L&G HY 09 Results Part 5

RNS Number : 8050W

Legal & General Group Plc

04 August 2009

 



Capital and Cash Flow										Page 71
5.01 Regulatory capital resources
(a) Insurance Group's Directive (IGD)
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. The table below shows the estimated total Group capital resources, Group capital resources requirement and the surplus (half-year figures are estimates).
								At 30.06.09	At 30.06.08	At 31.12.08
								£bn	£bn	£bn
Core tier 1								3.8	5.7	3.9
Innovative tier 1								0.6	0.6	0.6
Upper tier 2								0.4	0.4	0.4
Lower tier 21,2								0.5	0.4	0.6
Deductions3								(1.0)	(0.8)	(1.1)
Group capital resources								4.3	6.3	4.4
Group capital resources requirement4								2.4	2.9	2.6
IGD surplus5								1.9	3.4	1.8
Coverage ratio (Group capital resources / Group capital resources requirement)								1.79 times	2.17 times	1.69 times
1. The decrease in H1 09 and increase in H2 08 in lower tier 2 capital reflects foreign exchange movements.
2. In July 2009, a further £0.3bn lower tier 2 capital was raised. The proceeds of this transaction are not included in the IGD surplus at 30 June 2009.
3. At 31 December 2008 deductions of inadmissible assets were reclassified in line with FSA rules. They now comprise deductions made for L&G America of £0.8bn (H1 08: £0.6bn; FY 08: £0.8bn) which were previously deducted from Core tier 1 capital resources. The 2008 figures reflect this reclassification. Other deductions comprise inadmissible assets in Society of £0.1bn (H1 08: £0.2bn; FY 08: £0.2bn) and other subsidiaries of £0.1bn (H1 08: £nil; FY 08: £0.1bn).
4. Group capital resources requirement includes a With-profits Insurance Capital Component (WPICC) of £nil (H1 08: £0.5bn; FY 08: £0.2bn). The decrease in the WPICC reflects the convergence of the peak 1 and peak 2 surpluses in the with-profits part of the LTF.
5. The IGD surplus is stated after accruing for the period end dividend of £65m (H1 08: £119m, FY 08: £120m).
A segmental analysis is given below.
								At 30.06.09	At 30.06.08	At 31.12.08
								£bn	£bn	£bn
Society long term fund1								1.8	2.5	1.9
Society shareholder capital								1.6	3.2	1.6
General insurance								0.1	0.1	0.1
France								0.1	0.1	0.2
Netherlands								0.2	0.2	0.2
Nationwide Life								0.1	-	0.1
USA								0.1	0.1	0.1
Investment management								0.3	0.4	0.3
Other2								1.1	0.8	1.3
Innovative tier 1								0.6	0.6	0.6
Tier 2								0.9	0.8	1.0
Debt								(2.6)	(2.5)	(3.0)
Group capital resources								4.3	6.3	4.4
Society long term fund1								2.0	2.5	2.1
Other								0.4	0.4	0.5
Group capital resources requirement								2.4	2.9	2.6
1. The Society long term fund (LTF) capital requirement of £2.0bn (H1 08: £2.5bn; FY 08: £2.1bn) is met by £1.8bn (H1 08: £2.5bn; FY 08: £1.9bn) of capital resources in the LTF and £0.2bn (H1 08: £nil; FY 08: £0.2bn) from other Society shareholder capital.
2. Other includes corporate assets held within the Group's Treasury function.
Capital and Cash Flow										Page 72
5.01 Regulatory capital resources (continued)
(a) Insurance Group's Directive (IGD) (continued)
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 30.06.09	At 30.06.08	At 31.12.08
								£bn	£bn	£bn
Capital and reserves attributable to equity holders on an IFRS basis								3.3	4.7	3.6
Innovative tier 1								0.6	0.6	0.6
Tier 2								0.9	0.8	1.0
Proposed dividends								(0.1)	(0.1)	(0.1)
Additional capital available from Society								0.3	0.9	0.3
Adjustment to reflect regulatory value of the USA operation								(0.8)	(0.6)	(0.8)
Other regulatory adjustments								0.1	-	(0.2)
Group capital resources								4.3	6.3	4.4
(b) With-profits realistic balance sheet
The table below summarises the realistic position of the with-profits part of Society's LTF:
								At 30.06.09	At 30.06.08	At 31.12.08
								£m	£m	£m
With-profits surplus								644	928	641
Risk capital margin								257	185	373
Surplus								387	743	268
Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (peak 2). The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the FSA. The surplus includes the present value of future shareholder transfers of £190m (H1 08: £330m; FY 08: £212m) as a liability in the calculation.
(c) Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis (half-year figures are estimates).
					At 30.06.09	At 30.06.09	At 30.06.08	At 30.06.08	At 31.12.08	At 31.12.08
					Long term	General	Long term	General	Long term	General
					business	insurance	business	insurance	business	insurance
					£bn	£bn	£bn	£bn	£bn	£bn
Available capital resources - Tier 1					3.8	0.1	6.6	0.1	4.0	0.1
Insurance capital requirement					2.0	0.1	2.0	0.1	1.9	0.1
Capital requirements of regulated related undertakings					0.2	-	0.2	-	0.3	-
With-profits Insurance Capital Component					-	-	0.5	-	0.2	-
Capital resources requirement					2.2	0.1	2.7	0.1	2.4	0.1
Regulatory capital surplus					1.6	-	3.9	-	1.6	-
On a regulatory basis (peak 1), Society long term business regulatory capital surplus of £1.6bn (H1 08: £3.9bn; FY 08: £1.6bn) comprises capital resources within the long term fund of £1.8bn (H1 08: £2.5bn; FY 08: £1.9bn) and capital resources outside the long term fund of £2.0bn (H1 08: £4.1bn; FY 08: £2.1bn) less the capital resources requirement of £2.2bn (H1 08: £2.7bn; FY 08: £2.4bn).
The capital resources requirement of £2.2bn (H1 08: £2.7bn; FY 08: £2.4bn) comprises the long term insurance capital requirement of £2.0bn (H1 08: £2.0bn; FY 08: £1.9bn), capital requirements of regulated undertakings of £0.2bn (H1 08: £0.2bn; FY 08: £0.3bn) and the With-profits Insurance Capital Component (WPICC) of £nil (H1 08: £0.5bn; FY 08: £0.2bn).
The WPICC is an additional capital requirement calculated if the surplus in the with-profits fund on a peak 2 basis is lower than on a peak 1 basis and represents the difference in the surplus between the two bases. It is calculated based on the most onerous risk capital margin stress referred to above. A further adjustment is made to the Peak 2 surplus to remove the present value of future shareholder transfers which is treated as a liability in Society's with-profits realistic surplus. At 30 June 2009, this adjustment amounted to £190m (H1 08: £330m; FY 08: £212m); however the adjustment to the WPICC has been restricted by £65m as the Peak 1 surplus is lower than the Peak 2 surplus.
Capital and Cash Flow										Page 73
5.02 Operational cash generation1
The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to IFRS profit after tax.
				Operational	New			Investment		IFRS
				cash	business	Inter-		gains and		profit
				generation	strain	national2	Variances3	losses4	Other	after tax
Six months ended 30 June 2009				£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit				216	13	-	(320)	-	-	(91)
Total Savings operating profit				43	(44)	-	(3)	-	-	(4)
Investment management operating profit				51	-	-	-	-	-	51
International				-	-	44	-	-	-	44
Group capital and financing				23	-	-	-	11	-	34
Variation from longer term investment return				-	-	-	-	(105)	-	(105)
Property losses attributable to minority interests				-	-	-	-	-	(20)	(20)
Total				333	(31)	44	(323)	(94)	(20)	(91)
Year ended 31 December 2008
Total Risk operating profit				379	(173)	-	(645)	-	-	(439)
Total Savings operating profit				138	(161)	-	82	-	-	59
Investment management operating profit				115	-	-	-	-	-	115
International				-	-	39	-	-	-	39
Group capital and financing				22	-	-	-	74	-	96
Variation from longer term investment return				-	-	-	-	(937)	-	(937)
Property losses attributable to minority interests				-	-	-	-	-	(63)	(63)
Total				654	(334)	39	(563)	(863)	(63)	(1,130)
1. The operational cash generation analysed above is available to replenish the capital stock, reinvest back into the business and finance the dividend. At H1 09, the business generated operational cashflow of £333m (FY 08: £654m) before investing £31m (FY 08: £334m) in non profit new business strain, resulting in net cash generated of £302m (FY 08: £320m). In H1 09, £65m has been used to pay the interim dividend (FY 08: £239m to pay the full year dividend), and £237m (FY 08: £81m) has been retained as capital within the IGD surplus.
2. Profits arising in the international businesses are retained locally to support growth and are treated as not being available for distribution.
3. Includes non-recurring experience variances, assumption changes and non-cash items from the Risk and Savings businesses. Non-recurring experience variances and assumption changes are absorbed directly by the Group's IGD surplus. Movements in non-cash items do not generate cash in the period and are therefore not available for distribution.
4. Investment gains and losses have been excluded from operational cash generation in order to reflect an expected net of tax income on shareholders' investments.

 

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