L&G Half Year Results 2016 Part 2

RNS Number : 5967G

Legal & General Group Plc

09 August 2016

 

Legal & General Group Plc

Half Year Results 2016 Part 2

IFRS and Operational Cash Generation                                                                                                  Page 27

Operating profit

For the six months ended 30 June 2016

				Full year
		30.06.16	30.06.15	31.12.15
	Notes	£m	£m	£m
From continuing operations
Legal & General Retirement (LGR)	2.02	406	281	641
Legal & General Investment Management (LGIM)	2.03	171	176	355
Legal & General Capital (LGC)	2.05	135	115	233
Insurance	2.02	138	186	283
Savings	2.02	49	55	107
Legal & General America (LGA)		43	40	83
Operating profit from divisions		942	853	1,702
Group debt costs1		(86)	(75)	(153)
Group investment projects and expenses2	2.06	(34)	(28)	(86)
Adjusted operating profit		822	750	1,463
Kingswood office closure costs		(45)	-	(8)
Operating profit		777	750	1,455
Investment and other variances	2.07	50	(86)	(119)
(Losses)/gains on non-controlling interests		(1)	8	19
Profit before tax attributable to equity holders		826	672	1,355
Tax expense attributable to equity holders of the company	2.14	(159)	(125)	(261)
Profit for the period		667	547	1,094
Profit attributable to equity holders of the company		668	539	1,075
		p	p	p
Earnings per share3	2.10	11.27	9.11	18.16
Diluted earnings per share3	2.10	11.23	9.05	18.04
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in H1 16 include restructuring costs of £16m (H1 15: £9m; FY 15: £42m).
3. All earnings per share calculations are based on profit attributable to equity holders of the company.

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

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents the IFRS profit before tax on its trading businesses and medium term expected investment return (less expenses) on its other group invested assets, using assumptions applied to the average balance of group invested assets (including interest bearing intra-group balances).

Insurance represents business in retail protection, group protection, general insurance, networks and Legal & General Netherlands (LGN). Insurance comparatives include Legal & General France (LGF), which was sold during 2015.

Savings represents business in platforms, SIPPs, mature savings and with-profits.

The LGA segment comprises protection business written in the USA.

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to Insurance from Savings, and Investment Discounts On Line Limited (the IDOL) has been transferred to LGR from Insurance. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR H1 15 operating profit by £1m (FY 15: increase by £2m), increase Savings H1 15 operating profit by £5m (FY 15: increase by £8m) and reduce Insurance H1 15 operating profit by £6m (FY 15: reduce by £10m).

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects IFRS profit before tax) and LGA (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition, and start-up costs, are also excluded from operating profit.

IFRS and Operational Cash Generation                                                                                                  Page 28

2.01 Reconciliation of operational cash generation to operating profit before tax

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	New	Net		in			Operating		profit/
	cash	business	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	surplus/	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the six months ended	ration1	(strain)	ration	variances	tions	other	and other2	after tax	(credit)	tax
30 June 2016	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR	205	79	284	(11)	48	13	-	334	72	406
LGIM	145	(11)	134	1	-	(1)	-	134	37	171
- LGIM excluding Workplace
Savings	136	-	136	-	-	-	-	136	38	174
- Workplace Savings	9	(11)	(2)	1	-	(1)	-	(2)	(1)	(3)
LGC	113	-	113	-	-	-	-	113	22	135
Insurance	159	7	166	(16)	17	(13)	(44)	110	28	138
Savings	51	(3)	48	-	5	(14)	-	39	10	49
LGA	61	-	61	-	-	-	(43)	18	25	43
Total from divisions	734	72	806	(26)	70	(15)	(87)	748	194	942
Group debt costs	(69)	-	(69)	-	-	-	-	(69)	(17)	(86)
Group investment projects
and expenses	(10)	-	(10)	-	-	-	(17)	(27)	(7)	(34)
Adjusted total	655	72	727	(26)	70	(15)	(104)	652	170	822
Kingswood office closure costs3	-	-	-	-	-	-	(36)	(36)	(9)	(45)
Total	655	72	727	(26)	70	(15)	(140)	616	161	777
1. Operational cash generation includes dividends remitted from LGN of £48m (H1 15: £18m; FY 15: £28m) within the Insurance line and LGA of £61m (H1 15: £52m; FY 15: £54m).
2. International and other includes £13m (H1 15: £7m; FY 15: £34m) of restructuring costs (£16m before tax) (H1 15: £9m before tax; FY 15: £42m before tax) within the group investment projects and expenses line.
3. The Kingswood office closure costs reflect expenditure in relation to redundancy, rent and rates. Further costs resulting from the write-off of previously capitalised property, plant and equipment will be recognised in later periods.
Operational cash generation for LGR, LGIM, Insurance and Savings represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings, protection and savings businesses using best estimate assumptions. The LGIM operational cash generation also includes operating profit after tax from the institutional and retail investment management businesses. The Insurance operational cash generation also includes dividends remitted from LGN and operating profit after tax from general insurance and the remaining Insurance businesses. The Savings operational cash generation also includes the shareholders' share of bonuses on with-profits business and operating profit after tax from the remaining Savings businesses.
New business surplus/strain for LGR, LGIM, Insurance and Savings represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings, protection and savings, net of tax. The new business surplus and operational cash generation for LGR, LGIM, Insurance and Savings exclude any capital held in excess of the prudent reserves from the liability calculation.
Net cash generation for LGR, LGIM, Insurance and Savings is defined as operational cash generation less new business strain.
Operational cash generation and net cash generation for LGC represents the operating profit (net of tax).
The operational cash generation for LGA represents the dividends received.
During 2016, changes have been made to the organisational structure. The advised sales and India businesses have been transferred to Insurance from Savings, and the IDOL business has been transferred to LGR from Insurance. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR H1 15 operational cash generation by £1m (FY 15: increase by £2m), increase Savings H1 15 operational cash generation by £3m (FY 15: increase by £6m) and reduce Insurance H1 15 operational cash generation by £4m (FY 15: reduce by £8m).
See Note 2.02 for more detail on experience variances, changes to valuation assumptions and non-cash items.

IFRS and Operational Cash Generation                                                                                                  Page 29

2.01 Reconciliation of operational cash generation to operating profit before tax (continued)

	Opera-				Changes					Operating
	tional	New	Net		in			Operating		profit/
	cash	business	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	surplus/	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the six months ended	ration1	(strain)	ration	variances	tions	other	and other2	after tax	(credit)	tax
30 June 2015	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR3	171	22	193	15	37	(13)	-	232	49	281
LGIM	150	(12)	138	(2)	-	1	-	137	39	176
- LGIM excluding Workplace
Savings	139	-	139	-	-	-	-	139	40	179
- Workplace Savings	11	(12)	(1)	(2)	-	1	-	(2)	(1)	(3)
LGC	92	-	92	-	-	-	-	92	23	115
Insurance3	161	-	161	7	2	(15)	(8)	147	39	186
Savings3	67	(5)	62	(1)	-	(18)	1	44	11	55
LGA	52	-	52	-	-	-	(34)	18	22	40
Total from divisions	693	5	698	19	39	(45)	(41)	670	183	853
Group debt costs	(60)	-	(60)	-	-	-	-	(60)	(15)	(75)
Group investment projects
and expenses	(9)	-	(9)	-	-	-	(13)	(22)	(6)	(28)
Adjusted total	624	5	629	19	39	(45)	(54)	588	162	750
Total	624	5	629	19	39	(45)	(54)	588	162	750
1. Operational cash generation includes dividends remitted from LGN of £18m and LGF of £1m within the Insurance line and LGA of £52m.
2. International and other includes £7m of restructuring costs (£9m before tax) within the group investment projects and expenses line.
3. LGR includes the IDOL business which was previously reported in Insurance, and Insurance includes the advised sales and India businesses which were previously reflected in Savings. Comparatives have been amended accordingly.

	Opera-				Changes					Operating
	tional	New	Net		in			Operating		profit/
	cash	business	cash	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	gene-	surplus/	gene-	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	ration1	(strain)	ration	variances	tions	other	and other2	after tax	(credit)	tax
31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR3	374	45	419	13	114	(20)	-	526	115	641
LGIM	303	(22)	281	(1)	1	(2)	-	279	76	355
- LGIM excluding Workplace
Savings	282	-	282	-	-	-	-	282	77	359
- Workplace Savings	21	(22)	(1)	(1)	1	(2)	-	(3)	(1)	(4)
LGC	187	-	187	-	-	-	-	187	46	233
Insurance3	315	25	340	(14)	(45)	(46)	(11)	224	59	283
Savings3	125	(9)	116	(9)	-	(23)	2	86	21	107
LGA	54	-	54	-	-	-	(17)	37	46	83
Total from divisions	1,358	39	1,397	(11)	70	(91)	(26)	1,339	363	1,702
Group debt costs	(122)	-	(122)	-	-	-	-	(122)	(31)	(153)
Group investment projects
and expenses	(19)	-	(19)	-	-	-	(50)	(69)	(17)	(86)
Adjusted total	1,217	39	1,256	(11)	70	(91)	(76)	1,148	315	1,463
Kingswood office closure costs	-	-	-	-	-	-	(6)	(6)	(2)	(8)
Total	1,217	39	1,256	(11)	70	(91)	(82)	1,142	313	1,455
1. Operational cash generation includes dividends remitted from LGF of £1m and LGN of £28m within the Insurance line and LGA of £54m.
2. International and other includes £34m of restructuring costs (£42m before tax) within the group investment projects and expenses line.
3. LGR includes the IDOL business which was previously reported in Insurance, and Insurance includes the advised sales and India businesses which were previously reflected in Savings. Comparatives have been amended accordingly.

IFRS and Operational Cash Generation                                                                                                  Page 30

2.02 Analysis of LGR, Insurance and Savings operating profit

		LGR	Insurance	Savings	LGR	Insurance	Savings
		30.06.16	30.06.16	30.06.16	30.06.15	30.06.15	30.06.15
		£m	£m	£m	£m	£m	£m
Net cash generation		284	166	48	193	161	62
Experience variances
Persistency		-	1	-	-	1	(4)
Mortality/Morbidity1		2	(15)	-	4	4	-
Expenses		(7)	3	2	-	4	-
Project and development costs		(1)	(1)	-	(6)	(1)	-
Other		(5)	(4)	(2)	17	(1)	3
Total experience variances		(11)	(16)	-	15	7	(1)
Changes to valuation assumptions
Persistency		-	-	5	-	-	-
Mortality/Morbidity2		48	2	-	37	3	-
Expenses3		-	25	-	-	1	-
Other4		-	(10)	-	-	(2)	-
Total valuation assumption changes		48	17	5	37	2	-
Movement in non-cash items
Deferred tax		-	1	-	-	2	-
Utilisation of brought forward trading losses		-	-	-	(13)	(2)	(2)
Acquisition expense tax relief 5		-	(13)	(2)	-	(17)	-
Deferred Acquisition Costs (DAC)6		-	-	(15)	-	-	(27)
Deferred Income Liabilities (DIL)6		-	-	6	-	-	17
Other7		13	(1)	(3)	-	2	(6)
Total non-cash movement items		13	(13)	(14)	(13)	(15)	(18)
Other8		-	(44)	-	-	(8)	1
Operating profit after tax		334	110	39	232	147	44
Tax gross up		72	28	10	49	39	11
Operating profit before tax		406	138	49	281	186	55
1. The Insurance mortality/morbidity experience variance in 2016 reflects adverse claims experience on the group protection book of business.
2. The mortality/morbidity valuation assumption change in LGR primarily reflects a change in the treatment to historic longevity insurance deals where future fees in excess of prudent estimates of longevity and expense experience are now included as an offset to IFRS reserves. The H1 15 LGR mortality/morbidity change to valuation assumptions primarily reflected a change in mortality reserving assumptions in relation to unreported deaths of deferred annuitants.
3. The Insurance expense valuation assumption change is the result of a review of the prudence within renewal expenses on our protection products.
4. The Insurance other valuation assumption change has arisen from the increase of the reinsurance counterparty reserves driven by increased reinsured exposure.
5. Net cash for Insurance and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying 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 amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net cash. The residual prior year acquisition expenses will run off predictably to 2018.
6. The DAC in Savings 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.
7. The other movement in non-cash items for LGR is primarily driven by market reference fees as a result of writing higher volumes.
8. Insurance Other in 2016 reflects the difference between the dividend (operational cash generation) remitted from LGN of £48m (H1 15: dividends remitted from LGN of £18m and LGF of £1m) and the LGN operating profit after tax (H1 15: LGN and LGF operating profit after tax).

IFRS and Operational Cash Generation                                                                                                  Page 31

2.02 Analysis of LGR, Insurance and Savings operating profit (continued)
					LGR	Insurance	Savings
					Full year	Full year	Full year
					31.12.15	31.12.15	31.12.15
					£m	£m	£m
Net cash generation					419	340	116
Experience variances
Persistency					4	5	(2)
Mortality/Morbidity					18	(16)	-
Expenses					-	2	3
Project and development costs					(20)	(2)	(2)
Other1					11	(3)	(8)
Total experience variances					13	(14)	(9)
Changes to valuation assumptions
Persistency2					-	48	-
Mortality/Morbidity3					97	(20)	-
Expenses4					17	27	(2)
Reinsurance modelling5					-	(93)	-
Other					-	(7)	2
Total valuation assumption changes					114	(45)	-
Movement in non-cash items
Deferred tax					-	-	2
Utilisation of brought forward trading losses					(25)	(6)	-
Acquisition expense tax relief 6					-	(30)	(4)
Deferred Acquisition Costs (DAC)7					-	-	(54)
Deferred Income Liabilities (DIL)7					-	-	39
Other					5	(10)	(6)
Total non-cash movement items					(20)	(46)	(23)
Other					-	(11)	2
Operating profit after tax					526	224	86
Tax gross up					115	59	21
Operating profit before tax					641	283	107
1. The Other LGR experience variance reflects the benefit to profit of selective longevity and asset reinsurance related to bulk annuity transactions, offset by other smaller experience variances.
2. The Insurance persistency valuation assumption change reflects continued improvement in retail protection lapse rates.
3. The mortality/morbidity valuation assumption change in LGR primarily reflects late retirement factor assumption changes and a change in mortality reserving assumptions in relation to unreported deaths of deferred annuitants. The Insurance mortality/morbidity valuation assumption change has arisen on the strengthening of the reserving basis on the Whole Life Protection product to reflect the current expectation of future mortality improvement on this business.
4. The LGR and Insurance positive expense valuation assumption changes represents the continued operational efficiency reducing the existing business cost base.
5. The reinsurance modelling for our UK protection business has been enhanced. Recent reinsurance contracts have been written on a risk premium basis (as opposed to level premium) and the model change ensures that for these treaties, sufficient prudence is being held in later years. The one-off impact reduced operating profit by £93m in 2015. This also defers a higher proportion of cash generation into later years of these reinsurance contracts.
6. Net cash for Insurance and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying 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 amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net cash. The residual prior year acquisition expenses will run off predictably to 2018.
7. The DAC in Savings 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.

IFRS and Operational Cash Generation                                                                                                  Page 32

2.03 LGIM

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Investment management revenue1						353	347	694
Investment management expenses1						(179)	(168)	(335)
Workplace Savings operating loss						(3)	(3)	(4)
Total LGIM operating profit						171	176	355
1. Revenue and expenses are grossed up for costs that are paid to third parties for certain fund related services provided to Index clients and are passed directly onto the clients within their fees.

2.04 General insurance operating profit and combined operating ratio 

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
General insurance operating profit1						31	38	51
General insurance combined operating ratio (%)2						85	82	89
1. The general insurance operating profit includes the underwriting result and smoothed investment return.
2. The calculation of the general insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.

2.05 LGC

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Direct investments						68	32	69
Traded portfolio including treasury operations						67	83	164
Total LGC operating profit						135	115	233

2.06 Group investment projects and expenses

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Group investment projects and central expenses						(18)	(19)	(44)
Restructuring costs1						(16)	(9)	(42)
Total group investment projects and expenses						(34)	(28)	(86)
1. Restructuring costs exclude the Kingswood office closure costs which have been presented separately.

2.07 Investment and other variances

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Investment variance1						58	(29)	(57)
M&A related2						(4)	(55)	(57)
Other3						(4)	(2)	(5)
Total Investment and other variances						50	(86)	(119)
1. H1 16 investment variance is positive, primarily driven by foreign exchange gains on US dollar assets, a lack of defaults on the group's bond portfolios and selective de-risking of investment portfolios, partially offset by the negative impact of rate changes during the period. The defined pension benefit scheme variance of £31m contained within this line (H1 15: £(26)m; FY 15: £(15)m) reflects the actuarial losses and gains and valuation differences arising on annuity assets held by defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited (Society). A segmental analysis of Investment and other variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. H1 16 includes the £4m net gain resulting from the disposal of subsidiaries during the period (H1 15: includes the £40m impairment loss resulting from the classification of disposal groups as held for sale; FY 15: includes the £25m net loss resulting from the disposal of subsidiary and joint venture investments during the year).
3. Other includes new business start-up costs and other non-investment related variance items.

IFRS and Operational Cash Generation                                                                                                  Page 33

Consolidated Income Statement

For the six months ended 30 June 2016

				Full year
		30.06.16	30.06.15	31.12.15
	Notes	£m	£m	£m
Income
Gross written premiums	4.03	5,492	3,170	6,321
Outward reinsurance premiums		(719)	(865)	(1,603)
Net change in provision for unearned premiums		6	14	21
Net premiums earned		4,779	2,319	4,739
Fees from fund management and investment contracts		523	564	1,139
Investment return	2.09	36,978	5,062	5,947
Operational income		243	444	876
Total income	2.09	42,523	8,389	12,701
Expenses
Claims and change in insurance liabilities		11,377	2,090	5,080
Reinsurance recoveries		(1,454)	(999)	(2,466)
Net claims and change in insurance liabilities		9,923	1,091	2,614
Change in provisions for investment contract liabilities		30,569	4,958	5,615
Acquisition costs		375	429	838
Finance costs		98	91	186
Other expenses		748	930	1,893
Transfers (from)/to unallocated divisible surplus		(174)	61	141
Total expenses		41,539	7,560	11,287
Profit before tax		984	829	1,414
Tax expense attributable to policyholder returns		(158)	(157)	(59)
Profit before tax attributable to equity holders		826	672	1,355
Total tax expense		(317)	(282)	(320)
Tax expense attributable to policyholder returns		158	157	59
Tax expense attributable to equity holders	2.14	(159)	(125)	(261)
Profit for the period		667	547	1,094
Attributable to:
Non-controlling interests	2.20	(1)	8	19
Equity holders of the company		668	539	1,075
Dividend distributions to equity holders of the company during the period	2.16	592	496	701
Dividend distributions to equity holders of the company proposed after the period end	2.16	238	205	592
		p	p	p
Earnings per share1	2.10	11.27	9.11	18.16
Diluted earnings per share1	2.10	11.23	9.05	18.04
1. All earnings per share calculations are based on profit attributable to equity holders of the company.

IFRS and Operational Cash Generation                                                                                                  Page 34

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2016

				Full year
		30.06.16	30.06.15	31.12.15
		£m	£m	£m
Profit for the period		667	547	1,094
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes		(62)	27	47
Tax on actuarial (losses)/gains on defined benefit pension schemes		12	(5)	(11)
Actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus		23	(10)	(17)
Tax on actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus		(4)	2	4
Total items that will not be reclassified to profit or loss subsequently		(31)	14	23
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		116	(25)	25
Net change in financial investments designated as available-for-sale		66	(27)	(64)
Tax on net change in financial investments designated as available-for-sale		(23)	9	22
Total items that may be reclassified to profit or loss subsequently		159	(43)	(17)
Other comprehensive income/(expense) after tax		128	(29)	6
Total comprehensive income for the period		795	518	1,100
Total comprehensive income attributable to:
Non-controlling interests		(1)	8	19
Equity holders of the company		796	510	1,081

IFRS and Operational Cash Generation                                                                                                  Page 35

Consolidated Balance Sheet

As at 30 June 2016

			30.06.16	30.06.15	31.12.15
		Notes	£m	£m	£m
Assets
Goodwill			79	82	83
Purchased interest in long term businesses and other intangible assets			251	328	292
Deferred acquisition costs			2,007	1,822	1,887
Investment in associates and joint ventures			237	207	220
Property, plant and equipment			97	86	92
Investment property		2.13/3.04	8,227	8,779	8,082
Financial investments		2.13/3.04	397,123	351,159	354,063
Reinsurers' share of contract liabilities			4,955	3,360	4,120
UK deferred tax asset		2.14	5	33	20
Current tax recoverable			271	185	236
Other assets			10,900	3,539	3,618
Assets of operations classified as held for sale		2.12	-	6,149	3,409
Cash and cash equivalents			18,956	19,583	20,677
Total assets			443,108	395,312	396,799
Equity
Share capital		2.17	149	149	149
Share premium			978	973	976
Employee scheme treasury shares			(32)	(31)	(30)
Capital redemption and other reserves			211	98	89
Retained earnings			5,285	4,843	5,220
Shareholders' equity			6,591	6,032	6,404
Non-controlling interests		2.20	292	281	289
Total equity			6,883	6,313	6,693
Liabilities
Participating insurance contracts			5,864	5,901	5,618
Participating investment contracts			5,260	5,093	4,912
Unallocated divisible surplus			693	798	893
Value of in-force non-participating contracts			(135)	(223)	(184)
Participating contract liabilities			11,682	11,569	11,239
Non-participating insurance contracts			58,437	49,274	49,754
Non-participating investment contracts			300,605	280,472	278,554
Non-participating contract liabilities			359,042	329,746	328,308
Core borrowings		2.18	3,064	2,490	3,092
Operational borrowings		2.19	411	645	536
Provisions		2.23	1,205	1,189	1,171
UK deferred tax liabilities		2.14	206	277	137
Overseas deferred tax liabilities		2.14	523	414	436
Current tax liabilities			120	40	95
Payables and other financial liabilities		2.15	36,756	18,449	22,709
Other liabilities			617	671	737
Net asset value attributable to unit holders			22,599	17,513	18,277
Liabilities of operations classified as held for sale		2.12	-	5,996	3,369
Total liabilities			436,225	388,999	390,106
Total equity and liabilities			443,108	395,312	396,799

IFRS and Operational Cash Generation                                                                                                  Page 36

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 2016	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2016	149	976	(30)	89	5,220	6,404	289	6,693
Total comprehensive income/(expense)
for the period	-	-	-	159	637	796	(1)	795
Options exercised under
share option schemes	-	2	-	-	-	2	-	2
Net movement in employee scheme
treasury shares	-	-	(2)	(5)	(12)	(19)	-	(19)
Dividends	-	-	-	-	(592)	(592)	-	(592)
Movement in third party interests	-	-	-	-	-	-	4	4
Currency translation differences	-	-	-	(32)	32	-	-	-
As at 30 June 2016	149	978	(32)	211	5,285	6,591	292	6,883

			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 2015	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2015	149	969	(37)	117	4,830	6,028	275	6,303
Total comprehensive income/(expense)
for the period	-	-	-	(43)	553	510	8	518
Options exercised under
share option schemes	-	4	-	-	-	4	-	4
Net movement in employee scheme
treasury shares	-	-	6	(4)	(16)	(14)	-	(14)
Dividends	-	-	-	-	(496)	(496)	-	(496)
Movement in third party interests	-	-	-	-	-	-	(2)	(2)
Currency translation differences	-	-	-	28	(28)	-	-	-
As at 30 June 2015	149	973	(31)	98	4,843	6,032	281	6,313
			Employee	Capital
			scheme	redemption			Non-
	Share	Share	treasury	and other	Retained		controlling	Total
	capital	premium	shares	reserves	earnings	Total	interests	equity
For the year ended 31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2015	149	969	(37)	117	4,830	6,028	275	6,303
Total comprehensive income/(expense)
for the year	-	-	-	(17)	1,098	1,081	19	1,100
Options exercised under
share option schemes	-	7	-	-	-	7	-	7
Net movement in employee scheme
treasury shares	-	-	7	3	(21)	(11)	-	(11)
Dividends	-	-	-	-	(701)	(701)	-	(701)
Movement in third party interests	-	-	-	-	-	-	(5)	(5)
Currency translation differences	-	-	-	(14)	14	-	-	-
As at 31 December 2015	149	976	(30)	89	5,220	6,404	289	6,693

IFRS and Operational Cash Generation                                                                                                  Page 37

Consolidated Cash Flow Statement

For the six months ended 30 June 2016

		30.06.16	30.06.15	31.12.15
	Notes	£m	£m	£m
Cash flows from operating activities
Profit for the period		667	547	1,094
Adjustments for non cash movements in net profit for the period
Realised and unrealised (gains)/losses on financial investments and investment properties		(31,213)	4,236	4,077
Investment income		(5,164)	(4,928)	(9,760)
Interest expense		98	91	186
Tax expense		317	282	320
Other adjustments		(7)	(35)	(70)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss		(1,923)	(2,450)	1,007
Investments designated as available-for-sale		327	210	158
Other assets		(7,947)	(1,518)	(2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts		8,921	(784)	(1,083)
Transfer (from)/to unallocated divisible surplus		(200)	68	(90)
Investment contracts		19,164	(5,254)	(9,524)
Value of in-force non-participating contracts		49	(15)	24
Other liabilities		10,674	3,249	6,645
Cash used in operations		(6,237)	(6,301)	(9,610)
Interest paid		(75)	(129)	(186)
Interest received		2,740	2,413	5,286
Tax paid1		(217)	(84)	(244)
Dividends received		2,622	2,282	3,931
Net cash flows used in operating activities		(1,167)	(1,819)	(823)
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles		(29)	(11)	(24)
Acquisitions2		-	(5)	(5)
Disposal of subsidiaries3	2.11	(340)	34	(82)
Investment in joint ventures		(17)	(65)	(71)
Net cash flows from investing activities		(386)	(47)	(182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the period	2.16	(589)	(496)	(701)
Proceeds from issue of ordinary share capital		3	4	7
Purchase of employee scheme shares		2	(7)	(8)
Proceeds from borrowings		253	194	697
Repayment of borrowings		(315)	(649)	(527)
Net cash flows used in financing activities		(646)	(954)	(532)
Net decrease in cash and cash equivalents		(2,199)	(2,820)	(1,537)
Exchange gains/(losses) on cash and cash equivalents		89	(65)	(106)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)		21,066	22,709	22,709
Cash and cash equivalents (before reallocation of held for sale cash)		18,956	19,824	21,066
Cash and cash equivalents classified as held for sale	2.12	-	(241)	(389)
Cash and cash equivalents at 30 June/31 December		18,956	19,583	20,677
1. Tax comprises UK corporation tax paid of £108m (H1 15: £8m; FY 15: £128m), overseas corporate taxes of £5m (H1 15: £18m; FY 15: £36m) and withholding tax of £104m (H1 15: £58m; FY 15: £80m).
2. Net cash flows from acquisitions includes cash paid of £nil (H1 15: £5m; FY 15: £5m) less cash and cash equivalents acquired of £nil (H1 15: £nil; FY 15: £nil).
3. Net cash flows from disposals includes cash received of £74m (H1 15: £nil; FY 15: £242m) less cash and cash equivalents disposed of £414m (H1 15: £nil; FY 15: £324m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows, including £669m (H1 15: £541m; FY 15: £856m) relating to the with-profit fund policyholders and £15,540m (H1 15: £,16,928m; FY 15: £16,116m) relating to unit-linked policyholders.

IFRS and Operational Cash Generation                                                                                                  Page 38

2.08 Basis of preparation

The group's financial information for the six months ended 30 June 2016 has been prepared in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's 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 2016 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2015 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. Following an amendment to IAS 1 more detail is provided around the methodology of the split of policyholder and shareholder tax.

For presentation, the tax shown in the Consolidated Income Statement has been apportioned between that attributable to policyholders' returns and equity holders' profits.  This represents the fact that the group's long-term business in the UK incurs tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. Both types of tax are accounted for in the total tax charge in the group's Consolidated Income Statement, and the separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

For this apportionment, the equity holders' tax on long-term business is estimated using equity holders' profit after tax, which is grossed up at the statutory tax rate. The balance of income tax associated with UK long term business is classified as income tax attributable to policyholders' returns.

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 2015 financial statements except for the changes outlined in Note 2.02.             

The results for the six months ended 30 June 2016 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 2015 have been taken from the group's 2015 Annual Report and Accounts. Therefore, these interim accounts should be read in conjunction with the 2015 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 Commission for use in the European Union. PricewaterhouseCoopers LLP reported on the 2015 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 2015 Annual Report and Accounts has been filed with the Registrar of Companies.                                                          

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 section of these interim financial statements.

Alternative performance measures

The group uses a number of alternative performance measures (APMs), including operational cash generation, net cash generation and operating profit, in the discussion of its business performance and financial position as the group believes that they provide a better indication of performance. Definitions of key APMs can be found in the glossary.

2.09 Segmental analysis

Reportable segments

The group has six reportable segments comprising LGR, LGIM, LGC, Insurance, Savings and LGA. Central group expenses and debt costs are reported separately.

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents the IFRS profit before tax on its trading businesses and investment return (less expenses) on its other group invested assets. LGC and group expenses also incorporate inter-segmental eliminations, consolidated unit trusts and property partnerships managed on behalf of clients, which do not constitute a separately reportable segment.

Insurance represents business in retail protection, group protection, general insurance, networks and Legal & General Netherlands (LGN). Insurance comparatives include Legal & General France (LGF), which was sold during 2015.

Savings represents business in platforms, SIPPs, mature savings and with-profits.

The LGA segment represents protection business written in the USA.

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to Insurance from Savings, and the IDOL business has been transferred to LGR from Insurance. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR H1 15 operating profit by £1m (FY 15: increase by £2m), increase Savings H1 15 operating profit by £5m (FY 15: increase by £8m) and reduce Insurance H1 15 operating profit by £6m (FY 15: reduce by £10m).

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

IFRS and Operational Cash Generation                                                                                                  Page 39

2.09 Segmental analysis (continued)
(a) Profit/(loss) for the period
							Group
							expenses
							and debt
	LGR1	LGIM	LGC	Insurance1	Savings1	LGA	costs	Total
For the six months ended 30 June 2016	£m	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)	406	171	135	138	49	43	(165)	777
Investment and other variances2	63	(8)	60	(92)	4	2	21	50
Losses attributable to non-controlling
interests	-	-	-	-	-	-	(1)	(1)
Profit/(loss) before tax attributable to
equity holders	469	163	195	46	53	45	(145)	826
Tax (expense)/credit attributable to equity
holders of the company	(82)	(35)	(24)	(11)	(10)	(25)	28	(159)
Profit/(loss) for the period	387	128	171	35	43	20	(117)	667
							Group
							expenses
							and debt
	LGR1	LGIM	LGC	Insurance1	Savings1	LGA	costs	Total
For the six months ended 30 June 2015	£m	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)	281	176	115	186	55	40	(103)	750
Investment and other variances2	11	(5)	(4)	(48)	(20)	1	(21)	(86)
Gains attributable to non-controlling
interests	-	-	-	-	-	-	8	8
Profit/(loss) before tax attributable to
equity holders	292	171	111	138	35	41	(116)	672
Tax (expense)/credit attributable to equity
holders of the company	(50)	(38)	(2)	(37)	(7)	(22)	31	(125)
Profit/(loss) for the period	242	133	109	101	28	19	(85)	547
							Group
							expenses
							and debt
	LGR1	LGIM	LGC	Insurance1	Savings1	LGA	costs	Total
For the year ended 31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss)	641	355	233	283	107	83	(247)	1,455
Investment and other variances2	78	(20)	(116)	(39)	3	(13)	(12)	(119)
Gains attributable to non-controlling
interests	-	-	-	-	-	-	19	19
Profit/(loss) before tax attributable to
equity holders	719	335	117	244	110	70	(240)	1,355
Tax (expense)/credit attributable to equity
holders of the company	(131)	(74)	(9)	(60)	(16)	(41)	70	(261)
Profit/(loss) for the year	588	261	108	184	94	29	(170)	1,094
1. During 2016, changes have been made to the organisational structure. The advised sales and India businesses have been transferred to Insurance from Savings, and the IDOL business has been transferred to LGR from Insurance. Comparatives have been amended accordingly. The impact of the reclassification has been to increase LGR H1 15 operating profit by £1m and profit before tax by £1m (FY 15: increase by £2m and £1m respectively), increase Savings H1 operating profit by £5m and profit before tax by £5m (FY 15: increase by £8m and £8m respectively), and reduce Insurance H1 15 operating profit by £6m and profit before tax by £6m (FY 15: reduce by £10m and £9m respectively).
2. H1 16 Investment and other variances - Insurance and Savings include the £4m net gain resulting from the disposal of subsidiaries during the period (H1 15: includes the £40m impairment loss resulting from the classification of disposal groups as held for sale; FY 15: includes the £25m net loss resulting from the disposal of subsidiary and joint venture investments during the year).

IFRS and Operational Cash Generation                                                                                                  Page 40

2.09 Segmental analysis (continued)
(b) Income
						LGC
						and
	LGR1	LGIM	Insurance1	Savings1	LGA	other2	Total
For the six months ended 30 June 2016	£m	£m	£m	£m	£m	£m	£m
Internal income	-	121	357	-	136	(614)	-
External income	9,083	24,153	912	2,344	421	5,610	42,523
Total income	9,083	24,274	1,269	2,344	557	4,996	42,523
						LGC
						and
	LGR1	LGIM	Insurance1	Savings1	LGA	other2,3	Total
For the six months ended 30 June 2015	£m	£m	£m	£m	£m	£m	£m
Internal income	-	43	197	-	109	(349)	-
External income3	571	4,752	1,169	1,711	399	(213)	8,389
Total income	571	4,795	1,366	1,711	508	(562)	8,389
						LGC
						and
	LGR1	LGIM	Insurance1	Savings1	LGA	other2,3	Total
For the year ended 31 December 2015	£m	£m	£m	£m	£m	£m	£m
Internal income	-	267	495	-	238	(1,000)	-
External income3	2,554	5,514	2,111	2,473	754	(704)	12,702
Total income	2,554	5,781	2,606	2,473	992	(1,704)	12,702
1. During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to Insurance from Savings, and the IDOL business has been transferred to LGR from Insurance. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR H1 15 external income by £10m (FY 15: increase by £26m), reduce Savings H1 15 external income by £3m (FY 15: reduce by £5m) and reduce Insurance H1 15 external income by £7m (FY 15: reduce by £21m).
2. LGC and other includes LGC, inter-segmental eliminations and group consolidation adjustments.
3. LGC and other internal revenue includes inter-segmental eliminations previously classified as LGA (H1 15: £195m; FY 15: £441m). In addition, external revenue has been reclassified to exclude an internal transaction between LGC and other and LGA.
Total revenue includes investment return of £36,978m (H1 15: £5,062m; FY 15: £5,947m).

IFRS and Operational Cash Generation                                                                                                  Page 41

2.10 Earnings per share

(a) Earnings per share

			Adjusted	Adjusted			Adjusted	Adjusted
	Profit	Earnings	profit	earnings	Profit	Earnings	profit	earnings
	after tax	per share1	after tax	per share1,2	after tax	per share1	after tax	per share1,2
	30.06.16	30.06.16	30.06.16	30.06.16	30.06.15	30.06.15	30.06.15	30.06.15
	£m	p	£m	p	£m	p	£m	p
Operating profit after tax	616	10.39	616	10.39	588	9.94	588	9.94
Investment and other variances	52	0.88	48	0.81	(49)	(0.83)	(9)	(0.15)
Earnings per share based on profit
attributable to equity holders	668	11.27	664	11.20	539	9.11	579	9.79
							Adjusted	Adjusted
					Profit	Earnings	profit	earnings
					after tax	per share1	after tax	per share1,2
					Full year	Full year	Full year	Full year
					31.12.15	31.12.15	31.12.15	31.12.15
					£m	p	£m	p
Operating profit after tax					1,142	19.29	1,142	19.29
Investment and other variances					(67)	(1.13)	(42)	(0.71)
Earnings per share based on profit
attributable to equity holders					1,075	18.16	1,100	18.58
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 period, excluding employee scheme treasury shares.
2. Adjusted earnings per share has been calculated excluding the net gain, £4m, resulting from the disposal of subsidiaries (H1 15: excluding the £40m impairment loss resulting from classification of disposal groups as held for sale; FY 15: excluding the £25m net loss resulting from the disposal of subsidiary and joint venture investments).

IFRS and Operational Cash Generation                                                                                                  Page 42

2.10 Earnings per share (continued)

(b) Diluted earnings per share

							Adjusted	Adjusted
				Number	Profit	Earnings	profit	earnings
				of shares1	after tax	per share	after tax	per share2
				30.06.16	30.06.16	30.06.16	30.06.16	30.06.16
				m	£m	p	£m	p
Profit attributable to equity holders of the company				5,927	668	11.27	664	11.20
Net shares under options allocable for no further consideration				22	-	(0.04)	-	(0.04)
Diluted earnings per share				5,949	668	11.23	664	11.16
							Adjusted	Adjusted
				Number	Profit	Earnings	profit	earnings
				of shares1	after tax	per share	after tax	per share2
				30.06.15	30.06.15	30.06.15	30.06.15	30.06.15
				m	£m	p	£m	p
Profit attributable to equity holders of the company				5,915	539	9.11	579	9.79
Net shares under options allocable for no further consideration				38	-	(0.06)	-	(0.06)
Diluted earnings per share				5,953	539	9.05	579	9.73
							Adjusted	Adjusted
				Number	Profit	Earnings	profit	earnings
				of shares1	after tax	per share	after tax	per share2
				31.12.15	31.12.15	31.12.15	31.12.15	31.12.15
				m	£m	p	£m	p
Profit attributable to equity holders of the company				5,920	1,075	18.16	1,100	18.58
Net shares under options allocable for no further consideration				38	-	(0.12)	-	(0.12)
Diluted earnings per share				5,958	1,075	18.04	1,100	18.46
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.
2. Adjusted earnings per share has been calculated excluding the net £4m gain, resulting from the disposal of subsidiaries (H1 15: excluding the £40m impairment loss resulting from classification of disposal groups as held for sale; FY 15: excluding £25m net loss resulting from the disposal of subsidiary and joint venture investments).

2.11 Disposals

During H1 2016, the group made the following disposals:

- Suffolk Life Group Limited was sold to Curtis Banks Group plc for £45m (excluding transaction costs). The carrying value of the investment was £40m, realising a profit on disposal of £5m (excluding transaction costs) reported in operational income in the Consolidated Income Statement. The disposal of Suffolk Life Group Limited was not classified as a discontinued operation as it does not represent a major line of business or geographical segment of the group.

 - The investment in ABI Alpha Limited was sold to a management buyout led by CBPE Capital with cash proceeds for the group's investment of £29m. The carrying value of the investment was £23m, realising a profit on disposal of £6m reported in operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the with-profits fund.

 - Air Energi is no longer controlled by the group following its merger with Swift WWR to create Airswift. The group now holds less than 50% of Airswift and therefore has classified the investment as an associate included in financial investments. The investment has been revalued to fair value, increasing the carrying value of the investment by £13m which has been reported in operational income in the Consolidated Income Statement. The majority of the profit on merger is allocated to the with-profits fund.

IFRS and Operational Cash Generation                                                                                                  Page 43

2.12 Held for sale

								Full year
						30.06.16	30.06.151	31.12.152
						£m	£m	£m
Assets classified as held for sale
Purchased interest in long term business and other intangible assets						-	-	28
DAC						-	71	-
Investment in associates						-	12	-
Property, plant and equipment						-	45	1
Investment property						-	-	1,140
Financial investments						-	5,601	1,801
Reinsurers' share of contract liabilities						-	10	39
Cash and cash equivalents						-	241	389
Other assets						-	169	11
Total assets of the disposal group						-	6,149	3,409
Liabilities classified as held for sale
Insurance contract liabilities						-	(320)	-
Investment contract liabilities						-	(5,187)	(3,235)
Unallocated divisible surplus						-	(229)	-
Operational borrowings						-	-	(102)
Tax liabilities						-	(22)	(5)
Other liabilities						-	(238)	(27)
Total liabilities of the disposal group						-	(5,996)	(3,369)
Total net assets of the disposal group						-	153	40
1. At H1 15, Legal & General International (Ireland) Limited, Commercial International Life Insurance Company SAE, Legal & General Gulf BSC, and Legal & General Holdings (France) S.A. were classified as held for sale.
2. At FY 15, Suffolk Life Group Limited was classified as held for sale.

IFRS and Operational Cash Generation                                                                                                  Page 44

2.13 Financial investments and investment property

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Equities						176,194	161,507	166,892
Unit trusts						6,594	7,303	6,021
Debt securities1						197,008	170,910	169,720
Accrued interest						1,395	1,393	1,456
Derivative assets2						15,424	9,625	9,509
Loans and receivables						508	421	465
Financial investments						397,123	351,159	354,063
Investment property3						8,227	8,779	8,082
Total financial investments and investment property						405,350	359,938	362,145
1. Detailed analysis of debt securities which shareholders are directly exposed to is disclosed in Note 4.06.
2. 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 £9,543m (H1 15: £5,819m; FY 15: £5,795m) held on behalf of unit linked policyholders.
3. Detailed analysis of investment property which shareholders are directly exposed to is disclosed in Note 4.07.
(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. 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 valuation is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2.
There have been no significant transfers between level 1 and level 2 for the period ended 30 June 2016 (30 June 2015: £nil; 31 December 2015: £nil).
The table on the following page presents the group's assets by IFRS 13 hierarchy levels:

IFRS and Operational Cash Generation                                                                                                  Page 45

2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
					Total	Level 1	Level 2	Level 3
For the six months ended 30 June 2016					£m	£m	£m	£m
Shareholder
Equity securities					2,331	2,025	-	306
Debt securities					4,789	2,071	2,361	357
Accrued interest					33	15	15	3
Derivative assets					62	6	56	-
Investment property					200	-	-	200
Non profit non-unit linked
Equity securities					56	52	4	-
Debt securities					47,436	6,998	36,995	3,443
Accrued interest					496	38	453	5
Derivative assets					5,661	325	5,326	10
Investment property					2,257	-	-	2,257
With-profits
Equity securities					3,607	3,382	1	224
Debt securities					7,054	3,660	3,384	10
Accrued interest					69	29	40	-
Derivative assets					158	40	118	-
Investment property					920	-	-	920
Unit linked
Equity securities					176,794	173,351	3,062	381
Debt securities					137,729	96,007	41,722	-
Accrued interest					797	291	506	-
Derivative assets					9,543	225	9,318	-
Investment property					4,850	-	-	4,850
Total financial investments and investment property at fair value1					404,842	288,515	103,361	12,966
1. This table excludes loans and receivables of £508m, which are held at amortised cost.

IFRS and Operational Cash Generation                                                                                                  Page 46

2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
					Total	Level 1	Level 2	Level 3
For the six months ended 30 June 2015					£m	£m	£m	£m
Shareholder
Equity securities					1,932	1,681	-	251
Debt securities					4,570	1,861	2,445	264
Accrued interest					30	11	15	4
Derivative assets					87	81	6	-
Investment property					183	-	-	183
Non profit non-unit linked
Equity securities					307	296	11	-
Debt securities					38,851	5,845	32,155	851
Accrued interest					445	32	407	6
Derivative assets					3,664	264	3,400	-
Investment property					2,037	-	-	2,037
With-profits
Equity securities					3,596	3,084	2	510
Debt securities					6,886	3,265	3,604	17
Accrued interest					79	35	44	-
Derivative assets					55	37	18	-
Investment property					1,057	-	-	1,057
Unit linked
Equity securities					162,975	159,401	3,331	243
Debt securities					120,603	79,895	40,701	7
Accrued interest					839	295	544	-
Derivative assets					5,819	960	4,859	-
Investment property					5,502	-	-	5,502
Total financial investments and investment property at fair value1					359,517	257,043	91,542	10,932
1. This table excludes loans and receivables of £421m, which are held at amortised cost.

IFRS and Operational Cash Generation                                                                                                  Page 47

2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
					Total	Level 1	Level 2	Level 3
For the year ended 31 December 2015					£m	£m	£m	£m
Shareholder
Equity securities					1,923	1,663	-	260
Debt securities					4,516	1,966	2,188	362
Accrued interest					32	16	14	2
Derivative assets					36	13	23	-
Investment property					190	-	-	190
Non profit non-unit linked
Equity securities					149	138	11	-
Debt securities					38,888	5,174	32,646	1,068
Accrued interest					465	34	426	5
Derivative assets					3,640	74	3,566	-
Investment property					2,157	-	-	2,157
With-profits
Equity securities					3,365	3,002	6	357
Debt securities					6,385	3,029	3,343	13
Accrued interest					69	24	45	-
Derivative assets					38	11	27	-
Investment property					930	-	-	930
Unit linked
Equity securities					167,476	164,118	3,112	246
Debt securities					119,931	82,388	37,537	6
Accrued interest					890	310	580	-
Derivative assets					5,795	332	5,463	-
Investment property					4,805	-	-	4,805
Total financial investments and investment property at fair value1					361,680	262,292	88,987	10,401
1. This table excludes loans and receivables of £465m, which are held at amortised cost.

IFRS and Operational Cash Generation                                                                                                  Page 48

2.13 Financial investments and investment property (continued)

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

Level 3 assets where internal models are used, represent a small proportion of assets to which shareholders are exposed. These comprise property, unquoted equities, untraded debt securities and securities where the broker methodology is unknown. Unquoted equities include suspended securities and investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans and lifetime mortgages.

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

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

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 and validated independently as appropriate.

The group's policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.

IFRS and Operational Cash Generation                                                                                                  Page 49

2.13 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
	30.06.16	30.06.16	30.06.16	30.06.16	30.06.15	30.06.15	30.06.15	30.06.15
	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January	863	1,456	8,082	10,401	1,142	1,243	8,152	10,537
Total gains or (losses) for the period
recognised in profit:
- in other comprehensive income	-	15	-	15	-	-	-	-
- realised and unrealised
gains or (losses)2	9	269	(51)	227	97	(21)	226	302
Purchases / Additions	260	586	283	1,129	26	164	512	702
Improvements	-	-	-	-	-	-	63	63
Sales / Disposals	(244)	(112)	(87)	(443)	(140)	(105)	(174)	(419)
Transfers into level 33	26	1,670	-	1,696	12	5	-	17
Transfers out of level 33	(3)	(56)	-	(59)	(126)	(144)	-	(270)
Other	-	-	-	-	(7)	7	-	-
As at 30 June	911	3,828-	8,227	12,966	1,004	1,149-	8,779	10,932
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. The group holds regular discussions with its pricing providers to determine whether transfers between levels of the fair value hierarchy have occurred. The above transfers occurred as a result of this process. In 2016, transfers into level 3 included £1,670m of commercial real estate loans, which were previously classified as level 2.
						Other
						financial
					Equity	invest-	Investment
					securities	ments1	property	Total
					Full year	Full year	Full year	Full year
					31.12.15	31.12.15	31.12.15	31.12.15
					£m	£m	£m	£m
As at 1 January					1,142	1,243	8,152	10,537
Total gains or (losses) for the year
recognised in profit:
- in other comprehensive income					-	(12)	-	(12)
- realised and unrealised
gains or (losses)2					110	(10)	486	586
Purchases / Additions					68	394	1,061	1,523
Sales / Disposals					(246)	(234)	(482)	(962)
Transfers into level 33					66	76	-	142
Transfers out of level 33					(260)	-	-	(260)
Transfers to held for sale4					(17)	(1)	(1,135)	(1,153)
As at 31 December					863	1,456	8,082	10,401
1. Other financial investments comprise debt securities, lifetime mortgages and derivative assets.
2. The realised and unrealised gains and losses have been recognised in investment return in the Consolidated Income Statement.
3. 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.
4. The Suffolk Life Group was sold in May 2016 and therefore was classified as held for sale at 31 December 2015.

IFRS and Operational Cash Generation                                                                                                  Page 50

2.13 Financial investments and investment property (continued)
(c) Effect of 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 2016					Main	value	value	value
Financial instruments and investment property					assumptions	£m	£m	£m
Assets
Shareholder
- Private equity investment vehicles1			Price earnings multiple			16	1	(1)
- Unquoted investments in property vehicles2			Property yield			283	1	(2)
- Asset backed securities			Cash flows; expected defaults			2	-	-
- Untraded and other debt securities3			Cash flows; expected defaults			358	2	(2)
- Unquoted and other securities3			Cash flows; expected defaults			7	-	-
- Investment property2			Property yield			200	10	(20)
Non profit non-linked
- Lifetime mortgage loans			Market spreads; LTVs			440	8	(7)
- Untraded and other debt securities3			Cash flows; expected defaults			1,197	-	-
- Commercial real estate loans			Cash flows; expected defaults			1,811	32	(32)
- Investment property2,4			Cash flows; property yield			2,257	56	(113)
- Other			Cash flows			10	-	-
With-profits
- Private equity investment vehicles1			Price earnings multiple			17	-	-
- Unquoted investments in property vehicles2			Property yield			207	13	(25)
- Untraded and other debt securities3			Cash flows; expected defaults			10	-	-
- Investment property2			Property yield			920	47	(92)
Unit linked
- Private equity investment vehicles1			Price earnings multiple			1	-	-
- Unquoted investments in property vehicles2			Property yield			369	19	(38)
- Suspended securities			Estimated recoverable amount			11	-	-
- Investment property2			Property yield			4,850	247	(485)
Total						12,966	436	(817)
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 using valuations provided 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 yields.
3. No reasonably possible increases or decreases in fair values have been given for securities where the broker methodology is unknown.
4. The sensitivity of the non profit non-linked property to reasonably possible alternative assumptions is primarily driven by the vacant property value at the end of the lease, which represents only a partial component of the overall valuation calculation.  The properties are primarily let to investment grade tenants on long-term leases and as a consequence of this, the cash flows received from these leases are deemed less sensitive to market fluctuation by the group.

IFRS and Operational Cash Generation                                                                                                  Page 51

2.13 Financial investments and investment property (continued)
(c) Effect of 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 2015					Main	value	value	value
Financial instruments and investment property					assumptions	£m	£m	£m
Assets
Shareholder
- Private equity investment vehicles1			Price earnings multiple			15	1	(1)
- Unquoted investments in property vehicles2			Property yield			137	7	(7)
- Untraded and other debt securities3			Cash flows; expected defaults			268	13	(13)
- Unquoted and other securities3			Cash flows; expected defaults			99	3	(3)
- Investment property2			Property yield			183	9	(9)
Non profit non-linked
- Asset backed securities			Cash flows; expected defaults			725	36	(36)
- Untraded and other debt securities3			Cash flows; expected defaults			3	-	-
- Unquoted and other securities3			Cash flows; expected defaults			129	6	(6)
- Investment property2			Property yield			2,037	102	(102)
With-profits
- Private equity investment vehicles1			Price earnings multiple			140	8	(8)
- Asset backed securities			Cash flows; expected defaults			5	-	-
- Unquoted and other securities3			Cash flows; expected defaults			379	19	(19)
- Other						3	-	-
- Investment property2			Property yield			1,057	53	(53)
Unit linked
- Unquoted investments in property vehicles2			Property yield			37	2	(2)
- Suspended securities			Estimated recoverable amount			11	1	(1)
- Asset backed securities			Cash flows; expected defaults			4	-	-
- Untraded and other debt securities3			Cash flows; expected defaults			2	-	-
- Unquoted and other securities3			Cash flows; expected defaults			196	22	(22)
- Investment property2			Property yield			5,502	276	(276)
Total						10,932	558	(558)
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 using valuations provided 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 yields.
3. No reasonably possible increases or decreases in fair values have been given for securities where the broker methodology is unknown.

IFRS and Operational Cash Generation                                                                                                  Page 52

2.13 Financial investments and investment property (continued)
(c) Effect of 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 2015					Main	value	value	value
Financial instruments and investment property					assumptions	£m	£m	£m
Assets
Shareholder
Private equity investment vehicles1			Price earnings multiple			9	1	(1)
Unquoted investments in property vehicles2			Property yield			244	11	(11)
Untraded and other debt securities3			Cash flows; expected defaults			364	1	(1)
Unquoted and other securities3			Cash flows; expected defaults			7	-	-
Investment property2			Property yield			190	9	(9)
Non profit non-linked
Lifetime mortgage loans			Market spreads; LTVs			206	5	(7)
Untraded and other debt securities3			Cash flows; expected defaults			867	-	-
Investment property2			Property yield			2,157	110	(110)
With-profits
Private equity investment vehicles1			Price earnings multiple			11	1	(1)
Unquoted investments in property vehicles2			Property yield			346	21	(21)
Untraded and other debt securities3			Cash flows; expected defaults			13	-	-
Investment property2			Property yield			930	47	(47)
Unit linked
Private equity investment vehicles1			Price earnings multiple			8	-	-
Unquoted investments in property vehicles2			Property yield			133	8	(8)
Untraded and other debt securities3			Cash flows; expected defaults			6	-	-
Unquoted and other securities3			Cash flows; expected defaults			105	5	(5)
Investment property2			Property yield			4,805	243	(243)
Total						10,401	462	(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 using valuations provided 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 yields.
3. No reasonably possible increases or decreases in fair values have been given for securities where the broker methodology is unknown.

IFRS and Operational Cash Generation                                                                                                  Page 53

2.14 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
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Profit before tax attributable to equity holders						826	672	1,355
Tax calculated at 20.00% (H1 15: 20.25%; FY 15: 20.25%)						165	136	274
Effects of:
Adjustments in respect of prior years						-	-	(5)
Income not subject to tax, such as dividends						(5)	(3)	(11)
Higher rate of tax on profits taxed overseas						4	10	16
Additional allowances/non-deductible expenses						2	(4)	(4)
Impact of reduction in UK corporate tax rate to 18% from 2020 on deferred tax balances1						(2)	-	1
Differences between taxable and accounting investment gains						(5)	(11)	(10)
Other						-	(3)	-
Tax attributable to equity holders						159	125	261
Equity holders' effective tax rate2						19.2%	18.6%	19.3%
1. The impact of future corporation tax reductions announced in March 2016 has not been included in the Half Year 2016 results. The impact will be included in the FY 16 results when permitted under IAS 12.
2. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders. Please refer to note 2.08 for detail on the methodology of the split of policyholder and equity holders' tax.

IFRS and Operational Cash Generation                                                                                                  Page 54

2.14 Tax (continued)
(b) Deferred Tax
								Full year
						30.06.16	30.06.15	31.12.15
(i) UK deferred tax (liabilities)/assets						£m	£m	£m
Realised and unrealised gains on investments						(172)	(256)	(146)
Excess of depreciation over capital allowances						14	17	18
Management expenses						62	89	74
Deferred acquisition expenses						(48)	(56)	(51)
Difference between the tax and accounting value of insurance contracts						(125)	(126)	(83)
Accounting provisions						4	16	8
Trading losses						7	10	6
Pension fund deficit						71	85	72
Purchased interest in long term business						(14)	(23)	(15)
Net UK deferred tax liabilities						(201)	(244)	(117)
Presented on the Consolidated Balance Sheet as:
UK deferred tax asset						5	33	20
UK deferred tax liability						(206)	(277)	(137)
Net UK deferred liabilities1						(201)	(244)	(117)
(ii) Overseas deferred tax (liabilities)/assets
Realised and unrealised gains on investments						(38)	(32)	(8)
Deferred acquisition expenses						(344)	(284)	(308)
Difference between the tax and accounting value of insurance contracts						(180)	(234)	(241)
Accounting provisions						(33)	(19)	(27)
Trading losses						81	164	159
Pension fund deficit						-	2	-
Purchased interest in long term business						(11)	(11)	(11)
Excess of depreciation over capital allowances						2	-	-
Net Overseas deferred tax liabilities						(523)	(414)	(436)
1. On the Consolidated Balance Sheet the net UK deferred tax liability has been split between an asset of £5m and a liability of £206m where the relevant items cannot be offset.

IFRS and Operational Cash Generation                                                                                                  Page 55

2.15 Payables and other financial liabilities

								Full year
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Derivative liabilities						15,473	5,806	8,047
Repurchase agreements1						17,295	9,532	13,343
Other2						3,988	3,111	1,319
Payables and other financial liabilities						36,756	18,449	22,709
1. The repurchase agreements are presented gross, however they and their related assets are subject to master netting arrangements.
2. Other financial liabilities include net variation margins on derivative contracts, which are maintained daily. Included within the variation margins are collateral held and pledged of £8m and £979m respectively (H1 15: £384m and £20m; FY 15: £94m and £50m). Other also includes the present value of future commission costs which have contingent settlement provisions of £175m (H1 15: £182m; FY 15: £175m).
Fair value hierarchy
								Amortised
				Total	Level 1	Level 2	Level 3	cost
As at 30 June 2016				£m	£m	£m	£m	£m
Derivative liabilities				15,473	5,519	9,954	-	-
Repurchase agreements				17,295	-	-	-	17,295
Other				3,988	522	14	174	3,278
Payables and other financial liabilities				36,756	6,041	9,968	174	20,573
								Amortised
				Total	Level 1	Level 2	Level 3	cost
As at 30 June 2015				£m	£m	£m	£m	£m
Derivative liabilities				5,806	843	4,963	-	-
Repurchase agreements				9,532	-	-	-	9,532
Other				3,111	260	14	184	2,653
Payables and other financial liabilities				18,449	1,103	4,977	184	12,185
								Amortised
				Total	Level 1	Level 2	Level 3	cost
As at 31 December 2015				£m	£m	£m	£m	£m
Derivative liabilities				8,047	1,451	6,596	-	-
Repurchase agreements				13,343	-	-	-	13,343
Other				1,319	5	12	175	1,127
Payables and other financial liabilities				22,709	1,456	6,608	175	14,470
Future commission costs 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 Consolidated Income Statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing/decreasing the liability by £4m (H1 15: £6m; FY 15: £6m).
Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2016 (H1 15 and FY 15: No significant transfers between levels 1, 2 and 3).

IFRS and Operational Cash Generation                                                                                                  Page 56

2.16 Dividends 

				Per		Per		Per
			Dividend	share1	Dividend1	share1	Dividend	share1
			30.06.16	30.06.16	30.06.15	30.06.15	31.12.15	31.12.15
			£m	p	£m	p	£m	p
Ordinary share dividends paid in the period:
- Prior year final dividend			592	9.95	496	8.35	496	8.35
- Current year interim dividend			-	-	-	-	205	3.45
			592	9.95	496	8.35	701	11.80
Ordinary share dividend proposed2			238	4.00	205	3.45	592	9.95
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.

2.17 Share capital

			Number of	Number of	Number of
			shares	shares	shares
					Full year
			30.06.16	30.06.15	31.12.15
As at 1 January			5,948,788,480	5,942,070,229	5,942,070,229
Options exercised under share option schemes:
- Savings related share option scheme			3,465,839	3,704,493	6,718,251
As at 30 June / 31 December			5,952,254,319	5,945,774,722	5,948,788,480
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 Operational Cash Generation                                                                                                  Page 57

2.18 Core Borrowings
		Carrying	Fair	Carrying	Fair	Carrying	Fair
		amount	value	amount	value	amount	value
						Full year	Full year
		30.06.16	30.06.16	30.06.15	30.06.15	31.12.15	31.12.15
		£m	£m	£m	£m	£m	£m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)		626	615	647	634	637	631
5.875% Sterling undated subordinated notes (Tier 2)		412	412	414	423	413	426
10% Sterling subordinated notes 2041 (Tier 2)		310	392	310	394	310	398
5.5% Sterling subordinated notes 2064 (Tier 2)		589	534	588	622	589	570
5.375% Sterling subordinated notes 2045 (Tier 2)		602	607	-	-	602	611
Client fund holdings of group debt1		(33)	(32)	(28)	(29)	(26)	(27)
Total subordinated borrowings		2,506	2,528	1,931	2,044	2,525	2,609
Senior borrowings
Sterling medium term notes 2031-2041		602	801	602	762	609	779
Client fund holdings of group debt1		(44)	(58)	(43)	(55)	(42)	(54)
Total senior borrowings		558	743	559	707	567	725
Total core borrowings		3,064	3,271	2,490	2,751	3,092	3,334
1. £77m (H1 15: £71m; FY15: £68m) 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 Solvency II purposes these securities are treated as tier 1 own funds.

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 own funds for Solvency II 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. They are treated as tier 2 own funds for Solvency II purposes.

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% pa. These notes mature on 27 June 2064. They are treated as tier 2 own funds for Solvency II purposes.

5.375% Sterling subordinated notes 2045

On 27 October 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% pa. These notes mature on 27 October 2045. They are treated as tier 2 own funds for Solvency II purposes.

IFRS and Operational Cash Generation                                                                                                  Page 58

2.19 Operational borrowings
		Carrying	Fair	Carrying	Fair	Carrying	Fair
		amount	value	amount	value	amount	value
						Full year	Full year
		30.06.16	30.06.16	30.06.15	30.06.15	31.12.2015	31.12.2015
		£m	£m	£m	£m	£m	£m
Short term operational borrowings
Euro Commercial paper		103	103	41	41	15	15
Bank loans and overdrafts		69	69	7	7	2	2
Total short term operational borrowings		172	172	48	48	17	17
Non recourse borrowings
US Dollar Triple X securitisation 2037		-	-	283	239	302	258
Suffolk Life unit linked borrowings1		-	-	99	99	-	-
LGV 6/LGV 7 Private Equity Fund Limited Partnership		42	42	123	123	98	98
Consolidated Property Limited Partnerships		197	197	153	153	184	184
Total non recourse borrowings		239	239	658	614	584	540
Group holding of operational borrowings2		-	-	(61)	(51)	(65)	(56)
Total operational borrowings		411	411	645	611	536	501
1. On 25 May 2016, the group sold Suffolk Life Group Limited to Curtis Banks Group. At FY 15, the Suffolk Life unit linked borrowings were transferred to held for sale, refer to Note 2.12.
2. Group investments in operational borrowings have been eliminated from the Consolidated Balance Sheet.

The 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 the short term Euro Commercial paper, bank loans and overdrafts of £172m  (H1 15: £48m; FY 15: £17m).

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 in 2005 and 2006. It was secured on the cash flows related to that tranche of business. On 15 June 2016, this securitisation was redeemed at par.

Suffolk Life unit linked borrowings

All of these non recourse borrowings were in relation to commercial properties held within SIPP plans and the borrowings solely related to client investments. On 25 May 2016, the group sold Suffolk Life Group (SLG) to Curtis Banks Group plc.

LGV 6/LGV 7 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 2016, the group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2020. No drawings were made under this facility year to date.

2.20 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results. The majority of the non-controlling interests in 2016 are in relation to investments in the Leisure Fund Unit Trust, the Legal & General UK Property Ungeared Fund Limited Partnership and Thorpe Park Developments Limited.

IFRS and Operational Cash Generation                                                                                                  Page 59

2.21 Foreign exchange rates

Principal rates of exchange used for translation are:
Period end exchange rates						At 30.06.16	At 30.06.15	At 31.12.15
United States Dollar						1.34	1.57	1.47
Euro						1.20	1.41	1.36
						01.01.16 -	01.01.15 -	01.01.15 -
Average exchange rates						30.06.16	30.06.15	31.12.15
United States Dollar						1.43	1.52	1.53
Euro						1.28	1.37	1.38

2.22  Related party transactions
There were no material transactions between key management and the Legal & General group of companies during the period. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £34m (H1 15: £54m; FY 15: £93m) for all employees.
At 30 June 2016, 30 June 2015 and 31 December 2015 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:
						30.06.16	30.06.15	31.12.15
						£m	£m	£m
Salaries						2	3	10
Social security costs						1	2	2
Post-employment benefits						-	1	1
Share-based incentive awards						2	2	5
Key management personnel compensation						5	8	18
Number of key management personnel						16	16	16
The group has the following related party transactions:
- Annuity contracts issued by Society for consideration of £4m (H1 15: £28m; FY 15: £105m) purchased by the group's UK defined benefit pension schemes during the period, priced on an arm's length basis; - Investments in venture capital, property and financial investments held via collective investment vehicles. The net investments into associate investment vehicles totalled £27m during the period (H1 15: £7m; FY 15: £nil). The group received investment management fees of £1m during the period (H1 15: £1m; FY 15: £2m). Distributions from these investment vehicles to the group totalled £6m (H1 15: £7m; FY 15: £10m); - Loans outstanding from CALA at 30 June 2016 total £63m (H1 15: £57m; FY 15: £59m); - Further conditional commitments of £4m (H1 15: £9m; FY 15: £8m) in the equity stake in Pemberton of £12.0m (H1 15: £5.8m; FY 15: £7.0m). A commitment of £198m (H1 15: £177m; FY 15: £182m) was previously made to Pemberton's first co-mingled funds, 75% of which was drawn as at 30 June 2016; - A 50/50 joint venture in MediaCity in the form of £61m (H1 15: £61m; FY 15: £61m) equity and £55m (H1 15: £55m; FY 15: £55m) loan notes. The loans outstanding from MediaCity total £55m as at 30 June 2016 (H1 15: £55m; FY 15: £55m); - An 18% equity stake in NTR Wind Management Limited, an asset management company set up to manage wind farms entered into in December 2015, of £2m. The equity stake was increased to 25% and further investment of £1m was made during the year, with a commitment of a further £1.8m.  The fund reached final close at its hard cap of £195m (€246m) in February 2016 and L&G Capital has committed 47.5% of the funds; - A 50/50 joint venture in Access Development Partnership entered into in March 2016 for £23m equity for build-to-rent developments in Walthamstow, Salford and Bristol.

IFRS and Operational Cash Generation                                                                                                  Page 60

2.23 Pension costs

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. The schemes were closed to future accrual on 31 December 2015. At 30 June 2016, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £306m (H1 15: £351m; FY 15: £308m). These amounts have been recognised in the financial statements with £193m charged against shareholder equity (H1 15: £221m; FY 15: £194m) and £113m against the unallocated divisible surplus (H1 15: £130m; FY 15: £114m).

2.24 Contingent liabilities, guarantees and indemnities

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

Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues. Legal & General (Portfolio Management Services) Limited (PMS) is currently co-operating with an investigation by FCA into Structured Deposits products issued by PMS between 2006 and 2014. PMS has responded to FCA's requests for information and awaits FCA's feedback. This matter is at an early stage and the probability, timing and amount of any outflows is uncertain. As matters progress, management and legal advisers will evaluate on an ongoing basis whether a provision should be recognised.

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

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

IFRS and Operational Cash Generation                                                                                                  Page 61

Independent review report to Legal & General Group Plc

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Legal & General Group Plc's consolidated interim financial statements (the "interim financial statements") in the Interim Management Statement of Legal & General Group Plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·          the Consolidated Balance Sheet as at 30 June 2016;

·          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 interim financial statements (pages 27 to 60).

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

As disclosed in note 2.08 to the interim financial statements, 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.

Responsibilities for the consolidated interim financial statements and the review

Our responsibilities and those of the directors

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

Our responsibility is to express a conclusion on the interim financial statements in the Interim Management Statement 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 Rules and Transparency Rules of the United Kingdom's 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.

 

What a review of 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 Statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

8 August 2016

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 interim 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 Operational Cash Generation                                                                                                  Page 62

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Asset and premium flows                                                                                                                        Page 63

3.01 Legal & General investment management total assets
			Active
			fixed	Solu-	Real	Active	Total	Advisory	Total
For the six months		Index	income	tions1	assets	equities	AUM	assets	assets
ended 30 June 2016		£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2016		274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6
External inflows		17.6	3.5	6.6	0.8	-	28.5		28.5
External outflows		(16.0)	(2.2)	(6.6)	(0.7)	(0.1)	(25.6)		(25.6)
Overlay/advisory net flows		-	-	6.7	-	-	6.7	(0.3)	6.4
External net flows2		1.6	1.3	6.7	0.1	(0.1)	9.6	(0.3)	9.3
Internal net flows		(0.4)	0.7	(0.1)	0.1	-	0.3	-	0.3
Total net flows		1.2	2.0	6.6	0.2	(0.1)	9.9	(0.3)	9.6
Cash management movements3		-	(0.6)	-	-	-	(0.6)	-	(0.6)
Market and other movements2		24.9	17.6	44.3	(0.1)	(0.6)	86.1	1.4	87.5
At 30 June 20164		300.4	125.8	389.1	18.4	7.8	841.5	11.6	853.1
Assets attributable to:
External							749.8	11.6	761.4
Internal							91.7	-	91.7
Assets attributable to:
UK							689.6	-	689.6
International							151.9	11.6	163.5

			Active
			fixed	Solu-	Real	Active	Total	Advisory	Total
For the six months		Index	income	tions1	assets	equities	AUM	assets	assets
ended 30 June 2015		£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2015		274.8	102.9	293.3	14.5	8.2	693.7	14.8	708.5
External inflows		15.9	4.8	3.9	0.7	-	25.3		25.3
External outflows		(17.1)	(2.5)	(3.4)	(0.3)	-	(23.3)		(23.3)
Overlay/advisory net flows		-	-	11.8	-	-	11.8	(3.5)	8.3
External net flows2		(1.2)	2.3	12.3	0.4	-	13.8	(3.5)	10.3
Internal net flows		(0.3)	(0.8)	-	0.4	(0.3)	(1.0)	-	(1.0)
Total net flows		(1.5)	1.5	12.3	0.8	(0.3)	12.8	(3.5)	9.3
Cash management movements3		-	1.7	-	-	-	1.7	-	1.7
Market and other movements2		1.4	0.3	2.6	1.4	0.7	6.4	-	6.4
At 30 June 20154		274.7	106.4	308.2	16.7	8.6	714.6	11.3	725.9
Assets attributable to:
External							624.8	11.3	636.1
Internal							89.8	-	89.8
Assets attributable to:
UK							598.8	-	598.8
International							115.8	11.3	127.1
1. Solutions include liability driven investments, multi-asset funds, and include £244.0bn at 30 June 2016 (30 June 2015: £208.1bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2016 was £71.0bn (30 June 2015: £48.2bn) and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Total assets under management have been reconciled to the financial investments and investment property held on the Consolidated Balance Sheet in note 3.04.

Asset and premium flows                                                                                                                        Page 64

3.01 Legal & General investment management total assets (continued)
			Active
			fixed	Solu-	Real	Active	Total	Advisory	Total
For the year ended		Index	income	tions1	assets	equities	AUM	assets	assets
31 December 2015		£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2015		274.8	102.9	293.3	14.5	8.2	693.7	14.8	708.5
External inflows2		33.4	11.1	16.3	1.4	-	62.2		62.2
External outflows		(30.9)	(4.3)	(6.6)	(0.9)	-	(42.7)		(42.7)
Overlay/advisory net flows		-	-	18.2	-	-	18.2	(4.6)	13.6
External net flows3		2.5	6.8	27.9	0.5	-	37.7	(4.6)	33.1
Internal net flows		(0.7)	(1.9)	-	0.9	(0.4)	(2.1)	-	(2.1)
Disposal of LGF4		-	(2.3)	-	-	-	(2.3)	-	(2.3)
Total net flows		1.8	2.6	27.9	1.4	(0.4)	33.3	(4.6)	28.7
Cash management movements5		-	0.8	-	-	-	0.8	-	0.8
Market and other movements3		(2.3)	0.5	17.0	2.4	0.7	18.3	0.3	18.6
At 31 December 20156		274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6
Assets attributable to:
External							661.0	10.5	671.5
Internal							85.1	-	85.1
Assets attributable to:
UK							623.7	-	623.7
International							122.4	10.5	132.9
1. Solutions include liability driven investments, multi-asset funds and included £226.2bn at 31 December 2015 of derivative notionals associated with the Solutions business.
2. Solutions external inflows include £11.7bn of assets associated with the transfer of National Grid UK Pension Scheme after the purchase of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2015 was £59.9bn (30 June 2015: £48.2bn), and the movement in these assets is included in market and other movements for Solutions assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France) S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
6. Total assets under management have been reconciled to the financial investments and investment property held on the Consolidated Balance Sheet in note 3.04.

Asset and premium flows                                                                                                                        Page 65

3.02 Legal & General investment management total assets half-yearly progression
			Active
			fixed	Solu-	Real	Active	Total	Advisory	Total
For the year ended		Index	income	tions1	assets	equities	AUM	assets	assets
31 December 2015		£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2015		274.8	102.9	293.3	14.5	8.2	693.7	14.8	708.5
External inflows		15.9	4.8	3.9	0.7	-	25.3		25.3
External outflows		(17.1)	(2.5)	(3.4)	(0.3)	-	(23.3)		(23.3)
Overlay/advisory net flows		-	-	11.8	-	-	11.8	(3.5)	8.3
External net flows3		(1.2)	2.3	12.3	0.4	-	13.8	(3.5)	10.3
Internal net flows		(0.3)	(0.8)	-	0.4	(0.3)	(1.0)	-	(1.0)
Total net flows		(1.5)	1.5	12.3	0.8	(0.3)	12.8	(3.5)	9.3
Cash management movements5		-	1.7	-	-	-	1.7	-	1.7
Market and other movements3		1.4	0.3	2.6	1.4	0.7	6.4	-	6.4
At 30 June 2015		274.7	106.4	308.2	16.7	8.6	714.6	11.3	725.9
External inflows2		17.5	6.3	12.4	0.7	-	36.9		36.9
External outflows		(13.8)	(1.8)	(3.2)	(0.6)	-	(19.4)		(19.4)
Overlay/advisory net flows		-	-	6.4	-	-	6.4	(1.1)	5.3
External net flows3		3.7	4.5	15.6	0.1	-	23.9	(1.1)	22.8
Internal net flows		(0.4)	(1.1)	-	0.5	(0.1)	(1.1)	-	(1.1)
Disposal of LGF4		-	(2.3)	-	-	-	(2.3)	-	(2.3)
Total net flows		3.3	1.1	15.6	0.6	(0.1)	20.5	(1.1)	19.4
Cash management movements5		-	(0.9)	-	-	-	(0.9)	-	(0.9)
Market and other movements3		(3.7)	0.2	14.4	1.0	-	11.9	0.3	12.2
At 31 December 20156		274.3	106.8	338.2	18.3	8.5	746.1	10.5	756.6
1. Solutions include liability driven investments, multi-asset funds, and include £226.2bn at 31 December 2015 (30 June 2015: £208.1bn) of derivative notionals associated with the Solutions business.
2. Solutions external inflows include £11.7bn of assets associated with the transfer of National Grid UK Pension Scheme after the purchase of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2015 was £59.9bn (30 June 2015: £48.2bn), and the movement in these assets is included in market and other movements for Solutions assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France) S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
6. Total assets under management have been reconciled to the financial investments and investment property on the Consolidated Balance Sheet in note 3.04.

Asset and premium flows                                                                                                                        Page 66

3.02 Legal & General investment management total assets half-yearly progression (continued)
							As at	As at	As at
							30.06.16	31.12.15	30.06.15
							£bn	£bn	£bn
Total assets attributable to:1
External							761.4	671.5	636.1
Internal							91.7	85.1	89.8
Total assets attributable to:1
UK							689.6	623.7	598.8
International							163.5	132.9	127.1
1. Total assets at 30 June 2016 include £11.6bn of advisory assets (30 June 2015: £11.3bn; 31 December 2015: £10.5bn).

3.03 Legal & General investment management total external assets under management net flows
						6	6	6
						months	months	months
						to	to	to
						30.06.16	31.12.15	30.06.15
						£bn	£bn	£bn
LGIM total external AUM net flows1						9.6	23.9	13.8
Attributable to:
International						6.7	4.1	5.4
UK Institutional
- Defined contribution						0.8	1.9	1.0
- Defined benefit2						1.4	17.0	7.1
UK Retail						0.7	0.9	0.3
1. External net flows exclude movements in short term overlay assets, with maturity as determined by client agreements and cash management movements.
2. External inflows in the 6 months to 31 December 2015 include £11.7bn of assets associated with the transfer of National Grid UK Pension Scheme after the purchase of their asset manager Aerion Fund Management.

3.04 Assets under management reconciliation to Consolidated Balance Sheet financial assets
		As at	As at	As at
		30.06.16	31.12.15	30.06.15
		£bn	£bn	£bn
Assets under management		841.5	746.1	714.6
Derivative notionals		(244.0)	(226.2)	(208.1)
Third party assets		(202.3)	(157.9)	(147.6)
Derivative liabilities		15.4	8.0	5.8
Other1		(5.2)	(7.9)	(4.8)
Total group financial investments and investment property		405.4	362.1	359.9
1. Other includes assets that are managed by third parties on behalf of the group, cash and broker balances.

Asset and premium flows                                                                                                                        Page 67

3.05 Assets under administration
							LGIM
				Consol-
			Mature	idation				Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the six months	Platforms2	Life	Savings3	ment4	Savings	rlands	place	ments5	Annuities
ended 30 June 2016	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2016	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4
Gross inflows1	2.2	0.5	0.5	(0.2)	3.0	0.1	2.3	3.0	4.0
Gross outflows	(2.9)	(0.3)	(1.8)	0.3	(4.7)	(0.1)	(0.5)	(3.2)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.4)
Net flows	(0.7)	0.2	(1.3)	0.1	(1.7)	-	1.8	(0.2)	2.6
Market and other
movements	1.3	-	1.1	-	2.4	0.2	0.8	0.9	5.0
Disposals6	-	(8.8)	-	1.8	(7.0)	-	-	-	-
At 30 June 2016	77.5	-	29.4	(4.9)	102.0	1.8	17.3	23.3	51.0
							LGIM
				Consol-		France
			Mature	idation		and		Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the six months	Platforms2	Life	Savings3	ment4	Savings	rlands	place	ments5	Annuities
ended 30 June 2015	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
As at 1 January 2015	71.9	7.7	36.0	(6.9)	108.7	4.4	11.1	21.3	44.2
Gross inflows1	3.8	0.6	0.7	(0.2)	4.9	0.2	1.2	3.0	1.0
Gross outflows	(2.7)	(0.3)	(2.2)	0.4	(4.8)	(0.2)	(0.3)	(3.0)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.1)
Net flows	1.1	0.3	(1.5)	0.2	0.1	-	0.9	-	(0.1)
Market and other
movements	1.6	0.3	0.3	(0.2)	2.0	(0.2)	1.1	1.2	(0.7)
At 30 June 2015	74.6	8.3	34.8	(6.9)	110.8	4.2	13.1	22.5	43.4
							LGIM
				Consol-		France
			Mature	idation		and		Retail
		Suffolk	Retail	adjust-	Total	Nethe-	Work-	Invest-
For the year ended	Platforms2	Life	Savings3	ment4	Savings	rlands	place	ments5	Annuities
31 December 2015	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2015	71.9	7.7	36.0	(6.9)	108.7	4.4	11.1	21.3	44.2
Gross inflows1	8.7	1.2	1.1	(0.5)	10.5	0.4	3.3	5.9	3.0
Gross outflows	(5.2)	(0.5)	(4.1)	0.8	(9.1)	(0.3)	(0.7)	(5.7)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(2.6)
Disposals7	-	-	(2.8)	-	(2.8)	(2.7)	-	-	-
Net flows	3.5	0.7	(5.8)	0.3	(1.4)	(2.6)	2.6	0.2	0.4
Market and other
movements	1.5	0.2	(0.6)	(0.2)	1.0	(0.2)	1.0	1.1	(1.2)
At 31 December 2015	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4
1. Platforms gross inflows include Cofunds institutional net flows. 30 June 2016 Platforms comprise £77.5bn of which £37.2bn is retail assets (30 June 2015: £37.9bn; 31 December 2015: £37.5bn) and £40.3bn (30 June 2015: £36.7bn; 31 December 2015: £39.4bn) of assets held on behalf of institutional clients.
2. Platforms AUA comprise ISAs: £20.1bn (30 June 2015: £20.0bn; 31 December 2015: £19.9bn); onshore bonds £2.8bn (30 June 2015: £3.2bn; 31 December 2015: £3.0bn); offshore bonds £0.1bn (30 June 2015: £0.1bn; 31 December 2015: £0.1bn); platform SIPPs £3.6bn (30 June 2015: £3.4bn; 31 December 2015: £3.5bn) and non-wrapped funds £49.5bn (30 June 2015: £46.7bn; 31 December 2015: £50.4bn).
3. Mature Retail Savings products include with-profits products, bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail Savings assets included in the Platforms column.
5. Retail Investments include £1.8bn (30 June 2015: £1.8bn; 31 December 2015: £2.0bn) of LGIM unit trust assets held on our Cofunds platform and £3.4bn (30 June 2015: £3.3bn; 31 December 2015: £3.2bn) of LGIM unit trust assets held on our IPS platform.
6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. £2.8bn of assets relating to Legal & General International (Ireland) Limited, were sold to Canada Life Group on 1 July 2015. £2.7bn of assets relating to Legal & General Holdings (France) S.A. were sold on 31 December 2015 to APICIL Prévoyance.

Asset and premium flows                                                                                                                        Page 68

3.06 Assets under administration half-yearly progression
							LGIM
				Consol-		France
			Mature	idation		and		Retail
		Suffolk	Retail	adjust-	Total	Nether-	Work-	Invest-
For the year ended	Platforms2	Life	Savings3	ment4	Savings	lands	place	ments6	Annuities
31 December 2015	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2015	71.9	7.7	36.0	(6.9)	108.7	4.4	11.1	21.3	44.2
Gross inflows1	3.8	0.6	0.7	(0.2)	4.9	0.2	1.2	3.0	1.4
Gross outflows	(2.7)	(0.3)	(2.2)	0.4	(4.8)	(0.2)	(0.3)	(3.0)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.2)
Net flows	1.1	0.3	(1.5)	0.2	0.1	-	0.9	-	0.2
Market and other
movements	1.6	0.3	0.3	(0.2)	2.0	(0.2)	1.1	1.2	(1.0)
At 30 June 2015	74.6	8.3	34.8	(6.9)	110.8	4.2	13.1	22.5	43.4
Gross inflows1	4.9	0.6	0.4	(0.3)	5.6	0.2	2.1	2.9	1.6
Gross outflows	(2.5)	(0.2)	(1.9)	0.4	(4.2)	(0.1)	(0.4)	(2.7)	-
Payments to pensioners	-	-	-	-	-	-	-	-	(1.4)
Disposals5	-	-	(2.8)	-	(2.8)	(2.7)	-	-	-
Net flows	2.4	0.4	(4.3)	0.1	(1.4)	(2.6)	1.7	0.2	0.2
Market and other
movements	(0.1)	(0.1)	(0.9)	-	(1.1)	-	(0.1)	(0.1)	(0.2)
At 31 December 2015	76.9	8.6	29.6	(6.8)	108.3	1.6	14.7	22.6	43.4
1. Platforms gross inflows include Cofunds institutional net flows. At 31 December 2015 Platforms comprised £37.5bn (30 June 2015: £37.9bn) of retail assets and £39.4bn (30 June 2015: £36.7bn) of assets held on behalf of institutional clients.
2. At 31 December 2015 Platforms AUA comprise ISAs: £19.9bn (30 June 2015: £20.0bn); onshore bonds £3.0bn (30 June 2015: £3.2bn); offshore bonds £0.1bn (30 June 2015: £0.1bn); platform SIPPs £3.5bn (30 June 2015: £3.4bn) and non-wrapped funds £50.4bn (30 June 2015: £46.7bn).
3. Mature Retail Savings products include with-profits products, bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Retail Savings assets included in the Platforms column.
5. £2.8bn of assets relating to Legal & General International (Ireland) Limited, were sold to Canada Life Group on 1 July 2015. £2.7bn of assets relating to Legal & General Holdings (France) S.A. were sold on 31 December 2015 to APICIL Prévoyance.
6. At 31 December 2015 Retail Investments included £2.0bn (30 June 2015: £1.8bn) of LGIM unit trust assets held on our Cofunds platform and £3.2bn (30 June 2015: £3.3bn) of LGIM unit trust assets held on our IPS platform.

Asset and premium flows                                                                                                                        Page 69

3.07 LGR new business
						6	6	6
						months	months	months
						to	to	to
						30.06.16	31.12.15	30.06.15
						£m	£m	£m
Bulk Purchase Annuities
- UK						3,585	831	1,146
- USA						45	295	-
- Netherlands						-	145	-
Individual Annuities						158	147	180
Lifetime Mortgage Advances1						231	164	37
Total LGR new business						4,019	1,582	1,363
1. In H1 15, £12m of these advances were funded by L&G prior to the group's acquisition of New Life Home Finance Ltd.

3.08 Insurance new business annual premiums
						6	6	6
						months	months	months
						to	to	to
						30.06.16	31.12.15	30.06.15
						£m	£m	£m
UK Retail Protection						82	83	79
UK Group Protection						36	29	40
France Protection1						-	-	30
Netherlands Protection						2	2	3
US Protection						28	29	41
Total Insurance new business						148	143	193
1. Legal & General Holdings (France) S.A. was sold on 31 December 2015 to APICIL Prévoyance.

3.09 Gross written premiums on Insurance business
						6	6	6
						months	months	months
						to	to	to
						30.06.16	31.12.15	30.06.15
						£m	£m	£m
UK Retail Protection						582	567	545
UK Group Protection						233	101	229
General Insurance						156	173	164
France Protection1						-	83	85
Netherlands Protection						25	22	24
US Protection						420	387	386
Longevity Insurance						161	162	164
Total gross written premiums on insurance business						1,577	1,495	1,597
1. Legal & General Holdings (France) S.A. was sold on 31 December 2015 to APICIL Prévoyance.

Asset and premium flows                                                                                                                        Page 70

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