L&G Half Year Results 2022 Part 3

RNS Number : 3229V
Legal & General Group Plc
09 August 2022
 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Asset and premium flows    Page 73

 

5.01 LGIM total assets under management1 (AUM)

 

 

 

 

Active

Multi

 

Real

Total

 

 

Index

strategies

asset

Solutions2

assets

AUM

For the six month period to 30 June 2022


£bn

£bn

£bn

£bn

£bn

£bn

 

 

 

 



 

 

 

 

 

 


 

 

 

As at 1 January 2022


502.4

198.8

78.0

605.1

37.2

1,421.5

External inflows3


63.2

7.0

6.8

21.3

1.4

99.7

External outflows3


(38.2)

(4.2)

(3.7)

(12.5)

(1.1)

(59.7)

Overlay net flows


-

-

-

25.6

-

25.6

 

 

 

 




 

 

 

 

 


 

 

 

External net flows4

 

25.0

2.8

3.1

34.4

0.3

65.6

PRT transfers5

 

-

-

-

(0.4)

-

(0.4)

Internal net flows6


(0.4)

0.2

-

(0.7)

0.4

(0.5)

 

 

 

 



 

 

 

 

 

 


 

 

 

Total net flows

 

24.6

3.0

3.1

33.3

0.7

64.7

Market movements


(57.8)

(25.2)

(8.0)

(102.4)

(1.9)

(195.3)

Other movements7


0.4

1.6

-

(3.2)

-

(1.2)

 

 

 




 

 

 

 







As at 30 June 2022


469.6

178.2

73.1

532.8

36.0

1,289.7

 

 

 

 



 

 









Assets attributable to:


 


 

External







1,190.7

Internal







99.0









 




















Active

Multi


Real

Total



Index

strategies

asset

Solutions2

assets

AUM

For the six month period to 30 June 2021


£bn

£bn

£bn

£bn

£bn

£bn

















As at 1 January 2021


429.9

193.6

65.7

557.2

32.5

1,278.9

External inflows3


47.8

10.0

4.9

20.2

0.6

83.5

External outflows3


(43.1)

(7.7)

(3.1)

(8.0)

(0.8)

(62.7)

Overlay net flows


-

-

-

6.6

-

6.6

















External net flows4


4.7

2.3

1.8

18.8

(0.2)

27.4

PRT transfers5


(0.4)

(0.5)

-

(2.8)

-

(3.7)

Internal net flows6


(0.3)

(2.3)

0.1

(0.2)

1.0

(1.7)

















Total net flows


4.0

(0.5)

1.9

15.8

0.8

22.0

Market movements


37.9

(4.3)

4.2

(19.2)

0.4

19.0

Other movements7


(0.4)

1.3

-

6.0

-

6.9

























As at 30 June 2021


471.4

190.1

71.8

559.8

33.7

1,326.8









Assets attributable to:





External




1,213.6

Internal




113.2

















1. Assets under management (AUM) includes assets on our Investment Only Platform that are managed by third parties, on which fees are earned.

2. Solutions include liability driven investments and £386.9bn (30 June 2021: £345.3bn) of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £2.3bn (30 June 2021: £3.3bn) of external investments and £2.0bn (30 June 2021: £1.2bn) of redemptions in the ETF business.

4. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 30 June 2022 was £68.8bn (30 June 2021: £51.5bn).

5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.

6. Internal net flows includes legacy assets from the Mature Savings business sold to ReAssure in 2020.




7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Asset and premium flows    Page 74

 

5.01 LGIM total assets under management1 (AUM) (continued)

 



Active

Multi


Real

Total


Index

strategies

asset

Solutions2

assets

AUM

For the year ended 31 December 2021

£bn

£bn

£bn

£bn

£bn

£bn















As at 1 January 2021

429.9

193.6

65.7

557.2

32.5

1,278.9

External inflows3

99.4

18.7

15.1

34.4

1.7

169.3

External outflows3

(94.5)

(15.8)

(8.1)

(25.5)

(1.8)

(145.7)

Overlay net flows

-

-

-

11.0

-

11.0















External net flows4

4.9

2.9

7.0

19.9

(0.1)

34.6

PRT transfers5

(0.6)

(0.7)

-

(2.9)

-

(4.2)

Internal net flows6

(1.0)

(1.8)

0.2

(1.5)

2.0

(2.1)















Total net flows

3.3

0.4

7.2

15.5

1.9

28.3

Market movements

68.7

1.8

5.1

8.6

2.8

87.0

Other movements7

0.5

3.0

-

23.8

-

27.3






















As at 31 December 2021

502.4

198.8

78.0

605.1

37.2

1,421.5








Assets attributable to:




External



1,306.3

Internal



115.2








 

 

 


 

 

 

1. Assets under management (AUM) includes assets on our Investment Only Platform, that are managed by third parties, on which fees are earned.

2. Solutions include liability driven investments and £383.2bn of derivative notionals associated with the Solutions business.

3. External inflows and outflows include £5.5bn of external investments and £3.0bn of redemptions in the ETF business.

4. External net flows exclude movements in short-term Solutions assets, as their maturity dates are determined by client agreements and are subject to a higher degree of variability. The total value of these assets at 31 December 2021 was £71.2bn.

5. PRT transfers reflect UK defined benefit pension scheme buy-outs to LGRI.

6. Internal net flows include flows in legacy assets from the Mature Savings business sold to ReAssure in 2020.

7. Other movements include movements of external holdings in money market funds, other cash mandates and short-term solutions assets.

 

5.02 LGIM total external assets under management and net flows


 







 

 

 Assets under management at

 

Net flows for the six months ended1

 





 

 


 





 

 

 

 

30 Jun

30 Jun

31 Dec

 

30 Jun

30 Jun

31 Dec

 

2022

2021

2021

 

2022

2021

2021

 

£bn

£bn

£bn

 

£bn

£bn

£bn

 

 

 

 

 

 



 

 

 

 

 

 



International2

377.1

344.8

377.3

 

34.5

15.0

14.5


 



 

 



UK Institutional

 



 

 



- Defined contribution

129.4

125.5

137.7

 

6.9

4.4

5.0

- Defined benefit

630.3

689.6

733.3

 

22.5

4.6

(13.9)


 



 

 



Wholesale3

45.5

45.5

49.1

 

1.4

1.3

1.2

 

 



 

 

 

 

ETF4

8.4

8.2

8.9

 

0.3

2.1

0.4

 

 

 

 

 

 



Total external

1,190.7

1,213.6

1,306.3

 

65.6

27.4

7.2

 

 

 

 

 

 



1. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.

2. International assets are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £468bn as at 30 June 2022 (30 June 2021: £434bn; 31 December 2021: £479bn).

3. Wholesale represents assets from the Retail Intermediary business and £0.3bn of assets from Personal Investing customers that did not migrate to Fidelity International Limited.

4. ETF reflects external AUM and flows invested on the platform. Total AUM managed on the platform is £9.9bn ($12.0bn) in H1 22 (H1 21: £9.4bn ($13.0bn); FY 21: £10.1bn ($13.7bn)) and flows of £0.6bn ($0.8bn) in H1 22 (H1 21: £2.5bn ($3.4bn); FY 21: £2.9bn ($3.9bn)) which include internal investment from other LGIM asset classes.



 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Asset and premium flows    Page 75

 

5.03 Reconciliation of assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents

 


30 Jun 2022

30 Jun 2021

31 Dec 2021


£bn

£bn

£bn


 



Assets under management

1,290

1,327

1,421

Derivative notionals 1

(387)

(351)

(383)

Third party assets 2

(429)

(441)

(480)

Other 3

24

10

7

Financial investments, investment property and cash and cash equivalents

498

545

565



 


1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.

2. Third party assets are those that LGIM manage on behalf of others which are not included on the group's Consolidated Balance Sheet.

3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.

 

5.04 Assets under administration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workplace1

Annuities2

Workplace

Annuities

Workplace

Annuities

 

30 Jun 2022

30 Jun 2022

30 Jun 2021

30 Jun 2021

31 Dec 2021

31 Dec 2021

 

£bn

£bn

£bn

£bn

£bn

£bn

 

 

 





 

 

 





As at 1 January

65.7

89.9

50.8

87.0

50.8

87.0

Gross inflows

6.1

5.0

7.5

3.7

11.9

8.7

Gross outflows

(1.8)

-

(1.5)

-

(3.4)

-

Payments to pensioners

-

(2.4)

-

(2.2)

-

(4.6)

 

 

 





Net flows

4.3

2.6

6.0

1.5

8.5

4.1

Market and other movements

(6.9)

(13.7)

3.4

(2.7)

6.4

(1.2)

 

 

 





 

 

 






 

 





As at 30 June/31 December

63.1

78.8

60.2

85.8

65.7

89.9








1. Workplace assets under administration as at 30 June 2022 includes £63.0bn (30 June 2021: £60.1bn; 31 December 2021: £65.6bn) of assets under management included in Note 5.01.

2. Annuities assets under administration as at 30 June 2022 includes £69.9bn (30 June 2021: £77.3bn; 31 December 2021: £80.6bn) of assets under management included in Note 5.01.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Asset and premium flows    Page 76

 

5.05 LGRI new business

 

 

6 months

6 months

6 months

Full year

 

30 Jun

30 Jun

31 Dec

31 Dec

 

2022

2021

2021

2021


£m

£m

£m

£m

 

 



 

 

 



 

Pension risk transfer

 




  - UK1

3,715

2,965

3,275

6,240

  - US

593

107

682

789

  - Bermuda

141

-

147

147

 

 


 


 

 


 


Total LGRI new business

4,449

3,072

4,104

7,176

 

 

 

 

 

 

 

 

 

 

1. UK pension risk transfer includes a £nil (H1 21: £925m; H2 21: £nil) Assured Payment Policy (APP).

 

5.06 Retail new business

 

6 months

6 months

6 months

Full year

 

30 Jun

30 Jun

31 Dec

31 Dec

 

2022

2021

2021

2021


£m

£m

£m

£m

 

 




 

 




Individual annuities

453

483

474

957

Lifetime mortgage loans and retirement interest only mortgages

338

414

434

848

 

 




Total Retail Retirement new business

791

897

908

1,805

 

 




 

 




UK Retail protection

85

105

95

200

UK Group protection

63

55

33

88

US protection1

48

43

48

91

 

 




 

 




Total Insurance new business

196

203

176

379

 

 

 

 

 

 

 

 

 

 

Total Retail new business

987

1,100

1,084

2,184

 

 

 

 

 

1. In local currency, US protection reflects new business of $62m (H1 21: $59m; H2 21: $65m).

 

5.07 Gross written premiums on insurance business

 

 

 

 


 

 


 

 

 

 


 

6 months

6 months

6 months

Full year

 

30 Jun

30 Jun

31 Dec

31 Dec

 

2022

2021

2021

2021

 

£m

£m

£m

£m

 

 




 

 




UK Retail protection

740

714

730

1,444

UK Group protection

291

274

131

405

US protection1

574

512

541

1,053

Longevity insurance

154

152

155

307

 

 




 

 




Total gross written premiums on insurance business

1,759

1,652

1,557

3,209

 

 


 

 

 

 

 

 

 

1. In local currency, US protection reflects gross written premiums of $746m (H1 21: $712m; H2 21: $737m).

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 77

 

6.01 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 measures and monitors 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.

 

The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Partial 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 and Legal & General Reinsurance Company No. 2 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 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 (TMTP) as at 30 June 2022.



(a) Capital position






 






As at 30 June 2022 the group had a surplus of £9,181m (31 December 2021: £8,185m) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio of 212% (31 December 2021: 187%). The Solvency II capital position is as follows:

 

 

 





 




30 Jun 2022

31 Dec 2021

 



 

£m

£m

 






 



 

 


 

Unrestricted Tier 1 Own Funds

13,255

13,254

 

Restricted Tier 1 Own Funds1

495

495

 

Tier 2 Subordinated liabilities

3,733

3,995

 

Eligibility restrictions

(109)

(183)

 

Solvency II Own Funds2,3

17,374

17,561

 

Solvency Capital Requirement

(8,193)

(9,376)

 




 


 



 

 


 

Solvency II surplus

9,181

8,185

 




 


 



 

 


 

SCR Coverage ratio

212%

187%

 






 






 

1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1 contingent convertible notes.

 

2. Solvency II Own Funds do not include an accrual for the interim dividend of £324m (31 December 2021: £790m) declared after the balance sheet date.

 

3. Solvency II Own Funds allow for a Risk Margin of £3,782m (2021: £5,488m) and TMTP of £3,291m (2021: £4,736m).

 

 

 

(b) Methodology and assumptions

 

The methodology, assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are broadly consistent with those set out in the group's 2021 Annual Report and Accounts and Full Year Results.

 

Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by the PRA, using risk-free rates based on SONIA market swap rates 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 30 June 2022 the Matching Adjustment for UK GBP denominated liabilities was 138 basis points (31 December 2021: 104 basis points) after deducting an allowance for the fundamental spread equivalent to 57 basis points (31 December 2021: 54 basis points).

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 78

 

6.01 Group regulatory capital - Solvency II (continued)

 

(c) Analysis of change

 

The table below shows the movement (net of tax) during the six month period ended 30 June 2022 in the group's Solvency II surplus.






6 months

6 months

6 months


30 Jun 2022

30 Jun 2022

30 Jun 2022


Own Funds

SCR

Surplus


£m

£m

£m

Opening Position

17,561

(9,376)

8,185

Operational Surplus Generation1

748

198

946

New business strain

175

(296)

(121)

Net surplus generation

923

(98)

825

Operating variances2

 

 

(231)

Market movements3

 

 

1,194

M&A, portfolio and business transfers

 

 

-

Subordinated liabilities

 

 

-

Dividends paid4

 

 

(792)

Total surplus movement (after dividends paid in the period)

(187)

1,183

996

Closing Position

17,374

(8,193)

9,181

1. Operational Surplus Generation includes a £176m release of Risk Margin and £(173)m amortisation of the TMTP.

2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix. The net impact of operating variances over the period was negative and predominantly reflects timing differences which we expect to reverse in H2.

3. Market movements represent the impact of changes in investment market conditions during the period and changes to future economic assumptions. The movement during the period primarily reflects the impact of rising rates on the valuation of the balance sheet, partially offset by weaker asset markets, predominantly in equities, credit spread dispersion in sub-investment grade assets, as well as a number of other, smaller variances.

4. Dividends paid are the amounts from the 2021 final dividend paid in H1 2022.





The table below shows the movement (net of tax) during the year ended 31 December 2021 in the group's Solvency II surplus.






Full year

Full year

Full year


31 Dec 2021

31 Dec 2021

31 Dec 2021


Own Funds

SCR

Surplus


£m

£m

£m

Opening Position

17,316

(9,880)

7,436

Operational Surplus Generation1

1,144

492

1,636

New business strain

330

(684)

(354)

Net surplus generation

1,474

(192)

1,282

Operating variances2



26

Market movements3



727

M&A, portfolio and business transfers4



77

Subordinated liabilities5



(300)

Dividends paid6



(1,063)

Total surplus movement (after dividends paid in the period)

245

504

749

Closing Position

17,561

(9,376)

8,185

1. Operational Surplus Generation includes a £612m release of Risk Margin and £(433)m amortisation of the TMTP.  

2. Operating variances include the impact of experience variances, changes to valuation assumptions, methodology changes and other management actions including changes in asset mix.

3. Market movements represent the impact of changes in investment market conditions over the year and changes to future economic assumptions.

4. Includes the impact of the sale of the Personal Investment business.

5. Reflects the redemption of £300m debt issued in 2009.

6. Dividends paid are the amounts from the 2020 final dividend and the 2021 interim dividend.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 79

 

6.01 Group regulatory capital - Solvency II (continued)

 

(c) Analysis of change (continued)

 

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 assumed real world 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 (net of any premium income) on actual new business written over the period. It is based on economic conditions at the point of sale.

 

 

 

 

 

 


(d) Reconciliation of IFRS Release from operations to Solvency II Operational surplus generation

 

 




(i) The table below provides a reconciliation of the group's IFRS Release from operations to Solvency II Operational surplus generation.

 

 


6 months

Full year




2022

2021

 



£m

£m




 





 


892

1,441

Expected release of IFRS prudential margins

(273)

(496)

Releases of IFRS specific reserves1

(83)

(162)

Solvency II investment margin2,3

67

213

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

343

640




 


Solvency II Operational surplus generation4

946

1,636











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

2. Release of prudence related to differences between the PRA defined Fundamental Spread and Legal & General's best estimate default assumption.

3. Expected market returns earned on LGR's free assets in excess of risk-free rates over 2022.

4. Solvency II Operational Surplus Generation includes management actions which at the start of 2022 were reasonably expected to be implemented over the year.


(ii) The table below provides a reconciliation of the group's IFRS New business surplus to Solvency II New business strain.

 

 


6 months

Full year




2022

2021

 



£m

£m




 





 


153

247

Removal of requirement to set up prudential margins above best estimate on new business

94

280

Set up of SCR on new business

(296)

(684)

Set up of Risk Margin on new business

(72)

(197)

Solvency II New business strain1

(121)

(354)






1. UK PRT new business volume during the first half of 2022 was £3.7bn (Full year 2021: £6.2bn).






(e) Reconciliation of IFRS equity to Solvency II Own Funds






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

 

 

 

30 Jun 2022

31 Dec 2021

 

 

 

£m

£m

IFRS equity1

11,679

10,981

Remove DAC, goodwill and other intangible assets and associated liabilities

(428)

(406)

Add IFRS carrying value of subordinated borrowings2

3,813

3,700

Insurance contract valuation differences3

2,808

4,132

Difference in value of net deferred tax liabilities

(494)

(716)

Other

105

53

Eligibility restrictions

(109)

(183)

Solvency II Own Funds4

17,374

17,561

1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible notes as per the Consolidated Balance Sheet.

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

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

4. Solvency II Own Funds do not include an accrual for the interim dividend of £324m (31 December 2021: £790m) declared after the balance sheet date.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 80

 

6.01 Group regulatory capital - Solvency II (continued)

 

(f) Sensitivity analysis

 

The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 30 June 2022 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

 

 

 

surplus

ratio

surplus

ratio

 

 

 

2022

2022

2021

2021

 

 

 

£bn

%

£bn

%











 

 



50bps increase in risk-free rates1

0.3

9

0.5

10

100bps increase in risk-free rates1

0.5

19

0.9

19

50bps decrease in risk-free rates1,2

(0.3)

(9)

(0.6)

(10)

Credit spreads widen by 100bps assuming an escalating addition to ratings3,4

0.4

12

0.6

13

Credit spreads narrow by 100bps assuming an escalating deduction from ratings3,4

(0.4)

(15)

(0.6)

(14)

Credit spreads widen by 100bps assuming a flat addition to ratings3

0.4

14

0.7

14

Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings3,5

(0.3)

(8)

(0.4)

(7)

Credit migration6

(1.2)

(14)

(0.9)

(10)

25% fall in equity markets7

(0.4)

(3)

(0.5)

(3)

15% fall in property markets8

(0.9)

(9)

(0.8)

(7)

50bps increase in future inflation expectations1

-

(3)

-

(2)

Substantially reduced Risk Margin9

0.5

7

0.6

7















1. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.

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

3. The spread sensitivity applies to the group's corporate bond (and similar) holdings, with no change in long-term default expectations, post management actions. Restructured lifetime mortgages are excluded as the underlying exposure is mostly to property.

4. 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. To give a 100bps increase on the total portfolio, the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.

5. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is smaller than 2bps as the group holds less than 2% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress scenarios in the SCR calculation.

6. 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 sale and leaseback rental strips; lifetime mortgage senior notes are excluded). Downgraded assets in our annuities portfolio are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet date.

7. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.

8. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.

9. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from an equivalent reduction in the Transitional Measure on Technical Provisions.








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. Other than in the interest rate and inflation stresses, we have not allowed for the recalculation of TMTP following a stress.








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.

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 81

 

6.02 Estimated Solvency II new business contribution

 

(a) New business by product 1

 

 

 




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

 

 

 




 


 

 

 

Contribution

 


Contribution


 

 

 

from new

 


from new


 

 

PVNBP

business2

Margin3

PVNBP

business2

Margin3

 

 

6 months

6 months

6 months

Full year

Full year

Full year

 

 

2022

2022

2022

2021

2021

2021

 

 

£m

£m

%

£m

£m

%

 

 

 

 

 




 

 

 

 

 




LGRI - UK annuity business

3,715

323

8.7

6,059

574

9.5

Retail Retirement - UK annuity business

 

453

32

7.1

957

61

6.4

 


 

 

 




UK protection business

870

50

5.7

1,883

149

7.9

- retail protection

578

28

4.8

1,476

120

8.1

- group protection

292

22

7.5

407

29

7.1


 

 

 

 




US protection business4

391

42

10.7

842

113

13.4

















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 year using the risk discount rate applicable at the end of the year.

3. Margin is based on unrounded inputs.

4. In local currency, US protection business reflects PVNBP of $508m (31 December 2021: $1,159m) and a contribution from new business of $54m (31 December 2021: $155m).









The decrease in LGRI margin was driven by the shorter average duration for the schemes written in the first six months of the year, compared to the schemes written in prior year.

 

The increase in Retail Retirement margin is driven by pricing that is focused on both value and volume in light of the lack of growth in the overall retail market. There was also a benefit from the rise in interest rates over the first half of the year.

 

The UK protection contribution from new business is supported by robust volumes, particularly in the group protection business. Retail protection business is impacted by a smaller market (2021 benefitted from a buoyant housing market driven by stamp duty relief) and competitive conditions in 2022.

 

The US protection business margin, whilst still very strong, reduced compared to the prior full year. The decrease is driven by pricing actions and an increase in acquisition expenses.

 

(b) Basis of preparation

 

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2021 Annual Report and Accounts and Full Year Results.

 

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGRI, Retail Retirement and Insurance.

 

Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The US protection new business margin assumes that the new business will continue to be reinsured in 2022 and looks through the intra-group arrangements.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 82

 

6.02 Estimated Solvency II new business contribution (continued)

 

(c) Assumptions

 

The key economic assumptions are as follows:

 




 

30 Jun 2022

31 Dec 2021

 

%

%

 

 


 

 


Margin for Risk

4.1

4.1

 

 


Risk-free rate

 


- UK

2.3

0.9

- US

3.0

1.5

Risk discount rate (net of tax)

 


- UK

6.4

5.0

- US

7.1

5.6

 

 


Long-term rate of return on non-profit annuities

4.4

2.5







 

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 PRA-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 calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2022 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 19 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.

 

 

The profits on the new business are presented gross of tax.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Capital    Page 83

 

6.02 Estimated Solvency II new business contribution (continued)

 

 

 


(d) Reconciliation of PVNBP to gross written premium 

 

 


 

 

 


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

 

 




6 months

Full year



2022

2021

 

Notes

£bn

£bn

 

 

 


 

 

 


PVNBP

6.02 (a)

5.4

9.7

Effect of capitalisation factor  


(0.9)

(2.1)

 

 

 


 

 

 


New business premiums from selected lines


4.5

7.6

Other1


0.9

1.8

 

 

 


 

 

 


Total LGRI and Retail new business

5.05,5.06

5.4

9.4

Annualisation impact of regular premium long-term business  


(0.2)

(0.2)

IFRS gross written premiums from existing long-term insurance business  


1.8

3.3

Deposit accounting for investment products


(0.4)

(2.1)

 

 

 


 

 

 


Total gross written premiums2


6.6

10.4





1. Other principally includes annuity sales in the US, lifetime mortgage loans and retirement interest only mortgages, and quota share reinsurance premiums.

2. Total gross written premiums includes £55m (2021: £109m) of gross written premiums relating to a residual reinsurance treaty following the

disposal of the General Insurance business in 2019.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

               Page 84

 

 

 

 

 

This page is intentionally left blank

 

 

 

 

 

 

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 85

 

7.01 Investment portfolio

 





Market

Market

Market





value

value

value





30 Jun

30 Jun

31 Dec





2022

2021

2021





£m

£m

£m







 

 

 





 

Worldwide total assets under management1



1,295,640

1,333,203

1,426,462

Client and policyholder assets



(1,175,344)

(1,218,560)

(1,309,772)






 

 

 

 




 

 

Investments to which shareholders are directly exposed


120,296

114,643

116,690















1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.




Analysed by investment class:




 

 




 



 

 



 

 

 

 







Other






Annuity1

LGC2

shareholder

 





investments

investments

investments

Total

Total

Total



30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

31 Dec



2022

2022

2022

2022

2021

2021

 

Notes

£m

£m

£m

£m

£m

£m








 

 

 

 





 

Equities

 

65

3,071

356

3,492

3,088

3,185

Bonds

7.03

73,174

947

2,693

76,814

82,699

86,803

Derivative assets 3


24,832

239

-

25,071

14,019

13,203

Property

7.04

5,632

524

-

6,156

5,103

5,710

Loans 4


1,346

377

79

1,802

4,301

2,332








 

 

 

 





 

Financial investments

4.03 (a)

105,049

5,158

3,128

113,335

109,210

111,233








 

 

 

 





 

Cash and cash equivalents


2,665

1,276

1,032

4,973

3,740

3,596

Other assets 5


94

1,894

-

1,988

1,693

1,861








 

 

 

 





 

Total investments

 

107,808

8,328

4,160

120,296

114,643

116,690








 

 

 

 





 

1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans & retirement interest only mortgages.

2. LGC investments includes £60m (30 June 2021: £52m; 31 December 2021: £54m) of equities that belong to Legal & General Reinsurance Company Limited.

3. Derivative assets are shown gross of derivative liabilities of £28.4bn (30 June 2021: £17.7bn; 31 December 2021: £14.1bn). Exposures arise from 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 assets and liability management.

4. Loans include reverse repurchase agreements of £1,701m (30 June 2021: £4,152m; 31 December 2021: £2,240m).

5. Other assets include finance leases of £85m (30 June 2021: £87m; 31 December 2021: £86m), associates and joint ventures of £387m (30 June 2021: £314m; 31 December 2021: £375m) and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 86

 

7.02 Direct investments

 

(a) Total investments analysed by asset class






 






 




 



 

 

 

 

 






Direct1

Traded2

 

Direct1

Traded2


Direct1

Traded2



investments

securities

Total

investments

securities

Total

investments

securities

Total


30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

30 Jun

31 Dec

31 Dec

31 Dec


2022

2022

2022

2021

2021

2021

2021

2021

2021

 

£m

£m

£m

£m

£m

£m

£m

£m

£m









 


 

 

 






 


Equities

1,431

2,061

3,492

1,202

1,886

3,088

1,248

1,937

3,185

Bonds 3

21,773

55,041

76,814

22,218

60,481

82,699

24,237

62,566

86,803

Derivative assets

-

25,071

25,071

-

14,019

14,019

-

13,203

13,203

Property 4

6,156

-

6,156

5,103

-

5,103

5,710

-

5,710

Loans and other receivables

71

1,731

1,802

119

4,182

4,301

63

2,269

2,332


 

 

 







Financial investments

29,431

83,904

113,335

28,642

80,568

109,210

31,258

79,975

111,233


 

 

 







Cash and cash equivalents

116

4,857

4,973

221

3,519

3,740

114

3,482

3,596

Other assets

1,988

-

1,988

1,693

-

1,693

1,861

-

1,861


 

 

 








 

 

 







Total investments

31,535

88,761

120,296

30,556

84,087

114,643

33,233

83,457

116,690

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 excluded 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. Bonds include lifetime mortgage loans of £5,758m (30 June 2021: £6,325m; 31 December 2021: £6,857m).

4. A further breakdown of property is provided in Note 7.04.


 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 87

 

7.02 Direct investments (continued)

 

(b) Direct investments analysed by asset portfolio




 





 

 

 

 

 





 

 

Annuity1

Shareholder2

Insurance3

Total




 

 

30 Jun

30 Jun

30 Jun

30 Jun




 

 

2022

2022

2022

2022

 



 

 

£m

£m

£m

£m


-






 


 

 

 

 

 



 


Equities

 

 

 

 

42

1,192

197

1,431

Bonds4

 

20,498

3

1,272

21,773

Property

 

5,632

524

-

6,156

Loans and other receivables


-

71

-

71

Financial investments





26,172

1,790

1,469

29,431

Other assets, cash and cash equivalents

 

94

2,010

-

2,104

Total direct investments





26,266

3,800

1,469

31,535








 



 

 

 

 

 




 




 

 

 

Annuity1

Insurance3

Total



 

 

 

30 Jun

30 Jun

30 Jun



 

 

 

2021

2021

2021

 


 

 

 

£m

£m

£m








 


 

 

 

 

 



 


Equities

 

 

 

 

9

1,077

116

1,202

Bonds 4


 

21,023

3

1,192

22,218

Property


 

4,639

464

-

5,103

Loans and other receivables


 

-

119

-

119

Financial investments




 

25,671

1,663

1,308

28,642

Other assets, cash and cash equivalents



 

100

1,814

-

1,914

Total direct investments





25,771

3,477

1,308

30,556

 

 

 

 

 



 



 

 

 

 

 

 


 

 

 








 



 

 

 

Annuity1

Insurance3

Total

 



 

 

 

31 Dec

31 Dec

31 Dec

 



 

 

 

2021

2021

2021

 

 


 

 

 

£m

£m

£m

 





 



 


 

 

 

 

 




 


 

Equities

 

 

 


12

1,124

112

1,248

 

Bonds4


23,029

3

1,205

24,237

 

Property


5,286

424

-

5,710

 

Loans and other receivables

 

-

63

-

63

 

Financial investments




 

28,327

1,614

1,317

31,258

 

Other assets, cash and cash equivalents

 

96

1,879

-

1,975

 

Total direct investments




 

28,423

3,493

1,317

33,233

 

 

 

 

 




 


 

1. Annuity investments includes products held within the LGRI and Retail Retirement portfolios including lifetime mortgage loans & retirement interest only mortgages.

 

2. Shareholder primarily includes the LGC direct investment portfolio along with £60m (30 June 2021: £52m; 31 December 2021: £54m) of equities that belong to other shareholder funds.


 

3. Insurance primarily includes assets backing the group's US protection business.


 

4. Bonds include lifetime mortgage loans of £5,758m (30 June 2021: £6,325m; 31 December 2021: £6,857m).

 


 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 88

 

7.03 Bond portfolio summary

 

(a) Sectors analysed by credit rating


 

 

 

 

 

 

 

 


 

 

 

 

 





BB or

 

 

 


AAA

AA

A

BBB

 below

Other

Total2

Total2

As at 30 June 2022

£m

£m

£m

£m

£m

£m

£m

%

 

 

 

 





 

 

 

 

 





 

Sovereigns, Supras and Sub-Sovereigns

1,696

8,049

1,169

294

11

1

11,220

15

Banks:

 

 

 

 

 

 

 

 

  - Tier 2 and other subordinated

-

-

68

52

3

1

124

-

  - Senior

-

1,336

2,336

942

1

-

4,615

6

  - Covered

120

-

-

-

-

-

120

-

Financial Services:

 

 

 

 

 

 

 

 

  - Tier 2 and other subordinated

-

118

50

32

-

17

217

-

  - Senior

51

307

439

368

-

-

1,165

2

Insurance:

 

 

 

 

 

 

 

 

  - Tier 2 and other subordinated

59

175

32

51

-

-

317

-

  - Senior

5

166

416

462

-

-

1,049

1

Consumer Services and Goods:

 

 

 

 

 

 

 

 

  - Cyclical

-

39

1,360

1,877

159

3

3,438

4

  - Non-cyclical

323

880

2,531

3,732

247

-

7,713

10

  - Health care

-

608

808

761

4

-

2,181

3

Infrastructure:

 

 

 

 

 

 

 

 

  - Social

184

891

3,660

882

79

-

5,696

7

  - Economic

273

173

891

3,744

180

-

5,261

7

Technology and Telecoms

141

325

1,546

2,801

20

1

4,834

6

Industrials

-

52

613

659

29

-

1,353

2

Utilities

386

628

4,711

5,523

28

-

11,276

15

Energy

-

-

331

765

16

-

1,112

1

Commodities

-

-

337

781

25

8

1,151

2

Oil and Gas

-

505

873

316

226

24

1,944

3

Real estate

-

23

1,906

1,677

107

-

3,713

5

Structured finance ABS / RMBS / CMBS / Other

539

771

463

695

30

-

2,498

3

Lifetime mortgage loans1

3,721

1,146

497

381

-

13

5,758

8

CDOs

-

47

-

12

-

-

59

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total £m

7,498

16,239

25,037

26,807

1,165

68

76,814

100


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total %

10

21

33

35

1

-

100

 







 

 

 

 

 

 



 

 

 

 

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

2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £73,174m, representing 95% of the total group portfolio.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 89

 

7.03 Bond portfolio summary (continued)

 

(a) Sectors analysed by credit rating (continued)


 

 

 

 

 

 

 

 


 

 

 

 

 





BB or

 

 

 


AAA

AA

A

BBB

 below

Other

Total2

Total2

As at 30 June 2021

£m

£m

£m

£m

£m

£m

£m

%










 









Sovereigns, Supras and Sub-Sovereigns

1,925

10,091

1,249

335

10

-

13,610

17

Banks:









  - Tier 2 and other subordinated

-

-

58

39

4

-

101

-

  - Senior

-

1,024

3,490

790

2

-

5,306

6

  - Covered

151

-

-

-

-

-

151

-

Financial Services:









  - Tier 2 and other subordinated

-

113

57

21

-

-

191

-

  - Senior

55

443

406

393

9

-

1,306

2

Insurance:









  - Tier 2 and other subordinated

64

196

31

58

-

-

349

-

  - Senior

-

221

405

542

-

-

1,168

1

Consumer Services and Goods:





-

-


-

  - Cyclical

-

84

1,135

1,772

193

-

3,184

4

  - Non-cyclical

338

1,052

2,658

3,936

344

-

8,328

10

  - Health care

-

605

851

690

5

-

2,151

3

Infrastructure:









  - Social

208

746

4,669

916

77

-

6,616

8

  - Economic

311

51

766

4,053

183

-

5,364

6

Technology and Telecoms

174

209

1,462

3,085

22

1

4,953

6

Industrials

-

31

672

694

22

-

1,419

2

Utilities

-

207

5,629

5,861

27

-

11,724

14

Energy

-

-

468

589

16

-

1,073

1

Commodities

-

-

365

910

8

-

1,283

2

Oil and Gas

-

560

1,047

389

274

-

2,270

3

Real estate

-

11

1,728

1,591

177

-

3,507

4

Structured finance ABS / RMBS / CMBS / Other

423

798

403

603

24

1

2,252

3

Lifetime mortgage loans1

3,852

1,509

524

427

-

13

6,325

8

CDOs

-

55

-

13

-

-

68

-



















Total £m

7,501

18,006

28,073

27,707

1,397

15

82,699

100



















Total %

9

22

34

33

2

-

100








 

 

 


 

 



 

 

 

 

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

2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £78,226m, representing 95% of the total group portfolio.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 90

 

7.03 Bond portfolio summary (continued)

 

(a) Sectors analysed by credit rating (continued)


 

 

 

 

 









 





BB or





AAA

AA

A

BBB

 below

Other

Total2

Total2

As at 31 December 2021

£m

£m

£m

£m

£m

£m

£m

%










 









Sovereigns, Supras and Sub-Sovereigns

2,008

10,348

1,302

360

9

-

14,027

16

Banks:









  - Tier 2 and other subordinated

-

-

56

36

3

-

95

-

  - Senior

95

1,858

3,998

738

1

-

6,690

8

  - Covered

138

-

-

-

-

-

138

-

Financial Services:









  - Tier 2 and other subordinated

-

111

60

72

-

8

251

-

  - Senior

57

416

422

315

-

-

1,210

1

Insurance:









  - Tier 2 and other subordinated

61

192

32

62

-

-

347

-

  - Senior

4

196

460

535

-

-

1,195

1

Consumer Services and Goods:









  - Cyclical

-

33

1,399

1,760

206

-

3,398

4

  - Non-cyclical

350

1,003

2,737

3,836

346

-

8,272

10

  - Health care

-

690

837

889

5

-

2,421

3

Infrastructure:









  - Social

215

780

5,001

900

79

-

6,975

8

  - Economic

303

50

1,121

4,294

191

-

5,959

7

Technology and Telecoms

177

307

1,530

3,024

22

2

5,062

6

Industrials

-

31

688

558

30

-

1,307

2

Utilities

27

206

5,666

5,947

30

-

11,876

14

Energy

-

-

385

840

16

-

1,241

1

Commodities

-

-

365

889

8

-

1,262

1

Oil and Gas

-

546

971

387

271

-

2,175

3

Real estate

-

16

1,802

1,587

122

-

3,527

4

Structured finance ABS / RMBS / CMBS / Other

450

860

445

668

28

-

2,451

3

Lifetime mortgage loans1

4,238

1,550

584

470

-

15

6,857

8

CDOs

-

-

54

13

-

-

67

-



















Total £m

8,123

19,193

29,915

28,180

1,367

25

86,803

100











 

 







Total %

9

22

35

32

2

-

100








 

 

 


 

 



 

 

 

 

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

2. The group's bond portfolio is dominated by investments backing LGRI's and Retail Retirement's annuity business. These account for £81,812m, representing 94% of the total group portfolio.

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 91

 

7.03 Bond portfolio summary (continued)

 

(b) Sectors analysed by domicile



 

 

 

 

 

 

 

 

 

 

 

 

 

Rest of

 

 

UK

US

EU

the World

Total

As at 30 June 2022

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

7,685

1,774

768

993

11,220

Banks

1,514

1,849

812

684

4,859

Financial Services

341

403

380

258

1,382

Insurance

101

1,131

19

115

1,366

Consumer Services and Goods:

 

 

 

 

 

  - Cyclical

473

2,299

395

271

3,438

  - Non-cyclical

1,888

5,311

354

160

7,713

  - Health care

275

1,842

63

1

2,181

Infrastructure:

 

 

 

 

 

  - Social

4,965

524

158

49

5,696

  - Economic

3,711

881

264

405

5,261

Technology and Telecoms

403

3,080

699

652

4,834

Industrials

189

799

313

52

1,353

Utilities

6,303

2,583

1,877

513

11,276

Energy

312

633

1

166

1,112

Commodities

37

449

151

514

1,151

Oil and Gas

167

567

686

524

1,944

Real estate

1,938

934

544

297

3,713

Structured Finance ABS / RMBS / CMBS / Other

704

1,503

11

280

2,498

Lifetime mortgage loans

5,758

-

-

-

5,758

CDOs

-

-

-

59

59

 

 

 

 

 

 

 

 

 

 

 

 

Total

36,764

26,562

7,495

5,993

76,814

 

 

 

 

 

 













 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 92

 

7.03 Bond portfolio summary (continued)

 

(b) Sectors analysed by domicile (continued)






 






 




Rest of


 

UK

US

EU

the World

Total

As at 30 June 2021

£m

£m

£m

£m

£m







 






Sovereigns, Supras and Sub-Sovereigns

9,937

1,900

861

912

13,610

Banks

1,807

1,828

1,241

682

5,558

Financial Services

532

344

555

66

1,497

Insurance

103

1,239

60

115

1,517

Consumer Services and Goods:






  - Cyclical

446

2,088

503

147

3,184

  - Non-cyclical

1,952

5,822

382

172

8,328

  - Health care

285

1,785

80

1

2,151

Infrastructure:






  - Social

5,826

582

160

48

6,616

  - Economic

3,941

847

226

350

5,364

Technology and Telecoms

407

2,981

707

858

4,953

Industrials

186

815

351

67

1,419

Utilities

6,834

2,230

2,075

585

11,724

Energy

229

622

96

126

1,073

Commodities

6

564

183

530

1,283

Oil and Gas

213

634

792

631

2,270

Real estate

2,089

562

620

236

3,507

Structured Finance ABS / RMBS / CMBS / Other

919

1,237

11

85

2,252

Lifetime mortgage loans

6,325

-

-

-

6,325

CDOs

-

-

-

68

68













Total

42,037

26,080

8,903

5,679

82,699


 

 

 

 

 


 

 

 

 

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 93

 

7.03 Bond portfolio summary (continued)

 

(b) Sectors analysed by domicile (continued)



 

 

 











Rest of



UK

US

EU

the World

Total

As at 31 December 2021

£m

£m

£m

£m

£m







 






Sovereigns, Supras and Sub-Sovereigns

9,829

1,892

1,244

1,062

14,027

Banks

2,253

1,799

1,956

915

6,923

Financial Services

425

429

517

90

1,461

Insurance

113

1,291

15

123

1,542

Consumer Services and Goods






  - Cyclical

473

2,213

442

270

3,398

  - Non-cyclical

1,879

5,828

391

174

8,272

  - Health care

284

2,054

82

1

2,421

Infrastructure






  - Social

6,141

628

154

52

6,975

  - Economic

4,348

902

309

400

5,959

Technology and Telecoms

412

3,025

782

843

5,062

Industrials

190

681

354

82

1,307

Utilities

6,963

2,158

2,217

538

11,876

Energy

415

667

1

158

1,241

Commodities

20

537

175

530

1,262

Oil and Gas

196

626

785

568

2,175

Real estate

1,895

734

602

296

3,527

Structured finance ABS / RMBS / CMBS / Other

861

1,395

10

185

2,451

Lifetime mortgage loans

6,857

-

-

-

6,857

CDOs

-

-

-

67

67













Total

43,554

26,859

10,036

6,354

86,803













 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 94

 

7.03 Bond portfolio summary (continued)

 

(c) Bond portfolio analysed by credit rating




 

 

 

 




 

 

 

 

 

Externally

Internally

 

 

 

 

 

rated

rated1

Total

As at 30 June 2022

 

 

 

£m

£m

£m

 

 

 

 




 

 

 

 




AAA

 

 

 

3,449

4,049

7,498

AA

 

 

 

13,439

2,800

16,239

A

 

 

 

17,049

7,988

25,037

BBB

 

 

 

19,723

7,084

26,807

BB or below

 

 

 

777

388

1,165

Other

 

 

 

19

49

68

 

 

 

 

 

 


 

 

 

 

 

 


Total

 

 

 

54,456

22,358

76,814








 

 

 



 

 


 




Externally

Internally

 

 




rated

rated1

Total

As at 30 June 2021




£m

£m

£m








 







AAA




3,254

4,247

7,501

AA




14,732

3,274

18,006

A




20,595

7,478

28,073

BBB




21,462

6,245

27,707

BB or below




970

427

1,397

Other




1

14

15








 







Total




61,014

21,685

82,699






















 




Externally

Internally


 




rated

rated1

Total

As at 31 December 2021




£m

£m

£m








 







AAA




3,506

4,617

8,123

AA




15,544

3,649

19,193

A




21,240

8,675

29,915

BBB




20,715

7,465

28,180

BB or below




950

417

1,367

Other




10

15

25








 







Total




61,965

24,838

86,803








 

 

 



 

 

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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 95

 

7.03 Bond portfolio summary (continued)

 

(d) Sectors analysed by Direct investments and Traded securities

 

 

 

 

 

 

 

 

 

 

 

Direct

Traded

 

 

 

 

investments

securities

Total

As at 30 June 2022

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

Sovereigns, Supras and Sub-Sovereigns

 

 

747

10,473

11,220

Banks

 

 

742

4,117

4,859

Financial Services

 

 

507

875

1,382

Insurance

 

 

116

1,250

1,366

Consumer Services and Goods:

 

 

 

 

 

  - Cyclical

 

 

579

2,859

3,438

  - Non-cyclical

 

 

489

7,224

7,713

  - Health care

 

 

283

1,898

2,181

Infrastructure:

 

 

 

 

 

  - Social

 

 

2,953

2,743

5,696

  - Economic

 

 

3,762

1,499

5,261

Technology and Telecoms

 

 

192

4,642

4,834

Industrials

 

 

99

1,254

1,353

Utilities

 

 

1,679

9,597

11,276

Energy

 

 

368

744

1,112

Commodities

 

 

70

1,081

1,151

Oil and Gas

 

 

61

1,883

1,944

Real estate

 

 

2,287

1,426

3,713

Structured Finance ABS / RMBS / CMBS / Other

 

 

1,081

1,417

2,498

Lifetime mortgage loans

 

 

5,758

-

5,758

CDOs

 

 

-

59

59

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

21,773

55,041

76,814

 

 

 

 

 

 



















 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 96

 

7.03 Bond portfolio summary (continued)

 

(d) Sectors analysed by Direct investments and Traded securities (continued)

 

 

 

 

 

 




Direct

Traded





investments

securities

Total

As at 30 June 2021



£m

£m

£m













Sovereigns, Supras and Sub-Sovereigns



991

12,619

13,610

Banks



628

4,930

5,558

Financial Services



396

1,101

1,497

Insurance



162

1,355

1,517

Consumer Services and Goods:






  - Cyclical



469

2,715

3,184

  - Non-cyclical



386

7,942

8,328

  - Health care



339

1,812

2,151

Infrastructure:






  - Social



3,507

3,109

6,616

  - Economic



3,696

1,668

5,364

Technology and Telecoms



129

4,824

4,953

Industrials



58

1,361

1,419

Utilities



1,656

10,068

11,724

Energy



331

742

1,073

Commodities



57

1,226

1,283

Oil and Gas



57

2,213

2,270

Real estate



2,109

1,398

3,507

Structured Finance ABS / RMBS / CMBS / Other



925

1,327

2,252

Lifetime mortgage loans



6,325

-

6,325

CDOs



-

68

68













Total



22,221

60,478

82,699

 

 

 

 

 

 







 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 97

 

7.03 Bond portfolio summary (continued)

 

(d) Sectors analysed by Direct investments and Traded securities (continued)

 

 

 

 

 

 

 




Direct

Traded





investments

securities

Total

As at 31 December 2021



£m

£m

£m













Sovereigns, Supras and Sub-Sovereigns



1,037

12,990

14,027

Banks



665

6,258

6,923

Financial Services



432

1,029

1,461

Insurance



119

1,423

1,542

Consumer Services and Goods:






  - Cyclical



498

2,900

3,398

  - Non-cyclical



512

7,760

8,272

  - Health care



357

2,064

2,421

Infrastructure:






  - Social



3,699

3,276

6,975

  - Economic



4,267

1,692

5,959

Technology and Telecoms



153

4,909

5,062

Industrials



60

1,247

1,307

Utilities



1,883

9,993

11,876

Energy



475

766

1,241

Commodities



55

1,207

1,262

Oil and Gas



56

2,119

2,175

Real estate



2,091

1,436

3,527

Structured Finance ABS / RMBS / CMBS / Other



1,021

1,430

2,451

Lifetime mortgage loans



6,857

-

6,857

CDOs



-

67

67













Total



24,237

62,566

86,803

 

 

 

 

 

 



















 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Investments    Page 98

 

7.04 Property analysis

 

Property exposure within Direct investments by status



 





 

 







Annuity1

Shareholder2

Total

 

As at 30 June 2022

 

 

 

£m

£m

£m

%








 

 

 

 

 

 



 

Fully let




5,190

-

5,190

84

Development




442

403

845

14

Land




-

121

121

2

 

 

 

 

 



 

Total




5,632

524

6,156

100








 








 





 

 







 

 







Annuity1

Shareholder2

Total


As at 30 June 2021

 

 

 

£m

£m

£m

%









 

 

 

 





Fully let




4,035

-

4,035

79

Development

604

323

927

18

Land




-

141

141

3

 

 

 

 





Total




4,639

464

5,103

100








 






 

 







 

 







Annuity1

Shareholder2

Total


As at 31 December 2021

 

 

 

£m

£m

£m

%

 

 

 

 





Fully let




4,746

-

4,746

83

Development

540

293

833

15

Land




-

131

131

2

 

 

 

 





Total




5,286

424

5,710

100








 

1. The fully let annuity property exposure includes £4.9bn (30 June 2021: £4.0bn; 31 December 2021: £4.5bn) let to investment grade tenants.

2. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Receivables and other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 30 June 2022 the group held a total of £2,072m (30 June 2021: £2,190m; 31 December 2021: £2,044m) of such assets.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Alternative Performance Measures    Page 99

 

An alternative performance measure (APM) 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. APMs offer investors and stakeholders additional information on the company's performance and the financial effect of 'one-off' events, and the group uses a range of these metrics to enhance understanding of the group's performance. However, APMs should be viewed as complementary to, rather than as a substitute for, the figures determined according to other regulations. The APMs used by the group are listed in this section, along with their definition/explanation, their closest IFRS measure and reference to the reconciliations to those IFRS measures.

The APMs used by the group may not be the same as, or comparable to, those used by other companies, both in similar and different industries. The calculation of APMs is consistent with previous periods, unless otherwise stated.

Adjusted operating profit

Definition

Adjusted operating profit is an APM that supports the internal performance management and decision making of the group's operating businesses, and accordingly underpins the remuneration outcomes of the executive directors and senior management. The group considers this measure meaningful to stakeholders as it enhances the understanding of the group's operating performance over time by separately identifying non-operating items.

Adjusted operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by changes in market conditions or expectations and exceptional items. It therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, including the traded portfolio in LGC. For direct investments, operating profit reflects the expected long-term economic return for those assets which are developed with the intention of sale, or the IFRS profit before tax for the early stage and mature businesses. Variances between actual and long-term expected investment return on traded and real assets (including direct investments) are excluded from adjusted operating profit, as well as economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business. Adjusted operating profit also excludes the yield associated with assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs, are also excluded from adjusted operating profit.

In certain disclosures, the group may use the term 'operating profit' as a substitute for adjusted operating profit, but in all circumstances it carries the same definition and meaning.

Closest IFRS measure

Profit before tax attributable to equity holders.

 

Reconciliation

Note 2.01 Operating profit.

Return on Equity (ROE)

Definition

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 (by reference to opening and closing shareholders' funds as provided in the IFRS consolidated statement of changes in equity for the period).

Closest IFRS measure

Calculated using:

- Profit attributable to equity holders

- Equity attributable to owners of the parent

 

Reconciliation

Calculated using annualised profit attributable to equity holders for the period of £2,306m (30 June 2021: £2,130m; 31 December 2021: £2,050m) and average equity attributable to the owners of the parent of £10,835m (30 June 2021: £9,677m; 31 December 2021: £9,994m), based on an opening balance of £10,486m and a closing balance of £11,184m (30 June 2021: based on an opening balance of £9,502m and a closing balance of £9,852m; 31 December 2021: based on an opening balance of £9,502m and a closing balance of £10,486m).

Assets under Management

Definition

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.

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

 

Reconciliation

Note 5.03 Reconciliation of assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Alternative Performance Measures    Page 100

 

Net release from operations

Definition

Release from operations plus new business surplus/(strain). Net release from operations is also referred to as cash generation, and includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business. Net release from operations is a component of adjusted operating profit (after tax), and excludes predominantly the impact of experience variances and changes in valuation assumptions.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Notes 2.01 Operating profit and 2.02 Reconciliation of release from operations to operating profit before tax.

Adjusted profit before tax attributable to equity holders

Definition

The APM measures profit before tax attributable to shareholders incorporating actual investment returns experienced during the year and the pre-tax results of discontinued operations.

Closest IFRS measure

Profit before tax attributable to equity holders.

Reconciliation

Note 2.01 Operating profit.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Glossary    Page 101

 

* These items represent an alternative performance measure (APM)

 

Adjusted operating profit*

 

Refer to the alternative performance measures section.

 

Adjusted profit before tax attributable to equity holders*

 

Refer to the alternative performance measures section.

 

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. 

 

Annual premium

 

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

 

Annuity

 

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

 

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)*

 

Refer to the alternative performance measures section.

 

Assured Payment Policy (APP)

 

An Assured Payment Policy (APP) is a long-term contract under which the policyholder (a registered UK pension scheme) pays a day-one premium and in return receives a contractually fixed and/or inflation-linked set of payments over time from the insurer.

 

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.

 

CAGR

 

Compound annual growth rate.

 

Cash generation

 

Cash generation is an alternative term for net release from operations.

 

CCF - Common Contractual Fund

 

An Irish regulated asset pooling fund structure. It enables institutional investors to pool assets into a single fund vehicle with the aim of achieving cost savings, enhanced returns and operational efficiency through economies of scale. A CCF is an unincorporated body established under a deed where investors are "co-owners" of underlying assets which are held pro rata with their investment. The CCF is authorised and regulated by the Central Bank of Ireland.

 

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 in the US and Bermuda 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, 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.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Glossary    Page 102

 

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.

 

Early stage business

 

A recently created company in the early stage of its life cycle (typically up to 18 to 24 months since establishment), which has not broken even yet. This usually means the entity is not fully operational yet, and the management team is still being developed.

 

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.

 

Eligible Own Funds

 

Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a 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.

 

Employee satisfaction index

 

The Employee satisfaction index measures the extent to which employees report that they are happy working at Legal & General. It is measured as part of our Voice surveys, which also include questions on commitment to the goals of Legal & General and the overall success of the company.

 

ETF

 

LGIM's European Exchange Traded Fund platform.

Euro Commercial paper

 

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

 

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).

 

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.

 

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

 

Insurance new business

New business arising from new policies written on retail protection products and new deals and incremental business on group protection products.

 

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 UK are required to use.

 

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 and General Assurance Society Limited.

 

LGC

 

Legal & General Capital.

 

LGIM

Legal & General Investment Management.

LGRI

Legal & General Retirement Institutional.

LGRI new business

 

Single premiums arising from pension risk transfers and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the SONIA 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.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Glossary    Page 103

 

Lifetime mortgages

 

An equity release product aimed at people aged 55 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.

 

Longevity

Measure of how long policyholders will live, which affects the risk profile of pension risk transfer, annuity and protection businesses.

 

Matching adjustment

 

An adjustment to the discount rate used for annuity liabilities in 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.

 

Mature business

 

A company which has been operative for more than three to five years. It generates regular revenue streams but the growth rate in its earnings is expected to remain broadly flat in the future. At this point in its life cycle, a complete and experienced management team is in place.

 

Morbidity rate

 

Rate of illness, influenced by age, gender and health, used in pricing and calculating liabilities for policyholders of life products, which contain morbidity risk.

 

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*

 

Refer to the alternative performance measures section.

 

Net zero carbon

 

Achieving an overall balance between anthropogenic carbon emissions produced and carbon emissions removed from the atmosphere.

 

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 and protection, net of tax. This metric provides an understanding of the impact of new contracts on the IFRS profit for the year.

 

OEIC - Open Ended Investment Company

 

A type of investment fund domiciled in the United Kingdom that is structured to invest in stocks and other securities, authorised and regulated by the Financial Conduct Authority (FCA).

 

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.

 

Paris Agreement

 

The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change effective 4 November 2016. The Agreement aims to limit the increase in average global temperatures to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels.

 

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.

 

Persistency

 

Persistency is a measure of LGIM client asset retention, calculated as a function of net flows and closing AUM.

 

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.

 

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.

 

Proprietary assets

 

Total investments to which shareholders are directly exposed, minus derivative assets, loans, and cash and cash equivalents.

 

QIAIF - Qualifying Investor Alternative Investment Fund

 

An alternative investment fund regulated in Ireland targeted at sophisticated and institutional investors, with minimum subscription and eligibility requirements. Due to not being subject to many investment or borrowing restrictions, QIAIFs present a high level of flexibility in their investment strategy.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Glossary    Page 104

 

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 IFRS surplus generated in the period from the difference between IFRS prudent assumptions and our best estimate of future experience for in-force LGRI, Retail Retirement and UK Insurance businesses, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from US Insurance.

 

Retail Retirement new business

 

Single premiums arising from annuity sales and individual annuity back book acquisitions and the volume of lifetime and retirement interest only mortgage lending.

 

Retirement interest only mortgage (RIO)

 

A Retirement Interest Only (RIO) mortgage is a standard retirement mortgage available for non-commercial borrowers above 55 years old. A RIO mortgage is very similar to a standard interest-only mortgage, with two key differences:

 

- The loan is usually only paid off on death, move into long-term care or sale of the house.

- The borrowers only have to prove they can afford the monthly interest repayments and not the capital remaining at the end of the mortgage term.

 

No repayment solution is required as repayment defaults to sale of property.

Return on Equity (ROE)*

 

Refer to the alternative performance measures section.

 

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.

 

SICAV - Société d'Investissement à Capital Variable

 

A publicly traded open-end investment fund structure offered in Europe and regulated under European law.

 

SIF - Specialised Investment Fund

 

An investment vehicle regulated in Luxembourg targeted to well-informed investors, providing a great degree of flexibility in organization, investment policy and types of underlying assets in which it can invest.

 

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

 

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 the policyholders' interest.

 

Solvency II capital 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.

 

The Solvency II coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of our defined benefit pension schemes in both Own Funds and the SCR.

 

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 Operational Surplus Generation

The expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world 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.

 

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 SCR. 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.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 3

 

Glossary    Page 105

 

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.

 

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.

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