L&G Full Year Results 2017 Part 3

RNS Number : 9080G
Legal & General Group Plc
07 March 2018
 

Legal & General Group Plc

Full year results 2017 Part 3

 

Capital and Investments                                                                                                               Page 69

 

5.01 Group regulatory capital - Solvency II

 

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

 

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

 

In December 2015, the group received approval to calculate its Solvency II capital requirements using a Partial Internal Model (together with the approval by the PRA of applications for major model change in December 2016 and December 2017). The vast majority of the risk to which the group is exposed is assessed on the Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.

 

The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (recalculated as at end December 2017 in line with the PRA guidance).



(a) Capital position












As at 31 December 2017 the group had a Solvency II surplus of £6.9bn (31 December 2016: £5.7bn) over its Solvency Capital Requirement, corresponding to a coverage ratio on a "shareholder view" basis of 189% (31 December 2016: 171%). The shareholder view of the Solvency II capital position is as follows:

 





2017

2016

 





£bn

£bn

 







 







 

Core tier 1 Own Funds


11.6

11.0

 

Tier 1 subordinated liabilities1


-

0.6

 

Tier 2 subordinated liabilities2


3.1

2.1

 

Eligibility restrictions


 


(0.1)

(0.1)

 

Solvency II Own Funds3,4


14.6

13.6

 

Solvency Capital Requirement5


(7.7)

(7.9)

 







 



 




 

Solvency II surplus


6.9

5.7

 







 



 




 

SCR coverage ratio6


189%

171%

 







 

1. Tier 1 subordinated liabilities of £0.6bn were redeemed on 2 May 2017.






 

2. Tier 2 subordinated liabilities include $1.35bn of USD subordinated notes issued in 2017.






 

3. Own Funds do not include an accrual for the dividend of £658m (2016: £616m) declared after the balance sheet date.

 

4. Solvency II Own Funds allow for a risk margin of £5.9bn (2016: £6.4bn) and TMTP of £6.2bn (2016: £7.0bn).

 

5. The SCR is not subject to audit.




 

6. Coverage ratio is based on unrounded inputs.




 

 

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

 

On a proforma basis, which includes the contribution of with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR in group's SCR, the coverage ratio at 31 December 2017 is 181% (31 December 2016: 165%).

 

On 6 December 2017 the group announced its intention to sell the Mature Savings business to the ReAssure division of Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in mid-2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement has been reflected in the 2017 Own Funds. Due to the proximity of the transaction to the year end, the model change to make an allowance on the SCR will take place during 2018 and therefore the SCR in 2017 does not include any impact of the risk transfer agreement.

 

 

Capital and Investments                                                                                                               Page 70

 

5.01 Group regulatory capital - Solvency II (continued)

 

(b) Methodology

 

Own Funds comprise the excess of the value of assets over the liabilities, as valued on a Solvency II basis. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims. Own Funds include deductions in relation to fungibility and transferability restrictions, where the surplus Own Funds of a specific group entity cannot be freely transferred around the group due to local legal or regulatory constraints.

 

Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Solvency II balance sheet.

 

Liabilities are valued on a best estimate market consistent basis, with the application of a Solvency II Matching Adjustment for valuing annuity liabilities. This incorporates changes to the Internal Model and Matching Adjustment during 2017 and the impacts of a recalculation of the TMTP as at end December 2017. In line with the requirements to recalculate the TMTP every two years we applied to recalculate and the PRA granted approval in December 2017, but the PRA will not review our detailed methodology until later in 2018. The recalculated TMTP of £6.2bn (2016: £7.0bn) is net of amortisation to 31 December 2017.

 

The liabilities include a Risk Margin of £5.9bn (2016: £6.4bn) which represents an allowance for the cost of capital for a purchasing insurer to take on the portfolio of liabilities and residual risks that are deemed to be not hedgeable under Solvency II. This is calculated using a cost of capital of 6% as prescribed by the European Insurance and Occupational Pensions Authority (EIOPA).

 

The Solvency Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks to which they are exposed.

 

All material EEA insurance firms, including Legal & General Assurance Society Limited (the LGAS), Legal & General Insurance Limited, and Legal & General Assurance (Pensions Management) Limited are incorporated into the group's Solvency II Internal Model assessment of required capital, assuming diversification of the risks between and within those firms. These firms, as well as the non-EEA insurance firm (Legal & General Reinsurance Company Limited (LGRe) based in Bermuda) contribute over 97% of the group's SCR.

 

Firms for which the capital requirements are less material are valued on a Solvency II Standard Formula basis. Firms which are not regulated but which carry material risks to the group's solvency are modelled in the Internal Model on the basis of applying an appropriate stress to their net asset value.

 

Legal & General America's Banner Life and its subsidiaries (LGA) are incorporated into the calculation of group solvency using a Deduction and Aggregation basis. All risk exposure in these firms is valued on a local statutory basis, with capital requirements set to a multiple of local statutory Risk Based Capital (RBC) and further restrictions on the surplus contribution to the group. The US regulatory regime is considered to be equivalent to Solvency II by the European Commission. The contribution to group SCR is 150% of the local Company Action Level RBC (CAL RBC). The contribution to group's Own Funds is the SCR together with any surplus capital in excess of 250% of CAL RBC.

 

All non-insurance regulated firms are included using their current regulatory surplus.

 

Allowance is made within the Solvency II balance sheet for the group's defined benefit pension schemes using results on an IFRS basis. Within the SCR an allowance is made by stressing the IFRS result position using the same Internal Model basis as for the insurance firms.

 

The impact of the risk transfer agreement with the ReAssure division of Swiss Re has been reflected in the calculation of Own Funds. Due to the proximity of the transaction to the year end the model change required to reflect the impact of the agreement on the SCR has not been made.  The change is expected in H1 2018. The impact of recognising the risk transfer in Own Funds is to reduce the reported coverage ratio by 2%. Once the model change is implemented the coverage ratio is expected to improve by an estimated 2%. It is expected that there will be a further improvement in the group's coverage ratio in 2019 when the Part VII transfer is finalised.

 

 

Capital and Investments                                                                                                               Page 71

 

5.01 Group regulatory capital - Solvency II (continued)

 

(c) Assumptions

 

The calculation of the Solvency II balance sheet and associated capital requirements requires a number of assumptions, including:

 

(i)   assumptions required to derive the present value of best estimate liability cash flows. Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any prudence margins. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates, with a 10 basis points (2016: 17 basis points) deduction to allow for a credit risk adjustment for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

 

At 31 December 2017 the Matching Adjustment for UK GBP was 106 basis points (31 December 2016: 124 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 51 basis points (31 December 2016: 58 basis points). The reduction in Fundamental Spread is driven by change in the factors supplied by EIOPA and changes in the asset portfolio which have improved the overall credit quality.

 

(ii) assumptions regarding management actions and policyholder behaviour across the full range of scenarios. The only management actions allowed for are those that have been approved by the Board and are in place at the balance sheet date;

 

(iii) assumptions regarding the volatility of the risks to which the group is exposed. Assumptions have been set using a combination of historic market, demographic and operating experience data. In areas where data is not considered robust, expert judgement has been used; and

 

(iv)           assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.

 

 

(d) Analysis of change

 

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

 

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





The table below shows the movement (net of tax) during the financial year in the group's Solvency II surplus.







2017

2016



£bn

£bn









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


1.3

1.2

Release of Risk Margin1


0.4

0.3

Amortisation of TMTP2


(0.4)

(0.3)

Operational Surplus Generation3


1.3

1.2

New Business Strain


(0.1)

(0.1)

Net Surplus Generation


1.2

1.1

Dividends paid4


(0.9)

(0.8)

Operating variances5


0.4

0.2

Market movements6


-

(0.3)

Subordinated debt7


0.5

-





Total Surplus movement (after dividends paid in the year)


1.2

0.2





1. Based on the risk margin in force at the end of 2017 and does not include the release of any risk margin added by new business written in 2017.

2. TMTP amortisation based on a linear run down of the end-2016 TMTP of £5.9bn (net of tax, £7.0bn before tax) which was management's estimate of the TMTP on end-2017 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 2017 these are to deliver further eligible assets and liabilities into the Matching Adjustment portfolio in respect of a small amount of pension risk transfer business and an increase in direct investments allocation to the annuity back-book.

4. Dividends paid are the amounts from the 2016 final and 2017 interim dividend declarations paid in 2017 (2016: 2015 final and 2016 interim dividend declarations).

5. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, changes to planned volumes of new business, tax rate changes, PRA approval of changes to the Internal Model and Matching Adjustment and other management actions including changes in asset mix, Matching Adjustment optimisation, hedging strategies, M&A activities (sale of Mature Savings, Legal & General Netherlands and Cofunds) and update to the longevity assumptions.

6. Market movements represents the impact of changes in investment market conditions over the period and changes to future economic assumptions. It also includes the capital impact of investment portfolio changes implemented by LGC. Market movements in 2017 include a reduction in the Risk Margin of £0.2bn (net of tax). 31 December 2016 included an increase in the Risk Margin of £1.1bn (net of tax) offset by an increase in the estimated TMTP of £1.0bn (net of tax).

7. Movement in subordinated debt includes $1.35bn US Dollar subordinated notes issued and £0.6bn of sub-debt redeemed.





 

 

Capital and Investments                                                                                                               Page 72

 

5.01 Group regulatory capital - Solvency II (continued)










(e) 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.









2017

2016




£bn

£bn











IFRS Release from Operations

1.3

1.3

Expected release of IFRS prudential margins

(0.5)

(0.5)

Releases of IFRS specific reserves1

(0.1)

(0.1)

Solvency II investment margin2,3

0.2

0.2

Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation4

0.4

0.4

Other Solvency II items and presentational differences

-

(0.1)






Solvency II Operational Surplus Generation

1.3

1.2






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

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

3. Expected market returns earned on LGR's free assets in excess of risk free rates over 2017.

4. Solvency II Operational Surplus Generation includes management actions which at the start of 2017 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.




2017

2016




£bn

£bn

IFRS New Business Surplus

0.2

0.2

Removal of requirement to set up prudential margins above best estimate on New Business1

0.2

0.5

Set up of Solvency II Capital Requirement on New Business2

(0.3)

(0.7)

Set up of Risk Margin on New Business3

(0.2)

(0.1)

Solvency II New Business Strain



(0.1)

(0.1)

1. Release of margin was higher in 2016 primarily due to the acquisition of bulk-annuity liabilities from Aegon.

2. The lower SCR for 2017 new business strain reflects both premiums written and the success of our strategy to source direct investments (including lifetime mortgages) to back new annuity sales.

3. Risk Margin in 2016 is net of Estimated TMTP attached to the acquisition of bulk-annuity liabilities from Aegon.






 

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






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

 

 

  

2017

2016

 

 

  

£bn

£bn

IFRS shareholders' equity


  

7.8

6.9

Remove DAC, goodwill and other intangible assets and liabilities

(1.9)

(2.1)

Add IFRS carrying value of subordinated debt treated as available capital under Solvency II1

2.9

2.5

Insurance contract valuation differences2

7.4

7.9

Difference in value of net deferred tax liabilities

(0.6)

(0.5)

SCR for with-profits fund and final salary pension schemes

(0.7)

(0.7)

Other3

(0.2)

(0.3)

Eligibility restrictions4

(0.1)

(0.1)

Own Funds5

14.6

13.6

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

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

3. Reflects valuation differences on other assets and liabilities, predominately in respect of borrowings measured at fair value under Solvency II.

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

5. Own Funds do not include an accrual for the dividend of £658m (2016: £616m) declared after the balance sheet date.

 

 

Capital and Investments                                                                                                               Page 73

 

5.01 Group regulatory capital - Solvency II (continued)










(g) Sensitivity analysis

 

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 31 December 2017 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




surplus7

ratio7

surplus

ratio




2017

2017

2016

2016




£bn

%

£bn

%















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

0.2

8

0.2

7

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

(0.3)

(9)

(0.2)

(7)

Credit migration3

(0.5)

(6)

(0.6)

(8)

25% rise in equity markets4

0.5

5

0.5

6

25% fall in equity markets4

(0.5)

(5)

(0.5)

(6)

15% fall in property markets

(0.4)

(4)

(0.2)

(3)

15% rise in property markets

0.3

4

0.2

3

100bps increase in risk free rates

0.8

20

1.0

22

50bps decrease in risk free rates5

(0.5)

(10)

(0.5)

(10)

Substantially reduced Risk Margin6

0.1

1

0.1

1

1. The spread sensitivity applies to all assets within the group's holdings where the capital treatment depends on a credit rating (for example corporate bonds and income strips), with no change in the firm's long term default expectations.

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

3. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds and income strips).

4. The +/-25% equity impacts from 2016 were approximated using existing sensitivities.

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

6. This represents a reduction of two-thirds in Risk Margin and subsequent recalculation of TMTP.

7. The 2017 sensitivities ignore the impact of the Mature Savings business (including the With-Profits fund) as the risks have been transferred to ReAssure division of Swiss Re from 1 January 2018.








The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. These results all allow (on an approximate basis) for the recalculation of TMTP as at 31 December 2017 where the impact of the stress would cause this to change materially. 

 

The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress. The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if performed at an alternative reporting date.

 

 

Capital and Investments                                                                                                               Page 74

 

5.01 Group regulatory capital - Solvency II (continued)






(h) Analysis of Group Solvency Capital Requirement


The table below shows a breakdown of the group's SCR by risk type. The split is shown before the effects of diversification and tax.









2017

2016




%

%











Interest Rate  



2

4

Equity  



6

5

Property  



5

5

Credit1



26

25

Currency  



3

3

Inflation



4

2

Total Market Risk2



46

44

Counterparty Risk  



1

1

Life Mortality  



2

3

Life Longevity3



31

32

Life Mass Lapse  



2

2

Life Non-Mass Lapse



3

3

Life Catastrophe  



3

4

Expense  



3

3

Total Insurance Risk  



44

47

Non-life underwriting



2

2

Operational Risk  



4

4

Miscellaneous4



3

2

 










Total SCR



100

100






1. Credit risk is one of the group's most significant exposures, arising predominantly from the portfolio of bonds and bond-like assets backing the group's annuity business.

2. In addition to credit risk the group also has significant exposure to other market risks, primarily due to the investment holdings within the shareholder funds but also the risk to fee income from assets backing unit linked Savings business.

3. Longevity risk is the group's most significant insurance risk exposure, arising from the annuity book on which the majority of the longevity risk is retained.

4. Miscellaneous includes LGA on a Deduction and Aggregation basis and the sectoral capital requirements for non-insurance regulated firms.






 

 

Capital and Investments                                                                                                               Page 75

 

5.02 Estimated Solvency II new business contribution















(a) New business by product1








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




Contri-



Contri-





bution



bution





from new



from new




PVNBP

business2

Margin3

PVNBP

business2

Margin



2017

2017

2017

2016

2016

2016



£m

£m

%

£m

£m

%

















LGR - UK annuity business


4,083

346

8.5

6,661

693

10.4









UK Protection Total


1,496

129

8.6

1,466

153

10.4

- Retail Protection


1,293

111

8.6

1,255

139

11.1

- Group Protection


203

18

8.7

211

14

6.6









US Protection4


764

89

11.7

631

78

12.4

















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 $985m (2016: $855m) and a contribution from new business of $115m (2016: $106m).

The change in LGR margin reflects differences in the mix of new business. In particular, 2017 margin includes a £250m scheme where the group passes on all of the risk and retains a small facilitation fee. We have maintained a strong pricing discipline in a competitive market.

 

In the UK Protection business, the increase in the Solvency II new business margin on Group Protection is more than offset by a reduction in the margin on new Retail Protection products, which is caused by competitive pressure and a change in mix towards lower margin products.

 

The new business contribution from US Protection has increased by 14% following a significant increase in new business sales. The Solvency II new business margin has reduced in the year as a result of competitive pricing movements during the year resulting in the higher new business volumes.

 

 

Capital and Investments                                                                                                               Page 76

 

5.02 Estimated Solvency II new business contribution (continued)

 

(b) Assumptions

 

 

The key economic assumptions as at 31 December 2017 are as follows:



%







Margin for risk


3.0




Risk free rate



- UK


1.6

- US


2.4

Risk discount rate (net of tax)


- UK


4.6

- US


5.4




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


3.0







 

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

 

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

 

·      The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is based on a level rate deduction from the expected returns for the overall annuities portfolio of 18 basis points.

 

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

 

 

Tax

 

The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19.25% and subsequent enacted future reductions in corporation tax to 19% from 1 April 2017 and 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.

 

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

 

 

Capital and Investments                                                                                                               Page 77

 

5.02 Estimated Solvency II new business contribution (continued)

 

(c) Methodology

 

Basis of preparation

 

The group is required to comply with the requirements established by the EU Solvency II Directive. Consequently, a Solvency II value reporting framework, which incorporates a best estimate of cash flows in relation to insurance assets and liabilities, has replaced European Embedded Value (EEV) reporting in the management information used internally to measure and monitor capital resources.  Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period, recognising that the statutory solvency in the UK is now on a Solvency II basis.  It has been calculated in a manner consistent with EEV principles.

 

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

 

Description of methodology

 

The objective of the Solvency II new business contribution is to provide shareholders with information on the long term contribution of new business written in 2017.

 

With the exception of the discount rate, cost of currency hedging and the statutory solvency basis, new business contribution arising from the new business premiums written during the reporting period has been calculated on the same economic and operating assumptions as would have been used under the EEV methodology.

 

The PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the calculation of the new business contribution for the financial period.

 

The new business margin is defined as new business contribution divided by the PVNBP. The premium volumes used to calculate the PVNBP are the same as those used to calculate new business contribution.

 

LGA is consolidated into the group solvency balance sheet on a US Statutory solvency basis.  Intra-group reinsurance arrangements are in place between the US and UK businesses, and it is expected that these arrangements will be periodically extended to cover recent new business. LGA new business premiums and contribution reflect the expected impact of LGA directly-written business at group level (i.e. looks through any intra-group reinsurance arrangements). 

 

Comparison to EEV new business contribution

 

The key difference between Solvency II and EEV new business contribution is the statutory solvency basis used for UK business.  Due to the different reserving and capital bases under Solvency II compared to Solvency I, the timing of profit emergence changes.  The impact on new business contribution therefore largely reflects the cost of capital effect of this change in profit timing.  The impact on new business contribution of moving to a Solvency II basis will differ by type of business.  Products which are more capital consumptive under Solvency II will have a lower new business value and vice versa for less capital consumptive products.

 

Projection assumptions

 

Cash flow projections are determined using best estimate assumptions for each component of cash flow for each line of business. Future economic and investment return assumptions are based on conditions at the end of the financial period.

 

Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

 

All costs relating to new business, even if incurred elsewhere in the group, are allocated to the new business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

 

Tax

 

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

 

Risk discount rate

 

The risk discount rate (RDR) is duration-based and is a combination of the risk free curve and a flat Margin for Risk, which reflects the residual risks inherent in the group's businesses, after taking account of margins in the statutory technical provisions, the required capital and the specific allowance for financial options and guarantees.

 

The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment 10 basis points for GBP and for USD (2016: 17 basis points for GBP and 15 basis points for USD).

 

The Margin for Risk has been determined based on an assessment of the group's weighted average cost of capital (WACC). This assessment incorporates a beta for the group, which measures the correlation of movements in the group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.

 

 

Capital and Investments                                                                                                               Page 78

 

5.02 Estimated Solvency II new business contribution (continued)

 

(c) Methodology (continued)

 

The WACC is derived from the group's cost of equity and debt, and the proportion of equity to debt in the group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the company's beta.

 

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a time adjusted rate of 17.5% (2016: 17.7%).

 

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital, the inherent strength of the group's regulatory reserves and the explicit deduction for the cost of options and guarantees, is appropriate to reflect the risks within the covered business.

 

(d) Reconciliation of PVNBP to gross written premium 










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








2017

2016




£bn

£bn











PVNBP



6.3

8.8

Effect of capitalisation factor  



(2.0)

(1.8)











New business premiums from selected lines



4.3

7.0

Other



2.4

1.9











Total LGR and LGI new business



6.7

8.9

Annualisation impact of regular premium long-term business  



(0.2)

(0.1)

IFRS gross written premiums from existing long-term insurance business  



2.8

2.5

IFRS gross written premiums from Savings business2



-

0.1

Deposit accounting for lifetime mortgage advances  



(1.0)

(0.6)

General Insurance gross written premiums



0.4

0.3

Future premiums on longevity swap new business



(0.8)

(0.9)











Total gross written premiums



7.9

10.2











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

2. This excludes gross written premiums from discontinued operations.


 

 

Capital and Investments                                                                                                               Page 79

 

5.03 Group Economic Capital

 

The group defines Economic Capital to be the amount of capital that the board believes the group needs to hold, over and above its liabilities, in order to meet its strategic objectives. This is not the same as regulatory capital which reflects regulatory rules and constraints. The group's objectives include being able to meet its liabilities as they fall due whilst maintaining the confidence of our investors, rating agencies, customers and intermediaries.

 

The Economic Capital results are estimated and unaudited.

 

The table below shows the group Own Funds, Economic Capital Requirement (ECR) and Surplus Own Funds based on group's Economic Capital model.

 

(a) Capital position












As at 31 December 2017, the group had an Economic Capital surplus of £9.3bn (31 December 2016: £8.3bn), corresponding to an Economic Capital coverage ratio of 254% (31 December 2016: 230%). The Economic Capital position is as follows:





2017

2016





£bn

£bn













Core tier 1 Own Funds




12.2

11.9

Tier 1 subordinated liabilities1




-

0.6

Tier 2 subordinated liabilities2




3.1

2.1

Own Funds3




15.3

14.6

Economic Capital Requirement4




(6.0)

(6.3)













Surplus Own Funds




9.3

8.3






-







ECR coverage ratio5




254%

230%













1. Tier 1 subordinated liabilities of £0.6bn were redeemed on 2 May 2017.






2. Tier 2 subordinated liabilities include $1.35bn of USD subordinated notes issued in 2017.






3. Economic Capital Own Funds do not include an accrual for the dividend of £658m (2016: £616m) declared after the balance sheet date.

4. The Economic Capital balance sheet and ECR are not subject to audit.






5. Coverage ratio uses unrounded inputs.












The Economic Capital position does not exclude the contribution of with-profits fund and the final salary pension schemes for Own Funds or ECR.

 

The impact of the risk transfer agreement with the ReAssure division of Swiss Re has been reflected in the calculation of Economic Capital Own Funds.  Due to the proximity of the transaction to the year end the model change required to reflect the impact of the risk transfer agreement on the ECR has not been made. The model change is expected during 2018. It is expected that there will be a further improvement in the group's Economic Capital coverage ratio in 2019 when the Part VII transfer is finalised.

 

(b) Methodology

 

Own Funds are defined to be the excess of the value of assets over the liabilities. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims.

 

Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Economic Capital balance sheet.

 

Liabilities are valued on a best estimate market consistent basis, with the application of an Economic Matching Adjustment for valuing annuity liabilities.

 

The Economic Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks that they are exposed to.

 

The liabilities include a Recapitalisation Cost to allow for the cost of recapitalising the balance sheet following the 1-in-200 stress in order to maintain confidence that our future liabilities will be met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the group could raise debt and allowing for diversification between all group entities.

 

All material insurance firms, including Legal & General Assurance Society Limited, Legal & General Insurance Limited and Legal & General Assurance (Pensions Management) Limited are incorporated into the group's Economic Capital model assessment of required capital, assuming diversification of the risks between the different firms within the group and between the risks to which they are exposed. These firms, as well as the non-EEA insurance firms (Legal & General America and Legal & General Reinsurance Company Limited based in Bermuda) contribute over 97% of the group's ECR. Firms for which the capital requirements are less material, are valued on the Solvency II Standard Formula basis. Non-insurance firms are included using their current regulatory surplus, without allowing for any diversification with the rest of the group.

 

Allowance is made within the Economic Capital balance sheet for the group's defined benefit pension schemes based upon the scheme's funding basis, and allowance is made within the capital requirement by stressing the funding position, using the same Economic Capital basis as for the insurance firms.

 

 

Capital and Investments                                                                                                               Page 80

 

5.04 Investment portfolio






















Market

Market1







value

value







2017

2016







£m

£m

















Worldwide total assets under management





984,120

903,886

Client and policyholder assets





(900,904)

(821,978)

Non-unit linked with-profits assets





(11,113)

(11,924)

















Investments to which shareholders are directly exposed



72,103

69,984



















Analysed by investment class:

















Other








non profit


Other





LGR

insurance

LGC

shareholder





investments

investments

investments

investments

Total

Total1



2017

2017

2017

2017

2017

2016


Notes

£m

£m

£m

£m

£m

£m

















Equities2


282

-

2,522

156

2,960

2,558

Bonds

5.06

52,476

1,619

2,501

479

57,075

54,852

Derivative assets


4,018

-

44

-

4,062

4,693

Property

5.07

2,7224

-

1105

-

2,832

2,604

Cash, cash equivalents and loans1


1,711

505

1,648

220

4,084

3,362

















Financial investments


61,209

2,124

6,825

855

71,013

68,069

















Other assets6


455

-

548

87

1,090

1,915

















Total investments


61,664

2,124

7,373

942

72,103

69,984

















1. Following a review of short dated instruments, certain assets have been reclassified from Cash, cash equivalents and loans to Bonds as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £1,489m and the analysis above has been restated to reflect this reclassification.

2. Equity investments include a total of £260m in respect of CALA Group Limited, Peel Media Holdings Limited (MediaCityUK), NTR Wind Management Ltd and Access Development Partnership (2016: £237m).

3. Derivative assets are shown gross of derivative liabilities of £2.3bn (2016: £2.9bn). Exposures arise from the 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. Included within other assets outside of Financial investments, LGR has a further £419m of property-related assets. Within the group's Solvency II capital calculations, these are combined with the £2,722m of property assets within Financial investments to give a total of £3,141m (2016: £2,872m), which are designated within those calculations as £1,987m (2016: £1,883m) of bonds and £1,154m (2016: £989m) of investment property.

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

6. Other assets include reverse repurchase agreements of £679m (2016: £1,883m).

 

 

Capital and Investments                                                                                                               Page 81

 

5.05 Direct Investments












(a) Analysed by asset class




















Direct1

Traded2


Direct1

Traded2,3



Investments

securities

Total

Investments

securities

Total


2017

2017

2017

2016

2016

2016


£m

£m

£m

£m

£m

£m















Equities

930

2,030

2,960

595

1,963

2,558

Bonds4

9,726

47,349

57,075

6,256

48,596

54,852

Derivative assets

-

4,062

4,062

-

4,693

4,693

Property5

2,832

-

2,832

2,604

-

2,604

Cash, cash equivalents and loans

474

3,610

4,084

518

2,844

3,362

Other assets

411

679

1,090

32

1,883

1,915
















14,373

57,730

72,103

10,005

59,979

69,984















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. Following a review of short dated instruments, certain assets have been reclassified from Cash, cash equivalents and loans to Bonds as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £1,489m and the analysis above has been restated to reflect this reclassification.

4. Direct Investment bonds include lifetime mortgages of £2,023m (2016: £852m).

5. A further breakdown of property is provided in note 5.07.



(b) Analysed by segment




















LGR

LGC1

LGI2

Total






2017

2017

2017

2017






£m

£m

£m

£m


-

















Equities





-

922

8

930

Bonds3


9,272

22

432

9,726

Property4


2,722

110

-

2,832

Cash, cash equivalents and loans5


88

150

236

474

Other assets6


92

319

-

411
























12,174

1,523

676

14,373



















1. LGI includes £8m of equity investments in LGI UK. The bonds and loans and receivables are in the US business.


2. LGC includes £30m of equities, £19m of bonds and £23m of property that belong to other shareholder funds.


3. Direct Investment bonds include lifetime mortgages of £2,023m (2016: £852m).

4. A further breakdown of property is provided in note 5.07.

5. Cash, cash equivalents and loans only include loans.

6. Other assets include finance leases of £92m and property under construction of £270m.




 















LGR

LGC

LGI

Total






2016

2016

2016

2016






£m

£m

£m

£m



















Equities





-

595

-

595

Bonds1



5,655

228

373

6,256

Property2



2,442

162

-

2,604

Cash, cash equivalents and loans3



33

120

365

518

Other assets





-

32

-

32
























8,130

1,137

738

10,005



















1. Direct Investments bonds include lifetime mortgages of £852m.

2. A further breakdown of property is provided in note 5.07.

3. Cash, cash equivalents and loans only include loans.

 

 

Capital and Investments                                                                                                               Page 82

 

5.05 Direct Investments (continued)
















(c) Movement in the period













Carrying



Change in

Carrying




value



market

value




1 January 2017

Additions

Disposals

value

31 December 2017




£m

£m

£m

£m

£m

















Equities



595

424

(169)

80

930

Bonds


6,256

3,464

(265)

271

9,726

Property



2,604

753

(664)

139

2,832

Cash, cash equivalents and loans


518

32

(43)

(33)

474

Other assets



32

379

-

-

411




















10,005

5,052

(1,141)

457

14,373



























 

 

Capital and Investments                                                                                                               Page 83

 

5.06  Bond portfolio summary
















(a) LGR analysed by sector
















Sectors analysed by credit rating






















BB or





AAA

AA

A

BBB

 below

LGR

LGR



2017

2017

2017

2017

2017

2017

2017



£m

£m

£m

£m

£m

£m

%



















Sovereigns, Supras and Sub-Sovereigns

1,220

8,604

186

238

10

10,258

20

Banks:









    - Tier 1


-

-

-

-

-

-

-

    - Tier 2 and other subordinated


142

-

63

31

-

236

1

    - Senior


-

682

1,740

47

-

2,469

5

    - Covered


193

-

-

-

-

193

-

Financial Services:









    - Tier 2 and other subordinated


-

123

113

9

-

245

1

    - Senior


-

307

348

187

-

842

2

Insurance:









    - Tier 1


-

-

-

-

-

-

-

    - Tier 2 and other subordinated


-

124

1

46

-

171

-

    - Senior


-

116

458

65

-

639

1

Consumer Services and Goods:









    - Cyclical


-

271

798

1,510

213

2,792

5

    - Non-cyclical


201

574

1,239

2,031

126

4,171

8

    - Health care


3

32

232

176

-

443

1

Infrastructure:









    - Social


93

708

3,442

1,111

21

5,375

10

    - Economic


179

30

937

2,179

43

3,368

6

Technology and Telecoms


60

148

777

1,941

26

2,952

6

Industrials


-

-

774

274

9

1,057

2

Utilities


-

107

4,800

3,666

11

8,584

17

Energy


-

-

106

538

16

660

1

Commodities


-

-

246

490

19

755

1

Oil and Gas


-

304

616

541

170

1,631

3

Real estate


-

22

1,044

1,166

49

2,281

4

Structured finance ABS / RMBS / CMBS / Other

176

681

172

151

55

1,235

2

Lifetime mortgage loans1


-

1,972

51

-

-

2,023

4

CDOs


-

22

60

14

-

96

-



















Total


2,267

14,827

18,203

16,411

768

52,476

100



















Total %


4

28

36

31

1

100





























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

 

 

Capital and Investments                                                                                                               Page 84

 

5.06  Bond portfolio summary (continued)
















(a) LGR analysed by sector (continued)
















Sectors analysed by credit rating (continued)














BB or






AAA1

AA1

A1

BBB1

 below1

LGR1

LGR1




At

At

At

At

At

At

At




2016

2016

2016

2016

2016

2016

2016




£m

£m

£m

£m

£m

£m

%





















Sovereigns, Supras and Sub-Sovereigns



912

9,961

285

229

34

11,421

24

Banks:










    - Tier 1



-

-

-

-

12

12

-

    - Tier 2 and other subordinated



211

49

62

41

-

363

1

    - Senior



8

436

1,201

59

-

1,704

3

    - Covered



259

-

16

-

-

275

1

Financial Services:










    - Tier 2 and other subordinated



-

87

59

56

-

202

-

    - Senior



-

371

125

110

-

606

1

Insurance:










    - Tier 1



-

-

-

1

-

1

-

    - Tier 2 and other subordinated



-

45

3

68

-

116

-

    - Senior



8

88

485

76

-

657

1

Consumer Services and Goods








    - Cyclical



-

389

1,088

1,755

165

3,397

7

    - Non-cyclical



260

647

1,380

1,373

115

3,775

8

    - Health care



3

13

15

10

1

42

-

Infrastructure:










    - Social



-

624

3,259

926

148

4,957

10

    - Economic



-

-

873

1,313

44

2,230

4

Technology and Telecoms



57

203

610

2,104

84

3,058

6

Industrials



-

142

741

362

37

1,282

3

Utilities



-

101

4,903

3,142

12

8,158

16

Energy



-

-

106

554

31

691

1

Commodities



-

-

304

475

77

856

2

Oil and Gas



-

281

544

633

180

1,638

3

Property



-

-

1

6

-

7

-

Real estate



-

305

628

1,063

48

2,044

4

Structured finance ABS / RMBS / CMBS / Other

121

671

572

46

49

1,459

3

Lifetime mortgage loans2



388

322

91

51

-

852

2

CDOs



-

-

59

14

-

73

-





















Total1



2,227

14,735

17,410

14,467

1,037

49,876

100





















Total %



4

30

35

29

2

100






















1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £406m and the analysis above has been restated to reflect this reclassification.          

 

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

 

 

Capital and Investments                                                                                                               Page 85

 

 

5.06  Bond portfolio summary (continued)
















(a) LGR analysed by sector (continued)

















Sectors analysed by domicile














EU

Rest of






UK

US

excluding UK

the World

LGR





2017

2017

2017

2017

2017





£m

£m

£m

£m

£m



















Sovereigns, Supras and Sub-Sovereigns



8,052

925

978

303

10,258

Banks




1,351

690

662

195

2,898

Financial Services




364

68

655

-

1,087

Insurance




135

531

91

53

810

Consumer Services and Goods:








    - Cyclical




597

1,919

210

66

2,792

    - Non-cyclical




1,298

2,553

314

6

4,171

    - Health care




1

442

-

-

443

Infrastructure:









    - Social




5,051

287

-

37

5,375

    - Economic




2,658

310

34

366

3,368

Technology and Telecoms




686

1,300

556

410

2,952

Industrials




195

523

263

76

1,057

Utilities




3,997

1,233

2,280

1,074

8,584

Energy




-

583

5

72

660

Commodities




8

263

34

450

755

Oil and Gas




259

418

429

525

1,631

Real estate




1,600

359

44

278

2,281

Structured finance ABS / RMBS / CMBS / Other

1,011

192

10

22

1,235

Lifetime mortgages




2,023

-

-

-

2,023

CDOs




-

22

-

74

96



















Total




29,286

12,618

6,565

4,007

52,476











 

 

Capital and Investments                                                                                                               Page 86

 

5.06  Bond portfolio summary (continued)
















(a) LGR analysed by sector (continued)
















Sectors analysed by domicile (continued)













EU

Rest of






UK1

US1

excluding UK1

the World1

LGR1





2016

2016

2016

2016

2016





£m

£m

£m

£m

£m



















Sovereigns, Supras and Sub-Sovereigns




9,128

782

1,003

508

11,421

Banks




948

680

537

189

2,354

Financial Services




389

76

342

1

808

Insurance




176

528

15

55

774

Consumer Services and Goods:









    - Cyclical




783

2,229

255

130

3,397

    - Non-cyclical




1,142

2,419

201

13

3,775

    - Health care




4

37

1

-

42

Infrastructure:









    - Social




4,785

137

-

35

4,957

    - Economic




1,934

74

.

222

2,230

Technology and Telecoms




582

1,305

746

425

3,058

Industrials




148

656

301

177

1,282

Utilities




3,673

1,191

2,387

907

8,158

Energy




-

589

6

96

691

Commodities




16

290

27

523

856

Oil and Gas




183

485

417

553

1,638

Property




-

7

-

-

7

Real estate




1,629

340

17

58

2,044

Structured finance ABS / RMBS / CMBS / Other


1,016

50

375

18

1,459

Lifetime mortgages

852

-

-

-

852

CDOs




-

-

-

73

73



















Total




27,388

11,875

6,630

3,983

49,876



















1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £406m and the analysis above has been restated to reflect this reclassification.


 

 

Capital and Investments                                                                                                               Page 87

 

5.06  Bond portfolio summary (continued)














(b) Total group analysed by sector (continued)















Sectors analysed by credit rating




















BB or





AAA

AA

A

BBB

 below

Other

Total

Total


2017

2017

2017

2017

2017

2017

2017

2017


£m

£m

£m

£m

£m

£m

£m

%



















Sovereigns, Supras and Sub-Sovereigns

1,477

9,376

210

328

59

-

11,450

20

Banks:









    - Tier 1

-

-

-

1

1

2

4

-

    - Tier 2 and other subordinated

142

-

74

42

2

-

260

-

    - Senior

-

1,366

2,782

90

-

-

4,238

8

    - Covered

221

-

-

-

-

-

221

-

Financial Services:









    - Tier 1

1

-

-

-

-

-

1

-

    - Tier 2 and other subordinated

-

123

118

10

-

-

251

-

    - Senior

-

323

368

205

9

-

905

2

Insurance:









    - Tier 1

-

-

-

1

-

-

1

-

    - Tier 2 and other subordinated

-

127

4

51

-

-

182

-

    - Senior

-

128

464

68

-

-

660

1

Consumer Services and Goods:









    - Cyclical

-

289

841

1,542

271

2

2,945

5

    - Non-cyclical

215

601

1,313

2,114

165

1

4,409

8

    - Health Care

3

32

262

189

4

-

490

1

Infrastructure:









    - Social

93

708

3,445

1,111

21

-

5,378

9

    - Economic

179

30

949

2,182

44

-

3,384

6

Technology and Telecoms

73

167

833

1,988

57

2

3,120

6

Industrials

-

3

851

376

52

1

1,283

2

Utilities

-

115

4,860

3,725

21

-

8,721

16

Energy

-

-

106

567

31

-

704

1

Commodities

-

-

260

494

39

-

793

1

Oil and Gas

-

322

640

566

213

1

1,742

3

Real estate

-

22

1,053

1,221

59

-

2,355

4

Structured finance ABS / RMBS / CMBS / Other

318

717

208

161

55

-

1,459

3

Lifetime mortgage loans1

-

1,972

51

-

-

-

2,023

4

CDOs

-

22

60

14

-

-

96

-



















Total £m

2,722

16,443

19,752

17,046

1,103

9

57,075

100



















Total %

5

28

35

30

2

-

100




















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

 

 

Capital and Investments                                                                                                               Page 88

 

5.06  Bond portfolio summary (continued)














(b) Total group analysed by sector (continued)















Sectors analysed by credit rating (continued)











BB or





AAA1

AA1

A1

BBB1

 below1

Other1

Total1

Total1


2016

2016

2016

2016

2016

2016

2016

2016


£m

£m

£m

£m

£m

£m

£m

%



















Sovereigns, Supras and Sub-Sovereigns

1,206

10,535

370

387

102

-

12,600

24

Banks:









    - Tier 1

-

-

-

1

12

-

13

-

    - Tier 2 and other subordinated

211

49

73

54

-

-

387

1

    - Senior

16

1,076

2,067

133

12

-

3,304

6

    - Covered

259

-

16

-

-

-

275

1

Financial Services:









    - Tier 1

-

-

-

-

-

-

-

-

    - Tier 2 and other subordinated

-

87

59

63

-

-

209

-

    - Senior

-

381

147

129

3

112

772

1

Insurance:









    - Tier 1

-

-

2

4

-

-

6

-

    - Tier 2 and other subordinated

-

48

8

72

1

-

129

-

    - Senior

29

88

495

80

-

-

692

1

Consumer Services and Goods & Health Care








    - Cyclical

-

409

1,167

1,809

244

-

3,629

7

    - Non-cyclical

300

665

1,454

1,474

148

-

4,041

7

    - Health Care

3

30

45

44

8

-

130

-

Infrastructure:









    - Social

-

624

3,262

926

148

-

4,960

9

    - Economic

-

-

903

1,318

44

-

2,265

4

Technology and Telecoms

73

238

662

2,162

123

-

3,258

6

Industrials

-

146

840

487

107

-

1,580

3

Utilities

-

108

4,967

3,193

28

-

8,296

15

Energy

-

5

106

575

44

-

730

1

Commodities

-

-

313

478

98

-

889

2

Oil and Gas

-

290

582

692

236

-

1,800

3

Property

-

-

12

60

6

-

78

-

Real estate

-

305

629

1,067

53

-

2,054

4

Structured finance ABS / RMBS / CMBS / Other

341

729

617

90

53

-

1,830

3

Lifetime mortgage loans2

388

322

91

51

-

-

852

2

CDOs3

-

-

59

14

-

-

73

-



















Total £m

2,826

16,135

18,946

15,363

1,470

112

54,852

100



















Total %

5

29

35

28

3

-

100

-



















1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £1,489m and the analysis above has been restated to reflect this reclassification.

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

 

 

 

Capital and Investments                                                                                                               Page 89

 

5.06  Bond portfolio summary (continued)















(b) Total group analysed by sector (continued)
















Sectors analysed by domicile













EU









excluding

Rest of






UK

US

UK

the World

Total





2017

2017

2017

2017

2017





£m

£m

£m

£m

£m



















Sovereigns, Supras and Sub-Sovereigns


8,689

1,204

1,114

443

11,450

Banks


2,326

794

1,187

416

4,723

Financial Services


365

111

681

-

1,157

Insurance


143

555

92

53

843

Consumer Services and Goods:







    - Cyclical


604

2,015

251

75

2,945

    - Non-cyclical


1,313

2,752

324

20

4,409

    - Health care


10

480

-

-

490

Infrastructure:







    - Social


5,054

287

-

37

5,378

    - Economic


2,661

321

34

368

3,384

Technology and Telecoms


692

1,435

563

430

3,120

Industrials


209

714

274

86

1,283

Utilities


4,008

1,334

2,296

1,083

8,721

Energy


-

626

5

73

704

Commodities


10

287

38

458

793

Oil and Gas


265

462

458

557

1,742

Real estate


1,602

422

48

283

2,355

Structured Finance ABS / RMBS / CMBS / Other


1,017

366

54

22

1,459

Lifetime mortgages


2,023

-

-

-

2,023

CDOs




-

22

-

74

96



















Total




30,991

14,187

7,419

4,478

57,075




























 

 

Capital and Investments                                                                                                               Page 90

 

5.06  Bond portfolio summary (continued)
















(b) Total group analysed by sector (continued)
















Sectors analysed by domicile (continued)






















EU









excluding

Rest of






UK1

US1

UK1

the World1

Total1





2016

2016

2016

2016

2016





£m

£m

£m

£m

£m



















Sovereigns, Supras and Sub-Sovereigns




9,569

1,038

1,264

729

12,600

Banks




1,625

803

1,005

546

3,979

Financial Services




500

124

355

2

981

Insurance




189

566

17

55

827

Consumer Services and Goods:









    - Cyclical




794

2,410

272

153

3,629

    - Non-cyclical




1,155

2,650

208

28

4,041

    - Health care




18

106

6

-

130

Infrastructure:









    - Social




4,788

137

-

35

4,960

    - Economic




1,937

102

1

225

2,265

Technology and Telecoms




589

1,467

753

449

3,258

Industrials




166

904

312

198

1,580

Utilities




3,687

1,293

2,401

915

8,296

Energy




1

598

14

117

730

Commodities




16

292

33

548

889

Oil and Gas




190

574

450

586

1,800

Property




-

71

4

3

78

Real estate




1,631

345

17

61

2,054

Structured Finance ABS / RMBS / CMBS / Other

1,020

323

469

18

1,830

Lifetime mortgages




852

-

-

-

852

CDOs




-

-

-

73

73



















Total




28,727

13,803

7,581

4,741

54,852



















1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £1,489m and the analysis above has been restated to reflect this reclassification.           

 

 

 

Capital and Investments                                                                                                               Page 91

 

5.06  Bond portfolio summary (continued)













(c) LGR and total group analysed by credit rating

















Externally

Internally


Externally

Internally

Total




rated

rated2

LGR

rated

rated2, 3

group




2017

2017

2017

2017

2017

2017




£m

£m

£m

£m

£m

£m



















AAA



1,783

484

2,267

2,238

484

2,722

AA



11,617

3,210

14,827

13,024

3,419

16,443

A



15,174

3,029

18,203

16,609

3,143

19,752

BBB



12,979

3,432

16,411

13,389

3,657

17,046

BB or below



690

78

768

965

138

1,103

Other



-

-

-

9

-

9






















42,243

10,233

52,476

46,234

10,841

57,075









































Externally

Internally


Externally

Internally

Total




rated1

rated1, 2

LGR1

rated1

rated1, 2, 3

group 1




2016

2016

2016

2016

2016

2016




£m

£m

£m

£m

£m

£m



















AAA



1,839

388

2,227

2,438

388

2,826

AA



13,499

1,236

14,735

14,632

1,503

16,135

A



14,637

2,773

17,410

16,063

2,883

18,946

BBB



12,405

2,062

14,467

13,068

2,295

15,363

BB or below



960

77

1,037

1,322

148

1,470

Other



-

-

-

-

112

112






















43,340

6,536

49,876

47,523

7,329

54,852



















1. Following a review of short dated instruments, certain assets have been reclassified from Cash and cash equivalents to Financial investments as their maturity at the balance sheet date was greater than 3 months. These amounts totalled £1,489m and the analysis above has been restated to reflect this reclassification.

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

3. The increase in internally rated assets is due to £2.5bn of new direct investments and an increase in the value of lifetime mortgages of £1.2bn.

 

 

Capital and Investments                                                                                                               Page 92

 

5.07 Property analysis













(a) Property exposure within Direct Investments













(i) Group property Direct Investments by status




































LGR1

LGC2

Total







2017

2017

2017

2017






£m

£m

£m

%



















Fully let





2,722

30

2,752

97%

Development





-

32

32

1%

Land





-

48

48

2%















2,722

110

2,832

100%



















1. The fully let LGR property includes £2.4bn let to investment grade tenants.

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

































LGR1

LGC

Total







2016

2016

2016

2016






£m

£m

£m

%










Fully let





2,442

16

2,458

94

Development





-

101

101

4

Land





-

45

45

2















2,442

162

2,604

100










1. The fully let LGR property includes £2.1bn let to investment grade tenants.





























 

 

Glossary                                                                                                                                        Page 93

 

* These items represent an alternative performance measure (APM)

 

Ad valorem fees

 

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

 

Adjusted earnings per share*

 

Calculated by dividing profit after tax from continuing operations, attributable to equity holders of the company, excluding recognised gains and losses associated with held for sale and completed business disposals, by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares. Excluding the impact of anticipated and completed disposals provides an indication of the earnings per share from continuing operations.

 

Adjusted return on equity*

 

ROE measures the return earned by shareholders on shareholder capital retained within the business. Adjusted ROE is calculated as IFRS profit after tax divided by average IFRS shareholders' funds excluding recognised gains and losses associated with held for sale and completed business disposals. Excluding the impact of anticipated and completed disposals provides an indication of the return on equity from on-going operations.

 

Adjusted operating profit*

 

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Adjusted operating profit further removes exceptional restructuring costs to demonstrate the profitability before these costs which are non-recurring in nature.

 

Advisory assets

 

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

 

Alternative performance measures (APMs)

 

An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II.  The group uses a range of these metrics to provide a better understanding of the underlying performance of the group.  Where appropriate, reconciliations of alternative performance measures to IFRS measures are provided. All APMs defined within this glossary are marked with an asterisk.

 

Annuity

 

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

 

Annual premium

 

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

 

Assets under administration (AUA)*

 

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

 

Assets under management (AUM)*

 

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

 

Back book acquisition

 

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

 

Bundled DC solution

 

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

 

 

Glossary                                                                                                                                        Page 94

 

Bundled pension schemes

 

Where the fund manager bundles together the investment provider role and third-party administrator role, together with the role of selecting funds and providing investment education, into one proposition.

 

Credit rating

 

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

 

Deduction and aggregation (D&A)

 

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

 

Defined benefit pension scheme (DB scheme)

 

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

 

Defined contribution pension scheme (DC scheme)

 

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

 

Derivatives

 

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

 

Direct investments

 

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

 

Dividend cover

 

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

 

Earnings per share (EPS)

 

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

 

Economic capital*

 

Economic capital is the capital that an insurer holds internally as a result of its own assessment of risk. It differs from regulatory capital, which is determined by regulators. It represents an estimate of the amount of economic losses an insurer could withstand and still remain solvent with a target level of confidence over a specified time horizon.

 

Economic Capital Requirement (ECR)

 

The amount of Economic Capital required to cover the losses occurring in a 1-in-200 year risk event.

 

Economic Capital Surplus*

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

 

ECR coverage ratio*

 

The Eligible Own Funds on an economic basis divided by the Economic Capital Requirement (ECR). This represents the number of times that the ECR is covered by Eligible Own Funds.

 

 

Glossary                                                                                                                                        Page 95

 

Eligible Own Funds

 

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

 

Employee engagement index

 

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

 

Escape of Water

 

Escape of water is a type of home insurance claim relating to leakage from fixed water tanks, apparatus (e.g. washing machine) or pipes

 

Euro Commercial paper

 

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

 

FVTPL

 

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

 

Full year dividend

 

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

 

General insurance combined operating ratio

 

The combined operating ratio is calculated as the sum of incurred losses and expenses, including commission, divided by net earned premium.

 

Generally accepted accounting principles (GAAP)

 

These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used

by the accounting community to report financial information.

 

Gross written premiums (GWP)

 

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

 

ICAV - Irish Collective Asset-Management Vehicle

 

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

 

IFRS profit before tax (PBT)

 

PBT measures profit attributable to shareholders incorporating actual investment returns experienced during the year but before the payment of tax.

 

Index tracker (passive fund)

 

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

 

International financial reporting standards (IFRS)

 

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

They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed

groups in the European Union (EU) are required to use.

 

 

Glossary                                                                                                                                        Page 96

 

Key performance indicators (KPIs)

 

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

 

LGA

 

Legal & General America.

 

LGAS

 

Legal & General Assurance Society Limited

 

LGC

 

Legal & General Capital.

 

LGI

 

Legal & General Insurance.

 

LGIM

 

Legal & General Investment Management.

 

LGR

 

Legal & General Retirement.

 

LGR new business

 

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

 

Liability driven investment (LDI)

 

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

 

Lifetime mortgages

 

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

 

Matching adjustment

 

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

 

Mortality rate

 

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

 

Net release from operations*

 

Net release from operations is defined as release from operations plus new business surplus/(strain). Net release from operations was previously referred to as net cash and provides information on the underlying release of prudent margins from the back book.

 

New business surplus/(strain)*

 

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

 

 

 

Glossary                                                                                                                                        Page 97

 

Operating profit*

 

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions and changes in insurance risks such as mortality and longevity for the group's insurance business and shareholder funds, except for LGIA which excludes unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the period, such as merger and acquisition and start-up costs are excluded from operating profit.

 

Overlay assets

 

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

 

Open architecture

 

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

 

Pension risk transfer (PRT)

 

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

 

Present value of future new business premiums (PVNBP)*

 

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

 

Platform

 

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

 

Profit before tax attributable to equity holders (PBT)

 

Profit attributable to shareholders incorporating actual investment returns experienced during the year but before

the payment of tax.

 

Purchased interest in long term business (PILTB)

 

An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been

acquired via a business combination.

 

Recapitalisation Cost*

 

An additional liability required in the group Economic Capital balance sheet, to allow for the cost of recapitalising the balance sheet following a 1-in-200 year risk event, in order to maintain confidence that our future liabilities will be met. This is calculated using a cost of capital that reflects the long term average rates at which it is expected that the group could raise debt and allows for diversification between all group entities.

 

Real assets

 

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

 

Release from operations*

 

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

 

Return on equity (ROE)*

 

ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS profit after tax divided by average IFRS shareholders' funds.

 

 

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Risk appetite

 

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

to achieve its business objectives.

 

SCR coverage ratio

 

The eligible own funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by eligible own funds.

 

SCR coverage ratio (proforma basis)*

 

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

 

SCR coverage ratio (shareholder view basis)*

 

In order to represent a shareholder view of group solvency position, the contribution of with-profits fund and our defined benefit pension schemes is excluded from both the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of  period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 31 December 2017. This will be made public in May 2018.

 

Single premiums*

 

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

 

Solvency II

 

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

 

Solvency II new business contribution

 

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

 

Solvency II Risk Margin

 

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

 

Solvency II Surplus

 

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

 

Solvency Capital Requirement (SCR)

 

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

 

Total shareholder return (TSR)

 

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

 

Transitional Measures on Technical Provisions (TMTP)

 

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

 

Unbundled DC solution

 

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

 

 

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With-profits funds

 

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

may have discretion as to the timing and the amount of the additional benefits.

 

Yield

 

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


This information is provided by RNS
The company news service from the London Stock Exchange
 
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