L&G 2011 HY Results - Part 3

RNS Number : 6173L

Legal & General Group Plc

03 August 2011

 



Net Cash and Capital									Page 55
3.01  Operational cash generation
The operational cash definition for the Group capital and financing segment has been amended to be equal to the post-tax IFRS operating profit. At H1 10 and FY 10, the operational cash definition for the group capital and financing segment represented the post-tax IFRS operating profit excluding expected gains/losses on equities. The change in definition aligns the treatment between equities and fixed income securities. The application of the change in operational cash definition has increased the reported net cash by £18m (H1 10: £15m; FY 10: £32m).
The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to IFRS profit after tax.
	Oper-					Invest-		IFRS		IFRS
	ational					ment		profit/		profit/
	cash	New				gains		(loss)	Tax	(loss)
	gener-	business	Net	Inter-		and		after	expense/	before
	ation	strain	cash	national	Variances	losses	Other	tax	(credit)	tax
Six months ended 30 June 2011	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit	233	(40)	193	-	(20)	-	-	173	63	236
Total Savings operating profit	89	(31)	58	-	(4)	-	(4)	50	18	68
Investment management
operating profit	91	-	91	-	-	-	-	91	26	117
International	35	-	35	9	-	-	-	44	22	66
Group capital and financing	50	-	50	-	-	-	-	50	11	61
Investment projects	-	-	-	-	-	-	(18)	(18)	(7)	(25)
Operating profit	498	(71)	427	9	(24)	-	(22)	390	133	523
Investment variance	-	-	-	-	-	(27)	-	(27)	(22)	(49)
Impact of change in UK tax rates	-	-	-	-	-	-	(4)	(4)	4	-
Property losses attributable to
non-controlling interests	-	-	-	-	-	-	(1)	(1)	-	(1)
Total	498	(71)	427	9	(24)	(27)	(27)	358	115	473
	Oper-					Invest-		IFRS		IFRS
	ational					ment		profit/		profit/
	cash	New				gains		(loss)	Tax	(loss)
	gener-	business	Net	Inter-		and		after	expense/	before
	ation	strain	cash	national	Variances	losses	Other	tax	(credit)	tax
Six months ended 30 June 2010	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit	212	(10)	202	-	22	-	-	224	86	310
Total Savings operating profit	72	(34)	38	-	5	-	(5)	38	16	54
Investment management
operating profit	70	-	70	-	-	-	-	70	28	98
International	33	-	33	7	-	-	-	40	21	61
Group capital and financing	30	-	30	-	-	-	-	30	3	33
Investment projects	-	-	-	-	-	-	(10)	(10)	(4)	(14)
Operating profit	417	(44)	373	7	27	-	(15)	392	150	542
Investment variance	-	-	-	-	-	10	-	10	(14)	(4)
Property losses attributable to
non-controlling interests	-	-	-	-	-	-	(1)	(1)	-	(1)
Total	417	(44)	373	7	27	10	(16)	401	136	537
Net Cash and Capital									Page 56
3.01  Operational cash generation (continued)
	Oper-					Invest-		IFRS		IFRS
	ational					ment		profit/		profit/
	cash	New				gains		(loss)	Tax	(loss)
	gener-	business	Net	Inter-		and		after	expense/	before
	ation	strain	cash	national	Variances	losses	Other	tax	(credit)	tax
Year ended 31 December 2010	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit	439	(10)	429	-	(26)	-	-	403	157	560
Total Savings operating profit	138	(70)	68	-	21	-	(9)	80	35	115
Investment management								-
operating profit	162	-	162	-	-	-	-	162	44	206
International	44	-	44	33	-	-	-	77	25	102
Group capital and financing	57	-	57	-	-	-	-	57	1	58
Investment projects	-	-	-	-	-	-	(28)	(28)	(11)	(39)
Operating profit	840	(80)	760	33	(5)	-	(37)	751	251	1,002
Investment variance	-	-	-	-	-	74	-	74	16	90
Impact of change in UK tax rates	-	-	-	-	-	-	(5)	(5)	5	-
Property losses attributable to
non-controlling interests	-	-	-	-	-	-	-	-	-	-
Total	840	(80)	760	33	(5)	74	(42)	820	272	1,092
Variances
					Risk	Savings	Risk	Savings	Risk	Savings
					£m	£m	£m	£m	£m	£m
			Notes		30.06.11	30.06.11	30.06.10	30.06.10	31.12.10	31.12.10
Experience variances			2.01(c)/2.02(c)		(7)	(3)	(3)	9	67	10
Changes to valuation assumptions			2.01(d)/2.02(d)		30	3	98	(6)	30	28
Movements in non-cash items			2.01(e)/2.02(e)		(43)	(8)	(78)	3	(122)	(21)
Other			2.01(b)/2.02(b)		-	4	5	(1)	(1)	4
Total					(20)	(4)	22	5	(26)	21
Net Cash and Capital									Page 57
3.02  Regulatory capital resources
(a)  Insurance Groups Directive (IGD)
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates.  At Group level, Legal & General must comply with the requirements of the IGD.  The table below shows the estimated total Group capital resources, Group capital resources requirement and the surplus based on unaudited regulatory returns.
								At 30.06.11	At 30.06.10	At 31.12.10
								£bn	£bn	£bn
Core tier 1								6.2	5.3	5.9
Innovative tier 1								0.6	0.6	0.6
Upper tier 2								0.4	0.4	0.4
Lower tier 2								0.8	0.8	0.8
Deductions1								(1.1)	(1.1)	(1.0)
Group capital resources								6.9	6.0	6.7
Group capital resources requirement2								2.9	2.7	3.0
IGD surplus3								4.0	3.3	3.7
Coverage ratio (Group capital resources / Group capital resources requirement)4								2.38	2.22	2.26
								times	times	times
1.  Deductions comprises inadmissible assets in Legal & General America of £0.8bn (H1 10: £0.9bn; FY 10: £0.8bn), in Society of £0.1bn (H1 10: £0.1bn; FY 10: £0.1bn) and in other subsidiaries of £0.2bn (H1 10: £0.1bn; FY 10: £0.1bn).
2.  The Group capital resources requirement includes a With-profits Insurance Capital Component (WPICC) of £0.2bn (H1 10: £0.1bn; FY 10: £0.3bn).
3.  The IGD surplus is stated after accruing for the period end dividend and excludes £0.3bn (H1 10: £nil; FY 10: £0.3bn) of restricted assets in the Society long term fund (LTF).
4.  Coverage ratio is calculated on unrounded values.
A segmental analysis is given below.
								At 30.06.11	At 30.06.10	At 31.12.10
								£bn	£bn	£bn
Society long term fund1								2.5	2.1	2.6
Society shareholder capital								2.7	2.6	2.5
General insurance								0.1	0.1	0.1
France								0.2	0.2	0.2
Netherlands								0.2	0.2	0.2
Nationwide Life								0.1	0.1	0.1
USA								0.2	0.2	0.5
Investment management								0.4	0.4	0.3
Other2								1.4	0.9	1.1
Innovative tier 1								0.6	0.6	0.6
Tier 2								1.2	1.2	1.2
Debt								(2.7)	(2.6)	(2.7)
Group capital resources								6.9	6.0	6.7
Society long term fund1								2.5	2.3	2.6
Other								0.4	0.4	0.4
Group capital resources requirement								2.9	2.7	3.0
1. The Society LTF capital requirement of £2.5bn (H1 10: £2.3bn; FY 10: £2.6bn) is met by £2.8bn (H1 10: £2.1bn; FY 10: £2.9bn) of capital resources in the LTF and £nil (H1 10: £0.2bn; FY 10: £nil) of capital outside the LTF.
2. Other includes corporate assets held within the Group's Treasury function.
Net Cash and Capital									Page 58
3.02  Regulatory capital resources (continued)
(a)  Insurance Group's Directive (IGD) (continued)
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.
								At 30.06.11	At 30.06.10	At 31.12.10
								£bn	£bn	£bn
Capital and reserves attributable to equity holders on an IFRS basis								5.0	4.5	4.8
Innovative tier 1								0.6	0.6	0.6
Tier 2								1.2	1.2	1.2
Proposed dividends								(0.1)	(0.1)	(0.2)
Additional capital available from Society								1.0	0.7	1.1
Adjustment to reflect regulatory value of the USA operation								(0.8)	(0.9)	(0.8)
Other regulatory adjustments								-	-	-
Group capital resources								6.9	6.0	6.7
(b)  With-profits realistic balance sheet
The table below summarises the realistic position of the with-profits part of Society's LTF:
								At 30.06.11	At 30.06.10	At 31.12.10
								£bn	£bn	£bn
With-profits surplus								0.8	0.8	0.9
Risk capital margin								0.1	0.3	0.2
Surplus								0.7	0.5	0.7
Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (peak 2).  The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the FSA. The surplus includes the present value of future shareholder transfers of £0.4bn (H1 10: £0.2bn; FY 10: £0.4bn) as a liability in the calculation.
(c)  Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis.
					At	At	At	At	At	At
					30.06.11	30.06.11	30.06.10	30.06.10	31.12.10	31.12.10
					Long		Long		Long
					term	General	term	General	term	General
					business	insurance	business	insurance	business	insurance
					£bn	£bn	£bn	£bn	£bn	£bn
Available capital resources - Tier 1					5.7	0.1	5.2	0.1	5.6	0.1
Insurance capital requirement					2.3	0.1	2.2	0.1	2.3	0.1
Capital requirements of regulated related undertakings					0.2	-	0.2	-	0.2	-
With-profits Insurance Capital Component					0.2	-	0.1	-	0.3	-
Capital resources requirement					2.7	0.1	2.5	0.1	2.8	0.1
Regulatory capital surplus1					3.0	-	2.7	-	2.8	-
1. Society regulatory capital surplus is stated after excluding £0.3bn (H1 10: £nil; FY 10: £0.3bn) of capital arising in the LTF that is restricted for the purposes of Group IGD,
Movement in Society long term insurance capital requirement
								At 30.06.11	At 30.06.10	At 31.12.10
Pillar 1 capital requirement								£bn	£bn	£bn
Protection								0.7	0.7	0.6
Annuities								0.9	0.8	0.9
Non profit pensions and unit linked bonds								0.1	0.1	0.1
Non profit								1.7	1.6	1.6
With-profits								0.6	0.6	0.7
Long term insurance capital requirement								2.3	2.2	2.3
On a regulatory basis (peak 1), Society long term business regulatory capital surplus of £3.0bn (H1 10: £2.7bn; FY 10: £2.8bn) comprises capital resources within the long term fund of £2.5bn (H1 10: £2.1bn; FY 10: £2.6bn) and capital resources outside the long term fund of £3.2bn (H1 10: £3.1bn; FY 10: £3.0bn) less the capital resources requirement of £2.7bn (H1 10: £2.5bn; FY 10: £2.8bn).
The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a peak 2 basis is lower than on a peak 1 basis and represents the difference in the surplus between the two bases.  It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b).  A further adjustment is made to the peak 2 surplus to remove the present value of future shareholder transfers which is treated as a liability in Society's with-profits realistic surplus.  At 30 June 2011, this adjustment amounted to £0.4bn (H1 10: £0.2bn; FY 10: £0.4bn).

 

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