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LGEN Legal & General Group Plc

254.40
-1.10 (-0.43%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Legal & General Group Plc LSE:LGEN London Ordinary Share GB0005603997 ORD 2 1/2P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -1.10 -0.43% 254.40 254.60 254.70 255.50 253.10 254.60 16,374,581 16:35:07
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Ins Agents,brokers & Service 36.48B 457M 0.0764 33.32 15.22B

Legal & General Group Plc L&G Half-year Report 2017 Part 2 (4600N)

09/08/2017 7:01am

UK Regulatory


Legal & General (LSE:LGEN)
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From Mar 2019 to Mar 2024

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TIDMLGEN

RNS Number : 4600N

Legal & General Group Plc

09 August 2017

Legal & General Group Plc

Half-year Results 2017 Part 2

IFRS and Release from Operations Page 25

Operating profit

For the six months ended 30 June 2017

 
                                                                              Full year 
                                                          30.06.17  30.06.16   31.12.16 
                                                   Notes      GBPm      GBPm       GBPm 
 
 
From continuing operations 
Legal & General Retirement (LGR)                    2.02       566       405        809 
Legal & General Investment Management (LGIM)        2.03       194       171        366 
Legal & General Capital (LGC)                       2.05       142       135        257 
Legal & General Insurance (LGI)                     2.02       151       151        319 
                                                          --------  --------  --------- 
 - UK and Other                                                 94       108        234 
 - US                                                           57        43         85 
                                                          --------  --------  --------- 
General Insurance                                   2.04        15        31         52 
Savings                                             2.02        52        49         99 
 
 
Operating profit from divisions                              1,120       942      1,902 
Group debt costs(1)                                           (92)      (86)      (172) 
Group investment projects and expenses(2)           2.06      (40)      (34)      (102) 
Kingswood office closure costs                                   -      (45)       (66) 
 
 
Operating profit                                               988       777      1,562 
Investment and other variances                      2.07       169        50         13 
Gains/(losses) on non-controlling interests                      6       (1)          7 
 
 
Profit before tax attributable to equity holders             1,163       826      1,582 
Tax expense attributable to equity holders 
 of the company                                     2.14     (211)     (159)      (317) 
 
 
Profit for the period                                          952       667      1,265 
 
 
 
Profit attributable to equity holders of the 
 company                                                       946       668      1,258 
 
 
 
                                                                 p         p          p 
 
 
Earnings per share(3)                               2.10     15.94     11.27      21.22 
Diluted earnings per share(3)                       2.10     15.88     11.23      21.13 
 
 
1. Group debt costs exclude interest on non recourse financing. 
2. Group investment projects and expenses in H1 17 include restructuring 
 costs of GBP12m (H1 16: GBP16m; FY 16: GBP54m). 
3. All earnings per share calculations are based on profit attributable 
 to equity holders of the company. 
 

This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the year.

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents shareholder assets invested in direct investments, and traded and treasury assets.

LGI represents business in retail protection, group protection, networks, Legal & General Netherlands (LGN) (which was sold during April 2017) and protection business written in the USA (LGI US).

Savings represents business in platforms, SIPPs and mature savings including with-profits.

The General Insurance segment comprises short-term protection.

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects IFRS profit before tax) and LGI US (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. 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 operating profit.

During 2017, changes have been made to the organisational structure. Investment Discounts On Line Limited (the IDOL) has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 operating profit by GBP1m (FY 16: reduce by GBP2m), and increase LGI (UK and Other) H1 16 operating profit by GBP1m (FY 16: increase by GBP2m).

During 2016, the Insurance (excluding General Insurance) and LGA segments were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.

IFRS and Release from Operations Page 26

2.01 Reconciliation of release from operations to operating profit before tax

 
The table below provides an analysis of the release from operations 
 by each of the group's business segments, together with a reconciliation 
 to operating profit before tax. 
 
                                                                 Changes                                           Operating 
                                   New         Net                    in                      Operating              profit/ 
                     Release  business     release     Exper-  valuation  Non-cash    Inter-    profit/       Tax     (loss) 
                        from  surplus/        from      ience    assump-     items  national     (loss)  expense/     before 
                                                                               and 
For the six    operations(1)  (strain)  operations  variances      tions     other       and      after  (credit)        tax 
months                                                                              other(2)        tax 
ended 
30 June 2017            GBPm      GBPm        GBPm       GBPm       GBPm      GBPm      GBPm       GBPm      GBPm       GBPm 
 
 
LGR(3)                   256        51         307         59        104       (3)         -        467        99        566 
LGIM                     165      (11)         154          -        (2)         1         -        153        41        194 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - LGIM 
 excluding 
 Workplace 
  Savings 
   (admin 
   only)                 153         -         153          -          -         -         -        153        41        194 
 - Workplace 
 Savings 
 (admin 
  only)(4)                12      (11)           1          -        (2)         1         -          -         -          - 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
LGC                      119         -         119          -          -         -         -        119        23        142 
LGI                      166         3         169       (28)         23      (13)      (43)        108        43        151 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - UK and 
  Other(3)                86         3          89       (28)         23      (13)         4         75        19         94 
 - US                     80         -          80          -          -         -      (47)         33        24         57 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
General 
 Insurance                12         -          12          -          -         -         -         12         3         15 
Savings                   53       (2)          51          -          2      (11)         -         42        10         52 
 
 
Total from 
 divisions               771        41         812         31        127      (26)      (43)        901       219      1,120 
 
 
Group debt 
 costs                  (74)         -        (74)          -          -         -         -       (74)      (18)       (92) 
Group 
investment 
projects 
and expenses            (14)         -        (14)          -          -         -      (18)       (32)       (8)       (40) 
 
 
Total                    683        41         724         31        127      (26)      (61)        795       193        988 
 
Attributable 
to: 
Retained 
 business                683        41         724         31        127      (26)      (64)        792       192        984 
Disposed 
 operations                -         -           -          -          -         -         3          3         1          4 
 
 
1. Release from operations includes dividends remitted from LGN of GBPnil 
 (H1 16: GBP48m; FY 16: GBP70m) within the LGI (UK and Other) line and 
 US dividends of GBP80m (H1 16: GBP61m; FY 16: GBP63m) within the LGI 
 (US) line. 
2. International and other includes GBP10m (H1 16: GBP13m; FY 16: GBP43m) 
 of restructuring costs (GBP12m before tax) (H1 16: GBP16m before tax; 
 FY 16: GBP54m before tax) within the Group investment projects and expenses 
 line. 
3. During 2017, changes have been made to the organisational structure. 
 The IDOL business has been transferred to LGI from LGR. Comparatives 
 have been amended accordingly. The impact of this reclassification has 
 been to reduce LGR H1 16 release from operations by GBP1m (FY 16: reduce 
 by GBP1m) and increase LGI (UK and Other) H1 16 release from operations 
 by GBP1m (FY 16: increase by GBP1m). 
4. This represents Workplace Savings admin only and excludes fund management 
 profits. 
 
Release from operations for LGR, LGIM, LGI and Savings represents the 
 expected IFRS surplus generated in the year from the in-force non profit 
 annuities, workplace savings, protection and savings 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 LGN and LGI US and operating profit after tax 
 from the remaining LGI businesses. The Savings release from operations 
 includes the shareholders' share of bonuses on with-profits business 
 and operating profit after tax from the other Savings businesses. 
 
New business surplus/strain for LGR, LGIM, LGI and Savings 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, 
 protection and savings, net of tax. The new business surplus and release 
 from operations for LGR, LGIM, LGI and Savings exclude any capital held 
 in excess of the prudent reserves from the liability calculation. 
 
Net release from operations for LGR, LGIM, LGI and Savings is defined 
 as release from operations less new business strain. 
 
Release from operations and net release from operations for LGC and 
 General Insurance represents the operating profit (net of tax). 
 
 
See Note 2.02 for more detail on experience variances, changes to valuation 
 assumptions and non-cash items. 
 

IFRS and Release from Operations Page 27

2.01 Reconciliation of release from operations to operating profit before tax (continued)

 
 
                                                                 Changes                                           Operating 
                                   New         Net                    in                      Operating              profit/ 
                     Release  business     release     Exper-  valuation  Non-cash    Inter-    profit/       Tax     (loss) 
                        from  surplus/        from      ience    assump-     items  national     (loss)  expense/     before 
                                                                               and 
For the six    operations(1)  (strain)  operations  variances      tions     other       and      after  (credit)        tax 
months                                                                              other(2)        tax 
ended 
30 June 2016            GBPm      GBPm        GBPm       GBPm       GBPm      GBPm      GBPm       GBPm      GBPm       GBPm 
 
 
LGR(3)                   204        79         283       (11)         48        13         -        333        72        405 
LGIM                     145      (11)         134          1          -       (1)         -        134        37        171 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - LGIM 
 excluding 
 Workplace 
  Savings 
   (admin 
   only)                 136         -         136          -          -         -         -        136        38        174 
 - Workplace 
 Savings 
 (admin 
  only)(4)                 9      (11)         (2)          1          -       (1)         -        (2)       (1)        (3) 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
LGC                      113         -         113          -          -         -         -        113        22        135 
LGI                      196         7         203       (16)         17      (13)      (87)        104        47        151 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - UK and 
  Other(3)               135         7         142       (16)         17      (13)      (44)         86        22        108 
 - US                     61         -          61          -          -         -      (43)         18        25         43 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
General 
 Insurance                25         -          25          -          -         -         -         25         6         31 
Savings                   51       (3)          48          -          5      (14)         -         39        10         49 
 
 
Total from 
 divisions               734        72         806       (26)         70      (15)      (87)        748       194        942 
 
 
Group debt 
 costs                  (69)         -        (69)          -          -         -         -       (69)      (17)       (86) 
Group 
investment 
projects 
and expenses            (10)         -        (10)          -          -         -      (17)       (27)       (7)       (34) 
Kingswood 
 office 
 closure 
 costs(5)                  -         -           -          -          -         -      (36)       (36)       (9)       (45) 
 
Total                    655        72         727       (26)         70      (15)     (140)        616       161        777 
 
Attributable 
to: 
Retained 
 business                609        72         681       (26)         70      (12)      (96)        617       161        778 
Disposed 
 operations               46         -          46          -          -       (3)      (44)        (1)         -        (1) 
 
1. Operational cash generation includes dividends remitted from LGN 
 of GBP48m within the LGI (UK and Other) line and LGI (US) of GBP61m. 
2. International and other includes GBP13m of restructuring costs (GBP16m 
 before tax) within the group investment projects and expenses line. 
3. LGI (UK and Other) includes the IDOL business which was previously 
 reported in LGR. Comparatives have been restated accordingly. 
4. This represents Workplace Savings admin only and excludes fund management 
 profits. 
5. The Kingswood office closure costs reflect expenditure in relation 
 to rent and rates, as well as the write-off of previously capitalised 
 expenditure. 
 

IFRS and Release from Operations Page 28

2.01 Reconciliation of release from operations to operating profit before tax (continued)

 
 
                                                                 Changes                                           Operating 
                                   New         Net                    in                      Operating              profit/ 
                     Release  business     release     Exper-  valuation  Non-cash    Inter-    profit/       Tax     (loss) 
                        from  surplus/        from      ience    assump-     items  national     (loss)  expense/     before 
                                                                               and 
For the year   operations(1)  (strain)  operations  variances      tions     other       and      after  (credit)        tax 
ended                                                                               other(2)        tax 
31 December             GBPm      GBPm        GBPm       GBPm       GBPm      GBPm      GBPm       GBPm      GBPm       GBPm 
2016 
 
 
LGR                      432       159         591         34         40         6         -        671       138        809 
LGIM                     308      (22)         286        (1)          -         -         -        285        81        366 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - LGIM 
 excluding 
 Workplace 
 Savings 
  (admin 
  only)                  290         -         290          -          -         -         -        290        82        372 
 - Workplace 
 Savings 
 (admin(3) 
  only)                   18      (22)         (4)        (1)          -         -         -        (5)       (1)        (6) 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
LGC                      214         -         214          -          -         -         -        214        43        257 
LGI                      318        23         341       (11)          5      (29)      (79)        227        92        319 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
 - UK and 
  Other                  255        23         278       (11)          5      (29)      (57)        186        48        234 
 - US                     63         -          63          -          -         -      (22)         41        44         85 
               -------------  --------  ----------  ---------  ---------  --------  --------  ---------  --------  --------- 
General 
 Insurance                42         -          42          -          -         -         -         42        10         52 
Savings                  104       (5)          99          4          8      (32)         -         79        20         99 
 
 
Total from 
 divisions             1,418       155       1,573         26         53      (55)      (79)      1,518       384      1,902 
 
 
Group debt 
 costs                 (138)         -       (138)          -          -         -         -      (138)      (34)      (172) 
Group 
investment 
projects 
and expenses            (24)         -        (24)          -          -         -      (59)       (83)      (19)      (102) 
Kingswood 
 office 
 closure 
 costs(4)                  -         -           -          -          -         -      (53)       (53)      (13)       (66) 
 
 
Total                  1,256       155       1,411         26         53      (55)     (191)      1,244       318      1,562 
 
 
Attributable 
to: 
Retained 
 business              1,186       155       1,341         26         53      (50)     (133)      1,237       315      1,552 
Disposed 
 operations               70         -          70          -          -       (5)      (58)          7         3         10 
 
1. Release from operations includes dividends remitted from LGN of GBP70m 
 within the LGI (UK and Other) line and LGI (US) of GBP63m. 
2. International and other includes GBP43m of restructuring costs (GBP54m 
 before tax) within the Group investment projects and expenses line. 
3. This represents Workplace Savings admin only and excludes fund management 
 profits. 
4. The Kingswood office closure costs reflect expenditure in relation 
 to rent and rates, as well as the write-off of previously capitalised 
 expenditure. 
 

IFRS and Release from Operations Page 29

2.02 Analysis of LGR, LGI and Savings operating profit

 
 
                                         LGR       LGI   Savings       LGR       LGI   Savings 
                                    30.06.17  30.06.17  30.06.17  30.06.16  30.06.16  30.06.16 
                                        GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
 
 
Net release from operations              307       169        51       283       203        48 
 
 
Experience variances 
  Persistency(1)                           -      (13)         -         -         1         - 
  Mortality/morbidity(2)                   3      (16)         -         2      (15)         - 
  Expenses                               (6)         2         1       (7)         3         2 
  Project and development 
   costs                                 (2)       (1)       (2)       (1)       (1)         - 
  Other(3)                                64         -         1       (5)       (4)       (2) 
 
 
Total experience variances                59      (28)         -      (11)      (16)         - 
 
 
Changes to valuation assumptions 
  Persistency                              -         -         -         -         -         5 
  Mortality/morbidity(4)                 104        25         -        48         2         - 
  Expenses                                 -         -         -         -        25         - 
  Other                                    -       (2)         2         -      (10)         - 
 
 
Total changes in valuation 
 assumptions                             104        23         2        48        17         5 
 
 
Movement in non-cash items 
  Deferred tax                             -         -         -         -         1         - 
  Acquisition expense tax 
   relief (5)                              -       (9)       (1)         -      (13)       (2) 
  Deferred Acquisition Costs 
   (DAC)(6)                                -         -      (15)         -         -      (15) 
  Deferred Income Liabilities 
   (DIL)(6)                                -         -         5         -         -         6 
  Other                                  (3)       (4)         -        13       (1)       (3) 
 
 
Total non-cash movement 
 items and other                         (3)      (13)      (11)        13      (13)      (14) 
 
 
International and other(7)                 -      (43)         -         -      (87)         - 
 
 
Operating profit after tax               467       108        42       333       104        39 
 
 
Tax gross up                              99        43        10        72        47        10 
 
 
Operating profit before 
 tax                                     566       151        52       405       151        49 
 
 
1. The H1 17 LGI persistency experience variance primarily reflects 
 a higher number of group protection scheme renewals than anticipated, 
 coupled with retail protection negative lapse experience and cancellations. 
2. LGI mortality/morbidity experience variance in H1 17 primarily 
 reflects adverse claims experience on the group protection book of 
 business. 
3. The H1 17 positive LGR other experience variance is primarily due 
 to the GBP60m release of reserves from moving to finalised PRT scheme 
 data, and a GBP16m model change to improve consistency between deferred 
 and immediate annuity liability valuation models. This is partially 
 offset by a GBP12m negative impact from prudent mortality experience 
 assumptions during the period where full death data is not yet available. 
4. The H1 17 LGR mortality/morbidity valuation assumption changes 
 primarily reflect an update of the portfolio base mortality assumptions 
 following the review of mortality rates seen over the last few years. 
 The LGI mortality/morbidity valuation assumption changes reflects 
 an improvement in individual protection mortality reserving basis 
 modelling. The H1 16 mortality/morbidity valuation assumption change 
 in LGR primarily reflects a change in the treatment to historic longevity 
 insurance deals where future fees in excess of prudent estimates of 
 longevity and expense experience are now included as an offset to 
 IFRS reserves. 
5. Net release from operations for LGI and Savings recognises tax 
 relief from prior year acquisition expenses, which are spread evenly 
 over seven years under relevant 'I-E' tax legislation in the period 
 the cash flows actually occur. In contrast, operating profit typically 
 recognises the value of these future cash flows in the same period 
 as the underlying expense as deferred tax amounts. The reconciling 
 amounts arising from these items are included in the table above. 
 Following the removal of new retail protection business from the 'I-E' 
 tax regime, and the removal of commission from new insured savings 
 business under the Retail Distribution Review at the end of 2012, 
 no material amount of deferred tax assets arise on new acquisition 
 expenses and the value of these future cash flows for post-2013 acquisition 
 expenses have been reflected within net release from operations. The 
 residual prior year acquisition expenses will run off predictably 
 to 2018. 
6. The DAC in Savings represents the amortisation charges offset by 
 new acquisition costs deferred in the year. The DIL reflects initial 
 fees on insured savings business which relate to the future provision 
 of services and are deferred and amortised over the anticipated period 
 in which these services are provided. 
7. LGI Other in H1 17 reflects the difference between the dividend 
 (release from operations) remitted from LGA of GBP80m (H1 2016: dividends 
 remitted from LGN of GBP48m and LGA of GBP61m) and the LGA and India 
 operating profit after tax (H1 16: LGN, LGA and India operating profit 
 after tax). 
 

IFRS and Release from Operations Page 30

2.02 Analysis of LGR, LGI and Savings operating profit (continued)

 
 
                                                                             LGR        LGI    Savings 
                                                                       Full year  Full year  Full year 
                                                                        31.12.16   31.12.16   31.12.16 
                                                                            GBPm       GBPm       GBPm 
 
 
Net release from operations                                                  591        341         99 
 
 
Experience variances 
  Persistency                                                                  2        (2)          - 
  Mortality/morbidity(1)                                                      47       (34)          - 
  Expenses                                                                   (9)          4          7 
  Project and development costs                                             (21)          2        (4) 
  Other                                                                       15         19          1 
 
 
Total experience variances                                                    34       (11)          4 
 
 
Changes to valuation assumptions 
  Persistency(2)                                                               -       (52)          5 
  Mortality/morbidity(3)                                                      40          4          - 
  Expenses(4)                                                                  -         53          - 
  Other                                                                        -          -          3 
 
 
Total valuation assumption changes                                            40          5          8 
 
 
Movement in non-cash items 
  Deferred tax                                                                 -          -          1 
  Acquisition expense tax relief (5)                                           -       (27)        (3) 
  Deferred Acquisition Costs (DAC)(6)                                          -          -       (28) 
  Deferred Income Liabilities (DIL)(6)                                         -          -          9 
  Other                                                                        6        (2)       (11) 
 
 
Total non-cash movement items                                                  6       (29)       (32) 
 
 
International and other(7)                                                     -       (79)          - 
 
 
Operating profit after tax                                                   671        227         79 
 
 
Tax gross up                                                                 138         92         20 
 
 
Operating profit before tax                                                  809        319         99 
 
 
1. The LGR mortality/morbidity experience variance reflects higher than 
 expected annuitant deaths experience over FY 16. LGI mortality/morbidity 
 experience variance in FY 16 primarily reflects adverse claims experience 
 on the group protection book of business. 
2. The LGI persistency valuation assumption change in FY 16 is the result 
 of a review of prudence within the lapse assumption for level and decreasing 
 term assurance products. 
3. The mortality/morbidity valuation assumption change in LGR primarily 
 reflects a change in the treatment to historic longevity insurance deals 
 where future fees in excess of prudent estimates of longevity and expense 
 experience are now included as an offset to IFRS reserves. 
4. The LGI expense valuation assumption change is the result of the reduction 
 in unit costs following recent expense savings actions, together with 
 a review of the prudence within renewal expenses on our protection products. 
5. Net release from operations for LGI and Savings recognises tax relief 
 from prior year acquisition expenses, which are spread evenly over seven 
 years under relevant 'I-E' tax legislation in the period the cash flows 
 actually occur. In contrast, operating profit typically recognises the 
 value of these future cash flows in the same period as the underlying 
 expense as deferred tax amounts. The reconciling amounts arising from 
 these items are included in the table above. Following the removal of 
 new retail protection business from the 'I-E' tax regime, and the removal 
 of commission from new insured savings business under the Retail Distribution 
 Review at the end of 2012, no material amount of deferred tax assets 
 arise on new acquisition expenses and the value of these future cash 
 flows for post-2013 acquisition expenses have been reflected within net 
 release from operations. The residual prior year acquisition expenses 
 will run off predictably to 2018. 
6. The DAC in Savings represents the amortisation charges offset by new 
 acquisition costs deferred in the year. The DIL reflects initial fees 
 on insured savings business which relate to the future provision of services 
 and are deferred and amortised over the anticipated period in which these 
 services are provided. 
7. LGI Other in FY 16 reflects the difference between the dividend (release 
 from operations) remitted from LGN and LGI (US) of GBP70m and GBP63m 
 respectively and the LGN, LGI (US) and India operating profit after tax. 
 
 
 

IFRS and Release from Operations Page 31

2.03 LGIM operating profit

 
                                                                              Full year 
                                                          30.06.17  30.06.16   31.12.16 
                                                              GBPm      GBPm       GBPm 
 
 
Investment management revenue (excluding 
 3rd party market data)(1)                                     382       332        700 
Investment management transactional revenue(2)                  12        16         30 
Investment management expenses (excluding 
 3rd party market data)(1)                                   (200)     (174)      (358) 
Workplace Savings (admin only) operating 
 loss(3)                                                         -       (3)        (6) 
 
 
Total LGIM operating profit                                    194       171        366 
 
1. Investment management revenue and expenses excludes income and costs 
 of GBP8m in relation to provision of 3rd party market data (H1 16: GBP5m 
 each; FY 16: GBP14m each). 
2. Transactional revenue includes execution fees, asset transition income, 
 trigger fees, arrangement fees on property transactions and performance 
 fees for property funds. 
3. This represents Workplace Savings admin only and excludes fund management 
 profits. 
 

2.04 General Insurance operating profit and combined operating ratio

 
 
                                                                             Full year 
                                                         30.06.17  30.06.16   31.12.16 
                                                             GBPm      GBPm       GBPm 
 
 
General Insurance operating profit(1)                          15        31         52 
 
 
General Insurance combined operating ratio (%)(2)              95        85         89 
 
 
1. The General Insurance operating profit includes the underwriting 
 result and smoothed investment return. 
2. The calculation of the General Insurance combined operating ratio 
 incorporates claims, commission and expenses as a percentage of net 
 earned premiums. 
 

2.05 LGC operating profit

 
 
                                                      Full year 
                                  30.06.17  30.06.16   31.12.16 
                                      GBPm      GBPm       GBPm 
 
 
Direct investments                      69        68        121 
Traded portfolio including 
 treasury operations                    73        67        136 
 
 
Total LGC operating profit             142       135        257 
 
 
 
 

2.06 Group investment projects and central expenses

 
 
                                                                          Full year 
                                                      30.06.17  30.06.16   31.12.16 
                                                          GBPm      GBPm       GBPm 
 
 
Group investment projects and central 
expenses                                                  (28)      (18)       (48) 
Restructuring costs(1)                                    (12)      (16)       (54) 
 
 
Total group investment projects and expenses              (40)      (34)      (102) 
 
 
1. Restructuring costs exclude the Kingswood office closure costs which 
 have been presented separately. 
 

IFRS and Release from Operations Page 32

2.07 Investment and other variances

 
 
                                                                                   Full year 
                                                    30.06.17       30.06.16         31.12.16 
                                                        GBPm           GBPm             GBPm 
 
 
Investment variance(1)                                   198             58              147 
M&A related(2)                                             6            (4)            (102) 
Other(3)                                                (35)            (4)             (32) 
 
 
Total investment and 
 other variances                                         169             50               13 
 
 
1. H1 17 investment variance is positive, primarily driven by the outperformance 
 of UK equity markets to expectations. The defined benefit pension scheme 
 variance of GBP111m contained within this line (H1 16: GBP31m; FY 16: 
 GBP29m) primarily reflects the impact of the acquisition of annuities 
 as an asset of the scheme from LGR, and the interest rate difference 
 between the IAS 19 and annuity discount rates. A segmental analysis 
 of Investment and other variances can be found in note 2.09 (a). 
2. M&A related includes gains and losses, expenses and intangible amortisation 
 relating to acquisitions and disposals. H1 17 includes the GBP17m net 
 gain resulting from the disposal of Legal & General Netherlands. (H1 
 16: includes the GBP4m net gain resulting from the disposal of subsidiaries 
 during the period; FY 16: includes the GBP60m net loss resulting from 
 the classification of Cofunds as held for sale (GBP64m loss) and the 
 disposal of Suffolk Life (GBP4m gain)). 
3. Other includes new business start-up costs and other non-investment 
 related variance items. 
 

IFRS and Release from Operations Page 33

Consolidated Income Statement

For the six months ended 30 June 2017

 
                                                                                Full year 
                                                            30.06.17  30.06.16   31.12.16 
                                                     Notes      GBPm      GBPm       GBPm 
 
 
Income 
Gross written premiums                                4.02     3,716     5,492     10,325 
Outward reinsurance premiums                                   (866)     (719)    (1,573) 
Net change in provision for unearned premiums                   (11)         6          4 
 
 
Net premiums earned                                            2,839     4,779      8,756 
Fees from fund management and investment contracts               481       523      1,068 
Investment return                                             15,457    36,978     67,824 
Operational income                                               141       243        321 
 
 
Total income                                          2.09    18,918    42,523     77,969 
 
 
Expenses 
Claims and change in insurance liabilities                     3,449    11,377     17,896 
Reinsurance recoveries                                         (494)   (1,454)    (2,745) 
 
 
Net claims and change in insurance liabilities                 2,955     9,923     15,151 
Change in provisions for investment contract 
 liabilities                                                  13,618    30,569     58,578 
Acquisition costs                                                377       375        793 
Finance costs                                                    106        98        198 
Other expenses                                                   468       748      1,569 
Transfers to/(from) unallocated divisible surplus                 84     (174)      (187) 
 
 
Total expenses                                                17,608    41,539     76,102 
 
 
Profit before tax                                              1,310       984      1,867 
Tax expense attributable to policyholder returns               (147)     (158)      (285) 
 
 
Profit before tax attributable to equity holders               1,163       826      1,582 
 
 
Total tax expense                                              (358)     (317)      (602) 
Tax expense attributable to policyholder returns                 147       158        285 
 
 
Tax expense attributable to equity holders            2.14     (211)     (159)      (317) 
 
 
Profit for the period                                 2.09       952       667      1,265 
 
 
 
Attributable to: 
Non-controlling interests                             2.20         6       (1)          7 
Equity holders of the company                                    946       668      1,258 
 
 
 
Dividend distributions to equity holders of 
 the company during the period                        2.16       616       592        830 
Dividend distributions to equity holders of 
 the company proposed after the period end            2.16       256       238        616 
 
 
 
 
 
                                                                   p         p          p 
 
 
Earnings per share(1)                                 2.10     15.94     11.27      21.22 
 
 
Diluted earnings per share(1)                         2.10     15.88     11.23      21.13 
 
 
1. All earnings per share calculations are based on profit attributable 
 to equity holders of the company. 
 

IFRS and Release from Operations Page 34

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2017

 
                                                         30.06.17  30.06.16  31.12.16 
                                                             GBPm      GBPm      GBPm 
 
 
Profit for the period                                         952       667     1,265 
 
Items that will not be reclassified subsequently 
 to profit or loss 
Actuarial losses on defined benefit pension 
 schemes                                                     (89)      (62)     (138) 
Tax on actuarial losses on defined benefit pension 
 schemes                                                       16        12        17 
Actuarial gains on defined benefit pension schemes 
 transferred to unallocated divisible surplus                  33        23        51 
Tax on actuarial gains on defined benefit pension 
 schemes transferred to unallocated divisible surplus         (6)       (4)       (6) 
 
 
Total items that will not be reclassified to 
 profit or loss subsequently                                 (46)      (31)      (76) 
 
 
Items that may be reclassified subsequently 
 to profit or loss 
Exchange differences on translation of overseas 
 operations                                                  (44)       116       190 
Movement in cross-currency hedge                               20         -         - 
Net change in financial investments designated 
 as available-for-sale                                         28        66       (4) 
Tax on net change in financial investments 
 designated as available-for-sale                            (10)      (23)         1 
 
 
Total items that may be reclassified to profit 
 or loss subsequently                                         (6)       159       187 
 
 
Other comprehensive (expense)/income after 
 tax                                                         (52)       128       111 
 
 
Total comprehensive income for the period                     900       795     1,376 
 
 
Total comprehensive income attributable to: 
Non-controlling interests                                       6       (1)         7 
Equity holders of the company                                 894       796     1,369 
 
 
 

IFRS and Release from Operations Page 35

Consolidated Balance Sheet

As at 30 June 2017

 
                                                               30.06.17  30.06.16(1)  31.12.16(1) 
                                                        Notes      GBPm         GBPm         GBPm 
 
 
Assets 
Goodwill                                                             11           79           11 
Purchased interest in long term businesses and 
 other intangible assets                                            133          251          155 
Deferred acquisition costs                                        2,032        2,007        2,105 
Investment in associates and joint ventures                         305          237          283 
Property, plant and equipment                                        69           97           76 
Investment property                                 2.13/3.04     8,714        8,227        8,150 
Financial investments                               2.13/3.04   435,861      403,237      428,544 
Reinsurers' share of contract liabilities                         5,300        4,955        5,593 
Deferred tax asset                                       2.14         5            5            5 
Current tax recoverable                                             358          271          297 
Other assets                                                     11,262       10,900        5,022 
Assets of operations classified as held for sale         2.12         -            -        2,265 
Cash and cash equivalents                                        15,805       12,842       15,348 
 
 
Total assets                                                    479,855      443,108      467,854 
 
 
 
Equity 
Share capital                                            2.17       149          149          149 
Share premium                                                       985          978          981 
Employee scheme treasury shares                                    (40)         (32)         (30) 
Capital redemption and other reserves                               211          211          212 
Retained earnings                                                 5,910        5,285        5,633 
 
 
Attributable to owners of the parent                              7,215        6,591        6,945 
Non-controlling interests                                2.20       350          292          338 
 
 
Total equity                                                      7,565        6,883        7,283 
 
 
 
Liabilities 
Participating insurance contracts                                 5,579        5,864        5,794 
Participating investment contracts                                5,180        5,260        5,271 
Unallocated divisible surplus                                       719          693          661 
Value of in-force non-participating contracts                     (145)        (135)        (206) 
 
 
Participating contract liabilities                               11,333       11,682       11,520 
 
 
 
Non-participating insurance contracts                            61,097       58,437       60,779 
Non-participating investment contracts                          325,059      300,605      321,177 
 
 
Non-participating contract liabilities                          386,156      359,042      381,956 
 
 
 
Core borrowings                                          2.18     3,499        3,064        3,071 
Operational borrowings                                   2.19       553          411          430 
Provisions                                                        1,358        1,205        1,328 
Deferred tax liabilities                                 2.14       840          729          813 
Current tax liabilities                                             171          120          117 
Payables and other financial liabilities                 2.15    43,709       36,756       37,347 
Other liabilities                                                   509          617          594 
Net asset value attributable to unit holders                     24,162       22,599       21,573 
Liabilities of operations classified as held 
 for sale                                                2.12         -            -        1,822 
 
 
Total liabilities                                               472,290      436,225      460,571 
 
 
Total equity and liabilities                                    479,855      443,108      467,854 
 
 
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values 
 have been restated. Refer to footnote 1 in the Consolidated Cash Flow 
 Statement. 
 

IFRS and Release from Operations Page 36

Condensed Consolidated Statement of Changes in Equity

 
 
                                       Employee      Capital                   Equity 
                                         scheme   redemption             attributable         Non- 
                       Share    Share  treasury    and other  Retained      to owners  controlling     Total 
                                                                               of the 
                     capital  premium    shares  reserves(1)  earnings         parent    interests    equity 
For the six             GBPm     GBPm      GBPm         GBPm      GBPm           GBPm         GBPm      GBPm 
months 
ended 30 June 
2017 
 
 
As at 1 January 
 2017                    149      981      (30)          212     5,633          6,945          338     7,283 
Total 
comprehensive 
(expense)/income 
for the period             -        -         -          (6)       900            894            6       900 
Options exercised 
under 
share option 
schemes                    -        4         -            -         -              4            -         4 
Net movement in 
employee 
scheme 
treasury shares            -        -      (10)          (3)         1           (12)            -      (12) 
Dividends                  -        -         -            -     (616)          (616)            -     (616) 
Movement in third 
 party 
 interests                 -        -         -            -         -              -            6         6 
Currency 
 translation 
 differences               -        -         -            8       (8)              -            -         - 
 
 
As at 30 June 
 2017                    149      985      (40)          211     5,910          7,215          350     7,565 
 
1. Capital redemption and other reserves include Share-based payments 
 GBP57m (H1 16: GBP64m; FY 16: GBP60m), Foreign exchange GBP99m (H1 16: 
 GBP81m; FY 16: GBP135m), Capital redemption GBP17m (H1 16: GBP17m; FY 
 16: GBP17m), Available-for-sale reserves GBP17m (H1 16: GBP48m; FY 16: 
 GBP(1)m) and Hedging reserves GBP21m (H1 16: GBP1m; FY 16: GBP1m). 
 
                                       Employee      Capital                   Equity 
                                         scheme   redemption             attributable         Non- 
                       Share    Share  treasury    and other  Retained      to owners  controlling     Total 
                                                                               of the 
                     capital  premium    shares     reserves  earnings         parent    interests    equity 
For the six             GBPm     GBPm      GBPm         GBPm      GBPm           GBPm         GBPm      GBPm 
months 
ended 30 June 
2016 
 
 
As at 1 January 
 2016                    149      976      (30)           89     5,220          6,404          289     6,693 
Total 
comprehensive 
income/(expense) 
for the period             -        -         -          159       637            796          (1)       795 
Options exercised 
under 
share option 
schemes                    -        2         -            -         -              2            -         2 
Net movement in 
employee 
scheme 
treasury shares            -        -       (2)          (5)      (12)           (19)            -      (19) 
Dividends                  -        -         -            -     (592)          (592)            -     (592) 
Movement in third 
 party 
 interests                 -        -         -            -         -              -            4         4 
Currency 
 translation 
 differences               -        -         -         (32)        32              -            -         - 
 
 
As at 30 June 
 2016                    149      978      (32)          211     5,285          6,591          292     6,883 
 
 
 
                                       Employee      Capital                   Equity 
                                         scheme   redemption             attributable         Non- 
                       Share    Share  treasury    and other  Retained      to owners  controlling     Total 
                                                                               of the 
                     capital  premium    shares     reserves  earnings         parent    interests    equity 
For the year            GBPm     GBPm      GBPm         GBPm      GBPm           GBPm         GBPm      GBPm 
ended 
31 December 2016 
 
 
As at 1 January 
 2016                    149      976      (30)           89     5,220          6,404          289     6,693 
 
Total 
comprehensive 
income 
for the year               -        -         -          187     1,182          1,369            7     1,376 
Options exercised 
 under 
 share option 
 scheme                    -        5         -  -(-)                -              5            -         5 
Net movement in 
employee 
scheme 
treasury shares            -        -         -       (9)(-)         6            (3)            -       (3) 
Dividends                  -        -         -            -     (830)          (830)            -     (830) 
Movement in third 
 party 
 interests                 -        -         -            -         -              -           42        42 
Currency 
 translation 
 differences               -        -         -         (55)        55              -            -         - 
 
 
As at 31 December 
 2016                    149      981      (30)       212(-)     5,633          6,945          338     7,283 
 
 
 
 

IFRS and Release from Operations Page 37

Consolidated Cash Flow Statement

For the six months ended 30 June 2017

 
                                                                                       Full year 
                                                              30.06.17  30.06.16(1)  31.12.16(1) 
                                                       Notes      GBPm         GBPm         GBPm 
 
 
Cash flows from operating activities 
Profit for the period                                              952          667        1,265 
Adjustments for non cash movements in net profit 
 for the period 
Realised and unrealised (gains) on financial 
 investments and investment properties                         (9,588)     (31,213)     (53,262) 
Investment income                                              (5,396)      (5,164)      (9,390) 
Interest expense                                                   106           98          198 
Tax expense                                                        358          317          602 
Other adjustments                                                   33          (7)         (45) 
Net (increase)/decrease in operational assets 
Investments held for trading or designated 
 as fair value through profit or loss                              418          485     (11,210) 
Investments designated as available-for-sale                       (4)          327          246 
Other assets                                                   (6,116)      (7,947)      (2,658) 
Net increase/(decrease) in operational liabilities 
Insurance contracts                                                259        8,921       12,910 
Transfer to unallocated divisible surplus                           57        (200)        (232) 
Investment contracts                                             3,790       19,164       39,747 
Value of in-force non-participating contracts                       62           49         (22) 
Other liabilities                                               10,517       10,674       17,023 
 
 
Cash used in operations                                        (4,552)      (3,829)      (4,828) 
Interest paid                                                    (104)         (75)        (198) 
Interest received                                                2,353        2,740        4,863 
Tax paid(2)                                                      (298)        (217)        (424) 
Dividends received                                               2,851        2,622        4,676 
 
 
Net cash flows from operating activities                           250        1,241        4,089 
 
 
Cash flows from investing activities 
Net acquisition of plant, equipment and intangibles               (30)         (29)         (45) 
Disposal of subsidiaries(3)                             2.11       286        (340)        (272) 
Investment in joint ventures                                         -         (17)         (63) 
 
 
Net cash flows from/(used in) investing activities                 256        (386)        (380) 
 
 
Cash flows from financing activities 
Dividend distributions to ordinary equity holders 
 of the company during the period                       2.16     (616)        (589)        (830) 
Proceeds from issue of ordinary share capital                        3            3            5 
Purchase of employee scheme shares (net)                             9            2            - 
Proceeds from borrowings                                         1,211          253          219 
Repayment of borrowings                                          (619)        (315)        (342) 
 
 
Net cash flows used in financing activities                       (12)        (646)        (948) 
 
 
Net increase in cash and cash equivalents                          494          209        2,761 
Exchange (losses)/gains on cash and cash equivalents              (37)           89          182 
Cash and cash equivalents at 1 January (before 
 reallocation of held for sale cash)                            15,348       12,544       12,544 
 
 
Cash and cash equivalents (before reallocation 
 of held for sale cash)                                         15,805       12,842       15,487 
Cash and cash equivalents classified as held 
 for sale                                               2.12         -            -        (139) 
 
 
Cash and cash equivalents at 30 June/31 December                15,805       12,842       15,348 
 
 
1. Following a review of certain short dated instruments held by the 
 group, certain assets have been reclassified from Cash and Cash Equivalents 
 to Financial Instruments as their tenure is greater than 3 months. These 
 amounts totalled GBP6,114m at H1 16 and GBP10,369m at FY 16. There is 
 a net nil impact on the Consolidated Income Statement. The reclassification 
 has resulted in an adjustment to the Investments held for trading or 
 designated as fair value through profit or loss in the Consolidated 
 Cash Flow Statement of GBP2,408m at H1 16 and (GBP1,847m) at FY 16. 
2. Tax comprises UK corporation tax paid of GBP151m (H1 16: GBP108m; 
 FY 16: GBP249m), overseas corporate taxes of GBP8m (H1 16: GBP5m; FY 
 16: GBP16m), and withholding tax of GBP139m (H1 16: GBP104m; FY 16: 
 GBP159m). 
3. Net cash flows from disposals includes cash received of GBP286m (H1 
 16: GBP74m; FY 16: GBP144m) less cash and cash equivalents disposed 
 of GBPnil (H1 16: GBP414m; FY 16: GBP416m). 
 
The group's Consolidated Cash Flow Statement includes all cash and cash 
 equivalent flows. The closing cash position includes GBP679m (H1 16: 
 GBP601m; FY 16: GBP731m) relating to the with-profit fund policyholders 
 and GBP12,687m (H1 16: GBP10,201m; FY 16: GBP11,764m) relating to unit-linked 
 policyholders. 
 

IFRS and Release from Operations Page 38

2.08 Basis of preparation

The group's financial information for the six months ended 30 June 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting'. The group's financial information has also been prepared in line with the accounting policies and methods of computation which the group expects to adopt for the 2017 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2016 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union.

The preparation of the interim management report includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2016 financial statements except for the changes outlined in Note 2.02.

The results for the six months ended 30 June 2017 are unaudited but have been reviewed by PricewaterhouseCoopers LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results from the full year 2016 have been taken from the group's 2016 Annual Report and Accounts, restated as described in footnote 1 of the Consolidated Cash Flow Statement. Therefore, these interim accounts should be read in conjunction with the 2016 Annual Report and Accounts that have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Commission for use in the European Union. PricewaterhouseCoopers LLP reported on the 2016 financial statements, and their report was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The group's 2016 Annual Report and Accounts has been filed with the Registrar of Companies.

Key technical terms and definitions

The interim management report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary section of these interim financial statements.

Alternative performance measures

The group uses a number of alternative performance measures (APMs), including release from operations, net release from operations and operating profit, in the discussion of its business performance and financial position as the group believes that they provide a better indication of performance. Definitions of key APMs can be found in the glossary.

Future accounting developments

Revenue from Contracts with Customers

IFRS 15, 'Revenue from Contracts with Customers', issued in May 2014, is effective, for annual periods beginning on or after 1 January 2018. This standard provides clear guidance over when and how much revenue should be recognised. It provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue for obligations as they are satisfied. An assessment is currently on-going to determine the impact upon the group, focussing in particular on our investment management business including the assessment of performance fees. The standard does not apply to business classified as insurance contracts. The group does not intend to early adopt this standard.

Insurance Contracts

IFRS 17, 'Insurance Contracts' was issued in May 2017 and is effective for annual periods beginning on or after 1 January 2021 (subject to EU endorsement). The standard provides a comprehensive approach for accounting for insurance contracts including their valuation, income statement presentation and disclosure. The group has mobilised a project to assess the financial and operational implications of the standard.

Financial Instruments

In July 2014, the IASB issued IFRS 9, 'Financial Instruments' which is effective for annual periods beginning on or after 1 January 2018. The ISAB subsequently issued 'Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' which allows entities which meet certain requirements to defer their implementation of IFRS 9 (subject to EU endorsement) until adoption of IFRS 17 or 1 January 2021, whichever is the earlier. As disclosed in the 31 December 2016 financial statements, the group will qualify, and expects to apply this deferral of IFRS 9.

The impact of IFRS 9 on the group's nancial statements will depend on the interaction of the asset classi cation and measurement with the insurance contract measurement at the date of transition, particularly for liabilities which are measured using locked in discount rates.

Leases

In January 2016, the IASB issued IFRS 16, 'Leases', effective for annual periods beginning on or after 1 January 2019, subject to EU endorsement. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts, bringing commitments in relation to operating leases (as currently defined in IAS 17, 'Leases') onto the balance sheet. The impact of the standard on lessor accounting is significantly smaller with the provisions remaining closely aligned to those in IAS 17 although the IASB have issued updated guidance on the definition of a lease. An assessment of the impacts of the standard on the group's financial statements will be completed in due course. The group does not intend to early adopt this standard.

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.

IFRS and Release from Operations Page 39

2.09 Segmental analysis

Reportable segments

The group has six reportable segments comprising LGR, LGIM, LGC, LGI, Savings and General Insurance. Central group expenses and debt costs are reported separately.

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

LGC represents shareholder assets in direct investments, and traded and treasury assets.

LGI represents UK retail protection, group protection and network business, Legal & General Netherlands (LGN) (which was sold during April 2017) and protection business written in the USA (LGI US).

Savings represents business in platforms, SIPPs, mature savings and with-profits.

The General Insurance segment comprises short-term protection.

During 2017, changes have been made to the organisational structure. The IDOL business has been transferred to LGI from LGR. Comparatives have been amended accordingly. The impact of this reclassification has been to reduce LGR H1 16 release from operations by GBP1m (FY 16: reduce by GBP1m) and increase LGI (UK and Other) H1 16 release from operations by GBP1m (FY 16: increase by GBP1m).

During 2016, the Insurance (excluding General Insurance) and LGA segments were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.

Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.

IFRS and Release from Operations Page 40

2.09 Segmental analysis (continued)

(a) Profit/(loss) for the period

 
 
                                                                                   Group 
                                                                                expenses 
                                                           General              and debt 
                                LGR  LGIM   LGC  LGI(1)  Insurance     Savings     costs  Total 
For the six months             GBPm  GBPm  GBPm    GBPm       GBPm        GBPm      GBPm   GBPm 
 ended 30 June 2017 
 
 
Operating profit/(loss)         566   194   142     151         15          52     (132)    988 
Investment and other 
 variances(1)                    38   (4)    52       7          6         (7)        77    169 
Gains attributable 
 to non-controlling 
 interests                        -     -     -       -          -           -         6      6 
 
 
Profit/(loss) before 
 tax attributable to 
equity holders                  604   190   194     158         21          45      (49)  1,163 
Tax (expense)/credit 
 attributable to equity 
 holders of the company       (108)  (40)  (25)    (41)        (4)         (9)        16  (211) 
 
 
Profit/(loss) for the 
 period                         496   150   169     117         17          36      (33)    952 
 
 
 
 
                                                                                   Group 
                                                                                expenses 
                                                           General              and debt 
                             LGR(2)  LGIM   LGC  LGI(2)  Insurance  Savings(1)     costs  Total 
For the six months             GBPm  GBPm  GBPm    GBPm       GBPm        GBPm      GBPm   GBPm 
 ended 30 June 2016 
 
 
Operating profit/(loss)         405   171   135     151         31          49     (165)    777 
Investment and other 
 variances(1)                    63   (8)    60   (100)         10           4        21     50 
Loss attributable to 
 non-controlling interests        -     -     -       -          -           -       (1)    (1) 
 
 
Profit/(loss) before 
 tax attributable to 
equity holders                  468   163   195      51         41          53     (145)    826 
Tax (expense)/credit 
 attributable to equity 
 holders of the company        (82)  (35)  (24)    (30)        (6)        (10)        28  (159) 
 
 
Profit/(loss) for the 
 period                         386   128   171      21         35          43     (117)    667 
===========================  ======  ====  ====  ======  =========  ==========  ========  ===== 
 
 
 
 
 
                                                                                   Group 
                                                                                expenses 
                                                           General              and debt 
                             LGR(2)  LGIM   LGC  LGI(2)  Insurance  Savings(1)     costs  Total 
For the year ended             GBPm  GBPm  GBPm    GBPm       GBPm        GBPm      GBPm   GBPm 
 31 December 2016 
 
 
Operating profit/(loss)         809   366   257     319         52          99     (340)  1,562 
Investment and other 
 variances(1)                    37  (32)   162   (124)         16        (51)         5     13 
Gains attributable 
 to non-controlling 
 interests                        -     -     -       -          -           -         7      7 
 
 
Profit/(loss) before 
 tax attributable to 
equity holders                  846   334   419     195         68          48     (328)  1,582 
Tax (expense)/credit 
 attributable to equity 
 holders of the company       (148)  (68)  (52)    (72)       (13)        (22)        58  (317) 
 
 
Profit/(loss) for the 
 period                         698   266   367     123         55          26     (270)  1,265 
 
1. H1 17 Investment and other variances - LGI includes the GBP17m net 
 gain resulting from the disposal of subsidiaries during the period (H1 
 16: Savings includes the GBP4m net gain resulting from the disposal 
 of subsidiaries during the period; FY 16: Savings includes the GBP60m 
 net loss resulting from the disposal of subsidiaries during the year). 
2. During 2017, changes have been made to the organisational structure. 
 The IDOL business has been transferred to LGI from LGR. Comparatives 
 have been restated accordingly. The impact of this reclassification 
 has been to reduce LGR H1 16 operating profit by GBP1m and profit before 
 tax by GBP1m (FY 16: reduce LGR operating profit by GBP2m and profit 
 before tax by GBP1m). LGI operating profit and profit before tax are 
 showing corresponding increases. 
 

IFRS and Release from Operations Page 41

2.09 Segmental analysis (continued)

(b) Income

 
                                                                                         LGC 
                                                             General                     and 
                                    LGR    LGIM(1)    LGI  Insurance     Savings    other(2)   Total 
For the six months ended           GBPm       GBPm   GBPm       GBPm        GBPm        GBPm    GBPm 
 30 June 2017 
 
 
Internal income                       -         78      -          -           -        (78)       - 
External income                   2,810     12,988    896        167       1,436         621  18,918 
 
 
Total income                      2,810     13,066    896        167       1,436         543  18,918 
 
 
 
 
                                                                                         LGC 
                                                             General                     and 
                                 LGR(3)  LGIM(1,4)    LGI  Insurance  Savings(4)  other(2,4)   Total 
For the six months ended           GBPm       GBPm   GBPm       GBPm        GBPm        GBPm    GBPm 
 30 June 2016 
 
 
Internal income                       -         66      -          -           -        (66)       - 
External income                   9,075     24,129  1,182        159       2,368       5,610  42,523 
 
 
Total income                      9,075     24,195  1,182        159       2,368       5,544  42,523 
 
 
 
 
                                                                                         LGC 
                                                             General                     and 
                                 LGR(3)  LGIM(1,4)    LGI  Insurance  Savings(4)  other(2,4)   Total 
For the year ended 31 December     GBPm       GBPm   GBPm       GBPm        GBPm        GBPm    GBPm 
 2016 
 
 
Internal income                       -        139      -          -           -       (139)       - 
External income                  13,831     49,812  2,257        326       4,406       7,337  77,969 
 
 
Total income                     13,831     49,951  2,257        326       4,406       7,198  77,969 
 
 
1. LGIM internal revenue relates to investment management services provided 
 to other segments. 
2. LGC and other includes LGC, inter-segmental eliminations and group 
 consolidation adjustments. 
3. During 2017, changes have been made to the organisational structure. 
 The IDOL business has been transferred to LGI from LGR. Comparatives 
 have been amended accordingly. The impact of this reclassification has 
 been to reduce LGR H1 16 external income by GBP8m (FY 16: reduce by 
 GBP20m) with corresponding increases in LGI external income. 
4. An internal transaction (H1 16: GBP79m; FY 16: GBP175m) has been 
 reclassified between LGIM, Savings and LGC and other internal and external 
 income. 
 

IFRS and Release from Operations Page 42

2.10 Earnings per share

(a) Earning per share

 
                                          Adjusted        Adjusted                            Adjusted        Adjusted 
                    Profit      Earnings    profit        earnings     Profit      Earnings     profit        earnings 
                     after  per share(1)     after  per share(1,2)      after  per share(1)      after  per share(1,2) 
                       tax                     tax                        tax                      tax 
                  30.06.17      30.06.17  30.06.17        30.06.17   30.06.16      30.06.16   30.06.16        30.06.16 
                      GBPm             p      GBPm               p       GBPm             p       GBPm               p 
 
 
Operating profit 
 after 
 tax                   795         13.40       795           13.40        616         10.39        616           10.39 
Investment and 
 other 
 variances             151          2.54       134            2.26         52          0.88         48            0.81 
 
 
Earnings per 
share 
based on profit 
attributable to 
 equity 
 holders               946         15.94       929           15.66        668         11.27        664           11.20 
 
 
 
                                                                                              Adjusted        Adjusted 
                                                                       Profit      Earnings     profit        earnings 
                                                                        after  per share(1)      after  per share(1,2) 
                                                                          tax                      tax 
                                                                    Full year     Full year  Full year       Full year 
                                                                     31.12.16      31.12.16   31.12.16        31.12.16 
                                                                         GBPm             p       GBPm               p 
 
 
Operating profit 
 after 
 tax                                                                    1,244         20.98      1,244           20.98 
Investment and 
 other 
 variances                                                                 14          0.24         72            1.22 
 
 
Earnings per 
share 
based on profit 
attributable to 
 equity 
 holders                                                                1,258         21.22      1,316           22.20 
 
 
1. Earnings per share is calculated by dividing profit after tax derived 
 from continuing operations by the weighted average number of ordinary 
 shares in issue during the period, excluding employee scheme treasury 
 shares. 
2. Adjusted earnings per share has been calculated after excluding the 
 net current year profit after tax of GBP17m, resulting from the disposal 
 of L&G Netherlands. (H1 16: excluding the net gain of GBP4m, resulting 
 from the disposal of Suffolk Life; FY 16: excluding the net loss after 
 tax of GBP58m, resulting from the disposal of Suffolk Life and the classification 
 of Cofunds as held for sale). 
 

IFRS and Release from Operations Page 43

2.10 Earnings per share (continued)

(b) Diluted earnings per share

 
                                                                                        Adjusted        Adjusted 
                                                      Number     Profit      Earnings     profit        earnings 
                                                   of shares      after  per share(1)      after  per share(1,2) 
                                                                    tax                      tax 
                                                    30.06.17   30.06.17      30.06.17   30.06.17        30.06.17 
                                                           m       GBPm             p       GBPm               p 
 
 
Profit attributable to equity holders of the 
 company                                               5,933        946         15.94        929           15.66 
Net shares under options allocable for no further 
 consideration                                            25          -        (0.06)          -          (0.06) 
 
 
Diluted earnings per 
 share                                                 5,958        946         15.88        929           15.60 
 
 
 
                                                                                        Adjusted        Adjusted 
                                                      Number     Profit      Earnings     profit        earnings 
                                                   of shares      after  per share(1)      after  per share(1,2) 
                                                                    tax                      tax 
                                                    30.06.16   30.06.16      30.06.16   30.06.16        30.06.16 
                                                           m       GBPm             p       GBPm               p 
 
 
Profit attributable to equity holders of the 
 company                                               5,927        668         11.27        664           11.20 
Net shares under options allocable for no further 
 consideration                                            22          -        (0.04)          -          (0.04) 
 
 
Diluted earnings per 
 share                                                 5,949        668         11.23        664           11.16 
 
 
 
                                                                                        Adjusted        Adjusted 
                                                      Number     Profit      Earnings     profit        earnings 
                                                   of shares      after  per share(1)      after  per share(1,2) 
                                                                    tax                      tax 
                                                   Full year  Full year     Full year  Full year       Full year 
                                                    31.12.16   31.12.16      31.12.16   31.12.16        31.12.16 
                                                           m       GBPm             p       GBPm               p 
 
 
Profit attributable to equity holders of the 
 company                                               5,929      1,258         21.22      1,316           22.20 
Net shares under options allocable for no further 
 consideration                                            24          -        (0.09)          -          (0.09) 
 
 
Diluted earnings per 
 share                                                 5,953      1,258         21.13      1,316           22.11 
 
 
 
 
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. 
2. Adjusted earnings per share has been calculated after excluding the 
 net current year profit after tax of GBP17m, resulting from the disposal 
 of Netherlands (H1 16: excluding the net GBP4m gain resulting from the 
 disposal of Suffolk Life; FY 16: excluding the net loss after tax of 
 GBP58m, resulting from the disposal of Suffolk Life and the classification 
 of Cofunds as held for sale). 
 

IFRS and Release from Operations Page 44

2.11 Disposals

During H1 17, the group made the following disposals:

-On 1 January 2017, the group completed the disposal of Cofunds Limited (Cofunds) to Aegon for GBP141m, net of transaction costs. The sale included the Investor Portfolio Service (IPS) platform as well as Cofunds' retail and institutional business. The group carrying value of the investment was GBP141m resulting in a net nil impact to the group.

-On 6 April 2017, the group completed the sale of Legal & General Netherland Levensvervekering Maatschappij N.V. (LGN) to Chesnara plc (Chesnara) for EUR161.0m (GBP137m). The group carrying value of the investment was GBP118m, resulting in a current year profit GBP17m, net of transaction costs GBP2m. A further GBP3m of transaction costs were incurred in the prior year.

2.12 Held for sale

 
 
In H1 17 no assets or liabilities have been classified as held for sale. 
 
 The FY 16 balances related to planned disposals of Investment property, 
 LGN and Cofunds, which were disposed of in 2017 (detailed in note 2.11). 
 
                                                           30.06.17    30.06.16   31.12.16 
                                                               GBPm        GBPm       GBPm 
 
 
Assets classified as held for 
 sale 
Purchased interest in long term business 
 and other intangible assets                                      -           -         85 
DAC                                                               -           -         12 
Property, plant and equipment                                     -           -         11 
Investment property                                               -           -         95 
Financial investments                                             -           -      1,861 
Reinsurers' share of 
 contract liabilities                                             -           -          1 
Cash and cash equivalents                                         -           -        139 
Other assets(1)                                                   -           -         62 
 
 
Total assets of the disposal 
 groups                                                           -           -      2,266 
 
 
Liabilities classified as held for sale 
Insurance contract liabilities                                    -           -      1,709 
Tax liabilities                                                   -           -         26 
Payables and other financial 
 liabilities                                                      -           -         28 
Other liabilities(1)                                              -           -        147 
 
 
Total liabilities of the disposal 
 groups                                                           -           -      1,910 
 
 
Total net assets of the disposal 
 groups                                                           -           -        356 
 
 
1. Included in the FY 16 other assets is GBP1m, and in other liabilities, 
 GBP88m, which are both balances with other group entities that are eliminated 
 on the Consolidated Balance Sheet. 
 

IFRS and Release from Operations Page 45

2.13 Financial investments and investment property

 
                                                          30.06.17  30.06.16(1)  31.12.16(1) 
                                                              GBPm         GBPm         GBPm 
 
 
Equities                                                   194,754      176,194      191,025 
Unit trusts                                                  7,584        6,594        6,969 
Debt securities(2)                                         219,989      203,114      215,331 
Accrued interest                                             1,449        1,403        1,536 
Derivative assets(3)                                        11,513       15,424       13,121 
Loans and receivables                                          572          508          562 
 
 
Financial investments                                      435,861      403,237      428,544 
 
 
Investment property(4)                                       8,714        8,227        8,150 
 
 
Total financial investments and investment property        444,575      411,464      436,694 
 
 
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values 
 have been restated. Refer to footnote 1 in the Consolidated Cash Flow 
 Statement. 
2. A detailed analysis of debt securities, which shareholders are directly 
 exposed to, is disclosed in note 4.06. 
3. Derivatives are used to ensure efficient portfolio management, especially 
 the use of interest rate swaps, inflation swaps, credit default swaps 
 and foreign exchange forward contracts for asset and liability management. 
 Derivative assets are shown gross of derivative liabilities and include 
 GBP7,597m (H1 16: GBP9,543m; FY 16: GBP8,294m) held on behalf of unit 
 linked policyholders. 
4. A detailed analysis of investment property, which shareholders are 
 directly exposed to, is disclosed in note 4.07. 
 
 
(a) Fair value hierarchy 
Fair value is the price that would be received to sell an asset or paid 
 to transfer a liability in an orderly transaction between market participants 
 at the measurement date. 
 
 Fair value measurements are based on observable and unobservable inputs. 
 Observable inputs reflect market data obtained from independent sources, 
 while unobservable inputs reflect the group's view of market assumptions 
 in the absence of observable market information. The group utilises techniques 
 that maximise the use of observable inputs and minimise the use of unobservable 
 inputs. 
 
 The levels of fair value measurement bases are defined as follows: 
 Level 1: fair values measured using quoted prices (unadjusted) in active 
 markets for identical assets or liabilities. 
 Level 2: fair values measured using valuation techniques for all inputs 
 significant to the measurement other than quoted prices included within 
 level 1 that are observable for the asset or liability, either directly 
 (i.e. as prices) or indirectly (i.e. derived from prices). 
 Level 3: fair values measured using valuation techniques for any input 
 for the asset or liability significant to the measurement that is not 
 based on observable market data (unobservable inputs). 
 
 All of the group's level 2 assets have been valued using standard market 
 pricing sources, such as iBoxx, IDC and Bloomberg, which use mathematical 
 modelling and multiple source validation in order to determine "consensus" 
 prices, except for bespoke CDO and swaps holdings (see below). In normal 
 market conditions, we would consider these market prices to be observable 
 market prices. Following consultation with our pricing providers and 
 a number of their contributing brokers, we have considered that these 
 prices are not from a suitably active market and have classified them 
 as level 2. 
 
 CDOs are valued using an external valuation based on observable market 
 inputs, which include CDX and iTraxx index tranches and CDS spreads on 
 underlying reference entities. This valuation is then validated against 
 the internal valuation. Accordingly, these assets have also been classified 
 in level 2. 
 
There have been no significant transfers between level 1 and level 2 
 for the period 30 June 2017 (30 June 2016: GBPnil; 31 December 2016: 
 GBPnil). 
 
The table on the following page presents the group's assets by IFRS 13 
 hierarchy levels. 
 

IFRS and Release from Operations Page 46

2.13 Financial investments and investment property (continued)

(a) Fair value hierarchy (continued)

 
                                                     Total    Level    Level   Level 
                                                                  1        2       3 
For the six months ended 30 June 2017                 GBPm     GBPm     GBPm    GBPm 
 
 
Shareholder 
Equity securities                                    2,352    1,718        2     632 
Debt securities                                      4,533    1,030    3,105     398 
Accrued interest                                        24        6       15       3 
Derivative assets                                       50       25       25       - 
Investment property                                    200        -        -     200 
 
 
Non profit non-unit linked 
Equity securities                                      268      264        4       - 
Debt securities                                     51,067    8,127   35,781   7,159 
Accrued interest                                       469       40      417      12 
Derivative assets                                    3,773       74    3,694       5 
Investment property                                  2,687        -        -   2,687 
 
 
With-profits 
Equity securities                                    3,241    3,014       18     209 
Debt securities                                      6,741    2,888    3,848       5 
Accrued interest                                        56       18       38       - 
Derivative assets                                       93       40       53       - 
Investment property                                    740        -        -     740 
 
 
Unit linked 
Equity securities                                  196,477  192,628    3,370     479 
Debt securities                                    157,648  105,951   51,690       7 
Accrued interest                                       900      349      551       - 
Derivative assets                                    7,597      607    6,990       - 
Investment property                                  5,087        -        -   5,087 
 
 
Total financial investments and investment 
 property at fair value(1)                         444,003  316,779  109,601  17,623 
 
 
1. This table excludes loans and receivables of GBP572m, which are held 
 at amortised cost. 
 

IFRS and Release from Operations Page 47

2.13 Financial investments and investment property (continued)

(a) Fair value hierarchy (continued)

 
                                                  Total(1)    Level    Level   Level 
                                                               1(1)     2(1)       3 
For the six months ended 30 June 2016                 GBPm     GBPm     GBPm    GBPm 
 
 
Shareholder 
Equity securities                                    2,331    2,025        -     306 
Debt securities                                      5,255    2,317    2,581     357 
Accrued interest                                        34       16       15       3 
Derivative assets                                       62        6       56       - 
Investment property                                    200        -        -     200 
 
 
Non profit non-unit linked 
Equity securities                                       56       52        4       - 
Debt securities                                     47,675    7,124   37,108   3,443 
Accrued interest                                       496       38      453       5 
Derivative assets                                    5,661      325    5,326      10 
Investment property                                  2,257        -        -   2,257 
 
 
With-profits 
Equity securities                                    3,607    3,382        1     224 
Debt securities                                      7,122    3,696    3,416      10 
Accrued interest                                        69       29       40       - 
Derivative assets                                      158       40      118       - 
Investment property                                    920        -        -     920 
 
 
Unit linked 
Equity securities                                  176,794  173,351    3,062     381 
Debt securities                                    143,063   98,817   44,246       - 
Accrued interest                                       803      295      508       - 
Derivative assets                                    9,543      225    9,318       - 
Investment property                                  4,850        -        -   4,850 
 
 
Total financial investments and investment 
 property at fair value(2)                         410,956  291,738  106,252  12,966 
 
 
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values 
 have been restated. Refer to footnote 1 in the Consolidated Cash Flow 
 Statement. 
2. This table excludes loans and receivables of GBP508m, which are held 
 at amortised cost. 
 

IFRS and Release from Operations Page 48

2.13 Financial investments and investment property (continued)

(a) Fair value hierarchy (continued)

 
                                                  Total(1)    Level    Level   Level 
                                                               1(1)     2(1)       3 
For the year ended 31 December 2016                   GBPm     GBPm     GBPm    GBPm 
 
 
Shareholder 
Equity securities                                    1,928    1,478        1     449 
Debt securities                                      4,945    1,513    3,046     386 
Accrued interest                                        31        7       21       3 
Derivative assets                                       82       59       23       - 
Investment property                                    162        -        -     162 
 
 
Non profit non-unit linked 
Equity securities                                      393      389        4       - 
Debt securities                                     49,380    8,351   37,067   3,962 
Accrued interest                                       496       42      448       6 
Derivative assets                                    4,611      115    4,474      22 
Investment property                                  2,442        -        -   2,442 
 
 
With-profits 
Equity securities                                    3,432    3,216        9     207 
Debt securities                                      6,827    3,467    3,349      11 
Accrued interest                                        63       22       41       - 
Derivative assets                                      134       31      103       - 
Investment property                                    738        -        -     738 
 
 
Unit linked 
Equity securities                                  192,242  188,769    3,028     445 
Debt securities                                    154,178  106,224   47,954       - 
Accrued interest                                       946      333      613       - 
Derivative assets                                    8,294      332    7,962       - 
Investment property                                  4,808        -        -   4,808 
 
 
Total financial investments and investment 
 property at fair value(2)                         436,132  314,348  108,143  13,641 
 
 
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values 
 have been restated. Refer to footnote 1 in the Consolidated Cash Flow 
 Statement. 
2. This table excludes loans and receivables of GBP562m, which are held 
 at amortised cost. 
 

IFRS and Release from Operations Page 49

2.13 Financial investments and investment property (continued)

(b) Assets measured at fair value based on level 3

Level 3 assets where internal models are used, represent a small proportion of assets to which shareholders are exposed. These comprise property, unquoted equities, untraded debt securities and securities where the broker methodology is unknown. Unquoted equities include suspended securities and investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips and lifetime mortgages.

In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the group has classified within level 3.

The group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The group also determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect adjustments for counterparty credit quality, the group's credit standing, liquidity and risk margins on unobservable inputs.

Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. Illiquid market conditions have resulted in inactive markets for certain of the group's financial instruments. As a result, there is generally no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ significantly from the values that would have been used had a ready market existed, and the differences could be material. As a result, such calculated fair value estimates may not be realisable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.

Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.

The group's policy is to re-assess the categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.

IFRS and Release from Operations Page 50

2.13 Financial investments and investment property (continued)

(b) Assets measured at fair value based on level 3 (continued)

 
                                            Other                                        Other 
                                        financial                                    financial 
                                Equity    invest-  Investment                Equity    invest-  Investment 
                            securities   ments(1)    property     Total  securities   ments(1)    property      Total 
                              30.06.17   30.06.17    30.06.17  30.06.17    30.06.16   30.06.16    30.06.16   30.06.16 
                                  GBPm       GBPm        GBPm      GBPm        GBPm       GBPm        GBPm       GBPm 
 
 
As at 1 January                  1,101      4,390       8,150    13,641         863      1,456       8,082     10,401 
Total gains / (losses) 
 for the period 
recognised in profit: 
- in other comprehensive 
 income                              -          7           -         7           -         15           -         15 
- realised and unrealised 
(losses) / gains(2)               (23)        234         217       428           9        269        (51)        227 
Purchases / Additions              156      1,283         402     1,841         260        586         283      1,129 
Sales / Disposals                 (34)       (39)       (166)     (239)       (244)      (112)        (87)      (443) 
Transfers into level 
 3(3)                              118      1,714         101     1,933          26      1,670           -      1,696 
Transfers out of level 
 3(3)                                -        (5)           -       (5)         (3)       (56)           -       (59) 
Other                                2          5          10        17           -          -           -          - 
 
 
As at 30 June                    1,320      7,589       8,714    17,623         911   3,828(-)       8,227     12,966 
 
 
1. Other financial investments comprise debt securities, lifetime mortgages 
 and derivative assets. 
2. The realised and unrealised gains and losses have been recognised 
 in investment return in the Consolidated Income Statement. 
3. The group holds regular discussions with its pricing providers to 
 determine whether transfers between levels of the fair value hierarchy 
 have occurred. The above transfers occurred as a result of this process. 
 In H1 17, transfers into level 3 include GBP874m of private placement 
 and GBP795m of income strips, which were previously classified as level 
 2. In H1 16, transfers into level 3 included GBP1.6bn of commercial 
 real estate loans, which were previously classified as level 2. 
 
                                                                                         Other 
                                                                                     financial 
                                                                             Equity    invest-  Investment 
                                                                         securities   ments(1)    property      Total 
                                                                          Full year  Full year   Full year  Full year 
                                                                           31.12.16   31.12.16    31.12.16   31.12.16 
                                                                               GBPm       GBPm        GBPm       GBPm 
 
 
As at 1 January                                                                 863      1,456       8,082     10,401 
Total gains / (losses) for the 
 year 
recognised in profit: 
- in other comprehensive 
 income                                                                           -          5           -          5 
- realised and unrealised 
gains / (losses)(2)                                                              40        350        (78)        312 
Purchases / Additions                                                           473      1,161         692      2,326 
Sales / Disposals                                                             (302)      (139)       (494)      (935) 
Transfers into level 
 3(3)                                                                            22      1,590           -      1,612 
Transfers out of level 
 3(3)                                                                             -       (33)           -       (33) 
Transfers to held for 
 sale                                                                             -          -        (53)       (53) 
Other                                                                             5          -           1          6 
==========================  ==========  =========  ==========  ========  ==========  =========  ==========  ========= 
 
As at 31 December                                                             1,101      4,390       8,150     13,641 
 
 
1. Other financial investments comprise debt securities, lifetime mortgages 
 and derivative assets. 
2. The realised and unrealised gains and losses have been recognised 
 in investment return in the Consolidated Income Statement. 
3. The group holds regular discussion with its pricing providers to 
 determine whether transfers between levels of the fair value hierarchy 
 have occurred. The above transfers occurred as result of this process. 
 In 2016, transfers into level 3 included GBP1.6bn of commercial real 
 estate loans, which were previously classified as level 2. 
 

IFRS and Release from Operations Page 51

2.13 Financial investments and investment property (continued)

(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets

 
Fair values of financial instruments are, in certain circumstances, 
 measured using valuation techniques that incorporate assumptions that 
 are not evidenced by prices from observable current market transactions 
 in the same instrument and are not based on observable market data. 
 The following table shows the level 3 financial instruments carried 
 at fair value as at the balance sheet date, the valuation basis, main 
 assumptions used in the valuation of these instruments and reasonably 
 possible increases or decreases in fair value based on reasonably possible 
 alternative assumptions. 
 
                                                                             Reasonably possible 
                                                                           alternative assumptions 
                                                                         =========================== 
                                                                         Current  Increase  Decrease 
                                                                            fair   in fair   in fair 
For the six months ended                                           Main    value     value     value 
 30 June 2017 
Financial instruments and investment                        assumptions     GBPm      GBPm      GBPm 
 property 
 
 
Assets 
Shareholder 
 - Unquoted investments in property 
  vehicles(1)                                            Property yield      565        15      (15) 
                                                   Cash flows; expected 
 - Untraded and other debt securities(2)                       defaults      401         4       (4) 
                                                   Cash flows; expected 
 - Unquoted and other securities(2)                            defaults       67         3       (3) 
 - Investment property(1)                                Property yield      200        23      (23) 
 
Non profit non-linked 
 - Lifetime mortgage 
  loans                                              Market spreads; LTVs    1,433        77      (83) 
                                                   Cash flows; expected 
 - Untraded and other debt securities(2)                       defaults    3,602       102     (100) 
 - Commercial real                                   Cash flows; expected 
  estate loans                                                   defaults    2,136        43      (43) 
                                                   Cash flows; property 
 - Investment property(1)                                         yield    2,687       138     (138) 
 - Other                                                     Cash flows        5         -         - 
 
With-profits 
 - Unquoted investments in property 
  vehicles(1)                                            Property yield      209        13      (13) 
                                                   Cash flows; expected 
 - Untraded and other debt securities(2)                       defaults        5         -         - 
                                                   Cash flows; Property 
 - Investment property(1)                                         yield      740        38      (38) 
 
Unit linked 
 - Unquoted investments in property                Cash flows; Property 
  vehicles(1)                                                     yield       92         6       (6) 
                                                    Estimated recoverable 
 - Suspended securities                                            amount       26         -         - 
                                                   Cash flows; expected 
 - Untraded and other debt securities(3)                       defaults        7         -         - 
                                                   Cash flows; expected 
 - Unquoted and other securities(2)                            defaults      361        18      (18) 
                                                   Cash flows; Property 
 - Investment property(1)                                         yield    5,087       256     (256) 
 
 
Total                                                                     17,623       736     (740) 
 
 
1. Unquoted investments in property vehicles and direct holdings in 
 investment property are valued using valuations provided by independent 
 valuers on the basis of open market value as defined in the appraisal 
 and valuation manual of the Royal Institute of Chartered Surveyors. 
 Reasonably possible alternative valuations have been determined using 
 alternative yields. 
2. No reasonably possible increases or decreases in fair values have 
 been given for securities where the broker valuation methodology is 
 unknown. 
3. Private equity investments are valued in accordance with the International 
 Private Equity and Venture Capital Valuation Guidelines. Reasonably 
 possible alternative valuations have been determined using alternative 
 price earnings multiples. 
 

IFRS and Release from Operations Page 52

2.13 Financial investments and investment property (continued)

(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

 
                                                                               Reasonably possible 
                                                                             alternative assumptions 
                                                                           =========================== 
                                                                           Current  Increase  Decrease 
                                                                              fair   in fair   in fair 
For the six months ended 30 June                                     Main    value     value     value 
 2016 
Financial instruments and                                     assumptions     GBPm      GBPm      GBPm 
 investment property 
 
 
Assets 
Shareholder 
 - Private equity investment vehicles(1)          Price earnings multiple       16         1       (1) 
 - Unquoted investments in property 
  vehicles(2)                                              Property yield      283         1       (2) 
                                                       Cash flows; expected 
 - Asset backed securities                                         defaults        2         -         - 
                                                     Cash flows; expected 
 - Untraded and other debt securities(3)                         defaults      358         2       (2) 
                                                     Cash flows; expected 
 - Unquoted and other securities(3)                              defaults        7         -         - 
 - Investment property(2)                                  Property yield      200        10      (20) 
 
Non profit non-linked 
                                                     Market Spreads; 
 - Lifetime Mortgage loans                                LTV's                440         8       (7) 
                                                     Cash flows; expected 
 - Untraded and other debt securities(3)                         defaults    1,197         -         - 
                                                     Cash flows; expected 
 - Commercial real estate loans                                  defaults    1,811        32      (32) 
                                                     Cash flows; Property 
 - Investment property(2)                                           yield    2,257        56     (113) 
 - Other                                                       Cash flows       10         -         - 
 
With-profits 
 - Private equity investment vehicles(1)          Price earnings multiple       17         -         - 
 - Unquoted investments in property 
  vehicles(2)                                              Property yield      207        13      (25) 
                                                     Cash flows; expected 
 - Unquoted and other securities(3)                              defaults       10         -         - 
 - Investment property(2)                                  Property yield      920        47      (92) 
 
Unit linked 
 - Unquoted investments in property 
  vehicles(2)                                              Property yield      369        19      (38) 
 - Private equity investment vehicles(1)          Price earnings multiple        1         -         - 
                                                     Cash flows; expected 
 - Suspended securities                                          defaults       11         -         - 
 - Investment property(2)                                  Property yield    4,850       247     (485) 
 
 
Total                                                                       12,966       436     (817) 
 
 
1. Private equity investments are valued in accordance with the International 
 Private Equity and Venture Capital Valuation Guidelines. Reasonably 
 possible alternative valuations have been determined using alternative 
 price earnings multiples. 
2. Unquoted investments in property vehicles and direct holdings in 
 investment property are valued using valuations provided by independent 
 valuers on the basis of open market value as defined in the appraisal 
 and valuation manual of the Royal Institute of Chartered Surveyors. 
 Reasonably possible alternative valuations have been determined using 
 alternative yields. 
3. No reasonably possible increases or decreases in fair values have 
 been given for securities where the broker valuation methodology is 
 unknown. 
 

IFRS and Release from Operations Page 53

2.13 Financial investments and investment property (continued)

(c) Effect of changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

 
                                                                           Reasonably possible 
                                                                         alternative assumptions 
                                                                       =========================== 
                                                                       Current  Increase  Decrease 
                                                                          fair   in fair   in fair 
For the year ended 31 December                                   Main    value     value     value 
 2016 
Financial instruments and                                 assumptions     GBPm      GBPm      GBPm 
 investment property 
 
 
Assets 
Shareholder 
Unquoted investments in property 
 vehicles(1)                                           Property yield      292        19      (19) 
                                                 Cash flows; expected 
Untraded and other debt securities(2)                        defaults      474        12      (12) 
                                                 Cash flows; expected 
Unquoted and other securities(2)                             defaults       72         2       (3) 
Investment property(1)                                 Property yield      162         8       (9) 
 
Non profit non-linked 
Lifetime mortgage loans                            Market spreads; LTVs      852        10      (18) 
                                                 Cash flows; expected 
Untraded and other debt securities(2)                        defaults    1,270         2       (2) 
Commercial real estate                             Cash flows; expected 
 loans                                                         defaults    1,776        11      (16) 
Investment property(1)                                 Property yield    2,442       127     (127) 
Other                                                      Cash flows       92         -         - 
With-profits 
Private equity investment vehicles            Price earnings multiple        8         -         - 
Unquoted investments in property 
 vehicles(1)                                           Property yield      200        12      (12) 
                                                 Cash flows; expected 
Untraded and other debt securities(2)                        defaults       10         -         - 
Investment property(1)                                 Property yield      738        38      (38) 
 
Unit linked 
Unquoted investments in property 
 vehicles(1)                                           Property yield       87         5       (5) 
                                                 Cash flows; expected 
Untraded and other debt securities(2)                        defaults       23         -         - 
                                                 Cash flows; expected 
Unquoted and other securities(2)                             defaults      335        17      (17) 
Investment property(1)                                 Property yield    4,808       235     (235) 
 
 
Total                                                                   13,641       498     (513) 
 
 
1. Unquoted investments in property vehicles and direct holdings in 
 investment property are valued using valuations provided by independent 
 valuers on the basis of open market value as defined in the appraisal 
 and valuation manual of the Royal Institute of Chartered Surveyors. 
 Reasonably possible alternative valuations have been determined using 
 alternative yields. 
2. No reasonably possible increases or decreases in fair values have 
 been given for securities where the broker valuation methodology is 
 unknown. 
 

IFRS and Release from Operations Page 54

2.14 Tax

(a) Tax charge in the Consolidated Income Statement

 
The tax attributable to equity holders differs from the tax calculated 
 at the standard UK corporation tax rate as follows: 
                                                                                 Full year 
                                                             30.06.17  30.06.16   31.12.16 
                                                                 GBPm      GBPm       GBPm 
 
 
Profit before tax attributable 
 to equity holders                                              1,163       826      1,582 
Tax calculated at 19.25% (H1 16: 
 20.00%; FY 16: 20.00%)                                           224       165        316 
 
Adjusted for the effects 
 of: 
Recurring reconciling 
 items: 
Income not subject to tax                                         (6)       (4)       (12) 
Higher/(lower) rate of tax 
 on profits taxed overseas                                          3         4          7 
Non-deductible expenses                                             -         2          4 
Differences between taxable and accounting investment 
 gains                                                            (4)       (2)       (11) 
 
Non-recurring reconciling 
 items: 
Income not subject to tax(1)                                      (4)       (1)        (1) 
Non-deductible expenses                                             1         -         17 
Differences between taxable and accounting investment 
 gains                                                              -       (3)       (14) 
Adjustments in respect of prior years                             (3)         -         13 
Impact of reduction in UK corporate tax rate to 17% 
 from 2020 on deferred tax balances                                 -       (2)        (2) 
 
 
Tax attributable to 
 equity holders                                                   211       159        317 
 
 
Equity holders' effective 
 tax rate(2)                                                    18.1%     19.2%      20.0% 
 
 
1. Includes gains relating to M&A activity which are non taxable. 
2. Equity holders' effective tax rate is calculated by dividing the 
 tax attributable to equity holders over profit before tax attributable 
 to equity holders. Refer to note 2.08 for detail on the methodology 
 of the split of policyholder and equity holders' tax. 
 

IFRS and Release from Operations Page 55

2.14 Tax (continued)

(b) Deferred tax

 
                                                          30.06.17  30.06.16  31.12.16 
Deferred tax (liabilities)/assets                             GBPm      GBPm      GBPm 
 
 
Deferred acquisition expenses                                (414)     (392)     (429) 
                                                          --------  --------  -------- 
  - UK                                                        (43)      (48)      (45) 
  - Overseas                                                 (371)     (344)     (384) 
                                                          --------  --------  -------- 
Difference between the tax and accounting value of 
 insurance contracts                                         (288)     (305)     (286) 
                                                          --------  --------  -------- 
  - UK                                                       (134)     (125)     (123) 
  - Overseas                                                 (154)     (180)     (163) 
                                                          --------  --------  -------- 
Realised and unrealised gains on investments                 (275)     (210)     (255) 
Excess of depreciation over capital allowances                  16        16        15 
Excess expenses(1)                                              40        62        49 
Accounting provisions and other                               (51)      (29)      (51) 
Trading losses(2)                                               63        88        80 
Pension fund deficit                                            77        71        82 
Purchased interest in long-term business                       (3)      (25)      (13) 
======================================================    ========  ========  ======== 
 
Net deferred tax liabilities                                 (835)     (724)     (808) 
 
 
 
Analysed by: 
 
 
- UK deferred tax asset                                          2         5         5 
 - Overseas deferred 
  tax asset                                                      3         -         - 
 - UK deferred tax liability                                 (316)     (206)     (291) 
 - Overseas deferred tax liability                           (524)     (523)     (522) 
 
 
Net deferred tax liabilities(3)                              (835)     (724)     (808) 
 
 
1. The reduction in the UK deferred tax asset on excess expenses reflects 
 the unwind of the spread acquisition expenses. 
2. Trading losses include UK trade and US operating losses of GBP8m 
 (H1 16: GBP7m; FY 16: GBP5m) and GBP55m (H1 16: GBP81m; FY 16: GBP75m) 
 respectively. The reduction in the deferred tax asset primarily reflects 
 utilisation of brought forward US operating losses against US profits. 
3. On the Consolidated Balance Sheet, the net deferred tax liability 
 has been split between an asset of GBP5m and a liability of GBP840m 
 where the relevant items cannot be offset. 
 

IFRS and Release from Operations Page 56

2.15 Payables and other financial liabilities

 
                                                                                  Full year 
                                                            30.06.17   30.06.16    31.12.16 
                                                                GBPm       GBPm        GBPm 
 
 
Derivative liabilities                                         7,376     15,473       9,014 
Repurchase agreements(1)                                      28,076     17,295      23,163 
Other                                                          8,257      3,988       5,170 
 
 
Payables and other financial 
 liabilities                                                  43,709     36,756      37,347 
 
 
 
1. The repurchase agreements are presented gross, however they and their 
 related assets are subject to master netting arrangements. 
 
 
Fair value hierarchy 
                                                                                  Amortised 
                                           Total    Level      Level      Level        cost 
                                                        1          2          3 
As at 30 June 2017                          GBPm     GBPm       GBPm       GBPm        GBPm 
 
 
Derivative liabilities                     7,376      482      6,894          -           - 
Repurchase agreements                     28,076        -          -          -      28,076 
Other                                      8,257    2,550         15        179       5,513 
 
 
Payables and other financial 
 liabilities                              43,709    3,032      6,909        179      33,589 
 
 
 
 
                                                                                  Amortised 
                                           Total    Level      Level      Level        cost 
                                                        1          2          3 
As at 30 June 2016                          GBPm     GBPm       GBPm       GBPm        GBPm 
 
 
Derivative liabilities                    15,473    5,519      9,954          -           - 
Repurchase agreements                     17,295        -          -          -      17,295 
Other                                      3,988      522         14        174       3,278 
 
 
Payables and other financial 
 liabilities                              36,756    6,041      9,968        174      20,573 
 
 
 
 
                                                                                  Amortised 
                                           Total    Level      Level      Level        cost 
                                                        1          2          3 
As at 31 December 2016                      GBPm     GBPm       GBPm       GBPm        GBPm 
 
 
Derivative liabilities                     9,014      884      8,130          -           - 
Repurchase agreements                     23,163        -          -          -      23,163 
Other                                      5,170      806          8        177       4,179 
 
 
Payables and other financial 
 liabilities                              37,347    1,690      8,138        177      27,342 
 
 
 
Future commission costs are modelled using expected cash flows, incorporating 
 expected future persistency. They have therefore been classified as 
 level 3 liabilities. The entire movement in the balance has been reflected 
 in the Consolidated Income Statement during the year. A reasonably possible 
 alternative persistency assumption would have the effect of increasing 
 the liability by GBP5m (H1 16: GBP4m; FY 16: GBP5m). 
 
 
Significant transfers between levels 
 
 There have been no significant transfers between levels 1, 2 and 3 for 
 the period ended 30 June 2017 (30 June 2016 and 31 December 2016: no 
 significant transfers between levels 1, 2 and 3). 
 

IFRS and Release from Operations Page 57

2.16 Dividends

 
                                                                                        Full year 
                                                 Per(1)              Per(1)  Full year     Per(1) 
                                     Dividend     share  Dividend     share   Dividend      share 
                                     30.06.17  30.06.17  30.06.16  30.06.16   31.12.16   31.12.16 
                                         GBPm         p      GBPm         p       GBPm          p 
 
 
Ordinary share dividends paid in 
 the period: 
 - Prior year final 
  dividend                                616     10.35       592      9.95        592       9.95 
 - Current year interim 
  dividend                                  -         -         -         -        238       4.00 
 
 
                                          616     10.35       592      9.95        830      13.95 
 
 
Ordinary share dividend 
 proposed(2)                              256      4.30       238      4.00        616      10.35 
 
 
1. The dividend per share calculation is based on the number of equity 
 shares registered on the ex-dividend date. 
2. The dividend proposed is not included as a liability in the Consolidated 
 Balance Sheet. 
 

2.17 Share capital

 
 
                                        Number of      Number of      Number of 
                                           shares         shares         shares 
                                                                      Full year 
                                         30.06.17       30.06.16       31.12.16 
 
 
As at 1 January                     5,954,656,466  5,948,788,480  5,948,788,480 
Options exercised under share 
 option schemes: 
- Savings related share option 
scheme                                  2,061,874      3,465,839      5,867,986 
 
 
As at 30 June / 31 December         5,956,718,340  5,952,254,319  5,954,656,466 
 
 
 
There is one class of ordinary shares of 2.5p each. All shares issued 
 carry equal voting rights. 
 
The holders of the company's ordinary shares are entitled to receive 
 dividends which are authorised and are no longer at the discretion of 
 the company. 
 

IFRS and Release from Operations Page 58

2.18 Core Borrowings

 
                                        Carrying      Fair  Carrying      Fair  Carrying      Fair 
                                          amount     value    amount     value    amount     value 
                                        30.06.17  30.06.17  30.06.16  30.06.16  31.12.16  31.12.16 
                                            GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
 
 
Subordinated borrowings 
6.385% Sterling perpetual 
 capital securities (Tier 
 1)                                            -         -       626       615       615       609 
5.875% Sterling undated subordinated 
 notes (Tier 2)                              410       432       412       412       411       418 
5.25% US Dollar subordinated 
 notes 2047 (Tier 2)                         658       700         -         -         -         - 
5.55% US Dollar subordinated 
 notes 2052 (Tier 2)                         387       399         -         -         -         - 
10% Sterling subordinated 
 notes 2041 (Tier 2)                         311       406       310       392       310       403 
5.5% Sterling subordinated 
 notes 2064 (Tier 2)                         589       651       589       534       589       603 
5.375% Sterling subordinated 
 notes 2045 (Tier 2)                         602       670       602       607       602       627 
Client fund holdings of group 
 debt(1)                                    (33)      (33)      (33)      (32)      (31)      (31) 
 
 
Total subordinated borrowings              2,924     3,225     2,506     2,528     2,496     2,629 
 
 
Senior borrowings 
Sterling medium term notes 
 2031-2041                                   602       848       602       801       609       845 
Client fund holdings of group 
 debt(1)                                    (27)      (27)      (44)      (58)      (34)      (34) 
 
 
Total senior borrowings                      575       821       558       743       575       811 
 
 
Total core borrowings                      3,499     4,046     3,064     3,271     3,071     3,440 
 
 
1. GBP60m (H1 16: GBP77m; FY 16: GBP65m) of the group's subordinated 
 and senior borrowings are currently held by Legal & General customers 
 through unit linked products. These borrowings are shown as a deduction 
 from total core borrowings in the table above. 
 
All of the group's core borrowings are measured using amortised cost. 
 The presented fair values of the group's core borrowings reflect quoted 
 prices in active markets and they are classified as level 1 in the fair 
 value hierarchy. 
 

Subordinated borrowings

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued GBP600m of 6.385% Sterling perpetual capital securities. These securities were called at par on 2 May 2017.

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued GBP400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as tier 2 own funds for Solvency II purposes.

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing USD mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047. They are treated as tier 2 own funds for Solvency II purposes.

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing USD mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052. They are treated as tier 2 own funds for Solvency II purposes.

10% Sterling subordinated notes 2041

In 2009, Legal & General Group Plc issued GBP300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041. They are treated as tier 2 own funds for Solvency II purposes.

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued GBP600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% pa. These notes mature on 27 June 2064. They are treated as tier 2 own funds for Solvency II purposes.

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued GBP600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% pa. These notes mature on 27 October 2045. They are treated as tier 2 own funds for Solvency II purposes.

IFRS and Release from Operations Page 59

2.19 Operational borrowings

 
                                              Carrying      Fair  Carrying      Fair  Carrying      Fair 
                                                amount     value    amount     value    amount     value 
                                              30.06.17  30.06.17  30.06.16  30.06.16  31.12.16  31.12.16 
                                                  GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
 
 
Short term operational borrowings 
Euro Commercial paper                              322       322       103       103       216       216 
Bank loans and overdrafts                           20        20        69        69         6         6 
 
 
Total short term operational borrowings            342       342       172       172       222       222 
 
 
Non recourse borrowings 
LGV 6/LGV 7 Private Equity Fund 
 Limited Partnership                                 -         -        42        42         -         - 
Consolidated Property Limited Partnerships         211       211       197       197       208       208 
 
 
Total non recourse borrowings                      211       211       239       239       208       208 
 
 
 
 
Total operational borrowings                       553       553       411       411       430       430 
 
 
 
 

The presented fair values of the group's operational borrowings reflect observable market information and have been classified as level 2 in the fair value hierarchy.

Short term operational borrowings

Short term assets available at the holding company level exceeded the amount of short term operational borrowings of GBP342m (H1 16: GBP172m; FY 16: GBP222m.). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts.

Non recourse borrowings

LGV 6/LGV 7 Private Equity Fund Limited Partnerships

These borrowings were non recourse bank borrowings.

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 30 June 2017, the group had in place a GBP1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2021.

2.20 Non-controlling interests

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results. The majority of the non-controlling interests in 2017 are in relation to investments in the Leisure Fund Unit Trust, the Performance Retail Unit Trust, the Legal & General UK Property Ungeared Fund Limited Partnership, and Thorpe Park Developments Limited.

2.21 Foreign exchange rates

 
Principal rates of exchange 
 used for translation are: 
 
Period end exchange                                          At 31.12.16 
 rates                             At 30.06.17  At 30.06.16 
 
 
United States Dollar                      1.30         1.34         1.24 
Euro                                      1.14         1.20         1.17 
 
 
 
                                      01.01.17     01.01.16     01.01.16 
                                             -            -            - 
Average exchange rates                30.06.17     30.06.16     31.12.16 
 
 
United States Dollar                      1.26         1.43         1.36 
Euro                                      1.16         1.28         1.22 
 
 
 

IFRS and Release from Operations Page 60

2.22 Related party transactions

 
There were no material transactions between key management and the Legal 
 & General group of companies during the period. All transactions between 
 the group and its key management are on commercial terms which are no 
 more favourable than those available to employees in general. Contributions 
 to the post-employment defined benefit plans were GBP36m (H1 16: GBP34m; 
 FY 16: GBP75m) for all employees. 
 
At 30 June 2017, 30 June 2016 and 31 December 2016 there were no loans 
 outstanding to officers of the company. 
 
Key management personnel 
 compensation 
The aggregate compensation for key management personnel, including executive 
 and non-executive directors, is as follows: 
 
                                                               30.06.17         30.06.16  31.12.16 
                                                                   GBPm             GBPm      GBPm 
 
 
Salaries                                                              2                2         9 
Social security costs                                                 1                1         2 
Post-employment benefits                                              -                -         - 
Share-based incentive 
 awards                                                               2                2         5 
 
 
Key management personnel 
 compensation                                                         5                5        16 
 
 
Number of key management 
 personnel                                                           16               16        15 
 
 
 
The group has the following related party transactions: 
 
- Annuity contracts issued by Society for consideration of GBP161m (H1 
 16: GBP4m; FY 16: GBP3m) purchased by the group's UK defined benefit 
 pension schemes during the period, priced on an arm's length basis; 
 - Investments in venture capital, property and financial investments 
  held via collective investment vehicles. All transactions between the 
  group and these collective investment vehicles are on commercial terms 
  which are no more favourable than those available to companies in general. 
  The net investments into associate investment vehicles totalled GBP10m 
  during the period (H1 16: 27m; FY 16: GBP47m). The group received investment 
  management fees of GBP1m during the period (H1 16: GBP1m; FY 16: GBP2m). 
  Distributions from these investment vehicles to the group totalled GBP15m 
  (H1 16: GBP6m; FY 16: GBP20m); 
- Loans outstanding from CALA at 30 June 2017 total GBP68m (30 June 
 2016: GBP63m; 31 December 2016: GBP65m); 
- The equity investment in Pemberton is now fully drawn at GBP18m. A 
 commitment of GBP220m was previously made to Pemberton's inaugural European 
 Mid-Market Debt Fund, of which GBP125m was drawn as at 30 June 2017. 
 In addition, a GBP50m commitment was made to the Pemberton U.K. Mid-Market 
 Direct Lending Fund, of which GBP25m has been drawn down to date; 
- Loans outstanding from MediaCity at 30 June 2017 total GBP55m (H1 
 2016: GBP55m; FY 2016: GBP55m); 
- Preference shares outstanding from Thorpe Park at 30 June 2017 total 
 GBP30m (H1 16: GBP12m; FY 16: GBP18m); 
- A 50/50 joint venture in Access Development Partnership, developing 
 build to rent properties. LGC has a total commitment of GBP150m, of 
 which GBP28m has been drawn down to date; 
- A 46% investment in Accelerated Digital Ventures, a venture investment 
 company, for a total commitment of GBP34m, of which GBP17m has been 
 drawn to date; 
- Further contingent capital commitments of GBP2m for NTR Asset Management 
 Europe DAC, with a total commitment of GBP5m. A commitment of GBP103m 
 to the NTR Wind 1 Limited fund, of which GBP80m has been drawn to date; 
 
 

IFRS and Release from Operations Page 61

2.23 Pension costs

The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. The schemes were closed to future accrual on 31 December 2015. At 30 June 2017, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at GBP347m (30 June 2016: GBP306m; 31 December 2016: GBP374m). These amounts have been recognised in the financial statements with GBP219m charged against shareholder equity (30 June 2016: GBP193m; 31 December 2016: GBP236m) and GBP128m against the unallocated divisible surplus (30 June 2016: GBP113m; 31 December 2016: GBP138m).

2.24 Contingent liabilities, guarantees and indemnities

Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court judgments.

Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.

In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or provision in respect of this matter.

Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of group companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain group companies' liabilities under the group pension fund and scheme. The Society has provided indemnities, a liquidity and expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of group companies to facilitate the group's matching adjustment reorganisation pursuant to Solvency II.

IFRS and Release from Operations Page 62

2.25 Independent review report to Legal & General Group Plc - IFRS

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Legal & General Group Plc's consolidated interim financial statements (the "interim financial statements") in the Interim Management Statement of Legal & General Group Plc for the 6 month period ended 30 June 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --      the Consolidated Balance Sheet as at 30 June 2017; 

-- the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

   --      the Consolidated Cash Flow Statement for the period then ended; 
   --      the Condensed Consolidated Statement of Changes in Equity for the period then ended; and 
   --      the explanatory notes to the interim financial statements (pages 25 to 61). 

The interim financial statements included in the Interim Management Statement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2.08 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Management Statement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Management Statement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Management Statement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

IFRS and Release from Operations Page 63

2.25 Independent review report to Legal & General Group Plc - IFRS (continued)

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Management Statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

8 August 2017

a) The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

IFRS and Release from Operations Page 64

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