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    LGEN   GB0005603997

LEGAL & GENERAL PLC

(LGEN)
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Legal & General : HY20 Excel Tables

10/21/2021 | 07:04am EST
2.01 Operating Profit
6 months 6 months1 Full year1
2020 2019 2019
Notes £m £m £m
From continuing operations
Legal & General Retirement (LGR) 2.03 721 655 1,569
- LGR Institutional (LGRI) 585 524 1,216
- LGR Retail (LGRR) 136 131 353
Legal & General Investment Management (LGIM) 2.04 196 192 394
Legal & General Capital (LGC) 2.05 123 173 363
Legal & General Insurance (LGI) 2.03 88 134 314
- UK and Other 57 93 223
- US (LGIA) 31 41 91
Operating profit from divisions:
From continuing operations 1,128 1,154 2,640
From discontinued operations2 26 19 11
Operating profit from divisions 1,154 1,173 2,651
Group debt costs3 (115) (108) (208)
Group investment projects and expenses (72) (60) (157)
COVID-19 costs4 (21) - -
Operating profit 946 1,005 2,286
Investment and other variances 2.06 (644) 57 (150)
Losses on non-controlling interests (17) (9) (24)
Adjusted profit before tax attributable to equity holders 285 1,053 2,112
Tax expense attributable to equity holders 4.05 (12) (188) (302)
Profit for the period 273 865 1,810
Profit attributable to equity holders 290 874 1,834
Earnings per share:
Basic (pence per share)5 2.07 4.89p 14.74p 30.92p
Diluted (pence per share)5 2.07 4.63p 14.66p 30.75p
1. 2019 has been restated to reflect a reallocation of divisional-related project expenditure from Group investment projects and expenses to Legal & General Investment Management (LGIM) within Operating profit from divisions. This has reduced LGIM operating profit by £13m for the six months ended 30 June 2020, and by £29m for the full year 2019.
2. Discontinued operations include the results of the Mature Savings division following the group's announcement to sell the business to ReAssure Limited (2019 included the results of the General Insurance division following its sale to Allianz, which completed on 31 December 2019).
3. Group debt costs exclude interest on non recourse financing.
4. COVID-19 costs reflect incremental operational expenses incurred as a result of COVID-19 and include the provision of IT spend on remote working solutions.
5. All earnings per share calculations are based on profit attributable to equity holders of the company.
2.02 Release from Ops HY20
Changes in valuation assump- tions Operating profit/ (loss) after tax Operating profit/ (loss) before tax
New business surplus/ (strain) Net release from operations
Release from operations1 Exper- ience variances Non-cash items Other Tax expense/ (credit)
For the six month period
to 30 June 2020 £m £m £m £m £m £m £m £m £m £m
LGR 329 98 427 27 143 21 - 618 103 721
- LGRI 246 71 317 20 143 21 - 501 84 585
- LGRR 83 27 110 7 - - - 117 19 136
LGIM 173 (11) 162 (5) - - - 157 39 196
- LGIM (excluding
Workplace Savings)2 158 - 158 - - - - 158 39 197
- Workplace Savings3 15 (11) 4 (5) - - - (1) - (1)
LGC 97 - 97 - - - - 97 26 123
LGI 163 (1) 162 (25) 8 (5) (81) 59 29 88
- UK and Other 69 (1) 68 (25) 8 (5) - 46 11 57
- US (LGIA) 94 - 94 - - - (81) 13 18 31
From continuing operations 762 86 848 (3) 151 16 (81) 931 197 1,128
From discontinued operations4 21 - 21 - - - - 21 5 26
Total from divisions 783 86 869 (3) 151 16 (81) 952 202 1,154
Group debt costs (93) - (93) - - - - (93) (22) (115)
Group investment projects and expenses (25) - (25) - - - (30) (55) (17) (72)
COVID-19 costs5 - - - - - - (17) (17) (4) (21)
Total 665 86 751 (3) 151 16 (128) 787 159 946
1. Release from operations within US (LGIA) includes £84m of dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings division following the group's announcement to sell the business to ReAssure Limited.
5. COVID-19 costs reflect incremental operational expenses incurred as a result of COVID-19 and include the provision of IT spend on remote working solutions.
Release from operations for LGR, LGIM - Workplace Savings and LGI UK and Other represents the expected IFRS surplus generated in the period from the in-force non-profit annuities, workplace savings and UK protection businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA. The release from operations within discontinued operations primarily reflects the unwind of expected profits after tax under the risk transfer agreement with ReAssure Limited from the Mature Savings business.
New business surplus/strain for LGR, LGIM - Workplace Savings and LGI UK and Other represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non-profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.
LGR's new business metrics are presented based on a target long-term asset portfolio. At certain period ends, depending upon the quantum and timing of pension risk transfer (PRT) volumes, we may continue to source high quality assets to support that business after the period end, as appropriate, taking into account the alternative risks and rewards of traded credit. At period end, any difference between the actual assets and the long-term asset mix is reflected in investment variance.
Net release from operations for LGR, LGIM - Workplace Savings, LGI and discontinued operations is defined as release from operations plus new business surplus/(strain).
Release from operations and net release from operations for LGC and LGIM (excluding workplace savings) represents the operating profit (net of tax).
See Note 2.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
2.02 Release from Ops HY19
Changes in valuation assump- tions Operating profit/ (loss) after tax Operating profit/ (loss) before tax
New business surplus/ (strain) Net release from operations
Release from operations1 Exper- ience variances Non-cash items Other Tax expense/ (credit)
For the six month period
to 30 June 2019 £m £m £m £m £m £m £m £m £m £m
LGR 303 185 488 (37) 33 58 - 542 113 655
- LGRI 212 165 377 (37) 33 61 - 434 90 524
- LGRR 91 20 111 - - (3) - 108 23 131
LGIM2 168 (11) 157 (3) - (1) - 153 39 192
- LGIM (excluding
Workplace Savings)3 155 - 155 - - - - 155 39 194
- Workplace Savings4 13 (11) 2 (3) - (1) - (2) - (2)
LGC 142 - 142 - - - - 142 31 173
LGI 171 (1) 170 (21) 18 (2) (59) 106 28 134
- UK and Other 84 (1) 83 (21) 18 (2) - 78 15 93
- US (LGIA) 87 - 87 - - - (59) 28 13 41
From continuing operations 784 173 957 (61) 51 55 (59) 943 211 1,154
From discontinued operations5 15 - 15 - - - - 15 4 19
Total from divisions 799 173 972 (61) 51 55 (59) 958 215 1,173
Group debt costs (87) - (87) - - - - (87) (21) (108)
Group investment projects and expenses2 (19) - (19) - - - (26) (45) (15) (60)
Total 693 173 866 (61) 51 55 (85) 826 179 1,005
1. Release from operations within US (LGIA) includes £81m of dividends from the US.
2. As described in Note 2.01, 2019 has been restated to reflect a reallocation of divisional-related project expenditure from Group investment projects and expenses to LGIM. This has reduced LGIM operating profit by £10m and Workplace Savings operating profit by £3m.
3. LGIM (excluding Workplace Savings) includes profits on fund management services.
4. Workplace Savings represents administration business only.
5. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited and Allianz respectively. The sale of the General Insurance division completed on 31 December 2019.
2.02 Release from Ops FY19
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation profit/ Tax (loss)
from surplus/ from ience assump- Non-cash (loss) expense/ before
For the year ended operations1 (strain) operations variances tions items Other after tax (credit) tax
31 December 2019 £m £m £m £m £m £m £m £m £m £m
LGR 598 327 925 (53) 390 91 - 1,353 216 1,569
- LGRI 418 265 683 (40) 313 88 - 1,044 172 1,216
- LGRR 180 62 242 (13) 77 3 - 309 44 353
LGIM2 348 (20) 328 (6) - (4) - 318 76 394
- LGIM (excluding Workplace
Savings)3 321 - 321 - - - - 321 77 398
- Workplace Savings4 27 (20) 7 (6) - (4) - (3) (1) (4)
LGC 295 - 295 - - - - 295 68 363
LGI 259 (7) 252 (11) 44 (12) 4 277 37 314
- UK and Other 165 (7) 158 (11) 44 (12) 4 183 40 223
- US (LGIA) 94 - 94 - - - - 94 (3) 91
From continuing operations 1,500 300 1,800 (70) 434 75 4 2,243 397 2,640
From discontinued operations5 9 - 9 - - - - 9 2 11
Total from divisions 1,509 300 1,809 (70) 434 75 4 2,252 399 2,651
Group debt costs (168) - (168) - - - - (168) (40) (208)
Group investment projects
and expenses2 (44) - (44) - - - (79) (123) (34) (157)
Total 1,297 300 1,597 (70) 434 75 (75) 1,961 325 2,286
1. Release from operations within US (LGIA) includes £81m of dividends from the US.
2. As described in Note 2.01, 2019 has been restated to reflect a reallocation of divisional-related project expenditure from Group investment projects and expenses to LGIM. This has reduced LGIM operating profit by £23m and Workplace Savings operating profit by £6m.
3. LGIM (excluding Workplace Savings) includes profits on fund management services.
4. Workplace Savings represents administration business only.
5. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcement to sell these businesses to ReAssure Limited and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.
2.03 Op Profit LGR LGI
LGR LGI LGR LGI LGR LGI
6 months 6 months 6 months 6 months Full year Full year
2020 2020 2019 2019 2019 2019
£m £m £m £m £m £m
Net release from operations 427 162 488 170 925 252
Experience variances
- Persistency 3 (11) - (13) (4) (9)
- Mortality/morbidity 33 (17) 5 (8) 6 (5)
- Expenses (3) (5) (9) (1) (23) -
- Project and development costs (4) - (4) (1) (12) -
- Other (2) 8 (29) 2 (20) 3
Total experience variances 27 (25) (37) (21) (53) (11)
Changes to valuation assumptions
- Persistency - - - - - (16)
- Mortality/morbidity 19 4 - 5 352 39
- Expenses - - - - 5 -
- Other1 124 4 33 13 33 21
Total changes to valuation assumptions 143 8 33 18 390 44
Movement in non-cash items
- Acquisition expense tax relief - (2) - (1) - (2)
- Other2 21 (3) 58 (1) 91 (10)
Total movement in non-cash items 21 (5) 58 (2) 91 (12)
Other - (81) - (59) - 4
Operating profit after tax 618 59 542 106 1,353 277
Tax gross up 103 29 113 28 216 37
Operating profit before tax 721 88 655 134 1,569 314
1. The £124m positive Other assumption change in LGR reflects a reduction in the assumed late retirement factors applied to deferred annuities.
2. LGR Other movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.
2.04 Op Profit LGIM
6 months 6 months Full year
2020 20195 20195
£m £m £m
Asset management revenue (excluding 3rd party market data)1,2 458 425 889
Asset management transactional revenue3 9 9 23
Asset management expenses (excluding 3rd party market data)1,2 (270) (240) (514)
Workplace Savings operating loss4 (1) (2) (4)
Total LGIM operating profit 196 192 394
1. Asset management revenue and expenses exclude income and costs of £13m in relation to the provision of third party market data (H1 19: £11m, FY 19: £24m).
2. The ETF operating result is included as part of asset management revenue and expenses.
3. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.
4. Workplace Savings represents administration business.
5. As described in Note 2.01, 2019 has been restated to reflect a reallocation of divisional-related project expenditure from Group investment projects and expenses to LGIM. For the respective 2019 periods this has increased Asset management expenses (H1 19: £10m; FY19: £23m) and reduced the Workplace Savings operating result (H1 19: £3m; FY19: £6m).
2.05 Op Profit LGC
6 months 6 months Full year
2020 2019 2019
£m £m £m
Direct investments1 36 99 217
Traded investment portfolio including treasury assets2 87 74 146
Total LGC operating profit 123 173 363
1. Direct Investments represents LGC's portfolio of assets across future cities (including urban regeneration and clean energy), housing and SME finance.
2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.
2.06 Inv & other variances
6 months 6 months Full year
2020 2019 2019
£m £m £m
Investment variance1 (599) 84 (27)
M&A related and other variances (45) (27) (123)
Total investment and other variances (644) 57 (150)
1. Investment variance includes differences between actual and long term expected investment return on traded and real assets, economic assumption changes (e.g. credit default and inflation), the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business, and excludes the yield associated with assets held for future new pension risk transfer business from the valuation discount rate. The investment variance for the six months ended 30 June 2020 is a loss of £599m which is broadly made up of three significant items: 1) £483m in LGI, reflecting a reduction in the discount rate used to calculate protection liabilities, the rate being linked to UK government bond and US Treasury yields rates; 2) £307m in LGC, reflecting unrealised losses on our traded equity portfolio and valuation markdowns on certain retail assets; 3) offset partially by a positive variance of £96m in respect of the defined benefit pension scheme, reflecting the impact of the acquisition of annuity assets from LGR, and the beneficial rate difference between the IAS19 and annuity discount rates.
2.07 EPS basic
After tax Per share1 After tax Per share1 After tax Per share1
6 months 6 months 6 months 6 months Full year Full year
2020 2020 2019 2019 2019 2019
£m p £m p £m p
Profit for the period attributable to equity holders 290 4.89 874 14.74 1,834 30.92
Less: earnings derived from discontinued operations (19) (0.32) (27) (0.46) (23) (0.39)
Basic earnings derived from continuing operations 271 4.57 847 14.28 1,811 30.53
1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.
2.07 EPS diluted
After tax Weighted average number of shares Per share1
For the six month period to 30 June 2020 £m m p
Profit for the period attributable to equity holders 290 5,930 4.89
Net shares under options allocable for no further consideration - 33 (0.03)
Conversion of restricted tier 1 notes - 307 (0.23)
Total diluted earnings 290 6,270 4.63
Less: diluted earnings derived from discontinued operations (19) - (0.30)
Diluted earnings derived from continuing operations 271 6,270 4.33
After tax Weighted average number of shares Per share1
For the six month period to 30 June 2019 £m m p
Profit for the period attributable to equity holders 874 5,931 14.74
Net shares under options allocable for no further consideration - 30 (0.08)
Total diluted earnings 874 5,961 14.66
Less: diluted earnings derived from discontinued operations (27) - (0.45)
Diluted earnings derived from continuing operations 847 5,961 14.21
After tax Weighted average number of shares Per share1
For the six month period to 31 December 2019 £m m p
Profit for the period attributable to equity holders 1,834 5,932 30.92
Net shares under options allocable for no further consideration - 33 (0.17)
Total diluted earnings 1,834 5,965 30.75
Less: diluted earnings derived from discontinued operations (23) - (0.39)
Diluted earnings derived from continuing operations 1,811 5,965 30.36
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees and conversion of restricted tier 1 notes.
2.08 Segmental Profit_Loss
(i) Profit/(loss) for the period
Group
expenses Total
and debt continuing
LGR LGIM LGC LGI costs1 operations
For the six month period to 30 June 2020 £m £m £m £m £m £m
Operating profit/(loss)# 721 196 123 88 (208) 920
Investment and other variances 80 (3) (307) (483) 71 (642)
Losses attributable to non-controlling interests - - - - (17) (17)
Profit/(loss) before tax attributable to equity holders 801 193 (184) (395) (154) 261
Tax (expense)/credit attributable to equity holders (99) (21) 33 70 10 (7)
Profit/(loss) for the period 702 172 (151) (325) (144) 254
Group
expenses Total
and debt continuing
LGR LGIM2 LGC LGI costs2 operations
For the six month period to 30 June 2019 £m £m £m £m £m £m
Operating profit/(loss)# 655 192 173 134 (168) 986
Investment and other variances (17) (5) 105 (134) 94 43
Losses attributable to non-controlling interests - - - - (9) (9)
Profit/(loss) before tax attributable to equity holders 638 187 278 - (83) 1,020
Tax (expense)/credit attributable to equity holders (110) (39) (36) - 3 (182)
Profit/(loss) for the period 528 148 242 - (80) 838
Group
expenses Total
and debt continuing
LGR LGIM2 LGC LGI costs2 operations
For the year ended 31 December 2019 £m £m £m £m £m £m
Operating profit/(loss)# 1,569 394 363 314 (365) 2,275
Investment and other variances 43 (9) 91 (234) (58) (167)
Losses attributable to non-controlling interests - - - - (24) (24)
Profit/(loss) before tax attributable to equity holders 1,612 385 454 80 (447) 2,084
Tax (expense)/credit attributable to equity holders (234) (75) (75) 12 75 (297)
Profit/(loss) for the year 1,378 310 379 92 (372) 1,787
1. Group expenses and debt costs include £21m of incremental costs incurred as a result of COVID-19.
2. As described in Note 2.01, 2019 has been restated to reflect a reallocation of divisional-related project expenditure from Group investment projects and expenses to LGIM. This has reduced LGIM operating profit by £13m for the six months ended 30 June 2020, and by £29m for the full year 2019.
# Operating profit for total continuing operations represents 'Group adjusted operating profit', an alternative performance measure defined in the glossary.
2.08 Segmental Revenue
(a) Total revenue
6 months 6 months Full year
2020 2019 2019
£m £m £m
Total income 17,419 48,450 66,786
Adjusted for:
Share of loss/(profit) from associates and joint ventures, net of tax 23 (6) (17)
Gain on acquisition and disposal of subsidiaries, associates and joint ventures - (43) (51)
Total revenue from continuing operations1 17,442 48,401 66,718
1. Continuing operations exclude the results of the Mature Savings division, and for 2019 the General Insurance division, which have been classified as discontinued operations.
2.08 Segmental Tot Income
(b) Total income
LGC and Total continuing
LGR LGIM1,2 LGI other3 operations
For the six month period to 30 June 2020 £m £m £m £m £m
Internal income - 102 - (102) -
External income 6,530 (1,812) 1,016 11,685 17,419
Total income 6,530 (1,710) 1,016 11,583 17,419
LGC and Total continuing
LGR LGIM1,2 LGI other3 operations
For the six month period to 30 June 2019 £m £m £m £m £m
Internal income - 89 - (89) -
External income 10,602 25,376 1,141 11,331 48,450
Total income 10,602 25,465 1,141 11,242 48,450
LGC and Total continuing
LGR LGIM1,2 LGI other3 operations
For the year ended 31 December 2019 £m £m £m £m £m
Internal income - 188 - (188) -
External income 16,385 43,836 1,593 4,972 66,786
Total income 16,385 44,024 1,593 4,784 66,786
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
2.08 Segmental Fees
2.08 Segmental analysis (continued)
(c) Fees from fund management and investment contracts
LGC and other1 Total continuing
LGIM LGI operations
For the six month period to 30 June 2020 £m £m £m £m
Investment contracts 38 - - 38
Investment management fees 467 - (96) 371
Transaction fees 9 - - 9
Total fees from fund management and investment contracts2 514 - (96) 418
LGC and other1 Total continuing
LGIM LGI operations
For the six month period to 30 June 2019 £m £m £m £m
Investment contracts 34 - - 34
Investment management fees 431 - (74) 357
Transaction fees 10 - (1) 9
Total fees from fund management and investment contracts2 475 - (75) 400
LGC and other1 Total continuing
LGIM LGI operations
For the year ended 31 December 2019 £m £m £m £m
Investment contracts 73 1 - 74
Investment management fees 903 - (166) 737
Transaction fees 23 - - 23
Total fees from fund management and investment contracts2 999 1 (166) 834
1. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
2. Fees from fund management and investment contracts are a component of Total revenue from continuing operations disclosed in Note 2.08 (ii)(a).
2.08 Segmental other op income
2.08 Segmental analysis (continued)
(d) Other operational income from contracts with customers
LGC and other Total continuing
LGR LGIM LGI operations
For the six month period to 30 June 2020 £m £m £m £m £m
House building - - - 220 220
Professional services fees 1 1 33 - 35
Insurance broker - - 13 - 13
Total other operational income from contracts with customers1 1 1 46 220 268
LGC and other Total continuing
LGR LGIM LGI operations
For the six month period to 30 June 2019 £m £m £m £m £m
House building - - - 454 454
Professional services fees 1 1 43 - 45
Insurance broker - - 17 - 17
Total other operational income from contracts with customers1 1 1 60 454 516
LGC and other Total continuing
LGR LGIM LGI operations
For the year ended 31 December 2019 £m £m £m £m £m
House building - - - 1,056 1,056
Professional services fees 2 2 91 - 95
Insurance broker - - 34 - 34
Total other operational income from contracts with customers1 2 2 125 1,056 1,185
1. Total other operational income from contract with customers is a component of Total revenue from continuing operations disclosed in Note 2.08 (ii)(a) and excludes the share of profit/loss from associates and joint ventures and gain on acquisition and disposal of subsidiaries, associates and joint ventures.
3.01 Cons Income Statement
6 months 6 months Full year
2020 2019 2019
For the six month period to 30 June 2020 Notes £m £m £m
Income
Gross written premiums 5,497 8,745 15,203
Outward reinsurance premiums (1,303) (1,522) (3,452)
Net change in provision for unearned premiums 10 - (66)
Net premiums earned 4,204 7,223 11,685
Fees from fund management and investment contracts 418 400 834
Investment return 12,552 40,262 53,014
Other operational income 245 565 1,253
Total income 2.08 17,419 48,450 66,786
Expenses
Claims and change in insurance contract liabilities 8,366 12,368 19,005
Reinsurance recoveries (1,957) (1,971) (3,502)
Net claims and change in insurance contract liabilities 6,409 10,397 15,503
Change in investment contract liabilities 9,190 35,412 45,809
Acquisition costs 438 395 805
Finance costs 155 137 269
Other expenses 885 1,048 2,244
Total expenses 17,077 47,389 64,630
Profit before tax 342 1,061 2,156
Tax expense attributable to policyholder returns (81) (41) (72)
Profit before tax attributable to equity holders 261 1,020 2,084
Total tax expense (88) (223) (369)
Tax expense attributable to policyholder returns 81 41 72
Tax expense attributable to equity holders 4.05 (7) (182) (297)
Profit after tax from continuing operations 2.08 254 838 1,787
Profit after tax from discontinued operations1 4.02 19 27 23
Profit for the period 273 865 1,810
Attributable to:
Non-controlling interests (17) (9) (24)
Equity holders 290 874 1,834
Dividend distributions to equity holders during the period 4.03 754 704 998
Dividend distributions to equity holders proposed after the period end 4.03 294 294 753
p p p
Total basic earnings per share2 2.07 4.89 14.74 30.92
Total diluted earnings per share2 2.07 4.63 14.66 30.75
Basic earnings per share derived from continuing operations2 2.07 4.57 14.28 30.53
Diluted earnings per share derived from continuing operations2 2.07 4.33 14.21 30.36
1. Discontinued operations include the results of the Mature Savings division, following the group's announcement to sell the business to ReAssure Limited (2019 included the results of the General Insurance division following its sale to Allianz, which completed on 31 December 2019).
2. All earnings per share calculations are based on profit attributable to equity holders of the company.
3.02 Consolidated SOCI
6 months 6 months Full year
2020 2019 2019
For the six month period to 30 June 2020 £m £m £m
Profit for the period 273 865 1,810
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes (146) (69) (62)
Tax on actuarial losses on defined benefit pension schemes 45 13 11
Total items that will not be reclassified subsequently to profit or loss (101) (56) (51)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 56 3 (67)
Movement in cross-currency hedge 75 27 13
Tax on movement in cross-currency hedge (11) (5) (1)
Movement in financial investments designated as available-for-sale (8) 65 72
Tax on movement in financial investments designated as available-for-sale 1 (11) (15)
Total items that may be reclassified subsequently to profit or loss 113 79 2
Other comprehensive income/(expense) after tax 12 23 (49)
Total comprehensive income for the period 285 888 1,761
Total comprehensive income for the period attributable to:
Continuing operations 266 861 1,738
Discontinued operations 19 27 23
Total comprehensive income/(expense) for the period attributable to:
Non-controlling interests (17) (9) (24)
Equity holders 302 897 1,785
3.03 Consolidated balance sheet
As at As at As at
30 Jun 2020 30 Jun 2019 31 Dec 2019
Notes £m £m £m
Assets
Goodwill 68 62 64
Purchased interest in long term businesses and other intangible assets 221 158 190
Deferred acquisition costs 49 74 75
Investment in associates and joint ventures accounted for using the equity method 328 362 324
Property, plant and equipment 291 291 298
Investment property 4.04 8,041 7,140 7,695
Financial investments 4.04 513,584 471,118 498,376
Reinsurers' share of contract liabilities 6,530 5,413 5,810
Deferred tax assets 4.05 10 7 8
Current tax assets 508 476 468
Receivables and other assets 15,986 10,706 8,532
Assets of operations classified as held for sale 4.02 23,968 27,194 24,844
Cash and cash equivalents 21,700 14,224 13,923
Total assets 591,284 537,225 560,607
Equity
Share capital 4.06 149 149 149
Share premium 4.06 1,003 998 1,000
Employee scheme treasury shares (76) (62) (65)
Capital redemption and other reserves 383 300 250
Retained earnings 7,453 7,376 8,033
Attributable to owners of the parent 8,912 8,761 9,367
Restricted tier 1 convertible notes 4.07 495 - -
Non-controlling interests 4.08 34 66 55
Total equity 9,441 8,827 9,422
Liabilities
Non-participating insurance contract liabilities 82,792 73,869 77,317
Non-participating investment contract liabilities 327,380 315,603 320,594
Core borrowings 4.09 4,651 3,514 4,091
Operational borrowings 4.10 1,195 1,051 1,020
Provisions 4.13 1,336 1,202 1,220
UK deferred tax liabilities 4.05 186 193 189
Overseas deferred tax liabilities 4.05 184 197 182
Current tax liabilities - 175 107
Payables and other financial liabilities 4.11 101,665 75,527 84,039
Other liabilities 540 719 804
Net asset value attributable to unit holders 33,883 24,909 31,507
Liabilities of operations classified as held for sale 4.02 28,031 31,439 30,115
Total liabilities 581,843 528,398 551,185
Total equity and liabilities 591,284 537,225 560,607
3.04 Consolidated SOCIE HY20
Employee Capital Equity Restricted
scheme redemption attributable Tier 1 Non-
Share Share treasury and other Retained to owners convertible controlling Total
For the six month period to 30 June 2020 capital premium shares reserves1 earnings of the parent notes interests equity
£m £m £m £m £m £m £m £m £m
As at 1 January 2020 149 1,000 (65) 250 8,033 9,367 - 55 9,422
Total comprehensive income for the period - - - 113 189 302 - (17) 285
Options exercised under share option schemes - 3 - - - 3 - - 3
Net movement in employee scheme treasury shares - - (11) (6) 11 (6) - - (6)
Dividends - - - - (754) (754) - - (754)
Restricted tier 1 convertible notes2 - - - - - - 495 - 495
Movement in third party interests - - - - - - - (4) (4)
Currency translation differences - - - 26 (26) - - - -
As at 30 June 2020 149 1,003 (76) 383 7,453 8,912 495 34 9,441
1. Capital redemption and other reserves as at 30 June 2020 include share-based payments £79m, foreign exchange £150m, capital redemption £17m, hedging reserves £96m and available-for-sale reserves £41m.
2. See Note 4.07 for details.
3.04 Consolidated SOCIE HY19
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the six month period to 30 June 2019 capital premium shares reserves1 earnings of the parent interests equity
£m £m £m £m £m £m £m £m
As at 1 January 2019 149 992 (52) 230 7,261 8,580 72 8,652
Total comprehensive income for the period - - - 79 818 897 (9) 888
Options exercised under share option schemes - 6 - - - 6 - 6
Net movement in employee scheme treasury shares - - (10) (7) (1) (18) - (18)
Dividends - - - - (704) (704) - (704)
Movement in third party interests - - - - - - 3 3
Currency translation differences - - - (2) 2 - - -
As at 30 June 2019 149 998 (62) 300 7,376 8,761 66 8,827
1. Capital redemption and other reserves as at 30 June 2019 include share-based payments £74m, foreign exchange £122m, capital redemption £17m, hedging reserves £42m and available-for-sale reserves £45m.
3.04 Consolidated SOCIE FY19
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the year ended 31 December 2019 capital premium shares reserves1 earnings of the parent interests equity
£m £m £m £m £m £m £m £m
As at 1 January 2019 149 992 (52) 230 7,261 8,580 72 8,652
Total comprehensive income for the year - - - 2 1,783 1,785 (24) 1,761
Options exercised under share option schemes - 8 - - - 8 - 8
Net movement in employee scheme treasury shares - - (13) 4 1 (8) - (8)
Dividends - - - - (998) (998) - (998)
Movement in third party interests - - - - - - 7 7
Currency translation differences - - - 14 (14) - - -
As at 31 December 2019 149 1,000 (65) 250 8,033 9,367 55 9,422
1. Capital redemption and other reserves as at 31 December 2019 include share-based payments £85m, foreign exchange £68m, capital redemption £17m, hedging reserves £32m and available-for-sale reserves £48m.
3.05 Consolidated Cash Flow
6 months 6 months Full year
2020 2019 2019
For the six month period to 30 June 2020 Notes £m £m £m
Cash flows from operating activities
Profit for the period 273 865 1,810
Adjustments for non cash movements in net profit for the period
Net (gains)/losses on financial investments and investment property (6,969) (37,069) (45,516)
Investment income (4,578) (5,588) (10,501)
Interest expense 179 164 322
Tax expense (17) 411 598
Other adjustments 18 62 117
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss 6,032 413 (18,031)
Investments designated as available-for-sale (35) 97 (179)
Other assets (8,098) (6,033) (4,660)
Net increase/(decrease) in operational liabilities
Insurance contracts 5,187 9,157 13,089
Investment contracts 6,789 22,524 27,514
Other liabilities 5,537 7,472 21,313
Net increase/(decrease) in held for sale net liabilities (1,181) 223 1,206
Cash from/(utilised in) operations 3,137 (7,302) (12,918)
Interest paid (127) (140) (263)
Interest received 2,469 2,532 5,047
Tax paid1 (279) (219) (540)
Dividends received 2,284 2,819 5,389
Net cash flows from/(utilised in) operations 7,484 (2,310) (3,285)
Cash flows from investing activities
Net acquisition of plant, equipment, intangibles and other assets (42) (28) (89)
Net disposal/(acquisition) of operations, net of cash (transferred)/acquired 1 76 198
Net disposal/(investment) in associates and joint ventures - (88) 29
Net cash flows generated/(utilised) from investing activities (41) (40) 138
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the period 4.03 (754) (704) (998)
Options exercised under share option schemes 4.06 3 6 8
Treasury shares purchased for employee share schemes (22) (10) (20)
Payment of lease liabilities (18) (12) (33)
Proceeds from borrowings 869 151 1,309
Repayment of borrowings (237) (593) (958)
Proceeds from issuance of Restricted tier 1 convertible notes, net of associated expenses 495 - -
Net cash flows from/(utilised in) financing activities 336 (1,162) (692)
Net (decrease)/increase in cash and cash equivalents 7,779 (3,512) (3,839)
Exchange gains/(losses) on cash and cash equivalents 26 1 (16)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash) 14,233 18,088 18,088
Total cash and cash equivalents 22,038 14,577 14,233
Less: cash and cash equivalents of operations classified as held for sale 4.02 (338) (353) (310)
Cash and cash equivalents at 30 June/31 December 21,700 14,224 13,923
1. Tax comprises UK corporation tax paid of £203m (H1 19: £126m; FY 19: £381m), withholding tax of £95m (H1 19: £105m; FY 19: £166m) and an overseas corporate tax refund of £19m (H1 19: £12m; FY 19: £7m).
4.02 Held for Sale
Mature Savings On 6 December 2017 the group announced the sale of its Mature Savings business to ReAssure Limited for a consideration of £650m. As part of the transaction, on 1 January 2018 the group entered into a risk transfer agreement with ReAssure Limited, whereby the group transferred all economic risks and rewards of the Mature Savings business to ReAssure Limited. The risk transfer agreement operates until the business is transferred under a court approved scheme under Part VII of the Financial Services and Markets Act 2000. The sale is expected to complete in the second half of 2020 following the completion of the Part VII transfer. As the legal transfer of the business has not yet occurred the Mature Savings business has been classified as held for sale on the Group's balance sheet as at 30 June 2020. The profit arising from the Mature Savings business in accordance with the risk transfer agreement has been recognised as "Profit after tax from discontinued operations" in the Consolidated Income Statement. Up until the Part VII this primarily reflects the unwind of expected underlying profits, which will offset the final profit on disposal.
4.03 Dividends
Dividend Per share1 Dividend Per share1 Dividend Per share1
6 months 6 months 6 months 6 months Full year Full year
2020 2020 2019 2019 2019 2019
£m p £m p £m p
Ordinary dividends paid and charged to equity in the period:
- Final 2018 dividend paid in June 2019 - - 704 11.82 704 11.82
- Interim 2019 dividend paid in September 2019 - - - - 294 4.93
- Final 2019 dividend paid in June 2020 754 12.64 - - - -
Total dividends 754 12.64 704 11.82 998 16.75
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
Subsequent to 30 June 2020, the directors declared an interim dividend of 4.93 pence per ordinary share. This dividend will be paid on 24 September 2020. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2020 and is not included as a liability in the Consolidated Balance Sheet as at 30 June 2020.
4.04 Financial Investments
30 Jun 2020 30 Jun 2019 31 Dec 2019
£m £m £m
Equities1 189,798 192,387 200,365
Debt securities2 299,168 275,086 286,916
Accrued interest 1,551 1,617 1,647
Derivative assets3 25,207 13,198 14,828
Loans4 19,357 12,861 16,814
Financial investments 535,081 495,149 520,570
Investment property 9,334 8,706 9,107
Total financial investments and investment property 544,415 503,855 529,677
Less: financial investments and investment property of operations classified as held for sale (22,790) (25,597) (23,606)
Financial investments and investment property 521,625 478,258 506,071
1. Equity securities include investments in unit trusts of £13,615m (30 June 2019: £13,122m; 31 December 2019: £13,046m).
2. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 7.03.
3. Derivatives are used 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. Derivative assets are shown gross of derivative liabilities of £27,550m (30 June 2019: £11,778m; 31 December 2019: £13,113m).
4. Loans include £444m (30 June 2019: £447m; 31 December 2019: £437m) of loans valued at amortised cost.
4.04 FV hierarchy - HY20
4.04 Financial investments and Investment property (continued)
(a) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2020 £m £m £m £m
Shareholder
Equity securities 2,622 1,476 - 1,146
Debt securities 4,570 1,433 2,304 833
Accrued interest 21 6 12 3
Derivative assets 293 6 287 -
Loans at fair value 569 - 569 -
Investment property 234 - - 234
Non profit non-unit linked
Equity securities 190 186 - 4
Debt securities 75,867 9,689 46,570 19,608
Accrued interest 539 27 461 51
Derivative assets 22,095 - 22,095 -
Loans at fair value 1,309 - 1,309 -
Investment property 4,016 - - 4,016
With-profits
Equity securities 2,846 2,664 - 182
Debt securities 4,922 1,534 3,388 -
Accrued interest 38 8 30 -
Derivative assets 295 3 292 -
Loans at fair value 450 - 450 -
Investment property 455 - - 455
Unit linked
Equity securities 184,140 183,466 21 653
Debt securities 213,809 152,925 60,598 286
Accrued interest 953 435 518 -
Derivative assets 2,524 174 2,350 -
Loans at fair value 16,585 - 16,585 -
Investment property 4,629 - - 4,629
Total financial investments and investment property at fair value1,2 543,971 354,032 157,839 32,100
1. This table excludes loans (including accrued interest) of £444m, which are held at amortised cost.
2. This table includes financial investments of £21,497m and investment property of £1,293m relating to assets of operations classified as held for sale.
4.04 FV hierarchy HY19
4.04 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the six month period to 30 June 2019 £m £m £m £m
Shareholder
Equity securities 2,624 1,629 - 995
Debt securities 4,319 1,601 2,040 678
Accrued interest 32 13 13 6
Derivative assets 110 104 6 -
Loans at fair value 234 - 234 -
Investment property 203 - - 203
Non profit non-unit linked
Equity securities 156 152 - 4
Debt securities 66,387 7,314 43,723 15,350
Accrued interest 520 25 464 31
Derivative assets 11,523 - 11,523 -
Loans at fair value 726 - 726 -
Investment property 3,131 - - 3,131
With-profits
Equity securities 3,191 2,998 - 193
Debt securities 5,598 1,636 3,962 -
Accrued interest 47 11 36 -
Derivative assets 68 8 60 -
Loans at fair value 396 - 396 -
Investment property 520 - - 520
Unit linked
Equity securities 186,416 183,682 2,070 664
Debt securities 198,782 140,904 57,601 277
Accrued interest 1,018 493 525 -
Derivative assets 1,497 200 1,297 -
Loans at fair value 11,058 - 11,058 -
Investment property 4,852 - - 4,852
Total financial investments and investment property at fair value1,2 503,408 340,770 135,734 26,904
1. This table excludes loans (including accrued interest) of £447m, which are held at amortised cost.
2. This table includes financial investments of £24,031m and investment property of £1,566m relating to assets of operations classified as held for sale.
4.04 FV hierarchy YE19
4.04 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level 1 Level 2 Level 3
For the year ended 31 December 2019 £m £m £m £m
Shareholder
Equity securities 2,670 1,579 - 1,091
Debt securities 5,059 1,038 3,175 846
Accrued interest 22 6 13 3
Derivative assets 108 3 105 -
Loans at fair value 632 - 632 -
Investment property 254 - - 254
Non profit non-unit linked
Equity securities 194 158 32 4
Debt securities 69,530 8,281 43,342 17,907
Accrued interest 531 29 464 38
Derivative assets 11,448 - 11,444 4
Loans at fair value 630 - 630 -
Investment property 3,798 - - 3,798
With-profits
Equity securities 3,103 2,908 - 195
Debt securities 5,468 1,590 3,878 -
Accrued interest 44 11 33 -
Derivative assets 115 8 107 -
Loans at fair value 397 - 397 -
Investment property 507 - - 507
Unit linked
Equity securities 194,398 191,687 1,966 745
Debt securities 206,859 144,072 62,512 275
Accrued interest 1,050 499 551 -
Derivative assets 3,157 202 2,955 -
Loans at fair value 14,718 - 14,718 -
Investment property 4,548 - - 4,548
Total financial investments and investment property at fair value1,2 529,240 352,071 146,954 30,215
1. This table excludes loans (including accrued interest) of £437m, which are held at amortised cost.
2. This table includes financial investments of £22,194m and investment property of £1,412m relating to assets of operations classified as held for sale.
4.04 Assets measured at FV
4.04 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value (continued)
Other Other
financial financial
Equity invest- Investment Equity invest- Investment
securities ments property Total securities ments property Total
2020 2020 2020 2020 2019 2019 2019 2019
£m £m £m £m £m £m £m £m
As at 1 January 2,035 19,073 9,107 30,215 1,757 13,915 8,608 24,280
Total gains/(losses) for the period
- in other comprehensive income - (44) - (44) - 23 23
- realised and unrealised gains/(losses)1 (37) 1,038 (256) 745 38 907 (19) 926
Purchases / Additions 76 1,603 577 2,256 173 2,608 359 3,140
Sales / Disposals (72) (868) (94) (1,034) (105) (1,054) (250) (1,409)
Transfers into Level 3 44 5 - 49 2 - - 2
Transfers out of Level 3 (61) (26) - (87) - (57) - (57)
Other - - - - (9) - 8 (1)
As at 30 June 1,985 20,781 9,334 32,100 1,856 16,342 8,706 26,904
Other
financial
Equity invest- Investment
securities ments property Total
2019 2019 2019 2019
£m £m £m £m
As at 1 January 1,757 13,915 8,608 24,280
Total gains/(losses) for the period
- in other comprehensive income - 20 - 20
- realised and unrealised gains / (losses)1 50 1,314 (86) 1,278
Purchases / Additions 416 5,680 1,187 7,283
Sales / Disposals (199) (1,850) (675) (2,724)
Transfers into Level 3 21 5 73 99
Transfers out of Level 3 (10) (11) - (21)
As at 31 December 2,035 19,073 9,107 30,215
1. Realised and unrealised gains and losses are recognised in investment return in the Consolidated Income Statement.
4.04 Changes in Assumptions
Sensitivities
Fair value 30 June 2020 £m Most significant unobservable input Positive Impact £m Negative Impact £m
Lifetime mortgages 5,478 Illiquidity premium 493 (493)
Private credit loans 11,661 Credit spreads 758 (758)
Investment property 9,334 Equivalent yields 720 (821)
Other investments 5,627 Various 412 (455)
Total Level 3 assets 32,100 2,383 (2,527)
The above table demonstrates that the effect of a change in one or more unobservable inputs to reasonable alternative assumptions would result in a change in the fair value of Level 3 assets of +7/- 8% (30 June 2019: +/-6%; 31 December 2019: +/-6%). While the table demonstrates the effect of these changes in isolation, there may in reality be a correlation between the unobservable inputs and other factors. It should also be noted that some of these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.
4.05 Tax charge
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:
Continuing Continuing Continuing
operations Total operations Total operations Total
6 months 6 months 6 months 6 months Full year Full year
2020 2020 2019 2019 2019 2019
£m £m £m £m £m £m
Profit before tax attributable to equity holders 261 285 1,020 1,053 2,084 2,112
Tax calculated at 19.00% 50 54 194 200 396 401
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax - - (1) (1) (4) (4)
(Lower)/higher rate of tax on profits taxed overseas1 (49) (49) (11) (11) (117) (117)
Non-deductible expenses 6 6 1 1 2 2
Differences between taxable and accounting investment gains (2) (2) - - (10) (10)
Adjustments for non-controlling interests 3 3 - - 4 4
Foreign tax 2 2 - - 6 6
Unrecognised tax losses 1 1 2 2 14 14
Non-recurring reconciling items:
Income not subject to tax - - (2) (2) (6) (6)
Non-deductible expenses 2 2 - - 6 6
Adjustments in respect of prior years2 (14) (14) (2) (2) 9 9
Impact of the revaluation of deferred tax balances3 7 7 1 1 (2) (2)
Other 1 2 - - (1) (1)
- -
Tax attributable to equity holders 7 12 182 188 297 302
Equity holders' effective tax rate4 2.7% 4.2% 17.8% 17.9% 14.3% 14.3%
1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides our business with regulatory capital flexibility for both our PRT business and our US term insurance business. This is partially offset by the tax rate of 21% that applies to our US operations.
2. Adjustments in respect of prior years relate to revisions of earlier estimates.
3. The Finance Act 2020 removed the planned reduction in the headline UK corporation tax rate from 19% to 17%. As a result, UK deferred tax assets and liabilities previously recognised at 17% have been revalued.
4. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.
4.05 Deferred tax
(b) Deferred tax
30 Jun 2020 30 Jun 2019 31 Dec 2019
Deferred tax (liabilities)/assets £m £m £m
Deferred acquisition expenses 50 29 35
- UK (40) (40) (40)
- Overseas 90 69 75
Difference between the tax and accounting value of insurance contracts (690) (635) (630)
- UK (232) (228) (198)
- Overseas (458) (407) (432)
Unrealised gains on investments (57) (175) (184)
Excess of depreciation over capital allowances 18 12 15
Excess expenses 19 20 20
Accounting provisions and other (59) (32) (44)
Trading losses1 257 179 217
Pension fund deficit 34 35 28
Acquired intangibles (2) (2) (2)
Total net deferred tax liabilities (430) (569) (545)
Less: net deferred tax liabilities of operations classified as held for sale 70 186 182
Net deferred tax liabilities (360) (383) (363)
Analysed by:
- UK deferred tax assets
5 2 3
- UK deferred tax liabilities (186) (193) (189)
- Overseas deferred tax assets 5 5 5
- Overseas deferred tax liabilities2 (184) (197) (182)
Net deferred tax liabilities (360) (383) (363)
1. Trading losses include UK trade and US operating losses of £5m (H1 19: £3m; FY 19: £4m) and £252m (H1 19: £176m; FY 19: £213m) respectively.
2. Overseas deferred tax liability is wholly comprised of US balances as at 30 June 2020.
4.06 Share Capital & Share Prem
Number of
Authorised share capital shares £m
At 30 June 2020, 30 June 2019 and 31 December 2019: ordinary shares of 2.5p each 9,200,000,000 230
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2020 5,965,349,607 149 1,000
Options exercised under share option schemes 1,225,772 - 3
As at 30 June 2020 5,966,575,379 149 1,003
Share Share
Number of capital premium
Issued share capital, fully paid shares £m £m
As at 1 January 2019 5,960,768,234 149 992
Options exercised under share option schemes 3,497,185 - 6
As at 30 June 2019 5,964,265,419 149 998
Options exercised under share option schemes 1,084,188 - 2
As at 31 December 2019 5,965,349,607 149 1,000
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.
4.09 Borrowings
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2020 2020 2019 2019 2019 2019
£m £m £m £m £m £m
Subordinated borrowings
10% Sterling subordinated notes 2041 (Tier 2) 312 339 312 364 312 353
5.5% Sterling subordinated notes 2064 (Tier 2) 589 688 589 684 589 726
5.375% Sterling subordinated notes 2045 (Tier 2) 603 672 602 673 603 691
5.25% US Dollar subordinated notes 2047 (Tier 2) 693 733 661 706 648 704
5.55% US Dollar subordinated notes 2052 (Tier 2) 407 435 388 419 380 405
5.125% Sterling subordinated notes 2048 (Tier 2) 399 442 399 445 399 459
3.75% Sterling subordinated notes 2049 (Tier 2) 598 595 - - 598 613
4.5% Sterling subordinated notes 2050 (Tier 2) 499 521 - - - -
Client fund holdings of group debt (Tier 2)1 (43) (47) (31) (34) (38) (44)
Total subordinated borrowings 4,057 4,378 2,920 3,257 3,491 3,907
Senior borrowings
Sterling medium term notes 2031-2041 603 896 603 868 609 877
Client fund holdings of group debt1 (9) (13) (9) (13) (9) (13)
Total senior borrowings 594 883 594 855 600 864
Total core borrowings 4,651 5,261 3,514 4,112 4,091 4,771
1. £52m (30 June 2019: £40m; 31 December 2019: £47m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as level 1 in the fair value hierarchy.
4.10 Borrowings
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2020 2020 2019 2019 2019 2019
£m £m £m £m £m £m
Euro Commercial Paper 100 100 354 354 200 200
Non recourse borrowings 1,000 1,000 657 657 842 842
Bank loans and overdrafts 104 104 58 58 - -
Total operational borrowings1 1,204 1,204 1,069 1,069 1,042 1,042
Less: liabilities of operations classified as held for sale (30) (30) (29) (29) (29) (29)
Operational borrowings 1,174 1,174 1,040 1,040 1,013 1,013
1. Unit linked borrowings with a carrying value of £21m (30 June 2019: £11m; 31 December: £7m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,195m (30 June 2019: £1,051m; 31 December 2019: £1,020m).
4.11 Payables & other fin liabs
30 Jun 2020 30 Jun 2019 31 Dec 2019
£m £m £m
Derivative liabilities 27,550 11,778 13,113
Repurchase agreements1 55,309 46,994 56,884
Other financial liabilities2 19,544 17,353 14,476
Total payables and other financial liabilities 102,403 76,125 84,473
Less: Payables and other liabilities of operations classified as held for sale (738) (598) (434)
Payables and other financial liabilities 101,665 75,527 84,039
1. The repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The vast majority of the repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, FX spots, lease liabilities, reinsurance payables and collateral repayable on short position reverse repurchase agreements. The value of collateral repayable on short position reverse repurchase agreements was £5,882m (30 June 2019: £6,114m; 31 December 2019: £7,673m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost
As at 30 June 2020 £m £m £m £m £m
Derivative liabilities 27,550 232 27,301 17 -
Repurchase agreements 55,309 - 55,309 - -
Other financial liabilities 19,544 6,552 61 138 12,793
Total payables and other financial liabilities 102,403 6,784 82,671 155 12,793
Amortised
Total Level 1 Level 2 Level 3 cost
As at 30 June 2019 £m £m £m £m £m
Derivative liabilities 11,778 276 11,500 2 -
Repurchase agreements 46,994 - 46,994 - -
Other financial liabilities 17,353 5,854 14 577 10,908
Total payables and other financial liabilities 76,125 6,130 58,508 579 10,908
Amortised
Total Level 1 Level 2 Level 3 cost
As at 31 December 2019 £m £m £m £m £m
Derivative liabilities 13,113 283 12,828 2 -
Repurchase agreements 56,884 - 56,884 - -
Other financial liabilities 14,476 7,822 9 139 6,506
Total payables and other financial liabilities 84,473 8,105 69,721 141 6,506
Trail commission (included within Other financial liabilities) is modelled using expected cash flows, incorporating expected future persistency. It has therefore been classified as Level 3 liabilities. A reasonably possible alternative persistency assumption would have the effect of increasing the trail commission liability by £4m (30 June 2019 and 31 December 2019: Increase of £4m).
Significant transfers between levels There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the period ended 30 June 2020 (30 June 2019 and 31 December 2019: no significant transfers).
4.12 Foreign Exchange Rates
Principal rates of exchange used for translation are:
Period end exchange rates 30 Jun 2020 30 Jun 2019 31 Dec 2019
United States dollar 1.24 1.27 1.33
Euro 1.10 1.12 1.18
6 months 6 months Full year
Average exchange rates 2020 2019 2019
United States dollar 1.26 1.29 1.28
Euro 1.14 1.15 1.14
4.15 Related Party Transactions
4.15 Related party transactions
(i) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal & General group of companies during the period. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £47m (30 June 2019: £40m; 31 December 2019: £86m) for all employees.
At 30 June 2020, 30 June 2019 and 31 December 2019 there were no loans outstanding to officers of the company.
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
6 months 6 months Full year
2020 2019 2019
£m £m £m
Salaries 3 3 12
Share-based incentive awards 4 3 7
Key management personnel compensation 7 6 19
5.01 LGIM Total Assets AUM HY20
5.01 LGIM total assets under management1 (AUM)
Active Multi Real Total
Index strategies Asset Solutions2 assets AUM
For the six month period to 30 June 2020 £bn £bn £bn £bn £bn £bn
As at 1 January 2020 403.6 177.2 58.0 526.6 30.8 1,196.2
External inflows 27.7 9.5 4.3 10.9 0.6 53.0
External outflows (32.3) (9.0) (2.7) (22.7) (0.4) (67.1)
Overlay net flows - - - 20.1 - 20.1
ETF net flows 0.2 - - - - 0.2
External net flows3 (4.4) 0.5 1.6 8.3 0.2 6.2
Internal net flows - (0.2) (0.7) (0.1) 0.4 (0.6)
Total net flows (4.4) 0.3 0.9 8.2 0.6 5.6
Cash management movements4 - 2.8 - - - 2.8
Market and other movements3 (4.1) 9.2 (1.8) 32.0 0.7 36.0
As at 30 June 2020 395.1 189.5 57.1 566.8 32.1 1,240.6
Assets attributable to:
External 1,134.9
Internal 105.7
1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £348.3bn (30 June 2019: £301.9bn; 31 December 2019: £335.7bn) of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2020 was £62.3bn (30 June 2019: £49.4bn; 31 December 2019: £67.1bn) and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
5.01 LGIM Total Assets AUM HY19
5.01 LGIM total assets under management1 (AUM) (continued)
Active Multi Real Total
Index strategies Asset Solutions2 assets AUM5
For the six month period to 30 June 2019 £bn £bn £bn £bn £bn £bn
At 1 January 2019 307.1 160.4 43.6 477.9 26.5 1,015.5
External inflows 60.8 5.7 6.5 8.8 0.8 82.6
External outflows (26.1) (4.8) (1.4) (11.0) (0.8) (44.1)
Overlay net flows - - - 22.0 - 22.0
ETF net flows (0.2) - - - - (0.2)
External net flows3 34.5 0.9 5.1 19.8 - 60.3
Internal net flows (0.1) (2.0) (0.3) 3.6 1.2 2.4
Total net flows 34.4 (1.1) 4.8 23.4 1.2 62.7
Cash management movements4 - 0.5 - - - 0.5
Market and other movements3 43.9 12.4 6.0 (7.7) 1.2 55.8
At 30 June 2019 385.4 172.2 54.4 493.6 28.9 1,134.5
Assets attributable to:
External 1,032.7
Internal 101.8
1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £301.9bn of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2019 was £49.4bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
5. AUM have been reanalysed from those previously reported in order to present Multi Asset separately. This has resulted in the removal of the Global Fixed income and Active equities categories, the inclusion of Multi Asset and Active Strategies, and a reallocation of AUM across the revised categorisation. Total AUM, and the split between external and internal, remains unchanged.
5.01 LGIM Total AUM FY19
5.01 LGIM total assets under management1 (AUM) (continued)
Active Multi Real Total
Index strategies asset Solutions2 assets AUM
For the year ended 31 December 2019 £bn £bn £bn £bn £bn £bn
As at 1 January 2019 307.1 160.4 43.6 477.9 26.5 1,015.5
External inflows 96.2 14.0 11.2 25.5 1.8 148.7
External outflows (58.9) (11.2) (3.5) (26.2) (1.7) (101.5)
Overlay net flows - - - 38.8 - 38.8
ETF net flows 0.4 - - - - 0.4
External net flows3 37.7 2.8 7.7 38.1 0.1 86.4
Internal net flows (0.3) (0.4) (0.9) 1.9 2.5 2.8
Total net flows 37.4 2.4 6.8 40.0 2.6 89.2
Cash management movements4 - (0.6) - - - (0.6)
Market and other movements3 59.1 15.0 7.6 8.7 1.7 92.1
As at 31 December 2019 403.6 177.2 58.0 526.6 30.8 1,196.2
Assets attributable to:
External 1,092.2
Internal 104.0
1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.
2. Solutions include liability driven investments and £335.7bn of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2019 was £67.1bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
5.02 AUM net flows
5.02 LGIM total external assets under management and net flows
Assets under management Net flows2
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2020 2019 2019 2020 2019 2019
£bn £bn £bn £bn £bn £bn
International1 289.5 248.6 276.7 (3.2) 44.6 14.6
UK Institutional
- Defined contribution 96.7 86.4 94.3 5.5 3.6 3.7
- Defined benefit 706.7 659.7 679.3 2.5 10.7 4.8
UK Retail
- Retail intermediary 33.3 30.0 33.1 1.2 1.7 2.5
- Personal investing3 5.2 5.6 5.7 - (0.1) (0.1)
ETF 3.5 2.4 3.1 0.2 (0.2) 0.6
Total external 1,134.9 1,032.7 1,092.2 6.2 60.3 26.1
1. International asset are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £385bn as at 30 June 2020 (30 June 2019: £343bn; 31 December 2019: £370bn).
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
3. Personal investing includes £1.4bn as at 30 June 2020 (30 June 2019: £1.9bn; 31 December 2019: £1.6bn) of AUM relating to legacy Banks and Building Society customers which is driving net outflows.
5.03 AUM to balance sheet rec
5.03 Reconciliation of assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents
30 Jun 2020 30 Jun 2019 31 Dec 2019
£bn £bn £bn
Assets under management 1,241 1,135 1,196
Derivative notionals1 (348) (302) (336)
Third party assets2 (399) (362) (379)
Other3 72 47 63
Total financial investments, investment property and cash and cash equivalents 566 518 544
Less: assets of operations classified as held for sale (23) (26) (24)
Financial investments, investment property and cash and cash equivalents 543 492 520
1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.
5.04 Assets Under Admin
5.04 Assets under administration
Workplace1 Annuities2 Workplace Annuities Workplace Annuities
30 Jun 2020 30 Jun 2020 30 Jun 2019 30 Jun 2019 31 Dec 2019 31 Dec 2019
£bn £bn £bn £bn £bn £bn
As at 1 January 40.3 75.9 30.0 63.0 30.0 63.0
Gross inflows 3.3 3.8 3.5 7.2 7.3 12.4
Gross outflows (0.9) - (0.9) - (2.0) -
Payments to pensioners - (2.1) - (2.0) - (4.1)
Net flows 2.4 1.7 2.6 5.2 5.3 8.3
Market and other movements (1.2) 3.1 3.5 3.9 5.0 4.6
As at 30 June/31 December 41.5 80.7 36.1 72.1 40.3 75.9
1. Workplace assets under administration as at 30 June 2020 includes £41.5bn (30 June 2019: £36.0bn; 31 December 2019: £40.2bn) of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2020 includes £73.8bn (30 June 2019: £67.9bn; 31 December 2019: £70.1bn) of assets under management included in Note 5.01.
5.05 LGR new business
5.05 LGR new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
£m £m £m £m
Pension risk transfer
- UK 3,176 6,316 4,009 10,325
- US 248 223 670 893
- Bermuda - 138 36 174
Individual annuities 421 497 473 970
Lifetime mortgage advances 362 489 476 965
Total LGR new business 4,207 7,663 5,664 13,327
5.06 LGI new business
5.06 LGI new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
£m £m £m £m
UK Retail protection 83 91 83 174
UK Group protection 65 44 32 76
US protection1 44 43 46 89
Total LGI new business 192 178 161 339
1. In local currency, US protection reflects new business of $56m for 2020 (H1 19: $55m; H2 19: $58m).
5.07 GWP on Insurance business
5.07 Gross written premiums on insurance business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
£m £m £m £m
UK Retail protection 680 658 669 1,327
UK Group protection 245 233 112 345
US Protection1 550 518 539 1,057
Longevity insurance 159 190 186 376
Total gross written premiums on insurance business2 1,634 1,599 1,506 3,105
1. In local currency, US protection reflects gross written premiums of $693m for 2020 (H1 19: $670m; H2 19: $679m).
2. Total gross written premiums includes £58m (YE 19: £66m) of general insurance premiums relating to a residual reinsurance treaty.
6.01 SII Capital Position
(a) Capital position
As at 30 June 2020, and on the above basis, the group had a surplus of £7.3bn (31 December 2019: £7.3bn) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio on a "shareholder view" basis of 173% (31 December 2019: 184%). The shareholder view of the Solvency II capital position is as follows:
30 Jun 2020 31 Dec 2019
£bn £bn
Unrestricted Tier 1 Own Funds 12.3 12.4
Restricted Tier 1 Own Funds1 0.5 -
Tier 2 Subordinated liabilities2 4.7 3.9
Eligibility restrictions (0.2) (0.2)
Solvency II Own Funds3,4 17.3 16.1
Solvency Capital Requirement (10.0) (8.8)
Solvency II surplus 7.3 7.3
-
SCR Coverage ratio5 173% 184%
1. Restricted Tier 1 Own Funds represent perpetual restricted tier 1 contingent convertible notes issued during the period. See note 4.07 for details.
2. Tier 2 subordinated liabilities include new debt issue of £0.5bn during the period.
3. Solvency II Own Funds do not include an accrual for the interim dividend of £294m (31 December 2019: £754m) declared after the balance sheet date.
4. Solvency II Own Funds allow for a risk margin of £6.7bn (31 December 2019: £5.9bn) and TMTP of £6.3bn (31 December 2019: £5.7bn).
5. SCR Coverage ratio is based on unrounded inputs.
6.01 Analysis of Change
(c) Analysis of change
The table below shows the movement (net of tax) during the six month period ended 30 June 2020 in the group's Solvency II surplus.
6 months Full year
30 Jun 2020 31 Dec 2019
£bn £bn
Surplus arising from back-book (including release of SCR) 0.7 1.5
Release of risk margin1 0.3 0.4
Amortisation of TMTP2 (0.2) (0.3)
Total operational surplus generation3 0.8 1.6
Operational surplus generation - continuing operations 0.8 1.5
Operational surplus generation - discontinued operations - 0.1
Total operational surplus generation3 0.8 1.6
New business strain - continuing operations (0.1) (0.5)
New business strain - discontinued operations - (0.1)
New business strain (0.1) (0.6)
Net surplus generation 0.7 1.0
Operating variances4 0.1 0.3
Mergers, acquisitions and disposals5 (0.1) 0.1
Market movements6 (0.9) (0.2)
Restricted Tier 1 convertible notes7 0.5 -
Subordinated liabilities8 0.5 0.2
Dividends paid9 (0.8) (1.0)
Total surplus movement (after dividends paid in the period) - 0.4
1. Based on the risk margin in force at 31 December 2019 and does not include the release of any risk margin added by new business written in 2020.
2. TMTP amortisation based on a linear run down of the 31 December 2019 TMTP of £4.9bn (net of tax, £5.7bn before tax) (2019: £4.4bn net of tax, £5.2bn before tax), based on management's estimate of the TMTP on 31 December 2019 market conditions.
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 2020 these are primarily related to the optimisation of structures used to make assets Matching Adjustment eligible and the planned reinsurance of backbook liabilities.
4. 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.
5. Mergers, acquisitions and disposals include the impacts of the sale of the Mature Savings business, expected to complete in H2 20.
6. Market movements represent the impact of changes in investment market conditions over the period and changes to future economic assumptions. Market movements in 2020 include an increase in the risk margin of £1.0bn (net of tax) and an increase to TMTP of £1.0bn (net of tax).
7. Restricted Tier 1 convertible notes represent an issuance of £0.5bn in the period (2019: nil).
8. Subordinated liabilities includes an issuance of £0.5bn in the period (2019: redemption of £0.4bn and an issuance of £0.6bn).
9. Dividends paid are the amounts from the 2019 final dividend paid in H1 20 (2019: 2018 final and 2019 interim dividend declarations).
6.01 Rec from Net Cash to SII
(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
2020 2019
£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 0.2
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation 0.3 0.7
Solvency II Operational Surplus Generation4 0.8 1.6
1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term longevity and expense 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 20.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2020 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
2020 2019
£bn £bn
IFRS New business surplus 0.1 0.3
Removal of requirement to set up prudential margins above best estimate on New Business 0.2 0.2
Set up of SCR on new business (0.3) (0.9)
Set up of risk margin on new business (0.1) (0.2)
Solvency II New business strain1 (0.1) (0.6)
1. UK PRT new business volumes during H1 20 were £3.2bn, compared to £10.3bn over 2019.
6.01 Rec IFRS Eq to SII OF
(e) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own Funds is given below:
30 Jun 2020 31 Dec 2019
£bn £bn
IFRS equity1 9.4 9.4
Remove DAC, goodwill and other intangible assets and associated liabilities (0.5) (0.5)
Add IFRS carrying value of subordinated borrowings2 4.1 3.5
Insurance contract valuation differences3 6.0 5.2
Difference in value of net deferred tax liabilities (0.7) (0.5)
SCR for with-profits fund and final salary pension schemes (0.8) (0.8)
Eligibility restrictions4 (0.2) (0.2)
Solvency II Own Funds5 17.3 16.1
1. IFRS equity represents IFRS equity attributable to owners of the parent and restricted tier 1 convertible notes as per the Consolidated Balance Sheet.
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. Relating to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.
5. Solvency II Own Funds do not include an accrual for the interim dividend of £294m (31 December 2019: £754m) declared after the balance sheet date.
6.01 Sensitivity Analysis
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 2020 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
surplus1 ratio1 surplus1 ratio1
2020 2020 2019 2019
£bn % £bn %
Credit spreads widen by 100bps assuming an escalating addition to ratings2,3 0.3 7 0.3 8
Credit spreads narrow by 100bps assuming an escalating addition to ratings2,3 (0.3) (8) (0.4) (9)
Credit spreads widen by 100bps assuming a level addition to ratings2 0.4 10 0.5 11
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings2,4 (0.3) (5) (0.3) (6)
Credit migration5 (1.5) (15) (0.8) (9)
25% fall in equity markets6 (0.5) (4) (0.5) (5)
15% fall in property markets7 (0.7) (6) (0.7) (6)
100bps increase in risk free rates8 0.7 15 1.0 22
50bps decrease in risk free rates8,9 (0.4) (8) (0.6) (11)
1. Both the 2020 and 2019 sensitivities exclude the impact from the Mature Savings business (including the With-Profits fund) as the risks have been transferred to ReAssure Limited from 1 January 2018.
2. The spread sensitivity applies to the group's corporate bond (and similar) holdings, with no change in long term default expectations. Restructured lifetime mortgages are excluded as the underlying exposure is to property.
3. 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. To give a 100bps increase on the total portfolio the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.
4. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is 1bp as the group holds only 2% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress scenarios in the SCR calculation. We estimate the widening between BBB and BB bonds over H1 20 to be c.115bps.
5. 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, lifetime mortgage senior notes are excluded). Downgraded assets are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet date.
6. 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.
7. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.
8. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.
9. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. 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.
6.02 New Business by Product
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:
Contribution Contribution
from new from new
PVNBP business2 Margin3 PVNBP business2 Margin3
6 months 6 months 6 months Full year Full year Full year
2020 2020 2020 2019 2019 2019
£m £m % £m £m %
LGR - UK annuity business 3,597 382 10.6 11,295 890 7.9
UK Protection Total 919 86 9.4 1,604 122 7.6
- Retail Protection 636 61 9.6 1,284 98 7.6
- Group Protection 283 25 8.8 320 24 7.5
US Protection4 452 52 11.5 850 94 11.1
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 $570m (31 December 2019: $1,085m) and a contribution from new business of $66m (31 December 2019: $120m).
The increase in LGR margin was driven by the longer average duration for the schemes written in the first six months of the year, compared to the schemes written in prior year. For UK Protection new business the increase in profitability was driven by a shift in the product mix combined with continued price optimisation. The margin was further increased by the fall in interest rates during H1 20, which led to lower discount rates and in turn higher profitability. The US Protection margin improved compared to the prior year. The increase is driven by changes to local statutory regulatory reserving standards in 2020, which reduce excess reserve levels and subsequently reduce financing costs.
6.02 New bus assumptions table
(c) Assumptions 30 Jun 2020 31 Dec 2019
% %
Margin for Risk 4.6 3.5
Risk free rate
- UK 0.4 1.1
- US 0.7 1.9
Risk discount rate (net of tax)
- UK 5.0 4.6
- US 5.3 5.4
Long-term rate of return on non profit annuities in LGR 2.4 2.8
6.02 PVNBP to GWP Rec
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
2020 2019
Notes £bn £bn
PVNBP 6.02 (a) 5.0 13.7
Effect of capitalisation factor (1.2) (1.9)
New business premiums from selected lines 3.8 11.8
Other1 0.6 1.9
Total LGR and LGI new business 5.05,5.06 4.4 13.7
Annualisation impact of regular premium long-term business (0.1) (0.2)
IFRS gross written premiums from existing long-term insurance business 1.6 2.9
Deposit accounting for investment products (0.4) (1.2)
Total gross written premiums2 3.01 5.5 15.2
1. Other principally includes annuity sales in the US and lifetime mortgage advances.
2. Total gross written premiums exclude gross written premiums from discontinued operations.
7.01 Investment portfolio
7.01 Investment portfolio
Market Market Market
value value value
30 Jun 30 Jun 31 Dec
2020 2019 2019
£m £m £m
Worldwide total assets under management1 1,247,942 1,141,593 1,202,425
Client and policyholder assets (1,119,803) (1,036,229) (1,092,626)
Non-unit linked with-profits assets (9,854) (10,372) (10,190)
Investments to which shareholders are directly exposed 118,285 94,992 99,609
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 LGC shareholder
investments investments investments investments Total Total Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec
2020 2020 2020 2020 2020 2019 2019
Notes £m £m £m £m £m £m £m
Equities2 206 22 2,772 86 3,086 3,142 3,131
Bonds 7.03 76,406 2,103 2,161 327 80,997 71,258 75,142
Derivative assets3 22,095 - 293 - 22,388 11,633 11,556
Property 7.04 4,016 - 157 - 4,173 3,275 3,957
Cash, cash equivalents and loans4 2,858 577 2,064 538 6,037 4,317 4,275
Financial investments 105,581 2,702 7,447 951 116,681 93,625 98,061
Other assets5 89 - 1,515 - 1,604 1,367 1,548
Total investments 105,670 2,702 8,962 951 118,285 94,992 99,609
2. Equity investments include a total of £328m (30 June 2019: £362m; 31 December 2019: £324m) in respect of associates and joint ventures.
3. Derivative assets are shown gross of derivative liabilities of £24.9bn (30 June 2019: £6.9bn; 31 December 2019: £11.5bn). 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.
4. Loans include reverse repurchase agreements of £1,868m (30 June 2019: £960m; 31 December 2019: £1,262m).
5. Other assets include finance leases of £89m (2019: £90m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.
7.02 DI by Asset Class
7.02 Direct investments
(a) Analysed by asset class
Direct1 Traded2 Direct1 Traded2 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
2020 2020 2020 2019 2019 2019 2019 2019 2019
£m £m £m £m £m £m £m £m £m
Equities 1,355 1,731 3,086 1,300 1,842 3,142 1,282 1,849 3,131
Bonds3 20,272 60,725 80,997 15,824 55,434 71,258 18,553 56,589 75,142
Derivative assets - 22,388 22,388 - 11,633 11,633 - 11,556 11,556
Property4 4,173 - 4,173 3,275 - 3,275 3,957 - 3,957
Loans and other receivables 467 5,570 6,037 410 3,907 4,317 408 3,867 4,275
Financial investments 26,267 90,414 116,681 20,809 72,816 93,625 24,200 73,861 98,061
Other assets 1,604 - 1,604 1,367 - 1,367 1,548 - 1,548
Total investments 27,871 90,414 118,285 22,176 72,816 94,992 25,748 73,861 99,609
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 £5,478m (30 June 2019: £3,990m; 31 December 2019: £4,733m).
4. A further breakdown of property is provided in Note 7.04.
7.02 DI by Segment
7.02 Direct investments (continued)
(b) Analysed by segment
LGR LGC1 LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2020 2020 2020 2020
£m £m £m £m
-
Equities 16 1,261 78 1,355
Bonds2 19,444 3 825 20,272
Property 4,016 157 - 4,173
Loans and other receivables - 145 322 467
Financial investments 23,476 1,566 1,225 26,267
Other assets 89 1,515 - 1,604
Total direct investments 23,565 3,081 1,225 27,871
1. LGC includes £48m of equities that belong to other shareholder funds.
2. Bonds include lifetime mortgages of £5,478m.
LGR LGC1 LGI Total
30 Jun 2019 30 Jun 2019 30 Jun 2019 30 Jun 2019
£m £m £m £m
Equities 6 1,233 61 1,300
Bonds2 15,148 3 673 15,824
Property 3,131 144 - 3,275
Loans and other receivables - 64 346 410
Financial investments 18,285 1,444 1,080 20,809
Other assets 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.
LGR LGC1 LGI Total
31 Dec 31 Dec 31 Dec 31 Dec
2019 2019 2019 2019
£m £m £m £m
Equities 9 1,211 62 1,282
Bonds2 17,711 4 838 18,553
Property 3,798 159 - 3,957
Loans and other receivables - 93 315 408
Financial investments 21,518 1,467 1,215 24,200
Other assets 90 1,458 - 1,548
Total direct investments 21,608 2,925 1,215 25,748
1. LGC included £48m of equities that belong to other shareholder funds.
2. Bonds include lifetime mortgages of £4,733m.
7.03 Bond Port by Sector HY20
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 2020 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 2,521 11,299 738 449 26 - 15,033 19
Banks:
- Tier 1 - - - 1 - 1 2 -
- Tier 2 and other subordinated - - 69 42 5 - 116 -
- Senior - 1,335 2,192 545 1 - 4,073 5
- Covered 187 - 4 - - - 191 -
Financial Services:
- Tier 2 and other subordinated - 120 70 11 - 4 205 -
- Senior 2 447 176 267 9 - 901 1
Insurance:
- Tier 2 and other subordinated 56 139 8 63 - - 266 -
- Senior - 257 538 311 - - 1,106 1
Consumer Services and Goods:
- Cyclical - 354 1,089 1,961 333 2 3,739 5
- Non-cyclical 305 883 2,803 4,006 316 1 8,314 10
- Health Care - 376 856 636 7 - 1,875 2
Infrastructure:
- Social 216 771 4,331 877 89 - 6,284 8
- Economic 332 58 920 3,626 337 - 5,273 7
Technology and Telecoms 206 204 1,612 2,844 41 - 4,907 6
Industrials - 12 847 681 27 - 1,567 2
Utilities - 221 5,540 5,733 6 - 11,500 15
Energy - - 424 859 12 - 1,295 2
Commodities - - 286 748 17 - 1,051 1
Oil and Gas - 649 1,037 539 274 - 2,499 3
Real estate - 7 1,685 1,608 101 - 3,401 4
Structured finance ABS / RMBS / CMBS / Other 372 662 220 391 192 1 1,838 2
Lifetime mortgage loans1 3,427 1,384 304 350 - 13 5,478 7
CDOs - 57 11 15 - - 83 -
Total £m 7,624 19,235 25,760 26,563 1,793 22 80,997 100
Total % 9 24 32 33 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 £76,406m, representing 94% of the total group portfolio.
7.03 Bond Port by Sector HY19
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 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.
2. The group's bond portfolio is dominated by LGR investments. These account for £66,907m, representing 94% of the total group portfolio.
7.03 Bond Port by Sector FY19
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 2019 £m £m £m £m £m £m £m %
Sovereigns, Supras and Sub-Sovereigns 2,188 9,543 535 390 27 - 12,683 17
Banks:
- Tier 1 - - - 1 - 1 2 -
- Tier 2 and other subordinated - - 73 24 3 - 100 -
- Senior 6 1,893 2,794 758 1 - 5,452 7
- Covered 165 - 2 - - - 167 -
Financial Services:
- Tier 2 and other subordinated - 196 91 10 - 4 301 -
- Senior 4 381 231 322 9 - 947 1
Insurance:
- Tier 2 and other subordinated 49 131 6 56 - - 242 -
- Senior - 232 549 207 - - 988 1
Consumer Services and Goods:
- Cyclical - 425 963 1,985 134 2 3,509 5
- Non-cyclical 260 868 2,185 3,827 217 1 7,358 10
- Health care - 309 728 425 7 - 1,469 2
Infrastructure:
- Social 121 772 4,044 781 80 - 5,798 8
- Economic 338 27 1,436 3,148 102 - 5,051 7
Technology and Telecoms 202 173 1,196 2,805 42 - 4,418 6
Industrials - 11 817 588 27 - 1,443 2
Utilities - 190 5,885 4,669 2 32 10,778 15
Energy - - 340 814 12 - 1,166 2
Commodities - - 244 654 14 - 912 1
Oil and Gas - 593 799 702 108 1 2,203 3
Real estate 3 8 1,787 1,629 125 - 3,552 5
Structured finance ABS / RMBS / CMBS / Other 406 735 247 367 32 1 1,788 2
Lifetime mortgage loans1 2,798 1,253 362 309 - 11 4,733 6
CDOs - - 68 14 - - 82 -
Total £m 6,540 17,740 25,382 24,485 942 53 75,142 100
Total % 9 23 34 33 1 - 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 £70,061m, representing 93% of the total group portfolio.
7.03 Bond Port by Domicile HY20
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 2020 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 11,035 2,603 859 536 15,033
Banks 998 1,696 1,181 507 4,382
Financial Services 415 189 490 12 1,106
Insurance 111 934 203 124 1,372
Consumer Services and Goods:
- Cyclical 539 2,666 367 167 3,739
- Non-cyclical 1,715 6,037 424 138 8,314
- Health care 204 1,603 68 - 1,875
Infrastructure:
- Social 5,670 452 111 51 6,284
- Economic 3,945 830 190 308 5,273
Technology and Telecoms 593 2,677 755 882 4,907
Industrials 78 1,075 348 66 1,567
Utilities 6,597 2,332 2,055 516 11,500
Energy 228 813 112 142 1,295
Commodities 4 346 167 534 1,051
Oil and Gas 253 644 796 806 2,499
Real estate 2,196 381 618 206 3,401
Structured Finance ABS / RMBS / CMBS / Other 941 870 12 15 1,838
Lifetime mortgages 5,478 - - - 5,478
CDOs - - - 83 83
Total 41,000 26,148 8,756 5,093 80,997
7.03 Bond Port by Domicile HY19
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 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
7.03 Bond Port by Domicile FY19
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 2019 £m £m £m £m £m
Sovereigns, Supras and Sub-Sovereigns 9,764 1,995 645 279 12,683
Banks 2,002 1,328 1,669 722 5,721
Financial Services 501 95 639 13 1,248
Insurance 103 858 186 83 1,230
Consumer Services and Goods
- Cyclical 637 2,325 341 206 3,509
- Non-cyclical 1,716 5,123 479 40 7,358
- Health care 182 1,233 54 - 1,469
Infrastructure
- Social 5,357 290 106 45 5,798
- Economic 3,823 705 174 349 5,051
Technology and Telecoms 685 2,321 673 739 4,418
Industrials 76 1,036 273 58 1,443
Utilities 6,259 1,927 2,108 484 10,778
Energy 265 768 11 122 1,166
Commodities 5 305 137 465 912
Oil and Gas 288 665 583 667 2,203
Real estate 2,290 377 489 396 3,552
Structured finance ABS / RMBS / CMBS / Other 979 766 21 22 1,788
Lifetime mortgage loans 4,733 - - - 4,733
CDOs - - - 82 82
Total 39,665 22,117 8,588 4,772 75,142
7.03 Bond Port by Credit Rating
7.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated1 Total
As at 30 June 2020 £m £m £m
AAA 3,808 3,816 7,624
AA 15,720 3,515 19,235
A 19,457 6,303 25,760
BBB 20,835 5,728 26,563
BB or below 1,114 679 1,793
Other 8 14 22
Total 60,942 20,055 80,997
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 31 December 2019 £m £m £m
AAA 3,364 3,176 6,540
AA 14,568 3,172 17,740
A 19,320 6,062 25,382
BBB 18,990 5,495 24,485
BB or below 655 287 942
Other 12 41 53
Total 56,909 18,233 75,142
1. Where external ratings are not available an internal rating has been used where practicable to do so.
7.04 Property Analysis
7.04 Property analysis
Property exposure within Direct investments by status
LGR1 LGC2 Total
As at 30 June 2020 £m £m £m %
Fully let 3,663 - 3,663 88
Development 353 25 378 9
Land - 132 132 3
4,016 157 4,173 100
LGR1 LGC2 Total
As at 30 June 2019 £m £m £m %
Fully let 2,715 - 2,715 83
Development3 416 23 439 13
Land - 121 121 4
3,131 144 3,275 100
LGR1 LGC2 Total
As at 31 December 2019 £m £m £m %
Fully let 3,414 - 3,414 87
Development 384 23 407 10
Land - 136 136 3
3,798 159 3,957 100
1. The fully let LGR property includes £3.5bn (30 June 2019: £3.0bn; 31 December 2019: £3.2bn) let to investment grade tenants.
2. 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 2020 the group held a total of £2,261m (30 June 2019: £1,910m; 31 December 2019: £2,120m) of such assets.
3. The 30 June 2019 balance for LGR has been represented, by reallocating £416m from Fully let to Development, to more appropriately reflect the status of that property exposure.

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Legal & General Group plc published this content on 21 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 October 2021 11:03:08 UTC.


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