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Wednesday 07 August, 2019

Legal & General Grp

L&G Half Year Results 2019 Part 1

RNS Number : 1618I
Legal & General Group Plc
07 August 2019


H1 2019: Operating profit up 11% to £1 billion, record H1 global annuity sales of £7 billion and LGIM net flows of £60 billion

Financial highlights1

·    Operating profit of £1,005m, up 11% (H1 2018: £909m)

·    Earnings per share of 14.74p, up 13% (H1 2018: 13.00p)

·    Return on equity at 20.2% (H1 2018: 20.3%)

·    Interim dividend2 of 4.93p per share (H1 2018: 4.60p)

·    Profit after tax3 up 13% to £874m (H1 2018: £771m)

·    Net release from continuing operations up 29% to £858m (H1 2018: £663m)

·    Solvency II operational surplus generation up by 17% to £0.8bn (H1 2018: £0.7bn)

·    Solvency II coverage ratio4 of 171% (FY 2018: 188%), impacted by discounting the balance sheet at lower interest rates

Business highlights

·       Pension Risk Transfer sales of £6,677m (H1 2018: £735m), including the UK's largest bulk annuity with Rolls Royce

·    Individual annuity sales up 47% to £497m (H1 2018: £337m)

·    Direct Investment up 36% at £22.2bn (H1 2018: £16.3bn)

·    LGIM AUM up 15% at £1,135bn (H1 2018: £985bn)

·    LGIM external net flows of £60.3bn (H1 2018: £14.6bn), with significant index flows from Asian clients

·    Insurance GWP up 7% to £1,409m (H1 2018: £1,317m)





"Legal & General's five businesses collectively delivered another strong set of results in H1 2019, with EPS rising 13% to 14.74p, operating profit up 11% to £1bn and a RoE of 20%.


We have a depth of management, track record and opportunities that mean all five of our businesses should contribute to future growth. The opportunity in global Pension Risk Transfer, retail retirement solutions, and DC is immense and expected to continue. The sale of Mature Savings and General Insurance enables us to focus on businesses where we have leading market share and adjacent businesses where we see outstanding growth potential.


Our balance sheet remains strong. We have a globally diversified asset portfolio with minimal exposure to UK sub-investment grade credit and a £3.2bn credit default reserve. H2 has started well, building on the success of our H1 transactions including the c.£4.6bn Rolls Royce PRT, £4bn Oxford University Future Cities deal and c.$50bn Japanese global index win.


We are well-prepared for the full range of foreseeable Brexit outcomes and we remain confident in our ability to deliver Inclusive Capitalism, growing value for shareholders, customers and the broader economy."

                                                                                                                                                                Nigel Wilson, Group Chief Executive



1. The Alternative Performance Measures within the Group's financial highlights are defined in the glossary, on page 95 of this report.

2. A formulaic approach is used to set the interim dividend, being 30% of the prior year full year dividend.

3. Profit after tax attributable to equity holders.

4. Solvency II coverage ratio on a shareholder basis is adjusted for the Own Funds and SCR of the With-profits fund and the Group final salary pension schemes.



Financial summary



H1 2019

H1 2018

Growth %

Analysis of operating profit





Legal & General Retirement (LGR)1





-  LGR Institutional (LGRI)





-  LGR Retail (LGRR)





Legal & General Investment Management (LGIM)





Legal & General Capital (LGC)





Legal & General Insurance (LGI)





Continuing operating profit from divisions2





Mature Savings3





General Insurance4










Operating profit from divisions





Group debt costs





Group investment projects and expenses










Operating profit





Investment and other variances (incl. minority interests)










Profit before tax attributable to equity holders





Profit after tax attributable to equity holders










Earnings per share (p)





Return on equity (%)





Book value per share (p)





Interim dividend per share (p)





Net release from continuing operations2





Net release from discontinued operations3,4











1.  In 2018, Legal & General reviewed our longevity trend assumptions against updated experience data (CMI 2016) and made a mortality release of £433m in H2 2018. As in previous years, in 2019 we are reviewing our current longevity trend assumptions against the CMI 2017 experience data and intend to make any amendments as necessary in H2 2019.

2.  Excludes Mature Savings and General Insurance.

3.  Mature Savings sale to Swiss Re was announced on 6 December 2017 and the H1 2018 and H1 2019 results reflect the interim Reinsurance Transfer Agreement.

4.  General Insurance sale to Allianz announced on 31 May 2019.



H1 2019 financial performance

Income statement

Operating profit increased 11% to £1,005m (H1 2018: £909m).

LGR delivered a 36% increase in operating profit to £655m (H1 2018: £480m), driven by profits emerging from the growing backbook, record UK Pension Risk Transfer (PRT) volumes in H1 and our increasing market share in individual annuities. 

LGIM operating profit increased by 1% to £205m (H1 2018: £203m). Management fee revenues grew to £425m (H1 2018: £401m) and AUM reached £1,135bn (H1 2018: £985bn). External net flows of £60.3bn (H1 2018: £14.6bn) have been strong in most channels and regions with the international businesses contributing £44.6bn, predominantly from Asia. Favourable market movements of £55.8bn have also grown AUM. As previously guided, LGIM has continued to invest in the diversification and technological advancement of the business which has seen the cost income ratio reach 53% (H1 2018: 51%).

LGC operating profit was £173m (H1 2018: £172m), reflecting ongoing growth in the underlying direct investments portfolio, which contributed operating profit of £99m (H1 2018: £104m), slightly down due to a more challenging build-to-sell market compared to H1 2018.

LGI operating profit decreased by 13% to £134m (H1 2018: £154m), against a prior year comparator that benefited from the one-off contribution of specific model refinements. The underlying UK and US protection businesses continued to generate good levels of profit and margins remain robust.

Disposed operations contributed £19m to operating profit. This comprised £24m from Mature Savings, reflecting the unwind of expected underlying profits, and £(5)m from General Insurance which experienced higher claims inflation. Both disposals are expected to complete in H2 2019.

Profit before tax attributable to equity holders was £1,053m (H1 2018: £942m).

Profit before tax benefitted from a net positive investment variance during the period (H1 2019: £48m, H1 2018: £33m) as a result of a number of counterbalancing items, including profit on disposal of our stake in IndiaFirst Life Insurance Company offset by increased LGI reserve requirements due to a reduction in the discount rate caused by falling interest rates. Consistent with prior years, there was an accounting gain driven by the Group's defined benefit pension scheme which includes accounting valuation differences arising on annuity assets held by the scheme.

Net release from continuing operations[1] was £858m (H1 2018: £663m), comprising £685m (H1 2018: £661m) release from operations and £173m (H1 2018: £2m) new business surplus. The increase was due to record LGR annuity new business volumes in H1 2019, which will continue to contribute to our profits and SII operational surplus generation for several decades through release from operations.

Balance sheet

The Group's Solvency II operational surplus generation increased by 17% to £0.8bn (H1 2018: £0.7bn). New business strain was £0.3bn (H1 2018: £0.1bn) reflecting significant UK annuity volumes written at a capital strain of c.4%, which typically has a payback period of five years, and changes in business mix. This resulted in net surplus generation of £0.5bn (H1 2018: £0.6bn).

After allowing for the non-economic impact of lower interest rates on the valuation of our balance sheet[2], payment of the 2018 final dividend, which is typically c70% of the total dividends paid during the year, and redemption of £400m of subordinated debt in April 2019, the Group reported a Solvency II coverage ratio[3],[4] of 171% at the end of H1 2019 (FY 2018: 188%).

In H2 2019 we expect similar levels of operational surplus generation, significantly in excess of the £294m interim dividend payment and providing capacity to write further new business.

On a proforma calculation basis3,4, our Solvency II coverage ratio was 166% at the end of H1 2019 (FY 2018: 181%).

We continue to deliver a strong IFRS return on equity of 20.2% (H1 2018: 20.3%).




Strategy overview                                                       

The Group's strategy continues to align to our six established long term growth drivers: ageing demographics; globalisation of asset markets; creating new real productive assets; reform of the welfare state; technological innovation; and providing "today's capital". These drivers have led us to participate in material, high growth markets where we are leaders or where we can leverage our expertise to increase our market share.

To deliver our strategy, Legal & General's operating model comprises five businesses:

1.     Legal & General Retirement Institutional (LGRI)

2.     Legal & General Retirement Retail (LGRR)

3.     Legal & General Investment Management (LGIM)

4.     Legal & General Capital (LGC)

5.     Legal & General Insurance (LGI)

Our strategy has positioned us to be a leader in the pension asset management and insurance markets, benefitting from a mutually reinforcing business model and unique synergies in pension de-risking and asset manufacturing and management:


·      LGIM is the UK market leader in providing investment management to defined benefit (DB) pension scheme clients, specifically through index, fixed income and LDI strategies. This provides LGRI with a strong pipeline: on average around a third of our annual pension risk transfer (PRT) premiums are from existing LGIM clients.[5] 


·      LGRI, the market leader in UK PRT, and LGRR, a leading provider of UK individual annuities, has £72.1bn of assets predominantly managed by LGIM. This portfolio is continually being enhanced with attractive, matching adjustment compliant direct investments originated by LGC


·      LGC uses the Group's shareholder capital to provide the equity investment in, and to therefore manufacture, part of the direct investment portfolio used to back LGRI and LGRR's annuity liabilities, as well as creating assets for LGIM's clients. 


·      LGI is a market leader in UK protection and US brokerage term life insurance, and provides significant Solvency II benefits to the Group by partially offsetting new business strain in LGRI and LGRR. Additionally, the business facilitates LGRI's US PRT transactions which are written onto the existing US  balance sheet, which supports the term business.


The synergies within our businesses drive profits and fuel future growth, allowing the Group to regularly deliver an ROE of c.20%.





Our strategy and growth drivers have delivered consistently strong returns, both dividend and ROE, for our shareholders and we are confident they will continue to deliver growth in H2 and further into the future to support our pursuit of inclusive capitalism. Between 2011 and 2015 we achieved an EPS CAGR of 10% per annum, and we are on track to deliver at least a similar performance out to 2020, having already delivered a CAGR of 11% since 2015.[6] As previously reported, Legal & General is well placed to grow organically, which we will continue to enable through ongoing judicious investment in technology across the Group.

Our confidence in future growth and dividend paying capacity is underpinned by the Group's strong balance sheet with £5.9bn in surplus regulatory capital and significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.

We are confident in the resilience of our balance sheet and operations to the foreseeable range of Brexit outcomes. We have extensively tested and prepared the balance sheet, building a globally diversified asset portfolio with only 23% of our annuity bond portfolio invested in UK-listed corporate credit, many of these being multinationals. Operationally, we have Brexit contingency plans at full readiness. For example, LGIM has secured the relevant authorisation for our EU asset management company in 2018 and has transferred all EU regulated funds. We will continue to monitor the market as Brexit unfolds in order to robustly manage our businesses and asset portfolio and capitalise on opportunities to support UK growth.

LGR's Institutional (LGRI) business participates in the rapidly growing global pension risk transfer (PRT) market, focussing on corporate defined benefit (DB) pension plans in the UK, the US, the Netherlands, Ireland, and Canada, which together have more than £5tn of pension liabilities.[7] 

Our primary market, the UK, is the most mature; however, it still represents an enormous opportunity as only c.8% of the £2.2 trillion of UK DB pension liabilities have transferred to insurance companies.[8] UK pension advisers estimate more than £60bn of demand for bulk annuities within the next two years and they expect that number will continue to grow, against c.£30bn of annual insurer capacity.[9] In order to better address demand from pension schemes, we have bolstered our structuring expertise in order to develop capital-light solutions. We have a strong UK pipeline, actively quoting on more than £20bn of transactions, having already completed a further £923m of new UK PRT in July 2019.

The US represents a significant market opportunity, with $3.5 trillion of DB liabilities, of which only c.5% have transacted to date. In H1 we wrote our first fully retained transaction for more than $200m, heralding a new phase of growth for our US business. We expect increased volumes in the second half of the year, when we have historically seen more activity. We have already written a further $477m of US transactions in July 2019 and we are currently quoting on $2bn of US PRT transactions. In April 2019, we wrote our first deal in Canada through our Bermuda-based reinsurer, Legal & General Re. As always, we will remain disciplined in the deployment of our capital, and will only select PRT and longevity opportunities that meet our return targets.

Ageing demographics have meant that LGR Retail's (LGRR) target market continues to expand, both in terms of the numbers of retirees and the levels of wealth they hold. The potential of the Lifetime Mortgage (LTM) market is vast, with £1.8tn of housing equity owned by UK individuals over the age of 55.[10] Over the first half of 2019 the market has seen a slight slowdown in the growth of total LTM lending, however, we do not anticipate a change in the long-term growth trend.[11] During Q1 our volumes were down due to increased competition, however, by Q2, our quarterly market share recovered to 29%.11 To further bolster our LTM offering and profits, in H2 we plan to launch our Retirement Interest-Only Mortgage to address the growing number of individuals reaching retirement with interest-only mortgages. In annuities, LGRR continues to benefit from ongoing improvements to its enhanced annuity offering which, together with further customer service innovation, will allow us to compete effectively in the retail annuity market. Separately, LGRR works closely with LGIM Workplace and Personal Investing to deliver a broader range of retirement solutions to customers.

As in previous years, we will review our longevity trend assumptions against updated experience data and intend to make any amendments, as necessary, in H2 2019 to reflect our analysis of the next set of mortality tables (CMI 2017) and our specific data. Our analysis continues to show evidence of higher than forecasted mortality, which is effectively embedded future profit. At this stage in our review of the CMI 2017 mortality tables, we anticipate a mortality reserve release of over £200m in our 2019 full year results.

LGIM continues to benefit from global trends in retirement saving and the structural shifts in demand being experienced by the asset management industry. This is driving an increase in customer appetite for our diverse range of products and broad investment capabilities spanning index, active, multi-asset and alternatives, underpinned with a thoughtful approach to ESG. The strong customer and strategic alignment of Legal & General's business units will remain a positive source of funds for LGIM.

The business continues to grow in the UK, which has been the bedrock of the firm's success to date. LGIM is a leading player in providing DB de-risking solutions and the market leader in UK DC with total assets of £86.4bn (H1 2018: £64.0bn).[12] We are planning for the future, by broadening our DC proposition and through further expansion in international markets.

International AUM has grown by a 28% CAGR since 2014 and is now at £342.8bn (H1 2018: £229.3bn). In H1 2019 we secured a £37bn passive mandate with the Japan Government Pension Investment Fund, providing a long term foundation for future growth in Japan and the broader region. This establishes LGIM as a top 3 non-domestic manager in the Japanese institutional pension market.[13] Overall, we expect international inflows to continue in the second half of 2019 as we leverage our growing presence in Europe, Asia, the Gulf and the US.

We will continue to invest in a disciplined way in areas of the business where we expect to see future growth opportunities and we will also invest in areas where automation and simplification will generate operational leverage and efficiency. Enhancing customers' digital experience, optimising our investment platforms, and utilising data analytics are at the forefront of our endeavours.

Michelle Scrimgeour joined LGIM as CEO in July 2019 from Columbia Threadneedle, where she was CEO for EMEA. Michelle is spending time getting to know the business and is reviewing LGIM's strategy. She will provide an update at the March 2020 annual results.

LGC uses shareholder capital to achieve three clear goals. The first is to deliver attractive financial returns for our shareholders by creating real assets and leveraging Legal & General's existing businesses, our network of relationships, our brand, and our expertise. The second is to self-manufacture matching adjustment eligible assets for LGR's growing annuity business. Our ability to invest in equity and debt like instruments uniquely positions us to unlock attractive returns. Finally, LGC's asset sourcing provides third party opportunities for LGIM. LGC will continue to seek opportunities to deploy its long-term capital in real assets, primarily across the UK, where we see an enduring need for private long-term capital for future cities, housing, and innovative funding for SMEs and early stage enterprises.

Our Future Cities portfolio has invested in 12 cities across the UK and we expect to invest further in these locations and others. The recent announcement of our partnership with Oxford University is an example of our ability to make meaningful investments in UK cities. Working closely with LGIM Real Assets and with partners around the UK, LGC will continue to apply capabilities in infrastructure, clean energy, commercial real estate and residential property in order to create real assets for LGR's growing asset portfolio. Legal & General Group is well placed to bring together on-balance sheet or third party private capital with the development capability to make a difference to UK cities.

LGC's housing platform continues to grow its diversified, multi-tenure business across build-to-rent, build-to-sell, later living and affordable housing. In our build-to-sell arm, CALA, which has achieved revenues of over £400m in H1 2019, continues to build its business under LGC's ownership. Within our Affordable housing business, our first affordable housing contract became operational in Croydon. The affordable market remains highly attractive with more than 1.3 million households on UK waiting lists for housing, with new additions to the housing stock averaging only c.30,000 properties a year over the last 10 years. LGC plans to deliver 3,000 affordable homes per year within the next four years. As a registered provider of social and affordable housing, we have focussed on accelerating our business plan to develope, hold and manage a blend of affordable housing tenures which include both social and affordable, rent and shared-ownership homes under grant-supported schemes. 

In SME Finance, we expect to continue to deploy our capital and focus to support the UK venture ecosystem to help create the businesses of tomorrow, whilst continuing our support of Pemberton in the provision of private credit to the European mid-market. 

In LGI, we anticipate continued premium growth across our UK and US businesses. LGI operating profits in H2 2019 are expected to exceed those of H1, resulting in a full year operating result which is in a similar range to that of the prior year.

Our UK group protection business typically generates more new business strain in H1 as scheme renewals often coincide with the start of the calendar or tax year, followed by release from operations in the following periods. This new business pattern typically leads to H2 profits exceeding H1 profits. In our market leading UK retail protection business we expect to continue growing premiums and to generate good profits in H2, supported by distribution and product enhancements.

LGI's US protection H1 new business annual premiums were slightly down, reflecting increased competition over the period. We expect our on-going investment in digital transformation to result in new business growth while maintaining healthy profits.

In LGI Fintech we expect continued growth from SalaryFinance both in the UK and the US as the business gains access to more employees and diversifies the products and services offered. We also expect our investments and developments in the UK mortgage market to deliver growth as we make the journey to buy and finance a house easier and more efficient for everyone involved.





Legal & General has a progressive dividend policy reflecting the Group's expected medium term underlying business growth, including net release from operations and operating earnings. There is no change to our dividend policy.

In line with Group's policy of using a formulaic approach to setting the interim dividend, being 30% of the prior year full year dividend, the Board has declared an interim dividend of 4.93p per share.

Legal & General Retirement




H1 2019

H1 2018

Release from operations





New business surplus





Net release from operations





Experience variances, other assumption changes, tax and non-cash movements





Operating profit





- LGR Institutional (LGRI)




- LGR Retail (LGRR)









Investment and other variances





Profit before tax










International PRT





Individual annuity single premiums





Lifetime mortgage advances





Total new business





Total annuity assets (£bn)






Operating profit up 36% to £655m

Operating profit increased to £655m (H1 2018: £480m), due to record UK PRT new business volumes and strong growth in individual annuities.

Release from operations was £303m (H1 2018: £275m), an increase of 10%, resulting from the continued stable and consistent performance of our growing £72.1bn annuity fund (H1 2018: £56.4bn).

Net release from operations increased 64% to £488m (H1 2018: £298m), reflecting new business surplus growth (H1 2019: £185m, H1 2018: £23m) due to heightened new business volumes in H1 2019 compared to H1 2018.

In H1 2019 we wrote £6,813m of UK annuities (H1 2018: £844m) delivering a 7.8% Solvency II new business margin with capital strain of c.4%, in line with FY 2018 performance and reflecting our strong pricing discipline.

We constantly evaluate the appropriateness of our longevity trend assumptions and we are currently reviewing the CMI 2017 mortality data which we expect to complete by the end of 2019. We will exhibit care in our assessment of longevity trends and only recognise applicable releases as greater certainty emerges.


LGR Institutional - Global Pension Risk Transfer

In H1 2019, LGR Institutional (LGRI) completed £6,677m (H1 2018: £735m) of bulk annuities across 18 deals in the UK, US, Ireland and Canada.

Legal & General are leaders in the UK PRT market[14] and in H1 2019 we wrote £6,316m in bulk annuities (H1 2018: £507m), ranging from £2m to the largest UK bulk annuity for more than £4.6bn with Rolls Royce Pension Fund.

LGRI's brand, scale and asset origination capabilities through synergies with, and expertise within, LGIM and LGC are critical to our market leadership in the rapidly growing UK PRT market. Leveraging our solutions capabilities we have written some of the most innovative transactions in the UK, such as bulk annuities supported by private debt issuance and transactions insuring member options. As previously noted, we service the complete size spectrum of the UK PRT market, from pension plans of around £1m to those over £1bn, including four of the five largest UK bulk annuities[15], and we are actively expanding our business model globally.

International PRT premiums were £361m (H1 2018: £228m). In April 2019, LGRI continued its international expansion into Canada where we wrote our first transaction for more than CAD $200m through our strategic Canadian partnership with Brookfield Annuity Company. Further bolstering international PRT volumes, our US business wrote USD $291m (£223m) of premiums (H1 2018: $297m, £220m) as it entered its next phase of growth, writing a transaction of over USD $200m.


LGR Retail - Individual Retirement Solutions

LGR Retail (LGRR) has had another period of strong performance in H1 2019, delivering solutions to retirees in the UK through individual annuities and Lifetime Mortgages (LTMs).

Individual annuity sales increased 47% to £497m in the first half of the year (H1 2018: £337m), driven by wider market penetration and continued improvement of our enhanced annuity proposition relative to H1 2018. We are one of the leading players in the UK individual annuity market with a current market share of 18.3%[16], a 5.2 percentage point increase over the prior year.

Lifetime mortgage advances were £489m in H1 2019, lower than the prior year's advance of £521m, as we continue to manage risk and maintain our pricing and underwriting discipline. As the LTM market matures, Legal & General has emerged as an established player offering customer-focused products, such as our flexible drawdown product and Optional Payment LTM. LTMs are currently 6% of our total annuity assets and our LTM portfolio has an average customer age of 69 and a weighted average loan-to-value of c.28% at the transaction date.


On-going credit and asset management

Credit portfolio management

LGR's £72.1bn 'A minus' rated asset portfolio backing the IFRS annuity liabilities is well diversified by sector and geography. Within the £66.9bn[17] bond portfolio, approximately two-thirds of the portfolio is A-rated or better, 34% BBB-rated and c.1% sub-investment grade. Just 23% of the bond asset portfolio is invested in UK-listed corporate credit, many of these being multinationals.

The principal objective of our annuity focused fixed income fund managers in LGIM is to manage the portfolio to avoid credit downgrades and defaults. We constantly review our asset portfolio, including sector allocations and asset classes, in order to improve credit quality and to mitigate risks. We have vigorously stress tested our portfolio to build resilience against a range of scenarios and hold a £3.2bn IFRS credit default reserve.

Direct Investment

LGR has originated £2.4bn of new, high quality direct investments in the first half of the year, which, along with market movements, bring the portfolio total to £18.4bn[18] (FY 2018: £15.7bn), including £4.0bn in LTMs. Consistent with the broader bond portfolio, two-thirds of the direct investment portfolio is rated 'A' or above based on strong counterparties and collateral, using robust and independent rating processes which take account of long term stress events. We invest in sectors where long term funding is needed, for example government infrastructure. During H1, we invested a further £183m in long term leases on HMRC buildings in Salford and Nottingham. 

Direct investments are one of the key components of our investment strategy supporting bulk annuity pricing, and we regularly assess the relative value of our different direct investment asset classes against each other as well as against the risk-reward characteristics of global traded bonds. We see particular opportunity in the build-to-rent and affordable housing asset classes, as LGC Homes and LGIM Real Assets build their capabilities. The Group's long term illiquid liabilities and large balance sheet size enable LGR to invest in assets of size and term that differentiate it from many other institutional investors, and mean we are able to secure a premium above that of liquid credit.

Our ability to self-manufacture attractive assets to back annuities, working with LGIM, LGC, or through LTMs, is a differentiating feature of LGR's business and remains a key competitive advantage.

Legal & General Investment Management




 H1 2019

 H1 2018

Management fee revenue1





Transactional revenue2





Total revenue





Total costs1





Asset management operating profit3





Workplace Saving operating result





Operating profit





Investment and other variances





Profit before tax





Net release from operations





Asset Management cost:income ratio3 (%)















Canvas Acquisition





External net flows





Internal net flows





Total net flows





     - Of which international





Cash management flows





Persistency (%)





Average assets under management





Assets under management as at 30 June





Of which:





- International assets under management4





- UK DC assets under management





1.  Management fee revenue and total costs exclude income and costs of £11m in relation to the provision of 3rd party market data (H1 18: £8m), and also excludes revenue and costs from our Workplace Savings business.

2. Transactional revenue earned from external clients including execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees for property funds.

3.  Excludes revenue and costs from the Workplace Savings business.

4.  International AUM includes assets from internationally domiciled clients plus assets managed internationally on behalf of UK clients.



External net flows of £60bn drive AUM to £1,135bn

LGIM's drive to expand and diversify its business across channels, regions and investment capabilities has resulted in external net flows of £60.3bn (H1 2018: £14.6bn) with assets under management (AUM) growing by 15% to £1,135bn (H1 2018: £985bn). External net flows were broad-based and positive in our growth businesses including international, DC, and retail.


Investing for growth as operating profit increases 1% to £205m

Operating profit increased by 1% to £205m (H1 2018: £203m), reflecting increased revenues and LGIM's long term commitment to investing in its growth strategy. Revenues were up 5% to £434m (H1 2018: £414m). Management fees increased by 6% to £425m (H1 2018: £401m). Transactional revenues were £9m (H1 2018: £13m) and are a result of LDI activity as clients increase the hedging of their assets.

We will continue to invest in areas of the business that are experiencing strong growth or where increased automation and simplification will generate operational leverage. Enhancing customers' digital experience, optimising our investment platforms, and utilising data analytics are at the forefront of our endeavours. The cost income ratio (53%) reflects this continued investment in the business.

International assets up 50% to £343bn

LGIM's international businesses experienced net flows of £44.6bn (H1 2018: £9.9bn), including a £37bn passive mandate with the Japan Government Pension Investment Fund. This provides a long term foundation for future growth in Japan and the broader region. Total flows from Asia were £37.3bn (H1 2018: £2.5bn) over the period. Our European (excluding UK) business performed well with net flows of £4.9bn (H1 2018: £0.4bn), reflecting the continued focus we have placed on the region. The US business had net flows of £2.6bn (USD $3.3bn; H1 2018: £8.3bn, USD $11.5bn) and with a strong pipeline we have positive expectations for the second half of the year. In the Gulf, strategic asset reallocations have resulted in net outflows of £0.2bn (H1 2018: £1.4bn net outflow).



DB clients support solutions based investments

The defined benefit (DB) business had net flows of £10.7bn (H1 2018: -£0.3bn). There was a strong uptake of our Solutions based investment strategies from new and existing clients aiming to de-risk and adapt their investment objectives. The rate of existing clients transitioning out of their index strategies slowed significantly from 2018.


£3.6bn net flows from DC business

The defined contribution (DC) business continues to grow rapidly in the UK with total net flows of £3.6bn (H1 2018: £3.5bn), driven by the bundled business which provides administration and investment services to DC schemes. Total UK DC AUM increased by 35% to £86.4bn (H1 2018: £64.0bn).

Workplace Savings assets under administration increased by 22% to £36.1bn (H1 2018: £29.7bn) with the number of customers on our pension platform rising by 10% to 3.4m. Contributions from our customers increased as a result of changes to the minimum contribution for UK auto-enrolment pensions from 5% to 8%. Our Master Trust (one of the UK's largest) has £7.4bn in AUM, reflecting the continued appeal of the structure for DC schemes that wish to outsource their governance, investment and administration.


Accelerating growth in our retail businesses

The retail business experienced strong net flows of £1.7bn (H1 2018: £1.4bn) despite challenging market conditions. There has been strong demand for multi-asset and index products while the L&G UK Property Fund is the largest fund in the UK Direct Property sector. Retail AUM increased to £30.0bn (H1 2018: £25.1bn) as we continue to develop our product range and client-service proposition in the UK and broaden our distribution strategy in Europe. LGIM was ranked second in both gross and net UK retail sales in H1 2019.[19]


We continue to make progress in our Personal Investing business with further enhancements to our digital platform and the launch of the Legal & General Personal Pension. New customer applications have increased by 84% at a lower cost per acquisition. We continue to introduce innovative functionality to engage customers and meet a variety of saving needs. The Personal Investing business currently has AUM of £5.6bn (H1 2018: £5.7bn), including £1.9bn from legacy relationships with banks and building societies.


The ETF business has further supported our European retail distribution plans with additional launches in core equities and thematic ETFs. Currently 64% of our ETF offering has experienced net inflows in 2019 and we rank in the top 10 for pan-European mutual funds and ETFs net flows.[20] We will continue to build out our range of funds and distribution capabilities in line with client demand. The reduction in ETF AUM to £2.4bn (H1 2018: £2.8bn) reflects growth in our core equity range offset by the strategic closure of certain funds that were under review following last year's acquisition.



Breadth of investment management solutions


Asset movements




Global fixed









At 1 January 2019







   External inflows







   External outflows







   Overlay net flows







   ETF net flows







External net flows







Internal net flows







Total net flows







   Cash management movements







   Market and other movements







At 30 June 2019







1. Solutions "Market and other movements" includes the reallocation of the Rolls Royce LGIM investment mandate following the PRT transaction with LGRI in June 2019.



Total AUM increased 15% to £1,135bn (H1 2018: £985bn), with external net flows of £60.3bn (H1 2018: £14.6bn) and rising asset values driving £55.8bn of AUM growth. Net flows were broad based with the international business contributing £44.6bn and positive flows from all established UK channels. Flows were positive across most asset classes as customers benefitted from our diverse product range and broad investment capabilities.

We anticipate that LGIM will continue to benefit from global trends in retirement saving and structural shifts in demand in the asset management industry including ESG strategies. The Legal & General Master Trust launched the L&G Future World Multi-Asset Fund as a default option for members making it the first Master Trust to launch a multi-asset ESG fund as a default option.

Solutions external net flows were £24.9bn (H1 2018: £26.2bn), driven by DB pension schemes implementing a broad range of liability driven investment (LDI) strategies as customers manage their risk positions more proactively. Multi-asset strategies are in high demand from DC schemes and retail customers. External net flows into multi-asset funds were £5.1bn (H1 2018: £4.3bn) of which £1.4bn relates to funds switching from Index as part of a review of the default investment offering for some DC schemes.

Index external net flows were £34.5bn (H1 2018: -£18.6bn net flows), as we secured a £37bn passive mandate with the Japan Government Pension Investment Fund and experienced strong demand from a broad range of European customers. UK DB pension schemes continued to mature and reduce risk although at a slower pace than anticipated with £10.5bn of net outflows in H1 2019. For the past several years we have had consistent net outflows from our UK DB index funds and we expect this trend to continue as many clients transition into LDI strategies where we are well positioned to retain the assets.

Net external flows into Global Fixed Income of £0.9bn (H1 2018: £6.5bn), with relative performance reflecting the higher demand in 2018 for US DB credit strategies from clients responding to US tax exemptions for pension contributions. External outflows were elevated in H1 2019, predominantly due to a few clients undertaking planned PRT transactions. We have also won new mandates in the Gulf and Japan in the first half of the year.

The Real Assets business has continued to expand, growing its AUM to £29.5bn (H1 2018: £25.3bn). External flows have been affected by market sentiment and political uncertainty. The future growth of external flows will be supported by our build-to-rent business, which now has a pipeline of around 4,500 homes across the country, and our Private Credit business, which offers clients diversification of secure income and value protection solutions. The long term nature of the strategic relationships developed with LGR and LGC continue to be a positive source of funds.



Legal & General Capital


H1 2019

H1 2018

Net release from operations



Operating profit



     - Direct investment



     - Traded investment portfolio



     - Treasury assets



Investment and other variances



Profit before tax attributable to equity holders









Future Cities






SME Finance












Fixed income















LGC investment portfolio



Treasury assets at holding company2






1. Includes short term liquid holdings.

2. Excludes an interim dividend from subsidiaries of £145m which was paid in July 2019.


Total operating profit of £173m

LGC operating profit was £173m, in line with the previous year (H1 2018: £172m), reflecting continued growth in the underlying direct investments portfolio combined with a more challenging build-to-sell market compared to H1 2018. The operating profit from the traded investment and treasury portfolios increased by 9% to £74m (H1 2018: £68m). The direct investment operating profit was £99m (H1 2018: £104m). Profit before tax increased to £278m (H1 2018: £82m), due to the strong performance in equity markets compared to the prior period.

Our growing direct investment portfolio achieved a net portfolio return of 5.6% (H1 2018: 9.1%). The reduction reflects both the growth of the portfolio, which now has a greater proportion of AUM in early stage development assets, and the relative H1 2019 build-to-sell portfolio returns.

Direct investment portfolio up 32% to £2.6bn (H1 2018: £2.0bn)

The LGC direct investment portfolio grew to £2,638m (H1 2018: £2,005m) as we added £0.5bn in investments and new commitments in the first half of the year. Our Future Cities strategy continues to develop through new and existing sites, and in H1 2019 we also announced our £4bn commitment to invest in the development of homes for University staff and students, together with science and innovation districts in and around Oxford over a ten year period. LGC's housing platform has expanded its multi-tenure offering, delivering our first Affordable Housing contracts, extending our Later Living offering to urban development and continuing to add to our build-to-rent portfolio, including funding a flagship scheme in Wandsworth, London.

LGC holds cash and liquid investments to provide liquidity to facilitate investment into strategic opportunities as they arise and for collateral to cover derivatives trades. We are constantly reviewing our strategic options for deploying surplus liquidity across the Group, primarily through technology investment, bolt-on M&A, and funding organic growth.

Investing £905m in the future of UK cities (H1 2018: £589m)

UK cities need investment in their infrastructure, and in commercial and residential property to be the cities of the future. LGC's Future Cities business line is addressing a shortage of investment and innovation in urban regeneration, clean energy and digital infrastructure. Together, these building blocks can have a multiplier effect to create the resilient urban centres of the future. Through these investments and our partnerships with universities, local governments, authorities and businesses, Legal & General is supporting the UK to develop great places to live and quality, world class science and technology employment.

Our Future Cities investments create real assets and support clean energy technologies which generate stable returns for shareholders, are attractive Matching Adjustment eligible assets for LGR, and are desirable assets for LGIM clients. During the first half of 2019, our LGC Future Cities portfolio increased 15% to £905m (FY 2018: £787m, H1 2018: £589m) through investment across all our target sectors including investment in technology, such as electric vehicle charging (Pod Point in February 2019) and data centres (Kao Data in January 2019).

In June LGC led the formation of a 50:50 partnership with Oxford University to develop homes for University staff and students, together with science and innovation districts in and around Oxford. LGC's Future Cities business will act as funding and development partner for the University. This demonstrates LGC's ability to create assets for the wider Legal & General Group, which will provide funding of up to £4bn over the next ten years from its shareholder, annuity and LGIM-managed funds. The partnership will deliver a series of transformational projects to enable the world-class university to address its shortage of residential and commercial space, which it needs to continue to attract research graduates, and support spin-out and scale-up businesses.

Separately, in March LGC was selected as development partner for a 306,000 sq. ft. office-led, mixed use scheme in Bath Quays North, a 5.5 acre prime riverside site in Bath city centre. This scheme adds to our significant ongoing investment in Bath, where Legal & General Group is also developing 171 build to rent apartments at Spring Wharf, which now has its first residents in situ and is also developing an urban later living scheme. Most recently, at the end of July LGC announced a further investment in Cardiff Central Square, providing a transport interchange, 318 build-to-rent apartments and 100,000 sq. ft. of office space.

Strengthening our UK Homes platform as assets increase to £1,313m (H1 2018: £1,050m)

LGC's Homes platform is diversified across affordability, tenure and lifestage in order to help meet the UK's need for 340,000 homes each year.

In our build-to-sell business, CALA is now operationally bedded down and was awarded Home Builder of the Year by Homes for Scotland. It has 90 active sites, which have generated c.1,100 sales, in the first half of the year. It has been a good performance in the headwind of a slower sales market and we expect market conditions to remain challenging throughout the year. Our diversified housing platform makes us more resilient to temporary market slowdowns.

LGC's Affordable Homes business is now operational and has secured its first four affordable schemes, comprising 278 new homes in Croydon, Cornwall, Dunstable and Shrivenham and has also secured a further pipeline of over 40 sites across the UK, providing 1,500 affordable homes in the next 24 months. This is a strong start to LGC's target of delivering 3,000 affordable homes per year within the next four years.

LGC has also extended its later living offering with the establishment of Guild Living, a developer and operator of urban later living communities. Through Guild Living, we plan to deliver over 3,000 new retirement homes over the next five years. Guild Living is a partnership between LGC and a team of global experts in design, development and academically-accredited wellness programmes and will deliver a new class of urban retirement community across the UK's towns and cities to enable and enrich an independent, active later life. Since its launch, Guild Living has acquired a site in Bath and two sites in Surrey. This will complement LGC's existing suburban Later Living offering, Inspired Villages, which has acquired seven sites, with a strong pipeline of future sites.

Finally, in Legal & General's build-to-rent business, LGC has supported further developments in Brighton, Glasgow and Wandsworth. In Wandsworth we have exchanged contracts on two adjacent sites which will combine to deliver L&G's largest build-to-rent scheme to date.

SME Finance assets grow to £420m (H1 2018: £366m)

SME Finance supports UK and European mid-market lending via fund investments with Pemberton and invests in start-up businesses across the UK and Europe through fund investments with Venture Capital managers and direct stakes in innovation and growth companies strategically aligned with our business.

In European SME financing, our 40% owned private credit manager Pemberton has had significant success during the period, raising over €2.5bn over the past twelve months. This takes UK/European Mid-Market strategies to €4.4bn of AUM and the Strategic Credit fund to €0.9bn. The total committed AUM of Pemberton is now c.€5.5bn.

Our Venture Capital fund investing strategy has continued successfully during H1, benefitting from the UK's strong innovation economy, with a number of the companies we have indirectly invested in generating valuation increases. In addition, we continue to focus on accessing this strongly performing asset class for our DC pension clients and have been working across the industry to develop solutions.

Legal & General Insurance




H1 2019

H1 2018

Release from operations





New business surplus





Net release from operations





Operating profit





-       UK





-       US (LGIA)





Investment and other variances1





Profit before tax attributable to equity holders





LGI new business annual premiums





UK Retail Protection gross premiums





UK Group Protection gross premiums





US Protection (LGIA) gross premiums





Total gross premiums





1. Investment variance is driven by a fall in UK government bond yields and US Treasury yields which has resulted in a reduction in the discount rate used to calculate the reserves for both our UK and US protection liabilities.



7% growth in gross written premium

In H1 2019, LGI gross written premiums grew by 7% (H1 2019: £1,409m, H1 2018: £1,317m), demonstrating good new business performance.

UK Retail Protection gross premium income increased 4% to £658m (H1 2018: £633m) with new business annual premiums of £91m (H1 2018: £87m), reflecting strong growth from bank distribution partners and from intermediary distribution. We remain the leading provider of Retail Protection in the UK, delivering straight-through processing for more than 80% of our customers.

Group Protection increased new business premiums by 29% to £44m (H1 2018: £34m) and gross premium income up 4% at £233m (H1 2018: £223m). The Group Protection business has a leading rehabilitation offering which helped drive further growth in the income protection segment.

LGIA gross premium income increased 6% (up 12% on a sterling basis) to $670m (H1 2018: $635m). New business annual premiums decreased $3m to $55m (H1 2018: $58m). Through the brokerage channel, LGIA is the largest provider of US term life assurance by number of policies issued, and second largest by new business annual premium.

Legal & General Mortgage Club facilitated £36bn of mortgages in H1 2019, up 5% (H1 2018: £35bn) through strong partnerships with top lenders. As the largest participant in the intermediated mortgage market in the UK, we are involved in one in five of all UK mortgage transactions. Legal & General Surveying Services continued to deliver for lenders and customers, facilitating more than 250,000 surveys and valuations.



Total operating profit of £134m

LGI's operating profit reduced by £20m to £134m (H1 2018: £154m), as the prior year results benefited from one-off specific model enhancements and assumption changes in the UK. Underlying profitability growth was strong with net release from operations increasing 8% to £170m. We expect the full year operating profit in 2019 to be in a similar range to that of 2018.

LGI UK operating profit decreased by £43m to £93m (H1 2018: £136m), primarily due to the prior year comparator described above. Additionally, at the end of 2018, LGI implemented new US reserve financing reinsurance which involved LGIA recapturing part of the US business previously ceded to the UK. As a result c.£13m of annual profits shifted from the UK into the US, half of which is reflected in the H1 2019 results. We expect to continue to gradually reduce the intra-group reinsurance into the UK in the coming years.

Net release from operations for LGI UK was up 4% to £83m (H1 2018: £80m), reflecting improved new business strain of £(1)m (H1 2018: £(8)m) from in Retail Protection. This was partially offset by the reduction in release from operations as a result of the recapture of intra-group reinsurance and prior year model and assumption changes, as well as an increase in Fintech's contribution, particularly from our participation in SalaryFinance.

Profitability of UK protection sales increased as a result of management actions to rebalance the new business mix to products with a higher profitability and further price optimisation actions. The Solvency II new business margin increased to 7.9% (H1 2018: 7.1%). UK protection new business continues to generate Solvency II surplus immediately.

LGIA operating profit increased by $29m to $53m (H1 2018: $24m). This includes reserve releases following some assumption changes and the impact of the change in the reinsurance arrangement with the UK business, coupled with a better mortality result compared to prior year, in which the US life sector experienced elevated cases of flu.

The annual dividend paid by LGIA to the Group in March 2019, shown in the accounts as the LGIA net release from operations, increased by 2% (up 5% on a sterling basis) to $107m (H1 2018: $105m).

US protection sales delivered a strong Solvency II new business margin of 10.8% (H1 2018:11.6%).

Profit before tax was impacted by a fall in government yields. LGI's negative investment variance of £134m was primarily driven by a fall in UK government bond yields which has resulted in a reduction in the discount rate used to calculate the reserves for our UK protection liabilities (down 34 bps[21]) and a similar impact in the US where Treasury yields fell by 69 bps[22].

Fintech: Strong profit growth and improved customer experience

LGI continues to grow its expertise in the Fintech sector to help customers engage with financial services. Our focus is on transforming markets adjacent to our life insurance business by building solutions and making targeted investments in start-up and scale-up companies.

SalaryFinance continued its rapid expansion. In the first half of 2019 the financial wellbeing platform achieved a reach of more than one million UK employees and its loan book grew by 96% compared to the end of June 2018. In the US, the platform has reached more than 50,000 employees in the first few months of operation. The company is in a strong position to continue to grow the UK and US loan books and new products are launching to their customer base in the second half of the year such as: Advance, a fixed cost pay advance product; and a HMRC Help to Save scheme. During H1 2019 we provided more growth funding, increasing our ownership to 44%.

In May, Legal & General Mortgage Club announced improvements to SmartrCriteria, its digital user-friendly criteria search system. SmartrCriteria offers advisers 394,000 mortgage outcomes from over 95 lenders across the Residential, Buy to Let and New Build sector, to help determine the best outcome for their customers. Over 4,400 mortgage advisors are now signed up to use this tool.

Legal & General Surveying Services has soft launched a next generation digital home buyers survey and continues to invest in technology to innovate and transform the lender valuations market.

Smartr365, the B2B mortgage intermediary technology platform has delivered a range of enhancements throughout the H1 2019 to make it easier and quicker for mortgage advisers to arrange mortgages for their customers. These enhancements are accelerating the number of mortgage advisers using the platform.

General Insurance

In May 2019, Legal & General Group announced the sale of the General Insurance business to Allianz Holdings Plc. The transaction is expected to complete in H2 2019, at which point the Group's Solvency II coverage ratio is expected to increase by c.2%.




H1 2019

H1 2018

Net release from operations





Experience variances, assumption changes, tax and non-cash movements





Operating profit





Investment and other variances





Profit before tax





General Insurance gross premiums





Combined operating ratio (%)





13% growth in gross written premium

Gross written premium income increased 13% to £218m (H1 2018: £193m), comprising a 13% increase in Household premiums to £196m (H1 2018: £174m), and a 25% increase in Pet premiums to £15m (H1 2018: £12m). Across the General Insurance business, new business gross premiums increased 25% to £116m (H1 2018: £93m). Direct business delivered gross premiums of £65m in H1 2019, representing an 8% reduction on H1 2018 as a result of strong pricing action, and accounted for 30% of total gross written premiums (H1 2018: £71m, 37% of gross premiums).

Operating profit in H1 2019 was £(5)m (H1 2018: £(6)m) with a combined operating ratio of 106% (H1 2018: 107%), reflecting higher claims inflation. 




Disposed operations

Please refer to page 16 for detail on the sale of the General Insurance business, announced in May 2019.

The Group announced the sale of the Mature Savings business to Swiss Re on 6 December 2017 for £650m. The proceeds were received by the Group at the start of January 2018. In H1 2019 we recognised £24m operating profit from the business, resulting from the unwind of the expected underlying profits. Following the Part VII transfer, expected later this year, it is anticipated that an IFRS gain of over £400m will be generated. The completion of the Part VII is expected to be broadly neutral to the Group's Solvency II coverage ratio, as we reflected the impact of the Risk Transfer Agreement in our Internal Model in 2018, which gave a small improvement in the capital position.

On 7 February 2019, the Group completed the sale of its stake in IndiaFirst Life Insurance Company to an affiliate of Warburg Pincus LLC for INR 7.1bn (c.£76m at GBP:INR 1:92) resulting in a current period pre-tax profit of £43m, net of transaction costs. The operations of IndiaFirst Life Insurance Company have not been regarded as discontinued operations since it does not represent a major line of business of the Group.




The Group's outstanding core borrowings totalled £3.5bn at 30 June 2019 (FY 2018: £3.9bn; H1 2018: £3.5bn). There is also a further £1.1bn (FY 2018: £1.0bn; H1 2018: £0.9bn) of operational borrowings including £0.7bn (FY 2018: £0.6bn; H1 2018: £0.3bn) of non-recourse borrowings.

In November 2018 the Group issued £400m of Tier 2 subordinated debt with a coupon of 5.125%. The proceeds were used to refinance the Group's £400m of 5.875% undated subordinated notes which were redeemed in full on 1 April 2019.

Group debt costs of £108m (H1 2018: £97m) on a total borrowings balance of £4.1bn (H1 2018: £3.9bn).




Equity holders' Effective Tax Rate (%)


H1 2019

H1 2018

Equity holders' total Effective Tax Rate[23]




Annualised rate of UK corporation tax




The effective tax rate reflects the different rates of taxation that applies to Legal & General's overseas operations.

Solvency II

As at 30 June 2019, the Group had an estimated Solvency II surplus of £5.9bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 171% on a shareholder basis.

Capital (£bn)

H1 20191

 FY 20181

Own Funds



Solvency Capital Requirement (SCR)



Solvency II surplus



SCR coverage ratio (%)



1. Solvency II position on a shareholder basis is adjusted for the Own Funds and SCR of the With-profits fund and the Group final salary pension schemes, and before the accrual of the relevant dividend.




Analysis of movement from 1 January 2019 to 30 June 2019 (£bn)




Solvency II surplus














Surplus arising from back-book (including release of SCR)






Release of Risk Margin1






Amortisation of TMTP2






Operational surplus generation 






New business strain






Net surplus generation






Dividends paid3






Operating variances 






Mergers, acquisitions and disposals






Market movements4






Subordinated debt5












Total surplus movement (after dividends paid in the period)

















1.             Based on the Risk Margin in force at end 2018 and does not include the release of any Risk Margin added by new business written in H1 2019.

2.             TMTP amortisation based on a linear run down of the end-2018 TMTP of £4.4bn net of tax (£5.2bn before tax).

3.             Dividends paid are the amounts from the 2018 final dividend declaration paid in H1 2019.

4.             Market movements represent the impacts of changes in investment market conditions over the period and changes to future economic assumptions.

5.             In April 2019 the Group redeemed £400m of Tier 2 subordinated debt.



Operational surplus generation was up 17%[24] to £0.8bn (H1 2018: £0.7bn), after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin. We are guiding to a similar level of operational surplus generation in the second half.

New business strain was £0.3bn, reflecting significant UK annuity volumes written at a capital strain of c.4%. This resulted in net surplus generation of £0.5bn (H1 2018: £0.6bn).

Dividends paid represent payment of the 2018 final dividend in June 2019, which is typically c.70% of the total dividends paid during the year.

Operating variances include the impact of experience variances, changes to model calibrations, and management actions. The net impact of operating variances over the period was £(0.2)bn. Market movements of £(0.2)bn reflect the impact of lower rates on the valuation of our balance sheet, higher asset markets, predominantly in equities, as well as a number of other, smaller variances.

The above incorporates management's estimate of the impact of recalculating the TMTP as at 30 June 2019 as we believe this provides the most up to date and meaningful view of our Solvency II position. In line with UK regulatory requirements, a formal recalculation of the Group's TMTP will take place no later than 31 December 2019.

When stated on a proforma basis, including the SCR attributable to our With-profits fund and the Group final salary pension schemes in both the Group's Own Funds and the SCR, the Group's coverage ratio was 166% (FY 2018: 181%). 

Reconciliation of IFRS net release from operations to Solvency II net surplus generation

The table below gives a reconciliation of the Group's IFRS Release from operations and Solvency II Operational surplus generation in H1 2019:






IFRS Release from operations


Expected release of IFRS prudential margins


Release of IFRS specific reserves


Solvency II investment margin


Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation




Solvency II Operational surplus generation







The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in H1 2019:










IFRS New business surplus





Removal of requirement to set up prudential margins above best estimate on new business





Set up of Solvency II Capital Requirement on new business





Set up of Risk Margin on new business










Solvency II New business strain

















Sensitivity analysis


Impact on net of tax Solvency II capital surplus H1 2019


Impact on net of tax Solvency II coverage ratio

H1 2019


Credit spreads widen by 100bps assuming an escalating addition to ratings1



Credit migration2



25% fall in equity markets



15% fall in property markets



100bps increase in risk free rates



50bps decrease in risk free rates



1.  The spread sensitivity applies to group's corporate bond (and similar) holdings, with no change in the firm's long term default expectations. Restructured Lifetime Mortgages are excluded.

2.  Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, Sale & Leaseback rental strips, and LTM senior notes).


The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts due to the complex nature of the modelling. In practice, the Group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate stresses, we have not allowed for the recalculation of TMTP. The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress. The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if performed at an alternative reporting date.

The impacts of credit spread and risk free rate sensitivities are primarily non-economic arising from movement in balance sheet items that result from changes in the discount rates used to calculate the value of assets and liabilities. The credit migration stress, in the absence of defaults, delays the emergence of operating surplus generation, but does not reduce the actual quantum of future releases. Similarly equity and property stresses only result in losses if assets are sold at depressed values.



Solvency II new business contribution

Management estimates of the value of new business and the margin as at 30 June 2019 are shown below:







Contribution from

new business

Margin %

LGR1 (£m)




UK Protection Total (£m)




 - Retail protection




 - Group protection




US Protection (£m)




1.             UK annuity business.


The key economic assumptions as at 30 June 2019 are as follows:

Margin for risk




Risk free rate




 - UK




 - US








Risk discount rate (net of tax)




 - UK




 - US








Long term rate of return on non-profit annuities in LGR




The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat Margin for Risk. The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment. The risk free rate shown above is a weighted average based on the projected cash flows.

Other than updating for recent experience, all other economic and non-economic assumptions and methodologies that would have a material impact on the margin for these contracts are unchanged from those previously used by the group for its European Embedded Value reporting, other than the cost of currency hedging which has been updated to reflect current market conditions and hedging activity in light of Solvency II.



Principal risks and uncertainties

Legal & General runs a portfolio of risk taking businesses; we accept risk in the normal course of business and aim to deliver sustainable returns on risk based capital to our investors in excess of our cost of capital. We manage the portfolio of risk that we accept to build a sustainable franchise for the interests of all our stakeholders; we do not aim to eliminate that risk. We have an appetite for risks that we understand deeply and are rewarded for, and which are consistent with delivery of our strategic objectives. Risk management is embedded within the business. The Group's Principal Risks and Uncertainties summarise key matters that may impact the delivery of Group's strategy earnings or profitability.

Risks and uncertainties

Trend, outlook and mitigation

Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation or legislation

The pricing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates, valuation interest rates, expenses and credit defaults. Actual experience may require recalibration of these assumptions, impacting profitability. Management estimates are also required in the derivation of Solvency II capital metrics. These include modelling simplifications to reflect that it is not possible to perfectly model the external environment, with adjustment necessitated where new data emerges. Forced changes in reserves can also arise from regulatory or legislative intervention impacting capital requirements and profitability.

We undertake significant analysis of the variables associated with writing long-term insurance business to ensure that a suitable premium is charged for the risks we take on, and that reserves continue to remain appropriate for factors including mortality, lapse rates, valuation interest rates, expenses and credit defaults. We remain, however, inherently exposed to certain extreme events that could require us to adjust our reserves. For example, in our pensions risk transfer and annuities business, while trend data suggests the rate of longevity improvement may be slowing, a dramatic advance in medical science beyond that anticipated may lead to an unexpected change in life expectancy, requiring adjustment to reserves. In our protection businesses a widespread increase in mortality/morbidity may also require us to re-evaluate reserves. We are also exposed to lapse risks if our US term policies are not continued in line with our renewal assumptions. We remain focused on continuously developing our understanding of longevity and to evolve and develop our underwriting capabilities for our protection business. Our selective use of reinsurance also acts to reduce the impacts of significant variations in life expectancy and mortality.


Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital

The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and those to meet the obligations from insurance business, with the movement in certain investments directly impacting profitability. Interest rate movements and inflation can also change the value of our obligations. We use a range of techniques to manage mismatches between assets and liabilities. However, loss can still arise from adverse markets. Interest rate expectations leading to falls in the risk free yield curve can also create a greater degree of inherent volatility to be managed in the Solvency II balance sheet than the underlying economic position would dictate, potentially impacting capital requirements and surplus capital. In addition, significant falls in investment values can reduce fee income to our investment management business.

The outlook for the global economy remains uncertain, with economic data reflecting a general slowing in the rate of growth for many advanced economies and the risk of recession for some. Current factors that may lead to a further deterioration in current conditions and reappraisal of asset values include a collapse in US and China trade talks;  a "no-deal" Brexit, with the current uncertainties for the UK and EU economies proving more enduring; and a new financial crisis emerging in Italy, with possible contagion to other Euro area economies. A rapid reassessment by markets of the US monetary policy stance also remains an area of potential financial shock. We cannot remove these market risks from our business plans ensure resilience across a range of economic scenarios. Our Own Risk and Solvency Assessment (ORSA) plays an integral part in this process ensuring a clear link between capital sufficiency and the nature of risks to which we may be exposed, and confirming that exposures are within our risk appetite.


In dealing with issuers of debt and other types of counterparty the group is exposed to the risk of financial loss

Systemic corporate sector failures, or a major sovereign debt event, could, in extreme scenarios, trigger defaults impacting the value of our bond portfolios. Under Solvency II, a widespread widening of credit spreads and downgrades can also result in a reduction in our Solvency II balance sheet surplus, despite already setting aside significant capital for credit risk. We are also exposed to default risks in dealing with banking, money market and reinsurance counterparties, as well as settlement, custody and other bespoke business services. A default by a counterparty could expose us to both financial loss and operational disruption of business processes. Default risk also arises where we undertake property lending, with exposure to loss if an accrued debt exceeds the value of security taken.

We continue to closely monitor a number of factors that may lead to a widening of credit spreads including the outlook for global interest rates; the effects of a global slowdown on emerging markets, and the potential economic impacts of an unfavourable Brexit outcome for specific industrial and service sectors. Factors that could increase the level of default risk, if they were to occur, include a material deterioration in global economic conditions; a renewed banking crisis; and default on debt linked to emerging markets. We actively manage our exposure to default risks within our bond portfolios, setting selection criteria and exposure limits, and using the capabilities of LGIM's global credit team to ensure the risks are effectively controlled, and if appropriate trade out to improve credit quality. Within our property lending businesses, our loan criteria take account of both the default risk of the borrower and the potential for adverse movements in the value of secured property. We seek to closely manage risks to our Solvency II balance sheet through monitoring factors that could give rise to a heightened level of default risk. However, we cannot eliminate default risks or their impacts to our Solvency II balance sheet, although we seek to hold a strong balance sheet that we believe to be prudent for a range of adverse scenarios.

Changes in regulation or legislation may have a detrimental effect on our strategy

Legislation and government fiscal policy influence our product design, the period of retention of products and required reserves for future liabilities. Regulation defines the overall framework for the design, marketing, taxation and distribution of our products; and the prudential capital that we hold. Significant changes in legislation or regulation may increase our cost base, reduce our future revenues and impact profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long-term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on in-force books of business, impacting future cash generation.

Regulatory driven change remains a significant factor across our businesses. Prudential regulation focus on Solvency II and recovery and resolution planning continues, with areas of developing regulation including operational resilience and ensuring that the investment portfolios are resilient to shocks arising through the transition to a lower-carbon economy. Conduct regulation continues to focus on consumer protection, market integrity and the promotion of competition, and we are preparing for the FCA's transition in 2021 from LIBOR to SONIA. Alongside regulatory risk, we are also closing monitoring potential for significant changes in UK fiscal policy and broader economic policy were there to be change in the current political environment and the impacts for our products and services. Our internal control framework seeks to ensure ongoing compliance with relevant legislation and regulation. We cannot, however, completely eliminate the risks that controls may fail or that historic accepted practices may be reappraised by regulators, resulting in sanction against the group.

New entrants, or legislative change, may disrupt the markets in which we operate

There is already strong competition in our markets, and although we have had considerable past success at building scale to offer low cost products, we recognise that markets remain attractive to new entrants. In particular, as has been seen in other business sectors, it is possible that alternative digitally enabled providers of financial services products emerge with lower cost business models or innovative service propositions and capital structures disrupt the current competitive landscape. Changes in regulation or legislation can also influence the competitive landscape.

We seek to closely monitor the factors that may impact the markets in which we operate, including governmental initiatives, developing industry practices and competitor activity. Alongside digital enabled changes to business operating models that enhance the customer experience, technology is being widely applied to achieve cost savings and efficiencies for market participants. The UK government consultation on a new legislative framework for defined benefit 'superfund' consolidation schemes also has potential to significantly transform the operating environment for our asset management and pension risk transfer businesses. We continue to build our digital businesses and the use of technology to transform our insurance product distribution reach. In our asset management alongside positioning the business to protect existing market share, we are accessing new markets and sources of funds, in particular overseas.

A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage

We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions, personal injury or reputational damage. We are inherently exposed to the risk that third parties may seek to disrupt our online business operations, steal customer data or perpetrate acts of fraud using digital media. As we develop our housing businesses we are also increasing our exposure to property construction and safety risks, together with risk associated with operating properties in the affordable homes and retirement sectors.

Our plans for growth and the digitalisation of our businesses, together with the regulatory change agenda, inherently increase the profile of operational risks across our businesses, and as the digital world increasingly becomes 24/7 there is expectation of very high levels of operational resilience in business services and in the management of change. We are also cognisant of the changing cyber threat environment and the significant regulatory sanctions that may be imposed where IT security and other failures arise.. We continue to invest in our system capabilities, including those for the management of cyber risks, to ensure that our business processes are resilient, and that appropriate recovery plans are in place. We also seek to closely manage our property construction and safety risks robust internal control systems, including training, monitoring and independent assessments. We recognise, however, that residual risk will always remain across the spectrum of our business operations and we aim to develop response plans so that when adverse events occur, appropriate actions are deployed.

The Impact of "Brexit"

At the time of writing the UK is scheduled to leave the EU on 31 October 2019. Considerable uncertainty remains on the basis of the UK's departure, the potential for volatility in financial markets and the monetary policy actions that may be taken should the economic outlook be perceived to be at risk of deteriorating. As a predominantly UK and US focused business, our operating model will not be materially impacted from any changes to access to European markets following the UK's withdrawal from the EU. We have, however, established businesses in Dublin to support LGIM's EU-based investment clients and funds. With regard to financial markets, we have undertaken analysis to ensure our capital position remains resilient under a range of scenarios including those described by the Bank of England as being disorderly and disruptive. We have also evaluated risk factors that are idiosyncratic to the UK, including the impacts for particular UK business sectors and asset classes, where appropriate, restructuring our investment portfolios, recognising that we cannot completely eliminate the effects of volatility in financial markets on our earnings. We have also taken steps to ensure the continuity of the financial instruments on which we rely, and assessed the contingency planning activities of those EU based financial counterparties with which we deal. As much of the UK financial services regulation is derived from EU law, over the longer term it is likely that elements will be re-written. We expect, however, the overall Solvency II regulatory regime to continue to apply for the foreseeable future.





A copy of this announcement can be found in "Results, Reports and Presentations", under the "Investors" section of our shareholder website at 

A presentation to analysts and fund managers will take place at 10.30am UK time today at One Coleman Street, London, EC2R 5AA. There will be a live webcast of the presentation which can be accessed at A replay will be available on this website later today.

There will be a live, listen only, teleconference link to the presentation. Details below:


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Please enter access code 844531 to gain access to the conference.


2019 Financial Calendar

















Ex-dividend date (2019 interim dividend)



15 August 2019

Record date



16 August 2019

Last day for DRIP elections



5 September 2019

Payment date of 2019 interim dividend



26 September 2019


















Definitions are included in the Glossary on pages 96 to 99 of this release.


Forward looking statements

This announcement may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make.



Going concern statement

The Group's business activities, together with the factors likely to affect its future development, performance and position in the current economic climate are set out in this Interim Management Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Group Results. Principal risks and uncertainties are detailed on pages 21 to 23.


The Group manages and monitors its capital with various stresses built in order to understand the expected impact of market downturns. These stresses do not give rise to any material uncertainties over the ability of the Group to continue as a going concern and therefore, based upon the available information, the directors consider that the Group has the plans and resources to manage its business risks successfully as it has a diverse range of business and remains financially strong.

Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the preliminary financial information.


Director's responsibility statement

We confirm to the best of our knowledge that:

i.      The consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

ii.     The interim management report includes a fair review of the information required by DTR 4.2.7, namely an indication of important events that have occurred during the first six months of the financial year and their impact on the consolidated interim financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year;

iii.    The interim management report includes, as required by DTR 4.2.8, a fair review of material related party transactions that have taken place in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report and Accounts; and

iv.    The directors of Legal & General Group Plc are listed in the Legal & General Group Plc Annual Report and Accounts for 31 December 2018. A list of current directors is maintained on the Legal & General Group Plc website:




By order of the Board







Nigel Wilson                                                                                         Stuart Jeffrey Davies

Group Chief Executive                                                                       Group Chief Financial Officer

6 August 2019                                                                                      6 August 2019






+44 203 1242 091

Edward Houghton, Head of Investor Relations

[email protected]



+1 312 964 3034

Sujee Rajah, Investor Relations Director

[email protected]



+44 203 1242 047

Alyssa Manning, Investor Relations Director

[email protected]





+44 203 1242 090

John Godfrey, Group Corporate Affairs Director



+44 207 3534 200

Simon Pilkington, Tulchan Communications



+44 207 3534 200

Sheebani Chothani, Tulchan Communications








[1] Excludes the discontinued businesses of Mature Savings and General Insurance.

[2] 10 year UK swaps rate fell 39bps between 31 December 2018 and 30 June 2019.

[3] Incorporates management's estimate of the impact of recalculating the Transitional Measures for Technical Provisions (TMTP) as at 30 June 2019 as we believe this provides the most up to date and meaningful view of our Solvency II position. In line with guidance, the next formal recalculation will take place no later than 31 December 2019.

[4] Solvency II coverage ratio on a shareholder basis is adjusted for the Own Funds and SCR of the With-profits fund and the Group final salary pension schemes. The proforma basis includes both of these items.

[5] Excludes the June 2019 Rolls Royce transaction; including this increases our annual PRT premiums from existing LGIM clients to c.60%.

[6] To 31 December 2018.

[7] Source: Pension Purple Book 2018, PPF; LIMRA, March 2019;; "The Coming

Pensions Crisis", Citi Research

[8] Source: Pension Purple Book 2018, PPF; Hymans Robertson, 2018 Risk Transfer Report

[9] RBC, "Bulk annuities: 10 things you need to know about the best structural growth opportunity in Euro insurance"

[10] Equity Release Council, "Equity Release Rebooted", April 2017

[11] UK Equity Release Market Monitor, Half Year 2019

[12] Broadridge, Q2 2018

[13] Japan Funds News Letter as at 31 March 2019

[14] LCP, "Pensions De-risking Report 2019"

[15] As at 31 June 2019

[16] Q1 2019: 18.3%; Q2 2018: 13.1%

[17] Excludes equities, derivative assets, property, and cash. £15,148m of this portfolio is direct investment bonds. Please see note 7.01 and 7.02b for more information.

[18] Includes LGR direct investment bonds (£15,148m), direct investment property (£3,131m), direct investments equity (£6m), and other assets (£90m). Please see note 7.02b for more information.

[19] Pridham Report, Q1 2019 and Q2 2019

[20] Broadridge Pan-European mutual fund and ETF flows Q1 2019

[21] UK protection discount rate movement from 31 December 2018 to 30 June 2019

[22] US 10 year treasury rate from 31 December 2018 to 30 June 2019

[23] The equity holders' total Effective Tax Rate excluding discontinued operations is 17.8% (H1 2018: 17.9%).

[24] Using unrounded operational surplus generation values.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit

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