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L&G Half-year Results 2013 - part 2

6th Aug 2013 07:00

RNS Number : 0026L

Legal & General Group Plc

06 August 2013

International Financial Reporting Standards Page 27

Supplementary operating profit information

For the six months ended 30 June 2013

				Full year
		30.06.13	30.06.121	31.12.121
	Notes	£m	£m	£m


From continuing operations
Annuities	2.01(a)	151	139	281
Housing and Protection	2.01(a)	168	150	359
Savings	2.02(a)	62	72	133
Investment management	2.03	135	119	243
US Protection		53	48	99
L&G Capital	2.04	86	81	163


Operating profit from divisions		655	609	1,278
Group debt costs2		(64)	(63)	(127)
Group Investment projects and expenses3		(20)	(28)	(64)


Operating profit		571	518	1,087
Investment and other variances	2.05	16	4	(42)
Gains/(losses) attributable to non-controlling interests		5	1	(12)


Profit before tax		592	523	1,033
Tax expense attributable to equity holders of the Company	2.06	(128)	(118)	(235)


Profit for the period		464	405	798



Profit attributable to equity holders of the Company		459	404	810




		p	p1	p1


Earnings per share
Based on profit attributable to equity holders of the Company		7.82	6.93	13.84

Diluted earnings per share
Based on profit attributable to equity holders of the Company		7.72	6.82	13.61


1. Investment and other variances has been adjusted to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12 offset by a corresponding change in the Consolidated Statement of Comprehensive Income.
2. Group debt costs excludes interest on non recourse financing.
3. Investment projects of £14m (H1 12: £23m; FY 12: £50m) predominantly relate to the Economic Capital programme and other strategic investments. Group expenses of £6m (H1 12: £5m; FY 12: £14m) includes the operating profit/(loss) attributable to our joint venture operations in Egypt and the Gulf.

This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business. Income and expenses arising outside the normal course of business, such as merger and acquisition and restructuring costs, are excluded from operating profit.

During 2012, the Group changed the reportable segments to reflect the development of our international strategy. In addition, during 2013, the Group has changed the presentation of operating profit in order to separately highlight the operating profit from divisions from Group operating costs and expenses. The prior period segmental information has been represented to reflect these changes.

Operating profit for the annuities business represents the profit from individual and bulk purchase annuities and longevity insurance. Operating profit from the housing and protection business includes general insurance, and UK individual and group protection business. It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN). Operating profit reflects the longer term investment return that the business expects to make on the financial investments that back this business and on shareholder funds retained within our general insurance business. LGN operating profit reflects a longer term expected return on shareholders' funds and index linked policies.

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

Operating profit for the Investment management segment includes a longer term expected investment return on the shareholders' funds within the segment, and operating profit for the US Protection segment comprises the profit before tax from Legal & General America (LGA).

Operating profit for the L&G Capital segment represents the longer term investment return (less investment expenses) on Group invested assets, which 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 28

Supplementary operating profit information

2.01 Protection and Annuities

(a) Protection and Annuities operating profit
				Full year
		30.06.13	30.06.12	31.12.12
	Note	£m	£m	£m


Annuities		151	139	281


Protection		119	124	289
General insurance and other		29	9	27


Total UK Housing and Protection operating profit		148	133	316


Total UK Protection and Annuities operating profit	2.01(b)	299	272	597


Netherlands		17	9	28
France		3	8	15


Total Protection and Annuities operating profit		319	289	640

(b) Analysis of UK Protection and Annuities operating profit
			Housing			Housing
			and			and
		Annui-	Protec-		Annui-	Protec-
		ties	tion	Total	ties	tion	Total
		30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12
	Notes	£m	£m	£m	£m	£m	£m


UK Protection and Annuities business segment
operating profit comprises:
Operational cash generation		130	148	278	121	114	235
New business surplus/(strain)		17	(23)	(6)	1	(33)	(32)


Net cash generation		147	125	272	122	81	203
Experience variances	2.01(c)			(2)			6
Changes to valuation assumptions	2.01(d)			14			18
Movements in non-cash items	2.01(e)			(55)			(22)
Other				-			-


				229			205
Tax gross up				70			67


Total UK Protection and Annuities operating profit				299			272

International Financial Reporting Standards Page 29

Supplementary operating profit information

2.01 Protection and Annuities (continued)
(b) Analysis of UK Protection and Annuities operating profit (continued)
			Housing
			and
		Annui-	Protec-
		ties	tion	Total
		Full year	Full year	Full year
		31.12.12	31.12.12	31.12.12
	Notes	£m	£m	£m


UK Protection and Annuities business segment operating profit comprises:
Operational cash generation		243	265	508
New business surplus/(strain)		14	(45)	(31)


Net cash generation		257	220	477
Experience variances	2.01(c)			14
Changes to valuation assumptions	2.01(d)			(2)
Movements in non-cash items	2.01(e)			(41)
Other				2


				450
Tax gross up				147


Total UK Protection and Annuities operating profit				597


During the period, Netherlands and France paid £1m (H1 12: £1m; FY 12: £14m) of sustainable dividends to the Group, which has been included in net cash generation for the Protection and Annuities segment. The UK protection and annuities (non profit business) operational cash generation represents the expected surplus to be generated in the period from the in-force non profit business which is broadly equivalent to the expected release of profit from the non profit UK protection and annuities business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model. Both new business strain and operational cash generation exclude required solvency margin from the liability calculation.
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:

(c) Experience variances
			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Persistency	-	(1)	(4)
Mortality/morbidity	2	(10)	3
Expenses	1	-	2
Bulk purchase annuity data loading	2	16	37
Project and development costs	(8)	(3)	(10)
Tax	(6)	(6)	(14)
Other	7	10	-


	(2)	6	14

International Financial Reporting Standards Page 30

Supplementary operating profit information

2.01 Protection and Annuities (continued)

(d) Changes to valuation assumptions
			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Persistency	-	-	(8)
Mortality/morbidity1	11	-	(14)
Expenses	6	-	(2)
Other2	(3)	18	22


	14	18	(2)


1. The 2013 positive mortality/morbidity change relates to an update of the assumptions in retail protection, while in 2012 the negative assumption change primarily related to the update of assumptions in the annuities business.
2. Other valuation assumption changes in 2012 primarily relate to a reduction to the retail protection reserve for reinsurance default and a reduction in reserves applying PS06/14 to a retail protection product.

(e) Movements in non-cash items
			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m



Utilisation of brought forward trading losses	(38)	(30)	(72)
Retail protection acquisition expense tax relief	(25)	2	14
Other	8	6	17


	(55)	(22)	(41)


Net cash generation recognises the utilisation of previous trading losses and the relief of prior year acquisition expenses, spread evenly over seven years under Income-Expenses ('I-E') tax legislation, in the period the cash flows actually occur. In contrast, IFRS profit typically recognises the value of these future cash flows in the same period as the underlying loss or expense as deferred tax amounts. The non-cash reconciliation amounts arising from these items are included in the table above. Following the removal of new retail protection business from the I-E tax regime at the end of 2012, no deferred tax assets arise on new acquisition expenses. From 2013, as the deferred tax asset on prior period acquisition expenses unwinds, no replacement asset is created resulting in an increase to net cash in this period and the following 6 years.

(f) General insurance combined operating ratio1
			Full year
	30.06.13	30.06.12	31.12.12
	%	%	%


General insurance combined operating ratio2	81	99	95


1. The calculation of the general insurance combined operating ratio incorporates commission and expenses as a percentage of earned premiums.
2. This reflects effective underwriting and the general benign weather experienced during the first six months of 2013.

2.02 Savings

(a) Savings operating profit
				Full year
		30.06.13	30.06.12	31.12.12
	Note	£m	£m	£m


Savings investments1		11	9	16
Insured savings2		14	28	48
With-profits3		37	35	69


Total Savings operating profit	2.02(b)	62	72	133


1. Savings investments operating profit includes collective investments, Cofunds platform business, Suffolk Life SIPPs and structured products.
2. Insured savings includes non profit investment bonds and pensions (including workplace savings and SIPPs), Nationwide Life savings business, International (Ireland) and our joint venture operation in India.
3. With-profits business operating profit is the shareholders' share of total with-profits bonuses.

International Financial Reporting Standards Page 31

Supplementary operating profit information

2.02 Savings (continued)
(b) Analysis of Savings operating profit
		Savings
		invest-	Insured	With-
		ments	savings	profits	Total
		30.06.13	30.06.13	30.06.13	30.06.13
	Notes	£m	£m	£m	£m


Savings business segment operating profit comprises:
Operational cash generation		11	55	29	95
New business strain		-	(31)	-	(31)


Net cash generation		11	24	29	64
Insured savings
Experience variances	2.02(c)				(5)
Changes to valuation assumptions	2.02(d)				11
Movements in non-cash items and other	2.02(e)				(19)
Savings investments
Movements in non-cash items and other					(4)


					47
Tax gross up					15


Total Savings operating profit					62



		Savings
		invest-	Insured	With-
		ments	savings	profits	Total
		30.06.12	30.06.12	30.06.12	30.06.12
	Notes	£m	£m	£m	£m


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


Net cash generation		9	21	26	56
Insured savings
Experience variances	2.02(c)				(15)
Changes to valuation assumptions	2.02(d)				2
Movements in non-cash items and other	2.02(e)				14
Savings investments
Movements in non-cash items and other					(3)


					54
Tax gross up					18


Total Savings operating profit					72

International Financial Reporting Standards Page 32

Supplementary operating profit information

2.02 Savings (continued)

(b) Analysis of Savings operating profit (continued)

		Savings
		invest-	Insured	With-
		ments	savings	profits	Total
		Full year	Full year	Full year	Full year
		31.12.12	31.12.12	31.12.12	31.12.12
	Notes	£m	£m	£m	£m


Savings business segment operating profit comprises:
Operational cash generation		19	108	52	179
New business strain		-	(62)	-	(62)


Net cash generation		19	46	52	117
Insured savings
Experience variances	2.02(c)				(39)
Changes to valuation assumptions	2.02(d)				20
Movements in non-cash items and other	2.02(e)				11
Savings investments
Movements in non-cash items and other					(9)


					100
Tax gross up					33


Total Savings operating profit					133



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

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
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Persistency	-	-	(3)
Expenses	(1)	(1)	(1)
Project and development costs1	(9)	(10)	(33)
Tax	-	1	1
Other	5	(5)	(3)


	(5)	(15)	(39)


1. The project and development costs mainly relate to expenditure on Retail Distribution Review.

International Financial Reporting Standards Page 33

Supplementary operating profit information

2.02 Savings (continued)

(d) Changes to valuation assumptions
			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Persistency	-	-	-
Expenses1	(1)	-	17
Other2	12	2	3


	11	2	20


1. In 2012 the expense valuation assumptions related to efficiency improvements in workplace pensions.
2. The 2013 favourable variance is driven by a reduction in regulatory pension reserves. An equal and opposite movement in investment contract reserves is noted in the movements in non-cash items and other line.

(e) Movements in non-cash items and other
			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Deferred tax	(1)	6	(6)
Deferred acquisition costs (DAC)1	(28)	(5)	(9)
Deferred income liabilities (DIL)2	24	7	14
Other3	(14)	6	12


	(19)	14	11


1. The £28m movement in DAC comprised of a £34m charge offset by new acquisitions costs deferred in the period of £6m (H1 12: £31m; FY 12: £42m). The decrease in deferred costs reflects the removal of commission payable on savings and investment business following the implementation of the requirements of the Retail Distribution Review on 1 January 2013.
2. DIL amortisation reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
3. Other mainly includes elimination of a reduction in regulatory pension reserves in line with IFRS methodology. An equal and opposite movement in investment contract reserves is noted in the changes to valuation assumptions.

International Financial Reporting Standards Page 34

Supplementary operating profit information

2.03 Investment management

			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Pension funds (managed and segregated)	102	89	181
Other non-pension1	12	11	22
Investment management services for internal funds	21	19	40


Total Investment management operating profit	135	119	243


1. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £4m (H1 12: £3m; FY 12: £6m) on an average asset balance of £0.5bn (H1 12: £0.4bn; FY 12: £0.4bn) has been included within other non-pension operating profit.

2.04 L&G Capital

			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Investment return	89	84	168
Investment expenses	(3)	(3)	(5)


Total L&G Capital operating profit	86	81	163

2.05 Investment and other variances

			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Investment variance1	42	5	(23)
M&A related2	(11)	-	-
Other3	(15)	(1)	(19)


Total	16	4	(42)


1. Investment variance is positive due to strong equity returns in shareholder funds and a positive impact from the increase in exposure to Direct Investments in LGPL. This has been partly offset by the defined pension benefit scheme variance of £(24)m (H1 12: £10m; FY 12: £40m), that comprises the actuarial gains and losses and valuation difference arising on annuity assets held by defined pension schemes that have been purchased from Legal & General Assurance Society Limited. All other actuarial gains and losses on the defined benefit scheme assets and liabilities are presented in the Consolidated Statement of Comprehensive Income.
2. M&A related includes gains and costs related to the acquisitions and amortisation of intangibles in the first half of 2013.
3. Other includes new business start up costs, restructuring costs, and other non-investment related variance items.

International Financial Reporting Standards Page 35

Supplementary operating profit information

2.06 Analysis of tax attributable to equity holders


	Profit/	Tax	Profit/	Tax	Profit/	Tax
	(loss)	(exp-	(loss)	(exp-	(loss)	(exp-
	before	ense)/	before	ense)/	before	ense)/
	tax	credit	tax	credit	tax	credit
					Full year	Full year
	30.06.13	30.06.13	30.06.121	30.06.12	31.12.121	31.12.12
	£m	£m	£m	£m	£m	£m


Annuities	151	(35)	139	(34)	281	(69)
Protection	168	(39)	150	(38)	359	(90)
Savings	62	(15)	72	(18)	133	(33)
Investment management	135	(29)	119	(22)	243	(46)
US Protection	53	(18)	48	(19)	99	(37)
L&G Capital	86	(18)	81	(19)	163	(40)


Operating profit from divisions/Tax expense on divisions	655	(154)	609	(150)	1,278	(315)
Group debt costs	(64)	15	(63)	16	(127)	31
Group Investment projects and expenses	(20)	5	(28)	7	(64)	16


Operating profit/Tax expense	571	(134)	518	(127)	1,087	(268)
Investment variances	16	5	4	12	(42)	40
Impact of change in UK tax rates	-	1	-	(3)	-	(7)
Losses attributable to non-controlling interests	5	-	1	-	(12)	-


Profit for the period/Tax expense for the period	592	(128)	523	(118)	1,033	(235)


1. Operating profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.

The equity holders' effective tax rate for the period is 21.6% (H1 12: 22.4%; FY 12: 22.6%). The Group's effective tax rate remains slightly below the UK corporation tax rate due to differences between the measurement of accounting and taxable profits.

International Financial Reporting Standards Page 36

Consolidated Income Statement

For the six months ended 30 June 2013

				Full year
		30.06.13	30.06.121	31.12.121
	Notes	£m	£m	£m


Revenue
Gross written premiums	2.09	3,136	2,321	5,668
Outward reinsurance premiums		(388)	(352)	(718)
Net change in provision for unearned premiums		(19)	(16)	(25)


Net premiums earned		2,729	1,953	4,925
Fees from fund management and investment contracts		480	433	875
Investment return		15,515	9,464	28,828
Operational income		348	135	342


Total revenue		19,072	11,985	34,970


Expenses
Claims and change in insurance liabilities		2,168	3,310	8,588
Reinsurance recoveries		(500)	(482)	(779)


Net claims and change in insurance liabilities		1,668	2,828	7,809
Change in provisions for investment contract liabilities		15,286	7,597	23,656
Acquisition costs		399	405	784
Finance costs		85	75	165
Other expenses		853	507	1,194
Transfers to/(from) unallocated divisible surplus		4	(25)	155


Total expenses		18,295	11,387	33,763


Profit before tax		777	598	1,207
Tax expense attributable to policyholder returns		(185)	(75)	(174)


Profit before tax attributable to equity holders of the Company		592	523	1,033


Total tax expense		(313)	(193)	(409)
Tax expense attributable to policyholder returns		185	75	174


Tax expense attributable to equity holders	2.06	(128)	(118)	(235)


Profit for the period		464	405	798



Attributable to:
Non-controlling interests		5	1	(12)
Equity holders of the Company		459	404	810



Dividend distributions to equity holders of the Company during the period	2.15	337	278	394
Dividend distributions to equity holders of the Company proposed after the period end	2.15	142	116	336





		p	p 1	p 1


Earnings per share
Based on profit attributable to equity holders of the Company	2.10	7.82	6.93	13.84


Diluted earnings per share
Based on profit attributable to equity holders of the Company	2.10	7.72	6.82	13.61


1. The Consolidated Income Statement has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.

International Financial Reporting Standards Page 37

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2013

			Full year
	30.06.13	30.06.121	31.12.121
	£m	£m	£m


Profit for the period	464	405	798

Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes	(7)	(67)	(101)
Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus	3	27	38


Total items that will not be reclassified to profit or loss subsequently	(4)	(40)	(63)


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	12	(9)	(13)
Net change in financial investments designated as available-for-sale	(43)	15	32


Total items that may be reclassified to profit or loss subsequently	(31)	6	19


Other comprehensive income after tax	(35)	(34)	(44)


Total comprehensive income for the period	429	371	754



Total comprehensive income attributable to:
Non-controlling interests	5	1	(12)
Equity holders of the Company	424	370	766

1. The Consolidated Statement of Comprehensive Income has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12, offset by a corresponding change in the Consolidated Statement of Comprehensive Income.

International Financial Reporting Standards Page 38

Consolidated Balance Sheet

As at 30 June 2013

		30.06.13	30.06.12	31.12.12
	Notes	£m	£m	£m


Assets
Goodwill	2.12	65	-	-
Purchased interest in long term businesses and other intangible assets		291	150	211
Deferred acquisition costs		1,979	1,864	1,904
Investment in associates		121	60	87
Property, plant and equipment		138	77	92
Investment property	2.13	5,377	5,087	5,143
Financial investments	2.13	326,079	303,272	316,748
Reinsurers' share of contract liabilities		2,745	2,474	2,499
Deferred tax asset		138	478	316
Current tax recoverable		205	80	194
Other assets		3,506	2,565	1,564
Assets of operations classified as held for sale1		-	-	891
Cash and cash equivalents		16,759	16,757	16,652


Total assets		357,403	332,864	346,301



Equity
Share capital		148	148	148
Share premium		958	953	956
Employee scheme treasury shares		(38)	(44)	(43)
Capital redemption and other reserves		84	130	153
Retained earnings		4,353	3,970	4,227


Shareholders' equity		5,505	5,157	5,441
Non-controlling interests	2.19	58	67	39


Total equity		5,563	5,224	5,480



Liabilities
Participating insurance contracts		7,479	8,506	8,116
Participating investment contracts		7,523	7,229	7,403
Unallocated divisible surplus		1,163	966	1,153
Value of in-force non-participating contracts		(235)	(206)	(242)


Participating contract liabilities		15,930	16,495	16,430



Non-participating insurance contracts		38,021	34,786	37,728
Non-participating investment contracts		273,545	254,768	264,958


Non-participating contract liabilities		311,566	289,554	302,686



Core borrowings	2.17	2,457	2,436	2,445
Operational borrowings	2.18	958	826	920
Provisions		968	968	983
Deferred tax liabilities		400	359	382
Current tax liabilities		5	1	68
Payables and other financial liabilities	2.14	8,160	8,335	8,083
Other liabilities		901	857	959
Net asset value attributable to unit holders		10,495	7,809	7,702
Liabilities of operations classified as held for sale1		-	-	163


Total liabilities		351,840	327,640	340,821


Total equity and liabilities		357,403	332,864	346,301

1. Assets and liabilities of operations classified as held for sale relate to seed capital the Group has invested into newly established funds. They are classified as held for sale when the Group expects its ownership to reduce below the level for control within 12 months of classification.

International Financial Reporting Standards Page 39

Condensed Consolidated Statement of Changes in Equity

			Employee	Capital
			scheme	redemption			Non-
	Share	Share	treasury	and other	Retained		controlling	Total
	capital	premium	shares	reserves	earnings	Total	interests	equity
For the six months ended 30 June 2013	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January 2013	148	956	(43)	153	4,227	5,441	39	5,480
Total comprehensive (expense)/income
for the period	-	-	-	(31)	455	424	5	429
Options exercised under
share option schemes:	-	2	-	-	-	2	-	2
Net movement in employee scheme
treasury shares	-	-	5	(5)	(25)	(25)	-	(25)
Dividends	-	-	-	-	(337)	(337)	-	(337)
Movement in third party interests	-	-	-	-	-	-	14	14
Currency translation differences	-	-	-	(33)	33	-	-	-


As at 30 June 2013	148	958	(38)	84	4,353	5,505	58	5,563




For the six months ended 30 June 2012


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


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




For the year ended 31 December 2012


As at 1 January 2012	147	941	(48)	117	3,899	5,056	66	5,122
Total comprehensive income/(expense)
for the year	-	-	-	19	747	766	(12)	754
Options exercised under
share option schemes:	1	15	-	-	-	16	-	16
Net movement in employee scheme
treasury shares	-	-	5	(2)	(6)	(3)	-	(3)
Dividends	-	-	-	-	(394)	(394)	-	(394)
Movement in third party interests	-	-	-	-	-	-	(15)	(15)
Currency translation differences	-	-	-	19	(19)	-	-	-


As at 31 December 2012	148	956	(43)	153	4,227	5,441	39	5,480

International Financial Reporting Standards Page 40

Consolidated Cash Flow Statement

For the six months ended 30 June 2013

			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Cash flows from operating activities
Profit for the period	464	405	798
Adjustments for non cash movements in net profit for the period
Realised and unrealised gains on financial investments and investment properties	(10,863)	(3,904)	(18,429)
Investment income	(5,116)	(5,135)	(9,470)
Interest expense	85	75	165
Tax expense	313	193	409
Other adjustments	47	30	67
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss	(2,087)	(882)	(1,118)
Investments designated as available-for-sale	(5)	(28)	30
Other assets	(2,097)	108	(3,008)
Net increase/(decrease) in operational liabilities
Insurance contracts	(351)	623	3,221
Transfer from unallocated divisible surplus	10	(69)	118
Investment contracts	8,584	3,450	13,795
Value of in-force non-participating contracts	7	36	-
Other liabilities	7,000	3,127	7,026


Cash used in operations	(4,009)	(1,971)	(6,396)
Interest paid	(75)	(74)	(164)
Interest received	2,482	2,529	5,013
Tax paid1	(199)	(115)	(193)
Dividends received	2,399	2,477	4,539


Net cash flows from operating activities	598	2,846	2,799


Cash flows from investing activities
Net acquisition of plant, equipment and intangibles	(43)	(4)	(59)
Acquisitions (net of cash acquired)2	(109)	-	(27)
Acquisition of joint ventures	(58)	-	-


Net cash flows from investing activities	(210)	(4)	(86)


Cash flows from financing activities
Dividend distributions to ordinary equity holders of the Company during the period	(337)	(278)	(394)
Proceeds from issue of ordinary share capital	2	13	16
Purchase of employee scheme shares	(5)	(4)	(3)
Proceeds from borrowings	747	639	1,318
Repayment of borrowings	(687)	(560)	(1,105)


Net cash flows from financing activities	(280)	(190)	(168)


Net increase in cash and cash equivalents	108	2,652	2,545
Exchange (losses)/gains on cash and cash equivalents	(1)	(8)	(6)
Cash and cash equivalents at 1 January	16,652	14,113	14,113


Cash and cash equivalents at 30 June / 31 December	16,759	16,757	16,652


1. Tax comprises UK corporation tax paid of £101m (H1 12: £24m; FY 12: £60m), overseas corporate taxes of £2m (H1 12: £nil; FY 12: £8m) and overseas withholding tax of £96m (H1 12: £91m; FY 12: £125m).
2. Net cash flows from acquisitions includes cash paid of £131m (H1 12: £nil; FY 12: £33m) less cash and cash equivalents acquired of £22m (H1 12: £nil; FY 12: £6m).

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 41

Notes to the Financial Statements

2.07 Basis of preparation

The Group's financial information for the period ended 30 June 2013 has been prepared in accordance with the Listing Rules of the Financial Conduct Authority. The 2013 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 2013 year end. These policies are consistent with the principal accounting policies which were set out in the Group's 2012 consolidated financial statements which were consistent with IFRSs issued by the International Accounting Standards Board as adopted by the European Commission for use in the European Union, except in relation to IAS 19 changes, as explained below.

The preparation of the Half-year report includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The economic and non-economic actuarial assumptions used to establish the liabilities in relation to insurance and investment contracts are significant. For half-year financial reporting, economic assumptions have been updated to reflect market conditions. Non-economic assumptions are consistent with those used in the 31 December 2012 financial statements except for the changes outlined in sections 2.01(d) and 2.02(d).

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

Changes to accounting policy- IAS 19 'Employee Benefits'

During 2013 the Group has changed its accounting policy on the recognition and measurement of defined benefit pension expense and termination benefits following the publication by the IASB in June 2011 of an amendment to IAS 19 'Employee Benefits'. This is compulsory for periods beginning on or after 1 January 2013. The impact of the amendment is to reduce profit for the period by £2m, following the allocation of the with profit element to the unallocated divisible surplus, with an equivalent increase in Other Comprehensive Income. Total Comprehensive Income therefore remains unchanged.

The impact of this change upon the 2012 interim and annual income statement, statement of comprehensive income, and cash flow statement is shown below. As the impact of the change is shown within investment variances there is no impact upon Group Operating Profit.

As the change has no balance sheet impact, an additional balance sheet for 31 December 2011 and related notes have not been presented.

	30.06.12	31.12.12
	£m	£m


Profit for the period as previously reported	407	801
Investment return
IAS 19 'Employee Benefits' amendment	(4)	(6)
Expenses
Transfers to unallocated divisible surplus	2	3


Revised profit for the period (after tax)	405	798



Actuarial gain on defined benefit pension schemes	4	6
Actuarial gain on defined benefit pension schemes transferred to unallocated divisible surplus	(2)	(3)
Other items in other comprehensive income	(36)	(47)
Total Comprehensive Income for the period	371	754

The consolidated cash flow statement has been restated in line with these changes.

Changes to accounting policy- IFRS 13 'Fair Value Measurement'

On 1 January 2013 the Group adopted IFRS 13 'Fair Value Measurement'. This Standard defines fair value, sets out in a single IFRS a framework for measuring fair value, and requires disclosure about fair value measurements. The main impact on the Group for the full year lies in the expansion of the fair value disclosure requirements. For interim reporting Note 2.13 has been expanded to reflect the new requirements.

Key technical terms and definitions

The Half-year report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary of the Group's 2012 Annual Report and Accounts.

International Financial Reporting Standards Page 42

Notes to the Financial Statements

2.08 Segmental analysis

Reportable segments

The Group has five reporting segments comprising Protection and Annuities, Savings, Investment management, US Protection, and L&G Capital and group expenses as at 30 June 2013.

The Protection and Annuities segment comprises individual and group protection, individual and bulk purchase annuities, longevity and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network. It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN).

The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, retail platform businesses, all with-profits products, as well as our joint venture operation in India.

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

The US Protection segment comprises individual protection and universal life contracts written by Legal & General America (LGA).

Shareholders' equity supporting the non profit Protection and Annuities and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within L&G Capital. This also includes capital and borrowings 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 supplementary operating profit before tax. Segmental 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. For further detail on operating profit by segment, refer to the Supplementary Operating Profit Statement at the front of this section.

We announced changes in our organisational structure effective from 1 July 2013. This creates an integrated Protection and Savings business. Our segmental analysis for 2013 year end will reflect this change. The current presentation in Supplementary Operating Profit Statement shows Annuities separately from Protection to assist with the transition.

(i) Revenue

					L&G
			Invest-		Capital
	Protection		ment		and
	and		manage-	US	group
	Annuities	Savings	ment	Protection	expenses	Total
For the six months ended 30 June 2013	£m	£m	£m	£m	£m	£m


Internal revenue	106	-	73	(74)	(105)	-
External revenue	1,763	2,558	13,807	598	346	19,072


Total revenue	1,869	2,558	13,880	524	241	19,072



For the six months ended 30 June 2012


Internal revenue	37	-	75	(20)	(92)	-
External revenue	2,219	2,190	6,695	770	111	11,985


Total revenue	2,256	2,190	6,770	750	19	11,985



For the year ended 31 December 2012


Internal revenue	69	-	149	(54)	(164)	-
External revenue	6,790	5,457	20,804	1,461	458	34,970


Total revenue	6,859	5,457	20,953	1,407	294	34,970



Total revenue includes investment return of £15,515m (H1 12: £9,464m; FY 12: £28,828m).

International Financial Reporting Standards Page 43

Notes to the Financial Statements

2.08 Segmental analysis (continued)
(ii) Consolidated balance sheet

					L&G
	Protection				Capital
	and		Investment	US	and group
	Annuities	Savings	management	Protection	expenses1	Total
As at 30 June 2013	£m	£m	£m	£m	£m	£m


Assets
Investments	37,823	46,082	245,325	2,221	16,885	348,336
Other assets	4,407	6,322	2,137	2,499	(6,298)	9,067


Total assets	42,230	52,404	247,462	4,720	10,587	357,403



Shareholders' equity	602	203	459	935	3,306	5,505
Non-controlling interests	-	-	-	-	58	58


Total equity	602	203	459	935	3,364	5,563



Liabilities
Core borrowings	-	-	-	-	2,457	2,457
Operational borrowings2	-	244	10	293	411	958
Participating contract liabilities	2,833	13,104	-	-	(7)	15,930
Non-participating contract liabilities	33,757	36,680	240,091	1,828	(790)	311,566
Other liabilities	5,038	2,173	6,902	1,664	5,152	20,929


Total liabilities	41,628	52,201	247,003	3,785	7,223	351,840


Total equity and liabilities	42,230	52,404	247,462	4,720	10,587	357,403


1. L&G Capital and group expenses includes inter-segmental eliminations.
2. Includes non recourse financing.


					L&G
	Protection				Capital
	and		Investment	US	and group
	Annuities	Savings	management	Protection	expenses1	Total
As at 30 June 2012	£m	£m	£m	£m	£m	£m


Assets
Investments	35,720	45,943	229,134	2,298	12,081	325,176
Other assets	3,923	3,869	1,428	2,197	(3,729)	7,688


Total assets	39,643	49,812	230,562	4,495	8,352	332,864



Shareholders' equity	425	192	439	977	3,124	5,157
Non-controlling interests	-	-	-	-	67	67


Total equity	425	192	439	977	3,191	5,224



Liabilities
Core borrowings	-	-	-	-	2,436	2,436
Operational borrowings2	-	218	5	283	320	826
Participating contract liabilities	2,463	14,032	-	-	-	16,495
Non-participating contract liabilities	30,560	33,264	224,813	1,690	(773)	289,554
Other liabilities	6,195	2,106	5,305	1,545	3,178	18,329


Total liabilities	39,218	49,620	230,123	3,518	5,161	327,640


Total equity and liabilities	39,643	49,812	230,562	4,495	8,352	332,864


1. L&G Capital and group expenses includes inter-segmental eliminations.
2. Includes non recourse financing.

International Financial Reporting Standards Page 44

Notes to the Financial Statements

2.08 Segmental analysis (continued)
(ii) Consolidated balance sheet (continued)


					L&G
	Protection				Capital
	and		Investment	US	and group
	Annuities	Savings	management	Protection	expenses1	Total
As at 31 December 2012	£m	£m	£m	£m	£m	£m


Assets
Investments	38,591	46,503	238,514	2,151	12,871	338,630
Other assets	3,937	4,891	1,386	2,280	(4,823)	7,671


Total assets	42,528	51,394	239,900	4,431	8,048	346,301



Shareholders' equity	550	190	360	919	3,422	5,441
Non-controlling interests	-	-	-	-	39	39


Total equity	550	190	360	919	3,461	5,480



Liabilities
Core borrowings	-	-	-	-	2,445	2,445
Operational borrowings2	3	250	2	272	393	920
Participating contract liabilities	2,686	13,744	-	-	-	16,430
Non-participating contract liabilities	33,483	35,320	233,069	1,644	(830)	302,686
Other liabilities	5,806	1,890	6,469	1,596	2,579	18,340


Total liabilities	41,978	51,204	239,540	3,512	4,587	340,821


Total equity and liabilities	42,528	51,394	239,900	4,431	8,048	346,301


1. L&G Capital and group expenses includes inter-segmental eliminations.
2. Includes non recourse financing.

International Financial Reporting Standards Page 45

Notes to the Financial Statements

2.09 Gross written premiums

			Full year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


From continuing operations
Protection and Annuities
Non-participating UK business	2,221	1,344	3,782
Netherlands (LGN)	111	95	172
France (LGF)	212	202	406
General insurance
- Household	172	156	327
- Other business	11	10	22


Total Protection and Annuities	2,727	1,807	4,709

Savings
Non-participating Savings business	19	21	39
Participating business	64	205	336


Total Savings	83	226	375

US Protection	326	288	584


Total gross written premiums	3,136	2,321	5,668

2.10 Earnings per share

(a) Earnings per share

	Profit	Tax	Profit	Earnings	Profit	Tax	Profit	Earnings
	before tax	expense	after tax	per share	before tax	expense	after tax	per share
	30.06.13	30.06.13	30.06.13	30.06.13	30.06.121	30.06.12	30.06.121	30.06.12
	£m	£m	£m	p	£m	£m	£m	p


Operating profit	571	(134)	437	7.44	518	(127)	391	6.70
Investment and other variances	16	5	21	0.36	4	12	16	0.28
Impact of change in UK tax rates	-	1	1	0.02	-	(3)	(3)	(0.05)


Earnings per share based on profit
attributable to equity holders	587	(128)	459	7.82	522	(118)	404	6.93




					Profit	Tax	Profit	Earnings
					before tax	expense	after tax	per share
					Full year	Full year	Full year	Full year
					31.12.121	31.12.12	31.12.121	31.12.12
					£m	£m	£m	p


Operating profit					1,087	(268)	819	14.00
Investment and other variances					(42)	40	(2)	(0.04)
Impact of change in UK tax rates					-	(7)	(7)	(0.12)


Earnings per share based on profit
attributable to equity holders					1,045	(235)	810	13.84

1. Operating profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.

International Financial Reporting Standards Page 46

Notes to the Financial Statements

2.10 Earnings per share (continued)

(b) Diluted earnings per share

(i) Based on profit attributable to equity holders

	Profit	Number	Earnings	Profit	Number	Earnings
	after tax	of shares1	per share	after tax	of shares1	per share
	30.06.13	30.06.13	30.06.13	30.06.122	30.06.12	30.06.12
	£m	m	p	£m	m	p


Profit attributable to equity holders of the Company	459	5,875	7.82	404	5,832	6.93
Net shares under options allocable for no further consideration	-	70	(0.10)	-	96	(0.11)


Diluted earnings per share	459	5,945	7.72	404	5,928	6.82



				Profit	Number	Earnings
				after tax	of shares1	per share
				Full year	Full year	Full year
				31.12.122	31.12.12	31.12.12
				£m	m	p


Profit attributable to equity holders of the Company				810	5,851	13.84
Net shares under options allocable for no further consideration				-	99	(0.23)


Diluted earnings per share				810	5,950	13.61



1. Weighted average number of shares.
2. Profit has been restated to reflect the adoption by the Group of amendments to IAS 19, 'Employee Benefits'. Further details are contained in Note 2.07. The impact is to reduce profit for the period by £2m at H1 12 and £3m at FY 12.

International Financial Reporting Standards Page 47

Notes to the Financial Statements

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

		Tax			Tax
		credited/			credited/
	Before	(charg-	After	Before	(charg-	After
	tax	ed)	tax	tax	ed)	tax
	30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12
	£m	£m	£m	£m	£m	£m


Items that will not be reclassified subsequently to
profit or loss
Actuarial (losses)/gains on defined benefit pension schemes	(9)	2	(7)	(83)	16	(67)
Actuarial losses/(gains) on defined benefit pension schemes
transferred to unallocated divisible surplus	4	(1)	3	33	(6)	27


Total items that will not be reclassified to profit or loss
subsequently	(5)	1	(4)	(50)	10	(40)


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations	12	-	12	(9)	-	(9)
Net change in financial investments
designated as available-for-sale	(66)	23	(43)	22	(7)	15


Total items that may be reclassified to profit or loss
subsequently	(54)	23	(31)	13	(7)	6


Other comprehensive (expense)/income	(59)	24	(35)	(37)	3	(34)



					Tax
					credited/
				Before	(charg-	After
				tax	ed)	tax
				Full year	Full year	Full year
				31.12.12	31.12.12	31.12.12
				£m	£m	£m


Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes				(114)	13	(101)
Actuarial losses/(gains) on defined benefit pension schemes
transferred to unallocated divisible surplus				43	(5)	38


Total items that will not be reclassified to profit or loss subsequently				(71)	8	(63)


Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations				(13)	-	(13)
Net change in financial investments
designated as available-for-sale				58	(26)	32


Total items that may be reclassified to profit or loss subsequently				45	(26)	19


Other comprehensive expense				(26)	(18)	(44)

International Financial Reporting Standards Page 48

Notes to the Financial Statements

2.12 Acquisitions

(a) Cofunds (Holdings) Limited On 22 May 2013, the Group increased its holding in the ordinary share capital of Cofunds (Holdings) Limited, the UK's largest platform by assets under administration. This increased the Group's holding in Cofunds (Holdings) Limited from 25% to 100%. The acquisition provides the Group with scale and distribution in the investment platform market. Goodwill arising on acquisition was £65m. This represents the value of the consideration in excess of the recognised tangible assets, liabilities and intangible assets, primarily relating to future profits in excess of those recognised on current business or those expected to arise from current relationships with financial advisors. In the period since acquisition of 100% of the ordinary share capital of Cofunds (Holdings) Limited, the pre-tax profit was £nil before deduction of restructuring expenses. Cofunds (Holdings) Limited would have contributed £3m to Group consolidated pre-tax profits before restructuring expenses if the acquisition had occurred on 1 January 2013.

								30.06.13
								£m


Consideration at date of acquisition
Cash payment for 75% holding								131
Acquisition date fair value of the 25% holding immediately prior to the acquisition								44


Total consideration for 100% holding								175


Recognised amounts of identifiable assets transferred and liabilities assumed at fair value
Purchased interest in long term business and other intangible assets								88
Other assets								44
Cash and cash equivalents								22
Other liabilities								(44)


Net assets attributable to equity holders of the Company								110


Goodwill arising on acquisition								65


In accordance with IFRS 3, Business Combinations, the acquisition has been treated as an acquisition achieved in stages. Revaluation of the previous carrying value of the Group's 25% holding in Cofunds (Holdings) Limited to acquisition date fair value has resulted in the recognition of a gain of £21m reported within operational income in the Consolidated Income Statement.

(b) CALA Group Limited
On 18 March 2013, the Group paid £58m with an additional £7m deferred consideration for a 46.5% equity stake in CALA Group Ltd. This investment has been accounted for as a joint venture applying the equity method.

(c) Lucida Ltd - Post balance sheet event On 26th June 2013, the Group announced the agreement to acquire the entire share capital of Lucida Ltd, the closed UK annuity buy-out company, for an estimated consideration of £151m. This acquisition forms part of the Group's strategy of accelerating organic growth with selective acquisitions. The initial accounting for the business combination will be incorporated into the year end financial reporting once the acquired insurance liabilities have been valued in accordance with the Group's accounting policies. Accordingly, the acquisition date assets and liabilities and profit relating to the current financial year have not been disclosed in these financial statements.

International Financial Reporting Standards Page 49

Notes to the Financial Statements

2.13 Financial investments and Investment property

			Full Year
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Equities	160,298	138,443	148,488
Unit trusts	7,767	6,876	7,238
Debt securities1	151,310	149,544	152,526
Accrued interest	1,575	1,595	1,669
Derivative assets2	4,768	6,475	6,445
Loans and receivables	361	339	382


Financial investments	326,079	303,272	316,748


Investment property	5,377	5,087	5,143


Total financial investments and investment property	331,456	308,359	321,891


1. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.02.
2. Derivative exposures arise from efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps, foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities and include £2,427m (H1 12: £3,128m; FY 12: £3,296m) held on behalf of unit linked policyholders.

International Financial Reporting Standards Page 50

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(a) Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflects the Group's view of market assumptions in the absence of observable market information. The Group utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. The levels of fair value measurement bases are defined as follows: Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (unobservable inputs). All of the Group's level 2 assets have been valued using standard market pricing sources, such as iBoxx, IDC and Bloomberg except for bespoke CDO and swaps holdings (see below). In normal market conditions, we would consider these market prices to be observable market prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not from a suitably active market and have prudently classified them as level 2. These CDOs are valued using an external valuation which is based on observable market inputs. This is then validated against the internal valuation. Accordingly, these assets have also been classified in level 2. The following table presents the Group's assets by IFRS 13 hierarchy levels:
					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the six months ended 30 June 2013	£m	£m	£m	£m	£m


Shareholder
Equity securities	1,387	1,165	70	152	-
Debt securities	5,959	2,388	3,571	-	-
Accrued interest	53	25	28	-	-
Derivative assets	237	35	202	-	-
Loans and receivables	80	-	-	-	80
Investment property	136	-	-	136	-


Non profit non-unit linked
Debt securities	28,089	3,736	24,328	25	-
Accrued interest	370	29	341	-	-
Derivative assets	2,077	18	2,059	-	-
Loans and receivables	-	-	-	-	-
Investment property	924	-	-	924	-


With-profits
Equity securities	4,482	3,933	8	541	-
Debt securities	11,039	4,524	6,510	5	-
Accrued interest	159	59	100	-	-
Derivative assets	27	17	10	-	-
Loans and receivables	26	-	-	-	26
Investment property	1,010	-	-	1,010	-


Unit linked
Equity securities	162,196	159,794	2,078	324	-
Debt securities	106,223	67,093	39,129	1	-
Accrued interest	993	333	660	-	-
Derivative assets	2,427	168	2,259	-	-
Loans and receivables	255	-	-	-	255
Investment property	3,307	-	-	3,307	-


Total financial investments and investment property	331,456	243,317	81,353	6,425	361

International Financial Reporting Standards Page 51

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(a) Fair value hierarchy (continued)

					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the six months ended 30 June 2012	£m	£m	£m	£m	£m


Shareholder
Equity securities	919	607	192	120	-
Debt securities	5,994	2,044	3,945	5	-
Accrued interest	63	27	36	-	-
Derivative assets	179	28	151	-	-
Loans and receivables	75	-	-	-	75
Investment property	116	-	-	116	-


Non profit non-unit linked
Debt securities	26,559	3,382	23,177	-	-
Accrued interest	361	22	339	-	-
Derivative assets	3,004	56	2,923	25	-
Loans and receivables	-	-	-	-	-
Investment property	568	-	-	568	-


With-profits
Equity securities	4,256	3,638	16	602	-
Debt securities	12,110	4,119	7,964	27	-
Accrued interest	196	57	139	-	-
Derivative assets	164	11	148	5	-
Loans and receivables	1	-	-	-	1
Investment property	1,200	-	-	1,200	-


Unit linked
Equity securities	140,144	138,121	1,700	323	-
Debt securities	104,881	66,615	38,262	4	-
Accrued interest	975	313	662	-	-
Derivative assets	3,128	314	2,814	-	-
Loans and receivables	263	-	-	-	263
Investment property	3,203	-	-	3,203	-


Total financial investments and investment property	308,359	219,354	82,468	6,198	339

International Financial Reporting Standards Page 52

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(a) Fair value hierarchy (continued)

					Amortised
	Total	Level 1	Level 2	Level 3	cost
For the year ended 31 December 2012	£m	£m	£m	£m	£m


Shareholder
Equity securities	1,235	972	162	101	-
Debt securities	5,608	2,623	2,984	1	-
Accrued interest	61	38	23	-	-
Derivative assets	190	44	146	-	-
Loans and receivables	54	-	-	-	54
Investment property	117	-	-	117	-


Non profit non-unit linked
Debt securities	28,712	3,973	24,648	91	-
Accrued interest	379	29	349	1	-
Derivative assets	2,913	111	2,802	-	-
Loans and receivables	-	-	-	-	-
Investment property	656	-	-	656	-


With-profits
Equity securities	4,159	3,551	9	599	-
Debt securities	11,557	4,733	6,819	5	-
Accrued interest	173	76	97	-	-
Derivative assets	46	14	32	-	-
Loans and receivables	22	-	-	-	22
Investment property	1,179	-	-	1,179	-


Unit linked
Equity securities	150,332	148,244	1,823	265	-
Debt securities	106,649	66,571	40,077	1	-
Accrued interest	1,056	325	731	-	-
Derivative assets	3,296	445	2,851	-	-
Loans and receivables	306	-	-	-	306
Investment property	3,191	-	-	3,191	-


Total financial investments and investment property	321,891	231,749	83,553	6,207	382

International Financial Reporting Standards Page 53

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)

(b) Assets measured at fair value based on level 3

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

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

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

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

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

Significant transfers between levels

There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2013 (2012: No significant transfers between levels 1, 2 and 3).

International Financial Reporting Standards Page 54

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(b) Assets measured at fair value based on level 3 (continued)

		Other				Other
		financial				financial
	Equity	invest-	Investment		Equity	invest-	Investment
	securities	ments1	property	Total	securities	ments1	property	Total
	30.06.13	30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12	30.06.12
	£m	£m	£m	£m	£m	£m	£m	£m


As at 1 January	965	99	5,143	6,207	1,138	46	4,894	6,078
Total (losses) or gains for the period				-
recognised in profit	(15)	(1)	51	35	(5)	-	(53)	(58)
Purchases	258	-	494	752	14	2	326	342
Sales	(212)	-	(311)	(523)	(107)	(2)	(80)	(189)
Transfers into level 3	21	1	-	22	8	16	-	24
Transfers out of level 3	-	(67)	-	(67)	(6)	-	-	(6)
Other	-	(1)	-	(1)	3	4	-	7


As at 30 June	1,017	31	5,377	6,425	1,045	66	5,087	6,198


1. Other financial investments comprise debt securities and derivative assets.

						Other
						financial
					Equity	invest-	Investment
					securities	ments1	property	Total
					31.12.12	31.12.12	31.12.12	31.12.12
					£m	£m	£m	£m


As at 1 January					1,138	46	4,894	6,078
Total losses for the period recognised in profit					(50)	-	(107)	(157)
Purchases					14	87	712	813
Sales					(137)	(6)	(356)	(499)
Transfers into level 3					2	1	-	3
Transfers out of level 3					-	(35)	-	(35)
Other					(2)	6	-	4


As at 31 December					965	99	5,143	6,207


1. Other financial investments comprise debt securities and derivative assets.

International Financial Reporting Standards Page 55

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets

Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the level 3 financial instruments carried at fair value as at the balance sheet date, the valuation basis, main assumptions used in the valuation of these instruments and reasonably possible increases or decreases in fair value based on reasonably possible alternative assumptions.

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the six months ended 30 June 2013		Main	value	value	value
Financial instruments		assumptions	£m	£m	£m


Assets
Shareholder
- Private equity investment vehicles1	Price earnings multiple		15	1	(1)
- Unquoted investments in property vehicles2	Property yield; occupancy		137	8	(8)
- Investment property2	Property yield; occupancy		136	7	(7)

Non profit non-linked
- Unquoted investments in property vehicles2	Property yield; occupancy		25	1	(1)
- Investment property2	Property yield; occupancy		924	46	(46)

With-profits
- Private equity investment vehicles1	Price earnings multiple		211	14	(14)
- Unquoted investments in property vehicles2	Property yield; occupancy		335	17	(17)
- Investment property2	Property yield; occupancy		1,010	50	(50)

Unit linked
- Unquoted investments in property vehicles2	Property yield; occupancy		288	14	(14)
- Suspended securities	Estimated recoverable amount		16	6	(6)
- Asset backed securities	Cash flows; expected defaults		21	7	(7)
- Investment property2	Property yield; occupancy		3,307	165	(165)


Total			6,425	336	(336)


1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

International Financial Reporting Standards Page 56

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the six months ended 30 June 2012		Main	value	value	value
Financial instruments		assumptions	£m	£m	£m


Assets
Shareholder
- Private equity investment vehicles1	Price earnings multiple		15	1	(1)
- Unquoted investments in property vehicles2	Property yield; occupancy		103	6	(6)
- Suspended securities	Estimated recoverable amount		2	2	(2)
- Asset backed securities	Cash flows; expected defaults		5	-	-
- Investment property2	Property yield; occupancy		116	6	(6)

Non profit non-linked
- Unquoted investments in property vehicles2	Property yield; occupancy		25	-	-
- Investment property2	Property yield; occupancy		568	28	(28)

With-profits
- Private equity investment vehicles1	Price earnings multiple		156	10	(10)
- Unquoted investments in property vehicles2	Property yield; occupancy		478	24	(24)
- Investment property2	Property yield; occupancy		1,200	60	(60)

Unit linked
- Unquoted investments in property vehicles2	Property yield; occupancy		294	3	(3)
- Suspended securities	Estimated recoverable amount		11	6	(6)
- Asset backed securities	Cash flows; expected defaults		22	6	(6)
- Investment property2	Property yield; occupancy		3,203	196	(196)


Total			6,198	348	(348)


1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

International Financial Reporting Standards Page 57

Notes to the Financial Statements

2.13 Financial investments and Investment property (continued)
(c) Effect on changes in significant unobservable inputs to reasonably possible alternative assumptions on level 3 assets (continued)

			Reasonably possible
			alternative assumptions
			Current	Increase	Decrease
			fair	in fair	in fair
For the year ended 31 December 2012		Main	value	value	value
Financial instruments		assumptions	£m	£m	£m


Assets
Shareholder
- Private equity investment vehicles1	Price earnings multiple		14	1	(1)
- Unquoted investments in property vehicles2	Property yield; occupancy		87	4	(4)
- Asset backed securities	Cash flows; expected defaults		1	-	-
- Investment property2	Property yield; occupancy		117	6	(6)

Non profit non-linked
- Unquoted investments in property vehicles2	Property yield; occupancy		92	5	(5)
- Investment property2	Property yield; occupancy		656	33	(33)

With-profits
- Private equity investment vehicles1	Price earnings multiple		220	20	(20)
- Unquoted investments in property vehicles2	Property yield; occupancy		384	19	(19)
- Investment property2	Property yield; occupancy		1,179	59	(59)

Unit linked
- Unquoted investments in property vehicles2	Property yield; occupancy		233	12	(12)
- Suspended securities	Estimated recoverable amount		13	2	(2)
- Asset backed securities	Cash flows; expected defaults		20	7	(7)
- Investment property2	Property yield; occupancy		3,191	196	(196)


Total			6,207	364	(364)


1. Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in investment property are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yield and occupancy assumptions.

International Financial Reporting Standards Page 58

Notes to the Financial Statements

2.14 Payables and other financial liabilities
					Full year
			30.06.13	30.06.12	31.12.12
			£m	£m	£m


Derivative liabilities			4,148	6,353	5,729
Collateral received from banks			-	105	21
Other			4,012	1,877	2,333


Payables and other financial liabilities			8,160	8,335	8,083



Other includes future commission payments which have contingent settlement provisions of £183m (H1 12: £181m; FY 12: £189m). This liability has been determined using the net present value of the future commission which will be payable on fund values. This valuation technique uses assumptions which are consistent with the Group's effective rate of interest, investment return assumptions and persistency assumptions used in other valuations, but it is not determined by reference to published price quotations.

Fair value hierarchy
					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 30 June 2013	£m	£m	£m	£m	£m


Derivative liabilities	4,148	394	3,754	-	-
Collateral received from banks	-	-	-	-	-
Other	4,012	174	129	183	3,526


Payables and other financial liabilities	8,160	568	3,883	183	3,526



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


Derivative liabilities1	6,353	259	5,898	196	-
Collateral received from banks	105	105	-	-	-
Other	1,877	130	8	181	1,558


Payables and other financial liabilities	8,335	494	5,906	377	1,558


1. Derivative liabilities of £196m classified as level 3 comprised non profit non-linked interest rate contracts, which were transferred into Level 3 in 2011 due to the use of measurement inputs that were not based on observable market data. The pricing of these derivatives was dependant on interest rate assumptions. Using reasonably alternative assumptions would have resulted in an increase or decrease in fair value of £10m.

					Amortised
	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2012	£m	£m	£m	£m	£m


Derivative liabilities	5,729	214	5,515	-	-
Collateral received from banks	21	21	-	-	-
Other	2,333	108	29	189	2,007


Payables and other financial liabilities	8,083	343	5,544	189	2,007



Trail commissions are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the income statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing or decreasing the liability by £5m (H1 12: £5m; FY 12: £6m).

Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2013 (2012: No significant transfers between levels 1, 2 and 3).

International Financial Reporting Standards Page 59

Notes to the Financial Statements

2.15 Dividends


	Per		Per		Per
	share	Total	share	Total	share	Total
					Full year	Full year
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	p	£m	p	£m	p	£m


Ordinary share dividends paid in the period
- Prior year final dividend	5.69	337	4.74	278	4.74	278
- Current year interim dividend	-	-	-	-	1.96	116


	5.69	337	4.74	278	6.70	394


Ordinary share dividend proposed1	2.40	142	1.96	116	5.69	336


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

2.16 Ordinary shares
	Number of	Number of	Number of
	shares	shares	shares
			Full year
	30.06.13	30.06.12	31.12.12


As at 1 January	5,912,782,826	5,872,166,893	5,872,166,893
Options exercised under share option schemes
- Executive share option scheme	1,261,956	1,077,517	1,626,478
- Savings related share option scheme	1,400,587	32,460,582	38,989,455


As at 30 June / 31 December	5,915,445,369	5,905,704,992	5,912,782,826


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.

International Financial Reporting Standards Page 60

Notes to the Financial Statements

2.17 Core Borrowings

	Carrying	Fair	Carrying	Fair	Carrying	Fair
	amount	value	amount	value	amount	value
					Full year	Full year
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	£m	£m	£m	£m	£m	£m


Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1)	690	620	711	486	700	636
5.875% Sterling undated subordinated notes (Tier 2)	418	425	420	326	419	425
4.0% Euro subordinated notes 2025 (Tier 2)	498	523	462	446	479	502
10% Sterling subordinated notes 2041 (Tier 2)	309	411	309	375	309	425
Client fund holdings of Group borrowings1	(11)	(11)	(16)	(16)	(17)	(17)


Total subordinated borrowings	1,904	1,968	1,886	1,617	1,890	1,971



Senior borrowings
Sterling medium term notes 2031-2041	602	712	602	668	608	767
Client fund holdings of Group debt1	(49)	(49)	(52)	(52)	(53)	(53)


Total senior borrowings	553	663	550	616	555	714


Total core borrowings	2,457	2,631	2,436	2,233	2,445	2,685


1. £60m (H1 12: £68m; FY 12: £70m) of the Group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

All of the Group's core borrowings are measured using quoted prices in active markets and have been classified as level 1.

Subordinated borrowings

6.385% Sterling perpetual capital securities

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

5.875% Sterling undated subordinated notes

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

4.0% Euro subordinated notes 2025

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

10% Sterling subordinated notes 2041

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

International Financial Reporting Standards Page 61

Notes to the Financial Statements

2.18 Operational Borrowings

	Carrying	Fair	Carrying	Fair	Carrying	Fair
	amount	value	amount	value	amount	value
					Full year	Full year
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	£m	£m	£m	£m	£m	£m


Short term operational borrowings
Euro Commercial paper	346	346	320	320	333	333
Bank loans/other	25	25	13	13	6	6


Total short term operational borrowings	371	371	333	333	339	339


Non recourse borrowings
US Dollar Triple X securitisation 2037	293	293	283	283	272	272
Suffolk Life unit linked borrowings	109	109	123	123	123	123
LGV 6/LGV 7 Private Equity Fund Limited Partnership	127	127	87	87	128	128
Consolidated Property Limited Partnerships	58	58	-	-	58	58


Total non recourse borrowings	587	587	493	493	581	581


Total operational borrowings	958	958	826	826	920	920

All of the Group's operational borrowings are measured using observable market information and have been classified as level 2.

Short term operational borrowings

Short term assets available at the holding company level exceeded the amount of short term operational borrowings of £371m (H1 12: £333m; FY 12: £339m). They comprise Euro Commercial paper and bank loans and overdrafts.

Non recourse borrowings

US Dollar Triple X securitisation 2037

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

Suffolk Life unit linked borrowings

All of these non recourse borrowings are in relation to commercial properties held within SIPP plans and the borrowings solely relate to client investments.

LGV6/LGV7 Private Equity Fund Limited Partnerships

These borrowings are non recourse bank borrowings.

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

Syndicated credit facility

As at 30 June 2013, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in October 2017. No drawings were made under this facility during 2013.

2.19 Non-controlling interests

Non-controlling interests represent third party interests in private equity and property investment vehicles which are consolidated in the Group's results. The net increase in the non-controlling interests in 2013 arises from the additional investment and revaluation of the third party interests in the UK Property Ungeared Fund Limited Partnership.

International Financial Reporting Standards Page 62

Notes to the Financial Statements

2.20 Foreign exchange rates

Principal rates of exchange used for translation are:

Period end exchange rates	At 30.06.13	At 30.06.12	At 31.12.12


United States Dollar	1.52	1.57	1.63
Euro	1.17	1.24	1.23



	01.01.13 -	01.01.12 -	01.01.12 -
Average exchange rates	30.06.13	30.06.12	31.12.12


United States Dollar	1.54	1.58	1.58
Euro	1.18	1.22	1.23

2.21 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 £53m (H1 12: £30m; FY 12: £61m), for all employees.

At 30 June 2013, 30 June 2012 and 31 December 2012 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
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


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


Key management personnel compensation	8	6	15


Number of key management personnel	23	18	17



The Group UK defined benefit pension schemes have purchased annuity contracts issued by Society for consideration of £27m (H1 12: £19m; FY 12: £60m) 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 £771m during the period (H1 12: £578m; FY 12: £690m). The Group has outstanding loans to these associates of £1m (H1 12: £1m; FY 12: £1m) and received investment management fees of £11m during the period (H1 12: £13m; FY 12: £26m). Distributions from these investment vehicles to the Group totalled £24m (H1 12: £28m; FY 12: £49m).

On 22 May 2013, the Group increased its holding in the ordinary share capital of Cofunds (Holdings) Limited from 25% to 100%. For the period to 22 May 2013, the Group paid platform hosting fees to Cofunds (Holdings) Limited of £5m (H1 12: £8m; FY 12: £12m). Creditors outstanding at 22 May 2013 were £3m (H1 12: £3m; FY 12: £1m).

International Financial Reporting Standards Page 63

Notes to the Financial Statements

2.22 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 2013, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £269m (H1 12: £258m; FY 12: £255m). These amounts have been recognised in the financial statements with £160m charged against shareholder equity (H1 12: £153m; FY 12: £152m) and £109m against the unallocated divisible surplus (H1 12: £105m; FY 12: £103m).

2.23 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 PRA, FCA, 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 64

Notes to the Financial Statements

Independent review report to Legal & General Group Plc - IFRS

Introduction

We have been engaged by the company to review the consolidated interim financial statements in the half-year report for the six months ended 30 June 2013, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, Supplementary Operating Profit Information, and related notes. 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 information in the condensed set of financial statements.

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 Conduct Authority.

As disclosed in Note 2.07, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements 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 condensed set of financial statements 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 Conduct 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 statements 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 condensed set of financial statements in the half-year report for the six months ended 30 June 2013 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 Conduct Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

5 August 2013

Notes:

(a) The interim financial statements is published on the website of Legal & General Group Plc, 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.

Net Cash and Capital Page 65

3.01 Operational cash generation

The table below provides an analysis of the operational cash generated by each of the Group's business segments, together with a reconciliation to profit after tax.

							Investment
	Opera-				Changes	Non-	gains and
	tional	New		Exper-	in	cash	losses,		Tax	Profit/
	cash	busi-		ience	valuation	items	inter-	Profit/	exp-	(loss)
	gene-	ness	Net	var-	assump-	and	national	(loss)	ense/	before
For the six months ended	ration	strain	cash	iances	tions	other	and other	after tax	(credit)	tax
30 June 2013	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


Annuities	130	17	147	4	-	(35)	-	116	35	151
UK Housing and Protection	148	(23)	125	(6)	14	(20)	-	113	35	148
Netherlands and France	1	-	1	-	-	-	15	16	4	20


Total Protection and Annuities	279	(6)	273	(2)	14	(55)	15	245	74	319


Total Savings	95	(31)	64	(5)	11	(23)	-	47	15	62
Investment management	106	-	106	-	-	-	-	106	29	135
US Protection	43	-	43	-	-	-	(8)	35	18	53
L&G Capital	68	-	68	-	-	-	-	68	18	86


Operating profit from
divisions	591	(37)	554	(7)	25	(78)	7	501	154	655


Group debt costs	(49)	-	(49)	-	-	-	-	(49)	(15)	(64)
Group Investment projects
and expenses	(5)	-	(5)	-	-	-	(10)	(15)	(5)	(20)


Operating profit	537	(37)	500	(7)	25	(78)	(3)	437	134	571


Investment and other variances	-	-	-	-	-	-	21	21	(5)	16
Impact of change
in UK tax rates	-	-	-	-	-	-	1	1	(1)	-
Gains/(losses) attributable to
non-controlling interests	-	-	-	-	-	-	5	5	-	5


IFRS profit	537	(37)	500	(7)	25	(78)	24	464	128	592



Operational cash generation represents the expected surplus from in-force business for the UK non profit Protection and Annuities and Savings businesses, the shareholders' share of bonuses on with-profits businesses, including an expected investment return on L&G Capital invested assets, and dividends remitted from our international businesses from sustainable cash generation.

Net cash generation is defined as operational cash generation less new business strain for the UK non profit Protection and Annuities and Savings businesses.

Net Cash and Capital Page 66

3.01 Operational cash generation (continued)

							Investment
	Opera-				Changes	Non-	gains and
	tional	New		Exper-	in	cash	losses,		Tax	Profit/
	cash	busi-		ience	valuation	items	inter-	Profit/	exp-	(loss)
	gene-	ness	Net	var-	assump-	and	national	(loss)	ense/	before
For the six months ended	ration	strain	cash	iances	tions	other	and other	after tax	(credit)	tax
30 June 2012	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


Annuities	121	1	122	16	-	(33)	-	105	34	139
UK Housing and Protection	114	(33)	81	(10)	18	11	-	100	33	133
Netherlands and France	1	-	1	-	-	-	11	12	5	17


Total Protection and Annuities	236	(32)	204	6	18	(22)	11	217	72	289


Total Savings	88	(32)	56	(15)	2	11	-	54	18	72
Investment management	97	-	97	-	-	-	-	97	22	119
US Protection	38	-	38	-	-	-	(9)	29	19	48
L&G Capital	62	-	62	-	-	-	-	62	19	81


Operating profit from
divisions	521	(64)	457	(9)	20	(11)	2	459	150	609


Group debt costs	(47)	-	(47)	-	-	-	-	(47)	(16)	(63)
Group Investment projects
and expenses	(3)	-	(3)	-	-	-	(18)	(21)	(7)	(28)


Operating profit	471	(64)	407	(9)	20	(11)	(16)	391	127	518


Investment and other variances	-	-	-	-	-	-	16	16	(12)	4
Impact of change
in UK tax rates	-	-	-	-	-	-	(3)	(3)	3	-
Gains/(losses) attributable to
non-controlling interests	-	-	-	-	-	-	1	1	-	1


IFRS profit	471	(64)	407	(9)	20	(11)	(2)	405	118	523

Net Cash and Capital Page 67

3.01 Operational cash generation (continued)

							Investment
	Opera-				Changes	Non-	gains and
	tional	New		Exper-	in	cash	losses,		Tax	Profit/
	cash	busi-		ience	valuation	items	inter-	Profit/	exp-	(loss)
	gene-	ness	Net	var-	assump-	and	national	(loss)	ense/	before
For the year ended	ration	strain	cash	iances	tions	other	and other	after tax	(credit)	tax
31 December 2012	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m


Annuities	243	14	257	43	(24)	(71)	7	212	69	281
UK Housing and Protection	265	(45)	220	(29)	22	30	(5)	238	78	316
Netherlands and France	14	-	14	-	-	-	17	31	12	43


Total Protection and Annuities	522	(31)	491	14	(2)	(41)	19	481	159	640


Total Savings	179	(62)	117	(39)	20	2	-	100	33	133
Investment management	197	-	197	-	-	-	-	197	46	243
US Protection	40	-	40	-	-	-	22	62	37	99
L&G Capital	123	-	123	-	-	-	-	123	40	163


Operating profit from
divisions	1,061	(93)	968	(25)	18	(39)	41	963	315	1,278


Group debt costs	(96)	-	(96)	-	-	-	-	(96)	(31)	(127)
Group Investment projects
and expenses	(7)	-	(7)	-	-	-	(41)	(48)	(16)	(64)


Operating profit	958	(93)	865	(25)	18	(39)	-	819	268	1,087


Investment and other variances	-	-	-	-	-	-	(2)	(2)	(40)	(42)
Impact of change
in UK tax rates	-	-	-	-	-	-	(7)	(7)	7	-
Gains/(losses) attributable to
non-controlling interests	-	-	-	-	-	-	(12)	(12)	-	(12)


IFRS profit	958	(93)	865	(25)	18	(39)	(21)	798	235	1,033

Net Cash and Capital Page 68

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

	At	At	At
	30.06.13	30.06.12	31.12.12
	£bn	£bn	£bn


Core tier 1	6.6	5.9	6.2
Innovative tier 1	0.6	0.6	0.6
Upper tier 2	0.4	0.4	0.4
Lower tier 2	0.8	0.8	0.8
Deductions1	(1.0)	(0.8)	(0.8)


Group capital resources	7.4	6.9	7.2


Group capital resources requirement2	3.3	3.1	3.1


IGD surplus	4.1	3.8	4.1



Coverage ratio (Group capital resources /	2.26	2.24	2.34
Group capital resources requirement)3	times	times	times


1. The increase in deductions in H1 13 is driven by intangibles related to the Cofunds acquisition.
2. The Group capital resources requirement includes a With-profits Insurance Capital Component (WPICC) of £0.3bn (FY 12: £0.1bn). 3. Coverage ratio is calculated on unrounded values.

A further analysis is given below.
	At	At	At
	30.06.13	30.06.12	31.12.12
	£bn	£bn	£bn


Society long term fund1	2.8	2.6	2.7
Society shareholder capital1	2.7	2.7	2.3
General insurance	0.2	0.1	0.2
France (LGF)	0.3	0.3	0.3
Netherlands (LGN)	0.2	0.1	0.2
USA (LGA)	0.2	0.1	0.3
Investment management	0.5	0.4	0.4
Other2	1.5	1.5	1.7
Innovative tier 1	0.6	0.6	0.6
Tier 2	1.2	1.2	1.2
Debt	(2.8)	(2.7)	(2.7)


Group capital resources	7.4	6.9	7.2


Society long term fund3	2.8	2.7	2.7
Other	0.5	0.4	0.4


Group capital resources requirement	3.3	3.1	3.1


1. Legal & General Assurance Society Ltd which is the principal insurance regulated entity in the Group. 2. Other includes corporate assets held within the Group's treasury function. 3. The Society LTF capital requirement of £2.8bn (H1 12: £2.7bn; FY 12: £2.7bn) is met by £2.8bn (H1 12: £2.6bn; FY 12: £2.7bn) of capital resources in the LTF and £nil (H1 12: £0.1bn; FY 12: £nil) of capital outside the LTF.

Net Cash and Capital Page 69

3.02 Regulatory capital resources (continued)
(a) Insurance Group's Directive (IGD) (continued)
A reconciliation of the Group capital resources on an IGD basis to the capital and reserves attributable to the equity holders of the Company on an IFRS basis is given below.

				At	At	At
				30.06.13	30.06.12	31.12.12
				£bn	£bn	£bn


Capital and reserves attributable to equity holders on an IFRS basis				5.5	5.2	5.4
Innovative tier 1				0.6	0.6	0.6
Tier 2				1.2	1.2	1.2
Proposed dividends				(0.1)	(0.1)	(0.3)
Additional capital available from Society				0.9	0.6	0.9
Adjustment to reflect regulatory value of the LGA operation				(0.6)	(0.5)	(0.6)
Other regulatory adjustments				(0.1)	(0.1)	-


Group capital resources				7.4	6.9	7.2




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

				At	At	At
				30.06.13	30.06.12	31.12.12
				£bn	£bn	£bn


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


Surplus				0.6	0.6	0.6


Legal & General Assurance Society is required to maintain a surplus in the with-profits part of the fund on a realistic basis (Peak 2). The risk capital margin is calculated based on the most onerous capital requirement calculated after performing five stresses specified by the PRA. The surplus includes the present value of future shareholder transfers of £0.3bn (H1 12: £0.2bn; FY 12: £0.3bn) as a liability in the calculation.


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

	At	At	At	At	At	At
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	Long	General	Long	General	Long	General
	term	insu-	term	insu-	term	insu-
	business	rance	business	rance	business	rance
	£bn	£bn	£bn	£bn	£bn	£bn


Available capital resources - Tier 1	6.0	0.2	5.7	0.1	5.5	0.2


Insurance capital requirement	2.5	0.1	2.4	0.1	2.6	0.1
Capital requirements of regulated related undertakings	0.2	-	0.2	-	0.2	-
With-profits Insurance Capital Component	0.3	-	0.3	-	0.1	-


Capital resources requirement	3.0	0.1	2.9	0.1	2.9	0.1


Regulatory capital surplus	3.0	0.1	2.8	-	2.6	0.1

Net Cash and Capital Page 70

3.02 Regulatory capital resources (continued)
(c) Legal & General Assurance Society capital surplus (continued)
Movement in Legal & General Assurance Society long term insurance capital requirement
	At	At	At
	30.06.13	30.06.12	31.12.12
Pillar 1 capital requirement	£bn	£bn	£bn


Protection	0.7	0.7	0.7
Annuities	1.2	1.0	1.2
Non profit pensions and unit linked bonds	0.1	0.1	0.1


Non profit	2.0	1.8	2.0
With-profits	0.5	0.6	0.6


Long term insurance capital requirement	2.5	2.4	2.6


On a regulatory basis (Peak 1), Society long term business regulatory capital surplus of £3bn (H1 12: £2.8bn; FY 12: £2.6bn) comprises capital resources within the long term fund of £2.8bn (H1 12: £2.6bn; FY 12: £2.7bn) and capital resources outside the long term fund of £3.2bn
(H1 12: £3.1bn; FY 12: £2.8bn) less the capital resources requirement of £3bn (H1 12: £2.9bn; FY 12: £2.9bn).

The With-profits Insurance Capital Component (WPICC) is an additional capital requirement calculated if the surplus in the with-profits fund on a Peak 2 basis is lower than on a Peak 1 basis and represents the difference in the surplus between the two bases. It is calculated based on the most onerous risk capital margin stress referred to in 3.02 (b).

Asset Disclosures Page 71

4.01 Investment portfolio
	Market	Market	Market
	value	value	value
	At	At	At
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


Worldwide assets under management	440,152	388,412	413,152
Client and policyholder assets	(380,599)	(329,536)	(351,663)
Non-unit linked with-profits assets1	(17,895)	(18,749)	(18,605)


Assets to which shareholders are directly exposed	41,658	40,127	42,884



Comprising:
Assets held to back the UK non-linked non profit business:
Legal & General Pensions Limited (LGPL)2	32,226	30,670	33,289
Other UK non profit insurance business3	-	237	76
	32,226	30,907	33,365
Assets held to back other insurance businesses (including Triple-X reserves)	3,200	3,182	2,993
L&G Capital	4,684	4,529	4,741
Other shareholder assets	1,548	1,509	1,785


	41,658	40,127	42,884


1. Includes assets backing participating business in LGF of £2,434m (H1 12: £2,297m; FY 12: £2,304m).
2. LGPL is the main operating subsidiary for the UK's annuity business.
3. This represents the completed run off of the acquired Nationwide Guaranteed Equity Bond portfolio.

Analysed by asset class:

					Other
			Other		share-
			insurance	L&G	holder
		LGPL	business	Capital	assets	Total	Total	Total
		At	At	At	At	At	At	At
		30.06.13	30.06.13	30.06.13	30.06.13	30.06.13	30.06.12	31.12.12
	Note	£m	£m	£m	£m	£m	£m	£m


Equities1		-	-	1,447	8	1,455	919	1,432
Bonds	4.02	28,635	3,007	1,887	1,118	34,647	32,958	34,923
Derivative assets2		2,077	31	206	-	2,314	3,183	3,103
Property		924	-	122	14	1,060	684	773
Cash (including cash
equivalents)		590	162	1,022	408	2,182	2,383	2,653


		32,226	3,200	4,684	1,548	41,658	40,127	42,884


1. Includes £68m equity investment in CALA Group Limited.
2. Derivative assets are shown gross of derivative liabilities. Exposures arise from 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.

Asset Disclosures Page 72

4.02 Bond portfolio summary
(a) Analysed by sector
		LGPL	LGPL	Total	Total
		At	At	At	At
		30.06.13	30.06.13	30.06.13	30.06.13
	Notes	£m	%	£m	%


Sovereigns, Supras and Sub-Sovereigns	4.02(b)	4,292	15	6,573	19
Banks:
- Tier 11	4.04	180	1	189	1
- Tier 2 and other subordinated	4.04	482	2	549	2
- Senior		1,508	5	2,304	7
Utilities		3,902	14	4,155	12
Consumer Services and Goods		2,387	8	2,813	8
Financial Services		966	3	1,208	3
Technology and Telecoms		1,961	7	2,301	6
Insurance		1,173	4	1,281	4
Industrials		1,453	5	1,732	5
Oil and Gas		1,707	6	1,927	6
Health Care		790	3	861	2
Property		636	2	703	2
Traditional and secured asset backed securities	4.03	6,079	21	6,932	20
CDO	4.02(d)	1,119	4	1,119	3


Total		28,635	100	34,647	100



		LGPL	LGPL	Total	Total
		At	At	At	At
		30.06.12	30.06.12	30.06.12	30.06.12
	Notes	£m	%	£m	%


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


Total		26,901	100	32,958	100

Asset Disclosures Page 73

4.02 Bond portfolio summary (continued)
(a) Analysed by sector (continued)
		LGPL	LGPL	Total	Total
		At	At	At	At
		31.12.12	31.12.12	31.12.12	31.12.12
	Notes	£m	%	£m	%


Sovereigns, Supras and Sub-Sovereigns	4.02(b)	4,543	16	6,328	18
Banks:
- Tier 11	4.04	212	1	223	1
- Tier 2 and other subordinated	4.04	707	2	776	2
- Senior		1,399	5	2,243	6
Utilities		3,928	13	4,177	12
Consumer Services and Goods		2,624	9	3,040	9
Financial Services		980	3	1,198	3
Technology and Telecoms		2,010	7	2,337	7
Insurance		1,225	4	1,362	4
Industrials		1,512	5	1,816	5
Oil and Gas		1,782	6	2,009	6
Health Care		860	3	926	3
Property		628	2	698	2
Traditional and secured asset backed securities	4.03	5,747	20	6,693	19
CDO	4.02(d)	1,097	4	1,097	3


Total		29,254	100	34,923	100


1. Tier 1 holdings include £51m (H1 12: £56m; FY 12: £56m) of preference shares.

Asset Disclosures Page 74

4.02 Bond portfolio summary (continued)
(b) Analysed by domicile

The tables below are based on the legal domicile of the security.

		LGPL	Total	LGPL	Total	LGPL	Total
		At	At	At	At	At	At
		30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	Note	£m	£m	£m	£m	£m	£m


Market value by region
United Kingdom		11,696	12,708	10,422	11,696	11,569	12,578
USA		7,834	10,555	8,268	10,926	8,394	10,856
Netherlands		1,671	2,289	1,303	1,975	1,661	2,267
France		1,190	1,581	1,100	1,485	1,313	1,742
Italy		644	792	507	612	636	744
Germany		337	650	428	687	316	651
Ireland1		249	287	215	227	271	289
Spain		195	290	164	208	192	260
Belgium		29	77	31	81	27	84
Portugal		15	28	10	10	13	16
Greece		-	3	-	-	-	-
Europe - Other		1,146	1,506	1,109	1,508	1,164	1,552
Rest of World		2,510	2,762	2,348	2,547	2,601	2,787
CDO	4.02(d)	1,119	1,119	996	996	1,097	1,097


Total		28,635	34,647	26,901	32,958	29,254	34,923


1. Within LGPL, out of the £249m of bonds domiciled in Ireland, £183m relate to financing vehicles where the underlying exposure lies outside Ireland.

Additional analysis of sovereign debt exposures

	Sovereigns, Supras and Sub-Sovereigns

	LGPL	Total	LGPL	Total	LGPL	Total
	At	At	At	At	At	At
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	£m	£m	£m	£m	£m	£m


Market value by region
United Kingdom	2,884	3,279	2,675	3,160	3,158	3,552
USA	325	889	359	748	323	470
Netherlands	1	387	-	432	1	423
France	89	312	77	284	80	299
Italy	253	368	198	279	240	312
Germany	189	382	143	330	165	380
Ireland	-	14	-	5	-	6
Spain	1	58	-	29	-	47
Belgium	-	37	-	40	-	38
Portugal	-	12	-	-	-	4
Greece	-	3	-	-	-	-
Europe - Other	453	654	445	624	459	631
Rest of World	97	178	114	114	117	166


Total	4,292	6,573	4,011	6,045	4,543	6,328

Asset Disclosures Page 75

4.02 Bond portfolio summary (continued)
(c) Analysed by credit rating
	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.13	30.06.13	30.06.13	30.06.13
	£m	%	£m	%


AAA1	1,235	4	3,502	10
AA	6,263	22	7,373	21
A	10,080	35	11,507	33
BBB	8,321	29	9,422	27
BB or below	448	2	528	2
Unrated: Bespoke CDOs	991	3	991	3
Other2	1,297	5	1,324	4


	28,635	100	34,647	100




	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.12	30.06.12	30.06.12	30.06.12
	£m	%	£m	%


AAA	4,471	16	7,033	21
AA	3,012	11	3,889	12
A	9,597	36	11,324	34
BBB	7,423	28	8,239	25
BB or below	474	2	525	2
Unrated: Bespoke CDOs	874	3	874	3
Other2	1,050	4	1,074	3


	26,901	100	32,958	100



	LGPL	LGPL	Total	Total
	At	At	At	At
	31.12.12	31.12.12	31.12.12	31.12.12
	£m	%	£m	%


AAA	4,899	17	6,892	20
AA	3,240	11	4,087	12
A	9,810	34	11,466	33
BBB	8,625	29	9,595	27
BB or below	467	2	521	1
Unrated: Bespoke CDOs	975	3	975	3
Other2	1,238	4	1,387	4


	29,254	100	34,923	100


1. In the first six months of 2013, UK government was downgraded from AAA to AA+.
2. Other unrated bonds have been assessed and rated internally and are all assessed as investment grade (BBB and above).

Asset Disclosures Page 76

4.02 Bond portfolio summary (continued)
(d) CDOs

The Group holds collateralised debt obligations (CDOs) with a market value of £1,119m at 30 June 2013 (H1 12: £996m; FY 12: £1,097m).

These holdings include £962m (H1 12: £848m; FY 12: £948m) relating to four CDOs that were constructed in 2007 and 2008 in accordance with terms specified by Legal & General as part of a strategic review of the assets backing the annuity portfolio. These CDOs mature in 2017 and
2018. The Group selected at outset and manages the reference portfolios underlying the CDOs to give exposure to globally diversified portfolios of investment grade corporate bonds. The Group is able to substitute the constituents of the original reference portfolios with new reference assets, allowing the management of the underlying credit risk although no substitutions were made in 2012 or 2013. A breakdown of the underlying CDO reference portfolio by sector is provided below:

Sector
	30.06.13	At 30.06.12	At 31.12.12
	%	%	%


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


	100	100	100



The CDOs are termed as super senior since default losses on the reference portfolio have to exceed 27.5%, on average across the four CDOs, before the CDOs incur any default losses. Assuming an average recovery rate of 30%, then over 39% of the reference names would have to default before the CDOs incur any default losses.

Beyond 27.5% of default losses on the reference portfolio, losses to the CDO would occur at a rate that is a multiple of the loss rate on the reference portfolio. For illustration a £200m loss could be incurred if default losses to the reference portfolios exceeded 30.4% or if 43.5% of the names in the diversified global investment grade portfolio defaulted, with an average 30% recovery rate. (All figures are averages across the four CDOs.)

The underlying reference portfolio has had no reference entity defaults in 2012 or 2013.

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

These CDOs also incorporate features under which, in certain circumstances, the Group can choose either to post additional cash collateral or to allow wind up of the structures. These features are dependant on the portfolios' weighted average spreads, default experience to date and time to maturity. No additional collateral was posted to any of the CDOs during the period ended 30 June 2013 (2012: £nil). During the period, the Group received £nil (2012: £nil) of previously posted collateral.

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

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

The balance of £157m (H1 12: £148m; FY 12: £149m) of CDO holdings includes a £29m (H1 12: £26m; FY 12: £27m) exposure to an equity tranche of a bespoke CDO.

Asset Disclosures Page 77

4.03 Traditional and secured asset backed securities summary
(a) By security
	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.13	30.06.13	30.06.13	30.06.13
	£m	%	£m	%


Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1	483	8	714	10
Residential Mortgage-Backed Securities - Sub-prime2	-	-	3	-
Commercial Mortgage-Backed Securities	217	4	426	6
Credit Card	5	-	118	2
Auto	4	-	106	2
Consumer Loans	25	-	25	-
Student Loans	20	-	59	1


	754	12	1,451	21


Securitisations and debentures:
Secured Bond	2,197	36	2,275	33
Commercial Property Backed Bonds	552	9	552	8
Infrastructure / Private Finance Initiative / Social housing	1,913	32	1,920	27
Whole Business Securitisation	467	8	478	7
Other secured holdings3	196	3	256	4


	5,325	88	5,481	79


Total traditional and secured asset backed securities	6,079	100	6,932	100


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

	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.12	30.06.12	30.06.12	30.06.12
	£m	%	£m	%


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


	611	12	1,427	24


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


	4,304	88	4,454	76


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

Asset Disclosures Page 78

4.03 Traditional and secured asset backed securities summary (continued)
(a) By security (continued)
	LGPL	LGPL	Total	Total
	At	At	At	At
	31.12.12	31.12.12	31.12.12	31.12.12
	£m	%	£m	%


Traditional asset backed securities:
Residential Mortgage-Backed Securities - Prime1	469	8	674	10
Residential Mortgage-Backed Securities - Sub-prime2	-	-	17	-
Commercial Mortgage-Backed Securities	213	4	457	7
Credit Card	11	-	162	2
Auto	2	-	113	2
Consumer Loans	30	1	30	-
Student Loans	17	-	59	1


	742	13	1,512	22


Securitisations and debentures:
Secured Bond	2,230	39	2,294	34
Commercial Property Backed Bonds	573	10	575	9
Infrastructure / Private Finance Initiative / Social housing	1,559	27	1,570	24
Whole Business Securitisation	425	7	431	6
Other secured holdings3	218	4	311	5


	5,005	87	5,181	78


Total traditional and secured asset backed securities	5,747	100	6,693	100


1. 55% (H1 12: 53%; FY 12: 54%) of Prime RMBS holdings relate to UK mortgages. 2. 47% (H1 12: 54%; FY 12: 60%) of Sub-prime RMBS holdings have a credit rating of AAA and 61% (H1 12: 76%; FY 12: 94%) relate to the UK. 3. Other secured holdings in LGPL include covered bonds of £194m (H1 12: £143m; FY 12: £207m).

Of the £697m (H1 12: £816m; FY 12: £770m) of traditional ABS holdings held outside of LGPL, 73% are rated AAA (H1 12: 70%; FY 12: 72%).

Asset Disclosures Page 79

4.03 Traditional and secured asset backed securities summary (continued)
(b) By credit rating
	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.13	30.06.13	30.06.13	30.06.13
	£m	%	£m	%


AAA1	413	7	1,040	15
AA1	1,321	22	1,429	21
A	2,550	42	2,617	37
BBB	1,052	17	1,096	16
BB or below	143	2	149	2
Unrated2	600	10	601	9


Total	6,079	100	6,932	100




	LGPL	LGPL	Total	Total
	At	At	At	At
	30.06.12	30.06.12	30.06.12	30.06.12
	£m	%	£m	%


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


Total	4,915	100	5,881	100





	LGPL	LGPL	Total	Total
	At	At	At	At
	31.12.12	31.12.12	31.12.12	31.12.12
	£m	%	£m	%


AAA	908	16	1,587	24
AA	1,327	23	1,456	22
A	1,851	32	1,927	29
BBB	998	17	1,039	16
BB or below	144	3	150	2
Unrated2	519	9	534	7


Total	5,747	100	6,693	100


1. Downgrade of asset backed securities ('ABS') from AAA to AA is largely driven by ABS guaranteed by the UK Government. The majority of the ABS downgrades from AA to A are due to a downgrade of the UK Housing Association sector, due to perceived weakening of UK Government support.
2. The rise in unrated asset backed securities predominantly relates to an increase in commercial backed property and social housing assets.

The credit ratings of monoline wrapped bonds are based on the rating of the underlying securities.

Asset Disclosures Page 80

4.04 Group subordinated bank exposures
	Total	Total	Total	Total	Total	Total
	At	At	At	At	At	At
	30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
	£m	%	£m	%	£m	%


Tier 1
United Kingdom1	136	19	139	11	161	16
USA	11	1	29	2	10	1
Europe	40	6	60	5	52	5
Others	2	-	12	1	-	-


Total tier 1	189	26	240	19	223	22

Lower tier 2
United Kingdom	225	30	423	33	235	24
USA	116	16	333	26	312	31
Europe	80	11	113	9	100	10
Others	27	4	67	5	26	3

Upper tier 2
United Kingdom	67	9	58	5	66	7
USA	2	-	2	-	2	-
Europe	3	-	-	-	-	-

Other subordinated
United Kingdom	1	-	1	-	1	-
USA	26	4	39	3	32	3
Europe	2	-	3	-	2	-
Others	-	-	-	-	-	-


Total tier 2 and other subordinated	549	74	1,039	81	776	78


Total	738	100	1,279	100	999	100


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

4.05 Value of policyholder assets held in Society and LGPL
	At	At	At
	30.06.13	30.06.12	31.12.12
	£m	£m	£m


With-profits business	24,027	24,652	24,656
Non profit business	47,150	43,437	46,869


	71,177	68,089	71,525

Asset Disclosures Page 81

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

	Fund level	UK with-
	invest-	profits	UK with-	UK with-
	ment	asset	profits	profits
	return	share	non par	other
As at 30 June 2013	%	%	%	%


Equities	8	44	4	(46)
Bonds	(2)	34	84	138
Property	2	11	-	(2)
Cash	-	11	12	10


		100	100	100


Investment return (% pa)	1	3	(1)	(9)



Invested assets (£bn):
Net of derivative liabilities		11.5	2.4	1.6
Gross of derivative liabilities		11.5	2.4	1.6




As at 30 June 2012


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


		100	100	100



Investment return (% pa)	4	4	5	2



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




As at 31 December 2012


Equities	11	41	3	(53)
Bonds	10	37	82	143
Property	2	13	-	-
Cash	1	9	15	10


		100	100	100



Investment return (% pa)	9	10	12	-



Invested assets (£bn):
Net of derivative liabilities		12.0	2.6	1.8
Gross of derivative liabilities		12.0	2.6	1.8


Investment return percentages reflect the actual investment return by asset class over the average assets held in that asset class over the period. Each sub fund may however have different underlying assets, and hence returns from the fund average.

Asset Disclosures Page 82

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