TIDMLGEN
RNS Number : 4745H
Legal & General Group Plc
04 August 2021
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 73
5.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the six month period to GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
30 June 2021
As at 1 January 2021 429.9 193.6 63.4 559.5 32.5 1,278.9
External inflows 44.5 10.0 4.9 20.2 0.6 80.2
External outflows (41.9) (7.7) (3.1) (8.0) (0.8) (61.5)
Overlay net flows - - - 6.6 - 6.6
ETF net flows 2.1 - - - - 2.1
External net flows(3) 4.7 2.3 1.8 18.8 (0.2) 27.4
Internal net flows(4) (0.3) (2.3) 0.1 (0.2) 1.0 (1.7)
Total net flows 4.4 - 1.9 18.6 0.8 25.7
Cash management movements(5) - (0.4) - - - (0.4)
Market and other movements(3) 37.1 (3.1) 2.8 (14.6) 0.4 22.6
As at 30 June 2021 471.4 190.1 68.1 563.5 33.7 1,326.8
Assets attributable to:
External 1,213.6
Internal 113.2
1. Assets under management (AUM) includes assets on our Investment
Only Platform that are managed by third parties, on which fees are
earned.
2. Solutions include liability driven investments and GBP345.3bn
(30 June 2020: GBP348.3bn; 31 December 2020: GBP340.1bn) of derivative
notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a higher degree of variability. The total value
of these assets at 30 June 2021 was GBP51.5bn (30 June 2020: GBP62.3bn;
31 December 2020: GBP45.8bn) and the movement in these assets is
included in market and other movements for Solutions assets.
4. Internal includes legacy assets from the Mature Savings business
sold to ReAssure in 2020.
5. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management purposes.
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 74
5.01 LGIM total assets under management(1) (AUM) (continued)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the six month period GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
to 30 June 2020
As at 1 January 2020 403.6 177.2 58.0 526.6 30.8 1,196.2
External inflows 27.7 9.5 4.3 10.9 0.6 53.0
External outflows (32.3) (9.0) (2.7) (22.7) (0.4) (67.1)
Overlay net flows - - - 20.1 - 20.1
ETF net flows 0.2 - - - - 0.2
External net flows(3) (4.4) 0.5 1.6 8.3 0.2 6.2
Internal net flows - (0.2) (0.7) (0.1) 0.4 (0.6)
Total net flows (4.4) 0.3 0.9 8.2 0.6 5.6
Cash management movements(4) - 2.8 - - - 2.8
Market and other movements(3) (4.1) 9.2 (1.8) 32.0 0.7 36.0
As at 30 June 2020 395.1 189.5 57.1 566.8 32.1 1,240.6
Assets attributable to:
External 1,134.9
Internal 105.7
1. Assets under management (AUM) includes assets on our Investment
Only Platform that are managed by third parties, on which fees are
earned.
2. Solutions include liability driven investments and GBP348.3bn
of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are
subject to a higher degree of variability. The total value of these
assets at 30 June 2020 was GBP62.3bn and the movement in these assets
is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 75
5.01 LGIM total assets under management(1) (AUM) (continued)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2020
As at 1 January 2020 403.6 177.2 58.0 526.6 30.8 1,196.2
External inflows 76.6 17.7 8.5 27.0 1.0 130.8
External outflows (84.7) (17.8) (5.3) (36.6) (1.4) (145.8)
Overlay net flows - - - 33.9 - 33.9
ETF net flows 1.5 - - - - 1.5
External net flows(3) (6.6) (0.1) 3.2 24.3 (0.4) 20.4
Internal net flows(4) (0.2) 2.6 (0.4) (0.3) 0.4 2.1
Total net flows (6.8) 2.5 2.8 24.0 - 22.5
Cash management movements(5) - 2.4 - - - 2.4
Market and other movements(3) 33.1 11.5 2.6 8.9 1.7 57.8
As at 31 December 2020 429.9 193.6 63.4 559.5 32.5 1,278.9
Assets attributable to:
External 1,162.6
Internal 116.3
1. Assets under management (AUM) includes assets on our Investment
Only Platform, that are managed by third parties, on which fees
are earned.
2. Solutions include liability driven investments and GBP340.1bn
of derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a
higher degree of variability. The total value of these assets at
31 December 2020 was GBP45.8bn and the movement in these assets
is included in market and
other movements for Solutions assets.
4. Internal net flows include flows in legacy assets from the Mature
Savings business sold to ReAssure in 2020.
5. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management
purposes.
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 76
5.02 LGIM total external assets under management and net
flows
Assets under management Net flows(2)
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2021 2020 2020 2021 2020 2020
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
International(1) 344.8 289.5 303.5 15.0 (3.2) (1.0)
UK Institutional
- Defined contribution 125.5 96.7 112.7 4.4 5.5 5.6
- Defined benefit 689.6 706.7 699.4 4.6 2.5 7.7
UK Retail
- Retail intermediary 39.2 33.3 36.0 1.5 1.2 0.6
- Personal investing(3) 6.3 5.2 5.6 (0.2) - -
ETF(4) 8.2 3.5 5.4 2.1 0.2 1.3
Total external 1,213.6 1,134.9 1,162.6 27.4 6.2 14.2
-------- -------- ------ ------
1. International assets are shown on the basis of client domicile.
Total International AUM including assets managed internationally
on behalf of UK clients amounted to GBP434bn as at 30 June 2021
(30 June 2020: GBP385bn; 31 December 2020: GBP388bn).
2. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability.
3. Personal investing includes GBP1.6bn as at 30 June 2021 (30
June 2020: GBP1.4bn; 31 December 2020: GBP1.4bn) of AUM relating
to legacy Banks and Building Society customers which is driving
net outflows.
4. ETF reflects external AUM and flows invested on the platform.
Total AUM managed on the platform is $13.0bn in H1 21 (H1 20: $4.8bn)
and flows of $3.4bn (H1 20: $0.4bn) which include internal investment
from other LGIM asset classes.
5.03 Reconciliation of assets under management to Consolidated
Balance Sheet financial investments, investment property and cash
and cash equivalents
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPbn GBPbn GBPbn
----------------------------------------------------------------- ------- ------ ------
Assets under management 1,327 1,241 1,279
Derivative notionals (1) (351) (348) (340)
Third party assets (2) (441) (399) (419)
Other (3) 10 72 33
Total financial investments, investment property
and cash and cash equivalents 545 566 553
Less: assets of operations classified as held
for sale - (23) -
----------------------------------------------------------------- ------- ------ ------
Financial investments, investment property
and cash and cash equivalents 545 543 553
----------------------------------------------------------------- ------- ------ ------
1. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others
which are not included on the group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf
of the group, other assets and liabilities related to financial
investments, derivative assets and pooled funds.
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 77
5.04 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities Workplace Annuities
30 Jun 2021 30 Jun 2021 30 Jun 2020 30 Jun 2020 31 Dec 2020 31 Dec 2020
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
As at 1 January 50.8 87.0 40.3 75.9 40.3 75.9
Gross inflows 7.5 3.7 3.3 3.8 10.0 10.1
Gross outflows (1.5) - (0.9) - (2.2) -
Payments to pensioners - (2.2) - (2.1) - (4.3)
Net flows 6.0 1.5 2.4 1.7 7.8 5.8
Market and other
movements 3.4 (2.7) (1.2) 3.1 2.7 5.3
As at 30 June/31
December 60.2 85.8 41.5 80.7 50.8 87.0
1. Workplace assets under administration as at 30 June 2021 includes
GBP60.1bn (30 June 2020: GBP41.5bn; 31 December 2020: GBP50.7bn)
of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2021 includes
GBP77.3bn (30 June 2020: GBP73.8bn; 31 December 2020: GBP79.4bn)
of assets under management included in Note 5.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Asset and premium flows Page 78
5.05 LGR new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2021 2020 2020 2020
GBPm GBPm GBPm GBPm
Pension risk transfer
- UK(1) 2,965 3,176 4,417 7,593
- US 107 248 1,002 1,250
Individual annuities 483 421 489 910
Lifetime & Retirement Interest Only mortgage
advances 414 362 429 791
Total LGR new business 3,969 4,207 6,337 10,544
1. UK pension risk transfer includes a GBP925m (H1 20: GBPnil; H2
20: GBP397m) Assured Payment Policy (APP).
5.06 LGI new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2021 2020 2020 2020
GBPm GBPm GBPm GBPm
UK Retail protection 105 83 92 175
UK Group protection 55 65 52 117
US protection(1) 43 44 36 80
Total LGI new business 203 192 180 372
1. In local currency, US protection reflects new business of $59m
for H1 2021 (H1 20: $56m; H2 20: $47m).
5.07 Gross written premiums on insurance business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2021 2020 2020 2020
GBPm GBPm GBPm GBPm
UK Retail protection 714 680 694 1,374
UK Group protection 274 245 137 382
US protection(1) 512 550 543 1,093
Longevity insurance 152 159 168 327
Total gross written premiums on insurance
business 1,652 1,634 1,542 3,176
1. In local currency, US protection reflects gross written premiums
of $712m for H1 2021 (H1 20: $693m; H2 20: $710m).
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 79
6.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the
Solvency II Framework Directive, as adopted by the Prudential
Regulation Authority (PRA) in the UK and measures and monitors its
capital resources on this basis.
The Solvency II results are estimated and unaudited. Further
explanation of the underlying methodology and assumptions are set
out in the sections below.
The group calculates its Solvency II capital requirements using
a Partial Internal Model. The vast majority of the risk to which
the group is exposed is assessed on the Partial Internal Model
basis approved by the PRA. Capital requirements for a few smaller
entities are assessed using the Standard Formula basis on
materiality grounds. The group's US insurance businesses are valued
on a local statutory basis, following the PRA's approval to use the
Deduction and Aggregation method of including these businesses in
the group solvency calculation.
The table below shows the "shareholder view" of the group Own
Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds,
based on the Partial Internal Model, Matching Adjustment and
Transitional Measures on Technical Provisions (TMTP) (recalculated
as at 30 June 2021). The TMTP incorporates estimated impacts of end
June 2021 economic conditions and changes during 2021 to the
Internal Model and Matching Adjustment. This is in line with
group's management of the capital position on a dynamic TMTP
basis.
(a) Capital position
As at 30 June 2021, and on the above basis, the group had a surplus
of GBP7.5bn (31 December 2020: GBP7.4bn) over its Solvency Capital
Requirement, corresponding to a Solvency II capital coverage ratio
on a "shareholder view" basis of 183% (31 December 2020: 177%).
The shareholder view of the Solvency II capital position is as follows:
30 Jun 31 Dec
2021 2020
GBPbn GBPbn
Unrestricted Tier 1 Own Funds 12.3 12.3
Restricted Tier 1 Own Funds(1) 0.5 0.5
Tier 2 Subordinated liabilities(2) 4.3 4.5
Eligibility restrictions(3) (0.5) (0.2)
================================================================================= ======= ======
Solvency II Own Funds(4,5) 16.6 17.1
Solvency Capital Requirement (9.1) (9.7)
Solvency II surplus 7.5 7.4
-
--------------------------------------------------------------------------- --- ------- ------
SCR Coverage ratio(6) 183% 177%
1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier
1 contingent convertible notes.
2. Tier 2 subordinated liabilities include GBP0.3bn of subordinated
debt issued during 2009, callable in 2021. On 26 May 2021, notification
was given that the group intends to redeem these notes in full on
23 July 2021. Effective from the notification date, the notes were
no longer treated as Tier 2 own funds for Solvency II purposes.
3. Eligibility restrictions include GBP0.3bn of subordinated debt,
following the notification to redeem the notes in full.
4. Solvency II Own Funds do not include an accrual for the interim
dividend of GBP309m (31 December 2020: GBP754m) declared after the
balance sheet date.
5. Solvency II Own Funds allow for a Risk Margin of GBP5.5bn (2020:
GBP6.1bn) and TMTP of GBP4.8bn (2020: GBP5.6bn).
6. SCR Coverage ratio is based on unrounded inputs.
The "shareholder view" basis excludes the contribution that the
final salary pension schemes would normally make to the group
position. This is reflected by reducing the group's Own Funds and
the group's SCR by the amount of the SCR for the final salary
pension schemes.
On a proforma basis, which includes the contribution of the
final salary pension schemes, the coverage ratio at 30 June 2021 is
182% (31 December 2020: 175%).
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 80
6.01 Group regulatory capital - Solvency II (continued)
(b) Methodology and assumptions
The methodology, assumptions and Partial Internal Model
underlying the calculation of Solvency II Own Funds and associated
capital requirements are broadly consistent with those set out in
the group's 2020 Annual Report and Accounts and Full Year
Results.
Non-market assumptions are consistent with those underlying the
group's IFRS disclosures, but with the removal of any margins for
prudence. Future investment returns and discount rates are those
defined by the PRA, using risk free rates based on market, LIBOR
swap rates net of credit risk adjustment of 10 basis points (31
December 2020: 11 basis points) for sterling denominated
liabilities. For annuities that are eligible, the liability
discount rate includes a Matching Adjustment. This Matching
Adjustment varies between LGAS and LGRe and by the currency of the
relevant liabilities.
At 30 June 2021 the Matching Adjustment for UK GBP denominated
liabilities was 90 basis points (31 December 2020: 103 basis
points) after deducting an allowance for the fundamental spread
equivalent to 53 basis points (31 December 2020: 55 basis
points).
(c) Analysis of change
The table below shows the movement (net of tax) during the six month
period ended 30 June 2021 in the group's Solvency II surplus.
6 months Full year
30 Jun 31 Dec
2021 2020
GBPbn GBPbn
Surplus arising from back-book (including release
of SCR) 0.7 1.3
Release of Risk Margin(1) 0.3 0.6
Amortisation of TMTP(2) (0.2) (0.4)
----------------------------------------------------------- -------- ----------
Total operational surplus generation(3) 0.8 1.5
----------------------------------------------------------- -------- ----------
New business strain (0.2) (0.3)
----------------------------------------------------------- -------- ----------
Net surplus generation 0.6 1.2
Operating variances(4) - 0.4
Mergers, acquisitions and disposals(5) - (0.1)
Market movements(6) 0.6 (1.4)
Restricted Tier 1 convertible notes(7) - 0.5
Subordinated liabilities(8) (0.3) 0.5
Dividends paid(9) (0.8) (1.0)
Total surplus movement (after dividends paid in the
period) 0.1 0.1
----------------------------------------------------------- -------- ----------
1. Based on the Risk Margin in force at 31 December 2020 and does
not include the release of any Risk Margin added by new business
written in 2021.
2. TMTP amortisation based on a linear run down of the 31 December
2020 TMTP.
3. Release of surplus generated by in-force business and includes
management actions which at the start of the year could have been
reasonably expected to take place. For 2021 these are primarily
related to the planned reinsurance of back-book liabilities.
4. Operating variances include the impact of experience variances,
changes to valuation and capital calibration assumptions, other
management actions including changes in asset mix, hedging strategies,
and Matching Adjustment optimisation.
5. 2020 primarily reflected the impacts of the sale of the Mature
Savings business, which completed in H2 2020.
6. Market movements represent the impact of changes in investment
market conditions over the year and changes to future economic assumptions.
Market movements in 2021 include a decrease in the Risk Margin of
GBP0.5bn net of tax (2020: increase of GBP0.7bn) and a decrease
to TMTP of GBP0.5bn net of tax (2020: increase of GBP0.7bn).
7. Restricted Tier 1 Own Funds represent Perpetual restricted Tier
1 contingent convertible notes, issued in 2020. No additional issuance
in 2021.
8. Subordinated liabilities reflect the restriction applied to the
GBP0.3bn debt issued in 2009, which is no longer available as capital
following the group's announcement in May 2021 to redeem these notes
in full on 23 July 2021 (2020: Issuance of GBP0.5bn).
9. Dividends paid are the amounts from the 2020 final dividend paid
in H1 2021 (2020: 2019 final dividend and 2020 interim dividend).
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 81
6.01 Group regulatory capital - Solvency II (continued)
Operational Surplus Generation is the expected surplus generated
from the assets and liabilities in-force at the start of the year.
It is based on assumed real world returns and best estimate
non-market assumptions. It includes the impact of management
actions to the extent that, at the start of the year, these were
reasonably expected to be implemented over the year.
New Business Strain is the cost of acquiring, and setting up
Technical Provisions and SCR (net of any premium income), on actual
new business written over the year. It is based on economic
conditions at the point of sale.
(d) Reconciliation of IFRS Net Release from Operations to Solvency
II Net Surplus Generation
(i) The table below provides a reconciliation of the group's IFRS
Release from operations to Solvency II Operational surplus generation.
6 months Full year
2021 2020
GBPbn GBPbn
IFRS Release from operations 0.8 1.3
Expected release of IFRS prudential margins (0.2) (0.5)
Releases of IFRS specific reserves(1) (0.1) (0.2)
Solvency II investment margin(2,3) - 0.3
Release of Solvency II Capital Requirement and Risk
Margin less TMTP amortisation 0.3 0.6
Solvency II Operational surplus generation(4) 0.8 1.5
------------------------------------------------------------ --------- ---------
1. Release of prudence from IFRS specific reserves which are not
included in Solvency II (e.g. long term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined
Fundamental Spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess
of risk-free rates over 2021.
4. Solvency II Operational Surplus Generation includes management
actions which at the start of 2021 were reasonably expected to be
implemented over the year.
(ii) The table below provides a reconciliation of the group's IFRS
New business surplus to Solvency II New business strain.
6 months Full year
2021 2020
GBPbn GBPbn
IFRS New business surplus 0.1 0.3
Removal of requirement to set up prudential margins
above best estimate on new business 0.2 0.3
Set up of SCR on new business (0.4) (0.7)
Set up of Risk Margin on new business (0.1) (0.2)
Solvency II New business strain(1) (0.2) (0.3)
1. UK PRT new business volume during 2021 was GBP3.0bn, compared
to GBP7.6bn over 2020.
(e) Reconciliation of IFRS equity to Solvency II Own Funds
A reconciliation of the group's IFRS equity to Solvency II Own Funds
is given below:
30 Jun 31 Dec
2021 2020
GBPbn GBPbn
----------------------------------------------------------- ------- ------
IFRS equity(1) 10.3 10.0
Remove DAC, goodwill and other intangible assets and
associated liabilities (0.4) (0.4)
Add IFRS carrying value of subordinated borrowings(2) 4.0 4.0
Insurance contract valuation differences(3) 4.0 4.5
Difference in value of net deferred tax liabilities (0.7) (0.6)
SCR for final salary pension schemes (0.1) (0.2)
Eligibility restrictions(4) (0.5) (0.2)
Solvency II Own Funds(5) 16.6 17.1
------- ------
1. IFRS equity represents equity attributable to owners of the parent
and restricted Tier 1 convertible debt note as per the Consolidated
Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet
as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between
IFRS and Solvency II.
4. Eligibility restrictions include the impact of redemption of
GBP0.3bn of subordinated debt as announced by the group on 26 May
2021, in addition to the Own Funds of non-insurance regulated entities
that are subject to local regulatory rules.
5. Solvency II Own Funds do not include an accrual for the interim
dividend of GBP309m (31 December 2020: GBP754m) declared after the
balance sheet date.
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 82
6.01 Group regulatory capital - Solvency II (continued)
(f) Sensitivity analysis
The following sensitivities are provided to give an indication of
how the group's Solvency II surplus as at 30 June 2021 would have
changed in a variety of adverse events. These are all independent
stresses to a single risk. In practice, the balance sheet is impacted
by combinations of stresses and the combined impact can be larger
than adding together the impacts of the same stresses in isolation.
It is expected that, particularly for market risks, adverse stresses
will happen together.
Impact Impact Impact Impact
on on on on
net of net of net of net of
tax tax tax tax
Solvency Solvency Solvency Solvency
II II II II
capital coverage capital coverage
surplus ratio surplus(1) ratio(1)
2021 2021 2020 2020
GBPbn % GBPbn %
Credit spreads widen by 100bps assuming
an escalating addition to ratings(1,2) 0.5 11 0.5 11
Credit spreads narrow by 100bps assuming
an escalating addition to ratings(1,2) (0.7) (12) (0.7) (12)
Credit spreads widen by 100bps assuming
a level addition to ratings(1) 0.6 12 0.7 13
Credit spreads of sub investment grade assets
widen by 100bps assuming a level addition
to ratings(1,3) (0.3) (5) (0.4) (5)
Credit migration(4) (0.8) (9) (1.2) (13)
25% fall in equity markets(5) (0.5) (4) (0.5) (4)
15% fall in property markets(6) (0.8) (7) (0.6) (6)
50bps increase in risk-free rates(7) 0.5 11 0.6 11
100bps increase in risk-free rates(7) 1.0 21 1.0 20
50bps decrease in risk-free rates(7,8) (0.7) (12) (0.7) (11)
50bps increase in future inflation expectations(7) (0.1) (3) - (2)
Substantially reduced Risk Margin(9) 0.6 6 0.5 5
1. The spread sensitivity applies to the group's corporate bond
(and similar) holdings, with no change in long-term default expectations.
Restructured lifetime mortgages are excluded as the underlying exposure
is mostly to property.
2. The stress for AA bonds is twice that for AAA bonds, for A bonds
it is three times, for BBB four times and so on, such that the weighted
average spread stress for the portfolio is 100 basis points. To
give a 100bps increase on the total portfolio, the spread stress
increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.
3. No stress for bonds rated BBB and above. For bonds rated BB and
below the stress is 100bps. The spread widening on the total portfolio
is 2bps as the group holds less than 2% in bonds rated BB and below.
The impact is primarily an increase in SCR arising from the modelled
cost of trading downgraded bonds back to a higher rating in the
stress scenarios in the SCR calculation.
4. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends
on a credit rating (including corporate bonds, and sale and leaseback
rental strips; lifetime mortgage senior notes are excluded). Downgraded
assets are assumed to be traded to their original credit rating,
so the impact is primarily a reduction in Own Funds from the loss
of value on downgrade. The impact of the sensitivity will depend
upon the market levels of spreads at the balance sheet date.
5. This relates primarily to equity exposure in LGC but will also
include equity-based mutual funds and other investments that receive
an equity stress (for example, certain investments in subsidiaries).
Some assets have factors that increase or decrease the stress relative
to general equity levels via a beta factor.
6. Assets stressed include residual values from sale and leaseback,
the full amount of lifetime mortgages and direct investments treated
as property.
7. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
8. In the interest rate down stress negative rates are allowed,
i.e. there is no floor at zero rates.
9. Assuming a 2/3 reduction in the Risk Margin, allowing for offset
from an equivalent reduction in the Transitional Measure on Technical
Provisions.
The above sensitivity analysis does not reflect all management actions
which could be taken to reduce the impacts. In practice, the group
actively manages its asset and liability positions to respond to
market movements. Other than in the interest rate and inflation
stresses, we have not allowed for the recalculation of TMTP.
The impacts of these stresses are not linear therefore these results
should not be used to interpolate or extrapolate the impact of a
smaller or larger stress. The results of these tests are indicative
of the market conditions prevailing at the balance sheet date. The
results would be different if performed at an alternative reporting
date.
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 83
6.02 Estimated Solvency II new business contribution
(a) New business by product
(1)
Management estimates of the present value of new business premium
(PVNBP) and the margin for selected lines of business are provided
below:
Contribution Contribution
from new from
new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
6 months 6 months 6 months Full year Full Full year
year
2021 2021 2021 2020 2020 2020
GBPm GBPm % GBPm GBPm %
LGR - UK annuity business 3,269 274 8.4 8,503 901 10.6
UK Protection Total 1,089 83 7.6 1,887 160 8.5
- Retail Protection 828 65 7.8 1,359 123 9.1
- Group Protection 261 18 7.1 528 37 7.0
US Protection(5) 413 48 11.5 829 94 11.2
1. Selected lines of business only.
2. PVNBP excludes quota share reinsurance single premium of GBP0.2bn
relating to LGR new business, where the treaty was finalised after
the balance sheet date.
3. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the year using the risk discount
rate applicable at the end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US Protection reflects PVNBP of $574m (31
December 2020: $1,064m) and a contribution from new business of
$66m (31 December 2020: $120m).
The decrease in LGR margin was driven by the shorter average duration
for the schemes written in the first six months of the year, compared
to the schemes written in prior year.
For UK Protection the contribution from new business is supported
by strong volumes in Retail Protection where the reduction in margin
is largely due to pricing action, movements in product mix and changes
in market conditions in H1 2021.
The US Protection margin improved compared to the prior full year.
The increase is driven by business mix and modified reinsurance
terms on digital products.
(b) Basis of preparation
Solvency II new business contribution reflects the portion of
Solvency II value added by new business written in the period. It
has been calculated in a manner consistent with principles and
methodologies which were set out in the group's 2020 Annual Report
and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for
the group's most material insurance-related businesses, namely,
LGR, LGI and LGA.
Intra-group reinsurance arrangements are in place between US, UK
and Bermudan businesses and it is expected that these arrangements
will be periodically extended to cover recent new business. The LGA
new business margin assumes that the new business will continue to
be reinsured in 2021 and looks through the intra-group
arrangements.
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 84
6.02 Estimated Solvency II new business contribution
(continued)
(c) Assumptions
The key economic assumptions are as follows:
30 Jun 31 Dec
2021 2020
% %
Margin for Risk 3.6 3.9
Risk-free rate
- UK 1.1 0.5
- US 1.5 0.9
Risk discount rate (net of tax)
- UK 4.7 4.4
- US 5.1 4.8
Long-term rate of return on non-profit annuities in
LGR 2.4 2.1
The future earnings are discounted using duration-based discount
rates, which is the sum of a duration-based risk free rate and a
flat margin for risk. The risk free rates have been based on a swap
curve net of the PRA-specified Credit Risk Adjustment. The risk
free rate shown above is a weighted average based on the projected
cash flows.
Other than updating for recent experience, all other economic
and non-economic assumptions and methodologies that would have a
material impact on the margin for these contracts are unchanged
from those previously used by the group for its European Embedded
Value reporting, other than the cost of currency hedging which has
been updated to reflect current market conditions and hedging
activity in light of Solvency II. In particular:
-- The assumed future pre-tax returns on fixed interest and RPI
linked securities are set by reference to the portfolio yield on
the relevant backing assets held at market value at the end of the
reporting period. The calculated return takes account of
derivatives and other credit instruments in the investment
portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account
of the credit rating and the outstanding term of the assets. The
allowance for corporate and other unapproved credit asset defaults
within the new business contribution is calculated explicitly for
each bulk annuity scheme written, and the weighted average
deduction for business written in 2021 equates to a level rate
deduction from the expected returns for the overall annuities
portfolio of 15 basis points.
-- Non-economic assumptions have been set at levels commensurate
with recent operating experience, including those for mortality,
morbidity, persistency and maintenance expenses (excluding
development costs). An allowance is made for future mortality
improvement. For new business, mortality assumptions may be
modified to take certain scheme specific features into account.
The profits on the new business are presented gross of tax.
Legal & General Group Plc
Half Year Results 2021 Part 3
Capital Page 85
6.02 Estimated Solvency II new business contribution
(continued)
(d) Reconciliation of PVNBP to gross written premium
A reconciliation of PVNBP and gross written
premium is given below:
6 months Full year
2021 2020
Notes GBPbn GBPbn
6.02
PVNBP (a) 4.8 11.2
Effect of capitalisation factor (1.3) (2.3)
New business premiums from selected lines 3.5 8.9
Other(1) 0.7 2.0
Total LGR and LGI new business 5.05,5.06 4.2 10.9
Annualisation impact of regular premium long-term
business (0.2) (0.2)
IFRS gross written premiums from existing
long-term insurance business 1.6 3.0
Deposit accounting for investment products (1.3) (1.2)
Total gross written premiums(2) 4.3 12.5
1. Other principally includes annuity sales in the US, lifetime
and retirement interest only mortgage advances and the reversal
of a quota share reinsurance single premium of GBP0.2bn relating
to LGR new business, where the treaty was finalised after the
balance sheet date.
2. Total gross written premiums include GBP55m of gross written
premiums relating to a residual reinsurance treaty following
the disposal of the General Insurance business.
Legal & General Group Plc
Half Year Results 2021 Part 3
Page 86
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Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 87
7.01 Investment portfolio
Market Market Market
value value value
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
Worldwide total assets under management(1,2) 1,333,203 1,247,960 1,285,489
Client and policyholder assets (1,218,560) (1,119,803) (1,161,631)
Non-unit linked with-profits assets - (9,854) -
Investments to which shareholders are directly
exposed 114,643 118,303 123,858
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
2. As part of a change in accounting policy in 2020 for LGIA universal
life and annuity reserves, certain financial investments were reclassified
from designated as amortised cost to designated as fair value through
profit or loss. Accordingly, the 30 June 2020 balance for Worldwide
total assets under management has been restated to reflect the fair
value of those assets. Further details on the impact of the 2020
change in accounting policy are provided in Note 4.01.
Analysed by investment class:
Other
non-profit Other
LGR insurance LGC shareholder
investments investments investments investments Total Total Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec
2021 2021 2021 2021 2021 2020 2020
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities 11 31 2,739 307 3,088 2,812 3,086
Bonds (3) 7.03 78,226 2,366 1,827 280 82,699 81,337 85,502
Derivative assets
(4) 13,987 - 32 - 14,019 22,388 20,936
Property 7.04 4,639 - 464 - 5,103 4,250 4,672
Loans (3,5) 3,472 29 789 11 4,301 2,000 4,248
Financial investments 4.04 (a) 100,335 2,426 5,851 598 109,210 112,787 118,444
Cash and cash equivalents 1,866 242 1,222 410 3,740 3,777 3,616
Other assets (6) 100 - 1,593 - 1,693 1,739 1,798
Total investments 102,301 2,668 8,666 1,008 114,643 118,303 123,858
3. As part of a change in accounting policy in the second half of
2020 for LGIA universal life and annuity reserves, certain financial
investments were reclassified from designated as amortised cost to
designated as fair value through profit or loss. Accordingly, the
30 June 2020 balances for Bonds and Loans have been restated to reflect
the fair value of those assets. Further details on the impact of
the 2020 change in accounting policy are provided in Note 4.01.
4. Derivative assets are shown gross of derivative liabilities of
GBP17.7bn (30 June 2020: GBP24.9bn; 31 December 2020: GBP21.2bn).
Exposures arise from use of derivatives for efficient portfolio management,
especially the use of interest rate swaps, inflation swaps, credit
default swaps and foreign exchange forward contracts for assets and
liability management.
5. Loans include reverse repurchase agreements of GBP4,152m (30 June
2020: GBP1,868m; 31 December 2020: GBP4,117m).
6. Other assets include finance leases of GBP87m (30 June 2020: GBP89m;
31 December 2020: GBP88m), associates and joint ventures of GBP314m
(30 June 2020: GBP328m; 31 December 2020: GBP288m) and the consolidated
net asset value of the group's investments in CALA Homes and other
housing businesses.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 88
7.02 Direct investments
(a) Analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2) Direct(1) Traded(2)
investments securities Total investments securities Total investments securities Total
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec 31 Dec
2021 2021 2021 2020 2020 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities 1,202 1,886 3,088 1,142 1,670 2,812 1,145 1,941 3,086
Bonds (3,5) 22,218 60,481 82,699 20,612 60,725 81,337 21,555 63,947 85,502
Derivative
assets - 14,019 14,019 - 22,388 22,388 - 20,936 20,936
Property (4) 5,103 - 5,103 4,250 - 4,250 4,672 - 4,672
Loans and
other
receivables
(5) 119 4,182 4,301 145 1,855 2,000 99 4,149 4,248
Financial
investments 28,642 80,568 109,210 26,149 86,638 112,787 27,471 90,973 118,444
-------------- ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Cash and cash
equivalents 221 3,519 3,740 69 3,708 3,777 42 3,574 3,616
Other assets 1,693 - 1,693 1,739 - 1,739 1,798 - 1,798
Total
investments 30,556 84,087 114,643 27,957 90,346 118,303 29,311 94,547 123,858
-------------- ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile
asset classes. Direct investments also include physical assets, bilateral
loans and private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not
a direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of GBP6,325m (30 June 2020:
GBP5,478m; 31 December 2020: GBP6,036m).
4. A further breakdown of property is provided in Note 7.04.
5. As part of a change in accounting policy in the second half of 2020
for LGIA universal life and annuity reserves, certain financial investments
were reclassified from designated as amortised cost to designated as
fair value through profit or loss. Accordingly, the 30 June 2020 balances
for Bonds and Loans and other receivables have been restated to reflect
the fair value of those assets. Further details on the impact of the
2020 change in accounting policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 89
7.02 Direct investments (continued)
(b) Analysed by segment
LGR LGC (1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2021 2021 2021 2021
GBPm GBPm GBPm GBPm
-
--------------------------------------------- --- ------- -------- ------ ------
Equities 9 1,077 116 1,202
Bonds(2) 21,023 3 1,192 22,218
Property 4,639 464 - 5,103
Loans and other receivables - 119 - 119
---------------------------------------------------- ------- -------- ------ ------
Financial investments 25,671 1,663 1,308 28,642
----------------------------------------------------- ------- -------- ------ ------
Other assets, cash and cash equivalents 100 1,814 - 1,914
---------------------------------------------------- ------- -------- ------ ------
Total direct investments 25,771 3,477 1,308 30,556
----------------------------------------------------- ------- -------- ------ ------
1. LGC includes GBP52m of equities that belong to other shareholder
funds.
2. Bonds include lifetime mortgage loans of GBP6,325m.
LGR LGC(1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
Equities - 1,068 74 1,142
Bonds (2,3) 19,444 3 1,165 20,612
Property 4,016 234 - 4,250
Loans and other receivables
(3) - 145 - 145
-------------------------------------------- --------- --------- --------- --------
Financial investments 23,460 1,450 1,239 26,149
---------------------------------------------- --------- --------- --------- --------
Other assets, cash and
cash equivalents 104 1,700 4 1,808
------------------------------------------- --------- --------- --------- --------
Total direct investments 23,564 3,150 1,243 27,957
---------------------------------------------- --------- --------- --------- --------
1. LGC includes GBP48m of equities that belong to other shareholder
funds.
2. Bonds include lifetime mortgage loans of GBP5,478m.
3. As part of a change in accounting policy in the second half of 2020
for LGIA universal life and annuity reserves, certain financial investments
were classified from designated as amortised cost to designated as fair
value through profit or loss. Accordingly, the 30 June 2020 balances
for Bonds and Loans and other receivables have been restated to reflect
the fair value of those assets. Further details on the impact of the
2020 change in accounting policy are provided in Note 4.01.
LGR LGC(1) LGI Total
31 Dec 31 Dec 31 Dec 31 Dec
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
Equities - 1,043 102 1,145
Bonds(2) 20,306 3 1,246 21,555
Property 4,319 353 - 4,672
Loans and other receivables - 99 - 99
---------------------------------------------- ------- ------ ------ ------
Financial investments 24,625 1,498 1,348 27,471
----------------------------------------------- ------- ------ ------ ------
Other assets, cash and cash equivalents 106 1,730 4 1,840
Total direct investments 24,731 3,228 1,352 29,311
----------------------------------------------- ------- ------ ------ ------
1. LGC included GBP47m of equities that belong to other shareholder
funds.
2. Bonds include lifetime mortgage loans of GBP6,036m.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 90
7.03 Bond portfolio summary
(a) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,925 10,091 1,249 335 10 - 13,610 17
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - - 58 39 4 - 101 -
- Senior - 1,024 3,490 790 2 - 5,306 6
- Covered 151 - - - - - 151 -
Financial Services:
- Tier 2 and other subordinated - 113 57 21 - - 191 -
- Senior 55 443 406 393 9 - 1,306 2
Insurance:
- Tier 2 and other subordinated 64 196 31 58 - - 349 -
- Senior - 221 405 542 - - 1,168 1
Consumer Services and
Goods:
- Cyclical - 84 1,135 1,772 193 - 3,184 4
- Non-cyclical 338 1,052 2,658 3,936 344 - 8,328 10
- Health Care - 605 851 690 5 - 2,151 3
Infrastructure:
- Social 208 746 4,669 916 77 - 6,616 8
- Economic 311 51 766 4,053 183 - 5,364 6
Technology and Telecoms 174 209 1,462 3,085 22 1 4,953 6
Industrials - 31 672 694 22 - 1,419 2
Utilities - 207 5,629 5,861 27 - 11,724 14
Energy - - 468 589 16 - 1,073 1
Commodities - - 365 910 8 - 1,283 2
Oil and Gas - 560 1,047 389 274 - 2,270 3
Real estate - 11 1,728 1,591 177 - 3,507 4
Structured finance ABS
/ RMBS / CMBS / Other 423 798 403 603 24 1 2,252 3
Lifetime mortgage loans(1) 3,852 1,509 524 427 - 13 6,325 8
CDOs - 55 - 13 - - 68 -
Total GBPm 7,501 18,006 28,073 27,707 1,397 15 82,699 100
Total % 9 22 34 33 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP78,226m, representing 95% of the total group portfolio.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 91
7.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating
(continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 30 June 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 2,521 11,299 738 449 26 - 15,033 19
Banks:
- Tier 1 - - - 1 - 1 2 -
- Tier 2 and other subordinated - - 69 42 5 - 116 -
- Senior - 1,335 2,192 545 1 - 4,073 5
- Covered 187 - 4 - - - 191 -
Financial Services:
- Tier 2 and other subordinated - 120 70 11 - 4 205 -
- Senior 2 447 176 267 9 - 901 1
Insurance:
- Tier 2 and other subordinated 56 139 8 63 - - 266 -
- Senior - 257 538 311 - - 1,106 1
Consumer Services and Goods: - - -
- Cyclical - 354 1,089 1,961 333 2 3,739 5
- Non-cyclical 305 883 2,803 4,006 316 1 8,314 10
- Health Care - 376 856 636 7 - 1,875 2
Infrastructure:
- Social 216 771 4,331 877 89 - 6,284 8
- Economic 332 58 920 3,626 337 - 5,273 7
Technology and Telecoms 206 204 1,612 2,844 41 - 4,907 6
Industrials - 12 847 681 27 - 1,567 2
Utilities - 221 5,540 5,733 6 - 11,500 15
Energy - - 424 859 12 - 1,295 2
Commodities - - 286 748 17 - 1,051 1
Oil and Gas - 649 1,037 539 274 - 2,499 3
Real estate - 7 1,685 1,608 101 - 3,401 4
Structured finance ABS
/ RMBS / CMBS / Other(3) 372 767 294 519 225 1 2,178 2
Lifetime mortgage loans(1) 3,427 1,384 304 350 - 13 5,478 7
CDOs - 57 11 15 - - 83 -
Total GBPm 7,624 19,340 25,834 26,691 1,826 22 81,337 100
Total % 9 24 32 33 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP76,406m, representing 94% of the total group portfolio.
3. As part of a change in accounting policy in the second half of
2020 for LGIA universal life and annuity reserves, certain financial
investments were reclassified from designated as amortised cost
to designated as fair value through profit or loss. Accordingly,
the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS
/ Other have been restated to reflect the fair value of those assets.
Further details on the impact of the 2020 change in accounting policy
are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 92
7.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating
(continued)
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 2,747 12,187 903 398 9 - 16,244 19
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - - 61 43 3 - 107 -
- Senior - 1,182 3,314 678 1 - 5,175 6
- Covered 158 - - - - - 158 -
Financial Services:
- Tier 2 and other subordinated - 120 71 10 - 3 204 -
- Senior 55 488 202 323 9 - 1,077 1
Insurance:
- Tier 2 and other subordinated 65 161 8 59 - - 293 -
- Senior - 273 492 401 - - 1,166 1
Consumer Services and
Goods:
- Cyclical - 24 1,158 1,771 288 - 3,241 4
- Non-cyclical 366 1,153 2,849 4,057 324 - 8,749 10
- Health care - 437 886 669 5 - 1,997 2
Infrastructure:
- Social 217 766 4,579 814 79 - 6,455 8
- Economic 328 61 784 4,006 290 - 5,469 7
Technology and Telecoms 193 229 1,633 3,080 31 1 5,167 6
Industrials - 16 709 759 26 - 1,510 2
Utilities - 207 6,034 5,526 27 - 11,794 14
Energy - - 429 784 19 - 1,232 1
Commodities - - 351 919 7 - 1,277 2
Oil and Gas - 773 958 467 276 - 2,474 3
Real estate - 8 1,622 1,675 93 - 3,398 4
Structured finance ABS
/ RMBS / CMBS / Other 429 772 400 578 27 1 2,207 3
Lifetime mortgage loans(1) 3,611 1,533 494 385 - 13 6,036 7
CDOs - 58 - 14 - - 72 -
Total GBPm 8,169 20,448 27,937 27,416 1,514 18 85,502 100
Total % 9 24 33 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP80,438m, representing 94% of the total group portfolio.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 93
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2021 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,937 1,900 861 912 13,610
Banks 1,807 1,828 1,241 682 5,558
Financial Services 532 344 555 66 1,497
Insurance 103 1,239 60 115 1,517
Consumer Services and Goods:
- Cyclical 446 2,088 503 147 3,184
- Non-cyclical 1,952 5,822 382 172 8,328
- Health care 285 1,785 80 1 2,151
Infrastructure:
- Social 5,826 582 160 48 6,616
- Economic 3,941 847 226 350 5,364
Technology and Telecoms 407 2,981 707 858 4,953
Industrials 186 815 351 67 1,419
Utilities 6,834 2,230 2,075 585 11,724
Energy 229 622 96 126 1,073
Commodities 6 564 183 530 1,283
Oil and Gas 213 634 792 631 2,270
Real estate 2,089 562 620 236 3,507
Structured Finance ABS / RMBS /
CMBS / Other 919 1,237 11 85 2,252
Lifetime mortgage loans 6,325 - - - 6,325
CDOs - - - 68 68
Total 42,037 26,080 8,903 5,679 82,699
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 94
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
(continued)
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2020 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 11,035 2,603 859 536 15,033
Banks 998 1,696 1,181 507 4,382
Financial Services 415 189 490 12 1,106
Insurance 111 934 203 124 1,372
Consumer Services and Goods:
- Cyclical 539 2,666 367 167 3,739
- Non-cyclical 1,715 6,037 424 138 8,314
- Health care 204 1,603 68 - 1,875
Infrastructure:
- Social 5,670 452 111 51 6,284
- Economic 3,945 830 190 308 5,273
Technology and Telecoms 593 2,677 755 882 4,907
Industrials 78 1,075 348 66 1,567
Utilities 6,597 2,332 2,055 516 11,500
Energy 228 813 112 142 1,295
Commodities 4 346 167 534 1,051
Oil and Gas 253 644 796 806 2,499
Real estate 2,196 381 618 206 3,401
Structured Finance ABS / RMBS /
CMBS / Other (1) 941 1,210 12 15 2,178
Lifetime mortgage loans 5,478 - - - 5,478
CDOs - - - 83 83
Total 41,000 26,488 8,756 5,093 81,337
1. As part of a change in accounting policy in the second half
of 2020 for LGIA universal life and annuity reserves, certain financial
investments were reclassified from designated as amortised cost
to designated as fair value through profit or loss. Accordingly,
the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS
/ Other have been restated to reflect the fair value of those assets.
Further details on the impact of the 2020 change in accounting
policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 95
7.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile (continued)
EU
excluding Rest of
UK US UK the World Total
As at 31 December 2020 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 11,797 2,425 1,176 846 16,244
Banks 1,687 1,907 1,463 383 5,440
Financial Services 391 298 525 67 1,281
Insurance 109 1,049 181 120 1,459
Consumer Services and Goods
- Cyclical 543 2,201 360 137 3,241
- Non-cyclical 1,789 6,403 389 168 8,749
- Health care 209 1,694 94 - 1,997
Infrastructure
- Social 5,809 487 112 47 6,455
- Economic 4,071 853 231 314 5,469
Technology and Telecoms 485 3,098 754 830 5,167
Industrials 191 927 330 62 1,510
Utilities 6,886 2,236 2,097 575 11,794
Energy 244 758 105 125 1,232
Commodities 3 596 165 513 1,277
Oil and Gas 232 642 832 768 2,474
Real estate 2,168 384 634 212 3,398
Structured finance ABS / RMBS / CMBS
/ Other 944 1,207 11 45 2,207
Lifetime mortgage loans 6,036 - - - 6,036
CDOs - - - 72 72
Total 43,594 27,165 9,459 5,284 85,502
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 96
7.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 30 June 2021 GBPm GBPm GBPm
AAA 3,254 4,247 7,501
AA 14,732 3,274 18,006
A 20,595 7,478 28,073
BBB 21,462 6,245 27,707
BB or below 970 427 1,397
Other 1 14 15
Total 61,014 21,685 82,699
Externally Internally
rated rated(1,2) Total
As at 30 June 2020 GBPm GBPm GBPm
AAA 3,808 3,816 7,624
AA 15,720 3,620 19,340
A 19,457 6,377 25,834
BBB 20,835 5,856 26,691
BB or below 1,114 712 1,826
Other 8 14 22
Total 60,942 20,395 81,337
Externally Internally
rated rated(1) Total
As at 31 December 2020 GBPm GBPm GBPm
AAA 4,101 4,068 8,169
AA 17,101 3,347 20,448
A 21,235 6,702 27,937
BBB 21,307 6,109 27,416
BB or below 1,049 465 1,514
Other 4 14 18
Total 64,797 20,705 85,502
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
2. As part of a change in accounting policy in the second half
of 2020 for LGIA universal life and annuity reserves, certain financial
investments were reclassified from designated as amortised cost
to designated as fair value through profit or loss. Accordingly,
the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS
/ Other have been restated to reflect the fair value of those assets.
Further details on the impact of the 2020 change in accounting
policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 97
7.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments
and Traded
Direct
investments Traded Total
As at 30 June 2021 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 991 12,619 13,610
Banks 628 4,930 5,558
Financial Services 396 1,101 1,497
Insurance 162 1,355 1,517
Consumer Services and Goods:
- Cyclical 469 2,715 3,184
- Non-cyclical 386 7,942 8,328
- Health care 339 1,812 2,151
Infrastructure:
- Social 3,507 3,109 6,616
- Economic 3,696 1,668 5,364
Technology and Telecoms 129 4,824 4,953
Industrials 58 1,361 1,419
Utilities 1,656 10,068 11,724
Energy 331 742 1,073
Commodities 57 1,226 1,283
Oil and Gas 57 2,213 2,270
Real estate 2,109 1,398 3,507
Structured Finance ABS / RMBS / CMBS
/ Other 925 1,327 2,252
Lifetime mortgage loans 6,325 - 6,325
CDOs - 68 68
Total 22,221 60,478 82,699
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 98
7.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and
Traded (continued)
Direct
investments Traded Total
As at 30 June 2020 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 846 14,187 15,033
Banks 482 3,900 4,382
Financial Services 250 856 1,106
Insurance 318 1,054 1,372
Consumer Services and Goods:
- Cyclical 230 3,509 3,739
- Non-cyclical 469 7,845 8,314
- Health care 325 1,550 1,875
Infrastructure:
- Social 3,417 2,867 6,284
- Economic 3,521 1,752 5,273
Technology and Telecoms 191 4,716 4,907
Industrials 78 1,489 1,567
Utilities 1,346 10,154 11,500
Energy 347 948 1,295
Commodities 58 993 1,051
Oil and Gas 55 2,444 2,499
Real estate 2,272 1,129 3,401
Structured Finance ABS / RMBS /
CMBS / Other (1) 929 1,249 2,178
Lifetime mortgage loans 5,478 - 5,478
CDOs - 83 83
Total 20,612 60,725 81,337
1. As part of a change in accounting policy in the second half
of 2020 for LGIA universal life and annuity liabilities, certain
financial investments were reclassified from designated as amortised
cost to designated as fair value through profit or loss. Accordingly,
the 30 June 2020 balances for Structured finance ABS / RMBS / CMBS
/ Other have been restated to reflect the fair value of those assets.
Further details on the impact of the 2020 change in accounting
policy are provided in Note 4.01.
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 99
7.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and
Traded (continued)
Direct
investments Traded Total
As at 31 December 2020 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 889 15,355 16,244
Banks 644 4,796 5,440
Financial Services 310 971 1,281
Insurance 282 1,177 1,459
Consumer Services and Goods:
- Cyclical 351 2,890 3,241
- Non-cyclical 396 8,353 8,749
- Health care 363 1,634 1,997
Infrastructure:
- Social 3,283 3,172 6,455
- Economic 3,726 1,743 5,469
Technology and Telecoms 93 5,074 5,167
Industrials 64 1,446 1,510
Utilities 1,475 10,319 11,794
Energy 355 877 1,232
Commodities 59 1,218 1,277
Oil and Gas 58 2,416 2,474
Real estate 2,301 1,097 3,398
Structured Finance ABS / RMBS /
CMBS / Other 870 1,337 2,207
Lifetime mortgage loans 6,036 - 6,036
CDOs - 72 72
Total 21,555 63,947 85,502
Legal & General Group Plc
Half Year Results 2021 Part 3
Investments Page 100
7.04 Property analysis
Property exposure within Direct investments by
status
LGR(1) LGC(2) Total
As at 30 June 2021 GBPm GBPm GBPm %
Fully let 4,035 - 4,035 79
Development 604 323 927 18
Land - 141 141 3
Total 4,639 464 5,103 100
LGR(1) LGC(2) Total
As at 30 June 2020 GBPm GBPm GBPm %
Fully let 3,663 - 3,663 86
Development 353 104 457 11
Land - 130 130 3
Total 4,016 234 4,250 100
LGR(1) LGC(2) Total
As at 31 December 2020 GBPm GBPm GBPm %
Fully let 3,974 - 3,974 85
Development 345 224 569 12
Land - 129 129 3
Total 4,319 353 4,672 100
1. The fully let LGR property includes GBP4.0bn (30 June 2020: GBP3.5bn;
31 December 2020: GBP3.8bn) let to investment grade tenants.
2. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are
accounted for as inventory within Receivables and other assets on
the group's Consolidated Balance Sheet and measured at the lower
of cost and net realisable value. At 30 June 2021 the group held
a total of GBP2,190m (30 June 2020: GBP2,261m; 31 December 2020:
GBP2,179m) of such assets.
Legal & General Group Plc
Half Year Results 2021 Part 3
Alternative Performance Measures Page 101
An alternative performance measure (APM) is a financial measure
of historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II. APMs offer investors and
stakeholders additional information on the company's performance
and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's
performance. However, APMs should be viewed as complementary to,
rather than as a substitute for, the figures determined according
to other regulations. The APMs used by the group are listed in this
section, along with their definition/explanation, their closest
IFRS measure and reference to reconciliations to those IFRS
measures.
Group adjusted operating profit
Definition
Group adjusted operating profit measures the pre-tax result
excluding the impact of investment volatility, economic assumption
changes and exceptional items. It therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except for LGC's trading businesses (which
reflects the IFRS profit before tax) and LGIA non-term business
(which excludes unrealised investment returns to align with the
liability measurement under US GAAP). Variances between actual and
smoothed investment return assumptions are reported below group
adjusted operating profit, as well as any differences between
investment return on actual assets and the long-term asset mix.
Exceptional income and expenses which arise outside the normal
course of business in the period, such as merger and acquisition
and start-up costs, are also excluded from group adjusted operating
profit.
Group adjusted operating profit was previously described as
'operating profit'. In order to maintain a consistent understanding
of the group's performance the term 'operating profit' will
continue to be used throughout the Interim Management Report, the
Annual Report and Accounts, and other external reporting, as a
substitute for group adjusted operating profit.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 2.01 Operating profit.
Return on Equity (ROE)
Definition
ROE measures the return earned by shareholders on shareholder
capital retained within the business. ROE is calculated as IFRS pro
t after tax divided by average IFRS shareholders' funds (by
reference to opening and closing shareholders' funds as provided in
the IFRS consolidated statement of changes in equity for the
period).
Closest IFRS measure
Calculated using:
- Profit attributable to equity holders
- Equity attributable to owners of the parent
Reconciliation
Calculated using annualised profit attributable to equity
holders for the period of GBP2,130m (30 June 2020: GBP580m; 31
December 2020: GBP1,607m) and average equity attributable to the
owners of the parent of GBP9,677m (30 June 2020: GBP9,140m; 31
December 2020: GBP9,270m).
Assets under Management
Definition
Funds which are managed by our fund managers on behalf of
investors. It represents the total amount of money investors have
trusted with our fund managers to invest across our investment
products.
Closest IFRS measures
- Financial investments
- Investment property
- Cash and cash equivalents
Reconciliation
Note 5.03 Reconciliation of assets under management to
Consolidated Balance Sheet financial investments, investment
property and cash and cash equivalents.
Net release from operations
Definition
Release from operations plus new business surplus/(strain). Net
release from operations was previously referred to as net cash, and
includes the release of prudent margins from the back book,
together with the premium received less the setup of prudent
reserves and associated acquisition costs for new business.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Notes 2.01 Operating profit and 2.02 Reconciliation of release
from operations to operating profit before tax .
Adjusted profit before tax attributable to equity holders
Definition
The APM measures profit before tax attributable to shareholders
incorporating actual investment returns experienced during the year
and the pre-tax results of discontinued operations.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 2.01 Operating profit.
Legal & General Group Plc
Half Year Results 2021 Part 3
Glossary Page 102
* These items represent an alternative performance measure
(APM)
Ad valorem fees
Ongoing management fees earned on assets under management,
overlay assets and advisory assets as defined below.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Advisory assets
These are assets on which Global Index Advisors (GIA) provide
advisory services. Advisory assets are bene cially owned by GIA's
clients and all investment decisions pertaining to these assets are
also made by the clients. These are different from Assets under
Management (AUM) de ned below.
Alternative performance measures (APMs)
An alternative performance measure is a financial measure of
historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II.
Annual premium
Premiums that are paid regularly over the duration of the
contract such as protection policies.
Annual premium equivalent (APE)
A standardised measure of the volume of new life insurance
business written. It is calculated as the sum of (annualised) new
recurring premiums and 10% of the new single premiums written in an
annual reporting period.
Annuity
Regular payments from an insurance company made for an agreed
period of time (usually up to the death of the recipient) in return
for either a cash lump sum or a series of premiums which the
policyholder has paid to the insurance company during their working
lifetime.
Assets under administration (AUA)
Assets administered by Legal & General which are bene cially
owned by clients and are therefore not reported on the Consolidated
Balance Sheet. Services provided in respect of assets under
administration are of an administrative nature, including
safekeeping, collecting investment income, settling purchase and
sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Back book acquisition
New business transacted with an insurance company which allows
the business to continue to utilise Solvency II transitional
measures associated with the business.
Bundled DC solution
Where investment and administration services are provided to a
scheme by the same service provider. Typically, all investment and
administration costs are passed onto the scheme members.
Bundled pension schemes
Where the fund manager bundles together the investment provider
role and third-party administrator role, together with the role of
selecting funds and providing investment education, into one
proposition.
CAGR
Compound annual growth rate.
Credit rating
A measure of the ability of an individual, organisation or
country to repay debt. The highest rating is usually AAA and the
lowest Unrated. Ratings are usually issued by a credit rating
agency (e.g. Moody's or Standard & Poor's) or a credit
bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis,
whereby the assets and liabilities of certain entities are excluded
from the group consolidation. The net contribution from those
entities to group Own Funds is included as an asset on the group's
Solvency II balance sheet. Regulatory approval has been provided to
recognise the (re)insurance subsidiaries of LGI US on this
basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a
specified monthly benefit on retirement that is predetermined by a
formula based on the employee's earnings history, tenure of service
and age, rather than depending directly on individual investment
returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement
are determined by agreed levels of contributions paid into the fund
by the member and employer. They provide benefits based upon the
money held in each individual's plan specifically on behalf of each
member. The amount in each plan at retirement will depend upon the
investment returns achieved and on the member and employer
contributions.
Derivatives
Derivatives are not a separate asset class but are contracts
usually giving a commitment or right to buy or sell assets on
specified conditions, for example on a set date in the future and
at a set price. The value of a derivative contract can vary.
Derivatives can generally be used with the aim of enhancing the
overall investment returns of a fund by taking on an increased
risk, or they can be used with the aim of reducing the amount of
risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less
volatile asset classes. Direct investments also include physical
assets, bilateral loans and private equity, but exclude hedge
funds.
Dividend cover
Dividend cover measures how many times over the net release from
operations in the year could have paid the full year dividend. For
example, if the dividend cover is 3, this means that the net
release from operations was three times the amount of dividend paid
out.
Legal & General Group Plc
Half Year Results 2021 Part 3
Glossary Page 103
Earnings per share (EPS)
EPS is a common nancial metric which can be used to measure the
pro tability and strength of a company over time. It is the total
shareholder pro t after tax divided by the number of shares
outstanding. EPS uses a weighted average number of shares
outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the
group's Solvency II Capital Requirement. Eligible Own Funds
comprise the excess of the value of assets over liabilities, as
valued on a Solvency II basis, plus high quality hybrid capital
instruments, which are freely available (fungible and transferable)
to absorb losses wherever they occur across the group. Eligible Own
Funds (shareholder view basis) excludes the contribution of the
final salary pension schemes to the group's solvency capital
requirement.
Employee engagement index
The Employee engagement index measures the extent to which
employees are committed to the goals of Legal & General and are
motivated to contribute to the overall success of the company,
whilst working with their manager to enhance their own sense of
development and well-being.
ETF
LGIM's European Exchange Traded Fund platform.
Euro Commercial paper
Short term borrowings with maturities of up to 1 year typically
issued for working capital purposes.
FVTPL
Fair value through profit or loss. A financial asset or
financial liability that is measured at fair value in the
Consolidated Balance Sheet reports gains and losses arising from
movements in fair value within the Consolidated Income Statement as
part of the profit or loss for the year.
Full year dividend
Full year dividend is the total dividend per share declared for
the year (including interim dividend but excluding, where
appropriate, any special dividend).
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and
principles, established by accounting standard setters and used
by the accounting community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due
and the general insurance premiums underwritten in the reporting
period, before any deductions for reinsurance.
Group adjusted operating profit*
Refer to the alternative performance measures section.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment fund, based in Ireland and aimed at
European investment funds looking for a simple, tax-efficient
investment vehicle.
Index tracker (passive fund)
Index tracker funds invest in most or all of the same shares,
and in a similar proportion, as the index they are tracking, for
example the FTSE 100 index. Index tracker funds aim to produce a
return in line with a particular market or sector, for example,
Europe or technology. They are also sometimes known as 'tracker
funds'.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and
organisations follow when completing financial statements.
They are designed to enable comparable reporting between
companies, and they are the standards that all publicly listed
groups in the UK are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or
position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where
appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGI new business
New business arising from new policies written on retail
protection products and new deals and incremental business on group
protection products.
LGIA
Legal & General Insurance America.
LGIM
Legal & General Investment Management
LGR
Legal & General Retirement, which includes Legal &
General Retirement Institutional (LGRI) and Legal & General
Retirement Retail (LGRR).
LGR new business
Single premiums arising from annuity sales and back book
acquisitions (including individual annuity and pension risk
transfer), the volume of lifetime mortgage lending and the notional
size of longevity insurance transactions, based on the present
value of the fixed leg cash flows discounted at the LIBOR
curve.
Legal & General Group Plc
Half Year Results 2021 Part 3
Glossary Page 104
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient
assets to meet all liabilities, both current and future. This form
of investing is most prominent in final salary pension plans, whose
liabilities can often reach into billions of pounds for the largest
of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and
over. It is a mortgage loan secured against the customer's house.
Customers do not make any monthly payments and continue to own and
live in their house until they move into long term care or on
death. A no negative equity guarantee exists such that if the house
value on repayment is insufficient to cover the outstanding loan,
any shortfall is borne by the lender.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities
in Solvency II balance sheets. This adjustment reflects the fact
that the profile of assets held is sufficiently well-matched to the
profile of the liabilities, that those assets can be held to
maturity, and that any excess return over risk-free (that is not
related to defaults) can be earned regardless of asset value
fluctuations after purchase.
Mortality rate
Rate of death, influenced by age, gender and health, used in
pricing and calculating liabilities for future policyholders of
life and annuity products, which contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
New business surplus/strain
The net impact of writing new business on the IFRS position,
including the benefit/cost of acquiring new business and the
setting up of reserves, for UK non profit annuities, workplace
savings, protection and savings, net of tax. This metric provides
an understanding of the impact of new contracts on the IFRS profit
for the year.
Open architecture
Where a company offers investment products from a range of other
companies in addition to its own products. This gives customers a
wider choice of funds to invest in and access to a larger pool of
money management professionals.
Overlay assets
Overlay assets are derivative assets that are managed alongside
the physical assets held by LGIM. These instruments include
interest rate swaps, in ation swaps, equity futures and options.
These are typically used to hedge risks associated with pension
scheme assets during the derisking stage of the pension life
cycle.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run nal
salary pension schemes to reduce their responsibilities by closing
the schemes to new members and passing the assets and obligations
to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
Platform
Online services used by intermediaries and consumers to view and
administer their investment portfolios. Platforms usually provide
facilities for buying and selling investments (including, in the UK
products such as Individual Savings Accounts (ISAs), Self-Invested
Personal Pensions (SIPPs) and life insurance) and for viewing an
individual's entire portfolio to assess asset allocation and risk
exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted
value of annual premiums expected to be received over the term of
the contracts using the same economic and operating assumptions
used for the new business value at the end of the financial period.
The discounted value of longevity insurance regular premiums and
quota share reinsurance single premiums are calculated on a net of
reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the
premiums associated with new business written in the year.
Purchased interest in long term business (PILTB)
An estimate of the future profits that will emerge over the
remaining term of life and pensions policies that have been
acquired via a business combination.
Real assets
Real assets encompass a wide variety of tangible debt and equity
investments, primarily real estate, infrastructure and energy. They
have the ability to serve as stable sources of long term income in
weak markets, while also providing capital appreciation
opportunities in strong markets.
Release from operations
The expected IFRS surplus generated in the period from the
difference between IFRS prudent assumptions and our best estimate
of future experience for in-force LGR and UK Insurance businesses,
the post-tax operating profit on other UK businesses, including the
medium term expected investment return on LGC invested assets, and
dividends remitted from LGIA.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Risk appetite
The aggregate level and types of risk a company is willing to
assume in its exposures and business activities in order to achieve
its business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the
terms of the policy do not anticipate more than one premium being
paid over its lifetime, such as in individual and bulk annuity
deals.
Solvency II
The Solvency II regulatory regime is a harmonised prudential
framework for insurance rms in the EEA. This single market approach
is based on economic principles that measure assets and liabilities
to appropriately align insurers' risk with the capital they hold to
safeguard the policyholders' interest.
Legal & General Group Plc
Half Year Results 2021 Part 3
Glossary Page 105
Solvency II capital coverage ratio
The Eligible Own Funds on a regulatory basis divided by the
group solvency capital requirement. This represents the number of
times the SCR is covered by Eligible Own Funds.
Solvency II capital coverage ratio (proforma basis)
The proforma basis Solvency II SCR coverage ratio incorporates
the impacts of a recalculation of the Transitional Measures for
Technical Provisions and the contribution of our defined benefit
pension schemes in both Own Funds and the SCR in the calculation of
the SCR coverage ratio.
Solvency II capital coverage ratio (shareholder view basis)
In order to represent a shareholder view of group solvency
position, the contribution of the defined benefit pension scheme
are excluded from both, the group's Own Funds and the group's
solvency capital requirement, by the amount of their respective
solvency capital requirements, in the calculation of the SCR
coverage ratio. This incorporates the impacts of a recalculation of
the Transitional Measures for Technical Provisions based on end of
period economic conditions. The shareholder view basis does not
reflect the regulatory capital position as at 30 June 2021. This
will be submitted to the PRA in August 2021.
Solvency II new business contribution
Reflects present value at the point of sale of expected future
Solvency II surplus emerging from new business written in the
period using the risk discount rate applicable at the end of the
reporting period.
Solvency II risk margin
An additional liability required in the Solvency II balance
sheet, to ensure the total value of technical provisions is equal
to the current amount a (re)insurer would have to pay if it were to
transfer its insurance and reinsurance obligations immediately to
another (re)insurer. The value of the risk margin represents the
cost of providing an amount of Eligible Own Funds equal to the
Solvency Capital Requirement (relating to non-market risks)
necessary to support the insurance and reinsurance obligations over
the lifetime thereof.
Solvency II surplus
The excess of Eligible Own Funds on a regulatory basis over the
SCR. This represents the amount of capital available to the company
in excess of that required to sustain it in a 1-in-200 year risk
event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses
occurring in a 1-in-200 year risk event.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different
companies' stocks and shares over time. It combines the share price
appreciation and dividends paid to show the total return to the
shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to
bring them into line with the pre-Solvency II equivalent as at 1
January 2016 when the regulatory basis switched over, to smooth the
introduction of the new regime. This will decrease linearly over
the 16 years following Solvency II implementation but may be
recalculated to allow for changes impacting the relevant business,
subject to agreement with the PRA.
Unbundled DC solution
When investment services and administration services are
supplied by separate providers. Typically the sponsoring employer
will cover administration costs and scheme members the investment
costs.
With-profits funds
Individually identifiable portfolios where policyholders have a
contractual right to receive additional benefits based on factors
such as the performance of a pool of assets held within the fund,
as a supplement to any guaranteed benefits. An insurer may either
have discretion as to the timing of the allocation of those
benefits to participating policyholders or
may have discretion as to the timing and the amount of the
additional benefits.
Yield
A measure of the income received from an investment compared to
the price paid for the investment. It is usually expressed as a
percentage.
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IR DKNBPOBKDPFK
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