Q3 2014 Interim Management Statement

 LEGAL & GENERAL GROUP PLC QUARTER 3 2014 INTERIM MANAGEMENT STATEMENT

Stock Exchange Release

4 November 2014

GROWTH IN ALL DIVISIONS. NET CASH UP 12%.

GROUP HIGHLIGHTS:

· OPERATIONAL CASH UP 8% TO £844M (Q3 YTD 2013: £780M)

· net cash up 12% to £827m (q3 YTD 2013: £740m)

BUSINESS HIGHLIGHTS:

· ANNUITY ASSETS UP 16% TO £39.9BN (Q3 2013: £34.5BN)

· LGIM TOTAL ASSETS UP 14% TO £676.3BN (Q3 2013: £594.0BN)

· UK PROTECTION PREMIUM UP 6% TO £1,077M (Q3 YTD 2013: £1,016M)

· SAVINGS AUA UP 13% TO £119.7BN (Q3 2013: £106.2BN)

· LGC DIRECT INVESTMENTS INCREASED TO £4.6BN (Q3 2013: £2.1BN)

· LGA PREMIUM UP 10% TO $824M (Q3 YTD 2013: $746M)

Nigel Wilson, Group Chief Executive, said:

"We are growing our revenues, operating profit, customers and net cash and are continuing to deliver strong ROE.

LGR completed a record £3.9 billion of annuity sales in the nine months to September, which coupled with an internal transfer in Q3, increased total annuity transactions to £5.8 billion. Of this, only around £0.5 billion was from the individual annuity market. To date in Q4, LGR has secured a further £0.8 billion of bulk premium and our immediate pipeline gives us high confidence in writing around £8 billion in total annuity transactions for the full year, double our total annuity premium for 2013.

Over the last year LGIM's total assets increased by £82 billion from £594 billion to £676 billion. International assets now exceed £86 billion, and have trebled in the last four years. We experienced net outflows in our UK index business, these were more than offset by strong demand for our market leading LDI strategies.

Our UK Insurance businesses delivered another strong performance, with Retail Protection growing its sales by 18%. Workplace Savings passed the £10 billion AUA milestone and Cofunds AUA in the last year increased by £11 billion to £69 billion.

Direct investments total £4.6 billion and we are committed to our £15 billion target over the medium term. CALA, LGC's principal investment in UK house building, achieved record profits and is on track to treble its sales to £800 million by 2016.

We remain confident in our ability to deliver economically and socially useful products for our customers and strong and sustainable growth for our shareholders. Recent market volatility is a reminder of the on-going market uncertainty that still exists and whilst no model can be completely immunised, we believe our strategy creates a high degree of resilience."

GROUP CASH GENERATION

 LEGAL & GENERAL RETIREMENT (LGR)

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

LEGAL & GENERAL CAPITAL (LGC)

LEGAL & GENERAL AMERICA (LGA)

1. LGIM total assets includes £477bn (Q3 2013: £443bn) of AUM and £199bn (Q3 2013: £151bn) of derivative overlay and GIA advisory assets.

Financial HIGHLIGHTS

Operational cash generation for the Group is up 8% to £844m in the first nine months of the year (Q3 YTD 2013: £780m). New business strain of £17m (Q3 YTD 2013: £40m) primarily reflects improved efficiency and increasing scale in UK Protection and Savings. As a result net cash generation is up 12% at £827m (Q3 2013 YTD: £740m). New business strain excludes any impact of the internal transfer of annuities from with-profits to our shareholder fund. 

BUSINESS HIGHLIGHTS 

Legal & General Retirement (LGR)

Total annuity assets increased by 16% to £39.9bn (Q3 2013: £34.5bn) with annuity sales increasing 5% to £3.9bn (Q3 YTD 2013: £3.7bn) and reflecting net flows of £2.3bn Q3 YTD.

We have demonstrated the strength and flexibility of our franchise, more than offsetting reduced individual annuity sales with record bulk annuity transactions. Bulk annuity sales increased 29% to £3,368m (Q3 YTD 2013: £2,613m). In addition we completed the internal transfer of £1,953m of annuities from with-profits to our shareholder fund in July, bringing the total volume of annuity business that delivers value to our shareholders, to £5,829m Q3 YTD. These sales have been achieved whilst maintaining strong pricing discipline across all of our annuity products.

Following the Budget reforms, individual annuity sales in the quarter reduced to £125m (Q3 2013: £323m), down 61%, with total sales in the nine months to September of £508m (Q3 2013: £1,077m), down 53% compared to the first nine months of 2013.

Legal & General Investment Management (LGIM)

LGIM total assets increased 14% to £676.3bn (Q3 2013: £594.0bn) reflecting net flows of £8.0bn (Q3 YTD 2013: £20.7bn) and positive market movements.

As a leading and long-standing DB pension fund manager we have positioned our business to capitalise on the de-risking trend of assets backing UK defined benefit (DB) pension schemes. We continue to see strong demand for our liability driven investment (LDI) strategies, with LDI assets increasing 22% to £273.0bn (Q3 2013: £222.9bn). Net flows of £18.4bn YTD (Q3 YTD 2013: £14.1bn) more than offset our Index outflows. Total net outflows in Index funds for Q3 YTD were £(11.8)bn (Q3 YTD 2013: inflows of £2.4bn) reflecting this de-risking trend and lower international institutional index mandate wins.

Total international assets increased by 45% to £86.5bn (Q3 2013: £59.6bn), with new flows of £7.2bn (Q3 YTD 2013: £14.0bn). In the US, we saw further inflows into our liability driven investment (LDI) and active fixed income (AFI) business, with AUM increasing 119% to $77.4bn (Q3 2013 $35.3bn), including GIA assets, acquired in May 2014, of $23bn. We have also recently developed an index manufacturing capability in the US, which forms part of our on-going initiative to globalise our Index business and leverage key capabilities.

LGIM's property business has experienced increased demand from retail clients and UK pension funds, with net flows for the period of £1.1bn (Q3 YTD 2013: £0.6bn). AUM increased 27% to £13.2bn at Q3 2014 (Q3 2013: £10.4bn).

Legal & General Assurance Society (LGAS)

UK Protection sales grew by 10% to £178m (Q3 YTD 2013: £162m) with new business of £55m (Q3 2013: £57m) in the quarter.

Retail Protection grew sales by 18% to £124m (Q3 YTD 2013: £105m) with new business of £41m in Q3 (Q3 2013: £40m). We are the largest provider of retail protection in the UK and benefit from a highly efficient automated underwriting model and broad distribution reach. We have underwritten in excess of 82% of applications at point of sale and in July further extended our distribution to include the customers of TSB. Direct Retail Protection APE continues to grow and now accounts for 16% of business YTD (Q3 2013 YTD: 13%).

Group Protection sales were lower in Q3 at £14m (Q3 2013: £17m) as we maintained price discipline. In the UK we have achieved sales of £54m YTD (Q3 YTD 2013: £57m). Our French business, including Group Protection, saw sales increase 27%, to €65m (Q3 YTD 2013: €51m) leveraging our powerful UK franchise.

In total the LGAS Savings business increased AUA by a further 13% to £119.7bn (Q3 2013: £106.2bn) reflecting net inflows of £4.0bn YTD.

Our Workplace platform AUA has increased 28% to £10.1bn (Q3 2013: £7.9bn), reflecting net flows of £1.5bn (Q3 YTD 2013: £1.1bn). Opt out rates remain low at less than 10% and our platform now has 1,156k customers and 2,159 schemes (Q3 2013: 779k customers, 1,707 schemes).

Cofunds generated further strong net inflows of £4.0bn Q3 YTD (Q3 2013 YTD: £4.3bn) as RDR continues to drive business to platforms. As a result AUA on the platform increased 18% to £69.0bn (Q3 2013: £58.3bn). LGIM funds on the Cofunds platform increased to £4.8bn (Q3 2013: £4.5bn). We continue to leverage our existing bank and building society relationships and have launched shortened approved fund panels, with a higher representation of LGIM funds, to meet evolving customer needs.

LEGAL & GENERAL CAPITAL (LGC)

Total direct investment across the principal balance sheet at Q3 was £4.6bn (Q3 2013: £2.1bn), consistent with the value reported at 30 June 2014. We acquired £115m of new property loans on behalf of LGR and financed our equity holding in Pemberton, the SME lending business. CALA, which recently reported record annual pre-tax profits of £27m on revenues of £294m, is on track to achieve turnover in excess of £800m by 2016. LGC continues to deliver on urban regeneration projects, specifically in Bracknell, Salford, Plymouth, Canning Town, Wakefield and Liverpool. During the quarter we also successfully completed a number of disposals in the portfolio, totalling £308m.

Legal & General America (LGA)

LGA delivered lower Q3 sales of $39m (Q3 2013: $43m) as a result of the price changes introduced in May. Sales YTD were $117m (Q3 YTD 2013: $113m). Our Q3 mortality experience was broadly in line with assumptions across our total portfolio, however we continue to monitor emerging mortality experience at longer durations, together with lapse assumptions, to ensure our reserving basis remains appropriate.

outlook

Our businesses remain focussed on large markets where we see long term structural growth potential. Our strategic clarity together with our scale, efficiency and track record mean that we are very well placed to take advantage of macro trends and continue to grow the business stock. Recent market volatility is a reminder of the on-going market uncertainty that still exists and whilst no model can be completely immunised, we believe our strategy creates a high degree of resilience. 

In LGR we expect to write significant bulk annuity business. Integrated asset management; longevity expertise; ALM (LDI) capability; strong capital position; and our three decade track record continue to set us apart in the bulk market. While the exact timing of transactions can depend on external factors, the strength and visibility of our pipeline gives us a high degree of confidence in doubling the total annuity transactions we wrote in 2013 to around £8 billion.

We will have a range of individual retirement products available for April 2015 to address consumer needs in an evolving market.

LGIM, as the largest manager of UK DB pension scheme assets with a circa 20% market share, was an early identifier of the de-risking trend and now has a circa 40% market share of the UK LDI market. We expect demand for our LDI strategies to remain strong and further outflows of Index assets managed on behalf of UK DB clients. We are creating differentiated new products targeted at the emerging growth in UK defined contribution (DC) savings, capitalising on auto-enrolment. Internationally, our US business continues to gather momentum as we expand our distribution capabilities and product offering and are seeing strong demand for our LDI and active fixed income products.

In LGAS we are expanding our distribution capabilities and customer base to capitalise on anticipated growing levels of personal retirement savings and changes in welfare provision. We expect our Retail Protection business to remain a strong market leader. Our Workplace Savings business is one of the biggest providers of auto-enrolment solutions in the UK and will capitalise on increased DC savings, with an anticipated 12 million auto-enrolled savers in the market by 2030, three times today's levels.

In LGC, we intend to invest £15 billion in direct investment over the medium term, matching the illiquid nature of our liabilities and solvency capital requirements to deliver more attractive risk adjusted returns to our shareholders. We expect to grow our housing related business and see good opportunities in the private rented sector and for further urban regeneration projects.

In LGA, following the price changes introduced in May, we expect the lower level new business volumes experienced in Q3 to continue going forward. Delivering further dividends to the Group will remain a key focus for LGA.

We reiterate the operational cash guidance we gave at the 2013 full year results to deliver operational cash generation in 2014 from LGR of around £290m (2013: £260m), from LGAS excluding General Insurance of around £430m (2013: £421m) and from LGA of around £46m (2013: £44m).

Enquiries

Investors:

Laura Doyle Head of Investor Relations 020 3124 2088

Stephen Thomas Investor Relations Manager 020 3124 2047

Media:

John Godfrey Group Communications Director 020 3124 2090

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

Katharine Wynne Tulchan Communications 020 7353 4200

Notes

ANALYST CALL DETAILS:

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

There will be a teleconference at 09.30 GMT. Investors should dial +44 (0)20 3059 8125. A replay of the teleconference can be accessed by dialling +44 (0)121 260 4861 (PIN code:1072631#).

FINANCIAL CALENDAR 2014:

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

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

The Group's principal balance sheet includes those assets to which shareholders are exposed, excluding assets where our customers have the total market risk and reward.

FORWARD LOOKING STATEMENTS:

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