L&G H1 2014 Results Part 2

RNS Number : 3772O

Legal & General Group Plc

06 August 2014

IFRS and Cash 27

Operating profit

For the six months ended 30 June 2014


				Full year
		30.06.14	30.06.13¹	31.12.13¹
	Notes	£m	£m	£m


From continuing operations
Legal & General Assurance Society (LGAS)	2.02	223	213	444
Legal & General Retirement (LGR)	2.02	188	151	310
Legal & General Investment Management (LGIM)	2.04	159	152	304
Legal & General Capital (LGC)	2.05	102	86	179
Legal & General America (LGA)		43	53	92


Operating profit from divisions		715	655	1,329
Group debt costs²		(63)	(64)	(127)
Group investment projects and expenses		(16)	(20)	(44)


Operating profit		636	571	1,158
Investment and other variances	2.06	(6)	16	(27)
Gains on non-controlling interests		6	7	13


Profit before tax		636	594	1,144
Tax expense attributable to equity holders of the Company		(129)	(128)	(238)


Profit for the period		507	466	906



Profit attributable to equity holders of the Company		501	459	893




		p	p	p


Earnings per share
Based on profit attributable to equity holders of the Company		8.51	7.82	15.20

Diluted earnings per share
Based on profit attributable to equity holders of the Company		8.42	7.72	15.00


1. Gains on non-controlling interests have been adjusted to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. The impact is to increase gains on non-controlling interests and profit for the period by £2m at H1 13 and £10m at FY 13. The profit attributable to equity holders remains unaffected.
2. Group debt costs exclude interest on non recourse financing.

This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and the Group believes gives shareholders a better understanding of the underlying performance of the business in the period.

Operating profit measures the pre-tax result reflecting longer-term economic assumptions for the Group's insurance businesses and shareholder funds, except for LGA which excludes unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed assumptions are reported below operating profit. Income and expenses arising outside the normal course of business in the period, such as merger and acquisition and restructuring costs, are excluded from operating profit, as are profits and losses arising on the elimination of own debt holdings.

LGAS represents Protection business (retail protection, group protection and general insurance) and Savings business (platforms, workplace, SIPPs, mature savings and with-profits). The LGAS segment also includes Legal & General France (LGF), Legal & General Netherlands (LGN) and emerging markets.

LGR represents Annuities (both individual and bulk purchase) and longevity insurance.

The LGIM segment represents institutional and retail investment management businesses.

LGC represents the medium term investment return (less expenses) on Group invested assets, using assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a monthly basis.

The LGA segment comprises protection business written in the USA.

IFRS and Cash 28

2.01 Operational cash generation


The table below provides an analysis of the operational cash generation by each of the Group's business segments, together with a reconciliation to operating profit before tax.

	Opera-				Changes					Operating
	tional		Net		in			Operating		profit/
	cash	New	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	business	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the six months ended	ration¹	strain	ration	variances	tions	other	and other	after tax	(credit)	tax
30 June 2014	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


LGAS	237	(31)	206	(15)	14	(30)	(2)	173	50	223
- Protection	166	(8)	158	(9)	15	(24)	(2)	138	41	179
- Savings	71	(23)	48	(6)	(1)	(6)	-	35	9	44
LGR	146	20	166	(2)	-	(16)	-	148	40	188
LGIM	125	-	125	-	-	-	-	125	34	159
LGC	82	-	82	-	-	-	-	82	20	102
LGA	44	-	44	-	-	-	(17)	27	16	43


Total from divisions	634	(11)	623	(17)	14	(46)	(19)	555	160	715


Group debt costs	(49)	-	(49)	-	-	-	-	(49)	(14)	(63)
Group investment projects
and expenses	(7)	-	(7)	-	-	-	(6)	(13)	(3)	(16)


Total	578	(11)	567	(17)	14	(46)	(25)	493	143	636


1. Operational cash generation includes dividends remitted from LGF of £1m (H1 13: £1m; FY 13: £2m) and LGN of £14m (H1 13: £nil; FY 13: £14m) within the Protection line and LGA of £44m (H1 13: £43m; FY 13: £44m).

Operational cash generation for LGAS and LGR represents the expected surplus generated in the period from the UK in-force non profit Protection, Savings and Annuities businesses using best estimate assumptions. The LGAS operational cash generation also includes the shareholders' share of bonuses on with-profits business, dividends remitted from LGF and LGN and operating profit after tax from General Insurance and the remaining Savings businesses.

New business strain for LGAS and LGR represents the cost of acquiring new business and setting up regulatory reserves in respect of the new business for UK non profit Protection, Savings and Annuities, net of tax. The new business strain and operational cash generation for both LGAS and LGR exclude required solvency margin from the liability calculation.

Net cash generation for LGAS and LGR is defined as operational cash generation less new business strain.

Operational cash generation and net cash for LGIM and LGC represents the operating profit (net of tax).

The operational cash generation for LGA represents the dividends received.

See Note 2.02 for more detail on experience variances, assumption changes and non-cash items.

IFRS and Cash 29

2.01 Operational cash generation (continued)



	Opera-				Changes					Operating
	tional		Net		in			Operating		profit/
	cash	New	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	business	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the six months ended	ration¹	strain	ration	variances	tions	other	and other	after tax	(credit)	tax
30 June 2013	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


LGAS	231	(54)	177	(2)	26	(52)	14	163	50	213
- Protection	149	(23)	126	3	15	(30)	15	129	39	168
- Savings	82	(31)	51	(5)	11	(22)	(1)	34	11	45
LGR	130	17	147	(1)	-	(30)	-	116	35	151
LGIM	119	-	119	-	-	-	-	119	33	152
LGC	68	-	68	-	-	-	-	68	18	86
LGA	43	-	43	-	-	-	(8)	35	18	53


Total from divisions	591	(37)	554	(3)	26	(82)	6	501	154	655


Group debt costs	(49)	-	(49)	-	-	-	-	(49)	(15)	(64)
Group investment projects
and expenses	(5)	-	(5)	-	-	-	(10)	(15)	(5)	(20)


Total	537	(37)	500	(3)	26	(82)	(4)	437	134	571


1. Operational cash generation includes dividends remitted from LGF of £1m, LGN of £nil and LGA of £43m.


	Opera-				Changes					Operating
	tional		Net		in			Operating		profit/
	cash	New	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	business	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	ration¹	strain	ration	variances	tions	other	and other	after tax	(credit)	tax
31 December 2013	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


LGAS	474	(73)	401	(34)	31	(69)	10	339	105	444
- Protection	310	(15)	295	(7)	20	(47)	10	271	84	355
- Savings	164	(58)	106	(27)	11	(22)	-	68	21	89
LGR	260	33	293	9	(13)	(48)	-	241	69	310
LGIM	239	-	239	-	-	-	-	239	65	304
LGC	137	-	137	-	-	-	-	137	42	179
LGA	44	-	44	-	-	-	14	58	34	92


Total from divisions	1,154	(40)	1,114	(25)	18	(117)	24	1,014	315	1,329


Group debt costs	(97)	-	(97)	-	-	-	-	(97)	(30)	(127)
Group investment projects
and expenses	(15)	-	(15)	-	-	-	(19)	(34)	(10)	(44)


Total	1,042	(40)	1,002	(25)	18	(117)	5	883	275	1,158


1. Operational cash generation includes dividends remitted from LGF of £2m, LGN of £14m and LGA of £44m.

IFRS and Cash 30

2.02 Analysis of LGAS and LGR operating profit


	LGAS	LGR	LGAS	LGR	LGAS	LGR
					Full year	Full year
	30.06.14	30.06.14	30.06.13	30.06.13	31.12.13	31.12.13
	£m	£m	£m	£m	£m	£m


Net cash generation	206	166	177	147	401	293


Experience variances
Persistency	1	-	1	-	5	1
Mortality/Morbidity	(2)	5	3	-	-	14
Expenses	1	-	1	-	(3)	-
BPA Loading	-	-	-	2	-	4
Project and development costs	(7)	(8)	(12)	(5)	(23)	(11)
Other	(8)	1	5	2	(13)	1


Total experience variances	(15)	(2)	(2)	(1)	(34)	9


Changes to valuation assumptions
Persistency	-	-	-	-	7	-
Mortality/Morbidity¹	22	-	11	-	9	(13)
Expenses	-	-	5	-	8	-
Other	(8)	-	10	-	7	-


Total valuation assumption changes	14	-	26	-	31	(13)


Movement in non-cash items
Deferred tax	(1)	-	1	-	(4)	-
Utilisation of brought forward trading losses	(2)	(36)	(3)	(35)	(4)	(70)
Acquisition expense tax relief ²	(19)	-	(29)	-	(51)	-
Deferred Acquisition Costs (DAC)³	(29)	-	(28)	-	(54)	-
Deferred Income Liabilities (DIL)³	22	-	24	-	47	-
Other⁴	(1)	20	(17)	5	(3)	22


Total non-cash movement items	(30)	(16)	(52)	(30)	(69)	(48)


Other	(2)	-	14	-	10	-


Operating profit after tax	173	148	163	116	339	241


Tax gross up	50	40	50	35	105	69


Operating profit before tax	223	188	213	151	444	310


1. The mortality/morbidity valuation assumption change for LGAS primarily relates to a reduction in prudence margin in the regulatory reserving assumptions within retail protection.
2. Net cash for LGAS Protection and insured savings recognises tax relief from prior year acquisition expenses, which were spread evenly over seven years under relevant 'I-E' tax legislation, in the period the cash flows actually occur. In contrast, operating profit typically recognised the value of these future cash flows in the same period as the underlying loss or expense as deferred tax amounts. The reconciling amounts arising from these items are included in the table above. Following the removal of new retail protection business from the I-E tax regime, and the removal of commission from new insured savings business under the Retail Distribution Review at the end of 2012, no material deferred tax assets arise on new acquisition expenses. From 2013, the deferred tax asset on prior period acquisition expenses began to unwind, with a significantly smaller replacement asset being created. This resulted in an initially higher level of net cash in 2013, which is reducing over the following 6 years.
3. The DAC in LGAS represents the amortisation charges offset by new acquisition costs deferred in the year. The DIL reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
4. The other non-cash items in LGR primarily relates to the elimination of intra-group future profits arising from the provision of investment management services at market referenced rates.

IFRS and Cash 31

2.03 General insurance combined operating ratio¹

			Full year
	30.06.14	30.06.13	31.12.13
	%	%	%


General insurance combined operating ratio	88	81	84


1. The calculation of the general insurance combined operating ratio incorporates commission and expenses as a percentage of earned premiums.

2.04 LGIM

			Full year
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Revenue	309	292	594
Expenses	(150)	(140)	(290)


Total LGIM operating profit¹	159	152	304


1. Total LGIM operating profit includes £18m (H1 13: £17m; FY 13: £37m) from LGI.

2.05 LGC

			Full year
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Investment return	109	89	185
Expenses¹	(7)	(3)	(6)


Total LGC operating profit	102	86	179


1. H1 14 LGC expenses include £4m of management expenses previously borne by the Group and allocated as Group expenses.

2.06 Investment and other variances

			Full year
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Investment variance¹	26	42	29
M&A related²	(15)	(11)	(16)
Other³	(17)	(15)	(40)


Total	(6)	16	(27)


1. Investment variance is positive primarily due to favourable default experience and an increase in exposure to Direct Investments in LGR which has enhanced the risk adjusted return. This has been partially offset by lower equity returns from shareholder funds.
2. M&A related includes gains, expenses and intangible amortisation relating to acquisitions.
3. Other includes new business start up costs, restructuring costs and other non-investment related variance items.

IFRS and Cash 32

Consolidated income statement

For the six months ended 30 June 2014

				Full year
		30.06.14	30.06.13¹	31.12.13¹
	Notes	£m	£m	£m


Revenue
Gross written premiums		5,291	3,136	6,162
Outward reinsurance premiums		(514)	(388)	(874)
Net change in provision for unearned premiums		6	(19)	(18)


Net premiums earned		4,783	2,729	5,270
Fees from fund management and investment contracts		548	480	1,040
Investment return		13,481	15,519	32,234
Operational income		372	348	720


Total revenue	2.08	19,184	19,076	39,264


Expenses
Claims and change in insurance liabilities		6,717	2,168	5,767
Reinsurance recoveries		(582)	(500)	(1,113)


Net claims and change in insurance liabilities		6,135	1,668	4,654
Change in provisions for investment contract liabilities		10,864	15,286	30,458
Acquisition costs		436	399	855
Finance costs		90	87	166
Other expenses		869	853	1,694
Transfers to unallocated divisible surplus		50	4	112


Total expenses		18,444	18,297	37,939


Profit before tax		740	779	1,325
Tax expense attributable to policyholder returns		(104)	(185)	(181)


Profit before tax attributable to equity holders		636	594	1,144


Total tax expense		(233)	(313)	(419)
Tax expense attributable to policyholder returns		104	185	181


Tax expense attributable to equity holders	2.13	(129)	(128)	(238)


Profit for the period		507	466	906



Attributable to:
Non-controlling interests		6	7	13
Equity holders of the Company		501	459	893



Dividend distributions to equity holders of the Company during the period	2.15	408	337	479
Dividend distributions to equity holders of the Company proposed after the period end	2.15	172	142	408





		p	p	p


Earnings per share
Based on profit attributable to equity holders of the Company	2.09	8.51	7.82	15.20


Diluted earnings per share
Based on profit attributable to equity holders of the Company	2.09	8.42	7.72	15.00

1. The Consolidated Income Statement has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the profit for the period by £2m at H1 13 and £10m at FY 13.

IFRS and Cash 33

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

			Full year
	30.06.14	30.06.13¹	31.12.13¹
	£m	£m	£m


Profit for the period	507	466	906

Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes	(10)	(7)	(145)
Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus	4	3	49


Total items that will not be reclassified to profit or loss subsequently	(6)	(4)	(96)


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	(28)	12	(16)
Net change in financial investments designated as available-for-sale	20	(43)	(88)


Total items that may be reclassified to profit or loss subsequently	(8)	(31)	(104)


Other comprehensive expense after tax	(14)	(35)	(200)


Total comprehensive income for the period	493	431	706


Total comprehensive income attributable to:
Non-controlling interests	6	7	13
Equity holders of the Company	487	424	693

1. The Consolidated Statement of Comprehensive Income has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the profit for the period by £2m at H1 13 and £10m at FY 13.

IFRS and Cash 34

Consolidated Balance Sheet

As at 30 June 2014

		30.06.14	30.06.13¹	31.12.13¹
	Notes	£m	£m	£m


Assets
Goodwill		73	65	73
Purchased interest in long term businesses and other intangible assets		341	291	308
Deferred acquisition costs		1,848	1,979	1,880
Investment in associates and joint ventures		138	121	101
Property, plant and equipment		136	138	129
Investment property	2.12	7,352	5,638	6,377
Financial investments	2.12	340,170	327,366	334,540
Reinsurers' share of contract liabilities		3,025	2,745	2,897
UK deferred tax asset	2.13	-	138	82
Current tax recoverable		303	205	310
Other assets		3,018	3,512	2,121
Cash and cash equivalents		21,087	16,869	17,454


Total assets		377,491	359,067	366,272



Equity
Share capital		148	148	148
Share premium		966	958	959
Employee scheme treasury shares		(36)	(38)	(39)
Capital redemption and other reserves		54	84	57
Retained earnings		4,579	4,353	4,517


Shareholders' equity		5,711	5,505	5,642
Non-controlling interests	2.19	271	257	265


Total equity		5,982	5,762	5,907



Liabilities
Participating insurance contracts		6,596	7,479	6,972
Participating investment contracts		7,452	7,523	7,493
Unallocated divisible surplus		1,253	1,163	1,221
Value of in-force non-participating contracts		(234)	(235)	(248)


Participating contract liabilities		15,067	15,930	15,438



Non-participating insurance contracts		44,439	38,021	40,273
Non-participating investment contracts		279,084	273,545	278,754


Non-participating contract liabilities		323,523	311,566	319,027



Core borrowings	2.17	2,991	2,457	2,453
Operational borrowings	2.18	692	1,048	775
Provisions		1,143	968	1,128
UK deferred tax liabilities	2.13	28	-	-
Overseas deferred tax liabilities	2.13	402	400	362
Current tax liabilities		12	5	14
Payables and other financial liabilities	2.14	11,281	8,219	9,305
Other liabilities		923	913	1,045
Net asset value attributable to unit holders		15,447	11,799	10,818


Total liabilities		371,509	353,305	360,365


Total equity and liabilities		377,491	359,067	366,272


1. The Consolidated Balance Sheet has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the total equity by £199m at H1 13 and £207m at FY 13.

IFRS and Cash 35

Condensed Consolidated Statement of Changes in Equity

			Employee	Capital
			scheme	redemption			Non-
	Share	Share	treasury	and other	Retained		controlling	Total
	capital	premium	shares	reserves	earnings	Total	interests	equity
For the six months ended 30 June 2014	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January 2014	148	959	(39)	57	4,517	5,642	265	5,907
Total comprehensive income/(expense)
for the period	-	-	-	(8)	495	487	6	493
Options exercised under
share option schemes	-	7	-	-	-	7	-	7
Net movement in employee scheme
treasury shares	-	-	3	(10)	(10)	(17)	-	(17)
Dividends	-	-	-	-	(408)	(408)	-	(408)
Currency translation differences	-	-	-	15	(15)	-	-	-


As at 30 June 2014	148	966	(36)	54	4,579	5,711	271	5,982

For the six months ended 30 June 2013¹


As at 1 January 2013	148	956	(43)	153	4,227	5,441	178	5,619
Total comprehensive income/(expense)
for the period	-	-	-	(31)	455	424	7	431
Options exercised under
share option schemes	-	2	-	-	-	2	-	2
Net movement in employee scheme
treasury shares	-	-	5	(5)	(25)	(25)	-	(25)
Dividends	-	-	-	-	(337)	(337)	-	(337)
Movement in third party interests	-	-	-	-	-	-	72	72
Currency translation differences	-	-	-	(33)	33	-	-	-


As at 30 June 2013	148	958	(38)	84	4,353	5,505	257	5,762




For the year ended 31 December 2013¹


As at 1 January 2013	148	956	(43)	153	4,227	5,441	178	5,619
Total comprehensive income/(expense)
for the year	-	-	-	(104)	797	693	13	706
Options exercised under
share option schemes	-	3	-	-	-	3	-	3
Net movement in employee scheme
treasury shares	-	-	4	9	(29)	(16)	-	(16)
Dividends	-	-	-	-	(479)	(479)	-	(479)
Movement in third party interests	-	-	-	-	-	-	74	74
Currency translation differences	-	-	-	(1)	1	-	-	-


As at 31 December 2013	148	959	(39)	57	4,517	5,642	265	5,907


1. The Condensed Consolidated Statement of Changes in Equity has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the total equity by £199m at H1 13 and £207m at FY 13.

IFRS and Cash 36

Consolidated Cash Flow Statement

For the six months ended 30 June 2014

			Full year
	30.06.14	30.06.13¹	31.12.13¹
	£m	£m	£m


Cash flows from operating activities
Profit for the period	507	466	906
Adjustments for non cash movements in net profit for the period
Realised and unrealised gains on financial investments and investment properties	(8,705)	(10,867)	(21,456)
Investment income	(4,853)	(5,116)	(9,504)
Interest expense	90	87	166
Tax expense	233	313	419
Other adjustments	46	47	98
Net decrease/(increase) in operational assets
Investments held for trading or designated as fair value through profit or loss	2,036	(2,200)	1,952
Investments designated as available-for-sale	164	(5)	60
Other assets	(857)	(2,103)	547
Net increase/(decrease) in operational liabilities
Insurance contracts	3,923	(351)	1,384
Transfer from unallocated divisible surplus	39	10	63
Investment contracts	387	8,584	13,835
Value of in-force non-participating contracts	14	7	(6)
Other liabilities	6,182	7,219	3,883


Cash used in operations	(794)	(3,909)	(7,653)
Interest paid	(103)	(75)	(169)
Interest received	2,430	2,482	4,981
Tax paid²	(97)	(199)	(287)
Dividends received	2,169	2,399	4,497


Net cash flows from operating activities	3,605	698	1,369


Cash flows from investing activities
Net acquisition of plant, equipment and intangibles	(12)	(43)	(48)
Acquisitions (net of cash acquired)³	(18)	(109)	(97)
Disposal of subsidiaries	50	-	-
Investment in joint ventures	(77)	(58)	(68)


Net cash flows from investing activities	(57)	(210)	(213)


Cash flows from financing activities
Dividend distributions to ordinary equity holders of the Company during the period	(408)	(337)	(479)
Proceeds from issue of ordinary share capital	7	2	3
Purchase of employee scheme shares	(3)	(5)	(4)
Proceeds from borrowings	592	747	1,231
Repayment of borrowings	(88)	(687)	(1,115)


Net cash flows from financing activities	100	(280)	(364)


Net increase in cash and cash equivalents	3,648	208	792
Exchange (losses) on cash and cash equivalents	(15)	(1)	-
Cash and cash equivalents at 1 January	17,454	16,662	16,662


Cash and cash equivalents at 30 June / 31 December	21,087	16,869	17,454


1. The Consolidated Cash Flow Statement has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Tax comprises of UK corporation tax paid of £1m (H1 13: £101m; FY 13: £133m), overseas corporate taxes of £7m (H1 13: £2m; FY 13: £6m) and withholding tax of £89m (H1 13: £96m; FY 13: £148m).
3. Net cash flows from acquisitions includes cash paid of £18m (H1 13: £131m; FY 13: £287m) less cash and cash equivalents acquired of £nil (H1 13: £22m; FY 13: £190m).

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

IFRS and Cash 37

2.07 Basis of preparation

The Group's financial information for the period ended 30 June 2014 has been prepared in accordance with the Listing Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting'. The Group's financial information has also been prepared in line with the accounting policies and methods of computation which the Group expects to adopt for the 2014 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2013 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union, except in relation to changes arising from the IASB's consolidation project, as explained below.

The preparation of the interim management report 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. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2013 financial statements except for the changes outlined in Note 2.02. Scheme specific mortality assumptions are used to value bulk purchase annuities.

The results for the six months ended 30 June 2014 are unaudited but have been reviewed by PricewaterhouseCoopers LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results from the full year 2013 have been taken from the Group's 2013 Annual Report and Accounts and have been restated for the adoption of accounting policies noted below. Therefore, these interim accounts should be read in conjunction with the 2013 Annual Report and Accounts that have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Union. Pricewaterhouse Coopers LLP reported on the 2013 financial statements and their report was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The Group's 2013 Annual Report and Accounts has been filed with the Registrar of Companies.

Changes to accounting policy - IASB consolidation project

On 1 January 2014 the application of IFRS 10, 'Consolidated Financial Statements', and IFRS 11, 'Joint Arrangements' became compulsory for entities reporting in the EU.

IFRS 10, 'Consolidated Financial Statements' defines the principle of control and establishes control as the basis for determining which entities are consolidated in the consolidated financial statements. This states that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The application of IFRS 10 has resulted in the Group consolidating a small number of investment vehicles which were not previously consolidated. There is no material impact on the profit reported for the six months ended 30 June 2013 or the year ended 31 December 2013. The effect on profit and total equity previously reported at 30 June 2013 and 31 December 2013 is shown below. The prior period information in the following Notes 2.08, 2.12, 2.14, 2.18 and 2.21 has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'.

IFRS 11, 'Joint Arrangements' defines and establishes accounting principles for joint arrangements. Based on how rights and obligations are shared by parties to the arrangements, it distinguishes between two such types: joint ventures and joint operations. As all of our joint arrangements are classified as joint ventures the adoption of this Standard has no impact upon the Group.

IFRS and Cash 38

2.07 Basis of preparation (continued)

	As			As
	previously	IFRS 10		previously	IFRS 10
	reported	Impact	Restated	reported	Impact	Restated
	30.06.13	30.06.13	30.06.13	31.12.13	31.12.13	31.12.13
Consolidated Income Statement	£m	£m	£m	£m	£m	£m


Investment return	15,515	4	15,519	32,221	13	32,234
Finance costs	(85)	(2)	(87)	(163)	(3)	(166)
Profit for the period	464	2	466	896	10	906


Attributable to:
Non-controlling interests	5	2	7	3	10	13
Equity holders of the Company	459	-	459	893	-	893


	As			As
	previously	IFRS 10		previously	IFRS 10
	reported	Impact	Restated	reported	Impact	Restated
	30.06.13	30.06.13	30.06.13	31.12.13	31.12.13	31.12.13
Consolidated Balance Sheet	£m	£m	£m	£m	£m	£m


Assets
Investment property	5,377	261	5,638	6,060	317	6,377
Financial investments	326,079	1,287	327,366	331,802	2,738	334,540
Other assets	3,506	6	3,512	2,115	6	2,121
Cash and cash equivalents	16,759	110	16,869	17,407	47	17,454
Shareholders' equity
Non-controlling interests	58	199	257	58	207	265
Liabilities
Operational borrowings	958	90	1,048	704	71	775
Payables and other financial liabilities	8,160	59	8,219	8,931	374	9,305
Other liabilities	901	12	913	1,032	13	1,045
Net asset value attributable to unit holders	10,495	1,304	11,799	8,375	2,443	10,818

Key technical terms and definitions

The interim management report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary of the Group's 2013 Annual Report and Accounts.

IFRS and Cash 39

2.08 Segmental analysis

Reportable segments

The Group has five reportable segments comprising LGAS, LGR, LGIM, LGA, LGC and group expenses.

LGR represents Annuities (both individual and bulk purchase) and longevity insurance.

The LGIM segment represents institutional and retail investment management businesses.

The LGC segment includes shareholders' equity supporting the non profit LGR and LGAS businesses held within Society and Legal & General Pensions Limited (LGPL) and capital held by the Group's treasury function. LGC and group expenses also incorporates inter-segmental eliminations and consolidated unit trusts and property partnerships managed on behalf of clients which do not constitute a separately reportable segment.

The LGA segment represents protection business written in the USA.

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

IFRS and Cash 40

2.08 Segmental analysis (continued)
(a) Operating profit/(loss)

						Group
						expenses
						and debt
	LGAS	LGR	LGIM	LGC	LGA	costs	Total
For the six months ended 30 June 2014	£m	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	223	188	159	102	43	(79)	636
Investment and other variances¹	(4)	76	(5)	(44)	(3)	(26)	(6)
Gains attributable to non-controlling interests	-	-	-	-	-	6	6


Profit/(loss) from continuing operations before tax	219	264	154	58	40	(99)	636
Tax (expense)/credit attributable to equity holders
of the Company²	(50)	(56)	(33)	6	(21)	25	(129)


Profit/(loss) for the period after tax	169	208	121	64	19	(74)	507




						Group
						expenses
						and debt
	LGAS	LGR	LGIM	LGC	LGA	costs	Total
For the six months ended 30 June 2013	£m	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	213	151	152	86	53	(84)	571
Investment and other variances	(51)	55	(2)	45	(1)	(30)	16
Gains attributable to non-controlling interests³	-	-	-	-	-	7	7


Profit/(loss) from continuing operations before tax	162	206	150	131	52	(107)	594
Tax (expense)/credit attributable to equity holders
of the Company	(63)	(22)	(33)	(15)	(18)	23	(128)


Profit/(loss) for the period after tax	99	184	117	116	34	(84)	466




						Group
						expenses
						and debt
	LGAS	LGR	LGIM	LGC	LGA	costs	Total
For the year ended 31 December 2013	£m	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	444	310	304	179	92	(171)	1,158
Investment and other variances	(73)	63	(6)	60	(13)	(58)	(27)
Gains attributable to non-controlling interests³	-	-	-	-	-	13	13


Profit/(loss) from continuing operations before tax	371	373	298	239	79	(216)	1,144
Tax (expense)/credit attributable to equity holders
of the Company	(83)	(83)	(65)	(27)	(43)	63	(238)


Profit/(loss) for the year after tax	288	290	233	212	36	(153)	906


1. Positive investment and other variances for LGR are primarily due to favourable default experience and an increase in exposure to Direct Investments which has enhanced the risk adjusted return. Negative investment and other variances for LGC reflect lower equity returns from shareholder funds.
2. The tax credit for LGC primarily reflects an increase in the deferred tax asset recognised in respect of capital losses.
3. The segmental analysis of operating profit/(loss) has been restated to reflect the adoption by the Group of IFRS 10 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase profit for the period by £2m at H1 13 and £10m at FY 13.

IFRS and Cash 41

2.08 Segmental analysis (continued)
(b) Revenue

					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses	Total
For the six months ended 30 June 2014	£m	£m	£m	£m	£m	£m


Internal revenue	150	-	69	(98)	(121)	-
External revenue	3,156	5,300	10,264	197	267	19,184


Total revenue	3,306	5,300	10,333	99	146	19,184




					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses	Total
For the six months ended 30 June 2013¹	£m	£m	£m	£m	£m	£m


Internal revenue	106	-	73	(74)	(105)	-
External revenue	3,462	1,129	13,900	235	350	19,076


Total revenue	3,568	1,129	13,973	161	245	19,076




					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses	Total
For the year ended 31 December 2013¹	£m	£m	£m	£m	£m	£m


Internal revenue	210	-	146	(71)	(285)	-
External revenue	6,600	4,468	27,173	460	563	39,264


Total revenue	6,810	4,468	27,319	389	278	39,264


1. The segmental analysis of revenue has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the total revenue by £4m at H1 13 and £13m at FY 13.

Total revenue includes investment return of £13,481m (H1 13: £15,519m; FY 13: £32,234m).

IFRS and Cash 42

2.08 Segmental analysis (continued)
(c) Consolidated balance sheet

					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses¹	Total
As at 30 June 2014	£m	£m	£m	£m	£m	£m


Assets
Investments	52,430	38,247	249,116	1,944	27,010	368,747
Other assets	11,329	1,118	1,987	2,511	(8,201)	8,744


Total assets	63,759	39,365	251,103	4,455	18,809	377,491



Shareholders' equity	820	-	566	787	3,538	5,711
Non-controlling interests	-	-	-	-	271	271


Total equity	820	-	566	787	3,809	5,982



Liabilities
Core borrowings	-	-	-	-	2,991	2,991
Operational borrowings²	230	1	5	260	196	692
Participating contract liabilities	15,068	-	-	-	(1)	15,067
Non-participating contract liabilities	44,352	36,326	242,034	1,708	(897)	323,523
Other liabilities	3,289	3,038	8,498	1,700	12,711	29,236


Total liabilities	62,939	39,365	250,537	3,668	15,000	371,509


Total equity and liabilities	63,759	39,365	251,103	4,455	18,809	377,491


1. LGC and group expenses includes inter-segmental eliminations and net asset value attributable to unit holders.
2. Includes non recourse financing.


					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses¹	Total
As at 30 June 2013³	£m	£m	£m	£m	£m	£m


Assets
Investments	51,772	32,139	245,327	2,221	18,535	349,994
Other assets	9,243	1,307	2,316	2,499	(6,292)	9,073


Total assets	61,015	33,446	247,643	4,720	12,243	359,067



Shareholders' equity	772	-	522	935	3,276	5,505
Non-controlling interests	-	-	-	-	257	257


Total equity	772	-	522	935	3,533	5,762



Liabilities
Core borrowings	-	-	-	-	2,457	2,457
Operational borrowings²	244	-	10	293	501	1,048
Participating contract liabilities	15,937	-	-	-	(7)	15,930
Non-participating contract liabilities	40,615	29,822	240,091	1,828	(790)	311,566
Other liabilities	3,447	3,624	7,020	1,664	6,549	22,304


Total liabilities	60,243	33,446	247,121	3,785	8,710	353,305


Total equity and liabilities	61,015	33,446	247,643	4,720	12,243	359,067


1. LGC and group expenses include inter-segmental eliminations and net asset value attributable to the unit holders.
2. Includes non recourse financing.
3. The segmental analysis of consolidated balance sheet has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the total equity by £199m at H1 13 and £207m at FY 13.

IFRS and Cash 43

2.08 Segmental analysis (continued)
(c) Consolidated balance sheet (continued)

					LGC
					and
					group
	LGAS	LGR	LGIM	LGA	expenses¹	Total
As at 31 December 2013³	£m	£m	£m	£m	£m	£m


Assets
Investments	52,619	33,974	249,396	1,998	20,485	358,472
Other assets	9,891	2,491	1,335	2,393	(8,310)	7,800


Total assets	62,510	36,465	250,731	4,391	12,175	366,272



Shareholders' equity	783	-	421	816	3,622	5,642
Non-controlling interests	-	-	-	-	265	265


Total equity	783	-	421	816	3,887	5,907



Liabilities
Core borrowings	-	-	-	-	2,453	2,453
Operational borrowings²	252	2	8	268	245	775
Participating contract liabilities	15,438	-	-	-	-	15,438
Non-participating contract liabilities	42,939	32,218	243,009	1,708	(847)	319,027
Other liabilities	3,098	4,245	7,293	1,599	6,437	22,672


Total liabilities	61,727	36,465	250,310	3,575	8,288	360,365


Total equity and liabilities	62,510	36,465	250,731	4,391	12,175	366,272


1. LGC and group expenses include inter-segmental eliminations and net asset value attributable to unit holders.
2. Includes non recourse financing.
3. The segmental analysis of consolidated balance sheet has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07. The impact is to increase the total equity by £199m at H1 13 and £207m at FY 13.

IFRS and Cash 44

2.09 Earnings per share

(a) Earnings per share


	Profit	Earnings	Profit	Earnings
	after tax	per share¹	after tax	per share¹
	30.06.14	30.06.14	30.06.13	30.06.13
	£m	p	£m	p


Operating profit	493	8.38	437	7.44
Investment and other variances	9	0.15	21	0.36
Impact of change in UK tax rates	(1)	(0.02)	1	0.02


Earnings per share based on profit
attributable to equity holders	501	8.51	459	7.82





			Profit	Earnings
			after tax	per share¹
			Full year	Full year
			31.12.13	31.12.13
			£m	p


Operating profit			883	15.03
Investment and other variances			13	0.22
Impact of change in UK tax rates			(3)	(0.05)


Earnings per share based on profit
attributable to equity holders			893	15.20

(b) Diluted earnings per share


	Profit	Number	Earnings	Profit	Number	Earnings
	after tax	of shares²	per share	after tax	of shares²	per share
	30.06.14	30.06.14	30.06.14	30.06.13	30.06.13	30.06.13
	£m	m	p	£m	m	p


Profit attributable to equity holders of the Company	501	5,884	8.51	459	5,875	7.82
Net shares under options allocable for no further consideration	-	65	(0.09)	-	70	(0.10)


Diluted earnings per share	501	5,949	8.42	459	5,945	7.72




				Profit	Number	Earnings
				after tax	of shares²	per share
				Full year	Full year	Full year
				31.12.13	31.12.13	31.12.13
				£m	m	p


Profit attributable to equity holders of the Company				893	5,875	15.20
Net shares under options allocable for no further consideration				-	79	(0.20)


Diluted earnings per share				893	5,954	15.00




1. Earnings per share is calculated by dividing profit after tax derived from continuing operations by the weighted average number of ordinary shares in issue during the year, excluding employee scheme treasury shares.
2. 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.

IFRS and Cash 45

2.10 Acquisition

Global Index Advisors Inc.

On 19 May 2014, the Group acquired the trade and assets of Global Index Advisors Inc., an asset management advisory based in Atlanta, US. The acquisition provides the Group with opportunities to accelerate growth into the US Defined Contribution market.

								30.06.14
								£m


Total cash and deferred contingent consideration for 100% acquisition								24


Recognised amounts of identifiable assets transferred and liabilities assumed at fair value
Intangibles								38
Deferred tax liabilities								(14)


Net assets attributable to equity holders of the Company								24



Deferred contingent consideration represents amounts payable for the trade and assets of Global Index Advisors Inc. contingent on meeting certain financial performance targets over a 1 to 2 year period. The range of undiscounted amounts the company could pay under the contingent consideration arrangements is between £nil and £6.9m.

2.11 Disposal

On 28 May 2014, the Group sold Amber Taverns, the operator of 95 community pubs in the North of England to funds managed by MxP Partners LLP and their associates for £50m. The carrying value of the company was c£37m, realising the profit on disposal of c£13m reported in the operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the with-profits fund.

2.12 Financial investments and Investment property

			Full Year
	30.06.14	30.06.13¹	31.12.13¹
	£m	£m	£m


Equities	161,552	161,123	166,663
Unit trusts	7,252	6,819	7,426
Debt securities²	164,104	152,720	153,742
Accrued interest	1,548	1,575	1,633
Derivative assets³	5,251	4,768	4,746
Loans and receivables	463	361	330


Financial investments	340,170	327,366	334,540


Investment property	7,352	5,638	6,377


Total financial investments and investment property	347,522	333,004	340,917


1. Financial investments and Investment property and fair value hierarchy have been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.05.
3. Derivatives are used to ensure 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 and include £2,888m (H1 13: £2,427m; FY 13: £2,391m) held on behalf of unit linked policyholders.

IFRS and Cash 46

2.12 Financial investments and Investment property (continued)
(a) Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Group's view of market assumptions in the absence of observable market information. The Group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. The levels of fair value measurement bases are defined as follows: Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs). All of the Group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg, which use mathematical modelling and multiple source validation in order to determine "consensus" prices, except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have classified them as level 2. These CDOs are valued using an external valuation based on observable market inputs, which include CDX and iTraxx index tranches and CDS spreads on underlying reference entities. This is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2. The following table presents the Group's assets by IFRS 13 hierarchy levels:

					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the six months ended 30 June 2014	£m	£m	£m	£m	£m


Shareholder
Equity securities	1,445	1,268	24	153	-
Debt securities	5,135	2,124	2,846	165	-
Accrued interest	45	19	24	2	-
Derivative assets	153	52	101	-	-
Loans and receivables	178	-	-	-	178
Investment property	328	-	-	328	-


Non profit non-unit linked
Equity securities	84	72	12	-	-
Debt securities	33,330	5,343	27,115	872	-
Accrued interest	404	38	359	7	-
Derivative assets	2,184	313	1,871	-	-
Loans and receivables	-	-	-	-	-
Investment property	1,692	-	-	1,692	-


With-profits
Equity securities	4,206	3,674	13	519	-
Debt securities	10,619	4,377	6,225	17	-
Accrued interest	146	52	94	-	-
Derivative assets	26	24	2	-	-
Loans and receivables	30	-	-	-	30
Investment property	961	-	-	961	-


Unit linked
Equity securities	163,069	160,615	2,127	327	-
Debt securities	115,020	78,246	36,771	3	-
Accrued interest	953	343	610	-	-
Derivative assets	2,888	908	1,980	-	-
Loans and receivables	255	-	-	-	255
Investment property	4,371	-	-	4,371	-


Total financial investments and investment property	347,522	257,468	80,174	9,417	463

IFRS and Cash 47

2.12 Financial investments and Investment property (continued)
(a) Fair value hierarchy (continued)

					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the six months ended 30 June 2013¹	£m	£m	£m	£m	£m


Shareholder
Equity securities	1,439	1,222	70	147	-
Debt securities	5,959	2,388	3,571	-	-
Accrued interest	53	25	28	-	-
Derivative assets	237	35	202	-	-
Loans and receivables	80	-	-	-	80
Investment property	141	-	-	141	-


Non profit non-unit linked
Debt securities	28,089	3,736	24,328	25	-
Accrued interest	370	29	341	-	-
Derivative assets	2,077	18	2,059	-	-
Loans and receivables	-	-	-	-	-
Investment property	924	-	-	924	-


With-profits
Equity securities	4,449	3,933	8	508	-
Debt securities	11,039	4,524	6,510	5	-
Accrued interest	159	59	100	-	-
Derivative assets	27	17	10	-	-
Loans and receivables	26	-	-	-	26
Investment property	1,041	-	-	1,041	-


Unit linked
Equity securities	162,054	159,690	2,078	286	-
Debt securities	107,633	68,503	39,129	1	-
Accrued interest	993	333	660	-	-
Derivative assets	2,427	168	2,259	-	-
Loans and receivables	255	-	-	-	255
Investment property	3,532	-	-	3,532	-


Total financial investments and investment property	333,004	244,680	81,353	6,610	361


1. This has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.

IFRS and Cash 48

2.12 Financial investments and Investment property (continued)
(a) Fair value hierarchy (continued)

					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the year ended 31 December 2013¹	£m	£m	£m	£m	£m


Shareholder
Equity securities	1,609	1,435	28	146	-
Debt securities	5,624	2,071	3,493	60	-
Accrued interest	55	26	29	-	-
Derivative assets	207	62	145	-	-
Loans and receivables	79	-	-	-	79
Investment property	153	-	-	153	-


Non profit non-unit linked
Equity securities	83	72	-	11	-
Debt securities	29,251	4,371	24,331	549	-
Accrued interest	400	38	358	4	-
Derivative assets	2,100	171	1,929	-	-
Loans and receivables	-	-	-	-	-
Investment property	1,294	-	-	1,294	-


With-profits
Equity securities	4,506	3,956	19	531	-
Debt securities	10,357	4,155	6,184	18	-
Accrued interest	152	53	99	-	-
Derivative assets	48	43	5	-	-
Loans and receivables	30	-	-	-	30
Investment property	979	-	-	979	-


Unit linked
Equity securities	167,891	164,917	2,688	286	-
Debt securities	108,510	62,400	46,108	2	-
Accrued interest	1,026	313	713	-	-
Derivative assets	2,391	625	1,766	-	-
Loans and receivables	221	-	-	-	221
Investment property	3,951	-	-	3,951	-


Total financial investments and investment property	340,917	244,708	87,895	7,984	330


1. This has been restated to reflect the adoption by the Group of IFRS 10 'Consolidated Financial Statements'. Further details are contained in Note 2.07.

IFRS and Cash 49

2.12 Financial investments and Investment property (continued)

(b) Assets measured at fair value based on level 3

Level 3 assets where internal models are used to represent a small proportion of assets to which shareholders are exposed, comprise both property and unquoted equities, the latter including investments in private equity, property vehicles and suspended securities.

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

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

Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted in inactive markets for certain of the Group's financial instruments. As a result, there is generally no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have been used had a ready market existed, and the differences could be material. As a result, such calculated fair value estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.

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

There have been no significant transfers between level 1 and level 2 for the period ended 30 June 2014 (H1 13: £nil; FY 13: £nil).

IFRS and Cash 50

2.12 Financial investments and Investment property (continued)
(b) Assets measured at fair value based on level 3 (continued)

		Other				Other
		financial				financial
	Equity	invest-	Investment		Equity	invest-	Investment
	securities	ments¹	property	Total	securities	ments¹	property	Total
	30.06.14	30.06.14	30.06.14	30.06.14	30.06.13³	30.06.13³	30.06.13³	30.06.13³
	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January	974	633	6,377	7,984	891	99	5,438	6,428
Total gains or (losses) for the period				-
recognised in profit:
- in other comprehensive income	-	5	-	5	-	-	-	-
- realised gains or (losses)	(24)	2	58	36	(60)	(1)	38	(23)
- unrealised gains	45	23	179	247	43	-	15	58
Purchases / Additions	37	426	863	1,326	258	-	497	755
Improvements	-	-	7	7	-	-	-	-
Sales / Disposals	(50)	(125)	(132)	(307)	(212)	-	(350)	(562)
Transfers into level 3²	30	112	-	142	21	1	-	22
Transfers out of level 3²	(13)	(10)	-	(23)	-	(67)	-	(67)
Other	-	-	-	-	-	(1)	-	(1)


As at 30 June	999	1,066	7,352	9,417	941	31	5,638	6,610


1. Other financial investments comprise debt securities and derivative assets.
2. The Group holds regular discussion with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as result of this process.
3. This has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.


						Other
						financial
					Equity	invest-	Investment
					securities	ments¹	property	Total
					31.12.13³	31.12.13³	31.12.13³	31.12.13³
					£m	£m	£m	£m


As at 1 January					891	99	5,438	6,428
Total gains or (losses) for the year
recognised in profit:
- in other comprehensive income					-	(1)	-	(1)
- realised gains or (losses)					(74)	2	33	(39)
- unrealised gains or (losses)					81	(2)	215	294
Purchases / Additions					365	397	1,306	2,068
Improvements					-	-	23	23
Sales / Disposals					(323)	(4)	(638)	(965)
Transfers into level 3²					34	143	-	177
Transfers out of level 3²					-	(1)	-	(1)
Other					-	-	-	-


As at 31 December					974	633	6,377	7,984


1. Other financial investments comprise debt securities and derivative assets.
2. The Group holds regular discussion with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as result of this process.
3. This has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.

IFRS and Cash 51

2.12 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets

Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the level 3 financial instruments carried at fair value as at the balance sheet date, the valuation basis, main assumptions used in the valuation of these instruments and reasonably possible increases or decreases in fair value based on reasonably possible alternative assumptions.

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the six months ended 30 June 2014		Main	value	value	value
Financial instruments and investment property		assumptions	£m	£m	£m


Assets
Shareholder
- Unquoted investments in property vehicles²	Property yield; occupancy		153	16	(16)
- Untraded debt securities	Cash flows; expected defaults		167	8	(8)
- Investment property²	Property yield; occupancy		328	16	(16)

Non profit non-linked
- Untraded debt securities	Cash flows; expected defaults		879	29	(29)
- Investment property²	Property yield; occupancy		1,692	85	(85)

With-profits
- Private equity investment vehicles¹	Price earnings multiple		170	9	(9)
- Unquoted investments in property vehicles²	Property yield; occupancy		366	19	(19)
- Investment property²	Property yield; occupancy		961	48	(48)

Unit linked
- Unquoted investments in property vehicles²	Property yield; occupancy		321	23	(23)
- Suspended securities	Estimated recoverable amount		6	1	(1)
- Asset backed securities	Cash flows; expected defaults		3	-	-
- Investment property²	Property yield; occupancy		4,371	210	(210)


Total			9,417	464	(464)


1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

IFRS and Cash 52

2.12 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the six months ended 30 June 2013¹		Main	value	value	value
Financial instruments and investment property		assumptions	£m	£m	£m


Assets
Shareholder
- Private equity investment vehicles²	Price earnings multiple		15	1	(1)
- Unquoted investments in property vehicles³	Property yield; occupancy		132	8	(8)
- Investment property³	Property yield; occupancy		141	7	(7)

Non profit non-linked
- Unquoted investments in property vehicles³	Property yield; occupancy		25	1	(1)
- Investment property³	Property yield; occupancy		924	46	(46)

With-profits
- Private equity investment vehicles²	Price earnings multiple		211	14	(14)
- Unquoted investments in property vehicles³	Property yield; occupancy		302	15	(15)
- Investment property³	Property yield; occupancy		1,041	52	(52)

Unit linked
- Unquoted investments in property vehicles³	Property yield; occupancy		250	12	(12)
- Suspended securities	Estimated recoverable amount		16	6	(6)
- Asset backed securities	Cash flows; expected defaults		21	7	(7)
- Investment property³	Property yield; occupancy		3,532	176	(176)


Total			6,610	345	(345)


1. This has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
3. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

IFRS and Cash 53

2.12 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the year ended 31 December 2013¹		Main	value	value	value
Financial instruments and investment property		assumptions	£m	£m	£m


Assets
Shareholder
- Private equity investment vehicles²	Price earnings multiple		24	1	(1)
- Unquoted investments in property vehicles³	Property yield; occupancy		131	9	(9)
- Untraded debt securities	Cash flows; expected defaults		51	3	(3)
- Investment property³	Property yield; occupancy		153	7	(7)

Non profit non-linked
- Untraded debt securities	Cash flows; expected defaults		162	1	(1)
- Asset backed securities	Cash flows; expected defaults		402	20	(20)
- Investment property³	Property yield; occupancy		1,294	65	(65)

With-profits
- Private equity investment vehicles²	Price earnings multiple		213	14	(14)
- Unquoted investments in property vehicles³	Property yield; occupancy		336	17	(17)
- Investment property³	Property yield; occupancy		979	49	(49)

Unit linked
- Unquoted investments in property vehicles³	Property yield; occupancy		265	13	(13)
- Suspended securities	Estimated recoverable amount		17	1	(1)
- Untraded debt securities	Cash flows; expected defaults		6	2	(2)
- Investment property³	Property yield; occupancy		3,951	198	(198)


Total			7,984	400	(400)


1. This has been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
3. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

IFRS and Cash 54

2.13 Tax
(a) Tax charge in the Consolidated Income Statement

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

			Full year
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Profit before tax attributable to equity holders	636	594	1,144
Tax at 21.5% (2013: 23.25%)	137	138	266
Effects of:
Adjustments in respect of prior years, mainly relating to resolution of tax issues with HMRC	1	(1)	4
Differences between taxable and accounting investment gains e.g. RPI relief	(1)	(3)	(19)
Income not subject to tax, such as dividends	(2)	(7)	(6)
Change in valuation of tax losses	(17)	(6)	(19)
Higher rate of tax on profits taxed overseas	15	7	23
(Additional)/ Non deductible expenses	(3)	3	(11)
Impact of reduction in UK corporate tax rate on deferred tax balances	1	(1)	3
Other	(2)	(2)	(3)


Tax attributable to equity holders	129	128	238


Equity holders' effective tax rate¹	20.3%	21.6%	20.8%


1. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.

(b) Deferred Tax

			Full year
	30.06.14	30.06.13	31.12.13
(i) UK deferred tax (liabilities)/ assets	£m	£m	£m


Realised and unrealised (gains)/ losses on investments¹	(154)	(91)	(160)
Excess of depreciation over capital allowances	21	42	24
Excess expenses²	145	189	192
Deferred acquisition expenses	(66)	(96)	(72)
Difference between the tax and accounting value of insurance contracts	(95)	(76)	(70)
Accounting provisions	3	19	8
Trading losses³	53	97	93
Pension fund deficit	90	81	93
Purchased interest in long term business	(25)	(27)	(26)


Net UK deferred tax (liabilities)/ assets⁴	(28)	138	82



(ii) Overseas deferred tax (liabilities)/ assets


Realised and unrealised (gains)/ losses on investments	(48)	(62)	(33)
Deferred acquisition expenses	(256)	(251)	(241)
Difference between the tax and accounting value of insurance contracts	(216)	(297)	(229)
Accounting provisions	(20)	(7)	(20)
Trading losses	149	214	158
Pension fund deficit	2	3	3
Purchased interest in long term business	(13)	-	-


Net Overseas deferred tax (liabilities)/ assets	(402)	(400)	(362)


1. The sustained strength of equity markets resulted in a continued net deferred tax liability on the realised and unrealised capital gains.
2. The reduction in the deferred tax asset on excess expenses reflects the unwind of the spread acquisition expenses relating to changes in the I-E legislation.
3. The reduction in the deferred tax asset is due to utilisation of brought forward trading losses against LGR taxable profits.
4. The move to a net deferred tax liability provision in the UK reflects the continued utilisation of tax losses and corresponding reduction in deferred tax asset while the deferred tax liability on realised and unrealised gains has increased. Therefore the UK deferred tax asset on the Consolidated Balance Sheet is zero.

IFRS and Cash 55

2.14 Payables and other financial liabilities

					Full year
			30.06.14	30.06.13¹	31.12.13¹
			£m	£m	£m


Derivative liabilities			3,469	4,148	3,119
Collateral received from banks			16	-	989
Other²			7,796	4,071	5,197


Payables and other financial liabilities			11,281	8,219	9,305


1. Payables and other financial liabilities and fair value hierarchy have been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Other liabilities include amounts payable to brokers for the settlement of investment trades and obligations under repurchase agreements.

Other includes future commission payments which have contingent settlement provisions of £189m (H1 13: £183m; FY 13: £176m). This liability has been determined using the net present value of the future commission which will be payable on fund values. This valuation technique uses assumptions which are consistent with the Group's effective rate of interest, investment return assumptions and persistency assumptions used in other valuations, but it is not determined by reference to published price quotations.

Fair value hierarchy
					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 30 June 2014	£m	£m	£m	£m	£m


Derivative liabilities	3,469	415	3,054	-	-
Collateral received from banks	16	-	16	-	-
Other	7,796	78	43	194	7,481


Payables and other financial liabilities	11,281	493	3,113	194	7,481




					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 30 June 2013	£m	£m	£m	£m	£m


Derivative liabilities	4,148	394	3,754	-	-
Collateral received from banks	-	-	-	-	-
Other	4,071	233	129	183	3,526


Payables and other financial liabilities	8,219	627	3,883	183	3,526




					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2013	£m	£m	£m	£m	£m


Derivative liabilities	3,119	274	2,845	-	-
Collateral received from banks	989	989	-	-	-
Other	5,197	432	43	176	4,546


Payables and other financial liabilities	9,305	1,695	2,888	176	4,546



Trail commissions are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the income statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing or decreasing the liability by £6m (H1 13: £5m; FY 13: £5m).

Level 3 'Other' financial liabilities also includes £5m deferred contingent consideration payable on the GIA acquisition.

Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2014 (H1 13 and FY 13: No significant transfers between levels 1, 2 and 3).

IFRS and Cash 56

2.15 Dividends

		Per		Per		Per
	Dividend	share¹	Dividend¹	share¹	Dividend	share¹
						Full year
	30.06.14	30.06.14	30.06.13	30.06.13	31.12.13	31.12.13
	£m	p	£m	p	£m	p


Ordinary share dividends paid in the period
- Prior year final dividend	408	6.90	337	5.69	337	5.69
- Current year interim dividend	-	-	-	-	142	2.40


	408	6.90	337	5.69	479	8.09


Ordinary share dividend proposed²	172	2.90	142	2.40	408	6.90


1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. The dividend proposed is not included as a liability on the Consolidated Balance Sheet.

2.16 Ordinary shares
	Number of	Number of	Number of
	shares	shares	shares
			Full year
	30.06.14	30.06.13	31.12.13


As at 1 January	5,917,066,636	5,912,782,826	5,912,782,826
Options exercised under share option schemes
- Executive share option scheme¹	-	1,261,956	1,422,327
- Savings related share option scheme	18,430,871	1,400,587	2,861,483


As at 30 June / 31 December	5,935,497,507	5,915,445,369	5,917,066,636


1. All outstanding Executive share option scheme awards were vested or lapsed in 2013 as there have been no Executive share option scheme awards since 2004.

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.

IFRS and Cash 57

2.17 Core Borrowings

	Carrying	Fair	Carrying	Fair	Carrying	Fair
	amount	value	amount	value	amount	value
					Full year	Full year
	30.06.14	30.06.14	30.06.13	30.06.13	31.12.13	31.12.13
	£m	£m	£m	£m	£m	£m


Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)	669	654	690	620	680	650
5.875% Sterling undated subordinated notes (Tier 2)	416	439	418	425	418	438
4.0% Euro subordinated notes 2025 (Tier 2)	474	491	498	523	498	531
10% Sterling subordinated notes 2041 (Tier 2)	310	417	309	411	309	417
5.5% Sterling subordinated notes 2064 (Tier 2)	588	594	-	-	-	-
Client fund holdings of Group debt¹	(22)	(23)	(11)	(11)	(13)	(13)


Total subordinated borrowings	2,435	2,572	1,904	1,968	1,892	2,023



Senior borrowings
Sterling medium term notes 2031-2041	602	728	602	712	608	721
Client fund holdings of Group debt¹	(46)	(55)	(49)	(49)	(47)	(55)


Total senior borrowings	556	673	553	663	561	666


Total core borrowings	2,991	3,245	2,457	2,631	2,453	2,689


1. £68m (H1 13: £60m; FY 13: £60m) of the Group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

All of the Group's core borrowings are measured using amortised cost. The presented fair values of the Group's core borrowings reflect quoted prices in active markets and they are classified as level 1 in the fair value hierarchy.

Subordinated borrowings

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. 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% pa. For regulatory purposes these securities are treated as innovative tier 1 capital.

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% pa. These notes are treated as tier 2 capital for regulatory purposes.

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% pa. These notes mature on 8 June 2025 and are treated as tier 2 capital for regulatory purposes.

10% Sterling subordinated notes 2041

In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as tier 2 capital for regulatory purposes.

5.5% Sterling subordinated notes 2064

On 19 June 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% pa. These notes mature on 27 June 2064 and are treated as tier 2 capital for regulatory purposes.

IFRS and Cash 58

2.18 Operational Borrowings

	Carrying	Fair	Carrying	Fair	Carrying	Fair
	amount	value	amount	value	amount	value
					Full year	Full year
	30.06.14	30.06.14	30.06.13¹	30.06.13¹	31.12.13¹	31.12.13¹
	£m	£m	£m	£m	£m	£m


Short term operational borrowings
Euro Commercial paper	123	123	346	346	173	173
Bank loans/other	13	13	25	25	16	16


Total short term operational borrowings	136	136	371	371	189	189


Non recourse borrowings
US Dollar Triple X securitisation 2037	260	225	293	293	268	230
Suffolk Life unit linked borrowings	106	106	109	109	116	116
LGV 6/LGV 7 Private Equity Fund Limited Partnership	116	116	127	127	131	131
Consolidated Property Limited Partnerships	129	129	148	148	129	129


Total non recourse borrowings	611	576	677	677	644	606


Group holding of operational borrowings²	(55)	(48)	-	-	(58)	(49)


Total operational borrowings	692	664	1,048	1,048	775	746


1. Operational Borrowings have been restated to reflect the adoption by the Group of IFRS 10, 'Consolidated Financial Statements'. Further details are contained in Note 2.07.
2. Group investments in operational borrowings have been eliminated from the Group Consolidated Balance Sheet.

0The presented fair values of the Group's operational borrowings reflect observable market information and have been classified as level 2 in the fair value hierarchy.

Short term operational borrowings

Short term assets available at the holding company level exceeded the amount of short term operational borrowings of £136m (H1 13: £371m; FY 13: £189m). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts.

Non recourse borrowings

US Dollar Triple X securitisation 2037

In 2006, a subsidiary of LGA 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.

Suffolk Life unit linked borrowings

All of these non recourse borrowings are in relation to commercial properties held within SIPP plans and the borrowings solely relate to client investments.

LGV6/LGV7 Private Equity Fund Limited Partnerships

These borrowings are non recourse bank borrowings.

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 30 June 2014, the Group had in place a £1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, £0.04bn matures in October 2017 and £0.96bn matures in October 2018. A test drawing was made under this facility during 2013. No amounts were outstanding at 30 June 2014.

2.19 Non-controlling interests

Non-controlling interests represent third party interests in private equity and property investment vehicles which are consolidated in the Group's results. The net increase in the non-controlling interests in 2014 arises from the revaluation of the third party interests in the UK Property Ungeared Fund Limited Partnership and the Leisure Fund Unit Trust.

IFRS and Cash 59

2.20 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	At 30.06.14	At 30.06.13	At 31.12.13


United States Dollar	1.71	1.52	1.66
Euro	1.25	1.17	1.20



	01.01.14 -	01.01.13 -	01.01.13 -
Average exchange rates	30.06.14	30.06.13	31.12.13


United States Dollar	1.67	1.54	1.57
Euro	1.22	1.18	1.18

2.21 Related party transactions

There were no material transactions between key management and the Legal & General group of companies. 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 £42m (H1 13: £53m; FY 13: £62m) for all employees.

At 30 June 2014, 30 June 2013 and 31 December 2013 there were no loans outstanding to officers of the Company.

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

			Full year
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Salaries	3	3	8
Social security costs	1	2	3
Post-employment benefits	1	1	-
Share-based incentive awards	2	2	4


Key management personnel compensation	7	8	15


Number of key management personnel	17	23	18



The Group UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £12m (H1 13: £27m; FY 13: £68m) during the period, priced on an arm's length basis.
The Group's investment portfolio includes investments in venture capital, property and financial investments which are held via collective investment vehicles. Net investments into associate investment vehicles totalled £2m during the period (H1 13: £8m; FY 13: £21m). The Group has no outstanding loans to these associates (H1 13: £nil; FY 13: £nil) and received investment management fees of £1m during the period (H1 13: £1m; FY 13: £2m). Distributions from these investment vehicles to the Group totalled £1m (H1 13: £13m; FY 13: £19m). The prior period comparatives have been restated to reflect the adoption by Group of IFRS 10, 'Consolidated Financial Statements', which led to the consolidation of investment vehicles previously classified as associates.

During the period, the Group injected cash of £77m into its joint venture investment, CALA, in the form of £43m equity and £34m debt. These payments settled the deferred consideration due and facilitated the growth of the company, including the acquisition of Banner Homes. The loans outstanding from CALA total £52m (including £1m interest payable) (H1 13: £16m; FY 13: £17m).

2.22 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 30 June 2014, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £366m (H1 13: £269m; FY 13: £374m). These amounts have been recognised in the financial statements with £231m charged against shareholder equity (H1 13: £160m; FY 13: £236m) and £135m against the unallocated divisible surplus (H1 13: £109m; FY 13: £138m).

IFRS and Cash 60

2.23 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, 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.

In 1975, Legal and 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 business and operating activities or in relation to capital market transactions. 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.

IFRS and Cash 61

Independent review report to Legal & General Group Plc - IFRS

Report on the consolidated interim financial statements

Our conclusion

We have reviewed the consolidated interim financial statements, defined below, in the interim management report of Legal & General Group Plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The consolidated interim financial statements, which are prepared by Legal & General Group Plc, comprise:

· the Consolidated Balance Sheet as at 30 June 2014;

· the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

· the Consolidated Cash Flow Statement for the period then ended;

· the Condensed Consolidated Statement of Changes in Equity for the period then ended; and

· the explanatory notes to the consolidated interim financial statements.

As disclosed in Note 2.07, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The consolidated interim financial statements included in the interim management report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of consolidated interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

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

We have read the other information contained in the interim management report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated interim financial statements.

Responsibilities for the consolidated interim financial statements and the review

Our responsibilities and those of the directors

The interim management report, including the consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim management report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the consolidated interim financial statements in the half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

5 August 2014

London

Notes:

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

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

IFRS and Cash 62

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Assets and premium flows 63

3.01 Legal & General investment management assets

		Active						GIA
	Index	fixed	Solu-	Property	Active	Total	Overlay	advisory	Total
For the six months	funds	interest	tions¹	& other	equities	AUM	assets²	assets	assets
ended 30 June 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2014	269.8	89.4	70.4	11.3	8.6	449.5	162.1	-	611.6
Acquisition of GIA assets	-	-	-	-	-	-	-	13.4	13.4
External inflows	10.5	3.7	4.7	0.6	0.1	19.6			19.6
External outflows	(19.1)	(2.5)	(2.1)	(0.2)	(0.1)	(24.0)			(24.0)
Overlay / GIA advisory net flows	-	-	-	-	-	-	12.3	0.1	12.4


External net flows³	(8.6)	1.2	2.6	0.4	-	(4.4)	12.3	0.1	8.0
Internal net flows	0.2	0.7	1.0	0.7	(0.2)	2.4	-	-	2.4


Total net flows	(8.4)	1.9	3.6	1.1	(0.2)	(2.0)	12.3	0.1	10.4
Market and other
movements³	7.3	5.9	4.2	0.4	(0.2)	17.6	0.5	0.2	18.3


As at 30 June 2014	268.7	97.2	78.2	12.8	8.2	465.1	174.9	13.7	653.7


Assets attributable to:
External						381.7	174.9	13.7	570.3
Internal						83.4	-	-	83.4


1. Solutions includes liability driven investments and multi-asset funds.
2. Overlay assets comprise derivative notionals associated with Solutions business.
3. External net flows exclude movements in overlay assets which have a short maturity period as determined by client agreements (H1 14: £33.3bn; H1 13: £21.9bn;
FY 13: £32.8bn), and hence are subject to a higher degree of variability. The movement in these assets is therefore included in market and other movements.

		Active
	Index	fixed	Solu-	Property	Active	Total	Overlay	Total
For the six months	funds	interest	tions¹	& other	equities	AUM	assets²	assets
ended 30 June 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2013	243.2	82.2	64.0	8.9	7.7	406.0	136.7	542.7
External inflows	17.2	3.5	5.7	0.3	-	26.7		26.7
External outflows	(15.0)	(1.4)	(1.8)	(0.1)	(0.4)	(18.7)		(18.7)
Overlay net flows	-	-	-	-	-	-	5.7	5.7


External net flows³	2.2	2.1	3.9	0.2	(0.4)	8.0	5.7	13.7
Internal net flows	0.5	(1.5)	0.7	-	-	(0.3)	-	(0.3)


Total net flows	2.7	0.6	4.6	0.2	(0.4)	7.7	5.7	13.4
Market and other
movements³	16.2	0.1	2.3	0.3	0.4	19.3	3.3	22.6


As at 30 June 2013	262.1	82.9	70.9	9.4	7.7	433.0	145.7	578.7


Assets attributable to:
External						358.5	145.7	504.2
Internal						74.5	-	74.5


1. Solutions includes liability driven investments and multi-asset funds.
2. Overlay assets comprise derivative notionals associated with Solutions business.
3. External net flows exclude movements in overlay assets which have a short maturity period as determined by client agreements (H1 13: £21.9bn), and hence are
subject to a higher degree of variability. The movement in these assets is therefore included in market and other movements.

Assets and premium flows 64

3.01 Legal & General investment management assets (continued)

	6	6	12
	months	months	months
	to	to	to
	30.06.14	30.06.13	31.12.13
	£bn	£bn	£bn


LGIM total assets net flows	10.4	13.4	20.3
Attributable to:
International¹	5.9	7.6	15.8
UK Institutional	3.0	7.3	5.8
UK Retail²	0.5	-	0.4
Annuities^3,4	2.9	0.1	1.4
Mature Savings	(1.9)	(1.6)	(3.1)


1. FY 13 International net flows includes £2.9bn of Legal & General France assets. 2. H1 14 UK Retail net flows include £0.7bn of assets previously managed externally. 3. Pension funds already managed by LGIM that switch into LGR annuities are excluded. 4. H1 14 Annuities net flows include £0.3bn of Lucida assets previously managed externally.

3.02 Legal & General investment management assets quarterly progression

		Active						GIA
	Index	fixed	Solu-	Property	Active	Total	Overlay	advisory	Total
For the six months	funds	interest	tions¹	& other	equities	AUM	assets²	assets	assets
ended 30 June 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2014	269.8	89.4	70.4	11.3	8.6	449.5	162.1	-	611.6
External inflows	4.7	1.9	2.1	0.3	-	9.0			9.0
External outflows	(5.7)	(1.0)	(1.2)	(0.1)	-	(8.0)			(8.0)
Overlay net flows	-	-	-	-	-	-	5.2	-	5.2


External net flows³	(1.0)	0.9	0.9	0.2	-	1.0	5.2	-	6.2
Internal net flows	0.1	2.0	0.3	0.5	(0.1)	2.8	-	-	2.8


Total net flows	(0.9)	2.9	1.2	0.7	(0.1)	3.8	5.2	-	9.0
Market and other
movements³	1.5	2.9	4.9	(0.1)	0.1	9.3	1.0	-	10.3


At 31 March 2014	270.4	95.2	76.5	11.9	8.6	462.6	168.3	-	630.9


Acquisition of GIA assets	-	-	-	-	-	-	-	13.4	13.4
External inflows	5.8	1.8	2.6	0.3	0.1	10.6			10.6
External outflows	(13.4)	(1.5)	(0.9)	(0.1)	(0.1)	(16.0)			(16.0)
Overlay / GIA advisory net flows	-	-	-	-	-	-	7.1	0.1	7.2


External net flows³	(7.6)	0.3	1.7	0.2	-	(5.4)	7.1	0.1	1.8
Internal net flows	0.1	(1.3)	0.7	0.2	(0.1)	(0.4)	-	-	(0.4)


Total net flows	(7.5)	(1.0)	2.4	0.4	(0.1)	(5.8)	7.1	0.1	1.4
Market and other
movements³	5.8	3.0	(0.7)	0.5	(0.3)	8.3	(0.5)	0.2	8.0


At 30 June 2014	268.7	97.2	78.2	12.8	8.2	465.1	174.9	13.7	653.7


1. Solutions includes liability driven investments and multi-asset funds.
2. Overlay assets comprise derivative notionals associated with Solutions business.
3. External net flows exclude movements in overlay assets which have a short maturity period as determined by client agreements (Q1 14: £33.8bn; H1 14: £33.3bn),
and hence are subject to a higher degree of variability. The movement in these assets is therefore included in market and other movements.

Assets and premium flows 65

3.02 Legal & General investment management assets quarterly progression (continued)

		Active
	Index	fixed	Solu-	Property	Active	Total	Overlay	Total
For the year ended	funds	interest	tions¹	& other	equities	AUM	assets²	assets
31 December 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2013	243.2	82.2	64.0	8.9	7.7	406.0	136.7	542.7
External inflows	11.0	2.2	1.1	0.1	-	14.4		14.4
External outflows	(7.1)	(0.9)	(1.1)	-	(0.1)	(9.2)		(9.2)
Overlay net flows	-	-	-	-	-	-	2.5	2.5


External net flows³	3.9	1.3	-	0.1	(0.1)	5.2	2.5	7.7
Internal net flows	0.1	(0.7)	0.1	-	-	(0.5)	-	(0.5)


Total net flows	4.0	0.6	0.1	0.1	(0.1)	4.7	2.5	7.2
Market and other movements³	20.1	2.0	7.3	0.3	0.8	30.5	3.8	34.3


At 31 March 2013	267.3	84.8	71.4	9.3	8.4	441.2	143.0	584.2


External inflows	6.2	1.3	4.6	0.2	-	12.3		12.3
External outflows	(7.9)	(0.5)	(0.7)	(0.1)	(0.3)	(9.5)		(9.5)
Overlay net flows	-	-	-	-	-	-	3.2	3.2


External net flows³	(1.7)	0.8	3.9	0.1	(0.3)	2.8	3.2	6.0
Internal net flows	0.4	(0.8)	0.6	-	-	0.2	-	0.2


Total net flows	(1.3)	-	4.5	0.1	(0.3)	3.0	3.2	6.2
Market and other movements³	(3.9)	(1.9)	(5.0)	-	(0.4)	(11.2)	(0.5)	(11.7)


At 30 June 2013	262.1	82.9	70.9	9.4	7.7	433.0	145.7	578.7


External inflows⁴	8.0	4.8	2.2	0.4	0.1	15.5		15.5
External outflows	(8.3)	(2.0)	(1.7)	(0.1)	-	(12.1)		(12.1)
Overlay net flows	-	-	-	-	-	-	3.3	3.3


External net flows³	(0.3)	2.8	0.5	0.3	0.1	3.4	3.3	6.7
Internal net flows	-	0.6	-	0.1	(0.1)	0.6	-	0.6


Total net flows	(0.3)	3.4	0.5	0.4	-	4.0	3.3	7.3
Market and other movements³	3.2	1.4	0.1	0.6	0.3	5.6	2.4	8.0


At 30 September 2013	265.0	87.7	71.5	10.4	8.0	442.6	151.4	594.0


External inflows	6.1	2.7	0.7	0.3	-	9.8		9.8
External outflows	(8.5)	(1.6)	(1.7)	(0.1)	-	(11.9)		(11.9)
Overlay net flows	-	-	-	-	-	-	2.2	2.2


External net flows³	(2.4)	1.1	(1.0)	0.2	-	(2.1)	2.2	0.1
Internal net flows	0.2	(0.8)	0.1	0.1	(0.1)	(0.5)	-	(0.5)


Total net flows	(2.2)	0.3	(0.9)	0.3	(0.1)	(2.6)	2.2	(0.4)
Market and other movements³	7.0	1.4	(0.2)	0.6	0.7	9.5	8.5	18.0


At 31 December 2013	269.8	89.4	70.4	11.3	8.6	449.5	162.1	611.6


Assets attributable to:
External						370.2	162.1	532.3
Internal						79.3	-	79.3


1. Solutions includes liability driven investments and multi-asset funds.
2. Overlay assets comprise derivative notionals associated with Solutions business.
3. External net flows exclude movements in overlay assets which have a short maturity period as determined by client agreements (Q1 13: £22.4bn; H1 13: £21.9bn;
Q3 13: £24.3bn; FY 13: 32.8bn), and hence are subject to a higher degree of variability. The movement in these assets is therefore included in market and other
movements.
4. Includes £2.9bn of Legal & General France assets.

Assets and premium flows 66

3.02 Legal & General investment management assets quarterly progression (continued)

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£bn	£bn	£bn	£bn	£bn	£bn


LGIM total assets net flows	1.4	9.0	(0.4)	7.3	6.2	7.2
Attributable to:
International¹	2.5	3.4	1.8	6.4	0.6	7.0
UK Institutional	-	3.0	(1.6)	0.1	6.1	1.2
UK Retail²	0.2	0.3	0.1	0.3	0.3	(0.3)
Annuities^3,4	(0.3)	3.2	(0.1)	1.4	0.1	-
Mature Savings	(1.0)	(0.9)	(0.6)	(0.9)	(0.9)	(0.7)


1. Q3 13 International net flows include £2.9bn of Legal & General France assets.
2. H1 14 UK Retail net flows include £0.7bn of assets previously managed externally.
3. Pension funds already managed by LGIM that switch into LGR annuities are excluded.
4. Q1 14 Annuities net flows include £0.3bn of Lucida assets previously managed externally.

3.03 Assets under administration

						Consol-
		Mature			Overseas	idation		Retail
		Retail	Work-	Suffolk	LGAS	adjust-	Total	Invest-
For the six months	Platforms¹	Savings²	place	Life	Savings	ment³	LGAS	ments⁴	Annuities
ended 30 June 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2014	64.1	36.3	8.7	6.6	4.5	(6.8)	113.4	17.3	34.4
Gross inflows⁵	4.8	0.7	1.3	0.6	0.2	(0.2)	7.4	1.9	3.5
Gross outflows	(2.3)	(2.2)	(0.3)	(0.2)	(0.2)	0.4	(4.8)	(2.3)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.0)


Net flows	2.5	(1.5)	1.0	0.4	-	0.2	2.6	(0.4)	2.5
Market and other
movements	0.8	1.1	(0.2)	0.2	-	(0.1)	1.8	0.5	1.6


As at 30 June 2014	67.4	35.9	9.5	7.2	4.5	(6.7)	117.8	17.4	38.5



						Consol-
		Mature			Overseas	idation		Retail
		Retail	Work-	Suffolk	LGAS	adjust-	Total	Invest-
For the six months	Platforms¹	Savings²	place	Life	Savings	ment³	LGAS	ments⁴	Annuities
ended 30 June 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2013	8.6	36.2	6.0	5.1	4.5	(1.4)	59.0	15.6	32.2
Gross inflows⁵	1.9	0.8	1.0	0.5	0.1	-	4.3	1.7	1.4
Gross outflows	(0.9)	(2.6)	(0.3)	(0.2)	(0.1)	0.1	(4.0)	(1.9)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.9)


Net flows	1.0	(1.8)	0.7	0.3	-	0.1	0.3	(0.2)	0.5
Cofunds acquisition	45.7	-	-	-	-	(5.4)	40.3	-	-
Market and other
movements	(1.6)	1.3	0.6	0.3	-	0.2	0.8	0.7	(0.5)


As at 30 June 2013	53.7	35.7	7.3	5.7	4.5	(6.5)	100.4	16.1	32.2


1. Platforms includes Investor Portfolio Services (IPS) and Cofunds since acquisition.
2. Mature Retail Savings products include with-profits products, bonds and retail pensions.
3. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
4. Retail Investments includes unit trust products (both LGIM and externally managed) and structured products (deposits and investments). H1 14 includes £1.5bn
(H1 13: £1.3bn; FY 13: £1.5bn) of Cofunds assets.
5. Platforms gross inflows include Cofunds institutional net flows.

Assets and premium flows 67

3.04 Assets under administration quarterly progression

						Consol-
		Mature			Overseas	idation		Retail
		Retail	Work-	Suffolk	LGAS	adjust-	Total	Invest-
For the six months	Platforms¹	Savings²	place	Life	Savings	ment³	LGAS	ments⁴	Annuities
ended 30 June 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2014	64.1	36.3	8.7	6.6	4.5	(6.8)	113.4	17.3	34.4
Gross inflows⁵	2.6	0.4	0.7	0.3	0.1	(0.1)	4.0	1.0	3.3
Gross outflows	(1.1)	(1.1)	(0.2)	(0.1)	(0.1)	0.2	(2.4)	(0.9)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.5)


Net flows	1.5	(0.7)	0.5	0.2	-	0.1	1.6	0.1	2.8
Market and other
movements	-	0.5	(0.1)	0.1	(0.1)	(0.1)	0.3	0.2	1.1


At 31 March 2014	65.6	36.1	9.1	6.9	4.4	(6.8)	115.3	17.6	38.3


Gross inflows⁵	2.2	0.3	0.6	0.3	0.1	(0.1)	3.4	0.9	0.2
Gross outflows	(1.2)	(1.1)	(0.1)	(0.1)	(0.1)	0.2	(2.4)	(1.4)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.5)


Net flows	1.0	(0.8)	0.5	0.2	-	0.1	1.0	(0.5)	(0.3)
Market and other
movements	0.8	0.6	(0.1)	0.1	0.1	-	1.5	0.3	0.5


At 30 June 2014	67.4	35.9	9.5	7.2	4.5	(6.7)	117.8	17.4	38.5


1. Platforms includes Investor Portfolio Services (IPS) and Cofunds since acquisition.
2. Mature Retail Savings products include with-profits products, bonds and retail pensions.
3. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
4. Retail Investments includes unit trust products (both LGIM and externally managed) and structured products (deposits and investments). H1 14 includes £1.5bn of
Cofunds assets.
5. Platforms gross inflows include Cofunds institutional net flows.

Assets and premium flows 68

3.04 Assets under administration quarterly progression (continued)

						Consol-
		Mature			Overseas	idation		Retail
		Retail	Work-	Suffolk	LGAS	adjust-	Total	Invest-
For the year ended	Platforms¹	Savings²	place	Life	Savings	ment³	LGAS	ments⁴	Annuities
31 December 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2013	8.6	36.2	6.0	5.1	4.5	(1.4)	59.0	15.6	32.2
Gross inflows	0.2	0.4	0.5	0.2	0.1	-	1.4	0.7	0.8
Gross outflows	(0.2)	(1.2)	(0.2)	(0.1)	(0.1)	0.1	(1.7)	(1.0)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.4)


Net flows	-	(0.8)	0.3	0.1	-	0.1	(0.3)	(0.3)	0.4
Market and other
movements	0.5	1.7	0.6	0.3	-	(0.1)	3.0	1.0	0.7


At 31 March 2013	9.1	37.1	6.9	5.5	4.5	(1.4)	61.7	16.3	33.3


Gross inflows⁵	1.7	0.4	0.5	0.3	-	-	2.9	1.0	0.6
Gross outflows	(0.7)	(1.4)	(0.1)	(0.1)	-	-	(2.3)	(0.9)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.5)


Net flows	1.0	(1.0)	0.4	0.2	-	-	0.6	0.1	0.1
Cofunds acquisition	45.7	-	-	-	-	(5.4)	40.3	-	-
Market and other
movements	(2.1)	(0.4)	-	-	-	0.3	(2.2)	(0.3)	(1.2)


At 30 June 2013	53.7	35.7	7.3	5.7	4.5	(6.5)	100.4	16.1	32.2


Gross inflows⁵	4.5	0.3	0.5	0.4	-	(0.1)	5.6	0.9	2.3
Gross outflows	(1.2)	(1.4)	(0.1)	(0.1)	-	0.2	(2.6)	(0.8)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.5)


Net flows	3.3	(1.1)	0.4	0.3	-	0.1	3.0	0.1	1.8
Market and other
movements	1.3	1.4	0.2	0.1	-	(0.2)	2.8	0.5	0.5


At 30 September 2013	58.3	36.0	7.9	6.1	4.5	(6.6)	106.2	16.7	34.5


Gross inflows⁵	4.6	0.3	0.6	0.4	-	(0.2)	5.7	0.8	0.3
Gross outflows	(1.0)	(1.1)	(0.2)	(0.1)	-	0.2	(2.2)	(0.7)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(0.5)


Net flows	3.6	(0.8)	0.4	0.3	-	-	3.5	0.1	(0.2)
Market and other
movements	2.2	1.1	0.4	0.2	-	(0.2)	3.7	0.5	0.1


At 31 December 2013	64.1	36.3	8.7	6.6	4.5	(6.8)	113.4	17.3	34.4


1. Platforms includes Investor Portfolio Services (IPS) and Cofunds since acquisition.
2. Mature Retail Savings products include with-profits products, bonds and retail pensions.
3. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
4. Retail Investments includes unit trust products (both LGIM and externally managed) and structured products (deposits and investments). FY 13 includes £1.5bn of
Cofunds assets.
5. Platforms gross inflows include Cofunds institutional net flows.

Assets and premium flows 69

3.05 Annuities single premiums

	Single	Single	Single
	premiums	premiums	premiums
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Individual Annuities	383	754	1,277
Bulk Purchase Annuities	3,135	670	2,812


Total Annuities	3,518	1,424	4,089

3.06 Annuities single premiums quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£m	£m	£m	£m	£m	£m


Individual Annuities	139	244	200	323	348	406
Bulk Purchase Annuities	90	3,045	199	1,943	313	357


Total Annuities	229	3,289	399	2,266	661	763

3.07 Insurance new business

	Annual	Annual	Annual
	premiums	premiums	premiums
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Group Protection	40	40	70
Retail Protection	83	65	148
France (LGF) Protection	33	21	21
Netherlands (LGN) Protection	2	4	7
US Protection	47	45	99
Longevity Insurance	-	175	270


Total Insurance new business	205	350	615

3.08 Insurance new business annual premiums quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£m	£m	£m	£m	£m	£m


Group Protection	20	20	13	17	20	20
Retail Protection	41	42	43	40	38	27
France (LGF) Protection	-	33	-	-	-	21
Netherlands (LGN) Protection	-	2	2	1	2	2
US Protection	24	23	26	28	23	22
Longevity Insurance	-	-	95	-	-	175


Total Insurance new business	85	120	179	86	83	267

Assets and premium flows 70

3.09 Gross written premiums on Insurance business

	6	6	12
	months	months	months
	to	to	to
	30.06.14	30.06.13	31.12.13
	£m	£m	£m


Group Protection	229	208	336
Retail Protection	514	484	990
General Insurance	178	183	375
France (LGF) Protection	91	86	168
Netherlands (LGN) Protection	26	27	54
US Protection	332	326	654
Longevity Insurance	167	92	212


Total gross written premiums on Insurance business	1,537	1,406	2,789

3.10 Gross written premiums on Insurance business quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£m	£m	£m	£m	£m	£m


Group Protection	130	99	54	74	123	85
Retail Protection	260	254	256	250	244	240
General Insurance	94	84	95	97	97	86
France (LGF) Protection	45	46	41	41	43	43
Netherlands (LGN) Protection	12	14	13	14	13	14
US Protection	170	162	172	156	172	154
Longevity Insurance	83	84	60	60	60	32


Total gross written premiums on Insurance business	794	743	691	692	752	654

3.11 Overseas new business in local currency

	Annual	Single		Annual	Single
	premiums	premiums	APE	premiums	premiums	APE	APE
	30.06.14	30.06.14	30.06.14	30.06.13	30.06.13	30.06.13	31.12.13


US Protection (US$m)	78	-	78	70	-	70	155

Netherlands (LGN) (€m)	4	51	9	6	74	13	23

France (LGF) (€m)	40	168	57	30	142	44	57

India (Rs m) - Group's 26% interest	266	2,257	492	374	2,348	609	917

Egypt (Pounds m) - Group's 55% interest	84	-	84	78	-	78	136

Gulf (US$m) - Group's 50% interest	1	1	1	2	3	2	3

Assets and premium flows 71

3.12 Worldwide new business

	Annual	Single		Annual	Single
	premiums	premiums	APE	premiums	premiums	APE	APE
	30.06.14	30.06.14	30.06.14	30.06.13	30.06.13	30.06.13	31.12.13
	£m	£m	£m	£m	£m	£m	£m


Individual Annuities	-	383	38	-	754	75	128
Bulk Purchase Annuities	-	3,135	314	-	670	67	281


Total LGR¹	-	3,518	352	-	1,424	142	409


Group Protection	40	-	40	40	-	40	70
Retail Protection	83	-	83	65	-	65	148
France (LGF)	33	138	47	25	121	37	48
Netherlands (LGN)	3	42	7	5	62	11	19
Workplace Savings	305	558	361	283	478	329	735
Platforms (Cofunds & IPS)²	33	1,837	217	13	801	95	288
Suffolk Life	-	653	65	-	498	50	133
Mature Retail Savings³	5	377	43	5	380	44	90
With-profits	31	44	35	26	49	31	61


Total LGAS	533	3,649	898	462	2,389	702	1,592


Retail Investments⁴	7	1,840	191	7	1,721	178	355


US Protection	47	-	47	45	-	45	99


India (26% share)	3	22	5	4	28	7	10
Egypt (55% share)	7	-	7	7	-	7	13
Gulf (50% share)	1	1	1	1	2	1	2


Total Emerging Markets new business	11	23	13	12	30	15	25


Total Worldwide new business	598	9,030	1,501	526	5,564	1,082	2,480


1. Total LGR new business excludes £nil (H1 13: £175m; FY 13: £270m) of APE in relation to longevity insurance transactions. It is not included in the table due to
the unpredictable deal flow from this type of business.
2. Platforms APE includes retail business only.
3. Includes bonds and retail pensions.
4. Includes retail unit trusts and structured products only.

Assets and premium flows 72

3.13 Worldwide new business APE quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£m	£m	£m	£m	£m	£m


Individual Annuities	14	24	20	33	35	40
Bulk Purchase Annuities	9	305	20	194	31	36


Total LGR¹	23	329	40	227	66	76


Group Protection	20	20	13	17	20	20
Retail Protection	41	42	43	40	38	27
France (LGF)	7	40	4	7	6	31
Netherlands (LGN)	2	5	4	4	4	7
Workplace Savings	183	178	240	166	127	202
Platforms (Cofunds & IPS)²	114	103	99	94	69	26
Suffolk Life	30	35	44	39	31	19
Mature Retail Savings³	21	22	25	21	22	22
With-profits	17	18	17	13	14	17


Total LGAS	435	463	489	401	331	371


Retail Investments⁴	91	100	83	94	104	74


US Protection	24	23	26	28	23	22


India (26% share)	2	3	1	2	1	6
Egypt (55% share)	3	4	3	3	3	4
Gulf (50% share)	-	1	-	1	-	1


Total Emerging Markets new business	5	8	4	6	4	11


Total Worldwide new business	578	923	642	756	528	554


1. Total LGR new business excludes £nil (H1 13: £175m; FY 13: £270m) of APE in relation to longevity insurance transactions. It is not included in the table due to
the unpredictable deal flow from this type of business.
2. Platforms APE includes retail business only.
3. Includes bonds and retail pensions.
4. Includes retail unit trusts and structured products only.

Assets and premium flows 73

3.14 Worldwide APE by channel

	Annual	Single
	premiums	premiums	APE	% of
For the six months ended 30 June 2014	£m	£m	£m	total


Employee benefit consultants	405	3,741	779	52
Retail independent and restricted	123	4,384	561	37
Tied including bancassurance	54	635	118	8
Direct	16	270	43	3


Total Worldwide APE by channel	598	9,030	1,501	100



	Annual	Single
	premiums	premiums	APE	% of
For the six months ended 30 June 2013	£m	£m	£m	total


Employee benefit consultants	370	1,171	487	46
Retail independent and restricted	98	3,434	441	41
Tied including bancassurance	46	721	118	10
Direct	12	238	36	3


Total Worldwide APE by channel	526	5,564	1,082	100



	Annual	Single
	premiums	premiums	APE	% of
For the year ended 31 December 2013	£m	£m	£m	total


Employee benefit consultants¹	796	3,597	1,156	47
Retail independent and restricted	228	7,871	1,015	41
Tied including bancassurance	95	1,418	237	10
Direct	27	449	72	2


Total Worldwide APE by channel	1,146	13,335	2,480	100


1. Includes Lucida business since acquisition in Q3 13.

3.15 Worldwide APE by channel quarterly progression

	3	3	3	3	3	3
	months	months	months	months	months	months
	to	to	to	to	to	to
	30.06.14	31.03.14	31.12.13	30.09.13	30.06.13	31.03.13
	£m	£m	£m	£m	£m	£m


Employee benefit consultants¹	225	554	283	386	191	296
Retail independent and restricted	272	289	279	295	259	182
Tied including bancassurance	59	59	61	58	59	59
Direct	22	21	19	17	19	17


Total Worldwide APE by channel	578	923	642	756	528	554

1. Includes Lucida business since acquisition in Q3 13.

Assets and premium flows 74

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