L&G HY 09 Results Part 4

RNS Number : 8049W

Legal & General Group Plc

04 August 2009

 



European Embedded Value										Page 51
Consolidated income statement
For the six months ended 30 June 2009
										Full year
								30.06.09	30.06.08	31.12.08
									Restated5,6
						Notes		£m	£m	£m
From continuing operations1
Risk						4.01		460	267	439
Savings						4.01		28	87	50
Investment management						4.02		58	72	130
International						4.03		87	58	100
Group capital and financing2						4.04		24	105	151
Operating profit								657	589	870
Variation from longer term investment return3						4.07		(1,019)	(474)	(1,579)
Effect of economic assumption changes4						4.08		(630)	(12)	(609)
Property losses attributable to minority interests								(20)	(13)	(63)
(Loss)/profit from continuing operations before tax attributable to equity holders of
the Company								(1,012)	90	(1,381)
Tax credit/(expense) on (loss)/profit from ordinary activities						4.10		292	(17)	327
Tax impact of corporate restructure								-	-	81
(Loss)/profit from ordinary activities after tax								(720)	73	(973)
Loss attributable to minority interests						3.15		20	13	63
(Loss)/profit attributable to equity holders of the Company								(700)	86	(910)
									Restated
								p	p	p
Earnings per share						4.11
Based on operating profit from continuing operations after tax attributable to
equity holders of the Company								8.28	6.87	10.66
Based on (loss)/profit attributable to equity holders of the Company								(12.02)	1.42	(15.25)
Diluted earnings per share						4.11
Based on operating profit from continuing operations after tax attributable to
equity holders of the Company								8.27	6.84	10.62
Based on (loss)/profit attributable to equity holders of the Company								(12.02)	1.41	(15.25)
1. IFRS 8 segmentation was adopted for 2008 year end reporting to further improve shareholders' understanding of the Group's performance. The H1 08 comparatives have been reclassified to reflect these changes.
2. Group capital and financing includes operating profit on the shareholder assets held within the covered business, reported on an embedded value basis, and operating profit on the shareholder assets held outside the covered business reported on an IFRS basis.
3. The H1 09 variation from longer term investment return includes a £(511)m variance reflecting the EEV impact of asset allocation decisions made during the period. Of this amount, £(335)m is the EEV impact of swap transactions undertaken to improve the IFRS matching of annuity business which reduced the assumed future yield on the annuity assets for EEV purposes, £(96)m is due to an increased cost of capital arising from de-risking activity to reduce the equity ratio for assets backing solvency capital and £(80)m is the EEV impact of holding additional cash balances, largely to back the short term default provision. The remaining amount reflects the EEV impact of investment performance relative to assumptions, including £(228)m due to the impact of action taken to sell a number of credits and the impact on investment performance of the holdings in cash during a period when credit spreads have narrowed, £(117)m for Group capital and financing and £(103)m for with-profit business.
4. H1 09 economic assumption changes include £(221)m relating to the increase in the UK risk discount rate in the first half of 2009 from 8.3% to 8.8%, £(129)m reflecting the increase in the US risk discount rate from 6.8% to 8.0% and £(119)m as a result of the higher cost of capital on increased annuity reserves. In addition, further increases in the realistic and statutory long term default provisions for the assets backing annuity business had an EEV impact of £(179)m.
FY 08 economic assumption changes includes £(361)m relating to the 0.8% increase in the UK risk discount rate from 7.5% to 8.3% during the period. It also includes £(272)m to reflect the in-force element of an additional reserve for non profit annuity credit default.
5. A contingent loan has been advanced within the Group to finance the non profit pensions and annuity business subject to an internal reinsurance arrangement. From FY 08 the loan asset has been treated as part of the value of in-force business in order to directly offset the liability. Previously the loan asset had been included in free surplus, and the expected return on the loan included in contribution from shareholder net worth. H1 08 comparatives have been restated accordingly.
6. From FY 08 the managed pension funds business within Investment management has been reported on an IFRS basis, as management believe IFRS to be the most appropriate reporting basis for the investment management business. Investment management operating profit excludes £12m (H1 08: £19m; FY 08: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis within Risk, Savings and Group capital and financing covered business on an EEV basis. H1 08 comparatives have been restated accordingly. This change has reduced H1 08 operating profit before tax by £37m, shareholders' equity by £323m and increased profit after tax by £17m.
European Embedded Value										Page 52
Consolidated statement of comprehensive income
For the six months ended 30 June 2009
										Full year
								30.06.09	30.06.08	31.12.08
									Restated
								£m	£m	£m
(Loss)/profit from ordinary activities after tax								(720)	73	(973)
Other comprehensive income, after tax
Exchange differences on translation of overseas operations								(93)	19	196
Actuarial (losses)/gains on defined benefit pension schemes								(52)	12	12
Actuarial losses/(gains) on defined benefit pension schemes transferred to unallocated divisible surplus								36	(8)	(8)
Total comprehensive (expense)/income								(829)	96	(773)
Total comprehensive (expense)/income attributable to:
Minority interests								(20)	(13)	(63)
Equity holders of the Company								(809)	109	(710)
Consolidated balance sheet
As at 30 June 2009
								At 30.06.09	At 30.06.08	At 31.12.08
									Restated
						Notes		£m	£m	£m
Assets
Investments								252,431	267,674	249,185
Long term in-force business asset								2,466	3,008	3,160
Other assets								7,671	6,567	7,315
								262,568	277,249	259,660
Equity and liabilities
Shareholders' equity						4.13/4.14		5,556	7,458	6,521
Minority interests						3.15		149	175	144
Total equity								5,705	7,633	6,665
Subordinated borrowings						3.14		1,552	1,444	1,657
Unallocated divisible surplus								902	1,411	913
Participating contract liabilities								15,302	17,230	16,205
Non-participating contract liabilities								227,752	241,284	222,539
Senior borrowings						3.14		1,933	1,742	2,314
Other liabilities and provisions								9,422	6,505	9,367
								262,568	277,249	259,660
European Embedded Value										Page 53
Notes to the Financial Statements
4.01 (Loss)/profit from ordinary activities after tax
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
For the six months ended 30 June 2009				Notes		£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital						185		11		196
Contribution from in-force business:
- expected return1						244		60		304
- experience variances				4.05		114		3		117
- operating assumption changes				4.06		(37)		5		(32)
Development costs						(18)		-		(18)
Contribution from shareholder net worth2								8	61	69
Operating profit on covered business						488	-	87	61	636
Business reported on an IFRS basis:
General insurance				3.05		6				6
Core retail investments						(1)				(1)
Investment management3				4.02			58			58
Group capital and financing				4.04					(37)	(37)
Other4						(5)				(5)
Total operating profit						488	58	87	24	657
Variation from longer term investment return				4.07		(885)	(1)	(16)	(117)	(1,019)
Effect of economic assumption changes				4.08		(515)	-	(112)	(3)	(630)
Property losses attributable to minority interests						-	-	-	(20)	(20)
(Loss)/profit from continuing operations before tax						(912)	57	(41)	(116)	(1,012)
Tax credit/(expense) on (loss)/profit from ordinary activities						254	(16)	15	39	292
(Loss)/profit from ordinary activities after tax						(658)	41	(26)	(77)	(720)
Operating profit attributable to:
Risk						460
Savings						28
1. The expected return on in-force is based on the unwind of the discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the Risk and Savings business was £4,268m in 2009. This is adjusted for the effects of opening model changes of £41m to give an adjusted opening base VIF of £4,309m. This is then multiplied by the opening risk discount rate of 8.3% for half a year and the result grossed up at the notional attributed tax rate of 28% to give a return of £244m.
2. The H1 09 Group capital and financing contribution from shareholder net worth (SNW) of £61m comprises of the average return of 3% on the average balance of invested assets of £2.2bn (£65m) and an adjustment for opening tax and other modelling changes of £1m, less pre-tax corporate expenses charged to shareholders' funds of £(5)m.
3. H1 09 Investment management operating profit excludes £12m (H1 08: £19m; FY 08: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Risk, Savings and Group capital and financing covered business on an EEV basis.
4. On an EEV basis Nationwide Life, Suffolk Life, operations in Ireland and business unit costs allocated to the Risk and Savings business are included in the covered business operating profit. These are included within Other Risk and Other Savings within IFRS operating profit.
European Embedded Value										Page 54
Notes to the Financial Statements
4.01 (Loss)/profit from ordinary activities after tax (continued)
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
						Restated	Restated		Restated	Restated
For the six months ended 30 June 2008				Notes		£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital						178		16		194
Contribution from in-force business:
- expected return						180		47		227
- experience variances				4.05		-		(13)		(13)
- operating assumption changes				4.06		18		-		18
Development costs						(22)		-		(22)
Contribution from shareholder net worth								8	152	160
Operating profit on covered business						354	-	58	152	564
Business reported on an IFRS basis:
General insurance				3.05		(4)				(4)
Core retail investments						2				2
Investment management1				4.02			72			72
Group capital and financing				4.04					(47)	(47)
Other2						2				2
Total operating profit						354	72	58	105	589
Variation from longer term investment return				4.07		13	(4)	(48)	(435)	(474)
Effect of economic assumption changes				4.08		-	-	(16)	4	(12)
Property losses attributable to minority interests						-	-	-	(13)	(13)
Profit/(loss) from continuing operations before tax						367	68	(6)	(339)	90
Tax (expense)/credit on profit/(loss) from ordinary activities						(99)	(19)	3	98	(17)
Profit/(loss) from ordinary activities after tax						268	49	(3)	(241)	73
Operating profit attributable to:
Risk						267
Savings						87
1. H1 09 Investment management operating profit excludes £12m (H1 08: £19m; FY 08: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Risk, Savings and Group capital and financing covered business on an EEV basis.
2. On an EEV basis Nationwide Life, Suffolk Life, operations in Ireland and business unit costs allocated to the Risk and Savings business are included in the covered business operating profit. These are included within Other Risk and Other Savings within IFRS operating profit.
European Embedded Value										Page 55
Notes to the Financial Statements
4.01 (Loss)/profit from ordinary activities after tax (continued)
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
For the year ended 31 December 2008				Notes		£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital						265		32		297
Contribution from in-force business:
- expected return						370		100		470
- experience variances				4.05		12		(34)		(22)
- operating assumption changes				4.06		(100)		(15)		(115)
Development costs						(51)		-		(51)
Contribution from shareholder net worth								17	256	273
Operating profit on covered business						496	-	100	256	852
Business reported on an IFRS basis:
General insurance				3.05		(2)				(2)
Core retail investments						-				-
Investment management1				4.02			130			130
Group capital and financing				4.04					(105)	(105)
Other2						(5)				(5)
Total operating profit						489	130	100	151	870
Variation from longer term investment return				4.07		(175)	7	(110)	(1,301)	(1,579)
Effect of economic assumption changes				4.08		(505)	-	(110)	6	(609)
Property losses attributable to minority interests						-	-	-	(63)	(63)
(Loss)/profit from continuing operations before tax						(191)	137	(120)	(1,207)	(1,381)
Tax credit/(expense) on (loss)/profit from ordinary activities						54	(42)	37	278	327
Tax impact of corporate restructure3						53	-	-	28	81
(Loss)/profit from ordinary activities after tax						(84)	95	(83)	(901)	(973)
Operating profit attributable to:
Risk						439
Savings						50
1. H1 09 Investment management operating profit excludes £12m (H1 08: £19m; FY 08: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Risk, Savings and Group capital and financing covered business on an EEV basis.
2. On an EEV basis Nationwide Life, Suffolk Life, operations in Ireland and business unit costs allocated to the Risk and Savings business are included in the covered business operating profit. These are included within Other Risk and Other Savings within IFRS operating profit.
3. In 2008 £0.9bn was transferred from Shareholder Retained Capital to shareholder capital held outside Society's long term fund. This transfer did not give rise to any incremental tax and therefore resulted in an £81m benefit to embedded value.
European Embedded Value										Page 56
Notes to the Financial Statements
4.02 Investment management operating profit
										Full year
								30.06.09	30.06.08	31.12.08
									Restated
								£m	£m	£m
Managed pension funds1								55	63	117
Private equity								(1)	-	(1)
Property								1	4	4
Other income2								7	8	17
Legal & General Investment Management								62	75	137
Institutional unit trusts3								(4)	(3)	(7)
Total Investment management operating profit								58	72	130
1. The managed pension funds business within Investment management has been reported on an IFRS basis as management believe IFRS to be the most appropriate reporting basis for the investment management business. H1 08 comparatives have been restated accordingly.
2. Other income excludes £12m (H1 08: £19m; FY 08: £35m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis within the Risk, Savings and Group capital and financing covered business on an EEV basis.
3. Investment management operating profit excludes core retail investments, of £(1)m (H1 08: £2m; FY 08: £nil), which has been disclosed as part of Savings. The H1 08 comparatives have been reclassified accordingly.
4.03 International operating profit
										Full year
								30.06.09	30.06.08	31.12.08
								£m	£m	£m
USA								58	26	70
Netherlands								9	17	8
France								20	15	22
Total International operating profit								87	58	100
4.04 Group capital and financing operating profit1
										Full year
								30.06.09	30.06.08	31.12.08
									Restated
								£m	£m	£m
Business reported on an EEV basis								61	152	256
Business reported on an IFRS basis:
Investment return								30	29	47
Interest expense2								(65)	(66)	(138)
Unallocated corporate expenses								(3)	(6)	(9)
Defined benefit pension scheme3								1	(4)	(5)
								(37)	(47)	(105)
Total Group capital and financing operating profit								24	105	151
1. Group capital and financing represents operating profit on the shareholder assets held within the covered business, reported on an embedded value basis, and operating profit on the shareholder assets held outside the covered business reported on an IFRS basis.
2. Interest expense excludes non recourse financing (see Note 3.14).
3. The defined benefit pension scheme income/(expense) includes the actuarial gains and losses arising on annuity assets held by the schemes that have been purchased from Legal & General Assurance Society Limited relating to the non-covered business. Under IFRS, these annuity assets cannot be classified as plan assets in accordance with IAS 19 and so the associated actuarial gains and losses cannot be taken to the statement of comprehensive income.
European Embedded Value										Page 57
Notes to the Financial Statements
4.05 Analysis of experience variances
								Risk and	Inter-	Total
								Savings	national
For the six months ended 30 June 2009								£m	£m	£m
Persistency								(4)	1	(3)
Mortality/morbidity								5	4	9
Expenses								(5)	(1)	(6)
Other								118	(1)	117
								114	3	117
Full experience investigations are not undertaken at the half-year. A conservative estimate is made of both positive and negative variances.
Risk and Savings other experience variances principally include £57m relating to one off modelling improvements and £39m reflecting a reassessment of future reserve releases as data is loaded onto the BPA system and other reserve releases.
								Risk and	Inter-	Total
								Savings	national
								Restated		Restated
For the six months ended 30 June 2008								£m	£m	£m
Persistency								3	1	4
Mortality/morbidity								11	(1)	10
Expenses								(3)	(1)	(4)
Other								(11)	(12)	(23)
								-	(13)	(13)
								Risk and	Inter-	Total
								Savings	national
For the year ended 31 December 2008								£m	£m	£m
Persistency								(12)	(5)	(17)
Mortality/morbidity								27	(12)	15
Expenses								(9)	1	(8)
Other								6	(18)	(12)
								12	(34)	(22)
European Embedded Value										Page 58
Notes to the Financial Statements
4.06 Analysis of operating assumption changes
								Risk and	Inter-	Total
								Savings	national
For the six months ended 30 June 2009								£m	£m	£m
Persistency								(1)	-	(1)
Mortality/morbidity								-	6	6
Expenses								(31)	(4)	(35)
Other								(5)	3	(2)
								(37)	5	(32)
Full experience investigations are not undertaken at the half-year. A conservative approach is taken when revising any future operating assumptions.
Risk and Savings expense assumption changes primarily reflect assumed higher future investment expenses.
								Risk and	Inter-	Total
								Savings	national
For the six months ended 30 June 2008								£m	£m	£m
Persistency								(14)	-	(14)
Mortality/morbidity								-	-	-
Expenses								43	-	43
Other								(11)	-	(11)
								18	-	18
Risk and Savings expense assumption changes primarily reflect unit cost efficiencies in the individual protection business.
								Risk and	Inter-	Total
								Savings	national
For the year ended 31 December 2008								£m	£m	£m
Persistency								(114)	(2)	(116)
Mortality/morbidity								(49)	8	(41)
Expenses								35	(9)	26
Other								28	(12)	16
								(100)	(15)	(115)
Risk and Savings persistency operating assumption changes of £(114)m relate primarily to the strengthening of lapse assumptions for unit linked bond policies.
Risk and Savings mortality assumption changes relate primarily to annuitant mortality where the assumption has been updated to reflect the latest three year average experience where lighter 2008 experience replaced heavier 2005 experience in the calculation.
4.07 Variation from longer term investment return
										Full year
								30.06.09	30.06.08	31.12.08
									Restated
								£m	£m	£m
Business reported on an EEV basis:
Risk and Savings1								(875)	24	(146)
International								(16)	(48)	(110)
Group capital and financing								(141)	(466)	(1,176)
								(1,032)	(490)	(1,432)
Business reported on an IFRS basis:
General insurance								(10)	(11)	(29)
Investment management								(1)	(4)	7
Group capital and financing								24	31	(125)
								(1,019)	(474)	(1,579)
1. Risk and Savings H1 09 variation from longer term investment return includes a £(511)m variance reflecting the EEV impact of asset allocation decisions made during the period. Of this amount, £(335)m is the EEV impact of swap transactions undertaken to improve the IFRS matching of annuity business which reduced the assumed future yield on the annuity assets for EEV purposes, £(96)m is due to an increased cost of capital arising from de-risking activity to reduce the equity ratio for assets backing solvency capital and £(80)m is the EEV impact of holding additional cash balances, largely to back the short term default provision.
The remaining amount reflects the EEV impact of investment performance relative to assumptions, including £(228)m due to the impact of action taken to sell a number of credits and the impact on investment performance of the holdings in cash during a period when credit spreads have narrowed and £(103)m for with-profits business.
European Embedded Value										Page 59
Notes to the Financial Statements
4.08 Effect of economic assumption changes
										Full year
								30.06.09	30.06.08	31.12.08
									Restated
								£m	£m	£m
Business reported on an EEV basis:
Risk and Savings1								(515)	-	(505)
International								(112)	(16)	(110)
Group capital and financing								(3)	4	6
								(630)	(12)	(609)
1. H1 09 economic assumption changes include £(221)m relating to the increase in the UK risk discount rate in the first half of 2009 from 8.3% to 8.8%, £(129)m reflecting the increase in the US risk discount rate from 6.8% to 8.0% and £(119)m as a result of the higher cost of capital on increased annuity reserves. In addition, further increases in the realistic and statutory long term default provisions for the assets backing annuity business had an EEV impact of £(179)m.
FY 08 economic assumption changes includes £(361)m relating to the 0.8% increase in the UK risk discount rate from 7.5% to 8.3% during the period. It also includes £(272)m to reflect the in-force element of an additional reserve for non profit annuity credit default.
4.09 Time value of options and guarantees
										Full year
								30.06.09	30.06.08	31.12.08
								£m	£m	£m
Risk and Savings1								27	1	46
International								12	11	13
								39	12	59
1. Includes £23m (H1 08: £1m; FY 08: £21m) relating to the cost of guarantees on UK with-profits business, and £4m (H1 08: £nil; FY 08: £25m) relating to UK non profit business, due to the allowance for negative inflation within the annuity business.
4.10 Tax
					Profit/(loss)	Tax	Profit/(loss)	Tax	Profit/(loss)	Tax
					before	(expense)/	before	(expense)/	before	(expense)/
					tax	credit	tax	credit	tax	credit
									Full year	Full year
					30.06.09	30.06.09	30.06.08	30.06.08	31.12.08	31.12.08
							Restated	Restated
					£m	£m	£m	£m	£m	£m
From continuing operations
Risk					460	(129)	267	(74)	439	(125)
Savings					28	(8)	87	(21)	50	(11)
Investment management					58	(16)	72	(20)	130	(40)
International					87	(29)	58	(18)	100	(35)
Group capital and financing					24	7	105	(39)	151	(23)
Operating profit					657	(175)	589	(172)	870	(234)
Variation from longer term investment return					(1,019)	282	(474)	150	(1,579)	385
Effect of economic assumption changes					(630)	185	(12)	5	(609)	176
Property losses attributable to minority interests					(20)	-	(13)	-	(63)	-
(Loss)/profit from continuing operations before tax / Tax					(1,012)	292	90	(17)	(1,381)	327
European Embedded Value										Page 60
Notes to the Financial Statements
4.11 Earnings per share
(a) Earnings per share
			Profit/(loss)	Tax	Profit/(loss)	Per share	Profit/(loss)	Tax	Profit/(loss)	Per share
			before tax	(expense)/	after tax		before tax	(expense)/	after tax
				credit				credit
			30.06.09	30.06.09	30.06.09	30.06.09	30.06.08	30.06.08	30.06.08	30.06.08
							Restated	Restated	Restated	Restated
			£m	£m	£m	p	£m	£m	£m	p
Operating profit from continuing operations			657	(175)	482	8.28	589	(172)	417	6.87
Variation from longer term investment return			(1,019)	282	(737)	(12.66)	(474)	150	(324)	(5.33)
Effect of economic assumption changes			(630)	185	(445)	(7.64)	(12)	5	(7)	(0.12)
Earnings per share based on (loss)/profit
attributable to equity holders			(992)	292	(700)	(12.02)	103	(17)	86	1.42
							Profit/(loss)	Tax	Profit/(loss)	Per share
							before tax	(expense)/	after tax
								credit
							Full year	Full year	Full year	Full year
							31.12.08	31.12.08	31.12.08	31.12.08
							£m	£m	£m	p
Operating profit from continuing operations							870	(234)	636	10.66
Variation from longer term investment return							(1,579)	385	(1,194)	(20.01)
Effect of economic assumption changes							(609)	176	(433)	(7.26)
Tax impact of corporate restructure							-	81	81	1.36
Earnings per share based on loss
attributable to equity holders							(1,318)	408	(910)	(15.25)
(b) Diluted earnings per share
(i) Based on operating profit from continuing operations after tax
					Profit	Number	Per share	Profit	Number	Per share
					after tax	of shares1		after tax	of shares1
					30.06.09	30.06.09	30.06.09	30.06.08	30.06.08	30.06.08
								Restated		Restated
					£m	m	p	£m	m	p
Operating profit from continuing operations after tax					482	5,822	8.28	417	6,073	6.87
Net shares under options allocable for no further consideration					-	8	(0.01)	-	22	(0.03)
Diluted earnings per share					482	5,830	8.27	417	6,095	6.84
								Profit	Number	Per share
								after tax	of shares1
								Full year	Full year	Full year
								31.12.08	31.12.08	31.12.08
								£m	m	p
Operating profit from continuing operations after tax								636	5,968	10.66
Net shares under options allocable for no further consideration								-	22	(0.04)
Diluted earnings per share								636	5,990	10.62
(ii) Based on (loss)/profit attributable to equity holders of the Company
					Loss	Number	Per share	Profit	Number	Per share
					after tax	of shares1		after tax	of shares1
					30.06.09	30.06.09	30.06.09	30.06.08	30.06.08	30.06.08
								Restated		Restated
					£m	m	p	£m	m	p
(Loss)/profit attributable to equity holders of the Company					(700)	5,822	(12.02)	86	6,073	1.42
Net shares under options allocable for no further consideration2					-	8	-	-	22	(0.01)
Diluted earnings per share					(700)	5,830	(12.02)	86	6,095	1.41
								Loss	Number	Per share
								after tax	of shares1
								Full year	Full year	Full year
								31.12.08	31.12.08	31.12.08
								£m	m	p
Loss attributable to equity holders of the Company								(910)	5,968	(15.25)
Net shares under options allocable for no further consideration2								-	22	-
Diluted earnings per share								(910)	5,990	(15.25)
The number of shares in issue at 30 June 2009 was 5,861,679,365 (30.06.08: 5,979,009,914; 31.12.08: 5,861,627,994).
1. Weighted average number of shares.
2. For H1 09 and FY 08 net shares under options allocable for no further consideration are anti-dilutive and have therefore been excluded from the diluted earnings per share calculation.
European Embedded Value										Page 61
Notes to the Financial Statements
4.12 Group embedded value reconciliation
				Covered business
				UK	UK	UK	Total	Inter-	Non-	Total
				free	required	value of	UK	national	covered
				surplus	capital	in-force			business
For the six months ended 30 June 2009				£m	£m	£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				-	-	4,268	4,268	1,059	-	5,327
Shareholder net worth (SNW)				509	1,369	-	1,878	404	(1,088)	1,194
				509	1,369	4,268	6,146	1,463	(1,088)	6,521
Exchange rate movements				-	-	-	-	(177)	84	(93)
				509	1,369	4,268	6,146	1,286	(1,004)	6,428
Operating profit for the period:
- New business contribution1				(119)	95	157	133
- Expected return on VIF				-	-	175	175
- Expected transfer from Non profit VIF to SNW2				304	(61)	(243)	-
- With-profits transfer				21	-	(21)	-
- Experience variances				(54)	(4)	133	75
- Operating assumption changes				49	4	(75)	(22)
- Development costs				(13)	-	-	(13)
- Expected return on SNW				20	25	-	45
Operating profit				208	59	126	393	58	31	482
Non-operating (loss)/profit:
- Investment variances				(588)	(4)	(144)	(736)
- Economic assumption changes				123	24	(521)	(374)
Non-operating (loss)/profit for the period				(465)	20	(665)	(1,110)	(84)	(8)	(1,202)
(Loss)/profit for the period3				(257)	79	(539)	(717)	(26)	23	(720)
Intra-group dividends				-	-	-	-	(2)	2	-
Dividends to equity holders of the Company				-	-	-	-	-	(120)	(120)
Net movements in employee share schemes				-	-	-	-	-	6	6
Loss attributable to minority interests				-	-	-	-	-	20	20
Transfer to non-covered business4				(8)	-	-	(8)	-	8	-
Other reserve movements including pension deficit				(36)	-	(6)	(42)	-	(16)	(58)
Embedded value				208	1,448	3,723	5,379	1,258	(1,081)	5,556
Represented by:
Non profit						3,386
With-profits						337
Value of in-force business				-	-	3,723	3,723	935	-	4,658
Shareholder net worth				208	1,448	-	1,656	323	(1,081)	898
1. The free surplus reduction of £119m to finance new business includes £31m IFRS new business strain (Note 3.01 (c)) and £95m additional required capital. Other items have a net positive impact of £7m.
2. The increase in free surplus of £304m from the expected return on the in-force non profit business includes £238m of IFRS operational cash generation (Note 3.01 (c)) and a £61m reduction in required capital. Other items have a net positive impact of £5m.
3. Included in the loss for the period is a non profit inter-fund transfer from free surplus to VIF of £127m.
4. The transfer to non-covered business represents the IFRS profits arising in the period from the provision of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
European Embedded Value										Page 62
Notes to the Financial Statements
4.12 Group embedded value reconciliation (continued)
				Covered business
				UK	UK	UK	Total	Inter-	Non-	Total
				free	required	value of	UK	national	covered
				surplus	capital	in-force			business
				Restated	Restated	Restated	Restated
For the six months ended 30 June 2008				£m	£m	£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				-	-	3,460	3,460	782	-	4,242
Shareholder net worth (SNW)				2,639	1,198	-	3,837	324	(275)	3,886
				2,639	1,198	3,460	7,297	1,106	(275)	8,128
Exchange rate movements				-	-	-	-	34	(15)	19
Opening adjustment				27	-	(27)	-	-	-	-
				2,666	1,198	3,433	7,297	1,140	(290)	8,147
Operating profit for the period:
- New business contribution				(304)	98	334	128
- Expected return on VIF				-	-	130	130
- Expected transfer from Non profit VIF to SNW				264	(47)	(217)	-
- With-profits transfer				43	-	(43)	-
- Experience variances				(10)	(11)	38	17
- Operating assumption changes				(13)	4	19	10
- Development costs				(16)	-	-	(16)
- Expected return on SNW				69	16	-	85
Operating profit				33	60	261	354	40	23	417
Non-operating (loss)/profit:
- Investment variances				(375)	(5)	79	(301)
- Economic assumption changes				37	-	(34)	3
Non-operating (loss)/profit for the period				(338)	(5)	45	(298)	(43)	(3)	(344)
(Loss)/profit for the period1				(305)	55	306	56	(3)	20	73
Capital movements2				(252)	-	-	(252)	-	(63)	(315)
Embedded value of business acquired3				71	85	143	299	-	-	299
Intra-group dividends				-	-	-	-	(3)	3	-
Dividends to equity holders of the Company				-	-	-	-	-	(248)	(248)
Issue of share capital				-	-	-	-	-	7	7
Share buyback				-	-	-	-	-	(508)	(508)
Net movements in employee share schemes				-	-	-	-	-	(9)	(9)
Loss attributable to minority interests				-	-	-	-	-	13	13
Transfer to non-covered business4				(14)	-	-	(14)	-	14	-
Other reserve movements including pension deficit				(2)	-	-	(2)	-	1	(1)
Embedded value				2,164	1,338	3,882	7,384	1,134	(1,060)	7,458
Represented by:
Non profit						3,201
With-profits						681
Value of in-force business				-	-	3,882	3,882	838	-	4,720
Shareholder net worth				2,164	1,338	-	3,502	296	(1,060)	2,738
1. Included in the profit for the period is a non profit inter-fund transfer from free surplus to VIF of £44m.
2. Capital movements comprise the £252m cost of acquiring Nationwide Life by the UK SNW and the £63m cost of acquiring Suffolk Life by the non-covered business element of Group capital and financing.
3. The embedded value of business acquired on the date of acquisition comprises £235m from the acquisition of Nationwide Life on 31 January 2008 and £64m from the acquisition of Suffolk Life on 6 May 2008.
4. The transfer to non-covered business represents the IFRS profits arising in the period from the provision of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
European Embedded Value										Page 63
Notes to the Financial Statements
4.12 Group embedded value reconciliation (continued)
				Covered business
				UK	UK	UK	Total	Inter-	Non-	Total
				free	required	value of	UK	national	covered
				surplus	capital	in-force			business
For the year ended 31 December 2008				£m	£m	£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				-	-	3,460	3,460	782	-	4,242
Shareholder net worth (SNW)				2,639	1,198	-	3,837	324	(275)	3,886
				2,639	1,198	3,460	7,297	1,106	(275)	8,128
Exchange rate movements				-	-	-	-	386	(190)	196
Opening adjustment				27	-	(27)	-	-	-	-
				2,666	1,198	3,433	7,297	1,492	(465)	8,324
Operating profit for the period:
- New business contribution1				(661)	232	620	191
- Expected return on VIF				-	-	267	267
- Expected transfer from Non profit VIF to SNW				565	(115)	(450)	-
- With-profits transfer				77	-	(77)	-
- Experience variances				39	3	(38)	4
- Operating assumption changes				(31)	1	(38)	(68)
- Development costs				(37)	-	-	(37)
- Expected return on SNW				140	51	-	191
Operating profit				92	172	284	548	65	23	636
Non-operating (loss)/profit:
- Investment variances				(1,092)	(83)	189	(986)
- Economic assumption changes				(531)	(3)	175	(359)
- Tax impact of corporate restructure				28	-	53	81
Non-operating (loss)/profit for the period				(1,595)	(86)	417	(1,264)	(148)	(197)	(1,609)
(Loss)/profit for the period2				(1,503)	86	701	(716)	(83)	(174)	(973)
Capital movements3				(260)	-	-	(260)	60	(115)	(315)
Embedded value of business acquired				71	85	143	299	-	-	299
Intra-group dividends				(405)	-	-	(405)	(6)	411	-
Dividends to equity holders of the Company				-	-	-	-	-	(367)	(367)
Issue of share capital				-	-	-	-	-	10	10
Share buyback				-	-	-	-	-	(523)	(523)
Net movements in employee share schemes				-	-	-	-	-	(4)	(4)
Loss attributable to minority interests				-	-	-	-	-	63	63
Transfer to non-covered business4				(25)	-	-	(25)	-	25	-
Other reserve movements including pension deficit				(35)	-	(9)	(44)	-	51	7
Embedded value				509	1,369	4,268	6,146	1,463	(1,088)	6,521
Represented by:
Non profit						3,845
With-profits						423
Value of in-force business				-	-	4,268	4,268	1,059	-	5,327
Shareholder net worth				509	1,369	-	1,878	404	(1,088)	1,194
1. The free surplus reduction of £661m to finance new business includes £101m of the short term default allowance, as well as £334m IFRS new business strain (Note 3.01 (c)) and £232m additional required capital. Other items have a net positive impact of £6m.
2. Included in the loss for the period is a non profit inter-fund transfer from free surplus to VIF of £710m.
3. Capital movements within the UK comprise the £252m cost of acquiring Nationwide Life and £8m (€10m) of capital injected from Society into France. The acquisition of Suffolk Life (£63m) was funded from the non-covered business element of Group capital and financing. The International capital movements comprise £52m ($96m) of capital injected into the USA and the £8m (€10m) of capital injected into France.
4. The transfer to non-covered business represents the IFRS profits arising in the period from the provision of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
European Embedded Value										Page 64
Notes to the Financial Statements
4.13 Analysis of shareholders' equity
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
As at 30 June 2009						£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1						164	369	1,163	1,599	3,295
Additional retained profit/(loss) on an EEV basis						3,723	-	105	(1,567)	2,261
Shareholders' equity on an EEV basis						3,887	369	1,268	32	5,556
Comprising:
Business reported on an IFRS basis						164	369	10	(1,624)	(1,081)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2								84	208	292
- Required capital to cover solvency margin								239	1,448	1,687
Value of in-force
- Value of in-force business						4,128		1,028		5,156
- Cost of capital3						(405)		(93)		(498)
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
							Restated			Restated
As at 30 June 2008						£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1						187	397	908	3,183	4,675
Additional retained profit/(loss) on an EEV basis						3,882	-	228	(1,327)	2,783
Shareholders' equity on an EEV basis						4,069	397	1,136	1,856	7,458
Comprising:
Business reported on an IFRS basis						187	397	2	(1,646)	(1,060)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2								95	2,164	2,259
- Required capital to cover solvency margin								201	1,338	1,539
Value of in-force
- Value of in-force business						4,002		903		4,905
- Cost of capital3						(120)		(65)		(185)
						Risk and	Investment	Inter-	Group	Total
						Savings	manage-	national	capital and
							ment		financing
As at 31 December 2008						£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1						174	322	1,272	1,820	3,588
Additional retained profit/(loss) on an EEV basis						4,268	-	203	(1,538)	2,933
Shareholders' equity on an EEV basis						4,442	322	1,475	282	6,521
Comprising:
Business reported on an IFRS basis						174	322	12	(1,596)	(1,088)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2								144	509	653
- Required capital to cover solvency margin								260	1,369	1,629
Value of in-force
- Value of in-force business						4,576		1,156		5,732
- Cost of capital3						(308)		(97)		(405)
1. Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the Group capital and financing segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.
3. For H1 09 the cost of capital reflects a risk margin of 4.5% (H1 08: 3.0%; FY 08: 4.5%) in the risk discount rate and an equity backing ratio for the assets backing the solvency capital of 41% (H1 08: 77%; FY 08: 55%).
Further analysis of shareholders' equity is included in Note 4.14.
European Embedded Value										Page 65
Notes to the Financial Statements
4.14 Segmental analysis of shareholders' equity
					Covered	Other	Total	Covered	Other	Total
					business	business		business	business
					EEV basis	IFRS basis		EEV basis	IFRS basis
					At 30.06.09	At 30.06.09	At 30.06.09	At 30.06.08	At 30.06.08	At 30.06.08
								Restated	Restated	Restated
					£m	£m	£m	£m	£m	£m
Risk
- Risk reported on an EEV basis					2,688	-	2,688	2,327	-	2,327
- General insurance					-	95	95	-	98	98
- Other					-	(1)	(1)	-	3	3
Total Risk					2,688	94	2,782	2,327	101	2,428
Savings
- Savings reported on an EEV basis					1,035	-	1,035	1,555	-	1,555
- Core retail investments					-	57	57	-	72	72
- Other					-	13	13	-	14	14
Total Savings					1,035	70	1,105	1,555	86	1,641
Investment management					-	369	369	-	397	397
International
- USA					777	-	777	647	-	647
- Netherlands					278	-	278	291	-	291
- France					203	-	203	196	-	196
- Emerging markets					-	10	10	-	2	2
Total International					1,258	10	1,268	1,134	2	1,136
Group capital and financing					1,656	(1,624)	32	3,502	(1,646)	1,856
					6,637	(1,081)	5,556	8,518	(1,060)	7,458
								Covered	Other	Total
								business	business
								EEV basis	IFRS basis
								At 31.12.08	At 31.12.08	At 31.12.08
								£m	£m	£m
Risk
- Risk reported on an EEV basis								3,138	-	3,138
- General insurance								-	99	99
- Other								-	2	2
Total Risk								3,138	101	3,239
Savings
- Savings reported on an EEV basis								1,130	-	1,130
- Core retail investments								-	59	59
- Other								-	14	14
Total Savings								1,130	73	1,203
Investment management								-	322	322
International
- USA								937	-	937
- Netherlands								305	-	305
- France								221	-	221
- Emerging markets								-	12	12
Total International								1,463	12	1,475
Group capital and financing								1,878	(1,596)	282
								7,609	(1,088)	6,521
European Embedded Value										Page 66
Notes to the Financial Statements
4.15 Reconciliation of shareholder net worth
					UK covered	Total	UK covered	Total	UK covered	Total
					business		business		business
					At 30.06.09	At 30.06.09	At 30.06.08	At 30.06.08	At 31.12.08	At 31.12.08
							Restated	Restated
					£m	£m	£m	£m	£m	£m
SNW of long term operations (IFRS basis)					3,223	4,376	4,829	5,735	3,415	4,676
Other liabilities (IFRS basis)					-	(1,081)	-	(1,060)	-	(1,088)
Shareholders' equity on the IFRS basis					3,223	3,295	4,829	4,675	3,415	3,588
Purchased interests in long term business					(161)	(183)	(183)	(198)	(171)	(202)
Deferred acquisition costs/deferred income liabilities					(246)	(1,089)	(221)	(871)	(233)	(1,160)
Contingent loan1					(692)	(692)	(670)	(670)	(786)	(786)
Deferred tax2					(391)	(112)	(467)	(257)	(354)	(51)
Other3					(77)	(321)	214	59	7	(195)
Shareholder net worth on the EEV basis					1,656	898	3,502	2,738	1,878	1,194
1. On an EEV basis the contingent loan advanced within the Group to finance non profit pensions and annuity business subject to an internal reinsurance arrangement is modelled within the VIF. On an IFRS basis the contingent loan asset is included within the Group capital and financing net assets.
2. Deferred tax represents all tax which is expected to be paid under current legislation.
3. Other in the UK covered business relates primarily to the different treatment of sterling reserves, other long term reserves and the annuities and non profit pensions results under EEV compared with IFRS. Total business also includes the different treatment of the US Triple X securitisations on an EEV and IFRS basis.

European Embedded Value                                                                                                           Page 67

Notes to the Financial Statements

4.16    Assumptions 

UK assumptions

The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to redemption yields available in the market at the end of the reporting period. 

For annuities, separate returns are calculated for new and existing business.  This reflects a change in investment policy applicable to the 2007 and later business, which has the aim of increasing the expected return whilst not increasing the level of asset risk compared with the historic policy. This has been achieved through improved investment efficiency and increased diversification through use of additional asset classes. The calculated return takes account of derivatives and other credit instruments in the investment portfolio.  From the second half of 2007, the revised strategy was also applied to the assets backing the in-force annuity business. 

Where interest rate swaps are used to reduce risk, it is assumed that these swaps will be sold before expiry and the proceeds reinvested in corporate bonds with a redemption yield 0.70% p.a. (0.70% p.a. at 30.06.08 and 0.70% at 31.12.08) greater than the swap rate at that time.  

The returns on fixed and index-linked securities are calculated net of an allowance for long term default risk which takes account of the outstanding term of the securities. These allowances for default risk are set separately for the asset portfolios supporting fixed and index-linked securities, and average 0.19% p.a. and 0.15% p.a. respectively across the portfolios as a whole (0.12% and 0.09% at 30.06.08 and; 0.11% p.a. and 0.12% p.a. at 31.12.2008).   At the 2008 year-end Legal & General Pensions Limited reserved an additional £313m before discounting to allow for our best estimate of the credit defaults over the following four years.   At H1 09 this reserve was increased to £352m.

Economic assumptions

	30.06.09	30.06.08	31.12.08	31.12.07
	% p.a.	% p.a.	% p.a.	% p.a.
Equity risk premium	3.5	3.0	3.5	3.0
Property risk premium	2.0	2.0	2.0	2.0
Investment return
- Gilts:
- Fixed interest	4.3	4.9	3.8	4.5
- RPI linked	4.2	5.1	3.7	4.5
- Non gilts:
- Fixed interest	4.4 - 7.6	5.4 - 7.1	4.2 - 8.2	4.9 - 6.1
- RPI linked	4.9 - 6.1	5.8 - 6.8	4.7 - 5.9	4.9 - 5.3
- Equities	7.8	7.9	7.3	7.5
- Property	6.3	6.9	5.8	6.5
Risk margin	4.5	3.0	4.5	3.0
Risk discount rate (net of tax)	8.8	7.9	8.3	7.5
Inflation
- Expenses/earnings	4.2	5.2	3.6	4.4
- Indexation	3.2	4.2	2.6	3.4

UK covered business

i. Assets are valued at market value.

ii. Future bonus rates have been set at levels which would fully utilise the assets supporting the policyholders' portion of the with-profits business. The proportion of profits derived from with-profits business allocated to shareholders has been assumed to be 10% throughout.

iii. The value of in-force business reflects the cost, including administration expenses, of providing for benefit enhancement or compensation in relation to certain products.

iv. Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding the development costs referred to below). These are normally reviewed annually.

European Embedded Value                                                                                                           Page 68

Notes to the Financial Statements

4.16    Assumptions (continued)

An allowance is made for future improvements in annuitant mortality based on experience and externally published data.  Male annuitant mortality is assumed to improve in accordance with CMI Working Paper 30, projection MC, with a minimum annual improvement of 1.5% for future experience, and 2.0% for statutory reserving. Female annuitant mortality is assumed to improve in accordance with 75% of projection MC, with a minimum annual improvement of 1.0% for future experience and 1.5% for statutory reserving. In each case, the annual improvement is assumed to reduce linearly after age 89 to zero at age 120.

On this basis, the best estimate of the expectation of life for a new 65 year old Male CPA annuitant is 25.2 years (30.06.08: 25.1 years and 31.12.08: 25.2 years). The expectation of life on the regulatory reserving basis is 26.4 years (30.06.08: 26.2 years; 31.12.08: 26.4 years).

v. Development costs relate to investment in strategic systems and development capability.

International

vi. Key assumptions:

	30.06.09	30.06.08	31.12.08	31.12.07
	% p.a.	% p.a.	% p.a.	% p.a.
USA
Reinvestment rate	5.3	5.6	5.4	5.4
Risk margin	4.5	3.0	4.5	3.0
Risk discount rate (net of tax)	8.0	7.1	6.8	7.1
Europe
Government bond return	3.8	4.8	3.5	4.4
Risk margin	4.5	3.0	4.5	3.0
Risk discount rate (net of tax)	8.3	7.8	8.0	7.4

vii. Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses.

Tax

viii. The profits on the covered business, except for the profits on the Society shareholder capital held outside the long term fund, are calculated on an after tax basis and are grossed up by the notional attributed tax rate for presentation in the income statement.  The tax rate used for grossing up is the corporate tax rate in the territory concerned, which for the UK was 28% (H1 08: 28%; FY 08: 28%).  The profits on the Society shareholder capital held outside the long term fund are calculated before tax and therefore tax is calculated on an actual basis. 

Stochastic calculations

ix. The time value of options and guarantees is calculated using economic and non-economic assumptions consistent with those used for the deterministic embedded value calculations.

This section describes the models used to generate future investment simulations, and gives some sample statistics for the simulations used. A single model has been used for UK and international business, with different economic assumptions for each territory.

Government nominal interest rates are generated using a LIBOR Money Market Model projecting full yield curves at annual intervals. The model provides a good fit to the initial yield curve.

The total annual returns on equities and property are calculated as the return on 1 year bonds plus an excess return. The excess return is assumed to have a lognormal distribution. Corporate bonds are modelled separately by credit rating using stochastic credit spreads over the risk-free rates, transition matrices and default recovery rates. The real yield curve model assumes that the real short rate follows a mean-reverting process subject to two normally distributed random shocks.

Asset classes

The significant asset classes are for:

   - UK with-profits business - equities, property and fixed rate bonds of various durations;

   - UK annuity business - fixed rate and index-linked bonds of various durations; and

   - International business - fixed rate bonds of various durations

European Embedded Value                                                                                                           Page 69

Notes to the Financial Statements

4.16    Assumptions (continued)

Summary statistics:

The following table sets out means and standard deviations (StDev) of future returns as at 30 June 2009 for the most significant asset classes. Correlations between asset classes have been set based on an internal assessment of historical data.

	10-year return		20-year return
	Mean1	StDev2	Mean1	StDev2
UK Business (Sterling)
Government bonds	3.9%	4.3%	5.2%	4.8%
Corporate bonds	6.3%	4.5%	7.0%	5.2%
Property (excess returns)	1.9%	14.6%	2.1%	15.0%
Equities (excess returns)	3.5%	20.2%	3.6%	19.9%
European Business (Euro)
Long Government bonds3	4.2%	5.2%	5.1%	5.3%
Short Government bonds4	4.2%	4.6%	5.2%	9.2%
US Business (US Dollar)
Long Government bonds3	4.1%	6.3%	5.0%	5.9%

1. For asset classes other than for equities and property, mean returns are calculated as the mean return in excess of 1 year government bonds plus the mean return on 1 year government bonds. Mean excess returns for the equities and property are calculated as the mean return in excess of 1 year government bonds. Each mean return is derived by calculating the accumulated value of a unit asset invested to time n years for each simulation, averaging the resultant values across all simulations, then calculating the equivalent annual return required to give this average accumulation (by taking the nth root of the average accumulation and deducting 1).

2. Standard deviations are calculated by accumulating a unit investment for n years in each simulation, taking the natural logarithm of the result, calculating the variance of this statistic, dividing by n and taking the square root. Equities and property values use excess returns. The results are comparable to implied volatilities quoted in investment markets.

3. Long term bonds are defined to be 10-year par-coupon bonds.

4. Short term bonds are defined to be 1 year duration bonds.

Risk discount rate:

The risk discount rate is scenario dependent within the stochastic projection. It is calculated by applying the deterministic risk margin to the risk free rate in each stochastic projection.

 

END

 

 

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