TIDMLGEN
RNS Number : 1431V
Legal & General Group Plc
05 August 2020
Legal & General Group Plc
Half Year Report 2020 Part 3
Asset and premium flows Page 68
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 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
(30 June 2019: GBP301.9bn; 31 December 2019: GBP335.7bn) 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 (30 June 2019: GBP49.4bn;
31 December 2019: GBP67.1bn) 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 Report 2020 Part 3
Asset and premium flows Page 69
5.01 LGIM total assets under management(1) (AUM) (continued)
Active Multi Real Total
Index strategies Asset Solutions(2) assets AUM(5)
For the six month period GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
to 30 June 2019
At 1 January 2019 307.1 160.4 43.6 477.9 26.5 1,015.5
External inflows 60.8 5.7 6.5 8.8 0.8 82.6
External outflows (26.1) (4.8) (1.4) (11.0) (0.8) (44.1)
Overlay net flows - - - 22.0 - 22.0
ETF net flows (0.2) - - - - (0.2)
External net flows(3) 34.5 0.9 5.1 19.8 - 60.3
Internal net flows (0.1) (2.0) (0.3) 3.6 1.2 2.4
Total net flows 34.4 (1.1) 4.8 23.4 1.2 62.7
Cash management movements(4) - 0.5 - - - 0.5
Market and other movements(3) 43.9 12.4 6.0 (7.7) 1.2 55.8
At 30 June 2019 385.4 172.2 54.4 493.6 28.9 1,134.5
Assets attributable to:
External 1,032.7
Internal 101.8
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 GBP301.9bn
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 2019 was GBP49.4bn 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.
5. AUM have been reanalysed from those previously reported in order
to present Multi Asset separately. This has resulted in the removal
of the Global Fixed income and Active equities categories, the inclusion
of Multi Asset and Active Strategies, and a reallocation of AUM across
the revised categorisation. Total AUM, and the split between external
and internal, remains unchanged.
Legal & General Group Plc
Half Year Report 2020 Part 3
Asset and premium flows Page 70
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
2019
As at 1 January 2019 307.1 160.4 43.6 477.9 26.5 1,015.5
External inflows 96.2 14.0 11.2 25.5 1.8 148.7
External outflows (58.9) (11.2) (3.5) (26.2) (1.7) (101.5)
Overlay net flows - - - 38.8 - 38.8
ETF net flows 0.4 - - - - 0.4
External net flows(3) 37.7 2.8 7.7 38.1 0.1 86.4
Internal net flows (0.3) (0.4) (0.9) 1.9 2.5 2.8
Total net flows 37.4 2.4 6.8 40.0 2.6 89.2
Cash management movements(4) - (0.6) - - - (0.6)
Market and other movements(3) 59.1 15.0 7.6 8.7 1.7 92.1
As at 31 December 2019 403.6 177.2 58.0 526.6 30.8 1,196.2
Assets attributable to:
External 1,092.2
Internal 104.0
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 GBP335.7bn
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 2019 was GBP67.1bn 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 Report 2020 Part 3
Asset and premium flows Page 71
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
2020 2019 2019 2020 2019 2019
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
International(1) 289.5 248.6 276.7 (3.2) 44.6 14.6
UK Institutional
- Defined contribution 96.7 86.4 94.3 5.5 3.6 3.7
- Defined benefit 706.7 659.7 679.3 2.5 10.7 4.8
UK Retail
- Retail intermediary 33.3 30.0 33.1 1.2 1.7 2.5
- Personal investing(3) 5.2 5.6 5.7 - (0.1) (0.1)
ETF 3.5 2.4 3.1 0.2 (0.2) 0.6
Total external 1,134.9 1,032.7 1,092.2 6.2 60.3 26.1
------ ------
1. International asset are shown on the basis of client domicile.
Total International AUM including assets managed internationally
on behalf of UK clients amounted to GBP385bn as at 30 June 2020
(30 June 2019: GBP343bn; 31 December 2019: GBP370bn).
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 GBP1.4bn as at 30 June 2020 (30
June 2019: GBP1.9bn; 31 December 2019: GBP1.6bn) of AUM relating
to legacy Banks and Building Society customers which is driving
net outflows.
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
2020 2019 2019
GBPbn GBPbn GBPbn
--------------------------------------------------------------- ------- ------ --------
Assets under management 1,241 1,135 1,196
Derivative notionals (1) (348) (302) (336)
Third party assets (2) (399) (362) (379)
Other (3) 72 47 63
Total financial investments, investment property
and cash and cash equivalents 566 518 544
Less: assets of operations classified as held
for sale (23) (26) (24)
--------------------------------------------------------------- ------- ------ --------
Financial investments, investment property
and cash and cash equivalents 543 492 520
--------------------------------------------------------------- ------- ------ --------
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 Report 2020 Part 3
Asset and premium flows Page 72
5.04 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities Workplace Annuities
30 Jun 2020 30 Jun 2020 30 Jun 2019 30 Jun 2019 31 Dec 2019 31 Dec 2019
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
As at 1 January 40.3 75.9 30.0 63.0 30.0 63.0
Gross inflows 3.3 3.8 3.5 7.2 7.3 12.4
Gross outflows (0.9) - (0.9) - (2.0) -
Payments to pensioners - (2.1) - (2.0) - (4.1)
Net flows 2.4 1.7 2.6 5.2 5.3 8.3
Market and other
movements (1.2) 3.1 3.5 3.9 5.0 4.6
As at 30 June/31
December 41.5 80.7 36.1 72.1 40.3 75.9
1. Workplace assets under administration as at 30 June 2020 includes
GBP41.5bn (30 June 2019: GBP36.0bn; 31 December 2019: GBP40.2bn)
of assets under management included in Note 5.01.
2. Annuities assets under administration as at 30 June 2020 includes
GBP73.8bn (30 June 2019: GBP67.9bn; 31 December 2019: GBP70.1bn)
of assets under management included in Note 5.01.
Legal & General Group Plc
Half Year Report 2020 Part 3
Asset and premium flows Page 73
5.05 LGR new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
GBPm GBPm GBPm GBPm
Pension risk transfer
- UK 3,176 6,316 4,009 10,325
- US 248 223 670 893
- Bermuda - 138 36 174
Individual annuities 421 497 473 970
Lifetime mortgage advances 362 489 476 965
Total LGR new business 4,207 7,663 5,664 13,327
5.06 LGI new business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
GBPm GBPm GBPm GBPm
UK Retail protection 83 91 83 174
UK Group protection 65 44 32 76
US protection(1) 44 43 46 89
Total LGI new business 192 178 161 339
1. In local currency, US protection reflects new business of $56m
for 2020 (H1 19: $55m; H2 19: $58m).
5.07 Gross written premiums on insurance business
6 months 6 months 6 months Full year
30 Jun 30 Jun 31 Dec 31 Dec
2020 2019 2019 2019
GBPm GBPm GBPm GBPm
UK Retail protection 680 658 669 1,327
UK Group protection 245 233 112 345
US Protection(1) 550 518 539 1,057
Longevity insurance 159 190 186 376
Total gross written premiums on insurance
business(2) 1,634 1,599 1,506 3,105
1. In local currency, US protection reflects gross written premiums
of $693m for 2020 (H1 19: $670m; H2 19: $679m).
2. Total gross written premiums includes GBP58m (YE 19: GBP66m) of
general insurance premiums relating to a residual reinsurance treaty.
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 74
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 2020). The TMTP incorporates estimated impacts of end
June 2020 economic conditions and changes during 2020 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 2020, and on the above basis, the group had a surplus
of GBP7.3bn (31 December 2019: GBP7.3bn) over its Solvency Capital
Requirement, corresponding to a Solvency II capital coverage ratio
on a "shareholder view" basis of 173% (31 December 2019: 184%).
The shareholder view of the Solvency II capital position is as follows:
30 Jun 31 Dec
2020 2019
GBPbn GBPbn
Unrestricted Tier 1 Own Funds 12.3 12.4
Restricted Tier 1 Own Funds(1) 0.5 -
Tier 2 Subordinated liabilities(2) 4.7 3.9
Eligibility restrictions (0.2) (0.2)
================================================================================= ======= ======
Solvency II Own Funds (3,4) 17.3 16.1
Solvency Capital Requirement (10.0) (8.8)
Solvency II surplus 7.3 7.3
SCR Coverage ratio(5) 173% 184%
1. Restricted Tier 1 Own Funds represent perpetual restricted tier
1 contingent convertible notes issued during the period. See note
4.07 for details.
2. Tier 2 subordinated liabilities include new debt issue of GBP0.5bn
during the period.
3. Solvency II Own Funds do not include an accrual for the interim
dividend of GBP294m (31 December 2019: GBP754m) declared after the
balance sheet date.
4. Solvency II Own Funds allow for a risk margin of GBP6.7bn (31
December 2019: GBP5.9bn) and TMTP of GBP6.3bn (31 December 2019:
GBP5.7bn).
5. SCR Coverage ratio is based on unrounded inputs.
The "shareholder view" basis excludes the contribution that the
with-profits fund and 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 with-profits fund and the final salary pension schemes.
On a proforma basis, which includes the contribution of
with-profits fund and that of the final salary pension schemes in
the group's Own Funds and corresponding SCR in the group's SCR, the
coverage ratio at 30 June 2020 is 169% (31 December 2019:
179%).
On 6 December 2017 the group announced the sale of its Mature
Savings business to ReAssure Limited. ReAssure Limited assumed the
economic exposure of the business from 1 January 2018 via a risk
transfer agreement. It is expected that the formal transfer of the
business will be completed in H2 20, subject to satisfaction of
normal conditions for a transaction including court sanction. The
transfer will be effected by way of a Part VII transfer under the
Financial Services and Markets Act 2000. The impact of the risk
transfer agreement is reflected in both Own Funds and SCR.
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 75
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 2019 Annual Reports 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 EIOPA, which means that the risk free rates used to
discount liabilities are market swap rates net of credit risk
adjustment of 14 basis points (31 December 2019: 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 2020 the Matching Adjustment for UK GBP denominated
liabilities was 158 basis points (31 December 2019: 110 basis
points) after deducting an allowance for the EIOPA fundamental
spread equivalent to 58 basis points (31 December 2019: 53 basis
points).
(c) Analysis of change
The table below shows the movement (net of tax) during the six month
period ended 30 June 2020 in the group's Solvency II surplus.
6 months Full year
30 Jun 31 Dec
2020 2019
GBPbn GBPbn
Surplus arising from back-book (including release
of SCR) 0.7 1.5
Release of risk margin(1) 0.3 0.4
Amortisation of TMTP(2) (0.2) (0.3)
--------------------------------------------------------- -------- ---------
Total operational surplus generation (3) 0.8 1.6
--------------------------------------------------------- -------- ---------
Operational surplus generation - continuing operations 0.8 1.5
Operational surplus generation - discontinued operations - 0.1
--------------------------------------------------------- -------- ---------
Total operational surplus generation (3) 0.8 1.6
--------------------------------------------------------- -------- ---------
New business strain - continuing operations (0.1) (0.5)
New business strain - discontinued operations - (0.1)
--------------------------------------------------------- -------- ---------
New business strain (0.1) (0.6)
--------------------------------------------------------- -------- ---------
Net surplus generation 0.7 1.0
Operating variances(4) 0.1 0.3
Mergers, acquisitions and disposals(5) (0.1) 0.1
Market movements(6) (0.9) (0.2)
Restricted Tier 1 convertible notes(7) 0.5 -
Subordinated liabilities(8) 0.5 0.2
Dividends paid(9) (0.8) (1.0)
Total surplus movement (after dividends paid in the
period) - 0.4
--------------------------------------------------------- -------- ---------
1. Based on the risk margin in force at 31 December 2019 and does
not include the release of any risk margin added by new business
written in 2020.
2. TMTP amortisation based on a linear run down of the 31 December
2019 TMTP of GBP4.9bn (net of tax, GBP5.7bn before tax) (2019: GBP4.4bn
net of tax, GBP5.2bn before tax), based on management's estimate
of the TMTP on 31 December 2019 market conditions.
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 2020 these are primarily
related to the optimisation of structures used to make assets Matching
Adjustment eligible and the planned reinsurance of backbook 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. Mergers, acquisitions and disposals include the impacts of the
sale of the Mature Savings business, expected to complete in H2
20.
6. Market movements represent the impact of changes in investment
market conditions over the period and changes to future economic
assumptions. Market movements in 2020 include an increase in the
risk margin of GBP1.0bn (net of tax) and an increase to TMTP of
GBP1.0bn (net of tax).
7. Restricted Tier 1 convertible notes represent an issuance of
GBP0.5bn in the period (2019: nil).
8. Subordinated liabilities includes an issuance of GBP0.5bn in
the period (2019: redemption of GBP0.4bn and an issuance of GBP0.6bn).
9. Dividends paid are the amounts from the 2019 final dividend paid
in H1 20 (2019: 2018 final and 2019 interim dividend declarations).
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 76
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
2020 2019
GBPbn GBPbn
IFRS Release from Operations 0.7 1.3
Expected release of IFRS prudential margins (0.2) (0.5)
Releases of IFRS specific reserves(1) (0.1) (0.1)
Solvency II investment margin(2,3) 0.1 0.2
Release of Solvency II Capital Requirement and Risk
Margin less TMTP amortisation 0.3 0.7
Solvency II Operational Surplus Generation (4) 0.8 1.6
------------------------------------------------------------ --------- ---------
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 EIOPA-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 H1 20.
4. Solvency II Operational Surplus Generation includes management
actions which at the start of 2020 were expected to take place within
the group plan.
(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
2020 2019
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 0.2
Set up of SCR on new business (0.3) (0.9)
Set up of risk margin on new business (0.1) (0.2)
Solvency II New business strain (1) (0.1) (0.6)
1. UK PRT new business volumes during H1 20 were GBP3.2bn, compared
to GBP10.3bn over 2019.
(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
2020 2019
GBPbn GBPbn
---------------------------------------------------------------- ------ ------
IFRS equity(1) 9.4 9.4
Remove DAC, goodwill and other intangible assets and
associated liabilities (0.5) (0.5)
Add IFRS carrying value of subordinated borrowings(2) 4.1 3.5
Insurance contract valuation differences(3) 6.0 5.2
Difference in value of net deferred tax liabilities (0.7) (0.5)
SCR for with-profits fund and final salary pension schemes (0.8) (0.8)
Eligibility restrictions(4) (0.2) (0.2)
Solvency II Own Funds(5) 17.3 16.1
------------------------------------------------------------------ ------ ------
1. IFRS equity represents IFRS equity attributable to owners of
the parent and restricted tier 1 convertible notes as per the Consolidated
Balance Sheet.
2. Treated as available capital on the Solvency II balance sheet
as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between
IFRS and Solvency II.
4. Relating 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 GBP294m (31 December 2019: GBP754m) declared after the
balance sheet date.
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 77
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 2020 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(1) ratio(1) surplus(1) ratio(1)
2020 2020 2019 2019
GBPbn % GBPbn %
Credit spreads widen by 100bps assuming
an escalating addition to ratings(2,3) 0.3 7 0.3 8
Credit spreads narrow by 100bps assuming
an escalating addition to ratings(2,3) (0.3) (8) (0.4) (9)
Credit spreads widen by 100bps assuming
a level addition to ratings(2) 0.4 10 0.5 11
Credit spreads of sub investment grade assets
widen by 100bps assuming a level addition
to ratings(2,4) (0.3) (5) (0.3) (6)
Credit migration(5) (1.5) (15) (0.8) (9)
25% fall in equity markets(6) (0.5) (4) (0.5) (5)
15% fall in property markets(7) (0.7) (6) (0.7) (6)
100bps increase in risk free rates(8) 0.7 15 1.0 22
50bps decrease in risk free rates(8,9) (0.4) (8) (0.6) (11)
1. Both the 2020 and 2019 sensitivities exclude the impact from
the Mature Savings business (including the With-Profits fund) as
the risks have been transferred to ReAssure Limited from 1 January
2018.
2. 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 to property.
3. 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.
4. 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 1bp as the group holds only 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. We estimate the widening
between BBB and BB bonds over H1 20 to be c.115bps.
5. 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, 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.
6. 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.
7. Assets stressed include residual values from sale and leaseback,
the full amount of lifetime mortgages and direct investments treated
as property.
8. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
9. In the interest rate down stress negative rates are allowed,
i.e. there is no floor at zero rates.
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 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 Report 2020 Part 3
Capital Page 78
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 business(2) Margin(3) PVNBP business(2) Margin(3)
6 months 6 months 6 months Full year Full Full year
year
2020 2020 2020 2019 2019 2019
GBPm GBPm % GBPm GBPm %
LGR - UK annuity business 3,597 382 10.6 11,295 890 7.9
UK Protection Total 919 86 9.4 1,604 122 7.6
- Retail Protection 636 61 9.6 1,284 98 7.6
- Group Protection 283 25 8.8 320 24 7.5
US Protection(4) 452 52 11.5 850 94 11.1
1. Selected lines of business only.
2. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $570m (31
December 2019: $1,085m) and a contribution from new business of
$66m (31 December 2019: $120m).
The increase in LGR margin was driven by the longer 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 new business the increase in profitability was
driven by a shift in the product mix combined with continued price
optimisation. The margin was further increased by the fall in interest
rates during H1 20, which led to lower discount rates and in turn
higher profitability.
The US Protection margin improved compared to the prior year. The
increase is driven by changes to local statutory regulatory reserving
standards in 2020, which reduce excess reserve levels and subsequently
reduce financing costs.
(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 2019 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 2020 and looks through the intra-group
arrangements.
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 79
6.02 Estimated Solvency II new business contribution
(continued)
(c) Assumptions
The key economic assumptions are as follows:
30 Jun 31 Dec
2020 2019
% %
Margin for Risk 4.6 3.5
Risk free rate
- UK 0.4 1.1
- US 0.7 1.9
Risk discount rate (net of tax)
- UK 5.0 4.6
- US 5.3 5.4
Long-term rate of return on non profit annuities in
LGR 2.4 2.8
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 EIOPA-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 2020 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.
Tax
The projections take into account all tax which is expected to
be paid, based on best estimate assumptions, applying current
legislation and practice together with substantively enacted future
changes.
The profits on the new business are calculated on an after tax
basis and are grossed up by the notional attributed tax rate. For
the UK, the after tax basis assumes the annualised current rate of
19%. The tax rate used for grossing up is the long term corporate
tax rate in the territory concerned, which for the UK is 19%.
US covered business profits are grossed up using the long term
corporate tax rate of 21%.
Legal & General Group Plc
Half Year Report 2020 Part 3
Capital Page 80
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
2020 2019
Notes GBPbn GBPbn
6.02
PVNBP (a) 5.0 13.7
Effect of capitalisation factor (1.2) (1.9)
New business premiums from selected lines 3.8 11.8
Other(1) 0.6 1.9
Total LGR and LGI new business 5.05,5.06 4.4 13.7
Annualisation impact of regular premium long-term
business (0.1) (0.2)
IFRS gross written premiums from existing
long-term insurance business 1.6 2.9
Deposit accounting for investment products (0.4) (1.2)
Total gross written premiums(2) 3.01 5.5 15.2
1. Other principally includes annuity sales in the US and lifetime
mortgage advances.
2. Total gross written premiums exclude gross written premiums
from discontinued operations.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 81
7.01 Investment portfolio
Market Market Market
value value value
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
Worldwide total assets under management(1) 1,247,942 1,141,593 1,202,425
Client and policyholder assets (1,119,803) (1,036,229) (1,092,626)
Non-unit linked with-profits assets (9,854) (10,372) (10,190)
Investments to which shareholders are directly
exposed 118,285 94,992 99,609
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
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
2020 2020 2020 2020 2020 2019 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities (2) 206 22 2,772 86 3,086 3,142 3,131
Bonds 7.03 76,406 2,103 2,161 327 80,997 71,258 75,142
Derivative assets
(3) 22,095 - 293 - 22,388 11,633 11,556
Property 7.04 4,016 - 157 - 4,173 3,275 3,957
Cash, cash equivalents
and loans (4) 2,858 577 2,064 538 6,037 4,317 4,275
Financial investments 105,581 2,702 7,447 951 116,681 93,625 98,061
Other assets (5) 89 - 1,515 - 1,604 1,367 1,548
Total investments 105,670 2,702 8,962 951 118,285 94,992 99,609
2. Equity investments include a total of GBP328m (30 June 2019: GBP362m;
31 December 2019: GBP324m) in respect of associates and joint ventures.
3. Derivative assets are shown gross of derivative liabilities of
GBP24.9bn (30 June 2019: GBP6.9bn; 31 December 2019: GBP11.5bn).
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 asset and
liability management.
4. Loans include reverse repurchase agreements of GBP1,868m (30 June
2019: GBP960m; 31 December 2019: GBP1,262m).
5. Other assets include finance leases of GBP89m (2019: GBP90m) and
the consolidated net asset value of the group's investments in CALA
Homes and other housing businesses.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 82
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
2020 2020 2020 2019 2019 2019 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities 1,355 1,731 3,086 1,300 1,842 3,142 1,282 1,849 3,131
Bonds (3) 20,272 60,725 80,997 15,824 55,434 71,258 18,553 56,589 75,142
Derivative assets - 22,388 22,388 - 11,633 11,633 - 11,556 11,556
Property (4) 4,173 - 4,173 3,275 - 3,275 3,957 - 3,957
Loans and other
receivables 467 5,570 6,037 410 3,907 4,317 408 3,867 4,275
Financial
investments 26,267 90,414 116,681 20,809 72,816 93,625 24,200 73,861 98,061
Other assets 1,604 - 1,604 1,367 - 1,367 1,548 - 1,548
Total investments 27,871 90,414 118,285 22,176 72,816 94,992 25,748 73,861 99,609
------------------ ----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------
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 exclude 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 mortgages of GBP5,478m (30 June 2019: GBP3,990m;
31 December 2019: GBP4,733m).
4. A further breakdown of property is provided in Note 7.04.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 83
7.02 Direct investments (continued)
(b) Analysed by segment
LGR LGC (1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
-
--------------------------------------- --- --------- ---------- -------- ------
Equities 16 1,261 78 1,355
Bonds(2) 19,444 3 825 20,272
Property 4,016 157 - 4,173
Loans and other receivables - 145 322 467
---------------------------------------------- --------- ---------- -------- ------
Financial investments 23,476 1,566 1,225 26,267
----------------------------------------------- --------- ---------- -------- ------
Other assets 89 1,515 - 1,604
---------------------------------------------- --------- ---------- -------- ------
Total direct investments 23,565 3,081 1,225 27,871
----------------------------------------------- --------- ---------- -------- ------
1. LGC includes GBP48m of equities that belong to other shareholder
funds.
2. Bonds include lifetime mortgages of GBP5,478m.
LGR LGC(1) LGI Total
30 Jun 30 Jun 30 Jun 30 Jun
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
Equities 6 1,233 61 1,300
Bonds (2) 15,148 3 673 15,824
Property 3,131 144 - 3,275
Loans and other receivables - 64 346 410
---------------------------------------- -------- -------- -------- --------
Financial investments 18,285 1,444 1,080 20,809
------------------------------------------ -------- -------- -------- --------
Other assets 90 1,277 - 1,367
------------------------------------------ -------- -------- -------- --------
Total direct investments 18,375 2,721 1,080 22,176
------------------------------------------ -------- -------- -------- --------
1. LGC includes GBP58m of equities and GBP23m of property that belong
to other shareholder funds.
2. Bonds include lifetime mortgages of GBP3,990m.
LGR LGC(1) LGI Total
31 Dec 31 Dec 31 Dec 31 Dec
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
Equities 9 1,211 62 1,282
Bonds(2) 17,711 4 838 18,553
Property 3,798 159 - 3,957
Loans and other receivables - 93 315 408
----------------------------------------- --------- ------- ------- -------
Financial investments 21,518 1,467 1,215 24,200
------------------------------------------ --------- ------- ------- -------
Other assets 90 1,458 - 1,548
Total direct investments 21,608 2,925 1,215 25,748
------------------------------------------ --------- ------- ------- -------
1. LGC included GBP48m of equities that belong to other shareholder
funds.
2. Bonds include lifetime mortgages of GBP4,733m.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 84
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 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 372 662 220 391 192 1 1,838 2
Lifetime mortgage loans
(1) 3,427 1,384 304 350 - 13 5,478 7
CDOs - 57 11 15 - - 83 -
Total GBPm 7,624 19,235 25,760 26,563 1,793 22 80,997 100
Total % 9 24 32 33 2 - 100
1. The credit ratings attributed to lifetime mortgages 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.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 85
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 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,585 9,472 297 456 59 - 11,869 17
Banks:
- Tier 1 - - - 2 - - 2 -
- Tier 2 and other subordinated - 47 84 27 2 - 160 -
- Senior 23 1,693 2,830 81 - - 4,627 6
- Covered 132 - - - - - 132 -
Financial Services:
- Tier 2 and other subordinated - 93 91 10 - 4 198 -
- Senior 2 469 73 303 8 - 855 1
Insurance:
- Tier 2 and other subordinated 28 125 3 53 - - 209 -
- Senior - 233 551 205 - - 989 1
Consumer Services and Goods:
- Cyclical - 632 951 1,903 142 2 3,630 5
- Non-cyclical 240 1,100 2,060 3,698 209 1 7,308 10
- Health Care - 138 465 472 7 - 1,082 2
Infrastructure:
- Social 110 790 3,719 847 40 - 5,506 8
- Economic 336 27 1,683 2,781 55 - 4,882 7
Technology and Telecoms 116 168 1,133 2,819 52 - 4,288 6
Industrials - 12 750 679 26 - 1,467 2
Utilities - 181 5,863 4,513 4 35 10,596 15
Energy - - 300 874 14 - 1,188 2
Commodities - - 261 584 15 - 860 1
Oil and Gas - 419 917 698 113 1 2,148 3
Real estate - 6 1,692 1,542 131 - 3,371 5
Structured finance ABS
/ RMBS / CMBS / Other 446 766 251 336 21 1 1,821 3
Lifetime mortgage loans(1) 2,403 886 326 276 - 99 3,990 6
CDOs - - 66 14 - - 80 -
Total GBPm 5,421 17,257 24,366 23,173 898 143 71,258 100
Total % 8 24 34 33 1 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP66,907m, representing 94% of the total group portfolio.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 86
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 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 2,188 9,543 535 390 27 - 12,683 17
Banks:
- Tier 1 - - - 1 - 1 2 -
- Tier 2 and other subordinated - - 73 24 3 - 100 -
- Senior 6 1,893 2,794 758 1 - 5,452 7
- Covered 165 - 2 - - - 167 -
Financial Services:
- Tier 2 and other subordinated - 196 91 10 - 4 301 -
- Senior 4 381 231 322 9 - 947 1
Insurance:
- Tier 2 and other subordinated 49 131 6 56 - - 242 -
- Senior - 232 549 207 - - 988 1
Consumer Services and
Goods:
- Cyclical - 425 963 1,985 134 2 3,509 5
- Non-cyclical 260 868 2,185 3,827 217 1 7,358 10
- Health care - 309 728 425 7 - 1,469 2
Infrastructure:
- Social 121 772 4,044 781 80 - 5,798 8
- Economic 338 27 1,436 3,148 102 - 5,051 7
Technology and Telecoms 202 173 1,196 2,805 42 - 4,418 6
Industrials - 11 817 588 27 - 1,443 2
Utilities - 190 5,885 4,669 2 32 10,778 15
Energy - - 340 814 12 - 1,166 2
Commodities - - 244 654 14 - 912 1
Oil and Gas - 593 799 702 108 1 2,203 3
Real estate 3 8 1,787 1,629 125 - 3,552 5
Structured finance ABS
/ RMBS / CMBS / Other 406 735 247 367 32 1 1,788 2
Lifetime mortgage loans(1) 2,798 1,253 362 309 - 11 4,733 6
CDOs - - 68 14 - - 82 -
Total GBPm 6,540 17,740 25,382 24,485 942 53 75,142 100
Total % 9 23 34 33 1 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP70,061m, representing 93% of the total group portfolio.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 87
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 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 941 870 12 15 1,838
Lifetime mortgages 5,478 - - - 5,478
CDOs - - - 83 83
Total 41,000 26,148 8,756 5,093 80,997
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 88
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 2019 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,279 1,500 704 386 11,869
Banks 1,468 1,209 1,450 794 4,921
Financial Services 354 91 597 11 1,053
Insurance 137 769 206 86 1,198
Consumer Services and Goods:
- Cyclical 624 2,232 615 159 3,630
- Non-cyclical 1,619 5,158 491 40 7,308
- Health care 18 1,018 46 - 1,082
Infrastructure:
- Social 5,106 358 - 42 5,506
- Economic 3,905 563 95 319 4,882
Technology and Telecoms 717 2,217 653 701 4,288
Industrials 96 932 372 67 1,467
Utilities 5,928 1,869 2,300 499 10,596
Energy 266 780 4 138 1,188
Commodities 14 335 66 445 860
Oil and Gas 294 659 438 757 2,148
Real estate 2,080 401 525 365 3,371
Structured Finance ABS / RMBS /
CMBS / Other 1,019 754 22 26 1,821
Lifetime mortgages 3,990 - - - 3,990
CDOs - - - 80 80
Total 36,914 20,845 8,584 4,915 71,258
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 89
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 2019 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,764 1,995 645 279 12,683
Banks 2,002 1,328 1,669 722 5,721
Financial Services 501 95 639 13 1,248
Insurance 103 858 186 83 1,230
Consumer Services and Goods
- Cyclical 637 2,325 341 206 3,509
- Non-cyclical 1,716 5,123 479 40 7,358
- Health care 182 1,233 54 - 1,469
Infrastructure
- Social 5,357 290 106 45 5,798
- Economic 3,823 705 174 349 5,051
Technology and Telecoms 685 2,321 673 739 4,418
Industrials 76 1,036 273 58 1,443
Utilities 6,259 1,927 2,108 484 10,778
Energy 265 768 11 122 1,166
Commodities 5 305 137 465 912
Oil and Gas 288 665 583 667 2,203
Real estate 2,290 377 489 396 3,552
Structured finance ABS / RMBS / CMBS
/ Other 979 766 21 22 1,788
Lifetime mortgage loans 4,733 - - - 4,733
CDOs - - - 82 82
Total 39,665 22,117 8,588 4,772 75,142
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 90
7.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 30 June 2020 GBPm GBPm GBPm
AAA 3,808 3,816 7,624
AA 15,720 3,515 19,235
A 19,457 6,303 25,760
BBB 20,835 5,728 26,563
BB or below 1,114 679 1,793
Other 8 14 22
Total 60,942 20,055 80,997
Externally Internally
rated rated(1) Total
As at 30 June 2019 GBPm GBPm GBPm
AAA 2,647 2,774 5,421
AA 14,631 2,626 17,257
A 19,173 5,193 24,366
BBB 18,199 4,974 23,173
BB or below 658 240 898
Other 10 133 143
Total 55,318 15,940 71,258
Externally Internally
rated rated(1) Total
As at 31 December 2019 GBPm GBPm GBPm
AAA 3,364 3,176 6,540
AA 14,568 3,172 17,740
A 19,320 6,062 25,382
BBB 18,990 5,495 24,485
BB or below 655 287 942
Other 12 41 53
Total 56,909 18,233 75,142
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 91
7.04 Property analysis
Property exposure within Direct investments by
status
LGR(1) LGC(2) Total
As at 30 June 2020 GBPm GBPm GBPm %
Fully let 3,663 - 3,663 88
Development 353 25 378 9
Land - 132 132 3
4,016 157 4,173 100
LGR(1) LGC(2) Total
As at 30 June 2019 GBPm GBPm GBPm %
Fully let 2,715 - 2,715 83
Development (3) 416 23 439 13
Land - 121 121 4
3,131 144 3,275 100
LGR(1) LGC(2) Total
As at 31 December 2019 GBPm GBPm GBPm %
Fully let 3,414 - 3,414 87
Development 384 23 407 10
Land - 136 136 3
3,798 159 3,957 100
1. The fully let LGR property includes GBP3.5bn (30 June 2019: GBP3.0bn;
31 December 2019: GBP3.2bn) 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 2020 the group held
a total of GBP2,261m (30 June 2019: GBP1,910m; 31 December 2019:
GBP2,120m) of such assets.
3. The 30 June 2019 balance for LGR has been represented, by reallocating
GBP416m from Fully let to Development, to more appropriately reflect
the status of that property exposure.
Legal & General Group Plc
Half Year Report 2020 Part 3
Investments Page 92
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Legal & General Group Plc
Half Year Report 2020 Part 3
Alternative Performance Measures Page 93
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 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
provide a better understanding of its underlying performance. The
APMs used by the group are listed in this section, along with their
definition/ explanation, their closest IFRS measure and reference
to the reconciliations to those IFRS measures.
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 annual report and accounts 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 GBP580m (30 June 2019: GBP1,748m; 31
December 2019: GBP1,834m) and average equity attributable to the
owners of the parent of GBP9,140m (30 June 2019: GBP8,671m; 31
December 2019: GBP8,974m)
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 Report 2020 Part 3
Glossary Page 94
* 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 Report 2020 Part 3
Glossary Page 95
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 to the
group's solvency capital requirement of with-profits funds and
final salary pension schemes.
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 European Union (EU) 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 Report 2020 Part 3
Glossary Page 96
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.
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 release of IFRS surplus from in-force business for
the UK non-profit Insurance and Savings and LGR businesses, the
shareholder's share of bonuses on with-profits business, the
post-tax operating profit on other UK businesses, including the
medium term expected investment return on LGC invested assets, and
dividends remitted from LGA. Release from operations was previously
referred to as operational cash generation.
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 Report 2020 Part 3
Glossary Page 97
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 with-profits funds and
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 with-profits funds and our defined
benefit pension schemes 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 2020. This will be submitted to the PRA in
August 2020.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KKQBNKBKBCFK
(END) Dow Jones Newswires
August 05, 2020 02:00 ET (06:00 GMT)
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