1st Nov 2007 10:50
Legal & General Group PLC01 November 2007 1 November 2007 LEGAL & GENERAL - FURTHER STEP IN CAPITAL RESTRUCTURING Legal & General has taken the next important step in its capital restructuring,converting Legal & General Pensions Limited ("LGPL"), into the UK's firstInsurance Special Purpose Vehicle ("ISPV"), with effect from 1 November 2007. Legal & General Assurance Society Limited ("LGAS") ceded all non-linked nonprofit pensions and annuity business to LGPL, its wholly owned reinsurancesubsidiary, in December 2006. This provided greater capital transparency andflexibility although, as we indicated, it created a capital inefficiency.There was no material change in the risk borne by the Group but it was necessaryto hold regulatory capital in both the reinsurer, LGPL, and the ceding company,LGAS. We stated that we would work to remove this inefficiency and that ourpreferred solution was to convert LGPL into an ISPV - a new entity regulated bythe Financial Services Authority ("FSA"). As a result of the successful conversion, the negative impacts of the capitalinefficiency created by LGPL and reported in the full year 2006 results arelargely reversed. Regulatory capital is increased by an estimated £0.5bn andembedded value by approximately £120m net of tax. These impacts are in linewith the assessment we made in December 2006. Andrew Palmer, Legal & General's Group Director (Finance), said: "We aredelighted to be the first company in the UK to create an ISPV. It demonstratesour willingness to pursue innovative solutions to deliver a more efficient andflexible capital structure for the Group. Our progress in other areas of thecapital review continues according to schedule." Notes to editors: What is an ISPV? It is a new type of insurance entity regulated by the FSA and introduced at theend of 2006 as part of the implementation of the EU Reinsurance Directive. Itsprincipal characteristics are as follows: • It is neither an authorised insurer nor a pure reinsurer. It is an entity which assumes reinsurance risk and is authorised by the FSA to fulfil a special purpose. • Unlike a reinsurance company, an ISPV is not obliged to cover an additional regulatory solvency requirement. In this case it will be met in full by the ceding company, LGAS. An ISPV is obliged to be fully funded with finance subordinated to its reinsurance obligations. • It is not required to complete an annual FSA solvency return. Legal & General has received the necessary waivers from the FSA to enable LGASto take credit for the reinsurance to LGPL. What was the impact on regulatory capital and cost of solvency capital as aresult of the creation of LGPL in December 2006? The creation of LGPL gave rise to an additional cost of capital of £132m net oftax in 2006, split as follows: - £119m in respect of inforce business - £13m in respect of new business written in 2006 It reduced IGD and Society surplus capital by £0.5bn. How will the benefit from the ISPV conversion be shown in the Preliminaryresults 2007? The principal impact on our inforce business at the end of 2007 will be shown asa positive exceptional item through a Corporate Restructure line, belowoperating profit. This is consistent with the equivalent negative impactreported for 2006. Any resultant impact on new business profits in 2007 will be reported through 'Contribution from new business after cost of capital'. Capital review - progress to date November 2006: • Set out the framework for the capital review. • Introduced balanced scorecard measures for capital management to enable analysts and investors to monitor Legal & General's financial strength. December 2006: • Ceded the non-linked non profit pensions and annuity business of LGAS to a new, wholly owned, reinsurance subsidiary, LGPL. • Implemented the FSA's Policy Statement 06/14 across its UK individual protection business. • Reviewed the asset liability matching policy for annuity business during 2006 and made a number of investment changes to achieve a closer asset liability match. March 2007: • Updated the market on our balanced scorecard. May 2007: • Issued £600m Innovative tier 1 perpetual capital securities. July 2007: • Updated the market on our balanced scorecard. • Announced and began a £1billion on-market share buyback. November 2007: • Converted LGPL to an ISPV. About Legal & General Legal & General Group Plc is a leading UK risk, wealth and investment company.Founded over 170 years ago, Legal & General today provides life assurance andother financial protection products, annuities and long-term savings productsincluding ISA's and pensions. With over £250 billion in funds under management,it is also the largest investor for UK pension funds. Legal & General has over5.5 million UK customers. Our products are sold through over 30 bank andbuilding society relationships, through Independent Financial Advisers and alsodirectly to customers. Legal & General Assurance Society, our principaloperating company, is one of Europe's top rated life companies for financialstrength, with an AA+ rating from Standard & Poor's and Aa1 from Moody's. Enquiries to: Investors:Jonathan Maddock, Head of Investor Relations 020 3124 2150Nicola Marshall, Investor Relations Manager 020 3124 2151 Media:John Godfrey, Group Communications Director 020 3124 2090Anthony Carlisle, Citigate Dewe Rogerson 07973 611888 Financial Calendar: Q4 2007 New business results 24 January 20082007 Preliminary results 13 March 2008Q1 2008 New business results 24 April 20082008 AGM 14 May 20082008 Interim and new business results 1 August 2008Q3 2008 New business results 23 October 2008Q4 2008 New business results 29 January 2009 Forward-looking statements: This document may contain certain forward-looking statements with respect tocertain of Legal & General Group Plc's plans and its current goals andexpectations relating to future financial condition, performance and results. Bytheir nature forward-looking statements involve risk and uncertainty becausethey relate to future events and circumstances which are beyond Legal & GeneralGroup Plc's control, including, among others, UK domestic and global economicand business conditions, market related risks such as fluctuations in interestrates and exchange rates, the policies and actions of governmental andregulatory authorities, the impact of competition, the timing impact and otheruncertainties of future mergers or combinations within relevant industries. As aresult, Legal & General Group Plc's actual future condition, performance andresults may differ materially from the plans, goals and expectations set out inLegal & General Group Plc's forward-looking statements. Legal & General GroupPlc does not undertake to update forward-looking statements contained in thisdocument or any other forward-looking statement it may make. 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