Legal & General 1st Quarter Results 2014

LEGAL & GENERAL GROUP PLC QUARTER 1 2014 INTERIM MANAGEMENT STATEMENT

Stock Exchange Release

7 May 2014

LEGAL & GENERAL: NET CASH UP 21% WITH RECORD SALES

GROUP HIGHLIGHTS:

• NET CASH GENERATION UP 21% TO £301M (Q1 2013: £249M)

• OPERATIONAL CASH GENERATION UP 6% TO £297M (Q1 2013: £281M)

BUSINESS HIGHLIGHTS:

• RECORD BULK PURCHASE ANNUITY PREMIUMS OF £3,045M (Q1 2013: £357M)

• ANNUITY ASSETS UP 15% TO £38.3BN (Q1 2013: £33.3BN)

• LGIM TOTAL AUM UP 5% TO £462.6BN (Q1 2013: £441.2BN)

• LGIM INTERNATIONAL AUM UP 21% TO £63.2BN (Q1 2013: £52.4BN)

• LGIM NET FLOWS OF £3.8BN (Q1 2013: £4.7BN)

• UK RETAIL PROTECTION SALES UP 56% TO £42M (Q1 2013: £27M)

• WORKPLACE AUA UP 32% TO £9.1BN (Q1 2013 £6.9BN)

• COFUNDS AUA UP 25% TO £65.6BN (Q1 2013 £52.3BN)

• US PROTECTION SALES UP 12% TO $38M (Q1 2013: $34M)

• £1.0BN OF DIRECT INVESTMENTS COMPLETED IN Q1

Nigel Wilson, Group Chief Executive, said:

"Legal & General delivered record results in Q1. Net cash and Operational cash, up 21% and 6% respectively, are at their highest-ever levels. LGIM AUM of £463bn is at an all-time high, Retail Protection sales hit a new Q1 record and Cofunds grew AUA to £66bn. Our record annuity sales were driven by the UK's largest ever Bulk Purchase Annuity transaction, the £3bn deal for the ICI Pension Fund."

"We already benefit from favourable demographic trends; we have economically and socially useful products for customers; and with our LGIM economists forecasting 3% plus economic growth in the UK and US, we are excited about the prospects for our business."

"There is strong demand for our pension de-risking and protection products in both markets - the £1.8 trillion of UK DB liabilities will provide substantial future business. We believe the UK DC market will grow from around £250bn today to £3 trillion by 2030. LGIM's recent agreement to acquire Global Index Advisors (GIA), a US based DC provider will accelerate our US growth. In Q1 we invested in UK infrastructure and housing at a rate of around £100m per week, completing £1bn of transactions including Cala's acquisition of Banner Homes and a £252m investment in affordable housing provider Places for People which will finance 7,000 new homes."

GROUP CASH GENERATION

LEGAL AND GENERAL RETIREMENT (LGR)

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

LEGAL & GENERAL CAPITAL (LGC)

LEGAL & GENERAL AMERICA (LGA)

Financial PERFORMANCE - operational cash up 6% and net cash up 21%

Operational cash generation for the Group is up 6% to £297m in the first three months of the year (Q1 2013: £281m) reflecting growth in our business especially in LGR and Workplace savings. New business surplus of £4m (Q1 2013: strain of £32m) resulted in net cash up 21% to £301m (Q1 2013: £249m). The new business strain benefited from a positive new business surplus arising from the significant volumes of annuities and UK Retail Protection written in the quarter. The net cash also includes the LGA 2014 ordinary dividend of $73m, 11% up on 2013, equating to £44m (Q1 2013: $66m equating to £43m).

BUSINESS PERFORMANCE - A STRONG START TO THE YEAR

Legal & General Retirement (LGR)

LGR new business premiums quadrupled to £3.3bn (Q1 2013: £0.8bn). This growth was primarily due to securing the largest ever UK Bulk Annuity contract with ICI Pension Fund covering £3bn of the Fund's liabilities, demonstrating the strength of our diversified proposition in the DB scheme de-risking market.

Individual Annuity sales were down 40% to £244m (Q1 2013: £406m). This sales result includes a c£15m impact from cancellations during the extended cooling off period which we offered to our customers post the budget.

Total annuity assets increased to £38.3bn (Q1 2013: £33.3bn), reflecting record net inflows of £2.8bn for Q1 2014.

Legal & General Investment Management (LGIM)

LGIM received net flows of £3.8bn in the quarter (Q1 2013: £4.7bn) and now has assets under management (AUM) of £463bn, up 5% on Q1 2013 (£441bn).

LGIM achieved net inflows from International clients of £2.6bn (Q1 2013: £6.7bn) with continued strong growth in LGIM America's LDI and Active Fixed Income products. Due to the potentially large flows from our institutional client base, quarterly flows are inherently uneven. International AUM now total £63.2bn up 21% on Q1 2013 (£52.4bn).

Our Solutions business performed strongly with AUM increasing 7% to £76.5bn (Q1 2013: £71.4bn). In addition derivative notional overlays associated with this business, which also drive revenue, increased in the UK by £5.4bn in the quarter and 17% in the year, increasing to £165.5bn (Q1 2013: £140.9bn).

Our DC business continues to gather momentum, with AUM increasing 11% to £31.8bn (Q1 2013: £28.7bn). We continue to build our UK DC proposition and invest in our capabilities in order to benefit from the expected growth in the market.

UK retail AUM continued to grow with net flows of £0.3bn (Q1 2013: £(0.3)bn) as passive funds become more popular in the retail market post the Retail Distribution Review (RDR). LGIM's bolt-on acquisition of US based Global Index Advisors for up to $50.4m, announced in February, is on track for completion in May 2014. The assets of $15.6bn (as at FY 2013) will provide the Group scale and distribution in the $6 trillion US DC market.

Legal & General Assurance Society (LGAS)

Retail Protection had a record Q1 with sales up 56% to £42m (Q1 2013: £27m) as a result of our well positioned, competitively priced range of products provided through leading technology. Growth is broad based across all key distribution channels, including our direct sales.

UK Group Protection achieved sales of £20m (Q1 2013: £20m) benefiting from the robustness of our market proposition. In France our Group Protection business has increased by 38% (Q1 2014: €40m, Q1 2013: €29m) following continued collaboration with the UK and early progress on building our distribution network.

In Q1 our LGAS Savings net inflows were £1.6bn (Q1 2013: outflows of £0.3bn) with assets under administration (AUA) now at £115.3bn (Q1 2013: £61.7bn).

Our digital platforms continue to grow. Cofunds generated net inflows of £1.5bn leading to an increased AUA of £65.6bn. 

Our Workplace savings net flows were £0.5bn (Q1 2013: £0.3bn). Gross inflows of £0.7bn (Q1 2013: £0.5bn) continued on a steady upward trend benefiting from incremental enrolment into pre-existing schemes and new schemes in the quarter. Participation rates remain high at more than 90% as opt outs continue to be low and the platform now has AUA of £9.1bn (Q1 2013: £6.9bn). Workplace savings now has 1 million customers on the platform (FY 2013: 903k). We continue to target halving the losses of £29m per annum experienced in 2013 as the business benefits from increased scale and continued automation.

General Insurance gross premiums were slightly lower, down 2%, to £84m (Q1 2013: £86m) reflecting disciplined pricing although direct sales continued to grow.

Legal & General America (LGA)

LGA continued to deliver growth in sales with Q1 up 12% to $38m (Q1 2013: $34m). LGA has focussed term assurance and universal life offerings with high quality service and value for money pricing. Gross premiums are up 13% to $269m (Q1 2013: $238m) and LGA now has over 1 million customers. 

LEGAL & GENERAL CAPITAL (LGC)

During the period LGC made over £1.0bn of new direct investments including a £252m investment into Places for People which will finance the building of 7,000 new homes in the UK. These strategic investments provide a risk adjusted yield enhancement to our traded fixed income portfolio and were part of the asset portfolio backing the £3bn bulk annuity deal completed by LGR. LGC also invested £52m to support the acquisition of Banner Homes by CALA. This will make CALA a UK national housebuilder with a target for 2017 turnover exceeding £800m. Direct Investments have reached £4.1bn across LGC, LGR and LGA with a strong pipeline of attractive investment opportunities.

OUTLOOk

We reiterate the operational cash guidance we gave at the full year results to deliver operational cash generation from LGR of around £290m in 2014 (2013: £260m), from LGAS excluding General Insurance of around £430m in 2014 (2013: £421m) and from LGA of around £45m (2013: £44m).

We are on track in 2014 to exceed the £4.1bn annuity premiums we wrote in 2013 with a strong quote pipeline in bulk annuities. We expect the Individual Annuity market to contract by c50% in 2014 and by a further half in 2015. Our market leading Retail Protection business has good momentum. LGIM continues to see strong demand for its Liability Driven Investment and Active Fixed capabilities and we continue to build our international presence, particularly in the Gulf, Europe and the US. LGC has good opportunities to make further direct investments, some of these we expect to be in new areas diversifying our portfolio and enhancing our capabilities.

DIVERSIFIED BUSINESSES FOR A MODERN PENSIONS MARKET

The Chancellor of the Exchequer and the Pensions Minister have supported a clear pro-choice, pro-consumer agenda to modernise pensions: a direction of travel that has been clear for some time. We agree with these objectives and welcome the Budget reforms, which we expect will accelerate the evolution of a modern pensions market in the UK. We believe these changes will be good for customers and also for Legal & General since we have aligned our diversified businesses to benefit from these trends. We look forward to working closely with government to help ensure smooth implementation of these reforms.

We expect to write growing volumes of BPA business to more than offset individual annuity reductions

· Private sector UK DB liabilities of around £1.8 trillion1, of which £600bn2 already in payment, mean demand for BPA is likely to grow regardless of the DB to DC transfer consultation outcome.

· DB to DC transfers are unlikely to materially affect the BPA market. Transfers will need to be subject to appropriate consumer protection and fairness safeguards, but in the event of significant transfers, DB schemes are likely to find de-risking solutions more affordable.

· The BPA market is very different to Individual annuities. It requires a strong and sustained track record, a robust capital base and specialist expertise across longevity, investment management and asset transitioning. Legal & General has all these competitive advantages, built up over 27 years and is a market leader in this field. As a result, we expect to continue achieving our target return on capital.

Ideally placed to provide alternative solutions to annuities

· Our established mass market distribution combined with our expertise in both investment and longevity management mean we can offer a wide range of new and existing products to customers deciding how to convert savings into retirement income.

· We are developing low cost income drawdown products with a range of options for customers to choose how much risk they wish to take and how much they want to be guaranteed.

Savings level will increase

· The greater flexibility will make pension savings more attractive which, together with the higher ISA limits, will mean higher rates of saving.

· We have market leading Workplace savings products, a comprehensive suite of low cost retail solutions including our unit trust and ISA business and the largest retail savings platform in Cofunds.

· The recently announced 75bps cap for auto-enrolment default funds will focus attention on charges. We expect to benefit as we already operate with a maximum 50bps charge for our auto-enrolment default fund which is based on LGIM's passive fund and asset allocation capabilities.

We have a diversified portfolio of low cost savings, protection and retirement solution products. This together with our proven track record in specialist investment capabilities and our increasing international footprint means we are well placed to deliver high quality solutions to our customers while growing returns for our shareholders.

1. The Purple Book: PPF / The Pensions Regulator - November 2013 on a full buy-out basis.

2. Legal & General estimate based on The Purple Book: PPF / The Pensions Regulator - November 2013.

Enquiries

Investors:

Bernie Hickman Group Financial Controller and Investor Relations Director 020 3124 2043

Laura Doyle Investor Relations Manager 020 3124 2088

Stephen Thomas Investor Relations Manager 020 3124 2047

Media:

John Godfrey Group Communications Director 020 3124 2090

Richard King Head of Media Relations 020 3124 2095Michelle Clarke Tulchan Communications 020 7353 4200

Katharine Wynne Tulchan Communications 020 7353 4200

Notes

ANALYST CALL DETAILS:

A copy of this announcement can be found in "Results", under the "Financial information" section of our shareholder website at http://www.legalandgeneralgroup.com/investors/results.cfm.

There will be a teleconference at 09.30 BST. Investors should dial +44 (0)20 3059 8125. A replay of the teleconference can be accessed by dialling +44 (0)121 260 4861 (PIN code: 4243267#).

FINANCIAL CALENDAR 2014:

Operational cash generation is the expected release from in-force business for the UK non-profit LGAS and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the expected investment return on LGC invested assets, and dividends remitted from our international businesses.

Net cash generation is defined as operational cash generation less new business strain.

This announcement may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisition or combinations within relevant industries. As a result, Legal & General's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make.