2021 Results: Post tax profit exceeds £2bn for the first time, with EPS of 34p, up 19% on 2019, and ROE of 20%

Strong financial performance[1]

·    Profit after tax[2] of £2,050m, up 28% (2020: £1,607m)

·    EPS[3] of 34.19p, up 72% on 2020 (19.84p) and up 19% on 2019 (28.66p)

·    Return on equity of 20.5% (2020: 17.3%)

·    Operating profit of £2,262m, up 11% (2020: £2,041m)[4]

·    Solvency II coverage ratio[5] of 187% (2020: 175%)

·    As at 7^th March 2022 we estimate the coverage ratio was 198%[6] 

·    Full year dividend of 18.45p, up 5% (2020: 17.57p), consistent with our stated ambition

Growing contribution to our five-year (2020-2024) ambitions[7]

·    Cash generation of £1.7bn, up 12%. Capital generation of £1.6bn, up 12%

·    On track to achieve our cumulative cash and capital ambitions of £8.0-9.0bn by 2024

·    On track to achieve our cumulative dividend ambition of £5.6-5.9bn by 2024

Good new business volumes and strong net flows

·    Global PRT new business premiums of £7.2bn (2020: £8.8bn)

·    LGC alternative AUM up 10% to £3.4bn (2020: £3.1bn)

·    LGIM AUM up 11% to £1.4tn, of which £479bn (34%) is International

·    LGIM external net flows of £34.6bn, 85% from International clients, up 70% (2020: £20.4bn)

·    Individual annuity premiums up 5% to £957m (2020: £910m)

·    Lifetime mortgage and retirement interest only advances up 7% to £848m (2020: £791m)

·    LGI UK & US retail protection annual premiums up 14% to £291m (2020: £255m)

"In 2021, cash and capital generation and book value per share were all up over 10% year on year, and we delivered EPS of 34.19p, DPS of 18.45p and a return on equity of 20.5%.  We have a track record of value creation and a longstanding commitment to Inclusive Capitalism and ESHG.  The expected reform of Solvency II, the roll-out of the UK government's levelling up programme, and our growing international businesses underscore our confidence in our ability to continue delivering on a broad range of profitable growth opportunities."

Sir Nigel Wilson, Group Chief Executive

Financial summary

2021 Financial performance

Income statement

Legal & General has delivered another strong set of results, with operating profit excluding mortality releases up 11% to £2,262m (2020: £2,041m), consistent with the "double-digit" guidance we provided at H1.  This marks a return to our long-term rate of growth, having been resilient through the pandemic.  Our diversified business model benefitted from the post pandemic economic recovery and easing of restrictions over 2021 to deliver strong earnings.  All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth.

LGRI delivered operating profit of £1,154m (2020: £1,229m), underpinned by the performance of our growing annuity portfolio.  We remained disciplined on pricing and executed well, writing £7,176m[16] of global PRT at attractive Solvency II new business margins.  Our ability to originate alternative assets provides us with optionality and a strong competitive advantage.  We can use these assets to win new business at attractive margins and / or to increase yields on our back-book.

LGC operating profit increased by 68% to £461m (2020: £275m) and is up 27% on pre-COVID levels (2019: £363m).  This growth is driven by strong performance in our alternative asset portfolio, where operating profit increased to £350m (2020: £112m) as a result of a bounce-back in the housebuilding market and valuation increases from the continued maturing of the underlying investments in our clean energy and venture capital portfolios.

LGIM delivered operating profit growth of 4% to £422m (2020: £407m), reflecting increased revenues, which surpassed £1bn for the first time.  Revenue growth was driven by strong external net flows of £34.6bn (2020: £20.4bn), and an increased focus on higher margin areas such as thematic ETFs, Multi-asset and Real Assets.  LGIM is continuing to grow internationally, with 85% (£29.5bn) of external net flows originated outside the UK.  Assets under management increased by 11% to £1,421.5bn (2020: £1,278.9bn), of which £479bn (34%) is International AUM.  The cost income ratio (58%) remains broadly flat as we continue to invest in and modernise the business, whilst balancing this with careful cost control (2020: 57%).

LGRR operating profit increased 9% to £352m (2020: £322m), supported by the ongoing release from the retail annuity portfolio.  Individual annuities delivered 5% growth in new business against 2020, and retirement lending volumes 7% growth, as these markets continued to recover following the impact of the COVID pandemic.  Workplace Savings net flows were up £0.7bn to £8.5bn (2020: £7.8bn), driven by continued client wins and increased contributions.   

LGI operating profit increased 42% to £268m (2020: £189m), reflecting strong new business growth in UK retail protection supported by a benefit from modelling refinements to the liability discount rate in the UK.  This was partially offset by adverse mortality claims in the US where experience exceeded the provision set up in 2020.  This trend has been consistently reported across the US life sector.  Our 2021 result includes a £57m provision for potential COVID mortality impacts in 2022.

Profit before tax attributable to equity holders[17] was £2,488m (2020: £1,788m), reflecting positive investment variance of £233m (2020: £(394)m).  The positive investment variance in LGI (£111m) is from the formulaic impact of rising interest rates on LGI reserves. However, the negative investment variance of 2020 has not been fully reversed as longer-duration interest rates have not moved meaningfully in 2021.  We have also seen strong portfolio performance in the annuity portfolio.  

Balance sheet and asset portfolio

The Group's Solvency II operational surplus generation from continuing operations was up 12% at £1,636m (2020: £1,460m).  New business strain was £(354)m (2020: £(302)m) which results in a net surplus generation of £1,282m (2020: £1,190m).  UK PRT volume has been written at a capital strain of less than 4%.     

The Group reported a Solvency II coverage ratio[18] of 187% at the end of 2021 (FY 2020: 175%) which, in addition to the contribution from net surplus generation, reflects the impact of market movements, principally from the non-economic impact of higher interest rates on the valuation of our balance sheet[19], partially offset by payment of the 2020 final and 2021 interim dividend (£1,063m) and the redemption of £300m of subordinated debt.

Our IFRS return on equity of 20.5% reflects the impact of operating profit growth and underlying positive investment performance (2020: 17.3%).[20]

Our diversified, actively managed annuity portfolio has continued to perform resiliently with no defaults.  The annuity portfolio's direct investments continue to perform strongly, with 99.8% of scheduled cash-flows paid year to date, reflecting the high quality of our counterparty exposure.

Group Strategy

Legal & General has established expertise in asset origination (LGC) and asset management (LGIM), and in the provision of retirement and protection solutions to corporates and individuals (LGRI, LGRR and LGI).  We operate at scale and are strongly positioned to capitalise on significant growth opportunities across our chosen markets through our five main divisions:

* Note: as of 1^st January 2022, LGRR and LGI (our two retail businesses) have been combined into one division, Legal & General Retail.  Under the leadership of Bernie Hickman, this division will cover the savings, protection and retirement needs of our c12 million retail policyholders and workplace members.

A powerful business model

We have a unique and highly synergistic business model, which continues to drive our strong return on equity.  Legal & General provides powerful asset origination and management capabilities directly to clients. These capabilities also underpin our leading retirement and protection solutions:

·    LGRI is a market leader in UK PRT and a top ten player in the US PRT market.  It forms the majority of our £89.9bn annuity portfolio which provides long-term, captive AUM to LGIM.  As noted, the annuity portfolio is continually being enhanced through the supply of alternative assets originated by LGC. 

·    LGC invests across four main asset classes (Specialist Commercial Real Estate, Clean Energy, Housing and SME Finance) to generate attractive risk-adjusted shareholder returns and to create alternative assets with which to back our annuity portfolio (LGRI and LGRR).  LGC is also increasingly attracting third party capital investment.

·    LGIM is a leading global asset manager, ranking 11th in the world[21] with £1.4tn of AUM of which £479bn, or 34%, are International assets.  LGIM is a leading provider of UK and US Defined Benefit (DB) de-risking solutions.  It is uniquely positioned to support DB clients across the full range of pension endgame destinations, including PRT with LGRI.  84% of LGRI's PRT transactions over the past three years were from existing LGIM clients.[22]  LGIM is also the market leader in UK Defined Contribution (DC) pension scheme clients - a market with significant growth potential, with total UK DC assets expected to surpass £1tn by 2029.[23]

·    LGRR is a leading provider of UK retail retirement solutions, offering annuities, income drawdown, pension pot consolidation, lifetime mortgages (LTM) and LTM advice.  To further complement LGRR's customer retirement and savings proposition, the Workplace Savings administration business was transferred from LGIM to LGRR at the beginning of 2021. 

·    LGI is a market leader in UK protection and US brokerage term life insurance.  The day one Solvency II surplus it generates partially offsets new business strain in LGRI and LGRR.  Further, LGI's US business facilitates LGRI's US PRT transactions, which are written onto the existing US balance sheet.  LGI is a centre of internal excellence in technology and is working closely with other divisions to drive further tech synergies.  LGI also manages a portfolio of successful, strategic Fintech businesses.     

The synergies within and across our businesses drive profits and fuel future growth.  The bringing together of LGRR and LGI into a new Retail division will enable us to better serve the needs of our retail customers and drive further synergies.  

The integrated nature of our business model means that we have relationships with clients and customers that can and do last for decades.  For example, an Index or Liability Driven Investing DB corporate client in LGIM typically becomes a PRT client after 14 years.  LGRI will then typically have a relationship with that client for another 30 to 40 years.  Equally, LGRR and LGIM may have a 30-40-year relationship with a customer during the DC accumulation phase, and then extend that relationship for another 15-30 years during the decumulation phase across a suite of decumulation products including individual annuities, lifetime mortgages and drawdown.

The Group continues to build out, in a measured fashion, its international retirement solutions franchise.  We have made excellent progress in the US over the last decade and will continue to build out our established businesses (LGRI, LGIM, LGI) in that market. LGIM continues to make good progress against its international expansion plans in Europe.  Kerrigan Procter is co-ordinating the Group's expansion plans in Asia.

A long-term commitment to Sustainability, ESG and Inclusive Capitalism

Our purpose is to improve the lives of customers, build a better society for the long-term and create value for our shareholders. This inspires us to use our assets in an economically, environmentally and socially useful way to benefit society - what we call Inclusive Capitalism.

This philosophy underpins our approach to Sustainability and to ESG (Environmental, Social, and Governance factors).[24] We think about Sustainability, and the long-term ESG impact of our business, in terms of:

1.     How we invest proprietary assets.[25]  Our ambition is to reduce our proprietary asset portfolio carbon emission intensity by half by 2030 and to net zero by 2050.  In 2021 we reduced the carbon intensity of the Group's balance sheet by 17.0% versus 2020, although this has been driven in part by COVID-19 and market volatility impacts.[26]  We continue to make environmentally and socially useful investments.  As at FY 2021, we have invested £1.4bn in clean energy and £8.1bn in social infrastructure.  For more information, please see our forthcoming Climate Report, which is in line with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).

2.     How we influence as one of the world's largest asset managers with £1.4 trillion AUM.  We have £290bn AUM in ESG strategies and during 2021 we cast over 60,000 stewardship votes as we continued to encourage investee companies to behave responsibly.[27][28]  LGIM is rated A+ for responsible investment strategy and active ownership from the UN Principles for Responsible Investment, and ranked as one of the highest performers among asset managers for its approach to climate change by both ShareAction and InfluenceMap.

3.     How our businesses operate.  We are committed to supporting our customers, employees, suppliers, shareholders and society at large.  For information on what we are doing to support our key stakeholders, see pages 15-17 of our Sustainability report.[29]  We have committed to reducing the carbon emission intensity of our operating businesses.  Our ambition is to operate our offices and business travel with net zero emissions from 2030, and for all our new homes to be net zero operational carbon from 2030. ESG criteria are included in executives' objectives and remuneration targets. 

Addressing climate change

Addressing Climate Change is one of Legal & General's six strategic growth drivers[30] and is increasingly embedded throughout the group, supported by a rigorous governance framework and transparent metrics. 

Climate change is the biggest challenge and the biggest investment opportunity of our lifetimes. For context, it is estimated that $20 trillion of investment is needed by 2025 alone to put the world on the path to achieving global net zero emissions by 2050.[31] 

Our own commitment to addressing climate change is reflected increasingly in: 1) our own asset allocation and risk management frameworks, 2) in our balance sheet investments, 3) in how we manage and steward money for external clients, 4) in our Real Asset, housing, regeneration and VC portfolios, and 5) in our direct operational emissions.  Our approach is set out in more detail in our Climate Report which describes how we invest, influence and operate. This also covers progress made to date and sets out the staging-posts we have set ourselves on the journey to our goal of net zero by 2050, including the adoption of science-based targets.

COP26, which took place in November last year, was another important milestone in the global journey to net zero.  We were involved in several ways, notably through LGIM CEO Michelle Scrimgeour's role as co-chair of the COP26 Business Leaders Group alongside the President for COP26, Rt Hon Alok Sharma MP, and through LGIM's participation in the Glasgow Financial Alliance for Net Zero (GFANZ).  The principal challenge for governments, business and finance, however, remains one of implementation.  

Legal & General is a thought leader on Climate stewardship and has a number of important policy roles.  Sir Nigel Wilson has led the Workstream on investment for the Insurance Sustainable Market Initiative for the Bank of England/FCA's Climate Financial Risk Forum.  Many senior Legal & General employees, including Group CFO Jeff Davies and LGC CEO Laura Mason, provide expertise in specialist areas including, for example, through HM Treasury and the Bank of England's Productive Finance Committee, the Green Finance Institute and the Green Buildings Council.

Levelling Up

The UK government's focus on levelling up creates an additional opportunity for Legal & General to further expand the work Legal & General has been doing in recent years to create new assets across housing, physical and digital infrastructure, urban regeneration, SME finance and venture capital.  Partnerships with cities and universities, for example in Newcastle, Oxford and Manchester enable the development of projects including the £200m Life and Mind Building in Oxford and the £1.5bn IDManchester development.  Our Bruntwood SciTech joint venture has driven the expansion of Alderley Park, the former Astra Zeneca research facility which is now home to over 200 life science and technology companies and is actively developing a range of other projects including the £210m Birmingham Health Innovation Campus scheduled to open in 2023.  Levelling up enables us to develop new asset classes; for example, data centres, build to rent and affordable housing.  Sir Nigel Wilson is a member of the government's Levelling Up Council, and we expect that the greater empowerment of city mayors and local government will enable Legal & General to create new partnerships to develop multiple productive assets across UK cities which are suitable investments for both our own balance sheet and for our pension clients and customers.

People

At Legal & General our greatest strength is our people. We believe strongly that moving our people around the business drives our collaborative culture and fosters innovation and growth.  To capitalise on the opportunities ahead of us, and on the expertise of our leaders, we have made a number of leadership changes.    

As previously indicated, Chris Knight took over the role of Group Chief Risk Officer from Simon Gadd in March 2021, having led LGRR through a strong period of growth during his three years as CEO of the division.  During Chris' twelve years at Legal & General he has held a number of Group and Divisional leadership roles.  He has also served as the Group's Customer Champion, representing retail customers' interests across the whole product range; a perspective he is bringing to his CRO role.

After 8 years as Group Chief Risk Officer, Simon Gadd took on the new role of Group Climate Change Director in May 2021.  The role was created to develop and oversee the implementation of a coherent group climate strategy, managing both the risks and the opportunities it presents.  He coordinates the wide range of activities undertaken to address climate change across our businesses to ensure they are aligned and consistent with delivering our climate goals and strategy. He also chairs the Group Environment Committee.

Laura Mason, formerly CEO of LGRI, was appointed CEO of LGC, effective 1^st July 2021. This move saw Laura return to LGC where she was part of the original leadership team involved in setting up the division. Laura is focused on growing LGC's asset origination capabilities, and on attracting third party capital.

Kerrigan Procter, formerly CEO of LGC, was appointed President of Asia for the Group, effective 1^st July 2021.  Kerrigan's remit involves working hand in hand with our divisions to develop their strategies for growth in Asia and then implementing them in the region, with a particular focus on China.

Andrew Kail, formerly CEO of LGRR, was appointed CEO of LGRI, effective 1^st January 2022.  Prior to joining Legal & General in 2021, Andrew was the Head of PwC's Financial Services practice, and was Legal & General's Group engagement audit partner for five years.  Andrew spent thirty years with PwC and, as a long-standing senior auditor and advisor, brings significant financial services experience as well as expertise in regulation, risk and technology. 

Bernie Hickman became CEO of our new Retail division on 1^st January 2022, retaining responsibility for LGI and taking on responsibility for LGRR.  Bernie has led LGI for 5 years, during which time he has focused on driving technology and efficiency improvements in the business and on identifying and executing on new adjacent Fintech investment opportunities such as Salary Finance and Smartr365.

John Godfrey, Group Corporate Affairs Director, will be taking on a new role building on his public policy experience to coordinate and further strengthen Legal & General's group-wide engagement with the Levelling-Up agenda.

Outlook

Medium-term growth: ambitious and deliverable

Our strategy has delivered strong returns for our shareholders over time. It has demonstrated resilience through the pandemic, and strength as we come out of it.  We are confident we can continue to deliver profitable growth as we execute on our strategy. 

We set out our five-year ambitions at our Capital Markets event in November 2020.  Cumulatively, over the period 2020-2024, our financial ambitions are for[32]:

1.     Cash and capital generation significantly to exceed dividends (we intend to generate £8.0bn - £9.0bn of both cash and capital, and to pay dividends of £5.6bn - £5.9bn).[33]

2.     Earnings per Share to grow faster than dividends, with the dividend growing at low to mid-single digits from 2021.

3.     Net capital surplus generation (i.e. including new business strain) to exceed dividends.

We are on track to deliver against these ambitions. In 2021, we have achieved 12% growth in both cash and capital generation. Since the beginning of 2020 to date, we have achieved £3.2bn of cash generation, £3.1bn of capital generation and declared £2.1bn of dividends.

We aim to deliver long-term, profitable growth across the Group.  Our asset origination and asset management businesses, LGC and LGIM, operate in attractive and profitable markets, and maintain a strong commitment to ESG-aligned investing.  With proven asset expertise in specialist commercial real estate, clean energy, housing and SME finance, LGC provides unique asset origination capabilities in sectors that have significant growth potential, which produce yield-creating assets that drive our annuity business and which appeal to third party investors.  LGRI and LGRR provide highly predictable, stable cash flows from their growing back-books.  LGI is applying technological innovation to sustain its UK leadership, to grow in the US and to continue to expand into adjacent markets.  The bringing together of LGRR and LGI into a new Retail division will enable us to focus on serving the savings, protection and retirement needs of our retail customers.

We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets.  Our confidence in our dividend paying capacity is underpinned by the Group's strong balance sheet, which has a £3.4bn IFRS credit default reserve and Solvency II surplus regulatory capital of £8.2bn, in addition to significant buffers to absorb a market downturn.  We have a proven operating model which is reinforced by robust risk management practices.

Confident in achieving our ambitions

We remain confident in achieving our five-year (2020-2024) cumulative financial ambitions.  In 2021, we continued to build on the good start we made in 2020, delivering double digit growth in both cash and capital generation.

LGC and LGIM provide powerful asset origination and asset management capabilities directly to clients. These same capabilities also underpin our leading retirement and protection solutions.  LGC intends to grow shareholder alternative AUM to c£5bn, with a blended portfolio return of 10-12%, by 2025.  It also aspires to grow third party AUM to £25-30bn and to grow LGC operating profit to £600-700m by 2025.  LGIM continues to focus on attracting higher margin net flows and on diversifying and further internationalising its business. The business remains confident of achieving its ambition of growing cumulative profits in the range of 3-6%.

LGRI maintained pricing discipline in the face of greater competition in PRT markets in 2021 and will continue to prioritise shareholder value creation.  Advisers such as WTW and LCP are bullish on the prospects for PRT in 2022 and beyond.[34]  We are well placed to participate whilst maintaining our pricing discipline. We continue to expect to write £40-50bn of UK PRT and $10bn of International PRT over a five year period.  A key competitive advantage is in our ability to originate direct investments. This provides us with significant optionality.  We can use these direct investments to create value in writing new annuity business, and/or by using them to increase returns on the back-book.

In LGI, we continue to target mid-single digit growth in revenues across our UK protection businesses, and to achieve double digit growth in US new business sales.  In LGRR, the longer-term outlook for individual annuities and lifetime mortgages remains attractive, driven respectively by ongoing growth in the DC market and by an increasing consumer requirement to look to multiple sources of wealth to fund retirement.  However, the lifetime mortgage market is becoming more competitive and we will maintain pricing discipline at the expense of volumes if required.  

We are pleased with the progress we have made in 2021 and are confident in our ability to deliver further profitable growth going forwards. We are well-positioned to support the UK Government's two flagship policies of "Levelling Up" and "Address Climate Change". 

We will continue to maintain a defensive asset portfolio and a long-term investment horizon, supporting all our stakeholders by delivering Inclusive Capitalism through investments - both for our own portfolio and for clients - in areas such as infrastructure, clean energy and affordable housing, and by providing products to support individuals' financial resilience.

Business segment outlook

Legal & General Institutional Retirement (LGRI)

LGRI participates in the global pension risk transfer (PRT) market, focusing on corporate defined benefit (DB) pension plans in the UK, the US, Canada, Ireland and the Netherlands, which together have nearly £7 trillion of pension liabilities due to ageing demographics.^[35] 

We write direct business in the UK and US and are market leaders in the UK.  We are supported by LGIM's long-standing DB client relationships and investment capabilities and LGC's asset origination capabilities, as well as wide-ranging skills across the Group which enhance our asset strategy and product innovation.  During 2021, 58% of our UK transactions were with LGIM clients, demonstrating the strength of our client relationships and the competitive advantage provided by our unique position as the only firm operating across the full pension de-risking journey.

The UK is our primary market and it is the most mature PRT market globally with £2.3 trillion of UK DB pension liabilities, of which only c13% have been transferred to insurance companies to date.[36]  This leaves a sizeable opportunity for future market growth.  Demand from companies and pension plans for PRT remains robust.  Market commentators believe the total UK PRT market was just under £30bn in 2021 despite the relatively subdued first half of the year.[37]  In terms of medium-term outlook, they anticipate between £150bn-£250bn of UK PRT demand over the next five years, again highlighting the size of the opportunity.[38]  We continue to expect to write £40bn to £50bn of new UK PRT over 5 years, but will remain disciplined in our pricing and deployment of capital.  Over the last 4 years we have written £32bn of new UK PRT in line with these ambitions.  

The US represents a further, significant market opportunity, with $3.7 trillion of DB liabilities, of which only c7% have transacted to date.[39]  Since our market entry in 2015, our US business has written more than $6bn of PRT with 84 clients.  We also actively quote on selective Canadian, Irish and Dutch PRT opportunities and wrote our second Canadian deal in 2021.  We are the only insurer providing PRT directly to pension plans across the UK and US.  Our ambition is to write more than $10bn of international PRT over the five years from 2020-2024.

During 2021 we maintained pricing discipline in the face of increased competition in both the UK and US.  Despite writing slightly lower volumes than in 2020, new business profits were resilient due to our competitive advantage in originating assets via LGC, lifetime mortgages via LGRR and sourcing assets via LGIM.  Going forwards, strong asset creation capability across the Group provides us with optionality to maximise shareholder value, either by deploying assets against new business - to improve pricing and margins - or by applying them to increase the returns on the back-book.    

As the annuity portfolio scales, the growing amount of capital generated by the in-force book offsets both the capital investment required to fund new business and the portfolio's contribution to a progressive Group dividend. This is what we call self-sustainability. The UK annuity portfolio achieved self-sustainability in both 2020 and 2021.  Whilst we expect to achieve self-sustainability again in 2022, driven by our growing operational surplus generation, it is not something we necessarily aim to achieve in every year. It will vary depending on new business volumes and asset yields. Our ambition is, however, for net surplus generation to exceed dividends for the Group over the period 2020-2024.

Legal & General Capital (LGC)

LGC, the Group's alternative asset origination platform, will continue to deploy shareholder capital in a range of underserved areas of the UK's real economy that are backed by long-term structural trends.  LGC has three fundamental objectives: 1) profit and value generation within LGC for shareholders; 2) asset creation to back LGRI and LGRR's annuity liabilities and meet demand from LGIM's third party clients; and 3) a focus on ESG, securing long lasting value for society.  LGC continues to make a substantial contribution to shareholder value creation and is well positioned to drive further meaningful growth as its businesses continue to scale and mature. 

As communicated at the capital markets event last October, our ambition is to build LGC's diversified alternative AUM to c£5bn by 2025 (2021: £3.4bn), with an upgraded blended portfolio return target of 10-12% (previously 8-10%).  In combination with the contribution from the Traded Portfolio, LGC's ambition is to deliver operating profit of £600-700m in 2025.  Additionally, we plan to increase fee-generating third party capital to £25-30bn (2021: £12.9bn).  We expect our existing platforms (Pemberton, Build-to-Rent, NTR) to continue to manage the majority of third-party AUM, building on their impressive growth to-date, but this also includes incremental opportunities in Clean Energy, Later Living and Data Centres.  Excluding assets originated to back our annuity liabilities, LGC expects to invest and manage over £30bn of alternative AUM by 2025.  As part of the ambition, we will also target international opportunities, with a primary focus on the US. 

Supporting the UK government's two flagship policies, LGC's asset classes include specialist commercial real estate, housing, clean energy, and SME finance.  Our alternative asset strategy is made up of sectors where our investments change lives and drives Inclusive Capitalism.  We are creating much needed jobs, homes and infrastructure, driving growth, skills and innovation, and contributing towards a cleaner, greener future:

·      The specialist commercial real estate portfolio includes capital-light urban regeneration (funded by LGRI or LGIM third parties), digital infrastructure and science and technology-focused real estate.  Partnering with universities, local authorities and private sector experts, we have invested across nineteen UK towns and cities, creating jobs, driving economic growth and revitalising local communities.

·      As a leading provider of homes, with a commitment to tackling the affordability gap and the undersupply of housing (estimated to be around 345,000 homes required annually) across the UK, LGC's housing platform continues to expand across all tenures, ages and demographics, leveraging both traditional and modular construction in order to revolutionise and speed up delivery for all.  We are well positioned to scale in order to achieve our long-term ambitions: 1) to deliver 10,000 multi-tenure homes per year (including over 3,000 traditional build to sell homes, up to 3,000 affordable and modular homes, and 1,000 suburban rental homes); and 2) to develop c5,200 build to rent homes in our urban pipeline and 5,100 later living homes in our JV pipeline with NatWest Group Pension Fund.  To ensure that the homes we build are future-proofed and sustainable, we have committed that all our new homes will be operationally carbon emission-free from 2030.

·      In the clean energy sector, we are focused on investing selectively into attractive growth equity and low carbon infrastructure opportunities. We are confident that our considered and selective approach to clean energy investing will continue to yield results in what can be a highly competitive sector. Growth equity targets early-stage scale-up companies that deliver innovative clean technologies required for a successful energy transition.  Low carbon infrastructure targets the renewable energy infrastructure investments needed to accelerate progress towards a low-cost and low-carbon economy. 

·      In SME Finance, we are continuing to support UK and European innovation, investing in the real economy and technological innovation in two SME Finance business areas: Alternative Finance - via our 40% stake in Pemberton, an alternative credit manager - and Venture Capital - via our Fund of Funds platform and via LGC's ownership of Accelerated Digital Ventures (ADV), a direct investment platform.  Our SME Finance businesses are well positioned to scale in these highly attractive structural growth segments.  We also continue to work with LGIM to develop a viable solution for Defined Contribution clients which will democratise access to the venture capital asset class.

Legal & General Investment Management (LGIM) 

LGIM is a globally recognised investment leader, benefiting from a combination of scale and a diversified asset and client base, underpinned by clear structural demand for our capabilities.  As L&G's asset manager, LGIM also plays a critical role in supporting our leading retirement and protection solutions.

Our purpose is to create a better future through responsible investing and we are a global leader in ESG.  Our five-year growth ambition is driven by the three pillars of our strategy to modernise, diversify and internationalise the business.  We seek: 1) to grow cumulative profits in the range of 3% to 6%, absent market shocks; 2) to increase AUM in international and higher-margin areas; and 3) to diversify AUM by client, channel and geography.  We expect to maintain a cost income ratio in the high 50 percent range in the near term as we invest for growth, after which we expect it to trend downwards.

LGIM is one of the largest managers of corporate pension funds globally; we are a UK leader in corporate DB pensions, the UK's number-one DC manager, and ranked second for UK gross retail sales in 2021.[40]  We intend to maintain our strong position in the UK, which has been the bedrock of our success to date, while continuing to diversify our capabilities and broaden our reach internationally. 

Modernise: LGIM continues to invest in the business to achieve the resilience and agility critical to future success.  We are laying the foundations for continued global growth by investing in our people, our operating platform and our data capabilities, and by refining our organisational structure.  During 2021 we rebuilt and fully brought in house LGIM's proprietary Climate Risk model, Destination@Risk.  This capability allows us to engage with clients to help them understand the climate risks and opportunities across their portfolios, enabling us to design solutions and funds to help them achieve their climate objectives, such as Net Zero alignment.  

Diversify: We are continuing to expand our investment offering, with a focus on higher-margin product areas such as Real Assets, ETFs, Multi-asset and Solutions.  We see a sizeable opportunity in Real Assets - we are well known for our UK Real Estate Equity expertise and, increasingly, are also providing investors with access to our leading private-credit capabilities.  As UK and US DB schemes approach funding maturity, many clients will look for self-sufficiency or buy-out options.  Together with LGRI, we are well positioned to deliver on these options through our 'endgame' Solutions offering.   We continue to demonstrate our leadership in ESG investing through our award-winning Investment Stewardship team and, in addition to offering a wide range of ESG-specific products, are driving further integration of ESG into our mainstream investment portfolios to reflect current and future client demand. 

Internationalise: LGIM aims to be a disruptor in regions and countries where our strengths align to client needs.  Over the last five years LGIM's International AUM has more than doubled to reach £479bn - 34% of LGIM's total AUM.  Our ambition is to continue growing International AUM profitably and at pace in the US, Europe and Asia.  In the US, we are deepening our strong client relationships through innovation in DC and leadership in ESG.  In Europe, we are building on our successes in Germany and Italy, to expand further into European markets and channels through our higher-margin thematic ETFs and active fixed income strategies.  In Asia, our strategy is to retain and increase our share of wallet with existing clients and deepen our footprint in existing markets - Japan, China, Hong Kong, Taiwan and Korea - by showcasing and delivering investment solutions that address key market trends. 

 Legal & General Retail

As of 1^st January 2022, LGRR and LGI (our two retail businesses) have been combined into one division, Legal & General Retail. Under the leadership of Bernie Hickman, this division will cover the savings, protection and retirement needs of our c12 million retail policyholders and workplace members. 

Retirement (LGRR)

Workplace savings is a core part of the Group's retail proposition.  The business is a growth area for the Group and we expect its target market to continue to expand, driven by ageing demographics and welfare reforms.  To further complement LGRR's customer retirement and savings proposition, the Workplace Savings administration business was transferred from LGIM to LGRR at the beginning of 2021.  This enables us to better assist the 4.4 million Workplace members in planning their retirement whilst they are saving with us, rather than when they come to retirement.  This will drive better customer outcomes and, at the same time, help us to retain more of our customers in retirement.

There are currently c£500bn in UK Defined Contribution (DC) accumulation assets and this is expected to broadly double by the end of the decade.[41]  As a market leading provider in Workplace Savings, we are well placed to benefit from this expected increase in DC pension assets, and to grow administration revenues for LGRR and fund management revenues for LGIM.

Prior to Covid-19, around £40bn of these DC assets were coming to maturity each year, with the individual annuity market accounting for just over 10% of these assets.  The size of the individual annuity market dipped slightly during the pandemic as people deferred making retirement decisions.  We do expect the market to recover as the DC market continues to grow, and as fewer people reach retirement with defined benefit pensions and so seek the longevity protection that an annuity provides.  LGRR has a strong market share in individual annuities, with a 21.4% market share at Q3 2021.[42]  We are building on the strength of that position by providing other retirement income products and services, such as our recently launched drawdown product, recognising that each customer will have different needs and requirements.

The UK lifetime mortgage (LTM) market continues to represent a sizeable opportunity, with UK housing equity in over 55s at £1.7 trillion across approximately 5.5m houses.[43]  At present only c£5bn per year is being released through the LTM market.  While we maintain our focus on the traditional LTM market and continue to offer greater flexibility and choice, we continue to see interest from the "wealth" sector as those with higher value properties increasingly see the benefit in lifetime mortgages when planning the distribution of their estate to future generations.

Across all our businesses we continue to focus on our customers and the technology that supports providing a more efficient but personalised service.

Insurance (LGI)

We anticipate continued premium growth across our UK and US Protection businesses as technological innovation makes our products more accessible to customers and supports further product and pricing enhancements. 

In the UK, our market leading retail protection business is supported by the strength of our distribution relationships, investment in our systems and platforms, and product enhancements.  These strengths, aided by the UK housing stamp duty relief, contributed significantly to strong performance in 2021, with record new business of £200m, up 14% against 2020 (£175m).  We expect the total protection market to be slightly smaller in 2022.  Our group protection business has also performed well, increasing premium income by 6%.  During 2021 we launched a digital application portal which will drive growth, particularly for smaller schemes.  In line with our five-year ambition, we are targeting mid-single digit growth in revenues across our UK protection businesses. 

In the US, we anticipate our on-going technology investments and new partnerships will position us for premium growth as the market continues to recover from the distribution and underwriting disruptions caused by COVID-19.  We are using technology to improve customer experience while reducing cost and becoming the partner of choice for a wide range of distribution partners.  We are already the largest provider of term life assurance in the brokerage channel, and our digital first approach is aiming to achieve double digit growth in new business sales out to 2025.

We invest in Fintech start-ups and scale-ups that operate in adjacent markets where we have the relationships, capital or expertise to accelerate their growth and value creation.  One such investment is Salary Finance, an employee benefits platform business, in which we have a 48% holding.  Salary Finance remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond.  Gross revenue grew to £30m in 2021[44], an increase of 85% year on year and the fourth year in a row with a near doubling in revenue growth.  In addition, other key investments like Smartr365 and Asanto are growing rapidly.  We are targeting double digit growth for our Fintech businesses.  

Dividend

The Board has declared a final dividend of 13.27p, giving a full year dividend of 18.45p, up 5% from the prior year (17.57p).  This is consistent with our stated ambition to grow the dividend at 3-6% per annum between 2021 and 2024.

Going forward, and as announced at HY21, the Board intends to adopt a formulaic approach to the dividend whereby the interim dividend grows by the same percentage as the total dividend for the prior year. 

LGR - Institutional

Operating profit of £1,154m

LGRI continues to deliver strong operating profit of £1,154m (2020: £1,229m).  Profit was underpinned by the performance of our growing annuity portfolio and robust pension risk transfer (PRT) new business volumes. 

As communicated at H1 2021, we have not recognised an explicit release from adopting CMI 2019, given the uncertainty in the data created by the pandemic.  We anticipate any resulting additional prudence will be released through experience variances over the next 2-3 years until we have more certainty and clarity over the data.  In H2 2020 we conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRI's annuity book, resulting in a £102m reserve release.

Release from operations increased 4% to £512m (2020: £492m), reflecting the scale of the business as prudential margins unwind from LGRI's growing £89.9bn annuity portfolio (2020: £87.0bn). 

Net release from operations was £705m (2020: £712m) with new business surplus of £193m (2020: £220m), reflecting successful execution, coupled with a disciplined approach to new business. 

During 2021 we wrote £5,315m of UK PRT which, combined with Assured Payment Policy of £925m and £957m of individual annuities written in LGRR, delivered a 9.1% UK Solvency II new business margin (2020: 10.6%, 2019: 7.9%). This is a strong result: 2020 benefitted from wider credit spreads and good asset sourcing during the pandemic, as well as longer duration schemes.  UK PRT volumes were written at a capital strain of less than 4%. 

Gross longevity exposure was £89bn across LGRI and LGRR's annuity and longevity insurance businesses. We have reinsured £39.4bn of longevity risk with sixteen reinsurance counterparties, leaving a net exposure of £49.6bn. The reinsurance market continues to grow and innovate, and we expect it to continue to offer sufficient capacity to meet the demand from insurers.

Successful execution coupled with a disciplined approach for value

During 2021 LGRI underwrote £7,176m of business across 57 deals globally (2020: £8,843m, 61 deals). 

Legal & General has demonstrated successful execution, whilst remaining focused on value creation, and continues to play a key role in the UK PRT market.  Despite a slow start to the year, the market is anticipated to close at just below £30bn, the third largest on record.  As in 2020, the market saw a high number of smaller and mid-sized pension scheme transactions and a handful of larger scheme transactions. 

LGRI's brand, scale and asset origination capabilities - through synergies and expertise within LGIM and LGC - are critical to our market leadership in the UK PRT market.  Long-term client relationships, typically created and fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals.  In 2021 we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:

·    Small scheme solutions. With 69% of our transactions falling into this category, we leveraged technological innovation to serve smaller pension plans efficiently.

·    A new umbrella agreement with a major UK corporation signed.  Now 11 agreements in place to allow for efficient future execution.

·    c£800m buy-in with TUI group UK Pension Trust. This transaction marks the scheme's first PRT transaction with Legal & General.

·    c£760m buy-in with Sanofi Pension scheme, securing benefits for c2,900 retirees.

·    c£650m buy-in with Mitchells & Butlers executive pension plan, which marked the Plan's first pension risk transfer.

·    A c£925m Assured Payment Policy for Legal & General's Group UK Pension and Assurance Fund.  The policy provides asset yield, interest rate and inflation risk protection to the pension plan, paving a more secure path to buyout over a planned timeframe.

·    First conversion of an Assured Payment Policy (APP) to a buy-in. A c£63m transaction agreed with AIB Group UK Pension Scheme, converted c20% of the original APP transaction completed in December 2019.  This was followed by a second APP conversion in 2021 of c£38m with Legal & General Group UK Senior Pension Scheme.  These transactions reflect our commitment in helping schemes along their de-risking journey, every step of the way, offering flexible solutions and enabling them to seize de-risking opportunities as they arise.

Looking forward to 2022, we have already won or are exclusive on c£1bn of premium.  We have a pipeline of c£20bn.

Solid US volumes in a competitive market

Despite a more competitive market in the US, LGRI delivered US new business volume of $1,095m (2021: £789m; 2020: $1,614m; £1,250m).  Market commentators expect the US market in 2021 to be the biggest on record at $38bn.[45]  However, most of the year-on-year growth is attributable to the >$1bn segment, with the <$500m segment that we currently participate in reducing by c$3bn.

As in the UK, our focus was on value creation.  Despite the market conditions, we wrote our second largest US PRT transaction at $293m and in Bermuda we secured our second Canadian deal through a new strategic partnership with a second Canadian insurer.

As the only insurer providing PRT directly to pension plans across the UK and US, Legal & General is strongly positioned to offer international pension de-risking solutions.

Total Annuity Asset Portfolio

Profit before tax was £1,748m, with investment variance contributing positively due to the unwind of margins, arising as a result of no defaults, and strong underlying performance, including trading profits from the profitable disposal of some bespoke derivatives and other assets.

Annuity asset portfolio

The 'A minus' rated annuity asset portfolio of £89.9bn[46], which backs the IFRS annuity liabilities in LGRI and LGRR, is well diversified by sector and geography.  Our ambition is to continue to collaborate with LGC, LGRR and LGIM to strengthen our asset sourcing capabilities, including both self-manufactured and public assets with a strong ESG focus. This core competitive advantage provides LGRI and LGRR with long duration direct investments with higher risk-adjusted returns and optionality in asset deployment.  We remain on track to achieve our portfolio decarbonisation target of 18.5% by 2025.

Credit portfolio management

The fixed income portfolio of £81.8bn is comprised of £58.8bn of listed bonds and £23.0bn of Direct Investments. Approximately two-thirds of the portfolio is rated A or better, 33% rated BBB and 1% sub-investment grade. 

The key objective of our annuity-focused, fixed income fund managers in LGIM is to manage the portfolio to match liabilities, while minimising credit downgrades and avoiding defaults.  We constantly review our asset portfolio, including sector allocations and asset classes, in order to manage portfolio credit quality and to mitigate risks.  We have vigorously stress-tested our portfolio to build resilience against a range of scenarios. In addition, we hold a £3.4bn IFRS credit default reserve.

We have kept lower-rated, cyclical exposures to a minimum and only 13% of our BBB assets are BBB-.  We actively manage our asset portfolio and continue to take opportunities to improve credit quality at attractive pricing levels. 

This two-pronged approach, comprising defensive positioning and active management, has helped us to mitigate downgrade and default risk.  Again, we have had no defaults in 2021. 

Direct Investment

Within the asset portfolio, we originated £4.6bn of new, high quality direct investments during 2021 which, along with market movements, brought the direct investment portfolio total to £28.4bn[47], including £6.9bn in Lifetime mortgages.  Consistent with the broader bond portfolio, approximately two-thirds of the direct investment bond portfolio was rated 'A' or above using robust and independent rating processes which take account of long-term stress events on counterparties and the underlying collateral. 

Our Direct Investment strategy is centred on ensuring the safety of policyholders' benefits.  We believe, and have proved, that we can protect our policyholders and invest to deliver Inclusive Capitalism across our UK towns and cities.  By accessing the power of pensions, we can generate positive societal impacts and drive economic growth.

During 2021 LGRI committed to fund its first L&G Affordable Homes investment of £270m over 2021 to 2023, with £77m being funded in late 2021.  This partnership is forecasted to generate around £1.7bn of assets by 2025.  In addition, we sourced £489m of Urban Build to Rent assets through our partnership with LGIM and executed a US Corporate Real Estate external mandate, whilst LGIMA builds capability, which led to £106m of assets being sourced.

Legal & General Capital

1. Includes short-term liquid holdings.

Total operating profit of £461m increased 68% over 2021, beating capital markets estimate

LGC operating profit increased 68% to £461m (2020: £275m).  This growth principally reflects increased profits from our alternative asset portfolio of £350m (2020: £112m) as a result of a bounce-back in the housebuilding market and the continued maturing of the underlying investments in our clean energy and venture capital portfolios. Operating profit from the traded & treasury portfolio decreased to £111m (2020: £163m), primarily driven by the continued sell down of listed equities to fund the increasing expansion of the alternative asset portfolio.  

Profit before tax was £480m, driven by investment and other variances of £19m, compared to £(299)m in 2020, which reflects the rebound in alternative asset portfolio profits and equity market performance, partially offset by early-stage development costs.

Our growing alternative asset portfolio achieved a net portfolio return of 8.5% (2020: (4.0)%).  In line with our business model, we expect to deliver a net portfolio return of 8-10%, growing to 10-12% by 2025, as our early-stage businesses continue to mature.

Alternative asset portfolio grew 10% over 2021 to £3.4bn

LGC has continued to strengthen its capabilities across a diversified range of alternative assets that are underpinned by our structural growth drivers. Our alternative asset portfolio increased to £3,439m (2020: £3,139m) as we deployed a further £0.4bn and made new undrawn commitments of £0.5bn across our existing investment platforms.  Through these investments we create assets that generate returns for shareholders, create attractive yield-generating Matching Adjustment-eligible assets for LGRI and LGRR and supply attractive alternative assets to LGIM and other third party clients.  As we are maturing, we have also divested £0.4bn in assets, with the capital to be recycled into exciting new sectors and projects which will help to drive future growth potential.

Strong value creation in 2021

LGC provided five notable, value-creating proof-points in 2021, demonstrating that our strategy is being executed effectively to generate significant shareholder returns:

1.     MediaCity - Land Securities Group acquired our 50% stake in November. The purchase price received, together with the £40m of net distributions received through the period of ownership since 2015, have resulted in a total return of 1.6x on the initial investment. We plan to recycle the capital back into Manchester through our University and Alderley Park developments.

2.     Inspired Villages Group - Announced in August 2021, we established a 15-year joint venture (JV) with Natwest Group Pension Fund Limited (NWPTL).  As part of the new JV, LGC sold a 50% stake in Inspired Villages' first 11 sites to NWPTL based on an enterprise value of over £300m, resulting in a return of 1.3x on the initial investment.  This investment will support our future pipeline of 34 sites, which will deliver c5,100 homes, housing c8,000 residents and create an estimated Gross Development Value of c£4bn.  The transaction is unique as it sees one of the largest UK pension funds investing directly into UK private social infrastructure.

3.     Pod Point - First backed by LGC in 2019, Pod Point listed on the Main Market of the London Stock Exchange in November 2021 raising £120m of gross proceeds to support the ambitious growth plans of this innovative UK company and generating a return of 3.8x on LGC's initial investment.

4.     Current Health - First backed by LGC in 2018 and LGRR in 2019, this innovative Scottish "healthcare at home" company was acquired by Best Buy in October, generating a 5.3x return on our initial investment.

5.     Kao Data Centres - LGC secured accretive co-investment from the £11bn infra fund HRL Morrison through its Infratil investment vehicle to drive ambitious growth plans.  Kao has exchanged on the acquisition of two UK prime data centres with a long-term anchor lease from a large financial services business, thereby becoming a multi-site data centre platform with expansion capacity of c55MW.

Specialist commercial real estate: ongoing support of the levelling up agenda

Supporting the need to "Level Up" towns and cities across the UK, we continue to invest in partnership with public and private sector experts, to drive forward some of the largest urban transformation schemes, back digital infrastructure and fund the next generation of science and innovation centres.  During 2021 our specialist commercial real estate portfolio decreased to £625m (2020: £694m) as we realised exit strategies from some existing assets including MediaCity.  We are in the process of recycling this capital into new and existing projects to support future growth potential.

Through Bruntwood SciTech, we have continued to develop world-leading diagnostics infrastructure, growing our portfolio to over 2.5m sq ft.  Home to over 500 science and tech businesses, the Bruntwood SciTech network includes nine sector-specialist campuses across the midlands and the North of England.  Its development pipeline of over 6m sq ft includes Birmingham Health Innovation Campus, where construction of Birmingham's first smart-enabled building, Enterprise Wharf, is now well underway, and - as announced in June 2021 - a development partnership with the University of Manchester to deliver ID (Innovation District) Manchester, a new £1.5bn innovation district across 4m sq ft in the city centre which forms an ambitious plan to make Manchester the heart of innovation in Europe. 

As a part of our £4 billion partnership with Oxford University, and in conjunction with LGRI and LGIM, we began construction in 2021 on the £200m 'Life and Mind Building' in Oxford; the largest building project ever undertaken on behalf of the University.  We also announced that we will fund and deliver a new innovation district with the University, extending Oxford's existing Begbroke Science Park across a 14-hectare site.

Our Clean Energy portfolio expanded into new sectors, increasing in value to £224m (2020: £182m)

Supporting the Group's climate ambitions, we invest in early-stage innovative clean technology companies and low carbon renewable energy infrastructure needed to meet UK and global UN climate targets and Sustainable Development Goals. 

During 2021, our portfolio continued to make excellent progress in scaling up.  Pod Point, in which we hold a c14% stake post the IPO, is rapidly building its business to meet increased consumer demand for electric vehicles.  By April 2021, Pod Point's partnership with Volkswagen and Tesco had provided more than 500,000 free top-ups at Tesco stores across the UK and powered more than 10 million miles of travel, helping to make electric vehicle charging accessible for all drivers and accelerate the adoption of electric vehicles.  Pod Point has also expanded its partnership with Lidl to install rapid chargers at 350 stores.

In October 2021, NTR and LGIM annonunced an exciting strategic partnership.  The partnership will provide institutional investors in the UK, Europe and Asia access to the €1-trillion European energy transition in 2022 by combining LGIM's 50-year experience in Real Assets and NTR's 20-year expertise in renewables.  

We recently announced a new investment in Sero Technologies, an energy technology and service company, which creates tailored net zero enegy retrofit plans for the residential sector.  Residential retrofitting represents a significant market opportunity to achieve the UK's legally mandated target of net zero by 2050: almost every home will need to be improved or retrofitted with some combination of enhanced energy efficiency and low carbon heating.

Housing: platform continues to grow as LGC targets multi tenure opportunities

LGC continues to scale up its ambitions across all housing tenures.  Diversified across affordability and life stage, LGC's investments meet the UK's long-term social and economic need for quality housing for all demographics.  During 2021, our housing property portfolio grew to £1,979m (2020: £1,738m) reflecting a bounceback in the housebuilding sector and sustained long-term demand.

LGC's Build to Sell business, CALA, has performed exceptionally in 2021, rebounding strongly from its position in 2020 when it was impacted by a pause in construction and sales activity following the first COVID-19 lockdown.  Having grown to the 10th largest housebuilder in the UK by revenue, during 2021 CALA has delivered revenue of £1.24bn (2020: £713m) and operating profit of £132m (2020: £6.9m) through the sale of more than 2,900 units, significantly higher than 2020 and 2019 levels (2020: 1,835 units; 2019: 2,482 units).  Reservations on private units currently stand at a record 60% of the full year target, giving confidence in the full year outcome for 2022. 

Our Affordable Homes business has continued to establish itself as one of the UK's leading institutional developers and managers of affordable housing.  Delivering £26.4m of operating profit, our business continues to grow and over 2021 we increased our total number of operational affordable homes by 997 to a total of 1,667.  Our development and operation pipeline now stands at over 7,000 homes, with a Gross Asset Value of around £1.2bn.  During the year we set up four additional Registered Providers to extend our funding approach and, as part of that strategy, brought in a £270m commitment from LGRI to support the growth of the business, which we expect to grow materially over time. 

Our Modular Housing business is making significant progress with projects and partners,  designing and manufacturing homes in an innovative way which will transform the way homes are built.  In 2021, Legal & General Modular Homes' innovative approach to housing delivery has gained significant momentum, commencing construction on sites in Selby, Bristol and Broadstairs for the delivery of 440 homes.  The business is currently seeking planning permission to deliver a further c.400 homes across three sites, with construction expected to commence early in 2022.  We are creating some of the most energy efficient homes in the country with all homes from 2020 onwards achieving an Energy Performance Certificate (EPC) A rating, a standard met by only around 1% of new and existing dwellings in England & Wales.

Our urban Build to Rent business joint venture with PGGM has continued to make strong development progess across the UK's major towns and cities.  Across the Group, we now have a £1.9bn portfolio of c5,200 homes with 14 schemes in operation or development, creating a strong pipeline of attractive, high quality assets for LGRI and LGIM clients

Our Suburban Build to Rent business has put in a planning application for its first site in North Horsham.  This site is being developed in partnership with LGC's other housing businesses, delivering 124 new homes for suburban families, a  selection of affordable housing, modular housing, CALA homes and infrastructure including schools, sports and medical facilities.  This multi-tenure collaboration showcases the unique competitive advantage of our housing property platform.  SBTR also acquired a site in Peterborough, building its pipeline to over 750 homes across the UK.   

Growth in our Inspired Villages business continues at pace.  Our Later Living platform has made good planning and development progress.  It has secured planning permission for 141 homes in West Sussex and 194 homes in South Oxfordshire.  It has also broken ground on its first two operationally net-zero carbon developments, bringing forward over 350 energy efficient homes.  To support continued growth, LGC entered a 15-year joint venture partnership with NatWest Group Pension Fund in 2021 to invest £500m of equity to build later living communities, which will be developed and operated by Inspired Villages. The partnership aims to expand Inspired's portfolio to 34 villages supporting around 8,000 residents, with a particular focus on creating net-zero carbon regulated energy schemes.

SME Finance AUM increased to £611m (2020: £525m)

Investing in the real economy and technological innovation through our Alternative Finance and our Venture Capital platforms, we are continuing to support growth businesses, delivering enhanced returns while boosting job creation, innovation, and science and technology advancements. 

In the Alternative Finance sector we support UK and European mid-market lending through our investments in Pemberton, our asset manager specialising in private debt, in which we hold a 40% stake.  The Pemberton platform has raised over €13.5bn (2020: €9.3bn) across four strategies, since we first invested in 2014, with 170 investors globally.  It has deployed €12.8bn (2020: €8.3bn) across 114 companies, actively engaging with borrowers to support sustainable growth.  

Our Venture Capital Funds platform backs over 330 start-up businesses across the UK and Europe through our fund-of-funds programme and via LGC's ownership in direct investment platform Accelerated Digital Ventures (ADV).

The Venture Capital Fund-of-Funds programme saw strong performance over the period, with NAV growing by 65% to £171m during 2021.[48]  Many of the funds we invested in early in the programme are now maturing, with the strongest companies securing new funding rounds at increased valuations.  Demonstrating the value of our patient investment approach, the portfolio has now delivered a 23% IRR after fees, since inception in 2016. 

We continue to work with LGIM to develop a viable solution for Defined Contribution clients which will democratise access to the venture capital asset class.

Legal & General Investment Management

1.             International asset net flows are shown on the basis of client domicile.

2.             International AUM includes assets from internationally domiciled clients plus assets managed internationally on behalf of UK clients. 

Operating profit growth of 4% to £422m, with revenues surpassing £1bn

Operating profit increased by 4% to £422m (2020: £407m), reflecting increased revenues from flows, favourable business mix and disciplined cost management.

Assets under management increased by 11% to £1,421.5bn (2020: £1,278.9bn), benefitting from strong external net flows of £34.6bn (2020: £20.4bn). 

Revenues increased by 6% to £1,012m (2020: £956m), supported by growth in higher-margin areas including thematic ETFs and Multi-asset.  Our strengths in ESG led to several ESG mandate wins in 2021, including transitioning over £3bn of an institutional client's assets to a new range of Paris-aligned benchmarks.  We have continued to see good flows into our ESG products.  Overall revenue growth was lower than AUM growth, as average AUM (which drives revenues) grew more modestly as a result of the sharp rise in interest rates in the first half of the year.

The cost income ratio of 58% reflects our careful cost control as we continue to invest in the business. 

Strong international flows

International external net flows of £29.5bn constituted 85% of LGIM's total external net flows. 

LGIM saw £7.4bn of net flows from Japanese clients and we are now Japan's 8^th largest asset manager.[50]  Europe saw flows of £13.6bn from multiple clients across the region, with European institutional AUM reaching €100bn.  We also saw good flows in the US (£4.5bn), the rest of Asia (£6.5bn) and ETFs (£2.5bn).  Our US DB de-risking business had a very strong year, with net flows of $9bn in 2021.

International AUM of £479bn is up 23% from 2020 (£388bn) and now constitutes 34% of total AUM.  Our deep relationships with a number of leading international clients underpin our conviction in our ability to grow international AUM and earnings.

Ongoing strength in UK DC and Retail

The Defined Contribution (DC) business continues to attract new assets, with external net flows of £9.4bn, supported by ongoing growth in LGRR's Workplace pension business, which now has 4.4 million members.  Total UK DC AUM is up 22% over 2021 with total AUM of £137.7bn (2020: £112.7bn).  This success is underpinned by LGIM's strong customer focus, as shown by a 91% persistency rate among our DC customers.  We continue to innovate in this market: for example, we recently launched a Sustainable DC Property Fund in response to growing demand from DC schemes to align with members' ESG values.

L&G also has one of the largest and fastest-growing UK Master Trusts, which now has £17.1bn AUM, reflecting the increasing appeal of the structure for DC plans wishing to outsource their governance, investment and administration.  Growth in our UK Master Trust business continues to support growth in Multi-asset flows, since this is the default option for many of our clients.

In UK Retail, we ranked second for gross fund sales in 2021.  We also launched our Model Portfolio Service (MPS), further extending our successful Multi-asset proposition into the maturing advisory market.  We believe our scale and expertise can disrupt this market while helping clients meet their objectives.  The launch of our Global Thematic unit trust also makes our thematic strategies available to a wider client base.

Growth in ETFs

2021 marked the third anniversary of the acquisition of the Canvas ETF business in March 2018.  Over this period, revenue has more than doubled.  The business has continued to grow at a strong pace, with $3.9bn of net flows delivering annualised net new revenue of $11.9m (£8.4m) in 2021. 

A focus on thematic ETFs has supported our strategy of growth into higher-margin areas.  This has been the key driver of the more than 50% increase in ETF AUM over 2021 to $13.7bn.  In 2021, LGIM launched thematic ETFs to cover the emerging hydrogen economy and the digital payments evolution, with both products being first to market in Europe.  We also expanded our fixed income range into higher-margin areas such as Europe's first local-currency India government bond ETF.  We now have c$1.3bn AUM in fixed income ETFs at the end of 2021.

LGIM continues to be ranked second on both AUM and net flows in the European thematic ETF market, with over 16% market share. 

Breadth of investment management solutions

1.     Please see disclosure 4.01 for further details.

Solutions continued to deliver positive external net flows of £19.9bn (2020: £23.2bn) driven by strong demand from UK and US DB clients as they continue to de-risk.  We manufacture Solutions products in both publicly and privately traded asset classes and combine these together in integrated portfolios for our DB clients.  We are well positioned to capitalise on this continuing trend.  Together with our fiduciary business offering, and working closely with LGRI's PRT business, we can tailor solutions to DB schemes at all stages of their funding journey. 

Multi-asset strategies continue to be in demand from DC schemes and retail customers.  External net flows into Multi-asset funds were £7.0bn (2020: £4.3bn).

Index reported positive external net flows of £4.9bn (2020: £(6.6)bn) driven by new international flows, partially offset by Index outflows in the UK and US, reflecting the structural trend of DB schemes de-risking, and therefore shifting from index to LDI strategies.

Active Strategies delivered external net flows of £2.9bn (2020: £(0.1)bn) as a result of positive net inflows from US and UK DB clients. 

Real Assets saw external net flows of £(0.1)bn (2020: £(0.4)bn), as the market continues to assess the longer-term impact of COVID-19 on demand.  LGIM Real Assets is, however, well positioned and enjoyed notable successes in 2021 such as raising £365m for the Secure Income Assets Fund while initiatives such as an innovative digital occupier engagement platform help future-proof the portfolio.  We expect future growth in flows to be supported by our Build to Rent business, and by Private Credit, which offers clients diversification of secure income and value protection solutions.  In 2021, we also announced a partnership with NTR, a leading renewable energy specialist, to provide institutional investors in the UK, Europe and Asia access to the €1 trillion European energy transition.

Investment performance

In Solutions and Index, clients rely on us to deliver their target returns against defined benchmarks.  For actively managed portfolios, investment outperformance versus either benchmarks or peer groups is an important driver of current and future client flows, and in 2021 LGIM's active teams delivered strong performance across multiple asset classes.  The below table uses our regulated UCITS funds as a proxy for the performance returns² of our mainstream investment strategies:

2.     Net fund performance data versus key comparators (benchmark or generic peer groups for bonds and equities as per the relevant prospectuses, and benchmark per the relevant prospectus or custom peer group for Multi-asset) sourced from Lipper for the LGIM UCITS.  All data as at 31 December 2021.

Our success is also evident in the number of independent awards we won in 2021 for investment performance, including Investment Manager of the Year at the European Pensions Awards, Professional Adviser's Best Multi-asset Group/Fund for ESG, and Pensions Expert's LDI Manager of the Year. 

Leading in responsible investing

LGIM continues to build on its credentials as a responsible investor and remains committed to leading the asset management industry in addressing the environmental and social challenges arising from a rapidly changing world. 

As at 31 December 2021, LGIM managed £290.0bn (2020: £206.8bn) in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.[51]

LGIM has a strong, unified sense of purpose: to create a better future through responsible investing.  To that end, we work to raise ESG standards on important global issues, leveraging our position as one of the largest global asset managers.  LGIM is, for example, a founding signatory of the Net Zero Asset Managers Initiative.  Recent achievements include:

·      Commitment to net zero:

1.     LGIM has committed to work in partnership with our clients to align 70% of eligible assets to net-zero carbon emissions by 2030, and to reach net-zero greenhouse gas emissions by 2050 or sooner across all eligible assets under management, in the same way that L&G has already committed to with its own balance sheet. 

2.     Our DC default funds - available to over four million members across L&G Workplace Pensions and the L&G Mastertrust - have set interim targets to support their 2050 net-zero ambitions. 

3.     LGIM Real Assets has committed to achieve net-zero carbon emissions across its UK real estate portfolio by 2050. 

·      Product innovation: The size of the global ESG market, currently $8 trillion, is expected to grow to $30 trillion by 2030.[52] We believe we are positioned to benefit from this flow of AUM thanks to our authentic and differentiated proposition.  We continue to build on our strong heritage in using index and active ESG investing insights to develop innovative new products, with 55% of our EU domiciled UCITS funds classified as ESG-incorporated (articles 8 or 9) in the EU's first annual Sustainable Finance Disclosure Regulation (SFDR) exercise.  Recent examples of ESG product innovation that place us at the forefront of growing client demand include:

1.     A low carbon transition index equity fund suite for UK pension clients, designed by LGIM in partnership with a key consultant, to reduce exposure to carbon emissions in alignment with 2050 net-zero goals, whilst also being aligned to LGIM's market leading engagement and voting activities.

2.     A multi-factor developed equity index fund with a strong focus on climate, which adheres to the EU's Climate Transition Benchmark framework.

3.     The launch of the ESG Paris-Aligned World Equity Index Fund, offering broad (ESG) exposure to developed market equities, while also integrating Paris-aligned reductions in carbon emissions and UN SDG principles.  This secured the support of some key institutional investors at launch, including the London Borough of Newham Pension Fund which invested approximately £520m.

4.     The successful launch of a number of ESG ETFs, including a Green Bond strategy, a Hydrogen Economy thematic ETF, and a range of Quality Dividend ETFs with ESG exclusions. 

·      Stewardship with impact: LGIM has consistently received A+ rankings for responsible investment strategy and active ownership by the UN-backed Principles for Responsible Investment (UN PRI), and in 2021 the Financial Reporting Council (FRC) recognised LGIM as a successful signatory to the UK Stewardship Code for our high standards of stewardship.

LGR - Retail

Operating profit excluding mortality reserve releases up 9% to £352m

LGRR operating profit increased 9% to £352m during 2021 (2020: £322m), driven by the ongoing release from operations, positive mortality experience due to the continued tragic impact of COVID-19, and routine updates to our valuation assumptions. 

As communicated at H1 21, we have not recognised an explicit release from adopting CMI2019, given the uncertainty in the data created by the pandemic.  We anticipate any resulting additional prudence will be released through experience variances over the next 2-3 years until we have more certainty and clarity over the data.  In H2 2020 we conservatively adopted an adjusted version of the CMI 2018 mortality tables for LGRR's annuity book, resulting in a £75m reserve release.

Release from operations was £227m (2020: £193m), an increase of 18%, reflecting the unwind of prudential margins from the annuity portfolio and increasing administration fees from the growth in workplace assets. 

Net release from operations was £254m (2020: £235m) with new business surplus of £27m (2020: £42m). The annuity new business surplus reduced from the level seen last year due to competitive market pricing.

Resilient new business volumes in 2021

LGRR has helped customers weather the economic uncertainty following COVID-19, delivering solutions to retirees through individual annuities and Lifetime Mortgages (LTMs). 

Individual annuity sales were up 5% to £957m in 2021 (2020: £910m), as markets started to recover following the impact of the COVID pandemic last year.  Our relative performance remained strong: our operational service, competitive pricing and focus on partners and intermediaries allowed us to grow external market share to 38.4%.^[54]

Lifetime mortgage advances, including Retirement Interest Only mortgages, were up 7% to £848m (2020: £791m) in an increasingly competitive market.  Throughout this period, we have maintained pricing and underwriting discipline whilst increasing advances.  At the end of 2021, LTMs were 8% of our total annuity assets and our LTM new business portfolio had an average customer age of 71 and a weighted average loan-to-value of c31% at point of sale.

Workplace Savings net flows were up £0.7bn to £8.5bn (2020: £7.8bn), driven by continued client wins and increased contributions.  Members on the Workplace pension platform increased to 4.4 million in 2021.  We are continuing to focus on improving efficiency and scale as the business grows. 

Legal & General Insurance

1.     Includes the annual dividend of $111m (2020: $109m) paid by LGIA to the Group in March 2021.

Operating profit up £79m to £268m; higher mortality claims in the US

During 2021, LGI operating profit increased 42% to £268m (2020: £189m), reflecting strong new business growth and modelling refinements to the liability discount rate in UK retail protection. 

This was partially offset by adverse US mortality experience. COVID-related claims in the US reached approximately $189m, significantly exceeding the $82m provision set up at year end 2020. This experience has extended into 2022 and is consistent across the US life sector.  In addition, adverse non-COVID claims impacted the industry during the year.  Our 2021 result includes a £57m provision for potential COVID impacts in the US and UK in 2022.

Honouring our promises and responding quickly and compassionately to our customers' needs is core to our values at Legal & General.  LGI is especially aware of the importance of our commitments to our customers: we paid £2.1bn of protection claims during the year.  

Profit before tax was predominantly impacted by the formulaic change in LGI's discount rates.  LGI's positive investment variance of £111m was driven primarily by an increase in UK and US government bond yields at shorter durations which have resulted in a higher discount rate used to calculate the reserves. The negative impact seen in 2020 has only been partly reversed as yields at longer durations have remained broadly flat year on year. 

Solvency II New Business Value increased by £8m to £262m, up £15m to £269m on a constant currency basis (2020: £254m). UK New Business Value of £149m is supported by strong volumes in Retail Protection, but is £12m lower than prior year (£160m) due to lower volumes in Group Protection, margin pressure in Retail Protection caused by pricing action, and movements in product mix. New Business Value for US Protection was $155m, up 29% on 2020 ($120m) driven by sales growth of 20% and margin growth from favourable business mix.  

Gross written premium at £2.9bn; good trading performance in the US and UK

UK Retail Protection gross premium income increased to £1,444m (2020: £1,374m), with new business annual premiums of £200m (2020: £175m), up 14% on prior year driven by strong customer demand following COVID-related disruption in 2020.  Protection sales were particularly strong during H1 with both a strong housing market and the increased customer awareness of protection needs during the pandemic driving up demand.  We held a market share of c.25% in Q3 2021[55], maintaining our position as the leading provider of retail protection in the UK, whilst achieving a point of sale decision rate of 83% for all our major product lines.  Our new business premium growth was supported by our innovation over the period, including enhancements to our income protection and critical illness benefits that broaden our scope in the market.

UK Group Protection gross premium income increased to £405m (2020: £382m), with new business annual premiums of £88m (2020: £117m).  As previously guided, as a result of the renewal cycle for larger schemes, 2021 new business volumes did not reach the record levels of 2020.  However, retention was strong resulting in premium income growth of 6% on 2020.  Through improved service and more refined pricing we are attracting a wider range of scheme sizes and actively dealing with more advisers in the group protection market, enabling us to gain market share and grow new business premiums.  During H2 we launched an automated application portal which will further support growth in the smaller scheme segment.

US Protection (LGIA) gross written premiums increased 3% (down 6% on a sterling basis) to $1,449m (2020: $1,403m).  New business annual premiums increased 20% to $124m (2020: $103m), with strong new business margins of 13.4% (2020: 11.2%).  LGIA ranked number one in the brokerage general agency channel through Q3 2021 by both new premium and new policies issued.  We continue to develop our market-leading, digital new business platform (Horizon) which is starting to deliver in line with expectation, and we expect to drive further sales growth and to reduce unit costs over the coming years.  Two thirds of new business is now written onto our Horizon platform and we expect this to increase in 2022. 

Legal & General Mortgage Club facilitated £98bn of mortgages, up 26% (2020: £77bn), driven by the buoyant housing market due to the extension of the Stamp Duty holiday in H1. We remain the largest participant in the UK intermediated mortgage market and are involved in around one in five of all UK mortgage transactions. Our Surveying Services business facilitated 528k surveys and valuations, compared to 440k surveys and valuations in the prior year. Since buying a new house is often a catalyst for purchasing life insurance, the Legal & General Mortgage Club is a supporting component of our overall offering to customers. 

Scaling up our Fintech businesses

LGI has continued with its strategy to invest in and scale up innovative fintech businesses in adjacent markets.  Our strategy of "digital first" has proved to be resilient through the COVID period, driving further growth in value and revenue.  Salary Finance, an employee benefits platform, in which we have a 48% holding, continues to grow rapidly, with the platform now connected to 4.1 million employees across the UK and US.  Gross revenue grew to £30m, an increase of 85% year on year.  This trend is expected to continue with growing employee awareness and increasing platform engagement.  It remains one of the UK's fastest growing Fintechs and is well positioned for growth in the UK, the US and beyond. 

The strategy of platform ownership and influence has continued to serve us well in the mortgage and home-financing "ecosystem".  Our mortgage research tools for affordability, criteria and product reach nearly 10,000 advisers in the mortgage broking market.  Within our Legal & General surveying business, our work to digitise the market has proved invaluable for banks through the lockdown period.  Our digital valuation services have been used by many of our key clients with over 119k completed since 2019.  Elsewhere in the ecosystem, our c40% investment in Smartr365, a complete end-to-end mortgage platform used to unite mortgage advisers and their clients, has moved from start up to scale up across the UK mortgage broking market.  With licence numbers having grown more than 7x since the start of the year, we now have just over 3,300 licences signed up.  We have received strong feedback on the proposition which hugely simplifies the mortgage advice journey for brokers and customers.   

Subsidiary dividends to Group

1. Represents cash that will be remitted from subsidiaries to Group in respect of the year's financial performance.

2.  Other includes Legal & General Home Financing, Legal & General Capital Investments Limited, Legal & General Reinsurance, and Legal & General Partnership Services Limited.

3. £150m dividend paid from Legal & General Assurance Society (LGAS) to Group in 2020 due to mortality reserve releases in recent years.

The level of subsidiary dividends ensures coverage of external dividends (2021: £1,099m; 2020: £1,048m), Group related costs, and investment in our businesses, with excess liquidity being held within our regulated subsidiaries. 

Borrowings

The Group's outstanding core borrowings totalled £4.3bn at 31 December 2021 (FY 2020: £4.6bn).  There is also a further £0.9bn (FY 2020: £1.0bn) of operational borrowings including £0.9bn (FY 2020: £0.9bn) of non-recourse borrowings. 

Group debt costs of £230m (2020: £233m) reflect an average cost of debt of 5.0% per annum (2020: 5.0% per annum) on an average nominal value of debt balances of £4.6bn (2020: £4.7bn).

£300m of 10% dated subordinated notes were called at par on 23 July 2021.

Taxation

The effective tax rate reflects the impact of revaluing UK deferred tax assets and liabilities at 25%, following the announcement of an increase in the headline rate of UK corporation tax from 1 April 2023, and the different rates of tax that apply to Legal & General's overseas operations. The effective tax rate at FY 2020 was below the headline rate as a result of the impact of losses arising in the period through investment variance.

The tax rate on operating profits, excluding the impact of investment variance, was 15.5% (2020: 15.0%).

Solvency II

In previous years, the capital position was shown on a "shareholder view", where the contribution from the final salary pension schemes was excluded from the group position.  The impact of excluding the contribution is now less than 1% and so the results below include the impact of the final salary pension schemes.  The 2020 results have been adjusted to be consistent with 2021.

As at 31 December 2021, the Group had an estimated Solvency II surplus of £8.2bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 187% on a shareholder basis.  As at 7^th March 2022, we estimate the coverage ratio was 198%[56], primarily driven by an increase in interest rates.

1.     Please see disclosure note 5.01(d) for further detail.

Operational surplus generation from continuing operations increased to £1,636m (2020: £1,460m), after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin. 

New business strain was £(354)m, primarily reflecting UK PRT volumes written at a capital strain of c4%.  This resulted in net surplus generation of £1,282m (2020: £1,174m), which was in excess of the £1,063m of dividends declared (and paid) during the year. Note: our ambition is for net surplus generation to exceed dividends cumulatively over the period 2020-2024.

Operating variances include the impact of experience variances, changes to assumptions, and management actions.  The net impact of operating variances over the period was neutral.  Market movements of £727m reflect the impact of rising rates on the valuation of our balance sheet, and improved asset markets, predominantly in equities, as well as a number of other, smaller variances.

Reconciliation of IFRS net release from operations to Solvency II net surplus generation¹

The table below gives a reconciliation of the Group's IFRS Release from operations and Solvency II Operational surplus generation in 2021:

The table below gives a reconciliation of the Group's IFRS New business surplus to Solvency II New business strain in 2021:

1. Please see disclosure 5.01 (f) for further details.

Sensitivity analysis²

2. Please see disclosure 5.01 (h) for further details.

The above analysis does not reflect all possible management actions which could be taken to reduce the impact of each sensitivity due to the complex nature of the modelling.  In practice, the Group actively manages its asset and liability positions to respond to market movements.  Other than in the interest rate stresses, we have not allowed for the recalculation of TMTP.  The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger stress. 

The results of these tests are indicative of the market conditions prevailing at the balance sheet date.  The results would be different if performed at an alternative reporting date.

The impacts of credit spreads and risk-free rate sensitivities are primarily non-economic arising from movements in balance sheet items that result from changes in the discount rates used to calculate the value of assets and liabilities.  The credit migration stress, in the absence of defaults, delays the emergence of operating surplus generation, but does not reduce the actual quantum of future releases.  Similarly, equity and property stresses only result in losses if assets are sold at depressed values.

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 31 December 2021 are shown below¹:

The key economic assumptions as at 31 December 2021 are as follows:

1. Please see disclosure 5.02 for further details.

The future earnings are discounted using duration-based discount rates, which is the sum of a duration-based risk free rate and a flat margin for risk. The UK risk free rates have been based on a SONIA-based swap curve (2020: Libor-based swap curve net of the PRA-specified Credit Risk Adjustment). The risk free rate shown above is a weighted average based on the projected cash flows.

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

Principal risks and uncertainties

Legal & General runs a portfolio of risk-taking businesses; we accept risk in the normal course of business and aim to deliver sustainable returns on risk-based capital to our investors in excess of our cost of capital.  We manage the portfolio of risk that we accept to build a sustainable franchise for the interests of all our stakeholders; we do not aim to eliminate that risk.  We have an appetite for risks that we understand and are rewarded for, and which are consistent with delivery of our strategic objectives. Risk management is embedded within the business.  The Group's Principal Risks and Uncertainties summarise key matters that may impact the delivery of Group's strategy earnings or profitability. 

RISKS AND UNCERTAINTIES                                                                TREND, OUTLOOK AND MITIGATION

RISKS AND UNCERTAINTIES                                                                TREND, OUTLOOK AND MITIGATION

RISKS AND UNCERTAINTIES                                                                TREND, OUTLOOK AND MITIGATION

Notes

A copy of this announcement can be found in "Results, Reports and Presentations", under the "Investors" section of our shareholder website at www.legalandgeneralgroup.com/investors/results-reports-and-presentations. 

A presentation to analysts and investors will take place at 11:00am UK time today at One Coleman Street, London, EC2R 5AA.  There will also be a live webcast of the presentation that can be accessed at www.legalandgeneralgroup.com/investors/results-reports-and-presentations. 

A replay of the presentation will be made available on this website by 11^th March 2022.

Definitions

Definitions are included in the Glossary on pages 96 to 98 of this release

Forward-looking statements

This announcement may contain 'forward-looking statements' with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Company and the Group that are based on current expectations or beliefs, as well as assumptions about future events.  These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts.  Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning.  By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.  Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. 

There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements.  The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions; future exchange and interest rates; changes in environmental, social or physical risks; legislative, regulatory and policy developments; risks arising out of health crises and pandemics; changes in tax rates, future business combinations or dispositions;  and other factors specific to the Group.  Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.  No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group.  Each forward-looking statement speaks only as of the date of the particular statement.  Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.  

Caution about climate information

This announcement contains climate and ESG disclosures which use a large number of judgments, assumptions and estimates.  These judgments, assumptions and estimates are likely to change over time.  In addition, the Group's climate risk analysis and net zero strategy remain under development and the data underlying the analysis and strategy remain subject to evolution.  As a result, certain climate and ESG disclosures made in this announcement are likely to be amended, updated, recalculated or restated in future announcements.  This statement should be read together with the Cautionary statement contained in the Group's 2021 Climate Report.

The information, statements and opinions contained in this announcement do not constitute an offer to sell or buy or the solicitation of an offer to sell or buy any securities or financial instruments nor do they constitute any advice or recommendation with respect to such securities or other financial instruments or any other matter.

Going concern statement

The group's business activities, together with the factors likely to affect its future development, performance and position in the current economic environment are set out in this Annual Report & Accounts. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in these consolidated financial statements. Principal risks and uncertainties are detailed on pages 29 to 32.

The directors have made an assessment of the group's going concern, considering both the current performance and the outlook for a period of at least, but not limited to, 12 months from the date of approval of these consolidated financial statements, which takes account of the current and future impact of the Covid-19 pandemic, using the information available up to the date of issue of this Annual Report & Accounts.

The group manages and monitors its capital and liquidity, and various stresses are applied to those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range of stresses is disclosed in section 5.01 of the Capital section of the Full year report 2021. These stresses, including additional considerations relating to Covid-19, do not give rise to any material uncertainties over the ability of the group to continue as a going concern. Based upon the available information, the directors consider that the group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.

Having reassessed the principal risks and uncertainties (both financial and operational) in light of the current economic environment, as detailed on pages 29 to 32, the directors are confident that the group and company will have sufficient funds to continue to meet its liabilities as they fall due for a period of, but not limited to, 12 months from the date of approval of the financial statements and therefore have considered it appropriate to adopt the going concern basis of accounting when preparing the financial statements.

Directors' responsibility statement

We confirm to the best of our knowledge that:

i.      The Group financial statements within the full Annual Report and Accounts, from which the financial information within this preliminary announcement has been extracted, and which have been prepared in accordance with UK-adopted IFRSs, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

ii.     The preliminary announcement includes a fair review of the development, performance and position of the Group, as well as the principal risks and uncertainties faced by the Group; and

iii.    The directors of Legal & General Group Plc are listed in the Legal & General Group Plc website: www.legalandgeneralgroup.com/about-us/our-management/group-board/.

By order of the Board

Sir Nigel Wilson                                                                                   Stuart Jeffrey Davies

Group Chief Executive                                                                       Group Chief Financial Officer

8 March 2022                                                                                       8 March 2022
 

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