TIDMLGEN
RNS Number : 6102F
Legal & General Group Plc
19 May 2017
Legal & General Group plc
19 May 2017
LEGAL & GENERAL UPDATES ON ITS SOLVENCY II POSITION: SURPLUS
INCREASED TO GBP7.0BN, COVERAGE RATIO INCREASED TO 188%
ADDITIONALLY LEGAL & GENERAL PUBLISHES ITS 2016 SOLVENCY AND
FINANCIAL CONDITION REPORTS
-- GBP7.0bn current estimated Solvency II surplus with a 188%
coverage ratio, on shareholder basis with a recalculated dynamic
Transitional Measures for Technical Provisions ("TMTP"); the basis
on which the business is managed
-- First annual Solvency and Financial Condition Reports
("SFCR") for the year ended 2016 have been published today
We have a strong regulatory capital balance sheet and based on
current market conditions, the Group's Solvency II surplus is
estimated to be c.GBP7.0bn with Eligible Own Funds of c.GBP14.9bn
and a Solvency Capital Requirement ("SCR") of c.GBP7.9bn and hence
a shareholder basis coverage ratio of 188%(2) .
At our full year results we disclosed our year-end 2016 Solvency
II surplus of GBP5.7bn and coverage ratio of 171% on a shareholder
basis. This was following a year of record new business for Legal
& General including GBP7.0bn of new annuity sales. The Group's
diversified business model delivered total Solvency II new business
strain of GBP96m for the year.
Changes since the year-end position include:
Solvency II coverage Change/impact
ratio
----------------------------------------------- --------------------- --------------
Year-end 2016, shareholder basis 171%
----------------------------------------------- --------------------- --------------
Solvency II net surplus generated in year
to date 8.2%
----------------------------------------------- --------------------- --------------
Sale of Cofunds and Dutch business(3) 2.5%
----------------------------------------------- --------------------- --------------
Debt: $1,350m Tier 2 debt raised (GBP1,100m),
GBP600m Tier 1 debt called 6.3%
----------------------------------------------- --------------------- --------------
Current estimated position(1) , shareholder
basis 188%
----------------------------------------------- --------------------- --------------
Recommended final 2016 dividend (GBP616m)
not yet approved or paid (Ref 1) (7.7)%
----------------------------------------------- --------------------- --------------
Current estimated position(1) , shareholder
basis excluding dividend 180%
----------------------------------------------- --------------------- --------------
Our strong and high quality capital position is reflected in
Standard & Poor's AA- credit rating. GBP11bn (81%) of the
year-end's Eligible Own Funds is Tier 1 capital; GBP12bn (78%)
following the debt changes mentioned above.
Solvency and Financial Condition Reports
The first annual regulatory filings, the SFCRs, which are
published today on the Group's website(4) are the new, Solvency II
compliant, regulatory returns required by the Prudential Regulation
Authority ("PRA"). The contents are prescribed by the Solvency II
Directive and include data analysing the Solvency II balance sheet
position at 31 December 2016.
In the Group SFCR, we disclose our regulatory Solvency II
surplus as GBP5.4bn with a coverage ratio of 163% for the year
ended 31 December 2016 (Ref 2) .
Solvency II requires all insurance companies to hold a Risk
Margin above their best estimate liabilities. This Risk Margin is
designed to allow a theoretical institution to take on the risks of
the company after a 1-in-200 year event occurs. The TMTP smooths
the transition from Solvency I to the new Solvency II regime and
predominantly offsets the risk margin. The TMTP is amortised over
16 years from 1 January 2016. The Risk Margin(5) applied to the
Group in the SFCR (including new business written since the start
of 2016) is GBP6,434m (Ref 3) with the offsetting TMTP impact on
technical provisions at GBP6,687m (Ref 3) . There is no TMTP
attached to business written after 1 January 2016. The SFCR
requires us to show an analysis of Own Funds with and without the
TMTP (Ref 4) . The PRA has made it clear that the GBP6.7bn TMTP is
fully eligible Tier 1 capital and has no impact on paying
dividends.
Legal & General has approval to use a matching adjustment
("MA") to calculate the best estimate liabilities ("BEL") for
certain illiquid liabilities. The MA is the approved method of
discounting annuity liabilities, reducing those BELs. The SFCR
requires the disclosure of Own Funds with and without the MA,
despite the loss of approval being a remote risk (Ref 5) . Our
extensive control framework ensures our on-going MA compliance and
we have regular dialogue with the PRA about our MA strategy.
The differences between the SFCR disclosure and the full year
2016 disclosure in March of GBP5.7bn Solvency II surplus and
coverage ratio of 171% include:
Solvency II coverage Change/impact
ratio
------------------------------------ --------------------- --------------
Year end 2016 shareholder basis 171%
------------------------------------ --------------------- --------------
Effect of With-profits and Pension
fund adjustments (6)%
------------------------------------ --------------------- --------------
TMTP recalculation (5)%
------------------------------------ --------------------- --------------
6 months amortisation of TMTP
to 1 Jan 2017 2%
------------------------------------ --------------------- --------------
Other 1%
------------------------------------ --------------------- --------------
Year end 2016 SFCR regulatory
basis 163%
------------------------------------ --------------------- --------------
- The shareholder basis excludes the Own Funds and SCR
attributable to our With-profits fund of GBP0.5bn and the final
salary pension scheme of GBP0.2bn. These had a combined impact on
the Solvency II coverage ratio of c.6% increase.
- The TMTP included in the SFCR was recalculated at 30 June 2016
following the significant movement in interest rates seen over the
first half of 2016. The TMTP used in the March disclosures was
updated to 31 December 2016 as we believe this provides the most up
to date and meaningful view of our Solvency II position.
o This 'dynamic' TMTP included a further six months amortisation
reducing the coverage ratio by c.2% (Ref 6) .
o Additionally the 'dynamic' TMTP included changes in market
conditions, management actions and assumption changes in the second
half of the year after the June recalculation. In total this
increased the benefit of the TMTP by GBP0.5bn and the coverage
ratio by c.5%.
As well as the Group SFCR, Legal & General has also
published SFCRs for its regulated entities: Legal and General
Assurance Society ("LGAS"), Legal and General Assurance (Pensions
Management) Ltd ("PMC") and Legal & General Insurance Ltd
("GI") on its website(6) . We manage capital on a Group basis
allowing for fungibility of capital and the strong diversification
benefits we enjoy, however all of the subsidiaries on a standalone
basis demonstrate strong regulatory capital positions. For year-end
2016, LGAS had a Solvency II surplus of GBP4.4bn with a coverage
ratio of 162% on a shareholder basis (Ref 7) and 154% on an SFCR
regulatory basis (Ref 7) . PMC had a coverage ratio of 246% on both
a shareholder and an SFCR regulatory basis (Ref 8) and GI had a
coverage ratio of 156% on both a shareholder and an SFCR regulatory
basis (Ref 9) .
1 Estimated position at 15 May 2017
(2) In line with our practice, this assumes that Transitional
Measures for Technical Provisions are recalculated to current
market conditions, as we believe this provides the most up to date
and meaningful view of our Solvency II position. The shareholder
basis adjusts for the Own Funds and SCR attributable to our
With-profits fund and the final salary pension scheme
(3) The Cofunds disposal completed on 1 January 2017 and Legal
& General Netherlands completed on 6 April 2017
(4) Legal & General's Group website:
www.legalandgeneralgroup.com/investors/library.html
(5) The calculation of the risk margin involves assessing the
long-dated liabilities such as annuities using the current interest
rate. This has meant it is currently too sensitive to the level of
risk-free rates. We welcome the PRA and EIOPA's commitment to
reviewing the calculation in the future
(6) Legal & General's Group website:
www.legalandgeneralgroup.com/investors/library.html. Legal &
General Nederland Levensverzekering Maatscappij NV's SFCR is
separately disclosed as it is no longer owned by Legal &
General
S
For further information, please contact:
Investors:
Laura Doyle Head of Investor Relations 020 3124 2088
Sujee Rajah Investor Relations Manager 020 3124 2047
Media:
Ed Livingstone-Learmouth Tulchan 020 7353 4200
Notes to editors:
Solvency and Financial Condition Report references:
PowerPoint slides illustrating the above points are available on
our website: www.legalandgeneralgroup.com.
(Ref 1) Disclosed on page 91, schedule E6 of the Group SFCR
(Ref 2) Disclosed on page 5, schedule A of the Group SFCR
(Ref 3) Disclosed on page 74, schedule D2 of the Group SFCR
(Ref 4) Disclosed on page 72, schedule D2.1.4 of the Group
SFCR
(Ref 5) Disclosed on page 72, schedule D2.1.6 of the Group
SFCR
(Ref 6) Disclosed on page 80, schedule D5 of the Group SFCR
(Ref 7) Disclosed on page 4 of the LGAS SFCR
(Ref 8) Disclosed on page 4 of the PMC SFCR
(Ref 9) Disclosed on page 5 of the GI SFCR
Legal & General Group Plc:
1. Established in 1836, Legal & General is a leading
provider of insurance, savings and investment management products
in the UK. The Group has a market capitalisation of GBP14.9bn (as
at 18 May 2017) and is responsible for investing GBP894bn worldwide
(as at 31 December 2016) on behalf of investors, policyholders and
shareholders.
2. Legal & General has over seven million customers in the
UK for life assurance, pensions, investments and general insurance
plans and over one million customers in the US who rely on us for
life assurance.
3. For full year 2016, Legal & General's adjusted operating
profit (IFRS basis) was GBP1,628m and adjusted earnings per share
were 22.20p for the period, an increase of 11% and 19%
respectively. Net release from operations (net cash) was up 12% to
GBP1,411. Full year dividend was up 7% to 14.35p, with adjusted
return on equity at 19.6%. Legal & General Retirement new
business was GBP8.5bn, and annuity assets were up 25% to GBP54.4bn.
Group wide direct investments were up 39% to GBP10bn.
4. Legal & General is listed on the London Stock Exchange
with the ticker symbol LGEN.LN and has an American Depositary
Receipt ticker symbol OTC:LGGNY. Further information on our ADR
program can be found here:
http://www.legalandgeneralgroup.com/investors/adr.html
For more information on Legal & General, please see
http://www.legalandgeneralgroup.com/
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 and results. By their nature, forward-looking
statements involve uncertainty because they relate 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
acquisition or combinations within relevant industries. 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 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 Group Plc does not undertake to update
forward-looking statements contained in this announcement or any
other forward-looking statement it may make.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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