L&G Interim Results 2006 PT 1
Legal & General Group PLC
27 July 2006
Legal & General Group Plc 2006 Interim Results
Stock Exchange Release - Part 1
27 July 2006
Continuing to build value
• Worldwide new business APE(1) £896m: +37%
• UK individual new business APE £754m: +46%
• EEV(2) new life and pensions contribution £192m: +37%
• £10.8bn new institutional funds under management: +56%
• EEV operating profit £560m: +17%
• IFRS(3) operating profit £334m: +12%
• Interim dividend 1.74p: +5%
Group Chief Executive, Tim Breedon, said:
'Legal & General delivered another strong set of results in the first half of
2006. Worldwide sales were up 37% in APE terms to £896m. In the UK, individual
new business rose by 46% and life and pensions sales increased by 16%, with
strong growth in savings, individual protection and bulk purchase annuities.
Growth in our investment management business accelerated, with nearly £11bn of
new institutional funds under management.
New business growth was achieved whilst increasing profitability. The
contribution from new life and pensions business was up 37% to £192m.
Worldwide operating profit on the EEV basis grew by 17% to £560m. Given our
operational strengths and the returns being driven from profitable business
written in the past, the Board has recommended a 5% increase in the interim
dividend.
Legal & General has been successful in seizing opportunities in a changing and
growing marketplace. We continue to challenge the organisation to find new
opportunities to improve the business model and to deliver further profitable
growth. We believe that we have the expertise and breadth of product range to
continue to outgrow the market.'
Notes:
1. Annual Premium Equivalent - comprises the new annual premiums together with
10% of single premiums
2. European Embedded Value
3. International Financial Reporting Standards
Financial highlights EEV basis IFRS basis
H1 2006 % change H1 2006 % change on
on H1 2005 H1 2005
Operating profit £560m 17 £334m 12
Profit from continuing
operations before tax £676m (4) £401m (18)
New life and pensions
business (PVNBP(1)) £4,095m 14 N/A N/A
Contribution from new
life and pensions
business £192m 37 N/A N/A
Interim dividend per
share 1.74p 5 1.74p 5
UK shareholder net
worth/retained capital £1,714m 17 £2,591m 13
Ordinary shareholders'
equity £7,166m 16 £4,252m 12
Ordinary shareholders'
equity per share 110p 16 65p 12
Notes
1. Present value of new business premiums
Overview of results
Worldwide new business increased by 37% in APE terms to £896m (H1 2005: £652m).
New UK life and pensions business was 16% higher at £496m (H1 2005: £426m),
driven by growth in savings, individual protection and bulk purchase annuities.
UK retail investments new business more than doubled from £169m to £342m APE,
benefiting from a large institutional transfer, but also from good underlying
retail demand. Our investment management business attracted £10.8bn of new
institutional funds under management.
On an EEV basis, the Group's profit before tax decreased marginally to £676m (H1
2005: £705m) as a result of lower equity market performance in H1 2006 compared
with H1 2005.
EEV operating profit was up 17%, reflecting strong results in our UK life,
pensions and investment management businesses. The PVNBP margin on sales of UK
life and pensions products increased from 4.6% for the full year 2005 to 4.9%,
with higher margins in all non profit business categories. The internal rate of
return on new non profit business was 16% in H1 2006 (FY 2005: 15%). The
contribution from new UK life and pensions business of £179m grew by 39% (H1
2005: £129m), benefiting from improved margins, sales and mix. Overall UK life
and pensions operating profit was up 19% for the half year to £405m (H1 2005:
£340m). Our overseas operations generated an increase of 13% in operating
profit from £45m in H1 2005 to £51m in H1 2006.
On an IFRS basis, operating profit increased by 12% from £298m in H1 2005 to
£334m in H1 2006. Operating profit from our investment management business grew
by 35% to £65m (H1 2005: £48m), demonstrating the benefits of scale and quality
of execution. General Insurance operating profit was £2m for the half year (H1
2005: £4m). This lower level of profit was the result of closure costs
associated with our decision to withdraw from our small position in the motor
insurance market and increased competition in the broker channel.
UK distribution
The Cofunds platform continues to play an important part in our distribution
strategy. At the end of January 2006, we made the Legal & General Portfolio
Bond available to IFAs via the platform. This provides investors with the
opportunity to invest in over 200 funds, with all the additional administrative
benefits the platform technology offers. This was followed by the launch of our
Self Invested Personal Pension in April. Both products have been well received
by the IFA market. We are delighted with performance to date and will continue
to invest in the integration of our products onto the Cofunds platform, in line
with our original business plan.
Our business partnership with Connells, one of the UK's largest estate agencies,
began trading in the first week of July and we have recently announced an
agreement with Citibank to offer protection products to their UK customers. We
now work with over 30 UK banks and building societies as business partners.
The scale, breadth and efficiency of our distribution continue to underpin our
success in the savings, protection and investment markets in the UK.
Dividend
The Board has recommended an interim dividend of 1.74 pence per share, an
increase of 5% on the 2005 interim dividend of 1.65 pence per share.
Outlook
The UK market continues to offer significant opportunities. The public debate
around the future of pensions saving in the UK, as well as activity surrounding
Pensions A-Day, has increased awareness of the need to save. We expect this to
continue to stimulate the savings and investment markets.
We believe there are further opportunities for Legal & General arising from
evolution in the pensions arena. In the bulk purchase annuity market, we
continue to see strong demand from pension funds seeking to manage mortality,
investment and expense risk. Activity remains high and we believe there are
early signs of greater demand from larger schemes. Our investment management
business continues to benefit from its reputation for excellence in managing
pension fund assets.
Open architecture is changing and improving the way we do business with IFAs,
tied partners and customers. This technology, which provides a single point of
access to multiple funds and investment options, has already made a positive
impact in our bond business and has the potential to do so in the pensions
segment.
We continue to invest in our technology, our processes and our expertise to
ensure that we are able to take advantage of opportunities in our core UK
markets going forward.
Enquiries to:
Investors:
Jonathan Maddock, Head of Investor Relations 020 7528 6298
Nicola Marshall, Investor Relations Manager 020 7528 6263
Media:
John Morgan, Media Relations Director 020 7528 6213
Anthony Carlisle, Citigate Dewe Rogerson 07973 611888
Notes:
• Issued share capital at 30 June 2006 was 6,527,906,573 shares of 2.5p each.
• A copy of this announcement can be found in the News and Results section of
our shareholder web site at http://investor.legalandgeneral.com/releases.cfm
• A presentation to analysts and fund managers will take place at 09.30 GMT
today at Temple Court, 11 Queen Victoria Street, London EC4N 4TP.
• There will be a live listen only teleconference link to the presentation.
UK investors should dial 0845 245 3471 and overseas investors should dial
+44 (0)1452 542 300. The conference ID number is 3533797.
• The presentation slides will be available from 09.20 GMT at
http://investor.legalandgeneral.com/results.cfm
• An audio-cast of the presentation will be available later today at
http:// investor.legalandgeneral.com/presentations.cfm
The following financial information was approved by the Board on 26 July 2006.
The results for the six months to 30 June 2006 and 30 June 2005 are unaudited,
but have been subject to a review by the independent auditors and constitute
non-statutory accounts within the meaning of Section 240 of the Companies Act
1985. The Group consolidated financial statements for the year ended 2005
published on 16 March 2006 have been filed with the Registrar of Companies and
include an independent auditors' report which is unqualified and does not
contain a statement under either Sections 237(2) or 237(3) of the Companies Act
1985.
Financial calendar 2006:
Ex-dividend date for interim dividend 6 September
Record date for interim dividend 8 September
Payment date for interim dividend 2 October
Third quarter new business results 18 October
A Dividend Reinvestment Plan is available to shareholders.
Forward-looking statements:
This document may contain certain forward-looking statements with respect to
certain of Legal & General Group Plc's plans and its current goals and
expectations relating to future financial condition, performance and results.
By their nature forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances which are beyond Legal & General
Group Plc's control, including, among others, UK domestic and global economic
and business conditions, market related risks such as fluctuations in interest
rates and exchange rates, the policies and actions of governmental and
regulatory authorities, the impact of competition, the timing, impact and other
uncertainties of future mergers or combinations within relevant industries. As
a result, Legal & General Group Plc's actual future condition, performance and
results may differ materially from the plans, goals and expectations set out in
Legal & General Group Plc's forward-looking statements. Legal & General Group
Plc does not undertake to update forward-looking statements contained in this
document or any other forward-looking statement it may make.
Table of contents
Page
Business review 6
New business 13
European Embedded Value 19
- Consolidated income statement 19
- Consolidated balance sheet 20
- Consolidated statement of recognised income and expense 20
- Profit from continuing operations after tax from covered business 21
- Analysis of experience variances 23
- Analysis of operating assumption changes 24
- Variation from longer term investment return 24
- Time value of options and guarantees 25
- Investment management income statement 25
- Analysis of tax 26
- Earnings per share 27
- Embedded value reconciliation 29
- Analysis of ordinary shareholders' equity 32
- Segmental analysis of ordinary shareholders' equity 34
- Assumptions 35
International Financial Reporting Standards 39
- Operating profit income statement 39
- Consolidated income statement 40
- Consolidated balance sheet 41
- Consolidated statement of recognised income and expense 42
- Consolidated cash flow statement 43
- Shareholder retained capital movement 46
- Analysis of tax 47
- Earnings per share 48
- Analysis of gross written premiums 50
- Segmental analysis 51
- Segmental analysis of ordinary shareholders' equity 53
- Borrowings 54
- Non linked asset mix and investment return 55
- Contingent liabilities, guarantees and indemnities 56
Capital and cash flow 57
Appendices 63
Business review
New business
H1 2006 H1 2005
£m APE PVNBP APE PVNBP
UK life and pensions:
Protection 111 555 109 478
Annuities 71 708 79 787
Savings: Unit linked bonds 121 1,213 94 939
Savings: Pensions - Stakeholder and other non profit 91 535 72 471
With-profits 102 602 72 466
Total UK life and pensions 496 3,613 426 3,141
International life and pensions 57 482 56 464
Total life and pensions 553 4,095 482 3,605
UK retail investments 342 N/A 169 N/A
International retail investments 1 N/A 1 N/A
Total retail investments 343 N/A 170 N/A
Total new business 896 N/A 652 N/A
Institutional fund management £10.8bn £6.9bn
UK LIFE AND PENSIONS - H1 PVNBP up 15% to £3,613m
Protection - H1 PVNBP up 16% to £555m
Individual protection annual premiums grew by 16% to £78m (H1 2005: £67m),
against a backdrop of an improved housing market. We successfully launched a
pension term assurance product in April this year and are encouraged by
performance to date, with the product recently accounting for over 30% of IFA
life insurance applications.
Scale is critical in the individual protection segment, where we estimate that
we have increased market share by three percentage points in Q1 2006 to nearly
20% (Q4 2005: 17%). We continue to invest in our underwriting expertise and
infrastructure to improve further our competitive position.
Group Risk annual premiums fell by 21% to £33m (H1 2005: £42m). 2004 and 2005
new business figures benefited from the withdrawal of a competitor at the end of
2003. We have seen broadly stable annual premiums in Q2 2006 of £16m against
£17m in Q1 2006.
Overall, protection volumes increased by 16% to £555m in the first half of 2006
(H1 2005: £478m) on a PVNBP basis and by 2% on an APE basis. The PVNBP growth
rate reflects the change in mix towards individual business, where, on average,
we expect to receive premiums for longer than on group business.
Annuities - H1 PVNBP down 10% to £708m
The high level of competitive activity in the individual annuity market, which
we noted during 2005, continued in the early part of 2006. Although single
premium individual annuities decreased from £458m in H1 2005 to £209m in H1
2006, our competitive position improved significantly in the second quarter of
2006. Single premiums nearly trebled from £56m in Q1 2006 to £153m in Q2 2006,
as bond yields rose and as customers, who had delayed their purchase until the
application of new pensions A-Day tax rules, entered the market. The resulting
uplift in application volumes has yet to be fully reflected in completed sales.
As announced earlier this year, we became the default annuity provider for
Skandia's maturing pension customers in May.
The bulk purchase annuity business saw high levels of sales and quotation
activity in the first half of this year. We completed more than 150 new
policies, with an average case size of just over £3m. This lifted single
premiums by 52% to £499m (H1 2005: £329m). We continue to focus on service
excellence and have substantial pricing and processing expertise, built up over
some 20 years, in managing high volumes of schemes. We believe that there is
opportunity for significant additional growth in new products offering longevity
risk management to larger schemes and we have seen early signs of increased
activity in this area.
Savings: Unit linked bonds - H1 PVNBP up 29% to £1,213m
Legal & General's Portfolio Bond was an important driver behind the 29% increase
in premiums to £1,213m in the first half of 2006 (H1 2005: £939m). In the year
to date, over 25% of new bond business from IFAs came through the Cofunds
platform, which provides advisors with the opportunity to simplify their
administration while offering access to a wide range of funds. We believe the
strength of our open architecture offering will be an important factor in
driving and shaping our bond business in the future.
Savings: Pensions - H1 PVNBP up 14% to £535m
We saw strong growth in pensions volumes in the first half of 2006 to £535m from
£471m in H1 2005, driven primarily by our success in the corporate segment.
Taking advantage of the open architecture model, we launched our Self Invested
Personal Pension on the Cofunds platform in April this year. The public debate
on the future of pensions saving in the UK has, we believe, helped to increase
awareness among consumers of the need to save for retirement. Additionally,
pensions A-Day has stimulated the pensions transfer market, as investors seek to
consolidate their assets into a single pool.
With-profits - H1 PVNBP up 29% to £602m
The strength of the pensions market has also fed into sales of pensions products
written in the with-profits part of the long term fund. This includes those
unit linked contracts which offer a with-profits option. The historically
higher margin with-profits bond contracts continued to decline, decreasing by
59% to £42m of single premiums in H1 2006 (H1 2005: £103m).
INTERNATIONAL LIFE AND PENSIONS - H1 PVNBP up 4% to £482m
Although market conditions remained difficult, sales in our US operation
increased by 6% to £145m (H1 2005: £137m). New business was little changed in
France at £195m (H1 2005: £198m) and increased by 10% in the Netherlands to
£142m (H1 2005: £129m), driven largely by strong single premium sales. Overall,
new business from our overseas operations rose by 4% to £482m.
INVESTMENT MANAGEMENT
Retail investments - H1 up 102% to £343m APE
UK retail investment sales of £342m APE in the first half of 2006 (H1 2005:
£169m) benefited from a £1.3bn single premium institutional transfer. Funds
under management stood at £19.3bn at 30 June 2006. Legal & General is currently
the UK's third largest retail investments provider (Source: Investment
Management Association monthly rankings - May 2006).
Institutional fund management - H1 new funds up 56% to £10.8bn
Legal & General Investment Management achieved yet another outstanding new
business result in the first half of 2006, winning £10.8bn (H1 2005: £6.9bn) of
new funds under management. £1.9bn of this was received from non-pension fund
institutions.
Profitability
Consolidated income statement
EEV IFRS
£m H1 2006 H1 2005 H1 2006 H1 2005
From continuing operations:
Life and pensions 456 385 252 228
Investment management 87 70 65 48
General insurance 2 4 2 4
Other operational income 15 18 15 18
Total operating profit 560 477 334 298
Variation from longer term investment return 113 206 7 63
Effect of economic assumption changes (18) 11 N/A N/A
Shareholder retained capital movement N/A N/A 39 116
Property income attributable to minority interests 21 11 21 11
Profit from continuing operations before tax 676 705 401 488
Tax (198) (186) (124) (124)
Effect of UK tax changes - (276) N/A N/A
Profit from continuing operations after tax 478 243 277 364
Profit from discontinued operations - 13 - 13
Profit from ordinary activities after tax 478 256 277 377
Profit attributable to minority interests (21) (11) (21) (11)
Profit attributable to equity holders of the Company 457 245 256 366
Life and pensions - EEV basis
UK International Total
£m H1 2006 H1 2005 H1 2006 H1 2005 H1 2006 H1 2005
Present value of new business premiums 3,613 3,141 482 464 4,095 3,605
New business margin (%) 4.9 4.1 2.7 2.4 4.7 3.9
Contribution from new business
(after cost of capital) 179 129 13 11 192 140
Contribution from in-force business
- Expected return 158 145 33 29 191 174
- Experience variances 53 11 (6) - 47 11
- Operating assumption changes (7) (4) 3 (3) (4) (7)
Development costs (10) (5) - - (10) (5)
Contribution from shareholder net worth 32 64 8 8 40 72
Operating profit 405 340 51 45 456 385
UK life and pensions
The contribution from new business increased by 39% from £129m to £179m,
benefiting from improved sales, mix and margins.
The expected return from in-force business increased by 9% from £145m to £158m,
reflecting the unwind of a lower opening discount rate of 7.1% (2005: 7.5%) on a
higher opening embedded value.
Opening adjustments to reflect a revision of assessments of prior and future tax
resulted in a broadly net neutral impact on EEV operating profit. These have
been reported as a positive experience variance and a similar reduction in the
return from the shareholder net worth. Excluding this, underlying variances and
assumption changes were a small positive. The BPA data loading project once
again had a positive impact, with £17m in experience variances and £15m in
assumption changes. Persistency, mortality and morbidity experience on our
overall book of business are subject to full annual investigations and operating
assumptions are normally fully reviewed during the second half. In the first
half of 2006, there were small negative persistency variances on with-profits
bonds and pensions, partly offset by positive mortality and morbidity experience
variances from group protection business. In addition, there were minor expense
assumption changes, relating to a number of products and to future office rental
costs.
Development costs of £10m (H1 2005: £5m) relate primarily to the development of
the Cofunds platform.
International life and pensions
EEV operating profit from our international operations grew by 13% to £51m (H1
2005: £45m), with increased results across our businesses. In the Netherlands,
operating profit grew by 6% to £17m (H1 2005: £16m), reflecting higher sales and
lower capital requirements on certain products. Operating profit in France
increased by 40% to £14m (H1 2005: £10m) with improved margins. On the in-force
book, adverse mortality assumption changes were offset by favourable
persistency. In the USA, the decline in new business in 2005 increased the unit
expenses in the first half of this year, giving rise to a negative margin of
1.9% on new business (H1 2005: positive 2.2%). The margin does not include any
benefit from Triple X financing, which we expect to complete in the second half
of 2006. Higher expected return from in-force business was partially offset by
a small adverse mortality variance. Total operating profit in the USA grew by
5% to £20m (H1 2005: £19m).
Life and pensions - IFRS basis
£m H1 2006 H1 2005
UK operating profit:
With-profits business 40 32
Distribution relating to non profit and shareholder net worth 157 133
Subordinated debt interest 18 18
215 183
International operating profit:
USA 33 27
Netherlands (3) 18
France 7 -
Operating profit 252 228
UK life and pensions
The distribution relating to non profit and shareholder net worth in any year is
based on the formula which was agreed with our regulator. It is calculated as 7%
of the embedded value of the shareholder retained capital (SRC) and Sub-fund and
5% of the embedded value of the non profit business. At the interim stage, an
estimate is made of the provisional half year transfer that would be available
from application of the formula based on half year results and after allowance
for the transfer from the non profit part of the fund to the SRC. The
shareholder net worth and the value of the non profit business both increased by
17% from H1 2005 to H1 2006. Overall, the UK life and pensions operating profit
increased from £183m at H1 2005 to £215m at H1 2006. The with-profits transfer
grew by 25% to £40m (H1 2005: £32m), reflecting increases in bonuses applied to
a higher level of maturities and other claims.
International life and pensions
Higher results from our operations in the USA and France were offset by a
reduction in reported profits in our operation in the Netherlands due to the
accounting rules surrounding the valuation of assets and liabilities. On an
IFRS basis, all assets but not all liabilities must be accounted for at fair
value, giving rise to a £3m operating loss in H1 2006 against an £18m operating
profit in H1 2005. Further volatility should be expected. Operating profit
from our US operations increased by 22% to £33m (H1 2005: £27m), reflecting the
increased size of the book. In France, operating profit increased to £7m (H1
2005: £nil), largely as a result of gains made on a property sale.
Investment management - IFRS basis
£m H1 2006 H1 2005
Investment management operating profits:
Managed pension funds 45 33
Ventures 2 2
Property 4 3
Retail investments 5 4
Other external income 4 2
Other operational income 5 4
Operating profit 65 48
Cost/income ratio 36% 36%
Operating profits from our investment management business increased by 35% to
£65m (H1 2005: £48m), demonstrating the scalability of the business and
continued focus on cost control. The cost/income ratio remained stable at 36%
(H1 2005: 36%).
As a result of strong new business inflows, funds under management increased
from £204bn at 31 December 2005 to £211bn at 30 June 2006. £152bn of funds at
30 June 2006 were managed on behalf of external clients.
Our supplementary reporting also includes details of the results of our managed
pension funds business on an EEV basis which can be found in notes 3.2 and 3.8
of the EEV section of these results. These reflect growth in new business
volumes and the continued benefit of strong persistency.
General insurance - IFRS basis
H1 2006 H1 2005
Operating Underwriting Operating Underwriting
£m profit result profit result
Household 2 (3) 2 (5)
Other - (3) 2 -
Operating profit 2 (6) 4 (5)
Operating profit in our General Insurance business decreased from £4m in H1 2005
to £2m in H1 2006. This is after providing for £4m in closure costs following
our decision to withdraw from our small position in the motor insurance market
and to focus on building the household insurance book. We will be ceasing to
write new motor insurance business or renew existing cover with effect from 1
September 2006. The motor book generated an operating loss before closure costs
of £1m in the first half of 2006 (H1 2005: operating loss of £3m).
Our household insurance business offers greater synergies with our existing
protection businesses. 38% of mortgages completed via our Legal & General
Partnership Services Ltd network in the first half of the year also included our
household insurance. The business saw stable gross premium income of £115m in
the first half of this year (H1 2005: £115m). Operating profits were unchanged
at £2m (H1 2005: £2m), as an improvement in weather claims was offset by
increased competition in the broker channel.
Other operational income - IFRS basis
£m H1 2006 H1 2005
restated
Shareholders' other income:
Investment return on ordinary shareholders' equity 69 55
Interest expense (48) (30)
21 25
Other operations (1) (3)
Unallocated corporate and development expenses (5) (4)
15 18
Interest expense has increased following the issuance of €600m of subordinated
debt in June 2005. This has been offset by the increased investment return of
£69m (H1 2005: £55m), reflecting investment of the issue proceeds prior to their
being used to repay the convertible debt in December 2006.
Profit attributable to equity holders
EEV IFRS
£m H1 2006 H1 2005 H1 2006 H1 2005
Operating profit 560 477 334 298
Variation from longer term investment return 113 206 7 63
Effect of economic assumption changes (18) 11 N/A N/A
Shareholder retained capital movement N/A N/A 39 116
Property income attributable to minority interests 21 11 21 11
Profit from continuing operations before tax 676 705 401 488
Tax (198) (186) (124) (124)
Effect of UK tax changes - (276) N/A N/A
Profit from continuing operations after tax 478 243 277 364
Profit from discontinued operations - 13 - 13
Profit from ordinary activities after tax 478 256 277 377
Profit attributable to minority interests (21) (11) (21) (11)
Profit attributable to equity holders of the Company 457 245 256 366
EEV basis
The Group's profit before tax decreased marginally to £676m (H1 2005: £705m),
with lower equity market performance in the first half of this year compared
with the prior period. The investment return on the equity and property
portfolio of the UK long term fund was 2.1% above the assumption for the period
(H1 2005: 3.7%)
IFRS basis
The pre-tax contribution from SRC reduced from £116m in H1 2005 to £39m in H1
2006 as a result of lower investment returns and a lower net capital release
from the non profit business of £110m pre-tax (H1 2005: £138m) and £77m net of
tax (H1 2005: £97m).
Within this net release, the new business strain of £279m before financing (H1
2005: £207m) was covered by the expected release from the in-force book of £290m
before financing (H1 2005: £198m), all on a net of tax basis. A second tranche
of term assurance financing had a benefit of £94m to support new business
strain, offset by a £26m partial repayment of the financing put in place in
2005. The overall impact of other movements on the net capital released after
tax was a negative £2m (H1 2005: positive £106m).
Capital and financing
The Group is required to measure and monitor its capital resources on a
regulatory as well as an IFRS basis and to comply with the minimum capital
requirements of regulators in each territory in which it operates. In general,
the regulators require more prudent assumptions than IFRS. Legal & General's
total capital resources are substantially in excess of both total regulatory
capital and the minimum regulatory capital it is required to hold.
At Group level, the Insurance Groups Directive capital surplus was £2.3bn (31
December 2005: £2.4bn) in excess of the required capital of £3.8bn (31 December
2005: £4.4bn).
The total regulatory capital resources available to Legal & General Assurance
Society Limited, the Group's main UK operating subsidiary, amounted to £8.1bn at
30 June 2006 (31 December 2005: £8.5bn) which included an implicit item of £425m
(31 December 2005: £540m) in respect of non profit business, and exceeded the
total capital requirements by £4.5bn (31 December 2005: £4.4bn).
As at 30 June 2006, the value of the assets supporting the UK with-profits
business was estimated to have exceeded realistic liabilities by £907m (31
December 2005: £842m). The required Risk Capital Margin (RCM) for the
with-profits part of the fund, calculated by reassessing realistic assets and
liabilities in financially stressed conditions, was £244m at 30 June 2006 (31
December 2005: £327m). The RCM continued to benefit from management actions,
which included refinements to our management of investment market risk.
In March 2006, the £400m undated subordinated notes (upper tier 2 regulatory
capital) raised in March 2004 and required to be treated as equity at the end of
2005, were reclassified as debt following the modification of terms to remove
the discretionary nature of the interest.
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