TIDMLGEN
RNS Number : 9613H
Legal & General Group Plc
29 November 2022
Legal & General Group Plc
29 November 2022
Legal & General: IFRS 17 investor and analyst event
Legal & General Plc ("Legal & General" or the "Group")
will provide an update on IFRS 17 to investors and analysts,
releasing a recorded video and accompanying slides at 14:00 GMT
followed by virtual Q&A at 14:45 GMT today, Tuesday 29
November. Access to both is here: link
IFRS 17 - a global standard due to be implemented by the sector
on 1 January 2023 - is an accounting change which does not change
our strategy, solvency or dividends. The introduction of a CSM
(Contractual Service Margin) and Risk Adjustment (RA) creates a
significant store of future value (GBP13-14bn) that will result in
more predictable and growing Insurance profits from a lower
base.
No change in commitment to delivering on our 2020-2024 capital
generation and dividend ambitions
The Board's confidence in the Group achieving its 5 year
ambitions is unchanged. IFRS 17 does not change the underlying
economics of our Insurance contracts. It will not impact LGIM or
LGC. It will impact the reporting of our annuity and protection
businesses (LGRI, Retail), changing the timing of recognition of
earnings from these products but not the quantum. It does not
change our:
-- Ability to generate cash and capital: We demonstrated at the
interims that we are on track to achieve our cumulative cash and
capital ambitions, even under a zero-growth scenario. We are aiming
to generate GBP8-9bn of cumulative capital generation between
2020-2024. As at HY22, we had generated cumulative capital of
GBP4.1bn. Neither cash nor capital generation are impacted by IFRS
17, which is an accounting measure.
-- Strategy: The Group has established expertise in asset
origination (LGC) and asset management (LGIM), and in the provision
of retirement and protection solutions to corporates and
individuals (LGRI and Retail). We operate at scale and are strongly
positioned to capitalise on significant growth opportunities across
our chosen markets and geographies.
-- Ability to invest in future growth: We demonstrated at the
interims that we have capacity to write GBP8-12bn of UK PRT and
Retail Annuities in 2022 and for the UK annuity portfolio still to
be self-sustaining. We are on course to generate GBP0.5bn of
cumulative net surplus over the dividend (2020-2022). IFRS17 will
not change our ability to invest in future growth or the margins on
that business.
-- Solvency position: The Group's Solvency position is currently
estimated to be in a range of 220-225%, excluding any benefit from
proposed Solvency II reform (FY21: 187%). This provides a
significant buffer and attractive optionality to capitalise on our
growth opportunities.
-- Creditworthiness : Our credit ratings are strong (Fitch: AA-,
Moody's Aa3, S&P AA-, AM Best: A+) [1] . Rating agencies have
noted that the introduction of IFRS 17 does not change the
underlying economics of insurers and is therefore unlikely to
change creditworthiness.
-- Dividend-paying capacity or appetite: IFRS 17 does not change
the Board's view on the strength of the Group's cash and capital
generation profile. We are therefore today giving more specific
dividend guidance which underlines the Board's commitment to a
progressive dividend, the Board having carefully considered the
Group's financial position and having had regard to the general
economic outlook for the UK and the other countries in which the
Group operates. The Group set out an ambition at its 2020 capital
markets day to grow the dividend at 3-6% per annum to FY24 [2] .
Whilst dividend decisions are made annually, the Board's aim is to
continue to grow the dividend at 5% per annum to FY24. [3]
The CSM and RA are a significant store (GBP13-14bn) of
predictable future value
IFRS 17 introduces the balance sheet concepts of a contractual
service margin (CSM) and risk adjustment (RA). These represent
discounted, future value that will unwind into profits over time.
We expect the CSM to be an important driver of Insurance earnings.
Based on transition at 1 January 2022 we expect to create a CSM and
RA stock of around GBP13.5 billion - a significant store of future
value. We expect equity to reduce by around GBP5.5bn. We expect
return on equity to increase under IFRS 17 due to the reduction in
equity.
IFRS 17 also introduces a more stable and predictable profit
profile through the CSM release. For L&G, this benefit emerges
through the deferral of new business profit and demographic
assumption changes to the CSM, which will then be spread and
released into profit consistently over the lifetime of the
contract. Historically, these two components have made a meaningful
contribution to Group operating profit from divisions.
Indicatively, the removal of these two components, with an
adjustment to reflect the higher anticipated release from the
in-force book, would reduce divisional operating profit by c20-25%.
[4] We expect Insurance earnings to grow in a more stable and
predictable way from this new base.
We are confident in our ability to continue to write profitable
new annuity and protection business, and therefore to grow the CSM
and related profits over time. Indicatively, writing GBP10bn of UK
PRT per annum would result in 6-7% CAGR in related operating profit
over five years. This would be higher if we wrote more than GBP10bn
per annum. We continue to see compelling investment opportunities
across all our businesses, providing further scope to deliver
growth beyond this level.
Expectations for FY22 operating profit and capital generation
unchanged
Consistent with the guidance provided at HY22, we expect to
deliver resilient FY22 operating profit growth in line with the 8%
delivered in H1 (GBP1.16bn vs GBP1.08bn) and FY22 capital
generation of GBP1.8bn.
Notes to editors
About Legal & General
Established in 1836, Legal & General is one of the UK's
leading financial services groups and a major global investor, with
around GBP1.3 trillion in total assets under management (as at H1
2022) of which a third is international. We also provide powerful
asset origination capabilities. Together, these underpin our
leading retirement and protection solutions: we are a leading
international player in pension risk transfer, in UK and US life
insurance, and in UK workplace pensions and retirement income.
Through inclusive capitalism, we aim to build a better society by
investing in long-term assets that benefit everyone. As at 28
November 2022, Legal & General has a market capitalisation of
GBP15.3 billion.
Forward looking statements
This announcement may contain certain forward-looking statements
relating to Legal & General, its plans and its current goals
and expectations relating to future financial condition,
performance, results, strategy and objectives. Forward-looking
statements often use words such as 'may', 'could', 'will',
'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan',
'seek', 'continue' or other words of similar meaning. By their
nature, forward-looking statements involve risk and uncertainty
because they are subject to future events and circumstances which
are beyond Legal & General's control, including, among others,
UK domestic and global economic and business conditions,
market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory and
Governmental authorities, the impact of competition, the timing
impact of these events and other uncertainties of future
acquisitions or combinations within relevant industries. Please see
Legal & General's most recent Annual Report and Accounts for
further details of risks, uncertainties and other factors relevant
to the business and its securities (available at:
https://group.legalandgeneral.com/en). As a result, Legal &
General's actual future condition, performance and results may
differ materially from the plans, goals and expectations set out in
these forward-looking statements and persons reading this
announcement should not place undue reliance on forward-looking
statements. These forward-looking statements are made only as at
the date on which such statements are made and Legal & General
does not undertake to update forward-looking statements contained
in this announcement or any other forward-looking statement it may
make.
Further information
Investors:
Edward Houghton Group Strategy and Investor Relations Director
+44 (0)203 124 2091
Nim Ilankovan Investor Relations Director +44 (0)203 124
2054
Blake Carr Investor Relations Director +1 240 397 0053
Media:
Graeme Wilson Tulchan Communications +44 (0)207 353 4200
[1] Ratings shown are Legal and General Assurance Society
Limited Financial strength rating
[2] Dividends declared
[3] Absent market shocks / events outside of our control
[4] Based on average new business premiums and assumption
changes over last 3 years
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