546	6,099	21,004	16,406	11,532	5,489
Attributable to:
Legal & General Investment Management							10,611	5,613	20,247	16,149	11,167	5,059
Legal & General Retail Investments							935	486	757	257	365	430

1. New monies from pension fund clients of Legal & General Assurance (Pensions Management) Limited exclude £4.6bn (H1 07: £7.8bn; FY 07: £19.4bn) held through the year on a temporary basis, generally as part of portfolio reconstructions.

2. Includes segregated property, property partnerships, private equity partnerships, and institutional clients funds managed by Legal & General Investment Management and institutional investments in unit trust funds managed by Legal & General Retail Investments.

Appendices                                                                                                                             Page 71

III European Embedded Value methodology

Basis of preparation

The supplementary financial statements have been prepared in accordance with the European Embedded Value (EEV) Principles issued in May 2004 by the European Insurance CFO Forum.  

Covered business

The Group uses EEV methodology to value individual and group life assurance, pensions and annuity business written in the UK, Continental Europe and the US and within our UK managed pension funds company. The UK covered business also includes non-insured self invested personal pension (SIPP) business.

At the end of 2007, all shareholder assets held within Legal & General Assurance Society Limited (Society) and Legal & General Pensions Limited (LGPL) were allocated to the covered business. 

All other businesses are accounted for on the IFRS basis adopted in the primary financial statements.

There is no distinction made between insurance and investment contracts in our life and pensions businesses as there is under IFRS.

Description of methodology

The objective of EEV is to provide shareholders with realistic information on the financial position and current performance of the Group. 

The methodology requires assets of an insurance company, as reported in the primary financial statements, to be attributed between those supporting the covered business and the remainder. The method accounts for assets in the covered business on an EEV basis and the remainder of the Group's assets on the IFRS basis adopted in the primary financial statements.

The EEV methodology recognises as profit from the covered business the total of:

i.   cash transfers during the relevant period from the covered business to the remainder of the Group's assets; and

ii.  the movement in the present value of future distributable profits to shareholders arising from the covered business over the relevant reporting period.

Embedded value

Shareholders' equity on the EEV basis comprises the embedded value of the covered business plus the shareholders' equity of other businesses, less the value included for purchased interests in long term business.  

The embedded value is the sum of the shareholder net worth (SNW) and the value of the in-force business (VIF). SNW is defined as those amounts, within covered business (both within the long term fund and held outside the long term fund but used to support long term business), which are regarded either as required capital or which represent free surplus.

The VIF is the present value of future shareholder profits arising from the covered business, projected using best estimate assumptions, less an appropriate deduction for the cost of holding the required level of capital and the time value of financial options and guarantees (FOGs).

Service companies

All services relating to the UK life and pensions business are charged on a cost recovery basis, with the exception of investment management services provided to LGPL, which have been charged at market referenced rates since 1 January 2007, and to Society, which have been charged at market referenced rates since 1 July 2007. Profits arising on the provision of these services are valued on a 'look through' basis.

As the EEV methodology incorporates the future capitalised cost of these internal investment management services, the equivalent IFRS profits have been removed from the Investment management segment and are instead included in the results of the UK life and pensions segment on an EEV basis.

The capitalised value of future profits emerging from internal investment management services are therefore included in the embedded value and new business contribution calculations for the UK life and pensions segment. However, the historical profits which have emerged continue to be reported in the shareholders' equity of the Investment management segment on an IFRS basis. Since the look through into service companies includes only future profits and losses, current intra-group profits or losses must be eliminated from the closing embedded value and in order to reconcile the profits arising in the financial period within each segment with the net assets on the opening and closing balance sheet, a transfer of IFRS profits for the period from the UK life and pensions SNW is deemed to occur.

New business

New business premiums reflect income arising from the sale of new contracts during the reporting period and any changes to existing contracts, which were not anticipated at the outset of the contract.  

In-force business comprises previously written single premium, regular premium and recurrent single premium contracts. 

Appendices                                                                                                                             Page 72

III European Embedded Value methodology (continued)

Department of Work and Pensions rebates have not been treated as recurrent and are included in single premium new business when received.  

New business contribution arising from the new business premiums written during the reporting period has been calculated on the same economic and operating assumptions used in the embedded value at the end of the financial period. This has then been rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.

The present value of future new business premiums (PVNBP) has been calculated and expressed at the point of sale. The PVNBP is equivalent to the total single premiums plus the discounted value of regular premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the embedded value at the end of the financial period. The new business margin is defined as new business contribution at the end of the reporting period divided by the PVNBP. The premium volumes and projection assumptions used to calculate the PVNBP are the same as those used to calculate new business contribution. 

Projection assumptions

Cash flow projections are determined using realistic assumptions for each component of cash flow and for each policy group. Future economic and investment return assumptions are based on conditions at the end of the financial year. Future investment returns are projected by one of two methods. The first method is based on an assumed investment return attributed to assets at their market value. The second, which is used in the US, where the investments of that subsidiary are substantially all fixed interest, projects the cash flows from the current portfolio of assets and assumes an investment return on reinvestment of surplus cash flows. The assumed discount and inflation rates are consistent with the investment return assumptions.

Detailed projection assumptions including mortality, persistency, morbidity and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

All costs relating to the covered business, whether incurred in the covered business or elsewhere in the Group, are allocated to that business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

Tax

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with known or expected future changes. This includes tax which would arise if surplus assets within the covered business were eventually to be distributed. The future benefit of certain current UK tax rules on the apportionment of income has not been reflected. It is expected that these rules will be amended as part of the current consultation on life assurance taxation, such that the benefit is not expected to be realised. 

Allowance for risk

Aggregate risks within the covered business are allowed for through the following principal mechanisms:

i.  setting required capital levels with reference to both the Group's internal risk based capital models, and an assessment of the strength of regulatory reserves in the covered business;

ii.  allowing explicitly for the time value of financial options and guarantees within the Group's products; and

iii.  setting risk discount rates by deriving a Group level risk margin to be applied consistently to local risk free rates.

Required capital and free surplus

Regulatory capital for UK life and pensions business is provided by assets backing the with-profits business or by the SNW. The SNW comprises all shareholders' capital within Society, including those funds retained within the long term fund and the excess assets in LGPL (collectively Society shareholder capital). 

Society shareholder capital is either required to cover EU solvency margin or is free surplus as its distribution to shareholders is not restricted.

For UK with-profits business, the required capital is covered by the surplus within the with-profits part of the fund and no effect is attributed to shareholders except for the burn-through cost, which is described later. This treatment is consistent with the Principles and Practices of Financial Management for this part of the fund.

For UK non profit business, the required capital will be maintained at no less than the level of the EU minimum solvency requirement. This level, together with the margins for adverse deviation in the regulatory reserves, is, in aggregate, in excess of internal capital targets assessed in conjunction with the Individual Capital Assessment (ICA) and the with-profits support account.  

The initial strains relating to new non profit business, together with the related EU solvency margin, are supported by releases from existing non profit business and the Society shareholder capital. As a consequence, the writing of new business defers the release of capital to free surplus. The cost of holding required capital is defined as the difference between the value of the required capital and the present value of future releases of that capital. For new business, the cost of capital is taken as the difference in the value of that capital assuming it was available for release immediately and the present value of the future releases of that capital. As the investment return, net of tax, on that capital is less than the risk discount rate, there is a resulting cost of capital which is reflected in the value of new business.  

Appendices                                                                                                                             Page 73

III European Embedded Value methodology (continued)

For our UK managed pension funds business, management's capital policy has been used to set the level of required capital. The balance of net assets within the UK managed funds business is treated as free surplus.

For Legal & General America, the Company Action Level (CAL) of capital has been treated as required capital for modelling purposes. The CAL is the regulatory capital level at which the company would have to take prescribed action, such as submission of plans to the State insurance regulator, but would be able to continue operating on the existing basis. The CAL is currently twice the level of capital at which the regulator is permitted to take control of the business.

For Legal & General Netherlands, 100% of EU minimum solvency margin has been used for all EV modelling purposes for all products both with and without FOGs. The level of capital has been determined using risk based capital techniques. 

For Legal & General France, 100% of EU minimum solvency margin has been used for EV modelling purposes for all products both with and without FOGs. The level of capital has been determined using risk based capital techniques.  

The contribution from new business for our International businesses reflects an appropriate allowance for the cost of holding the required capital.

Financial options and guarantees

In the UK, all financial options and guarantees (FOGs) are within the UK life and pensions business. 

Under the EEV Principles an allowance for time value of FOGs is required where a financial option exists which is exercisable at the discretion of the policyholder. These types of option principally arise within the with-profits part of the fund and their time value is recognised within the with-profits burn-through cost described below. Additional financial options for non profit business exist only for a small amount of deferred annuity business where guaranteed early retirement and cash commutation terms apply when the policyholders choose their actual retirement date.

Further financial guarantees exist for non profit business, in relation to index-linked annuities where capped or collared restrictions apply. Due to the nature of these restrictions and the manner in which they vary depending on the prevailing inflation conditions, they are also treated as FOGs and a time value cost recognised accordingly.

The time value of FOGs has been calculated stochastically using a large number of real world economic scenarios derived from assumptions consistent with the deterministic EEV assumptions and allowing for appropriate management actions where applicable. The management action primarily relates to the setting of bonus rates. Future regular and terminal bonuses on participating business within the projections are set in a manner consistent with expected future returns available on assets deemed to back the policies within the stochastic scenarios.

In recognising the residual value of any projected surplus assets within the with-profits part of the fund in the deterministic projection, it is assumed that terminal bonuses are increased to exhaust all of the assets in the part of the fund over the future lifetime of the in-force with-profits policies. However, under stochastic modelling, there may be some extreme economic scenarios when the total projected assets within the with-profits part of the fund are insufficient to pay all projected policyholder claims and associated costs. The average additional shareholder cost arising from this shortfall has been included in the time value cost of options and guarantees and is referred to as the with-profits burn-through cost.

Economic scenarios have been used to assess the time value of the financial guarantees for non profit business by using the inflation rate generated in each scenario. The inflation rate used to project index-linked annuities will be constrained in certain real world scenarios, for example, where negative inflation occurs but the annuity payments do not reduce below pre-existing levels. The time value cost of FOGs allows for the projected average cost of these constrained payments for the index-linked annuities. It also allows for the small additional cost of the guaranteed early retirement and cash commutation terms for the minority of deferred annuity business where such guarantees have been written.

In the US, FOGs relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is based on the accumulated value of the contract including accrued interest. The crediting rates are discretionary but related to the accounting income for the amortising bond portfolio. The majority of the guaranteed minimum crediting rates are between 4% and 5%. The assets backing these contracts are invested in US dollar denominated fixed interest securities.

In the Netherlands, there are two types of guarantees which have been separately provided for: interest rate guarantees and maturity guarantees. Certain contracts provide an interest rate guarantee where there is a minimum crediting rate based on the higher of 1-year Euribor and the policy guarantee rate. This guarantee applies on a monthly basis. Certain unit linked contracts provide a guaranteed minimum value at maturity where the maturity amount is the higher of the fund value and a guarantee amount. The fund values for both these contracts are invested in Euro denominated fixed interest securities.

Appendices                                                                                                                             Page 74

III European Embedded Value methodology (continued)

In France, FOGs which have been separately provided for relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is the accumulated value of the contract including accrued bonuses. The bonuses are based on the accounting income for the amortising bond portfolios plus income and releases from realised gains on any equity type investments. Policy liabilities equal guaranteed surrender values. Local statutory accounting rules require the establishment of a specific liability when the accounting income for a company is less than 125% of the guaranteed minimum credited returns, although this has never been required. In general, the guaranteed annual bonus rates are between 0% and 4.5%. 

Risk discount rate

The risk discount rate (RDR) is a combination of the risk free rate and a risk margin, which reflects the residual risks inherent in the Group's covered businesses, after taking account of prudential margins in the statutory provisions, the required capital and the specific allowance for FOGs.

The risk margin has been determined based on an assessment of the Group's weighted average cost of capital (WACC). This assessment incorporates a beta for the Group, which measures the correlation of movements in the Group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index. 

The WACC is derived from the Group's cost of equity and debt, and the proportion of equity to debt in the Group's capital structure measured using market values. Each of these three parameters are forward looking, although informed by historic information. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the Company's beta. Forward-looking or adjusted betas make allowance for the observed tendency for betas to revert to 1 and therefore a weighted average of the historic beta and 1 tends to be a better estimate of the Company's beta for the future period. We have computed the WACC using an arithmetical average of forward-looking betas against the FTSE 100 index.  

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a rate of 28%. 

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital, the inherent strength of the Group's regulatory reserves and the explicit deduction for the cost of options and guarantees, is appropriate to reflect the risks within the covered business. For these results the risk margin has been maintained at 3.0%. 

A similar approach will be adopted when risk margins are reassessed in future periods.  

Key assumptions are summarised below:

Risk free rate	Derived from gross redemption yields on relevant gilt portfolio
Equity risk premium	3.0% (UK only)
Property risk premium	2.0% (UK only)
Risk margin	3.0%

Analysis of profit

Operating profit is identified at a level which reflects an assumed longer term level of investment return. 

Appendices                                                                                                                             Page 75

III European Embedded Value methodology (continued)

The contribution to operating profit in a period is attributed to four sources: 

i.  new business; 

ii.  the management of in-force business; 

iii.  development costs; and 

iv.  return on shareholder net worth. 

Further profit contributions arise from actual investment return differing from the assumed long term investment return (investment return variances), and from the effect of economic assumption changes.

The contribution from new business represents the value recognised at the end of each period from new business written in that period, after allowing for the actual cost of acquiring the business and of establishing the required technical provisions and reserves and after making allowance for the cost of capital. New business contributions are calculated using closing assumptions.

The contribution from in-force business is calculated using opening assumptions and comprises:

i.  expected return - the discount earned from the value of business in-force at the start of the year;

ii.  experience variances - the variance in the actual experience over the reporting period from that assumed in the value of business in-force as at the start of the year; and

iii.  operating assumption changes - the effects of changes in future assumptions, other than changes in economic assumptions from those used in valuing the business at the start of the year. These changes are made prospectively from the end of the year.

Development costs relate to investment in strategic systems and development capability.

The contribution from shareholder net worth comprises the increase in embedded value based on assumptions at the start of the year in respect of:

i.  the expected investment return on the Society shareholder capital (excluding the contingent loan); and

ii.  the unwind of the discount rate on the contingent loan between Society and LGPL.

Further profit contributions arise from actual investment returns differing from the assumed long term investment returns (investment return variances) and from the effect of economic assumption changes.

Investment return variances represent the effect of actual investment performance and changes to investment policy on SNW and VIF business from that assumed at the beginning of the period. 

Economic assumption changes comprise the effect of changes in economic variables on SNW and VIF business from that assumed at the beginning of the period, which are beyond the control of management, including associated changes to valuation bases to the extent that they are reflected in revised assumptions.

IV  IFRS basis of preparation

Basis of preparation

The Group's financial information for the period ending 30 June 2008 has been prepared in accordance with the Listing Rules of the Financial Services Authority. The Group's financial information has been prepared in accordance with the accounting policies that the Group expects to adopt for the 2008 year-end, which are consistent with the principal accounting policies which are set out in the Group's 2007 consolidated financial statements. The principal accounting policies adopted by the Group for the 2007 year-end, as set out in the Group's 2007 consolidated financial statements, were consistent with IFRSs issued by the IASB as adopted by the European Commission (EC) for use in the European Union (EU). The Group has adopted IAS 34 'Interim Financial Reporting' in preparing its 2008 half-year report. 

The accounting policies have been consistently applied to all periods presented.

Use of estimates

The preparation of the financial information includes the use of estimates and assumptions that affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial information. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly.  

Appendices                                                                                                                             Page 76

V  Statement of Directors' Responsibilities (extracted from the Half-year Report)

We confirm to the best of our knowledge that: 

• the condensed set of financial statements, on pages 22 to 35 of the Half-year Report, which has been prepared in accordance with IAS 34 as adopted by the European Union gives a fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 

• the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely important events that have occurred during the period and their impact on the condensed set of financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year; and 

• the interim management report includes a fair review of material related party transactions and any material changes in the related party transactions described in the last annual report. 

• the European Embedded Value basis consolidated income statement, the consolidated statement of recognised income and expense and the consolidated balance sheet and associated notes have been prepared on the European Embedded Value basis as set out in Notes 1 and 14 of the half-year report. 

The directors of Legal & General Group Plc are listed in the Legal & General Group Plc Annual Report for 31 December 2007. A list of current directors is maintained on the Legal & General Group Plc website: www.legalandgeneralgroup.com.

By order of the Board

Tim Breedon                                                Andrew Palmer

Group Chief Executive                              Group Director (Finance)

4 August 2008                                              4 August 2008

Appendices                                                                                                                             Page 77

VI  Independent review report to Legal & General Group Plc (extracted from the Half-year Report)

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 30 June 2008, which comprises the consolidated income statement, the consolidated balance sheet as at 30 June 2008, the consolidated statement of recognised income and expense and associated notes prepared on the European Embedded Value ('EEV') basis ('the supplementary financial statements'), and the condensed consolidated income statement, condensed balance sheet as at 30 June 2008, the consolidated statement of recognised income and expense, the condensed consolidated cash flow statement and associated notes, prepared in accordance with the accounting policies set out in Note 20 ('the condensed set of financial statements', together 'the interim financial information'). We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial information.

Directors' responsibilities

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 Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 20, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

The directors are responsible for preparing the supplementary financial statements in accordance with the EEV basis set out in Notes 1 and 14.

Our responsibility

Our responsibility on the condensed set of financial statements in the half-yearly financial report is to express to the company a conclusion based on our review. This report on the condensed set of financial statements, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose.

Our responsibility on the supplementary financial statements in the half-yearly financial report is to express to the company a conclusion based on our review. This report on the supplementary financial statements, including the conclusion, has been prepared for and only for the company in accordance with our letter of engagement dated 24 July 2008 and for no other purpose.

We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. 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. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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.

Conclusion

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 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority; and,

• the supplementary financial statements in the half-yearly financial report for the six months ended 30 June 2008 are not prepared, in all material respects, in accordance with the EEV basis set out in Notes 1 and 14.

PricewaterhouseCoopers LLP

Chartered Accountants

4 August 2008

London

Notes:

(a) The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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