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Legal & General Grp (LGEN)

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Wednesday 07 August, 2019

Legal & General Grp

L&G Half Year Results 2019 Part 3

RNS Number : 1629I
Legal & General Group Plc
07 August 2019
 

Legal & General Group Plc

2019 Half Year Results Part 3

 

Capital                                                                                                                                                Page 73

 

6.01 Group regulatory capital - Solvency II

 

The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK and to measure and monitor its capital resources on this basis.

 

The Solvency II results are estimated and unaudited. Further explanation of the underlying methodology and assumptions are set out in the sections below.

 

The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.

 

The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) (recalculated as at end June 2019). The TMTP incorporates estimated impacts of end June 2019 economic conditions and changes during 2019 to the Internal Model and Matching Adjustment. This is in line with group's management of the capital position on a dynamic TMTP basis.


 

(a) Capital position

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 30 June 2019, and on the above basis, the group had a surplus of £5.9bn (31 December 2018: £6.9bn) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio on a "shareholder view" basis of 171% (31 December 2018: 188%). The shareholder view of the Solvency II capital position is as follows:

 

 

 

 

 

 

 

 

 

 

30 Jun 2019

31 Dec 2018

 

 

 

 

 

£bn

£bn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core tier 1 Own Funds

11.1

11.5

 

 

Tier 2 subordinated liabilities1

3.3

3.5

 

 

Eligibility restrictions

 

 

(0.2)

(0.2)

 

 

Solvency II Own Funds2,3

14.2

14.8

 

 

Solvency Capital Requirement

(8.3)

(7.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Solvency II surplus

5.9

6.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCR coverage ratio4

171%

188%

 

 

 

 

 

 

 

 

 

1. Tier 2 subordinated liabilities of £0.4bn were redeemed on 1 April 2019.

 

 

2. Solvency II Own Funds do not include an accrual for the interim dividend of £294m (31 December 2018: £704m) declared after the balance sheet date.

 

 

3. Solvency II Own Funds allow for a risk margin of £6.0bn (31 December 2018: £5.5bn) and TMTP of £5.7bn (31 December 2018: £5.2bn).

 

 

4. Coverage ratio is based on unrounded inputs.

 

 

 

 

 
                       

 

 

The "shareholder view" basis excludes the contribution that the with-profits fund and the final salary pension scheme would normally make to the group position. This is reflected by reducing the group's Own Funds and the group's SCR by the amount of the SCR for the with-profits fund and the final salary pension scheme.

 

On a proforma basis, which includes the contribution of the with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR in the group's SCR, the coverage ratio at 30 June 2019 is 166% (31 December 2018: 181%).

 

On 6 December 2017 the group announced the sale of its Mature Savings business to Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in 2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement is reflected in both Own Funds and SCR as at 30 June 2019.

 

On 31 May 2019 the group announced the sale of Legal & General Insurance Ltd. The Solvency II capital position as at 30 June 2019 does not reflect the expected impact of this sale. The transaction is expected to complete in H2 2019, at which point it is estimated that the impact of the sale will increase the group's Solvency II coverage ratio by 2%.

 

 

Capital                                                                                                                                                Page 74

 

6.01 Group regulatory capital - Solvency II (continued)

 

 (b) Methodology and assumptions

 

The methodology and assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are consistent with those set out in the group's 2018 Annual Reports and Accounts and Full Year Results.

 

Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates net of credit risk adjustment of 11 basis points (31 December 2018: 10 basis points) for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

 

At 30 June 2019 the Matching Adjustment for UK GBP denominated liabilities was 121 basis points (31 December 2018: 138 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 53 basis points (31 December 2018: 52 basis points).

 

(c) Analysis of change

 

 

The table below shows the movement (net of tax) during the 6 month period ended 30 June 2019 in the group's Solvency II surplus.

 

 

 

 

 

 

 

 

 

 

30 Jun 2019

31 Dec 2018

 

 

£bn

£bn

 

 

 

 

 

 

 

 

 

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

0.8

1.4

 

Release of Risk Margin1

0.2

0.4

 

Amortisation of TMTP2

(0.2)

(0.4)

 

Operational Surplus Generation3

0.8

1.4

 

New Business Strain

(0.3)

(0.5)

 

Net Surplus Generation

0.5

0.9

 

Dividends paid4

(0.7)

(0.9)

 

Operating variances5

(0.2)

0.1

 

Mergers, acquisitions and disposals6

-

-

 

Market movements7

(0.2)

(0.5)

 

Subordinated debt

(0.4)

0.4

 

 

 

 

 

Total Surplus movement (after dividends paid in the period)

(1.0)

-

 

 

 

 

 

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 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. Release of surplus generated by in-force business and includes management actions which at the start of the year could have been reasonably expected to take place. For 2019 these are primarily related to the optimisation of structures used to make assets matching adjustment eligible and the planned reinsurance of backbook liabilities.

 

4. Dividends paid are the amounts from the 2018 final dividend declaration paid in H1 19 (FY 18: 2017 final and 2018 interim dividend declarations).

 

5. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, other management actions including changes in asset mix, hedging strategies, and Matching Adjustment optimisation.

 

6. Mergers, acquisitions and disposals include the impact of the sale of IndiaFirst.

 

7. Market movements represent the impact of changes in investment market conditions over the period and changes to future economic assumptions. Market movements in H1 2019 include an increase in the risk margin of £0.4bn (net of tax) and an increase to TMTP of £0.5bn (net of tax).

 

 

 

 

 

 

Operational Surplus Generation is the expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.

 

New Business Strain is the cost of acquiring, and setting up Technical Provisions and SCR (net of any premium income), on actual new business written over the year. It is based on economic conditions at the point of sale.

 

 

Capital                                                                                                                                                Page 75

 

6.01 Group regulatory capital - Solvency II (continued)

 

 

 

 

 

 

 

(d) Reconciliation of IFRS Net Release from Operations to Solvency II Net Surplus Generation

 

 

 

 

 

 

 

(i) The table below provides a reconciliation of the group's IFRS Release from Operations to Solvency II Operational Surplus Generation.

 

 

 

 

6 months

Full year

 

 

 

 

2019

2018

 

 

 

 

£bn

£bn

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS Release from Operations

0.7

1.3

 

Expected release of IFRS prudential margins

(0.2)

(0.5)

 

Releases of IFRS specific reserves1

(0.1)

(0.1)

 

Solvency II investment margin2,3

0.1

0.1

 

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

0.3

0.6

 

 

 

 

 

 

 

Solvency II Operational Surplus Generation4

0.8

1.4

 

 

 

 

 

 

 

1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term expenses and longevity margins).

 

2. Release of prudence related to differences between the EIOPA-defined fundamental spread and Legal & General's best estimate default assumption.

 

3. Expected market returns earned on LGR's free assets in excess of risk free rates over H1 2019.

 

4. Solvency II Operational Surplus Generation includes management actions which at the start of 2019 were expected to take place within the group plan.

 

 

 

(ii) The table below provides a reconciliation of the group's IFRS New Business Surplus to Solvency II New Business Strain.

 

 

 

 

6 months

Full year

 

 

 

 

2019

2018

 

 

 

 

£bn

£bn

 

IFRS New Business Surplus

0.2

0.2

 

Removal of requirement to set up prudential margins above best estimate on New Business

0.1

0.2

 

Set up of Solvency II Capital Requirement on New Business

(0.5)

(0.7)

 

Set up of Risk Margin on New Business

(0.1)

(0.2)

 

Solvency II New Business Strain1

(0.3)

(0.5)

 

1. PRT new business volumes over H1 2019 were £6.7bn (including £4.6bn from the Rolls Royce UK Pension Fund) compared to £9.1bn over 2018.

 

 

 

 

 

 

 

 

(e) Reconciliation of IFRS shareholders' equity to Solvency II Own Funds

 

 

 

 

 

 

A reconciliation of the group's IFRS shareholders' equity to Own Funds is given below:

 

 

 

 

 

 

 

 

 

  

30 Jun 2019

31 Dec 20181

 

 

 

  

£bn

£bn

 

IFRS shareholders' equity1

8.8

8.6

 

Remove DAC, goodwill and other intangible assets and associated liabilities1

(0.7)

(0.8)

 

Add IFRS carrying value of subordinated debt treated as available capital under Solvency II2

2.9

3.3

 

Insurance contract valuation differences3

4.7

5.1

 

Difference in value of net deferred tax liabilities

(0.4)

(0.3)

 

SCR for with-profits fund and final salary pension schemes

(0.9)

(0.8)

 

Other4

-

(0.1)

 

Eligibility restrictions5

(0.2)

(0.2)

 

Solvency II Own Funds6

14.2

14.8

 

1. Values are per the consolidated financial statements.

 

2. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.

 

3. Differences in the measurement of technical provisions between IFRS and Solvency II.

 

4. Reflects valuation differences on other assets and liabilities, predominantly in respect of borrowings measured at fair value under solvency II.

 

5. Relating to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.

 

6. Solvency II Own Funds do not include an accrual for the interim dividend of £294m (31 December 2018: £704m) declared after the balance sheet date.

 

 

 

Capital                                                                                                                                                Page 76

 

6.01 Group regulatory capital - Solvency II (continued)

 

(f) Sensitivity analysis

 

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2019 would have changed in a variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market risks, adverse stresses will happen together.

 

 

 

 

 

 

 

 

 

 

 

 

Impact on

Impact on

Impact on

Impact on

 

 

 

 

net of tax

net of tax

net of tax

net of tax

 

 

 

 

Solvency II

Solvency II

Solvency II

Solvency II

 

 

 

 

capital

coverage

capital

coverage

 

 

 

 

surplus8

ratio8

surplus8

ratio8

 

 

 

 

30 Jun

30 Jun

31 Dec

31 Dec

 

 

 

 

2019

2019

2018

2018

 

 

 

 

£bn

%

£bn

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit spreads widen by 100bps assuming an escalating addition to ratings1,2

0.3

9

0.3

10

 

Credit migration3

(0.8)

(10)

(0.8)

(10)

 

25% fall in equity markets4

(0.6)

(6)

(0.5)

(6)

 

15% fall in property markets 5

(0.6)

(7)

(0.6)

(7)

 

100bps increase in risk free rates 6

1.2

25

0.9

24

 

50bps decrease in risk free rates6,7

(0.7)

(12)

(0.5)

(12)

 

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. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is 100 basis points.

 

3. 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 and leaseback rental strips and lifetime mortgage senior notes).

 

4. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.

 

5. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.

 

6. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.

 

7. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.

 

8. Both the 2018 and 2019 sensitivities exclude the impact from the Mature Savings business (including the With-Profits fund) as the risks have been transferred to ReAssure division of Swiss Re from 1 January 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

Capital                                                                                                                                                Page 77

 

6.02 Estimated Solvency II new business contribution

 

(a) New business by product1

 

 

 

 

 

 

Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:

 

 

 

 

 

 

 

 

 

 

 

Contri-

 

 

Contri-

 

 

 

 

bution

 

 

bution

 

 

 

 

from new

 

 

from new

 

 

 

PVNBP

business2

Margin3

PVNBP

business2

Margin3

 

 

6 months

6 months

6 months

Full year

Full year

Full year

 

 

2019

2019

2019

2018

2018

2018

 

 

£m

£m

%

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR - UK annuity business

6,813

533

7.8

9,148

722

7.9

 

 

 

 

 

 

 

 

UK Protection Total

862

68

7.9

1,609

115

7.1

- Retail Protection

679

56

8.2

1,271

93

7.3

- Group Protection

183

12

6.6

338

22

6.4

 

 

 

 

 

 

 

 

US Protection4

440

48

10.8

854

96

11.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Selected lines of business only.

2. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.

3. Margin is based on unrounded inputs.

4. In local currency, US Protection reflects PVNBP of $559m (31 December 2018: $1,088m) and a contribution from new business of $61m (31 December 2018: $122m).

 

 

 

 

 

 

 

 

 

(b) Basis of preparation

 

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2018 Annual Report and Accounts and Full Year Results.

 

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGR, LGI and LGA.

 

Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The LGA new business margin assumes that the new business will continue to be reinsured in 2019 and looks through the intra-group arrangements.

 

 

Capital                                                                                                                                                Page 78

 

6.02 Estimated Solvency II new business contribution (continued)

 

(c) Assumptions

 

The key economic assumptions are as follows:

 

 

 

 

 

30 Jun 2019

31 Dec 2018

 

%

%

 

 

 

 

 

 

Margin for Risk

3.4

3.2

 

 

 

Risk free rate

 

 

- UK

1.2

1.5

- US

2.0

2.7

Risk discount rate (net of tax)

 

 

- UK

4.6

4.7

- US

5.4

5.9

 

 

 

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

3.4

3.4

 

 

 

 

 

 

 

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.

 

The methodology and assumptions used to calculate the above margins comply with the CFO Forum EEV Principles (dated April 2016) in all material respects. Key assumptions to note are:

 

·      The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2018 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 20 basis points.

 

·      Non-economic assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding development costs). An allowance is made for future mortality improvement. For new business, mortality assumptions may be modified to take certain scheme specific features into account. These are normally reviewed annually.

 

Tax

 

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with substantively enacted future changes.

 

The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19% and subsequent enacted future tax rate of 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.

 

US covered business profits are grossed up using the long term corporate tax rate of 21%.

 

 

Capital                                                                                                                                                Page 79

 

6.02 Estimated Solvency II new business contribution (continued)

 

(d) Reconciliation of PVNBP to gross written premium 

 

 

 

 

 

 

 

A reconciliation of PVNBP and gross written premium is given below:

 

 

 

 

 

6 months

Full year

 

 

2019

2018

 

 

£bn

£bn

 

 

 

 

 

 

 

 

PVNBP

 

8.1

11.6

Effect of capitalisation factor  

 

(1.0)

(2.0)

 

 

 

 

 

 

 

 

New business premiums from selected lines

 

7.1

9.6

Other1

 

0.7

2.1

 

 

 

 

 

 

 

 

Total LGR and LGI new business

 

7.8

11.7

Annualisation impact of regular premium long-term business  

 

(0.1)

(0.2)

IFRS gross written premiums from existing long-term insurance business  

 

1.5

2.8

Deposit accounting for lifetime mortgage advances  

 

(0.5)

(1.2)

Future premiums on longevity swap new business

 

-

(0.3)

 

 

 

 

 

 

 

 

Total gross written premiums2

 

8.7

12.8

 

 

 

 

 

 

 

 

1. Other principally includes annuity sales in the US, lifetime mortgage advances and discounted future cash flows on longevity swap new business.

2. This excludes gross written premiums from discontinued operations.

  

 

                                                                                                                                                               Page 80

 

 

 

 

 

 

 

 

 

 

 

 

This page is intentionally left blank

 

 

 

 

 

 

 

 

 

 

Investments                                                                                                                                     Page 81

 

7.01 Investment portfolio

 

 

 

 

 

Market

Market

Market

 

 

 

 

value

value

value

 

 

 

 

30 Jun

30 Jun

31 Dec

 

 

 

 

2019

2018

2018

 

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide total assets under management1

 

 

1,141,593

990,379

1,019,858

Client and unit-linked policyholder assets

 

 

(1,036,229)

(907,834)

(930,516)

Non-unit linked with-profits assets

 

 

(10,372)

(10,673)

(9,893)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments to which shareholders are directly exposed

 

94,992

71,872

79,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.


 

Analysed by investment class:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

non profit

 

Other

 

 

 

 

 

 

LGR

insurance

LGC2

shareholder

 

 

 

 

 

 

investments

investments

investments

investments

Total

Total

Total

 

 

 

30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

31 Dec

 

 

 

2019

2019

2019

2019

2019

2018

2018

 

 

Notes

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities3,6

 

162

13

2,741

226

3,142

2,727

2,785

 

Bonds

7.03

66,907

1,859

2,002

490

71,258

55,826

63,096

 

Derivative assets4

 

11,523

-

109

1

11,633

4,225

4,411

 

Property

7.04

3,131

-

144

-

3,275

2,871

3,055

 

Cash, cash equivalents and loans5

 

1,555

587

1,541

634

4,317

5,104

4,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial investments

 

83,278

2,459

6,537

1,351

93,625

70,753

78,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets6

 

90

-

1,277

-

1,367

1,119

1,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

83,368

2,459

7,814

1,351

94,992

71,872

79,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. LGC property includes £23m of shareholder investment property.

 

3. Equity investments include a total of £362m (30 June 2018: £125m; 31 December 2018: £260m) in respect of associates and joint ventures.

 

4. Derivative assets are shown gross of derivative liabilities of £6.9bn (30 June 2018: £3.3bn; 31 December 2018: £3.3bn). Exposures arise from use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.

 

5. Loans include reverse repurchase agreements of £960m (30 June 2018: £752m; 31 December 2018: £857m).

 

6. Other assets includes the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

 

 

 

Investments                                                                                                                                     Page 82

 

7.02 Direct Investments

 

 (a) Analysed by asset class

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct1

Traded2

 

Direct

Traded

 

Direct1

Traded2

 

 

 

Investments

securities

Total

Investments

securities

Total

Investments

securities

Total

 

 

30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

31 Dec

31 Dec

31 Dec

 

 

2019

2019

2019

2018

2018

2018

2018

2018

2018

 

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

1,300

1,842

3,142

890

1,837

2,727

1,166

1,619

2,785

 

Bonds3

15,824

55,434

71,258

10,800

45,026

55,826

13,369

49,727

63,096

 

Derivative assets

-

11,633

11,633

-

4,225

4,225

-

4,411

4,411

 

Property4

3,275

-

3,275

2,871

-

2,871

3,055

-

3,055

 

Cash, cash equivalents and loans

410

3,907

4,317

580

4,524

5,104

418

4,476

4,894

 

 

 

 

 

 

 

 

 

 

 

 

Financial investments

20,809

72,816

93,625

15,141

55,612

70,753

18,008

60,233

78,241

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

1,367

-

1,367

1,119

-

1,119

1,208

-

1,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

22,176

72,816

94,992

16,260

55,612

71,872

19,216

60,233

79,449

 

1. Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct Investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.

 

2. Traded securities are defined by exclusion. If an instrument is not a Direct Investment, then it is classed as a traded security.

 

3. Bonds include lifetime mortgages of £3,990m (30 June 2018: £2,674m; 31 December 2018: £3,227m).

 

4. A further breakdown of property is provided in Note 7.04.

 

 

 

 

 

Investments                                                                                                                                     Page 83

 

7.02 Direct Investments (continued)

 

(b) Analysed by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR

LGC1

LGI

Total

 

 

 

 

 

30 Jun

30 Jun

30 Jun

30 Jun

 

 

 

 

 

2019

2019

2019

2019

 

 

 

 

 

£m

£m

£m

£m

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

 

 

 

6

1,233

61

1,300

Bonds2

 

15,148

3

673

15,824

Property3

 

3,131

144

-

3,275

Cash, cash equivalents and loans

 

-

64

346

410

Financial investments

 

 

 

 

18,285

1,444

1,080

20,809

Other assets4

 

90

1,277

-

1,367

Total direct investments

 

 

 

 

18,375

2,721

1,080

22,176

 

 

 

 

 

 

 

 

 

1. LGC includes £58m of equities and £23m of property that belong to other shareholder funds.

 

2. Bonds include lifetime mortgages of £3,990m.

3. A further breakdown of property is provided in Note 7.04.

4. Other assets include finance leases of £90m and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR

LGC1

LGI

Total

 

 

 

 

 

30 Jun

30 Jun

30 Jun

30 Jun

 

 

 

 

 

2018

2018

2018

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

 

 

 

-

851

39

890

Bonds2

 

 

10,432

30

338

10,800

Property3

 

 

2,791

80

-

2,871

Cash, cash equivalents and loans

 

 

175

77

328

580

Financial investments

 

 

 

 

13,398

1,038

705

15,141

Other assets4

 

 

92

1,027

-

1,119

Total direct investments

 

 

 

 

13,490

2,065

705

16,260

 

 

 

 

 

 

 

 

 

1. LGC included £40m of equities, £27m of bonds and £23m of property that belong to other shareholder funds.

2. Bonds included lifetime mortgages of £2,674m.

3. A further breakdown of property is provided in Note 7.04.

4. Other assets include finance leases of £92m and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

 

 

 

 

 

 

 

LGR

LGC1

LGI

Total

 

 

 

 

 

 

31 Dec

31 Dec

31 Dec

31 Dec

 

 

 

 

 

 

2018

2018

2018

2018

 

 

 

 

 

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

 

 

 

6

1,124

36

1,166

 

Bonds2

 

12,716

3

650

13,369

 

Property3

 

2,930

125

-

3,055

 

Cash, cash equivalents and loans

 

-

64

354

418

 

Financial investments

 

 

 

 

15,652

1,316

1,040

18,008

 

Other assets4

 

91

1,117

-

1,208

 

Total direct investments

 

 

 

 

15,743

2,433

1,040

19,216

 

 

 

 

 

 

 

 

 

 

 

1. LGC included £51m of equities and £23m of property that belong to other shareholder funds.

 

2. Bonds include lifetime mortgages of £3,227m.

 

3. A further breakdown of property is provided in Note 7.04.

 

4. Other assets include finance leases of £91m and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

 

 

 

 

 

 

Investments                                                                                                                                     Page 84

 

7.03 Bond portfolio summary

 

(a) Sectors analysed by credit rating

 

 

 

 

 

 

 

 

 

 

BB or

 

 

 

 

AAA

AA

A

BBB

 below

Other

Total2

Total2

As at 30 June 2019

£m

£m

£m

£m

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

1,585

9,472

297

456

59

-

11,869

17

Banks:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

2

-

-

2

-

    - Tier 2 and other subordinated

-

47

84

27

2

-

160

-

    - Senior

23

1,693

2,830

81

-

-

4,627

6

    - Covered

132

-

-

-

-

-

132

-

Financial Services:

 

 

 

 

 

 

 

 

    - Tier 2 and other subordinated

-

93

91

10

-

4

198

-

    - Senior

2

469

73

303

8

-

855

1

Insurance:

 

 

 

 

 

 

 

 

    - Tier 2 and other subordinated

28

125

3

53

-

-

209

-

    - Senior

-

233

551

205

-

-

989

1

Consumer Services and Goods:

 

 

 

 

 

 

 

 

    - Cyclical

-

632

951

1,903

142

2

3,630

5

    - Non-cyclical

240

1,100

2,060

3,698

209

1

7,308

10

    - Health Care

-

138

465

472

7

-

1,082

2

Infrastructure:

 

 

 

 

 

 

 

 

    - Social

110

790

3,719

847

40

-

5,506

8

    - Economic

336

27

1,683

2,781

55

-

4,882

7

Technology and Telecoms

116

168

1,133

2,819

52

-

4,288

6

Industrials

-

12

750

679

26

-

1,467

2

Utilities

-

181

5,863

4,513

4

35

10,596

15

Energy

-

-

300

874

14

-

1,188

2

Commodities

-

-

261

584

15

-

860

1

Oil and Gas

-

419

917

698

113

1

2,148

3

Real estate

-

6

1,692

1,542

131

-

3,371

5

Structured finance ABS / RMBS / CMBS / Other

446

766

251

336

21

1

1,821

3

Lifetime mortgage loans1

2,403

886

326

276

-

99

3,990

6

CDOs

-

-

66

14

-

-

80

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total £m

5,421

17,257

24,366

23,173

898

143

71,258

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total %

8

24

34

33

1

-

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring. Unstructured lifetime mortgages have been categorised as AA.

2. The group's bond portfolio is dominated by LGR investments. These account for £66,907m, representing 94% of the total group portfolio.

 

 

Investments                                                                                                                                     Page 85

 

7.03 Bond portfolio summary (continued)

 

(a) Sectors analysed by credit rating (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BB or

 

 

 

 

AAA

AA

A

BBB

 below

Other

Total

Total

As at 30 June 2018

£m

£m

£m

£m

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

1,266

9,102

160

323

43

-

10,894

20

Banks:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

-

-

1

1

-

    - Tier 2 and other subordinated

-

-

76

38

2

-

116

-

    - Senior

-

1,184

2,411

62

-

8

3,665

7

    - Covered

173

-

-

-

-

-

173

-

Financial Services:

 

 

 

 

 

 

 

 

    - Tier 1

1

-

-

-

-

1

2

-

    - Tier 2 and other subordinated

-

187

104

17

-

-

308

1

    - Senior

-

84

354

59

10

-

507

1

Insurance:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

1

-

-

1

-

    - Tier 2 and other subordinated

-

109

1

48

-

-

158

-

    - Senior

-

168

456

91

-

-

715

1

Consumer Services and Goods:

 

 

 

 

 

 

 

 

    - Cyclical

-

512

825

1,435

220

1

2,993

5

    - Non-cyclical

209

498

1,360

2,006

295

1

4,369

8

    - Health Care

3

52

276

325

3

-

659

1

Infrastructure:

 

 

 

 

 

 

 

 

    - Social

95

788

3,276

905

127

-

5,191

9

    - Economic

180

23

1,079

2,353

43

-

3,678

7

Technology and Telecoms

84

151

759

2,035

52

1

3,082

6

Industrials

-

3

817

374

43

-

1,237

2

Utilities

-

105

4,912

3,657

5

19

8,698

16

Energy

-

-

103

548

15

-

666

1

Commodities

-

-

248

491

13

-

752

1

Oil and Gas

-

341

557

617

111

-

1,626

3

Real estate

-

-

1,048

1,145

56

-

2,249

4

Structured finance ABS / RMBS / CMBS / Other

324

656

195

128

10

-

1,313

2

Lifetime mortgage loans1

1,533

588

219

211

-

123

2,674

5

CDOs

-

24

61

14

-

-

99

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total £m

3,868

14,575

19,297

16,883

1,048

155

55,826

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total %

7

26

35

30

2

-

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.

2. The group's bond portfolio is dominated by LGR investments. These account for £50,847m, representing 90% of the total group portfolio.

 

 

Investments                                                                                                                                     Page 86

 

7.03 Bond portfolio summary (continued)

 

(a) Sectors analysed by credit rating (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BB or

 

 

 

 

AAA

AA

A

BBB

 below

Other

Total2

Total2

As at 31 December 2018

£m

£m

£m

£m

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

1,385

9,591

181

410

48

-

11,615

18

Banks:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

1

-

1

2

-

    - Tier 2 and other subordinated

-

-

87

24

2

-

113

-

    - Senior

18

1,971

2,946

59

-

42

5,036

8

    - Covered

191

1

-

-

-

-

192

-

Financial Services:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

-

-

-

-

-

    - Tier 2 and other subordinated

-

165

91

11

-

6

273

-

    - Senior

-

282

69

305

8

-

664

1

Insurance:

 

 

 

 

 

 

 

 

    - Tier 1

-

-

-

-

-

-

-

-

    - Tier 2 and other subordinated

-

113

1

46

-

-

160

-

    - Senior

-

177

543

94

-

-

814

1

Consumer Services and Goods:

 

 

 

 

 

 

 

 

    - Cyclical

-

604

663

1,343

134

2

2,746

4

    - Non-cyclical

216

970

1,138

2,639

308

1

5,272

8

    - Health Care

-

150

375

405

4

-

934

2

Infrastructure:

 

 

 

 

 

 

 

 

    - Social

92

768

3,425

829

38

-

5,152

8

    - Economic

331

23

1,420

2,335

42

-

4,151

7

Technology and Telecoms

93

166

933

2,296

53

1

3,542

7

Industrials

-

3

709

629

42

-

1,383

2

Utilities

-

153

5,498

4,129

5

27

9,812

16

Energy

-

-

464

590

10

-

1,064

2

Commodities

-

-

242

481

11

-

734

1

Oil and Gas

-

382

583

535

110

-

1,610

3

Real estate

-

-

1,233

1,425

125

-

2,783

4

Structured finance ABS / RMBS / CMBS / Other

430

873

180

250

8

1

1,742

3

Lifetime mortgage loans1

1,938

718

249

219

-

103

3,227

5

CDOs

-

-

61

14

-

-

75

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total £m

4,694

17,110

21,091

19,069

948

184

63,096

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total %

7

27

34

30

2

-

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring. Unstructured lifetime mortgages have been categorised as AA.

2. The group's bond portfolio is dominated by LGR investments. These account for £57,355m, representing 91% of the total group portfolio.

 

 

Investments                                                                                                                                     Page 87

 

7.03 Bond portfolio summary (continued)

 

 (b) Sectors analysed by domicile

 

 

 

 

 

 

 

 

EU

 

 

 

 

 

excluding

Rest of

 

 

UK

US

UK

the World

Total

As at 30 June 2019

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

9,279

1,500

704

386

11,869

Banks

1,468

1,209

1,450

794

4,921

Financial Services

354

91

597

11

1,053

Insurance

137

769

206

86

1,198

Consumer Services and Goods:

 

 

 

 

 

    - Cyclical

624

2,232

615

159

3,630

    - Non-cyclical

1,619

5,158

491

40

7,308

    - Health care

18

1,018

46

-

1,082

Infrastructure:

 

 

 

 

 

    - Social

5,106

358

-

42

5,506

    - Economic

3,905

563

95

319

4,882

Technology and Telecoms

717

2,217

653

701

4,288

Industrials

96

932

372

67

1,467

Utilities

5,928

1,869

2,300

499

10,596

Energy

266

780

4

138

1,188

Commodities

14

335

66

445

860

Oil and Gas

294

659

438

757

2,148

Real estate

2,080

401

525

365

3,371

Structured Finance ABS / RMBS / CMBS / Other

1,019

754

22

26

1,821

Lifetime mortgages

3,990

-

-

-

3,990

CDOs

-

-

-

80

80

 

 

 

 

 

 

 

 

 

 

 

 

Total

36,914

20,845

8,584

4,915

71,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments                                                                                                                                     Page 88

 

7.03 Bond portfolio summary (continued)

 

(b) Sectors analysed by domicile (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EU

 

 

 

 

 

excluding

Rest of

 

 

UK

US

UK

the World

Total

As at 30 June 2018

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

8,702

1,005

774

413

10,894

Banks

1,643

703

932

677

3,955

Financial Services

291

127

397

2

817

Insurance

132

541

113

88

874

Consumer Services and Goods:

 

 

 

 

 

    - Cyclical

530

1,888

467

108

2,993

    - Non-cyclical

1,284

2,717

350

18

4,369

    - Health care

10

649

-

-

659

Infrastructure:

 

 

 

 

 

    - Social

4,860

294

-

37

5,191

    - Economic

3,000

381

71

226

3,678

Technology and Telecoms

690

1,352

599

441

3,082

Industrials

199

690

264

84

1,237

Utilities

4,449

1,377

2,162

710

8,698

Energy

36

572

5

53

666

Commodities

10

272

38

432

752

Oil and Gas

272

471

348

535

1,626

Real estate

1,582

341

58

268

2,249

Structured Finance ABS / RMBS / CMBS / Other

947

295

48

23

1,313

Lifetime mortgages

2,674

-

-

-

2,674

CDOs

-

24

-

75

99

 

 

 

 

 

 

 

 

 

 

 

 

Total

31,311

13,699

6,626

4,190

55,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments                                                                                                                                     Page 89

 

7.03 Bond portfolio summary (continued)

 

(b) Sectors analysed by domicile (continued)

 

 

 

 

 

 

 

 

EU

 

 

 

 

 

excluding

Rest of

 

 

UK

US

UK

the World

Total

As at 31 December 2018

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

9,238

1,038

1,009

330

11,615

Banks

1,817

1,012

1,373

1,141

5,343

Financial Services

287

104

544

2

937

Insurance

134

542

215

83

974

Consumer Services and Goods:

 

 

 

 

 

    - Cyclical

479

1,692

427

148

2,746

    - Non-cyclical

1,328

3,478

430

36

5,272

    - Health care

9

916

9

-

934

Infrastructure:

 

 

 

 

 

    - Social

4,819

295

-

38

5,152

    - Economic

3,340

463

87

261

4,151

Technology and Telecoms

688

1,814

549

491

3,542

Industrials

196

848

253

86

1,383

Utilities

5,154

1,740

2,374

544

9,812

Energy

363

610

2

89

1,064

Commodities

11

285

35

403

734

Oil and Gas

270

524

349

467

1,610

Real estate

1,864

373

241

305

2,783

Structured Finance ABS / RMBS / CMBS / Other

985

681

45

31

1,742

Lifetime mortgages

3,227

-

-

-

3,227

CDOs

-

-

-

75

75

 

 

 

 

 

 

 

 

 

 

 

 

Total

34,209

16,415

7,942

4,530

63,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments                                                                                                                                     Page 90

 

7.03 Bond portfolio summary (continued)

 

(c) Bond portfolio analysed by credit rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Externally

Internally

 

 

 

 

 

rated

rated1

Total

As at 30 June 2019

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

 

 

2,647

2,774

5,421

AA

 

 

 

14,631

2,626

17,257

A

 

 

 

19,173

5,193

24,366

BBB

 

 

 

18,199

4,974

23,173

BB or below

 

 

 

658

240

898

Other

 

 

 

10

133

143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

55,318

15,940

71,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Externally

Internally

 

 

 

 

 

rated

rated1

Total

As at 30 June 2018

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

 

 

2,117

1,751

3,868

AA

 

 

 

12,901

1,674

14,575

A

 

 

 

16,062

3,235

19,297

BBB

 

 

 

13,045

3,838

16,883

BB or below

 

 

 

730

318

1,048

Other

 

 

 

15

140

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

44,870

10,956

55,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Externally

Internally

 

 

 

 

 

rated

rated1

Total

As at 31 December 2018

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

 

 

2,390

2,304

4,694

AA

 

 

 

14,386

2,724

17,110

A

 

 

 

16,731

4,360

21,091

BBB

 

 

 

14,928

4,141

19,069

BB or below

 

 

 

723

225

948

Other

 

 

 

55

129

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

49,213

13,883

63,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Where external ratings are not available an internal rating has been used where practicable to do so.

 

 

 

 

Investments                                                                                                                                     Page 91

 

7.04 Property analysis

 

Property exposure within direct investments by status

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR1

LGC2,3

Total

 

As at 30 June 2019

 

 

 

 

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully let

 

 

 

 

3,131

-

3,131

95

Development

 

 

 

 

-

23

23

1

Land

 

 

 

 

-

121

121

4

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

3,131

144

3,275

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR1

LGC2

Total

 

As at 30 June 2018

 

 

 

 

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully let

 

 

 

 

2,791

11

2,802

97

Development

 

 

 

 

-

23

23

1

Land

 

 

 

 

-

46

46

2

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

2,791

80

2,871

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR1

LGC2

Total

 

As at 31 December 2018

 

 

 

 

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

Fully let

 

 

 

 

2,930

-

2,930

96

Development

 

 

 

 

-

23

23

1

Land

 

 

 

 

-

102

102

3

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

2,930

125

3,055

100

 

 

 

 

 

 

 

 

 

1. The fully let LGR property includes £3.0bn (30 June 2018: £2.6bn; 31 December 2018: £2.8bn) let to investment grade tenants.

2. Development includes £23m (30 June 2018 and 31 December 2018: £23m) of shareholder investment property.

3. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Receivables and other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2019 the group held a total of £1,910m (30 June 2018: £1,427m; 31 December 2018: £1,687m) of such assets.

 

 

 

 

 

 

 

 

 

 

 

                                                                                                                                                               Page 92

 

 

 

 

 

 

 

 

 

 

 

 

 

This page is intentionally left blank

 

 

 

 

 

 

 

 

 

 

 

Alternative Performance Measures                                                                                        Page 93

 

An alternative performance measure (APM) is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II.  APMs offer investors additional information on the company's performance and the financial effect of 'one-off' events and the group uses a range of these metrics to provide a better understanding of its underlying performance.  The APMs used by the group are listed in this section, along with their definition/ explanation, their closest IFRS measure and reference to the reconciliations to those IFRS measures.

 

 

Group adjusted operating profit (previously labelled as 'operating profit')

 

Definition

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

Group adjusted operating profit was previously described as 'operating profit'. In order to maintain a consistent understanding of the group's performance the term 'operating profit' will continue to be used throughout the interim report as a substitute for group adjusted operating profit.

 

Closest IFRS measure

Profit before tax attributable to equity holders

 

Reconciliation

Note 2.01 Operating profit

 

 

Return on Equity (ROE)

 

Definition

ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as annualised IFRS profit after tax attributable to equity holders divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds as provided in the IFRS consolidated statement of changes in equity for the period).

 

Closest IFRS measure

Calculated using:

- Profit for the period attributable to equity holders

- Equity attributable to owners of the parent

 

Reconciliation

Calculated using annualised profit for the period of £1,748m (30 June 2018: £1,542m; 31 December 2018: £1,827m) and average equity attributable to the owners of the parent of £8,671m (30 June 2018: £7,595m; 31 December 2018: £8,048m)

 

 

Assets under Management

 

Definition

Funds which are managed by our fund managers on behalf of investors. It represents the total amount of money investors have trusted with our fund managers to invest across our investment products.

 

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

 

Reconciliation

5.03 - Reconciliation of Assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents

 

Net release from operations

 

Definition

Release from operations plus new business surplus / (strain). Net release from operations includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business.

 

Closest IFRS measure

Profit before tax attributable to equity holders

 

Reconciliation

Notes 2.01 Operating profit and 2.02 Reconciliation of release from operations to operating profit before tax

 

 

Adjusted profit before tax attributable to equity holders (previously labelled as 'profit before tax attributable to equity holders')

 

Definition

The APM measures profit before tax attributable to shareholders incorporating actual investment returns experienced during the year and the pre-tax results of discontinued operations.

 

Closest IFRS measure

Profit before tax attributable to equity holders

 

Reconciliation

Note 2.01 Operating profit

 

 

Glossary                                                                                                                                            Page 94

 

 

* These items represent an alternative performance measure (APM)

 

Ad valorem fees

Ongoing management fees earned on assets under management, overlay assets and advisory assets as defined below.

 

Adjusted profit before tax attributable to equity holders (previously labelled as 'profit before tax attributable to equity holders')*

Refer to the alternative performance measures section.

 

Advisory assets

These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are beneficially owned by GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different from Assets under Management (AUM) defined below.

 

Alternative performance measures (APMs)

An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. 

 

Annual premium

Premiums that are paid regularly over the duration of the contract such as protection policies.

 

Annual premium equivalent (APE)

A standardised measure of the volume of new life insurance business written. It is calculated as the sum of (annualised) new recurring premiums and 10% of the new single premiums written in an annual reporting period.

 

Annuity

Regular payments from an insurance company made for an agreed period of time (usually up to the death of the recipient) in return for either a cash lump sum or a series of premiums which the policyholder has paid to the insurance company during their working lifetime.

 

Assets under administration (AUA)

Assets administered by Legal & General which are beneficially owned by clients and are therefore not reported on the Consolidated Balance Sheet. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.

 

Assets under management (AUM)*

Refer to the alternative performance measures section.

 

Back book acquisition

New business transacted with an insurance company which allows the business to continue to utilise Solvency II transitional measures associated with the business.

 

Bundled DC solution

Where investment and administration pension scheme services are provided to a scheme by the same service provider. Typically, all investment and administration costs are passed onto the scheme members.

 

CAGR

Compound annual growth rate.

 

Combined operating ratio (COR)

The COR is a measure of the underwriting profitability of the general insurance business. It is calculated as the sum of the net incurred claims, expenses and net commission, divided by the net earned premium for the period.

 

Credit rating

A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA and the lowest Unrated. Ratings are usually issued by a credit rating agency (e.g. Moody's or Standard & Poor's) or a credit bureau.

 

Deduction and aggregation (D&A)

A method of calculating group solvency on a Solvency II basis, whereby the assets and liabilities of certain entities are excluded from the group consolidation. The net contribution from those entities to group Own Funds is included as an asset on the group's Solvency II balance sheet. Regulatory approval has been provided to recognise the (re)insurance subsidiaries of LGI US on this basis.

 

Defined benefit pension scheme (DB scheme)

A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.

 

Defined contribution pension scheme (DC scheme)

A type of pension plan where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer. They provide benefits based upon the money held in each individual's plan specifically on behalf of each member. The amount in each plan at retirement will depend upon the investment returns achieved and on the member and employer contributions.

 

Derivatives

Derivatives are not a separate asset class but are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk to which a fund is exposed.

 

Direct investments

Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.

 

Dividend cover

Dividend cover measures how many times over the net release from operations in the year could have paid the full year dividend. For example, if the dividend cover is 3, this means that the net release from operations was three times the amount of dividend paid out.

 

Earnings per share (EPS)

EPS is a common financial metric which can be used to measure the profitability and strength of a company over time. It is the total shareholder profit after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.

 

 

 

Glossary                                                                                                                                            Page 95

 

Eligible Own Funds

Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group.  Eligible Own Funds (shareholder view basis) excludes the contribution to the group's solvency capital requirement of with-profits funds and final salary pension schemes.

 

Employee engagement index

The Employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst working with their manager to enhance their own sense of development and well-being.

 

ETF

LGIM's European Exchange Traded Fund platform.

 

Euro Commercial paper

Short term borrowings with maturities of up to 1 year typically issued for working capital purposes.

 

FVTPL

Fair value through profit or loss. A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet and reports gains and losses arising from movements in fair value within the Consolidated Income Statement as part of the profit or loss for the year.

 

Full year dividend

Full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).

 

Generally accepted accounting principles (GAAP)

These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used by the accounting community to report financial information.

 

Gross written premiums (GWP)

GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the reporting period, before any deductions for reinsurance.

 

Group adjusted operating profit (previously labelled as 'operating profit')*

Refer to the alternative performance measures section.

 

ICAV - Irish Collective Asset-Management Vehicle

A legal structure investment fund, based in Ireland and aimed at European investment funds looking for a simple, tax-efficient investment vehicle.

 

Index tracker (passive fund)

Index tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 index. Index tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds'.

 

International financial reporting standards (IFRS)

These are accounting guidelines and rules that companies and organisations follow when completing financial statements.

They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed groups in the European Union (EU) are required to use.

 

Key performance indicators (KPIs)

These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.

 

LGA

Legal & General America.

 

LGAS

Legal and General Assurance Society Limited.

 

LGC

Legal & General Capital.

 

LGI

Legal & General Insurance.

 

LGI new business

New business arising from new policies written on retail protection products and new deals and incremental business on group protection products.

 

LGIA

Legal & General Insurance America.

 

LGIM

Legal & General Investment Management.

 

LGR

Legal & General Retirement, which includes Legal & General Retirement Institutional (LGRI) and Legal & General Retirement Retail (LGRR).

 

LGR new business

Single premiums arising from annuity sales and back book acquisitions (including individual annuity and pension risk transfer), the volume of lifetime mortgage lending and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the LIBOR curve.

 

Liability driven investment (LDI)

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent in final salary pension plans, whose liabilities can often reach into billions of pounds for the largest of plans.

 

Lifetime mortgages

An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.

 

 

 

Glossary                                                                                                                                            Page 96

 

Matching adjustment

An adjustment to the discount rate used for annuity liabilities in Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.

 

Mortality rate

Rate of death, influenced by age, gender and health, used in pricing and calculating liabilities for future policyholders of life and annuity products, which contain mortality risks.

 

Net release from operations*

Refer to the alternative performance measures section.

 

New business surplus/(strain)

The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the setting up of reserves, for UK non profit annuities, workplace savings, protection and savings, net of tax. This metric provides an understanding of the impact of new contracts on the IFRS profit for the year.

 

Open architecture

Where a company offers investment products from a range of other companies in addition to its own products. This gives customers a wider choice of funds to invest in and access to a larger pool of money management professionals.

 

Overlay assets

Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include interest rate swaps, inflation swaps, equity futures and options. These are typically used to hedge risks associated with pension scheme assets during the derisking stage of the pension life cycle.

 

Pension risk transfer (PRT)

PRT represents bulk annuities bought by entities that run final salary pension schemes to reduce their responsibilities by closing the schemes to new members and passing the assets and obligations to insurance providers.

 

Platform

Online services used by intermediaries and consumers to view and administer their investment portfolios. Platforms usually provide facilities for buying and selling investments (including, in the UK products such as Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life insurance) and for viewing an individual's entire portfolio to assess asset allocation and risk exposure.

 

Present value of future new business premiums (PVNBP)

PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the new business value at the end of the financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums are calculated on a net of reinsurance basis to enable a more representative margin figure.  PVNBP therefore provides an estimate of the present value of the premiums associated with new business written in the year.

 

Purchased interest in long term business (PILTB)

An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been acquired via a business combination.

 

Real assets

Real assets encompass a wide variety of tangible debt and equity investments, primarily real estate, infrastructure and energy.  They have the ability to serve as stable sources of long term income in weak markets, while also providing capital appreciation opportunities in strong markets.

 

Release from operations

The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from LGA. Release from operations was previously referred to as operational cash generation.

 

Return on Equity (ROE)*

Refer to the alternative performance measures section.

 

Risk appetite

The aggregate level and types of risk a company is willing to assume in its exposures and business activities in order to achieve its business objectives.

 

Single premiums

Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium being paid over its lifetime, such as in individual and bulk annuity deals.

 

Solvency II

Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance firms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to appropriately align insurers' risk with the capital they hold to safeguard the policyholders' interest.

 

Solvency II capital coverage ratio

The Eligible Own Funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by Eligible Own Funds.

 

Solvency II capital coverage ratio (proforma basis)

The proforma basis solvency II SCR coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of with-profits funds and our defined benefit pension schemes in both Own Funds and the SCR in the calculation of the SCR coverage ratio.

 

 

 

Glossary                                                                                                                                            Page 97

 

Solvency II capital coverage ratio (shareholder view basis)

In order to represent a shareholder view of group solvency position, the contribution of with-profits funds and our defined benefit pension schemes are excluded from both, the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of  period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 30 June 2019. This will be submitted to the PRA in August 2019.

 

Solvency II new business contribution

Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.

 

Solvency II risk margin

An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the insurance and reinsurance obligations over the lifetime thereof.

 

Solvency II surplus

The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.

 

Solvency Capital Requirement (SCR)

The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event.

 

Total shareholder return (TSR)

TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to the shareholder.

 

Transitional Measures on Technical Provisions (TMTP)

This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the relevant business, subject to agreement with the PRA.

 

Unbundled DC solution

When investment and administration pension scheme services are supplied by separate providers. Typically the sponsoring employer will cover administration costs and scheme members the investment costs.

 

With-profits funds

Individually identifiable portfolios where policyholders have a contractual right to receive additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. An insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or may have discretion as to the timing and the amount of the additional benefits.

 

Yield

A measure of the income received from an investment compared to the price paid for the investment. It is usually expressed as a percentage.


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