L&G Full Year Results 2021 Part 2

RNS Number : 1043E

Legal & General Group Plc

09 March 2022

 

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 36

1.01 Operating profit^#

For the year ended 31 December 2021			2021	2020
		Notes	£m	£m
From continuing operations
Legal & General Retirement (LGR)		1.03	1,506	1,728
- LGR Institutional (LGRI)			1,154	1,331
- LGR Retail (LGRR) 1			352	397
Legal & General Investment Management (LGIM) 1		1.04	422	407
Legal & General Capital (LGC)		1.05	461	275
Legal & General Insurance (LGI)		1.03	268	189
- UK and Other			320	205
- US (LGIA)			(52)	(16)
Operating profit from divisions:
From continuing operations			2,657	2,599
From discontinued operations 2			-	34
Operating profit from divisions			2,657	2,633
Group debt costs 3			(230)	(233)
Group investment projects and expenses			(165)	(155)
Covid-19 costs 4			-	(27)
Operating profit			2,262	2,218
Investment and other variances		1.06	233	(394)
Losses attributable to non-controlling interests			(7)	(36)
Adjusted profit before tax attributable to equity holders			2,488	1,788
Tax expense attributable to equity holders		3.04	(445)	(217)
Profit for the year		2.01	2,043	1,571
Less: Profit after tax from discontinued operations 2		2.01	-	(290)
Profit after tax from continuing operations		2.01	2,043	1,281
Total tax expense		2.01	589	218
Profit before tax		2.01	2,632	1,499
Profit attributable to equity holders			2,050	1,607
Earnings per share:
Basic (pence per share) 5		1.07	34.19p	27.00p
Diluted (pence per share) 5		1.07	32.57p	25.60p
1. LGRR includes the Workplace Savings business which was previously reported in LGIM. Prior year comparatives have been restated to reflect the change in reporting structure. Further details are provided in Note 1.08.
2. In 2020, discontinued operations included the results of the Mature Savings division, the sale of which completed on 7 September 2020.
3. Group debt costs exclude interest on non-recourse financing.
4. Covid-19 costs reflected incremental operational expenses incurred as a result of Covid-19.
5. All earnings per share calculations are based on profit attributable to equity holders of the company.

This supplementary operating profit information (one of the group's key performance indicators) provides additional analysis of the results reported under IFRS, and the group believes it provides stakeholders with useful information to enhance their understanding of the performance of the business in the year.

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

The group reports its results across the following business segments:

· LGR represents worldwide pension risk transfer business including longevity insurance (within LGRI), and retail retirement, workplace savings and lifetime mortgage loans (within LGRR).

· LGIM represents institutional and retail investment management.

· LGC represents shareholder assets invested in direct investments primarily in the areas of specialist commercial real estate, clean energy, housing and SME finance, as well as traded and treasury assets.

· LGI primarily represents UK and US retail protection business, UK group protection and Fintech business.

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

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 37

1.02 Reconciliation of release from operations to operating profit^# before tax

					Changes in valuation assump- tions			Operating profit/ (loss) after tax		Operating profit/ (loss) before tax
		New business surplus/ (strain)	Net release from operations
	Release from operations1			Exper- ience variances		Non-cash items	Other		Tax expense/ (credit)
For the year ended
31 December 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR	739	220	959	54	251	23	-	1,287	219	1,506
- LGRI	512	193	705	40	212	27	-	984	170	1,154
- LGRR 2	227	27	254	14	39	(4)	-	303	49	352
LGIM 2	342	-	342	-	-	-	-	342	80	422
LGC	379	-	379	-	-	-	-	379	82	461
LGI	236	27	263	14	82	6	(138)	227	41	268
- UK and Other	131	27	158	14	82	6	-	260	60	320
- US (LGIA) 3	105	-	105	-	-	-	(138)	(33)	(19)	(52)
Total from divisions	1,696	247	1,943	68	333	29	(138)	2,235	422	2,657
Group debt costs	(186)	-	(186)	-	-	-	-	(186)	(44)	(230)
Group investment projects and expenses	(69)	-	(69)	-	-	-	(68)	(137)	(28)	(165)
Total	1,441	247	1,688	68	333	29	(206)	1,912	350	2,262
1. Release from operations within US (LGIA) includes £80m of dividends from the US.
2. LGRR includes the Workplace Savings business which was previously reported in LGIM. Prior year comparatives have been restated to reflect the change in reporting structure. Further details are provided in Note 1.08.
3. Other includes experience variances, changes in valuation assumptions and non-cash items for LGIA.
Release from operations for LGR and LGI UK and Other represents the expected IFRS surplus generated in the year from the difference between the prudent assumptions underlying the IFRS liabilities and our best estimate of future experience for in-force annuities and UK protection businesses. For Workplace Savings, the release from operations represents the expected annual management charges generated from the in-force business less the expected expenses. The LGI release from operations also includes dividends remitted from LGIA.
New business surplus/(strain) for LGR and LGI UK and Other represents the initial profit or loss from writing new business. This includes the costs associated with acquiring new business and setting up prudent reserves in respect of new business for UK annuities and protection, net of tax. Similarly for Workplace Savings, this includes the cost of acquiring new business in the year less the annual management charges generated by the assets under administration (AUA), net of tax. The new business surplus and release from operations for LGR and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long-term asset portfolio. At certain year ends, depending upon the quantum and timing of pension risk transfer (PRT) volumes, we may have sourced more or less of the high quality assets targeted to support that business. At year end, the profit impact of the difference between actual assets held (including alternative surplus assets where suitable) and the long-term asset mix is reflected in investment variance.
Net release from operations for LGR and LGI is defined as release from operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM represents the operating profit (net of tax).
See Note 1.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.

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

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 38

1.02 Reconciliation of release from operations to operating profit^# before tax (continued)

					Changes in valuation assump- tions			Operating profit/ (loss) after tax		Operating profit/ (loss) before tax
		New business surplus/ (strain)	Net release from operations
	Release from operations1			Exper- ience variances		Non-cash items	Other		Tax expense/ (credit)
For the year ended
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR	685	262	947	99	400	32	-	1,478	250	1,728
- LGRI	492	220	712	81	314	30	-	1,137	194	1,331
- LGRR 2	193	42	235	18	86	2	-	341	56	397
LGIM 2	327	-	327	-	-	-	-	327	80	407
LGC	224	-	224	-	-	-	-	224	51	275
LGI	250	8	258	(41)	58	(5)	(115)	155	34	189
- UK and Other	146	8	154	(41)	58	(5)	-	166	39	205
- US (LGIA) 3	104	-	104	-	-	-	(115)	(11)	(5)	(16)
From continuing operations	1,486	270	1,756	58	458	27	(115)	2,184	415	2,599
From discontinued operations 4	28	-	28	-	-	-	-	28	6	34
Total from divisions	1,514	270	1,784	58	458	27	(115)	2,212	421	2,633
Group debt costs	(189)	-	(189)	-	-	-	-	(189)	(44)	(233)
Group investment projects and expenses	(56)	-	(56)	-	-	-	(61)	(117)	(38)	(155)
Covid-19 costs 5	-	-	-	-	-	-	(20)	(20)	(7)	(27)
Total	1,269	270	1,539	58	458	27	(196)	1,886	332	2,218
1. Release from operations within US (LGIA) includes £84m of dividends from the US.
2. LGRR includes the Workplace Savings business which was previously reported in LGIM. Further details are provided in Note 1.08.
3. Other includes experience variances, changes in valuation assumptions and non-cash items for LGIA.
4. Discontinued operations include the results of the Mature Savings division, the sale of which completed on 7 September 2020.
5. Covid-19 costs reflect incremental operational expenses incurred as a result of Covid-19.

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

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 39

1.03 Analysis of LGR and LGI operating profit

For the year ended 31 December 2021

			LGR1		LGI	LGR1	LGI
			2021		2021	2020	2020
			£m		£m	£m	£m
Net release from operations			959		263	947	258
Experience variances
- Persistency			1		(5)	7	3
- Mortality/morbidity 2			40		13	104	(46)
- Expenses			-		5	(18)	(5)
- Project and development costs			(19)		(11)	(9)	(1)
- Other			32		12	15	8
Total experience variances			54		14	99	(41)
Changes in valuation assumptions
- Persistency			-		(5)	-	(1)
- Mortality/morbidity 3			201		(2)	255	54
- Expenses			-		(1)	-	2
- Other 4,5			50		90	145	3
Total changes in valuation assumptions			251		82	400	58
Movement in non-cash items
- Acquisition expense tax relief			-		-	-	(3)
- Other 6			23		6	32	(2)
Total movement in non-cash items			23		6	32	(5)
Other 2			-		(138)	-	(115)
Operating profit after tax			1,287		227	1,478	155
Tax expense			219		41	250	34
Operating profit before tax			1,506		268	1,728	189
1. LGR includes the Workplace Savings business which was previously reported in LGIM. Prior year comparatives have been restated to reflect the change in reporting structure. Further details are provided in Note 1.08.
2. Mortality experience variances in 2020 were driven by increased claims experience due to Covid-19, particularly impacting LGIA (reflected in Other) where we retain the majority of the mortality risk. In 2021, total LGI Covid-19 claims have exceeded the prior year reserves by £79m, and we have further established a provision of £57m for Covid-19 mortality impacts expected in 2022.
3. In 2021, mortality assumption changes for LGR reflect a one-off update to the spouse demography assumption of £100m. We have not recognised an explicit release from adopting CMI 2019 given the uncertainty in the data created by Covid-19. In 2020, the assumption changes included a one-off release of £153m (net of tax) from an update in the longevity trend assumption from adjusted CMI 2017 to adjusted CMI 2018. Other positive longevity variances in both years are driven by routine updates to our assumptions relating to base mortality rates.
4. In 2020, the £145m positive Other changes in valuation assumptions in LGR reflect both a reduction in the assumed late retirement factors applied to deferred annuities and the impact of updating unit cost and investment management expense assumptions.
5. In 2021, the £90m positive Other changes in valuation assumptions in LGI reflect the benefit of modelling improvements in UK retail protection, including the introduction of an illiquidity premium in the liability discount rate.
6. LGR Other movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 40

1.04 LGIM operating profit

				2021	2020
				£m	£m
Asset management revenue (excluding 3rd party market data) 1				980	929
Asset management transactional revenue 2				32	27
Asset management expenses (excluding 3rd party market data) 1				(590)	(549)
Total LGIM operating profit 3				422	407
1. Asset management revenue and expenses exclude income and costs of £32m in relation to the provision of third party market data (2020: £27m).
2. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.
3. The Workplace Savings business, which was previously reported in LGIM, has been transferred to LGRR. Prior year comparatives have been restated to reflect the change in reporting structure. Further details are provided in Note 1.08.

1.05 LGC operating profit

				2021	2020
				£m	£m
Direct investments 1				350	112
Traded investment portfolio including treasury assets 2				111	163
Total LGC operating profit				461	275
1. Direct investments represents LGC's portfolio of assets across specialist commercial real estate, clean energy, housing and SME finance. Direct investments include operating profit in relation to CALA of £132m (2020: £7m).
2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

1.06 Investment and other variances

				2021	2020
				£m	£m
Investment variance related to protection liabilities				111	(459)
Investment variance related to the traded investment portfolio and direct investments				19	(299)
Other investment variance 1				211	67
Investment variance				341	(691)
M&A related and other variances 2				(108)	297
Total investment and other variances				233	(394)
1. Other investment variance includes variances in respect of the defined benefit pension scheme, reflecting the impact of the acquisition of annuity assets from LGR, and the difference between the IAS 19 and annuity discount rates.
2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring. 2021 includes: the impact of the sale of a book of retail investment products within the L&G Personal Investing business to Fidelity International Limited, announced in October 2020; the costs associated with LGIM's appointment of State Street to provide Charles River technology and middle office services, including the recognition of a multi-year restructuring provision; and the impact of impairing capitalised software intangibles as a result of various restructuring exercises.
Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including direct investments), economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation), the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business, and the yield associated with assets held for future new pension risk transfer business from the valuation discount rate.
The long-term expected investment return is based on opening economic assumptions applied to the assets under management at the start of the reporting year. The assumptions underlying the calculation of the expected returns for traded equity, commercial property and residential property are based on market consensus forecasts and long-term historic average returns expected to apply through the cycle.
The long-term expected investment returns are:
				2021	2020
Equities				7%	7%
Commercial property				5%	5%
Residential property				RPI + 50bps	RPI + 50bps
Additionally, other alternative assets within the LGC portfolio comprise investments in housing, specialist commercial real estate, clean energy, digital infrastructure and venture capital. The long-term expected investment return is on average between 8% and 10%, in line with our stated investment objectives. Rates of return specific to each asset are determined at the point of underwriting and reviewed and updated annually. The expected investment return includes assumptions on appropriate discount rates and inflation as well as sector specific assumptions including retail and commercial property yields and power prices.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 41

1.07 Earnings per share

(a) Basic earnings per share

			After tax	Per share1	After tax	Per share1
			2021	2021	2020	2020
			£m	p	£m	p
Profit for the year attributable to equity holders			2,050	34.58	1,607	27.10
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief			(23)	(0.39)	(6)	(0.10)
Total basic earnings			2,027	34.19	1,601	27.00
Less: earnings derived from discontinued operations			-	-	(290)	(4.89)
Basic earnings derived from continuing operations			2,027	34.19	1,311	22.11
1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the year, excluding employee scheme treasury shares.

(b) Diluted earnings per share

					After tax	Weighted average number of shares	Per share1
					2021	2021	2021
					£m	m	p
Profit for the year attributable to equity holders					2,050	5,929	34.58
Net shares under options allocable for no further consideration					-	59	(0.34)
Conversion of restricted Tier 1 notes					-	307	(1.67)
Total diluted earnings					2,050	6,295	32.57
					After tax	Weighted average number of shares	Per share1
					2020	2020	2020
					£m	m	p
Profit for the year attributable to equity holders					1,607	5,930	27.10
Net shares under options allocable for no further consideration					-	40	(0.18)
Conversion of restricted Tier 1 notes					-	307	(1.32)
Total diluted earnings					1,607	6,277	25.60
Less: diluted earnings derived from discontinued operations					(290)	-	(4.62)
Diluted earnings derived from continuing operations					1,317	6,277	20.98
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees and conversion of restricted Tier 1 notes.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 42

1.08 Segmental analysis

In 2021, the group operated five core businesses across four reportable segments that are continuing operations, with Legal & General Retirement Retail (LGRR) and Legal & General Retirement Institutional (LGRI) combined into a single segment for reporting purposes, being Legal & General Retirement.

From 1 January 2022, the group has announced changes to the business unit responsibilities within the Executive Committee. Andrew Kail will become the Chief Executive Officer of LGRI, succeeding Laura Mason who has previously moved to become CEO of Legal & General Capital (LGC). Our two retail businesses, LGRR and LGI, will come together under the leadership of Bernie Hickman. As noted on page 10, this will enable the creation of a single interface for the group's UK retail customers.

As a result of these changes, from 1 January 2022 the group will align its reportable segments to the five core businesses, comprising LGRI, LGRR, LGI, LGIM, and LGC. Group central expenses and debt costs will continue to be reported separately.

In 2021, management of the Workplace Savings business has transferred from LGIM to LGRR, where it complements their retirement solutions offering and retail customer focus. The change in reporting structure has no impact on the profit or loss, or net assets, of the group. To enable comparison, segmental information for prior year has been restated accordingly.

In 2020, continuing operations exclude the results of the Mature Savings business, the sale of which was completed on 7 September 2020.

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

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

(a) Profit/(loss) for the year
					Group
					expenses	Total
					and debt	continuing
	LGR1	LGIM1	LGC	LGI	costs2	operations
For the year ended 31 December 2021	£m	£m	£m	£m	£m	£m
Operating profit/(loss)#	1,506	422	461	268	(395)	2,262
Investment and other variances	242	(11)	19	111	(128)	233
Losses attributable to non-controlling interests	-	-	-	-	(7)	(7)
Profit/(loss) before tax attributable to equity holders	1,748	411	480	379	(530)	2,488
Tax (expense)/credit attributable to equity holders	(276)	(79)	(93)	(59)	62	(445)
Profit/(loss) for the year	1,472	332	387	320	(468)	2,043
					Group
					expenses	Total
					and debt	continuing
	LGR1	LGIM1	LGC	LGI	costs2	operations
For the year ended 31 December 2020	£m	£m	£m	£m	£m	£m
Operating profit/(loss)#	1,728	407	275	189	(415)	2,184
Investment and other variances	15	1	(299)	(459)	24	(718)
Losses attributable to non-controlling interests	-	-	-	-	(36)	(36)
Profit/(loss) before tax attributable to equity holders	1,743	408	(24)	(270)	(427)	1,430
Tax (expense)/credit attributable to equity holders	(228)	(65)	(8)	58	94	(149)
Profit/(loss) for the year	1,515	343	(32)	(212)	(333)	1,281
1. LGR includes the Workplace Savings business which was previously reported in LGIM. Prior year comparatives have been restated to reflect the change in reporting structure.
2. Group expenses and debt costs include £nil of incremental costs incurred as a result of Covid-19 (2020: £27m).
# Operating profit for total continuing operations represents 'Adjusted operating profit', an alternative performance measure defined in the glossary.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosures on performance and Release from operations    Page 43

1.08 Segmental analysis (continued)

(b) Total income
				LGC and	Total continuing
	LGR	LGIM1,2	LGI	other3	operations
For the year ended 31 December 2021	£m	£m	£m	£m	£m
Internal income	-	179	-	(179)	-
External income	5,959	35,738	2,029	1,724	45,450
Total income	5,959	35,917	2,029	1,545	45,450
				LGC and	Total continuing
	LGR	LGIM1,2	LGI	other3	operations
For the year ended 31 December 2020	£m	£m	£m	£m	£m
Internal income	-	201	-	(201)	-
External income	15,057	20,878	1,799	12,497	50,231
Total income	15,057	21,079	1,799	12,296	50,231
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 44

2.01 Consolidated Income Statement

			2021	2020
For the year ended 31 December 2021		Notes	£m	£m
Income
Gross written premiums			10,375	12,545
Outward reinsurance premiums			(3,446)	(3,187)
Net change in provision for unearned premiums			42	12
Net premiums earned			6,971	9,370
Fees from fund management and investment contracts			959	873
Investment return			35,927	39,168
Other operational income			1,593	820
Total income		1.08	45,450	50,231
Expenses
Claims and change in insurance contract liabilities			7,353	17,768
Reinsurance recoveries			(2,968)	(3,601)
Net claims and change in insurance contract liabilities			4,385	14,167
Change in investment contract liabilities			34,206	31,410
Acquisition costs			825	617
Finance costs			294	305
Other expenses			3,108	2,233
Total expenses			42,818	48,732
Profit before tax			2,632	1,499
Tax expense attributable to policyholder returns			(144)	(69)
Profit before tax attributable to equity holders			2,488	1,430
Total tax expense			(589)	(218)
Tax expense attributable to policyholder returns			144	69
Tax expense attributable to equity holders		3.04	(445)	(149)
Profit after tax from continuing operations		1.08	2,043	1,281
Profit after tax from discontinued operations 1			-	290
Profit for the year			2,043	1,571
Attributable to:
Non-controlling interests			(7)	(36)
Equity holders			2,050	1,607
Dividend distributions to equity holders during the year		3.02	1,063	1,048
Dividend distributions to equity holders proposed after the year end		3.02	790	754
			p	p
Total basic earnings per share2		1.07	34.19	27.00
Total diluted earnings per share2		1.07	32.57	25.60
Basic earnings per share derived from continuing operations2		1.07	34.19	22.11
Diluted earnings per share derived from continuing operations2		1.07	32.57	20.98
1. In 2020, discontinued operations included the results of the Mature Savings division, the sale of which completed on 7 September 2020.
2. All earnings per share calculations are based on profit attributable to equity holders of the company.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 45

2.02 Consolidated Statement of Comprehensive Income

	2021	2020
For the year ended 31 December 2021	£m	£m
Profit for the year	2,043	1,571
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes	53	(168)
Tax (expense)/credit on actuarial remeasurements on defined benefit pension schemes	(7)	48
Total items that will not be reclassified subsequently to profit or loss	46	(120)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	(11)	2
Movement in cross-currency hedge	20	7
Tax expense on movement in cross-currency hedge	(7)	(4)
Movement in financial investments designated as available-for-sale	(3)	2
Total items that may be reclassified subsequently to profit or loss	(1)	7
Other comprehensive income/(expense) after tax	45	(113)
Total comprehensive income for the year	2,088	1,458
Total comprehensive income for the year attributable to:
Continuing operations	2,088	1,168
Discontinued operations	-	290
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests	(7)	(36)
Equity holders	2,095	1,494

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 46

2.03   Consolidated Balance Sheet

		2021	2020
As at 31 December 2021	Notes	£m	£m
Assets
Goodwill		68	68
Other intangible assets		365	329
Deferred acquisition costs		26	47
Investment in associates and joint ventures accounted for using the equity method		375	288
Property, plant and equipment		316	274
Investment property	3.03	10,150	8,475
Financial investments	3.03	538,374	526,057
Reinsurers' share of contract liabilities		7,180	6,939
Deferred tax assets	3.04	2	5
Current tax assets		670	634
Receivables and other assets		8,625	9,429
Cash and cash equivalents		16,487	18,020
Total assets		582,638	570,565
Equity
Share capital	3.05	149	149
Share premium	3.05	1,012	1,006
Employee scheme treasury shares		(99)	(75)
Capital redemption and other reserves		196	198
Retained earnings		9,228	8,224
Attributable to owners of the parent		10,486	9,502
Restricted Tier 1 convertible notes	3.06	495	495
Non-controlling interests	3.07	(38)	(31)
Total equity		10,943	9,966
Liabilities
Non-participating insurance contract liabilities		89,825	89,029
Non-participating investment contract liabilities		372,954	343,543
Core borrowings	3.08	4,256	4,558
Operational borrowings	3.09	932	1,055
Provisions	3.13	1,238	1,288
Deferred tax liabilities	3.04	251	207
Current tax liabilities		84	61
Payables and other financial liabilities	3.10	74,264	91,942
Other liabilities		925	756
Net asset value attributable to unit holders		26,966	28,160
Total liabilities		571,695	560,599
Total equity and liabilities		582,638	570,565

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 47

2.04 Consolidated Statement of Changes in Equity

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the year ended 31 December 2021	capital	premium	shares	reserves1	earnings	of the parent	notes	interests	equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2021	149	1,006	(75)	198	8,224	9,502	495	(31)	9,966
Profit for the year	-	-	-	-	2,050	2,050	-	(7)	2,043
Exchange differences on translation of overseas operations	-	-	-	(11)	-	(11)	-	-	(11)
Net movement in cross-currency hedge	-	-	-	13	-	13	-	-	13
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	46	46	-	-	46
Net movement in financial investments designated as available-for-sale	-	-	-	(3)	-	(3)	-	-	(3)
Total comprehensive income for the year	-	-	-	(1)	2,096	2,095	-	(7)	2,088
Options exercised under share option schemes	-	6	-	-	-	6	-	-	6
Shares purchased	-	-	(34)	-	-	(34)	-	-	(34)
Shares vested	-	-	10	(48)	-	(38)	-	-	(38)
Employee scheme treasury shares: - Value of employee services	-	-	-	33	-	33	-	-	33
Share scheme transfers to retained earnings	-	-	-	-	8	8	-	-	8
Dividends	-	-	-	-	(1,063)	(1,063)	-	-	(1,063)
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(23)	(23)	-	-	(23)
Currency translation differences	-	-	-	14	(14)	-	-	-	-
As at 31 December 2021	149	1,012	(99)	196	9,228	10,486	495	(38)	10,943
1. Capital redemption and other reserves as at 31 December 2021 include share-based payments £86m, foreign exchange £46m, capital redemption £17m, hedging £48m and available-for-sale reserves £(1)m.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 48

2.04 Consolidated Statement of Changes in Equity (continued)

			Employee	Capital		Equity	Restricted
			scheme	redemption		attributable	Tier 1	Non-
	Share	Share	treasury	and other	Retained	to owners	convertible	controlling	Total
For the year ended 31 December 2020	capital	premium	shares	reserves1	earnings	of the parent	notes	interests	equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2020	149	1,000	(65)	205	7,749	9,038	-	55	9,093
Profit for the year	-	-	-	-	1,607	1,607	-	(36)	1,571
Exchange differences on translation of overseas operations	-	-	-	2	-	2	-	-	2
Net movement in cross-currency hedge	-	-	-	3	-	3	-	-	3
Net actuarial remeasurements on defined benefit pension schemes	-	-	-	-	(120)	(120)	-	-	(120)
Net movement in financial investments designated as available-for-sale	-	-	-	2	-	2	-	-	2
Total comprehensive income for the year	-	-	-	7	1,487	1,494	-	(36)	1,458
Options exercised under share option schemes	-	6	-	-	-	6	-	-	6
Shares purchased	-	-	(23)	-	-	(23)	-	-	(23)
Shares vested	-	-	13	(27)	-	(14)	-	-	(14)
Employee scheme treasury shares: - Value of employee services	-	-	-	43	-	43	-	-	43
Share scheme transfers to retained earnings	-	-	-	-	12	12	-	-	12
Dividends	-	-	-	-	(1,048)	(1,048)	-	-	(1,048)
Restricted Tier 1 convertible notes	-	-	-	-	-	-	495	-	495
Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief	-	-	-	-	(6)	(6)	-	-	(6)
Movement in third party interests	-	-	-	-	-	-	-	(50)	(50)
Currency translation differences	-	-	-	(30)	30	-	-	-	-
As at 31 December 2020	149	1,006	(75)	198	8,224	9,502	495	(31)	9,966
1. Capital redemption and other reserves as at 31 December 2020 include share-based payments £101m, foreign exchange £43m, capital redemption £17m, hedging £35m and available-for-sale reserves £2m.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Primary Financial Statements   Page 49

2.05 Consolidated Statement of Cash Flows

		2021	2020
For the year ended 31 December 2021	Notes	£m	£m
Cash flows from operating activities
Profit for the year		2,043	1,571
Adjustments for non cash movements in net profit for the year
Net gains on financial investments and investment property		(26,062)	(28,530)
Investment income		(9,865)	(9,761)
Interest expense		294	337
Tax expense		589	144
Other adjustments		137	(12)
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or loss		4,616	6,519
Investments designated as available-for-sale		(21)	1,072
Other assets		139	(2,445)
Net increase/(decrease) in operational liabilities
Insurance contracts		726	11,607
Investment contracts		29,409	20,855
Other liabilities		(11,161)	(5,900)
Cash utilised in operations		(9,156)	(4,543)
Interest paid		(301)	(301)
Interest received		5,060	5,190
Rent received		373	384
Tax paid1		(564)	(554)
Dividends received		4,419	4,125
Net cash flows from operations		(169)	4,301
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets		(205)	(198)
Disposal of plant, equipment, intangibles and other assets		-	34
Acquisition of operations, net of cash acquired		-	1
Disposal of subsidiaries and other operations, net of cash transferred		217	(278)
Investment in joint ventures and associates		(56)	(16)
Disposal of joint ventures and associates		177	-
Net cash flows generated/(utilised) from investing activities		133	(457)
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year	3.02	(1,063)	(1,048)
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax	3.06	(28)	(7)
Options exercised under share option schemes	3.05	6	6
Treasury shares purchased for employee share schemes		(34)	(23)
Payment of lease liabilities		(37)	(37)
Proceeds from borrowings		449	1,086
Repayment of borrowings		(798)	(501)
Proceeds from issuance of restricted Tier 1 convertible notes, net of associated expenses		-	495
Net cash flows utilised in financing activities		(1,505)	(29)
Net (decrease)/increase in cash and cash equivalents		(1,541)	3,815
Exchange gains/(losses) on cash and cash equivalents		8	(28)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)		18,020	14,233
Total cash and cash equivalents at 31 December		16,487	18,020
1. Tax paid comprises UK corporation tax of £368m (2020: £417m), withholding tax of £188m (2020: £137m) and overseas corporate tax of £8m (2020: £nil).

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 50

3.01 Basis of preparation

The preliminary announcement for the year ended 31 December 2021 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information in this preliminary announcement has been derived from the group financial statements within the group's 2021 Annual Report and Accounts, which will be made available on the group's website on 16 March 2022. The group's 2020 Annual Report and Accounts have been filed with the Registrar of Companies, and those for 2021 will be delivered in due course. KPMG have reported on the 2021 and 2020 report and accounts. Both their reports were (i) unqualified, (ii) did not include a reference to any matters to which they drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The group financial statements have been prepared in accordance with UK-adopted international accounting standards, comprising International Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and related interpretations issued by the IFRS Interpretations Committee. Endorsement is granted by the UK Endorsement Board (UKEB).   The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment property, available-for-sale financial assets, and certain financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented, unless otherwise stated.

Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group's foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for the income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.

Critical accounting policies and the use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which 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 statements. 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. This is particularly relevant for the valuation of insurance and investment contract liabilities, unquoted illiquid assets, investment property, and the determination of defined benefit pension plan assumptions. From a policy application perspective, the major areas of judgement are the assessment of whether a contract transfers significant insurance risk to the group, and whether the group controls underlying entities and should therefore consolidate them. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2021 Annual Report and Accounts.

Key technical terms and definitions

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

Tax attributable to policyholders and equity holders

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

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 51

3.02 Dividends and appropriations

		Dividend	Per share1	Dividend	Per share1
		2021	2021	2020	2020
		£m	p	£m	p
Ordinary dividends paid and charged to equity in the year:
- Final 2019 dividend paid in June 2020		-	-	754	12.64
- Interim 2020 dividend paid in September 2020		-	-	294	4.93
- Final 2020 dividend paid in June 2021		754	12.64	-	-
- Interim 2021 dividend paid in September 2021		309	5.18	-	-
Total dividends		1,063	17.82	1,048	17.57
Ordinary share dividend proposed 2		790	13.27	754	12.64
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. Subsequent to 31 December 2021, the directors declared a final dividend for 2021 of 13.27 pence per ordinary share. This dividend will be paid on 1 June 2022. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2022 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2021.

3.03 Financial investments and investment property

			2021	2020
			£m	£m
Equities1			213,049	189,089
Debt securities2,3			296,930	295,660
Derivative assets4			16,792	24,631
Loans5			11,603	16,677
Financial investments			538,374	526,057
Investment property			10,150	8,475
Total financial investments and investment property			548,524	534,532
1. Equity securities include investments in unit trusts of £18,248m (31 December 2020: £13,215m).
2. Debt securities include accrued interest of £1,420m (31 December 2020: £1,434m).
3. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 6.03.
4. Derivatives are used for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities of £15,718m (31 December 2020: £23,208m).
5. Loans include £92m (31 December 2020: £131m) of loans valued at amortised cost.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 52

3.04 Tax

(a) Tax expense in the Consolidated Income Statement
The tax expense attributable to equity holders differs from the tax calculated on profit before tax at the standard UK corporation tax rate as follows:
		Continuing
	Total	operations	Total
	2021	2020	2020
	£m	£m	£m
Profit before tax attributable to equity holders	2,488	1,430	1,788
Tax calculated at 19.00%	473	272	340
Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higher rate of tax on profits taxed overseas1	(104)	(111)	(111)
Income not subject to tax	-	(1)	(1)
Non-deductible expenses	6	11	11
Differences between taxable and accounting investment gains	(13)	(10)	(10)
Foreign tax	-	1	1
Unrecognised tax losses	1	14	14
Non-recurring reconciling items:
Adjustments in respect of prior years2	24	(42)	(42)
Impact of the revaluation of deferred tax balances3	58	16	16
Other	-	(1)	(1)
Tax expense/(credit) attributable to equity holders	445	149	217
Equity holders' effective tax rate	17.9%	10.4%	12.1%
1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides the group with regulatory capital flexibility for both our PRT business and our US term insurance business. This also includes the impact of our US operations which are taxed at 21%.
2. Adjustments in respect of prior years relate to revisions of prior estimates.
3. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year remained at 19%. The future enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities, as the rate of corporation tax that is expected to apply when the majority of those deferred tax balances reverse.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 53

3.04 Tax (continued)

(b) Deferred tax
		2021	2020
Deferred tax (liabilities)/assets		£m	£m
Deferred acquisition expenses		95	85
- Overseas		95	85
Difference between the tax and accounting value of insurance contracts		(695)	(557)
- UK		(269)	(207)
- Overseas		(426)	(350)
Realised and unrealised gains on investments3		(83)	(113)
Excess of depreciation over capital allowances		22	18
Excess expenses		-	1
Accounting provisions and other3		55	54
Trading losses1		348	289
Pension fund deficit		9	22
Acquired intangibles		-	(1)
Net deferred tax liabilities		(249)	(202)
Presented on the Consolidated Balance Sheet as:
- Deferred tax assets2		2	5
- Deferred tax liabilities		(215)	(168)
- Overseas net deferred tax liabilities		(36)	(39)
Net deferred tax liabilities		(249)	(202)
1. Trading losses include deferred tax on UK trade and US operating losses of £2m (2020: £5m) and £346m (2020: £284m) respectively. Overseas net deferred tax liabilities include a deferred tax asset of £346m (2020: £284m) on accumulated losses in our US insurance business. These losses are not time restricted, and we expect to recover them over a period of 15 to 20 years, commensurate with the lifecycle of the underlying insurance contracts. In reaching this conclusion, we have considered past results, the different basis under which US companies are taxed, temporary differences that are expected to generate future profits against which the deferred tax can be offset, management actions, and future profit forecasts. The recoverability of deferred tax assets is routinely reviewed by management.
2. The deferred tax asset recognised separately in the consolidated balance sheet refers to deferred tax assets against which there are no appropriate deferred tax liabilities to offset the asset. The closing amount of £2m (2020: £5m) are restricted losses which cannot be offset against profits arising elsewhere in the group.
3. The US deferred tax liability of £102m (2020: £40m) in respect of US bond contracts has been reclassified from Accounting provisions and other to Realised and unrealised gains on investments. The net impact on the total balance is £nil.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 54

3.05 Share capital and share premium

				2021			2020
				Number of	2021		Number of	2020
Authorised share capital				shares	£m		shares	£m
At 31 December: ordinary shares of 2.5p each			9,200,000,000		230	9,200,000,000		230
							Share	Share
						Number of	capital	premium
Issued share capital, fully paid						shares	£m	£m
As at 1 January 2021					5,967,358,713		149	1,006
Options exercised under share option schemes					3,057,104		-	6
As at 31 December 2021					5,970,415,817		149	1,012
							Share	Share
						Number of	capital	premium
Issued share capital, fully paid						shares	£m	£m
As at 1 January 2020					5,965,349,607		149	1,000
Options exercised under share option schemes					2,009,106		-	6
As at 31 December 2020					5,967,358,713		149	1,006
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.

3.06 Restricted Tier 1 convertible notes

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

The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is upon the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity when paid. During the year coupon payments of £28m were made (2020: £7m). The notes rank junior to all other liabilities and senior to equity attributable to owners of the parent. On the occurrence of certain conversion trigger events the notes are convertible into ordinary shares of the Issuer at the prevailing conversion price.

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

3.07 Non-controlling interests

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

As at 31 December 2021, non-controlling interests primarily represent third party ownership in Thorpe Park Holdings, a mixed residential/commercial retail space in which the group holds 50%.

No other individual non-controlling interest is considered to be material on the basis of the year end carrying value or share of profit or loss.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 55

3.08 Core borrowings

		Carrying	Coupon		Carrying	Coupon
		amount	rate	Fair value	amount	rate	Fair value
		2021	2021	2021	2020	2020	2020
		£m	%	£m	£m	%	£m
Subordinated borrowings
10% Sterling subordinated notes 2041 (Tier 2) 1		-	-	-	313	10.00	329
5.5% Sterling subordinated notes 2064 (Tier 2)		590	5.50	776	589	5.50	813
5.375% Sterling subordinated notes 2045 (Tier 2)		604	5.38	673	604	5.38	714
5.25% US Dollar subordinated notes 2047 (Tier 2)		635	5.25	694	628	5.25	703
5.55% US Dollar subordinated notes 2052 (Tier 2)		373	5.55	428	369	5.55	411
5.125% Sterling subordinated notes 2048 (Tier 2)		400	5.13	461	400	5.13	484
3.75% Sterling subordinated notes 2049 (Tier 2)		598	3.75	632	598	3.75	662
4.5% Sterling subordinated notes 2050 (Tier 2)		500	4.50	558	499	4.50	587
Client fund holdings of group debt (Tier 2) 2		(44)	-	(51)	(42)	-	(51)
Total subordinated borrowings		3,656	-	4,171	3,958	-	4,652
Senior borrowings
Sterling medium term notes 2031-2041		609	5.87	846	609	5.88	926
Client fund holdings of group debt 2		(9)	-	(11)	(9)	-	(12)
Total senior borrowings		600	-	835	600	-	914
Total core borrowings		4,256	-	5,006	4,558	-	5,566
1. These notes were redeemed in full on 23 July 2021.
2. £53m (31 December 2020: £51m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as Level 1 in the fair value hierarchy.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 56

3.08 Core borrowings (continued)

Subordinated borrowings

10% Sterling subordinated notes 2041

In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. These notes were called at par on 23 July 2021.

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June 2064.

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These notes mature on 27 October 2045.

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes mature on 21 March 2047.

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes mature on 24 April 2052.

5.125% Sterling subordinated notes 2048

On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65% p.a. These notes mature on 14 November 2048.

3.75% Sterling subordinated notes 2049

On 26 November 2019, Legal & General Group Plc issued £600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November 2029 and every five years thereafter. If not called, the coupon from 26 November 2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05% p.a. These notes mature on 26 November 2049.

4.5% Sterling subordinated notes 2050

On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated subordinated notes. The notes are callable at par on 1 November 2030 and every five years thereafter. If not called, the coupon from 1 November 2030 will be reset to the prevailing five year benchmark gilt yield plus 5.25% pa. These notes mature on 1 November 2050.

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

Senior borrowings

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

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 57

3.09 Operational borrowings

	Carrying	Interest		Carrying	Interest
	amount	rate	Fair value	amount	rate	Fair value
	2021	2021	2021	2020	2020	2020
	£m	%	£m	£m	%	£m
Short-term operational borrowings
Euro Commercial Paper	50	0.16	50	50	0.78	50
Bank loans and overdrafts	-	-	-	54	-	54
Non-recourse borrowings
Cardiff Interchange Limited	45	2.29	45	-	-	-
Later Living portfolio	-	-	-	72	2.77	72
CALA revolving credit facility	100	1.96	100	170	2.95	170
Class B Surplus Notes	664	1.72	664	639	2.45	639
Affordable Homes revolving credit facility	56	2.08	56	60	2.13	60
Homes Modular revolving credit facility	9	3.27	9	-	-	-
Operational borrowings 1	924	-	924	1,045	-	1,045
1. Unit linked borrowings with a carrying value of £8m (31 December 2020: £10m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £932m (31 December 2020: £1,055m).
Non-recourse borrowings
- Cardiff Interchange Limited entered into a debt facility agreement with National Westminster Bank Plc. The facility is secured on the assets of Cardiff Interchange Limited and LGCIL's shares in, and intercompany debt owed by, Cardiff Interchange Limited. - Loan facilities to Later Living portfolio had a charge on all assets of each individual SPV company. - CALA Group (Holdings) Limited's revolving credit facility is secured by way of a bond and floating charge, and guarantees and fixed charges granted by CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited, and CALA Management Limited). A number of other bonds and floating charges, fixed securities, debentures and share pledges over land and assets have been granted by certain subsidiaries of CALA Group Limited in favour of the lenders. - The Class B Surplus Notes have been issued by a US subsidiary of the group as part of a coinsurance structure for the purpose of US statutory regulations. The notes were issued in exchange for bonds of the same value from an unrelated party, included within financial investments on the group's Consolidated Balance Sheet. - The revolving credit facility to Affordable Homes is subject to agreed covenants, the breach of which could result in a charge on the land and work in progress of Legal & General Affordable Homes (Development 2) Limited. - Legal & General Homes Modular Limited's revolving credit facility is secured by way of fixed charges over development properties owned by the company and a fixed charge over the shares in the company. There are also fixed and floating charges over the other assets of the company.
The carrying value of operational borrowings approximates their fair value. The presented fair values reflect observable market information and have been classified as Level 2 in the fair value hierarchy with the exception of Affordable Homes revolving credit facilities which have been classified as Level 3.

Syndicated Credit Facility
As at 31 December 2021, the group had in place a £1bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2024. No amounts were outstanding at 31 December 2021.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 58

3.10 Payables and other financial liabilities

					2021	2020
					£m	£m
Derivative liabilities					15,718	23,208
Repurchase agreements 1					46,331	53,853
Other financial liabilities 2					12,215	14,881
Total payables and other financial liabilities					74,264	91,942
Due within 12 months					53,250	65,316
Due after 12 months					21,014	26,626
1. Repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The significant majority of repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, lease liabilities, FX spots and the value of short positions taken out to cover reverse repurchase agreements. The value of short positions as at 31 December 2021 was £5,418m (2020: £5,147m).
Fair value hierarchy
						Amortised
		Total	Level 1	Level 2	Level 3	cost1
As at 31 December 2021		£m	£m	£m	£m	£m
Derivative liabilities		15,718	331	15,316	71	-
Repurchase agreements		46,331	-	46,331	-	-
Other financial liabilities		12,215	5,438	55	-	6,722
Total payables and other financial liabilities		74,264	5,769	61,702	71	6,722
						Amortised
		Total	Level 1	Level 2	Level 3	cost1
As at 31 December 2020		£m	£m	£m	£m	£m
Derivative liabilities		23,208	300	22,826	82	-
Repurchase agreements		53,853	-	53,853	-	-
Other financial liabilities 2		14,881	7,438	29	11	7,403
Total payables and other financial liabilities		91,942	7,738	76,708	93	7,403
1. The carrying value of payables and other financial liabilities at amortised cost approximates its fair value.
2. For 2020, £2,216m of Other financial liabilities have been reclassified from Amortised cost to Level 1 in the Fair value hierarchy, such that they are consistent with their treatment in the current year.
Significant transfers between levels There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2021 (2020: no significant transfers).

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 59

3.11 Sensitivity analysis

			Impact on		Impact on
			pre-tax	Impact on	pre-tax	Impact on
			group profit	group equity	group profit	group equity
			net of re-	net of re-	net of re-	net of re-
			insurance	insurance	insurance	insurance
			2021	2021	2020	2020
			£m	£m	£m	£m
Economic sensitivity
100bps increase in interest rates1			55	188	260	350
50bps decrease in interest rates1			(77)	(139)	(194)	(227)
50bps increase in future inflation expectations			(41)	(60)	(148)	(119)
Credit spreads widen by 100bps with no change in expected defaults			(311)	(234)	(304)	(246)
25% rise in equity markets			513	423	482	399
25% fall in equity markets			(513)	(423)	(482)	(399)
15% rise in property values			1,299	1,084	1,111	903
15% fall in property values			(1,368)	(1,144)	(1,187)	(964)
10bps increase in credit default assumptions			(765)	(651)	(856)	(692)
10bps decrease in credit default assumptions			754	642	832	672
Non-economic sensitivity
1% increase in annuitant mortality			166	146	209	176
1% decrease in annuitant mortality			(170)	(150)	(218)	(183)
5% increase in assurance mortality			(451)	(357)	(450)	(356)
10% increase in maintenance expenses			(254)	(208)	(254)	(205)
1. Following improvements to the modelling of market risk sensitivities during the current year, the 2020 impacts on pre-tax group profit net of reinsurance under interest rates sensitivities have been restated to be on a basis consistent with the 2021 results. These restatements do not impact any items reported in the Consolidated Income Statement or Consolidated Balance Sheet.

The table above shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario. The group pre-tax profit and equity impacts may arise from asset and / or liability movements under the sensitivities. The current disclosure reflects management's view of key risks in current economic conditions.

In calculating the alternative values, all other assumptions are left unchanged. In practice, items of the group's experience may be correlated.

The sensitivity analyses do not take into account management actions that could be taken to reduce the impacts. The group seeks to actively manage its asset and liability position. A change in market conditions may lead to changes in the asset allocation or charging structure which may have a more, or less, significant impact on the value of the liabilities. The analysis also ignores any second order effects of the assumption change, including the potential impact on the group asset and liability position and any second order tax effects.

The sensitivity of profit to changes in assumptions may not be linear. They should not be extrapolated to changes of a much larger order.

The change in interest rate stress assumes a 100 basis point increase and a 50 basis point decrease in the gross redemption yield on fixed interest securities together with the same change in the real yields on variable securities.  Valuation interest rates are assumed to move in line with market yields, adjusted to allow for prudence calculated in a manner consistent with the base results.

The inflation stress adopted is a 0.5% per annum (pa) increase in inflation, resulting in a 0.5% pa reduction in real yield and no change to the nominal yield. In addition, the expense inflation rate is increased by 0.5% pa.

In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields unchanged, and there has been no adjustment to the default assumptions. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured under the property stress above.

The equity stresses are a 25% rise and 25% fall in listed equity market values.

The property stresses adopted are a 15% rise and 15% fall in property market values including lifetime mortgages. Rental income is assumed to be unchanged.  Where property is being used to back liabilities, valuation interest rates move with property yields, and so the value of the liabilities will also move.

The credit default assumption is set based on the credit rating of individual bonds and their outstanding term using Moody's global credit default rates. The credit default stress assumes a +/-10bps stress to the current unapproved credit default assumption, which will have an impact on the valuation interest rates used to discount liabilities. Other credit default allowances are unchanged. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured under the property stress above.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 60

3.11 Sensitivity analysis (continued)

The annuitant mortality stresses are a 1% increase and 1% decrease in the mortality rates for immediate and deferred annuitants with no change to the mortality improvement rates.

The assurance mortality stress is a 5% increase in the mortality and morbidity rates with no change to the mortality and morbidity improvement rates.

The maintenance expense stress is a 10% increase in all types of maintenance expense in future years.

The group is exposed to climate change through two broad categories:

· Transition risks from the move to a low-carbon economy and the impact this has on both valuation of the group's assets and the broader economic conditions; and

· Physical risks from the impact on asset holdings or changes to insurance liabilities as a result of severe weather events and longer-term shifts in climate.

Climate change impacts will emerge through risks that we are already exposed to, with the key existing risk exposures covered by the economic and non-economic sensitivities shown in this section. In addition, given the uncertain nature of the risks from climate change, and the lack of historical data to support decision making, a specific scenario testing approach over a longer-term time horizon has been developed by the company to manage the risks from climate change. To understand our exposures and how these risks may emerge we have developed our climate scenario modelling capabilities. Possible climate pathways and their impact are considered in the climate scenario analysis detailed in the group's Climate Report for the year ended 31 December 2021.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 61

3.12 Foreign exchange rates

Principal rates of exchange used for translation are:
Year end exchange rates				2021	2020
United States dollar				1.35	1.37
Euro				1.19	1.12
Average exchange rates				2021	2020
United States dollar				1.38	1.28
Euro				1.16	1.13

3.13 Provisions

(a) Analysis of provisions

					2021	2020
				Notes	£m	£m
Other provisions				3.13 (b)	213	123
Retirement benefit obligations				3.13 (c)	1,025	1,165
Total provisions					1,238	1,288
(b) Other provisions
Included within Other provisions are amounts relating to new and existing M&A and restructuring transactions. In 2021, the group announced that Legal & General Investment Management (LGIM) is extending its existing partnership with State Street, to increase the use of Charles River technology across the front office and to deliver middle office services going forward.
As a result of this announcement, in line with the requirements of IAS 37, 'Provisions, Contingent Liabilities and Contingent Assets', a provision was recognised, which reflects the costs that LGIM is committed to incur in order to implement the new arrangement. These costs include the transfer of data and operations to State Street, as well as the implementation of the new operating model. The amounts included in the provision have been determined on a best estimate basis by reference to a range of plausible scenarios, taking into account the multi-year implementation period for the project. As at 31 December 2021, the outstanding provision was £89m.
(c) Retirement benefit obligations
			Fund and	CALA Homes	Fund and	CALA Homes
			Scheme	and Overseas	Scheme	and Overseas
			2021	2021	2020	2020
			£m	£m	£m	£m
Gross pension obligations included in provisions			1,020	5	1,138	27
Annuity obligations insured by LGAS			(990)	-	(1,051)	-
Gross defined benefit pension deficit			30	5	87	27
Deferred tax on defined benefit pension deficit			(8)	(1)	(17)	(5)
Net defined benefit pension deficit			22	4	70	22
The Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) account for the majority of the UK and worldwide assets of, and contributions to, such arrangements. The Fund and Scheme were closed to future accrual on 31 December 2015.

Legal & General Group Plc

Full Year Results 2021 Part 2

IFRS Disclosure Notes   Page 62

3.14 Contingent liabilities, guarantees and indemnities

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

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

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

3.15 Related party transactions
(i) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal & General group of companies during the period. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £109m (31 December 2020: £137m) for all employees.
At 31 December 2021 and 31 December 2020 there were no loans outstanding to officers of the company.
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
					2021	2020
					£m	£m
Salaries					10	8
Share-based incentive awards					5	5
Key management personnel compensation					15	13

(ii) Services provided to and by related parties

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

Loans and commitments to related parties are made in the normal course of business.

The group has entered into the following material related party transactions during the year:

- Annuity contracts issued by Legal and General Assurance Society Limited for consideration of £82m (2020: £50m) have been purchased by the group's UK defined benefit pension schemes, priced on an arm's length basis;

- The Legal & General Group UK Pension and Assurance Fund (the Fund) completed an Assured Payment Policy (APP) transaction with Legal and General Assurance Society Limited (LGAS), a group company. An APP is an investment contract product sold by LGR which, issued to a pension scheme, provides the scheme with a fixed or inflation linked schedule of payments to match the scheme's expected liabilities. In June 2021, £925m was paid by the Fund to LGAS, and LGAS and the Fund recognised an investment contract liability and an APP plan asset of the same amount, respectively.

As at 31 December 2021, LGAS recognised a liability related to this APP transaction with the Fund of £882m which is included in the group's non-participating investment contract liabilities. Following a similar transaction in 2020 between the Legal & General Group UK Senior Pension Scheme (the Scheme) and LGAS, a further £332m (2020: £396m) is included in the group's non-participating investment contract liabilities as at 31 December 2021. The Fund and Scheme hold transferable plan assets of the same amounts which do not eliminate on consolidation.

- Loans outstanding from related parties at 31 December 2021 of £15m (2020: £89m), with a further commitment of £2m;

- The group has total other commitments of £1,158m to related parties (2020: £1,207m), of which £726m has been drawn at 31 December 2021 (2020: £772m).

Legal & General Group Plc

Full Year Results 2021 Part 2

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