TIDMLGEN
RNS Number : 1044E
Legal & General Group Plc
09 March 2022
Legal & General Group Plc
Full Year Results 2021 Part 3
Asset and premium flows Page 64
4.01 LGIM total assets under management(1) (AUM)
Active Multi Real Total
Index strategies asset Solutions(2) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2021
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows 93.9 18.7 15.1 34.4 1.7 163.8
External outflows (91.5) (15.8) (8.1) (25.5) (1.8) (142.7)
Overlay net flows - - - 11.0 - 11.0
ETF net flows 2.5 - - - - 2.5
External net flows(3) 4.9 2.9 7.0 19.9 (0.1) 34.6
Internal net flows(4) (1.0) (1.8) 0.2 (1.5) 2.0 (2.1)
Total net flows 3.9 1.1 7.2 18.4 1.9 32.5
Cash management movements(5) - 1.1 - - - 1.1
Market and other movements(3) 68.6 3.0 5.1 29.5 2.8 109.0
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
Assets attributable to:
External 1,306.3
Internal 115.2
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2020
As at 1 January 2020 403.6 177.2 59.0 525.6 30.8 1,196.2
External inflows 76.6 17.7 10.1 25.4 1.0 130.8
External outflows (84.7) (17.8) (5.8) (36.1) (1.4) (145.8)
Overlay net flows - - - 33.9 - 33.9
ETF net flows 1.5 - - - - 1.5
External net flows(3) (6.6) (0.1) 4.3 23.2 (0.4) 20.4
Internal net flows(4) (0.2) 2.6 (0.4) (0.3) 0.4 2.1
Total net flows (6.8) 2.5 3.9 22.9 - 22.5
Cash management movements(5) - 2.4 - - - 2.4
Market and other movements(3) 33.1 11.5 2.8 8.7 1.7 57.8
As at 31 December 2020 429.9 193.6 65.7 557.2 32.5 1,278.9
Assets attributable to:
External 1,162.6
Internal 116.3
1. Assets under management (AUM) includes assets on our Investment
Only Platform that are managed by third parties, on which fees are
earned.
2. Solutions include liability driven investments and GBP383.2bn
(31 December 2020: GBP340.1bn) of derivative notionals associated
with the Solutions business.
3. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a higher degree of variability. The total value
of these assets at 31 December 2021 was GBP71.2bn (31 December 2020:
GBP45.8bn) and the movement in these assets is included in Market
and other movements for Solutions assets.
4. Internal includes legacy assets from the Mature Savings business
sold to ReAssure in 2020.
5. Cash management movements include external holdings in money
market funds and other cash mandates held for clients' liquidity
management purposes.
6. Multi asset AUM as at 31 December 2020 has been restated to include
GBP2.3bn (31 December 2019: GBP1.0bn) of Target Date Return funds
previously included within Solutions.
Legal & General Group Plc
Full Year Results 2021 Part 3
Asset and premium flows Page 65
4.02 LGIM total assets under management(1) half-yearly
progression
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2021
As at 1 January 2021 429.9 193.6 65.7 557.2 32.5 1,278.9
External inflows 44.5 10.0 7.2 17.9 0.6 80.2
External outflows (41.9) (7.7) (4.0) (7.1) (0.8) (61.5)
Overlay net flows - - - 6.6 - 6.6
ETF net flows 2.1 - - - - 2.1
External net flows(3) 4.7 2.3 3.2 17.4 (0.2) 27.4
Internal net flows(4) (0.3) (2.3) 0.1 (0.2) 1.0 (1.7)
-------------------------------- ------ ---------- -------- -------------- ------ -------
Total net flows 4.4 - 3.3 17.2 0.8 25.7
Cash management movements(5) - (0.4) - - - (0.4)
Market and other movements(3) 37.1 (3.1) 2.8 (14.6) 0.4 22.6
As at 30 June 2021 471.4 190.1 71.8 559.8 33.7 1,326.8
External inflows 49.4 8.7 7.9 16.5 1.1 83.6
External outflows (49.6) (8.1) (4.1) (18.4) (1.0) (81.2)
Overlay net flows - - - 4.4 - 4.4
ETF net flows 0.4 - - - - 0.4
External net flows(3) 0.2 0.6 3.8 2.5 0.1 7.2
Internal net flows(4) (0.7) 0.5 0.1 (1.3) 1.0 (0.4)
Total net flows (0.5) 1.1 3.9 1.2 1.1 6.8
Cash management movements(5) - 1.5 - - - 1.5
Market and other movements(3) 31.5 6.1 2.3 44.1 2.4 86.4
As at 31 December 2021 502.4 198.8 78.0 605.1 37.2 1,421.5
1. 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 GBP383.2bn (30
June 2021: GBP345.3bn; 31 December 2020: GBP340.1bn) of derivative
notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions assets,
as their maturity dates are determined by client agreements and are
subject to a higher degree of variability. The total value of these
assets at 31 December 2021 was GBP71.2bn (30 June 2021: GBP51.5bn;
31 December 2020: GBP45.8bn) and the movement in these assets is included
in Market and other movements for Solutions assets.
4. Internal includes legacy assets from the Mature Savings business
sold to ReAssure in 2020.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Multi asset AUM as at 30 June 2021 has been restated to include
GBP3.7bn (31 December 2020: GBP2.3bn) of Target Date Return funds previously
included within Solutions.
Legal & General Group Plc
Full Year Results 2021 Part 3
Asset and premium flows Page 66
4.02 LGIM total assets under management(1) half-yearly
progression (continued)
Active Multi Real Total
Index strategies asset(6) Solutions(2,6) assets AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2020
As at 1 January 2020 403.6 177.2 59.0 525.6 30.8 1,196.2
External inflows 27.7 9.5 4.4 10.8 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 1.7 8.2 0.2 6.2
Internal net flows(4) - (0.2) (0.7) (0.1) 0.4 (0.6)
Total net flows (4.4) 0.3 1.0 8.1 0.6 5.6
Cash management movements(5) - 2.8 - - - 2.8
Market and other movements(3) (4.1) 9.2 (1.7) 31.9 0.7 36.0
As at 30 June 2020 395.1 189.5 58.3 565.6 32.1 1,240.6
External inflows 48.9 8.2 5.7 14.6 0.4 77.8
External outflows (52.4) (8.8) (3.1) (13.4) (1.0) (78.7)
Overlay net flows - - - 13.8 - 13.8
ETF net flows 1.3 - - - - 1.3
External net flows(3) (2.2) (0.6) 2.6 15.0 (0.6) 14.2
Internal net flows(4) (0.2) 2.8 0.3 (0.2) - 2.7
Total net flows (2.4) 2.2 2.9 14.8 (0.6) 16.9
Cash management movements(5) - (0.4) - - - (0.4)
Market and other movements(3) 37.2 2.3 4.5 (23.2) 1.0 21.8
As at 31 December 2020 429.9 193.6 65.7 557.2 32.5 1,278.9
1. Assets under management (AUM) includes assets on our Investment
Only Platform, that are managed by third parties, on which fees are
earned.
2. Solutions include liability driven investments and GBP340.1bn of
derivative notionals associated with the Solutions business.
3. External net flows exclude movements in short-term Solutions
assets, as their maturity dates are determined by client agreements
and are subject to a higher degree of variability. The total
value of these assets as at 31 December 2020 was GBP45.8bn and
the movement in these assets is included in Market and other
movements for Solutions assets.
4. Internal net flows include flows in legacy assets from the
Mature Savings business sold to ReAssure in 2020.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Multi asset AUM as at 31 December 2020 has been restated to include
GBP2.3bn (30 June 2020: GBP1.2bn; 31 December 2019: GBP1.0bn) of Target
Date Return funds previously included within Solutions.
Legal & General Group Plc
Full Year Results 2021 Part 3
Asset and premium flows Page 67
4.03 LGIM total external assets under management and net
flows
Assets under management Net flows for the six months
at ended(2)
31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June
2021 2021 2020 2020 2021 2021 2020 2020
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
International(1) 377.3 344.8 303.5 289.5 14.5 15.0 (1.0) (3.0)
UK Institutional
- Defined contribution 137.7 125.5 112.7 96.7 5.0 4.4 5.6 5.5
- Defined benefit 733.3 689.6 699.4 706.7 (13.9) 4.6 7.7 2.5
Retail(3) 49.1 45.5 41.6 38.5 1.2 1.3 0.6 1.0
ETF(4) 8.9 8.2 5.4 3.5 0.4 2.1 1.3 0.2
Total external 1,306.3 1,213.6 1,162.6 1,134.9 7.2 27.4 14.2 6.2
----------------------- ----------- ------- ----------- ------- ----------- ------- ----------- -------
1. International assets are shown on the basis of client domicile.
Total International AUM including assets managed internationally on
behalf of UK clients amounted to GBP479bn as at 31 December 2021 (31
December 2020: GBP388bn).
2. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability.
3. Retail represents assets from the Retail Intermediary business
and GBP0.3bn of assets from Personal Investing customers that did
not migrate to Fidelity International Limited.
4. ETF reflects external AUM and Flows invested on the platform. Total
AUM managed on the platform is GBP10.1bn in 2021 (GBP6.2bn in 2020)
and Flows are GBP2.9bn (GBP1.8bn in 2020) which include internal investment
from other LGIM asset classes.
4.04 Reconciliation of assets under management to Consolidated
Balance Sheet
2021 2020
GBPbn GBPbn
---------------------------------------------------------- ------ -----
Assets under management (1) 1,421 1,279
Derivative notionals (1,2) (383) (340)
Third party assets (1,3) (480) (419)
Other (1,4) 7 33
Total financial investments, investment property
and cash and cash equivalents 565 553
---------------------------------------------------------- ------ -----
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management
measure but are not for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others
which are not included on the group's Consolidated Balance Sheet.
4. 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
Full Year Results 2021 Part 3
Asset and premium flows Page 68
4.05 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities
2021 2021 2020 2020
GBPbn GBPbn GBPbn GBPbn
As at 1 January 50.8 87.0 40.3 75.9
Gross inflows 11.9 8.7 10.0 10.1
Gross outflows (3.4) - (2.2) -
Payments to pensioners - (4.6) - (4.3)
Net flows 8.5 4.1 7.8 5.8
Market and other movements 6.4 (1.2) 2.7 5.3
As at 31 December 65.7 89.9 50.8 87.0
1. Workplace assets under administration as at 31 December 2021
includes GBP65.6bn (2020: GBP50.7bn) of assets under management
included in Note 4.01.
2. Annuities assets under administration as at 31 December 2021
includes GBP80.6bn (2020: GBP79.4bn) of assets under management
included in Note 4.01.
4.06 Assets under administration half-yearly progression
Workplace Annuities Workplace Annuities
2021 2021 2020 2020
For the year ended 31 December 2021 GBPbn GBPbn GBPbn GBPbn
As at 1 January 50.8 87.0 40.3 75.9
Gross inflows 7.5 3.7 3.3 3.8
Gross outflows (1.5) - (0.9) -
Payments to pensioners - (2.2) - (2.1)
Net flows 6.0 1.5 2.4 1.7
Market and other movements 3.4 (2.7) (1.2) 3.1
As at 30 June 60.2 85.8 41.5 80.7
Gross inflows 4.4 5.0 6.7 6.3
Gross outflows (1.9) - (1.3) -
Payments to pensioners - (2.4) - (2.2)
------------------------------------- --------- --------- --------- ---------
Net flows 2.5 2.6 5.4 4.1
Market and other movements 3.0 1.5 3.9 2.2
As at 31 December 65.7 89.9 50.8 87.0
Legal & General Group Plc
Full Year Results 2021 Part 3
Asset and premium flows Page 69
4.07 LGR new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- ----------- -------- ------ ----------- --------
Pension risk transfer
- UK(1) 6,240 3,275 2,965 7,593 4,417 3,176
- US 789 682 107 1,250 1,002 248
- Bermuda 147 147 - - - -
Individual annuities 957 474 483 910 489 421
Lifetime & Retirement Interest
Only mortgage advances 848 434 414 791 429 362
Total LGR new business 8,981 5,012 3,969 10,544 6,337 4,207
1. UK pension risk transfer includes a GBP925m (H1 21: GBP925m; H2
21: GBPnil) (H1 20: GBPnil; H2 20: GBP397m) Assured Payment Policy
(APP).
4.08 LGI new business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
UK Retail protection 200 95 105 175 92 83
UK Group protection 88 33 55 117 52 65
US protection(1) 91 48 43 80 36 44
Total LGI new business 379 176 203 372 180 192
1. In local currency, US protection reflects new business of $124m
for 2021 (H1 21: $59m; H2 21: $65m), and $103m for 2020 (H1 20: $56m;
H2 20: $47m)
4.09 Gross written premiums on insurance business
6 months 6 months 6 months 6 months
Total 31 December 30 June Total 31 December 30 June
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
UK Retail protection 1,444 730 714 1,374 694 680
UK Group protection 405 131 274 382 137 245
US protection(1) 1,053 541 512 1,093 543 550
Longevity insurance 307 155 152 327 168 159
Total gross written premiums
on insurance business 3,209 1,557 1,652 3,176 1,542 1,634
1. In local currency, US protection reflects gross written premiums
of $1,449m for 2021 (H1 21: $712m; H2 21: $737m), and $1,403m for
2020 (H1 20: $693m; H2 20: $710m).
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 70
5.01 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 and Legal
& General Reinsurance Company No. 2 (L&G Re 2 - a new
subsidiary incorporated in 2021) 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 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 31 December 2021).
The TMTP incorporates impacts of 31 December 2021 economic
conditions and changes during 2021 to the Internal Model and
Matching Adjustment. This is in line with the group's management of
the capital position on a dynamic TMTP basis.
In previous years, the capital position was shown on a
"shareholder view", where the contribution from the final salary
pension schemes was excluded from the group position. The impact of
excluding the contribution is now less than 1% and so the results
below, which are on a proforma basis, include the impact of the
final salary pension schemes. The 2020 results have been adjusted
to be consistent with 2021.
(a) Capital position
As at 31 December 2021, and on the above basis, the group had a surplus
of GBP8,185m (31 December 2020: GBP7,436m) over its Solvency Capital
Requirement, corresponding to a Solvency II capital coverage ratio
of 187% (31 December 2020: 175%). The Solvency II capital position
is as follows:
2021 2020 (1)
GBPm GBPm
Unrestricted Tier 1 Own Funds 13,254 12,478
Restricted Tier 1 Own Funds(2) 495 495
Tier 2 Subordinated liabilities(3) 3,995 4,531
Eligibility restrictions (183) (188)
------------------------------------------------------ ----------- -----------
Solvency II Own Funds(4,5) 17,561 17,316
Solvency Capital Requirement (9,376) (9,880)
Solvency II surplus 8,185 7,436
SCR Coverage ratio 187% 175%
1. 2020 figures have been restated to include the contribution from
the final salary pension schemes, replacing the "shareholder view"
from prior years' disclosures.
2. Restricted Tier 1 Own Funds represent restricted Tier 1 contingent
convertible notes.
3. GBP300m of Tier 2 subordinated liabilities were redeemed in full
on 23 July 2021.
4. Solvency II Own Funds do not include an accrual for the final dividend
of GBP790m (31 December 2020: GBP754m) declared after the balance
sheet date.
5. Solvency II Own Funds allow for a Risk Margin of GBP5,488m (2020:
GBP6,064m) and TMTP of GBP4,736m (2020: GBP5,564m).
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 71
5.01 Group regulatory capital - Solvency II (continued)
(b) Methodology
Own Funds comprise the excess of the value of assets over the
liabilities, as valued on a Solvency II basis. Subordinated debt
issued by the group is considered to be part of available capital,
rather than a liability, as it is subordinate to policyholder
claims. Own Funds include deductions in relation to fungibility and
transferability restrictions, where the surplus Own Funds of a
specific group entity cannot be freely transferred around the group
due to local legal or regulatory constraints.
Assets are valued at IFRS fair value with adjustments to remove
intangibles and deferred acquisition costs, and to value
reassurers' share of technical provisions on a basis consistent
with the liabilities on the Solvency II balance sheet.
Liabilities are valued on a best estimate market consistent
basis, with the application of a Solvency II Matching Adjustment
for valuing annuity liabilities. Own Funds incorporate changes to
the Internal Model and Matching Adjustment during 2021 and the
impacts of a recalculation of the TMTP as at end December 2021. The
recalculated TMTP of GBP4,736m (31 December 2020: GBP5,564m) is net
of amortisation to 31 December 2021.
The liabilities include a Risk Margin of GBP5,488m (31 December
2020: GBP6,064m) which represents an allowance for the cost of
capital for a purchasing insurer to take on the portfolio of
liabilities and residual risks that are deemed to be non-hedgeable
under Solvency II. This is calculated using a cost of capital of 6%
as prescribed by the Solvency II regulations.
The Solvency Capital Requirement is the amount of capital
required to cover the 1-in-200 worst projected future outcome in
the year following the valuation, allowing for realistic management
and policyholder actions and the impact of the stress on the tax
position of the group. This allows for diversification between the
different firms within the group and between the risks to which
they are exposed.
All material EEA insurance firms, including Legal and General
Assurance Society Limited (LGAS) and Legal and General Assurance
(Pensions Management) Limited, are incorporated into the group's
Solvency II Internal Model assessment of required capital, assuming
diversification of the risks between and within those firms. These
firms, as well as the non-EEA insurance firm (Legal & General
Reinsurance Company Limited (LGRe) based in Bermuda) contribute
over 95% of the group's SCR.
Insurance firms for which the capital requirements are less
material are valued on a Solvency II Standard Formula basis. Firms
which are not regulated but which carry material risks to the
group's solvency are modelled in the Internal Model on the basis of
applying an appropriate stress to their net asset value.
Legal & General America's Banner Life and its subsidiaries
(LGA) are incorporated into the calculation of group solvency using
a Deduction and Aggregation basis. All risk exposure in these firms
is valued on a local statutory basis, with capital requirements set
to a multiple of local statutory Risk Based Capital (RBC) and
further restrictions on the surplus contribution to the group. The
US regulatory regime is considered to be equivalent to Solvency II
by the European Commission. The contribution to group SCR is 150%
of the local Company Action Level RBC (CAL RBC). The contribution
to group's Own Funds is the SCR together with any surplus capital
in excess of 250% of CAL RBC.
Legal & General Reinsurance No 2 Ltd (L&G Re 2) is
incorporated into the calculation of group solvency using a
Deduction and Aggregation basis. All risk exposure in the firm is
valued on a local (Bermuda) capital basis, with capital
requirements set equal to the local capital requirement and Own
Funds contribution restricted by 20% of the capital. The Bermuda
regulatory regime is also considered to be equivalent to Solvency
II by the European Commission.
All non-insurance regulated firms are included using their
current regulatory surplus.
Allowance is made within the Solvency II balance sheet for the
group's defined benefit pension schemes using results on an IFRS
basis. Within the SCR an allowance is made by stressing the IFRS
position using the same Internal Model basis as for the insurance
firms.
(c) Assumptions
The calculation of the Solvency II balance sheet and associated
capital requirements requires a number of assumptions,
including:
(i) demographic assumptions required to project best estimate
liability cash flows are consistent with those underlying the
group's IFRS disclosures, but with the removal of any prudence
margins.
(ii) future investment returns and discount rates to derive the
present value of best estimate liability cash flows are those
defined by the PRA. From July 2021, the risk-free rates used to
discount UK Sterling cashflows are SONIA-based market swap rates
(2020: Libor-based market swap rates with a deduction of a credit
risk adjustment of 11bps). For non-UK Sterling liabilities, the
risk-free rates used to discount cash flows include a credit risk
adjustment that varies by currency.
(iii) 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 31 December 2021 the Matching Adjustment for UK GBP
was 104 basis points (31 December 2020: 103 basis points) after
deducting an allowance for the fundamental spread equivalent to 54
basis points (31 December 2020: 55 basis points).
(iv) assumptions regarding management actions and policyholder
behaviour across the full range of scenarios. The only management
actions allowed for are those that have been approved by the Board
and are in place at the balance sheet date.
(v) assumptions regarding the volatility of the risks to which
the group is exposed. Assumptions have been set using a combination
of historic market, demographic and operating experience data. In
areas where data is not considered robust, expert judgement has
been used.
(vi) assumptions on the dependencies between risks, which are
calibrated using a combination of historic data and expert
judgement.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 72
5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change
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 business 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.
The table below shows the movement (net of tax) during the year ended
31 December 2021 in the group's Solvency II surplus.
2021 2021 2021
Own Funds SCR Surplus
GBPm GBPm GBPm
------------------------------------------------------- --------- ------- -------
Opening Position 17,316 (9,880) 7,436
------------------------------------------------------- --------- ------- -------
Operational Surplus Generation (Continuing Operations) 1,144 492 1,636
Operational Surplus Generation (Discontinued - - -
Operations)
------------------------------------------------------- --------- ------- -------
Total operational surplus generation 1,144 492 1,636
------------------------------------------------------- --------- ------- -------
New business strain 330 (684) (354)
------------------------------------------------------- --------- ------- -------
Net surplus generation 1,474 (192) 1,282
------------------------------------------------------- --------- ------- -------
Operating variances(1) 26
Market movements(2) 727
M&A, portfolio and business transfers(3) 77
Subordinated liabilities(4) (300)
Dividends paid(5) (1,063)
------------------------------------------------------- --------- ------- -------
Total surplus movement (after dividends paid
in the period) 245 504 749
------------------------------------------------------- --------- ------- -------
Closing Position 17,561 (9,376) 8,185
------------------------------------------------------- --------- ------- -------
1. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
2. Market movements represent the impact of changes in investment
market conditions over the year and changes to future economic assumptions.
3. Includes the impact of the sale of the Personal Investment business.
4. Reflects the redemption of GBP300m debt issued in 2009.
5. Dividends paid are the amounts from the 2020 final dividend and
the 2021 interim dividend.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 73
5.01 Group regulatory capital - Solvency II (continued)
(d) Analysis of change (continued)
The table below shows the movement (net of tax) during the year ended
31 December 2020 in the group's Solvency II surplus.
2020 2020 2020
Own Funds SCR Surplus
GBPm GBPm GBPm
--------------------------------------------------------------------- --------- ------- -------
Opening Position 16,867 (9,439) 7,428
--------------------------------------------------------------------- --------- ------- -------
Operational Surplus Generation (Continuing Operations) 1,092 368 1,460
Operational Surplus Generation (Discontinued
Operations) (9) 41 32
--------------------------------------------------------------------- --------- ------- -------
Total operational surplus generation 1,083 409 1,492
--------------------------------------------------------------------- --------- ------- -------
New business strain 417 (719) (302)
--------------------------------------------------------------------- --------- ------- -------
Net surplus generation 1,500 (310) 1,190
--------------------------------------------------------------------- --------- ------- -------
Operating variances(1) 521
Market movements(2) (1,395)
M&A, portfolio and business transfers(3) (255)
Subordinated liabilities(4) 995
Dividends paid(5) (1,048)
--------------------------------------------------------------------- --------- ------- -------
Total surplus movement (after dividends paid
in the period) 449 (441) 8
--------------------------------------------------------------------- --------- ------- -------
Closing Position 17,316 (9,880) 7,436
--------------------------------------------------------------------- --------- ------- -------
1. Operating variances include the impact of experience variances,
changes to valuation assumptions, methodology changes and other management
actions including changes in asset mix.
2. Market movements represent the impact of changes in investment
market conditions over the year and changes to future economic assumptions.
3. Includes the impacts of the sale of the Mature Savings business,
which completed in H2 2020.
4. Includes restricted Tier 1 Own Funds from Perpetual contingent
convertible notes.
5. Dividends paid are the amounts from the 2019 final dividend and
the 2020 interim dividend.
(e) Future Solvency II surplus generation - UK annuities
The table below shows a projection of future Operational Surplus Generation
(OSG) expected from the GBP85.7bn UK annuity portfolio as at 31 December
2021. The projection excludes any allowance for future new business.
The table shows the Operational Surplus Generation from all of the
group's divisions that are involved in the management of the annuity
business, i.e. Legal & General Retirement, Legal & General Capital
and Legal & General Investment Management. The impact of management
actions is excluded; we expect management actions to contribute between
GBP100m and GBP200m each year.
Total
2021 2022 2023 2024 2025 2026-2030 2031-2040 2022-2040
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Annuity back book
OSG(1) 0.7 0.7 0.7 0.6 0.5 1.9 4.9 9.3
L&G Other 0.2 0.3 0.3 0.3 0.3 1.4 2.1 4.7
-------------------------- ------ ----- ----- ----- ----- --------- --------- ---------
Total OSG for UK Annuity
back book 0.9 1.0 1.0 0.9 0.8 3.3 7.0 14.0
-------------------------- ------ ----- ----- ----- ----- --------- --------- ---------
1. Annuity back book Operational Surplus Generation
does not include new business.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 74
5.01 Group regulatory capital - Solvency II (continued)
(f) Reconciliation of IFRS Release from operations to Solvency
II Operational surplus generation
(i) The table below provides a reconciliation of the group's IFRS
Release from operations to Solvency II Operational surplus generation.
2021 2020
GBPm GBPm
IFRS Release from operations 1,441 1,269
Expected release of IFRS prudential margins (496) (465)
Releases of IFRS specific reserves(1) (162) (163)
Solvency II investment margin(2,3) 213 344
Release of Solvency II Capital Requirement and Risk
Margin less TMTP amortisation 640 507
Solvency II Operational surplus generation(4) 1,636 1,492
------ ------
1. Release of prudence from IFRS specific reserves which are not included
in Solvency II (e.g. long-term longevity and expense margins).
2. Release of prudence related to differences between the PRA defined
Fundamental Spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of
risk-free rates over 2021.
4. Solvency II Operational Surplus Generation includes management
actions which at the start of 2021 were reasonably expected to be
implemented over the year.
(ii) The table below provides a reconciliation of the group's IFRS
New business surplus to Solvency II New business strain.
2021 2020
GBPm GBPm
IFRS New business surplus 247 270
Removal of requirement to set up prudential
margins above best estimate on new business 280 355
Set up of SCR on new business (684) (719)
Set up of Risk Margin on new business (197) (208)
------------------------------------------------------------------- ------ ------
Solvency II New business strain(1) (354) (302)
------------------------------------------------------------------ ------ ------
1. UK PRT new business volume during 2021 was GBP6.2bn (2020: GBP7.6bn).
(g) 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:
2021 2020
GBPm GBPm
---------------------------------------------------------------- ------ ------
IFRS equity(1) 10,981 9,997
Remove DAC, goodwill and other intangible assets and associated
liabilities (406) (391)
Add IFRS carrying value of subordinated borrowings(2) 3,700 4,000
Insurance contract valuation differences(3) 4,132 4,495
Difference in value of net deferred tax liabilities (716) (638)
Other 53 41
Eligibility restrictions (183) (188)
------ ------
Solvency II Own Funds(4) 17,561 17,316
------ ------
1. IFRS equity represents 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. Solvency II Own Funds do not include an accrual for the final dividend
of GBP790m (31 December 2020: GBP754m) declared after the balance
sheet date.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 75
5.01 Group regulatory capital - Solvency II (continued)
(h) Sensitivity analysis
The following sensitivities are provided to give an indication of how
the group's Solvency II surplus as at 31 December 2021 would have changed
in a variety of adverse events. These are all independent stresses
to a single risk. In practice, the balance sheet is impacted by combinations
of stresses and the combined impact can be larger than adding together
the impacts of the same stresses in isolation. It is expected that,
particularly for market risks, adverse stresses will happen together.
Impact Impact Impact Impact
on on on on
net of net of net of net of
tax tax tax tax
Solvency Solvency Solvency Solvency
II II II II
capital coverage capital coverage
surplus ratio surplus(1) ratio(1)
2021 2021 2020 2020
GBPbn % GBPbn %
50bps increase in risk-free rates(1) 0.5 10 0.6 11
100bps increase in risk-free rates(1) 0.9 19 1.0 20
50bps decrease in risk-free rates(1,2) (0.6) (10) (0.7) (11)
Credit spreads widen by 100bps assuming an
escalating addition to ratings(3,4) 0.6 13 0.5 11
Credit spreads narrow by 100bps assuming an
escalating deduction from ratings(3,4) (0.6) (14) (0.7) (12)
Credit spreads widen by 100bps assuming a level
addition to ratings(3) 0.7 14 0.7 13
Credit spreads of sub investment grade assets
widen by 100bps assuming a level addition to
ratings(3,5) (0.4) (7) (0.4) (5)
Credit migration(6) (0.9) (10) (1.2) (12)
25% fall in equity markets(7) (0.5) (3) (0.5) (4)
15% fall in property markets(8) (0.8) (7) (0.6) (5)
50bps increase in future inflation expectations - (2) - (2)
10% increase in maintenance expenses(9) (0.3) (3) (0.3) (3)
Substantially reduced Risk Margin(10) 0.6 7 0.5 5
1. Assuming a recalculation of the Transitional Measure on Technical
Provisions that partially offsets the impact on Risk Margin.
2. In the interest rate down stress negative rates are allowed, i.e.
there is no floor at zero rates.
3. The spread sensitivity applies to the group's corporate bond (and
similar) holdings, with no change in long-term default expectations,
post management actions. Restructured lifetime mortgages are excluded
as the underlying exposure is mostly to property.
4. 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.
5. No stress for bonds rated BBB and above. For bonds rated BB and
below the stress is 100bps. The spread widening on the total portfolio
is 2bps as the group holds less than 2% in bonds rated BB and below.
The impact is primarily an increase in SCR arising from the modelled
cost of trading downgraded bonds back to a higher rating in the stress
scenarios in the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter
downgrade on 20% of all assets where the capital treatment depends
on a credit rating (including corporate bonds, and sale and leaseback
rental strips; lifetime mortgage senior notes are excluded). Downgraded
assets are assumed to be traded to their original credit rating, so
the impact is primarily a reduction in Own Funds from the loss of value
on downgrade. The impact of the sensitivity will depend upon the market
levels of spreads at the balance sheet date.
7. 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.
8. Assets stressed include residual values from sale and leaseback,
the full amount of lifetime mortgages and direct investments treated
as property.
9. A 10% increase in the assumed unit costs and future costs of investment
management across all long-term insurance business
10. Assuming a 2/3 reduction in the Risk Margin, allowing for offset
from an equivalent reduction in the Transitional Measure on Technical
Provisions.
The above sensitivity analysis does not reflect all management actions
which could be taken to reduce the impacts. In practice, the group
actively manages its asset and liability positions to respond to market
movements. Other than in the interest rate and inflation stresses,
we have not allowed for the recalculation of TMTP.
The impacts of these stresses are not linear therefore these results
should not be used to interpolate or extrapolate the impact of a smaller
or larger stress. The results of these tests are indicative of the
market conditions prevailing at the balance sheet date. The results
would be different if performed at an alternative reporting date.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 76
5.01 Group regulatory capital - Solvency II (continued)
(i) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type.
The split is shown before the effects of diversification and tax.
2021 2020(1)
% %
Interest rate 4 2
Equity 5 6
Property 8 8
Credit(2) 25 30
Currency 2 3
Inflation 7 7
---------------------------------------------------- --------- ----------------
Total Market risk (3) 51 56
---------------------------------------------------- --------- ----------------
Counterparty risk 4 1
---------------------------------------------------- --------- ----------------
Life mortality 2 3
Life longevity(4) 27 22
Life mass lapse 2 2
Life non-mass lapse 2 2
Life catastrophe 4 4
Expense 2 3
---------------------------------------------------- --------- ----------------
Total Insurance risk 39 36
---------------------------------------------------- --------- ----------------
Non-life underwriting - 1
Operational risk 4 4
Miscellaneous(5) 2 2
Total SCR 100 100
---------------------------------------------------- --------- ----------------
1. The 2020 SCR by risk type has been restated to include the contribution
from the final salary pension schemes, replacing the "shareholder
view" from prior years' disclosures.
2. Credit risk is one of the group's most significant exposures, arising
predominantly from the portfolio of bonds and bond-like assets backing
the group's annuity business.
3. In addition to credit risk the group also has significant exposure
to other market risks, primarily due to the investment holdings within
the shareholder funds but also the risk to fee income from assets
backing unit-linked business.
4. Longevity risk is the group's most significant insurance risk exposure,
arising from the annuity book on which the majority of the longevity
risk on the back book is retained.
5. Miscellaneous includes LGA and L&G Re 2 on a Deduction and Aggregation
basis and the sectoral capital requirements for non-insurance regulated
firms.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 77
5.02 Estimated Solvency II new business contribution
(a) New business by product(1)
Management estimates of the present value of new business premium
(PVNBP) and the margin for selected lines of business are provided
below:
Contribution Contribution
from new from
new
PVNBP(2) business(3) Margin(4) PVNBP(2) business(3) Margin(4)
2021 2021 2021 2020 2020 2020
GBPm GBPm % GBPm GBPm %
LGR - UK annuity business 7,016 635 9.1 8,503 901 10.6
UK Protection Total 1,883 149 7.9 1,887 160 8.5
- Retail Protection 1,476 120 8.1 1,359 123 9.1
- Group Protection 407 29 7.1 528 37 7.0
US Protection(5) 842 113 13.4 829 94 11.2
1. Selected lines of business only.
2. PVNBP excludes quota share reinsurance single premium of GBP181m
relating to LGR new business.
3. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the year using the risk discount
rate applicable at the end of the year.
4. Margin is based on unrounded inputs.
5. In local currency, US Protection reflects PVNBP of $1,159m (31
December 2020: $1,064m) and a contribution from new business of
$155m (31 December 2020: $120m).
The decrease in LGR margin was driven by the shorter average duration
for the schemes written in 2021, compared to the schemes written
in 2020.
For UK Protection the contribution from new business is supported
by increased Retail Protection volumes; the reduction in margin
is largely due to pricing action, movements in product mix and changes
in market conditions in 2021.
The US Protection margin improved compared to the prior full year.
The increase is driven by business mix and modified reinsurance
terms on digital products.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 78
5.02 Estimated Solvency II new business contribution
(continued)
(b) Assumptions
The key economic assumptions are as follows:
2021 2020
% %
Margin for Risk 4.1 3.9
Risk-free rate
- UK 0.9 0.5
- US 1.5 0.9
Risk discount rate (net of tax)
- UK 5.0 4.4
- US 5.6 4.8
Long-term rate of return on non-profit annuities in
LGR 2.5 2.1
The future earnings are discounted using duration-based discount
rates, which is the sum of a duration-based risk-free rate and a
flat margin for risk. The UK risk-free rates have been based on a
SONIA-based swap curve (2020: Libor-based swap curve net of the
PRA-specified Credit Risk Adjustment). The risk-free rate shown
above is a weighted average based on the projected cash flows.
Other than updating for recent experience, all other economic
and non-economic assumptions and methodologies that would have a
material impact on the margin for these contracts are unchanged
from those previously used by the group for its European Embedded
Value reporting, other than the cost of currency hedging which has
been updated to reflect current market conditions and hedging
activity in light of Solvency II. In particular:
-- The assumed future pre-tax returns on fixed interest and RPI
linked securities are set by reference to the portfolio yield on
the relevant backing assets held at market value at the end of the
reporting period. The calculated return takes account of
derivatives and other credit instruments in the investment
portfolio. The returns on fixed and index-linked assets are
calculated net of an allowance for default risk which takes account
of the credit rating and the outstanding term of the assets. The
allowance for corporate and other unapproved credit asset defaults
within the new business contribution is calculated explicitly for
each bulk annuity scheme written, and the weighted average
deduction for business written in 2021 equates to a level rate
deduction from the expected returns for the overall annuities
portfolio of 16.9 basis points.
-- Non-economic assumptions have been set at levels commensurate
with recent operating experience, including those for mortality,
morbidity, persistency and maintenance expenses (excluding
development costs). An allowance is made for future mortality
improvement. For new business, mortality assumptions may be
modified to take certain scheme specific features into account.
The profits on the new business are presented gross of tax.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 79
5.02 Estimated Solvency II new business contribution
(continued)
(c) Methodology
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 as set out in the group's 2021 Annual Report and
Accounts.
Solvency II new business contribution has been calculated for
the group's most material insurance-related businesses, namely,
LGR, LGI and LGA.
Description of methodology
The objective of the Solvency II new business contribution is to
provide shareholders with information on the long-term contribution
of new business written in 2021.
The Solvency II new business contribution has been calculated as
the present value of future shareholder profits arising from
business written in 2021. Cash flow projections are determined
using best estimate assumptions for each component of cash flow and
for each policy group. Best estimate assumptions including
mortality, morbidity, persistency and expenses reflect recent
operating experience.
The 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 calculation of the new business
contribution for the financial period.
The new business margin is defined as new business contribution
divided by the PVNBP. The premium volumes used to calculate the
PVNBP are the same as those used to calculate new business
contribution.
LGA is consolidated into the group solvency balance sheet on a
US Statutory solvency basis. 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 future new business. The LGA new business margin looks
through the intra-group arrangements.
Projection assumptions
Cash flow projections are determined using best estimate
assumptions for each component of cash flow for each line of
business. Future economic and investment return assumptions are
based on conditions at the end of the financial period.
Detailed projection assumptions including mortality, morbidity,
persistency and expenses reflect recent operating experience and
are normally reviewed annually. Allowance is made for future
improvements in annuitant mortality based on experience and
externally published data. Favourable changes in operating
experience are not anticipated until the improvement in experience
has been observed.
All costs relating to new business, even if incurred elsewhere
in the group, are allocated to the new business. The expense
assumptions used for the cash flow projections therefore include
the full cost of servicing this business.
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.
Risk discount rate
The risk discount rate (RDR) is duration-based and is a
combination of the risk-free curve and a flat Margin for Risk.
The GBP risk-free rates have been based on a SONIA-based swap
curve with no Credit Risk Adjustment (2020: Libor-based swap curve
with a credit risk adjustment of 11 basis points). The USD swap
curve includes a credit risk adjustment of 13 basis points (2020:
credit risk adjustment of 13 basis points)
The Margin for Risk has been determined based on an assessment
of the group's Weighted Average Cost of Capital (WACC). This
assessment incorporates a beta for the group, which measures the
correlation of movements in the group's share price to movements in
a relevant index. Beta values therefore allow for the market's
assessment of the risks inherent in the business relative to other
companies in the chosen index.
Legal & General Group Plc
Full Year Results 2021 Part 3
Capital Page 80
5.02 Estimated Solvency II new business contribution
(continued)
(c) Methodology (continued)
The WACC is derived from the group's cost of equity, cost of
debt, and the proportion of equity to debt in the group's capital
structure measured using market values. Each of these three
parameters is forward looking, although informed by historic
information and appropriate judgements where necessary. The cost of
equity is calculated as the risk-free rate plus the equity risk
premium for the chosen index multiplied by the company's beta.
The cost of debt used in the WACC calculations takes account of
the actual locked-in rates for our senior and subordinated
long-term debt. All debt interest attracts tax relief at a time
adjusted rate of 24% (31 December 2020: 19%).
Whilst the WACC approach is a relatively simple and transparent
calculation to apply, subjectivity remains within a number of the
assumptions. Management believes that the chosen margin, together
with the levels of required capital and the inherent strength of
the group's regulatory reserves, is appropriate to reflect the
risks within the covered business.
(d) Reconciliation of PVNBP to gross written premium
A reconciliation of PVNBP and gross written
premium is given below:
2021 2020
Notes GBPbn GBPbn
5.02
PVNBP (a) 9.7 11.2
Effect of capitalisation factor (2.1) (2.3)
New business premiums from selected lines 7.6 8.9
Other(1) 1.8 2.0
Total LGR and LGI new business 4.07,4.08 9.4 10.9
Annualisation impact of regular premium long-term
business (0.2) (0.2)
IFRS gross written premiums from existing
long-term insurance business 3.3 3.0
Deposit accounting for investment products (2.1) (1.2)
Total gross written premiums(2) 10.4 12.5
1. Other principally includes annuity sales in the US, lifetime
and retirement interest only mortgage advances and GBP0.2bn quota
share reinsurance premiums.
2. Total gross written premiums includes GBP109m (2020: GBP114m)
of gross written premiums relating to a residual reinsurance
treaty following the disposal of the General Insurance business
in 2019.
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Full Year Results 2021 Part 3
Page 81
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Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 82
6.01 Investment portfolio
Market Market
value value
2021 2020
GBPm GBPm
Worldwide total assets under management(1) 1,426,462 1,285,489
Client and policyholder assets (1,309,772) (1,161,631)
Investments to which shareholders are directly
exposed 116,690 123,858
1. Worldwide total assets under management include LGIM AUM and other
group assets not managed by LGIM.
Analysed by investment class:
Other
LGR LGC shareholder
investments investments investments Total Total
2021 2021 2021 2021 2020
Notes GBPm GBPm GBPm GBPm GBPm
Equities 80 2,845 260 3,185 3,086
Bonds 6.03 81,812 2,157 2,834 86,803 85,502
Derivative assets (2) 13,135 68 - 13,203 20,936
Property 6.04 5,286 424 - 5,710 4,672
Loans (3) 1,899 372 61 2,332 4,248
Financial investments 102,212 5,866 3,155 111,233 118,444
Cash and cash equivalents 1,983 984 629 3,596 3,616
Other assets (4) 96 1,765 - 1,861 1,798
Total investments 104,291 8,615 3,784 116,690 123,858
2. Derivative assets are shown gross of derivative liabilities of
GBP14.1bn (31 December 2020: GBP21.2bn). Exposures arise from use
of derivatives for efficient portfolio management, especially the
use of interest rate swaps, inflation swaps, credit default swaps
and foreign exchange forward contracts for assets and liability management.
3. Loans include reverse repurchase agreements of GBP2,240m (31 December
2020: GBP4,117m).
4. Other assets include finance leases of GBP86m (31 December 2020:
GBP88m), associates and joint ventures of GBP375m (31 December 2020:
GBP288m) and the consolidated net asset value of the group's investments
in CALA Homes and other housing businesses.
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 83
6.02 Direct investments
(a) Analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2)
investments securities Total investments securities Total
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Equities 1,248 1,937 3,185 1,145 1,941 3,086
Bonds (3) 24,237 62,566 86,803 21,555 63,947 85,502
Derivative assets - 13,203 13,203 - 20,936 20,936
Property (4) 5,710 - 5,710 4,672 - 4,672
Loans 63 2,269 2,332 99 4,149 4,248
-------------------------- ----------- ---------- ------- ----------- ---------- -------
Financial investments 31,258 79,975 111,233 27,471 90,973 118,444
-------------------------- ----------- ---------- ------- ----------- ---------- -------
Cash and cash equivalents 114 3,482 3,596 42 3,574 3,616
Other assets 1,861 - 1,861 1,798 - 1,798
Total investments 33,233 83,457 116,690 29,311 94,547 123,858
-------------------------- ----------- ---------- ------- ----------- ---------- -------
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile
asset classes. Direct investments also include physical assets, bilateral
loans and private equity, but excluded hedge funds.
2. Traded securities are defined by exclusion. If an instrument is
not a direct investment, then it is classed as a traded security.
3. Bonds include lifetime mortgage loans of GBP6,857m (31 December
2020: GBP6,036m).
4. A further breakdown of property is provided in Note 6.04.
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 84
6.02 Direct investments (continued)
(b) Analysed by segment
LGR LGC (1) LGI Total
2021 2021 2021 2021
GBPm GBPm GBPm GBPm
Equities 12 1,124 112 1,248
Bonds(2) 23,029 3 1,205 24,237
Property 5,286 424 - 5,710
Loans - 63 - 63
------------------------------------------- ------ ------- ----- ------
Financial investments 28,327 1,614 1,317 31,258
Other assets, cash and cash equivalents 96 1,879 - 1,975
------------------------------------------- ------ ------- ----- ------
Total direct investments 28,423 3,493 1,317 33,233
-------------------------------------------- ------ ------- ----- ------
LGR LGC(1) LGI Total
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
Equities - 1,043 102 1,145
Bonds (2) 20,306 3 1,246 21,555
Property 4,319 353 - 4,672
Loans - 99 - 99
------------------------------------------ --------- --------- ------- --------
Financial investments 24,625 1,498 1,348 27,471
Other assets, cash and cash
equivalents 106 1,730 4 1,840
----------------------------------------- --------- --------- ------- --------
Total direct investments 24,731 3,228 1,352 29,311
-------------------------------------------- --------- --------- ------- --------
1. LGC includes GBP54m (2020: GBP47m) of equities that belong to
other shareholder funds.
2. Bonds include lifetime mortgage loans of GBP6,857m (2020: GBP6,036m).
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 85
6.03 Bond portfolio summary
(a) Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 2,008 10,348 1,302 360 9 - 14,027 16
Banks:
- Tier 2 and other subordinated - - 56 36 3 - 95 -
- Senior 95 1,858 3,998 738 1 - 6,690 8
- Covered 138 - - - - - 138 -
Financial Services:
- Tier 2 and other subordinated - 111 60 72 - 8 251 -
- Senior 57 416 422 315 - - 1,210 1
Insurance:
- Tier 2 and other subordinated 61 192 32 62 - - 347 -
- Senior 4 196 460 535 - - 1,195 1
Consumer Services and
Goods:
- Cyclical - 33 1,399 1,760 206 - 3,398 4
- Non-cyclical 350 1,003 2,737 3,836 346 - 8,272 10
- Healthcare - 690 837 889 5 - 2,421 3
Infrastructure:
- Social 215 780 5,001 900 79 - 6,975 8
- Economic 303 50 1,121 4,294 191 - 5,959 7
Technology and Telecoms 177 307 1,530 3,024 22 2 5,062 6
Industrials - 31 688 558 30 - 1,307 2
Utilities 27 206 5,666 5,947 30 - 11,876 14
Energy - - 385 840 16 - 1,241 1
Commodities - - 365 889 8 - 1,262 1
Oil and Gas - 546 971 387 271 - 2,175 3
Real estate - 16 1,802 1,587 122 - 3,527 4
Structured finance ABS
/ RMBS / CMBS / Other 450 860 445 668 28 - 2,451 3
Lifetime mortgage loans(1) 4,238 1,550 584 470 - 15 6,857 8
CDOs - - 54 13 - - 67 -
Total GBPm 8,123 19,193 29,915 28,180 1,367 25 86,803 100
Total % 9 22 35 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP81,812m, representing 94% of the total group portfolio.
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 86
6.03 Bond portfolio summary (continued)
(a) Sectors analysed by credit rating (continued)
AAA AA A BBB below Other Total(2) Total(2)
As at 31 December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 2,747 12,187 903 398 9 - 16,244 19
Banks:
- Tier 2 and other subordinated - - 61 43 3 - 107 -
- Senior - 1,182 3,314 678 1 - 5,175 6
- Covered 158 - - - - - 158 -
Financial Services:
- Tier 2 and other subordinated - 120 71 10 - 3 204 -
- Senior 55 488 202 323 9 - 1,077 1
Insurance:
- Tier 2 and other subordinated 65 161 8 59 - - 293 -
- Senior - 273 492 401 - - 1,166 1
Consumer Services and Goods:
- Cyclical - 24 1,158 1,771 288 - 3,241 4
- Non-cyclical 366 1,153 2,849 4,057 324 - 8,749 10
- Healthcare - 437 886 669 5 - 1,997 2
Infrastructure:
- Social 217 766 4,579 814 79 - 6,455 8
- Economic 328 61 784 4,006 290 - 5,469 7
Technology and Telecoms 193 229 1,633 3,080 31 1 5,167 6
Industrials - 16 709 759 26 - 1,510 2
Utilities - 207 6,034 5,526 27 - 11,794 14
Energy - - 429 784 19 - 1,232 1
Commodities - - 351 919 7 - 1,277 2
Oil and Gas - 773 958 467 276 - 2,474 3
Real estate - 8 1,622 1,675 93 - 3,398 4
Structured finance ABS
/ RMBS / CMBS / Other 429 772 400 578 27 1 2,207 3
Lifetime mortgage loans(1) 3,611 1,533 494 385 - 13 6,036 7
CDOs - 58 - 14 - - 72 -
Total GBPm 8,169 20,448 27,937 27,416 1,514 18 85,502 100
Total % 9 24 33 32 2 - 100
1. The credit ratings attributed to lifetime mortgage loans are
allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These
account for GBP80,438m, representing 94% of the total group portfolio.
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 87
6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile
Rest of
UK US EU the World Total
As at 31 December 2021 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,829 1,892 1,244 1,062 14,027
Banks 2,253 1,799 1,956 915 6,923
Financial Services 425 429 517 90 1,461
Insurance 113 1,291 15 123 1,542
Consumer Services and Goods:
- Cyclical 473 2,213 442 270 3,398
- Non-cyclical 1,879 5,828 391 174 8,272
- Healthcare 284 2,054 82 1 2,421
Infrastructure:
- Social 6,141 628 154 52 6,975
- Economic 4,348 902 309 400 5,959
Technology and Telecoms 412 3,025 782 843 5,062
Industrials 190 681 354 82 1,307
Utilities 6,963 2,158 2,217 538 11,876
Energy 415 667 1 158 1,241
Commodities 20 537 175 530 1,262
Oil and Gas 196 626 785 568 2,175
Real estate 1,895 734 602 296 3,527
Structured finance ABS / RMBS /
CMBS / Other 861 1,395 10 185 2,451
Lifetime mortgage loans 6,857 - - - 6,857
CDOs - - - 67 67
Total 43,554 26,859 10,036 6,354 86,803
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 88
6.03 Bond portfolio summary (continued)
(b) Sectors analysed by domicile (continued)
Rest of
UK US EU the World Total
As at 31 December 2020 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 11,797 2,425 1,176 846 16,244
Banks 1,687 1,907 1,463 383 5,440
Financial Services 391 298 525 67 1,281
Insurance 109 1,049 181 120 1,459
Consumer Services and Goods
- Cyclical 543 2,201 360 137 3,241
- Non-cyclical 1,789 6,403 389 168 8,749
- Healthcare 209 1,694 94 - 1,997
Infrastructure
- Social 5,809 487 112 47 6,455
- Economic 4,071 853 231 314 5,469
Technology and Telecoms 485 3,098 754 830 5,167
Industrials 191 927 330 62 1,510
Utilities 6,886 2,236 2,097 575 11,794
Energy 244 758 105 125 1,232
Commodities 3 596 165 513 1,277
Oil and Gas 232 642 832 768 2,474
Real estate 2,168 384 634 212 3,398
Structured finance ABS / RMBS / CMBS
/ Other 944 1,207 11 45 2,207
Lifetime mortgage loans 6,036 - - - 6,036
CDOs - - - 72 72
Total 43,594 27,165 9,459 5,284 85,502
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 89
6.03 Bond portfolio summary (continued)
(c) Bond portfolio analysed by credit rating
Externally Internally
rated rated(1) Total
As at 31 December 2021 GBPm GBPm GBPm
AAA 3,506 4,617 8,123
AA 15,544 3,649 19,193
A 21,240 8,675 29,915
BBB 20,715 7,465 28,180
BB or below 950 417 1,367
Other 10 15 25
Total 61,965 24,838 86,803
Externally Internally
rated rated(1) Total
As at 31 December 2020 GBPm GBPm GBPm
AAA 4,101 4,068 8,169
AA 17,101 3,347 20,448
A 21,235 6,702 27,937
BBB 21,307 6,109 27,416
BB or below 1,049 465 1,514
Other 4 14 18
Total 64,797 20,705 85,502
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 90
6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded
Direct
investments Traded Total
As at 31 December 2021 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 1,037 12,990 14,027
Banks 665 6,258 6,923
Financial Services 432 1,029 1,461
Insurance 119 1,423 1,542
Consumer Services and Goods:
- Cyclical 498 2,900 3,398
- Non-cyclical 512 7,760 8,272
- Healthcare 357 2,064 2,421
Infrastructure:
- Social 3,699 3,276 6,975
- Economic 4,267 1,692 5,959
Technology and Telecoms 153 4,909 5,062
Industrials 60 1,247 1,307
Utilities 1,883 9,993 11,876
Energy 475 766 1,241
Commodities 55 1,207 1,262
Oil and Gas 56 2,119 2,175
Real estate 2,091 1,436 3,527
Structured finance ABS / RMBS / CMBS
/ Other 1,021 1,430 2,451
Lifetime mortgage loans 6,857 - 6,857
CDOs - 67 67
Total 24,237 62,566 86,803
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 91
6.03 Bond portfolio summary (continued)
(d) Sectors analysed by Direct investments and Traded
(continued)
Direct
investments Traded Total
As at 31 December 2020 GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 889 15,355 16,244
Banks 644 4,796 5,440
Financial Services 310 971 1,281
Insurance 282 1,177 1,459
Consumer Services and Goods:
- Cyclical 351 2,890 3,241
- Non-cyclical 396 8,353 8,749
- Healthcare 363 1,634 1,997
Infrastructure:
- Social 3,283 3,172 6,455
- Economic 3,726 1,743 5,469
Technology and Telecoms 93 5,074 5,167
Industrials 64 1,446 1,510
Utilities 1,475 10,319 11,794
Energy 355 877 1,232
Commodities 59 1,218 1,277
Oil and Gas 58 2,416 2,474
Real estate 2,301 1,097 3,398
Structured finance ABS / RMBS /
CMBS / Other 870 1,337 2,207
Lifetime mortgage loans 6,036 - 6,036
CDOs - 72 72
Total 21,555 63,947 85,502
Legal & General Group Plc
Full Year Results 2021 Part 3
Investments Page 92
6.04 Property analysis
Property exposure within Direct investments by status
LGR(1) LGC(2) Total
As at 31 December 2021 GBPm GBPm GBPm %
Fully let 4,746 - 4,746 83
Development 540 293 833 15
Land - 131 131 2
Total 5,286 424 5,710 100
LGR(1) LGC(2) Total
As at 31 December 2020 GBPm GBPm GBPm %
Fully let 3,974 - 3,974 85
Development 345 224 569 12
Land - 129 129 3
Total 4,319 353 4,672 100
1. The fully let LGR property includes GBP4.5bn (31 December 2020:
GBP3.8bn) let to investment grade tenants.
2. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are
accounted for as inventory within Receivables and other assets on
the group's Consolidated Balance Sheet and measured at the lower
of cost and net realisable value. At 31 December 2021 the group
held a total of GBP2,044m (31 December 2020: GBP2,179m) of such
assets.
Legal & General Group Plc
Full Year Results 2021 Part 3
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Legal & General Group Plc
Full Year Results 2021 Part 3
Alternative Performance Measures Page 94
An alternative performance measure (APM) is a financial measure
of historic or future financial performance, financial position, or
cash flows, other than a financial measure defined under IFRS or
the regulations of Solvency II. APMs offer investors and
stakeholders additional information on the company's performance
and the financial effect of 'one-off' events, and the group uses a
range of these metrics to enhance understanding of the group's
performance. However, APMs should be viewed as complementary to,
rather than as a substitute for, the figures determined according
to other regulations. The APMs used by the group are listed in this
section, along with their definition/explanation, their closest
IFRS measure and reference to the reconciliations to those IFRS
measures.
The APMs used by the group may not be the same as, or comparable
to, those used by other companies, both in similar and different
industries. The calculation of APMs is consistent with previous
periods, unless otherwise stated.
Adjusted operating profit
Definition
Adjusted operating profit is an APM that supports the internal
performance management and decision making of the group's operating
businesses, and accordingly underpins the remuneration outcomes of
the executive directors and senior management. The group considers
this measure meaningful to stakeholders as it enhances the
understanding of the group's operating performance over time by
separately identifying non-operating items.
Adjusted operating profit measures the pre-tax result excluding
the impact of investment volatility, economic assumption changes
caused by changes in market conditions or expectations and
exceptional items. It therefore reflects longer-term economic
assumptions for the group's insurance businesses and shareholder
funds, including the traded portfolio in LGC. For direct
investments, operating profit reflects the expected long-term
economic return for those assets which are developed with the
intention of sale, or the IFRS profit before tax for the early
stage and mature businesses. Variances between actual and long-term
expected investment return on traded and real assets (including
direct investments) are excluded from adjusted operating profit, as
well as economic assumption changes caused by changes in market
conditions or expectations (e.g. credit default and inflation) and
any difference between the actual allocated asset mix and the
target long-term asset mix on new pension risk transfer business.
Adjusted operating profit also excludes the yield associated with
assets held for future new pension risk transfer business from the
valuation discount rate on insurance contract liabilities.
Exceptional income and expenses which arise outside the normal
course of business in the year, such as merger and acquisition and
start-up costs, are also excluded from adjusted operating
profit.
In certain disclosures, the group may use the term 'operating
profit' as a substitute for adjusted operating profit, but in all
circumstances it carries the same definition and meaning.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Note 1.01 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 year).
Closest IFRS measure
Calculated using:
- Profit attributable to equity holders
- Equity attributable to owners of the parent
Reconciliation
Calculated using profit attributable to equity holders for the
year of GBP2,050m (31 December 2020: GBP1,607m) and average equity
attributable to the owners of the parent of GBP9,994m (31 December
2020: GBP9,270m), based on an opening balance of GBP9,502m and a
closing balance of GBP10,486m (2020: based on an opening balance of
GBP9,038m and a closing balance of GBP9,502m).
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 4.04 Reconciliation of assets under management to Consolidated Balance Sheet.
Net release from operations
Definition
Release from operations plus new business surplus/(strain). Net
release from operations is also referred to as cash generation, 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. Net
release from operations is a component of adjusted operating profit
(after tax), and excludes predominantly the impact of experience
variances and changes in valuation assumptions.
Closest IFRS measure
Profit before tax attributable to equity holders.
Reconciliation
Notes 1.01 Operating profit and 1.02 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 1.01 Operating profit.
Legal & General Group Plc
Full Year Results 2021 Part 3
Glossary Page 95
* These items represent an alternative performance measure
(APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
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.
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.
Assured Payment Policy (APP)
An Assured Payment Policy (APP) is a long-term contract under
which the policyholder (a registered UK pension scheme) pays a
day-one premium and in return receives a contractually fixed and/or
inflation-linked set of payments over time from the insurer.
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.
CAGR
Compound annual growth rate.
Cash generation
Cash generation is an alternative term for net release from
operations.
CCF - Common Contractual Fund
An Irish regulated asset pooling fund structure. It enables
institutional investors to pool assets into a single fund vehicle
with the aim of achieving cost savings, enhanced returns and
operational efficiency through economies of scale. A CCF is an
unincorporated body established under a deed where investors are
"co-owners" of underlying assets which are held pro rata with their
investment. The CCF is authorised and regulated by the Central Bank
of Ireland.
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 in the US and Bermuda 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 as well as 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
Full Year Results 2021 Part 3
Glossary Page 96
Early stage business
A recently created company in the early stage of its life cycle
(typically up to 18 to 24 months since establishment), which has
not broken even yet. This usually means the entity is not fully
operational yet, and the management team is still being
developed.
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.
Employee satisfaction index
The Employee satisfaction index measures the extent to which
employees report that they are happy working at Legal &
General. It is measured as part of our Voice surveys, which also
include questions on commitment to the goals of Legal & General
and the overall success of the company.
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.
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).
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.
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.
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.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and
organisations follow when completing financial statements.
They are designed to enable comparable reporting between
companies, and they are the standards that all publicly listed
groups in the UK are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or
position of the business can be measured effectively. The group
Board reviews the KPIs annually and updates them where
appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGI new business
New business arising from new policies written on retail
protection products and new deals and incremental business on group
protection products.
LGIA
Legal & General Insurance America.
LGIM
Legal & General Investment Management
LGR
Legal & General Retirement, which includes Legal &
General Retirement Institutional (LGRI) and Legal & General
Retirement Retail (LGRR).
LGR new business
Single premiums arising from annuity sales and back book
acquisitions (including individual annuity and pension risk
transfer), the volume of lifetime and retirement interest only
mortgage lending and the notional size of longevity insurance
transactions, based on the present value of the fixed leg cash
flows discounted at the SONIA curve.
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.
Legal & General Group Plc
Full Year Results 2021 Part 3
Glossary Page 97
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.
Longevity
Measure of how long policyholders will live, which affects the
risk profile of pension risk transfer, annuity and protection
businesses.
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.
Mature business
A company which has been operative for more than three to five
years. It generates regular revenue streams but the growth rate in
its earnings is expected to remain broadly flat in the future. At
this point in its life cycle, a complete and experienced management
team is in place.
Morbidity rate
Rate of illness, influenced by age, gender and health, used in
pricing and calculating liabilities for policyholders of life
products, which contain morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in
pricing and calculating liabilities for policyholders of life and
annuity products, which contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
Net zero carbon
Achieving an overall balance between anthropogenic carbon
emissions produced and carbon emissions removed from the
atmosphere.
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.
OEIC - Open Ended Investment Company
A type of investment fund domiciled in the United Kingdom that
is structured to invest in stocks and other securities, authorised
and regulated by the Financial Conduct Authority (FCA).
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.
Paris Agreement
The Paris Agreement is an agreement within the United Nations
Framework Convention on Climate Change effective 4 November 2016.
The Agreement aims to limit the increase in average global
temperatures to well below 2degC, preferably to 1.5degC, compared
to pre-industrial levels.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run nal
salary pension schemes to reduce their responsibilities by closing
the schemes to new members and passing the assets and obligations
to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention,
calculated as a function of net flows and closing AUM.
Platform
Online services used by intermediaries and consumers to view and
administer their investment portfolios. Platforms usually provide
facilities for buying and selling investments (including, in the UK
products such as Individual Savings Accounts (ISAs), Self-Invested
Personal Pensions (SIPPs) and life insurance) and for viewing an
individual's entire portfolio to assess asset allocation and risk
exposure.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted
value of annual premiums expected to be received over the term of
the contracts using the same economic and operating assumptions
used for the new business value at the end of the financial period.
The discounted value of longevity insurance regular premiums and
quota share reinsurance single premiums are calculated on a net of
reinsurance basis to enable a more representative margin figure.
PVNBP therefore provides an estimate of the present value of the
premiums associated with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed,
minus derivative assets, loans, and cash and cash equivalents
QIAIF - Qualifying Investor Alternative Investment Fund
An alternative investment fund regulated in Ireland targeted at
sophisticated and institutional investors, with minimum
subscription and eligibility requirements. Due to not being subject
to many investment or borrowing restrictions, QIAIFs present a high
level of flexibility in their investment strategy.
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.
Legal & General Group Plc
Full Year Results 2021 Part 3
Glossary Page 98
Release from operations
The expected IFRS surplus generated in the period from the
difference between IFRS prudent assumptions and our best estimate
of future experience for in-force LGR and UK Insurance businesses,
the post-tax adjusted operating profit on other UK businesses,
including the medium term expected investment return on LGC
invested assets, and dividends remitted from LGIA.
Retirement Interest Only Mortgage (RIO)
A Retirement Interest Only (RIO) mortgage is a standard
retirement mortgage available for non-commercial borrowers above 55
years old. A RIO mortgage is very similar to a standard
interest-only mortgage, with two key differences:
- The loan is usually only paid off on death, move into
long-term care or sale of the house.
- The borrowers only have to prove they can afford the monthly
interest repayments and not the capital remaining at the end of the
mortgage term.
No repayment solution is required as repayment defaults to sale
of property.
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.
SICAV - Société d'Investissement à Capital Variable
A publicly traded open-end investment fund structure offered in
Europe and regulated under European law.
SIF - Specialised Investment Fund
An investment vehicle regulated in Luxembourg targeted to
well-informed investors, providing a great degree of flexibility in
organization, investment policy and types of underlying assets in
which it can invest.
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.
Solvency II capital coverage ratio (SCR)
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 contributions of the group's defined
benefit pension schemes in both Own Funds and the SCR in the
calculation of the SCR coverage ratio.
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 Operational Surplus Generation
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.
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.
Yield
A measure of the income received from an investment compared to
the price paid for the investment. It is usually expressed as a
percentage.
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