Half Year 2024 Results

Stable core operating profit, strong solvency at 223%, good progress on private markets fund launches

António Simões, CEO         

"These results reflect the ongoing strength of our business, with core operating profit slightly ahead of the prior year and a solvency coverage ratio of 223%. We continue to expect 2024 core operating profit to grow by mid-single digits year-on-year.

At our Capital Markets event in June we set out our strategy to deliver L&G's next phase of sustainable growth and enhanced returns, through focused capital allocation and rigour in execution. We are pleased to announce a 5% increase in interim dividends per share, and progress in undertaking a £200m share buyback, consistent with our new capital return framework.

We are making clear progress on delivering against our strategy, notably in the establishment of a single asset manager. We have good momentum in private markets, launching a new fund to offer diversified exposure to Defined Contribution pension scheme members, and establishing our Affordable Housing fund, leveraging pension capital to build new homes.

These developments are important steps forward for L&G, reflecting our commitment to helping address the long-term investment needs of individuals and society, and create compelling opportunities for partners to invest alongside us to generate positive change. We are encouraged by the action being taken here in the UK to drive institutional capital towards productive assets, alongside progress on addressing structural barriers to investment, such as the planning system.

Looking ahead, we are well positioned to continue to execute our strategy with pace and ambition, delivering growth and value for all our stakeholders."

Stable financial performance¹

·    Core operating profit of £849m (H1 2023: £844m)

·    Core operating EPS of 10.58p (H1 2023: 10.52p)

·    Operating ROE of 35.4% (H1 2023: 28.6%)

·    Profit after tax² of £223m (H1 2023: £377m)

·    Asset Management AUM of £1,136bn (H1 2023: £1,170bn) of which Private Markets £52bn (H1 2023: £48bn)

·    Solvency II capital generation of £897m (H1 2023: £947m)

·    Solvency II coverage ratio³ of 223% with surplus of £8.8bn (FY 2023: 224%, £9.2bn)

·    Interim dividends per share of 6.00p, up 5% (H1 2023: 5.71p)

Growth in our store of future profit: up 7% year on year to £14.5bn⁴

·    £5bn of PRT written or exclusive year to date; £24bn+ of active UK PRT deals⁵

·    Record Retail volumes in individual annuities and US protection; continued growth in Workplace DC:

‒   £1.2bn of individual annuities, more than double that of the prior year (H1 2023: £575m)

‒   $103m of US protection new business premium, up 18% (H1 2023: $87m)

‒   Workplace DC net flows of £3.2bn, up 7% (H1 2023: £3.0bn)

·    New business CSM contributed £326m (H1 2023: £475m), reflecting lower PRT volumes

·    CSM has grown 8% to £13.0bn (H1 2023: £12.0bn)

1. The Group uses a number of Alternative Performance Measures to enhance understanding of the Group's performance. These are defined in the glossary, on pages 87-92.

2. Profit after tax attributable to equity holders.

3. Solvency II coverage ratio before the payment of 2024 interim dividend and after the £200m buyback.

4. Store of future profit refers to the gross of tax combination of established Contractual Service Margin "CSM" and Risk Adjustment "RA" (net of reinsurance) under IFRS 17.

5. £5bn PRT comprises H1: £1.5bn; H2: £1.1bn, plus exclusive: £2.3bn. Most of the £24bn+ pipeline is expected to transact in 2024.

Financial summary¹

1.  Comparatives restated to reflect the creation of Corporate Investments Unit and movement of LGC assets to Institutional Retirement, Retail Annuities and Asset Management. The H1 2023 result also includes adjustments in relation to IFRS 17 made as part of the finalisation of the Group's 2023 Accounts. These adjustments reduced H1 2023 operating profit by £17m and were fully reflected in the FY 2023 results. For further information please see Note 2.01.

2.  Alternative Performance Measure as defined on pages 84-86.

H1 2024 Financial performance

Income statement

H1 2024 operating performance was stable, with core operating profit of £849m slightly ahead of the prior year (H1 2023: £844m) consistent with the guidance we gave at our Capital Markets event in June.  We continue to expect 2024 core operating profit to grow by mid-single digits year on year.

Institutional Retirement operating profit increased by 6% to £560m (H1 2023: £530m) underpinned by the growing scale of back-book earnings and the consistent investment performance of our annuity portfolio. Following a record year for UK Pension Risk Transfer (PRT) in 2023, H1 volumes reflect lower quoting activity in the wider market. In H1 we have written £1,543m of global PRT (H1 2023: £4,992m). Despite the slower start to the year, we have now written or are exclusive on £5bn and our pipeline for PRT is larger than ever. We continue to expect elevated PRT volumes over the next decade.

Asset Management delivered operating profit of £214m (H1 2023: £249m). This reflects the increased investment signalled at the Capital Markets event in June. Revenues have increased by 6% reflecting a conscious shift towards higher margin business illustrated by UK DC and Wholesale, despite lower average AUM. Pemberton continues to make good progress in raising and deploying capital. This has been reflected in a valuation uplift which is lower than the prior year.

Retail operating profit increased by 6% to £268m (H1 2023: £252m) driven by Retail Retirement, up 13% (from £144m at H1 2023 to £163m at H1 2024) due to the unwind of a larger back-book which reflects strong 2023 performance. Retail Annuity sales continue to be strong, with volumes in H1 2024 of £1.2bn, double that of the prior year. Workplace DC net flows were £3.2bn and total members are now up to 5.3 million.

Profit before tax attributable to equity holders was £316m (H1 2023: £393m), reflecting investment and other variances from core businesses of £(417)m (H1 2023: £(296)m). This was mostly driven by the impact on our annuity portfolio of the increase in interest rates of 64bps[1] and movements in inflation expectations both in line with our published sensitivities, as well as some non-recurring IFRS 17 modelling refinements. The investment variance from Corporate Investments of £(187)m (H1 2023: £(235)m) was largely driven by the write down in valuation of Salary Finance, as we consider options to manage the business outcome in the best interests of customers and shareholders.

Balance sheet and asset portfolio

Solvency II operational surplus generation (OSG) at £897m (H1 2023: £947m) reflects the impact of higher interest rates, which have reduced both our aggregate solvency capital requirement and capital generation from Asset Management. Net surplus generation (NSG) was £731m (H1 2023: £752m) reflecting lower operational surplus generation, partially offset by the impact of lower UK PRT volumes and therefore a lower quantum of new business capital strain.

Solvency II coverage ratio is strong at 223% (FY 2023: 224%).

Our operating return on equity[2] was 35.4% (H1 2023: 28.6%).

Our store of future profit increased by 7% to £14.5bn (H1 2023: £13.5bn), with the CSM up 8% to £13.0bn (H1 2023: £12.0bn), reflecting contributions from our growing annuity businesses and the routine longevity review in H2 2023. Risk Adjustment of £1.5bn is in line with H1 2023 (£1.5bn).

Our diversified, actively managed annuity portfolio has continued to perform resiliently. The annuity portfolio's direct investments have received 100% of scheduled cash-flows year to date, reflecting the high quality of our counterparty exposure.

Group Strategy

At our Capital Markets event in June we set out a strategy for delivering the next phase of sustainable growth and enhanced returns to shareholders. We are targeting:

·    6-9% CAGR in core operating EPS (2024-27) at >20% operating Return on Equity

·    £5-6bn cumulative Solvency II capital generation over three years (2025, 2026, 2027)

The Board intends to return more to shareholders over the period 2024-27 through a combination of dividends (5% DPS growth to FY24, 2% DPS growth per annum 2025-27) and buybacks (with a first buyback of £200m in 2024 and further similar buybacks).

We have well-positioned, capital generative businesses in Institutional Retirement, Asset Management and Retail. Our divisions have strong complementary synergies and a shared sense of purpose, which together create significant competitive advantages for the Group. Making the most of these synergistic benefits is a core tenet of our strategy.

Our long-term vision for the Group requires near-term investment in our operating model to position us for structural growth trends in Asset Management and Retail. This in turn will move the business towards a more capital-light model.

Successful execution will require sharper focus. We have a disciplined approach to capital allocation and we have simplified the Group by creating a single asset manager and a Corporate Investments unit. We are committed to doing things 'once and well', leading to efficiencies in operations.

Our three divisions

·    Institutional Retirement is a market leader in UK PRT and with a growing presence internationally, in the US and via our global reinsurance hub in Bermuda. We are well placed to address the significant growth in the global PRT market over the next decade. The economics are attractive, with our growing portfolio set to release reliable earnings over decades from our store of future profit (H1 2024: £9.0bn). Our total annuity portfolio - comprising both Institutional and Individual annuities - stands at £84bn as at H1 2024. It acts as a valuable source of permanent capital to cornerstone new investment strategies.

Key metrics: Guidance of £50-65bn UK PRT at <4% strain (2024-28), 5-7% operating profit CAGR (FY23-28)

·    Asset Management is a newly created division, formed from the combination of LGIM (Legal & General Investment Management) and LGC (Legal & General Capital). It is a leading global asset manager with £1.1trn AUM, of which 41% is international. It has significant market share of the UK pensions industry, which supports the growth of our other divisions - e.g. conversion of our strong Defined Benefit (DB) client relationships into buy-out partners for Institutional Retirement.

Private markets will be a major driver of Asset Management growth both directly in L&G and through our origination partners (e.g. Pemberton). We can access and originate differentiated investment opportunities in private credit, real estate and infrastructure for our clients and for our annuity balance sheet as it grows.

Key metrics: £500-600m operating profit (2028), £100-150m cumulative ANNR[3] (2025-28), £85bn+[4] private markets AUM (2028)

·    Retail is a leading provider of UK retail retirement and protection solutions, and US term life insurance. We support customers throughout their lifetime and create valuable bundled propositions, leveraging our Asset Management capabilities, as responsibility for retirement savings shifts from employers to individuals. We will leverage technology to engage customers effectively and efficiently at scale.

Key metrics: 6-8% operating profit CAGR (FY23-28), £40-50bn Workplace net flows (2024-28)

Our capital allocation policy

We have a clear allocation policy which prioritises:

·    A strong and sustainable balance sheet, supported by strong capital generation from our divisions

·    Investment for growth, with disciplined investment in organic growth and potential bolt-on acquisitions in Asset Management

·    Shareholder returns, with surplus capital to be returned to shareholders in the form of dividend or buybacks

Capital from disposals will be deployed in line with this capital allocation policy.

Returning capital to shareholders

As noted, the Board intends to return more to shareholders over 2024-2027 than the equivalent of maintaining 5% per annum growth in dividends per share (DPS). This is intended to be achieved through a combination of dividends and buybacks with:

·    5% DPS growth to FY24 and, thereafter, 2% DPS growth per annum out to FY27

·    A first buyback of £200m in 2024 and further similar buybacks over the subsequent period

As at 5 August we had bought back 40m shares, comprising 46% of the £200m buyback. The full amount has been accrued for in IFRS and Solvency II.

All future capital returns will be subject to the market environment, our views on solvency buffers, and opportunities for investment in the business, including Institutional Retirement.

In line with this approach, the Board has recommended an interim dividend of 6.00p, up 5% from the prior year (5.71p).

Institutional Retirement

1. Comparatives restated to reflect the movement of assets from LGC to Institutional Retirement. For further information please see Note 2.01.

2. H1 2023 numbers restated to reflect adjustments in relation to IFRS 17 made as part of the finalisation of the Group's 2023 Accounts.

3. The H1 2024 RA includes a £(56)m impact from funded reinsurance on the 2023 Boots Pension Scheme transaction which was put in place after year-end.

4. In the UK, annuity assets across Institutional Retirement and Retail are managed together. We show here estimated Institutional Retirement annuity assets. Excludes derivative assets.

5. Assets formerly reported in LGC.

Institutional Retirement continued to deliver strong operating profit, up 6% to £560m

Contractual Service Margin (CSM) release increased 18% to £316m (H1 2023: £267m). This reflects the growth in our store of future profit which is supported by profitable new business written and the routine longevity review in H2 2023.  In H1 2024, 3.7% of the closing CSM pre-release (£8.6bn) was released into profit (H1 2023: 3.4%, £7.8bn).  Overall, the CSM grew 11% to £8.3bn (H1 2023: £7.5bn).

The expected investment margin decreased by 3% to £283m (H1 2023: £292m) reflecting less backbook optimisation in H1 2024 vs H1 2023.

Non-attributable expenses of £(86)m (H1 2023: £(68)m) are broadly in line with the H2 2023 run-rate (£92m).

Profit before tax of £297m (H1 2023: £347m) was impacted by investment and other variances of £(263)m. This was mostly driven by increases in interest rates and movements to inflation expectations, in line with our year-end sensitivities. There are also some non-recurring IFRS 17 modelling refinements.

£5bn PRT volumes written or exclusive year to date and a strong pipeline for H2 2024

During H1 2024, we wrote £1.5bn of global PRT new business across 15 deals (H1 2023: £5.0bn across 20 deals). UK volumes were £1.1bn (H1 2023: £4.9bn) due to quieter quoting activity in H1, and international volumes were £0.4bn (H1 2023: £0.1bn). Despite the slower start to the year, we have now written or are exclusive on £5bn year to date and have £24bn+ of active deals in the UK pipeline, most of which is expected to transact in 2024.

Under IFRS 17, new business profits are now deferred into the CSM and RA on the balance sheet and recognised in operating profit over the lifetime of the contract. New business added £87m of future profit to the CSM and RA.

The £1.1bn of UK PRT written in H1 delivered a 6.1% UK Solvency II new business margin. The year-on-year reduction in SII new business metrics is driven by the significantly shorter duration of the ICI Pension Fund[5] pensioner-only buy-in which had a duration of less than 8 years. This compares with an average duration for business written over the last three years of 12.7 years.

We continue to be disciplined in our pricing and deployment of capital. We have successfully executed transactions over the last few years, including at H1 2024, at initial UK strain levels below our 4% target. We actively optimise the back-book by matching newly sourced, higher-return assets to back-book liabilities, resulting in additional margin and profit generation post-sale.

Successful execution in the UK leveraging internal synergies

Institutional Retirement's brand, scale and asset origination capabilities - through synergies and expertise within Asset Management - are critical to our market leadership in the UK PRT market.  Long-term client relationships, typically created and fostered by Asset Management, have allowed us to help many pension plans achieve their de-risking goals, including the large schemes executed at the end of 2023: a £4.8 billion full buy-in with the Boots Pension Scheme, and the earlier £2.7bn follow-on transaction with the British Steel Pension Scheme, executed under an umbrella agreement. This has continued in 2024 with the £1.1bn transaction with SCA UK pension plan[6] in July. In H1 2024 9 out of the 15 deals transacted were with Asset Management clients.

Well positioned to execute in international markets

Institutional Retirement delivered increased US PRT new business premiums of $525m or £417m (H1 2023: $163m; £126m) in a market that is typically slower in H1. This includes a $0.6bn split transaction leveraging our longstanding relationship with RGA. In June, the US Institutional Retirement team and RGA were awarded the Pension Risk Transfer Innovation of the Year award for this split transaction approach that is meeting the evolving needs of pension plan sponsors in the US PRT market.

We are active in the Canadian PRT market, developing our proposition to meet anticipated market needs.  The 2024 market is expected to be cCAD$8-10bn, weighted towards the second half.  We continue to actively participate in the Canadian market and remain disciplined on price with a focus on long-term profitability and shareholder returns.

In the Netherlands, we have developed expertise to actively participate in the PRT market.  We are exploring our partner options for access to this developing PRT market.

Legal & General remains strongly positioned to offer holistic, multinational pension de-risking solutions, leveraging skills and capabilities across geographies.

Asset Management

1.             Comparatives restated to reflect the movement of assets from LGC to Asset Management. For further information please see Note 2.01

2.             Persistency is a measure of client asset retention, calculated as a function of net flows and closing AUM.

3.             Includes 100% of assets managed by associates (Pemberton, NTR, BTR).

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

5.             Private Markets assets includes assets from associates and is based on Managed AUM including £1.5bn from multi-asset strategies.

Total operating profit of £214m (HY 2023: £249m)

At our Capital Markets Event in June we announced the creation of the Asset Management division, bringing together LGIM and LGC to create a single, global, public and private markets asset manager.

Operating profit from fee-related earnings £133m (HY 2023: £138m)

Operating profit from fee-related earnings has decreased due to increased investment, as signalled at the Capital Markets event in June, as we modernise our platform, and invest to drive growth. Revenues have increased by 6% to £492m (H1 2023: £464m), reflecting a conscious shift towards higher margin business, illustrated by Workplace DC and Wholesale, despite lower average AUM.

Operating costs of £359m are 10% higher than H1 2023, driven by investment for growth (c£23m of the £50-100m per annum run rate outlined at the Capital Markets event). Underlying operating expenses are 3% higher than H1 2023 (i.e. lower than UK wage inflation). We will continue to be disciplined in our management of these underlying operating expenses.

Operating profit from Balance Sheet investments £81m (HY 2023: £111m)

Balance Sheet investments are comprised of asset origination platforms such as Pemberton (a private credit manager) and NTR (a specialist renewable energy asset manager); our Affordable Homes and Build to Rent platforms; and our digital infrastructure platform, Kao, alongside Bruntwood SciTech, our specialist property platform serving the UK's innovation economy.

Lower operating profit of £81m reflects a smaller uplift in the valuation of Pemberton. Pemberton has continued to make significant progress in raising and deploying capital. We expect future valuation uplifts to occur as the business continues to successfully launch new funds and deploy capital.

Our investment portfolio grew by 27% to £1,082m in the 12 months to 30 June 2024.

Profit Before Tax and Investment Variances

Profit before tax was £159m, with investment and other variances of £(55)m, driven primarily by the mark-to-market impact on the carrying value of our balance sheet investments.

Supporting clients across key channels and markets

Total AUM (excluding JV and Associates) reduced by 3% year on year to £1,122bn (H1 2023: £1,158bn), while average AUM was 4% lower.

External net flows of £(28.5)bn reflect UK DB clients adjusting their portfolios in response to improved funding ratios, with many now positioning for PRT. As the UK DB market matures, our expertise in preparing schemes to achieve buy out or to "run on", means we are well placed to support clients, with many likely to choose Legal & General as a PRT partner. Over the last three years, 84% of UK PRT new business premiums have come from Asset Management clients including the British Steel Pension Scheme and the Boots Pension Scheme, which insured a combined £13.5bn of pension liabilities.   

Our Defined Contribution (DC) business continues to attract new assets with AUM growth of 21% to £176bn (H1 2023: £146bn), and including external net flows of £3.2bn and £4.8m of ANNR from our workplace business. Our ability to offer investors an integrated blend of high-quality investment solutions, pensions administration and Master Trust governance is a significant source of competitive advantage.

Our UK Wholesale AUM has seen 12% growth over H1 2024 which now stands at £61bn (H1 2023: £49bn).  We achieved record gross sales of £13bn and ranked 2^nd across the industry[7]. In particular, our Active Fixed Income strategies and Multi-Asset capabilities have seen strong AUM growth of 19% and 7% in the last year, respectively.

ANNR excluding UK DB is flat, reflecting lower value index rotation outflows, and ETF and Fixed Income outflows in the US.

Investment performance has been strong across our range of matching, tracking and active strategies. For our UK-managed Active Fixed Income strategies, 96% of strategies out-performed over 1 year, and 77% over 3 years. US-managed Active Fixed Income strategies also performed well with 58% of strategies out-performing over both 1 and 3 years. Multi-Asset strategies outperformed by 45% over 1 year and 47% 3 years.

Growing our Private Markets Platform

We are expanding our Private Markets platform, targeting £85bn of private markets AUM by 2028. As at 30 June 2024 we have £52bn in private markets AUM, and £6bn more in committed capital. In the period we generated £4m of ANNR from Private Markets.

On 1 July 2024 we announced the launch of the L&G Private Markets Access Fund, giving UK DC investors new routes to access private markets.  This fund will utilise L&G's Private Markets Platform, offering potential investment opportunities across clean energy, affordable homes, university spin-outs and critical infrastructure and gives our 5.3 million DC members the opportunity to access diversified private markets exposure.

We launched our Affordable Homes fund on 15 July 2024, which to date includes commitment from local government pension funds, ACCESS and Greater Manchester Pension Fund (GMPF). This launch is an exemplar of how we catalyse our own balance sheet investments by offering our clients new investment opportunities while addressing real-world challenges.

Milestones in Private Credit include the launch of a new Short-Term Alternative Finance Fund on 3 April, as we continue to deliver wide-ranging strategies across alternative debt.  Pemberton, our private credit GP investment, has become a leading multi-strategy alternative credit manager in Europe and a top-25 global private debt manager, with total AUM of €21bn. NTR AME, our renewable energy GP partnership, continues to grow, adding renewable power to over 750,000 homes.

We continue to use our principal balance sheet capital to invest in alternative assets that generate profits for our shareholders and positive societal impact, while also providing a pipeline of investable assets to support our fund strategies.

Our Private Markets platform is well positioned to match our strong multi-sector investment propositions and continues to strengthen its operational capabilities to support the growing global demand for our products.

Expanding our global footprint

We continue to successfully diversify the business, growing international AUM by 80% since 2018 to £465bn (41% of overall AUM). 

In the US, we are a leading corporate pension manager with assets for several of the largest asset owners in North America. Our Index Solutions business has witnessed Index Plus AUM growing to c.$9bn since launch in May 2023. We are bringing shorter duration products to market to meet demand as well as expanding our private markets capabilities, through the creation of a real estate equity platform.

In Europe, we have offices across six locations and have seen AUM growth of 8% over the past year to £84.8bn driven by a 31% growth in Active Fixed Income and our scaled Index Equity offerings. Over 20% of our AUM is managed in our active strategies capabilities and smart beta ETF products with an average fee rate of around 17bps.

In Asia, our AUM has grown by 12% over the past year. With offices in Tokyo, Hong Kong and now Singapore, our AUM in Asia including Japan has reached £147bn, and we now have clients across nine countries in the region. In Japan, our AUM has more than doubled since 2019, and we are now Japan's 7^th largest asset manager[8].

Creating a better future through Responsible Investing

Responsible investing is core to our approach and we continue to innovate. In June we published our eighth Climate Impact Pledge, our flagship engagement programme to achieve the goals of the Paris Agreement. We have assessed over 5,000 companies quantitatively and engaged with more than 2,800. As at 30 June 2024, we managed £381.2bn (H1 2023: £331.6bn) in responsible investment strategies explicitly linked to ESG criteria for a broad range of clients.

Retail

1.             Comparatives restated to reflect the movement of assets from LGC to Retail Annuities and Fintech investments into the Corporate Investments unit. For further information please see Note 2.01.

2.             UK Insurance includes Retail protection, Group protection and Mortgage Services.

3.             Retail Retirement includes Individual Annuities, Lifetime Mortgages, Workplace Admin and returns from shareholder assets.

4.             H1 2023 numbers restated to reflect adjustments in relation to IFRS 17 made as part of the finalisation of the Group's 2023 Accounts.

5.             This represents the Workplace DC administration business. Profits on the fund management services we provide are included in Asset Management operating profit.

6.             In the UK, annuity assets across Institutional Retirement and Retail are managed together. Estimated proportion of annuity assets belonging to Retail. Excludes derivative assets.

Operating profit of £268m

In H1 2024, Retail operating profit has increased by 6% to £268m (H1 2023: £252m).  This is due to the growth in CSM release and positive claims experience in the UK, partially offset by higher year-on-year non-attributable expenses which are, however, in line with the H2 2023 run rate (£81m).

The Contractual Service Margin (CSM) release was £226m (H1 2023: £210m), reflecting the release of previously stored insurance profits.  Growth in the CSM release was driven by profitable new business written and assumption changes in the prior year.  In H1 2024, 4.6% of the closing CSM pre-release (£4.9bn) was released into profit (H1 2023: 4.5%, £4.7bn). Overall, the CSM grew by 3% to £4.6bn (H1 2023: £4.5bn).

Profit before tax was £182m (H1 2023: £223m).

Solvency II New Business Value increased 48% to £176m (H1 2023: £119m) with growth in Retail annuities, US and UK protection. We continue to operate with a focus on disciplined pricing and on maintaining strong distribution channels.

Succeeding in a competitive landscape in H1 2024

Workplace DC net flows were £3.2bn (H1 2023: £3.0bn), as a result of continued client wins and increased member contributions.  Workplace pension platform members increased to 5.3 million in H1 2024.

Retail annuity sales were £1,174m (H1 2023: £575m), doubling volumes in a buoyant market in which we also increased market share to 24.3%[9].  Both Lifetime Annuity and Fixed Term Annuity sales performed well throughout H1 as higher interest rates have made these products more attractive to our customers.

Lifetime mortgage advances, including Retirement Interest Only mortgages, were £140m (H1 2023: £163m) reflecting a decline in demand as a result of higher interest rates. We continue to maintain pricing and underwriting discipline. 

UK Retail protection gross premium income increased to £760m (H1 2023: £752m), with new business annual premiums of £75m (H1 2023: £76m) in what remained a highly competitive market.  L&G is the leader in this market with a share of 18.8%[10], delivering a point-of-sale underwriting decision for more than 80% of our customers.  

UK Group protection gross premium income increased 18% to £349m (H1 2023: £295m) as a result of good retention and new business annual premiums of £68m (H1 2023: £53m).  Our online "quote and apply" platform for smaller schemes continues to perform well, processing c492 new clients over the year (H1 2023: c261), and we continue to see growth in this part of the market. Group Protection saw 1,359 income protection scheme members return to work during H1.

US protection (LGIA) new business annual premiums increased 18% to $103m (H1 2023: $87m), with robust Solvency II new business margins of 12.1 % (H1 2023: 11.2%).  Gross premiums increased 6% to $831m (H1 2023: $781m).  Our digital new business platform is making it easier for customers and their advisors to apply and buy our term products, resulting in our strongest ever 6 month sales volumes in H1 2024.  This is driving up our market share: LGIA ranked number one in the independent broker channel and third in the overall US term market in Q1 2024.[11]  We expect to drive further sales growth and to reduce unit costs over the coming years.  c98% of eligible new business is now submitted through our digital new business platform.

Corporate Investments Unit

Total operating profit of £71m

Operating profit from our Corporate Investments Unit is down 11% at £71m versus prior year earnings (H1 2023: £80m). This largely reflects the trading performance of CALA (H1 2024: £42m) which was lower year-on-year but in line with the second half run-rate (H2 2023 £39m), reflecting a combination of the higher interest rate environment and some planning delays.

Profit before tax predominantly reflects the valuation write-down of Salary Finance as we consider options to manage the business outcome in the best interests of customers and shareholders.

Asset valuations

The valuation of Corporate Investments Unit assets in the Group balance sheet reflects the accounting treatment of the underlying assets, being either on a cost (primarily purchase price) or fair value basis. For CALA, the largest asset in the Corporate Investments Unit, the majority of the value on the group balance sheet is associated with land and work in progress and is therefore valued on a cost rather than fair value basis. CALA's NAV at 30 June 2024 was £1.1bn.

All assets within the Corporate Investments Unit that are held at fair value have been revalued as at 30 June 2024, and other assets have been assessed for impairment. We conduct a thorough internal valuation process and engage external third-party valuers to support all material valuations.

Borrowings

The Group's outstanding core borrowings totalled £4.3bn at 30 June 2024 (H1 2023: £4.3bn).  There is also a further £1.9bn (H1 2023: £1.3bn) of operational borrowings including £1.6bn (H1 2023: £1.1bn) of non-recourse borrowings. 

Group debt costs of £107m (H1 2023: £106m) reflect an average cost of debt of 4.8% per annum (H1 2023: 4.7% per annum) on an average nominal value of debt balances of £4.5bn (H1 2023: £4.5bn).

Cash

As at 30 June 2024, the Group held £2,326m of Treasury Assets and Other Shareholder Cash (H1 2023: £2,275m).

Taxation

The effective tax rate reflects the varying rates of tax that we pay on our businesses in different territories and the mixture of profits and losses across those territories.  HY 24 is the first period in which a rate of 15% applies to our profits arising in Bermuda.

Solvency II

As at 30 June 2024, the Group had an estimated Solvency II surplus of £8.8bn over its Solvency Capital Requirement, corresponding to a Solvency II coverage ratio of 223%. 

1.             Please see disclosure note 6.01 for further detail.

2.             On 13 June 2024, Legal & General Group Plc entered into an irrevocable agreement to acquire £200m of ordinary shares for cancellation. Accordingly, SII surplus has reduced by £201m (inclusive of stamp duty tax). This is aligned to IFRS as detailed in disclosure note 3.04.

Operational surplus generation is at £897m (H1 2023: £947m), after allowing for amortisation of the opening Transitional Measures on Technical Provisions (TMTP) and release of Risk Margin. 

New business strain was £(166)m, primarily reflecting lower UK PRT volumes written at capital strain levels in line with our long-term average. This resulted in net surplus generation of £731m (H1 2023: £752m).

Operating variances include the impact of experience variances, changes to assumptions and management actions. 

Market movements of £(14)m reflect the impact of movements in interest rates, credit spreads and property & equity markets.

The movements shown above incorporate the impact of recalculating the TMTP as at 30 June 2024.

Sensitivity analysis³

3. Please see disclosure 6.01 (v) for further details.

The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the group actively manages its asset and liability positions to respond to market movements. Other than in the interest rate and inflation stresses, we have not allowed for the recalculation of TMTP. Allowance is made for the recalculation of the Loss Absorbing Capacity of Deferred Tax for all stresses, assuming full capacity remains available post stress.

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.

Solvency II new business contribution

Management estimates of the present value of new business (PVNBP) and the margin as at 30 June 2024 are shown below¹:

The key economic assumptions as at 30 June 2024 are as follows:

1. Please see disclosure 6.02 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 risk-free rate shown above is a weighted average based on the projected cash flows.

Economic and non-economic assumptions are set to best estimates of their real-world outcomes, including a risk premium for asset returns where appropriate. In particular:

·    The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to yield on the relevant backing assets, net of an allowance for default risk which takes into account the credit rating and the outstanding term of the assets. The weighted average deduction for business written in 2024 equates to a level rate deduction from the expected returns of 16 basis points. The calculated return takes account of derivatives and other credit instruments in the investment portfolio.

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

The profits on the new business are presented gross of tax.

Principal risks and uncertainties

The directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.

The principal risks are set out below including details of how they have been managed or mitigated. Further details of the Group's inherent risk exposures are set out at Notes 7 and 15 to 17 of the financial statements.

Notes

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

A presentation to analysts and investors will take place at 10:00am 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 https://group.legalandgeneral.com/en/investors.

A replay of the presentation will be made available on this website by 8 August 2024.

Definitions

Definitions are included in the Glossary on pages 87 to 92 of this release. 

Forward-looking statements

This release 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 management's current expectations or beliefs, as well as assumptions and projections 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 'aim', 'ambition', 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue', 'milestones', 'outlook', 'target', 'objectives' 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 undue 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 guarantee, warranty or 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.

The information, statements and opinions contained in this release 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.

Caution about climate information

This release contains climate and ESG disclosures which use a large number of judgments, assumptions and estimates in connection with involved complex issues. The ESG disclosures should be treated with special caution, as ESG and climate data, models and methodologies are often relatively new, are rapidly evolving and are not of the same standard as those available in the context of other financial information, nor are they subject to the same or equivalent disclosure standards, historical reference points, benchmarks, market consensus or globally accepted accounting principals. These judgments, assumptions and estimates are likely to change over time, in particular given the uncertainty around the evolution and impact of climate change. 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 release are likely to be amended, updated, recalculated or restated in future announcements, releases and/or reports. This statement should be read together with the Cautionary statement contained in the Group's 2023 Climate and nature report.

Going concern statement

A going concern statement is included on disclosure note 4.012 on page 42 of this release.

Directors' responsibility statement

We confirm to the best of our knowledge that:

·      The Group consolidated financial statements have been prepared in accordance with the UK-adopted IAS 34 Interim Financial Reporting.

·      The interim management report includes a fair review of information required by DTR 4.2.7R, namely an indication of important events that have occurred during the first six months of the financial year and their impact on the consolidated interim financial statements, as well as a description of the principal risks and uncertainties faced by the company and undertakings included in the consolidation taken as a whole for the remaining six months of the financial year;

·      The interim management report includes, as required by DTR 4.2.8R, a fair review of related party transactions that:

o  have taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the company during that period; and

o  any changes in the related party transactions described in the last Annual Report and Accounts that could have a material effect on the financial position or performance of the company in the first six months of the current financial year; and

·      A list of current directors of Legal & General Group Plc is maintained on the Legal & General Group Plc website:

https://group.legalandgeneral.com/en/about-us/our-management/group-board

By order of the Board

Enquiries

Investors

Edward Houghton, Group Strategy & Investor Relations Director

investor.relations@group.landg.com

+44 203 124 2091

Gregory Franck, Investor Relations Director

investor.relations@group.landg.com

+44 203 124 4415

Media

Natalie Whitty, Group Corporate Affairs Director

Natalie.whitty@group.landg.com

+44 738 443 5692

Lauren Kemp, Group Head of Corporate Media & Issues

Lauren.Kemp@lgim.com

+44 794 651 4627

Lucy Legh / Nigel Prideaux, Headland Consultancy

LandG@headlandconsultancy.com

+44 20 3805 4822