Company Announcements

L&G Half Year Results 2022 Part 2

Source: RNS
RNS Number : 3227V
Legal & General Group Plc
09 August 2022
 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

1 Independent review report to Legal & General Group Plc                                                  Page 33

 

Conclusion

We have been engaged by Legal & General Group Plc ('the company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows (pages 46 to 51) and the related explanatory notes to the interim financial statements (pages 35 to 45 and 52 to 72).

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK. 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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern, and the above conclusions are not a guarantee that the group will continue in operation.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 4.01, the latest annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK. In preparing the condensed set of financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

1 Independent review report to Legal & General Group Plc (continued)                           Page 34

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

 

Salim Tharani

for and on behalf of KPMG LLP
Chartered Accountants

15 Canada Square

London

E14 5GL

 

8 August 2022

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 35

 

2.01 Operating profit#

For the six month period to 30 June 2022




6 months

6 months

Full year





2022

2021

2021


 


Notes

£m

£m

£m





 

 






 

 



Legal & General Retirement Institutional (LGRI)1


2.03

560

525

1,154


Legal & General Capital (LGC)


2.04

263

250

461


Legal & General Investment Management (LGIM)


2.05

200

204

422


Retail


2.03

332

292

620


 - Insurance2



185

134

268


 - Retail Retirement1

 


147

158

352





 

 






 

 



Operating profit from divisions



1,355

1,271

2,657


Group debt costs3



(108)

(120)

(230)


Group investment projects and expenses



(87)

(72)

(165)





 

 






 

 



Operating profit

 


1,160

1,079

2,262


 

 


 







 

 






 

 



Investment and other variances


2.06

207

244

233


Losses attributable to non-controlling interests



-

(3)

(7)





 

 






 

 



Adjusted profit before tax attributable to equity holders

 


1,367

1,320

2,488


Tax expense attributable to equity holders


4.04

(214)

(258)

(445)





 

 






 

 



Profit for the period

 

3.01

1,153

1,062

2,043





 

 



Total tax expense


3.01

287

339

589


Profit before tax

 

3.01

1,440

1,401

2,632





 




Profit attributable to equity holders

 


1,153

1,065

2,050





 

 






 

 



Earnings per share:



 




Basic (pence per share)4

 

2.07

19.28p

17.78p

34.19p


Diluted (pence per share)4

 

2.07

18.37p

16.96p

32.57p





 

 






 

 



1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation. Further details are provided in Note 2.08.


2. Insurance operating profit includes £46m (H1 21: £38m; FY 21: £(52)m) from US Insurance.


3. Group debt costs exclude interest on non-recourse financing.

 

4. 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 additional analysis of the results reported under IFRS, and the group believes it provides stakeholders with useful information to enhance their understanding of the performance of the business in the period.

 

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by changes in market conditions or expectations and exceptional items. It therefore reflects longer-term economic assumptions for the group's LGRI and Retail businesses and shareholder funds, including the traded portfolio in LGC. For the group's direct investments, operating profit reflects the expected long-term economic return for those assets which are developed with the intention of sale, or the IFRS profit before tax for the early stage and mature businesses. Variances between actual and long-term expected investment return on traded and real assets (including direct investments) are excluded from operating profit, as well as economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business. Operating profit also excludes the yield associated with assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs, are also excluded from operating profit.

 

The group reports its results across the following business segments:

·      LGRI represents worldwide pension risk transfer business including longevity insurance.

·      LGC represents shareholder assets invested in direct investments primarily in the areas of specialist commercial real estate, clean energy, housing and SME finance, as well as traded and treasury assets.

·      LGIM represents institutional and retail investment management.

·      Insurance primarily represents UK protection (both group and retail) and Fintech business (UK Insurance and other), as well as US retail protection business (US Insurance).

·      Retail Retirement primarily represents retail annuity and drawdown products, workplace savings and lifetime mortgage loans.

 

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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 36

 

2.02 Reconciliation of release from operations to operating profit# before tax

 


 

 

 

 

Changes in

valuation assump- tions

 

 

Operating profit/ (loss) after tax

 

Operating profit/ (loss) before

tax


 

New business surplus/ (strain)

Net

release from operations

 

 

 

 


Release from operations1

Exper- ience variances

Non-cash items

Other2

Tax expense/ (credit)


For the six month period

to 30 June 2022

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m










 





 

 

 

 



 

 

LGRI3

310

156

466

6

-

7

-

479

81

560

LGC

208

-

208

-

-

-

-

208

55

263

LGIM

162

-

162

-

-

-

-

162

38

200

Retail

345

(2)

343

(3)

18

(2)

(77)

279

53

332

- Insurance

219

(8)

211

2

18

(1)

(77)

153

32

185

- Retail Retirement3

126

6

132

(5)

-

(1)

-

126

21

147










 





 

 

 

 



 

 

Total from divisions

1,025

154

1,179

3

18

5

(77)

1,128

227

1,355










 





 

 

 

 



 

 

Group debt costs

(87)

-

(87)

-

-

-

-

(87)

(21)

(108)

Group investment projects and expenses

(47)

-

(47)

-

-

-

(34)

(81)

(6)

(87)




 




 

 

 


Total

891

154

1,045

3

18

5

(111)

960

200

1,160










 



 

 

 

 

 

 

 

 

 

 

1. Release from operations within Insurance includes £85m of dividends from US Insurance.

2. Other includes experience variances, changes in valuation assumptions (includes changes to assets allocation) and non-cash items relating to US Insurance.

3. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation. Further details are provided in Note 2.08.


Release from operations for LGRI and the UK protection business within Retail represents the expected IFRS surplus generated in the period from the difference between the prudent assumptions underlying the IFRS liabilities and our best estimate of future experience. For workplace savings within Retail Retirement, the release from operations represents the expected annual management charges generated from the in-force business less expected expenses. The Insurance release from operations also includes dividends remitted from US Insurance and IFRS profit after tax for the Fintech business.












New business surplus/(strain) for LGRI and the UK protection business represents the initial profit or loss from writing new business. This includes the costs associated with acquiring new business and setting up prudent reserves, net of tax. Similarly for workplace savings, this includes the cost of acquiring new business in the year less the annual management charges generated by the assets under administration (AUA), net of tax. The new business surplus and release from operations for LGRI and Retail excludes any capital held in excess of the prudent reserves from the liability calculation.












LGRI and Retail Retirement's new business metrics are presented based on a single target long-term asset portfolio. At certain period ends, depending upon the quantum and timing of pension risk transfer (PRT) volumes, we may have sourced more or less of the high quality assets targeted to support that business. At period end, the profit impact of the difference between actual assets held (including alternative surplus assets where suitable) and the long-term asset mix is reflected in investment variance.












Net release from operations for LGRI and Retail is defined as release from operations plus new business surplus/(strain).












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












See Note 2.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.

 

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

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 37

 

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

 






Changes in

valuation assump- tions



Operating profit/ (loss) after tax


Operating profit/ (loss) before

tax



New business surplus/ (strain)

Net

release from operations






Release from operations1

Exper- ience variances

Non-cash items

Other2

Tax expense/ (credit)


For the six month period

to 30 June 2021

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m















 

 

 

 



 

 

LGRI3

252

68

320

105

8

15

-

448

77

525

LGC

213

-

213

-

-

-

-

213

37

250

LGIM

163

-

163

-

-

-

-

163

41

204

Retail

262

23

285

16

1

1

(64)

239

53

292

- Insurance

151

8

159

4

1

4

(64)

104

30

134

- Retail Retirement3

111

15

126

12

-

(3)

-

135

23

158























Total from divisions

890

91

981

121

9

16

(64)

1,063

208

1,271























Group debt costs

(97)

-

(97)

-

-

-

-

(97)

(23)

(120)

Group investment projects and expenses

(30)

-

(30)

-

-

-

(31)

(61)

(11)

(72)























Total

763

91

854

121

9

16

(95)

905

174

1,079










 



 

 

 

 

 

 

 

 

 

 














Operating



New

Net


Changes in



Operating


profit/


Release

business

release

Exper-

valuation



profit/

Tax

(loss)


from

surplus/

from

ience

assump-

Non-cash


(loss) after

expense/

before

For the year ended

operations1

(strain)

operations

variances

tions

items

Other2

tax

(credit)

tax

31 December 2021

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m










 













LGRI3

512

193

705

40

212

27

-

984

170

1,154

LGC

379

-

379

-

-

-

-

379

82

461

LGIM

342

-

342

-

-

-

-

342

80

422

Retail

463

54

517

28

121

2

(138)

530

90

620

- Insurance

236

27

263

14

82

6

(138)

227

41

268

- Retail Retirement3

227

27

254

14

39

(4)

-

303

49

352























Total from divisions

1,696

247

1,943

68

333

29

(138)

2,235

422

2,657























Group debt costs

(186)

-

(186)

-

-

-

-

(186)

(44)

(230)

Group investment projects and expenses

(69)

-

(69)

-

-

-

(68)

(137)

(28)

(165)























Total

1,441

247

1,688

68

333

29

(206)

1,912

350

2,262













 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

1. Release from operations within Insurance includes £80m of dividends from US Insurance.

2. Other includes experience variances, changes in valuation assumptions and non-cash items relating to US Insurance.

3. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation. Further details are provided in Note 2.08.



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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 38

 

2.03 Analysis of LGRI and Retail operating profit

For the six month period to 30 June 2022

 


LGRI1

Retail1

LGRI1

Retail1

LGRI1

Retail1


6 months

6 months

6 months

6 months

Full year

Full year


2022

2022

2021

2021

2021

2021


£m

£m

£m

£m

£m

£m





 







 



Net release from operations

466

343

320

285

705

517


 

 






 

 





Experience variances

 

 





 - Persistency

-

(1)

-

(6)

1

(5)

 - Mortality/morbidity

13

13

27

18

24

29

 - Expenses

(7)

(7)

(1)

(4)

6

(1)

 - Project and development costs

-

(1)

(2)

(1)

(11)

(19)

 - Other

-

(7)

81

9

20

24


 

 






 

 





Total experience variances

6

(3)

105

16

40

28


 

 






 

 





Changes in valuation assumptions

 

 





 - Persistency

-

-

-

-

-

(5)

 - Mortality/morbidity

-

18

-

-

153

46

 - Expenses

-

-

-

-

-

(1)

 - Other

-

-

8

1

59

81


 

 






 

 





Total changes in valuation assumptions

-

18

8

1

212

121


 

 






 

 





Movement in non-cash items2

7

(2)

15

1

27

2


 

 






 

 





Other3

-

(77)

-

(64)

-

(138)


 

 






 

 





Operating profit after tax

479

279

448

239

984

530


 

 






 

 





Tax expense

81

53

77

53

170

90


 

 






 

 





Operating profit before tax

560

332

525

292

1,154

620


 

 

 





 

 

 




1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation. Further details are provided in Note 2.08.

2. LGRI Movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on assets managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.

3. Other includes experience variances, changes in valuation assumptions (includes changes to assets allocation) and non-cash items relating to US Insurance.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 39

 

2.04 LGC operating profit



 



6 months

6 months

Full year


2022

2021

2021

 

£m

£m

£m


 

 



 



Direct investments1

202

195

350

Traded investment portfolio including treasury assets2

61

55

111


 

 



 



Total LGC operating profit

263

250

461


 

 



 

 


1. Direct investments represents LGC's portfolio of assets across specialist commercial real estate, clean energy, housing and SME finance. Direct investments include operating profit in relation to CALA Homes of £98m (H1 21: £78m; FY 21: £132m).

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



2.05 LGIM operating profit


6 months

6 months

Full year


2022

2021

2021


£m

£m

£m


 

 



 



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

485

471

980

Asset management transactional revenue2

9

9

32

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

(294)

(276)

(590)


 

 



 



Total LGIM operating profit

200

204

422


 

 


1. Asset management revenue and expenses exclude income and costs of £15m in relation to the provision of third party market data (H1 21: £18m; FY 21: £32m).

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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 40

 

2.06 Investment and other variances



6 months

6 months

Full year



2022

2021

2021



£m

£m

£m



 

 




 



Investment variance related to protection liabilities1

617

230

111

Investment variance related to the traded investment portfolio and direct investments2

(308)

48

19

Other investment variance3

(83)

(23)

211






 

 

 

 

 

Investment variance

226

255

341

M&A related and other variances4

(19)

(11)

(108)



 





 





 



Total investment and other variances


207

244

233



 





 



1. The positive investment variance of £617m reflects the formulaic impact of an increase in UK and US government bond yields which have resulted in a higher discount rate used to calculate the group's protection liabilities.

2. The negative investment variance of £308m largely reflects volatile global equity market performance in the traded investment portfolio.

3. Other investment variance includes a negative variance in respect of the defined benefit pension scheme, reflecting the impact of the acquisition of annuity assets from LGRI and Retail Retirement, and the difference between the IAS 19 and annuity discount rates. This was partially offset by a positive variance from the UK annuity businesses, driven by good quality asset sourcing and improved cash flow matching within the portfolio.

4. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring as well as business start-up costs.






Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including direct investments), economic assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation), the impact of any difference between the actual allocated asset mix and the single target long-term asset mix on new pension risk transfer business, and the yield associated with assets held for future new pension risk transfer business from the valuation discount rate.






The long-term expected investment return is based on opening economic assumptions applied to the assets under management at the start of the reporting year. The assumptions underlying the calculation of the expected returns for traded equity, commercial property and residential property are based on market consensus forecasts and long-term historic average returns expected to apply through the cycle.

 

The long-term expected investment returns are:








6 months

6 months

Full year



2022

2021

2021



 

 




 



Equities


7%

7%

7%

Commercial property


5%

5%

5%

Residential property1

3.5%

RPI + 50bps

RPI + 50bps



 





 



1. In previous years the assumption RPI + 50bps was in line with average historical returns. Due to the current spike in inflation and in order to keep the rate aligned to average historical returns, it was updated to 3.5% in 2022.






Additionally, the LGC alternative asset portfolio comprises investments in housing, specialist commercial real estate, clean energy, and SME finance. The long-term expected investment return is on average between 8% and 10%, in line with our stated investment objectives. Rates of return specific to each asset are determined at the point of underwriting and reviewed and updated annually. The expected investment return includes assumptions on appropriate discount rates and inflation as well as sector specific assumptions including retail and commercial property yields and power prices.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 41

 

2.07 Earnings per share

 

(a) Basic earnings per share


After tax

Per share1

After tax

Per share1

After tax

Per share1


6 months

6 months

6 months

6 months

Full year

Full year


2022

2022

2021

2021

2021

2021

 

£m

p

£m

p

£m

p















Profit for the period attributable to equity holders

1,153

19.47

1,065

17.96

2,050

34.58

Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief

(11)

(0.19)

(11)

(0.18)

(23)

(0.39)

Total basic earnings

1,142

19.28

1,054

17.78

2,027

34.19

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



(b) Diluted earnings per share


 

 

After tax

Weighted

average

number of

shares

Per share1

For the six month period to 30 June 2022

 

 

£m

m

p













Profit for the period attributable to equity holders

 

1,153

5,922

19.47

Net shares under options allocable for no further consideration


-

46

(0.15)

Conversion of restricted Tier 1 notes



-

307

(0.95)







Total diluted earnings

 

 

1,153

6,275

18.37

 

 

 

 

 

 


 


After tax

Weighted

average

number of

shares

Per share1

For the six month period to 30 June 2021

 


£m

m

p



 






 




Profit for the period attributable to equity holders

1,065

5,929

17.96

Net shares under options allocable for no further consideration

-

45

(0.14)

Conversion of restricted Tier 1 notes



-

307

(0.86)



 




Total diluted earnings

1,065

6,281

16.96














 


After tax

Weighted

average

number of

shares

Per share1

For the year ended 31 December 2021


£m

m

p



 






 




Profit for the year attributable to equity holders

2,050

5,929

34.58

Net shares under options allocable for no further consideration

-

59

(0.34)

Conversion of restricted Tier 1 notes



-

307

(1.67)



 




Total diluted earnings

2,050

6,295

32.57

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 and conversion of restricted Tier 1 notes.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 42

 

2.08 Segmental analysis

 

In 2021, the group operated five core businesses across four reportable segments that are continuing operations, with Retail Retirement and Legal & General Retirement Institutional (LGRI) combined into a single segment for reporting purposes, being Legal & General Retirement. From 1 January 2022, the group has made changes to the business unit responsibilities within the Executive Committee. Andrew Kail has become the Chief Executive Officer of LGRI, succeeding Laura Mason who had previously moved to become CEO of Legal & General Capital (LGC). Our two retail businesses, Retail Retirement and Insurance (comprising UK Insurance and other, and US Insurance), have come together under the leadership of Bernie Hickman. Reportable segments have therefore been aligned to the group's five core businesses. Group expenses and debt costs continue to be reported separately. Transactions between segments are on normal commercial terms, and are included within the reported segments. To enable comparison, segmental information for prior periods has been restated accordingly.

 

In the UK, annuity liabilities relating to LGRI and Retail Retirement are backed by a single portfolio of assets, and once a transaction has been completed the assets relating to any particular transaction are not tracked to the related liabilities. Investment variance is allocated to the two business segments based on the relative average size of the underlying insurance contract liabilities for the period.

 

Reporting of assets and liabilities by segment has not been included, as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than a segmental basis, in line with regulatory requirements.

 

Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.


 

(a) Profit/(loss) for the period




 

 



 


 


 

Group



 

 

 

 

 

expenses

 


 

 

 

Retail

 

and debt

 

 

LGRI1

LGC

LGIM

Retirement1

Insurance

costs

Total

For the six month period to 30 June 2022

£m

£m

£m

£m

£m

£m

£m



 


 


 




 


 


 


Operating profit/(loss)#

560

263

200

147

185

(195)

1,160

Investment and other variances

133

(308)

(7)

53

617

(281)

207

Losses attributable to non-controlling interests

-

-

-

-

-

-

-



 


 


 


Profit/(loss) before tax attributable to equity holders

693

(45)

193

200

802

(476)

1,367

Tax (expense)/credit attributable to equity holders

(88)

2

(39)

(24)

(162)

97

(214)



 


 


 




 


 


 


Profit/(loss) for the period

605

(43)

154

176

640

(379)

1,153



 


 


 




 


 


 




 


 


 








Group








expenses






Retail


and debt



LGRI1

LGC

LGIM

Retirement1

Insurance

costs

Total

For the six month period to 30 June 2021

£m

£m

£m

£m

£m

£m

£m



 


 


 




 


 


 


Operating profit/(loss)#

525

250

204

158

134

(192)

1,079

Investment and other variances

75

48

(7)

30

230

(132)

244

Losses attributable to non-controlling interests

-

-

-

-

-

(3)

(3)



 


 


 










Profit/(loss) before tax attributable to equity holders

600

298

197

188

364

(327)

1,320

Tax (expense)/credit attributable to equity holders

(110)

(54)

(44)

(35)

(91)

76

(258)



 


 


 










Profit/(loss) for the period

490

244

153

153

273

(251)

1,062

 






















Group








expenses






Retail


and debt



LGRI1

LGC

LGIM

Retirement1

Insurance

costs

Total

For the year ended 31 December 2021

£m

£m

£m

£m

£m

£m

£m



 


 


 




 


 


 


Operating profit/(loss)#

1,154

461

422

352

268

(395)

2,262

Investment and other variances

193

19

(11)

49

111

(128)

233

Losses attributable to non-controlling interests

-

-

-

-

-

(7)

(7)



 


 


 










Profit/(loss) before tax attributable to equity holders

1,347

480

411

401

379

(530)

2,488

Tax (expense)/credit attributable to equity holders

(213)

(93)

(79)

(63)

(59)

62

(445)



 


 


 




 


 


 


Profit/(loss) for the year

1,134

387

332

338

320

(468)

2,043



 


 


 


1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation.









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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 43

 

2.08 Segmental analysis (continued)

 

(b) Revenue

 

(i) Total revenue




 

6 months

6 months

Full year

 



 

 

2022

2021

2021






£m

£m

£m

















Total income





(69,188)

14,898

45,450

Adjusted for:





 



Share of profit from associates and joint ventures, net of tax



(4)

(21)

(25)

Gain on disposal of subsidiaries, associates and joint ventures, and other operations

(10)

-

(149)

 



 

 

 






 

 

 



Total revenue

 

 

(69,202)

14,877

45,276

 



 

 


 



 







 

(ii) Total income







 

 







 

 





 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Retail

 

LGC and

 

 


LGRI1

LGIM2,3

Retirement1

Insurance

other4

Total

 

For the six month period to 30 June 2022

£m

£m

£m

£m

£m

£m

 






 

 

 






 

 

 

Internal income

-

92

-

-

(92)

-

 

External income

(6,845)

(61,289)

(2,688)

1,007

627

(69,188)

 






 

 

 






 

 

 

Total income

(6,845)

(61,197)

(2,688)

1,007

535

(69,188)

 






 

 

 






 

 

 








 




Retail


LGC and


 


LGRI1

LGIM2,3

Retirement1

Insurance

other4

Total

 

For the six month period to 30 June 2021

£m

£m

£m

£m

£m

£m

 








 








 

Internal income

-

80

-

-

(80)

-

 

External income

(20)

17,891

7

1,003

(3,983)

14,898

 








 








 

Total income

(20)

17,971

7

1,003

(4,063)

14,898

 








 








 








 








 




Retail


LGC and


 


LGRI1

LGIM2,3

Retirement1

Insurance

other4

Total

 

For the year ended 31 December 2021

£m

£m

£m

£m

£m

£m

 








 








 

Internal income

-

179

-

-

(179)

-

 

External income

4,842

35,738

1,117

2,029

1,724

45,450

 






 

 

 






 

 

 

Total income

4,842

35,917

1,117

2,029

1,545

45,450

 






 

 

 






 

 

 

1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation.

 

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

 

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


 

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

 

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 44

 

2.08 Segmental analysis (continued)

 

(b) Revenue (continued)

 

 





 

 

 





(iii) Fees from fund management and investment contracts

 

 

 



 


 

 

 

 


 

 

 

Retail

LGC and other2

 

 

 

 

LGIM

Retirement1

Total

For the six month period to 30 June 2022

 

£m

£m

£m

£m



 

 

 

 




 

 

 

 


Investment contracts

 

 

-

49

-

49

Investment management fees

 

 

495

-

(92)

403

Transaction fees

 

 

9

-

-

9



 

 

 

 




 

 

 

 


Total fees from fund management and investment contracts3

 

504

49

(92)

461










 

 

 

 






Retail

LGC and other2





LGIM

Retirement1

Total

For the six month period to 30 June 2021


£m

£m

£m

£m















Investment contracts



-

46

-

46

Investment management fees



488

-

(80)

408

Transaction fees



9

-

-

9















Total fees from fund management and investment contracts3


497

46

(80)

463










 

 

 

 






Retail

LGC and other2





LGIM

Retirement1

Total

For the year ended 31 December 2021


£m

£m

£m

£m















Investment contracts



-

97

-

97

Investment management fees



1,009

-

(179)

830

Transaction fees



32

-

-

32















Total fees from fund management and investment contracts3


1,041

97

(179)

959










 

 

 

 


1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation.

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

3. Fees from fund management and investment contracts are a component of Total revenue disclosed in Note 2.08 (b)(i).

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosures on performance and Release from operations                                        Page 45

 

2.08 Segmental analysis (continued)

 

(b) Revenue (continued)

 




 





 

 




 





(iv) Other operational income from contracts with customers

 





 





 






 

 

 

 

 

 

 

 

 


 

 

 

 


 

 

 

 


 

 

 

 

 

Retail

 

LGC and other

 

 

 

 

 

 

 

Retirement1

Insurance

Total

For the six month period to 30 June 2022

 

 

£m

£m

£m

£m






 


 

 







 


 

 


House building

 

 

 

 

 

-

-

763

763

Professional services fees

 

 

 

 

 

4

41

-

45

Insurance broker

 

 

 

 

 

-

21

-

21






 


 

 







 


 

 


Total other operational income from contracts with customers2

 

 

4

62

763

829






 


 

 


















Retail


LGC and other








Retirement1

Insurance

Total

For the six month period to 30 June 2021



£m

£m

£m

£m





















House building






-

-

651

651

Professional services fees






1

49

-

50

Insurance broker






-

2

-

2





















Total other operational income from contracts with customers2



1

51

651

703






 


 

 







 


 

 








Retail


LGC and other








Retirement1

Insurance

Total

For the year ended 31 December 2021



£m

£m

£m

£m





















House building






-

-

1,314

1,314

Professional services fees






5

89

-

94

Insurance broker






-

11

-

11





















Total other operational income from contracts with customers2



5

100

1,314

1,419





















1. From 1 January 2022, following changes to business unit responsibilities within the Executive Committee, the group's reportable segments have been updated to align with its five core businesses. Prior period comparatives have been restated to reflect this change in segmentation.

2. Total other operational income from contracts with customers is a component of Total revenue disclosed in Note 2.08 (b)(i) and excludes the share of profit/loss from associates and joint ventures, and the gain on disposal of subsidiaries, associates and joint ventures, and other operations.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 46

 

3.01 Consolidated Income Statement



6 months

6 months

Full year



2022

2021

2021

For the six month period to 30 June 2022

Notes

£m

£m

£m



 

 




 



Income

 

 



Gross written premiums


6,612

4,263

10,375

Outward reinsurance premiums


(1,576)

(1,605)

(3,446)

Net change in provision for unearned premiums


8

35

42



 

 




 



Net premiums earned


5,044

2,693

6,971

Fees from fund management and investment contracts


461

463

959

Investment return


(75,536)

11,018

35,927

Other operational income


843

724

1,593



 

 




 



Total income

2.08

(69,188)

14,898

45,450



 

 




 



Expenses


 



Claims and change in insurance contract liabilities


(10,371)

540

7,353

Reinsurance recoveries


(295)

(1,313)

(2,968)



 

 




 



Net claims and change in insurance contract liabilities


(10,666)

(773)

4,385

Change in investment contract liabilities


(62,297)

12,232

34,206

Acquisition costs


416

436

825

Finance costs


145

157

294

Other expenses


1,774

1,445

3,108



 

 




 



Total expenses


(70,628)

13,497

42,818



 

 




 



Profit before tax


1,440

1,401

2,632

Tax expense attributable to policyholder returns


(73)

(81)

(144)



 

 




 



Profit before tax attributable to equity holders


1,367

1,320

2,488



 

 




 



Total tax expense


(287)

(339)

(589)

Tax expense attributable to policyholder returns


73

81

144



 

 




 



Tax expense attributable to equity holders

4.04

(214)

(258)

(445)



 

 




 

 


Profit for the period


1,153

1,062

2,043



 





 



Attributable to:





Non-controlling interests


-

(3)

(7)

Equity holders


1,153

1,065

2,050



 

 




 





 



Dividend distributions to equity holders during the period

4.02

792

754

1,063

Dividend distributions to equity holders proposed after the period end

4.02

324

309

790



 

 




 





 



 


p

p

p

Total basic earnings per share1

2.07

19.28

17.78

34.19

Total diluted earnings per share1

2.07

18.37

16.96

32.57



 



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

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 47

 

3.02 Consolidated Statement of Comprehensive Income


6 months

6 months

Full year


2022

2021

2021

For the six month period to 30 June 2022

£m

£m

£m


 

 



 



Profit for the period

1,153

1,062

2,043

Items that will not be reclassified subsequently to profit or loss

 



Actuarial remeasurements on defined benefit pension schemes

387

116

53

Tax (expense)/credit on actuarial remeasurements on defined benefit pension schemes

(97)

(20)

(7)


 

 



 



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

290

96

46


 

 



 



Items that may be reclassified subsequently to profit or loss

 



Exchange differences on translation of overseas operations

84

(11)

(11)

Movement in cross-currency hedge

5

6

20

Tax expense on movement in cross-currency hedge

(1)

(4)

(7)

Movement in financial investments designated as available-for-sale

3

(8)

(3)

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

(1)

1

-


 

 



 



Total items that may be reclassified subsequently to profit or loss

90

(16)

(1)


 

 



 



Other comprehensive income after tax

380

80

45


 

 



 



Total comprehensive income for the period

1,533

1,142

2,088


 

 






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




Non-controlling interests

-

(3)

(7)

Equity holders

1,533

1,145

2,095


 

 



 



 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 48

 

3.03 Consolidated Balance Sheet



As at

As at

As at



30 Jun 2022

30 Jun 2021

31 Dec 2021

 

Notes

£m

£m

£m



 

 




 



Assets

 

 



Goodwill


71

68

68

Other intangible assets


406

377

365

Deferred acquisition costs


26

46

26

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


387

314

375

Property, plant and equipment


311

322

316

Investment property

4.03

10,976

9,080

10,150

Financial investments

4.03

462,329

519,762

538,374

Reinsurers' share of contract liabilities


6,040

6,947

7,180

Deferred tax assets

4.04

115

12

2

Current tax assets


699

612

670

Receivables and other assets


17,857

14,331

8,625

Cash and cash equivalents


24,774

16,397

16,487



 

 




 



Total assets

 

523,991

568,268

582,638



 

 




 





 



Equity

 

 



Share capital

4.05

149

149

149

Share premium

4.05

1,017

1,011

1,012

Employee scheme treasury shares


(138)

(90)

(99)

Capital redemption and other reserves


381

162

196

Retained earnings


9,775

8,620

9,228



 

 




 



Attributable to owners of the parent

 

11,184

9,852

10,486

Restricted Tier 1 convertible notes

4.06

495

495

495

Non-controlling interests

4.07

(36)

(34)

(38)



 

 




 



Total equity

 

11,643

10,313

10,943



 

 




 





 



Liabilities

 

 



Insurance contract liabilities


76,889

86,339

89,825

Investment contract liabilities


305,780

358,613

372,954

Core borrowings

4.08

4,356

4,542

4,256

Operational borrowings

4.09

1,182

1,138

932

Provisions

4.13

781

1,113

1,238

Deferred tax liabilities

4.04

407

277

251

Current tax liabilities


81

57

84

Payables and other financial liabilities

4.11

95,970

80,785

74,264

Other liabilities


894

640

925

Net asset value attributable to unit holders


26,008

24,451

26,966



 

 




 



Total liabilities


512,348

557,955

571,695



 

 




 



Total equity and liabilities


523,991

568,268

582,638



 

 




 



 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 49

 

3.04 Condensed Consolidated Statement of Changes in Equity












 

 

Employee

Capital

 

Equity

Restricted

 

 


 

 

scheme

redemption

 

 attributable

Tier 1

Non-

 


Share

Share

treasury

and other

Retained

to owners

convertible

controlling

Total

For the six month period to 30 June 2022

capital

premium

shares

reserves1

earnings

of the parent

notes

interests

equity

£m

£m

£m

£m

£m

£m

£m

£m

£m


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

As at 1 January 2022

149

1,012

(99)

196

9,228

10,486

495

(38)

10,943


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

90

1,443

1,533

-

-

1,533

Options exercised under share option schemes

-

5

-

-

-

5

-

-

5

Net movement in employee scheme treasury shares

-

-

(39)

(8)

10

(37)

-

-

(37)

Dividends

-

-

-

-

(792)

(792)

-

-

(792)

Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief

-

-

-

-

(11)

(11)

-

-

(11)

Movement in third party interests

-

-

-

-

-

-

-

2

2

Currency translation differences

-

-

-

103

(103)

-

-

-

-


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

As at 30 June 2022

149

1,017

(138)

381

9,775

11,184

495

(36)

11,643

















 

 

 


1. Capital redemption and other reserves as at 30 June 2022 include share-based payments £78m, foreign exchange £233m, capital redemption £17m, hedging £52m and available-for-sale reserves £1m.





 

 

 


 

 

 

 

 


 

 

 


 

 

 

 

 














Employee

Capital


Equity

Restricted






scheme

redemption


 attributable

Tier 1

Non-



Share

Share

treasury

and other

Retained

to owners

convertible

controlling

Total

For the six month period to 30 June 2021

capital

premium

shares

reserves1

earnings

of the parent

notes

interests

equity

£m

£m

£m

£m

£m

£m

£m

£m

£m





















As at 1 January 2021

149

1,006

(75)

198

8,224

9,502

495

(31)

9,966











Total comprehensive income for the period

-

-

-

(16)

1,161

1,145

-

(3)

1,142

Options exercised under share option schemes

-

5

-

-

-

5

-

-

5

Net movement in employee scheme treasury shares

-

-

(15)

(15)

(5)

(35)

-

-

(35)

Dividends

-

-

-

-

(754)

(754)

-

-

(754)

Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief

-

-

-

-

(11)

(11)

-

-

(11)

Currency translation differences

-

-

-

(5)

5

-

-

-

-





















As at 30 June 2021

149

1,011

(90)

162

8,620

9,852

495

(34)

10,313

















 

 

 








 

 

 


1. Capital redemption and other reserves as at 30 June 2021 include share-based payments £86m, foreign exchange £27m, capital redemption £17m, hedging £37m and available-for-sale reserves £(5)m.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 50

 

3.04 Condensed Consolidated Statement of Changes in Equity (continued)














Employee

Capital


Equity

Restricted






scheme

redemption


 attributable

Tier 1

Non-



Share

Share

treasury

and other

Retained

to owners

convertible

controlling

Total

For the year ended 31 December 2021

capital

premium

shares

reserves1

earnings

of the parent

notes

interests

equity

£m

£m

£m

£m

£m

£m

£m

£m

£m


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

As at 1 January 2021

149

1,006

(75)

198

8,224

9,502

495

(31)

9,966


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

-

-

-

(1)

2,096

2,095

-

(7)

2,088

Options exercised under share option schemes

-

6

-

-

-

6

-

-

6

Net movement in employee scheme treasury shares

-

-

(24)

(15)

8

(31)

-

-

(31)

Dividends

-

-

-

-

(1,063)

(1,063)

-

-

(1,063)

Coupon payable in respect of restricted Tier 1 convertible notes net of tax relief

-

-

-

-

(23)

(23)

-

-

(23)

Currency translation differences

-

-

-

14

(14)

-

-

-

-





















As at 31 December 2021

149

1,012

(99)

196

9,228

10,486

495

(38)

10,943

















 

 

 








 

 

 


1. Capital redemption and other reserves as at 31 December 2021 include share-based payments £86m, foreign exchange £46m, capital redemption £17m, hedging £48m and available-for-sale reserves £(1)m.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Primary Financial Statements                                                                                              Page 51

 

3.05 Consolidated Statement of Cash Flows



6 months

6 months

Full year

 


2022

2021

2021

For the six month period to 30 June 2022

Notes

£m

£m

£m



 

 




 



Cash flows from operating activities

 

 



Profit for the period

 

1,153

1,062

2,043

Adjustments for non cash movements in net profit for the period

 

 



Net losses/(gains) on financial investments and investment property

 

80,187

(5,227)

(26,062)

Investment income

 

(4,651)

(5,790)

(9,865)

Interest expense

 

145

157

294

Tax expense


287

339

589

Other adjustments

 

88

44

137

Net decrease/(increase) in operational assets

 

 



Investments held for trading or designated as fair value through profit or loss

 

14,200

5,804

4,616

Investments designated as available-for-sale

 

(3)

15

(21)

Other assets

 

(8,086)

(4,931)

139

Net (decrease)/increase in operational liabilities

 

 



Insurance contracts

 

(13,621)

(2,615)

726

Investment contracts

 

(67,182)

15,069

29,409

Other liabilities

 

2,481

(10,114)

(11,161)



 

 




 



Cash utilised in operations

 

4,998

(6,187)

(9,156)

Interest paid


(139)

(160)

(301)

Interest received


1,808

3,368

5,060

Rent received


185

184

373

Tax paid1


(376)

(276)

(564)

Dividends received


2,491

2,307

4,419



 

 




 



Net cash flows from operations


8,967

(764)

(169)



 

 




 



Cash flows from investing activities

 

 



Acquisition of plant, equipment, intangibles and other assets


(60)

(137)

(205)

Disposal of plant, equipment, intangibles and other assets


-

2

-

Acquisition of operations, net of cash acquired

4.16

(2)

-

-

Disposal of subsidiaries and other operations, net of cash transferred


-

-

217

Investment in joint ventures and associates

 

(34)

(2)

(56)

Disposal of joint ventures and associates

 

40

-

177



 

 




 



Net cash flows (utilised)/generated from investing activities

 

(56)

(137)

133



 

 




 



Cash flows from financing activities

 

 



Dividend distributions to ordinary equity holders during the period

4.02

(792)

(754)

(1,063)

Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax

4.06

(14)

(14)

(28)

Options exercised under share option schemes

4.05

5

5

6

Treasury shares purchased for employee share schemes


(50)

(24)

(34)

Payment of lease liabilities


(18)

(17)

(37)

Proceeds from borrowings

4.10

385

252

449

Repayment of borrowings

4.10

(210)

(162)

(798)



 



Net cash flows utilised in financing activities

 

(694)

(714)

(1,505)



 

 




 



Net increase/(decrease) in cash and cash equivalents

 

8,217

(1,615)

(1,541)

Exchange gains/(losses) on cash and cash equivalents

 

70

(8)

8

Cash and cash equivalents at 1 January

 

16,487

18,020

18,020



 

 




 



Cash and cash equivalents at 30 June/31 December


24,774

16,397

16,487



 

 




 



1. Tax comprises UK corporation tax paid of £223m (H1 21: £155m; FY 21: £368m), withholding tax of £147m (H1 21: £118m; FY 21: £188m) and overseas corporate tax of £6m (H1 21: £3m; FY 21: £8m).

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 52

 

4.01 Basis of preparation

 

The group financial information for the six months ended 30 June 2022 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 which the group expects to adopt for the 2022 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2021 consolidated financial statements, except where changes have been outlined below in "New standards, interpretations and amendments to published standards that have been adopted by the group". These are consistent with UK-adopted international accounting standards, issued by the International Accounting Standards Board and adopted by the UK Endorsement Board for use in the United Kingdom.

 

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 2021 financial statements, except as disclosed in Note 2.03.

                               

The results for the half year ended 30 June 2022 are unaudited but have been reviewed by KPMG 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 2021 have been taken from the group's 2021 Annual Report and Accounts. Therefore, these interim accounts should be read in conjunction with the 2021 Annual Report and Accounts that have been prepared in accordance with UK-adopted international accounting standards, comprising International Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and related interpretations issued by the IFRS Interpretations Committee, and with the requirements of the Companies Act 2006 applicable to companies reporting under IFRS. KPMG LLP reported on the 2021 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 2021 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 net release from operations and adjusted operating profit, in the discussion of its business performance and financial position, as the group believes that they, complemented with figures determined according to other regulations, enhance understanding of the group's performance. Definitions and further information in relation to the group's APMs can be found in the Alternative Performance Measures section of these interim financial statements.

 

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 split between tax attributable to policyholders' returns and equity holders' profits. Policyholder tax comprises the tax suffered on policyholder investment returns, while shareholder tax is corporation tax 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.

 

(a) Going concern

 

The group's business activities, together with the factors likely to affect its future development, performance and position in the current economic climate are set out in this Interim Management Report. The financial position of the group, its cash flows, liquidity position and borrowing facilities as at 30 June 2022 are described in the IFRS Primary Financial Statements and IFRS Disclosure Notes. Principal risks and uncertainties are detailed on pages 26 to 28.

 

The directors have made an assessment of the group's going concern, considering both the group's current performance and outlook for a period of at least, but not limited to, 12 months from the date of approval of the interim financial information using the information available up to the date of issue of this Interim Management Report.

 

The group manages and monitors its capital and liquidity, and applies various stresses, including high inflationary scenarios, to those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range of stresses is disclosed on page 80. These stresses do not give rise to any material uncertainties over the ability of the group to continue as a going concern. Based upon the available information, the directors consider that the group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.

 

Having reassessed the principal risks and uncertainties (both financial and operational) in light of the current economic climate, as detailed on pages 26 to 28, the directors are confident that the group and company will have sufficient funds to continue to meet their liabilities as they fall due for a period of, but not limited to, 12 months from the date of approval of this Interim Management Report and therefore have considered it appropriate to adopt the going concern basis of accounting when preparing the interim financial information.


 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 53

 

4.01 Basis of preparation (continued)

 

(b) New standards, interpretations and amendments to published standards that have been adopted by the group

 

The group has applied the following amendments for the first time in its six months reporting period commencing 1 January 2022.

 

Annual Improvements to IFRS Standards 2018-2020

These amendments, issued in May 2020, make minor amendments to IFRS 1 'First-time Adoption of IFRS', IFRS 9 'Financial instruments', IAS 41 'Agriculture' and the Illustrative Examples accompanying IFRS 16 'Leases'. These amendments did not have a material impact on the group's consolidated financial statements.

 

Amendments to IAS 16 - Property, plant and equipment

These amendments, issued in May 2020, prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. These amendments did not have a material impact on the group's consolidated financial statements.

 

Amendments to IAS 37 - Provisions, contingent liabilities and contingent assets

These amendments, issued in May 2020, specify which costs a company includes when assessing whether a contract will be loss-making. These amendments did not have a material impact on the group's consolidated financial statements.

 

Amendments to IFRS 3 - Business Combinations

These amendments, issued in May 2020, update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. These amendments did not have a material impact on the group's consolidated financial statements.

 

(c) Future accounting developments

 

IFRS 17 - Insurance Contracts

IFRS 17, 'Insurance Contracts' was originally issued in May 2017 by the IASB, and subsequent amendments were issued in June 2020. The standard is effective for annual periods beginning on or after 1 January 2023 following endorsement for use in the UK in May 2022. The standard will be applied retrospectively, subject to the transitional options provided for in the standard and provides a comprehensive approach for accounting for insurance contracts including their measurement, income statement presentation and disclosure.

 

The key general principles of IFRS 17 are that an entity:

 

·      Identifies insurance contracts as those under which the entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder;

 

·      Separates specified embedded derivatives, distinct investment components and distinct non-insurance goods or services from insurance contracts and accounts for them in accordance with other accounting standards;

 

·      Aggregates the insurance contracts into groups it will recognise and measure;

 

·      Recognises and measures groups of insurance contracts at:

 

A risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all available information about the fulfilment cash flows; and

An amount representing the unearned profit in the group of contracts (the contractual service margin or CSM);

 

·      Recognises profit from a group of insurance contracts over the period the group provides insurance coverage. If a group of contracts is expected to be onerous (i.e. loss making) over the remaining coverage period, a loss is recognised immediately.

 

IFRS 17 is an accounting change and therefore, while it will have an impact on the timing and profile of profit recognition, we expect the underlying economics and cash generation of the group's businesses to remain the same. While the group continues to refine its methodology and completes the development of models and operational capabilities, it is not possible to provide a reliable estimate of the impact of adopting IFRS 17, nor of the ongoing impact on the group's financial results. However, it is expected that there will be a significant reduction in group equity on adoption, as previously recognised profit will be deferred in the balance sheet within the insurance liability contractual service margin, and released in the future.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 54

 

4.01 Basis of preparation (continued)

 

(c) Future accounting developments (continued)

 

In terms of key accounting policies and approaches relating to IFRS 17, the group is able to set out the following at this time:

 

·      The group will be applying the General Measurement Model to all business measured under IFRS 17.

 

·      On transition to IFRS 17, the group will apply the fully retrospective approach unless impracticable. In some instances, this will lead to the modified retrospective and fair value approaches being used for specific groups of insurance contracts.

 

·      For annuity business the selection of a rate at which to discount future cashflows for groups of insurance contracts is a key determinant in the valuation of the insurance liability. We intend to apply a top down discount rate to such groups, starting from an appropriate asset portfolio with economic deductions.

 

·      IFRS 17 requires an accounting policy decision as to whether to recognise all finance income or expense in profit or loss, or whether to disaggregate the income or expense that relates to changes in financial assumptions into other comprehensive income. All finance income and expense will be included in profit or loss except for protection business where we intend to disaggregate such changes.

 

The group has a fully mobilised and well progressed programme to implement the new standard. Work is continuing throughout 2022 to finalise technical compliance as well as to test and embed the required systems and operational capability. Communication and training plans are in place for impacted employees, and the Finance function operating model is being refined to ensure the business is ready to implement the new standard.

 

IFRS 9 - Financial Instruments

In July 2014, the IASB issued IFRS 9, 'Financial Instruments' which was effective for annual periods beginning on or after 1 January 2018. The standard replaces IAS 39, 'Financial Instruments: Recognition and Measurement'. It includes new principles around classification and measurement of financial instruments, introduces an impairment model based on expected credit losses (replacing the current model based on incurred losses) and new requirements on hedge accounting. The IASB 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 until adoption of IFRS 17, 'Insurance Contracts' or 1 January 2021, whichever is the earlier. In June 2020, the IASB agreed to extend the temporary exemption in IFRS 4 from applying IFRS 9 to annual reporting periods beginning on or after 1 January 2023. The group qualifies for, and is making use of, this deferral option.

 

In December 2021, in order to alleviate operational complexities and potential one-off accounting mismatches in comparative information between insurance contract liabilities and related financial assets on the initial application of IFRS 17, the IASB issued an amendment to IFRS 17 titled 'Initial Application of IFRS 9 and IFRS 17 - Comparative Information'. If an entity applies IFRS 17 and IFRS 9 at the same time, this amendment permits it to present comparative information about financial assets derecognised in the comparative period as if the classification and measurement requirements of IFRS 9 had been applied to them. The group has chosen to restate comparative information and to apply this classification overlay to all financial assets in scope. Due to the application of the new classification and impairment requirements, the transition to IFRS 9 will generate a day-one impact on group equity, which is not expected to be significant. Similarly, the ongoing impact of IFRS 9 on the group's financial results is not expected to be significant.

 

IFRS 9 classifies financial assets into the following three categories: amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets is based on the entity's business model for managing them, as well as their contractual cash flow characteristics. The group expects to reclassify a certain amount of financial assets as a result of these assessments, in order to better align the accounting treatment of assets that are backing insurance contract liabilities under IFRS 17.

 

With the exception of financial assets measured under FVTPL, the group will apply an expected credit loss impairment model to all financial assets in scope (including lease receivables and contract assets). The new impairment model requires utilising not only past events and current conditions but also reasonable and supportable forward-looking information, in order to assess the credit risk profiles of those financial assets in scope. The group will recognise either twelve months or lifetime expected credit losses in the Consolidated Income Statement at each reporting period. The group intends to use the practical expedient for financial assets deemed to have low credit risk at the reporting date, which allows recognising twelve months' expected credit losses. Additionally, for trade receivables, contract assets and lease receivables, the group plans to use a provision matrix method to calculate and recognise lifetime expected credit losses.

 

Most requirements around financial liabilities in IAS 39 have been retained by IFRS 9. Therefore, financial liabilities are expected to be classified and measured under their current categories (either FVTPL or amortised cost).

 

Finally, hedge accounting requirements have been revised by replacing some of the prescriptive rules in IAS 39 with more principle-based requirements, to be better aligned with the risk management activities of an entity and reflected accordingly in the financial statements. As such, going forward more risk management strategies should be able to qualify for hedge accounting.

 

The group has a fully mobilised programme to implement the standard. Work will continue throughout the remainder of 2022 to finalise technical compliance as well as to test and embed the required systems and operational capability. Communication and training plans are in place for impacted employees, and the Finance function operating model is being refined to ensure the business is ready to implement the new standard.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 55

 

4.02 Dividends and appropriations

 



Dividend

Per share1

Dividend

Per share1

Dividend

Per share1



6 months

6 months

6 months

6 months

Full year

Full year



2022

2022

2021

2021

2021

2021



£m

p

£m

p

£m

p



 

 

 


 










Ordinary dividends paid and charged to equity in the period:







 - Final 2020 dividend paid in June 2021


-

-

754

12.64

754

12.64

 - Interim 2021 dividend paid in September 2021


-

-

-

-

309

5.18

 - Final 2021 dividend paid in June 2022


792

13.27

-

-

-

-



 

 

 


 










Total dividends2


792

13.27

754

12.64

1,063

17.82



 

 

 


 


1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.

2. The dividend proposed at 31 December 2021 was £790m based on the current number of eligible equity shares on that date.


Subsequent to 30 June 2022, the directors declared an interim dividend of 5.44 pence per ordinary share. This dividend will be paid on 26 September 2022. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2022 and is not included as a liability in the Consolidated Balance Sheet as at 30 June 2022.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 56

 

4.03 Financial investments and investment property

 


30 Jun

30 Jun

31 Dec


2022

2021

2021


£m

£m

£m


 




 



Equities1

182,847

207,803

213,049

Debt securities2,3

237,976

278,858

296,930

Derivative assets4

28,017

15,449

16,792

Loans5

13,489

17,652

11,603


 

 


Financial investments

462,329

519,762

538,374

Investment property

10,976

9,080

10,150

Total financial investments and investment property

473,305

528,842

548,524

1. Equity securities include investments in unit trusts of £17,572m (30 June 2021: £15,681m; 31 December 2021: £18,248m).

2. Debt securities include accrued interest of £1,497m (30 June 2021: £1,389m; 31 December 2021: £1,420m).

3. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 7.03.

4. Derivatives are used 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. Derivative assets are shown gross of derivative liabilities of £34,044m (30 June 2021: £18,249m; 31 December 2021: £15,718m).

5. Loans include £101m (30 June 2021: £149m; 31 December 2021: £92m) of loans valued at amortised cost.

 

 

 

 

 

(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 IHS Markit, ICE and Bloomberg, or Index Providers such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modeling and multiple source validation in order to determine consensus prices, with the exception of OTC Derivative holdings; OTCs are marked to market using an in-house system (Lombard Oberon), external vendor (IHS Markit), internal model or Counterparty Broker marks. 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 therefore classified them as Level 2.

 

The group's investment properties are valued by appropriately qualified external valuers using unobservable inputs, resulting in all investment property being classified as Level 3.

 

The group's policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time. At 30 June 2022 debt securities totalling net £0.8bn transferred from Level 1 to Level 2 in the fair value hierarchy.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 57

 

4.03 Financial investments and investment property (continued)

 

(a) Fair value hierarchy (continued)

















Total

Level 1

Level 2

Level 3

For the six month period to 30 June 2022

£m

£m

£m

£m






 

 

 

 






 

 

 

 

Shareholder1

 

 

 

 

Equity securities





3,492

1,995

22

1,475

Debt securities





76,814

27,622

27,265

21,927

Derivative assets





25,071

6

25,065

-

Loans at fair value2

1,701

-

1,701

-

Investment property





6,156

-

-

6,156






 

 

 

 

Total Shareholder

113,234

29,623

54,053

29,558






 

 

 

 

Unit linked





 

 

 

 

Equity securities





179,355

178,691

25

639

Debt securities





161,162

129,689

30,836

637

Derivative assets





2,946

125

2,821

-

Loans at fair value





11,687

-

11,687

-

Investment property





4,820

-

-

4,820






 

 

 

 

Total Unit linked

359,970

308,505

45,369

6,096






 

 

 

 






 

 

 

 

Total financial investments and investment property at fair value2

473,204

338,128

99,422

35,654






 

 

 

 



















Total

Level 1

Level 2

Level 3

For the six month period to 30 June 2021

£m

£m

£m

£m



















Shareholder1





Equity securities





3,088

1,821

4

1,263

Debt securities





82,699

34,034

26,375

22,290

Derivative assets

14,019

2

14,017

-

Loans at fair value2

4,152

-

4,152

-

Investment property

5,103

-

-

5,103










Total Shareholder

109,061

35,857

44,548

28,656










Unit linked









Equity securities





204,715

204,055

23

637

Debt securities





196,159

146,780

49,029

350

Derivative assets

1,430

89

1,341

-

Loans at fair value

13,351

-

13,351

-

Investment property

3,977

-

-

3,977



















Total Unit linked

419,632

350,924

63,744

4,964



















Total financial investments and investment property at fair value2

528,693

386,781

108,292

33,620






 

 

 

 






 

 

 

 

1. All non-unit linked assets are classified as Shareholder assets. Shareholders of the group are directly exposed to market and credit risk on those assets including those backing the non-profit-non-unit linked business.

2. The above tables exclude loans (including accrued interest) of £101m, which are held at amortised cost (30 June 2021: £149m).


 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 58

 

4.03 Financial investments and investment property (continued)

 

(a) Fair value hierarchy (continued)





 














Total

Level 1

Level 2

Level 3

For the year ended 31 December 2021

£m

£m

£m

£m






 

 

 

 






 

 

 

 

Shareholder1

 

 

 

 

Equity securities

3,185

1,854

63

1,268

Debt securities

86,803

32,593

29,887

24,323

Derivative assets

13,203

9

13,194

-

Loans at fair value2

2,240

-

2,240

-

Investment property

5,710

-

-

5,710



















Total Shareholder

111,141

34,456

45,384

31,301










Unit linked









Equity securities

209,864

209,119

25

720

Debt securities

210,127

170,838

38,726

563

Derivative assets

3,589

90

3,499

-

Loans at fair value

9,271

-

9,271

-

Investment property

4,440

-

-

4,440



















Total Unit linked

437,291

380,047

51,521

5,723



















Total financial investments and investment property at fair value2

548,432

414,503

96,905

37,024






 

 

 

 






 

 

 

 

1. All non-unit linked assets are classified as Shareholder assets. Shareholders of the group are directly exposed to market and credit risk on those assets including those backing the non-profit-non-unit linked business.

2. This table excludes loans (including accrued interest) of £92m, which are held at amortised cost.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 59

 

4.03 Financial investments and investment property (continued)

 

(b) Level 3 assets measured at fair value


Level 3 assets, where modelling techniques are used, comprise property, unquoted securities, untraded debt securities and securities where unquoted prices are provided by a single broker. Unquoted securities include suspended securities, investments in private equity and property vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips, retirement interest only and other 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.

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.

Climate risk

The group's asset portfolio can be exposed to climate change through both:

  • Transition risks from the move to a low-carbon economy and the impact this has on asset valuation and the wider economic environment; and

  • Physical risks from the impact on asset holdings as a result of severe weather events and longer-term shifts in climate.

Exposure to the physical risks of climate change are minimised in the direct investment portfolio through rigorous assessment of potential investments, particularly in ensuring there is low susceptibility to extreme weather events. The group monitors the carbon intensity of the investments held at a portfolio level to help understand the environmental impact and reduce high carbon intensive investments in the future. Further detail can be found in our Climate Report (TCFD).

 

The group's assets are valued, where possible, using standard market pricing sources or appropriately qualified external valuers and therefore reflect current market sentiments in respect of climate risk.


Equity securities

Level 3 equity securities amount to £2,114m (30 June 2021: £1,900m; 31 December 2021: £1,988m), of which the majority is made up of holdings in investment property vehicles and private investment funds. They are valued at the proportion of the group's holding of the Net Asset Value reported by the investment vehicles. Other equity securities are valued by a number of third party specialists using a range of techniques which are often dependent on the maturity of the underlying investment but can also depend of the characteristics of individual investments. Such techniques include transaction values underpinned by analysis of milestone achievement, and cash runway for early/start-up stage investments, discounted cash flow models for investments at the next stage of development and earnings multiples for more mature investments.













Other financial investments













Private credit loans (including commercial real estate loans) amount to £12,115m (30 June 2021: £12,232m; 31 December 2021: £13,521m). Their valuation is determined by discounted future cash flows which are based on the yield curve of the LGIM approved comparable bonds and the initial spread, both of which are agreed by IHS Markit who also provide an independent valuation of comparable bonds. Unobservable inputs that go into the determination of comparators include: rating, sector, sub-sector, performance dynamics, financing structure and duration of investment. Existing private credit investments, which were executed back as far as 2011, are subject to a range of interest rate formats, although the majority are fixed rate. The weighted average duration of the portfolio is 9.1 years, with a weighted average life of 11.9 years. Maturities in the portfolio currently extend out to 2064. The private credit portfolio of assets has internal ratings assigned by an independent credit team in line with internally developed methodologies. These credit ratings range from AAA to BB-.













Private placements held by the US business amount to £1,932m (30 June 2021: £2,090m; 31 December 2021: £1,762m). They are valued using a pricing matrix comprised of a public spread matrix, internal ratings assigned to each holding, average life of each holding, and a premium spread matrix. These are added to the risk-free rate to calculate the discounted cash flows and establish a market value for each investment grade private placement. The valuation as at 30 June 2022 reflects illiquidity premiums between 10 and 70bps.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 60

 

4.03 Financial investments and investment property (continued)

 

(b) Level 3 assets measured at fair value (continued)

Commercial mortgage loans amount to £1,080m (30 June 2021: £408m; 31 December 2021: £1,021m) and are determined by incorporating credit risk for performing loans at the portfolio level and for loans identified to be distressed at the loan level. The projected cash flows of each loan are discounted along stochastic risk free rate paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best observable inputs. The valuation as at 30 June 2022 reflects illiquidity premiums between 20 and 30bps.


Income strip assets amount to £1,580m (30 June 2021: £1,527m; 31 December 2021: £1,626m). Their valuation is outsourced to Knight Frank and CBRE who apply a yield to maturity to discounted future cash flows to derive valuations. The overall valuation takes into account the property location, tenant details, tenure, rent, rental break terms, lease expiries and underlying residual value of the property. The valuation as at 30 June 2022 reflects equivalent yield ranges between 2% and 7% and estimated rental values (ERV) between £16 and £310 per sq.ft.


Other debt securities which are not traded in an active market amount to £100m (30 June 2021: £143m; 31 December 2021: £99m). They have been valued using third party or counterparty valuations, and these prices are considered to be unobservable due to infrequent market transactions.

Investment property

Level 3 investment property amounting to £10,976m (30 June 2021: £9,080m; 31 December 2021: £10,150m) is valued with the involvement of external valuers. All property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are undertaken by appropriately qualified valuers as defined therein. Whilst transaction evidence underpins the valuation process, the definition of market value, including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market knowledge and professional judgement and not rely only upon historic market sentiment based on historic transactional comparables.


The valuation of investment properties also includes an income approach that is based on current rental income plus anticipated uplifts, where the uplift and discount rates are derived from rates implied by recent market transactions. These inputs are deemed unobservable. The valuation as at 30 June 2022 reflects equivalent yield ranges between 2% and 16% and ERV between £1 and £396 per sq.ft.

 

The below table breaks down the investment property by sector.










30 Jun

30 Jun

31 Dec



 

 

 

2022

2021

2021



 

 

 

£m

£m

£m

Retail





951

962

1,025

Leisure





505

453

482

Distribution





1,613

1,277

1,552

Office space





4,688

3,832

4,223

Industrial and other commercial





2,005

1,803

1,767

Accommodation





1,214

753

1,101

Total investment property

 

 

 

 

10,976

9,080

10,150

 

 

 

 

 

 



 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 61

 

4.03 Financial investments and investment property (continued)

 

(b) Level 3 assets measured at fair value (continued)



 

 

 

 

 

 

 



 

 

 

 

 





 

 

Other

 

 


Other



 

Equity

financial

Investment

 

Equity

financial

Investment


 

securities

investments

property

Total

securities

investments

property

Total

 

2022

2022

2022

2022

2021

2021

2021

2021

 

£m

£m

£m

£m

£m

£m

£m

£m



















As at 1 January

1,988

24,886

10,150

37,024

1,801

21,957

8,475

32,233

Total gains/(losses) for the period



 

 





- in other comprehensive income

-

3

-

3

-

(8)

-

(8)

- realised gains/(losses)1

6

(5)

30

31

1

(9)

-

(8)

- unrealised gains/(losses)1

144

(3,643)

571

(2,928)

97

(422)

249

(76)

Purchases/Additions

179

2,110

330

2,619

90

2,007

449

2,546

Sales/Disposals

(266)

(1,105)

(105)

(1,476)

(59)

(821)

(93)

(973)

Transfers into Level 3

67

-

-

67

-

8

-

8

Transfers out of Level 3

(10)

-

-

(10)

(30)

(44)

-

(74)

Foreign exchange rate movements

6

318

-

324

-

(28)

-

(28)










As at 30 June

2,114

22,564

10,976

35,654

1,900

22,640

9,080

33,620


























Other








Equity

financial

Investment







securities

investments

property

Total






2021

2021

2021

2021






£m

£m

£m

£m



















As at 1 January





1,801

21,957

8,475

32,233

Total gains/(losses) for the year









- in other comprehensive income





-

(3)

-

(3)

- realised gains/(losses)1





31

12

(4)

39

- unrealised gains or (losses)1





208

(87)

1,028

1,149

Purchases/Additions





130

5,429

985

6,544

Sales/Disposals





(153)

(2,351)

(334)

(2,838)

Transfers into Level 3





2

10

-

12

Transfers out of Level 3





(31)

(112)

-

(143)

Foreign exchange rate movements





-

31

-

31










As at 31 December

 

 

 

 

1,988

24,886

10,150

37,024



















1. Realised and unrealised gains/(losses) are recognised in investment return in the Consolidated Income Statement.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 62

 

4.03 Financial investments and investment property (continued)

 

(c) Effect of changes in 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.

 

Where material, the group assesses the sensitivity of fair values of Level 3 investments to changes in unobservable inputs to reasonable alternative assumptions. The table below shows the impact of applying these sensitivities on the fair value of Level 3 assets as at 30 June 2022. Further disclosure on how these sensitivities have been applied can be found in the descriptions following the table.

 


 

 

 

 

Sensitivities


 

 

Fair value

30 June 2022

£m

 

Positive impact

£m

Negative impact

£m

Lifetime mortgages

 


5,758


216

(216)

Private credit portfolios

 


15,127


821

(821)

Investment property

 


10,976


915

(1,075)

Other investments1

 


3,793


339

(274)

Total Level 3 assets

 

 

35,654

 

2,291

(2,386)

 

 

 

 

 

 

 

1. Other investments include Level 3 equity securities, income strip assets and other traded debt securities which are Level 3.


The sensitivities are not a function of sensitising a single variable relating to the valuation of the asset, but rather a function of flexing multiple factors often at individual asset level. The following sets out a number of key factors by asset type, and how they have been flexed to derive reasonable alternative valuations.

 

Lifetime mortgages

Key assumptions used in the valuation of Lifetime mortgage assets are listed in Note 4.03 (b) and sensitivities are applied to each assumption to arrive at the overall sensitised values in the above table. The most significant sensitivity by value is +/-10% instant reduction in property valuation across the portfolio which, applied in isolation produces sensitised values of £71m and £(143)m.

Private credit portfolios

The sensitivity in the private credit portfolio has been determined through a method which estimates investment spread value premium differences as compared to the institutional investment market. Individual investment characteristics of each holding, such as credit rating and duration are used to determine spread differentials for the purposes of determining alternate values. Spread differentials are determined to be lower for highly rated and/or shorter duration assets as compared to lower rated and/or longer duration assets. A significant component of the spread differential is in relation to the selection of comparator bonds, which is the potential difference in spread of the basket of relevant comparators determined by respective investors. If we were to take an AA rated asset it may attract a spread differential of 15bps on the selection of comparator bonds as opposed to 40bps for a similar duration BBB rated asset. Applied in isolation the sensitivity used to reflect the spread in comparator bond selection results in sensitised values of £274m and £(274)m.

 

Investment property

Investment property holdings are valued 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 (RICS). As such, sensitivities are calculated through a mixture of asset level and portfolio level methodologies which make reference to individual investment characteristics of the holding but do not flex individual assumptions used by the independent expert in valuing the holdings. Each method is applied individually and aggregated with equal weighting to determine the overall sensitivity determined for the portfolio. One method is similar to that used in the private credit portfolio as it determines the impact of an alternate property yield determined in reference to credit ratings, remaining term and other characteristics of each holding. In this methodology we would apply a lower yield sensitivity to a highly rated and/or shorter remaining term asset compared with a lower rated and/or longer remaining term asset. If we were to take an AA rated asset with remaining term of 25 years in normal market conditions this would lead to a 15bps yield flex (as opposed to a 35bps yield flex for a BBB rated asset with 30 year remaining term). The methodology which leads to the most significant sensitivity at the balance sheet date is related to an example in case law where it was found that an acceptable margin of error in a valuation dispute is 10% either way, subject to the valuation being undertaken with due care. If this sensitivity were to be taken without a weighting it would produce sensitised values of £723m and £(723)m.


It should be noted that some sensitivities described above are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 63

 

4.04 Tax

 

(a) Tax expense in the Consolidated Income Statement






The tax expense attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:






 




6 months

6 months

Full year


2022

2021

2021


£m

£m

£m

 

 



 

 



Profit before tax attributable to equity holders

1,367

1,320

2,488

Tax calculated at 19.00%

260

251

473


 



Adjusted for the effects of:

 



Recurring reconciling items:

 



(Lower)/higher rate of tax on profits taxed overseas1

(32)

(32)

(104)

Non-deductible expenses

-

4

6

Differences between taxable and accounting investment gains

(6)

(9)

(13)

Foreign tax

1

-

-

Unrecognised tax losses

1

-

1

Other

3

-

-


 



Non-recurring reconciling items:

 



Adjustments in respect of prior years2

(1)

12

24

Impact of the revaluation of deferred tax balances3

(12)

32

58

 

 



 

 



Tax expense attributable to equity holders

214

258

445

 

 



 

 



Equity holders' effective tax rate

15.7%

19.5%

17.9%

 

 



1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which

provides the group with regulatory capital flexibility for both our PRT business and our US term insurance business. This also includes the impact of our US operations which are taxed at 21%.

2. Adjustments in respect of prior years relate to revisions of prior estimates.

3. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year remained at 19%. The future enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities in respect of temporary differences arising in the period, being the rate of corporation tax that is expected to apply when the majority of those deferred tax balances reverse.

 

 

Legal & General Group Plc

Half Year Results 2022 Part 2

 

IFRS Disclosure Notes                                                                                                                      Page 64