L&G 2008 Final Results Part 3

RNS Number : 4204P
Legal & General Group Plc
25 March 2009
 



International Financial Reporting Standards





Page 29

Operating profit income statement








For the year ended 31 December 2008




























2008

2007








Notes


£m

£m

 

 

 

 

 

 

 

 

 

 











 

From continuing operations










Risk







3.01(a)


(603)

104 

Savings






3.01(b)


66 

112 

Investment management






3.02


165 

143 

International






3.03


59 

86 

Group capital and financing





3.04


124 

213 

 

 

 

 

 

 

 

 

 

 

 












 

Operating (loss)/profit








(189)

658 

Variation from longer term investment return



3.06


(1,239)

(90)

Release of 1996 Sub-fund








321 

Property losses attributable to minority interests





(63)

(6)

 

 

 

 

 

 

 

 

 

 

 











 

(Loss)/profit from continuing operations before tax attributable to equity holders of the Company


(1,491)

883 

Tax credit/(expense) attributable to equity holders of the Company


3.07


361 

(165)

 

 

 

 

 

 

 

 

 

 

 












 

(Loss)/profit from ordinary activities after tax






(1,130)

718 

 

Loss attributable to minority interests




3.15


63 

 

 

 

 

 

 

 

 

 












 

(Loss)/profit attributable to equity holders of the Company




(1,067)

724 

 

 

 

 

 

 

 

 

 

 
































p  

p  

 

 

 

 

 

 

 

 

 

 

 











 

Earnings per share






3.08




Based on operating (loss)/profit from continuing operations after tax attributable to equity holders



of the Company








(2.18)

7.17 

Based on (loss)/profit attributable to equity holders of the Company




(17.88)

11.24 























 

Diluted earnings per share






3.08




Based on operating (loss)/profit from continuing operations after tax attributable to equity holders



of the Company








(2.18)

7.13 

Based on (loss)/profit attributable to equity holders of the Company




(17.88)

11.18 

 

 

 

 

 

 

 

 

 

 

 












This supplementary operating profit information provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business. Supplementary IFRS operating profit is one of the Group's key performance indicators.

New IFRS 8 segmentation has been adopted for 2008 to further improve shareholders' understanding of the Group's performance. The comparatives have been reclassified to reflect these changes. Appendix I provides a reconciliation of this segmentation basis with that provided in prior periods.


Operating profit for the Risk segment represents the net capital invested/released from the non profit Risk businesses (individual and group protection, and individual and bulk purchase annuities) and the operating profit of our General insurance business. This incorporates the total investment return on assets backing the liabilities of the non profit Risk businesses which in 2008 includes £650m of additional reserves for non profit annuity credit default, bringing the total reserve to £1.2bn. General insurance operating profit includes a longer term expected investment return on shareholders' funds.


Operating profit for the Savings segment represents the net capital invested/released from the non profit Savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer and the operating profit of our core retail investments business. 


Operating profit for the Investment management and International segments incorporates a longer term expected investment return on the shareholders' funds within the Investment management and 
Netherlands' operations.

Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a quarterly basis.























International Financial Reporting Standards





Page 30

Consolidated income statement








For the year ended 31 December 2008




























2008

2007








Notes


£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Revenue










Gross written premiums






3.09


5,895 

4,793 

Outward reinsurance premiums







(569)

(517)

Net change in provision for unearned premiums





 

 

 

 

 

 

 

 

 

 

 












 

Net premiums earned








5,327 

4,283 

Fees from fund management and investment contracts




740 

640 

Investment return








(37,749)

13,225 

Operational income








38 

54 

 

 

 

 

 

 

 

 

 

 

 












 

Total revenue








(31,644)

18,202 

 

 

 

 

 

 

 

 

 

 

 












 

Expenses










Claims and change in insurance liabilities






3,287 

4,467 

Reinsurance recoveries








(587)

(345)

 

 

 

 

 

 

 

 

 

 

 












Net claims and change in insurance liabilities






2,700 

4,122 

Change in provisions for investment contract liabilities





(33,313)

11,999 

Acquisition costs








776 

848 

Finance costs








379 

214 

Other expenses








773 

662 

 

Transfers from unallocated divisible surplus1






 

(806)

 

(438)

 

 

 

 

 

 

 

 

 

 

 












 

Total expenses








(29,491)

17,407 

 

 

 

 

 

 

 

 

 

 

 












(Loss)/profit before income tax 







(2,153)

795 

Income tax credit attributable to policyholder returns





662 

88 

 

 

 

 

 

 

 

 

 

 

 












 

(Loss)/profit from continuing operations before income tax attributable to equity holders of the Company

(1,491)

883 





















 

 

Total income tax credit/(expense)






1,023 

(77)

Income tax credit attributable to policyholder returns





(662)

(88)










 

 












Income tax credit/(expense) attributable to equity holders


3.07


361 

(165)

 

 

 

 

 

 

 

 

 

 

 












 

(Loss)/profit from ordinary activities after income tax





(1,130)

718 

 

 

 

 

 

 

 

 

 

 

 























Attributable to:










Minority interests








(63)

(6)

Equity holders of the Company







(1,067)

724 

 

 

 

 

 

 

 

 

 

 

 























Dividend distributions to equity holders of the Company during the year



367 

369 

Dividend distributions to equity holders of the Company proposed after the year end


120 

247 

 

 

 

 

 

 

 

 

 

 

 
































p  

p  

 

 

 

 

 

 

 

 

 

 

 












 

Earnings per share










Based on (loss)/profit attributable to equity holders of the Company


3.08


(17.88)

11.24 























 

Diluted earnings per share










Based on (loss)/profit attributable to equity holders of the Company


3.08


(17.88)

11.18 

 

 

 

 

 

 

 

 

 

 

 












1. 2007 includes £321m release of 1996 Sub-fund.






























International Financial Reporting Standards





Page 31

Consolidated balance sheet








As at 31 December 2008





























2008

2007








Notes


£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Assets










Investment in associates








14 

14 

Plant and equipment








75 

79 

Investment property








3,969 

5,969 

Financial investments






3.11


234,514 

261,718 

Reinsurers' share of contract liabilities






1,997 

1,530 

Purchased interest in long term businesses and other intangible assets



227 

19 

Deferred acquisition costs








2,112 

1,696 

Deferred tax asset








988 

Income tax recoverable








Other assets








2,135 

1,519 

Cash and cash equivalents







10,688 

8,737 

 

 

 

 

 

 

 

 

 

 

 












 

Total assets








256,727 

281,285 

 

 

 

 

 

 

 

 

 

 

 





















 

Equity










Share capital








147 

157 

Share premium account







936 

927 

Employee scheme shares








(46)

(42)

Capital redemption and other reserves






(42)

59 

Retained earnings








2,593 

4,345 

 

 

 

 

 

 

 

 

 

 

 











 

Shareholders' equity






3.13


3,588 

5,446 

Minority interests






3.15


144 

178 

 

 

 

 

 

 

 

 

 

 












 

Total equity






3.16


3,732 

5,624 

 

 

 

 

 

 

 

 

 

 

 























 

Liabilities










Subordinated borrowings






3.14


1,657 

1,461 









 

 

Participating insurance contracts





3.17


9,384 

11,663 

Participating investment contracts




3.18


6,992 

7,462 

Unallocated divisible surplus







913 

1,721 

Value of in-force non-participating contracts






(171)

(276)










 

 












 

Participating contract liabilities







17,118 

20,570 





















 

 

Non-participating insurance contracts




3.17


25,841 

22,873 

Non-participating investment contracts




3.18


196,698 

224,906 










 

 












 

Non-participating contract liabilities






222,539 

247,779 























Senior borrowings






3.14


2,314 

1,327 

Provisions 








741 

742 

Deferred tax liabilities








259 

296 

Income tax liabilities








113 

Payables and other financial liabilities






6,613 

1,609 

Other liabilities








997 

852 

Net asset value attributable to unit holders






752 

912 

 

 

 

 

 

 

 

 

 

 

 












 

Total liabilities








252,995 

275,661 

 

 

 

 

 

 

 

 

 

 

 























 

Total equity and liabilities








256,727 

281,285 

 

 

 

 

 

 

 

 

 

 

 


































International Financial Reporting Standards





Page 32

Consolidated statement of recognised income and expense





For the year ended 31 December 2008




























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Exchange differences on translation of overseas operations




139 

Actuarial gains/(losses) on defined benefit pension schemes




18 

(40)

 

Actuarial (gains)/losses on defined benefit pension schemes transferred to unallocated divisible surplus

(8)

16 

Net change in financial investments designated as available-for-sale



(56)

 

 

 

 

 

 

 

 

 

 

 












 

Income/(expense) recognised directly in equity, net of tax




93 

(19)

(Loss)/profit from ordinary activities after income tax





(1,130)

718 

 

 

 

 

 

 

 

 

 

 

 












 

Total recognised income and expense






(1,037)

699 

 

 

 

 

 

 

 

 

 

 

 























Attributable to:










 

Minority interests








(63)

(6)

 

Equity holders of the Company







(974)

705 

 

 

 

 

 

 

 

 

 

 

 























International Financial Reporting Standards





Page 33

Consolidated cash flow statement








For the year ended 31 December 2008




























2008

2007








Notes


£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Cash flows from operating activities








 

(Loss)/profit from ordinary activities after income tax





(1,130)

718 

 

Adjustments for non cash movements in net (loss)/profit for the period






Realised and unrealised losses/(gains) on financial investments and investment properties


48,376 

(4,862)

Investment income








(10,086)

(7,797)

Interest expense








379 

214 

Income tax (credit)/expense






(1,023)

77 

Other adjustments








77 

46 

 

Net decrease/(increase) in operational assets







Investments designated as held for trading or fair value through profit or loss



2,161 

(8,322)

Investments designated as available-for-sale





(93)

(98)

Other assets








(1,702)

(230)

 

Net (decrease)/increase in operational liabilities







Insurance contracts








(1,479)

152 

Transfer from unallocated divisible surplus






(798)

(455)

Investment contracts








(43,485)

17,686 

Value of in-force non-participating contracts






105 

115 

Other liabilities








541 

(73)

 

 

 

 

 

 

 

 

 

 

 












 

Cash used in operations








(8,157)

(2,829)

Interest paid








(377)

(214)

Interest received








5,214 

4,202 

Income tax paid








(208)

(244)

Dividends received








4,614 

3,312 

 

 

 

 

 

 

 

 

 

 

 












 

Net cash flows from operating activities






1,086 

4,227 

 

 

 

 

 

 

 

 

 

 

 












 

Cash flows from investing activities








Net acquisition of plant and equipment






(14)

(58)

Acquisitions (net of cash acquired)




3.10


1,004 

 

 

 

 

 

 

 

 

 

 

 












 

Net cash flows from investing activities






990 

(58)

 

 

 

 

 

 

 

 

 

 

 












 

Cash flows from financing activities








Dividend distributions to ordinary equity holders of the Company during the year



(367)

(369)

Proceeds from issue of ordinary share capital






10 

Purchase of employee scheme shares






(9)

(5)

Purchase of shares under share buyback programme



3.12


(523)

(320)

Proceeds from borrowings








3,568 

1,948 

Repayment of borrowings








(2,960)

(1,637)

 

 

 

 

 

 

 

 

 

 

 












 

Net cash flows from financing activities






(281)

(379)

 

 

 

 

 

 

 

 

 

 

 












Net increase in cash and cash equivalents






1,795 

3,790 

Exchange gains on cash and cash equivalents





156 

17 

Cash and cash equivalents at 1 January






8,737 

4,930 

 

 

 

 

 

 

 

 

 

 

 












 

Cash and cash equivalents at 31 December





10,688 

8,737 

 

 

 

 

 

 

 

 

 

 

 












The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term funds.























International Financial Reporting Standards





Page 34

Notes to the Financial Statements








3.01  Risk and Savings operating profit


















(a)  Risk operating profit







2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Non profit Risk1








(602)

184 

General insurance








(2)

(67)

Other2








(13)

 

 

 

 

 

 

 

 

 

 

 












Total Risk operating (loss)/profit







(603)

104 

 

 

 

 

 

 

 

 

 

 












1. Includes £650m of additional reserves for non profit annuity credit default, bringing the total reserve to £1.2bn. Non profit Risk includes individual and group protection, and individual and bulk purchase annuities.

2. Other comprises estate agencies and housing related business conducted through our regulated mortgage network. It also includes Nationwide Life Risk business and business unit costs of £3m (2007: £4m) allocated to the Risk business.























(b)  Savings operating profit







2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Non profit Savings1








(20)

With-profits business2








107 

106 

 

 

 

 

 

 

 

 

 

 

 




















87 

113 

Core retail investments








12 

Other3








(21)

(13)

 

 

 

 

 

 

 

 

 

 

 












Total Savings operating profit







66 

112 

 

 

 

 

 

 

 

 

 

 

 












1. Non profit Savings businesses includes non profit investment bonds and non profit pensions (including SIPPs).

2. With-profits business operating profit is the shareholders' share of policyholder bonuses.

3. Other includes Suffolk Life, operations in Ireland, Nationwide Life Savings business and business unit costs of £3m (2007: £4m), allocated to the Savings business.












(c)  Analysis of net capital released from Society non profit business













2008

2007








Notes


£m

£m

 

 

 

 

 

 

 

 

 

 

 












Non profit business operating (loss)/profit comprises:







Expected capital release on existing business




453 

406 


New business strain







(334)

(344)


Experience variances




3.01(d)


(315)

115 


Changes to non-economic assumptions



3.01(e)


(660)

(137)


Changes to FSA reporting and capital rules




37 


Movements in non-cash items




3.01(f)


380 

61 


Other








31 

(4)

 

 

 

 

 

 

 

 

 

 

 





















(445)

134 


Tax gross-up








(177)

57 

 

 

 

 

 

 

 

 

 

 

 





















(622)

191 

 

 

 

 

 

 

 

 

 

 

 























Attributable to:










Non profit Risk businesses








(602)

184 

Non profit Savings businesses







(20)

 

 

 

 

 

 

 

 

 

 

 












Non profit business operating (loss)/profit represents the capital and profit generated in the period from the in-force non profit business if the embedded value assumptions are borne out in practice. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.  

Both new business strain and expected capital release exclude required solvency margin from the liability calculation as is required by the ABI SORP. On average, the capital invested in new non profit business, including solvency margin, is repaid from product cash flows in approximately 7 years.  























International Financial Reporting Standards





Page 35

Notes to the Financial Statements








3.01  Risk and savings operating profit (continued)

















An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:












(d)  Experience variances


















2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Persistency








10 

 

Mortality/morbidity








25 

22 

 

Expenses








11 

(13)

 

BPA data loading








22 

 

Project and development costs1







(95)

(44)

 

Investment2








(296)

134 

Other









11 

 

 

 

 

 

 

 

 

 

 

 





















(315)

115 

 

 

 

 

 

 

 

 

 

 

 












1. 2008 includes project and development costs of £95m relating to continued investment in internal and other customer facing systems.

2. 2008 includes £296m of negative investment variances, of which more than half arises from the deferral of tax relief on expenses as a result of movements in investment markets and is fully offset by a movement in the deferred tax asset element of non cash items. The remainder relates to the annuity business where the valuation basis was strengthened due to the reduction in gilt yields.























(e)  Changes to valuation assumptions

















2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Persistency








12 

Mortality/morbidity1








(26)

(121)

Expenses








(57)

(37)

Short term default allowance2







(650)

Other









61 

21 

 

 

 

 

 

 

 

 

 

 

 





















(660)

(137)

 

 

 

 

 

 

 

 

 

 

 












1. 2007 includes £(214)m relating to the strengthening of assumptions for annuitant longevity on existing business, offset by £64m relating to changes to the assumptions for the proportions married.

2. 2008 includes a £650m increase in the non profit annuity credit default reserve. The tax effect of the short term default allowance is included in the deferred tax element of non-cash items.























(f)  Movements in non-cash items

















2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Deferred tax








413 

(30)

Deferred acquisition costs








20 

114 

Deferred income liabilities








30 

(72)

Other









(83)

49 

 

 

 

 

 

 

 

 

 

 

 





















380 

61 

 

 

 

 

 

 

 

 

 

 

 


































 

 

 

 

 

 

 

 

 

 

 













International Financial Reporting Standards





Page 36

Notes to the Financial Statements








3.02  Investment management operating profit


























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Managed pension funds








117 

103 

Private equity








(1)

Property








Other income1








52 

38 

 

 

 

 

 

 

 

 

 

 

 












Legal & General Investment Management






172 

147 

 

Institutional unit trusts2








(7)

(4)

 

 

 

 

 

 

 

 

 

 

 












Total Investment management operating profit





165 

143 

 

 

 

 

 

 

 

 

 

 

 












1. Other income includes £35m of profits arising from the provision of investment management services charged to the Group's Risk and 



  Savings businesses (2007: £23m).










2. Investment management operating profit excludes core retail investments, of £nil (2007: £12m), which has been disclosed as part of 



  Savings. The comparatives have been reclassified accordingly.

















3.03  International operating profit




























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

USA









39 

59 

Netherlands







11 

 

France








14 

16 

 

 

 

 

 

 

 

 

 

 

 












Total International operating profit






59 

86 

 

 

 

 

 

 

 

 

 

 

 












Exchange rates are provided in Note 3.24.



















3.04  Group capital and financing operating profit


























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Investment return1








 

351 

 

387 

 

Interest expense2








 

(198)

 

(179)

 

Investment expenses








 

(5)

 

(5)

Unallocated corporate expenses







 

(9)

 

(11)

 

Defined benefit pension scheme3







 

(15)

 

21 

 

 

 

 

 

 

 

 

 

 

 











Total Group capital and financing operating profit




124 

213 

 

 

 

 

 

 

 

 

 

 

 












1. The longer term expected investment return of £351m (2007: £387m) reflects an average return of 7% (2007: 7%) on the average balance of invested assets held within Group capital and financing (including interest bearing intra-group balances) calculated on a quarterly basis. The invested assets (including interest bearing intra-group balances) held within Group capital and financing amounted to £4.8bn at 31 December 2008 (2007: £5.7bn).

2. Interest expense excludes interest on non recourse financing (see Note 3.14).

3. The defined benefit pension scheme (expense)/income includes the actuarial gains and losses arising on annuity assets held by the schemes that have been purchased from Legal & General Assurance Society Limited. Under IFRS, these annuity assets cannot be classified as plan assets in accordance with IAS 19 and so the associated actuarial gains and losses cannot be taken to the statement of recognised income and expense (2008 expense: £15m; 2007 income: £4m). The 2007 comparative also includes income of £17m arising from a pension deficit reduction payment which was charged to the operating segments in 2008.






















International Financial Reporting Standards





Page 37

Notes to the Financial Statements







3.05  General insurance operating profit, underwriting result and combined operating ratios


















Operating

Under-

Combined

Operating

Under-

Combined







(loss)/

writing

operating

(loss)/

writing

operating






profit

result

ratio

profit

result

ratio






2008

2008

2008

2007

2007

2007






£m

£m

%

£m

£m

%

 

 

 

 

 

 

 

 

 

 











From continuing operations










Household1




(12)

(26)

110 

(86)

(101)

145 

Other business2




10 

86 

19 

15 

74 

 

 

 

 

 

 

 

 

 

 

 

















(2)

(18)

108 

(67)

(86)

131 

 

 

 

 

 

 

 

 

 

 

 












1. Household business in 2007 includes a loss of £76m net of reinsurance as a result of flood related claims in June and July 2007.

2. Other business in 2007 includes £6m profit following the withdrawal from the healthcare business in the first quarter.












The combined operating ratio is:














 

Net incurred claims

+

Expenses + Net commission

 

x 100

 

Net earned premiums

Net written premiums

 






































3.06  Variation from longer term investment return


























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












General insurance








(29)

(9)

Investment management








Netherlands








(11)

Group capital and financing1







(1,221)

(74)

 

 

 

 

 

 

 

 

 

 

 












Total variation from longer term investment return





(1,239)

(90)

 

 

 

 

 

 

 

 

 

 

 












Investment return is allocated to operating profit by reference to a longer term rate of investment return for the respective invested funds. The difference between the amount allocated to operating profit and actual investment return is the variation from longer term investment return analysed above.

1. Comprises £(1,096)m (2007: £(75)m) relating to Society shareholder capital and £(125)m (2007: £1m) predominantly relating to the Group's treasury function.























International Financial Reporting Standards





Page 38

Notes to the Financial Statements








3.07  Analysis of tax
















Profit/(loss)

Tax

Profit/(loss)

Tax








before tax

(expense)/

before tax

(expense)/









credit


credit








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

From continuing operations










Risk







(603)

164 

104 

(34)

Savings






66 

(7)

112 

(33)

Investment management






165 

(50)

143 

(43)

International






59 

(20)

86 

(25)

Group capital and financing





124 

(28)

213 

(61)

 

 

 

 

 

 

 

 

 

 

 












 

Operating (loss)/profit






(189)

59 

658 

(196)

Variation from longer term investment return




(1,239)

302 

(90)

31 

Release of 1996 Sub-fund






321 

Property losses attributable to minority interests



(63)

(6)

 

 

 

 

 

 

 

 

 

 

 












 

(Loss)/profit from continuing operations before tax/Tax



(1,491)

361 

883 

(165)

 

 

 

 

 

 

 

 

 

 

 












Only the element of total tax attributable to equity holders' profit/loss is shown explicitly in the analysis above; the tax attributable to policyholder returns is included within expenses in the operating profit income statement.

No deferred tax is provided at the incremental rate on the undeclared surplus of £527m (2007: £2,047m) in Society's LTF represented by the Shareholder Retained Capital (SRC), on the grounds that, at the balance sheet date, no obligation to make a declaration of surplus actually exists and there is no expectation that such a declaration will occur. The maximum amount of incremental tax which would crystallise on such a declaration of surplus is estimated to be £nil (2007: £nil).


















International Financial Reporting Standards





Page 39

Notes to the Financial Statements








3.08  Earnings per share









(a)  Earnings per share























Loss

Tax

Loss

Earnings

Profit

Tax

Profit

Earnings




before tax

credit

after tax

per share

before tax

(expense)/ 

after tax

per share









credit






2008

2008

2008

2008

2007

2007

2007

2007




£m

£m

£m

p

£m

£m

£m

p

 

 

 

 

 

 

 

 

 

 

 












Operating (loss)/profit from continuing








operations


(189)

59 

(130)

(2.18)

658 

(196)

462 

7.17 

Variation from longer term investment return

(1,239)

302 

(937)

(15.70)

(90)

31 

(59)

(0.91)

Release of 1996 Sub-fund


-

321 

321 

4.98 

 

 

 

 

 

 

 

 

 

 

 












Earnings per share based on (loss)/profit 








  attributable to equity holders

(1,428)

361 

(1,067)

(17.88)

889 

(165)

724 

11.24 

 

 

 

 

 

 

 

 

 

 

 























(b)  Diluted earnings per share








(i)  Based on operating (loss)/profit from continuing operations after tax
































Loss

Number

Earnings

Profit

Number

Earnings






after tax

of shares1

per share

after tax

of shares1

per share






2008

2008

2008

2007

2007

2007






£m

m

p

£m

m

p

 

 

 

 

 

 

 

 

 

 

 












Operating (loss)/profit from continuing operations after tax

(130)

5,968 

(2.18)

462 

6,444 

7.17 

Net shares under options allocable for no further consideration2

22 

-

34 

(0.04)

 

 

 

 

 

 

 

 

 

 

 












 

Diluted earnings per share




(130)

5,990 

(2.18)

462 

6,478 

7.13 

 

 

 

 

 

 

 

 

 

 

 























(ii)  Based on (loss)/profit attributable to equity holders






















Loss

Number

Earnings

Profit

Number

Earnings






after tax

of shares1

per share

after tax

of shares1

per share






2008

2008

2008

2007

2007

2007






£m

m

p

£m

m

p

 

 

 

 

 

 

 

 

 

 

 












(Loss)/profit attributable to equity holders of the Company

(1,067)

5,968 

(17.88)

724 

6,444 

11.24 

Net shares under options allocable for no further consideration2

22 

-

34 

(0.06)

 

 

 

 

 

 

 

 

 

 

 












 

Diluted earnings per share




(1,067)

5,990 

(17.88)

724 

6,478 

11.18 

 

 

 

 

 

 

 

 

 

 

 












The number of shares in issue at 31 December 2008 was 5,861,627,994 (2007: 6,296,321,160).




1. Weighted average number of shares.  
2. Net shares under options allocable for no further consideration are anti-dilutive and have therefore been excluded from the diluted earnings per share calculation.


















International Financial Reporting Standards





Page 40

Notes to the Financial Statements








3.09  Gross written premiums




























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

From continuing operations










Risk











Non-participating Risk business







4,038 

3,105 

General insurance










- Household








267

255 

- Other business








29

52 

 

 

 

 

 

 

 

 

 

 

 












 

Total Risk








4,334 

3,412 












Savings










Non-participating Savings business






49 

47 

Participating business








551

382 

 

 

 

 

 

 

 

 

 

 

 












 

Total Savings








600 

429 












 

International










USA









397

345 

Netherlands








278

259 

France








286

348 

 

 

 

 

 

 

 

 

 

 

 












 

Total International








961 

952 

 

 

 

 

 

 

 

 

 

 

 












 

Total gross written premiums







5,895 

4,793 

 

 

 

 

 

 

 

 

 

 

 


































3.10  Acquisitions




















Total net







Date of

Cash

Transaction

Total

assets







acquisition

paid

costs

cost

acquired

Company name




Notes


£m 

£m 

£m 

£m 

 

 

 

 

 

 

 

 

 

 

 












Nationwide Life Limited




(i)

31/01/08

250 

252 

252 

Nationwide Unit Trust Managers Limited


(ii)

31/01/08

49 

50 

50 

Suffolk Life Group Plc




(iii)

06/05/08

62 

63 

63 

 

 

 

 

 

 

 

 

 

 

 












The Group has acquired 100% of the shares of each company. No goodwill has arisen in respect of these acquisitions.












(i) Nationwide Life Limited
The values of the purchased interest in long term business on acquired insurance and investment contracts have been calculated using discounted cash flow methodology. These were recognised on the balance sheet at £127m and £2m gross of tax respectively (with corresponding deferred tax liabilities of £19m and £1m). These intangible assets will be amortised in line with the expected emergence of profit from the business (over 12 years). Since 31 January 2008, Nationwide Life Limited has contributed a profit of £26m to consolidated loss before tax before amortisation of the purchased interest in long term business.


(ii) Nationwide Unit Trust Managers Limited
The value of the purchased interest in long term business on acquired investment contracts has been calculated using discounted cash flow methodology and recognised on the balance sheet at £29m gross of tax, with a corresponding deferred tax liability of £8m. This intangible asset will be amortised in line with the expected emergence of profit from the business (over 10 years). Since 31 January 2008, Nationwide Unit Trust Managers Limited has contributed a loss of £3m to consolidated loss before tax before amortisation of the purchased interest in long term business.


(iii) Suffolk Life Group Plc
The value of the purchased interest in long term business on acquired investment contracts has been calculated using discounted cash flow methodology and recognised on the balance sheet at £47m gross of tax, with a corresponding deferred tax liability of £13m. The value of the acquired customer relationship intangible has been calculated using the discounted cash flow methodology and recognised on the balance sheet at £15m gross of tax, with a corresponding deferred tax liability of £3m. The intangible assets will be amortised in line with the expected emergence of profit from the business (over 15 years). Since 6 May 2008, Suffolk Life Group Plc has contributed a profit of £2m to consolidated loss before tax before amortisation of the purchased intangibles.


















International Financial Reporting Standards





Page 41

Notes to the Financial Statements








3.10  Acquisitions (continued)



















(i) Nationwide Life Limited - Assets and liabilities at date of acquisition












Book value

Adjustments

Fair value









£m 

£m 

£m 

 

 

 

 

 

 

 

 

 

 

 












Assets










Purchased interest in long term businesses and other intangible assets


129 

129 

Financial investments







1,276 

1,276 

Reinsurers' share of contract liabilities





286 

286 

Deferred acquisition costs







15 

(15)

Income tax recoverable







15 

(15)

Other assets







Cash and cash equivalents





599 

599 

 

 

 

 

 

 

 

 

 

 

 












Total assets







2,195 

99 

2,294 

 

 

 

 

 

 

 

 

 

 

 













































Liabilities










Non-participating contract liabilities





1,221 

1,221 

Tax liabilities







15 

23 

Other liabilities







801 

(3)

798 

 

 

 

 

 

 

 

 

 

 

 












Total liabilities







2,030 

12 

2,042 

 

 

 

 

 

 

 

 

 

 

 























Net assets







165 

87 

252 

 

 

 

 

 

 

 

 

 

 

 























Adjustments include the recognition of acquired intangibles and application of consistent Group accounting policies.













(ii) Nationwide Unit Trust Managers Limited - Assets and liabilities at date of acquisition











Book value

Adjustments

Fair value









£m 

£m 

£m 

 

 

 

 

 

 

 

 

 

 

 












Assets










Purchased interest in long term businesses and other intangible assets


29 

29 

Deferred acquisition costs







29 

(29)

Other assets







70 

70 

Cash and cash equivalents





30 

30 

 

 

 

 

 

 

 

 

 

 

 












Total assets







129 

129 

 

 

 

 

 

 

 

 

 

 

 













































Liabilities










Provisions







14 

14 

Deferred income liabilities







(1)

Tax liabilities







10 

Other liabilities







55 

55 

 

 

 

 

 

 

 

 

 

 

 












Total liabilities







75 

79 

 

 

 

 

 

 

 

 

 

 

 























Net assets







54 

(4)

50 

 

 

 

 

 

 

 

 

 

 

 












Adjustments include the recognition of acquired intangibles and application of consistent Group accounting policies.
























International Financial Reporting Standards





Page 42

Notes to the Financial Statements








3.10  Acquisitions (continued)



















(iii) Suffolk Life Group Plc - Assets and liabilities at date of acquisition












Book value

Adjustments

Fair value









£m 

£m 

£m 

 

 

 

 

 

 

 

 

 

 

 












Assets










Purchased interest in long term businesses and other intangible assets


62 

62 

Plant and equipment







Investment property







503 

503 

Financial investments







1,763 

(2)

1,761 

Income tax recoverable







Other assets







60 

60 

Cash and cash equivalents





738 

740 

 

 

 

 

 

 

 

 

 

 

 












Total assets







3,066 

62 

3,128 

 

 

 

 

 

 

 

 

 

 

 













































Liabilities










Non-participating contract liabilities





2,893 

2,893 

Senior borrowings







153 

153 

Tax liabilities







16 

16 

Other liabilities







 

 

 

 

 

 

 

 

 

 

 












Total liabilities







3,049 

16 

3,065 

 

 

 

 

 

 

 

 

 

 

 























Net assets







17 

46 

63 

 

 

 

 

 

 

 

 

 

 

 












Adjustments include the recognition of acquired intangibles and application of consistent Group accounting policies.
























International Financial Reporting Standards





Page 43

Notes to the Financial Statements








3.11  Financial investments




























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Equities








107,408 

149,567 

Unit trusts








5,456 

4,659 

Debt securities








112,013 

104,087 

Accrued interest








1,607 

1,363 

Derivative assets1








6,130 

694 

Loans and receivables








1,900 

1,348 

 

 

 

 

 

 

 

 

 

 

 





















234,514 

261,718 

 

 

 

 

 

 

 

 

 

 

 












1. Derivative assets include £3,765m (2007: £455m) held on behalf of unit linked policyholders. Non unit linked derivative assets have increased, primarily as a result of sterling interest rate hedging and the acquisition of assets backing guaranteed equity bond contacts with Nationwide Life. 























3.12  Share capital and share premium

























2008











Number of

2008

2007

Authorised share capital







shares

£m

£m

 

 

 

 

 

 

 

 

 

 

 












At 31 December: ordinary shares of 2.5p each


9,200,000,000 

230 

230 

 

 

 

 

 

 

 

 

 

 

 































Share

Share









 

Number of

capital

premium

 

Issued share capital, fully paid






 

shares

£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

As at 1 January 2008






6,296,321,160 

157 

927 

 

Shares cancelled under share buyback programme1



(449,891,914)

(11)

Options exercised under share option schemes







- Executive share option scheme 






640,846 

- Savings related share option scheme




14,557,902 

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December 2008






5,861,627,994 

147 

936 

 

 

 

 

 

 

 

 

 

 

 





















Share

Share









Number of

capital

premium

Issued share capital, fully paid






shares

£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

As at 1 January 2007






6,532,261,961 

163 

923 

 

Shares cancelled under share buyback programme1



(241,207,267)

(6)

Options exercised under share option schemes







- Executive share option scheme






1,961,215 

- Savings related share option scheme 





3,305,251 

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December 2007






6,296,321,160 

157 

927 

 

 

 

 

 

 

 

 

 

 

 












1. During the year, 449,891,914 shares (2007: 241,207,267 shares) were repurchased and cancelled under the share buyback programme 

representing 7.1% (2007: 3.7%) of opening issued share capital, at a cost of £523m including expenses (2007: £320m). 















There is one class of ordinary shares. 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. 























International Financial Reporting Standards





Page 44

Notes to the Financial Statements








3.13  Segmental analysis of shareholders' equity


























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk











 

General insurance








99 

114 

 

Other









(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Risk 








101 

113 












Savings










 

Core retail investments








59 

39 

 

Other









14 

14 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Savings








 

73 

 

53 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 












Investment management








322 

310 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 












 

International










 

USA









932 

643 

 

Netherlands








135 

112 

 

France








193 

130 

 

Emerging markets








12 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total International








1,272 

888 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 












 

Group capital and financing






1,820 

4,082 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity








3,588 

5,446 

 

 

 

 

 

 

 

 

 

 

 












At 31 December 2008, the Group adopted IFRS 8, 'Operating Segments'.

The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.  


The Risk segment comprises individual and group protection, individual and bulk purchase annuities, and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.  


The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products. 'Other' principally comprises the Group's interest in Cofunds.


The Investment management segment comprises institutional fund management and institutional unit trust business. 


The International segment comprises businesses in the 
United StatesFrance, the Netherlands and emerging markets.  

Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within Group capital and financing. This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment. 


Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.


The Group assesses performance and allocates resources on the basis of IFRS operating profit before tax, (set out in the Operating profit income statement). Segmental IFRS operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax. 


The Group considers additional performance measures in assessing the performance of the segments. These include new business levels (Notes 2.01-2.12) and EEV Reporting (Notes 4.01-4.17).


















International Financial Reporting Standards





Page 45

Notes to the Financial Statements








3.14  Analysis of borrowings




























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












Subordinated borrowings










 

6.385% Sterling perpetual capital securities






692 

620 

5.875% Sterling undated subordinated notes





426 

427 

4.0% Euro subordinated notes 2025





539 

414 

 

 

 

 

 

 

 

 

 

 

 












Total subordinated borrowings







1,657 

1,461 

 

 

 

 

 

 

 

 

 

 

 












 

Senior borrowings










Sterling medium term notes 2031-2041






608 

608 

Euro commercial paper 2009






609 

118 

Bank loans 2009








160 

13 

Non recourse financing










- US Dollar Triple X securitisation 2025






369 

266 

- US Dollar Triple X securitisation 2037






308 

223 

- Sterling property partnership loans 2011






101 

99 

- Suffolk Life unit linked borrowings







159 

 

 

 

 

 

 

 

 

 

 

 












Total senior borrowings








2,314 

1,327 

 

 

 

 

 

 

 

 

 

 

 























 

Total borrowings








3,971 

2,788 

 

 

 

 

 

 

 

 

 

 

 












 

Total borrowings (excluding non recourse financing)





3,034 

2,200 

 

 

 

 

 

 

 

 

 

 

 












Subordinated borrowings

6.385% 
Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% per annum. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% per annum. For regulatory purposes these securities are treated as innovative tier I capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.


5.875% 
Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% per annum. These notes are treated as upper tier II capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.


4.0% Euro subordinated notes 2025

In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% per annum. These notes mature on 8 June 2025 and are treated as lower tier II capital for regulatory purposes.


Non recourse financing


US Dollar Triple X securitisation 2025

In 2004, a subsidiary of Legal & General America Inc issued US$550m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business.


US Dollar Triple X securitisation 2037

In 2006, a subsidiary of Legal & General America Inc issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.


Sterling property partnership loans 2011

The property partnership loans are secured on specific properties. 


Suffolk Life unit linked borrowings

These borrowings relate solely to client investments.



As at 31 December 2008, the Group had in place a £960m syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2012. Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £763m (Euro Commercial Paper and Bank Loans).


2008 finance costs include £34m of interest payable on cash collateral lodged by counterpartiers in respect of certain derivative assets (2007: £nil).












3.15  Minority interests









Minority interests represent third party interests in property investment entities which are consolidated in the Group's results. 























International Financial Reporting Standards





Page 46

Notes to the Financial Statements








3.16  Total equity






























2008

2007










£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

As at 1 January








5,624 

5,839 

Total recognised income and expense






(1,037)

699 

Issue of share capital








10 

Share buyback 








(523)

(320)

Net movements in employee scheme shares






(4)

Dividend distributions to equity holders of the Company during the year



(367)

(369)

Movements in minority interests including disposals





29 

(230)

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December








3,732 

5,624 

 

 

 

 

 

 

 

 

 

 

 























3.17  Insurance contract liabilities








(a)   Analysis of insurance contract liabilities

























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007







Notes

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












Life and pensions participating insurance contracts


3.17(b)

9,384 

(1)

11,663 

(1)

 

Life and pensions non-participating insurance contracts

3.17(c)

25,582 

(1,847)

22,568 

(1,302)

General insurance contracts



3.17(d)

259 

(11)

305 

(19)

 

 

 

 

 

 

 

 

 

 

 












 

Insurance contract liabilities




35,225 

(1,859)

34,536 

(1,322)

 

 

 

 

 

 

 

 

 

 

 























(b)   Movement in participating insurance contract liabilities
























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












As at 1 January  






11,663 

(1)

12,660 

(1)

New liabilities in the year






333 

219 

Liabilities discharged in the year





(1,628)

(1,684)

Unwinding of discount rates 




383 

520 

Effect of change in non-economic assumptions



58 

(102)

Effect of change in economic assumptions




(1,348)

50 

Other







(77)

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December






9,384 

(1)

11,663 

(1)

 

 

 

 

 

 

 

 

 

 

 
























(c)   Movement in non-participating insurance contract liabilities























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












As at 1 January  






22,568 

(1,302)

21,321 

(1,237)

New liabilities in the year






3,020 

(262)

2,463 

(286)

Liabilities discharged in the year





(1,493)

79 

(1,108)

78 

Unwinding of discount rates 




1,022 

(88)

876 

(126)

Effect of change in non-economic assumptions1



(87)

121 

179 

Effect of change in economic assumptions2




(1,366)

(26)

(902)

Foreign exchange adjustments





946 

(82)

109 

Acquisitions






1,172 

(286)

Other







(200)

(1)

(192)

88 

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December






25,582 

(1,847)

22,568 

(1,302)

 

 

 

 

 

 

 

 

 

 

 












1. In 2007, the Effect of change in non-economic assumptions includes an increase of approximately £214m relating to the strengthening of assumptions for annuitant longevity on existing business. This was largely offset by mortality and changes to expense assumptions on term business (on a gross of reassurance basis), which reflected improved experience. 
2. In 2008, the Effect of changes in economic assumptions includes the impact arising from the current interest rate environment and increased credit spreads reducing liabilities, partially offset by the £650m of additional reserves for non profit annuity credit default, bringing the total reserve to £1.2bn.


















International Financial Reporting Standards





Page 47

Notes to the Financial Statements








3.17  Insurance contract liabilities (continued)






(d)   Analysis of General insurance contract liabilities
























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












Outstanding claims






99 

(4)

132 

(12)

Claims incurred but not reported





29 

40 

Unearned premiums






131 

(7)

133 

(7)

 

 

 

 

 

 

 

 

 

 

 












General insurance contract liabilities




259 

(11)

305 

(19)

 

 

 

 

 

 

 

 

 

 

 























(e)   Movement in General insurance claim liabilities
























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












As at 1 January  






172 

(12)

137 

(5)

Claims arising






231 

(4)

323 

(6)

Claims paid






(235)

(255)

(2)

Adjustments to prior year liabilities





(40)

(33)

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December






128 

(4)

172 

(12)

 

 

 

 

 

 

 

 

 

 

 


































3.18  Investment contract liabilities








(a)   Analysis of investment contract liabilities

























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












Participating investment contracts



6,992 

(12)

7,462 

(74)

Non-participating investment contracts




196,698 

(126)

224,906 

(134)

 

 

 

 

 

 

 

 

 

 

 












 

Investment contract liabilities




203,690 

(138)

232,368 

(208)

 

 

 

 

 

 

 

 

 

 

 


































(b)   Movement in investment contract liabilities

























Gross

Reinsurance

Gross

Reinsurance








2008

2008

2007

2007








£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 












As at 1 January  






232,368 

(208)

169,517 

(227)

Reserves in respect of new business




38,583 

(741)

75,969 

(412)

Amounts paid on surrenders and maturities during the year


(36,852)

504 

(24,706)

262 

Investment return and related benefits




(33,500)

307 

11,854 

169 

Management charges






(378)

(399)

Foreign exchange adjustments





527 

133 

Acquisitions






2,942 

 

 

 

 

 

 

 

 

 

 

 












 

As at 31 December






203,690 

(138)

232,368 

(208)

 

 

 

 

 

 

 

 

 

 

 























International Financial Reporting Standards





Page 48

Notes to the Financial Statements








3.19  Value of policyholder assets held in Society and LGPL

























2008

2007










£bn

£bn

 

 

 

 

 

 

 

 

 

 

 












With-profits business 








24.0 

29.5 

Non profit business








30.4 

30.7 

 

 

 

 

 

 

 

 

 

 

 





















54.4 

60.2 

 

 

 

 

 

 

 

 

 

 

 


































3.20  Non-linked business and Society shareholder capital invested asset mix and investment return

















Investment

With-profits

With-profits

With-profits

Non profit

Society






return

asset share

non par

other


shareholder






 





capital

 

As at 31 December 2008




%

%

%

%

%

%

 

 

 

 

 

 

 

 

 

 

 






 





 

Equities




(25)

39 

(51)

43 

Bonds




(5)

40 

83 

121 

97 

24 

Property




(27)

16 

Cash





13 

30 

27 

 

 

 

 

 

 

 

 

 

 

 






 





 






 

100 

100 

100 

100 

100 

 

 

 

 

 

 

 

 

 

 

 























 

Investment return (% pa)




(11)

(18)

(2)

27 

(7)

(23)

 

 

 

 

 

 

 

 

 

 

 























Invested assets (£bn) net of derivative liabilities


12.5 

2.3 

2.1 

18.8 

2.9 

 

Invested assets (£bn) gross of derivative liabilities


12.6 

2.3 

2.1 

20.6 

2.9 

 

 

 

 

 

 

 

 

 

 

 























 

As at 31 December 2007










 

 

 

 

 

 

 

 

 

 

 






 






Equities




45 

(43)

69 

Bonds




35 

83 

129 

99 

12 

Property




(5)

17 

12 

Cash





11 

14 

 

 

 

 

 

 

 

 

 

 

 






 





 






 

100 

100 

100 

100 

100 

 

 

 

 

 

 

 

 

 

 

 























 

Investment return (% pa)




 

 

 

 

 

 

 

 

 

 

 























Invested assets (£bn) net of derivative liabilities


17.1 

2.4 

1.8 

16.6 

4.0 

 

Invested assets (£bn) gross of derivative liabilities


17.1 

2.4 

1.8 

17.1 

4.0 

 

 

 

 

 

 

 

 

 

 

 












All investment return percentages reflect average returns for the period.
















In 2008, the percentage of Group capital invested in equities and property was 25% and 4% respectively (2007: 47% and 8%). An analysis

of Group capital can be found in Note 6.05.






























International Financial Reporting Standards





Page 49

3.21  Sensitivities










General insurance sensitivity analysis




























Impact on

Impact on










pre-tax profit

equity










net of

net of

 









reinsurance

reinsurance

 









2008

2008

 









£m

£m

 

 

 

 

 

 

 

 

 

 

 












 

Sensitivity test










Single storm event with 1 in 200 year probability





(50)

(36)

Subsidence event - worst claims ratio in last 30 years





(46)

(33)

Repeat of 1990 recession on ASU/DMI1/Household accounts 




(39)

(28)

5% decrease in overall claims ratio





10 

5% surplus over claims liabilities







 

 

 

 

 

 

 

 

 

 

 












1. Accident, sickness and unemployment (ASU)/Domestic mortgage indemnity (DMI)
















3.22  Pension cost










The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 31 December 2008, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £101m (2007: £130m). These amounts have been recognised in the financial statements with £59m charged against shareholder equity (2007: £77m) and £42m against the unallocated divisible surplus (2007: £53m).























International Financial Reporting Standards





Page 50

Notes to the Financial Statements








3.23  Contingent liabilities, guarantees and indemnities
















Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance of actual experience from that assumed may result in such liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of such contracts, or the circumstances in which policyholders have entered into them (together in this paragraph 'liabilities'). The extent of such liabilities is influenced by a number of factors including the actions and requirements of the FSA, ombudsman rulings, industry compensation schemes and court judgments. The continuing general profile and emphasis being given by the FSA and other bodies to the suitability of the past sales of endowment policies, in the context of some mortgage transactions, has led to the continuing receipt of claims from holders of endowment policies.

Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. Provision for liabilities continues to be made and is regularly reviewed. However, it is not possible to predict, with certainty, the extent and the timing of the financial impact to which these claims, litigation or issues may arise. The relevant members of the Group nevertheless ensure that each makes prudent provision, as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet all reasonably foreseeable eventualities. 

 

In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability, is uncertain. The Society has made no payment or provision in respect of this matter.


Group companies have given indemnities and guarantees as a normal part of their operating activities or in relation to capital market transactions. 












3.24  Foreign exchange rates








Principal rates of exchange used for translation are:














01.01.08-


01.01.07-









31.12.08

2008

31.12.07

2007








Average

Year end

Average

Year end

 

 

 

 

 

 

 

 

 

 

 












United States Dollar






1.85 

1.44 

2.00 

1.99 

Euro







1.26 

1.03 

1.46 

1.36 

 

 

 

 

 

 

 

 

 

 

 














This information is provided by RNS
The company news service from the London Stock Exchange
 
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