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| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.40 | -0.16% | 244.60 | 244.10 | 244.30 | 245.00 | 241.80 | 243.50 | 25,673,283 | 16:35:06 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Ins Agents,brokers & Service | 36.48B | 457M | 0.0764 | 31.95 | 14.6B |
From Apr 2019 to Apr 2024
TIDMLGEN
RNS Number : 2646X
Legal & General Group Plc
09 August 2018
Legal & General Half-year Report 2018 Part 3
Asset and premium flows Page 67
5.01 LGIM total assets under management (AUM)
Hot Features
Premium
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the six month period GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
to 30 June 2018
At 1 January 2018 340.9 148.8 462.7 23.8 7.1 983.3
Canvas acquisition(2) 2.4 - - - - 2.4
External inflows 22.4 8.7 18.2 0.6 0.5 50.4
External outflows (41.2) (2.2) (8.7) (0.5) (0.1) (52.7)
Overlay net flows - - 16.7 - - 16.7
ETF net flows 0.2 - - - - 0.2
External net flows(3) (18.6) 6.5 26.2 0.1 0.4 14.6
Internal net flows (0.3) (2.5) (0.3) 0.6 (0.1) (2.6)
Total net flows (18.9) 4.0 25.9 0.7 0.3 12.0
Cash management movements(4) - 1.0 - - - 1.0
Market and other movements(3) 1.9 (1.4) (14.9) 0.8 (0.3) (13.9)
At 30 June 2018 326.3 152.4 473.7 25.3 7.1 984.8
Assets attributable to:
External 888.8
Internal 96.0
1. Solutions include liability driven investments, multi-asset funds,
and include GBP277.2bn of derivative notionals associated with the
Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject
to a higher degree of variability. The total value of these assets
was GBP48.3bn and the movement in these assets is included in market
and other movements for Solutions assets.
4. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the six month period GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
to 30 June 2017
At 1 January 2017 319.8 134.8 411.9 19.6 8.1 894.2
External inflows 25.4 8.3 16.0 0.8 0.1 50.6
External outflows (29.7) (3.0) (9.0) (0.5) (0.1) (42.3)
Overlay/advisory net flows - - 13.4 - - 13.4
External net flows(2) (4.3) 5.3 20.4 0.3 - 21.7
Internal net flows (0.3) (0.4) 0.4 0.5 (1.3) (1.1)
Disposal of LGN(4) (0.3) (0.5) - - - (0.8)
Total net flows (4.9) 4.4 20.8 0.8 (1.3) 19.8
Cash management movements(3) - 4.1 - - - 4.1
Market and other movements(2) 16.6 1.7 13.4 0.8 0.5 33.0
At 30 June 2017 331.5 145.0 446.1 21.2 7.3 951.1
Assets attributable to:
External 853.2
Internal 97.9
1. Solutions include liability driven investments, multi-asset funds,
and include GBP280.0bn of derivative notionals associated with the
Solutions business.
2. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject
to a higher degree of variability. The total value of these assets
was GBP81.7bn and the movement in these assets is included in market
and other movements for Solutions assets.
3. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
4. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 68
5.01 LGIM total assets under management (AUM) (continued)
Global
fixed Real Active Total
Index income Solutions(1) assets equities AUM
For the year ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2017
At 1 January 2017 319.8 134.8 411.9 19.6 8.1 894.2
External inflows 51.1 15.1 33.2 1.5 0.1 101.0
External outflows (61.4) (6.4) (15.7) (1.2) (0.1) (84.8)
Overlay/advisory net flows - - 27.3 - - 27.3
External net flows(2) (10.3) 8.7 44.8 0.3 - 43.5
Internal net flows (0.4) (2.0) (1.1) 1.5 (0.7) (2.7)
Disposal of LGN(4) (0.3) (0.5) - - - (0.8)
Total net flows (11.0) 6.2 43.7 1.8 (0.7) 40.0
Cash management movements(3) - 3.0 - - - 3.0
Market and other movements(2) 32.1 4.8 7.1 2.4 (0.3) 46.1
At 31 December 2017 340.9 148.8 462.7 23.8 7.1 983.3
Assets attributable to:
External 883.8
Internal 99.5
1. Solutions include liability driven investments, multi-asset funds,
and include GBP272.8bn of derivative notionals associated with the
Solutions business.
2. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject
to a higher degree of variability. The total value of these assets
was GBP47.0bn and the movement in these assets is included in market
and other movements for Solutions assets.
3. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
4. Legal & General Netherlands was sold on 6 April 2017.
5.02 LGIM total external assets under management and net flows
Assets under management(1) Net flows(2)
30 June 30 June 31 December 6 months 6 months 6 months
2018 2017 2017 30 June 30 June 31 December
2018 2017 2017
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
International(1,3) 165.8 135.8 160.1 9.9 17.9 15.1
UK Institutional
- Defined contribution 64.0 55.3 60.1 3.5 1.7 1.3
- Defined benefit(3) 625.4 635.3 633.9 (0.3) 0.4 4.1
UK Retail
- Retail intermediary 25.1 21.4 24.2 1.4 1.8 1.4
- Personal investing(4) 5.7 5.4 5.5 (0.1) (0.1) (0.1)
ETF(5) 2.8 - - 0.2 - -
Total external 888.8 853.2 883.8 14.6 21.7 21.8
1. International asset are shown on the basis of client domicile.
International AUM is GBP229.3bn when assets managed in the US on
behalf of UK clients are included.
2. External net flows exclude movements in short-term solutions
assets, with maturity as determined by client agreements and are
subject to a higher degree of variability.
3. Defined benefit includes GBP63.5bn of assets managed in the US
on behalf of UK clients.
4. Personal investing includes GBP2.0bn of legacy Banks and Building
Society customers which is driving net outflows.
5. ETF reflects the acquisition of Canvas that completed in March
2018.
Asset and premium flows Page 69
5.03 LGIM investment performance
Investment performance across our AUM as at 30 June 2018 is set
out in the table below. This has been calculated internally by
LGIM to provide general guidance as to how our assets under management
are performing. The data is aggregated and is not intended for
clients or potential clients investing in our products.
Performance against success measures - benchmark or
performance criteria
One Three Five
For the six month period to year year year
30 June 2018 period period period
Actively Managed AUM(1) 88% 85% 81%
Index Managed AUM(2) 98% 98% 97%
Client Solutions AUM(3) 100% 100% 100%
Percentage of AUM reported(4) 89% 64% 55%
----------------------------------------------- ---------- -------- -------
1. Actively Managed AUM: actively managed products measured against
applicable benchmark or peer group performance.
2. Index Managed AUM: assets managed against benchmark within
applicable tolerance.
3. Client solutions AUM: products managed against specific risk
target or client outcome.
4. Excluded from the performance measurement are non-discretionary
accounts, funds on our investment only platform with external
manager holdings, funds with insufficient performance history
and transition management accounts.
Performance is measured on a gross-of-fee basis for institutional
accounts and net-of-fee for retail funds, and is measured against
benchmarks, peer group performance or risk based metrics.
5.04 Assets under management reconciliation to Consolidated Balance Sheet financial assets
30 June 30 June 31 December
2018 2017 2017
GBPbn GBPbn GBPbn
---------------------------------------------- -------- ------- -----------
Assets under management 985 951 983
Derivative notionals(1) (277) (281) (273)
Third party assets(2) (275) (233) (261)
Other(3) 44 8 42
Total financial investments, investment
property and cash and cash equivalents 477 445 491
Less: financial assets classified as
held for sale(4) (21) - (22)
---------------------------------------------- -------- ------- -----------
Financial investments, investment property
and cash and cash equivalents 456 445 469
---------------------------------------------- -------- ------- -----------
1. Derivative notionals are included in the assets under management
but not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of
others, to which the group is not exposed to the risks or rewards
and thus are not included on the IFRS balance sheet.
3. Other includes assets that are managed by third parties on
behalf of the group, other assets and liabilities related to financial
investments, derivative assets and pooled funds.
4. Details relating to assets classified as held for sale is provided
in Note 4.03.
Asset and premium flows Page 70
5.05 Assets under administration
Workplace(1) Annuities(2) Workplace Annuities Workplace Annuities
30 June 30 June 30 June 30 June 31 December 31 December
2018 2018 2017 2017 2017 2017
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 27.7 58.2 20.8 54.4 20.8 54.4
Gross inflows 2.7 1.1 3.4 2.0 5.9 4.6
Gross outflows (0.8) - (0.6) - (1.4) -
Payments to pensioners - (1.7) - (1.6) - (3.3)
Net flows 1.9 (0.6) 2.8 0.4 4.5 1.3
Market and other
movements 0.1 (1.2) 1.3 0.8 2.4 2.5
At 30 June/31
December 29.7 56.4 24.9 55.6 27.7 58.2
1. Workplace assets under administration includes GBP29.5bn of
assets under management included in Note 5.01.
2. Annuities assets under administration includes GBP52.0bn of
assets under management included in Note 5.01.
5.06 LGR new business
6 months 6 months 6 months
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Pension risk transfer
- UK 507 1,504 1,901
- US 220 115 428
- Bermuda 8 - -
Individual Annuities 337 345 326
Lifetime Mortgage Advances 521 424 580
Longevity Insurance(1) - 800 -
Total LGR new business 1,593 3,188 3,235
1. Represents the notional size of the transaction and is based
on the present value of the fixed leg cash flows discounted at
the LIBOR curve.
5.07 Insurance new business
6 months 6 months 6 months
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
UK Retail Protection 87 86 86
UK Group Protection 34 28 21
Netherlands Protection(1) - 1 -
US Protection 42 38 41
Total LGI new business 163 153 148
1. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 71
5.08 Gross written premiums on Insurance business
6 months 6 months 6 months
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
UK Retail Protection 633 609 623
UK Group Protection 223 224 102
General Insurance 193 173 196
Netherlands Protection(1) - 14 -
US Protection 461 491 482
Longevity insurance 187 175 186
Total gross written premiums on Insurance
business 1,697 1,686 1,589
1. Legal & General Netherlands was sold on 6 April 2017.
Asset and premium flows Page 72
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Capital Page 73
6.01 Group regulatory capital - Solvency II
The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK and to measure and monitor its capital resources on this basis.
The Solvency II results are estimated for 30 June 2018. Further explanation of the underlying methodology and assumptions are set out in the sections below.
The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the group's Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (recalculated as at 30 June 2018).
(a) Capital position
As at 30 June 2018 the group had a surplus of GBP6.9bn (31 December
2017: GBP6.9bn) over its Solvency Capital Requirement, corresponding
to a coverage ratio on a "shareholder view" basis of 193% (31
December 2017: 189%). The shareholder view of the Solvency II
capital position is as follows:
30 June 31 December
2018 2017
GBPbn GBPbn
Core tier 1 Own Funds 11.3 11.6
Tier 2 subordinated liabilities 3.1 3.1
Eligibility restrictions (0.1) (0.1)
======================================================================== === ======== =========== Solvency II Own Funds(1,2) 14.3 14.6 Solvency Capital Requirement(3) (7.4) (7.7) Solvency II surplus 6.9 6.9 SCR coverage ratio(4) 193% 189% 1. Solvency II Own Funds do not include an accrual for the interim dividend of GBP274m (31 December 2017: GBP658m) declared after the balance sheet date. 2. Solvency II Own Funds allow for a risk margin of GBP5.2bn (31 December 2017: GBP5.9bn) and TMTP of GBP5.3bn (31 December 2017: GBP6.2bn). 3. The SCR is not subject to audit. 4. Coverage ratio is based on unrounded inputs.
The "shareholder view" basis excludes the contribution that the with-profits fund and the final salary pension scheme would normally make to the group position. This is reflected by reducing the group's Own Funds and the group's SCR by the amount of the SCR for the with-profits fund and the final salary pension scheme.
On a proforma basis, which includes the contribution of with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR in group's SCR, the coverage ratio at 30 June 2018 is 186% (31 December 2017: 181%).
On 6 December 2017 the group announced its intention to sell the Mature Savings business to Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in 2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement had been reflected in the Own Funds at the end of 2017. The impact in SCR has now been incorporated as at 30 June 2018.
Capital Page 74
6.01 Group regulatory capital - Solvency II (continued)
(b) Methodology and assumptions
The methodology and assumptions and Partial Internal Model underlying the calculation of Solvency II Own Funds and associated capital requirements are consistent with those set out in the group's 2017 Annual Reports and Accounts and Full Year Results.
Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any margins for prudence. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates net of credit risk adjustment of 10 basis points (31 December 2017: 10 basis points) for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.
At 30 June 2018 the Matching Adjustment for UK GBP denominated liabilities was 111 basis points (31 December 2017: 106 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 53 basis points (31 December 2017: 51 basis points). The increase in Fundamental Spread was driven by changes in the asset portfolio.
(c) Analysis of change
The table below shows the movement (net of tax) during the period
ended 30 June 2018 in the group's Solvency II surplus.
30 June 31 December
2018 2017
GBPbn GBPbn
Surplus arising from back-book (including release
of SCR) 0.7 1.3
Release of Risk Margin(1) 0.2 0.4
Amortisation of TMTP(2) (0.2) (0.4)
----------------------------------------------------- -------- -----------
Operational Surplus Generation(3) 0.7 1.3
New Business Strain (0.1) (0.1)
----------------------------------------------------- -------- -----------
Net Surplus Generation 0.6 1.2
Dividends paid(4) (0.7) (0.9)
Operating variances(5) - 0.4
Mergers, acquisitions and disposals(6) - -
Market movements(7) 0.1 -
Subordinated debt - 0.5
----------------------------------------------------- -------- -----------
Total Surplus movement (after dividends paid in
the period) - 1.2
1. Based on the risk margin in force at end 2017 and does not
include the release of any risk margin added by new business written
in 2018.
2. TMTP amortisation based on a linear run down of the end-2017
TMTP of GBP5.3bn (net of tax, GBP6.2bn before tax).
3. Release of surplus generated by in-force business and includes
management actions which at the start of the year could have been
reasonably expected to take place. For 2018 these are primarily
to deliver further eligible assets and liabilities into the Matching
Adjustment portfolio and an increase in direct investments allocation
to the annuity back-book.
4. Dividends paid are the amounts from the 2017 final dividend
declaration paid in H1 18 (FY 17: 2016 final and 2017 interim
dividend declarations).
5. Operating variances include the impact of experience variances,
changes to valuation and capital calibration assumptions, other
management actions including changes in asset mix, hedging strategies,
and Matching Adjustment optimisation.
6. Mergers, acquisitions and disposals include the impact of the
sale of Mature Savings (in excess of the amount which came through
in 2017) and purchase of 100% of CALA Homes.
7. Market movements represents the impact of changes in investment
market conditions over the period and changes to future economic
assumptions. Market movements in half year ended 30 June 2018
include a reduction in the risk margin of GBP0.4bn (net of tax)
and a reduction to TMTP of GBP0.4bn. 31 December 2017 included
a reduction in the risk margin of GBP2.0bn (net of tax).
Operational Surplus Generation is the expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.
New Business Strain is the cost of acquiring, and setting up Technical Provisions and SCR capital (net of any premium income), on actual new business written over the year. It is based on economic conditions at the point of sale.
Capital Page 75
6.01 Group regulatory capital - Solvency II (continued)
(d) Reconciliation of IFRS Net Release from Operations to Solvency II Net Surplus Generation
(i) The table below provides a reconciliation of the group's IFRS
Release from Operations to Solvency II Operational Surplus Generation.
6 months Full year
2018 2017
GBPbn GBPbn
IFRS Release from Operations 0.7 1.3
Expected release of IFRS prudential margins (0.2) (0.5)
Releases of IFRS specific reserves(1) (0.1) (0.1)
Solvency II investment margin(2,3) 0.1 0.2
Release of Solvency II Capital Requirement and
Risk Margin less TMTP amortisation(4) 0.2 0.4
Solvency II Operational Surplus Generation 0.7 1.3
--------------------------------------------------------- -------- ---------
1. Release of prudence from IFRS specific reserves which are not
included in Solvency II (e.g. long term expenses and longevity
margins).
2. Release of prudence related to differences between the EIOPA-defined
fundamental spread and L&G's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess
of risk free rates over 2018.
4. Solvency II Operational Surplus Generation includes management
actions which at the start of 2018 were expected to take place
within the group plan.
(ii) The table below provides a reconciliation of the group's
IFRS New Business Surplus to Solvency II New Business Strain.
6 months Full year
2018 2017
GBPbn GBPbn
------------------------------------------------------- ======== ---------
IFRS New Business Surplus - 0.2
Removal of requirement to set up prudential margins
above best estimate on New Business - 0.2
Set up of Solvency II Capital Requirement on New
Business(1) (0.1) (0.3)
Set up of Risk Margin on New Business - (0.2) Solvency II New Business Strain (0.1) (0.1) --------------------------------------------------------- -------- --------- 1. The lower Solvency II capital requirement on new business in 2018 reflects lower premiums written and the success of our strategy to source direct investments (including lifetime mortgages) to back new annuity sales.
(e) Reconciliation of IFRS shareholders' equity to Solvency II Own Funds
A reconciliation of the group's IFRS shareholders' equity to Own
Funds is given below:
30 Jun 31 Dec
2018 2017(1)
GBPbn GBPbn
--------------------------------------------------------- ------- --------
IFRS shareholders' equity 7.7 7.6
Remove DAC, goodwill and other intangible assets
and liabilities (0.7) (0.6)
Add IFRS carrying value of subordinated debt treated
as available capital under Solvency II(2) 2.9 2.9
Insurance contract valuation differences(3) 6.3 6.4
Difference in value of net deferred tax liabilities (0.9) (0.7)
SCR for with-profits fund and final salary pension
schemes (0.8) (0.7)
Other(4) (0.1) (0.2)
Eligibility restrictions(5) (0.1) (0.1)
------- --------
Solvency II Own Funds(6) 14.3 14.6
------- --------
1. Following a change in accounting policy for LGIA term life
reserves, specific IFRS balance sheet items have been restated,
notably deferred acquisition costs, non-participating insurance
contracts and deferred tax liabilities. The overall net impact
on the group's IFRS shareholders' equity as at 31 December 2017
is a reduction of GBP354m. Further details on the change in accounting
policy is provided in Note 4.01.
2. Treated as available capital on the Solvency II balance sheet
as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between
IFRS and Solvency II.
4. Reflects valuation differences on other assets and liabilities,
predominately in respect of borrowings measured at fair value
under Solvency II.
5. Relating to the Own Funds of non-insurance regulated entities
that are subject to local regulatory rules.
6. Own Funds do not include an accrual for the interim dividend
of GBP274m (31 December 2017: GBP658m) declared after the balance
sheet date.
Capital Page 76
6.01 Group regulatory capital - Solvency II (continued)
(f) Sensitivity analysis
The following sensitivities are provided to give an indication
of how the group's Solvency II surplus as at 30 June 2018 would
have changed in a variety of adverse events. These are all independent
stresses to a single risk. In practice, the balance sheet is impacted
by combinations of stresses and the combined impact can be larger
than adding together the impacts of the same stresses in isolation.
It is expected that, particularly for market risks, adverse stresses
will happen together.
Impact Impact Impact Impact
on on on on
net of net of net of net of
tax tax tax tax
Solvency Solvency Solvency Solvency
II II II II
capital coverage capital coverage
surplus(5) ratio(5) surplus(5) ratio(5)
30 Jun 30 Jun 31 Dec 31 Dec
2018 2018 2017 2017
GBPbn % GBPbn %
Credit spreads widen by 100bps assuming
an escalating addition to ratings(1,2) 0.4 12 0.2 8
Credit migration(3) (0.5) (7) (0.5) (6)
15% fall in property markets (0.5) (6) (0.4) (4)
100bps increase in risk free rates 0.8 22 0.8 20
50bps decrease in risk free rates(4) (0.5) (11) (0.5) (10)
1. The spread sensitivity applies to Legal & General's corporate
bond (and similar) holdings, with no change in the firm's long
term default expectations.
2. The stress for AA bonds is twice that for AAA bonds, for A bonds
it is three times, for BBB four times and so on, such that the
weighted average spread stress for the portfolio is 100 basis points.
3. Credit migration stress covers the cost of an immediate big
letter downgrade on 20% of all assets where the capital treatment
depends on a credit rating (including corporate bonds, sale and
leaseback rental strips and LTM senior notes).
4. In the interest rate down stress negative rates are allowed,
i.e. there is no floor at zero rates.
5. Both the 2017 and 2018 sensitivities exclude the impact from
the Mature Savings business (including the with-profits fund) as
the risks have been transferred to the ReAssure division of Swiss
Re from 1 January 2018.
The above sensitivity analysis does not reflect all management
actions which could be taken to reduce the impacts. In practice,
the group actively manages its asset and liability positions to
respond to market movements. These results all allow (on an approximate
basis) for the recalculation of TMTP as at 30 June 2018 where the
impact of the stress would cause this to change materially.
The impacts of these stresses are not linear therefore these results
should not be used to interpolate or extrapolate the impact of
a smaller or larger stress. The results of these tests are indicative
of the market conditions prevailing at the balance sheet date.
The results would be different if performed at an alternative reporting
date.
Capital Page 77
6.02 Estimated Solvency II new business contribution
(a) New business by product(1)
Management estimates of the present value of new business premium
(PVNBP) and the margin for selected lines of business are provided
below:
Contri- Contri-
bution bution
from new from new
PVNBP business(2) Margin(3) PVNBP business(2) Margin(3)
6 months 6 months 6 months Full year Full year Full year
2018 2018 2018 2017 2017 2017
GBPm GBPm % GBPm GBPm %
LGR - UK annuity business 844 65 7.7 4,083 346 8.5
UK Protection Total 788 56 7.1 1,496 129 8.6
- Retail Protection 652 49 7.6 1,293 111 8.6
- Group Protection 136 7 5.2 203 18 8.7
US Protection(4,5) 411 48 11.6 764 89 11.7
1. Selected lines of business only.
2. The contribution from new business is defined as the present
value at the point of sale of expected future Solvency II surplus
emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $543m (31
December 2017: $985m) and a contribution from new business of $63m
(31 December 2017: $115m).
5. Assumes reassurance is enacted during 2018.
As in previous years the reported LGR margin includes all of LGR's
new business costs including those incurred in quoting on business
we expect to conclude in H2 and beyond. The margin increases to
10.3% by only including the costs associated with the business written
in H1. This is a better comparator to 2017. The increase reflects
the higher long term value generated from the smaller sized schemes
written in H1, as well as our ability to source attractive DI assets
from bespoke deals such as the buy-in transaction with the BAA Pension
Scheme. Additionally, the 2017 margin includes a GBP250m scheme
where the group passes on all of the risk and retains a small facilitation
fee.
In UK Protection business we have seen competitive pricing pressure
combined with a shift in the mix of business towards lower margin
products.
For US Protection, the new business contribution has increased relative
to the 2017 position due to higher new business volumes and more
favourable business mix. The change in Solvency II new business
margin reflects the significant increase in US risk free rates over the first half of the year. This has more than offset the contribution from a more favourable business mix.
Capital Page 78
6.02 Estimated Solvency II new business contribution (continued)
(b) Basis of preparation
Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies which were set out in the group's 2017 Annual Report and Accounts and Full Year Results.
Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGR, LGI and LGA.
Intra-group reinsurance arrangements are in place between US and UK businesses and it is expected that these arrangements will be periodically extended to cover recent new business. The LGA new business margin assumes that the new business will be reinsured in 2018 and looks through the intra-group arrangements.
(c) Assumptions
The key economic assumptions are as follows:
30 June 31 December
2018 2017
% %
Margin for risk 3.1 3.0
Risk free rate
- UK 1.7 1.6
- US 2.8 2.4
Risk discount rate (net of tax)
- UK 4.8 4.6
- US 5.9 5.4
Long-term rate of return on non profit annuities
in LGR 3.0 3.0
The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat Margin for risk. The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment. The risk free rate shown above is a weighted average based on the projected cash flows.
Tax
The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with substantively enacted future changes.
The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19% and subsequent enacted future tax rate of 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.
US covered business profits are grossed up using the long term corporate tax rate of 21%.
Risk discount rate
The risk discount rate (RDR) is duration-based and is a combination of the risk free curve and a flat Margin for risk, which reflects the residual risks inherent in the group's businesses, after taking account of margins in the statutory technical provisions, the required capital and the specific allowance for financial options and guarantees.
The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment 10 basis points for GBP and 14 basis points for USD (31 December 2017: 10 basis points for GBP and for USD).
The Margin for risk has been determined based on an assessment of the group's weighted average cost of capital (WACC). This assessment incorporates a beta for the group, which measures the correlation of movements in the group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.
Capital Page 79
6.02 Estimated Solvency II new business contribution (continued)
(d) Reconciliation of PVNBP to gross written premiums
A reconciliation of PVNBP and gross written
premium is given below:
6 months Full year
2018 2017
GBPbn GBPbn
PVNBP 2.0 6.3
Effect of capitalisation factor (1.0) (2.0)
New business premiums from selected lines 1.0 4.3
Other(1) 0.8 2.4
Total LGR and LGI new business 1.8 6.7
Annualisation impact of regular premium long-term
business (0.1) (0.2)
IFRS gross written premiums from existing
long-term insurance business 1.4 2.8
Deposit accounting for lifetime mortgage advances (0.5) (1.0)
General Insurance gross written premiums 0.2 0.4
Future premiums on longevity swap new business - (0.8)
Total gross written premiums 2.8 7.9
1. Other principally includes annuity sales in the US, lifetime
mortgage advances and discounted future cash flows on longevity
swap new business.
2. This excludes gross written premiums from discontinued operations.
Capital Page 80
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Investments Page 81
7.01 Investment portfolio
Market Market Market
value value value
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Worldwide total assets under
management(1) 990,379 952,100 984,120
Client and policyholder assets(2) (907,834) (870,400) (900,904)
Non-unit linked with-profits
assets (10,673) (11,551) (11,113)
Investments to which shareholders are
directly exposed 71,872 70,149 72,103
1. Worldwide total assets under management include LGIM AUM and
other group assets not managed by LGIM.
Analysed by investment class:
Other
non profit Other
LGR insurance LGC(3) shareholder
investments investments investments investments Total Total Total
30 June 30 June 30 June 30 June 30 June 30 June 31 December
2018 2018 2018 2018 2018 2017 2017
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities(4,7) 285 15 2,246 181 2,727 2,876 2,960
Bonds 7.03 50,847 1,569 2,930 480 55,826 56,093 57,075
Derivative assets(5) 4,213 - 11 1 4,225 3,823 4,062
Property 7.04 2,791 - 80 - 2,871 2,887 2,832
Cash, cash equivalents
and loans 2,147 482 1,461 262 4,352 3,893 4,084
Financial investments 60,283 2,066 6,728 924 70,001 69,572 71,013
Other assets(2,6,7) 490 - 1,373 8 1,871 577 1,090
Total investments 60,773 2,066 8,101 932 71,872 70,149 72,103
2. At 30 June 2017, the group held GBP5,660m of reverse repurchase
agreements, which were disclosed within Other assets in the above
analysis in the interim financial statements for the period then
ended. These assets back unit-linked liabilities and hence were
incorrectly classified as Investments to which shareholders are
directly exposed, rather than Client and policyholder assets. The
30 June 2017 disclosures have been adjusted to reflect this restatement.
There is no impact on total assets in the Consolidated Balance Sheet
as a result of this reallocation.
3. LGC property includes GBP23m of shareholder investment property.
4. Equity investments include a total of GBP125m in respect of Peel
Media Holdings Limited (MediaCityUK) and Access Development Partnership
(30 June 2017: GBP256m; 31 December 2017: GBP260m).
5. Derivative assets are shown gross of derivative liabilities of
GBP3.3bn (30 June 2017: GBP2.4bn; 31 December 2017: GBP2.3bn). Exposures
arise from use of derivatives for efficient portfolio management,
especially the use of interest rate swaps, inflation swaps, credit
default swaps and foreign exchange forward contracts for asset and
liability management.
6. Other assets include reverse repurchase agreements of GBP752m
(30 June 2017: GBP542m; 31 December 2017: GBP679m). 7. Other assets includes the consolidated net asset value of the group's investments in CALA Homes and other housing businesses, previously disclosed within Financial investments.
Investments Page 82
7.02 Direct Investments
(a) Analysed by asset class
Direct(1) Traded(2) Direct(1) Traded(2) Direct(1) Traded(2)
Investments securities Total Investments securities Total Investments securities Total
30 June 30 June 30 June 30 June 30 June 30 June 31 December 31 31
December December
2018 2018 2018 2017 2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equities 890 1,837 2,727 650 2,226 2,876 930 2,030 2,960
Bonds(3) 10,800 45,026 55,826 7,722 48,371 56,093 9,726 47,349 57,075
Derivative
assets - 4,225 4,225 - 3,823 3,823 - 4,062 4,062
Property(4) 2,871 - 2,871 2,887 - 2,887 2,832 - 2,832
Cash, cash
equivalents
and loans 580 3,772 4,352 496 3,397 3,893 474 3,610 4,084
Financial
investments 15,141 54,860 70,001 11,755 57,817 69,572 13,962 57,051 71,013
Other
assets(5) 1,119 752 1,871 35 542 577 411 679 1,090
Total
investments 16,260 55,612 71,872 11,790 58,359 70,149 14,373 57,730 72,103
------------ ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- ---------
1. Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile
asset classes. Direct Investments also include physical assets, bilateral
loans and private equity, but exclude hedge funds.
2. Traded securities are defined by exclusion. If an instrument is
not a Direct Investment, then it is classed as a traded security.
3. Bonds include lifetime mortgages of GBP2,674m (30 June 2017: GBP1,433;
31 December 2017: GBP2,023m).
4. A further breakdown of property is provided in Note 7.04.
5. At 30 June 2017, the group held GBP5,660m of reverse repurchase
agreements, which were disclosed as Other assets in the above analysis
in the interim financial statements for the period then ended. These
assets back unit-linked liabilities and hence were incorrectly included
in the analysis. The 30 June 2017 disclosures have been adjusted
to exclude these assets reflecting this restatement. There is no
impact on total assets in the Consolidated Balance Sheet as a result
of this reallocation.
Investments Page 83
7.02 Direct Investments (continued)
(b) Analysed by segment
LGR LGC(1) LGI(2) Total
30 June 30 June 30 June 30 June
2018 2018 2018 2018
GBPm GBPm GBPm GBPm
-
---------------------------------------- --- -------- ------- ------- -------
Equities - 851 39 890
Bonds(3) 10,432 30 338 10,800
Property(4) 2,791 80 - 2,871
Cash, cash equivalents and loans 175 77 328 580
----------------------------------------------- -------- ------- ------- -------
Financial investments 13,398 1,038 705 15,141
------------------------------------------------ -------- ------- ------- -------
Other assets(5) 92 1,027 - 1,119
----------------------------------------------- -------- ------- ------- -------
Total direct investments 13,490 2,065 705 16,260
------------------------------------------------ -------- ------- ------- -------
1. LGC includes GBP40m of equities, GBP27m of bonds and GBP23m
of property that belong to other shareholder funds.
2. LGI includes GBP18m of equity investments in LGI UK. The
bonds and loans and receivables are in the US business.
3. Bonds include lifetime mortgages of GBP2,674m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets include finance leases of GBP92m.
LGR LGC(1) LGI Total
30 June 30 June 30 June 30 June
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
Equities - 650 - 650
Bonds(2) 7,094 267 361 7,722
Property(3) 2,687 200 - 2,887
Cash, cash equivalents and loans 31 123 342 496
-------------------------------------- -------- -------- ------- -------
Financial investments 9,812 1,240 703 11,755
---------------------------------------- -------- -------- ------- -------
Other assets - 35 - 35
---------------------------------------- -------- -------- ------- -------
Total direct investments 9,812 1,275 703 11,790
---------------------------------------- -------- -------- ------- -------
1. LGC included GBP27m of equities, GBP33m of bonds and GBP25m of
property that belong to other shareholder funds.
2. Bonds included lifetime mortgages of GBP1,433m.
3. A further breakdown of property is provided in Note 7.04.
LGR LGC(1) LGI(2) Total
31 December 31 December 31 December 31 December
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
Equities - 922 8 930
Bonds(3) 9,272 22 432 9,726
Property(4) 2,722 110 - 2,832
Cash, cash equivalents and loans 88 150 236 474
------------------------------------ ----------- ----------- ----------- -----------
Financial investments 12,082 1,204 676 13,962
------------------------------------- ----------- ----------- ----------- -----------
Other assets(5) 92 319 - 411
Total direct investments 12,174 1,523 676 14,373
------------------------------------- ----------- ----------- ----------- -----------
1. LGC included GBP30m of equities, GBP19m of bonds and GBP23m of
property that belong to other shareholder funds.
2. LGI included GBP8m of equity investments in LGI UK. The
bonds and loans are in the US business.
3. Bonds included lifetime mortgages of GBP2,023m.
4. A further breakdown of property is provided in Note 7.04.
5. Other assets included finance leases of GBP92m.
Investments Page 84
7.03 Bond portfolio summary
(a) LGR analysed by sector
Sectors analysed by credit rating
BB or Total Total
AAA AA A BBB below Other LGR LGR
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,020 7,732 128 233 2 - 9,115 19
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - - 66 28 - - 94 -
- Senior - 554 1,483 32 - 4 2,073 4
- Covered 117 - - - - - 117 -
Financial Services:
- Tier 2 and other subordinated - 187 104 15 - - 306 1
- Senior - 76 329 42 - - 447 1
Insurance:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - 106 - 43 - - 149 -
- Senior - 150 449 84 - - 683 1
Consumer Services and Goods: - Cyclical - 501 775 1,406 172 - 2,854 6 - Non-cyclical 195 479 1,284 1,908 267 - 4,133 8 - Health care 3 49 249 312 - - 613 1 Infrastructure: - Social 95 788 3,273 905 127 - 5,188 11 - Economic 180 23 1,068 2,333 43 - 3,647 7 Technology and Telecoms 75 138 707 1,994 25 - 2,939 6 Industrials - - 751 264 7 - 1,022 2 Utilities - 98 4,854 3,603 - 17 8,572 17 Energy - - 103 520 - - 623 1 Commodities - - 242 479 - - 721 1 Oil and Gas - 322 536 586 80 - 1,524 3 Real estate - - 1,036 1,091 48 - 2,175 4 Structured finance ABS / RMBS / CMBS / Other 171 621 158 121 8 - 1,079 2 Lifetime mortgage loans(1) 1,533 588 219 211 - 123 2,674 5 CDOs - 24 61 14 - - 99 - Total GBPm 3,389 12,436 17,875 16,224 779 144 50,847 100 Total % 7 24 35 32 2 - 100 1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 85
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or Total Total
AAA AA A BBB below LGR LGR
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and Sub-Sovereigns 1,058 9,718 297 230 31 11,334 23
Banks:
- Tier 1 - - - - - - -
- Tier 2 and other subordinated 211 49 58 35 - 353 1
- Senior 3 363 1,227 34 - 1,627 3
- Covered 254 - - - - 254 -
Financial Services:
- Tier 2 and other subordinated - 129 109 58 - 296 1
- Senior - 580 66 114 - 760 1
Insurance:
- Tier 1 - - - - - - -
- Tier 2 and other subordinated - 110 - 52 - 162 -
- Senior - 55 487 76 - 618 1
Consumer Services and Goods
- Cyclical - 335 1,071 1,676 160 3,242 6
- Non-cyclical 177 558 1,329 2,050 97 4,211 8
- Health care 3 32 195 155 - 385 1
Infrastructure:
- Social 86 841 3,380 1,005 20 5,332 10
- Economic - 29 913 1,402 43 2,387 5
Technology and Telecoms 56 139 724 2,014 86 3,019 6
Industrials - 148 705 381 12 1,246 2
Utilities - 80 4,867 3,370 16 8,333 16
Energy - - 102 482 16 600 1
Commodities - - 302 523 20 845 2
Oil and Gas - 278 481 670 163 1,592 3
Real estate - 369 482 1,199 53 2,103 4
Structured finance ABS / RMBS
/ CMBS / Other 134 588 485 47 55 1,309 3
Lifetime mortgage loans(1) 721 522 99 91 - 1,433 3
CDOs - 21 60 14 - 95 -
Total GBPm 2,703 14,944 17,439 15,678 772 51,536 100
Total % 5 30 34 30 1 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Investments Page 86
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or Total Total
AAA AA A BBB below Other LGR LGR
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and Sub-Sovereigns 1,220 8,604 186 238 10 - 10,258 20
Banks:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated 142 - 63 31 - - 236 1
- Senior - 682 1,740 47 - - 2,469 5
- Covered 193 - - - - - 193 -
Financial Services:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - 123 113 9 - - 245 1
- Senior - 307 348 187 - - 842 2
Insurance:
- Tier 1 - - - - - - - -
- Tier 2 and other subordinated - 124 1 46 - - 171 -
- Senior - 116 458 65 - - 639 1
Consumer Services and Goods:
- Cyclical - 271 798 1,510 213 - 2,792 5
- Non-cyclical 201 574 1,239 2,031 126 - 4,171 8
- Health care 3 32 232 176 - - 443 1
Infrastructure:
- Social 93 708 3,442 1,111 21 - 5,375 10
- Economic 179 30 937 2,179 43 - 3,368 6
Technology and Telecoms 60 148 777 1,941 26 - 2,952 6
Industrials - - 774 274 9 - 1,057 2
Utilities - 107 4,800 3,666 11 - 8,584 17
Energy - - 106 538 16 - 660 1
Commodities - - 246 490 19 - 755 1
Oil and Gas - 304 616 541 170 - 1,631 3
Real estate - 22 1,044 1,166 49 - 2,281 4
Structured finance ABS /
RMBS / CMBS / Other 176 681 172 151 55 - 1,235 2
Lifetime mortgage loans(1) 1,141 403 207 159 - 113 2,023 4
CDOs - 22 60 14 - - 96 -
Total GBPm 3,408 13,258 18,359 16,570 768 113 52,476 100
Total % 6 25 35 32 2 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Investments Page 87
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile
EU Rest Total
of
UK US excluding the World LGR
UK
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 7,383 723 734 275 9,115
Banks 878 604 495 307 2,284
Financial Services 290 79 382 2 753
Insurance 127 507 111 87 832
Consumer Services and Goods:
- Cyclical 524 1,800 430 100 2,854
- Non-cyclical 1,272 2,517 338 6 4,133
- Health care 1 612 - - 613
Infrastructure:
- Social 4,857 294 - 37 5,188
- Economic 2,998 371 53 225 3,647
Technology and Telecoms 684 1,234 593 428 2,939
Industrials 188 503 256 75 1,022
Utilities 4,440 1,281 2,147 704 8,572
Energy 36 530 5 52 623
Commodities 8 250 35 428 721
Oil and Gas 267 422 327 508 1,524
Real estate 1,580 277 54 264 2,175
Structured finance ABS / RMBS /
CMBS / Other 942 105 9 23 1,079
Lifetime mortgages 2,674 - - - 2,674
CDOs - 24 - 75 99
Total 29,149 12,133 5,969 3,596 50,847
Investments Page 88
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile (continued)
EU Rest of Total
UK US excluding the World LGR
UK
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,024 704 1,105 501 11,334
Banks 931 688 497 118 2,234
Financial Services 383 68 605 - 1,056
Insurance 154 555 16 55 780
Consumer Services and Goods:
- Cyclical 772 2,049 290 131 3,242
- Non-cyclical 1,359 2,564 279 9 4,211
- Health care 1 384 - - 385
Infrastructure:
- Social 5,012 284 - 36 5,332
- Economic 1,917 205 29 236 2,387
Technology and Telecoms 591 1,356 659 413 3,019
Industrials 204 568 335 139 1,246
Utilities 3,862 1,237 2,322 912 8,333
Energy - 498 6 96 600
Commodities 8 290 22 525 845
Oil and Gas 187 396 465 544 1,592
Real estate 1,686 379 10 28 2,103
Structured finance ABS / RMBS /
CMBS / Other 947 42 302 18 1,309
Lifetime mortgages 1,433 - - - 1,433
CDOs - 21 - 74 95
Total 28,471 12,288 6,942 3,835 51,536
Investments Page 89
7.03 Bond portfolio summary (continued)
(a) LGR analysed by sector (continued)
Sectors analysed by domicile (continued)
EU Rest of Total
UK US excluding the World LGR
UK
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 8,052 925 978 303 10,258
Banks 1,351 690 662 195 2,898
Financial Services 364 68 655 - 1,087
Insurance 135 531 91 53 810
Consumer Services and Goods:
- Cyclical 597 1,919 210 66 2,792
- Non-cyclical 1,298 2,553 314 6 4,171
- Health care 1 442 - - 443
Infrastructure:
- Social 5,051 287 - 37 5,375
- Economic 2,658 310 34 366 3,368
Technology and Telecoms 686 1,300 556 410 2,952
Industrials 195 523 263 76 1,057
Utilities 3,997 1,233 2,280 1,074 8,584
Energy - 583 5 72 660
Commodities 8 263 34 450 755
Oil and Gas 259 418 429 525 1,631
Real estates 1,600 359 44 278 2,281
Structured finance ABS / RMBS /
CMBS / Other 1,011 192 10 22 1,235
Lifetime mortgages 2,023 - - - 2,023
CDOs - 22 - 74 96
Total 29,286 12,618 6,565 4,007 52,476
Investments Page 90
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector
Sectors analysed by credit rating
BB or
AAA AA A BBB below Other Total Total
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,266 9,102 160 323 43 - 10,894 20
Banks:
- Tier 1 - - - - - 1 1 -
- Tier 2 and other subordinated - - 76 38 2 - 116 -
- Senior - 1,184 2,411 62 - 8 3,665 7
- Covered 173 - - - - - 173 -
Financial Services:
- Tier 1 1 - - - - 1 2 -
- Tier 2 and other subordinated - 187 104 17 - - 308 1
- Senior - 84 354 59 10 - 507 1
Insurance:
- Tier 1 - - - 1 - - 1 -
- Tier 2 and other subordinated - 109 1 48 - - 158 -
- Senior - 168 456 91 - - 715 1
Consumer Services and
Goods:
- Cyclical - 512 825 1,435 220 1 2,993 5
- Non-cyclical 209 498 1,360 2,006 295 1 4,369 8
- Health Care 3 52 276 325 3 - 659 1
Infrastructure:
- Social 95 788 3,276 905 127 - 5,191 9
- Economic 180 23 1,079 2,353 43 - 3,678 7
Technology and Telecoms 84 151 759 2,035 52 1 3,082 6
Industrials - 3 817 374 43 - 1,237 2
Utilities - 105 4,912 3,657 5 19 8,698 16
Energy - - 103 548 15 - 666 1
Commodities - - 248 491 13 - 752 1
Oil and Gas - 341 557 617 111 - 1,626 3
Real estate - - 1,048 1,145 56 - 2,249 4
Structured finance ABS
/ RMBS / CMBS / Other 324 656 195 128 10 - 1,313 2
Lifetime mortgage loans(1) 1,533 588 219 211 - 123 2,674 5 CDOs - 24 61 14 - - 99 - Total GBPm 3,868 14,575 19,297 16,883 1,048 155 55,826 100 Total % 7 26 35 30 2 - 100 1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
Investments Page 91
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total Total
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,334 10,381 322 314 81 - 12,432 22
Banks:
- Tier 1 - - - 1 1 - 2 -
- Tier 2 and other subordinated 211 49 70 46 4 - 380 1
- Senior 11 992 2,233 51 1 - 3,288 6
- Covered 310 - - - - - 310 -
Financial Services:
- Tier 1 2 - - - - - 2 -
- Tier 2 and other subordinated - 129 109 64 - - 302 1
- Senior - 591 100 132 11 - 834 1
Insurance:
- Tier 1 - - - 1 - - 1 -
- Tier 2 and other subordinated - 113 4 56 - - 173 -
- Senior - 71 493 80 - - 644 1
Consumer Services and Goods:
- Cyclical - 358 1,124 1,698 230 - 3,410 6
- Non-cyclical 191 591 1,398 2,143 134 - 4,457 7
- Health Care 3 31 222 172 6 - 434 1
Infrastructure:
- Social 86 841 3,383 1,005 20 - 5,335 10
- Economic - 29 940 1,405 43 - 2,417 4
Technology and Telecoms 71 158 779 2,062 122 - 3,192 6
Industrials - 151 786 482 68 - 1,487 3
Utilities - 87 4,931 3,428 34 - 8,480 15
Energy - - 102 515 31 - 648 1
Commodities - - 312 537 41 - 890 2
Oil and Gas - 287 514 695 204 - 1,700 3
Real estate - 369 491 1,254 63 - 2,177 4
Structured finance ABS
/ RMBS / CMBS / Other 305 620 531 59 55 - 1,570 3
Lifetime mortgage loans(1) 721 522 99 91 - - 1,433 3
CDOs - 21 60 14 - - 95 -
Total GBPm 3,245 16,391 19,003 16,305 1,149 - 56,093 100
Total % 6 29 34 29 2 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Investments Page 92
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by credit rating (continued)
BB or
AAA AA A BBB below Other Total Total
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Sovereigns, Supras and
Sub-Sovereigns 1,477 9,376 210 328 59 - 11,450 20
Banks:
- Tier 1 - - - 1 1 2 4 -
- Tier 2 and other subordinated 142 - 74 42 2 - 260 -
- Senior - 1,366 2,782 90 - - 4,238 8
- Covered 221 - - - - - 221 -
Financial Services:
- Tier 1 1 - - - - - 1 -
- Tier 2 and other subordinated - 123 118 10 - - 251 -
- Senior - 323 368 205 9 - 905 2
Insurance:
- Tier 1 - - - 1 - - 1 -
- Tier 2 and other subordinated - 127 4 51 - - 182 -
- Senior - 128 464 68 - - 660 1
Consumer Services and
Goods:
- Cyclical - 289 841 1,542 271 2 2,945 5
- Non-cyclical 215 601 1,313 2,114 165 1 4,409 8
- Health care 3 32 262 189 4 - 490 1
Infrastructure:
- Social 93 708 3,445 1,111 21 - 5,378 9
- Economic 179 30 949 2,182 44 - 3,384 6
Technology and Telecoms 73 167 833 1,988 57 2 3,120 6
Industrials - 3 851 376 52 1 1,283 2
Utilities - 115 4,860 3,725 21 - 8,721 16
Energy - - 106 567 31 - 704 1
Commodities - - 260 494 39 - 793 1
Oil and Gas - 322 640 566 213 1 1,742 3
Real estate - 22 1,053 1,221 59 - 2,355 4
Structured finance ABS
/ RMBS / CMBS / Other 318 717 208 161 55 - 1,459 3
Lifetime mortgage loans(1) 1,141 403 207 159 - 113 2,023 4
CDOs - 22 60 14 - - 96 -
Total GBPm 3,863 14,874 19,908 17,205 1,103 122 57,075 100
Total % 7 26 35 30 2 - 100
1. The credit ratings attributed to lifetime mortgages are allocated
in accordance with the internal Matching Adjustment structuring.
Investments Page 93
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 8,702 1,005 774 413 10,894
Banks 1,643 703 932 677 3,955
Financial Services 291 127 397 2 817
Insurance 132 541 113 88 874
Consumer Services and Goods:
- Cyclical 530 1,888 467 108 2,993
- Non-cyclical 1,284 2,717 350 18 4,369
- Health care 10 649 - - 659
Infrastructure:
- Social 4,860 294 - 37 5,191
- Economic 3,000 381 71 226 3,678
Technology and Telecoms 690 1,352 599 441 3,082
Industrials 199 690 264 84 1,237
Utilities 4,449 1,377 2,162 710 8,698
Energy 36 572 5 53 666
Commodities 10 272 38 432 752
Oil and Gas 272 471 348 535 1,626
Real estate 1,582 341 58 268 2,249
Structured Finance ABS / RMBS /
CMBS / Other 947 295 48 23 1,313
Lifetime mortgages 2,674 - - - 2,674
CDOs - 24 - 75 99
Total 31,311 13,699 6,626 4,190 55,826
Investments Page 94
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
excluding Rest of
UK US UK the World Total
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 9,600 965 1,236 631 12,432
Banks 1,858 793 920 409 3,980
Financial Services 384 124 630 - 1,138
Insurance 161 583 19 55 818
Consumer Services and Goods:
- Cyclical 782 2,153 336 139 3,410
- Non-cyclical 1,374 2,769 291 23 4,457
- Health care 10 424 - - 434
Infrastructure:
- Social 5,015 283 - 37 5,335
- Economic 1,920 232 29 236 2,417
Technology and Telecoms 597 1,499 668 428 3,192
Industrials 218 775 345 149 1,487
Utilities 3,874 1,344 2,341 921 8,480
Energy - 546 6 96 648
Commodities 10 313 27 540 890
Oil and Gas 193 436 496 575 1,700
Real estate 1,687 444 14 32 2,177
Structured Finance ABS / RMBS /
CMBS / Other 950 246 349 25 1,570
Lifetime mortgages 1,433 - - - 1,433
CDOs - 21 - 74 95
Total 30,066 13,950 7,707 4,370 56,093
Investments Page 95
7.03 Bond portfolio summary (continued)
(b) Total group analysed by sector (continued)
Sectors analysed by domicile (continued)
EU
excluding Rest of
UK US UK the World Total
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm
Sovereigns, Supras and Sub-Sovereigns 8,689 1,204 1,114 443 11,450
Banks 2,326 794 1,187 416 4,723
Financial Services 365 111 681 - 1,157
Insurance 143 555 92 53 843
Consumer Services and Goods
- Cyclical 604 2,015 251 75 2,945
- Non-cyclical 1,313 2,752 324 20 4,409
- Health care 10 480 - - 490
Infrastructure
- Social 5,054 287 - 37 5,378
- Economic 2,661 321 34 368 3,384
Technology and Telecoms 692 1,435 563 430 3,120
Industrials 209 714 274 86 1,283
Utilities 4,008 1,334 2,296 1,083 8,721
Energy - 626 5 73 704
Commodities 10 287 38 458 793
Oil and Gas 265 462 458 557 1,742
Real estate 1,602 422 48 283 2,355
Structured finance ABS / RMBS /
CMBS / Other 1,017 366 54 22 1,459
Lifetime mortgage loans 2,023 - - - 2,023
CDOs - 22 - 74 96
Total 30,991 14,187 7,419 4,478 57,075
Investments Page 96
7.03 Bond portfolio summary (continued)
(c) LGR and total group analysed by credit rating
Externally Internally Total Externally Internally Total
rated rated(1) LGR rated rated(1) group
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm
AAA 1,640 1,749 3,389 2,117 1,751 3,868
AA 10,858 1,578 12,436 12,901 1,674 14,575
A 14,720 3,155 17,875 16,062 3,235 19,297
BBB 12,635 3,589 16,224 13,045 3,838 16,883
BB or below 507 272 779 730 318 1,048
Other 4 140 144 15 140 155
Total 40,364 10,483 50,847 44,870 10,956 55,826
Externally Internally Total Externally Internally Total
rated rated(1) LGR rated rated(1) group
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm
AAA 1,573 1,130 2,703 2,115 1,130 3,245
AA 13,205 1,739 14,944 14,579 1,812 16,391
A 14,511 2,928 17,439 15,971 3,032 19,003
BBB 13,103 2,575 15,678 13,516 2,789 16,305
BB or below 691 81 772 989 160 1,149
Other - - - - - -
Total 43,083 8,453 51,536 47,170 8,923 56,093
Externally Internally Total Externally Internally Total
rated rated(1) LGR rated rated(1) group
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm
AAA 1,783 1,625 3,408 2,238 484 2,722
AA 11,617 1,641 13,258 13,024 3,419 16,443
A 15,174 3,185 18,359 16,609 3,143 19,752
BBB 12,979 3,591 16,570 13,389 3,657 17,046
BB or below 690 78 768 965 138 1,103
Other - 113 113 9 - 9
Total 42,243 10,233 52,476 46,234 10,841 57,075
1. Where external ratings are not available an internal rating
has been used where practicable to do so.
Investments Page 97
7.04 Property analysis
Property exposure within direct investments by status
LGR(1) LGC(2,3) Total
As at 30 June 2018 GBPm GBPm GBPm %
Fully let 2,791 11 2,802 97
Development - 23 23 1
Land - 46 46 2
2,791 80 2,871 100
1. The fully let LGR property includes GBP2.6bn let to investment
grade tenants.
2. Development includes GBP23m of shareholder investment property
as noted in Note 7.01.
3. The above analysis does not include assets related to the group's
investments in CALA Homes and other housing businesses, which are
accounted for as inventory within Other assets on the group's Consolidated
Balance Sheet and measured at the lower of cost and net realisable
value. At 30 June 2018 the group held a total of GBP1,427m of such
assets.
LGR(1) LGC(2) Total
As at 30 June 2017 GBPm GBPm GBPm %
Fully let 2,687 8 2,695 93
Development - 144 144 5
Land - 48 48 2
2,687 200 2,887 100
1. The fully let LGR property included GBP2.3bn let to investment
grade tenants.
2. Development included GBP25m of shareholder investment property.
LGR(1) LGC(2) Total
As at 31 December GBPm GBPm GBPm %
2017
Fully let 2,722 30 2,752 97
Development - 32 32 1
Land - 48 48 2
2,722 110 2,832 100
1. The fully let LGR property included GBP2.4bn let to investment
grade tenants.
2. Development included GBP23m of shareholder investment property.
Investments Page 98
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Glossary Page 99
* These items represent an alternative performance measure (APM)
Ad valorem fees
Ongoing management fees earned on assets under management, overlay assets and advisory assets as defined below.
Adjusted earnings per share
Calculated by dividing profit after tax from continuing operations, attributable to equity holders of the company, excluding recognised gains and losses associated with held for sale and completed business disposals, by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares. Excluding the impact of anticipated and completed disposals provides an indication of the earnings per share from continuing operations.
Adjusted return on equity
ROE measures the return earned by shareholders on shareholder capital retained within the business. Adjusted ROE is calculated as IFRS pro t after tax divided by average IFRS shareholders' funds excluding recognised gains and losses associated with held for sale and completed business disposals. Excluding the impact of anticipated and completed disposals provides an indication of the return on equity from on-going operations.
Adjusted operating profit*
Operating pro t measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Adjusted operating profit further removes exceptional restructuring costs to demonstrate the profitability before these costs which are non-recurring in nature.
Advisory assets
These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are bene cially owned by GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different from Assets under Management (AUM) de ned below.
Alternative performance measures (APMs)
An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. The group uses a range of these metrics to provide a better understanding of the underlying performance of the group. Where appropriate, reconciliations of alternative performance measures to IFRS measures are provided. All APMs defined within this glossary are marked with an asterisk.
Annuity
Regular payments from an insurance company made for an agreed period of time (usually up to the depth of the recipient) in return for either cash lump sum or a series of premiums which the policyholder has paid to the insurance company during their working lifetime.
Annual premium
Premiums that are paid regularly over the duration of the contract such as protection policies.
Annual premium equivalent (APE)
A standardised measure of the volume of new life insurance business written. It is calculated as the sum of (annualised) new recurring premiums and 10% of the new single premiums written in an annual reporting period.
Assets under administration (AUA)*
Assets administered by Legal & General which are bene cially owned by clients and are therefore not reported on the Consolidated Balance Sheet. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Funds which are managed by our fund managers on behalf of investors. It represents the total amount of money investors have trusted with our fund managers to invest across our investment products.
Back book acquisition
New business transacted with an insurance company which allows the business to continue to utilise Solvency II transitional measures associated with the business.
Glossary Page 100
Bundled DC solution
Where investment and administration services are provided to a scheme by the same service provider. Typically, all investment and administration costs are passed onto the scheme members.
Bundled pension schemes
Where the fund manager bundles together the investment provider role and third-party administrator role, together with the role of selecting funds and providing investment education, into one proposition.
Combined operating ratio (COR)
The COR is a measure of the underwriting profitability of the general insurance business. It is calculated as the sum of the net incurred claims, expenses and net commission, divided by the net earned premium for the period.
Credit rating
A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA and the lowest Unrated. Ratings are usually issued by a credit rating agency (e.g. Moody's or Standard & Poor's) or a credit bureau.
Deduction and aggregation (D&A)
A method of calculating group solvency on a Solvency II basis, whereby the assets and liabilities of certain entities are excluded from the group consolidation. The net contribution from those entities to group own funds is included as an asset on the group's Solvency II balance sheet. Regulatory approval has been provided to recognise the (re)insurance subsidiaries of LGI US on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer. They provide benefits based upon the money held in each individual's plan specifically on behalf of each member. The amount in each plan at retirement will depend upon the investment returns achieved and on the member and employer contributions.
Derivatives
Derivatives are not a separate asset class but are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with another party and represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.
Dividend cover
Dividend cover measures how many times over the net release from operations in the year could have paid the full year dividend. For example, if the dividend cover is 3, this means that the net release from operations was three times the amount of dividend paid out.
Earnings per share (EPS)
EPS is a common nancial metric which can be used to measure the pro tability and strength of a company over time. It is the total shareholder pro t after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group. Eligible own funds (shareholder view basis) excludes the contribution to the groups solvency capital requirement of with-profits fund and final salary pension schemes.
Glossary Page 101
Employee engagement index
The Employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst at the same time working with their manager to enhance their own sense of development and well-being.
Escape of Water
Escape of water is a type of home insurance claim relating to leakage from fixed water tanks, apparatus (e.g. washing machine) or pipes
ETF
LGIM's European Exchange Traded Fund platform
Euro Commercial paper
Short term borrowings with maturities of up to 1 year typically issued for working capital purposes.
FVTPL
Fair value through profit or loss. A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet reports gains and losses arising from movements in fair value within the Consolidated Income Statement as part of the profit or loss for the year.
Full year dividend
Full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).
General insurance combined operating ratio
The combined operating ratio is calculated as the sum of incurred losses and expenses, including commission, divided by net earned premium.
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used
by the accounting community to report financial information.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the reporting period, before any deductions for reinsurance.
ICAV - Irish Collective Asset-Management Vehicle
A legal structure investment funds, based in Ireland and aimed at European investment funds looking for a simple, tax-efficient investment vehicle.
Index tracker (passive fund)
Index tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 index. Index tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds'.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and organisations follow when completing financial statements.
They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed
groups in the European Union (EU) are required to use.
Key performance indicators (KPIs)
These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited
Glossary Page 102
LGC
Legal & General Capital.
LGI
Legal & General Insurance.
LGIM
Legal & General Investment Management
LGR
Legal & General Retirement
LGR new business
Single premiums arising from annuity sales and back book acquisitions (including individual annuity and pension risk transfer), the volume of lifetime mortgage lending and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the LIBOR curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent in final salary pension plans, whose liabilities can often reach into billions of pounds for the largest of plans.
Lifetime mortgages
An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and calculating liabilities for future policyholders of life and annuity products, which contain mortality risks.
Net release from operations*
Net release from operations is de ned as release from operations plus new business surplus/(strain). Net release from operations was previously referred to as net cash and provides information on the underlying release of prudent margins from the back book.
New business surplus/(strain)
The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the setting up of reserves, for UK non profit annuities, workplace savings, protection and savings, net of tax. This metric provides an understanding of the impact of new contracts on the IFRS profit for the year.
Operating pro t*
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 the IFRS profit before tax) and LGA non-term business (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 period, such as merger and acquisition, and start-up costs, are also excluded from operating profit.
Glossary Page 103
Overlay assets
Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include interest rate swaps, in ation swaps, equity futures and options. These are typically used to hedge risks associated with pension scheme assets during the derisking stage of the pension life cycle.
Open architecture
Where a company offers investment products from a rang of other companies in addition to its own products. This gives customers a wider choice of funds to invest in and access to a larger pool of money management professionals.
Pension risk transfer (PRT)
PRT represents bulk annuities bought by entities that run nal salary pension schemes to reduce their responsibilities by closing the schemes to new members and passing the assets and obligations to insurance providers.
Present value of future new business premiums (PVNBP)*
PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the new business value at the end of the financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums are calculated on a net of reinsurance basis to enable a more representative margin figure. PVNBP therefore provides an estimate of the present value of the premiums associated with new business written in the year.
Platform
Online services used by intermediaries and consumers to view and administer their investment portfolios. Platforms usually provide facilities for buying and selling investments (including, in the UK products such as Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life insurance) and for viewing an individual's entire portfolio to assess asset allocation and risk exposure.
Profit before tax attributable to equity holders (PBT)*
Profit attributable to shareholders incorporating actual investment returns experienced during the year but before
the payment of tax.
Purchased interest in long term business (PILTB)
An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been
acquired via a business combination.
Real assets
Real assets encompass a wide variety of tangible debt and equity investments, primarily real estate, infrastructure and energy. They have the ability to serve as stable sources of long term income in weak markets, while also providing capital appreciation opportunities in strong markets.
Release from operations
The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from LGA. Release from operations was previously referred to as operational cash generation.
Return on equity (ROE)*
ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS pro t after tax divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds in the period).
Risk appetite
The aggregate level and types of risk a company is willing to assume in its exposures and business activities in order
to achieve its business objectives.
Glossary Page 104
SCR coverage ratio
The eligible own funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by eligible own funds.
SCR coverage ratio (proforma basis)
The proforma basis solvency II SCR coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of with-profits fund and our defined benefit pension schemes in both Own Funds and the SCR in the calculation of the SCR coverage ratio.
SCR coverage ratio (shareholder view basis)
In order to represent a shareholder view of group solvency position, the contribution of with-profits fund and our defined benefit pension schemes is excluded from both the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 30 June 2018. This will be submitted to the PRA in August 2018.
Single premiums
Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium being paid over its lifetime, such as in individual and bulk annuity deals.
Solvency II
Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance rms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to appropriately align insurers' risk with the capital they hold to safeguard policyholder.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.
Solvency II Risk Margin
An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the insurance and reinsurance obligations over the lifetime thereof.
Solvency II Surplus
The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event.
Total shareholder return (TSR)
TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the relevant business, subject to agreement with the PRA.
Unbundled DC solution
When investment services and administration services are supplied by separate providers. Typically the sponsoring employer will cover administration costs and scheme members the investment costs.
With-profits funds
Individually identifiable portfolios where policyholders have a contractual right to receive additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. An insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or
may have discretion as to the timing and the amount of the additional benefits.
Yield
A measure of the income received from an investment compared to the price paid for the investment. It is usually expressed as a percentage.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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