23rd Feb 2006 09:15
Legal & General Group PLC23 February 2006 Stock Exchange Announcement23 February 2006 LEGAL & GENERAL GROUP PLC BONUS ANNOUNCEMENT 2005 • Excellent 19% investment return(1) achieved in 2005 • Vast majority of terminal bonus rates increased - reflecting strong performance • Interim(2) bonus rates generally held or increased, reflecting stable long term investment outlook • Single premium bond held for ten years shows a 12.8% increase in value over the year • Total cost of bonuses allocated to policyholders for 2005 was £418m Legal & General's with-profits fund achieved a return in excess of 19% in 2005after investment charges but gross of tax (16% net of tax). This is the thirdyear in succession in which the company's with-profits fund has achieved doubledigit investment returns. Legal & General Actuary, UK, Ian Gibson said, "I am delighted that we have beenable to achieve such an excellent investment return for our with-profitspolicyholders. "As a result of this strong investment performance we have been able to increasethe terminal bonuses awarded to the vast majority of our maturing policies. "This year's interim bonus rate declarations are very similar to those of lastyear, reflecting stable investment expectations." Year 2001 2002 2003 2004 2005 5 year average annual returnWith-profits -7% -9% 14% 12% 19% 5%UK equities(3) -13% -23% 21% 13% 22% 2%Deposit Account(4) 4% 3% 2% 3% 3% 3% Also announced today are improvements to those few policies which still retainmarket value reduction factors. The remaining reduction factors have been cuttoday for the second time this year. No investment bonds now have a reductionfactor of more than 10%. (1) This return refers to that achieved on the assets within the fund which backpolicyholders' asset shares. These represent the majority of assets within thefund. (2) Each year a normal annual bonus is declared for the previous year. An interimbonus rate, which is not guaranteed and can be changed without notice, is alsodeclared and applies in respect of the current year for any claims. (3) FTSE All Share total return (4) Source: Micropal 2005 Bonus Declaration The impact on customers will vary according to product type and is illustratedby examples shown below: Conventional Endowment Annual Bonus Rates declared today 2004 2005 0.75 % of sum assured 0.75 1.25 % of existing bonus 1.25 Conventional Endowment Terminal Bonus Rates Examples of terminal bonus as a percentage of existing bonus: Entry year Before declaration After declaration 1981 39% 43% 1986 59% 80% 1991 33% 64% Examples of the impact of Bonuses on Legal & General customers The following examples aim to: 1. Show the value of a policy maturing on 1 March 2006 (and for the low costmortgage endowment - the maturity value against target). 2. Highlight the outcome for a policy taken out on the same day as in the firstexample but maturing (not surrendering) one year earlier. The difference in thisvalue from the value in the first example includes an extra year of premiumpayments, but makes evident the benefit of the past year's investmentperformance. 3. Show the value of a policy both starting and maturing one year earlier thanin the first example. 4. Show the 'real' rate of return which represents the yield obtained in excessof the return earned if the premiums had grown in line with the RPI (increase inRPI for the period January 2006 to March 2006 remains at the same level asJanuary 2006). 25 year savings endowment, male aged 29 at entry, £50pm 1/3/81 to 1/3/06 Maturity value £46,587 (8.1% annualised return vs. inflation of 3.3%, real return of 4.7%) 1/3/81 to 1/3/05 Maturity value £43,282 (8.2% annualised return vs inflation of 3.4%, real return of 4.7%) 1/3/80 to 1/3/05 Maturity value £48,757 (8.4% annualised return vs. inflation of 3.5%, real return of 4.8%) 25 year low cost mortgage endowment, male aged 29 at entry, £50pm 1/3/81 to 1/3/06 Maturity value £45,769 against target of £27,656 (£18,113 surplus) (8.0% annualised return vs. inflation of 3.3%, real return of 4.6%) 1/3/81 to 1/3/05 Maturity value £42,743 against target of £25,783 (£16,960 surplus) (8.2% annualised return vs. inflation of 3.4%, real return of 4.6%) 1/3/80 to 1/3/05 Maturity value £47,903 against target of £27,656 (£20,247 surplus) (8.3% annualised return vs. inflation of 3.5%, real return of 4.7%) 15 year savings endowment, male aged 29 at entry, £50pm 1/3/91 to 1/3/06 Maturity value £14,093 (5.7% annualised return vs. inflation of 2.5%, real return of 3.2%) 1/3/91 to 1/3/05 Maturity value £11,918 (4.8% annualised return vs. inflation of 2.6%, real return of 2.2%) 1/3/90 to 1/3/05 Maturity value £13,395 (5.1% annualised return vs. inflation of 2.6%, real return of 2.4%) 20 year pension, male aged 45 at entry, £200pm 1/3/86 to 1/3/06 Open market option of £115,334 (8.1% annualised return vs. inflation of 2.9%, real return of 5.0%) 1/3/86 to 1/3/05 Open market option of £105,735 (8.2% annualised return vs. inflation of 3.0%, real return of 5.0%) 1/3/85 to 1/3/05 Open market option of £121,316 (8.5% annualised return vs. inflation of 3.1%, real return of 5.3%) With-profit bond, £10,000 single premium 1/3/96 to 1/3/06 Surrender value £17,961 (6.0% annualised return vs. inflation of 2.5%, real return of 3.4%) 1/3/96 to 1/3/05 Surrender value £15,926 (5.3% annualised return vs. inflation of 2.6%, real return of 2.7%) 1/3/95 to 1/3/05 Surrender value £18,416 (6.3% annualised return vs. inflation of 2.6%, real return of 3.6%) Notes to Editors The information contained in this press release is intended solely forjounalists and should not be relied upon by private investors and any otherpersons to make financial decisions. Additional bonus rates and running yields Given the large number of Legal & General bonus rates, further examples areavailable on request. Number of customers: Bonuses declared affect around 900,000 policyholders Financial strength Legal & General Assurance Society is one of the UK's top rated companies forfinancial strength. Three of the world's leading independent rating companies,Standard and Poor's, Moody's and AM Best have recognised this. The current ratings are: Standard and Poor's AA+ 'Very Strong'Moody's Aa1 'Superior'AM Best A+ 'Superior' Asset mix The overall mix of assets applicable to with-profits policies eligible forbonuses was: End 2005 End 2004 End 2003UK shares 38% 43% 41%Overseas shares 11% 9% 10%Fixed interest securities 33% 29% 31%Commercial property 18% 19% 18% Bonus policy In determining the amounts payable under with-profits policies the methods usedhave the following aims. • To treat all with-profits investors equitably. • To take account of the returns earned on the underlying investments. • To take account of the requirement to honour guarantees and optionsalready granted to investors. • To smooth returns to investors so that some of the short-termfluctuations in the value of the investments of the with-profits sub-fund arenot immediately reflected in payments. • To incorporate some pooling and sharing of experience betweenpolicyholders. In order to treat different types and generations of with-profits investmentsequitably the methods also aim to have regard to differences in product design,such as differences in: • The nature and extent of guarantees and options provided. • The types and value of risk benefits provided between different typesof product and different policies of the same type. • Taxation between products. Compliance with Principles and Practices of Financial Management The bonus declaration has been subject to independent review by the Tillinghastbusiness of Towers Perrin. In Tilinghast's judgement, today's bonus declarationand the process by which it was reached comply with Legal & General'sPrinciples and Practices of Financial Management. In undertaking this review,Tillinghast has relied on the accuracy and completeness of the informationsupplied to it by Legal & General. Regulatory notes • Past performance is not a guide to future performance. • Legal & General Assurance Society Limited is authorised and regulatedby the Financial Services Authority. • Returns from with-profits contracts are dependent on bonuses. Futurebonus rates are not guaranteed. • The surpluses over targets shown in the mortgage endowment examplesabove arose during a period when investment returns were high; similar returnsand therefore such large surpluses may not be available in future years • Forward-looking statements: This document may contain certain forward-looking statements with respect tocertain of Legal & General's plans and its current goals and expectationsrelating to future financial condition, performance and results. By theirnature forward-looking statements involve risk and uncertainty because theyrelate to future events and circumstances which are beyond Legal & General'scontrol, including, among others, UK domestic and global economic and businessconditions, market related risks such as fluctuations in interest rates andexchange rates, the policies and actions of regulatory authorities, the impactof competition and the policies and actions of governmental and regulatoryauthorities, the timing impact and other uncertainties of future acquisition orcombinations within relevant industries. As a result, Legal & General's actualfuture condition, performance and results may differ materially from the plans,goals and expectations set out in Legal & General's forward-looking statements.Legal & General does not undertake to update forward-looking statementscontained in this document or any other forward-looking statement it may make. ENDS Investor Relations:Peter Horsman Head of Investor Relations 020 7528 6362 Issued By:John Morgan Media Relations Director 020 7528 6213 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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