L&G Half-year Results Part 5

RNS Number : 6231A

Legal & General Group Plc

05 August 2008

 



Capital and Cash Flow										Page 63
5.01 Regulatory capital resources
(a)  Insurance Group's Directive
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates. At Group level, Legal & General must comply with the requirements of the IGD. This is a very prudent measure of capital resources as it excludes any amount of surplus capital within a long term fund (£0.5bn for Society at 30 June 2008). The table below shows the total Group capital resources, Group capital resources requirement and the surplus (half-year figures are estimates).
								At 30.06.08	At 30.06.07	At 31.12.07
								£bn	£bn	£bn
Core tier I								5.1	5.8	7.1
Innovative tier I								0.6	0.6	0.6
Upper tier II								0.4	0.4	0.4
Lower tier II								0.4	0.4	0.4
Deductions								(0.2)	(0.1)	(0.2)
Group capital resources								6.3	7.1	8.3
Group capital resources requirement								2.9	4.5	4.2
IGD surplus								3.4	2.6	4.1
A segmental analysis is given below.
								At 30.06.08	At 30.06.07	At 31.12.07
								£bn	£bn	£bn
Society long term fund								2.5	3.6	3.9
Society shareholder capital1								3.2	0.5	3.1
LGPL								-	1.5	-
General insurance								0.1	0.1	0.1
France								0.1	0.1	0.1
Netherlands								0.2	0.1	0.1
USA								0.1	0.1	0.1
Investment management								0.4	0.3	0.3
Other2								0.8	1.5	1.4
Innovative tier I								0.6	0.6	0.6
Tier II								0.8	0.8	0.8
Debt								(2.5)	(2.1)	(2.2)
Group capital resources								6.3	7.1	8.3
Society long term fund								2.5	3.6	3.9
LGPL								-	0.6	-
Other								0.4	0.3	0.3
Group capital resources requirement								2.9	4.5	4.2
1.  Includes capital resources of LGPL for H1 08 and FY 07 and excludes shareholder capital held within Society's long term fund for all periods. 2.  Other reflects general corporate assets held at Group level including those used to support the ongoing share buyback programme.
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.
								At 30.06.08	At 30.06.07	At 31.12.07
								£bn	£bn	£bn
Capital and reserves attributable to equity holders on an IFRS basis								4.7	5.5	5.4
Innovative tier I								0.6	0.6	0.6
Tier II								0.8	0.8	0.8
Proposed dividends								(0.1)	-	(0.2)
Additional capital available from Society								0.9	0.7	2.2
Adjustment to reflect regulatory value of the USA operation								(0.6)	(0.5)	(0.5)
Group capital resources								6.3	7.1	8.3
Capital and Cash Flow										Page 64
5.01  Regulatory capital resources (continued)
(b)  Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis.
					At 30.06.08	At 30.06.08	At 30.06.07	At 30.06.07	At 31.12.07	At 31.12.07
					Long term	General	Long term	General	Long term	General
					business	insurance	business	insurance	business	insurance
					£bn	£bn	£bn	£bn	£bn	£bn
Tier I					6.6	0.1	8.9	0.1	8.4	0.1
Available capital resources					6.6	0.1	8.9	0.1	8.4	0.1
Insurance capital requirement					2.0	0.1	1.7	-	1.9	0.1
With-Profits Insurance Capital Component					0.5	-	2.0	-	2.0	-
Capital requirements of regulated related undertakings					0.2	-	0.7	0.1	0.1	-
Capital resources requirement					2.7	0.1	4.4	0.1	4.0	0.1
Regulatory capital surplus					3.9	-	4.5	-	4.4	-
The table below summarises the realistic position of the with-profits part of Society's LTF:
								At 30.06.08	At 30.06.07	At 31.12.07
								£bn	£bn	£bn
With-profits surplus								928	1,174	1,047
Risk capital margin								185	236	262
Surplus								743	938	785
Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (peak 2). If the surplus on a realistic basis is lower than the surplus using peak 1 solvency rules, then a further capital requirement, the With-Profits Insurance Capital Component (WPICC) is required.  At 30 June 2008, the WPICC reflects a deduction for the value of shareholder transfers of £330m (30.06.07: £499m; 31.12.07: £396m) within the Risk Capital Margin calculation.
Capital and Cash Flow										Page 65
5.02  IFRS capital resources
(a)  Group capital resources
The Group's total capital resources of £7.5bn on an IFRS basis, comprise equity holders' capital (£4.7bn) (see Note 4.13), subordinated debt (£1.4bn) and unallocated divisible surplus (£1.4bn).
(b)  Society capital resources
Society has been allocated capital of £4.8bn, £2.8bn is held outside any long term fund of which £0.3bn is within LGPL; the remainder of £2.0bn is held within Society's long term fund. An analysis of the movement in Society Shareholder Capital (SSC) on the IFRS basis is provided in the table below:
									Society
									Shareholder Capital
							Notes	Gross	Tax	Net
30.06.08								£m	£m	£m
As at 1 January										4,832
Investment return								(271)	84	(187)
With-profits distribution								60	(17)	43
Capital invested in subsidiaries								63	-	63
Net capital released from non profit business							4.01(b)	95	(27)	68
Movement included in the statement of recognised income and expense								11	(3)	8
Other								(5)	2	(3)
As at 30 June										4,824
The total net capital released from the non profit business is £95m, which comprises the net capital invested in LGPL non profit business of £11m (net of tax £8m) and the net capital released from Society of £106m (net of tax £76m).
30.06.07
As at 1 January										5,520
Investment return								263	(106)	157
With-profits distribution								50	(15)	35
Repayment of subordinated loan capital								(602)	-	(602)
Net capital released from non profit business							4.01(b)	153	(46)	107
Distribution to Group Plc								(400)	-	(400)
Movement included in the statement of recognised income and expense								38	(12)	26
Other								(18)	5	(13)
As at 30 June										4,830
The total net capital released from the non profit business is £153m, which comprises the net capital released from LGPL non profit business of £76m (net of tax £53m) and the net capital released from Society of £77m (net of tax £54m).
Full year 31.12.07
As at 1 January										5,520
Investment return								242	(70)	172
With-profits distribution								106	(32)	74
Repayment of subordinated loan capital								(602)	-	(602)
Capital invested in subsidiaries								(27)	-	(27)
Net capital released from non profit business							4.01(b)	161	(48)	113
Release of 1996 Sub-fund								321	-	321
Distribution to Group Plc								(728)	-	(728)
Movement included in the statement of recognised income and expense								(13)	(3)	(16)
Other								2	3	5
As at 31 December										4,832
The total net capital released from the non profit business is £161m, which comprises the net capital contributed to LGPL non profit business of £167m (net of tax £117m) and the net capital released from Society of £328m (net of tax £230m).
Capital and Cash Flow										Page 66
5.03  Group credit ratings
Society continues to be one of the two highest rated European life assurers. The financial strength ratings from Standard & Poor's, Moody's and A.M.Best were maintained at AA+, Aa1 and A+ respectively, all with stable outlooks. The Group's current long term and short term debt ratings are, from Standard & Poor's, AA- and A1+ and, from Moody's, A1 and P1.
5.04  Parent company cash flow statement
The table below shows the cash flows in the year relating to the Group's parent company.
										Full year
								30.06.08	30.06.07	31.12.07
								£bn	£bn	£bn
Dividends received:
	UK life and pensions1							-	400	728
	Investment management							-	-	71
	Other							1	-	1
								1	400	800
Dividend distributions to equity holders of the Company during the year								(248)	(248)	(369)
Repayment of intra-group subordinated debt1								-	605	602
Proceeds from issue of equity								7	3	4
Proceeds from issue of subordinated borrowings								-	595	595
Proceeds/(repayment) from issue of commercial paper								219	-	(249)
Capital injected into subsidiaries2								(374)	(46)	(90)
Purchase of shares under share buyback programme								(408)	-	(320)
Maturity of investments								85	-	-
Working capital movements								46	(369)	(84)
Net cash (outflow)/inflow								(672)	940	889
1. The parent company holds sufficient distributable reserves at H1 08 to finance the interim dividend to shareholders. Subsidiary dividends will be paid in the second half of the year to finance the 2008 final and 2009 interim dividends to shareholders. In June 2007, a first interim dividend of £400m was paid from brought forward distributable reserves to finance part of Group Plc's £1bn on-market share buyback programme, with the balance financed when Society repaid £602m subordinated debt to Group Plc.  A further dividend of £328m was paid in December 2007 in support of Group Plc's full year 2007 and half-year 2008 dividends to shareholders. 2. Includes capital injected for purchase of Nationwide Life Limited, Nationwide Unit Trust Managers Limited and Suffolk Life Group Plc. Also includes  capital contributions of £9m to other subsidiaries.

 

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