Legal & General Regulatory News (LGEN)

2019

2018

Notes

£m

£m

From continuing operations

Legal & General Retirement (LGR)

1.03

1,569

1,548

 - LGR Institutional (LGRI)

1,216

1,149

 - LGR Retail (LGRR)

353

399

Legal & General Investment Management (LGIM)

1.04

423

407

Legal & General Capital (LGC)

1.05

363

322

Legal & General Insurance (LGI)

1.03

314

308

 - UK and Other

223

246

 - US (LGIA)

91

62

Operating profit from divisions:

From continuing operations

2,669

2,585

From discontinued operations1

11

79

Operating profit from divisions

2,680

2,664

Group debt costs2

(208)

(203)

Group investment projects and expenses

(186)

(126)

Operating profit

2,286

2,335

Investment and other variances

1.06

(150)

(188)

Losses on non-controlling interests

(24)

(19)

Adjusted profit before tax attributable to equity holders

2,112

2,128

Tax expense attributable to equity holders

3.07

(302)

(320)

Profit for the year

1,810

1,808

Profit attributable to equity holders

1,834

1,827

Earnings per share:

Basic (pence per share)3

1.07

30.92p

30.79p

Diluted (pence per share)3

1.07

30.75p

30.64p

1. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.

2. Group debt costs exclude interest on non recourse financing.

3. All earnings per share calculations are based on profit attributable to equity holders of the company.

Changes in

valuation assump- tions

Operating profit/ (loss) after tax

Operating profit/ (loss) before

tax

New business surplus/ (strain)

Net

release from operations

Release from operations1

Exper- ience variances

Non-cash items

Other

Tax expense/ (credit)

For the year ended

31 December 2019

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

LGR

598

327

925

(53)

390

91

-

1,353

216

1,569

 - LGRI

418

265

683

(40)

313

88

-

1,044

172

1,216

 - LGRR

180

62

242

(13)

77

3

-

309

44

353

LGIM

366

(20)

346

(1)

-

(4)

-

341

82

423

 - LGIM (excluding

Workplace Savings)2

339

-

339

-

-

-

-

339

82

421

 - Workplace Savings3

27

(20)

7

(1)

-

(4)

-

2

-

2

LGC

295

-

295

-

-

-

-

295

68

363

LGI

259

(7)

252

(11)

44

(12)

4

277

37

314

 - UK and Other

165

(7)

158

(11)

44

(12)

4

183

40

223

 - US (LGIA)

94

-

94

-

-

-

-

94

(3)

91

From continuing operations

1,518

300

1,818

(65)

434

75

4

2,266

403

2,669

From discontinued operations4

9

-

9

-

-

-

-

9

2

11

Total from divisions

1,527

300

1,827

(65)

434

75

4

2,275

405

2,680

Group debt costs

(168)

-

(168)

-

-

-

-

(168)

(40)

(208)

Group investment projects and expenses

(44)

-

(44)

-

-

-

(102)

(146)

(40)

(186)

Total

1,315

300

1,615

(65)

434

75

(98)

1,961

325

2,286

1. Release from operations within US (LGIA) includes £81m of dividends from the US.

2. LGIM (excluding Workplace Savings) includes profits on fund management services.

3. Workplace Savings represents administration business only.

4. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019 and the recognised operating loss for the year is £35m (2018: £nil).

Release from operations for LGR, LGIM - Workplace Savings and LGI represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings and UK protection businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA. The release from operations within discontinued operations primarily reflects the unwind of expected profits after tax under the risk transfer agreement with ReAssure Limited (a subsidiary of Swiss Re) from the Mature Savings business, offset by losses from the General Insurance business in 2019.

New business surplus/strain for LGR, LGIM - Workplace Savings and LGI represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.

LGR's new business metrics are presented based on a target long-term asset portfolio. At certain period ends, depending upon the quantum and timing pf pension risk transfer (PRT) volumes, we may continue to source high quality assets to support that business after the period end, as appropriate, taking into account the alternative risks and rewards of traded credit. At year end, any difference between the actual assets and the long-term asset mix is reflected in investment variance.

Net release from operations for LGR, LGIM - Workplace Savings, LGI and discontinued operations is defined as release from operations plus new business surplus/(strain).

Release from operations and net release from operations for LGC and LGIM represents the operating profit (net of tax).

See Note 1.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.

# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

Changes in

valuation assump- tions

Operating profit/ (loss) after tax

Operating profit/ (loss) before

tax

New business surplus/ (strain)

Net

release from operations

Release from operations1

Exper- ience variances

Non-cash items

Other

Tax expense/ (credit)

For the year ended

31 December 2018

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

LGR

551

217

768

33

444

40

-

1,285

263

1,548

 - LGRI

379

188

567

22

324

43

-

956

193

1,149

 - LGRR

172

29

201

11

120

(3)

-

329

70

399

LGIM

354

(25)

329

(3)

(1)

1

-

326

81

407

 - LGIM (excluding

Workplace Savings)2

323

-

323

-

-

-

-

323

81

404

 - Workplace Savings3

31

(25)

6

(3)

(1)

1

-

3

-

3

LGC

261

-

261

-

-

-

-

261

61

322

LGI

258

(22)

236

24

35

(19)

(7)

269

39

308

 - UK and Other

181

(22)

159

24

35

(19)

1

200

46

246

 - US (LGIA)

77

-

77

-

-

-

(8)

69

(7)

62

From continuing operations

1,424

170

1,594

54

478

22

(7)

2,141

444

2,585

From discontinued operations4

44

-

44

(6)

-

26

-

64

15

79

Total from divisions

1,468

170

1,638

48

478

48

(7)

2,205

459

2,664

Group debt costs

(164)

-

(164)

-

-

-

-

(164)

(39)

(203)

Group investment projects and expenses

(34)

-

(34)

-

-

-

(68)

(102)

(24)

(126)

Total

1,270

170

1,440

48

478

48

(75)

1,939

396

2,335

1. Release from operations within US (LGIA) includes £77m of dividends from the US.

2. LGIM (excluding Workplace Savings) includes profits on fund management services.

3. Workplace Savings represents administration business only.

4. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. Operating profit of the General Insurance business in 2018 was £0m.

LGR

LGI

LGR

LGI

2019

2019

2018

2018

£m

£m

£m

£m

Net release from operations

925

252

768

236

Experience variances

 - Persistency

(4)

(9)

8

(12)

 - Mortality/morbidity

6

(5)

73

(7)

 - Expenses

(23)

-

(13)

2

 - Project and development costs

(12)

-

(11)

-

 - Other1

(20)

3

(24)

41

Total experience variances

(53)

(11)

33

24

Changes to valuation assumptions

 - Persistency

-

(16)

-

(4)

 - Mortality/morbidity2

352

39

444

25

 - Expenses

5

-

-

17

 - Other3

33

21

-

(3)

Total changes to valuation assumptions

390

44

444

35

Movement in non-cash items

 - Acquisition expense tax relief

-

(2)

-

(11)

 - Other4

91

(10)

40

(8)

Total movement in non-cash items

91

(12)

40

(19)

Other

-

4

-

(7)

Operating profit after tax

1,353

277

1,285

269

Tax gross up

216

37

263

39

Operating profit before tax

1,569

314

1,548

308

1. Other experience variances for LGI in 2018 reflected a number of modelling requirements which were not repeated in 2019.

2. Mortality assumption changes for LGR include a one off release of £134m (net of tax) from an update in the longevity trend assumption from adjusted CMI 2016 to adjusted CMI 2017. In 2018, the comparable one off release of £359m was from adjusted CMI 2015 to adjusted CMI 2016. Other positive longevity variances are driven by routine updates to our assumptions relating to base mortality rates.

3. LGR Other changes to valuation assumptions reflect a change in assumption on the future exercise of an option within a longevity swap contract.

4. LGR Other movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.

2019

2018

£m

£m

Asset management revenue (excluding 3rd party market data)1,2

889

820

Asset management transactional revenue3

23

27

Asset management expenses (excluding 3rd party market data)1,2

(491)

(443)

Workplace Savings operating profit4

2

3

Total LGIM operating profit

423

407

1. Asset management revenue and expenses exclude income and costs of £24m in relation to the provision of third party market data (2018: £19m).

2. The ETF operating result is included as part of asset management revenue and expenses, which represents a change in the presentation from previous periods. Asset management revenue (excluding 3rd party market data) and Asset management expenses (excluding 3rd party market data) have therefore been restated for the full year ended 31 December 2018 to reflect this change.

3. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.

4. Workplace Savings represents administration business.

2019

2018

£m

£m

Direct investments1

217

188

Traded investment portfolio including treasury assets2

146

134

Total LGC operating profit

363

322

1. Direct Investments represents LGC's portfolio of assets across future cities (including urban regeneration and clean energy), housing and SME finance.

2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

2019

2018

£m

£m

Investment variance1

(27)

(126)

M&A related and other variances2

(123)

(62)

Total investment and other variances

(150)

(188)

1. Investment variance includes differences between actual and smoothed investment return on traded and real assets, economic assumption changes (e.g. credit default and inflation) and the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business written during the period and held at a period end.

2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2019 reflects the impact of impairing £55m of capitalised software intangibles following a groupwide review, as well as a £43m gain on the disposal of the group's stake in IndiaFirst Life Insurance Company Limited.

After tax

Per share1

After tax

Per share1

2019

2019

2018

2018

£m

p

£m

p

Profit for the year attributable to equity holders

1,834

30.92

1,827

30.79

Less: earnings derived from discontinued operations

(23)

(0.39)

(43)

(0.72)

Basic earnings derived from continuing operations

1,811

30.53

1,784

30.07

1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.

After tax

Weighted

average

number of

shares

Per share1

2019

2019

2019

£m

m

p

Profit for the year attributable to equity holders

1,834

5,932

30.92

Net shares under options allocable for no further consideration

-

33

(0.17)

Total diluted earnings

1,834

5,965

30.75

Less: diluted earnings derived from discontinued operations

(23)

-

(0.39)

Diluted earnings derived from continuing operations

1,811

5,965

30.36

After tax

Weighted

average

number of

shares

Per share1

2018

2018

2018

£m

m

p

Profit for the year attributable to equity holders

1,827

5,933

30.79

Net shares under options allocable for no further consideration

-

29

(0.15)

Total diluted earnings

1,827

5,962

30.64

Less: diluted earnings derived from discontinued operations

(64)

-

(0.72)

Diluted earnings derived from continuing operations

1,763

5,962

29.92

1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.

(a) Profit/(loss) for the year

Group

expenses

Total

and debt

continuing

LGR

LGIM

LGC

LGI

costs

operations

For the year ended 31 December 2019

£m

£m

£m

£m

£m

£m

Operating profit/(loss)#

1,569

423

363

314

(394)

2,275

Investment and other variances

43

(9)

91

(234)

(58)

(167)

Losses attributable to non-controlling interests

-

-

-

-

(24)

(24)

Profit/(loss) before tax attributable to equity holders

1,612

414

454

80

(476)

2,084

Tax (expense)/credit attributable to equity holders

(234)

(81)

(75)

12

81

(297)

Profit/(loss) for the year

1,378

333

379

92

(395)

1,787

Group

expenses

Total

and debt

continuing

LGR

LGIM

LGC

LGI

costs

operations

For the year ended 31 December 2018

£m

£m

£m

£m

£m

£m

Operating profit/(loss)#

1,548

407

322

308

(329)

2,256

Investment and other variances

95

(4)

(273)

(1)

22

(161)

Losses attributable to non-controlling interests

-

-

-

-

(19)

(19)

Profit/(loss) before tax attributable to equity holders

1,643

403

49

307

(326)

2,076

Tax (expense)/credit attributable to equity holders

(267)

(81)

13

(39)

63

(311)

Profit/(loss) for the year

1,376

322

62

268

(263)

1,765

# Operating profit for total continuing operations represents 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

(b) Total income

LGC and

Total continuing

LGR

LGIM1,2

LGI

other3

operations

For the year ended 31 December 2019

£m

£m

£m

£m

£m

Internal income

-

188

-

(188)

-

External income

16,385

43,836

1,593

4,972

66,786

Total income

16,385

44,024

1,593

4,784

66,786

LGC and

Total continuing

LGR

LGIM1,2

LGI

other3

operations

For the year ended 31 December 2018

£m

£m

£m

£m

£m

Internal income

-

172

-

(172)

-

External income

8,507

(10,654)

1,742

1,299

894

Total income

8,507

(10,482)

1,742

1,127

894

1. LGIM internal income relates to investment management services provided to other segments.

2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.

3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.

2019

2018

For the year ended 31 December 2019

Notes

£m

£m

Income

Gross written premiums

15,203

12,843

Outward reinsurance premiums

(3,452)

(2,114)

Net change in provision for unearned premiums

(66)

-

Net premiums earned

11,685

10,729

Fees from fund management and investment contracts

834

802

Investment return

53,014

(11,843)

Other operational income

1,253

1,206

Total income

1.08

66,786

894

Expenses

Claims and change in insurance contract liabilities

19,005

8,370

Reinsurance recoveries

(3,502)

(1,051)

Net claims and change in insurance contract liabilities

15,503

7,319

Change in investment contract liabilities

45,809

(11,304)

Acquisition costs

805

780

Finance costs

269

238

Other expenses

2,244

1,732

Total expenses

64,630

(1,235)

Profit before tax

2,156

2,129

Tax expense attributable to policyholder returns

(72)

(53)

Profit before tax attributable to equity holders

2,084

2,076

Total tax expense

(369)

(364)

Tax expense attributable to policyholder returns

72

53

Tax expense attributable to equity holders

3.07

(297)

(311)

Profit after tax from continuing operations

1.08

1,787

1,765

Profit after tax from discontinued operations1

3.04

23

43

Profit for the year

1,810

1,808

Attributable to:

Non-controlling interests

(24)

(19)

Equity holders

1,834

1,827

Dividend distributions to equity holders during the year

3.05

998

932

Dividend distributions to equity holders proposed after the year end

3.05

753

704

p

p

Total basic earnings per share2

1.07

30.92

30.79

Total diluted earnings per share2

1.07

30.75

30.64

Basic earnings per share derived from continuing operations2

1.07

30.53

30.07

Diluted earnings per share derived from continuing operations2

1.07

30.36

29.92

1. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.

2. All earnings per share calculations are based on profit attributable to equity holders of the company.

2019

2018

For the year ended 31 December 2019

£m

£m

Profit for the year

1,810

1,808

Items that will not be reclassified subsequently to profit or loss

Actuarial (losses)/gains on defined benefit pension schemes

(62)

117

Tax on actuarial (losses)/gains on defined benefit pension schemes

11

(22)

Total items that will not be reclassified subsequently to profit or loss

(51)

95

Items that may be reclassified subsequently to profit or loss

Exchange differences on translation of overseas operations

(67)

62

Movement in cross-currency hedge

13

34

Tax on movement in cross-currency hedge

(1)

(5)

Movement in financial investments designated as available-for-sale

72

(36)

Tax on movement in financial investments designated as available-for-sale

(15)

5

Total items that may be reclassified subsequently to profit or loss

2

60

Other comprehensive (expense)/income after tax

(49)

155

Total comprehensive income for the year

1,761

1,963

Total comprehensive income for the year attributable to:

Continuing operations

1,738

1,920

Discontinued operations

23

43

Total comprehensive income/(expense) for the year attributable to:

Non-controlling interests

(24)

(19)

Equity holders

1,785

1,982

2019

2018

As at 31 December 2019

Notes

£m

£m

Assets

Goodwill

64

65

Purchased interest in long term businesses and other intangible assets

190

223

Deferred acquisition costs

75

140

Investment in associates and joint ventures accounted for using the equity method

324

259

Property, plant and equipment1

298

57

Investment property

3.06

7,695

6,965

Financial investments

3.06

498,376

430,498

Reinsurers' share of contract liabilities

5,810

4,737

Deferred tax assets

3.07

8

7

Current tax assets

468

418

Receivables and other assets

8,532

5,593

Assets of operations classified as held for sale

3.04

24,844

26,234

Cash and cash equivalents

13,923

17,321

Total assets

560,607

492,517

Equity

Share capital

3.08

149

149

Share premium

3.08

1,000

992

Employee scheme treasury shares

(65)

(52)

Capital redemption and other reserves