L&G Half-year Report 2010 - P

RNS Number : 4827Q

Legal & General Group Plc

04 August 2010

 



Cash Flow and Capital											Page 49
3.01	Operational cash generation1
The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to IFRS profit after tax.
							Investment		IFRS		IFRS
		Operational	New				gains		profit	Tax	profit
		cash	business	Net	Inter-		and		/(loss)	expense/	/(loss)
Six months ended		generation	strain	cash	national2	Variances	losses3	Other4	after tax	credit	before tax
30 June 2010		£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total Risk operating profit		212	(10)	202	-	22	-	-	224	86	310
Total Savings operating profit		72	(34)	38	-	5	-	(5)	38	16	54
Investment management
operating profit		70	-	70	-	-	-	-	70	28	98
International		33	-	33	7	-	-	-	40	21	61
Group capital and financing		15	-	15	-	-	15	-	30	3	33
Investment projects		-	-	-	-	-	-	(10)	(10)	(4)	(14)
Operating profit		402	(44)	358	7	27	15	(15)	392	150	542
Investment variance		-	-	-	-	-	10	-	10	(14)	(4)
Property losses attributable to										-	-
minority interests		-	-	-	-	-	-	(1)	(1)	-	(1)
Total		402	(44)	358	7	27	25	(16)	401	136	537
Dividends paid in the year				(160)
Net cash available for reinvestment				198
Six months ended
30 June 2009
Total Risk operating profit		216	13	229	-	(70)	-	3	162	61	223
Total Savings operating profit		40	(44)	(4)	-	17	-	2	15	2	17
Investment management
operating profit		54	-	54	-	-	-	-	54	20	74
International		-	-	-	44	-	-	-	44	21	65
Group capital and financing		23	-	23	-	-	6	-	29	(4)	25
Operating profit		333	(31)	302	44	(53)	6	5	304	100	404
Investment variance		-	-	-	-	-	(375)	-	(375)	(152)	(527)
Property losses attributable to
minority interests		-	-	-	-	-	-	(20)	(20)	-	(20)
Total		333	(31)	302	44	(53)	(369)	(15)	(91)	(52)	(143)
Dividends paid in the year				(120)
Net cash available for reinvestment				182
Year ended
31 December 2009
Total Risk operating profit		454	50	504	-	27	-	-	531	204	735
Total Savings operating profit		106	(77)	29	-	16	-	(8)	37	13	50
Investment management
operating profit		125	-	125	-	-	-	-	125	47	172
International		8	-	8	78	-	-	-	86	41	127
Group capital and financing		33	-	33	-	-	16	-	49	8	57
Investment projects		-	-	-	-	-	-	(23)	(23)	(9)	(32)
Operating profit		726	(27)	699	78	43	16	(31)	805	304	1,109
Investment variance		-	-	-	-	-	58	-	58	(74)	(16)
Property losses attributable to
minority interests		-	-	-	-	-	-	(19)	(19)	-	(19)
Total		726	(27)	699	78	43	74	(50)	844	230	1,074
Dividends paid in the year				(185)
Net cash available for reinvestment				514
Cash Flow and Capital											Page 50
Variances5
						Risk	Savings	Risk	Savings	Risk	Savings
						£m	£m	£m	£m	£m	£m
				Notes		30.06.10	30.06.10	30.06.09	30.06.09	31.12.09	31.12.09
Experience variances			2.01(c)/2.02(c)			(3)	9	22	(8)	113	(1)
Changes to valuation assumptions			2.01(d)/2.02(d)			98	(6)	(2)	15	169	9
Changes to FSA reporting and capital rules			2.01(b)/2.02(b)			-	-	-	38	15	50
Movements in non-cash items			2.01(e)/2.02(e)			(78)	3	(80)	1	(229)	(64)
Other			2.01(b)/2.02(b)			5	(1)	(10)	(29)	(41)	22
Total						22	5	(70)	17	27	16
1.  The operational cash generation analysed above is available to replenish the capital stock, reinvest back into the business and finance the dividend.  In H1 10, the business generated operational cash flow of £402m (FY 09: £726m, H1 09: £333m) before investing £44m (FY 09: £27m, H1 09: £31m) in non profit new business strain, resulting in net cash generated of £358m (FY 09: £699m, H1 09: £302m).  In H1 10, £160m has been used to pay the 2009 final dividend, resulting in £198m (FY 09: £514m, H1 09: £182m) being retained, augmenting the IGD surplus.
2.  Profits arising in the international businesses that are not paid out in dividends are retained locally to support growth and are treated as not being available for distribution.
3.  Investment gains and losses have been excluded from operational cash generation in order to reflect an expected net of tax income on shareholders' investments.
4.  Other includes the removal of amortisation on acquired intangibles in our Savings business.   Costs relating to one-off investment projects are also excluded.
5.  Non-recurring experience variances and assumption changes are absorbed directly by the Group's IGD surplus.  Movements in non-cash items do not generate cash in the period and are therefore not available for distribution.
Cash Flow and Capital											Page 51
3.02	Regulatory capital resources
(a)	Insurance Group's Directive (IGD)
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates.  At Group level, Legal & General must comply with the requirements of the IGD.  The table below shows the estimated total Group capital resources, Group capital resources requirement and the surplus at 30.06.10.
									At 30.06.10	At 30.06.09	At 31.12.09
									£bn	£bn	£bn
Core tier 1									5.3	3.8	4.8
Innovative tier 1									0.6	0.6	0.6
Upper tier 2									0.4	0.4	0.4
Lower tier 2									0.8	0.5	0.8
Deductions1									(1.1)	(1.0)	(1.0)
Group capital resources									6.0	4.3	5.6
Group capital resources requirement									2.7	2.4	2.5
IGD surplus2									3.3	1.9	3.1
Coverage ratio (Group capital resources / Group capital resources requirement)									2.22	1.79	2.24
									times	times	times
1.  Deductions comprises inadmissible assets in L&G America of £0.9bn (FY 09: £0.8bn, H1 09: £0.8bn),  in Society of £0.1bn (FY 09: £0.1bn, H1 09: £0.1bn) and in other subsidiaries of £0.1bn (FY 09: £0.1bn, H1 09: £0.1bn).
2.  The IGD surplus is stated after accruing for the period end dividend.
A segmental analysis is given below.
									At 30.06.10	At 30.06.09	At 31.12.09
									£bn	£bn	£bn
Society long term fund1									2.1	1.8	2.1
Society shareholder capital									2.6	1.6	2.2
General insurance									0.1	0.1	0.1
France									0.2	0.1	0.2
Netherlands									0.2	0.2	0.2
Nationwide Life									0.1	0.1	0.1
USA									0.2	0.1	0.2
Investment management									0.4	0.3	0.3
Other2									0.9	1.1	0.9
Innovative tier 1									0.6	0.6	0.6
Tier 2									1.2	0.9	1.2
Debt									(2.6)	(2.6)	(2.5)
Group capital resources									6.0	4.3	5.6
Society long term fund1									2.3	2.0	2.1
Other									0.4	0.4	0.4
Group capital resources requirement									2.7	2.4	2.5
1. The Society long term fund (LTF) capital requirement of £2.3bn (FY09: £2.1bn) is met by £2.1bn (FY 09: £2.1bn) of capital resources in the LTF and £0.2bn  (FY 09: £nil) from other Society shareholder capital.
2. Other includes corporate assets held within the Group's Treasury function.
Cash Flow and Capital											Page 52
3.02	Regulatory capital resources (continued)
(a)	Insurance Group's Directive (IGD) (continued)
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.
									At 30.06.10	At 30.06.09	At 31.12.09
									£bn	£bn	£bn
Capital and reserves attributable to equity holders on an IFRS basis									4.5	3.3	4.2
Innovative tier 1									0.6	0.6	0.6
Tier 2									1.2	0.9	1.2
Proposed dividends									(0.1)	(0.1)	(0.2)
Additional capital available from Society									0.7	0.3	0.6
Adjustment to reflect regulatory value of the USA operation									(0.9)	(0.8)	(0.8)
Other regulatory adjustments									-	0.1	-
Group capital resources									6.0	4.3	5.6
(b)	With-profits realistic balance sheet
The table below summarises the realistic position of the with-profits part of Society's LTF:
									At 30.06.10	At 30.06.09	At 31.12.09
									£bn	£bn	£bn
With-profits surplus									0.8	0.6	0.8
Risk capital margin									0.3	0.2	0.2
Surplus									0.5	0.4	0.6
Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (peak 2).  The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the FSA. The surplus includes the present value of future shareholder transfers of £0.2bn (FY 09: £0.3bn, H1 09: £0.2bn) as a liability in the calculation.
(c)	Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis.
						30.06.10	30.06.10	30.06.09	30.06.09	31.12.09	31.12.09
						Long		Long		Long
						term	General	term	General	term	General
						business	insurance	business	insurance	business	insurance
						£bn	£bn	£bn	£bn	£bn	£bn
Available capital resources - Tier 1						5.2	0.1	3.8	0.1	4.8	0.1
Insurance capital requirement						2.2	0.1	2.0	0.1	2.1	0.1
Capital requirements of regulated related undertakings						0.2	-	0.2	-	0.2	-
With-profits Insurance Capital Component						0.1	-	-	-	-	-
Capital resources requirement						2.5	0.1	2.2	0.1	2.3	0.1
Regulatory capital surplus						2.7	-	1.6	-	2.5	-
Movement in Society long term insurance capital requirement
									At 30.06.10	At 30.06.09	At 31.12.09
Pillar 1 capital requirement									£bn	£bn	£bn
Protection									0.7	0.5	0.6
Annuities									0.8	0.8	0.8
Non profit pensions and unit linked bonds									0.1	0.1	0.1
Non profit									1.6	1.4	1.5
With-profits									0.6	0.6	0.6
Long term insurance capital requirement									2.2	2.0	2.1
On a regulatory basis (peak 1), Society long term business regulatory capital surplus of £2.7bn (FY 09: £2.5bn, H1 09: £1.6bn) comprises capital resources within the long term fund of £2.1bn (FY 09: £2.1bn, H1 09: £1.8bn) and capital resources outside the long term fund of £3.1bn (FY 09: £2.7bn, H1 09: £2.0bn) less the capital resources requirement of £2.5bn (FY 09 £2.3bn, H1 09: £2.2bn).
The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a peak 2 basis is lower than on a peak 1 basis and represents the difference in the surplus between the two bases.  It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b).  A further adjustment is made to the Peak 2 surplus to remove the present value of future shareholder transfers which is treated as a liability in Society's with-profits realistic surplus.  At 30 June 2010, this adjustment amounted to £0.2bn (FY 09: £0.3bn, H1 09: £0.2bn).

 

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