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Half Yearly Report - Part 2

7th Aug 2012 07:00

RNS Number : 4222J

Legal & General Group Plc

07 August 2012

International Financial Reporting Standards

Supplementary operating profit information

For the six months ended 30 June 2012

				Full year
		30.06.12	30.06.111	31.12.111
	Notes	£m	£m	£m


From continuing operations
Risk	2.01(a)	272	236	561
Savings	2.02(a)	73	68	128
Investment management	2.03	119	117	234
International	2.04	64	64	134
Group capital and financing2	2.05	13	33	52
Investment projects3		(23)	(25)	(56)


Operating profit		518	493	1,053
Asset related investment variances		15	(1)	(2)
Other investment variances		(9)	(20)	(95)


Variation from longer term investment return	2.06	6	(21)	(97)
Property gains/(losses) attributable to non-controlling interests		1	(1)	(3)


Profit before income tax attributable to equity holders of the Company		525	471	953
Tax expense attributable to equity holders of the Company	2.07	(118)	(115)	(232)


Profit for the period		407	356	721



Attributable to:
Non-controlling interests		1	(1)	(3)
Equity holders of the Company		406	357	724



		p	p1	p1


Earnings per share	2.11
Based on operating profit from continuing operations after tax attributable to equity holders
of the Company		6.72	6.30	13.47
Based on profit attributable to equity holders of the Company		6.96	6.13	12.42

Diluted earnings per share	2.11
Based on operating profit from continuing operations after tax attributable to equity holders
of the Company		6.61	6.19	13.25
Based on profit attributable to equity holders of the Company		6.85	6.03	12.22


1. Supplementary operating profit has been adjusted to reflect the restrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquistion costs under US GAAP. Details of this adjustment are outlined in Note 2.08. The impact is to reduce International operating profit by £2m at H1 11 and £3m at FY 11.
2. As announced in our FY 11 results, the rate used to calculate the smoothed investment return on cash and LIBOR benchmarked bonds has reduced. H1 11 has been amended to reflect this change, as outlined in Note 2.05.
3. Investment projects predominantly relates to Solvency II and other strategic investments.

This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business.

Operating profit for the Risk segment represents the profit from the annuities business (individual and bulk purchase annuities and longevity insurance) and the profit from the housing and protection businesses (general insurance, and individual and group protection business). Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within our general insurance business.

Operating profit for the Savings segment represents the profit from the insured Savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer and the profit of our Savings investments business. Operating profit for the insured savings business reflects the investment returns that the business expects to make on the financial investments that back this business.

Operating profit for the Investment management segment includes a longer term expected investment return on the shareholders' funds within the segment. For the International segment, LGN operating profit reflects a longer term expected return on shareholders' funds and index linked policies.

Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a monthly basis. Profits or losses arising from actuarial movements on annuities held by the Group's defined benefit pension schemes are excluded from operating profit. Profits or losses arising on the elimination of own debt holdings are also excluded from operating profit.

2.01 Risk
(a) Risk operating profit
							Full year
					30.06.12	30.06.11	31.12.11
	Notes				£m	£m	£m


Annuities					139	145	287


Protection1					124	75	242
General insurance2	2.01(f)				8	17	42
Other					1	(1)	(10)


Total Housing and Protection					133	91	274


Total Risk operating profit	2.01(b)				272	236	561


1. The protection prior year result was impacted by adverse mortality experience in group protection (H1 11: £27m; FY 11: £35m). This continues to trend back to normal levels with the current period impact being adverse £11m (see Note 2.01(c)).
2. The general insurance half-year result has been impacted by higher weather related claims.

(b) Analysis of Risk operating profit
			Housing			Housing
			and			and
		Annui-	Protec-		Annui-	Protec-
		ties	tion	Total	ties	tion	Total
		30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11
	Notes	£m	£m	£m	£m	£m	£m


Risk business segment operating profit comprises:
Operational cash generation		121	114	235	112	121	233
New business strain		1	(33)	(32)	1	(41)	(40)


Net cash generation		122	81	203	113	80	193
Experience variances	2.01(c)			6			(7)
Changes to valuation assumptions	2.01(d)			18			30
Movements in non-cash items	2.01(e)			(22)			(43)
Other				-			-


				205			173
Tax gross up				67			63


Total Risk operating profit				272			236



						Housing
						and
					Annui-	Protec-
					ties	tion	Total
					Full year	Full year	Full year
					31.12.11	31.12.11	31.12.11
	Notes				£m	£m	£m


Risk business segment operating profit comprises:
Operational cash generation					227	255	482
New business strain					35	(66)	(31)


Net cash generation					262	189	451
Experience variances	2.01(c)						22
Changes to valuation assumptions	2.01(d)						24
Movements in non-cash items	2.01(e)						(86)
Other							-


							411
Tax gross up							150


Total Risk operating profit							561


The annuities and protection (non profit business) operational cash generation represents the expected surplus to be generated in the period from the in-force non profit business which is broadly equivalent to the expected release of profit from the non profit Risk business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model. Both new business strain and operational cash generation exclude required solvency margin from the liability calculation.

An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:

(c) Experience variances

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Persistency	(1)	(3)	(4)
Mortality/morbidity1	(10)	(32)	(32)
Expenses	-	-	(2)
Bulk purchase annuity data loading	16	19	42
Project and development costs	(3)	(5)	(7)
Tax2	(6)	16	33
Other	10	(2)	(8)


	6	(7)	22


1. Mortality/morbidity primarily relates to adverse experience in group protection. This continues to trend back to assumptions with the current period impact being £11m (H1 11: £27m; FY 11 £35m).
2. Due to lower forecast investment yields, less taxable income was available to relieve protection expenses causing further excess expenses to be carried forward. In 2011, the higher level of taxable income produced a net reduction in excess expenses. This is fully offset within the movement in non-cash items.

(d) Changes to valuation assumptions
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Persistency	-	-	(1)
Mortality/morbidity	-	-	(1)
Expenses1	-	18	28
Other2	18	12	(2)


	18	30	24


1. The prior year positive expense assumption reflects the lower unit costs in individual protection.
2. Other assumption changes in H1 12 relate to a decrease of £8m to the reinsurer default reserve due to an improvement in reinsurer credit ratings. There was also an additional benefit due to continued enhancement to data quality.

(e) Movements in non-cash items
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Deferred tax1	(21)	(38)	(77)
Other	(1)	(5)	(9)


	(22)	(43)	(86)


1. This amount includes £(30)m (H1 11: £(33)m; FY 11: £(80)m) for the utilisation of trading losses within net cash generation. The offsetting items comprise movements in deferred tax from creation of excess expenses carried forward as explained in experience variances (see note 2.01 (c)).

	(f) General insurance operating profit
			Net cash		Oper-	Net cash		Oper-
			gener-		ating	gener-		ating
			ation	Tax	profit	ation	Tax	profit
			30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11
			£m	£m	£m	£m	£m	£m


	Household1		5	2	7	9	4	13
	Other business		1	-	1	3	1	4


			6	2	8	12	5	17


	1. The half-year household general insurance result reflects higher weather related claims.

						Net cash		Oper-
						gener-		ating
						ation	Tax	profit
						Full year	Full year	Full year
						31.12.11	31.12.11	31.12.11
						£m	£m	£m


	Household					27	10	37
	Other business					4	1	5


						31	11	42



	(g) General insurance underwriting result
								Full year
						30.06.12	30.06.11	31.12.11
						£m	£m	£m


	Household					-	6	23
	Other business					1	3	4


						1	9	27



	(h) General insurance combined operating ratio1
								Full year
						30.06.12	30.06.11	31.12.11
						%	%	%


	Household					100	95	91
	Other business					95	72	78


						99	93	90


	1. The calculation of the general insurance combined operating ratio has been amended to incorporate commission and expenses as a percentage of earned premium, as opposed to premium written. Prior year comparatives have been amended accordingly.

2.02 Savings
(a) Savings operating profit
							Full year
					30.06.12	30.06.11	31.12.11
		Note			£m	£m	£m


Savings investments1					9	13	23
Insured savings2					29	20	36
With-profits3					35	35	69


Total Savings operating profit		2.02(b)			73	68	128



1. Savings investments operating profit includes retail and institutional unit trusts and Suffolk Life.
2. Insured savings includes non profit investment bonds and pensions (including SIPPs), Nationwide Life Savings business and International (Ireland).
3. With-profits business operating profit is the shareholders' share of total with-profits bonuses.

(b) Analysis of Savings operating profit
				Savings
		Insured	With-	invest-
		savings	profits	ments	Total
		30.06.12	30.06.12	30.06.12	30.06.12
	Notes	£m	£m	£m	£m


Savings business segment operating profit comprises:
Operational cash generation		53	26	9	88
New business strain		(32)	-	-	(32)


Net cash generation		21	26	9	56
Insured savings
Experience variances	2.02(c)				(15)
Changes to valuation assumptions	2.02(d)				2
Movements in non-cash items	2.02(e)				16
Other					(1)
Savings investments
Movements in non-cash items and other					(3)


					55
Tax gross up					18


Total Savings operating profit					73




				Savings
		Insured	With-	invest-
		savings	profits	ments	Total
		30.06.11	30.06.11	30.06.11	30.06.11
	Notes	£m	£m	£m	£m


Savings business segment operating profit comprises:
Operational cash generation		51	26	12	89
New business strain		(31)	-	-	(31)


Net cash generation		20	26	12	58
Insured savings
Experience variances	2.02(c)				(3)
Changes to valuation assumptions	2.02(d)				3
Movements in non-cash items	2.02(e)				(8)
Other					4
Savings investments
Movements in non-cash items and other					(4)


					50
Tax gross up					18


Total Savings operating profit					68



				Savings
		Insured	With-	invest-
		savings	profits	ments	Total
		Full year	Full year	Full year	Full year
		31.12.11	31.12.11	31.12.11	31.12.11
	Notes	£m	£m	£m	£m


Savings business segment operating profit comprises:
Operational cash generation		101	51	22	174
New business strain		(63)	-	-	(63)


Net cash generation		38	51	22	111
Insured savings
Experience variances	2.02(c)				(12)
Changes to valuation assumptions	2.02(d)				(5)
Movements in non-cash items	2.02(e)				6
Other					-
Savings investments
Movements in non-cash items and other					(6)


					94
Tax gross up					34


Total Savings operating profit					128


The insured savings operational cash generation represents the expected surplus generated in the period from the in-force investment bonds and pensions business (non profit Savings) which is broadly equivalent to the expected release of profit from non profit savings business using best estimate assumptions and the IFRS profit after tax of the Nationwide Life Savings business and International (Ireland). The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model. Both new business strain and operational cash generation exclude required solvency margin from the liability calculation.


(c) Experience variances

An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:

				Full year
		30.06.12	30.06.11	31.12.11
		£m	£m	£m


Persistency		-	-	(1)
Mortality/morbidity		-	-	2
Expenses		(1)	1	1
Project and development costs1		(10)	(4)	(12)
Tax		1	(1)	(4)
Other		(5)	1	2


		(15)	(3)	(12)


1. The H1 12 project and development costs related to auto-enrolment £3m (H1 11: £2m; FY 11: £7m), expenditure on distribution channel enhancements £4m (H1 11: £nil; FY 11: £2m) and other costs of £3m (H1 11: £2m; FY 11: £3m).

(d) Changes to valuation assumptions
				Full year
		30.06.12	30.06.11	31.12.11
		£m	£m	£m


Persistency		-	-	(2)
Mortality/morbidity		-	-	1
Expenses		-	1	(2)
Other		2	2	(2)


		2	3	(5)



(e) Movements in non-cash items
				Full year
		30.06.12	30.06.11	31.12.11
	Notes	£m	£m	£m


Deferred tax		6	(9)	(6)
Deferred acquisition costs (DAC)1	2.02(f)	(5)	(25)	(20)
Deferred income liabilities (DIL)1		7	28	27
Other		8	(2)	5


		16	(8)	6


1. Fluctuations to the DAC and DIL movement are caused by changes to ecomomic assumptions and the associated impact on the trail commission asset within the DAC balance and the trail commission liability in the DIL balance.


(f) Deferred acquisition cost movement, net of associated deferred tax

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


As at 1 January	592	612	612
Amortisation through income1	(36)	(50)	(74)
Acquisition costs deferred	31	25	54


As at 30 June / 31 December	587	587	592


1. Variations to the level of amortisation of the DAC are caused by changes to economic assumptions and the associated impact on the trail commission asset. This is offset by a similar movement in the DIL liability.

The Group's balance sheet deferred acquisition costs of £1.9bn (H1 11: £1.8bn; FY11: £1.8bn) is presented gross of associated deferred tax. The main contributors to the balance are LGA £0.8bn (H1 11: £0.8bn; FY 11: £0.7bn), non profit savings of £0.7bn (H1 11: £0.7bn; FY 11: £0.7bn), retail investments £0.1bn (H1 11: £0.1bn; FY 11: £0.1bn), savings with-profit £0.1bn (H1 11: £0.1bn; FY 11: £0.1bn) and other business totalling £0.2bn (H1 11: £0.1bn; FY 11: £0.2bn).

Expected amortisation profile:
			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Expected to be amortised within one year	68	66	65
Expected to be amortised between one year and five years	286	273	271
Expected to be amortised in over five years	233	248	256


	587	587	592

2.03 Investment management

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Pension funds (managed and segregated)	89	87	172
Other non-pension1	11	12	25
Investment management services for internal funds	19	18	37


Total Investment management operating profit	119	117	234


1. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £3m (H1 11: £5m; FY 11: £9m) on an average asset balance of £0.4bn (H1 11: £0.4bn; FY 11: £0.4bn) has been included within other non-pension operating profit.

Supplementary Operating profit information

2.04 International

			Full year
	30.06.12	30.06.11	31.12.11
		Restated1	Restated1
	£m	£m	£m



USA (LGA)	51	48	101


Netherlands (LGN)	9	6	21
France (LGF)	8	12	20


Total Europe operating profit	17	18	41
Other2	(4)	(2)	(8)


Total International operating profit3	64	64	134


1. LGA operating profit has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this restatement are outlined in Note 2.08.
2. Other includes our joint venture operations in Egypt, the Gulf, India and divisional overhead costs of £3m (H1 11: £2m; FY 11: £5m).
3. In the period, the International division paid £39m (H1 11: £35m; FY 11: £51m) of sustainable dividends to the Group, which has been included in net cash generation.

Exchange rates are provided in Note 2.18.

2.05 Group capital and financing

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Investment return1	84	102	191
Interest expense2	(63)	(62)	(123)
Investment expenses	(3)	(2)	(5)
Unallocated corporate expenses	(5)	(5)	(11)


Total Group capital and financing operating profit	13	33	52


1. Operating profit and operational cash generation for the group capital and financing segment includes lower assumed returns on cash and LIBOR benchmarked bonds as reported in the FY 11 results. This has been applied to the H1 11 operating profit and cash generation comparatives as if these changes had been in effect since 1 January 2011. The impact was to reduce H1 11 operating profit by £28m and operational cash generation by £21m. There is no impact on IFRS profit before tax from these changes.
2. Interest expense excludes interest on non recourse financing (see Note 2.16).

Supplementary Operating profit information

2.06 Variation from longer term investment return

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Risk1	5	15	172
Savings	4	4	13
Investment management	(2)	(3)	(7)
International2	13	4	(21)
GCF asset related3	(5)	(21)	(159)


Asset related investment variances	15	(1)	(2)


Savings other investment variance	(10)	(6)	(47)
Treasury related	(9)	(17)	(68)
Defined benefit pension scheme4	10	3	20


Other investment variances	(9)	(20)	(95)


Total variation from longer term investment return	6	(21)	(97)


1. The risk investment variance continues to reflect our asset management expertise which focuses on enhancing the risk adjusted yield on the annuity portfolio. There were no defaults during the period and the assets and liabilities continue to be well matched.
2. The current year international investment variance of £13m principally arose in LGN, and partially reverses the £(21)m adverse variance in 2011, which was caused by temporary timing differences in the valuation of the assets against the liabilities on the index linked margin business and fluctuations in the value of assets backing shareholder funds. The variance is broadly neutral over the longer term.
3. The H1 11 comparative for GCF investment variance has been amended to reflect the reduction in the smoothed return for cash and LIBOR benchmarked bonds.
4. The defined benefit pension scheme investment variance includes the actuarial gains and losses and valuation difference arising on annuity assets held by the defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited.

2.07 Analysis of tax attributable to equity holders


	Profit/	Tax		Profit/		Tax		Profit/		Tax
	(loss)	(exp-		(loss)		(exp-		(loss)		(exp-
	before	ense)/		before		ense)/		before		ense)/
	tax	credit		tax		credit		tax		credit
								Full year		Full year
	30.06.12	30.06.12		30.06.11		30.06.11		31.12.11		31.12.11
				Restated1		Restated1		Restated1		Restated1
	£m	£m		£m		£m		£m		£m


Risk	272	(67)		236		(63)		561		(150)
Savings	73	(18)		68		(18)		128		(34)
Investment management	119	(22)		117		(26)		234		(45)
International	64	(24)		64		(22)		134		(46)
Group capital and financing	13	(1)		33		(4)		52		(8)
Investment projects	(23)	6		(25)		7		(56)		15


Operating profit/Tax expense	518	(126)		493		(126)		1,053		(268)
Variation from longer term investment return	6	11		(21)		15		(97)		42
Impact of change in UK tax rates	-	(3)		-		(4)		-		(6)
Property gains/(losses) attributable to non-controlling interests	1	-		(1)		-		(3)		-


Profit for the period/Tax expense for the period	525	(118)		471		(115)		953		(232)


1. Operating profit/tax expense has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this restatement are outlined in Note 2.08. As announced in our FY 11 results, the rate used to calculate the smoothed investment return on cash and LIBOR benchmarked bonds has reduced. H1 11 has been amended to reflect this change, as outlined in Note 2.05.

The equity holders' effective tax rate for the period is 22.5% (H1 11: 24.4%; FY 11: 24.3%). This is mainly due to a number of standard differences between the measurement of accounting profit and taxable profit, such as non-taxable dividends. In addition, there are some current period issues such as previously unrecognised deferred tax assets which have been brought into account. Consolidated Income Statement For the six months ended 30 June 2012
									Full year
					30.06.12		30.06.11		31.12.11
							Restated		Restated
			Notes		£m		£m		£m


Revenue
Gross written premiums			2.10		2,321		2,382		5,719
Outward reinsurance premiums					(352)		(291)		(620)
Net change in provision for unearned premiums					(16)		(13)		(18)


Net premiums earned					1,953		2,078		5,081
Fees from fund management and investment contracts					433		463		897
Investment return					9,468		7,738		12,143
Operational income					135		88		196


Total revenue					11,989		10,367		18,317


Expenses
Claims and change in insurance liabilities					3,310		2,607		7,173
Reinsurance recoveries					(482)		(275)		(493)


Net claims and change in insurance liabilities					2,828		2,332		6,680
Change in provisions for investment contract liabilities					7,597		6,729		9,306
Acquisition costs					405		395		783
Finance costs					75		77		165
Other expenses					507		462		1,010
Transfers from unallocated divisible surplus					(23)		(137)		(402)


Total expenses					11,389		9,858		17,542


Profit before tax					600		509		775
Tax (expense)/income attributable to policyholder returns					(75)		(38)		178


Profit before tax attributable to equity holders of the Company					525		471		953


Total tax expense					(193)		(153)		(54)
Tax expense/(income) attributable to policyholder returns					75		38		(178)


Tax expense attributable to equity holders			2.07		(118)		(115)		(232)


Profit for the period					407		356		721



Attributable to:
Non-controlling interests					1		(1)		(3)
Equity holders of the Company					406		357		724



Dividend distributions to equity holders of the Company during the period			2.14		278		201		298
Dividend distributions to equity holders of the Company proposed after the period end			2.14		116		97		279



							Restated		Restated
					p		p		p


Earnings per share
Based on profit attributable to equity holders of the Company			2.11		6.96		6.13		12.42


Diluted earnings per share
Based on profit attributable to equity holders of the Company			2.11		6.85		6.03		12.22

This financial information was approved by the Board on 6 August 2012.

The results for the six months to 30 June 2012 and 30 June 2011 are unaudited, but have been subject to a review by the Group's independent auditors and constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. They have been prepared on a basis which is consistent with the consolidated Group financial statements approved on 13 March 2012 which have been filed with the Registrar of Companies, except in relation to US deferred acquisition costs, as outlined in Note 2.08. The published full year 2011 consolidated Group financial statements prepared under IFRS included an independent auditors' report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under Chapter 3 of Part 16 of the Companies Act 2006.

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

			Full year
	30.06.12	30.06.11	31.12.11
		Restated	Restated
	£m	£m	£m


Profit for the period	407	356	721

Other comprehensive income after tax
Exchange differences on translation of overseas operations	(9)	(3)	-
Actuarial (losses) on defined benefit pension schemes	(71)	(3)	(121)
Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus	29	1	48
Net change in financial investments designated as available-for-sale	15	14	15


Total comprehensive income for the period	371	365	663



Total comprehensive income/(expense) attributable to:
Non-controlling interests	1	(1)	(3)
Equity holders of the Company	370	366	666

Consolidated Balance Sheet

As at 30 June 2012

					30.06.12	30.06.11	31.12.11	31.12.10
						Restated	Restated	Restated
				Notes	£m	£m	£m	£m


Assets
Purchased interest in long term businesses and other intangible assets					150	145	148	157
Deferred acquisition costs					1,864	1,771	1,833	1,775
Investment in associates					60	57	60	57
Plant and equipment					77	66	78	64
Investment property					5,087	4,758	4,894	4,571
Financial investments				2.13	303,272	302,303	300,604	299,570
Reinsurers' share of contract liabilities					2,474	2,359	2,289	2,336
Deferred tax asset					478	477	493	495
Current tax recoverable					80	-	94	-
Other assets					2,565	2,655	1,893	1,587
Cash and cash equivalents					16,757	12,358	14,113	13,036


Total assets					332,864	326,949	326,499	323,648



Equity
Share capital					148	147	147	147
Share premium					953	940	941	938
Employee scheme treasury shares					(44)	(45)	(48)	(41)
Capital redemption and other reserves					130	103	117	91
Retained earnings					3,970	3,703	3,899	3,546


Shareholders' equity					5,157	4,848	5,056	4,681
Non-controlling interests					67	49	66	47


Total equity					5,224	4,897	5,122	4,728



Liabilities
Subordinated borrowings				2.16	1,886	1,915	1,921	1,897

Participating insurance contracts					8,506	9,131	8,750	9,383
Participating investment contracts					7,229	7,471	7,276	7,323
Unallocated divisible surplus					966	1,330	1,038	1,469
Value of in-force non-participating contracts					(206)	(345)	(242)	(377)


Participating contract liabilities					16,495	17,587	16,822	17,798



Non-participating insurance contracts					34,786	31,897	34,006	31,325
Non-participating investment contracts					254,768	255,721	251,345	253,426


Non-participating contract liabilities					289,554	287,618	285,351	284,751


Senior borrowings				2.16	1,376	1,324	1,329	1,435
Provisions					968	737	891	761
Deferred tax liabilities					359	300	327	277
Current tax liabilities					1	78	1	111
Payables and other financial liabilities					8,335	6,126	7,643	5,473
Other liabilities					857	830	933	954
Net asset value attributable to unit holders					7,809	5,537	6,159	5,463


Total liabilities					327,640	322,052	321,377	318,920


Total equity and liabilities					332,864	326,949	326,499	323,648


Condensed Consolidated Statement of Changes in Equity

			Employee	Capital
			scheme	redemption			Non-
	Share	Share	treasury	and other	Retained		controlling	Total
	capital	premium	shares	reserves	earnings	Total	interests	equity
For the six months ended 30 June 2012	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January 2012	147	941	(48)	117	3,899	5,056	66	5,122
Total comprehensive income
for the period	-	-	-	6	364	370	1	371
Options exercised under
share option schemes:	1	12	-	-	-	13	-	13
Net movement in employee scheme
treasury shares	-	-	4	(3)	(5)	(4)	-	(4)
Dividends	-	-	-	-	(278)	(278)	-	(278)
Currency translation differences	-	-	-	10	(10)	-	-	-


As at 30 June 2012	148	953	(44)	130	3,970	5,157	67	5,224


For the six months ended 30 June 2011 (Restated)


As at 1 January 2011	147	938	(41)	91	3,546	4,681	47	4,728
Total comprehensive income/(expense)
for the period	-	-	-	11	355	366	(1)	365
Options exercised under
share option schemes	-	2	-	-	-	2	-	2
Net movement in employee scheme
treasury shares	-	-	(4)	2	2	-	-	-
Dividends	-	-	-	-	(201)	(201)	-	(201)
Movement in third party interests	-	-	-	-	-	-	3	3
Currency translation differences	-	-	-	(1)	1	-	-	-


As at 30 June 2011	147	940	(45)	103	3,703	4,848	49	4,897




For the year ended 31 December 2011 (Restated)


As at 1 January 2011	147	938	(41)	91	3,546	4,681	47	4,728
Total comprehensive income/(expense)
for the year	-	-	-	15	651	666	(3)	663
Options exercised under
share option schemes	-	3	-	-	-	3	-	3
Net movement in employee scheme
treasury shares	-	-	(7)	8	3	4	-	4
Dividends	-	-	-	-	(298)	(298)	-	(298)
Movement in third party interests	-	-	-	-	-	-	22	22
Currency translation differences	-	-	-	3	(3)	-	-	-


As at 31 December 2011	147	941	(48)	117	3,899	5,056	66	5,122

Consolidated Cash Flow Statement

For the six months ended 30 June 2012

			Full year
	30.06.12	30.06.11	31.12.11
		Restated	Restated
	£m	£m	£m


Cash flows from operating activities
Profit for the period	407	356	721
Adjustments for non cash movements in net profit for the period
Realised and unrealised gains on financial investments and investment properties	(3,904)	(3,023)	(3,014)
Investment income	(5,135)	(4,604)	(8,971)
Interest expense	75	77	165
Tax expense	193	153	54
Other adjustments	30	31	68
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss	(882)	(2,004)	3,736
Investments designated as available-for-sale	(28)	45	(29)
Other assets	108	(679)	(1,678)
Net increase in operational liabilities
Insurance contracts	623	245	2,075
Transfer from unallocated divisible surplus	(71)	(139)	(431)
Investment contracts	3,450	4,269	(2,068)
Value of in-force non-participating contracts	36	32	135
Other liabilities	3,127	672	2,243


Cash used in operations	(1,971)	(4,569)	(6,994)
Interest paid	(74)	(77)	(164)
Interest received	2,529	2,498	5,021
Tax paid1	(115)	(140)	(193)
Dividends received	2,477	1,937	3,872


Net cash flows from operating activities	2,846	(351)	1,542


Cash flows from investing activities
Net acquisition of plant and equipment	(4)	(9)	(26)
Acquisitions (net of cash acquired)2	-	-	(11)
Capital injection into overseas joint ventures	-	-	(5)


Net cash flows from investing activities	(4)	(9)	(42)


Cash flows from financing activities
Dividend distributions to ordinary equity holders of the Company during the period	(278)	(201)	(298)
Proceeds from issue of ordinary share capital	13	2	3
Purchase of employee scheme shares	(4)	(9)	(15)
Proceeds from borrowings	639	713	1,327
Repayment of borrowings	(560)	(819)	(1,428)


Net cash flows from financing activities	(190)	(314)	(411)


Net increase in cash and cash equivalents	2,652	(674)	1,089
Exchange losses on cash and cash equivalents	(8)	(4)	(12)
Cash and cash equivalents at 1 January	14,113	13,036	13,036


Cash and cash equivalents at 30 June / 31 December	16,757	12,358	14,113


1. Tax comprises UK corporation tax paid of £24m (H1 11: £45m; FY 11: £80m) and overseas withholding tax of £91m (H1 11: £95m; FY 11: £113m).
2. Net cash flows from acquisitions include total net identifiable assets acquired of £nil (H1 11: £nil; FY 11: £15m) less cash and cash equivalents acquired of £nil (H1 11 £nil; FY 11: £4m).

The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.

Notes to the Financial Statements

2.08 Basis of Preparation

The Group's financial information for the period ended 30 June 2012 has been prepared in accordance with the Listing Rules of the Financial Services Authority. The 2012 Half-year report has also been prepared in accordance with IAS 34, 'Interim Financial Reporting'. The Group's financial information has been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2012 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2011 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union, except in relation to US deferred acquisition costs, as explained below.

The preparation of the Half-year 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 2011 financial statements except for the changes outlined in sections 2.01(d) and 2.02(d).

There has been no impact from the adoption of other IFRSs and interpretations that have come into force during the period.

Change to accounting policy - US Deferred Acquisition Costs

During 2012, the Group has changed its accounting policy for deferred acquisition costs in the US. This follows the FASB's pronouncement on deferral methodology, applying to reporting periods starting after 15 December 2011. This has been applied to IFRS as an improvement in accounting policy, as allowed under IFRS 4, 'Insurance Contracts'.

In October 2010, the Emerging Issues Task Force of the US Financial Accounting Standards Board issued Update 2010-26 on 'Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts'. Under US GAAP, costs that can be deferred and amortised are those that 'vary with and are primarily related to the acquisition of insurance contracts'. The Update requires insurers to capitalise only those incremental costs directly related to acquiring a contract, charging all other indirect acquisition expenses to the income statement as incurred. The main impact of the update is therefore to disallow insurers from deferring indirect acquisition costs and those costs relating to unsuccessful sales.

We currently apply US GAAP to value the insurance assets and liabilities of our US operations, as allowed under IFRS 4 'Insurance Contracts'. As a result of the FASB's pronouncement we are applying the change in deferral methodology for our US business for Deferred Acquisition Costs retrospectively, restating the comparatives as required under IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors'.

The impact of this change upon the 2011 interim and annual income statements and statements of comprehensive income, together with the balance sheet at 30 June 2011, 31 December 2011 and 31 December 2010 is shown below.

		Change in US			Change in US
	As reported	DAC treatment	Restated	As reported	DAC treatment	Restated
	30.06.11	30.06.11	30.06.11	31.12.11	31.12.11	31.12.11
Consolidated Income Statement	£m	£m	£m	£m	£m	£m


Acquisition costs	393	2	395	780	3	783
Profit before tax	511	(2)	509	778	(3)	775
Tax expense	(153)	-	(153)	(55)	1	(54)
Profit for the period	358	(2)	356	723	(2)	721


Consolidated Statement of Comprehensive Income

Exchange differences on translation of overseas operations	(7)	4	(3)	1	(1)	-
Net change in financial investments designated as available-for-sale	9	5	14	10	5	15
Total comprehensive income for the period	358	7	365	661	2	663

The restatement of US DAC reduces operating profit by £2m for the 6 months ended 30 June 2011 and £3m for the 12 months ended 31 December 2011.

		Change in US			Change in US
	As reported	DAC treatment	Restated	As reported	DAC treatment	Restated
	30.06.11	30.06.11	30.06.11	31.12.11	31.12.11	31.12.11
Balance Sheet	£m	£m	£m	£m	£m	£m


Assets
Deferred acquisition costs	1,983	(212)	1,771	2,053	(220)	1,833
Equity
Capital redemption and other reserves	88	15	103	101	16	117
Retained earnings	3,857	(154)	3,703	4,059	(160)	3,899
Liabilities
Deferred tax liabilities	373	(73)	300	403	(76)	327


					Change in US
				As reported	DAC treatment	Restated
				31.12.10	31.12.10	31.12.10
Balance Sheet				£m	£m	£m


Assets
Deferred acquisition costs				2,000	(225)	1,775
Equity
Capital redemption and other reserves				79	12	91
Retained earnings				3,704	(158)	3,546
Liabilities
Deferred tax liabilities				356	(79)	277

2.09 Segmental Analysis

Reportable segments

The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.

The Risk segment comprises individual and group protection, individual and bulk purchase annuities, longevity and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.

The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, retail platform businesses, and all with-profits products.

The Investment management segment comprises institutional fund management and LGIM America (LGIMA).

The International segment comprises Legal & General America (LGA), Legal & General France (LGF), Legal & General Netherlands (LGN) as well as our joint ventures in emerging markets.

Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within Group capital and financing. This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.

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

The Group assesses performance and allocates resources on the basis of IFRS supplementary operating profit before tax. Segmental IFRS supplementary operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax.


(a) Operating profit/(loss)
					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing1	Total
For the six months ended 30 June 2012	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	272	73	119	64	(10)	518
Variation from longer term investment return2	5	(6)	(2)	13	(4)	6
Property gains attributable to non-controlling interests	-	-	-	-	1	1


Profit/(loss) from continuing operations before tax	277	67	117	77	(13)	525
Tax (expense)/credit attributable to equity holders
of the Company	(68)	(15)	(22)	(27)	14	(118)


Profit for the period after tax	209	52	95	50	1	407


1. For segmental purposes, Investment projects of £23m (H1 11: £25m; FY 11: £56m) have been included in Group capital and financing.
2. Additional information concerning the Variation from longer term investment return is provided in Note 2.06.

					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing1	Total
For the six months ended 30 June 2011 (Restated)	£m	£m	£m	£m	£m	£m


Operating profit	236	68	117	64	8	493
Variation from longer term investment return	15	(2)	(3)	4	(35)	(21)
Property losses attributable to non-controlling interests	-	-	-	-	(1)	(1)


Profit/(loss) from continuing operations before tax	251	66	114	68	(28)	471
Tax (expense)/credit attributable to equity holders
of the Company	(65)	(16)	(25)	(24)	15	(115)


Profit/(loss) for the period after tax	186	50	89	44	(13)	356




					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing1	Total
For the year ended 31 December 2011 (Restated)	£m	£m	£m	£m	£m	£m


Operating profit/(loss)	561	128	234	134	(4)	1,053
Variation from longer term investment return	172	(34)	(7)	(21)	(207)	(97)
Property losses attributable to non-controlling interests	-	-	-	-	(3)	(3)


Profit/(loss) from continuing operations before tax	733	94	227	113	(214)	953
Tax (expense)/credit attributable to equity holders
of the Company	(193)	(22)	(44)	(40)	67	(232)


Profit/(loss) for the year after tax	540	72	183	73	(147)	721



(b) Revenue
					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing	Total
For the six months ended 30 June 2012	£m	£m	£m	£m	£m	£m


Internal revenue	37	-	75	(20)	(92)	-
External revenue	2,219	2,190	6,695	770	115	11,989


Total revenue	2,256	2,190	6,770	750	23	11,989



For the six months ended 30 June 2011


Internal revenue1	28	-	70	(13)	(85)	-
External revenue	1,864	1,616	6,195	596	96	10,367


Total revenue	1,892	1,616	6,265	583	11	10,367



For the year ended 31 December 2011


Internal revenue1	78	-	145	(50)	(173)	-
External revenue	5,967	1,569	9,447	1,079	255	18,317


Total revenue	6,045	1,569	9,592	1,029	82	18,317


1. The presentation of the LGA Internal Reinsurance Arrangement has been amended to better reflect the actual cash flows between the divisions. This has impacted the Risk and International segments. The intra-segment revenue within the Savings division has been removed from previously reported numbers.

Total revenue includes investment return of £9,468m (H1 11: £7,738m; FY 11: £12,143m).

(c) Consolidated balance sheet
					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing2	Total
As at 30 June 2012	£m	£m	£m	£m	£m	£m


Assets
Investments	31,117	45,943	229,134	6,904	12,078	325,176
Other assets	3,390	3,869	1,428	2,729	(3,728)	7,688


Total assets	34,507	49,812	230,562	9,633	8,350	332,864



Shareholders' equity	168	163	439	1,271	3,116	5,157
Non-controlling interests	-	-	-	-	67	67


Total equity	168	163	439	1,271	3,183	5,224



Liabilities
Subordinated borrowings	-	-	-	-	1,886	1,886
Participating contract liabilities	-	14,032	-	2,463	-	16,495
Non-participating contract liabilities	28,759	33,264	224,813	3,491	(773)	289,554
Senior borrowings1	-	218	5	283	870	1,376
Other liabilities	5,580	2,135	5,305	2,125	3,184	18,329


Total liabilities	34,339	49,649	230,123	8,362	5,167	327,640


Total equity and liabilities	34,507	49,812	230,562	9,633	8,350	332,864


1. Includes non recourse financing.
2. Group capital and financing includes inter-segmental eliminations.


					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing	Total
As at 30 June 2011 (Restated)	£m	£m	£m	£m	£m	£m


Assets
Investments	25,930	47,706	228,788	7,168	9,884	319,476
Other assets	3,048	3,479	1,516	2,675	(3,245)	7,473


Total assets	28,978	51,185	230,304	9,843	6,639	326,949



Shareholders' equity	138	144	409	1,261	2,896	4,848
Non-controlling interests	-	-	-	-	49	49


Total equity	138	144	409	1,261	2,945	4,897



Liabilities
Subordinated borrowings	-	-	-	-	1,915	1,915
Participating contract liabilities	-	14,968	-	2,619	-	17,587
Non-participating contract liabilities	25,444	33,399	225,717	3,710	(652)	287,618
Senior borrowings1	13	278	1	276	756	1,324
Other liabilities	3,383	2,396	4,177	1,977	1,675	13,608


Total liabilities	28,840	51,041	229,895	8,582	3,694	322,052


Total equity and liabilities	28,978	51,185	230,304	9,843	6,639	326,949


1. Includes non recourse financing.
2. Group capital and financing includes inter-segmental eliminations.
					Group
			Invest-		capital
			ment		and
			manage-	Inter-	finan-
	Risk	Savings	ment	national	cing2	Total
As at 31 December 2011 (Restated)	£m	£m	£m	£m	£m	£m


Assets
Investments	30,513	45,605	226,236	6,879	10,438	319,671
Other assets	3,111	3,263	1,115	2,867	(3,528)	6,828


Total assets	33,624	48,868	227,351	9,746	6,910	326,499



Shareholders' equity	154	155	351	1,263	3,133	5,056
Non-controlling interests	-	-	-	-	66	66


Total equity	154	155	351	1,263	3,199	5,122



Liabilities
Subordinated borrowings	-	-	-	-	1,921	1,921
Participating contract liabilities	-	14,402	-	2,421	-	16,823
Non-participating contract liabilities	27,892	32,311	222,342	3,548	(742)	285,351
Senior borrowings1	-	240	-	286	803	1,329
Other liabilities	5,578	1,760	4,658	2,228	1,729	15,953


Total liabilities	33,470	48,713	227,000	8,483	3,711	321,377


Total equity and liabilities	33,624	48,868	227,351	9,746	6,910	326,499


1. Includes non recourse financing.
2. Group capital and financing includes inter-segmental eliminations.

Notes to the Financial Statements

2.10 Gross written premiums on insurance contracts


			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


From continuing operations
Risk
Non-participating Risk business	1,344	1,404	3,778
General insurance
- Household	156	135	283
- Other business	10	11	21


Total Risk	1,510	1,550	4,082

Savings
Non-participating Savings business	21	21	40
Participating business	205	241	488


Total Savings	226	262	528

International
USA (LGA)	288	249	522
Netherlands (LGN)	95	116	194
France (LGF)	202	205	393


Total International	585	570	1,109


Total gross written premiums	2,321	2,382	5,719

2.11 Earnings per share

(a) Earnings per share

	Profit	Tax	Profit	Earnings	Profit	Tax	Profit	Earnings
	before tax	expense	after tax	per share	before tax	expense	after tax	per share
	30.06.12	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11	30.06.11
					Restated	Restated	Restated	Restated
	£m	£m	£m	p	£m	£m	£m	p


Operating profit	518	(126)	392	6.72	493	(126)	367	6.30
Variation from longer term
investment return	6	11	17	0.29	(21)	15	(6)	(0.10)
Impact of change in UK tax rates	-	(3)	(3)	(0.05)	-	(4)	(4)	(0.07)


Earnings per share based on profit
attributable to equity holders	524	(118)	406	6.96	472	(115)	357	6.13




					Profit	Tax	Profit	Earnings
					before tax	expense	after tax	per share
					Full year	Full year	Full year	Full year
					31.12.11	31.12.11	31.12.11	31.12.11
					Restated	Restated	Restated	Restated
					£m	£m	£m	p


Operating profit					1,053	(268)	785	13.47
Variation from longer term
investment return					(97)	42	(55)	(0.94)
Impact of change in UK tax rates					-	(6)	(6)	(0.11)


Earnings per share based on profit
attributable to equity holders					956	(232)	724	12.42


(b) Diluted earnings per share
(i) Based on operating profit after tax

			Profit	Number	Earnings	Profit	Number	Earnings
			after tax	of shares1	per share	after tax	of shares1	per share
			30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11
						Restated		Restated
			£m	m	p	£m	m	p


Operating profit after tax			392	5,832	6.72	367	5,828	6.30
Net shares under options allocable for no further consideration			-	96	(0.11)	-	97	(0.11)


Diluted earnings per share			392	5,928	6.61	367	5,925	6.19




						Profit	Number	Earnings
						after tax	of shares1	per share
						Full year	Full year	Full year
						31.12.11	31.12.11	31.12.11
						Restated		Restated
						£m	m	p


Operating profit after tax						785	5,828	13.47
Net shares under options allocable for no further consideration						-	97	(0.22)


Diluted earnings per share						785	5,925	13.25

(ii) Based on profit attributable to equity holders

	Profit	Number	Earnings	Profit	Number	Earnings
	after tax	of shares1	per share	after tax	of shares1	per share
	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11
				Restated		Restated
	£m	m	p	£m	m	p


Profit attributable to equity holders of the Company	406	5,832	6.96	357	5,828	6.13
Net shares under options allocable for no further consideration	-	96	(0.11)	-	97	(0.10)


Diluted earnings per share	406	5,928	6.85	357	5,925	6.03



				Profit	Number	Earnings
				after tax	of shares1	per share
				Full year	Full year	Full year
				31.12.11	31.12.11	31.12.11
				Restated		Restated
				£m	m	p


Profit attributable to equity holders of the Company				724	5,828	12.42
Net shares under options allocable for no further consideration				-	97	(0.20)


Diluted earnings per share				724	5,925	12.22


1. Weighted average number of shares.

The number of shares in issue at 30 June 2012 was 5,905,704,992 (30 June 2011: 5,870,748,796; 31 December 2011: 5,872,166,893).

2.12 Disclosure of tax effects relating to each component of other comprehensive income

		Tax			Tax
		credited/			credited/
	Before	(charg-	After	Before	(charg-	After
	tax	ed)	tax	tax	ed)	tax
	30.06.12	30.06.12	30.06.12	30.06.11	30.06.11	30.06.11
				Restated	Restated	Restated
	£m	£m	£m	£m	£m	£m


Exchange differences on translation of overseas operations	(9)	-	(9)	(3)	-	(3)
Actuarial (losses)/gains on defined benefit pension schemes	(87)	16	(71)	(5)	2	(3)
Actuarial losses/(gains) on defined benefit pension schemes
transferred to unallocated divisible surplus	35	(6)	29	2	(1)	1
Net change in financial investments
designated as available-for-sale	22	(7)	15	18	(4)	14


Other comprehensive income	(39)	3	(36)	12	(3)	9



					Tax
					credited/
				Before	(charg-	After
				tax	ed)	tax
				Full year	Full year	Full year
				31.12.11	31.12.11	31.12.11
				Restated	Restated	Restated
				£m	£m	£m


Exchange differences on translation of overseas operations				-	-	-
Actuarial (losses)/gains on defined benefit pension schemes				(136)	15	(121)
Actuarial losses/(gains) on defined benefit pension schemes
transferred to unallocated divisible surplus				54	(6)	48
Net change in financial investments
designated as available-for-sale				21	(6)	15


Other comprehensive income				(61)	3	(58)

2.13 Financial investments

			Full Year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Equities	138,443	146,711	134,594
Unit trusts	6,876	7,782	7,487
Debt securities1	149,544	142,124	149,711
Accrued interest	1,595	1,636	1,705
Derivative assets2	6,475	3,753	6,756
Loans and receivables	339	297	351


	303,272	302,303	300,604


There have been no significant transfers between levels 1, 2 and 3 of the fair value hierarchy (as prescribed in IFRS 7 'Financial Instruments: Disclosures') for the six months ended 30 June 2012. Further details are provided in Note 4.07.

1. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.02.
2. Derivative exposures arise from efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps, foreign exchange forward contracts for asset and liability management and the matching of Guaranteed Equity Bonds within the Nationwide portfolio. Derivative assets are shown gross of derivative liabilities and include £3,128m (H1 11: £2,112m; FY 11: £3,174m) held on behalf of unit linked policyholders.

2.14 Dividends


	Per		Per		Per
	share	Total	share	Total	share	Total
					Full year	Full year
	30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
	p	£m	p	£m	p	£m


Ordinary share dividends paid in the period
- Prior year final dividend	4.74	278	3.42	201	3.42	201
- Current year interim dividend	-	-	-	-	1.66	97


	4.74	278	3.42	201	5.08	298


Ordinary share dividend proposed1	1.96	116	1.66	97	4.74	279



1. The dividend proposed has not been included as a liability in the balance sheet.

2.15 Ordinary shares

	Number of	Number of	Number of
	shares	shares	shares
			Full year
	30.06.12	30.06.11	31.12.11


As at 1 January	5,872,166,893	5,866,669,323	5,866,669,323
Options exercised under share option schemes
- Executive share option scheme	1,077,517	1,181,589	1,736,890
- Savings related share option scheme	32,460,582	2,897,884	3,760,680


As at 30 June / 31 December	5,905,704,992	5,870,748,796	5,872,166,893


There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.

The holders of the Company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.

2.16 Borrowings

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)	711	691	721
5.875% Sterling undated subordinated notes (Tier 2)	420	422	421
4.0% Euro subordinated notes 2025 (Tier 2)	462	508	483
10% Sterling subordinated notes 2041 (Tier 2)	309	308	309
Client fund holdings of Group debt1	(16)	(14)	(13)


Total subordinated borrowings	1,886	1,915	1,921



Senior borrowings
Sterling medium term notes 2031-2041	602	602	608
Euro Commercial paper	320	204	246
Bank loans/other	13	72	8
Client fund holdings of Group debt1	(52)	(51)	(51)


Total senior borrowings (excluding non recourse)	883	827	811


Total borrowings (excluding non recourse)	2,769	2,742	2,732



Non recourse
- US Dollar Triple X securitisation 2037	283	276	286
- Suffolk Life unit linked borrowings	123	136	136
- LGV 6/LGV 7 Private Equity Fund Limited Partnership	87	85	96


Total senior borrowings (including non recourse)	1,376	1,324	1,329


Total borrowings	3,262	3,239	3,250


1. £68m (H1 11: £65m; FY 11: £64m) of the Group's subordinated and senior debt is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the tables above.

Subordinated borrowings

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

4.0% Euro subordinated notes 2025

In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.

10% Sterling subordinated notes 2041

On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.

Non recourse financing

US Dollar Triple X securitisation 2037

In 2006, a subsidiary of LGA issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.

Suffolk Life unit linked borrowings

These borrowings relate solely to client investments.

LGV6/LGV7 Private Equity Fund Limited Partnership

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 30 June 2012, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in October 2016. This facility which was entered into in October 2011 replaces syndicated and bilateral facilities totalling £1.02bn which had been due to expire in December 2012. No drawings were made under this facility in 2012 to date.

Holding company short term assets

Short term assets available at the holding company level exceeded the amount of short term borrowings of £333m (H1 11: £276m; FY 11: £254m). They comprise Euro Commercial Paper and Bank Loans.

2.17 Non-controlling interests

Non-controlling interests represent third party interests in private equity and property investment vehicles which are consolidated in the Group's results. The increase in the non-controlling interests in 2012 arises from investment by third party interests in the UK Property Ungeared Fund Limited Partnership. The Group's ownership remains above 50%.

2.18 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	At 30.06.12	At 30.06.11	At 31.12.11


United States Dollar	1.57	1.61	1.55
Euro	1.24	1.11	1.20



	01.01.12 -	01.01.11 -	01.01.11 -
Average exchange rates	30.06.12	30.06.11	31.12.11


United States Dollar	1.58	1.62	1.60
Euro	1.22	1.15	1.15

2.19 Related party transactions
There were no material transactions between key management and the Legal & General group of companies. All transactions between the Group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £30m (H1 11: £54m; FY 11: £60m), for all employees.

At 30 June 2012, 30 June 2011 and 31 December 2011 there were no loans outstanding to officers of the Company.

Key management personnel compensation
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Salaries	3	2	7
Social security costs	1	-	1
Post-employment benefits	-	1	1
Share-based incentive awards	2	1	4


Key management personnel compensation	6	4	13


Number of key management personnel	18	17	18

The UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £19m (H1 11: £14m; FY 11: £58m) during the period, priced on an arm's length basis.
The Group's investment portfolio includes investments in venture capital, property and financial investments which are held via collective investment vehicles. Net investments into associate investment vehicles totalled £578m during the period (H1 11: £1,161m; FY 11: £1,286m). The Group has outstanding loans to these associates of £1m (H1 11: £7m; FY 11: £5m) and received investment management fees of £13m during the year (H1 11: £15m; FY 11: £29m). Distributions from these investment vehicles to the Group totalled £28m (H1 11: £29m; FY 11: £58m).

During the period, the Group paid platform hosting fees to Cofunds (Holdings) Limited, a 25% owned associate, of £8m (H1 11: £4m; FY 11: £10m). Creditors outstanding at the end of the period were £3m (H1 11: £3m; FY 11: £3m).

2.20 Pension cost

The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2012, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £258m (H1 11: £153m; FY 11: £215m). These amounts have been recognised in the financial statements with £153m charged against shareholder equity (H1 11: £91m; FY 11: £128m) and £105m against the unallocated divisible surplus (H1 11: £62m; FY 11: £87m).

2.21 Contingent liabilities, guarantees and indemnities

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

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

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

Group companies have given indemnities and guarantees as a normal part of their business and operating activities or in relation to capital market transactions. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities of Group companies in support of their business activities, including Pension Protection Fund compliant guarantees in respect of certain Group companies' liabilities under the Group pension fund and scheme.

Independent review report to Legal & General Group plc - IFRS

Introduction

We have been engaged by the company to review the consolidated interim financial information in the Half-year report for the six months ended 30 June 2012, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and related notes on pages 47 to 64. We have read the other information contained in the Half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the consolidated interim financial information.

Directors' responsibilities

The Half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2.08, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The consolidated interim financial information included in this Half-year report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the consolidated interim financial information in the Half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial information in the Half-year report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

6 August 2012

Notes:

(a) The consolidated interim financial information is published on the website of Legal & General Group Plc, legalandgeneralgroup.com. The maintenance and integrity of the Legal & General Group Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Half-year report since it was initially presented on the web site.

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

Net Cash and Capital

3.01 Operational cash generation

Operating profit and operational cash generation for the group capital and financing segment includes lower assumed returns on cash and LIBOR benchmarked bonds as reported in the FY 11 results. This has been applied to the H1 11 operating profit and cash generation comparatives as if these changes had been in effect since 1 January 2011. The impact was to reduce H1 11 operating profit by £28m and operational cash generation by £21m.
The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to profit after tax.
							Investment
	Opera-				Changes		gains and			IFRS
	tional	New		Exper-	in		losses,	IFRS	Tax	profit/
	cash	busi-		ience	valuation	Non-	inter-	profit/	exp-	(loss)
	gene-	ness	Net	var-	assump-	cash	national	(loss)	ense/	before
For the six months ended	ration	strain	cash	iances	tions	items	and other	after tax	(credit)	tax
30 June 2012	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


Total Risk operating profit	235	(32)	203	6	18	(22)	-	205	67	272
Total Savings
operating profit	88	(32)	56	(15)	2	16	(4)	55	18	73
Investment management
operating profit	97	-	97	-	-	-	-	97	22	119
International	39	-	39	-	-	-	1	40	24	64
Group capital and financing	12	-	12	-	-	-	-	12	1	13
Investment projects	-	-	-	-	-	-	(17)	(17)	(6)	(23)


Operating profit	471	(64)	407	(9)	20	(6)	(20)	392	126	518


Investment variance	-	-	-	-	-	-	17	17	(11)	6
Impact of change
in UK tax rates	-	-	-	-	-	-	(3)	(3)	3	-
Property gains attributable
to non-controlling interests	-	-	-	-	-	-	1	1	-	1


Total	471	(64)	407	(9)	20	(6)	(5)	407	118	525


							Investment
	Opera-				Changes		gains and			IFRS
	tional	New		Exper-	in		losses,	IFRS	Tax	profit/
	cash	busi-		ience	valuation	Non-	inter-	profit/	exp-	(loss)
	gene-	ness	Net	var-	assump-	cash	national	(loss)	ense/	before
For the six months ended	ration	strain	cash	iances	tions	items	and other	after tax	(credit)	tax
30 June 2011 (Restated)	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


Total Risk operating profit	233	(40)	193	(7)	30	(43)	-	173	63	236
Total Savings
operating profit	89	(31)	58	(3)	3	(8)	-	50	18	68
Investment management								-
operating profit	91	-	91	-	-	-	-	91	26	117
International	35	-	35	-	-	-	7	42	22	64
Group capital and financing	29	-	29	-	-	-	-	29	4	33
Investment projects	-	-	-	-	-	-	(18)	(18)	(7)	(25)


Operating profit	477	(71)	406	(10)	33	(51)	(11)	367	126	493


Investment variance	-	-	-	-	-	-	(6)	(6)	(15)	(21)
Impact of change
in UK tax rates	-	-	-	-	-	-	(4)	(4)	4	-
Property losses attributable
to non-controlling interests	-	-	-	-	-	-	(1)	(1)	-	(1)


Total	477	(71)	406	(10)	33	(51)	(22)	356	115	471

							Investment
	Opera-				Changes		gains and						IFRS
	tional	New		Exper-	in		losses,		IFRS		Tax		profit/
	cash	busi-		ience	valuation	Non-	inter-		profit/		exp-		(loss)
For the year ended	gene-	ness	Net	var-	assump-	cash	national		(loss)		ense/		before
31 December 2011	ration	strain	cash	iances	tions	items	and other		after tax		(credit)		tax
(Restated)	£m	£m	£m	£m	£m	£m	£m		£m		£m		£m


Total Risk operating profit	482	(31)	451	22	24	(86)	-		411		150		561
Total Savings
operating profit	174	(63)	111	(12)	(5)	6	(6)		94		34		128
Investment management									-
operating profit	189	-	189	-	-	-	-		189		45		234
International	51	-	51	-	-	-	37		88		46		134
Group capital and financing	44	-	44	-	-	-	-		44		8		52
Investment projects	-	-	-	-	-	-	(41)		(41)		(15)		(56)


Operating profit	940	(94)	846	10	19	(80)	(10)		785		268		1,053


Investment variance	-	-	-	-	-	-	(55)		(55)		(42)		(97)
Impact of change
in UK tax rates	-	-	-	-	-	-	(6)		(6)		6		-
Property losses attributable
to non-controlling interests	-	-	-	-	-	-	(3)		(3)		-		(3)


Total	940	(94)	846	10	19	(80)	(74)		721		232		953


3.02 Regulatory capital resources
(a) Insurance Group's Directive (IGD)
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates. At Group level, Legal & General must comply with the requirements of the IGD. The table below shows the estimated total Group capital resources, Group capital resources requirement and the Group surplus.

								At		At		At
								30.06.12		30.06.11		31.12.11
										Restated1		Restated1
								£bn		£bn		£bn


Core tier 1								5.9		6.0		5.9
Innovative tier 1								0.6		0.6		0.6
Upper tier 2								0.4		0.4		0.4
Lower tier 2								0.8		0.8		0.8
Deductions2								(0.8)		(0.9)		(0.8)


Group capital resources								6.9		6.9		6.9


Group capital resources requirement3								3.1		2.9		3.1


IGD surplus								3.8		4.0		3.8



Coverage ratio (Group capital resources /								2.24		2.38		2.20
Group capital resources requirement)4								times		times		times


1. Group capital resources has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this restatement are outlined in Note 2.08. There is no impact on total Group capital resources as a result of this change.
2. Deductions comprises inadmissible assets in LGA of £0.5bn (H1 11: £0.6bn; FY 11: £0.6bn), in Society of £0.1bn (H1 11: £0.1bn; FY 11: £0.1bn) and in other Group companies of £0.2bn (H1 11: £0.2bn; FY 11: 0.1bn).
3. The Group capital resources requirement includes a With-profits Insurance Capital Component (WPICC) of £0.3bn (H1 11: £0.2bn; FY 11: £0.4bn). 4. Coverage ratio is calculated on unrounded values.

A segmental analysis is given below.
								At		At		At
								30.06.12		30.06.11		31.12.11
								£bn		£bn		£bn


Society long term fund1								2.6		2.5		2.8
Society shareholder capital								2.7		2.7		2.4
General insurance								0.1		0.1		0.1
France (LGF)								0.3		0.2		0.2
Netherlands (LGN)								0.1		0.2		0.1
Nationwide Life								-		0.1		0.1
USA (LGA)								0.1		0.2		0.2
Investment management								0.4		0.4		0.3
Other2								1.5		1.4		1.5
Innovative tier 1								0.6		0.6		0.6
Tier 2								1.2		1.2		1.2
Debt								(2.7)		(2.7)		(2.6)


Group capital resources								6.9		6.9		6.9


Society long term fund1								2.7		2.5		2.8
Other								0.4		0.4		0.3


Group capital resources requirement								3.1		2.9		3.1


1. The Society LTF capital requirement of £2.7bn (H1 11: £2.5bn; FY 11: £2.8bn) is met by £2.6bn H1 11: £2.8bn; FY 11: £2.8bn) of capital resources in the LTF and £0.1bn (H1 11: £nil; FY 11: £nil) of capital outside the LTF. 2. Other includes corporate assets held within the Group's treasury function.



A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.

				At	At	At
				30.06.12	30.06.11	31.12.11
					Restated	Restated
				£bn	£bn	£bn


Capital and reserves attributable to equity holders on an IFRS basis				5.2	4.8	5.1
Innovative tier 1				0.6	0.6	0.6
Tier 2				1.2	1.2	1.2
Proposed dividends				(0.1)	(0.1)	(0.3)
Additional capital available from Society				0.6	1.0	0.9
Adjustment to reflect regulatory value of the LGA operation				(0.5)	(0.6)	(0.6)
Other regulatory adjustments				(0.1)	-	-


Group capital resources				6.9	6.9	6.9



(b) With-profits realistic balance sheet
The table below summarises the realistic position of the with-profits part of Society's LTF:

				At	At	At
				30.06.12	30.06.11	31.12.11
				£bn	£bn	£bn


With-profits surplus				0.7	0.8	0.7
Risk capital margin				0.1	0.1	0.1


Surplus				0.6	0.7	0.6


Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (Peak 2). The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the FSA. The surplus includes the present value of future shareholder transfers of £0.2bn (H1 11: £0.4bn; FY 11: £0.2bn) as a liability in the calculation.

(c) Society capital surplus
Society is required to measure and monitor its capital resources on a regulatory basis.

	At	At	At	At	At	At
	30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
	Long	General	Long	General	Long	General
	term	insu-	term	insu-	term	insu-
	business	rance	business	rance	business	rance
	£bn	£bn	£bn	£bn	£bn	£bn


Available capital resources - Tier 1	5.7	0.1	5.7	0.1	5.6	0.1


Insurance capital requirement	2.4	0.1	2.3	0.1	2.4	0.1
Capital requirements of regulated related undertakings	0.2	-	0.2	-	0.2	-
With-profits Insurance Capital Component	0.3	-	0.2	-	0.4	-


Capital resources requirement	2.9	0.1	2.7	0.1	3.0	0.1


Regulatory capital surplus	2.8	-	3.0	-	2.6	-



Movement in Society long term insurance capital requirement
		At	At		At
		30.06.12	30.06.11		31.12.11
Pillar 1 capital requirement		£bn	£bn		£bn


Protection		0.7	0.7		0.7
Annuities		1.0	0.9		1.0
Non profit pensions and unit linked bonds		0.1	0.1		0.1


Non profit		1.8	1.7		1.8
With-profits		0.6	0.6		0.6


Long term insurance capital requirement		2.4	2.3		2.4


On a regulatory basis (Peak 1), Society long term business regulatory capital surplus of £2.8bn (H1 11: £3.0bn; FY 11: £2.6bn) comprises capital resources within the long term fund of £2.6bn (H1 11: £2.5bn; FY 11: £2.8bn) and capital resources outside the long term fund of £3.1bn
(H1 11: £3.2bn; FY 11: £2.8bn) less the capital resources requirement of £2.9bn (H1 11: £2.7bn; FY 11: £3.0bn).

The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a Peak 2 basis is lower than on a Peak 1 basis and represents the difference in the surplus between the two bases. It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b). A further adjustment is made to the Peak 2 surplus to remove the present
value of future shareholder transfers which is treated as a liability in Society's with-profits realistic surplus. At 30 June 2012, this adjustment amounted to £0.2bn (H1 11: £0.4bn; FY 11: £0.2bn).
Asset Disclosures 4.01 Investment portfolio

	Market			Market		Market
	value			value		value
	At			At		At
	30.06.12			30.06.11		31.12.11
	£m			£m		£m


Worldwide assets under management	388,412			370,338		378,573
Client and policyholder assets	(329,536)			(315,528)		(320,228)
Non-unit linked with-profits assets1	(18,749)			(19,732)		(18,927)


Assets to which shareholders are directly exposed	40,127			35,078		39,418



Comprising:
Assets held to back the UK non-linked non profit business:
Legal & General Pensions Limited (LGPL)2	30,670			25,528		30,029
Other UK non profit insurance business	237			552		285
	30,907			26,080		30,314
Assets held to back other insurance businesses (including Triple-X reserves)	3,182			3,105		3,172
Group capital and financing assets	4,529			4,369		4,344
Other shareholder assets	1,509			1,524		1,588


	40,127			35,078		39,418


1. Includes assets backing participating business in LGF of £2,297m (H1 11: £2,468m; FY 11: £2,277m).
2. LGPL is the main operating subsidiary for the UK's annuity business.

Analysed by asset class:
						Group
			Other UK			capital		Other
			non profit	Other		and		share-
			insurance	insurance		financing		holder
		LGPL	business	business		assets		assets		Total		Total		Total
		At	At	At		At		At		At		At		At
		30.06.12	30.06.12	30.06.12		30.06.12		30.06.12		30.06.12		30.06.11		31.12.11
	Note	£m	£m	£m		£m		£m		£m		£m		£m


Equities		-	-	-		909		10		919		999		913
Bonds	4.02	26,901	-	2,994		1,990		1,073		32,958		29,905		32,228
Derivative assets1		2,899	105	18		161		-		3,183		1,560		3,415
Property		568	-	-		103		13		684		333		606
Cash (including cash
equivalents)		302	132	170		1,366		413		2,383		2,281		2,256


		30,670	237	3,182		4,529		1,509		40,127		35,078		39,418


1. Derivative assets are shown gross of derivative liabilities. Exposures arise from: a. The use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. b. Derivatives matching guaranteed equity bonds within the Nationwide Life portfolio.
4.02 Bond portfolio summary
(a) Analysed by sector
							LGPL		LGPL		Total		Total
							At		At		At		At
							30.06.12		30.06.12		30.06.12		30.06.12
					Notes		£m		%		£m		%


Sovereigns, Supras and Sub-Sovereigns					4.02(b)		4,011		15		6,045		18
Banks:
- Tier 11					4.04		223		1		240		1
- Tier 2 and other subordinated					4.04		911		3		1,039		3
- Senior							1,434		5		2,367		7
Utilities							3,718		14		3,961		12
Consumer Services and Goods							2,436		9		2,845		8
Financial Services							970		4		1,208		4
Technology and Telecoms							1,869		7		2,174		6
Insurance							1,076		4		1,215		4
Industrials							1,363		5		1,661		5
Oil and Gas							1,635		6		1,847		6
Health Care							772		3		836		3
Property							572		2		643		2
Traditional and secured asset backed securities					4.03		4,915		18		5,881		18
CDO					4.02(d)		996		4		996		3


Total							26,901		100		32,958		100




							LGPL		LGPL		Total		Total
							At		At		At		At
							30.06.11		30.06.11		30.06.11		30.06.11
					Notes		£m		%		£m		%


Sovereigns, Supras and Sub-Sovereigns					4.02(b)		3,255		14		5,257		18
Banks:
- Tier 11					4.04		366		2		398		1
- Tier 2 and other subordinated					4.04		1,414		6		1,602		5
- Senior							1,521		6		2,558		9
Utilities							2,980		13		3,217		11
Consumer Services and Goods							2,123		9		2,458		8
Financial Services							762		3		1,013		3
Technology and Telecoms							1,574		7		1,845		6
Insurance							1,026		4		1,192		4
Industrials							1,235		5		1,462		5
Oil and Gas							1,309		6		1,513		5
Health Care							558		2		615		2
Property							550		2		617		2
Traditional and secured asset backed securities					4.03		4,113		17		5,105		17
CDO					4.02(d)		1,048		4		1,053		4


Total							23,834		100		29,905		100




							LGPL		LGPL		Total		Total
							At		At		At		At
							31.12.11		31.12.11		31.12.11		31.12.11
					Notes		£m		%		£m		%


Sovereigns, Supras and Sub-Sovereigns					4.02(b)		4,072		15		6,188		19
Banks:
- Tier 11					4.04		236		1		259		1
- Tier 2 and other subordinated					4.04		1,177		4		1,338		4
- Senior							1,463		5		2,234		7
Utilities							3,457		13		3,722		12
Consumer Services and Goods							2,557		10		2,928		9
Financial Services							941		4		1,179		4
Technology and Telecoms							1,902		7		2,209		7
Insurance							968		4		1,120		3
Industrials							1,265		5		1,515		5
Oil and Gas							1,614		6		1,837		6
Health Care							748		3		786		2
Property							577		2		640		2
Traditional and secured asset backed securities					4.03		4,344		17		5,275		16
CDO					4.02(d)		998		4		998		3


Total							26,319		100		32,228		100


1. Tier 1 holdings include £56m (H1 11: £55m; FY 11: £49m) of preference shares.


(b) Analysed by domicile
		LGPL	Total	LGPL	Total	LGPL	Total
		At	At	At	At	At	At
		30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
	Note	£m	£m	£m	£m	£m	£m


Market value by region
United Kingdom		10,422	11,696	9,367	10,766	10,387	11,758
USA		8,268	10,926	6,999	9,365	8,040	10,548
Netherlands		1,303	1,975	950	1,674	1,226	1,830
France		1,100	1,485	1,109	1,522	1,124	1,523
Italy		507	612	603	752	543	652
Germany		428	687	390	732	445	761
Ireland1		215	227	293	310	213	225
Spain		164	208	191	250	187	236
Belgium		31	81	29	83	23	79
Portugal		10	10	60	68	41	45
Greece		-	-	-	1	-	-
Europe - Other		1,109	1,508	1,145	1,530	994	1,324
Rest of World		2,348	2,547	1,761	1,915	2,098	2,249
CDO	4.02(d)	996	996	937	937	998	998


Total		26,901	32,958	23,834	29,905	26,319	32,228


1. Within LGPL, out of the £215m of bonds domiciled in Ireland, £188m relate to financing vehicles where the underlying exposure lies outside Ireland.

The table above is based on the legal domicile of the security.

Additional analysis of sovereign debt exposures

	Sovereigns, Supras and Sub-Sovereigns
	LGPL	Total	LGPL	Total	LGPL	Total
	At	At	At	At	At	At
	30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
	£m	£m	£m	£m	£m	£m


Market value by region
United Kingdom1	2,675	3,160	1,972	2,383	2,694	3,205
USA	359	748	283	574	380	782
Netherlands	-	432	28	552	15	468
France	77	284	121	325	119	317
Italy	198	279	207	301	201	281
Germany	143	330	132	365	143	386
Ireland	-	5	-	4	-	4
Spain	-	29	-	32	-	29
Belgium	-	40	-	35	-	40
Portugal	-	-	-	6	-	3
Greece	-	-	-	1	-	-
Europe - Other	445	624	427	576	448	602
Rest of World	114	114	85	103	72	71


Total	4,011	6,045	3,255	5,257	4,072	6,188


1. LGPL holds liquidity in the form of cash and cash equivalents of £302m (H1 11: £494m; FY 11: £285m) and gilts of £2,675m (H1 11: £1,972m; FY 11: £2,694m).


(c) Analysed by credit rating
	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.12	30.06.12	30.06.12	30.06.12
	£m	%	£m	%


AAA	4,471	16	7,033	21
AA	3,012	11	3,889	12
A	9,597	36	11,324	34
BBB	7,423	28	8,239	25
BB or below	474	2	525	2
Unrated: Bespoke CDOs	874	3	874	3
Other1	1,050	4	1,074	3


	26,901	100	32,958	100



	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.11	30.06.11	30.06.11	30.06.11
	£m	%	£m	%


AAA	4,317	18	7,209	24
AA	2,695	11	3,686	12
A	8,773	38	10,104	34
BBB	5,974	25	6,735	23
BB or below	347	1	415	1
Unrated: Bespoke CDOs	936	4	936	3
Other1	792	3	820	3


	23,834	100	29,905	100



	LGPL	LGPL	Total	Total
	At	At	At	At
	31.12.11	31.12.11	31.12.11	31.12.11
	£m	%	£m	%


AAA	4,685	18	7,328	23
AA	2,896	11	3,657	11
A	9,710	37	11,290	35
BBB	6,876	26	7,721	24
BB or below	417	2	481	1
Unrated: Bespoke CDOs	872	3	872	3
Other1	863	3	879	3


	26,319	100	32,228	100


1. Other unrated bonds have been assessed and rated internally and are all assessed as investment grade.


(d) CDOs

The Group holds collateralised debt obligations (CDOs) with a market value of £996m at 30 June 2012 (H1 11: £1,053m; FY 11: £998m).

These holdings include £848m (H1 11: £899m; FY 11: £846m) relating to four CDOs that were constructed in 2007 and 2008 in accordance with terms specified by Legal & General as part of a strategic review of the assets backing the annuity portfolio. These CDOs mature in 2017 and
2018. The Group selected at outset and manages the reference portfolios underlying the CDOs to give exposure to globally diversified portfolios of investment grade corporate bonds. The Group is able to substitute the constituents of the original reference portfolios with new reference assets, allowing the management of the underlying credit risk although substitutions in 2011 were limited and there have been no substitutions in 2012. A breakdown of the underlying CDO reference portfolio by sector is provided below:

Sector
		At 30.06.12		At 30.06.11		At 31.12.11
		%		%		%


Banks		14		14		14
Utilities		10		10		10
Consumer Services & Goods		25		26		25
Financial Services		6		6		6
Technology & Telecoms		9		9		9
Insurance		6		6		6
Industrials		20		20		20
Oil & Gas		6		6		6
Health Care		4		3		4


		100		100		100



The CDOs are termed as super senior since default losses on the reference portfolio have to exceed 27.6%, on average across the four CDOs, before the CDOs incur any default losses. Assuming an average recovery rate of 30%, then over 39% of the reference names would have to default before the CDOs incur any default losses.

Beyond 27.6% of default losses on the reference portfolio, losses to the CDO would occur at a rate that is a multiple of the loss rate on the reference portfolio. For illustration a £200m loss could be incurred if default losses to the reference portfolios exceeded 30.5% or if 43.6% of the names in the diversified global investment grade portfolio defaulted, with an average 30% recovery rate. (All figures are averages across the four CDOs.)

The underlying reference portfolio has had no reference entity defaults in 2011 or for the six months ended 30 June 2012.

Losses are limited under the terms of the CDOs to assets and collateral invested.

These CDOs also incorporate features under which, in certain circumstances, the Group can choose either to post additional cash collateral or to allow wind up of the structures. These features are dependant on the portfolios' weighted average spreads, default experience to date and time to maturity. No additional collateral was posted to any of the CDOs during the six months ended 30 June 2012 (H1 11: £nil; FY 11: £nil). During the period, the Group received £nil (H1 11: £nil; FY 11: £nil) of previously posted collateral.

These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation.

For the purposes of valuing the non profit annuity regulatory and IFRS liabilities the yield on the CDOs is included within the calculation of the yield used to calculate the valuation discount rate for the annuity liabilities. An allowance for the risks, including default, is also made. For EEV purposes, the yield on the CDOs, reduced by the realistic default assumption, is similarly included in assumed future investment returns.

The balance of £148m (H1 11: £154m; FY 11: £152m) of CDO holdings includes a £26m (H1 11: £37m; FY 11: £26m) exposure to an equity tranche of a bespoke CDO.
4.03 Traditional and secured asset backed securities summary
(a) By security
	LGPL		LGPL		Total		Total
	At		At		At		At
	30.06.12		30.06.12		30.06.12		30.06.12
	£m		%		£m		%


Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1	335		7		560		9
Residential Mortgage-Backed Securities - Sub-prime2	-		-		20		-
Commercial Mortgage-Backed Securities	218		4		468		8
Credit Card	1		-		163		3
Auto	4		-		114		2
Consumer Loans	36		1		39		1
Student Loans	17		-		63		1


	611		12		1,427		24


Securitisations and debentures:
Secured Bond	2,108		43		2,178		37
Commercial Property Backed Bonds	382		8		382		6
Infrastructure / Private Finance Initiative / Social housing	1,317		27		1,321		23
Whole Business Securitisation	342		7		346		6
Other secured holdings3	155		3		227		4


	4,304		88		4,454		76


Total traditional and secured asset backed securities	4,915		100		5,881		100

The two categories above are based on the following definitions: Traditional Asset Backed Securities are securities, often with variable expected redemption profiles issued by Special Purpose Vehicles and typically backed by pools of receivables from loans or personal credit. Debentures are securities with fixed redemption profiles issues by firms typically secured on property and Securitisations are securities with fixed redemption profiles that are issued by Special Purpose Vehicles and secured on revenues from specific assets or operating companies.
	LGPL		LGPL		Total		Total
	At		At		At		At
	30.06.11		30.06.11		30.06.11		30.06.11
	£m		%		£m		%


Traditional asset backed securities:
Residental Mortgage-Backed Securities- Prime1	469		12		830		16
Residential Mortgage-Backed Securities- Sub-prime2	-		-		25		-
Commercial Mortgage-Backed Securities	250		6		461		9
Credit Card	6		-		196		4
Auto	10		-		76		2
Consumer Loans	42		1		44		1
Student Loans	20		-		53		1


	797		19		1,685		33



Securitisations and debentures:
Secured Bond	1,743		43		1,784		35
Commercial Property Backed Bonds	224		5		224		5
Infrastructure / Private Finance Initiative / Social housing	1,025		25		1,029		20
Whole Business Securitisation	269		7		272		5
Other secured holdings3	55		1		111		2


	3,316		81		3,420		67


Total traditional and secured asset backed securities	4,113		100		5,105		100









	LGPL		LGPL		Total		Total
	At		At		At		At
	31.12.11		31.12.11		31.12.11		31.12.11
	£m		%		£m		%


Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1	416		10		680		13
Residential Mortgage-Backed Securities - Sub-prime2	-		-		20		-
Commercial Mortgage-Backed Securities	245		6		450		9
Credit Card	2		-		134		3
Auto	11		-		113		2
Consumer Loans	37		1		40		1
Student Loans	20		-		26		-


	731		17		1,463		28


Securitisations and debentures:
Secured Bond	1,935		45		1,975		37
Commercial Property Backed Bonds	236		5		236		5
Infrastructure / Private Finance Initiative / Social housing	1,104		25		1,168		22
Whole Business Securitisation	299		7		302		6
Other secured holdings3	39		1		131		2


	3,613		83		3,812		72


Total traditional and secured asset backed securities	4,344		100		5,275		100


1. 53% (H1 11: 57%; FY 11: 56%) of Prime RMBS holdings relate to UK mortgages. 2. 54% (H1 11: 51%; FY 11: 55%) of Sub-prime RMBS holdings have a credit rating of AAA and 76% (H1 11: 70%; FY 11: 71%) relate to the UK. 3. Other secured holdings in LGPL include covered bonds of £143m (H1 11: £20m; FY 11: £29m).


(b) By credit rating
			LGPL	LGPL	Total	Total
			At	At	At	At
			30.06.12	30.06.12	30.06.12	30.06.12
			£m	%	£m	%


AAA			830	17	1,507	26
AA			1,215	25	1,358	23
A			1,568	32	1,635	28
BBB			847	17	895	15
BB or below			122	2	152	3
Unrated			333	7	334	5


Total			4,915	100	5,881	100



			LGPL	LGPL	Total	Total
			At	At	At	At
			30.06.11	30.06.11	30.06.11	30.06.11
			£m	%	£m	%


AAA			1,072	26	1,831	36
AA			825	20	891	17
A			1,453	36	1,510	30
BBB			595	14	663	13
BB or below			30	1	70	1
Unrated			138	3	140	3


Total			4,113	100	5,105	100




			LGPL	LGPL	Total	Total
			At	At	At	At
			31.12.11	31.12.11	31.12.11	31.12.11
			£m	%	£m	%


AAA			802	18	1,411	27
AA			1,077	25	1,202	23
A			1,604	37	1,661	31
BBB			634	15	739	14
BB or below			81	2	114	2
Unrated			146	3	148	3


Total			4,344	100	5,275	100


Of the £816m (H1 11: £888m; FY 11: £733m) of traditional ABS holdings held outside of LGPL, 70% are rated AAA (H1 11: 76%; FY 11: 65%).

The credit ratings of monoline wrapped bonds are based on the rating of the underlying securities.
4.04 Group subordinated bank exposures

	Total	Total	Total	Total	Total	Total
	At	At	At	At	At	At
	30.06.12	30.06.12	30.06.11	30.06.11	31.12.11	31.12.11
	£m	%	£m	%	£m	%


Tier 1
United Kingdom1	139	11	169	8	139	9
USA	29	2	84	4	47	3
Europe	60	5	115	6	61	4
Others	12	1	30	2	12	1


Total tier 1	240	19	398	20	259	17

Lower tier 2
United Kingdom	423	33	704	34	586	36
USA	333	26	430	22	394	25
Europe	113	9	193	10	142	9
Others	67	5	74	4	68	4

Upper tier 2
United Kingdom	58	5	75	4	63	4
USA	2	-	19	1	1	-
Europe	-	-	57	3	39	2
Others	-	-	3	-	2	-

Other subordinated
United Kingdom	1	-	-	-	-	-
USA	39	3	47	2	43	3
Europe	3	-	-	-	-	-
Others	-	-	-	-	-	-


Total tier 2 and other subordinated	1,039	81	1,602	80	1,338	83


Total	1,279	100	2,000	100	1,597	100


1. The exposure to UK tier 1 debt includes issuances from the UK subsidiaries of European banks where there is no explicit parental guarantee.

4.05 Value of policyholder assets held in Society and LGPL

		At	At	At
		30.06.12	30.06.11	31.12.11
		£m	£m	£m


With-profits business		24,652	25,987	24,862
Non profit business		43,437	40,864	42,516


		68,089	66,851	67,378


4.06 With-profits non-linked business invested asset mix and investment return


		UK with-
	Invest-	profits	UK with-	UK with-
	ment	asset	profits	profits
	return	share	non par	other
As at 30 June 2012	%	%	%	%


Equities	4	40	2	(46)
Bonds	4	44	83	136
Property	1	13	-	-
Cash	-	3	15	10


		100	100	100


Investment return (% pa)	4	4	5	2



Invested assets (£bn):
Net of derivative liabilities		12.0	2.5	1.9
Gross of derivative liabilities		12.1	2.5	1.9



As at 30 June 2011


Equities	2	41	3	(63)
Bonds	3	40	87	150
Property	4	14	-	-
Cash	-	5	10	13


		100	100	100


Investment return (% pa)	2	3	3	-



Invested assets (£bn):
Net of derivative liabilities		13.4	2.4	1.4
Gross of derivative liabilities		13.5	2.4	1.4




As at 31 December 2011


Equities	(8)	38	3	(47)
Bonds	9	40	88	139
Property	5	15	-	-
Cash	1	7	9	8


		100	100	100


Investment return (% pa)	4	2	8	19



Invested assets (£bn):
Net of derivative liabilities		12.4	2.4	1.8
Gross of derivative liabilities		12.5	2.4	1.8


All investment return percentages reflect actual investment returns on average asset holdings for the period.

4.07 Analysis of fair value measurement bases

	Fair value measurement at the
	end of the reporting period based on:


	Level 1	Level 2	Level 3	Total
As at 30 June 2012	£m	£m	£m	£m


Group capital and other insurance business
Equities	607	192	120	919
Bonds1	2,071	3,981	5	6,057
Derivative assets	28	151	-	179


	2,706	4,324	125	7,155


Non profit non-unit linked
Bonds1	3,404	23,497	-	26,901
Derivative assets	56	2,923	25	3,004


	3,460	26,420	25	29,905



	Fair value measurement at the
	end of the reporting period based on:


	Level 1	Level 2	Level 3	Total
As at 30 June 2011	£m	£m	£m	£m


Group capital and other insurance business
Equities	657	206	136	999
Bonds1	2,210	3,646	8	5,864
Derivative assets	31	279	-	310


	2,898	4,131	144	7,173


Non profit non-unit linked
Bonds1	2,674	21,351	-	24,025
Derivative assets	30	1,220	-	1,250


	2,704	22,571	-	25,275



	Fair value measurement at the
	end of the reporting period based on:


	Level 1	Level 2	Level 3	Total
As at 31 December 2011	£m	£m	£m	£m


Group capital and other insurance business
Equities	564	221	128	913
Bonds1	2,058	3,783	6	5,847
Derivative assets	13	295	-	308


	2,635	4,299	134	7,068


Non profit non-unit linked
Bonds1	3,440	22,941	-	26,381
Derivative assets	255	2,820	32	3,107


	3,695	25,761	32	29,488


1. Consolidated CDO holdings have been presented on a net basis within level 2. The analysis excludes cash, loans and receivables and property investments of £3,067m (H1 11: £2,614m; FY 11: £2,862m), as disclosed in Note 4.01.

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm's length transaction.

Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflects the Group's view of market assumptions in the absence of observable market information. The Group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.

The levels of fair value measurement bases are defined as follows:

Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs).

All of the Group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have prudently classified them as level 2.

These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2.

Level 3 assets, where internal models are used to represent a small proportion of assets to which shareholders are exposed, and reflect unquoted equities including investments in private equity, property vehicles and suspended securities.

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

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

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

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

Significant transfers between levels

There have been no significant transfers between levels 1, 2 and 3 for the six months ended 30 June 2012 (H1 11 and FY 11: No significant transfers between levels 1, 2 and 3).

European Embedded Value

Consolidated Income Statement

For the six months ended 30 June 2012

				Full year
		30.06.12	30.06.11	31.12.11
	Notes	£m	£m	£m


From continuing operations
Risk	5.01	263	344	801
Savings	5.01	41	94	228
Investment management	5.08	106	104	210
International	5.09	58	87	242
Group capital and financing1	5.10	11	30	44
Investment projects2		(23)	(25)	(56)


Operating profit		456	634	1,469
Variation from longer term investment return	5.11	(13)	(31)	(111)
Effect of economic assumption changes	5.12	(126)	(13)	(21)
Property gains/(losses) attributable to non-controlling interests		1	(1)	(3)


Profit before tax		318	589	1,334
Tax expense attributable to equity holders of the Company	5.14	(50)	(139)	(259)
Effect of tax rate changes	5.14	48	156	156


Profit for the period		316	606	1,231
(Gain)/loss attributable to non-controlling interests		(1)	1	3


Profit attributable to equity holders of the Company		315	607	1,234




		p	p	p


Earnings per share	5.15

Based on operating profit after tax attributable to equity holders of the Company		6.09	8.30	19.08
Based on profit attributable to equity holders of the Company		5.40	10.42	21.17

Diluted earnings per share	5.15

Based on operating profit after tax attributable to equity holders of the Company		5.99	8.16	18.77
Based on profit attributable to equity holders of the Company		5.31	10.24	20.83


1. As announced in our FY 11 results, the rate used to calculate the smoothed investment return on cash and LIBOR benchmarked bonds has reduced. H1 11 has been amended to reflect this change, as outlined in Note 5.10.
2. Investment projects predominately relates to Solvency II and other strategic investments.

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

			Full year
	30.06.12	30.06.11	31.12.11
	£m	£m	£m


Profit for the year	316	606	1,231

Other comprehensive income after tax
Exchange differences on translation of overseas operations	(21)	10	(1)
Actuarial (losses) on defined benefit pension schemes	(42)	(2)	(70)
Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus	29	1	48


Total comprehensive income for the year	282	615	1,208



Total comprehensive income/(expense) attributable to:
Non-controlling interests	1	(1)	(3)
Equity holders of the Company	281	616	1,211

Consolidated Balance Sheet

As at 30 June 2012

		30.06.12	30.06.11	31.12.11
			Restated1	Restated1
	Notes	£m	£m	£m


Assets
Investments		325,176	319,476	319,671
Long term in-force business asset		3,574	3,444	3,700
Other assets		7,538	7,328	6,680


Total assets		336,288	330,248	330,051




Equity
Shareholders' equity	5.17/5.18	8,581	8,147	8,608
Non-controlling interests		67	49	66


Total equity		8,648	8,196	8,674



Liabilities
Subordinated borrowings	2.16	1,886	1,915	1,921
Unallocated divisible surplus		966	1,330	1,038
Participating contract liabilities		15,529	16,257	15,784
Non-participating contract liabilities		289,554	287,618	285,351
Senior borrowings	2.16	1,376	1,324	1,329
Other liabilities and provisions		18,329	13,608	15,954


Total liabilities		327,640	322,052	321,377


Total equity and liabilities		336,288	330,248	330,051


1. The Consolidated Balance Sheet has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this restatement are outlined in note 5.21.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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