L&G Full Year Results 2019 Part 2

RNS Number : 9181E
Legal & General Group Plc
04 March 2020
 

 

Legal & General Group Plc

Full Year Results 2019 Part 2

 

IFRS Disclosures on performance and Release from operations  Page 31

 

1.01 Operating profit#

For the year ended 31 December 2019

 

 

 

 

2019

2018

 

 

Notes

£m

£m

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

 

 

 

Legal & General Retirement (LGR)

 

1.03

1,569

1,548

 - LGR Institutional (LGRI)

 

 

1,216

1,149

 - LGR Retail (LGRR)

 

 

353

399

Legal & General Investment Management (LGIM)

 

1.04

423

407

Legal & General Capital (LGC)

 

1.05

363

322

Legal & General Insurance (LGI)

 

1.03

314

308

 - UK and Other

 

 

223

246

 - US (LGIA)

 

 

91

62

 

 

 

 

 

 

 

 

 

 

Operating profit from divisions:

 

 

 

 

From continuing operations

 

 

2,669

2,585

From discontinued operations 1

 

 

11

79

 

 

 

 

 

 

 

 

 

 

Operating profit from divisions

 

 

2,680

2,664

Group debt costs 2

 

 

(208)

(203)

Group investment projects and expenses

 

 

(186)

(126)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

2,286

2,335

Investment and other variances

 

1.06

(150)

(188)

Losses on non-controlling interests

 

 

(24)

(19)

 

 

 

 

 

 

 

 

 

 

Adjusted profit before tax attributable to equity holders

 

 

2,112

2,128

Tax expense attributable to equity holders

 

3.07

(302)

(320)

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

1,810

1,808

 

 

 

 

 

 

 

 

 

 

Profit attributable to equity holders

 

 

1,834

1,827

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

Basic (pence per share) 3

 

1.07

30.92p

30.79p

Diluted (pence per share) 3

 

1.07

30.75p

30.64p

 

 

 

 

 

 

 

 

 

 

1. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.

2. Group debt costs exclude interest on non recourse financing.

3. All earnings per share calculations are based on profit attributable to equity holders of the company.

 

 

This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the period.

 

· LGR represents worldwide pension risk transfer business including longevity insurance (within LGRI), and individual retirement and lifetime mortgages (within LGRR).

· LGIM represents institutional and retail investment management and workplace savings businesses.

· LGC represents shareholder assets invested in direct investments primarily in the areas of housing, urban regeneration, clean energy and SME finance, as well as traded and treasury assets.

· LGI primarily represents UK and US retail protection business, UK group protection and Fintech business.

· Discontinued operations represent the results of the Mature Savings and General Insurance divisions following the group announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.

 

 

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 for the group's insurance businesses and shareholder funds, except the operating profit for LGC's trading businesses (which reflects the IFRS profit before tax) and LGIA's non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit, which include any differences between investment return on actual assets and the target long-term asset mix. Exceptional income and expenses which arise outside the normal course of business in the period, such as gains/losses from merger and acquisition, and start-up costs, are also excluded from operating profit.

 

# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

 

 

IFRS Disclosures on performance and Release from operations  Page 32

 

1.02 Reconciliation of release from operations to operating profit# before tax

 

 

 

 

 

 

Changes in

valuation assump- tions

 

 

Operating profit/ (loss) after tax

 

Operating profit/ (loss) before

tax

 

 

New business surplus/ (strain)

Net

release from operations

 

 

 

 

 

Release from operations1

Exper- ience variances

Non-cash items

Other

Tax expense/ (credit)

 

For the year ended

31 December 2019

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR

598

327

925

(53)

390

91

-

1,353

216

1,569

 - LGRI

418

265

683

(40)

313

88

-

1,044

172

1,216

 - LGRR

180

62

242

(13)

77

3

-

309

44

353

LGIM

366

(20)

346

(1)

-

(4)

-

341

82

423

 - LGIM (excluding

 

 

 

 

 

 

 

 

 

 

  Workplace Savings) 2

339

-

339

-

-

-

-

339

82

421

 - Workplace Savings 3

27

(20)

7

(1)

-

(4)

-

2

-

2

LGC

295

-

295

-

-

-

-

295

68

363

LGI

259

(7)

252

(11)

44

(12)

4

277

37

314

 - UK and Other

165

(7)

158

(11)

44

(12)

4

183

40

223

 - US (LGIA)

94

-

94

-

-

-

-

94

(3)

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

1,518

300

1,818

(65)

434

75

4

2,266

403

2,669

From discontinued operations 4

9

-

9

-

-

-

-

9

2

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total from divisions

1,527

300

1,827

(65)

434

75

4

2,275

405

2,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group debt costs

(168)

-

(168)

-

-

-

-

(168)

(40)

(208)

Group investment projects and expenses

(44)

-

(44)

-

-

-

(102)

(146)

(40)

(186)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,315

300

1,615

(65)

434

75

(98)

1,961

325

2,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Release from operations within US (LGIA) includes £81m of dividends from the US.

2. LGIM (excluding Workplace Savings) includes profits on fund management services.

3. Workplace Savings represents administration business only.

4. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019 and the recognised operating loss for the year is £35m (2018: £nil).

 

Release from operations for LGR, LGIM - Workplace Savings and LGI represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings and UK protection businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA. The release from operations within discontinued operations primarily reflects the unwind of expected profits after tax under the risk transfer agreement with ReAssure Limited (a subsidiary of Swiss Re) from the Mature Savings business, offset by losses from the General Insurance business in 2019.

 

 

 

 

 

 

 

 

 

 

 

New business surplus/strain for LGR, LGIM - Workplace Savings and LGI represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.

 

 

 

 

 

 

 

 

 

 

 

LGR's new business metrics are presented based on a target long-term asset portfolio. At certain period ends, depending upon the quantum and timing pf pension risk transfer (PRT) volumes, we may continue to source high quality assets to support that business after the period end, as appropriate, taking into account the alternative risks and rewards of traded credit. At year end, any difference between the actual assets and the long-term asset mix is reflected in investment variance.

 

 

 

 

 

 

 

 

 

 

 

Net release from operations for LGR, LGIM - Workplace Savings, LGI and discontinued operations is defined as release from operations plus new business surplus/(strain).

 

 

 

 

 

 

 

 

 

 

 

Release from operations and net release from operations for LGC and LGIM represents the operating profit (net of tax).

 

 

 

 

 

 

 

 

 

 

 

See Note 1.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.

 

 

 

 

 

 

 

 

 

 

 

# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

 

 

IFRS Disclosures on performance and Release from operations  Page 33

 

1.02 Reconciliation of release from operations to operating profit# before tax (continued)

 

 

 

 

 

 

Changes in

valuation assump- tions

 

 

Operating profit/ (loss) after tax

 

Operating profit/ (loss) before

tax

 

 

New business surplus/ (strain)

Net

release from operations

 

 

 

 

 

Release from operations1

Exper- ience variances

Non-cash items

Other

Tax expense/ (credit)

 

For the year ended

31 December 2018

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGR

551

217

768

33

444

40

-

1,285

263

1,548

 - LGRI

379

188

567

22

324

43

-

956

193

1,149

 - LGRR

172

29

201

11

120

(3)

-

329

70

399

LGIM

354

(25)

329

(3)

(1)

1

-

326

81

407

 - LGIM (excluding

 

 

 

 

 

 

 

 

 

 

  Workplace Savings) 2

323

-

323

-

-

-

-

323

81

404

 - Workplace Savings 3

31

(25)

6

(3)

(1)

1

-

3

-

3

LGC

261

-

261

-

-

-

-

261

61

322

LGI

258

(22)

236

24

35

(19)

(7)

269

39

308

 - UK and Other

181

(22)

159

24

35

(19)

1

200

46

246

 - US (LGIA)

77

-

77

-

-

-

(8)

69

(7)

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

1,424

170

1,594

54

478

22

(7)

2,141

444

2,585

From discontinued operations 4

44

-

44

(6)

-

26

-

64

15

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total from divisions

1,468

170

1,638

48

478

48

(7)

2,205

459

2,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group debt costs

(164)

-

(164)

-

-

-

-

(164)

(39)

(203)

Group investment projects and expenses

(34)

-

(34)

-

-

-

(68)

(102)

(24)

(126)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,270

170

1,440

48

478

48

(75)

1,939

396

2,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Release from operations within US (LGIA) includes £77m of dividends from the US.

2. LGIM (excluding Workplace Savings) includes profits on fund management services.

3. Workplace Savings represents administration business only.

4. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. Operating profit of the General Insurance business in 2018 was £0m.

 

 

 

# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

 

 

IFRS Disclosures on performance and Release from operations  Page 34

 

1.03 Analysis of LGR and LGI operating profit

For the year ended 31 December 2019

 

 

 

LGR

LGI

LGR

LGI

 

 

2019

2019

2018

2018

 

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Net release from operations

 

925

252

768

236

 

 

 

 

 

 

 

 

 

 

 

 

Experience variances

 

 

 

 

 

 - Persistency

 

(4)

(9)

8

(12)

 - Mortality/morbidity

 

6

(5)

73

(7)

 - Expenses

 

(23)

-

(13)

2

 - Project and development costs

 

(12)

-

(11)

-

 - Other 1

 

(20)

3

(24)

41

 

 

 

 

 

 

 

 

 

 

 

 

Total experience variances

 

(53)

(11)

33

24

 

 

 

 

 

 

 

 

 

 

 

 

Changes to valuation assumptions

 

 

 

 

 

 - Persistency

 

-

(16)

-

(4)

 - Mortality/morbidity 2

 

352

39

444

25

 - Expenses

 

5

-

-

17

 - Other 3

 

33

21

-

(3)

 

 

 

 

 

 

 

 

 

 

 

 

Total changes to valuation assumptions

 

390

44

444

35

 

 

 

 

 

 

 

 

 

 

 

 

Movement in non-cash items

 

 

 

 - Acquisition expense tax relief

 

-

(2)

-

(11)

 - Other 4

 

91

(10)

40

(8)

 

 

 

 

 

 

 

 

 

 

 

 

Total movement in non-cash items

 

91

(12)

40

(19)

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

-

4

-

(7)

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit after tax

 

1,353

277

1,285

269

 

 

 

 

 

 

 

 

 

 

 

 

Tax gross up

 

216

37

263

39

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit before tax

 

1,569

314

1,548

308

 

 

 

 

 

 

 

 

 

 

 

 

1. Other experience variances for LGI in 2018 reflected a number of modelling requirements which were not repeated in 2019.

2. Mortality assumption changes for LGR include a one off release of £134m (net of tax) from an update in the longevity trend assumption from adjusted CMI 2016 to adjusted CMI 2017. In 2018, the comparable one off release of £359m was from adjusted CMI 2015 to adjusted CMI 2016. Other positive longevity variances are driven by routine updates to our assumptions relating to base mortality rates.

3. LGR Other changes to valuation assumptions reflect a change in assumption on the future exercise of an option within a longevity swap contract.

4. LGR Other movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.

 

 

IFRS Disclosures on performance and Release from operations  Page 35

 

1.04 LGIM operating profit

 

 

 

 

 

2019

2018

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Asset management revenue (excluding 3rd party market data) 1,2

 

889

820

Asset management transactional revenue 3

 

23

27

Asset management expenses (excluding 3rd party market data) 1,2

 

(491)

(443)

Workplace Savings operating profit 4

 

2

3

 

 

 

 

 

 

Total LGIM operating profit

 

423

407

 

 

 

 

 

 

1. Asset management revenue and expenses exclude income and costs of £24m in relation to the provision of third party market data (2018: £19m).

2. The ETF operating result is included as part of asset management revenue and expenses, which represents a change in the presentation from previous periods. Asset management revenue (excluding 3rd party market data) and Asset management expenses (excluding 3rd party market data) have therefore been restated for the full year ended 31 December 2018 to reflect this change.

3. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees. 

4. Workplace Savings represents administration business.



 

1.05 LGC operating profit

 

 

 

 

 

 

 

 

 

 

2019

2018

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Direct investments1

 

 

217

188

Traded investment portfolio including treasury assets2

 

 

146

134

 

 

 

 

 

 

 

 

 

 

 

 

Total LGC operating profit

 

 

363

322

 

 

 

 

 

 

 

 

 

 

 

 

1. Direct Investments represents LGC's portfolio of assets across future cities (including urban regeneration and clean energy), housing and SME finance.

2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.


 

1.06 Investment and other variances

 

 

 

 

 

 

 

 

 

 

2019

2018

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Investment variance 1

 

 

 

(27)

(126)

M&A related and other variances 2

 

 

 

(123)

(62)

 

 

 

 

 

 

 

 

 

 

 

 

Total investment and other variances

 

 

 

(150)

(188)

 

 

 

 

 

 

 

 

 

 

 

 

1. Investment variance includes differences between actual and smoothed investment return on traded and real assets, economic assumption changes (e.g. credit default and inflation) and the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business written during the period and held at a period end.

2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2019 reflects the impact of impairing £55m of capitalised software intangibles following a groupwide review, as well as a £43m gain on the disposal of the group's stake in IndiaFirst Life Insurance Company Limited.

 

 

IFRS Disclosures on performance and Release from operations  Page 36

 

1.07 Earnings per share

 

 (a) Basic earnings per share

 

 

 

 

After tax

Per share1

After tax

Per share1

 

 

 

 

2019

2019

2018

2018

 

 

 

 

£m

p

£m

p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year attributable to equity holders

1,834

30.92

1,827

30.79

Less: earnings derived from discontinued operations

 

(23)

(0.39)

(43)

(0.72)

Basic earnings derived from continuing operations

 

 

1,811

30.53

1,784

30.07

 

 

 

 

 

 

 

 

1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.



 

(b) Diluted earnings per share

 

 

 

 

 

After tax

Weighted

average

number of

shares

Per share1

 

 

 

 

 

2019

2019

2019

 

 

 

 

 

£m

m

p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year attributable to equity holders

 

1,834

5,932

30.92

Net shares under options allocable for no further consideration

 

-

33

(0.17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total diluted earnings

 

 

 

 

1,834

5,965

30.75

Less: diluted earnings derived from discontinued operations

 

(23)

-

(0.39)

Diluted earnings derived from continuing operations

 

1,811

5,965

30.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After tax

Weighted

average

number of

shares

Per share1

 

 

 

 

 

2018

2018

2018

 

 

 

 

 

£m

m

p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year attributable to equity holders

1,827

5,933

30.79

Net shares under options allocable for no further consideration

-

29

(0.15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total diluted earnings

1,827

5,962

30.64

Less: diluted earnings derived from discontinued operations

 

(64)

-

(0.72)

Diluted earnings derived from continuing operations

 

1,763

5,962

29.92

1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.

 

 

IFRS Disclosures on performance and Release from operations  Page 37

 

1.08 Segmental analysis

 

Reportable segments

 

The group has four reportable segments that are continuing operations, comprising LGR, LGIM, LGC and LGI, as set out in Note 1.01. Group central expenses and debt costs are reported separately. Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.

 

Continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively.

 

Reporting of assets and liabilities by reportable segment has not been included, as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.

 

Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.

 

 

(a) Profit/(loss) for the year

 

 

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

expenses

Total

 

 

 

 

 

and debt

continuing

 

LGR

LGIM

LGC

LGI

costs

operations

For the year ended 31 December 2019

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit/(loss)#

1,569

423

363

314

(394)

2,275

Investment and other variances

43

(9)

91

(234)

(58)

(167)

Losses attributable to non-controlling interests

-

-

-

-

(24)

(24)

 

 

 

 

 

 

 

Profit/(loss) before tax attributable to equity holders

1,612

414

454

80

(476)

2,084

Tax (expense)/credit attributable to equity holders

(234)

(81)

(75)

12

81

(297)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

1,378

333

379

92

(395)

1,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

expenses

Total

 

 

 

 

 

and debt

continuing

 

LGR

LGIM

LGC

LGI

costs

operations

For the year ended 31 December 2018

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit/(loss)#

1,548

407

322

308

(329)

2,256

Investment and other variances

95

(4)

(273)

(1)

22

(161)

Losses attributable to non-controlling interests

-

-

-

-

(19)

(19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) before tax attributable to equity holders

1,643

403

49

307

(326)

2,076

Tax (expense)/credit attributable to equity holders

(267)

(81)

13

(39)

63

(311)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

1,376

322

62

268

(263)

1,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

# Operating profit for total continuing operations represents 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

 

 

IFRS Disclosures on performance and Release from operations  Page 38

 

1.08 Segmental analysis (continued)

 

(b) Total income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGC and

Total continuing

 

LGR

LGIM1,2

LGI

other3

operations

For the year ended 31 December 2019

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Internal income

-

188

-

(188)

-

External income

16,385

43,836

1,593

4,972

66,786

 

 

 

 

 

 

 

 

 

 

 

 

Total income

16,385

44,024

1,593

4,784

66,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LGC and

Total continuing

 

LGR

LGIM1,2

LGI

other3

operations

For the year ended 31 December 2018

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Internal income

-

172

-

(172)

-

External income

8,507

(10,654)

1,742

1,299

894

 

 

 

 

 

 

 

 

 

 

 

 

Total income

8,507

(10,482)

1,742

1,127

894

 

 

 

 

 

 

 

 

 

 

 

 

1. LGIM internal income relates to investment management services provided to other segments.

2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.

 

3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.

 

 

IFRS Primary Financial Statements  Page 39

 

2.01 Consolidated Income Statement

 

 

2019

2018

 

For the year ended 31 December 2019

Notes

£m

£m

 

 

 

 

 

 

 

 

 

 

 

Income

 

 

 

 

Gross written premiums

 

15,203

12,843

 

Outward reinsurance premiums

 

(3,452)

(2,114)

 

Net change in provision for unearned premiums

 

(66)

-

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

11,685

10,729

 

Fees from fund management and investment contracts

 

834

802

 

Investment return

 

53,014

(11,843)

 

Other operational income

 

1,253

1,206

 

 

 

 

 

 

 

 

 

 

 

Total income

1.08

66,786

894

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

Claims and change in insurance contract liabilities

 

19,005

8,370

 

Reinsurance recoveries

 

(3,502)

(1,051)

 

 

 

 

 

 

 

 

 

 

 

Net claims and change in insurance contract liabilities

 

15,503

7,319

 

Change in investment contract liabilities

 

45,809

(11,304)

 

Acquisition costs

 

805

780

 

Finance costs

 

269

238

 

Other expenses

 

2,244

1,732

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

64,630

(1,235)

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

2,156

2,129

 

Tax expense attributable to policyholder returns

 

(72)

(53)

 

 

 

 

 

 

 

 

 

 

 

Profit before tax attributable to equity holders

 

2,084

2,076

 

 

 

 

 

 

 

 

 

 

 

Total tax expense

 

(369)

(364)

 

Tax expense attributable to policyholder returns

 

72

53

 

 

 

 

 

 

 

 

 

 

 

Tax expense attributable to equity holders

3.07

(297)

(311)

 

 

 

 

 

 

 

 

 

 

 

Profit after tax from continuing operations

1.08

1,787

1,765

 

Profit after tax from discontinued operations1

3.04

23

43

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

1,810

1,808

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

Non-controlling interests

 

(24)

(19)

 

Equity holders

 

1,834

1,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend distributions to equity holders during the year

3.05

998

932

 

Dividend distributions to equity holders proposed after the year end

3.05

753

704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

p

p

 

Total basic earnings per share2

1.07

30.92

30.79

 

Total diluted earnings per share2

1.07

30.75

30.64

 

 

 

 

 

 

Basic earnings per share derived from continuing operations2

1.07

30.53

30.07

 

Diluted earnings per share derived from continuing operations2

1.07

30.36

29.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.

2. All earnings per share calculations are based on profit attributable to equity holders of the company.

                 

 

 

IFRS Primary Financial Statements  Page 40

 

2.02 Consolidated Statement of Comprehensive Income

 

2019

2018

For the year ended 31 December 2019

£m

£m

 

 

 

 

 

 

Profit for the year

1,810

1,808

Items that will not be reclassified subsequently to profit or loss

 

 

Actuarial (losses)/gains on defined benefit pension schemes

(62)

117

Tax on actuarial (losses)/gains on defined benefit pension schemes

11

(22)

 

 

 

 

 

 

Total items that will not be reclassified subsequently to profit or loss

(51)

95

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

Exchange differences on translation of overseas operations

(67)

62

Movement in cross-currency hedge

13

34

Tax on movement in cross-currency hedge

(1)

(5)

Movement in financial investments designated as available-for-sale

72

(36)

Tax on movement in financial investments designated as available-for-sale

(15)

5

 

 

 

 

 

 

Total items that may be reclassified subsequently to profit or loss

2

60

 

 

 

 

 

 

Other comprehensive (expense)/income after tax

(49)

155

 

 

 

 

 

 

Total comprehensive income for the year

1,761

1,963

 

 

 

 

 

 

Total comprehensive income for the year attributable to:

 

 

Continuing operations

1,738

1,920

Discontinued operations

23

43

 

 

 

Total comprehensive income/(expense) for the year attributable to:

 

 

Non-controlling interests

(24)

(19)

Equity holders

1,785

1,982

 

 

 

 

 

 

 

 

IFRS Primary Financial Statements  Page 41

 

2.03 Consolidated Balance Sheet

 

 

 

2019

2018

As at 31 December 2019

Notes

£m

£m

 

 

 

 

 

 

 

 

Assets

 

 

 

Goodwill

 

64

65

Purchased interest in long term businesses and other intangible assets

 

190

223

Deferred acquisition costs

 

75

140

Investment in associates and joint ventures accounted for using the equity method

 

324

259

Property, plant and equipment 1

 

298

57

Investment property

3.06

7,695

6,965

Financial investments

3.06

498,376

430,498

Reinsurers' share of contract liabilities

 

5,810

4,737

Deferred tax assets

3.07

8

7

Current tax assets

 

468

418

Receivables and other assets

 

8,532

5,593

Assets of operations classified as held for sale

3.04

24,844

26,234

Cash and cash equivalents

 

13,923

17,321

 

 

 

 

 

 

 

 

Total assets

 

560,607

492,517

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

Share capital

3.08

149

149

Share premium

3.08

1,000

992

Employee scheme treasury shares

 

(65)

(52)

Capital redemption and other reserves

 

250

230

Retained earnings

 

8,033

7,261

 

 

 

 

 

 

 

 

Attributable to owners of the parent

 

9,367

8,580

Non-controlling interests

3.09

55

72

 

 

 

 

 

 

 

 

Total equity

 

9,422

8,652

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

Non-participating insurance contract liabilities

 

77,317

64,707

Non-participating investment contract liabilities

 

320,594

293,080

Core borrowings

3.1

4,091

3,922

Operational borrowings

3.11

1,020

1,026

Provisions

3.15

1,220

1,140

UK deferred tax liabilities

3.07

189

144

Overseas deferred tax liabilities

3.07

182

185

Current tax liabilities

 

107

171

Payables and other financial liabilities

3.12

84,039

62,548

Other liabilities

 

804

619

Net asset value attributable to unit holders

 

31,507

26,481

Liabilities of operations classified as held for sale

3.04

30,115

29,842

 

 

 

 

 

 

 

 

Total liabilities

 

551,185

483,865

 

 

 

 

 

 

 

 

Total equity and liabilities

 

560,607

492,517

 

 

 

 

 

 

 

 

1. Property, plant and equipment for 2019 includes £238m of right of use assets that have arisen on the implementation of IFRS 16.

 

 

IFRS Primary Financial Statements  Page 42

 

2.04 Consolidated Statement of Changes in Equity

 

 

 

 

Employee

Capital

 

Equity

 

 

 

 

 

scheme

redemption

 

 attributable

Non-

 

 

Share

Share

treasury

and other

Retained

to owners

controlling

Total

For the year ended 31 December 2019

capital

premium

shares

reserves1

earnings

of the parent

interests

equity

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2019

149

992

(52)

230

7,261

8,580

72

8,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

1,834

1,834

(24)

1,810

Exchange differences on translation of overseas operations

-

-

-

(67)

-

(67)

-

(67)

Net movement in cross-currency hedge

-

-

-

12

-

12

-

12

Net actuarial losses on defined benefit pension schemes

-

-

-

-

(51)

(51)

-

(51)

Net movement in financial investments designated as available-for-sale

-

-

-

57

-

57

-

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

-

-

-

2

1,783

1,785

(24)

1,761

Options exercised under share option schemes

-

8

-

-

-

8

-

8

Shares purchased

-

-

(20)

-

-

(20)

-

(20)

Shares vested

-

-

7

(35)

-

(28)

-

(28)

Employee scheme treasury shares:

- Value of employee services

-

-

-

39

-

39

-

39

Share scheme transfers to retained earnings

-

-

-

-

1

1

-

1

Dividends

-

-

-

-

(998)

(998)

-

(998)

Movement in third party interests

-

-

-

-

-

-

7

7

Currency translation differences

-

-

-

14

(14)

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 December 2019

149

1,000

(65)

250

8,033

9,367

55

9,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Capital redemption and other reserves as at 31 December 2019 include share-based payments £85m, foreign exchange £68m, capital redemption £17m, hedging reserves £32m and available-for-sale reserves £48m.

 

 

IFRS Primary Financial Statements  Page 43

 

2.04 Consolidated Statement of Changes in Equity (continued)

 

 

 

 

Employee

Capital

 

Equity

 

 

 

 

 

scheme

redemption

 

 attributable

Non-

 

 

Share

Share

treasury

and other

Retained

to owners

controlling

Total

For the year ended 31 December 2018

of the parent

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2018

149

988

(40)

168

6,251

7,516

76

7,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

1,827

1,827

(19)

1,808

Exchange differences on translation of overseas operations

-

-

-

62

-

62

-

62

Net movement in cross-currency hedge

-

-

-

29

-

29

-

29

Net actuarial gains on defined benefit pension schemes

-

-

-

-

95

95

-

95

Net movement in financial investments designated as available-for-sale

-

-

-

(31)

-

(31)

-

(31)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

-

-

-

60

1,922

1,982

(19)

1,963

Options exercised under share option schemes

-

4

-

-

-

4

-

4

Shares purchased

-

-

(17)

-

-

(17)

-

(17)

Shares vested

-

-

5

(26)

-

(21)

-

(21)

Employee scheme treasury shares:

- Value of employee services

-

-

-

38

-

38

-

38

Share scheme transfers to retained earnings

-

-

-

-

10

10

-

10

Dividends

-

-

-

-

(932)

(932)

-

(932)

Movement in third party interests

-

-

-

-

-

-

15

15

Currency translation differences

-

-

-

(10)

10

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 December 2018

149

992

(52)

230

7,261

8,580

72

8,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Capital redemption and other reserves as at 31 December 2018 include share-based payments £81m, foreign exchange £121m, capital redemption £17m, hedging reserves £20m and available-for-sale reserves £(9)m.

 

 

IFRS Primary Financial Statements  Page 44

 

2.05 Consolidated Statement of Cash Flows

 

 

 

2019

2018

For the year ended 31 December 2019

Notes

£m

£m

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

Profit for the year

 

1,810

1,808

Adjustments for non cash movements in net profit for the year

 

 

 

Net (gains)/losses on financial investments and investment property

 

(45,516)

23,132

Investment income

 

(10,501)

(10,182)

Interest expense

 

322

293

Tax expense

 

598

210

Other adjustments

 

117

183

Net (increase)/decrease in operational assets

 

 

 

Investments held for trading or designated as fair value through profit or loss

 

(18,031)

(10,381)

Investments designated as available-for-sale

 

(179)

(248)

Other assets

 

(4,660)

1,258

Net increase/(decrease) in operational liabilities

 

 

 

Insurance contracts

 

13,089

3,257

Investment contracts

 

27,514

(22,571)

Other liabilities

 

21,313

12,057

Net increase/(decrease) in held for sale net liabilities

 

1,206

(8,500)

 

 

 

 

 

 

 

 

Cash utilised in operations

 

(12,918)

(9,684)

Interest paid

 

(263)

(215)

Interest received

 

5,047

4,841

Tax paid1

 

(540)

(504)

Dividends received

 

5,389

5,201

 

 

 

 

 

 

 

 

Net cash flows utilised in operating activities

 

(3,285)

(361)

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

Net acquisition of plant, equipment, intangibles and other assets

 

(89)

(401)

Net disposal/(acquisition) of operations, net of cash (transferred)/acquired

3.02, 3.03

198

326

Net disposal/(investment) in associates and joint ventures

 

29

(130)

 

 

 

 

 

 

 

 

Net cash flows generated/(utilised) from investing activities

 

138

(205)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

Dividend distributions to ordinary equity holders during the year

3.05

(998)

(932)

Options exercised under share option schemes

3.08

8

4

Treasury shares purchased for employee share schemes

 

(20)

12

Payment of lease liabilities

 

(33)

-

Proceeds from borrowings

 

1,309

960

Repayment of borrowings

 

(958)

(325)

 

 

 

 

 

 

 

 

Net cash flows utilised in financing activities

 

(692)

(281)

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(3,839)

(847)

Exchange (losses)/gains on cash and cash equivalents

 

(16)

16

Cash and cash equivalents at 1 January (before reallocation of held for sale cash)

 

18,088

18,919

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

14,233

18,088

Less: cash and cash equivalents of operations classified as held for sale

3.04

(310)

(767)

 

 

 

 

 

 

 

 

Cash and cash equivalents at 31 December

 

13,923

17,321

 

 

 

 

 

 

 

 

1. Tax comprises UK corporation tax paid of £381m (2018: £359m), withholding tax of £166m (2018: £120m) and an overseas corporate tax refund of £7m (2018: tax paid £25m).

 

 

IFRS Disclosure Notes  Page 45

 

3.01 Basis of preparation

 

The preliminary announcement for the year ended 31 December 2019 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information in this preliminary announcement has been derived from the group financial statements within the group's 2019 Annual report and accounts, which will be available on the group's website on 12 March 2020. The group's 2018 Annual report and accounts have been filed with the Registrar of Companies, and those for 2019 will be delivered in due course. KPMG have reported on the 2019 and 2018 report and accounts. Both their reports were (i) unqualified, (ii) did not include a reference to any matters to which they drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union, and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS and interpretations by the IFRS Interpretations Committee as issued by the IASB and as adopted by the European Union. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

 

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented, unless otherwise stated.

 

Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

 

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group's foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for the income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.

 

Critical accounting policies and the use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the valuation of insurance and investment contract liabilities, unquoted illiquid assets, investment property, and the determination of defined benefit pension plan assumptions. From a policy application perspective, the major areas of judgement are the assessment of whether a contract transfers significant insurance risk to the group, and whether the group controls underlying entities and should therefore consolidate them. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2019 Annual Report and Accounts.

 

Key technical terms and definitions

The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary.

 

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

 

For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.

 

 

IFRS Disclosure Notes  Page 46

 

3.02 Acquisitions

 

Accelerated Digital Ventures Limited

 

On 31 August 2019 the group increased its shareholding in Accelerated Digital Ventures Ltd to 97% from 48.5%.

 

The transaction has been accounted for as a stepped acquisition in accordance with IFRS 3 'Business combinations'. The assets and liabilities acquired at the point of the transaction have been recorded at the fair value for the purposes of the acquisition balance sheet and included in the consolidated accounts of the group using the group's accounting policies in accordance with IFRS.

 

The total deemed consideration for the 97% stake was £41m compared to £49m of net assets at fair value net of non-controlling interest, giving rise to a one off gain of £8m, which has been recognised within other operational income in the Consolidated Income Statement.

 

 

3.03 Disposals

 

IndiaFirst Life Insurance Company Limited

On 7 February 2019, the group completed the disposal of its stake in IndiaFirst Life Insurance Company Limited ("IndiaFirst Life") to an affiliate of Warburg Pincus LLC for INR 7.1bn (c.£76m at GBP:INR 1:92). A pre-tax gain on disposal of £43m, net of transaction costs, has been recognised in other operational income in the Consolidated Income Statement. The operations of IndiaFirst Life have not been classified as discontinued operations since they do not represent a major line of business of the group.

 

 

 

 

 

 

 

 

 

Legal & General Insurance Limited

On 31 May 2019 the group announced the sale of its General Insurance ("GI") business to Allianz, and the transaction completed on 31 December 2019 for an estimated consideration of £255m. The carrying value of the GI business on disposal was £231m, resulting in a profit on disposal of £2m, net of transaction and separation costs of £22m.

 

The result arising from the GI business until its disposal, as well as the gain on the sale, have been recognised in the Consolidated Income Statement, as part of profit from discontinued operations.

 

The GI balance sheet on disposal is presented below:

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred acquisition costs

 

 

 

 

 

 

 

65

Financial investments

 

 

 

 

 

 

 

368

Receivables

 

 

 

 

 

 

 

160

Intangible assets

 

 

 

 

 

 

 

44

Reinsurers' share of contract liabilities

 

 

 

 

 

 

 

24

Cash and cash equivalents

 

 

 

 

 

 

 

26

Other assets

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance contract liabilities

 

 

 

 

 

 

 

378

Tax liabilities

 

 

 

 

 

 

 

49

Other liabilities

 

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets on disposal

 

 

 

231

 

 

IFRS Disclosure Notes  Page 47

 

3.04 Assets and liabilities of operations classified as held for sale

 

Mature Savings

On 6 December 2017 the group announced the sale of its Mature Savings business to the ReAssure Limited, a subsidiary of Swiss Re Limited ('Swiss Re') for a consideration of £650m. As part of the transaction, on 1 January 2018 the group entered into a risk transfer agreement with Swiss Re, whereby the group transferred all economic risks and rewards of the Mature Savings business to ReAssure limited. The risk transfer agreement operates until the business is transferred under a court approved scheme under Part VII of the Financial Services and Markets Act 2000. The sale is expected to finalise in 2020 following the completion of the Part VII transfer.  As the legal transfer of the business has not yet occurred the Mature Savings business has been classified as held for sale on the Group's balance sheet as at 31 December 2019. The profit arising from the Mature Savings business in accordance with the risk transfer agreement has been recognised as "Profit after tax from discontinued operations" in the Consolidated Income Statement. Up until the Part VII this reflects the unwind of expected underlying profits, which will offset the final profit on disposal.

 

Swiss Re has since announced the sale of ReAssure Limited to Phoenix Group Holdings. The announcement is not expected to have any direct impact on the transfer of the Mature Savings business to ReAssure Limited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

3.05 Dividends and appropriations

 

 

 

 

 

 

 

 

Dividend

Per share1

Dividend

Per share1

 

 

2019

2019

2018

2018

 

 

£m

p

£m

p

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary dividends paid and charged to equity in the year:

 

 

 

 

 - Final 2017 dividend paid in June 2018

 

-

-

658

11.05

 - Interim 2018 dividend paid in September 2018

 

-

-

274

4.60

 - Final 2018 dividend paid in June 2019

 

704

11.82

-

-

 - Interim 2019 dividend paid in September 2019

 

294

4.93

-

-

 

 

 

 

 

 

 

 

 

 

 

 

Total dividends

 

998

16.75

932

15.65

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary share dividend proposed 2

 

753

12.64

704

11.82

 

 

 

 

 

 

 

 

 

 

 

 

1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.

2. Subsequent to 31 December 2019, the directors declared a final dividend for 2019 of 12.64 pence per ordinary share. This dividend will be paid on 4 June 2020. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2020 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2019.

 

 

IFRS Disclosure Notes  Page 48

 

3.06 Financial investments and investment property

 

 

 

 

 

2019

2018

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Equities1

 

 

 

200,365

177,566

Debt securities 2

 

 

 

286,916

254,452

Accrued interest

 

 

 

1,647

1,635

Derivative assets 3

 

 

 

14,828

10,065

Loans 4

 

 

 

16,814

9,662

 

 

 

 

 

 

 

 

 

 

 

 

Financial investments

 

 

 

520,570

453,380

 

 

 

 

 

 

 

 

 

 

 

 

Investment property

 

 

 

9,107

8,608

 

 

 

 

 

 

 

 

 

 

 

 

Total financial investments and investment property

 

 

 

529,677

461,988

Less: financial investments and investment property of operations classified as held for sale

(23,606)

(24,525)

Financial investments and investment property

506,071

437,463

1. Equity securities include investments in unit trusts of £13,046m (2018: £10,553m).

2. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 6.03.

3. Derivatives are used for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities of £13,113m (2018: £7,791m).

4. Loans include £437m (2018: £456m) of loans valued at amortised cost.

 

 

IFRS Disclosure Notes  Page 49

 

3.07 Tax

 

(a) Tax charge in the Consolidated Income Statement

 

 

 

 

 

 

 

The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:

 

 

 

 

 

 

Continuing

 

Continuing

 

 

operations

Total

operations

Total

 

2019

2019

2018

2018

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Profit before tax attributable to equity holders

2,084

2,112

2,076

2,128

Tax calculated at 19.00%

396

401

394

404

 

 

 

 

 

Adjusted for the effects of:

 

 

 

 

Recurring reconciling items:

 

 

 

 

Income not subject to tax

(4)

(4)

-

-

(Lower)/higher rate of tax on profits taxed overseas1

(117)

(117)

(55)

(55)

Non-deductible expenses

2

2

5

5

Differences between taxable and accounting investment gains

(10)

(10)

(4)

(4)

Property income attributable to minority interests

4

4

-

-

Foreign tax

6

6

-

-

Unrecognised tax losses

14

14

-

-

 

 

 

 

 

Non-recurring reconciling items:

 

 

 

 

Income not subject to tax

(6)

(6)

(10)

(10)

Non-deductible expenses

6

6

5

5

Adjustments in respect of prior years2

9

9

(35)

(36)

Impact of changes in corporate tax rates on deferred tax balances

(2)

(2)

11

11

Other

(1)

(1)

-

-

 

 

 

-

-

 

 

 

 

 

Tax attributable to equity holders

297

302

311

320

 

 

 

 

 

 

 

 

 

 

Equity holders' effective tax rate 3

14.3%

14.3%

15.0%

15.0%

 

 

 

 

 

 

1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides our business with regulatory capital flexibility for both our PRT business and our US term insurance business. This is partially offset by the effect of our US operations taxed at 21%.

2. Adjustments in respect of prior years relate to revisions to earlier estimates.

3. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.

 

 

IFRS Disclosure Notes  Page 50

 

3.07 Tax

 

(b) Deferred tax

 

 

 

 

 

 

 

 

 

 

 

 

2019

2018

 

Deferred tax (liabilities)/assets

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred acquisition expenses

 

 

 

35

25

 

  - UK

 

 

 

 

(40)

(40)

 

  - Overseas

 

 

 

 

75

65

 

Difference between the tax and accounting value of insurance contracts

 

 

 

 

(630)

(577)

 

  - UK

 

 

 

 

(198)

(171)

 

  - Overseas

 

 

 

 

(432)

(406)

 

Unrealised gains on investments

 

 

 

 

(184)

(72)

 

Excess of depreciation over capital allowances

 

 

 

 

15

12

 

Excess expenses

 

 

 

 

20

21

 

Accounting provisions and other

 

 

 

 

(44)

(28)

 

Trading losses1

 

 

 

 

217

163

 

Pension fund deficit

 

 

 

 

28

41

 

Acquired intangibles

 

 

 

 

(2)

(4)

 

 

 

 

 

 

 

 

 

Total net deferred tax liabilities2

 

 

 

 

(545)

(419)

 

Less: net deferred tax liabilities of operations classified as held for sale

 

 

 

 

182

97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax liabilities

 

 

 

 

(363)

(322)

 

Analysed by:

 

 

 

 

 

 

 

 - Deferred tax assets

 

 

 

 

8

7

 

 - UK deferred tax liabilities

 

 

 

 

(189)

(144)

 

 - Overseas deferred tax liabilities

 

 

 

 

(182)

(185)

 

 

 

 

 

 

 

 

 

Net deferred tax liabilities

 

 

 

 

(363)

(322)

 

1. Trading losses include deferred tax on UK trade and US operating losses of £4m (2018: £4m) and £213m (2018: £159m) respectively.

 

2. Total net deferred tax liabilities are presented gross of held for sale liabilities in 2019. Disclosure relating to liabilities of operations classified as held for sale is included in Note 3.04.

 

 

 

IFRS Disclosure Notes  Page 51

 

3.08 Share capital and share premium

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

Number of

2019

 

Number of

2018

Authorised share capital

 

shares

£m

 

shares

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December: ordinary shares of 2.5p each

9,200,000,000

230

9,200,000,000

230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

Share

 

 

 

 

 

 

Number of

capital

premium

Issued share capital, fully paid

 

 

 

 

 

shares

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2019

 

 

 

 

5,960,768,234

149

992

Options exercised under share option schemes

 

4,581,373

-

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 December 2019

 

 

 

 

5,965,349,607

149

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

Share

 

 

 

 

 

 

Number of

capital

premium

Issued share capital, fully paid

 

 

 

 

 

shares

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2018

 

 

 

 

5,958,438,193

149

988

Options exercised under share option schemes

 

2,330,041

-

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 December 2018

 

 

 

 

5,960,768,234

149

992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.

 

 

 

 

 

 

 

 

 

The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.

 

3.09 Non-controlling interests

 

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results.

 

No individual non-controlling interest is considered to be material on the basis of the year end carrying value or share of profit or loss.

 

 

IFRS Disclosure Notes  Page 52

 

3.10 Core borrowings

 

 

 

Carrying

Coupon

 

Carrying

Coupon

 

 

 

amount

rate

Fair value

amount

rate

Fair value

 

 

2019

2019

2019

2018

2018

2018

 

 

£m

%

£m

£m

%

£m

 

 

 

 

 

 

 

 

Subordinated borrowings

 

 

 

 

 

 

 

5.875% Sterling undated subordinated notes (Tier 2)

-

-

-

405

5.88

409

10% Sterling subordinated notes 2041 (Tier 2)

312

10.00

353

312

10.00

366

5.5% Sterling subordinated notes 2064 (Tier 2)

589

5.50

726

589

5.50

569

5.375% Sterling subordinated notes 2045 (Tier 2)

603

5.38

691

603

5.38

627

5.25% US Dollar subordinated notes 2047 (Tier 2)

648

5.25

704

659

5.25

612

5.55% US Dollar subordinated notes 2052 (Tier 2)

380

5.55

405

387

5.55

356

5.125% Sterling subordinated notes 2048 (Tier 2)

 

399

5.13

459

399

5.13

401

3.75% Sterling subordinated notes 2049 (Tier 2)

 

598

3.75

613

-

-

-

Client fund holdings of group debt (Tier 2) 1

 

(38)

-

(44)

(31)

-

(30)

Total subordinated borrowings

3,491

 

3,907

3,323

 

3,310

 

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

 

Sterling medium term notes 2031-2041

609

5.88

877

609

5.88

824

Client fund holdings of group debt 1

 

(9)

-

(13)

(10)

-

(13)

Total senior borrowings

 

600

 

864

599

 

811

Total core borrowings

 

4,091

 

4,771

3,922

 

4,121

1. £47m (2018: £41m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as level 1 in the fair value hierarchy.

 

 

IFRS Disclosure Notes  Page 53

 

3.10 Core borrowings (continued)

 

Subordinated borrowings

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes were called at par on 1 April 2019.

 

10% Sterling subordinated notes 2041

In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% p.a. These notes mature on 23 July 2041.

 

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June 2064.

 

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These notes mature on 27 October 2045.

 

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes mature on 21 March 2047.

 

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes mature on 24 April 2052.

 

5.125% Sterling subordinated notes 2048

On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65% p.a. These notes mature on 14 November 2048.

 

3.75% Sterling subordinated notes 2049

On 26 November 2019, Legal & General Group Plc issued £600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November 2029 and every five years thereafter. If not called, the coupon from 26 November 2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05% p.a. These notes mature on 26 November 2049.

 

All of the above subordinated notes are treated as tier 2 own funds for Solvency II purposes.

 

Senior borrowings

 

Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.

 

 

IFRS Disclosure Notes  Page 54

 

3.11 Operational borrowings

 

 

 

 

 

 

 

 

 

Carrying

Interest

 

Carrying

Interest

 

 

amount

rate

Fair value

amount

rate

Fair value

 

2019

2019

2019

2018

2018

2018

 

£m

%

£m

£m

%

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short term operational borrowings

 

 

 

 

 

 

Euro Commercial Paper

200

0.93

200

293

0.93

293

 

 

 

 

 

 

 

Non recourse borrowings

 

 

 

 

 

 

Consolidated Property Limited Partnerships

58

2.36

58

57

2.46

57

Later Living portfolio

72

3.47

72

76

3.45

76

CALA revolving credit facility

178

3.37

178

188

3.37

188

Class B Surplus Notes

489

4.33

489

296

5.61

296

Affordable Homes revolving credit facility

29

2.66

29

-

-

-

L&G Homes Limited revolving credit facility

16

3.44

16

-

-

-

 

 

 

 

 

 

 

Bank loans and overdrafts

-

-

-

83

-

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operational borrowings 1

1,042

 

1,042

993

 

993

Less: liabilities of operations classified as held for sale 2

(29)

2.36

(29)

(28)

2.46

(28)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational borrowings

1,013

 

1,013

965

 

965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Unit linked borrowings with a carrying value of £7m (2018: £61m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are £1,020m (2018: £1,026m).

2. Disclosure related to liabilities of operations classified as held for sale is included in Note 3.04.

 

 

 

 

 

 

 

Non recourse borrowings

 

 

 

 

 

 

- Consolidated Property Limited Partnerships loans have a charge on the assets of the relevant Property Fund

 

- Loan facilities to Later Living portfolio have a charge on all assets of each individual SPV company.

 

- CALA Group (Holdings) Limited's revolving credit facility is secured by way of a bond and floating charge, and guarantees and fixed charges granted by CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited, and CALA Management Limited). A number of other bonds and floating charges, fixed securities, debentures and share pledges over land and assets have been granted by certain subsidiaries of CALA Group Limited in favour of the lenders.

 

- The Class B Surplus Notes have been issued by a US subsidiary of the group as part of a coinsurance structure for the purpose of US statutory regulations. The notes were issued in exchange for bonds of the same value from an unrelated party, included within financial investments on the group's Consolidated Balance Sheet.

 

- The revolving credit facility to Affordable Homes is subject to agreed covenants, the breach of which could result in a charge on the land and work in progress of L&G Affordable Homes (Development 2) Limited.

 

- The revolving credit facility to L&G Homes Limited is secured by way of a charge on the land assets of L&G Homes Limited.

 

 

 

 

 

 

 

The carrying value of operational borrowings approximates their fair value. The presented fair values reflect observable market information and have been classified as Level 2 in the fair value hierarchy with the exception of the Later Living portfolio, Affordable Homes and L&G Homes Limited revolving credit facilities which have been classified as Level 3.

 

 

 

 

 

 

 

 

 

As at 31 December 2019, the group had in place a £1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2022. No amounts were outstanding at 31 December 2019.

 

 

IFRS Disclosure Notes  Page 55

 

3.12 Payables and other financial liabilities

 

 

 

 

 

 

2019

2018

 

 

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

 

13,113

7,791

Repurchase agreements 1

 

 

56,884

43,775

Other financial liabilities 2

 

 

14,476

11,406

 

 

 

 

 

 

 

 

Total payables and other financial liabilities

 

 

84,473

62,972

Less: Payables and other liabilities of operations classified as held for sale 3

 

 

(434)

(424)

 

 

 

 

 

 

 

 

Payables and other financial liabilities

 

 

 

84,039

62,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due within 12 months 4

 

 

64,689

51,178

Due after 12 months 4

 

 

19,784

11,794

1. The repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The vast majority of the repurchase agreements are unit linked.

2. Other financial liabilities includes trail commission, lease liabilities, reinsurance payables and collateral repayable on short position reverse repurchase agreements. The value of collateral repayable on short position reverse repurchase agreements was £7,673m (2018: £4,883m).

3. Disclosure relating to liabilities of operations classified as held for sale is included in Note 3.04.

4. The maturity analysis of the liabilities between less and more than 12 months is based on the Total payables and other financial liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hierarchy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

Level 1

Level 2

Level 3

Amortised cost

As at 31 December 2019

 

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

13,113

283

12,828

2

-

Repurchase agreements

 

 

56,884

-

56,884

-

-

Other financial liabilities

 

 

14,476

7,822

9

139

6,506

Total payables and other financial liabilities

84,473

8,105

69,721

141

6,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortised

 

 

 

Total

Level 1

Level 2

Level 3

cost

As at 31 December 2018

 

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

7,791

337

7,452

2

-

Repurchase agreements

43,775

-

43,775

-

-

Other financial liabilities

11,406

4,718

35

496

6,157

 

 

 

 

 

 

 

 

Total payables and other financial liabilities

62,972

5,055

51,262

498

6,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trail commission (included within Other financial liabilities) is modelled using expected cash flows, incorporating expected future persistency. It has therefore been classified as Level 3 liabilities. A reasonably possible alternative persistency assumption would have the effect of increasing the trail commission liability by £4m (2018: £4m).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant transfers between levels

 

There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2019 (2018: no significant transfers).

 

 

IFRS Disclosure Notes  Page 56

 

3.13 Sensitivity analysis

 

 

 

 

 

Impact on

 

Impact on

 

 

 

 

 

 

pre-tax

Impact on

pre-tax

Impact on

 

 

 

 

 

group profit

group equity

group profit

group equity

 

 

 

 

 

net of re-

net of re-

net of re-

net of re-

 

 

 

 

 

insurance

insurance

insurance

insurance

 

 

 

 

 

2019

2019

2018

2018

 

 

 

 

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic sensitivity

 

 

 

 

 

 

 

 

Long-term insurance

 

 

 

 

 

 

 

 

100bps increase in interest rates

 

 

 

257

130

384

209

50bps decrease in interest rates

 

 

 

(188)

(109)

(220)

(122)

50bps increase in future inflation expectations

 

53

43

65

53

Credit spreads widen by 100bps with no change in expected defaults

 

(220)

(273)

(138)

(213)

25% rise in equity markets

 

 

 

 

434

383

458

399

25% fall in equity markets

 

 

 

 

(434)

(383)

(459)

(399)

15% rise in property values

 

 

 

 

899

744

738

606

15% fall in property values

 

 

 

 

(958)

(791)

(761)

(623)

10bps increase in credit default assumptions

(717)

(580)

(551)

(446)

10bps decrease in credit default assumptions

633

512

558

451

 

 

 

 

 

 

 

 

Non-economic sensitivity

 

 

 

 

 

 

 

 

Long-term insurance

 

 

 

 

 

 

 

 

1% increase in annuitant mortality

195

221

157

192

1% decrease in annuitant mortality

 

(201)

(225)

(147)

(183)

5% increase in assurance mortality

 

(385)

(305)

(375)

(298)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows the impacts on group pre-tax profit and equity, net of reinsurance, under each sensitivity scenario. The current disclosure reflects management's view of key risks in current economic conditions.

 

The interest rate sensitivities reflect the impact of the regulatory restrictions on the reinvestment rate used to value the liabilities of the long term business. The scenario does not reflect management actions which could be taken to reduce the impact of a decrease in interest rates.

 

The change in interest rate test assumes a 100 basis point increase and a 50 basis point decrease in the gross redemption yield on fixed interest securities together with the same change in the real yields on variable securities.  Valuation interest rates are assumed to move in line with market yields, adjusted to allow for prudence calculated in a manner consistent with the base results.

 

In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields unchanged, and there has been no adjustment to the default assumptions.

 

The inflation stress adopted is a 0.5% pa increase in inflation, resulting in a 0.5% pa reduction in real yield and no change to the nominal yield. In addition, the expense inflation rate is increased by 0.5% pa.

 

The credit default assumption is set based on the credit rating of individual bonds and their outstanding term using Moody's global credit default rates. The credit default stress assumes a +/-10bps stress to the current unapproved credit default assumption, which will have an impact on the valuation interest rates used to discount liabilities. Other credit default allowances are unchanged.

 

The property stresses adopted are a 15% rise and 15% fall in property market values. Rental income is assumed to be unchanged.  Where property is being used to back liabilities, valuation interest rates move with property yields, and so the value of the liabilities will also move.

 

The annuitant mortality stresses are a 1% increase and 1% decrease in the mortality rates for immediate and deferred annuitants with no change to the mortality improvement rates. The equity stresses are a 25% rise and 25% fall in listed equity market values.

 

The assurance mortality stress is a 5% increase in the mortality and morbidity rates with no change to the mortality and morbidity improvement rates.

 

The sensitivity analyses do not take into account management actions that could be taken to reduce the impacts. The Group seeks to actively manage its asset and liability position. A change in market conditions may lead to changes in the asset allocation or charging structure which may have a more, or less, significant impact on the value of the liabilities. The analysis also ignores any second order effects of the assumption change, including the potential impact on the Group asset and liability position and any second order tax effects. In calculating the alternative values, all other assumptions are left unchanged, though in practice, items may be correlated. The sensitivity of the profit to changes in assumptions may not be linear. They should not be extrapolated to changes of a much larger order.

 

 

IFRS Disclosure Notes  Page 57

 

3.14 Foreign exchange rates

 

Principal rates of exchange used for translation are:

 

 

 

 

 

 

 

 

 

 

Year end exchange rates

 

 

 

2019

2018

 

 

 

 

 

 

 

 

 

 

 

 

United States dollar

 

 

 

1.33

1.28

Euro

 

 

 

1.18

1.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average exchange rates

 

 

 

2019

2018

 

 

 

 

 

 

 

 

 

 

 

 

United States dollar

 

 

 

1.28

1.34

Euro

 

 

 

1.14

1.13

 

 

 

 

 

 

 

 

 

 

 

 


 

3.15 Provisions

 

(a) Analysis of provisions

 

 

 

 

 

 

 

 

 

 

 

 

2019

2018

 

 

 

 

Notes

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit obligations

 

 

 

3.16 (b)

1,107

1,112

Other provisions

 

 

 

 

114

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total provisions

 

 

 

1,221

1,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: liabilities of operations classified as held for sale1

 

 

 

(1)

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions

 

 

 

 

1,220

1,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.  Disclosure related to liabilities of operations classified as held for sale is included in Note 3.04

 

 

 

 

 

 

 

(b) Retirement benefit obligations

 

 

 

 

 

 

 

 

 

Fund and

CALA Homes

Fund and

CALA Homes

 

 

 

Scheme

and Overseas

Scheme

and Overseas

 

 

 

2019

2019

2018

2018

 

 

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross pension obligations included in provisions

 

1,083

24

1,091

21

Annuity obligations insured by LGAS

 

 

(944)

-

(858)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross defined benefit pension deficit

 

 

139

24

233

21

Deferred tax on defined benefit pension deficit

 

 

(24)

(4)

(41)

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net defined benefit pension deficit

 

 

115

20

192

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Legal & General Group UK Pension and Assurance Fund (Fund) and the Legal & General Group UK Senior Pension Scheme (Scheme) account for the majority of the UK and worldwide assets of, and contributions to, such arrangements. The Fund and Scheme were closed to future accrual on 31 December 2015.

 

 

IFRS Disclosure Notes  Page 58

 

3.16 Contingent liabilities, guarantees and indemnities

 

Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court judgments.

 

Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.

 

Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of group companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain group companies' liabilities under the group pension fund and scheme. LGAS has provided indemnities, a liquidity and expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of group companies to facilitate the group's matching adjustment reorganisation pursuant to Solvency II.

 

3.17 Related party transactions

 

 

 

 

 

 

(i) Key management personnel transactions and compensation

 

 

 

 

 

 

 

 

There were no material transactions between key management and the Legal & General group of companies during the year. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £86m (2018: £84m) for all employees.

At 31 December 2019 and 31 December 2018 there were no loans outstanding to officers of the company.

 

 

 

The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:

 

 

 

 

 

2019

2018

 

 

 

 

 

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

 

 

 

12

10

Post-employment benefits

 

 

 

 

-

-

Share-based incentive awards

 

 

 

 

7

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key management personnel compensation1

 

 

19

16

 

 

 

 

 

 

 

1. Information relating to individual directors' emoluments, interests and transactions is given in the Directors' Report on Remuneration in the Annual Report and Accounts.

 

 

 

 

 

 

 

 

(ii) Services provided to and by related parties

All transactions between the group and associates, joint ventures and other related parties during the year are on commercial terms which are no more favourable than those available to companies in general.

Loans and commitments to related parties are made in the normal course of business.

The group has the following material related party transactions:

- Annuity contracts issued by Legal and General Assurance Society Limited for consideration of £78m (2018: £59m) purchased by the group's UK defined benefit pension schemes during the period, priced on an arm's length basis;

- Loans outstanding from related parties at 31 December 2019 of £83m (2018: £201m), with a further commitment of £16m;

- The group has total other commitments of £1,213m to related parties (2018: £837m), of which £749m has been drawn at 31 December 2019 (2018: £507m).

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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