L&G 2002 Interim Results Pt 2
Legal & General Group PLC
25 July 2002
Part 2
Legal & General Group Plc P1
Consolidated Profit and Loss Account
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
Notes Full year
30.6.02 30.6.01 2001
Restated Restated
£m £m £m
Profit on continuing operations
Life and pensions 1 313 319 633
Institutional fund management 40 31 76
General insurance 4 22 16 37
Other operational income 5 (13) 1 1
-------- -------- --------
362 367 747
Profit on discontinuing operations
Other operational income - Banking 3 2 4
-------- -------- --------
Operating profit 365 369 751
Variation from longer term
investment return 7 (492) (217) (688)
Change in equalisation provision (3) (3) (6)
Effect of economic assumption changes 8 (1) 36 (3)
Profit on sale of Fairmount Group 9 - 8 8
-------- -------- --------
(Loss)/profit on ordinary
activities before tax (131) 193 62
Tax on (loss)/profit on ordinary
activities 10 (6) (88) (98)
-------- -------- --------
(Loss)/profit for the financial (137) 105 (36)
period
Dividends (86) (83) (261)
-------- -------- --------
Retained (loss)/profit (223) 22 (297)
========================================================================================================================
Earnings per share p p p
Based on operating profit after tax 5.00 5.15 10.73
Based on (loss)/profit for the
financial period (2.66) 2.03 (0.70)
Diluted earnings per share
Based on operating profit after tax 4.86 5.14 10.22
Based on (loss)/profit for the
financial period (2.66) 2.03 (0.70)
Dividend per share 1.67 1.63 5.09
========================================================================================================================
These financial statements were approved by the Board on 24 July 2002 and have
been prepared for long term business using the Achieved Profits (AP) basis. The
Modified Statutory Solvency (MSS) results are included in Part 3. The results
for the year ended 2001 and the six months to 30 June 2001 have been restated
following the adoption of Financial Reporting Standard 19 (FRS19) Deferred tax
(see note 10).
Other than in respect of the FRS 19 restatement, the results for the six months
to 30 June 2002 and 30 June 2001 have been prepared on a basis which is
consistent with the financial statements for the year ended 31 December 2001,
and constitute non statutory accounts within the meaning of Section 240 of the
Companies Act 1985. The results are unaudited, but have been subject to a review
by the auditors. The results for year ended 2001 have been taken from the
financial statements for the year ended 2001 and restated for the adoption of
FRS 19 as referred to above. The 2001 financial statements have been filed with
the Registrar of Companies and include an auditors' report which is unqualified
and does not contain a statement under either Sections 237(2) or 237(3) of the
Companies Act 1985.
========================================================================================================================
Legal & General Group Plc P2
Consolidated Balance Sheet
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
Notes At At At
30.6.02 30.6.01 31.12.01
Restated Restated
Assets £m £m £m
Investments 11 34,234 34,011 34,464
Assets held to cover linked
liabilities 72,162 70,692 70,982
Long term in-force business asset 2,190 2,145 2,147
Other assets 3,431 2,953 2,804
-------- -------- --------
112,017 109,801 110,397
======== ======== ========
Liabilities
Shareholders' funds 13 4,775 5,311 4,994
Fund for future appropriations 1,078 2,497 1,845
Technical provisions '''''''' '''''''' ''''''''
- Technical provisions for linked 72,011 70,592 70,848
liabilities
- Long term business provisions 29,697 27,551 28,536
- General insurance provisions 327 329 336
'''''''' '''''''' ''''''''
102,035 98,472 99,720
Borrowings 14 1,762 773 1,642
Bank customer deposits 1,130 1,186 1,043
Other creditors 1,237 1,562 1,153
-------- -------- --------
112,017 109,801 110,397
========================================================================================================================
Statement of Total Recognised
Gains and Losses At At At
30.6.02 30.6.01 31.12.01
Restated Restated
£m £m £m
(Loss)/profit for the financial (137) 105 (36)
period
Exchange gains/(losses) 2 (1) (1)
-------- -------- --------
Total recognised gains and losses (135) 104 (37)
========================================================================================================================
Legal & General Group Plc P3
New business
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
New Annual Premium Equivalent Full year
30.6.02 30.6.01 2001
£m £m £m
Insurance business
Life 163 133 294
Pensions 155 133 290
-------- -------- --------
UK 318 266 584
'''''''' '''''''' ''''''''
USA 29 26 52
Netherlands 10 10 17
France 8 10 18
'''''''' '''''''' ''''''''
47 46 87
-------- -------- --------
Insurance total 365 312 671
Retail investment business
UK 131 59 126
France 2 2 4
-------- -------- --------
Total new business 498 373 801
======== ======== ========
International insurance new business expressed at 30 June 2002 exchange rates:
USA 29 24 50
Netherlands 10 11 18
France 8 11 19
-------- -------- --------
47 46 87
======== ======== ========
Annual Premium Equivalent (APE) is calculated for total new business, including
unit trusts and ISAs but excluding institutional fund management, and comprises
the new annual premiums together with 10% of single premiums.
Full year
30.6.02 30.6.01 2001
Institutional fund management £m £m £m
Managed pension funds *
- Pooled funds 6,325 5,597 10,608
- Segregated funds 477 402 2,571
- Limited partnerships 103 - -
-------- -------- --------
6,905 5,999 13,179
Other funds 312 13 40
-------- -------- --------
7,217 6,012 13,219
======== ======== ========
* New monies from pension fund clients of Legal & General Assurance (Pensions
Management) Ltd.
Additional funds which are held on a temporary basis, generally as part of
portfolio reconstructions, amounting to £0.7bn (1H01: £0.4bn; FY01: £2.6bn) have
been excluded from the above figures.
========================================================================================================================
Legal & General Group Plc P4
New business
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
6 3 3 6 3 3
months months months months months months
30.6.02 30.6.02 31.3.02 30.6.01 30.6.01 31.3.01
£m £m £m £m £m £m
UK annual premiums
Insurance business
Life
- Mortgage-related 49 25 24 51 28 23
- Protection 22 12 10 16 9 7
- Group risk 14 8 6 16 7 9
Pensions
- Individual pensions 93 50 43 50 28 22
- Group pensions 4 2 2 4 2 2
-------- -------- -------- -------- -------- --------
182 97 85 137 74 63
Retail investment business
ISAs 26 17 9 16 11 5
Unit trusts 5 3 2 - - -
-------- -------- -------- -------- -------- --------
Total 213 117 96 153 85 68
========================================================================================================================
UK single premiums
Insurance business
Bonds
- With-profits 665 312 353 459 280 179
- Other 111 63 48 39 22 17
Pensions
- Individual pensions 150 72 78 158 71 87
- Annuities - individual 185 86 99 160 57 103
- Annuities - bulk purchase 175 87 88 397 268 129
- Other group business 28 15 13 37 15 22
- DSS rebates 43 20 23 35 11 24
-------- -------- -------- -------- -------- --------
1,357 655 702 1,285 724 561
Retail investment business
ISAs 536 330 206 310 140 170
Unit trusts 469 251 218 120 45 75
-------- -------- -------- -------- -------- --------
Total 2,362 1,236 1,126 1,715 909 806
========================================================================================================================
UK APE
Individual life and pensions 279 142 137 202 109 93
Retail investments 131 78 53 59 29 30
by channel '''''''' '''''''' '''''''' '''''''' '''''''' ''''''''
- Independent financial advisers 180 98 82 155 81 74
- Business partnerships 164 83 81 64 35 29
- Business partnerships direct 29 16 13 1 0 1
- Direct 37 23 14 41 22 19
'''''''' '''''''' '''''''' '''''''' '''''''' ''''''''
Total UK individual 410 220 190 261 138 123
Group 39 21 18 64 38 26
-------- -------- -------- -------- -------- --------
Total 449 241 208 325 176 149
========================================================================================================================
Legal & General Group Plc P5
New business
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
2002 2001
6 3 3 6 3 3
months months months months months months
30.6.02 30.6.02 31.3.02 30.6.01 30.6.01 31.3.01
£m £m £m £m £m £m
International annual premiums
Insurance business
USA 29 14 15 26 14 12
Netherlands 5 3 2 4 2 2
France 3 2 1 5 3 2
-------- -------- -------- -------- -------- --------
Total 37 19 18 35 19 16
========================================================================================================================
International single premiums
Insurance business
Netherlands 53 21 32 62 15 47
France 53 24 29 55 26 29
-------- -------- -------- -------- -------- --------
106 45 61 117 41 76
Retail investment business
France 16 9 7 22 8 14
-------- -------- -------- -------- -------- --------
Total 122 54 68 139 49 90
========================================================================================================================
Legal & General Group Plc P6
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
1. Operating profit from long term business
Life and pensions Managed
Intern- pension
UK ational Total funds * Total
Six months ended 30.6.02 £m £m £m £m £m
Contribution from:
New business 94 18 112 15 127
In-force business
- expected return 128 23 151 7 158
- experience variances (18) (14) (32) 7 (25)
- operating assumption changes (7) 1 (6) 2 (4)
Development costs (3) 0 (3) (1) (4)
Shareholder net worth 83 8 91 2 93
-------- -------- -------- -------- --------
Operating profit 277 36 313 32 345
======== ======== ======== ======== ========
Six months ended 30.6.01
Contribution from:
New business 77 20 97 17 114
In-force business
- expected return 118 22 140 7 147
- experience variances 19 5 24 9 33
- operating assumption changes 0 0 0 (5) (5)
Development costs (10) 0 (10) 0 (10)
Shareholder net worth 61 7 68 - 68
-------- -------- -------- -------- --------
Operating profit 265 54 319 28 347
======== ======== ======== ======== ========
Full year ended 31.12.01
Contribution from:
New business 183 34 217 27 244
In-force business
- expected return 242 45 287 14 301
- experience variances 43 (5) 38 20 58
- operating assumption changes (33) 11 (22) 11 (11)
Development costs (26) 0 (26) (2) (28)
Shareholder net worth 123 16 139 - 139
-------- -------- -------- -------- --------
Operating profit 532 101 633 70 703
======== ======== ======== ======== ========
• Included in the Institutional fund management result of £40m (1H01: £31m;
FY01: £76m).
========================================================================================================================
Legal & General Group Plc P7
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
2. Life and pensions gross premiums
and operating profit Full Full
year year
30.6.02 30.6.02 30.6.01 30.6.01 2001 2001
Premiums Operating Premiums Operating Premiums Operating
written profit written profit written profit
£m £m £m £m £m £m
UK 2,085 277 2,012 265 4,250 532
USA 142 20 130 33 272 67
Netherlands 78 11 82 12 131 18
France 74 5 73 9 146 16
-------- -------- -------- -------- -------- --------
2,379 313 2,297 319 4,799 633
======== ======== ======== ======== ======== ========
International life and pensions gross premiums and operating profit expressed at
30 June 2002 exchange rates are:
Full Full
year year
30.6.01 30.6.01 2001 2001
Premiums Operating Premiums Operating
written profit written profit
£m £m £m £m
USA 121 31 261 64
Netherlands 88 13 139 19
France 79 10 155 17
========================================================================================================================
3. Sterling exchange rates used
30.6.02 30.6.01 31.12.01
United States dollar 1.52 1.41 1.46
Euro 1.54 1.66 1.63
========================================================================================================================
4. General insurance net premiums
and operating profit Full Full
year year
30.6.02 30.6.02 30.6.01 30.6.01 2001 2001
Premiums Operating Premiums Operating Premiums Operating
written profit written profit written profit
£m £m £m £m £m £m
Household 108 8 90 6 204 15
Mortgage indemnity 1 5 1 6 1 14
Other business (including overseas) 32 9 33 4 64 8
-------- -------- -------- -------- -------- --------
Total 141 22 124 16 269 37
========================================================================================================================
Legal & General Group Plc P8
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
5. Other operational income Full
year
30.6.02 30.6.01 2001
£m £m £m
Shareholders' other income
- Investment return on shareholders'
funds 21 26 52
- Interest expense (21) (12) (24)
-------- -------- --------
0 14 28
Other operations (8) (8) (17)
Unallocated corporate and
development expenses (5) (5) (10)
-------- -------- --------
(13) 1 1
========================================================================================================================
6. General insurance and
shareholder investment return Full
year
30.6.02 30.6.01 2001
£m £m £m
Investment income 22 34 62
Interest expense and charges (21) (12) (25)
Realised investment losses 0 (2) (12)
Unrealised investment depreciation (22) (29) (42)
-------- -------- --------
(21) (9) (17)
======== ======== ========
reported within:
General insurance 9 9 18
Other operational income 0 14 28
Variation from longer term
investment return
'''''''' '''''''' ''''''''
- General insurance (9) (14) (25)
- Other operational income (21) (18) (38)
'''''''' '''''''' ''''''''
(30) (32) (63)
The investment return shown represents the return on the General insurance and
Corporate funds.
Shareholders' other income, reported within Other operational income, has been
allocated based on a longer term rate of investment return with the variation
from the actual return being reported as Variation from longer term investment
return.
========================================================================================================================
Legal & General Group Plc P9
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
7. Variation from longer term investment return
Full year
30.6.02 30.6.01 2001
£m £m £m
Life and pensions
- UK (425) (154) (579)
- International (13) (15) (15)
-------- -------- --------
Total life and pensions (438) (169) (594)
Managed pension funds (24) (16) (31)
-------- -------- --------
Total long term business (462) (185) (625)
General insurance (9) (14) (25)
Other operational income (21) (18) (38)
-------- -------- --------
(492) (217) (688)
======== ======== ========
For long term business, the variation from longer term investment return
represents the effect of the investment performance in respect of shareholder
net worth and in-force business, compared with embedded value assumptions at the
beginning of the period.
========================================================================================================================
8. Effect of economic assumption Full
changes year
30.6.02 30.6.01 2001
£m £m £m
Life and pensions
- UK 1 44 2
- International (2) (7) (5)
-------- -------- --------
Total life and pensions (1) 37 (3)
Managed pension funds 0 (1) 0
-------- -------- --------
Total long term business (1) 36 (3)
========================================================================================================================
Legal & General Group Plc P10
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
------------------------------------------------------------------------------------------------------------------------
9. Sale of Fairmount Group
The sale of Fairmount Group plc, a wholly owned subsidiary, to Brown Shipley &
Co Ltd was completed on 16 August 2001. This transaction resulted in an
exceptional profit before tax of £8m (£8m after tax). The results to the date of
sale were not material and hence were not separately reported as discontinued
business. This transaction, after an interim dividend of £2m, generated net
proceeds of £35m against which goodwill of £20m, previously written off against
reserves, had been charged.
========================================================================================================================
10. Analysis of tax
Full Full
year year
30.6.02 30.6.02 30.6.01 30.6.01 2001 2001
Profit Tax Profit Tax Profit Tax
/(loss) (charge)/ before (charge)/ before (charge)/
before credit tax credit tax credit
tax Restated Restated
Profit on continuing operations £m £m £m £m £m £m
UK life and pensions 277 (76) 265 (69) 532 (137)
International life and pensions
'''''''' '''''''' '''''''' '''''''' '''''''' ''''''''
- USA 20 (7) 33 (11) 67 (24)
- Netherlands 11 (4) 12 (4) 18 (6)
- France 5 (2) 9 (3) 16 (5)
'''''''' '''''''' '''''''' '''''''' '''''''' ''''''''
36 (13) 54 (18) 101 (35)
-------- -------- -------- -------- -------- --------
313 (89) 319 (87) 633 (172)
Institutional fund management 40 (13) 31 (9) 76 (21)
General insurance 22 (7) 16 (5) 37 (8)
Other operational income (13) 4 1 0 1 6
-------- -------- -------- -------- -------- --------
362 (105) 367 (101) 747 (195)
Profit on discontinuing operations
Other operational income - Banking 3 (1) 2 (1) 4 (1)
-------- -------- -------- -------- -------- --------
Operating profit 365 (106) 369 (102) 751 (196)
Variation from longer term
investment return (492) 97 (217) 22 (688) 90
Change in equalisation provision (3) 1 (3) 1 (6) 2
Effect of economic assumption changes (1) 2 36 (9) (3) 6
Profit on sale of Fairmount Group - - 8 - 8 -
-------- -------- -------- -------- -------- --------
(Loss)/profit on ordinary
activities and tax (131) (6) 193 (88) 62 (98)
======== ======== ======== ======== ======== ========
FRS19, Deferred tax, has been adopted and the 2001 comparatives restated
accordingly. Profits after tax for 1H01 and FY01 increased by £Nil and £7m
respectively. Shareholders' funds were reduced by £7m and £Nil respectively. The
achieved profits methodology effectively requires expected future tax provisions
for long term business to be discounted. Deferred tax provisions for other than
long-term business operations have not been discounted.
========================================================================================================================
Legal & General Group Plc P11
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
11. Funds under management
At At At
30.6.02 30.6.01 31.12.01
£m £m £m
Land and buildings 3,266 3,555 3,526
Shares, variable yield securities
and unit trusts 11,964 13,722 12,964
Debt and other fixed income
securities 15,029 13,525 14,270
Loans secured by mortgages 1,670 1,308 1,394
Other loans and investments 338 550 382
Deposits with credit institutions 1,967 1,351 1,928
-------- -------- --------
Total investments 34,234 34,011 34,464
Assets held to cover linked
liabilities 72,162 70,692 70,982
-------- -------- --------
Funds included in the consolidated
balance sheet 106,396 104,703 105,446
Segregated funds 8,334 4,677 7,561
Unit trusts, ISAs and PEPs 5,353 3,830 4,535
-------- -------- --------
Total funds under management 120,083 113,210 117,542
======== ======== ========
representing:
Managed in the UK
- Active 34,204 32,499 33,832
- Index tracking 80,353 76,129 78,255
- For overseas subsidiaries 1,109 1,163 1,161
-------- -------- --------
115,666 109,791 113,248
Managed overseas 2,626 1,487 2,661
-------- -------- --------
118,292 111,278 115,909
Mortgages and other 1,791 1,932 1,633
-------- -------- --------
120,083 113,210 117,542
======== ======== ========
including Institutional funds under
management:
Managed pension funds
- Pooled 62,522 61,958 61,675
- Segregated 5,702 2,274 5,130
-------- -------- --------
68,224 64,232 66,805
Other funds 2,632 2,403 2,575
-------- -------- --------
70,856 66,635 69,380
======== ======== ========
The reported asset mix shown above does not reflect the use of derivatives. The
effect of outstanding futures contracts is to change the mix as if the value
reported for shares, variable yield securities and unit trusts increased by £83m
(1H01: decrease £44m; FY01: increase £136m); deposits would be changed by
corresponding amounts. The effect of other derivatives is not considered
significant enough to be reported separately.
========================================================================================================================
Legal & General Group Plc P12
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
------------------------------------------------------------------------------------------------------------------------
12. Embedded value
Life and pensions Managed
Intern- pension
UK ational Total funds Total
£m £m £m £m £m
Six months ended 30.6.02
At 1 January 4,432 633 5,065 252 5,317
Exchange rate movements - (11) (11) - (11)
-------- -------- -------- -------- --------
4,432 622 5,054 252 5,306
(Loss)/profit after tax (141) 14 (127) 6 (121)
Capital movements 100 - 100 - 100
Distributions (140) (1) (141) - (141)
-------- -------- -------- -------- --------
At end of period 4,251 635 4,886 258 5,144
======== ======== ======== ======== ========
comprising:
Value of in-force business 2,474 401 2,875 129 3,004
Shareholder net worth * 1,777 234 2,011 129 2,140
-------- -------- -------- -------- --------
4,251 635 4,886 258 5,144
======== ======== ======== ======== ========
Six months ended 30.6.01
At 1 January 3,868 578 4,446 134 4,580
Exchange rate movements - 18 18 - 18
-------- -------- -------- -------- --------
3,868 596 4,464 134 4,598
Profit after tax 86 20 106 8 114
Capital movements 35 - 35 - 35
Distributions (123) (1) (124) (14) (138)
-------- -------- -------- -------- --------
At end of period 3,866 615 4,481 128 4,609
======== ======== ======== ======== ========
comprising:
Value of in-force business 2,457 369 2,826 128 2,954
Shareholder net worth * 1,409 246 1,655 - 1,655
-------- -------- -------- -------- --------
3,866 615 4,481 128 4,609
========================================================================================================================
Legal & General Group Plc P13
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
12. Embedded value (continued)
Life and pensions Managed
Intern- pension
UK ational Total funds Total
£m £m £m £m £m
Full year ended 31.12.01
At 1 January 3,868 578 4,446 134 4,580
Exchange rate movements - 6 6 - 6
-------- -------- -------- -------- --------
3,868 584 4,452 134 4,586
(Loss)/profit after tax (109) 52 (57) 26 (31)
Capital movements ** 920 (1) 919 116 1,035
Distributions (247) (2) (249) (24) (273)
-------- -------- -------- -------- --------
At 31 December 4,432 633 5,065 252 5,317
======== ======== ======== ======== ========
comprising:
Value of in-force business 2,439 394 2,833 136 2,969
Shareholder net worth * 1,993 239 2,232 116 2,348
-------- -------- -------- -------- --------
4,432 633 5,065 252 5,317
======== ======== ======== ======== ========
* For the UK life and pensions business, shareholder net worth comprises the
shareholder retained capital (SRC) on the MSS basis, adjusted for deferred
acquisition costs, and the sub-fund, both net of an appropriate allowance for
tax. It also includes intra-group subordinated debt capital of £602m (1H01:
£197m; FY01: £502m) but excludes the net assets of £71m (1H01: £228m; FY01:
£68m) of the UK long term fund (LTF) operational subsidiaries.
** Following the transfer of the investment management businesses in December
2001 the LTF subsidiaries, which were the holding companies for these
businesses, were no longer considered as operational. Their net assets of £580m
were attributed to UK life and pensions. This impact, together with the further
increase in subordinated debt of £355m less net capital invested in operational
subsidiaries of £15m, was reported as a capital movement. Also following this
transfer, the shareholder net worth attributable to managed pension funds was
the shareholders' funds on the MSS basis of £116m which was reported as a
capital movement which took place at the year end.
========================================================================================================================
Legal & General Group Plc P14
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
13. Shareholders' funds
Segmental analysis At At At
30.6.02 30.6.01 31.12.01
Restated Restated
Embedded value of life and pensions £m £m £m
businesses:
- UK* 4,251 3,866 4,432
- USA 486 481 492
- Netherlands 84 70 74
- France 65 64 67
-------- -------- --------
4,886 4,481 5,065
Institutional fund management** 294 262 284
-------- -------- --------
5,180 4,743 5,349
General insurance 95 88 91
Banking 96 93 93
Corporate funds *** (596) 387 (539)
-------- -------- --------
4,775 5,311 4,994
======== ======== ========
Movement
At 1 January 4,994 5,267 5,267
(Loss)/profit for the financial
period (137) 105 (36)
Exchange movements 2 (1) (1)
Dividends (86) (83) (261)
Increase in share capital/share
premium 2 3 5
Goodwill written back on sale of
Fairmount Group plc - 20 20
-------- -------- --------
At end of period 4,775 5,311 4,994
======== ======== ========
* Including £602m (1H01: £197m; FY01: £502m) of intra-group subordinated debt
capital attributed to the SRC.
** Including £258m (1H01: £232m; FY01: £252m) net assets of managed pension
funds business.
*** Corporate funds include the convertible debt of £515m (1H01: £Nil; FY01
£515m) and the senior debt of £602m (1H01: £197m; FY01: £502m) which has been
onlent to the UK LTF.
========================================================================================================================
Legal & General Group Plc P15
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
14. Borrowings At At At
30.6.02 30.6.01 31.12.01
£m £m £m
2.75% Convertible bond 2006 515 - 515
Medium Term Notes 2031-2041 597 197 402
Medium Term Notes 2002-2004 454 211 334
Commercial paper 2002 179 337 321
Bank loans 2002 17 28 70
-------- -------- --------
Total borrowings 1,762 773 1,642
======== ======== ========
The convertible bond is due in 2006 with a coupon of 2.75% p.a. and is
convertible into ordinary shares of the Company at 204p per share. If converted,
this bond would give rise to the issue of 257.4m new ordinary shares which
represents approximately 5% of the current issued share capital.
========================================================================================================================
15. Contingent liability
In June 2001 Legal & General Assurance Society Limited ('the Society') reinsured
certain new individual term assurance business with the UK life branch of Munich
Reinsurance Company ('the reinsurer'). On 11 July 2002 the Society received
notification that the reinsurer considers the reinsurance to be void on the
basis of mistaken pricing by the reinsurer.
Were the reinsurer's contention to be upheld, the reported profit on an AP basis
would be adversely affected. On an MSS basis there would be no impact on
operating profit, although there would be an adverse effect on the reported
change in the SRC and profit before tax. However it is not yet practicable to
estimate the resultant financial impact as this would depend on the terms of the
alternative arrangements that would be made.
Having taken advice from Leading Counsel, the directors are confident that there
is no valid basis for the reinsurer's claim and that it is unlikely that a
material loss will arise..
========================================================================================================================
16. Post balance sheet events
The Group agreed on 4 July 2002 to sell Legal & General Bank Ltd and Legal &
General Mortgage Services Ltd, two wholly owned subsidiaries, to Northern Rock
plc, subject to regulatory approval. The results to the date of sale have been
reported in these financial statements as discontinuing business. This
transaction will result in an exceptional profit before tax of £36m (£36m after
tax) and will generate net proceeds estimated to be £131m.
On 24 July 2002 the Group also agreed to acquire Alliance & Leicester Life
Assurance Company Ltd, subject to regulatory approval, from Alliance & Leicester
plc. The consideration, estimated to be approximately, £84m represents
approximately £30m for the value of the in-force business and £54m for the net
assets of the company. The results will be accounted for as an acquisition in
the Group's consolidated financial statements.
========================================================================================================================
Legal & General Group Plc P16
Notes to Financial Statements
- Achieved Profits basis
Six months ended 30 June 2002
-----------------------------------------------------------------------------------------------------------------------
17. Embedded value assumptions
UK life and pensions
Key economic assumptions are set out below and should be read in conjunction
with the notes to the supplementary financial statements in the 2001 Report and
Accounts. The assumed future pre-tax return on fixed interest securities is set
by reference to redemption yields available in the market at the end of the
reporting period. The corresponding return on equities and property and the risk
discount rate have been set by reference to the gilt assumption.
30.6.02 30.6.01 31.12.01 31.12.00
% p.a. % p.a. % p.a. % p.a.
UK
Investment return
- Gilts
- Fixed interest 5.0 5.3 5.0 4.7
- RPI linked 5.0 5.3 5.0 4.7
- Non-gilts
- Fixed interest 5.4-6.2 5.8-6.9 5.4-6.3 5.3-6.5
- RPI linked 5.2-5.6 5.4-6.3 5.1-5.8 5.0-6.0
- Equities and property 7.6 7.9 7.6 7.3
Risk discount rate (after tax) 7.5 7.8 7.5 7.2
Inflation
- Expenses/earnings 3.7 3.7 3.5 3.6
- Indexation 2.7 2.7 2.5 2.6
USA
Reinvestment rate 5.9 8.0 6.5 7.0
Risk discount rate (after tax) 7.4 9.0 7.6 7.7
Europe
Government bond return 5.2 5.2 5.0 5.0
Risk discount rate (after tax) 8.5 8.5 8.5 8.5
Operational assumptions, which are reviewed annually to reflect recent operating
experience, are largely unchanged from those made at the end of 2001. The value
of new business has been calculated using actual acquisition costs.
========================================================================================================================
18. Alternative assumptions
The discount rate appropriate to any investor will depend on the investor's own
requirements, tax and perception of the risks associated with the anticipated
cash flows to shareholders. The table below shows the effect of alternative
discount rates and equity and property yields on the UK life and pensions
embedded value and new business contribution for the period.
1% 1% 1%
lower higher higher
risk risk equities/
As discount discount property
published rate rate yields
Effect on embedded value at
30 June 2002 4,251 +£270m -£230m +£250m
Effect on new business contribution
for the period 94 +£18m -£15m +£11m
It should be noted that in calculating the alternative values all other
assumptions are left unchanged.
========================================================================================================================
This information is provided by RNS
The company news service from the London Stock Exchange
MORE TO FOLLOW
IR PUUMAMUPPGQC
Latest directors dealings
- 13 hours ago Savannah Energy
- 14 hours ago Buccaneer Energy PLC
- 14 hours ago Savannah Energy
- 14 hours ago Carclo
- 15 hours ago Schroder Japan Growth Fund