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L&G Half-year Report 2010 - Part 2

4th Aug 2010 07:01

RNS Number : 4826Q

Legal & General Group Plc

04 August 2010

International Financial Reporting Standards

Page 25

Supplementary operating profit information

For the six months ended 30 June 2010

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

From continuing operations

Risk

2.01(a)

310

223

735

Savings

2.02(a)

Investment management

2.03

172

International

2.04

127

Group capital and financing

2.05

Investment projects1

(14)

(32)

Operating profit

542

404

1,109

Variation from longer term investment return

2.06

(4)

(527)

(16)

Property losses attributable to minority interests

(1)

(20)

(19)

Profit/(loss) from continuing operations before tax

537

(143)

1,074

Tax (expense)/credit attributable to equity holders of the Company

2.07

(136)

(230)

Profit/(loss) for the period

401

(91)

844

Attributable to:

Minority interests

2.17

(1)

(20)

(19)

Equity holders of the Company

402

(71)

863

Earnings per share

2.11

Based on operating profit from continuing operations after tax attributable to equity holders

of the Company

6.73

5.22

13.82

Based on profit/(loss) attributable to equity holders of the Company

6.90

(1.22)

14.82

Diluted earnings per share

2.11

Based on operating profit from continuing operations after tax attributable to equity holders

of the Company

6.66

5.21

13.74

Based on profit/(loss) attributable to equity holders of the Company

6.83

(1.22)

14.73

1. Investment projects relate to strategic investments including Solvency II.

This supplementary operating profit information provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business.

Supplementary IFRS operating profit is one of the Group's key performance indicators. The definition of operating profit was amended in 2009 and details were included in Note 2 of the 2009 Annual Report and Accounts. The H1 09 figures have been restated accordingly. In addition, the composition of the Savings and Investment management segments has changed. Institutional retail business is now included in the Savings segment. H1 09 and FY 09 have been amended accordingly in line with the new definition. The effect has been to reduce Savings H1 09 operating profit by £4m and FY 09 operating profit by £5m with an offsetting increase in the Investment management segment's operating profit.

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

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

Operating profit for the Investment management and International segments includes a longer term expected investment return on the shareholders' funds within the investment management and Netherlands' operations.

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

International Financial Reporting Standards

Page 26

Supplementary operating profit information

2.01

Risk

(a)

Risk operating profit

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

Non profit Risk

2.01(b)

298

210

717

General insurance

2.01(f)

Other1

(2)

Total Risk operating profit

310

223

735

1. Other comprises estate agencies and housing related business conducted through our regulated mortgage network and business unit costs of £1m (H1 09: £2m; FY 09: £3m) allocated to the Risk business. In July 2009, an insurance business transfer of Nationwide Life business was made to Legal & General Assurance Society Limited (Society). Operating profit associated with the business was included in Other prior to the transfer; post transfer operating profit is recorded in non profit Risk.

(b)

Analysis of non profit Risk operating profit

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

Non profit business operating profit comprises:

Operational cash generation

202

207

438

New business strain

(10)

Net cash generation

192

220

488

Experience variances

2.01(c)

(3)

113

Changes to valuation assumptions

2.01(d)

(2)

169

Changes to FSA reporting and capital rules

Movements in non-cash items

2.01(e)

(78)

(80)

(229)

Other

(10)

(41)

214

150

515

Tax gross-up

202

298

210

717

Non profit business operational cash generation represents the expected cash flows to be generated in the period from the in-force non profit business which is broadly equivalent to the release of profit from the non profit Risk business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.

Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.

In 2006, the FSA introduced a more realistic reserving framework for certain non profit business (Policy statement (PS) 06/14). In July 2009, an insurance business transfer of the Nationwide Life Risk business to Society took place and the Group chose to adopt PS06/14 for this business. The impact of this, offset by the amortisation of associated intangible assets, is reflected within changes to FSA reporting and capital rules above.

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

(c)

Experience variances

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Persistency

(5)

(11)

(9)

Mortality/morbidity

(2)

(9)

Expenses

(18)

Bulk purchase annuity data loading

Project and development costs1

(5)

(14)

(21)

Tax2

Other

(16)

(3)

113

1. Project and development costs in 2009 related principally to continued investment in internal and other customer facing systems.

2. The current tax charge was lower due to the utilisation of brought forward tax losses.

International Financial Reporting Standards

Page 27

Supplementary operating profit information

2.01

Risk (continued)

(d)

Changes to valuation assumptions

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Persistency

(5)

Mortality/morbidity1

101

Expenses

(14)

Other2

(3)

(2)

169

1. Mortality/morbidity includes the release of £32m relating to reserving benefits within individual protection.

2. Other includes a £72m benefit from Inflation modelling enhancement on deferred annuity business.

(e)

Movements in non-cash items

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Deferred tax1

(80)

(82)

(221)

Other

(8)

(78)

(80)

(229)

1. The movement in deferred tax reflects the profitability of the non profit Risk business and the consequent utilisation of brought forward losses.

(f)

General insurance operating profit

Full year

30.06.10

30.06.09

31.12.09

£m

Household

Other business

(g)

General insurance underwriting result

Full year

30.06.10

30.06.09

31.12.09

£m

Household

Other business

(1)

(h)

General insurance combined operating ratio

Full year

30.06.10

30.06.09

31.12.09

Household

Other business

103

The combined operating ratio is:

	Net incurred claims	+	Expenses + Net commission		x 100
	Net earned premiums	+	Net written premiums		x 100

International Financial Reporting Standards

Page 28

Supplementary operating profit information

2.02

Savings

(a)

Savings operating profit

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

Non profit Savings1

2.02(b)

(4)

With-profits business2

Retail investments3

(5)

Other4

(6)

(13)

(14)

Total Savings operating profit

1. Non profit Savings business includes non profit investment bonds and non profit pensions (including SIPPs).

2. With-profits business operating profit is the shareholders' share of total with-profits bonuses.

3. Retail investments operating profit includes institutional unit trusts which were previously reported in the Investment management segment. Prior period comparatives have been amended. The impact has been to reduce Retail investments H1 09 operating profit by £4m and FY 09 operating profit by £5m.

4. Other includes Suffolk Life, International (Ireland), Nationwide Life Savings business and business unit costs of £1m (H1 09: £2m; FY 09: £3m), allocated to the Savings business.

(b)

Analysis of non profit Savings operating profit

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

Non profit business operating profit/(loss) comprises:

Operational cash generation

New business strain

(34)

(44)

(77)

Net cash generation

(13)

(19)

Experience variances

2.02(c)

(8)

(1)

Changes to valuation assumptions

2.02(d)

(6)

Changes to FSA reporting and capital rules

Movements in non-cash items

2.02(e)

(64)

Other

(1)

(29)

(3)

Tax gross-up

(1)

(4)

Non profit business operational cash generation represents the expected cash flows to be generated in the period from the in-force non profit business which is broadly equivalent to the release of profit from non profit Savings business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.

Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.

In 2006, the FSA introduced a more realistic reserving framework for certain non profit business (PS 06/14). In 2009, the Group chose to implement PS 06/14 rule changes relating to the calculation of the regulatory sterling reserves on non profit unit linked contracts. The impact of this is reflected within changes to FSA reporting and capital rules above. However, sterling reserves on investment contracts are eliminated from IFRS reporting and the corresponding reduction is reported through non-cash items.

International Financial Reporting Standards

Page 29

Supplementary operating profit information

2.02

Savings (continued)

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

(c)

Experience variances

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Persistency

(1)

Expenses

(1)

(6)

Project and development costs1

(1)

(13)

(23)

Tax2

Other

(8)

(1)

1. Project and development costs in 2009 related principally to continued investment in internal and other customer facing systems.

2. The current tax charge was lower due to the utilisation of brought forward tax losses.

(d)

Changes to valuation assumptions

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Persistency

Mortality/morbidity

(2)

Expenses

(1)

(2)

(1)

Other

(5)

(6)

(e)

Movements in non-cash items

Full year

30.06.10

30.06.09

31.12.09

Restated

Notes

£m

Deferred tax1

(17)

(13)

(33)

Deferred acquisition costs

2.02(f)

(5)

(4)

(5)

Deferred income liabilities

Other2

(9)

(61)

(64)

1. The movement in deferred tax reflects the profitability of the non profit Savings business and the consequent utilisation of brought forward losses.

2. In 2009, Other includes the elimination of £55m of sterling reserves following the adoption of PS06/14.

(f)

Deferred acquisition cost movement, net of associated deferred tax

Full year

30.06.10

30.06.09

31.12.09

Notes

£m

As at 1 January

628

633

Amortisation through income

2.02(e)

(32)

(28)

(67)

Acquisition costs deferred

2.02(e)

As at 30 June / 31 December

623

629

628

Balance sheet deferred acquisition costs also includes amounts relating to the Group's overseas, general insurance, retail investments and with-profits businesses and is presented gross of associated deferred tax.

Expected amortisation profile:

Full year

30.06.10

30.06.09

31.12.09

£m

Expected to be amortised within one year

Expected to be amortised between one year and five years

288

265

244

Expected to be amortised in over five years

263

298

323

623

629

628

International Financial Reporting Standards

Page 30

Supplementary operating profit information

2.03

Investment management

Full year

30.06.10

30.06.09

31.12.09

£m

Managed pension funds

128

Private equity

(1)

Property

(1)

Other income1

Total Investment management operating profit2

172

1. Other income includes £17m of profits arising from the provision of investment management services charged to the Group's Risk and Savings businesses (H1 09: £12m; FY 09: £28m).

2. Investment management operating profit no longer includes institutional unit trusts which are now included within the Savings segment. Prior period comparatives have been amended. The impact has been to increase Investment management H1 09 operating profit by £4m and FY 09 operating profit by £5m.

2.04

International

(a)

International operating profit

Full year

30.06.10

30.06.09

31.12.09

£m

USA

Netherlands

France

Other1

(4)

(5)

Total International operating profit

127

1. Other includes our joint venture operations in Egypt, the Gulf, India and business unit costs allocated to the International segment.

2.05

Group capital and financing

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Investment return1

191

Interest expense2

(59)

(65)

(127)

Investment expenses

(1)

(2)

(3)

Unallocated corporate expenses

(3)

(4)

Total Group capital and financing operating profit

1. The longer term expected investment return of £96m (H1 09: £95m; FY 09: £191m) reflects an average return of 3% (H1 09: 3%; FY 09: 6%) on the average balance of invested assets of £3.2bn (H1 09: £2.7bn; FY 09: £3.0bn) held within Group capital and financing calculated on a monthly basis. The invested assets held within Group capital and financing amounted to £3.1bn at H1 10 (H1 09: £2.7bn; FY 09: £2.8bn).

2. Interest expense excludes interest on non recourse financing (see Note 2.16).

International Financial Reporting Standards

Page 31

Supplementary operating profit information

2.06

Variation from longer term investment return

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

Risk1

112

(361)

(218)

Savings2

(16)

(26)

127

Investment management

(4)

(1)

(4)

International

(10)

Group capital and financing

Asset related3

(82)

(146)

Debt related4

(65)

Defined benefit pension scheme5

Total variation from longer term investment return

(4)

(527)

(16)

1. Risk business H1 10 investment variances reflects the positive trading experience of £150m, and favourable default experience leading to a release of £20m. The positive variances have been partly offset (£50m) by adverse economic conditions and changes to modelling of liability and asset data.

2. Savings business investment variance includes the relationship between IFRS deferred policyholder tax and the amount included within the unit linked life funds.

3. Group capital and financing asset related investment variances reflect the difference between the assumed return and actual return on Society shareholder capital and the Group's treasury assets.

4. The Group manages it's exposure to interest rate movements on debt issued with a series of interest rate swaps to lock into a fixed funding cost. The Group does not hold an active trading position in such derivative contracts. For contracts which have not been designated within hedge accounting relationships there is resulting short term income statement volatility which in H1 10, as a result of a decrease in the relevant long term interest rates, amounted to £(56)m (H1 09: £26m; FY 09: £23m). In addition the elimination of Legal & General debt owned by the Group is £(4)m (H1 09: £nil; FY 09: £6m) and other small items have an impact of £(5)m (H1 09: £(13)m; FY 09: £(14)m).

5. The defined benefit pension scheme investment variance includes the actuarial gains and losses and valuation difference arising on annuity assets held by the defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited.

Investment return is allocated to operating profit by reference to a longer term rate of investment return for the respective invested funds. The difference between the amount allocated to operating profit and actual investment return is the variation from longer term investment return analysed above.

2.07

Analysis of tax

Profit

Tax

/(loss)

Tax

/(loss)

Tax

Profit/(loss)

(expense)/

before tax

(expense)/

before tax

(expense)/

before tax

credit

Full year

30.06.10

30.06.09

31.12.09

Restated

£m

From continuing operations

Risk

310

(86)

223

(61)

735

(204)

Savings

(16)

(2)

(13)

Investment management

(28)

(20)

172

(47)

International

(21)

127

(41)

Group capital and financing

(3)

(8)

Investment projects

(14)

(32)

Operating profit/(loss)

542

(150)

404

(100)

1,109

(304)

Variation from longer term investment return

(4)

(527)

152

(16)

Property losses attributable to minority interests

(1)

(20)

(19)

Profit/(loss) for the period/Tax (expense)/credit for the period

537

(136)

(143)

1,074

(230)

Only the element of total tax attributable to equity holders' profit/loss is shown explicitly in the analysis above; the tax attributable to policyholder returns is included within reported operating profit.

The rate of UK corporation tax applied in the calculation of the IFRS result is 28% (H1 09: 28%; FY 09: 28%).

At 30 June 2010, a partial provision is held for a dispute with HMRC relating to the basis of recognition of taxable profit within Society's LTF. The matter is being progressed through the Tax Tribunals Service. The maximum exposure in relation to this issue is £232m, plus interest of £98m.

International Financial Reporting Standards

Page 32

Consolidated income statement

For the six months ended 30 June 2010

Full year

30.06.10

30.06.09

31.12.09

Notes

£m

Revenue

Gross written premiums

2.10

2,772

3,110

5,275

Outward reinsurance premiums

(286)

(283)

(574)

Net change in provision for unearned premiums

(7)

Net premiums earned

2,479

2,830

4,712

Fees from fund management and investment contracts

452

345

786

Investment return

1,170

(1,778)

38,201

Operational income

Total revenue

2.09

4,143

1,441

43,790

Expenses

Claims and change in insurance liabilities

3,748

3,132

7,614

Reinsurance recoveries

(344)

(345)

(520)

Net claims and change in insurance liabilities

3,404

2,787

7,094

Change in provisions for investment contract liabilities

(587)

(2,209)

33,186

Acquisition costs

377

358

780

Finance costs

148

179

Other expenses

381

401

882

Transfers (from)/to unallocated divisible surplus

(87)

430

Total expenses

3,566

1,515

42,551

Profit/(loss) before income tax

577

(74)

1,239

Income tax expense attributable to policyholder returns

(40)

(69)

(165)

Profit/(loss) from continuing operations before income tax attributable to equity holders of the Company

537

(143)

1,074

Total income tax expense

(176)

(17)

(395)

Income tax expense attributable to policyholder returns

165

Income tax (expense)/credit attributable to equity holders

2.07

(136)

(230)

Profit/(loss) for the period

401

(91)

844

Attributable to:

Minority interests

(1)

(20)

(19)

Equity holders of the Company

402

(71)

863

Dividend distributions to equity holders of the Company during the period

2.14

160

120

185

Dividend distributions to equity holders of the Company proposed after the period

2.14

160

Earnings per share

Based on profit/(loss) attributable to equity holders of the Company

2.11

6.90

(1.22)

14.82

Diluted earnings per share

Based on profit/(loss) attributable to equity holders of the Company

2.11

6.83

(1.22)

14.73

This financial information was approved by the Board on 3 August 2010.

The results for the six months to 30 June 2010 and 30 June 2009 are unaudited, but have been subject to a review by the Group's independent auditors and constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. They have been prepared on a basis which is consistent with the consolidated Group financial statements approved on 22 March 2010 which have been filed with the Registrar of Companies. The published full year 2009 consolidated Group financial statements prepared under IFRS included an independent auditors' report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under Chapter 3 of Part 16 of the Companies Act 2006.

International Financial Reporting Standards

Page 33

Consolidated statement of comprehensive income

For the six months ended 30 June 2010

Full year

30.06.10

30.06.09

31.12.09

Notes

£m

Profit/(loss) for the period

401

(91)

844

Other comprehensive income after tax

2.12

Exchange differences on translation of overseas operations

(75)

(63)

Actuarial (losses) on defined benefit pension schemes

(29)

(89)

(154)

Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus

Net change in financial investments designated as available-for-sale

Total comprehensive income/(expense) for the period

430

(199)

755

Total comprehensive income/(expense) attributable to:

Minority interests

(1)

(20)

(19)

Equity holders of the Company

431

(179)

774

International Financial Reporting Standards

Page 34

Consolidated balance sheet

As at 30 June 2010

Full year

30.06.10

30.06.09

31.12.09

Notes

£m

Assets

Investment in associates

Plant and equipment

Investment property

4,303

3,501

3,839

Financial investments

2.13

272,690

237,771

276,016

Reinsurers' share of contract liabilities

2,241

2,125

2,093

Purchased interest in long term businesses and other intangible assets

132

205

146

Deferred acquisition costs

2,030

1,985

1,957

Deferred tax asset

723

1,081

796

Income tax recoverable

Other assets

1,966

2,398

1,440

Cash and cash equivalents

11,261

11,138

10,650

Total assets

295,447

260,307

297,044

Equity

Share capital

147

Share premium

938

936

Employee scheme shares

(43)

(42)

(38)

Capital redemption and other reserves

Retained earnings

3,368

2,251

3,110

Shareholders' equity

4,467

3,295

4,196

Minority interests

2.17

149

Total equity

4,499

3,444

4,198

Liabilities

Subordinated borrowings

2.16

1,875

1,552

1,870

Participating insurance contracts

9,279

8,881

9,404

Participating investment contracts

7,120

6,689

7,139

Unallocated divisible surplus

1,179

902

1,284

Value of in-force non-participating contracts

(364)

(268)

(367)

Participating contract liabilities

17,214

16,204

17,460

Non-participating insurance contracts

30,011

26,720

28,583

Non-participating investment contracts

228,855

201,032

234,502

Non-participating contract liabilities

258,866

227,752

263,085

Senior borrowings

2.16

1,455

1,933

1,407

Provisions

810

855

757

Deferred tax liabilities

358

252

303

Income tax liabilities

155

140

Payables and other financial liabilities

6,465

6,168

5,003

Other liabilities

899

835

892

Net asset value attributable to unit holders

2,910

1,157

1,929

Total liabilities

290,948

256,863

292,846

Total equity and liabilities

295,447

260,307

297,044

International Financial Reporting Standards

Page 35

Condensed consolidated statement of changes in equity

Capital

Employee

redemption

scheme

and other

Retained

Minority

Total

capital

premium

reserves

earnings

Total

interests

equity

For the six months ended 30 June 2010

£m

As at 1 January

147

936

(38)

3,110

4,196

4,198

Total comprehensive income/(expense)

for the period

385

431

(1)

430

Options exercised under share option schemes

Net movement in employee scheme shares

(5)

(3)

(2)

Dividends

(160)

Movement in third party interests

Currency translation differences

(27)

As at 30 June

147

938

(43)

3,368

4,467

4,499

For the six months ended 30 June 2009

As at 1 January

147

936

(46)

(42)

2,593

3,588

144

3,732

Total comprehensive expense

for the period

(55)

(124)

(179)

(20)

(199)

Net movement in employee scheme shares

(5)

Dividends

(120)

Movement in third party interests

Currency translation differences

(93)

As at 30 June

147

936

(42)

2,251

3,295

149

3,444

For the year ended 31 December 2009

As at 1 January

147

936

(46)

(42)

2,593

3,588

144

3,732

Total comprehensive income/(expense)

for the year

771

774

(19)

755

Net movement in employee scheme shares

Dividends

(185)

Movement in third party interests

(123)

Currency translation differences

(77)

As at 31 December

147

936

(38)

3,110

4,196

4,198

International Financial Reporting Standards

Page 36

Consolidated cash flow statement

For the six months ended 30 June 2010

Full year

30.06.10

30.06.09

31.12.09

£m

Cash flows from operating activities

Profit/(loss) for the period

401

(91)

844

Adjustments for non cash movements in net profit/(loss) for the period

Realised and unrealised losses/(gains) on financial investments and investment properties

3,615

6,553

(29,180)

Investment income

(4,695)

(4,656)

(8,813)

Interest expense

148

179

Income tax expense

176

395

Other adjustments

104

Net increase in operational assets

Investments held for trading or designated as fair value through profit or loss

(500)

(7,763)

(5,822)

Investments designated as available-for-sale

(25)

(54)

(61)

Other assets

(383)

(711)

477

Net (decrease)/increase in operational liabilities

Insurance contracts

1,339

858

3,143

Transfer (from)/to unallocated divisible surplus

(99)

(15)

368

Investment contracts

(5,213)

(728)

29,337

Value of in-force non-participating contracts

(97)

(196)

Other liabilities

1,434

2,905

1,121

Cash used in operations

(3,837)

(3,598)

(8,104)

Interest paid

(79)

(148)

(160)

Interest received

2,432

2,529

5,074

Income tax received

106

Dividends received

2,126

2,096

3,896

Net cash flows from operating activities

748

970

758

Cash flows from investing activities

Net acquisition of plant and equipment

(3)

(5)

(7)

Capital injection into overseas joint ventures

(8)

(36)

Net cash flows from investing activities

(3)

(13)

(43)

Cash flows from financing activities

Dividend distributions to ordinary equity holders of the Company during the period

(160)

(120)

(185)

Proceeds from issue of ordinary share capital

Purchase of employee scheme shares

(10)

(2)

Proceeds from borrowings

292

1,451

2,124

Repayment of borrowings

(274)

(1,768)

(2,629)

Net cash flows from financing activities

(150)

(439)

(692)

Net increase in cash and cash equivalents

595

518

Exchange gains/(losses) on cash and cash equivalents

(68)

(61)

Cash and cash equivalents at 1 January

10,650

10,688

Cash and cash equivalents at 30 June/31 December

11,261

11,138

10,650

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

International Financial Reporting Standards

Page 37

Notes to the Financial Statements

2.08

Basis of preparation

The Group's financial information for the period ended 30 June 2010 has been prepared in accordance with the Listing Rules of the Financial Services Authority. The 2010 Half-year report has also been prepared in accordance with IAS 34, 'Interim Financial Reporting'. The Group's financial information has been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2010 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2009 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union.

The preparation of the Half-year report includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2009 financial statements except for some limited modelling and assumption changes. The impacts of these changes are included in section 2.01(d).

Estimates are based on management's best knowledge of current circumstances and future events and actions, however, actual results may differ from those estimates, possibly significantly.

2.09

Segmental analysis

Reportable segments

The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing. The composition of the Savings and Investment management segments has changed. Institutional retail business is now included in retail investments as part of the Savings segment; previously this was reported in the Investment management segment. Comparative information has been amended to reflect the change.

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

The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products. 'Other' principally comprises the Group's interest in Cofunds.

The Investment management segment comprises institutional fund management.

The International segment comprises businesses in the United States, France, the Netherlands and emerging markets.

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

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

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

International Financial Reporting Standards

Page 38

Notes to the Financial Statements

2.09

Segmental analysis (continued)

(a)

Profit/(loss) from ordinary activities after tax

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing1

Total

For the six months ended 30 June 2010

£m

Operating profit

310

542

Variation from longer term investment return2

112

(16)

(4)

(121)

(4)

Property losses attributable to minority interests

(1)

Profit/(loss) from continuing operations before tax

422

(103)

537

Tax (expense)/credit attributable to equity holders

of the Company

(115)

(10)

(27)

(28)

(136)

Profit/(loss) for the period

307

(59)

401

1. For segmental purposes, Investment projects of £14m (FY 09: £32m) have been included in Group capital and financing.

2. Additional information concerning the Variation from longer term investment return is provided in Note 2.06.

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing

Total

Restated

For the six months ended 30 June 2009

£m

Operating profit

223

404

Variation from longer term investment return2

(361)

(26)

(1)

(10)

(129)

(527)

Property losses attributable to minority interests

(20)

(Loss)/profit from continuing operations before tax

(138)

(9)

(124)

(143)

Tax credit/(expense) attributable to equity holders

of the Company

(20)

(18)

(Loss)/profit for the period

(98)

(7)

(76)

(91)

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing1

Total

For the year ended 31 December 2009

£m

Operating profit

735

172

127

1,109

Variation from longer term investment return2

(218)

127

(4)

(16)

Property losses attributable to minority interests

(19)

Profit from continuing operations before tax

517

177

168

153

1,074

Tax (expense)/credit attributable to equity holders

of the Company

(142)

(48)

(46)

(49)

(230)

Profit for the year

375

129

122

104

114

844

International Financial Reporting Standards

Page 39

Notes to the Financial Statements

2.09

Segmental analysis (continued)

(b)

Revenue

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing

Total

For the six months ended 30 June 2010

£m

Internal revenue

(189)

External revenue

2,887

1,219

(664)

726

(25)

4,143

Total revenue

2,951

1,285

(605)

726

(214)

4,143

For the six months ended 30 June 2009

Internal revenue

(164)

External revenue

2,371

618

(2,244)

680

1,441

Total revenue

2,426

676

(2,193)

680

(148)

1,441

For the year ended 31 December 2009

Internal revenue

117

135

104

(356)

External revenue

5,809

7,295

28,897

1,527

262

43,790

Total revenue

5,926

7,430

29,001

1,527

(94)

43,790

Total revenue includes investment gains of £1,170m (H1 09: losses of £1,778m; FY 09: gains of £38,201m).

(c)

Consolidated balance sheet

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing

Total

As at 30 June 2010

£m

Assets

Investments

24,679

44,891

205,626

7,000

6,102

288,298

Other assets

2,869

2,624

1,047

2,965

(2,356)

7,149

Total assets

27,548

47,515

206,673

9,965

3,746

295,447

Shareholders' equity

136

122

370

1,473

2,366

4,467

Minority interests

Total equity

136

122

370

1,473

2,398

4,499

Liabilities

Subordinated borrowings

1,875

Participating contract liabilities

14,896

2,318

17,214

Non-participating contract liabilities

23,585

29,854

202,489

3,567

(629)

258,866

Senior borrowings1

200

579

662

1,455

Other liabilities

3,814

2,443

3,813

2,028

(560)

11,538

Total liabilities

27,412

47,393

206,303

8,492

1,348

290,948

Total equity and liabilities

27,548

47,515

206,673

9,965

3,746

295,447

1. Includes non recourse financing.

International Financial Reporting Standards

Page 40

Notes to the Financial Statements

2.09

Segmental analysis (continued)

(c)

Consolidated balance sheet (continued)

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing

Total

As at 30 June 2009

£m

Assets

Investments

20,842

40,272

180,904

6,231

4,182

252,431

Other assets

3,290

2,353

1,472

2,540

(1,779)

7,876

Total assets

24,132

42,625

182,376

8,771

2,403

260,307

Shareholders' equity

105

334

1,163

1,599

3,295

Minority interests

149

Total equity

105

334

1,163

1,748

3,444

Liabilities

Subordinated borrowings

1,552

Participating contract liabilities

14,103

2,101

16,204

Non-participating contract liabilities

20,492

25,967

178,487

3,348

(542)

227,752

Senior borrowings1

203

591

1,130

1,933

Other liabilities

3,543

2,247

3,549

1,568

(1,485)

9,422

Total liabilities

24,038

42,520

182,042

7,608

655

256,863

Total equity and liabilities

24,132

42,625

182,376

8,771

2,403

260,307

1. Includes non recourse financing.

Group

Investment

capital

manage-

Inter-

and

Risk

Savings

ment

national

financing

Total

As at 31 December 2009

£m

Assets

Investments

22,984

45,531

210,488

6,954

4,593

290,550

Other assets

2,983

2,299

836

2,709

(2,333)

6,494

Total assets

25,967

47,830

211,324

9,663

2,260

297,044

Shareholders' equity

120

113

305

1,372

2,286

4,196

Minority interests

Total equity

120

113

305

1,372

2,288

4,198

Liabilities

Subordinated borrowings

1,870

Participating contract liabilities

15,084

2,376

17,460

Non-participating contract liabilities

22,102

30,078

207,963

3,523

(581)

263,085

Senior borrowings1

199

535

662

1,407

Other liabilities

3,736

2,356

3,054

1,857

(1,979)

9,024

Total liabilities

25,847

47,717

211,019

8,291

(28)

292,846

Total equity and liabilities

25,967

47,830

211,324

9,663

2,260

297,044

1. Includes non recourse financing.

International Financial Reporting Standards

Page 41

Notes to the Financial Statements

2.10

Gross written premiums on insurance contracts

Full year

30.06.10

30.06.09

31.12.09

£m

From continuing operations

Risk

Non-participating Risk business

1,737

1,953

3,057

General insurance

- Household

123

247

- Other business

Total Risk

1,871

2,089

3,330

Savings

Non-participating Savings business

Participating business

298

416

772

Total Savings

319

437

817

International

USA

251

487

Netherlands

131

153

270

France

200

180

371

Total International

582

584

1,128

Total gross written premiums

2,772

3,110

5,275

2.11

Earnings per share

(a)

Earnings per share

Profit

before

Tax

Profit

Earnings

/(loss)

Tax

/(loss)

Earnings

tax

expense

after tax

per share

before tax

credit

after tax

per share

30.06.10

30.06.09

Restated

£m

Operating profit from continuing

operations

542

(150)

392

6.73

404

(100)

304

5.22

Variation from longer term investment return

(4)

0.17

(527)

152

(375)

(6.44)

Earnings per share based on profit/(loss)

attributable to equity holders

538

(136)

402

6.90

(123)

(71)

(1.22)

Profit

Tax

Profit

Earnings

before tax

expense

after tax

per share

Full year

31.12.09

£m

Operating profit from continuing

operations

1,109

(304)

805

13.82

Variation from longer term investment return

(16)

1.00

Earnings per share based on profit

attributable to equity holders

1,093

(230)

863

14.82

International Financial Reporting Standards

Page 42

Notes to the Financial Statements

2.11

Earnings per share (continued)

(b)

Diluted earnings per share

(i)

Based on operating profit from continuing operations after tax

Number

Profit

Earnings

Profit

Earnings

after tax

shares1

per share

after tax

shares1

per share

30.06.10

30.06.09

Restated

£m

Operating profit from continuing operations after tax

392

5,827

6.73

304

5,822

5.22

Net shares under options allocable for no further consideration

(0.07)

(0.01)

Diluted earnings per share

392

5,890

6.66

304

5,830

5.21

Profit

Number

Earnings

after tax

of shares1

per share

Full year

31.12.09

£m

Operating profit from continuing operations after tax

805

5,824

13.82

Net shares under options allocable for no further consideration

(0.08)

Diluted earnings per share

805

5,857

13.74

(ii)

Based on profit/(loss) attributable to equity holders

Number

Profit

Earnings

Loss

Earnings

after tax

shares1

per share

after tax

shares1

per share

30.06.10

30.06.09

£m

Profit/(loss) attributable to equity holders of the Company

402

5,827

6.90

(71)

5,822

(1.22)

Net shares under options allocable for no further consideration2

(0.07)

Diluted earnings per share

402

5,890

6.83

(71)

5,830

(1.22)

Profit

Number

Earnings

after tax

of shares1

per share

Full year

31.12.09

£m

Profit attributable to equity holders of the Company

863

5,824

14.82

Net shares under options allocable for no further consideration

(0.09)

Diluted earnings per share

863

5,857

14.73

The number of shares in issue at 30 June 2010 was 5,865,651,980 (30 June 2009: 5,861,679,365; 31 December 2009: 5,862,216,780).

1. Weighted average number of shares.

2. Net shares under options allocable for no further consideration are anti-dilutive and have therefore been excluded from the diluted earnings per share calculation for H1 09.

International Financial Reporting Standards

Page 43

Notes to the Financial Statements

2.12

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

Tax

Before

credit/

After

Before

(expense)/

After

tax

(expense)

tax

credit

tax

30.06.10

30.06.09

£m

Exchange differences on translation of overseas operations

(75)

Actuarial (losses) on defined benefit pension schemes

(40)

(29)

(123)

(89)

Actuarial losses on defined benefit pension schemes

transferred to unallocated divisible surplus

(4)

(14)

Net change in financial investments designated as available-for-sale

(11)

Other comprehensive income

(4)

(117)

(108)

Tax

Before

(expense)/

After

tax

credit

tax

Full year

31.12.09

£m

Exchange differences on translation of overseas operations

(63)

Actuarial (losses) on defined benefit pension schemes

(213)

(154)

Actuarial losses on defined benefit pension schemes

transferred to unallocated divisible surplus

(24)

Net change in financial investments designated as available-for-sale

101

(35)

Other comprehensive income

(89)

2.13

Financial investments

30.06.10

30.06.09

31.12.09

£m

Equities

125,099

109,015

139,296

Unit trusts

7,443

5,398

6,329

Debt securities

132,429

116,140

123,511

Accrued interest

1,590

1,446

1,688

Derivative assets1

4,791

3,823

3,749

Loans and receivables

1,338

1,949

1,443

272,690

237,771

276,016

1. Derivative assets include £2,764m (H1 09: £2,068m; FY 09: £2,160m) held on behalf of unit linked policyholders. Derivative assets are shown gross of derivative liabilities. Exposures arise from:

a. The use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.

b. Derivatives matching Guaranteed Equity Bonds within the Nationwide Life portfolio.

2.14

Dividends

Per share

Total

Per share

Total

Per share

Total

Full year

30.06.10

30.06.09

31.12.09

£m

Ordinary share dividends paid in the period

2.73

160

2.05

120

3.16

185

Ordinary share dividend proposed¹

1.33

1.11

2.73

160

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

International Financial Reporting Standards

Page 44

Notes to the Financial Statements

2.15

Ordinary shares

Number

Full year

30.06.10

30.06.09

31.12.09

As at 1 January

5,862,216,780

5,861,627,994

Options exercised under share option schemes

- Executive share option scheme

209,065

20,000

- Savings related share option scheme

3,226,135

51,371

568,786

As at 30 June / 31 December

5,865,651,980

5,861,679,365

5,862,216,780

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

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

2.16

Analysis of borrowings

Full year

30.06.10

30.06.09

31.12.09

£m

Subordinated borrowings

6.385% Sterling perpetual capital securities (Tier 1)

698

659

666

5.875% Sterling undated subordinated notes (Tier 2)

424

425

4.0% Euro subordinated notes 2025 (Tier 2)

455

468

498

10% Sterling subordinated notes 2041 (Tier 2)

308

Client fund holdings of Group debt1

(10)

(27)

Total subordinated borrowings

1,875

1,552

1,870

Senior borrowings

Sterling medium term notes 2031-2041

602

608

Euro Commercial paper 2010

106

428

Bank loans 2010

Non recourse financing

- US Dollar Triple X securitisation 2025

283

322

262

- US Dollar Triple X securitisation 2037

296

269

274

- Sterling property partnership loans 2011

- Suffolk Life unit linked borrowings

147

157

158

- LGV 6 Private Equity Fund Limited Partnership

Client fund holdings of Group debt1

(46)

(45)

Total senior borrowings

1,455

1,933

1,407

Total borrowings

3,330

3,485

3,277

Total borrowings (excluding non recourse financing)

2,565

2,599

2,543

1. £56m (FY 09: £72m) of the Group's subordinated and senior debt is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the tables above. The half-year comparative has not been restated.

Subordinated borrowings

6.385% Sterling perpetual capital securities

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

5.875% Sterling undated subordinated notes

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

4.0% Euro subordinated notes 2025

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

International Financial Reporting Standards

Page 45

Notes to the Financial Statements

2.16

Analysis of borrowings (continued)

10% Sterling subordinated notes 2041

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

Non recourse financing

US Dollar Triple X securitisation 2025

In 2004, a subsidiary of Legal & General America Inc issued US$550m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business. In December 2009, $109m of this issue was bought back.

US Dollar Triple X securitisation 2037

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

Sterling property partnership loans 2011

The property partnership loans are secured on specific properties.

Suffolk Life unit linked borrowings

These borrowings relate solely to client investments.

LGV6 Private Equity Fund Limited Partnership

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 30 June 2010, the Group had in place a £960m syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2012.

Holding company short term assets

Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £134m (Euro Commercial Paper and Bank Loans).

2.17

Minority interests

Minority interests represent third party interests in property investment vehicles which are consolidated in the Group's results. The increase in the minority interests in 2010 arises from the increased percentage in the Group's ownership of Performance Retail Unit Trust to above 50%.

2.18

Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates

30.06.10

30.06.09

31.12.09

United States Dollar

1.50

1.65

1.62

Euro

1.22

1.17

1.13

01.01.10-

01.01.09-

Average exchange rates

30.06.10

30.06.09

31.12.09

United States Dollar

1.53

1.49

1.57

Euro

1.15

1.12

International Financial Reporting Standards

Page 46

Notes to the Financial Statements

2.19

Related party transactions

There were no material transactions between key management and the Legal & General group of companies. All transactions between the Group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were £14m (H1 09: £15m; FY 09: £62m).

At 30 June 2010, 30 June 2009 and 31 December 2009 there were no loans outstanding to officers of the Company.

Key management personnel compensation

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

Full year

30.06.10

30.06.09

31.12.09

£m

Salaries

Social security costs

Post-employment benefits

Share-based incentive awards

Key management personnel compensation

Number of key management personnel

The UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £36m (H1 09: £16m; FY 09: £51m) during the period, priced on an arm's length basis.

The Group's investment portfolio includes investments in venture capital, property and financial investments which are held via collective investment vehicles. Net investments into associate investment vehicles totalled £1,704m during H1 10 (H1 09: £1,301m; FY 09: £1,780m). The Group has outstanding loans to these associates of £11m (H1 09: £6m; FY 09: £7m) and received investment management fees of £21m during the period (H1 09: £17m; FY 09: £30m). Distributions from these investment vehicles to the Group totalled £65m (H1 09: £25m; FY 09: £57m).

2.20

Pension cost

The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2010, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £209m (30 June 2009: £179m; 31 December 2009: £203m). These amounts have been recognised in the financial statements with £124m charged against shareholder equity (H1 09: £106m; FY 09: £121m) and £85m against the unallocated divisible surplus (H1 09: £73m; FY 09: £82m).

2.21

Contingent liabilities, guarantees and indemnities

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

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

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

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

International Financial Reporting Standards

Page 47

Independent review report to Legal & General Group Plc - IFRS

Introduction

We have been engaged by the Company to review the interim financial information in the Half Year Report for the six months ended 30 June 2010, which comprises the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated balance sheet as at 30 June 2010, Condensed consolidated statement of changes in equity, Consolidated cash flow statement and related notes on pages 32 to 46 ("the interim financial information"). We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the interim financial information.

Directors' responsibilities

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

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

Our responsibility

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

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information in the Half Year Report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP Chartered Accountants London

3 August 2010

Notes:

(a) The Half Year Report is published on the website of Legal & General Group Plc, www.legalandgeneralgroup.com. The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

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