Update on US Capital Programme

      

·      Reinsurance solution at heart of phase 4 delivers $345m capital benefit to L&G America (LGA) and £172m to L&G Group IGD surplus

·      cumulative programme benefits to L&G America $735m over 2 years

·      Cumulative programme benefits to L&G group IGD surplus of £402m (£260m in 2012)

·      improved return on equity of L&G America and profitability of new business

Legal and General's US subsidiary L&G America Inc. (LGA) has completed a further phase of its capital efficiency programme on 31 December 2012.  Through the use of a reinsurance solution, this phase improves LGA's capital position and replaces the need for temporary financing, a total benefit of $345m.  As a result, L&G Group IGD surplus increases by £172m.

 

In total, the programme which started in 2010 has delivered $735m of capital benefit for LGA and a total benefit to L&G Group IGD surplus of £402m.  We are pleased to have delivered these two further phases in 2012, ahead of the schedule indicated at the 2012 half year results.

 

The capital programme has supported LGA to grow its core term product over 11 consecutive quarters.  Annual premiums written during Q3 2012 were up 31% to $38m APE (Q3 2011 $29m) and gross premiums at Q3 YTD 2012 were up 11% to $677m (Q3 2011: $611m).  The more efficient capital structure has helped to increase the new business margin to 10.9% (H1 2012) from 4.9% in 2009.

 

Ordinary dividend remittances to L&G Group have grown from $nil in 2009 to $50m in 2010, $55m in 2011 and $60m in H1 2012.  In January 2012, Standard & Poor's raised the financial strength rating for LGA from A+ to AA-, reflecting its strong competitive position, conservative investment portfolio and strong liquidity position, coupled with the stable outlook of the parent.

 

Phase	Date	Summary	LGA Capital Benefit $m (£m)	Benefit to L&G Group IGD Surplus £m
1	Dec 2010	Buyback at a discount of external debt of Triple-X funding vehicle and replacement with internal reinsurance structure	90  (58)	82
2	Dec 2011	Further replacement of Triple-X solution	100  (65)	60
3	Sept 2012	Further replacement of Triple-X solution	200 (1231)	88
4	Dec 2012	Further replacement of Triple-X solution and replacement of temporary financing by Group	345 (2122)	172
		Total	$735m	£402m

¹Closing Exchange rate on 24 of Sept: $1.62;  ² Closing Exchange rate on 31 of Dec $1.63

 

Jimmy Atkins, President and CEO of L&G America said:

"This December 2012 transaction, as part of a series of related transactions over the last few years, further demonstrates how the US and UK parts of Legal & General work together for a single purpose.  It demonstrates our ability to design and execute financial plans as needed to optimize capital across our legal entities, which in turn fuels our strong growth in the US."

Background

Legal & General America Inc (LGA) is a wholly owned subsidiary of Legal & General Group plc.  It was established in 1981 upon the acquisition of Banner Life, and subsequently William Penn.  LGA has an efficient cost structure and writes mortality protection products focusing on higher sum assured policies through delivery of expert, medical-based underwriting. LGA is broadening its distribution reach and reputation with broker general agents, who value the consistently high quality underwriting and client experience.  LGA has grown in-force premiums from $638m in 2006 to $836m (FY 2011), and new business margin from 4.9% in 2009 to 10.9% in H1 2012.

US Life insurance reserves represent portions of current and past premiums held as reserves to fund higher future claims as insured lives age.  Because of US Triple-X regulatory requirements, LGA is required to hold reserves that are much greater than reasonably conservative future expected mortality should require. These reserves are often referred to as 'excess' or 'redundant' Triple-X reserves.   Our strategy for LGA has focused on improving capital efficiency, increasing the return on capital and growing cash flows from the US business to the UK parent.

Enquiries

Investors:

Kate Vennell	Head of Investor Relations	020 3124 2150
Ian Baker	Investor Relations Manager	020 3124 2047

Contacts at LGA in the US:

Gene Gilbertson	Executive Vice President and Chief Financial Officer	001 301 2794836
Drew Love	Vice President, Finance	001 301 2946951

 

                                 

Media:

John Godfrey	Group Communications Director	020 3124 2090
Richard King	Head Of Media Relations	020 3124 2095

 

 

 

Financial Calendar 2013	Date
Preliminary Results 2012	6 March 2013
Q1 2013 Interim Management Statement	2 May 2013
Half year results	6 August 2013
Q3 2013 Interim Management Statement	5 November 2013

Forward looking statements

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