L&G 2011 HY Results - Part 2

RNS Number : 6170L

Legal & General Group Plc

03 August 2011

 



International Financial Reporting Standards								Page 31
Supplementary operating profit information
For the six months ended 30 June 2011
									Full year
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
From continuing operations
Risk						2.01(a)	236	310	560
Savings						2.02(a)	68	54	115
Investment management						2.03	117	98	206
International						2.04	66	61	102
Group capital and financing						2.05	61	33	58
Investment projects1							(25)	(14)	(39)
Operating profit							523	542	1,002
Variation from longer term investment return						2.06	(49)	(4)	90
Property losses attributable to non-controlling interests							(1)	(1)	-
Profit before tax							473	537	1,092
Tax expense attributable to equity holders of the Company						2.07	(115)	(136)	(272)
Profit for the period							358	401	820
Attributable to:
Non-controlling interests						2.17	(1)	(1)	-
Equity holders of the Company							359	402	820
							p	p	p
Earnings per share						2.11
Based on operating profit after tax attributable to equity holders
of the Company							6.69	6.73	12.89
Based on profit attributable to equity holders of the Company							6.16	6.90	14.07
Diluted earnings per share						2.11
Based on operating profit after tax attributable to equity holders
of the Company							6.58	6.66	12.72
Based on profit attributable to equity holders of the Company							6.06	6.83	13.88
1. Investment projects relate to strategic investments including Solvency II.
This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business.
Operating profit for the Risk segment represents the profit from the annuities business (individual and bulk purchase annuities) and the profit from the housing and protection businesses (general insurance, and individual and group protection business). Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within our general insurance business.
Operating profit for the Savings segment represents the profit from the insured Savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer and the profit of our Savings investments business. Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business.
Operating profit for the Investment management and International segments includes a longer term expected investment return on the shareholders' funds within the Investment management and Netherlands' operations.
Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a monthly basis.  Profits or losses arising from actuarial movements on annuities held by the Group's defined benefit pension schemes are excluded from operating profit. Profits or losses arising on the elimination of own debt holdings are also excluded from operating profit.
International Financial Reporting Standards								Page 32
Supplementary operating profit information
2.01  Risk
(a)  Risk operating profit
									Full year
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
Annuities							145	194	364
Protection							75	104	207
General insurance							17	14	(8)
Other							(1)	(2)	(3)
Total Housing and Protection							91	116	196
Total Risk operating profit1						2.01(b)	236	310	560
1. Prior year comparatives include a one-off benefit of £72m resulting from inflation modelling enhancements (see Note 2.01(d)).
(b)  Analysis of Risk operating profit
					Housing			Housing
					and			and
				Annuities	Protection	Total	Annuities	Protection	Total
				30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10
			Notes	£m	£m	£m	£m	£m	£m
Risk business segment operating profit comprises:
	Operational cash generation			112	121	233	106	106	212
	New business strain1			1	(41)	(40)	35	(45)	(10)
	Net cash generation			113	80	193	141	61	202
	Experience
	variances		2.01(c)			(7)			(3)
	Changes to
	valuation
	assumptions		2.01(d)			30			98
	Movements in
	non-cash items		2.01(e)			(43)			(78)
	Other					-			5
						173			224
	Tax gross up		2.07			63			86
Total Risk operating profit						236			310
1. Annuities new business strain of £1m (H1 10: £35m; FY 10: £60m) reflects the continued normalisation of pricing conditions in the annuities market.
								Housing
								and
							Annuities	Protection	Total
							Full year	Full year	Full year
							31.12.10	31.12.10	31.12.10
			Notes				£m	£m	£m
Risk business segment operating profit comprises:
	Operational cash generation						229	210	439
	New business strain						60	(70)	(10)
	Net cash generation						289	140	429
	Experience
	variances		2.01(c)						67
	Changes to
	valuation
	assumptions		2.01(d)						30
	Movements in
	non-cash items		2.01(e)						(122)
	Other								(1)
									403
	Tax gross up		2.07						157
Total Risk operating profit									560
The annuities and protection (non profit business) operational cash generation represents the expected surplus to be generated in the period from the in-force non profit business which is broadly equivalent to the expected release of profit from the non profit Risk business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.
International Financial Reporting Standards								Page 33
Supplementary operating profit information
2.01  Risk (continued)
(c)  Experience variances
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Persistency							(3)	(5)	(3)
Mortality/morbidity1							(32)	2	(8)
Expenses							-	1	(1)
Bulk purchase annuity data loading							19	-	59
Project and development costs							(5)	(5)	(9)
Tax2							16	20	37
Other							(2)	(16)	(8)
							(7)	(3)	67
1. The adverse mortality expense variance includes £27m relating to the Group Protection business, of which half is due to a small number of high value claims.
2. This principally relates to the utilisation of brought forward tax losses.
(d)  Changes to valuation assumptions
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Persistency							-	-	(5)
Mortality/morbidity1							-	35	(19)
Expenses2							18	(14)	(9)
Other3							12	77	63
							30	98	30
1. Mortality/morbidity includes the release of £nil (H1 10: £32m; FY 10: £43m) relating to reserving benefits within individual protection. FY 10 was offset by a £59m strengthening of mortality assumptions within the annuity business.
2. The positive expense assumption reflects the lower unit costs in individual protection. The prior year reflected the impact of a change in reserving basis for custodian fees.
3. Prior year Other reflects the benefit from inflation modelling enhancement on deferred annuity business.
(e)  Movements in non-cash items
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Deferred tax							(38)	(80)	(125)
Other							(5)	2	3
							(43)	(78)	(122)
(f)  General insurance operating profit/(loss)
				Net			Net
				cash			cash
				gener-		Operating	gener-		Operating
				ation	Tax	profit	ation	Tax	profit
				30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10
				£m	£m	£m	£m	£m	£m
Household				9	4	13	8	3	11
Other business				3	1	4	2	1	3
				12	5	17	10	4	14
							Net
							cash		Operating
							gener-		(loss)/
							ation	Tax	profit
							Full year	Full year	Full year
							31.12.10	31.12.10	31.12.10
							£m	£m	£m
Household							(10)	(4)	(14)
Other business							4	2	6
							(6)	(2)	(8)
International Financial Reporting Standards								Page 34
Supplementary operating profit information
2.01  Risk (continued)
(g)  General insurance underwriting result
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Household							6	7	(27)
Other business							3	2	5
							9	9	(22)
(h)  General insurance combined operating ratio
									Full year
							30.06.11	30.06.10	31.12.10
							%	%	%
Household							92	91	109
Other business							69	79	77
							90	90	106
2.02  Savings
(a)  Savings operating profit
									Full year
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
Insured savings1							20	8	31
With-profits2							35	32	63
Savings investments3							13	14	21
Total Savings operating profit						2.02(b)	68	54	115
1. Insured savings includes non profit investment bonds and pensions (including SIPPs), Nationwide Life Savings business and International (Ireland).
2. With-profits business operating profit is the shareholders' share of total with-profits bonuses.
3. Savings investments operating profit includes retail and institutional unit trusts and Suffolk Life.
(b)  Analysis of Savings operating profit
								Savings
						Insured	With-	invest-
						savings	profits	ments	Total
						30.06.11	30.06.11	30.06.11	30.06.11
				Notes		£m	£m	£m	£m
Savings business segment operating profit comprises:
	Operational cash generation					51	26	12	89
	New business strain					(31)	-	-	(31)
	Net cash generation1					20	26	12	58
Insured savings
	Experience variances			2.02(c)					(3)
	Changes to valuation
	assumptions			2.02(d)					3
	Movements in
	non-cash items			2.02(e)					(8)
	Other								4
Savings investments
	Movements in non-cash items and other								(4)
									50
	Tax gross up			2.07					18
Total Savings operating profit									68
1. Insured savings Net cash generation of £20m (H1 10: £3m; FY 10: £1m) reflects the benefit of higher fees on higher opening asset values coupled with continued expense and commission savings resulting in a lower new business strain.
International Financial Reporting Standards								Page 35
Supplementary operating profit information
2.02  Savings (continued)
(b)  Analysis of Savings operating profit (continued)
								Savings
						Insured	With-	invest-
						savings	profits	ments	Total
						30.06.10	30.06.10	30.06.10	30.06.10
				Notes		£m	£m	£m	£m
Savings business segment operating profit comprises:
	Operational cash generation					36	23	13	72
	New business strain					(34)	-	-	(34)
	Net cash generation					2	23	13	38
Insured savings
	Experience variances			2.02(c)					9
	Changes to valuation
	assumptions			2.02(d)					(6)
	Movements in
	non-cash items			2.02(e)					2
	Other								(1)
Savings investments
	Movements in non-cash items and other								(4)
									38
	Tax gross up			2.07					16
Total Savings operating profit									54
								Savings
						Insured	With-	invest-
						savings	profits	ments	Total
						Full year	Full year	Full year	Full year
						31.12.10	31.12.10	31.12.10	31.12.10
				Notes		£m	£m	£m	£m
Savings business segment operating profit comprises:
	Operational cash generation					71	46	21	138
	New business strain					(70)	-	-	(70)
	Net cash generation					1	46	21	68
Insured savings
	Experience variances			2.02(c)					10
	Changes to valuation
	assumptions			2.02(d)					28
	Movements in
	non-cash items			2.02(e)					(21)
	Other								4
Savings investments
	Movements in non-cash items and other								(9)
									80
	Tax gross up			2.07					35
Total Savings operating profit									115
The insured savings operational cash generation represents the expected surplus generated in the period from the in-force investment bonds and pensions business (non profit Savings) which is broadly equivalent to the expected release of profit from non profit savings business using best estimate assumptions and the IFRS profit after tax of the Nationwide Life Savings business and International (Ireland). The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.
International Financial Reporting Standards								Page 36
Supplementary operating profit information
2.02  Savings (continued)
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:
(c)  Experience variances
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Persistency							-	-	(3)
Mortality/morbidity							-	-	1
Expenses							1	(1)	3
Project and development costs							(4)	(1)	(4)
Tax							(1)	8	14
Other							1	3	(1)
							(3)	9	10
(d)  Changes to valuation assumptions
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Mortality/morbidity							-	-	2
Expenses							1	(1)	3
Other							2	(5)	23
							3	(6)	28
(e)  Movements in non-cash items
									Full year
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
Deferred tax							(9)	(17)	(39)
Deferred acquisition costs (DAC)						2.02(f)	(25)	(5)	(16)
Deferred income liabilities (DIL)							28	18	33
Other							(2)	6	1
							(8)	2	(21)
(f)  Deferred acquisition cost movement, net of associated deferred tax
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
As at 1 January							612	628	628
Amortisation through income1							(50)	(32)	(66)
Acquisition costs deferred							25	27	50
As at 30 June / 31 December							587	623	612
1. Included in the amortisation of the DAC asset at H1 11 is £16m relating to changes to economic assumptions relating to the trail commission. This has been offset by a similar movement in the DIL liability.
The Group's balance sheet deferred acquisition costs also includes amounts relating to the Group's overseas, general insurance, retail investments and with-profits businesses and is presented gross of associated deferred tax.
Expected amortisation profile:
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Expected to be amortised within one year							66	72	69
Expected to be amortised between one year and five years							273	288	276
Expected to be amortised in over five years							248	263	267
							587	623	612
International Financial Reporting Standards								Page 37
Supplementary operating profit information
2.03  Investment management
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Pension funds (managed and segregated)							87	70	148
Other non-pension1							12	11	20
Investment management services for internal funds							18	17	38
Total Investment management operating profit							117	98	206
1. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £5m (H1 10: £6m; FY 10: £11m) has been included within other non-pension operating profit.
2.04  International
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
USA							50	44	85
Netherlands							6	14	20
France							12	7	6
Total Europe operating profit							18	21	26
Other1							(2)	(4)	(9)
Total International operating profit2							66	61	102
1. Other includes our joint venture operations in Egypt, the Gulf, India and business unit overhead costs of £2m (H1 10: £2m; FY 10: £5m).
2. In H1 2011, the International division paid £35m (H1 10: £33m; FY 10: £44m) of dividends to the Group.
Exchange rates are provided in Note 2.18.
2.05  Group capital and financing
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Investment return1							130	96	187
Interest expense2							(62)	(59)	(121)
Investment expenses							(2)	(1)	(3)
Unallocated corporate expenses							(5)	(3)	(5)
Total Group capital and financing operating profit							61	33	58
1. The longer term expected investment return of £130m (H1 10: £96m; FY 10: £187m) reflects an average return of 3.4% (H1 10: 3.0%; FY 10: 5.8%) on the average balance of invested assets of £3.8bn (H1 10: £3.2bn; FY 10: £3.2bn) held within Group capital and financing calculated on a monthly basis. The invested assets held within Group capital and financing amounted to £4.1bn at 30 June 2011 (30 June 2010: £3.1bn; 31 December 2010: £3.3bn). This excludes £0.3bn of derivative assets held to hedge interest rate and exchange rate exposure in relation to the Group's debt.
2. Interest expense excludes interest on non recourse financing (see Note 2.16).
International Financial Reporting Standards								Page 38
Supplementary operating profit information
2.06  Variation from longer term investment return
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Risk1							15	112	102
Savings2							(2)	(16)	(54)
Investment management							(3)	(4)	(8)
International3							4	25	35
Group capital and financing
	Asset related4						(47)	(82)	52
	Debt related5						(19)	(65)	(72)
	Defined benefit pension scheme6						3	26	35
Total variation from longer term investment return							(49)	(4)	90
1. The annuities division has generated £10m of IFRS investment variance in the first half of 2011 which demonstrates the resilience of our asset portfolio and investment strategy in challenging economic conditions.
2. Savings business investment variance includes the difference between IFRS deferred policyholder tax and the amount included within the unit linked life funds.
3. At H1 10 the International investment variance included £28m investment gains on Dutch government bonds due to reductions in bond yields generating capital gains. At FY 10, the International investment variance included a £28m benefit from the US Capital restructuring programme, which involved replacing the Triple X financing solution with an internal reinsurance structure. The benefit was the result of purchasing the Potomac Trust Capital Class A Money Market Securities (used to fund the Triple X solution) at a discount.
4. Group capital and financing operating profit incorporates an assumed long term investment return. The asset related investment variance reflects the difference between the assumed return and actual return on Society shareholder capital and the Group's treasury assets.
5. The Group manages its exposure to interest rate movements on debt issued with a series of interest rate swaps to lock into a fixed funding cost. The Group does not hold an active trading position in such derivative contracts. For contracts which have not been designated within hedge accounting relationships there is resulting short term income statement volatility which in 2011, primarily as a result of a decrease in the relevant long term interest rates, amounted to £(29)m (H1 10: £(56)m; FY 10: £(62)m). In addition, the elimination of Legal & General debt owned by the Group is £4m (H1 10: £(4)m; FY 10: £(8)m) and other small items have an impact of £6m (H1 10: £(5)m; FY 10: £(2)m).
6. The defined benefit pension scheme investment variance includes the actuarial gains and losses and valuation difference arising on annuity assets held by the defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited.
2.07  Analysis of tax
				Profit/		Profit/		Profit/
				(loss)	Tax	(loss)	Tax	(loss)	Tax
				before	(expense)/	before	(expense)/	before	(expense)/
				tax	credit	tax	credit	tax	credit
								Full	Full
								year	year
				30.06.11	30.06.11	30.06.10	30.06.10	31.12.10	31.12.10
				£m	£m	£m	£m	£m	£m
Risk				236	(63)	310	(86)	560	(157)
Savings				68	(18)	54	(16)	115	(35)
Investment management				117	(26)	98	(28)	206	(44)
International				66	(22)	61	(21)	102	(25)
Group capital and financing				61	(11)	33	(3)	58	(1)
Investment projects				(25)	7	(14)	4	(39)	11
Operating profit/Tax expense				523	(133)	542	(150)	1,002	(251)
Variation from longer term
investment return				(49)	22	(4)	14	90	(16)
Impact of change in UK tax rates				-	(4)	-	-	-	(5)
Property losses attributable to
non-controlling interests				(1)	-	(1)	-	-	-
Profit for the period/Tax expense
for the period				473	(115)	537	(136)	1,092	(272)
The equity holders' effective tax rate for the period is 24.3% (H1 10: 25.3%; FY 10: 24.9%). The principal reasons for the decrease relates to a fall in the standard rate of corporation tax applicable for the period to 26.5% and the recognition of a previously unrecognised deferred tax asset of £12m.
International Financial Reporting Standards								Page 39
Consolidated Income Statement
For the six months ended 30 June 2011
									Full year
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
Revenue
Gross written premiums						2.10	2,382	2,772	5,348
Outward reinsurance premiums							(291)	(286)	(590)
Net change in provision for unearned premiums							(13)	(7)	(14)
Net premiums earned							2,078	2,479	4,744
Fees from fund management and investment contracts							463	452	900
Investment return							7,738	1,170	32,671
Operational income							88	42	125
Total revenue							10,367	4,143	38,440
Expenses
Claims and change in insurance liabilities							2,607	3,748	7,567
Reinsurance recoveries							(275)	(344)	(621)
Net claims and change in insurance liabilities							2,332	3,404	6,946
Change in provisions for investment contract liabilities							6,729	(587)	28,154
Acquisition costs							393	377	770
Finance costs							77	78	168
Other expenses							462	381	905
Transfers (from)/to unallocated divisible surplus							(137)	(87)	190
Total expenses							9,856	3,566	37,133
Profit before income tax							511	577	1,307
Income tax expense attributable to policyholder returns							(38)	(40)	(215)
Profit before income tax attributable to equity holders of the Company							473	537	1,092
Total income tax expense							(153)	(176)	(487)
Income tax expense attributable to policyholder returns							38	40	215
Income tax expense attributable to equity holders						2.07	(115)	(136)	(272)
Profit for the period							358	401	820
Attributable to:
Non-controlling interests							(1)	(1)	-
Equity holders of the Company							359	402	820
Dividend distributions to equity holders of the Company
during the period						2.14	201	160	238
Dividend distributions to equity holders of the Company
proposed after the period						2.14	97	78	201
							p	p	p
Earnings per share
Based on profit attributable to equity holders of the Company						2.11	6.16	6.90	14.07
Diluted earnings per share
Based on profit attributable to equity holders of the Company						2.11	6.06	6.83	13.88
This financial information was approved by the Board on 2 August 2011.
The results for the six months to 30 June 2011 and 30 June 2010 are unaudited, but have been subject to a review by the Group's independent auditors and constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006.  They have been prepared on a basis which is consistent with the consolidated Group financial statements approved on 16 March 2011 which have been filed with the Registrar of Companies. The published full year 2010 consolidated Group financial statements prepared under IFRS included an independent auditors' report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under Chapter 3 of Part 16 of the Companies Act 2006.
International Financial Reporting Standards								Page 40
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2011
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Profit for the period							358	401	820
Other comprehensive income after tax
Exchange differences on translation of overseas operations							(7)	25	8
Actuarial (losses) on defined benefit pension schemes							(3)	(29)	(9)
Actuarial losses on defined benefit pension schemes
transferred to unallocated divisible surplus							1	12	4
Net change in financial investments designated as available-for-sale							9	21	27
Total comprehensive income for the period							358	430	850
Total comprehensive income/(expense) attributable to:
Non-controlling interests							(1)	(1)	-
Equity holders of the Company							359	431	850
International Financial Reporting Standards								Page 41
Consolidated Balance Sheet
As at 30 June 2011
							At	At	At
							30.06.11	30.06.10	31.12.10
						Notes	£m	£m	£m
Assets
Purchased interest in long term businesses and other intangible assets							145	132	157
Deferred acquisition costs							1,983	2,030	2,000
Investment in associates							57	44	57
Plant and equipment							66	56	64
Investment property							4,758	4,303	4,571
Financial investments						2.13	302,303	272,690	299,570
Reinsurers' share of contract liabilities							2,359	2,241	2,336
Deferred tax asset							477	723	495
Income tax recoverable							-	1	-
Other assets							2,655	1,966	1,587
Cash and cash equivalents							12,358	11,261	13,036
Total assets							327,161	295,447	323,873
Equity
Share capital							147	147	147
Share premium							940	938	938
Employee scheme treasury shares							(45)	(43)	(41)
Capital redemption and other reserves							88	57	79
Retained earnings							3,857	3,368	3,704
Shareholders' equity							4,987	4,467	4,827
Non-controlling interests						2.17	49	32	47
Total equity							5,036	4,499	4,874
Liabilities
Subordinated borrowings						2.16	1,915	1,875	1,897
Participating insurance contracts							9,131	9,279	9,383
Participating investment contracts							7,471	7,120	7,323
Unallocated divisible surplus							1,330	1,179	1,469
Value of in-force non-participating contracts							(345)	(364)	(377)
Participating contract liabilities							17,587	17,214	17,798
Non-participating insurance contracts							31,897	30,011	31,325
Non-participating investment contracts							255,721	228,855	253,426
Non-participating contract liabilities							287,618	258,866	284,751
Senior borrowings						2.16	1,324	1,455	1,435
Provisions							737	810	761
Deferred tax liabilities							373	358	356
Income tax liabilities							78	96	111
Payables and other financial liabilities							6,126	6,465	5,473
Other liabilities							830	899	954
Net asset value attributable to unit holders							5,537	2,910	5,463
Total liabilities							322,125	290,948	318,999
Total equity and liabilities							327,161	295,447	323,873
International Financial Reporting Standards								Page 42
Condensed Consolidated Statement of Changes in Equity
				Employee	Capital
				scheme	redemption			Non-
For the six		Share	Share	treasury	and other	Retained		controlling	Total
months ended		capital	premium	shares	reserves	earnings	Total	interests	equity
30 June 2011		£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January		147	938	(41)	79	3,704	4,827	47	4,874
Total comprehensive
income/(expense)
for the period		-	-	-	2	357	359	(1)	358
Options exercised
under share
option schemes		-	2	-	-	-	2	-	2
Net movement in
employee scheme
treasury shares		-	-	(4)	2	2	-	-	-
Dividends		-	-	-	-	(201)	(201)	-	(201)
Movement in third
party interests		-	-	-	-	-	-	3	3
Currency translation
differences		-	-	-	5	(5)	-	-	-
As at
30 June 2011		147	940	(45)	88	3,857	4,987	49	5,036
For the six months ended 30 June 2010
As at 1 January		147	936	(38)	41	3,110	4,196	2	4,198
Total comprehensive
income/(expense)
for the period		-	-	-	46	385	431	(1)	430
Options exercised
under share
option schemes		-	2	-	-	-	2	-	2
Net movement in
employee scheme
treasury shares		-	-	(5)	(3)	6	(2)	-	(2)
Dividends		-	-	-	-	(160)	(160)	-	(160)
Movement in third
party interests		-	-	-	-	-	-	31	31
Currency translation
differences		-	-	-	(27)	27	-	-	-
As at
30 June 2010		147	938	(43)	57	3,368	4,467	32	4,499
For the year ended 31 December 2010
As at 1 January		147	936	(38)	41	3,110	4,196	2	4,198
Total comprehensive
income for
the year		-	-	-	35	815	850	-	850
Options exercised
under share
option schemes		-	2	-	-	-	2	-	2
Net movement in
employee scheme
treasury shares		-	-	(3)	12	8	17	-	17
Dividends		-	-	-	-	(238)	(238)	-	(238)
Movement in third
party interests		-	-	-	-	-	-	45	45
Currency translation
differences		-	-	-	(9)	9	-	-	-
As at
31 December 2010		147	938	(41)	79	3,704	4,827	47	4,874
International Financial Reporting Standards								Page 43
Consolidated Cash Flow Statement
For the six months ended 30 June 2011
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Cash flows from operating activities
Profit for the period							358	401	820
Adjustments for non cash movements in net profit for the period
Realised and unrealised (gains)/losses on financial
investments and investment properties							(3,023)	3,615	(23,673)
Investment income							(4,604)	(4,695)	(8,787)
Interest expense							77	78	168
Income tax expense							153	176	487
Other adjustments							29	32	59
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss							(2,004)	(500)	(2,958)
Investments designated as available-for-sale							45	(25)	(39)
Other assets							(679)	(383)	(479)
Net increase/(decrease) in operational liabilities
Insurance contracts							245	1,339	2,746
Transfer (from)/to unallocated divisible surplus							(139)	(99)	186
Investment contracts							4,269	(5,213)	20,702
Value of in-force non-participating contracts							32	3	(10)
Other liabilities							672	1,434	4,968
Cash used in operations							(4,569)	(3,837)	(5,810)
Interest paid							(77)	(79)	(167)
Interest received							2,498	2,432	5,030
Income tax (paid)/received							(140)	106	(164)
Dividends received							1,937	2,126	3,818
Net cash flows from operating activities							(351)	748	2,707
Cash flows from investing activities
Net acquisition of plant and equipment							(9)	(3)	(17)
Acquisitions (net of cash acquired)1							-	-	(44)
Capital injection into overseas joint ventures							-	-	(8)
Net cash flows from investing activities							(9)	(3)	(69)
Cash flows from financing activities
Dividend distributions to ordinary equity holders
of the Company during the period							(201)	(160)	(238)
Proceeds from issue of ordinary share capital							2	2	2
Purchase of employee scheme shares							(9)	(10)	(11)
Proceeds from borrowings							713	292	750
Repayment of borrowings							(819)	(274)	(758)
Net cash flows from financing activities							(314)	(150)	(255)
Net (decrease)/increase in cash and cash equivalents							(674)	595	2,383
Exchange (losses)/gains on cash and cash equivalents							(4)	16	3
Cash and cash equivalents at 1 January							13,036	10,650	10,650
Cash and cash equivalents at 30 June/31 December							12,358	11,261	13,036
1. Net cash flows from acquisitions include total net identifiable assets acquired of £nil (H1 10: £nil; FY 10: £52m) less cash and cash equivalents acquired of £nil (H1 10: £nil; FY 10: £8m).
The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.
International Financial Reporting Standards								Page 44
Notes to the Financial Statements
2.08  Basis of preparation
The Group's financial information for the period ended 30 June 2011 has been prepared in accordance with the Listing Rules of the Financial Services Authority. The 2011 Half-year report has also been prepared in accordance with IAS 34, 'Interim Financial Reporting'. The Group's financial information has been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2011 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2010 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union.
The preparation of the Half-year report includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant.  For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2010 financial statements except for the changes outlined in sections 2.01(d) and 2.02(d).
Estimates are based on management's best knowledge of current circumstances and future events and actions, however, actual results may differ from those estimates, possibly significantly.
2.09  Segmental analysis
Reportable segments
The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.
The Risk segment comprises individual and group protection, individual and bulk purchase annuities, and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.
The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products. 'Other' principally comprises the Group's interest in Cofunds.
The Investment management segment comprises institutional fund management.
The International segment comprises businesses in the United States, France, the Netherlands and emerging markets.
Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within Group capital and financing. This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
The Group assesses performance and allocates resources on the basis of IFRS supplementary operating profit before tax. Segmental IFRS supplementary operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax.
International Financial Reporting Standards								Page 45
Notes to the Financial Statements
2.09  Segmental analysis (continued)
(a)  Profit/(loss) from ordinary activities after tax
						Invest-		Group
						ment		capital
						manage-	Inter-	and
For the six months ended				Risk	Savings	ment	national	financing1	Total
30 June 2011				£m	£m	£m	£m	£m	£m
Operating profit				236	68	117	66	36	523
Variation from longer term
investment return2				15	(2)	(3)	4	(63)	(49)
Property losses attributable to
non-controlling interests				-	-	-	-	(1)	(1)
Profit/(loss) from continuing
operations before tax				251	66	114	70	(28)	473
Tax (expense)/credit attributable to
equity holders of the Company				(65)	(16)	(25)	(24)	15	(115)
Profit/(loss) for the period				186	50	89	46	(13)	358
1. For segmental purposes, Investment projects of £25m (H1 10: £14m; FY 10: £39m ) have been included in Group capital and financing.
2. Additional information concerning the Variation from longer term investment return is provided in Note 2.06.
						Invest-		Group
						ment		capital
						manage-	Inter-	and
For the six months ended				Risk	Savings	ment	national	financing1	Total
30 June 2010				£m	£m	£m	£m	£m	£m
Operating profit				310	54	98	61	19	542
Variation from longer term				112	(16)	(4)	25	(121)	(4)
investment return
Property losses attributable to
non-controlling interests				-	-	-	-	(1)	(1)
Profit/(loss) from continuing
operations before tax				422	38	94	86	(103)	537
Tax (expense)/credit attributable to
equity holders of the Company				(115)	(10)	(27)	(28)	44	(136)
Profit/(loss) for the period				307	28	67	58	(59)	401
						Invest-		Group
						ment		capital
						manage-	Inter-	and
For the year ended				Risk	Savings	ment	national	financing1	Total
31 December 2010				£m	£m	£m	£m	£m	£m
Operating profit				560	115	206	102	19	1,002
Variation from longer term
investment return				102	(54)	(8)	35	15	90
Property losses attributable to
non-controlling interests				-	-	-	-	-	-
Profit from continuing
operations before tax				662	61	198	137	34	1,092
Tax (expense)/credit attributable to
equity holders of the Company				(184)	(18)	(41)	(37)	8	(272)
Profit for the year				478	43	157	100	42	820
International Financial Reporting Standards								Page 46
Notes to the Financial Statements
2.09  Segmental analysis (continued)
(b)  Revenue
						Invest-		Group
						ment		capital
						manage-	Inter-	and
For the six months ended				Risk	Savings	ment	national	financing	Total
30 June 2011				£m	£m	£m	£m	£m	£m
Internal revenue				-	21	70	9	(100)	-
External revenue				1,864	1,616	6,195	596	96	10,367
Total revenue				1,864	1,637	6,265	605	(4)	10,367
For the six months ended
30 June 2010
Internal revenue				-	24	59	-	(83)	-
External revenue				2,887	1,219	(664)	726	(25)	4,143
Total revenue				2,887	1,243	(605)	726	(108)	4,143
For the year ended
31 December 2010
Internal revenue				-	46	128	-	(174)	-
External revenue				5,547	6,403	24,922	1,236	332	38,440
Total revenue				5,547	6,449	25,050	1,236	158	38,440
Total revenue includes investment gains of £7,738m (H1 10: gains of £1,170m; FY 10: gains of £32,671m).
(c)  Consolidated balance sheet
						Invest-		Group
						ment		capital
						manage-	Inter-	and
				Risk	Savings	ment	national	financing	Total
As at 30 June 2011				£m	£m	£m	£m	£m	£m
Assets
Investments				25,930	47,706	228,788	7,168	9,884	319,476
Other assets				3,048	3,479	1,516	2,887	(3,245)	7,685
Total assets				28,978	51,185	230,304	10,055	6,639	327,161
Shareholders' equity				138	144	409	1,400	2,896	4,987
Non-controlling interests				-	-	-	-	49	49
Total equity				138	144	409	1,400	2,945	5,036
Liabilities
Subordinated borrowings				-	-	-	-	1,915	1,915
Participating contract liabilities				-	14,968	-	2,619	-	17,587
Non-participating contract liabilities				25,444	33,399	225,717	3,710	(652)	287,618
Senior borrowings1				13	278	1	276	756	1,324
Other liabilities				3,383	2,396	4,177	2,050	1,675	13,681
Total liabilities				28,840	51,041	229,895	8,655	3,694	322,125
Total equity and liabilities				28,978	51,185	230,304	10,055	6,639	327,161
1. Includes non recourse financing.
International Financial Reporting Standards								Page 47
Notes to the Financial Statements
2.09  Segmental analysis (continued)
(c)  Consolidated balance sheet (continued)
						Invest-		Group
						ment		capital
						manage-	Inter-	and
				Risk	Savings	ment	national	financing	Total
As at 30 June 2010				£m	£m	£m	£m	£m	£m
Assets
Investments				24,679	44,891	205,626	7,000	6,102	288,298
Other assets				2,869	2,624	1,047	2,965	(2,356)	7,149
Total assets				27,548	47,515	206,673	9,965	3,746	295,447
Shareholders' equity				136	122	370	1,473	2,366	4,467
Non-controlling interests				-	-	-	-	32	32
Total equity				136	122	370	1,473	2,398	4,499
Liabilities
Subordinated borrowings				-	-	-	-	1,875	1,875
Participating contract liabilities				-	14,896	-	2,318	-	17,214
Non-participating contract liabilities				23,585	29,854	202,489	3,567	(629)	258,866
Senior borrowings1				13	200	1	579	662	1,455
Other liabilities				3,814	2,443	3,813	2,028	(560)	11,538
Total liabilities				27,412	47,393	206,303	8,492	1,348	290,948
Total equity and liabilities				27,548	47,515	206,673	9,965	3,746	295,447
1. Includes non recourse financing.
						Invest-		Group
						ment		capital
						manage-	Inter-	and
				Risk	Savings	ment	national	financing	Total
As at 31 December 2010				£m	£m	£m	£m	£m	£m
Assets
Investments				25,587	47,933	227,088	7,248	9,378	317,234
Other assets				2,687	2,932	821	3,157	(2,958)	6,639
Total assets				28,274	50,865	227,909	10,405	6,420	323,873
Shareholders' equity				123	142	324	1,664	2,574	4,827
Non-controlling interests				-	-	-	-	47	47
Total equity				123	142	324	1,664	2,621	4,874
Liabilities
Subordinated borrowings				-	-	-	-	1,897	1,897
Participating contract liabilities				-	15,351	-	2,447	-	17,798
Non-participating contract liabilities				24,868	32,963	223,940	3,625	(645)	284,751
Senior borrowings1				-	248	1	344	842	1,435
Other liabilities				3,283	2,161	3,644	2,325	1,705	13,118
Total liabilities				28,151	50,723	227,585	8,741	3,799	318,999
Total equity and liabilities				28,274	50,865	227,909	10,405	6,420	323,873
1. Includes non recourse financing.
International Financial Reporting Standards								Page 48
Notes to the Financial Statements
2.10  Gross written premiums on insurance contracts
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
From continuing operations
Risk
Non-participating Risk business							1,404	1,737	3,309
General insurance
- Household							135	123	259
- Other business							11	11	22
Total Risk							1,550	1,871	3,590
Savings
Non-participating Savings business							21	21	41
Participating business							241	298	609
Total Savings							262	319	650
International
USA							249	251	502
Netherlands							116	131	227
France							205	200	379
Total International							570	582	1,108
Total gross written premiums							2,382	2,772	5,348
2.11  Earnings per share
(a)  Earnings per share
		Profit		Profit	Earnings	Profit		Profit	Earnings
		before	Tax	after	per	before	Tax	after	per
		tax	expense	tax	share	tax	expense	tax	share
		30.06.11	30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10	30.06.10
		£m	£m	£m	p	£m	£m	£m	p
Operating profit		523	(133)	390	6.69	542	(150)	392	6.73
Variation from longer term
investment return		(49)	22	(27)	(0.46)	(4)	14	10	0.17
Impact of change in
UK tax rates		-	(4)	(4)	(0.07)	-	-	-	-
Earnings per share based
on profit attributable
to equity holders		474	(115)	359	6.16	538	(136)	402	6.90
						Profit		Profit	Earnings
						before	Tax	after	per
						tax	expense	tax	share
						Full year	Full year	Full year	Full year
						31.12.10	31.12.10	31.12.10	31.12.10
						£m	£m	£m	p
Operating profit						1,002	(251)	751	12.89
Variation from longer term
investment return						90	(16)	74	1.27
Impact of change in
UK tax rates						-	(5)	(5)	(0.09)
Earnings per share based
on profit attributable
to equity holders						1,092	(272)	820	14.07
International Financial Reporting Standards								Page 49
Notes to the Financial Statements
2.11  Earnings per share (continued)
(b)  Diluted earnings per share
(i)  Based on operating profit after tax
				Profit	Number	Earnings	Profit	Number	Earnings
				after	of	per	after	of	per
				tax	shares1	share	tax	shares1	share
				30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10
				£m	m	p	£m	m	p
Operating profit after tax				390	5,828	6.69	392	5,827	6.73
Net shares under options allocable
for no further consideration				-	97	(0.11)	-	63	(0.07)
Diluted earnings per share				390	5,925	6.58	392	5,890	6.66
							Profit	Number	Earnings
							after	of	per
							tax	shares1	share
							Full year	Full year	Full year
							31.12.10	31.12.10	31.12.10
							£m	m	p
Operating profit after tax							751	5,827	12.89
Net shares under options allocable
for no further consideration							-	79	(0.17)
Diluted earnings per share							751	5,906	12.72
(ii)  Based on profit attributable to equity holders
				Profit	Number	Earnings	Profit	Number	Earnings
				after	of	per	after	of	per
				tax	shares1	share	tax	shares1	share
				30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10
				£m	m	p	£m	m	p
Profit attributable to equity holders
of the Company				359	5,828	6.16	402	5,827	6.90
Net shares under options allocable
for no further consideration				-	97	(0.10)	-	63	(0.07)
Diluted earnings per share				359	5,925	6.06	402	5,890	6.83
							Profit	Number	Earnings
							after	of	per
							tax	shares1	share
							Full year	Full year	Full year
							31.12.10	31.12.10	31.12.10
							£m	m	p
Profit attributable to equity holders
of the Company							820	5,827	14.07
Net shares under options allocable
for no further consideration							-	79	(0.19)
Diluted earnings per share							820	5,906	13.88
1. Weighted average number of shares.
The number of shares in issue at 30 June 2011 was 5,870,748,796 (30 June 2010: 5,865,651,980; 31 December 2010: 5,866,669,323).
International Financial Reporting Standards								Page 50
Notes to the Financial Statements
2.12  Disclosure of tax effects relating to each component of other comprehensive income
					Tax			Tax
				Before	credit/	After	Before	credit/	After
				tax	(expense)	tax	tax	(expense)	tax
				30.06.11	30.06.11	30.06.11	30.06.10	30.06.10	30.06.10
				£m	£m	£m	£m	£m	£m
Exchange differences on translation
of overseas operations				(7)	-	(7)	25	-	25
Actuarial (losses) on defined
benefit pension schemes				(5)	2	(3)	(40)	11	(29)
Actuarial losses on defined benefit
pension schemes transferred to
unallocated divisible surplus				2	(1)	1	16	(4)	12
Net change in financial investments
designated as available-for-sale				13	(4)	9	32	(11)	21
Other comprehensive income				3	(3)	-	33	(4)	29
								Tax
							Before	credit/	After
							tax	(expense)	tax
							Full year	Full year	Full year
							31.12.10	31.12.10	31.12.10
							£m	£m	£m
Exchange differences on translation
of overseas operations							8	-	8
Actuarial (losses) on defined
benefit pension schemes							(12)	3	(9)
Actuarial losses on defined benefit
pension schemes transferred to
unallocated divisible surplus							5	(1)	4
Net change in financial investments
designated as available-for-sale							42	(15)	27
Other comprehensive income							43	(13)	30
2.13  Financial investments
							At	At	At
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Equities							146,711	125,099	149,056
Unit trusts							7,782	7,443	7,550
Debt securities1							142,124	132,429	136,858
Accrued interest							1,636	1,590	1,682
Derivative assets2							3,753	4,791	4,014
Loans and receivables							297	1,338	410
							302,303	272,690	299,570
There have been no significant transfers between levels 1, 2 and 3 of the fair value hierarchy (as prescribed in IFRS 7 'Financial Instruments: Disclosures') for the six months ended 30 June 2011. Further details are provided in Note 4.07.
1. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.02.
2. Derivative exposures arise from efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps, foreign exchange forward contracts for asset and liability management and the matching of Guaranteed Equity Bonds within the Nationwide portfolio. Derivative assets are shown gross of derivative liabilities and include £2,112m (H1 10: £2,764m; FY 10: £2,217m) held on behalf of unit linked policyholders.
2.14  Dividends
				Per		Per		Per
				share	Total	share	Total	share	Total
								Full year	Full year
				30.06.11	30.06.11	30.06.10	30.06.10	31.12.10	31.12.10
				p	£m	p	£m	p	£m
Ordinary share dividends paid
in the period				3.42	201	2.73	160	4.06	238
Ordinary share dividend proposed¹				1.66	97	1.33	78	3.42	201
1. The dividend proposed has not been included as a liability in the balance sheet.
International Financial Reporting Standards								Page 51
Notes to the Financial Statements
2.15  Ordinary shares
					Number		Number		Number
					of		of		of
					shares		shares		shares
									Full year
					30.06.11		30.06.10		31.12.10
As at 1 January				5,866,669,323		5,862,216,780		5,862,216,780
Options exercised under share option schemes
- Executive share option scheme				1,181,589		209,065		295,065
- Savings related share option scheme				2,897,884		3,226,135		4,157,478
As at 30 June / 31 December				5,870,748,796		5,865,651,980		5,866,669,323
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.
2.16  Analysis of borrowings
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)							691	698	690
5.875% Sterling undated subordinated notes (Tier 2)							422	424	423
4.0% Euro subordinated notes 2025 (Tier 2)							508	455	488
10% Sterling subordinated notes 2041 (Tier 2)							308	308	308
Client fund holdings of Group debt1							(14)	(10)	(12)
Total subordinated borrowings							1,915	1,875	1,897
Senior borrowings
Sterling medium term notes 2031-2041							602	602	608
Euro Commercial paper 2011							204	106	279
Bank loans/other							72	28	9
Non recourse financing
- US Dollar Triple X securitisation 2025							-	283	61
- US Dollar Triple X securitisation 2037							276	296	283
- Suffolk Life unit linked borrowings							136	147	154
- LGV 6 Private Equity Fund Limited Partnership							85	39	86
Client fund holdings of Group debt1							(51)	(46)	(45)
Total senior borrowings							1,324	1,455	1,435
Total borrowings							3,239	3,330	3,332
Total borrowings (excluding non recourse financing)							2,742	2,565	2,748
1. £65m (H1 10: £56m; FY 10: £57m) of the Group's subordinated and senior debt is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the tables above.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital.  These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes.  These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
4.0% Euro subordinated notes 2025
In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.
International Financial Reporting Standards								Page 52
Notes to the Financial Statements
2.16  Analysis of borrowings (continued)
10% Sterling subordinated notes 2041
On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.
Non recourse financing
US Dollar Triple X securitisation 2025
In 2004, a subsidiary of Legal & General America Inc issued US$550m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business. As at 30 June 2011, all of the outstanding debt had been redeemed and cancelled.
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of Legal & General America Inc issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.
Suffolk Life unit linked borrowings
These borrowings relate solely to client investments.
LGV6 Private Equity Fund Limited Partnership
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2011, the Group had in place a £960m syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2012. The Group also had in place a £60m bilateral committed revolving credit facility from one of its key relationship banks also maturing in December 2012. No drawings were made under these facilities in 2011 to date.
Holding company short term assets
Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £276m (Euro Commercial Paper and Bank Loans).
2.17  Non-controlling interests
Non-controlling interests represent third party interests in property investment vehicles which are consolidated in the Group's results.  The increase in the non-controlling interests in 2011 arises from the dilution of the Group's share in the L&G UK Property Ungeared Fund Limited Partnership.
2.18  Foreign exchange rates
Principal rates of exchange used for translation are:
							At	At	At
Period end exchange rates							30.06.11	30.06.10	31.12.10
United States Dollar							1.61	1.50	1.57
Euro							1.11	1.22	1.17
							01.01.11-	01.01.10-	01.01.10-
Average exchange rates							30.06.11	30.06.10	31.12.10
United States Dollar							1.62	1.53	1.55
Euro							1.15	1.15	1.17
International Financial Reporting Standards								Page 53
Notes to the Financial Statements
2.19  Related party transactions
There were no material transactions between key management and the Legal & General group of companies.  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 £14m (H1 10: £14m; FY 10: £60m).
At 30 June 2011, 30 June 2010 and 31 December 2010 there were no loans outstanding to officers of the Company.
Key management personnel compensation
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
									Full year
							30.06.11	30.06.10	31.12.10
							£m	£m	£m
Salaries							2	2	7
Social security costs							-	-	1
Post-employment benefits							1	1	1
Share-based incentive awards							1	2	3
Key management personnel compensation							4	5	12
Number of key management personnel							17	17	18
The UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £14m (H1 10: £36m; FY 10: £74m) during the period, priced on an arm's length basis.
The Group's investment portfolio includes investments in venture capital, property and financial investments which are held via collective investment vehicles.  Net investments into associate investment vehicles totalled £1,161m during H1 11 (H1 10: £1,704m; FY 10: £1,266m). The Group has outstanding loans to these associates of £7m (H1 10: £11m; FY 10: £3m) and received investment management fees of £15m during the period (H1 10: £21m; FY 10: £36m). Distributions from these investment vehicles to the Group totalled £29m (H1 10: £65m; FY 10: £97m).
2.2  Pension cost
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2011, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £153m (H1 10: £209m; FY 10: £169m). These amounts have been recognised in the financial statements with £91m charged against shareholder equity (H1 10: £124m; FY 10: £100m) and £62m against the unallocated divisible surplus (H1 10: £85m; FY 10: £69m).
2.21  Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the FSA, ombudsman rulings, industry compensation schemes and court judgments.
Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the Group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.
In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society.  In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition.  Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain.  The Society has made no payment or provision in respect of this matter.
Group companies have given indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions. Legal & General Group plc has provided indemnities and guarantees in respect of the liabilities of Group companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain Group companies' liabilities under the Group pension fund and scheme.

International Financial Reporting Standards

Page 54

Independent review report to Legal & General Group Plc - IFRS

Introduction

We have been engaged by the company to review the consolidated interim financial information in the Half-year report for the six months ended 30 June 2011, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and related notes on pages 39 to 53. We have read the other information contained in the Half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated interim financial information.

Directors' responsibilities

The Half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 2.08, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The consolidated interim financial information included in this Half-year report has been prepared in accordance with International Accounting Standard 34, 'Interim financial reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the consolidated interim financial information in the Half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial information in the Half-year report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

2 August 2011

Notes:

(a) The consolidated interim financial information is published on the website of Legal & General Group Plc, legalandgeneralgroup.com.  The maintenance and integrity of the Legal & General Group Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Half-year report since it was initially presented on the web site.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

 

END

 

 

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