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L&G Full Year Results 2018 Part 3

6th Mar 2019 07:00

RNS Number : 9547R

Legal & General Group Plc

06 March 2019

Legal & General Group Plc

Full Year Results 2018 Part 3

Asset and premium flows Page 63

4.01 LGIM Total assets under management (AUM)

		Global
		fixed		Real	Active	Total
	Index	income	Solutions1	assets	equities	AUM
For the year ended 31 December 2018	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2018	340.9	148.8	462.7	23.8	7.1	983.3

Canvas acquisition2	2.4	-	-	-	-	2.4

External inflows	54.2	15.7	33.8	1.5	0.6	105.8
External outflows	(69.0)	(6.2)	(16.1)	(1.6)	(0.2)	(93.1)
Overlay net flows	-	-	29.9	-	-	29.9
ETF net flows	-	-	-	-	-	-


External net flows3	(14.8)	9.5	47.6	(0.1)	0.4	42.6
Internal net flows	(0.7)	1.8	(0.7)	2.5	(0.3)	2.6


Total net flows	(15.5)	11.3	46.9	2.4	0.1	45.2
Cash management movements4	-	(0.5)	-	-	-	(0.5)
Market and other movements3	(17.6)	3.0	0.9	0.9	(2.1)	(14.9)



As at 31 December 2018	310.2	162.6	510.5	27.1	5.1	1,015.5

Assets attributable to:
External						921.7
Internal5						93.8


1. As at 31 December 2018, Solutions include liability driven investments, multi-asset funds and £303.9bn of derivative notionals associated with the Solutions business.
2. The acquisition of Canvas was completed in March 2018.
3. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets as at 31 December 2018 was £60.1bn and the movement in these assets is included in market and other movements for Solutions assets.
4. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
5. As part of the sale of the Mature Savings business to Swiss Re £5.5bn of assets have been re-classified from the Internal channel to External channel.


		Global
		fixed		Real	Active	Total
	Index	income	Solutions1	assets	equities	AUM
For the year ended 31 December 2017	£bn	£bn	£bn	£bn	£bn	£bn


At 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	51.1	15.1	33.2	1.5	0.1	101.0
External outflows	(61.4)	(6.4)	(15.7)	(1.2)	(0.1)	(84.8)
Overlay/advisory net flows	-	-	27.3	-	-	27.3


External net flows2	(10.3)	8.7	44.8	0.3	-	43.5
Internal net flows	(0.4)	(2.0)	(1.1)	1.5	(0.7)	(2.7)
Disposal of LGN4	(0.3)	(0.5)	-	-	-	(0.8)


Total net flows	(11.0)	6.2	43.7	1.8	(0.7)	40.0
Cash management movements3	-	3.0	-	-	-	3.0
Market and other movements2	32.1	4.8	7.1	2.4	(0.3)	46.1



As at 31 December 2017	340.9	148.8	462.7	23.8	7.1	983.3

Assets attributable to:
External						883.8
Internal						99.5


1. As at 31 December 2017, Solutions include liability driven investments, multi-asset funds and £272.8bn of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability. The total value of these assets as at 31 December 2017 was £47.0bn and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

Asset and premium flows Page 64

4.01 LGIM Total assets under management half-yearly progression


		Active
		fixed		Real	Active	Total
	Index	income	Solutions1	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2018	340.9	148.8	462.7	23.8	7.1	983.3

Canvas Acquisition	2.4	-	-	-	-	2.4

External inflows	22.4	8.7	18.2	0.6	0.5	50.4
External outflows	(41.2)	(2.2)	(8.7)	(0.5)	(0.1)	(52.7)
Overlay net flows	-	-	16.7	-	-	16.7
ETF Net Flows	0.2	-	-	-	-	0.2


External net flows2	(18.6)	6.5	26.2	0.1	0.4	14.6
Internal net flows	(0.3)	(2.5)	(0.3)	0.6	(0.1)	(2.6)

Total net flows	(18.9)	4.0	25.9	0.7	0.3	12.0
Cash management movements3	-	1.0	-	-	-	1.0
Market and other movements2	1.9	(1.4)	(14.9)	0.8	(0.3)	(13.9)


As at 30 June 2018	326.3	152.4	473.7	25.3	7.1	984.8


External inflows	31.8	7.0	15.6	0.9	0.1	55.4
External outflows	(27.8)	(4.0)	(7.4)	(1.1)	(0.1)	(40.4)
Overlay net flows	-	-	13.2	-	-	13.2
ETF Net Flows	(0.2)	-	-	-	-	(0.2)


External net flows2	3.8	3.0	21.4	(0.2)	-	28.0
Internal net flows	(0.4)	4.3	(0.4)	1.9	(0.2)	5.2


Total net flows	3.4	7.3	21.0	1.7	(0.2)	33.2
Cash management movements3	-	(1.5)	-	-	-	(1.5)
Market and other movements2	(19.5)	4.4	15.8	0.1	(1.8)	(1.0)


As at 31 December 2018	310.2	162.6	510.5	27.1	5.1	1,015.5

1. Solutions include liability driven investments, multi-asset funds, and include £303.9bn at 31 December 2018 (30 June 2018: £277.2bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, as their maturity dates are determined by client agreements and subject to a higher degree of variability. The total value of these assets at 31 December 2018 was £60.1bn (30 June 2018: £48.3bn) and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.

Asset and premium flows Page 65

4.01 LGIM Total assets under management half-yearly progression (continued)


		Global
		fixed		Real	Active	Total
	Index	income	Solutions1	assets	equities	AUM
	£bn	£bn	£bn	£bn	£bn	£bn


As at 1 January 2017	319.8	134.8	411.9	19.6	8.1	894.2
External inflows	25.4	8.3	16.0	0.8	0.1	50.6
External outflows	(29.7)	(3.0)	(9.0)	(0.5)	(0.1)	(42.3)
Overlay/ advisory net flows	-	-	13.4	-	-	13.4


External net flows2	(4.3)	5.3	20.4	0.3	-	21.7
Internal net flows	(0.3)	(0.4)	0.4	0.5	(1.3)	(1.1)
Disposal of LGN4	(0.3)	(0.5)	-	-	-	(0.8)

Total net flows	(4.9)	4.4	20.8	0.8	(1.3)	19.8
Cash management movements3	-	4.1	-	-	-	4.1
Market and other movements2	16.6	1.7	13.4	0.8	0.5	33.0


As at 30 June 2017	331.5	145.0	446.1	21.2	7.3	951.1


External inflows	25.7	6.8	17.2	0.7	-	50.4
External outflows	(31.7)	(3.4)	(6.7)	(0.7)	-	(42.5)
Overlay / advisory net flows	-	-	13.9	-	-	13.9


External net flows2	(6.0)	3.4	24.4	-	-	21.8
Internal net flows	(0.1)	(1.6)	(1.5)	1.0	0.6	(1.6)


Total net flows	(6.1)	1.8	22.9	1.0	0.6	20.2
Cash management movements3	-	(1.1)	-	-	-	(1.1)
Market and other movements2	15.5	3.1	(6.3)	1.6	(0.8)	13.1


As at 31 December 2017	340.9	148.8	462.7	23.8	7.1	983.3

1. Solutions include liability driven investments, multi-asset funds, and include £272.8bn at 31 December 2017 (30 June 2017: £280.8bn) of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets, as their maturity dates are determined by client agreements and subject to a higher degree of variability. The total value of these assets at 31 December 2017 was £47.0bn (30 June 2017: £81.7bn) and the movement in these assets is included in market and other movements for Solutions assets.
3. Cash management movements include external holdings in money market funds and other cash mandates held for clients' liquidity management purposes.
4. Legal & General Netherlands was sold on 6 April 2017 to Chesnara Plc.

Asset and premium flows Page 66

4.03 LGIM Total external assets under management and net flows


	Assets under management1				Net flows2


	31 December	30 June	31 December	30 June	31 December	30 June	31 December	30 June
	2018	2018	2017	2017	2018	2018	2017	2017
	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn


International1,3	177.7	165.8	160.1	135.8	9.7	9.9	15.1	17.9

UK Institutional
- Defined contribution3	70.8	64.0	60.1	55.3	4.9	3.5	1.3	1.7
- Defined benefit4	640.3	625.4	633.9	635.3	12.1	(0.3)	4.1	0.4

UK Retail
- Retail intermediary	25.5	25.1	24.2	21.4	1.6	1.4	1.4	1.8
- Personal investing5	5.1	5.7	5.5	5.4	(0.1)	(0.1)	(0.1)	(0.1)

ETF6	2.3	2.8	-	-	(0.2)	0.2	-	-


Total external	921.7	888.8	883.8	853.2	28.0	14.6	21.8	21.7

1. International asset are shown on the basis of client domicile. Total International AUM including assets managed internationally on behalf of UK clients amounted to £258bn as at 31 December 2018.
2. External net flows exclude movements in short-term solutions assets, with maturity as determined by client agreements and are subject to a higher degree of variability.
3. As part of the sale of the Mature Savings business to Swiss Re £5.5bn of assets have been re-classified from the Internal channel to the Defined contribution channel.
4. Defined benefit includes £61.7bn of assets managed in the US on behalf of UK clients.
5. Personal investing includes £1.8bn of legacy Banks and Building Society customers which is the principal cause of net outflows.
6. ETF reflects the acquisition of Canvas that completed in March 2018.

4.04 LGIM Investment performance

Investment performance across our assets under management (AUM) as at 31 December 2018 is set out in the table below. This has been calculated internally by LGIM to provide general guidance as to how our assets under management are performing. The data is aggregated and is not intended for clients or potential clients investing in our products.
Figures represent the percentage of AUM delivering successful performance over the performance period, measured with reference to a set of performance criteria. The performance criteria may be defined relative to a benchmark, peer group median or any other metric deemed appropriate for the assets being measured.
Performance against success measures - benchmark or performance criteria
For the year ended 31 December 2018	One year period	Three year period	Five year period


Actively Managed AUM1	74%	83%	81%
Index Managed AUM2	99%	99%	99%
Client Solutions AUM3	100%	100%	100%
Percentage of AUM reported4	89%	68%	51%

1. Actively Managed AUM: actively managed products measured against applicable benchmark or peer group performance.
2. Index Managed AUM: assets managed against benchmark within applicable tolerance.
3. Client solutions AUM: products managed against specific risk target or client outcome.
4. Excluded from the performance measurement are non-discretionary accounts, funds on our investment only platform with external manager holdings, funds with insufficient performance history and transition management accounts.

Performance is measured on a gross-of-fee basis for institutional accounts and net-of-fee for retail funds.

Asset and premium flows Page 67

4.05 Reconciliation of Assets under management to Consolidated Balance Sheet financial investments, investment property and cash and cash equivalents


	2018	2017
	£bn	£bn

Assets under management	1,015	983
Derivative notionals1	(304)	(273)
Third party assets2	(284)	(261)
Other3	53	42


Total financial investments, investment property and cash and cash equivalents	480	491

Less: assets of operations classified as held for sale4	(25)	(22)
Financial investments, investment property and cash and cash equivalents	455	469

1. Derivative notionals are included in the assets under management measure but are not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others which are not included on the Group's Consolidated Balance Sheet.
3. Other includes assets that are managed by third parties on behalf of the group, other assets and liabilities related to financial investments, derivative assets and pooled funds.
4. Assets of operations classified as held for sale primarily relate to Mature Savings following the group's announcement to sell the Mature Savings business to Swiss Re.

4.06 Assets under administration


	Workplace1	Annuities2	Workplace	Annuities
	2018	2018	2017	2017
	£bn	£bn	£bn	£bn


At 1 January	27.7	58.2	20.8	54.4
Gross inflows	5.6	9.9	5.9	4.6
Gross outflows	(1.8)	-	(1.4)	-
Payments to pensioners	-	(3.5)	-	(3.3)

Net flows	3.8	6.4	4.5	1.3
Market and other movements	(1.5)	(1.6)	2.4	2.5



At 31 December	30.0	63.0	27.7	58.2

1. Workplace assets under administration as at 31 December 2018 includes £29.7bn of assets under management included in Note 4.01.
2. Annuities assets under administration as at 31 December 2018 includes £59.3bn of assets under management included in Note 4.01.

Asset and premium flows Page 68

4.07 Assets under administration half-yearly progression

	Workplace	Annuities	Workplace	Annuities
	2018	2018	2017	2017
For the year ended 31 December 2018	£bn	£bn	£bn	£bn


As at 1 January 2018	27.7	58.2	20.8	54.4
Gross inflows	2.7	1.1	3.4	2.0
Gross outflows	(0.8)	-	(0.6)	-
Payments to pensioners	-	(1.7)	-	(1.6)

Net flows	1.9	(0.6)	2.8	0.4
Market and other movements	0.1	(1.2)	1.3	0.8
Disposals	-	-	-	-


At 30 June	29.7	56.4	24.9	55.6


Gross inflows	2.9	8.8	2.5	2.6
Gross outflows	(1.0)	-	(0.8)	-
Payments to pensioners	-	(1.8)	-	(1.7)

Net flows	1.9	7.0	1.7	0.9
Market and other movements	(1.6)	(0.4)	1.1	1.7


As at 31 December 2018	30.0	63.0	27.7	58.2

Asset and premium flows Page 69

4.08 LGR new business

		6 months to	6 months to		6 months to	6 months to
	Total	31 December	30 June	Total	31 December	30 June
	2018	2018	2018	2017	2017	2017
	£m	£m	£m	£m	£m	£m


Pension risk transfer
- UK	8,351	7,844	507	3,405	1,901	1,504
- US	646	426	220	543	428	115
- Bermuda	143	135	8	-	-	-
Individual annuities	795	458	337	671	326	345
Lifetime mortgage advances	1,197	676	521	1,004	580	424
Longevity insurance1	287	287	-	800	-	800


Total LGR new business	11,419	9,826	1,593	6,423	3,235	3,188


1. Represents the notional size of the transaction and is based on the present value of the fixed leg cash flows discounted at the LIBOR curve.

4.09 Insurance new business
		6 months to	6 months to		6 months to	6 months to
	Total	31 December	30 June	Total	31 December	30 June
	2018	2018	2018	2017	2017	2017
	£m	£m	£m	£m	£m	£m


UK Retail protection	175	88	87	172	86	86
UK Group protection	83	49	34	49	21	28
US protection1	85	43	42	79	41	38
Netherlands protection2	-	-	-	1	-	1


Total LGI new business	343	180	163	301	148	153


1. In local currency, US Protection reflects new business of $114m for 2018 (H1: $58m; H2: $56m) (2017: $102m (H1: $48m; H2 $54m))
2. Legal & General Netherlands was sold on 6 April 2017.

4.10 Gross written premium on insurance business
		6 months to	6 months to		6 months to	6 months to
	Total	31 December	30 June	Total	31 December	30 June
	2018	2018	2018	2017	2017	2017
	£m	£m	£m	£m	£m	£m


UK Retail protection	1,279	646	633	1,232	623	609
UK Group protection	329	106	223	326	102	224
General insurance	410	217	193	369	196	173
US Protection1	972	511	461	973	482	491
Netherlands protection2	-	-	-	14	-	14
Longevity insurance	379	192	187	361	186	175


Total gross written premiums on insurance business	3,369	1,672	1,697	3,275	1,589	1,686


1. In local currency, US Protection reflects gross written premiums of $1,299m for 2018 (H1: $635m; H2: $664m) (2017: $1,254m (H1: $618m; H2 $636m))
2. Legal & General Netherlands was sold on 6 April 2017.

Capital Page 71

5.01 Group regulatory capital - Solvency II

The group complies with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK and to measure and monitor its capital resources on this basis.

The Solvency II results are estimated and unaudited. Further explanation of the underlying methodology and assumptions are set out in the sections below.

The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast majority of the risk to which the group is exposed is assessed on the Internal Model basis approved by the PRA. Capital requirements for a few smaller entities are assessed using the Standard Formula basis on materiality grounds. The group's US insurance businesses are valued on a local statutory basis, following the PRA's approval to use the Deduction and Aggregation method of including these businesses in the group solvency calculation.

The table below shows the "shareholder view" of the group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model, Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) (recalculated as at end December 2018). The TMTP incorporates estimated impacts of end 2018 economic conditions and changes during 2018 to the Internal Model and Matching Adjustment approvals. This is in line with group's management of the capital position on a dynamic TMTP basis.

(a) Capital position

As at 31 December 2018, and on the above basis, the group had a surplus of £6.9bn (31 December 2017: £6.9bn) over its Solvency Capital Requirement, corresponding to a Solvency II capital coverage ratio on a "shareholder view" basis of 188% (31 December 2017: 189%). The shareholder view of the Solvency II capital position is as follows:
	2018	2017
	£bn	£bn


Core tier 1 Own Funds	11.5	11.6
Tier 2 subordinated liabilities1	3.5	3.1
Eligibility restrictions	(0.2)	(0.1)
Solvency II Own Funds2,3	14.8	14.6
Solvency Capital Requirement	(7.9)	(7.7)


Solvency II surplus	6.9	6.9


SCR coverage ratio4	188%	189%

1. Tier 2 subordinated liabilities include £400m of subordinated debt issued during 2018. Liabilities also include £400m of debt callable in 2019. On 4 February 2019, notification was given that the group intends to redeem these notes in full on 1 April 2019. Effective from the notification date, the notes would no longer be treated as tier 2 own funds for Solvency II purposes.
2. Solvency II Own Funds do not include an accrual for the full year dividend of £704m (2017: £658m) declared after the balance sheet date.
3. Solvency II Own Funds allow for a risk margin of £5.5bn (31 December 2017: £5.9bn) and TMTP of £5.2bn (31 December 2017: £6.2bn).
4. Coverage ratio is based on unrounded inputs.

The "shareholder view" basis excludes the contribution that the with-profits fund and the final salary pension scheme would normally make to the group position. This is reflected by reducing the group's Own Funds and the group's SCR by the amount of the SCR for the with-profits fund and the final salary pension scheme.

On a proforma basis, which includes the contribution of with-profits fund and the final salary pension scheme in the group's Own Funds and corresponding SCR, the coverage ratio at 31 December 2018 is 181% (31 December 2017: 181%).

On 6 December 2017 the group announced the sale of its Mature Savings business to Swiss Re. Swiss Re assumed the economic exposure of the business from 1 January 2018 via a risk transfer agreement. It is expected that the formal transfer of the business will be completed in 2019, subject to satisfaction of normal conditions for a transaction including court sanction. The transfer will be effected by way of a Part VII transfer under the Financial Services Markets Act 2000. The impact of the risk transfer agreement is reflected in both Own Funds and SCR as at 31 December 2018.

Capital Page 72

5.01 Group regulatory capital - Solvency II (continued)

(b) Methodology

Own Funds comprise the excess of the value of assets over the liabilities, as valued on a Solvency II basis. Subordinated debt issued by the group is considered to be part of available capital, rather than a liability, as it is subordinate to policyholder claims. Own Funds include deductions in relation to fungibility and transferability restrictions, where the surplus Own Funds of a specific group entity cannot be freely transferred around the group due to local legal or regulatory constraints.

Assets are valued at IFRS fair value with adjustments to remove intangibles and deferred acquisition costs, and to value reassurers' share of technical provisions on a basis consistent with the liabilities on the Solvency II balance sheet.

Liabilities are valued on a best estimate market consistent basis, with the application of a Solvency II Matching Adjustment for valuing annuity liabilities. Own Funds incorporate changes to the Internal Model and Matching Adjustment during 2018 and the impacts of a recalculation of the TMTP as at end December 2018. The recalculated TMTP of £5.2bn (31 December 2017: £6.2bn) is net of amortisation to 31 December 2018.

The liabilities include a Risk Margin of £5.5bn (31 December 2017: £5.9bn) which represents an allowance for the cost of capital for a purchasing insurer to take on the portfolio of liabilities and residual risks that are deemed to be not hedgeable under Solvency II. This is calculated using a cost of capital of 6% as prescribed by the European Insurance and Occupational Pensions Authority (EIOPA).

The Solvency Capital Requirement is the amount of capital required to cover the 1-in-200 worst projected future outcome in the year following the valuation, allowing for realistic management and policyholder actions and the impact of the stress on the tax position of the group. This allows for diversification between the different firms within the group and between the risks to which they are exposed.

All material EEA insurance firms, including Legal & General Assurance Society Limited (the LGAS), Legal & General Insurance Limited, and Legal & General Assurance (Pensions Management) Limited are incorporated into the group's Solvency II Internal Model assessment of required capital, assuming diversification of the risks between and within those firms. These firms, as well as the non-EEA insurance firm (Legal & General Reinsurance Company Limited (LGRe) based in Bermuda) contribute over 94% of the group's SCR.

Insurance firms for which the capital requirements are less material are valued on a Solvency II Standard Formula basis. Firms which are not regulated but which carry material risks to the group's solvency are modelled in the Internal Model on the basis of applying an appropriate stress to their net asset value.

Legal & General America's Banner Life and its subsidiaries (LGA) are incorporated into the calculation of group solvency using a Deduction and Aggregation basis. All risk exposure in these firms is valued on a local statutory basis, with capital requirements set to a multiple of local statutory Risk Based Capital (RBC) and further restrictions on the surplus contribution to the group. The US regulatory regime is considered to be equivalent to Solvency II by the European Commission. The contribution to group SCR is 150% of the local Company Action Level RBC (CAL RBC). The contribution to group's Own Funds is the SCR together with any surplus capital in excess of 250% of CAL RBC.

All non-insurance regulated firms are included using their current regulatory surplus.

Allowance is made within the Solvency II balance sheet for the group's defined benefit pension schemes using results on an IFRS basis. Within the SCR an allowance is made by stressing the IFRS result position using the same Internal Model basis as for the insurance firms.

Capital Page 73

5.01 Group regulatory capital - Solvency II (continued)

The calculation of the Solvency II balance sheet and associated capital requirements requires a number of assumptions, including:

(i) assumptions required to derive the present value of best estimate liability cash flows. Non-market assumptions are consistent with those underlying the group's IFRS disclosures, but with the removal of any prudence margins. Future investment returns and discount rates are those defined by EIOPA, which means that the risk free rates used to discount liabilities are market swap rates, with a 10 basis points (2017: 10 basis points) deduction to allow for a credit risk adjustment for sterling denominated liabilities. For annuities that are eligible, the liability discount rate includes a Matching Adjustment. This Matching Adjustment varies between LGAS and LGRe and by the currency of the relevant liabilities.

At 31 December 2018 the Matching Adjustment for UK GBP liabilities was 138 basis points (31 December 2017: 106 basis points) after deducting an allowance for the EIOPA fundamental spread equivalent to 52 basis points (31 December 2017: 51 basis points).

(ii) assumptions regarding management actions and policyholder behaviour across the full range of scenarios. The only management actions allowed for are those that have been approved by the Board and are in place at the balance sheet date;

(iii) assumptions regarding the volatility of the risks to which the group is exposed. Assumptions have been set using a combination of historic market, demographic and operating experience data. In areas where data is not considered robust, expert judgement has been used; and

(iv) assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.

(d) Analysis of change

The table below shows the movement (net of tax) during the period ended 31 December 2018 in the group's Solvency II surplus.

	2018	2017
	£bn	£bn


Surplus arising from back-book (including release of SCR)	1.4	1.3
Release of Risk Margin1	0.4	0.4
Amortisation of TMTP2	(0.4)	(0.4)
Operational Surplus Generation3	1.4	1.3
New Business Strain	(0.5)	(0.1)
Net Surplus Generation	0.9	1.2
Dividends paid4	(0.9)	(0.9)
Operating variances5	0.1	0.4
Mergers, acquisitions and disposals6	-	-
Market movements7	(0.5)	-
Subordinated debt	0.4	0.5

Total Surplus movement (after dividends paid in the period)	-	1.2

1. Based on the risk margin in force at end 2017 and does not include the release of any risk margin added by new business written in 2018.
2. TMTP amortisation based on a linear run down of the end-2017 TMTP of £5.3bn (net of tax, £6.2bn before tax).
3. Release of surplus generated by in-force business and includes management actions which at the start of the year could have been reasonably expected to take place. For 2018 these were primarily to deliver further eligible assets and liabilities into the Matching Adjustment portfolio and an increase in direct investments allocation to the annuity back-book.
4. Dividends paid are the amounts from the 2017 final dividend declaration paid in H1 18 and 2018 interim dividend paid in H2 2018 (FY 17: 2016 final and 2017 interim dividend declarations).
5. Operating variances include the impact of experience variances, changes to valuation and capital calibration assumptions, other management actions including changes in asset mix, hedging strategies, and Matching Adjustment optimisation.
6. Mergers, acquisitions and disposals include the impact of the sale of Mature Savings (in excess of the amount which came through in 2017) and the purchase of 100% of CALA Homes.
7. Market movements represents the impact of changes in investment market conditions over the period and changes to future economic assumptions. Market movements in year ended 31 December 2018 include a reduction in the risk margin of £0.2bn (net of tax) and a reduction in TMTP of £0.5bn.

Operational Surplus Generation is the expected surplus generated from the assets and liabilities in-force at the start of the year. It is based on assumed real world returns and best estimate non-market assumptions. It includes the impact of management actions to the extent that, at the start of the year, these were reasonably expected to be implemented over the year.

New Business Strain is the cost of acquiring, and setting up Technical Provisions and SCR (net of any premium income), on actual new business written over the year. It is based on economic conditions at the point of sale.

Capital Page 74

5.01 Group regulatory capital - Solvency II (continued)


(e) Reconciliation of IFRS Net Release from Operations to Solvency II Net Surplus Generation

(i) The table below provides a reconciliation of the group's IFRS Release from Operations to Solvency II Operational Surplus Generation.
	2018	2017
	£bn	£bn


IFRS Release from Operations	1.3	1.3
Expected release of IFRS prudential margins	(0.5)	(0.5)
Releases of IFRS specific reserves1	(0.1)	(0.1)
Solvency II investment margin2,3	0.1	0.2
Release of Solvency II Capital Requirement and Risk Margin less TMTP amortisation	0.6	0.4

Solvency II Operational Surplus Generation4	1.4	1.3

1. Release of prudence from IFRS specific reserves which are not included in Solvency II (e.g. long term expenses and longevity margins).
2. Release of prudence related to differences between the EIOPA-defined fundamental spread and Legal & General's best estimate default assumption.
3. Expected market returns earned on LGR's free assets in excess of risk free rates over 2018.
4. Solvency II Operational Surplus Generation includes management actions which at the start of 2018 were expected to take place within the group plan.

(ii) The table below provides a reconciliation of the group's IFRS New Business Surplus to Solvency II New Business Strain.
	2018	2017
	£bn	£bn
IFRS New Business Surplus	0.2	0.2
Removal of requirement to set up prudential margins above best estimate on New Business1	0.2	0.2
Set up of Solvency II Capital Requirement on New Business2	(0.7)	(0.3)
Set up of Risk Margin on New Business	(0.2)	(0.2)
Solvency II New Business Strain	(0.5)	(0.1)
1. Release of prudential margins in 2018 is equal to that observed in 2017 as the benefit from additional volumes written is offset due to mix of business written and competitive pressures in the market.
2. Higher New Business Strain in 2018 compared to 2017 is attributable to a significant increase in volumes sold over the year.

(f) Reconciliation of IFRS shareholders' equity to Solvency II Own Funds


A reconciliation of the group's IFRS shareholders' equity to Own Funds is given below:
	2018	20171
	£bn	£bn
IFRS shareholders' equity2	8.6	7.5
Remove DAC, goodwill and other intangible assets and associated liabilities2	(0.8)	(0.4)
Add IFRS carrying value of subordinated debt treated as available capital under Solvency II3	3.3	2.9
Insurance contract valuation differences4	5.1	6.2
Difference in value of net deferred tax liabilities	(0.3)	(0.7)
SCR for with-profits fund and final salary pension schemes	(0.8)	(0.7)
Other5	(0.1)	(0.1)
Eligibility restrictions6	(0.2)	(0.1)
Solvency II Own Funds7	14.8	14.6
1. Following a change in accounting policy for LGIA term assurance reserves, specific IFRS balance sheet items have been restated, notably deferred acquisition costs, reinsurers' share of contract liabilities, non-participating insurance contracts, deferred tax liabilities and other liabilities. The overall net impact on the group's IFRS shareholders' equity as at 31 December 2017 is a reduction of £327m. Further details on the change in accounting policy is provided in Note 3.01.
2. Values are per the consolidated financial statements.
3. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.
4. Differences in the measurement of technical provisions between IFRS and Solvency II.
5. Reflects valuation differences on other assets and liabilities, predominately in respect of borrowings measured at fair value under Solvency II.
6. Relating to the Own Funds of non-insurance regulated entities that are subject to local regulatory rules.
7. Solvency II Own Funds do not include an accrual for the full year dividend of £704m (2017: £658m) declared after the balance sheet date.

Capital Page 75

5.01 Group regulatory capital - Solvency II (continued)

(g) Sensitivity analysis The following sensitivities are provided to give an indication of how the group's Solvency II surplus as at 31 December 2018 would have changed in a variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market risks, adverse stresses will happen together.

	Impact on	Impact on	Impact on	Impact on
	net of tax	net of tax	net of tax	net of tax
	Solvency II	Solvency II	Solvency II	Solvency II
	capital	coverage	capital	coverage
	surplus9	ratio9	surplus9	ratio9
	31 Dec 2018	31 Dec 2018	31 Dec 2017	31 Dec 2017
	£bn	%	£bn	%


Credit spreads widen by 100bps assuming an escalating addition to ratings1,2	0.3	10	0.2	8
Credit spreads narrow by 100bps assuming an escalating addition to ratings1,2	(0.4)	(10)	(0.3)	(9)
Credit migration3	(0.8)	(10)	(0.5)	(6)
25% rise in equity markets4	0.5	6	0.5	5
25% fall in equity markets4	(0.5)	(6)	(0.5)	(5)
15% rise in property markets5	0.5	5	0.3	4
15% fall in property markets5	(0.6)	(7)	(0.4)	(4)
100bps increase in risk free rates6	0.9	24	0.8	20
50bps decrease in risk free rates6,7	(0.5)	(12)	(0.5)	(10)
Substantially reduced Risk Margin8	0.4	5	0.1	1
1. The spread sensitivity applies to group's corporate bond (and similar) holdings, with no change in the firm's long term default expectations. Restructured lifetime mortgages are excluded.
2. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is 100 basis points.
3. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, sale and leaseback rental strips and lifetime mortgage senior notes).
4. This will be primarily equity exposure in LGC but will also include equity-based mutual funds and other investments that do not look like equities but are assumed to stress like an equity (for example, certain investments in subsidiaries). The level of stress is 25% but this does not mean that all equity or equity-like assets will fall by this percentage, as some have factors that increase or decrease the riskiness relative to general equity levels (via a beta factor).
5. Property assets stressed in this sensitivity include residual values from sale and leaseback, full amount of lifetime mortgages and direct investments treated as property.
6. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.
7. In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
8. Assuming a 2/3 reduction in the Risk Margin, allowing for offset from the Transitional Measure on Technical Provisions.
9. Both the 2017 and 2018 sensitivities exclude the impact from the Mature Savings business (including the With-Profits fund) as the risks have been transferred to ReAssure division of Swiss Re from 1 January 2018.


The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. These results all allow (on an approximate basis) for the recalculation of TMTP as at 31 December 2018 where the impact of the stress would cause this to change materially. The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress. The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if performed at an alternative reporting date.

Capital Page 76

5.01 Group regulatory capital - Solvency II (continued)

(h) Analysis of Group Solvency Capital Requirement
The table below shows a breakdown of the group's SCR by risk type. The split is shown before the effects of diversification and tax.

	2018	2017
	%	%


Interest Rate	1	2
Equity	5	6
Property	8	5
Credit1	23	26
Currency	3	3
Inflation	5	4
Total Market Risk2	45	46
Counterparty Risk	2	1
Life Mortality	3	2
Life Longevity3	30	31
Life Mass Lapse	1	2
Life Non-Mass Lapse	2	3
Life Catastrophe	5	3
Expense	2	3
Total Insurance Risk	43	44
Non-life underwriting	3	2
Operational Risk	5	4
Miscellaneous4	2	3


Total SCR	100	100

1. Credit risk is one of the group's most significant exposures, arising predominantly from the portfolio of bonds and bond-like assets backing the group's annuity business.
2. In addition to credit risk the group also has significant exposure to other market risks, primarily due to the investment holdings within the shareholder funds but also the risk to fee income from assets backing unit linked Savings business.
3. Longevity risk is the group's most significant insurance risk exposure, arising from the annuity book on which the majority of the longevity risk is retained.
4. Miscellaneous includes LGA on a Deduction and Aggregation basis and the sectoral capital requirements for non-insurance regulated firms.

Capital Page 77

5.02 Estimated Solvency II new business contribution

(a) New business by product1
Management estimates of the present value of new business premium (PVNBP) and the margin for selected lines of business are provided below:


		Contri-			Contri-
		bution			bution
		from new			from new
	PVNBP	business2	Margin3	PVNBP	business2	Margin3
	2018	2018	2018	2017	2017	2017
	£m	£m	%	£m	£m	%


LGR - UK annuity business	9,148	722	7.9	4,083	346	8.5

UK Protection Total	1,609	115	7.1	1,496	129	8.6
- Retail Protection	1,271	93	7.3	1,293	111	8.6
- Group Protection	338	22	6.4	203	18	8.7

US Protection4	854	96	11.2	764	89	11.7


1. Selected lines of business only.
2. The contribution from new business is defined as the present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.
3. Margin is based on unrounded inputs.
4. In local currency, US Protection reflects PVNBP of $1,088m (31 December 2017: $985m) and a contribution from new business of $122m (31 December 2017: $115m).

The significant increase in the LGR UK new business contribution is driven by the £4.4bn and £2.4bn bulk annuity transfers with British Airways and Nortel respectively. The change in LGR margin reflects differences in the mix of new business and the strong pricing discipline, which we have maintained in a competitive market. In UK Protection business we have seen competitive pricing pressure combined with a shift in the mix of business towards lower margin products. In US Protection the positive contribution from higher volumes and favourable business mix is offset by the lower margin of newly repriced term products reflective of the competitive dynamics of the US term assurance market.

Capital Page 78

5.02 Estimated Solvency II new business contribution (continued)

(b) Assumptions

The key economic assumptions are as follows:

	2018	2017
	%	%


Margin for risk	3.2	3.0

Risk free rate
- UK	1.5	1.6
- US	2.7	2.4
Risk discount rate (net of tax)
- UK	4.7	4.6
- US	5.9	5.4

Long-term rate of return on non profit annuities in LGR	3.4	3.0

The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat Margin for risk. The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment. The risk free rate shown above is a weighted average based on the projected cash flows.

Other than updating for recent experience, all other economic and non-economic assumptions and methodologies that would have a material impact on the margin for these contracts are unchanged from those previously used by the group for its European Embedded Value reporting, other than the cost of currency hedging which has been updated to reflect current market conditions and hedging activity in light of Solvency II. In particular:

· The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period. The calculated return takes account of derivatives and other credit instruments in the investment portfolio. The returns on fixed and index-linked assets are calculated net of an allowance for default risk which takes account of the credit rating and the outstanding term of the assets. The allowance for corporate and other unapproved credit asset defaults within the new business contribution is calculated explicitly for each bulk annuity scheme written, and the weighted average deduction for business written in 2018 equates to a level rate deduction from the expected returns for the overall annuities portfolio of 17 basis points.

· Non-economic assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding development costs). An allowance is made for future mortality improvement. For new business, mortality assumptions may be modified to take certain scheme specific features into account. These are normally reviewed annually.

Tax

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with substantively enacted future changes.

The profits on the new business are calculated on an after tax basis and are grossed up by the notional attributed tax rate. For the UK, the after tax basis assumes the annualised current rate of 19% and subsequent enacted future tax rate of 17% from 1 April 2020 onwards. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 17%.

US covered business profits are grossed up using the long term corporate tax rate of 21%.

Capital Page 79

5.02 Estimated Solvency II new business contribution (continued)

Basis of preparation

Solvency II new business contribution reflects the portion of Solvency II value added by new business written in the period. It has been calculated in a manner consistent with principles and methodologies as set out in the group's 2018 Annual Report and Accounts and Full Year Results.

Solvency II new business contribution has been calculated for the group's most material insurance-related businesses, namely, LGR, LGI and LGA.

Description of methodology

The objective of the Solvency II new business contribution is to provide shareholders with information on the long term contribution of new business written in 2018.

The Solvency II new business contribution has been calculated as the present value of future shareholder profits arising from business written in 2018. Cash flow projections are determined using best estimate assumptions for each component of cash flow and for each policy group. Best estimate assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are set in accordance with the CFO Forum EEV Principles, dated April 2016.

The PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the calculation of the new business contribution for the financial period.

The new business margin is defined as new business contribution divided by the PVNBP. The premium volumes used to calculate the PVNBP are the same as those used to calculate new business contribution.

LGA is consolidated into the group solvency balance sheet on a US Statutory solvency basis. Intra-group reinsurance arrangements are in place between US, UK and Bermudan businesses and it is expected that these arrangements will be periodically extended to cover future new business. The LGA new business margin looks through the intra-group arrangements.

Projection assumptions

Cash flow projections are determined using best estimate assumptions for each component of cash flow for each line of business. Future economic and investment return assumptions are based on conditions at the end of the financial period.

Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

All costs relating to new business, even if incurred elsewhere in the group, are allocated to the new business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

Tax

Risk discount rate

The risk discount rate (RDR) is duration-based and is a combination of the risk free curve and a flat Margin for risk.

The risk free rates have been based on a swap curve net of the EIOPA-specified Credit Risk Adjustment of 10 basis points for GBP and 18 basis points for USD (31 December 2017: 10 basis points for GBP and for USD).

The Margin for risk has been determined based on an assessment of the group's weighted average cost of capital (WACC). This assessment incorporates a beta for the group, which measures the correlation of movements in the group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.

Capital Page 80

5.02 Estimated Solvency II new business contribution (continued)

The WACC is derived from the group's cost of equity, cost of debt, and the proportion of equity to debt in the group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the company's beta.

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a time adjusted rate of 17.3% (31 December 2017: 17.5%).

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital and the inherent strength of the group's regulatory reserves, is appropriate to reflect the risks within the covered business.


(d) Reconciliation of PVNBP to gross written premium

A reconciliation of PVNBP and gross written premium is given below:
	2018	2017
	£bn	£bn


PVNBP	11.6	6.3
Effect of capitalisation factor	(2.0)	(2.0)


New business premiums from selected lines	9.6	4.3
Other1	2.2	2.4


Total LGR and LGI new business	11.8	6.7
Annualisation impact of regular premium long-term business	(0.2)	(0.2)
IFRS gross written premiums from existing long-term insurance business	2.8	2.8
Deposit accounting for lifetime mortgage advances	(1.2)	(1.0)
General Insurance gross written premiums	0.4	0.4
Future premiums on longevity swap new business	(0.3)	(0.8)


Total gross written premiums2	13.3	7.9


1. Other principally includes annuity sales in the US, lifetime mortgage advances and discounted future cash flows on longevity swap new business.
2. This excludes gross written premiums from discontinued operations.

Investments Page 81

6.01 Investment portfolio


	Market	Market
	value	value
	2018	2017
	£m	£m


Worldwide total assets under management1	1,019,858	984,120
Client and policyholder assets	(930,516)	(900,904)
Non-unit linked with-profits assets	(9,893)	(11,113)


Investments to which shareholders are directly exposed	79,449	72,103


1. Worldwide total assets under management include LGIM AUM and other group assets not managed by LGIM.

Analysed by investment class:

			Other
			non profit		Other
		LGR	insurance	LGC2	shareholder
		investments	investments	investments	investments	Total	Total
		2018	2018	2018	2018	2018	2017
	Notes	£m	£m	£m	£m	£m	£m


Equities3,6		205	10	2,391	179	2,785	2,960
Bonds	6.03	57,355	1,869	3,384	488	63,096	57,075
Derivative assets4		4,393	-	15	3	4,411	4,062
Property	6.04	2,930	-	125	-	3,055	2,832
Cash, cash equivalents and loans5		2,294	539	1,633	428	4,894	4,763


Financial investments		67,177	2,418	7,548	1,098	78,241	71,692


Other assets6		91	-	1,117	-	1,208	411


Total investments		67,268	2,418	8,665	1,098	79,449	72,103


2. LGC property includes £23m of shareholder investment property.
3. Equity investments include a total of £260m (2017: £277m) in respect of Peel Media Holdings Limited (MediaCityUK), Access Development Partnership and Scitech.
4. Derivative assets are shown gross of derivative liabilities of £3.3bn (2017: £2.3bn). Exposures arise from 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.
5. Loans include reverse repurchase agreements of £857m (2017: £679m).
6. Other assets includes the consolidated net asset value of the group's investments in CALA Homes and other housing businesses, previously disclosed within Financial investments.

Investments Page 82

6.02 Direct Investments


(a) Analysed by asset class


	Direct1	Traded2		Direct1	Traded2
	Investments	securities	Total	Investments	securities	Total
	2018	2018	2018	2017	2017	2017
	£m	£m	£m	£m	£m	£m


Equities	1,166	1,619	2,785	930	2,030	2,960
Bonds3	13,369	49,727	63,096	9,726	47,349	57,075
Derivative assets	-	4,411	4,411	-	4,062	4,062
Property4	3,055	-	3,055	2,832	-	2,832
Cash, cash equivalents and loans	418	4,476	4,894	474	4,289	4,763

Financial investments	18,008	60,233	78,241	13,962	57,730	71,692

Other assets	1,208	-	1,208	411	-	411


Total investments	19,216	60,233	79,449	14,373	57,730	72,103
1. Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct Investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.
2. Traded securities are defined by exclusion. If an instrument is not a Direct Investment, then it is classed as a traded security.
3. Bonds include lifetime mortgages of £3,227m (2017: £2,023m).
4. A further breakdown of property is provided in Note 6.04.

(b) Analysed by segment

		LGR	LGC1	LGI2	Total
		2018	2018	2018	2018
		£m	£m	£m	£m
	-

Equities		6	1,124	36	1,166
Bonds3		12,716	3	650	13,369
Property4		2,930	125	-	3,055
Cash, cash equivalents and loans		-	64	354	418
Financial investments		15,652	1,316	1,040	18,008
Other assets5		91	1,117	-	1,208
Total direct investments		15,743	2,433	1,040	19,216

1. LGC includes £51m of equities and £23m of property that belong to other shareholder funds.
2. LGI includes £26m of equity investments in LGI UK. The remaining £10m of equity investment, bonds and loans and receivables are in the US business.
3. Bonds include lifetime mortgages of £3,227m.
4. A further breakdown of property is provided in Note 6.04.
5. Other assets include finance leases of £91m and the consolidated net asset value of the group's investments in CALA Homes and other housing businesses, previously disclosed within financial investments.



	LGR	LGC1	LGI2	Total
	2017	2017	2017	2017
	£m	£m	£m	£m


Equities	-	922	8	930
Bonds3	9,272	22	432	9,726
Property4	2,722	110	-	2,832
Cash, cash equivalents and loans	88	150	236	474
Financial investments	12,082	1,204	676	13,962
Other assets5	92	319	-	411
Total direct investments	12,174	1,523	676	14,373

1. LGC included £30m of equities, £19m of bonds and £23m of property that belong to other shareholder funds.
2. LGI included £8m of equity investments in LGI UK. The bonds and loans are in the US business.
3. Bonds included lifetime mortgages of £2,023m.
4. A further breakdown of property is provided in Note 6.04.
5. Other assets included finance leases of £92m.

Investments Page 83

6.03 Bond portfolio summary

(a) Sectors analysed by credit rating



					BB or
	AAA	AA	A	BBB	below	Other	Total2	Total2
As at 31 December 2018	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,385	9,591	181	410	48	-	11,615	18
Banks:
- Tier 1	-	-	-	1	-	1	2	-
- Tier 2 and other subordinated	-	-	87	24	2	-	113	-
- Senior	18	1,971	2,946	59	-	42	5,036	8
- Covered	191	1	-	-	-	-	192	-
Financial Services:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	165	91	11	-	6	273	-
- Senior	-	282	69	305	8	-	664	1
Insurance:
- Tier 1	-	-	-	-	-	-	-	-
- Tier 2 and other subordinated	-	113	1	46	-	-	160	-
- Senior	-	177	543	94	-	-	814	1
Consumer Services and Goods:
- Cyclical	-	604	663	1,343	134	2	2,746	4
- Non-cyclical	216	970	1,138	2,639	308	1	5,272	8
- Health Care	-	150	375	405	4	-	934	2
Infrastructure:
- Social	92	768	3,425	829	38	-	5,152	8
- Economic	331	23	1,420	2,335	42	-	4,151	7
Technology and Telecoms	93	166	933	2,296	53	1	3,542	7
Industrials	-	3	709	629	42	-	1,383	2
Utilities	-	153	5,498	4,129	5	27	9,812	16
Energy	-	-	464	590	10	-	1,064	2
Commodities	-	-	242	481	11	-	734	1
Oil and Gas	-	382	583	535	110	-	1,610	3
Real estate	-	-	1,233	1,425	125	-	2,783	4
Structured finance ABS / RMBS / CMBS / Other	430	873	180	250	8	1	1,742	3
Lifetime mortgage loans1	1,938	718	249	219	-	103	3,227	5
CDOs	-	-	61	14	-	-	75	-


Total £m	4,694	17,110	21,091	19,069	948	184	63,096	100


Total %	7	27	34	30	2	-	100


1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring. Unstructured lifetime mortgages have been categorised as AA.
2. The group's bond portfolio is dominated by LGR investments. These account for £57,355m, representing 91% of the total group portfolio.

Investments Page 84

6.03 Bond portfolio summary (continued)

(a) Sectors analysed by credit rating (continued)



					BB or
	AAA	AA	A	BBB	below	Other	Total2	Total2
As at 31 December 2017	£m	£m	£m	£m	£m	£m	£m	%


Sovereigns, Supras and Sub-Sovereigns	1,477	9,376	210	328	59	-	11,450	20
Banks:
- Tier 1	-	-	-	1	1	2	4	-
- Tier 2 and other subordinated	142	-	74	42	2	-	260	-
- Senior	-	1,366	2,782	90	-	-	4,238	8
- Covered	221	-	-	-	-	-	221	-
Financial Services:
- Tier 1	1	-	-	-	-	-	1	-
- Tier 2 and other subordinated	-	123	118	10	-	-	251	-
- Senior	-	323	368	205	9	-	905	2
Insurance:
- Tier 1	-	-	-	1	-	-	1	-
- Tier 2 and other subordinated	-	127	4	51	-	-	182	-
- Senior	-	128	464	68	-	-	660	1
Consumer Services and Goods:
- Cyclical	-	289	841	1,542	271	2	2,945	5
- Non-cyclical	215	601	1,313	2,114	165	1	4,409	8
- Health care	3	32	262	189	4	-	490	1
Infrastructure:
- Social	93	708	3,445	1,111	21	-	5,378	9
- Economic	179	30	949	2,182	44	-	3,384	6
Technology and Telecoms	73	167	833	1,988	57	2	3,120	6
Industrials	-	3	851	376	52	1	1,283	2
Utilities	-	115	4,860	3,725	21	-	8,721	16
Energy	-	-	106	567	31	-	704	1
Commodities	-	-	260	494	39	-	793	1
Oil and Gas	-	322	640	566	213	1	1,742	3
Real estate	-	22	1,053	1,221	59	-	2,355	4
Structured finance ABS / RMBS / CMBS / Other	318	717	208	161	55	-	1,459	3
Lifetime mortgage loans1	1,141	403	207	159	-	113	2,023	4
CDOs	-	22	60	14	-	-	96	-


Total £m	3,863	14,874	19,908	17,205	1,103	122	57,075	100


Total %	7	26	35	30	2	-	100


1. The credit ratings attributed to lifetime mortgages are allocated in accordance with the internal Matching Adjustment structuring.
2. The group's bond portfolio is dominated by LGR investments. These account for £52,476m, representing 92% of the total group portfolio.

Investments Page 85

6.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile



			EU
			excluding	Rest of
	UK	US	UK	the World	Total1
As at 31 December 2018	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	9,238	1,038	1,009	330	11,615
Banks	1,817	1,012	1,373	1,141	5,343
Financial Services	287	104	544	2	937
Insurance	134	542	215	83	974
Consumer Services and Goods:
- Cyclical	479	1,692	427	148	2,746
- Non-cyclical	1,328	3,478	430	36	5,272
- Health care	9	916	9	-	934
Infrastructure:
- Social	4,819	295	-	38	5,152
- Economic	3,340	463	87	261	4,151
Technology and Telecoms	688	1,814	549	491	3,542
Industrials	196	848	253	86	1,383
Utilities	5,154	1,740	2,374	544	9,812
Energy	363	610	2	89	1,064
Commodities	11	285	35	403	734
Oil and Gas	270	524	349	467	1,610
Real estate	1,864	373	241	305	2,783
Structured Finance ABS / RMBS / CMBS / Other	985	681	45	31	1,742
Lifetime mortgages	3,227	-	-	-	3,227
CDOs	-	-	-	75	75


Total	34,209	16,415	7,942	4,530	63,096



1. The group's bond portfolio is dominated by LGR investments. These account for £57,355m, representing 91% of the total group portfolio.

Investments Page 86

6.03 Bond portfolio summary (continued)

(b) Sectors analysed by domicile (continued)
			EU
			excluding	Rest of
	UK	US	UK	the World	Total1
As at 31 December 2017	£m	£m	£m	£m	£m


Sovereigns, Supras and Sub-Sovereigns	8,689	1,204	1,114	443	11,450
Banks	2,326	794	1,187	416	4,723
Financial Services	365	111	681	-	1,157
Insurance	143	555	92	53	843
Consumer Services and Goods
- Cyclical	604	2,015	251	75	2,945
- Non-cyclical	1,313	2,752	324	20	4,409
- Health care	10	480	-	-	490
Infrastructure
- Social	5,054	287	-	37	5,378
- Economic	2,661	321	34	368	3,384
Technology and Telecoms	692	1,435	563	430	3,120
Industrials	209	714	274	86	1,283
Utilities	4,008	1,334	2,296	1,083	8,721
Energy	-	626	5	73	704
Commodities	10	287	38	458	793
Oil and Gas	265	462	458	557	1,742
Real estate	1,602	422	48	283	2,355
Structured finance ABS / RMBS / CMBS / Other	1,017	366	54	22	1,459
Lifetime mortgage loans	2,023	-	-	-	2,023
CDOs	-	22	-	74	96


Total	30,991	14,187	7,419	4,478	57,075


1. The group's bond portfolio is dominated by LGR investments. These account for £52,476m, representing 92% of the total group portfolio.

Investments Page 87

6.03 Bond portfolio summary (continued)

(c) Bond portfolio analysed by credit rating

	Externally	Internally
	rated	rated1	Total2
As at 31 December 2018	£m	£m	£m


AAA	2,390	2,304	4,694
AA	14,386	2,724	17,110
A	16,731	4,360	21,091
BBB	14,928	4,141	19,069
BB or below	723	225	948
Other	55	129	184


Total	49,213	13,883	63,096



	Externally	Internally
	rated	rated1	Total
As at 31 December 2017	£m	£m	£m


AAA	2,238	1,625	3,863
AA	13,024	1,850	14,874
A	16,609	3,299	19,908
BBB	13,389	3,816	17,205
BB or below	965	138	1,103
Other	9	113	122


Total	46,234	10,841	57,075


1. Where external ratings are not available an internal rating has been used where practicable to do so.
2. The group's bond portfolio is dominated by LGR investments. These account for £57,355m (2017: £52,476m), representing 91% (2017: 92%) of the total group portfolio.

Investments Page 88

6.04 Property analysis

Property exposure within direct investments by status



	LGR1	LGC2,3	Total
As at 31 December 2018	£m	£m	£m	%


Fully let	2,930	-	2,930	96
Development	-	23	23	1
Land	-	102	102	3

	2,930	125	3,055	100


1. The fully let LGR property includes £2.8bn let to investment grade tenants.
2. Development includes £23m of shareholder investment property.
3. The above analysis does not include assets related to the group's investments in CALA Homes and other housing businesses, which are accounted for as inventory within Other assets on the group's Consolidated Balance Sheet and measured at the lower of cost and net realisable value. At 31 December 2018 the group held a total of £1,687m of such assets.






	LGR1	LGC2	Total
As at 31 December 2017	£m	£m	£m	%

Fully let	2,722	30	2,752	97
Development	-	32	32	1
Land	-	48	48	2

	2,722	110	2,832	100

1. The fully let LGR property included £2.4bn let to investment grade tenants.
2. Development included £23m of shareholder investment property.

Alternative Performance Measures Page 89

An alternative performance measure (APM) is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II. APMs offer investors additional information on the company's performance and the financial effect of 'one-off' events and the group uses a range of these metrics to provide a better understanding of its underlying performance. The APMs used by the group are listed in this section, along with their definition/explanation, their closest IFRS measure and reference to the reconciliations to those IFRS measures.

Group adjusted operating profit (previously labelled as 'operating profit')

Definition

Group adjusted operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. It therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects the IFRS profit before tax) and LGA non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below group adjusted operating profit, as well as any differences between investment return on actual assets and the long-term asset mix. Exceptional income and expenses which arise outside the normal course of business in the period, such as merger and acquisition and start-up costs, are also excluded from group adjusted operating profit.

Group adjusted operating profit was previously described as 'operating profit'. In order to maintain a consistent understanding of the group's performance the term 'operating profit' will continue to be used throughout the annual report and accounts as a substitute for group adjusted operating profit'.

Closest IFRS measure

Profit before tax attributable to equity holders

Reconciliation

Note 1.01 - Operating profit

Return on Equity (ROE)

Definition

ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS proﬁt after tax attributable to equity holders divided by average IFRS shareholders' funds (by reference to opening and closing shareholders' funds as provided in the IFRS consolidated statement of changes in equity for the period)

Closest IFRS measure

Calculated using:

- Profit attributable to equity holders

- Equity attributable to owners of the parent

Reconciliation

Calculated using profit attributable to equity holders of £1,827m (2017: £1,891m) and average equity attributable to the owners of the parent of £8,048m (2017: £7,394m)

Assets under Management

Definition

Funds which are managed by our fund managers on behalf of investors. It represents the total amount of money investors have trusted with our fund managers to invest across our investment products

Closest IFRS measures

- Financial investments

- Investment property

- Cash and cash equivalents

Alternative Performance Measures Page 90

Reconciliation

Note 4.05 - Reconciliation of Assets under management to Consolidated Balance sheet financial investments, investment property and cash and cash equivalents

Net release from operations

Definition

Release from operations plus new business surplus / (strain). Net release from operations was previously referred to as net cash, and includes the release of prudent margins from the back book, together with the premium received less the setup of prudent reserves and associated acquisition costs for new business

Closest IFRS measure

Profit before tax attributable to equity holders

Reconciliation

Note 1.02 - Reconciliation of release from operations to operating profit before tax

Adjusted profit before tax attributable to equity holders (previously labelled as 'profit before tax attributable to equity holders')

Definition

The APM measures profit before tax attributable to shareholders incorporating actual investment returns experienced during the year and the pre-tax results of discontinued operations

Closest IFRS measure

Profit before tax attributable to equity holders

Reconciliation

Note 1.01 - Operating profit

Glossary Page 91

* These items represent an alternative performance measure (APM)

Ad valorem fees

Ongoing management fees earned on assets under management, overlay assets and advisory assets as defined below.

Adjusted profit before tax attributable to equity holders (previously labelled as 'profit before tax attributable to equity holders')*

Refer to the alternative performance measures section.

Advisory assets

These are assets on which Global Index Advisors (GIA) provide advisory services. Advisory assets are beneﬁcially owned by GIA's clients and all investment decisions pertaining to these assets are also made by the clients. These are different from Assets under Management (AUM) deﬁned below.

Alternative performance measures (APMs)

An alternative performance measure is a financial measure of historic or future financial performance, financial position, or cash flows, other than a financial measure defined under IFRS or the regulations of Solvency II.

Annual premium

Premiums that are paid regularly over the duration of the contract such as protection policies.

Annual premium equivalent (APE)

A standardised measure of the volume of new life insurance business written. It is calculated as the sum of (annualised) new recurring premiums and 10% of the new single premiums written in an annual reporting period.

Annuity

Regular payments from an insurance company made for an agreed period of time (usually up to the death of the recipient) in return for either a cash lump sum or a series of premiums which the policyholder has paid to the insurance company during their working lifetime.

Assets under administration (AUA)

Assets administered by Legal & General which are beneﬁcially owned by clients and are therefore not reported on the Consolidated Balance Sheet. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sales transactions and record keeping.

Assets under management (AUM)*

Refer to the alternative performance measures section.

Back book acquisition

New business transacted with an insurance company which allows the business to continue to utilise Solvency II transitional measures associated with the business.

Bundled DC solution

Where investment and administration services are provided to a scheme by the same service provider. Typically, all investment and administration costs are passed onto the scheme members.

Bundled pension schemes

Where the fund manager bundles together the investment provider role and third-party administrator role, together with the role of selecting funds and providing investment education, into one proposition.

CAGR

Compound annual growth rate.

Combined operating ratio (COR)

The COR is a measure of the underwriting profitability of the general insurance business. It is calculated as the sum of the net incurred claims, expenses and net commission, divided by the net earned premium for the period.

Credit rating

A measure of the ability of an individual, organisation or country to repay debt. The highest rating is usually AAA and the lowest Unrated. Ratings are usually issued by a credit rating agency (e.g. Moody's or Standard & Poor's) or a credit bureau.

Glossary Page 92

Deduction and aggregation (D&A)

A method of calculating group solvency on a Solvency II basis, whereby the assets and liabilities of certain entities are excluded from the group consolidation. The net contribution from those entities to group Own Funds is included as an asset on the group's Solvency II balance sheet. Regulatory approval has been provided to recognise the (re)insurance subsidiaries of LGI US on this basis.

Defined benefit pension scheme (DB scheme)

A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.

Defined contribution pension scheme (DC scheme)

A type of pension plan where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer. They provide benefits based upon the money held in each individual's plan specifically on behalf of each member. The amount in each plan at retirement will depend upon the investment returns achieved and on the member and employer contributions.

Derivatives

Derivatives are not a separate asset class but are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk to which a fund is exposed.

Direct investments

Direct investments, which generally constitute an agreement with another party, represent an exposure to untraded and often less volatile asset classes. Direct investments also include physical assets, bilateral loans and private equity, but exclude hedge funds.

Dividend cover

Dividend cover measures how many times over the net release from operations in the year could have paid the full year dividend. For example, if the dividend cover is 3, this means that the net release from operations was three times the amount of dividend paid out.

Earnings per share (EPS)

EPS is a common ﬁnancial metric which can be used to measure the proﬁtability and strength of a company over time. It is the total shareholder proﬁt after tax divided by the number of shares outstanding. EPS uses a weighted average number of shares outstanding during the year.

Eligible Own Funds

Eligible Own Funds represents the capital available to cover the group's Solvency II Capital Requirement. Eligible Own Funds comprise the excess of the value of assets over liabilities, as valued on a Solvency II basis, plus high quality hybrid capital instruments, which are freely available (fungible and transferable) to absorb losses wherever they occur across the group. Eligible Own Funds (shareholder view basis) excludes the contribution to the group's solvency capital requirement of with-profits funds and final salary pension schemes.

Employee engagement index

The Employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst working with their manager to enhance their own sense of development and well-being.

ETF

LGIM's European Exchange Traded Fund platform.

Euro Commercial paper

Short term borrowings with maturities of up to 1 year typically issued for working capital purposes.

FVTPL

Fair value through profit or loss. A financial asset or financial liability that is measured at fair value in the Consolidated Balance Sheet reports gains and losses arising from movements in fair value within the Consolidated Income Statement as part of the profit or loss for the year.

Glossary Page 93

Full year dividend

Full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).

Generally accepted accounting principles (GAAP)

These are a widely accepted collection of guidelines and principles, established by accounting standard setters and used

by the accounting community to report financial information.

Gross written premiums (GWP)

GWP is an industry measure of the life insurance premiums due and the general insurance premiums underwritten in the reporting period, before any deductions for reinsurance.

Group adjusted operating profit (previously labelled as 'operating profit')*

Refer to the alternative performance measures section.

ICAV - Irish Collective Asset-Management Vehicle

A legal structure investment fund, based in Ireland and aimed at European investment funds looking for a simple, tax-efficient investment vehicle.

Index tracker (passive fund)

Index tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 index. Index tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds'.

International financial reporting standards (IFRS)

These are accounting guidelines and rules that companies and organisations follow when completing financial statements.

They are designed to enable comparable reporting between companies, and they are the standards that all publicly listed

groups in the European Union (EU) are required to use.

Key performance indicators (KPIs)

These are measures by which the development, performance or position of the business can be measured effectively. The group Board reviews the KPIs annually and updates them where appropriate.

LGA

Legal & General America.

LGAS

Legal and General Assurance Society Limited.

LGC

Legal & General Capital.

LGI

Legal & General Insurance.

LGI new business

New business arising from new policies written on retail protection products and new deals and incremental business on group protection products.

LGIA

Legal & General Insurance America.

LGIM

Legal & General Investment Management.

Glossary Page 94

LGR

Legal & General Retirement, which includes Legal & General Retirement Institutional (LGRI) and Legal & General Retirement Retail (LGRR).

LGR new business

Single premiums arising from annuity sales and back book acquisitions (including individual annuity and pension risk transfer), the volume of lifetime mortgage lending and the notional size of longevity insurance transactions, based on the present value of the fixed leg cash flows discounted at the LIBOR curve.

Liability driven investment (LDI)

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent in final salary pension plans, whose liabilities can often reach into billions of pounds for the largest of plans.

Lifetime mortgages

An equity release product aimed at people aged 60 years and over. It is a mortgage loan secured against the customer's house. Customers do not make any monthly payments and continue to own and live in their house until they move into long term care or on death. A no negative equity guarantee exists such that if the house value on repayment is insufficient to cover the outstanding loan, any shortfall is borne by the lender.

Matching adjustment

An adjustment to the discount rate used for annuity liabilities in Solvency II balance sheets. This adjustment reflects the fact that the profile of assets held is sufficiently well-matched to the profile of the liabilities, that those assets can be held to maturity, and that any excess return over risk-free (that is not related to defaults) can be earned regardless of asset value fluctuations after purchase.

Mortality rate

Rate of death, influenced by age, gender and health, used in pricing and calculating liabilities for future policyholders of life and annuity products, which contain mortality risks.

Net release from operations*

Refer to the alternative performance measures section.

New business surplus/(strain)

The net impact of writing new business on the IFRS position, including the benefit/cost of acquiring new business and the setting up of reserves, for UK non profit annuities, workplace savings, protection and savings, net of tax. This metric provides an understanding of the impact of new contracts on the IFRS profit for the year.

Open architecture

Where a company offers investment products from a range of other companies in addition to its own products. This gives customers a wider choice of funds to invest in and access to a larger pool of money management professionals.

Overlay assets

Overlay assets are derivative assets that are managed alongside the physical assets held by LGIM. These instruments include interest rate swaps, inﬂation swaps, equity futures and options. These are typically used to hedge risks associated with pension scheme assets during the derisking stage of the pension life cycle.

Pension risk transfer (PRT)

PRT represents bulk annuities bought by entities that run ﬁnal salary pension schemes to reduce their responsibilities by closing the schemes to new members and passing the assets and obligations to insurance providers.

Platform

Online services used by intermediaries and consumers to view and administer their investment portfolios. Platforms usually provide facilities for buying and selling investments (including, in the UK products such as Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and life insurance) and for viewing an individual's entire portfolio to assess asset allocation and risk exposure.

Glossary Page 95

Present value of future new business premiums (PVNBP)

PVNBP is equivalent to total single premiums plus the discounted value of annual premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the new business value at the end of the financial period. The discounted value of longevity insurance regular premiums and quota share reinsurance single premiums are calculated on a net of reinsurance basis to enable a more representative margin figure. PVNBP therefore provides an estimate of the present value of the premiums associated with new business written in the year.

Purchased interest in long term business (PILTB)

An estimate of the future profits that will emerge over the remaining term of life and pensions policies that have been

acquired via a business combination.

Real assets

Real assets encompass a wide variety of tangible debt and equity investments, primarily real estate, infrastructure and energy. They have the ability to serve as stable sources of long term income in weak markets, while also providing capital appreciation opportunities in strong markets.

Release from operations

The expected release of IFRS surplus from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the medium term expected investment return on LGC invested assets, and dividends remitted from LGA. Release from operations was previously referred to as operational cash generation.

Return on Equity (ROE)*

Refer to the alternative performance measures section.

Risk appetite

The aggregate level and types of risk a company is willing to assume in its exposures and business activities in order

to achieve its business objectives.

Single premiums

Single premiums arise on the sale of new contracts where the terms of the policy do not anticipate more than one premium being paid over its lifetime, such as in individual and bulk annuity deals.

Solvency II

Taking effect from 1 January 2016, the Solvency II regulatory regime is a harmonised prudential framework for insurance ﬁrms in the EEA. This single market approach is based on economic principles that measure assets and liabilities to appropriately align insurers' risk with the capital they hold to safeguard the policyholders' interest.

Solvency II capital coverage ratio

The Eligible Own Funds on a regulatory basis divided by the group solvency capital requirement. This represents the number of times the SCR is covered by Eligible Own Funds.

Solvency II capital coverage ratio (proforma basis)

The proforma basis solvency II SCR coverage ratio incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions and the contribution of with-profits funds and our defined benefit pension schemes in both Own Funds and the SCR in the calculation of the SCR coverage ratio.

Solvency II capital coverage ratio (shareholder view basis)

In order to represent a shareholder view of group solvency position, the contribution of with-profits funds and our defined benefit pension schemes are excluded from both, the group's Own Funds and the group's solvency capital requirement, by the amount of their respective solvency capital requirements, in the calculation of the SCR coverage ratio. This incorporates the impacts of a recalculation of the Transitional Measures for Technical Provisions based on end of period economic conditions. The shareholder view basis does not reflect the regulatory capital position as at 31 December 2018. This will be submitted to the PRA in April 2019.

Solvency II new business contribution

Reflects present value at the point of sale of expected future Solvency II surplus emerging from new business written in the period using the risk discount rate applicable at the end of the reporting period.

Glossary Page 96

Solvency II risk margin

An additional liability required in the Solvency II balance sheet, to ensure the total value of technical provisions is equal to the current amount a (re)insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another (re)insurer. The value of the risk margin represents the cost of providing an amount of Eligible Own Funds equal to the Solvency Capital Requirement (relating to non-market risks) necessary to support the insurance and reinsurance obligations over the lifetime thereof.

Solvency II surplus

The excess of Eligible Own Funds on a regulatory basis over the Solvency Capital Requirement. This represents the amount of capital available to the company in excess of that required to sustain it in a 1-in-200 year risk event.

Solvency Capital Requirement (SCR)

The amount of Solvency II capital required to cover the losses occurring in a 1-in-200 year risk event.

Total shareholder return (TSR)

TSR is a measure used to compare the performance of different companies' stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to the shareholder.

Transitional Measures on Technical Provisions (TMTP)

This is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis switched over, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for changes impacting the relevant business, subject to agreement with the PRA.

Unbundled DC solution

When investment services and administration services are supplied by separate providers. Typically the sponsoring employer will cover administration costs and scheme members the investment costs.

With-profits funds

Individually identifiable portfolios where policyholders have a contractual right to receive additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. An insurer may either have discretion as to the timing of the allocation of those benefits to participating policyholders or

may have discretion as to the timing and the amount of the additional benefits.

Yield

A measure of the income received from an investment compared to the price paid for the investment. It is usually expressed as a percentage.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

END

FR CKPDQBBKBANK

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