L&G FY Results 2004 Pt2
Legal & General Group PLC
24 February 2005
Part 2
Legal & General Group Plc P1
Consolidated Profit and Loss Account - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
Notes 2004 2003
Restated
£m £m
Profit on continuing operations
Life and pensions 1 613 620
Institutional fund management 103 82
General insurance 5 32 36
Other operational income 6 34 18
-------- --------
Operating profit on continuing
operations 782 756
Profit on discontinuing operations
General insurance - Gresham 5 7 5
-------- --------
Operating profit 789 761
Variation from longer term
investment return 8 408 422
Change in equalisation provision (7) (7)
Effect of economic assumption changes 9 32 (32)
Effect of UK tax changes 10 - (27)
-------- --------
Profit on ordinary activities before
tax 1,222 1,117
Tax charge 10 (352) (258)
-------- --------
Profit for the financial period 870 859
Dividends (329) (318)
-------- --------
Retained profit 541 541
================================================================================
Earnings per share 12 p p
Based on operating profit after tax 8.80 8.49
Based on profit for the financial
period 13.40 13.24
Diluted earnings per share
Based on operating profit after tax 8.57 8.28
Based on profit for the financial
period 12.97 12.83
Dividend per share 5.06 4.90
================================================================================
These financial statements were approved by the Board on 23 February 2005 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 constitute non-statutory accounts within the meaning of Section 240 of
the Companies Act 1985.
Urgent Issues Task Force abstract 38 'Accounting for ESOP trusts' has been
adopted, and the shareholders' investment return for Institutional fund
management has been reported as a longer term rate of return within operating
profit. 2003 comparatives have been restated accordingly.
================================================================================
Legal & General Group Plc P2
Consolidated Balance Sheet - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
At At
Notes 31.12.04 31.12.03
Restated
£m £m
Assets
Investments 13 38,336 35,268
Assets held to cover linked liabilities 108,297 84,308
Long term in-force business asset 2,764 2,365
Other assets 4,978 5,320
--------- ---------
154,375 127,261
========= =========
Liabilities
Shareholders' funds 15 6,116 5,584
Fund for future appropriations 2,456 1,498
Technical provisions ######### #########
- Technical provisions for linked : : : :
liabilities : 104,887 : : 83,730 :
- Long term business provisions : 34,190 : : 33,206 :
- General insurance provisions : 457 : : 405 :
######### #########
139,534 117,341
Borrowings ######### #########
- Core debt : 1,513 : : 1,475 :
- Non recourse financing : 275 : : - :
######### #########
16 1,788 1,475
Other creditors 17 4,481 1,363
--------- ---------
154,375 127,261
================================================================================
Statement of Total Recognised Gains and Losses
Year ended 31 December 2004
--------------------------------------------------------------------------------
2004 2003
£m £m
Profit for the financial period 870 859
Exchange losses (9) (7)
--------- ---------
Total recognised gains and losses 861 852
================================================================================
Legal & General Group Plc P3
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
1. Operating profit from long term business
Life and pensions Managed
Intern- pension
UK ational Total funds* Total
£m £m £m £m £m
2004
Contribution from:
New business 272 45 317 36 353
In-force business
- expected return 267 50 317 17 334
- experience variances 43 14 57 16 73
- operating assumption
changes** (219) 1 (218) 17 (201)
Development costs - - - (1) (1)
Shareholder net worth 131 9 140 6 146
------- ------- ------- ------- -------
Operating profit 494 119 613 91 704
======= ======= ======= ======= =======
2003
Contribution from:
New business 271 34 305 31 336
In-force business
- expected return 215 45 260 13 273
- experience variances 9 (8) 1 5 6
- operating assumption
changes** (107) 1 (106) 20 (86)
Development costs (2) - (2) (1) (3)
Shareholder net worth 151 11 162 5 167
------- ------- ------- ------- -------
Operating profit 537 83 620 73 693
======= ======= ======= ======= =======
* Included in the Institutional fund management result of £103m (2003: £82m).
** The largest impact on UK life and pensions business in 2004 was from the
strengthening of assumptions for annuitant longevity, and in 2003, was from the
tightening of future persistency assumptions and the strengthening of provisions
for claims on the endowment book.
================================================================================
2. Sterling exchange rates used
31.12.04 31.12.03
United States dollar 1.92 1.79
Euro 1.41 1.42
================================================================================
Legal & General Group Plc P4
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
3. Life and pensions gross premiums and operating profit
2004 2004 2003 2003
Oper- Oper-
Premiums rating Premiums rating
written profit written profit
£m £m £m £m
UK 5,345 494 4,541 537
USA 294 73 292 50
Netherlands 191 32 155 24
France 213 14 171 9
-------- -------- -------- --------
6,043 613 5,159 620
======== ======== ======== ========
International life and pensions gross premiums and operating profit for 2003
expressed at 31 December 2004 exchange rates are:
Oper-
Premiums rating
written profit
£m £m
USA 272 47
Netherlands 156 24
France 172 9
================================================================================
4. Half yearly analysis of operating profit from continuing operations
2004 2003
First Second First
Second half half half
half Restated Restated Restated
£m £m £m £m
Life and pensions 408 205 314 306
Institutional fund management 53 50 45 37
General insurance 15 17 18 18
Other operational income 17 17 15 3
-------- -------- -------- --------
Total 493 289 392 364
================================================================================
5. General insurance net premiums and operating profit
2004 2004 2003 2003
Oper- Oper-
Premiums rating Premiums rating
written profit written profit
Continuing operations £m £m £m £m
Household 209 22 178 14
Other business 86 10 75 22
-------- -------- -------- --------
295 32 253 36
Discontinuing operations
Gresham - Household 134 5 130 3
Gresham - Other business 3 2 4 2
-------- -------- -------- --------
432 39 387 41
======== ======== ======== ========
On 3 February 2005 the Group announced that it had agreed in principle to sell
its 90% stake in its subsidiary Gresham Insurance Company Limited (Gresham) to
Barclays Bank PLC subject to FSA approval. The transaction is expected to
complete on 31 March 2005 and result in an exceptional profit before tax of
approximately £26m (£26m after tax).
================================================================================
Legal & General Group Plc P5
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
6. Other operational income
2004 2003
£m £m
Shareholders' other income
- Investment return on shareholders' funds 109 100
- Interest expense (62) (58)
-------- --------
47 42
Retail investments 4 (15)
Other operations (4) 1
Unallocated corporate and development expenses (13) (10)
-------- --------
34 18
================================================================================
7. General insurance and shareholders' investment return
2004 2003
Restated
£m £m
Investment income 106 92
Interest expense and charges (64) (60)
Realised investment gains/(losses) 9 (12)
Unrealised investment appreciation 58 101
-------- --------
109 121
======== ========
reported within:
Institutional fund management 8 5
General insurance 22 18
Other operational income 47 42
Variation from longer term investment return ######## ########
- Institutional fund management* : 0 : : (2):
- General insurance : (3): : 5 :
- Other operational income : 35 : : 53 :
######## ########
32 56
-------- --------
109 121
======== ========
* Shareholders' investment return for Institutional fund management business of
£Nil (2003: negative £2m) which was previously recorded within operating profit
has been reported as variation from longer term investment return.
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 P6
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
8. Variation from longer term investment return
2004 2003
Restated
£m £m
Life and pensions
- UK 364 346
- International 0 4
-------- --------
Total life and pensions 364 350
Managed pension funds 12 16
-------- --------
Total long term business 376 366
######## ########
Institutional fund management : 0 : : (2):
General insurance : (3): : 5 :
Other operational income : 35 : : 53 :
######## ########
32 56
-------- --------
408 422
======== ========
For long term business the variation from longer term investment return
represents the effect of the investment performance and changes to investment
policy in respect of shareholder net worth and in-force business, compared with
embedded value assumptions at the beginning of the period.
================================================================================
9. Effect of economic assumption changes
2004 2003
£m £m
Life and pensions
- UK 15 (16)
- International 17 (16)
-------- --------
Total 32 (32)
================================================================================
Legal & General Group Plc P7
Notes to Financial Statements - Achieved Profits Basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
10. Analysis of tax
2004 2004 2003 2003
Profit Tax Profit Tax
before (charge)/ before (charge)/
tax credit tax credit
Profit on continuing operations £m £m £m £m
UK life and pensions 494 (139) 537 (150)
International life and pensions 119 (41) 83 (29)
-------- -------- -------- --------
613 (180) 620 (179)
Institutional fund management 103 (31) 82 (24)
General insurance 32 (9) 36 (12)
Other operational income 34 4 18 6
-------- -------- -------- --------
Operating profit on continuing
operations 782 (216) 756 (209)
Profit on discontinuing operations
General insurance - Gresham 7 (2) 5 (1)
-------- -------- -------- --------
Operating profit 789 (218) 761 (210)
Variation from longer term investment
return 408 (126) 422 (67)
Change in equalisation provision (7) 2 (7) 2
Effect of economic assumption changes 32 (10) (32) 9
Effect of UK tax change * - - (27) 8
-------- -------- -------- --------
Profit on ordinary activities and tax 1,222 (352) 1,117 (258)
======== ======== ======== ========
* Changes in the 2003 Budget to the corporation tax rates applicable to the
policyholders' share of certain income and gains reduced the UK life and
pensions embedded value by £19m. The effect was reported as a charge before tax
of £27m.
================================================================================
11. Pension costs
The Legal & General Group UK Pension and Assurance Fund and the Legal & General
Group UK Senior Pension Scheme are defined benefit pension arrangements and
account for all UK and approximately 98% of worldwide assets and contributions
to such schemes. At 31 December 2004 the combined after tax deficit of these
arrangements has been estimated at £102m (2003: £65m). If these amounts had been
recognised in the financial statements, £75m would have been charged against
shareholders' funds (2003: £49m) and £27m against the Fund for Future
Appropriations (2003: £16m) in accordance with the guidelines contained in the
December 2003 ABI SORP.
================================================================================
Legal & General Group Plc P8
Notes to Financial Statements - Achieved Profits Basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
12. Earnings per share (EPS)
Weighted
average
Earnings number
Profit/ per of
(loss) share shares
£m p m
Year ended 31.12.04
Operating profit after tax on continuing
operations 566 8.72 6,491
Operating profit after tax on discontinuing
operations 5 0.08
Variation from longer term investment return 282 4.34
Change in equalisation provision (5) (0.08)
Effect of economic assumption changes 22 0.34
-------- -------- --------
Profit for the period/EPS 870 13.40 6,491
Net shares under options allocable
for no further consideration - (0.03) 22
Convertible bonds outstanding 12 (0.40) 285
-------- -------- --------
Diluted profit for the period/EPS 882 12.97 6,798
======== ======== ========
Year ended 31.12.03
Operating profit after tax on continuing
operations 547 8.43 6,490
Operating profit after tax on discontinuing
operations 4 0.06
Variation from longer term investment return 355 5.47
Change in equalisation provision (5) (0.08)
Effect of economic assumption changes (23) (0.35)
Effect of UK tax changes (19) (0.29)
-------- -------- --------
Profit for the financial year/EPS 859 13.24 6,490
Net shares under options allocable
for no further consideration - - 15
Convertible bonds outstanding 12 (0.41) 285
-------- -------- --------
Diluted profit for the financial year/EPS 871 12.83 6,790
================================================================================
Legal & General Group Plc P9
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
13. Funds under management
At At
31.12.04 31.12.03
Restated
£m £m
Land and buildings 3,741 4,228
Shares, variable yield securities and unit trusts 11,529 11,494
Debt and other fixed income securities 21,677 18,277
Loans secured by mortgages 260 183
Other loans and investments 307 74
Deposits with credit institutions 941 1,181
--------- ---------
Total investments 38,455 35,437
Less amounts payable under a margining arrangement (119) (169)
--------- ---------
38,336 35,268
Assets held to cover linked liabilities 108,297 84,308
--------- ---------
Funds included in the consolidated balance sheet 146,633 119,576
Segregated funds 11,098 11,235
Unit trusts, ISAs and PEPs 7,949 6,975
--------- ---------
Total funds under management 165,680 137,786
========= =========
representing:
Managed in the UK
- Active 50,221 42,214
- Index tracking 111,197 92,047
- For overseas subsidiaries 1,061 1,076
--------- ---------
162,479 135,337
Other including managed overseas 3,201 2,449
--------- ---------
165,680 137,786
========= =========
including Institutional funds under management:
Managed pension funds
- Pooled 93,989 72,841
- Segregated 9,317 8,522
--------- ---------
103,306 81,363
Other funds 1,781 2,713
--------- ---------
105,087 84,076
================================================================================
Legal & General Group Plc P10
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
14. Embedded value
Life and pensions Managed
Intern pension
UK -ational Total funds Total
£m £m £m £m £m
Year ended 31.12.04
At 1 January 4,253 657 4,910 305 5,215
Exchange rate movements - (29) (29) - (29)
------- ------- ------- ------- -------
4,253 628 4,881 305 5,186
Profit after tax 629 90 719 72 791
Capital movements * - 25 25 - 25
Distributions (274) (1) (275) (20) (295)
------- ------- ------- ------- -------
At 31 December 4,608 742 5,350 357 5,707
======= ======= ======= ======= =======
comprising:
Value of in-force business 3,007 499 3,506 194 3,700
Shareholder net worth ** 1,601 243 1,844 163 2,007
------- ------- ------- ------- -------
4,608 742 5,350 357 5,707
======= ======= ======= ======= =======
Year ended 31.12.03
At 1 January 3,876 641 4,517 262 4,779
Exchange rate movements - (37) (37) - (37)
------- ------- ------- ------- -------
3,876 604 4,480 262 4,742
Profit after tax 636 47 683 61 744
Capital movements* - 6 6 - 6
Distributions (259) - (259) (18) (277)
------- ------- ------- ------- -------
At 31 December 4,253 657 4,910 305 5,215
======= ======= ======= ======= =======
comprising:
Value of in-force business 2,668 429 3,097 162 3,259
Shareholder net worth ** 1,585 228 1,813 143 1,956
------- ------- ------- ------- -------
4,253 657 4,910 305 5,215
======= ======= ======= ======= =======
* Capital movements for 2004 relate to capital injected into Legal & General
America; the 2003 increase is for Legal & General France.
** 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.
================================================================================
Legal & General Group Plc P11
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
14. Embedded value (continued)
Reconciliation of in-force business At At
31.12.04 31.12.03
£m £m
Long term in-force business asset included in the
balance sheet 2,764 2,365
Sub-fund (245) (223)
Deferred acquisition costs 742 709
Deferred tax * 397 366
Other miscellaneous adjustments 42 42
-------- --------
Value of in-force business 3,700 3,259
======== ========
Reconciliation of shareholder net worth of
long term business operations
- UK (SRC) 2,233 2,212
- USA 475 443
- Netherlands 48 36
- France 48 45
- Managed pension funds 163 143
-------- --------
Shareholder net worth on the MSS basis 2,967 2,879
Purchased interests in long term business (24) (29)
Sub-fund 245 223
Deferred acquisition costs (742) (709)
Deferred tax * (397) (366)
Other miscellaneous adjustments (42) (42)
-------- --------
Shareholder net worth on the AP basis 2,007 1,956
======== ========
* Deferred tax represents all tax which is expected to be paid under current
legislation, including tax which would arise if shareholders' backing assets
were eventually distributed.
** Including £602m of intra-group subordinated debt capital attributed to the
SRC.
================================================================================
Legal & General Group Plc P12
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
15. Shareholders' funds
Segmental analysis At At
31.12.04 31.12.03
Restated
£m £m
Embedded value of life and pensions businesses:
- UK* 4,608 4,253
- USA 504 460
- Netherlands 144 112
- France 94 85
-------- --------
5,350 4,910
Institutional fund management** 393 338
-------- --------
5,743 5,248
General insurance 149 120
Corporate funds*** 224 216
-------- --------
6,116 5,584
======== ========
Movement
At 1 January as originally published 5,584 5,061
Prior year adjustment in respect of UITF 38**** - (13)
-------- --------
5,584 5,048
Profit for the financial period 870 859
Exchange movements (9) (7)
Dividends (329) (318)
Increase in share capital/share premium 1 1
Allocation of ESOT shares (1) 1
-------- --------
At 31 December 6,116 5,584
======== ========
* Includes £602m of intra-group subordinated debt capital attributed to the
SRC.
** Includes £357m (2003: £305m) embedded value of managed pension funds
business.
*** Stated after deducting £521m (2003: £518m) of convertible debt, £602m of
senior debt which has been
onlent to the Long Term Fund (LTF), and including assets of £788m
representing the net proceeds from the 2002 Rights Issue and £188m (2003:
£139m) representing the aggregated investment returns.
**** UITF abstract 38 'Accounting for ESOP trusts' requires that own shares
held within the Employee Share Ownership Trust (ESOT) should be accounted
for as a deduction from shareholders' funds rather than be disclosed as an
investment as was previously required. The 2003 amounts have been restated
accordingly.
================================================================================
Legal & General Group Plc P13
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
16. Borrowings At At
31.12.04 31.12.03
£m £m
2.75% Convertible bond 2006 521 518
Undated subordinated notes 394 -
Medium Term Notes 2031-2041 597 597
Medium Term Notes 2004 - 6
Euro commercial paper 2004 - 352
Bank loans 2005 1 2
-------- --------
Core debt 1,513 1,475
Non recourse financing - Triple X 2025 275 -
-------- --------
Total borrowings 1,788 1,475
======== ========
The convertible bond matures in 2006 and is convertible into ordinary shares of
the Company at 184p per share. If converted, this bond would give rise to the
issue of 285.3m new ordinary shares which represents approximately 4.4% of the
current issued share capital.
In November 2004 a subsidiary of Legal & General America issued US$550m of
non-recourse debt in the US domestic capital markets as floating rate Dutch
Auction Market Securities due 2025. The transaction provides capital to meet the
Regulation Triple X reserve requirements on the US term insurance business
without affecting the Group's debt capacity or financial gearing.
================================================================================
17. Other creditors
Other creditors includes £3,295m (2003: £369m) of pension fund monies held on a
temporary basis on behalf of corporate pension fund clients, generally as part
of a portfolio reconstruction.
================================================================================
Legal & General Group Plc P14
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
18. Embedded value assumptions
UK life and pensions
i) The assumed future pre-tax returns on fixed interest and RPI linked
securities are 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 fixed
interest gilt assumption. The economic assumptions were:
At 31.12.04 At 31.12.03
% p.a. % p.a.
Investment return
- Gilts
- Fixed interest 4.5 4.7
- RPI linked 4.5 4.6
- Non-gilts
- Fixed interest 4.9 - 5.3 5.1 - 5.5
- RPI linked 4.7 - 5.1 5.1 - 5.4
- Equities and property 7.1 7.3
Risk discount rate (after tax) 7.0 7.2
Inflation
- Expenses/earnings 3.8 3.8
- Indexation 2.8 2.8
The assumed returns on non-gilt securities are net of an allowance for default
risk of 0.20% p.a.
(2003: 0.20% p.a.), other than for certain government-supported securities where
no such allowance is made.
ii) Assets are valued at market value. For the projection of fixed interest and
RPI linked investment returns, asset values are adjusted to reflect the assumed
interest and inflation rates.
iii) Capital reported as transferred into the LTF since 1996, in the form of
subordinated debt and any remaining excess consideration over the net asset
value of subsidiaries transferred from the LTF in December 2001, is treated as
residual.
iv) The value of the sub-fund is the discounted value of projected investment
returns for a period of 20 years (2003: 20 years).
v) Development costs relate primarily to the development of strategic
administration systems.
vi) Future bonus rates have been set at levels which would fully utilise the
assets supporting with-profits business. The proportion of profits derived from
with-profits business allocated to shareholders has been assumed to be 10%
throughout.
================================================================================
Legal & General Group Plc P15
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
18. Embedded value assumptions (continued)
vii) The value of in-force business reflects the cost of providing for benefit
enhancement or compensation in relation to certain products including
administration expenses.
viii) Other actuarial assumptions have been set at levels commensurate with
recent operating experience, including those for mortality, persistency and
maintenance expenses (excluding the development costs referred to above). These
assumptions are reviewed annually. An allowance is made for future improvements
in annuitant mortality based on externally published data. For end 2004, male
annuitant mortality is assumed to improve in accordance with CMI Working Paper
1, projection MC for experience and the average of projections MC and LC for
statutory reserving. Female annuitant mortality is assumed to improve in
accordance with the MC projection from CMI Working Paper 1 for statutory
reserving and at 70% of this rate for experience.
ix) Business in force comprises previously written single premium, regular
premium and recurrent single premium contracts. For this purpose, DWP rebates
have not been treated as recurrent and their value is included as premiums are
received.
x) Projected tax has been determined assuming current tax legislation and rates.
xi) AP results are computed on an after tax basis and are grossed up to the
pre-tax level for presentation in the profit and loss account. The tax rate used
for grossing up is the corporation tax rate of 30% (2003: 30%), except for the
profit attributable to shareholder net worth, where the rate used is derived
from the tax attributed to the contribution from shareholder net worth in the
MSS accounts. To arrive at operating profit, the contribution from shareholder
net worth is grossed up at a rate to reflect the tax associated with a longer
term investment return.
UK managed pension funds
The UK life and pensions economic assumptions are used. All contracts are
assumed to lapse after 10 years. Fees are projected on a basis which reflects
current charges or, if less, anticipated charges. New business consists of
monies received from new clients and incremental receipts from existing clients,
and excludes the roll-up of the investment returns. Development costs relate to
strategic systems.
International
Key assumptions are: At At
31.12.04 31.12.03
% p.a. % p.a.
USA
Reinvestment rate 4.9 4.8
Risk discount rate (after tax) 6.8 6.8
Europe
Government bond return 3.8 4.5
Risk discount rate (after tax) 7.3 8.0
================================================================================
Legal & General Group Plc P16
Notes to Financial Statements - Achieved Profits basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
19. 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
£m £m £m £m
Effect on embedded value at 31
December 2004 4,608 +290 -250 +220
Effect on new business contribution
for the period 272 +44 -39 +24
It should be noted that in calculating the alternative values all other
assumptions are left unchanged.
================================================================================
Legal & General Group Plc P17
Notes to Financial Statements - Achieved Profits Basis
Year ended 31 December 2004
--------------------------------------------------------------------------------
20. Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is
based on certain assumptions. The variance of actual experience from that
assumed may result in such liabilities differing from the provisions made for
them. Liabilities may also arise in respect of claims relating to the
interpretation of such contracts, or the circumstances in which policyholders
have entered into them (together in this paragraph 'liabilities'). The extent of
such liabilities is influenced by a number of factors including the actions and
requirements of the FSA, by ombudsman rulings, by industry compensation schemes
and by court judgements. The continuing general profile and emphasis being given
by the FSA and other bodies to the suitability of the past sales of endowment
policies in the context of some mortgage transactions has led to the continuing
receipt of claims from holders of endowment policies.
Provision for liabilities continues to be made and is regularly reviewed.
However, it is not possible to predict, with certainty, the extent and the
timing of the financial impact to which these liabilities may give rise. The
relevant members of the Group nevertheless consider that each makes prudent
provision for such liabilities, as and when circumstances calling for such
provision become clear, and that each has adequate capital and reserves to meet
all reasonably foreseeable eventualities.
In 1975 the Society was required by the Institute of London Underwriters (ILU)
to execute the ILU form of guarantee in respect of policies issued through the
ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd
(Victory), a company which was then a subsidiary of the Society. In 1990,
Nederlandse Reassurantie Groep Holding nv (the assets and liabilities of which
have since been assumed by Nederlandse Reassurantie Groep NV under a statutory
merger in the Netherlands) acquired Victory and provided an indemnity to the
Society against any liability the Society may have as a result of the ILU's
requirement, and the ILU agreed that its requirement of the Society would not
apply to policies written or renewed after the acquisition. Whether the Society
has any liability as a result of the ILU's requirement and, if so, the amount of
its potential liability is uncertain. The Society has made no payment or
provision in respect of this matter.
================================================================================
Legal & General Group Plc P18
New business
Year ended 31 December 2004
--------------------------------------------------------------------------------
Life and pensions 2004 2003
Annual Single Annual Single
£m £m £m £m
Insurance business
Life 219 1,808 183 1,126
Pensions 129 1,932 118 1,783
------- ------- ------- -------
UK 348 3,740 301 2,909
####### ####### ####### #######
USA : 51 : : 1 : : 47 : : 10 :
Europe : 27 : : 269 : : 19 : : 220 :
####### ####### ####### #######
78 270 66 230
------- ------- ------- -------
Insurance total 426 4,010 367 3,139
Retail investment business
UK 22 1,565 33 1,689
Europe - 23 - 25
------- ------- ------- -------
Total new business 448 5,598 400 4,853
======= ======= ======= =======
International insurance new business for 2003 expressed at 31 December 2004
exchange rates
Annual Single
£m £m
USA 44 9
Europe 19 222
------- -------
63 231
======= =======
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.
APE from insurance business was £827m (2003: £681m); APE from total new business
in the same period has increased to £1,008m (2003: £886m).
2004 2003
£m £m
Institutional fund management
Managed pension funds *
- Pooled funds 13,951 11,066
- Segregated funds 1,228 1,504
-------- --------
15,179 12,570
Other funds 368 482
-------- --------
15,547 13,052
======== ========
* New monies from pension fund clients of Legal & General Assurance (Pensions
Management) Ltd.
Corporate pensions gross new business excludes £5.0bn (2003: £4.0bn) which was
held through the year on a temporary basis, generally as part of portfolio
reconstruction.
================================================================================
Legal & General Group Plc P19
New business
Year ended 31 December 2004
--------------------------------------------------------------------------------
2004 2003
Full Second First Full Second First
year half half year half half
UK annual premiums £m £m £m £m £m £m
Insurance business
Life
- Mortgage-related 109 56 53 103 55 48
- Protection 51 26 25 46 23 23
- Group risk 59 22 37 34 21 13
Pensions
- Individual pensions 126 65 61 114 57 57
- Group pensions 3 1 2 4 2 2
------- ------- ------- ------- ------- -------
348 170 178 301 158 143
Retail investment
business
ISAs 20 7 13 27 12 15
Unit trusts 2 1 1 6 2 4
------- ------- ------- ------- ------- -------
Total 370 178 192 334 172 162
================================================================================
UK single premiums
Insurance business
Bonds
- With-profits 390 166 224 593 264 329
- Other 1,418 822 596 533 347 186
Pensions
- Individual pensions 452 273 179 274 109 165
- Annuities
- individual 859 493 366 727 413 314
- Annuities - bulk
purchase 449 219 230 598 231 367
- Other group business 7 5 2 5 2 3
- DWP rebates 165 148 17 179 142 37
------- ------- ------- ------- ------- -------
3,740 2,126 1,614 2,909 1,508 1,401
Retail investment
business
ISAs 499 110 389 572 179 393
Unit trusts 1,066 445 621 1,117 485 632
------- ------- ------- ------- ------- -------
Total 5,305 2,681 2,624 4,598 2,172 2,426
================================================================================
UK APE
Individual life and
pensions 614 337 277 494 263 231
Retail investments
by channel 179 64 115 202 80 122
####### ####### ####### ####### ####### #######
- Independent : : : : : : : : : : : :
financial advisers : 505 : : 271 : : 234 : : 382 : : 194 : : 188 :
- Business : : : : : : : : : : : :
partnerships : 235 : : 117 : : 118 : : 252 : : 129 : : 123 :
- Business : : : : : : : : : : : :
partnerships : : : : : : : : : : : :
direct : 18 : : 1 : : 17 : : 27 : : 8 : : 19 :
- Direct : 35 : : 12 : : 23 : : 35 : : 12 : : 23 :
####### ####### ####### ####### ####### #######
Total UK individual 793 401 392 696 343 353
Group 108 46 62 98 46 52
------- ------- ------- ------- ------- -------
Total 901 447 454 794 389 405
================================================================================
This information is provided by RNS
The company news service from the London Stock Exchange
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