L&G Half-year Results 2013 - part 3

European Embedded Value                                                                                                                                         Page 83

 

Group embedded value - summary
				Covered business
					P&A	US	Non-
				UK	overseas	Prote-	covered
				business	business	ction	business	Total
For the six months ended 30 June 2013				£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				4,402	146	735	-	5,283
Shareholder net worth (SNW)				3,178	296	239	(96)	3,617
Embedded value at 1 January 2013				7,580	442	974	(96)	8,900
Exchange rate movements				-	23	72	(74)	21
Operating profit after tax for the period				392	4	35	73	504
Non-operating profit/(loss) for the period				282	34	(31)	(6)	279
Profit for the period				674	38	4	67	783
Intra-group distributions2				10	(1)	(43)	34	-
Dividends to equity holders of the Company				-	-	-	(337)	(337)
Transfer to non-covered business3				(12)	-	-	12	-
Other reserve movements including pension deficit4				(44)	-	-	6	(38)
Embedded value at 30 June 2013				8,208	502	1,007	(388)	9,329
Value of in-force business				4,570	178	890	-	5,638
Shareholder net worth				3,638	324	117	(388)	3,691
Embedded value per share (p)5								158
				Covered business
					P&A	US	Non-
				UK	overseas	Prote-	covered
				business	business	ction	business	Total
For the six months ended 30 June 2012 1				£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				4,247	217	913	-	5,377
Shareholder net worth (SNW)				3,218	252	149	(388)	3,231
Embedded value at 1 January 2012				7,465	469	1,062	(388)	8,608
Exchange rate movements				-	(15)	(14)	8	(21)
Operating profit after tax for the period				274	8	33	40	355
Non-operating loss for the period				(6)	(14)	(19)	(1)	(40)
Profit/(loss) for the period				268	(6)	14	39	315
Intra-group distributions2				30	(1)	(38)	9	-
Dividends to equity holders of the Company				-	-	-	(278)	(278)
Transfer to non-covered business3				(10)	-	-	10	-
Other reserve movements including pension deficit4				(40)	-	-	(3)	(43)
Embedded value at 30 June 2012				7,713	447	1,024	(603)	8,581
Value of in-force business				4,184	180	955	-	5,319
Shareholder net worth				3,529	267	69	(603)	3,262
Embedded value per share (p)5								145
1. The Group embedded value - summary has been restated to reflect an amendment to IAS 19 'Employee Benefits'. Details of this restatement are outlined in Note 5.08.
2. UK intra-group distributions reflect dividends of £10m (H1 12: £30m; FY 12: £40m) paid to Society from subsidiaries (primarily Nationwide Life). Dividends of $66m (H1 12: $60m; FY 12: $63m) from LGA, €nil (H1 12: €nil; FY 12: €15m) from LGN and €1m (H1 12: €2m; FY 12: €3m) from LGF were also paid to the group.
3. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
4. The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.
5. The number of shares in issue at 30 June 2013 was 5,915,445,369 (30 June 2012: 5,905,704,992; 31 December 2012: 5,912,782,826).
Further analysis of the Protection and Annuities, Savings and L&G Capital and group expenses UK covered business can be found in Note 5.01.

 

 

 

 

European Embedded Value                                                                                                                                         Page 84

 

Group embedded value - summary (continued)
				Covered business
					P&A	US	Non-
				UK	overseas	Prote-	covered
				business	business	ction	business	Total
For the year ended 31 December 2012 1				£m	£m	£m	£m	£m
At 1 January
Value of in-force business (VIF)				4,247	217	913	-	5,377
Shareholder net worth (SNW)				3,218	252	149	(388)	3,231
At 1 January 2012				7,465	469	1,062	(388)	8,608
Exchange rate movements				-	(12)	(50)	40	(22)
Operating profit after tax for the year				653	19	77	71	820
Non-operating loss for the year:				(23)	(20)	(18)	(26)	(87)
Profit/(loss) for the year				630	(1)	59	45	733
Intra-group distributions2				(473)	(14)	(40)	527	-
Dividends to equity holders of the Company				-	-	-	(394)	(394)
Transfer to non-covered business3				(22)	-	-	22	-
Other reserve movements including pension deficit4				(20)	-	(57)	52	(25)
Embedded value at 31 December 2012				7,580	442	974	(96)	8,900
Value of in-force business				4,402	146	735	-	5,283
Shareholder net worth				3,178	296	239	(96)	3,617
Embedded value per share (p)5								151
1. The Group embedded value - summary has been restated to reflect an amendment to IAS 19 'Employee Benefits'. Details of this restatement are outlined in Note 5.09.
2. UK intra-group distributions reflect a £525m dividend paid from Society to Group and dividends of £40m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of $63m from LGA, €15m from LGN and €3m from LGF were also paid to the group.
3. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
4. The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.
5. The number of shares in issue at 31 December 2012 was 5,912,782,826.
Further analysis of the Protection and Annuities, Savings and L&G Capital and group expenses UK covered business can be found in Note 5.01.

 

 

European Embedded Value                                                                                                                                         Page 85

 

5.01 UK embedded value reconciliation
		Shareholder net worth						Total
		Free	Required			Value of		embedded
		surplus	capital	Total		in-force		value
For the six months ended 30 June 2013		£m	£m	£m		£m		£m
At 1 January 2013		1,210	1,968	3,178		4,402		7,580
Operating profit/(loss) for the period:
- New business contribution1		(132)	95	(37)		205		168
- Expected return on VIF		-	-	-		132		132
- Expected transfer from non profit VIF to SNW2		400	(89)	311		(311)		-
- With-profits transfer		29	-	29		(29)		-
- Expected return on SNW		22	36	58		-		58
Generation of embedded value		319	42	361		(3)		358
- Experience variances		(2)	3	1		35		36
- Operating assumption changes		21	-	21		(9)		12
- Development costs		(14)	-	(14)		-		(14)
Variances		5	3	8		26		34
Operating profit after tax for the period		324	45	369		23		392
Non-operating profit/(loss) for the period:
- Economic variances		166	(34)	132		109		241
- Effect of tax rate changes and other taxation impacts3		-	-	-		41		41
Non-operating profit/(loss) for the period		166	(34)	132		150		282
Profit for the period		490	11	501		173		674
Intra-group distributions4		10	-	10		-		10
Transfer to non-covered business5		(12)	-	(12)		-		(12)
Other reserve movements including pension deficit6		(39)	-	(39)		(5)		(44)
Embedded value at 30 June 2013		1,659	1,979	3,638		4,570		8,208
1. The free surplus reduction of £132m to finance new business includes £37m new business strain and £95m additional required capital.
2. The increase in free surplus of £400m from the expected transfer from the in-force non profit business includes £311m of operational cash generation and a £89m reduction in required capital.
3. Reflects the implementation of the UK planned future reductions in corporation tax to 20% on 1 April 2015.
4. UK intra-group dividends reflect dividends of £10m paid to Society from subsidiaries (primarily Nationwide Life).
5. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
6. The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.
The UK value of in-force business of £4,570m is comprised of £4,152m of non profit business and £418m of with-profits business.

 

 

 

 

European Embedded Value                                                                                                                                         Page 86

 

5.01 UK embedded value reconciliation (continued)
		Shareholder net worth						Total
		Free	Required			Value of		embedded
		surplus	capital	Total		in-force		value
For the six months ended 30 June 2012		£m	£m	£m		£m		£m
At 1 January 2012		1,461	1,757	3,218		4,247		7,465
Operating profit/(loss) for the period:
- New business contribution1		(117)	54	(63)		158		95
- Expected return on VIF		-	-	-		132		132
- Expected transfer from Non profit VIF to SNW2		364	(83)	281		(281)		-
- With-profits transfer		26	-	26		(26)		-
- Expected return on SNW		26	32	58		-		58
Generation of embedded value		299	3	302		(17)		285
- Experience variances		(6)	4	(2)		4		2
- Operating assumption changes		29	-	29		(35)		(6)
- Development costs		(7)	-	(7)		-		(7)
Variances		16	4	20		(31)		(11)
Operating profit/(loss) after tax for the period		315	7	322		(48)		274
Non-operating profit/(loss) for the period:
- Economic variances		(17)	18	1		(55)		(54)
- Effect of tax rate changes and other taxation impacts3		-	-	-		48		48
Non-operating (loss)/profit for the period:		(17)	18	1		(7)		(6)
Profit/(loss) for the period		298	25	323		(55)		268
Intra-group distributions4		30	-	30		-		30
Transfer to non-covered business5		(10)	-	(10)		-		(10)
Other reserve movements including pension deficit6		(32)	-	(32)		(8)		(40)
Embedded value at 30 June 2012		1,747	1,782	3,529		4,184		7,713
1. The free surplus reduction of £117m to finance new business includes £64m new business strain and £54m additional required capital. Other items have a net negative impact of £1m.
2. The increase in free surplus of £364m from the expected transfer from the in-force non profit business includes £281m of operational cash generation and a £83m reduction in required capital.
3. Reflects the implementation of the UK planned future reductions in corporation tax to 22% on 1 April 2014.
4. UK intra-group dividends reflect dividends of £30m paid to Society from subsidiaries (primarily Nationwide Life).
5. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
6. The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.
The UK value of in-force business of £4,184m is comprised of £3,773m of non profit business and £411m of with-profits business.

 

 

European Embedded Value                                                                                                                                         Page 87

 

5.01 UK embedded value reconciliation (continued)
		Shareholder net worth						Total
		Free	Required			Value of		embedded
		surplus	capital	Total		in-force		value
For the year ended 31 December 2012		£m	£m	£m		£m		£m
At 1 January 2012		1,461	1,757	3,218		4,247		7,465
Operating profit/(loss) for the year:
- New business contribution1		(275)	182	(93)		386		293
- Expected return on VIF		-	-	-		270		270
- Expected transfer from non profit VIF to SNW2		762	(171)	591		(591)		-
- With-profits transfer		52	-	52		(52)		-
- Expected return on SNW		53	63	116		-		116
Generation of embedded value		592	74	666		13		679
- Experience variances		(26)	18	(8)		20		12
- Operating assumption changes		13	1	14		(23)		(9)
- Development costs		(29)	-	(29)		-		(29)
Variances		(42)	19	(23)		(3)		(26)
Operating profit after tax for the year		550	93	643		10		653
Non-operating profit/(loss) for the year:
- Economic variances		(182)	107	(75)		(37)		(112)
- Effect of tax rate changes and other taxation impacts3		-	-	-		89		89
Non-operating (loss)/profit for the year:		(182)	107	(75)		52		(23)
Profit for the year		368	200	568		62		630
Intra-group distributions4		(473)	-	(473)		-		(473)
Transfer to non-covered business5		(22)	-	(22)		-		(22)
Other reserve movements including pension deficit6		(124)	11	(113)		93		(20)
Embedded value at 31 December 2012		1,210	1,968	3,178		4,402		7,580
1. The free surplus reduction of £275m to finance new business includes £93m new business strain and £182m additional required capital.
2. The increase in free surplus of £762m from the expected transfer from the in-force non profit business includes £591m of operational cash generation and a £171m reduction in required capital.
3. Reflects the implementation of the UK planned future reductions in corporation tax to 21% on 1 April 2014.
4. UK intra-group dividends reflect a £525m dividend paid from Society to Group and dividends of £40m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of €15m from LGN were also paid to Society.
5. The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.
6. The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.
The UK value of in-force business of £4,402m is comprised of £4,008m of non profit business and £394m of with-profits business.

 

 

European Embedded Value                                                                                                                                         Page 88

 

5.02 Analysis of shareholders' equity
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
As at 30 June 2013				£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1				805	459	935	3,306	5,505
Additional retained profit/(loss) on an EEV basis				4,672	-	72	(920)	3,824
Shareholders' equity on an EEV basis				5,477	459	1,007	2,386	9,329
Comprising:
Business reported on an IFRS basis				405	459	-	(1,252)	(388)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2				71		64	1,659	1,794
- Required capital to cover solvency margin				253		53	1,979	2,285
Value of in-force
- Value of in-force business3				5,228		903		6,131
- Cost of capital				(480)		(13)		(493)
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
As at 30 June 2012				£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1				617	439	977	3,124	5,157
Additional retained profit/(loss) on an EEV basis				4,383	-	47	(1,006)	3,424
Shareholders' equity on an EEV basis				5,000	439	1,024	2,118	8,581
Comprising:
Business reported on an IFRS basis				369	439	-	(1,411)	(603)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2				48		24	1,747	1,819
- Required capital to cover solvency margin				219		45	1,782	2,046
Value of in-force
- Value of in-force business3				4,828		964		5,792
- Cost of capital				(464)		(9)		(473)
1. Shareholders' equity supporting the UK non profit Protection and Annuities and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the L&G Capital and group expenses segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.
3. Value of in-force business includes a deduction for the time value of options and guarantees of £27m (H1 12: £29m; FY 12: £30m), of which £nil relates to US Protection (H1 12: £nil; FY 12: £nil). Of the remaining deduction, £18m (H1 12: £19m; FY 12: £18m) relates to UK with-profits business, and £5m (H1 12: £5m; FY 12: £5m) to UK non profit business.
Further analysis of shareholders' equity is included in Note 5.03.

 

 

European Embedded Value                                                                                                                                         Page 89

 

5.02 Analysis of shareholders' equity (continued)
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
As at 31 December 2012				£m	£m	£m	£m	£m
Analysed as:
IFRS basis shareholders' equity1				740	360	919	3,422	5,441
Additional retained profit/(loss) on an EEV basis				4,484	-	55	(1,080)	3,459
Shareholders' equity on an EEV basis				5,224	360	974	2,342	8,900
Comprising:
Business reported on an IFRS basis				380	360	-	(836)	(96)
Business reported on an EEV basis:
Shareholder net worth
- Free surplus2				57		206	1,210	1,473
- Required capital to cover solvency margin				239		33	1,968	2,240
Value of in-force
- Value of in-force business3				5,054		745		5,799
- Cost of capital				(506)		(10)		(516)
1. Shareholders' equity supporting the UK non profit Protection and Annuities and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within the L&G Capital and group expenses segment.
2. Free surplus is the value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date.
3. Value of in-force business includes a deduction for the time value of options and guarantees of £30m, of which £nil relates to US Protection. Of the remaining deduction, £18m relates to UK with-profits business, and £5m to UK non profit business.
Further analysis of shareholders' equity is included in Note 5.03.

 

 

European Embedded Value                                                                                                                                         Page 90

 

5.03 Segmental analysis of shareholders' equity
			Covered	Other		Covered	Other
			business	business		business	business
			EEV	IFRS		EEV	IFRS
			basis	basis	Total	basis	basis	Total
			30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12
			£m	£m	£m	£m	£m	£m
Protection and Annuities
- P&A reported on an EEV basis			3,301	-	3,301	2,947	-	2,947
- General insurance			-	204	204	-	156	156
- Netherlands (LGN)			284	-	284	248	-	248
- France (LGF)			218	-	218	199	-	199
- Other			-	4	4	-	12	12
Total Protection and Annuities			3,803	208	4,011	3,394	168	3,562
Savings
- Savings reported on an EEV basis			1,269	-	1,269	1,237	-	1,237
- Savings investments			-	140	140	-	137	137
- Other			-	57	57	-	64	64
Total Savings			1,269	197	1,466	1,237	201	1,438
Investment management			-	459	459	-	439	439
US Protection			1,007	-	1,007	1,024	-	1,024
L&G Capital and group expenses			3,638	(1,252)	2,386	3,529	(1,411)	2,118
			9,717	(388)	9,329	9,184	(603)	8,581

 

 

 

 

European Embedded Value                                                                                                                                         Page 91

 

5.03 Segmental analysis of shareholders' equity (continued)
						Covered	Other
						business	business
						EEV	IFRS
						basis	basis	Total
						31.12.12	31.12.12	31.12.12
						£m	£m	£m
Protection and Annuities
- P&A reported on an EEV basis						3,131	-	3,131
- General insurance						-	180	180
- Netherlands (LGN)						248	-	248
- France (LGF)						194	-	194
- Other						-	10	10
Total Protection and Annuities						3,573	190	3,763
Savings
- Savings reported on an EEV basis						1,271	-	1,271
- Savings investments						-	138	138
- Other						-	52	52
Total Savings						1,271	190	1,461
Investment management						-	360	360
US Protection						974	-	974
L&G Capital and group expenses						3,178	(836)	2,342
						8,996	(96)	8,900

 

 

5.04 Reconciliation of shareholder net worth
			UK		UK		UK
			covered		covered		covered
			business	Total	business	Total	business	Total
			30.06.13	30.06.13	30.06.12	30.06.12	31.12.12	31.12.12
			£m	£m	£m	£m	£m	£m
SNW of long term operations (IFRS basis)			4,603	5,893	4,548	5,760	4,294	5,537
Other liabilities (IFRS basis)			-	(388)	-	(603)	-	(96)
Shareholders' equity on the IFRS basis			4,603	5,505	4,548	5,157	4,294	5,441
Purchased interest in long term business			(58)	(60)	(69)	(70)	(63)	(64)
Deferred acquisition costs/deferred income liabilities			(267)	(1,213)	(205)	(1,028)	(235)	(1,093)
Deferred tax1			(165)	195	(200)	119	(253)	74
Other2			(475)	(736)	(545)	(916)	(565)	(741)
Shareholder net worth on the EEV basis			3,638	3,691	3,529	3,262	3,178	3,617
1. Deferred tax represents all tax which is expected to be paid under current legislation. 2. Other primarily relates to the different treatment of annuities and LGA Triple X securitisation on an EEV and IFRS basis.

 

 

European Embedded Value                                                                                                                                         Page 92

 

5.05 Profit/(loss) for the period
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
For the six months ended 30 June 2013			Note	£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital			5.06	213		44		257
Contribution from in-force business:
- expected return1				178		33		211
- experience variances 2				42		(27)		15
- operating assumption changes3				14		-		14
Development costs				(18)		-		(18)
Contribution from shareholder net worth				2		4	65	71
Operating profit on covered business				431	-	54	65	550
Business reported on an IFRS basis4,5,6,7,8				35	120	-	(65)	90
Total operating profit				466	120	54	-	640
Economic variances9				302	(2)	(47)	11	264
Gains attributable to non-controlling interests				-	-	-	5	5
Profit before tax				768	118	7	16	909
Tax (expense)/credit on profit from ordinary activities				(156)	(24)	(3)	16	(167)
Effect of tax rate changes and other taxation impacts10				41	-	-	-	41
Profit for the period				653	94	4	32	783
Operating profit attributable to:
Protection and Annuities				424
Savings				42
								p
Earnings per share
Based on profit attributable to equity holders of the Company								13.24
Diluted earnings per share
Based on profit attributable to equity holders of the Company								13.09
1. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK Protection and Annuities and Savings business was £4,402m in H1 13 (H1 12: £4,247m; FY 12: £4,247m). This is adjusted for the effects of opening model changes of £50m (H1 12: £45m; FY 12: £86m) to give an adjusted opening base VIF of £4,452m (H1 12: £4,292m; FY 12: £4,333m). This is then multiplied by the opening risk discount rate of 6.0% (H1 12: 6.2%; FY 12: 6.2%) and the result grossed up at the notional attributed tax rate of 20% (H1 12: 22%; FY 12: 21%) to give a return of £165m (H1 12: £169m; FY 12: £340m). The same approach has been applied for the overseas Protection and Annuities businesses.
2. P&A and Savings primarily reflects UK cost of capital unwind, bulk purchase annuity data loading and model changes. US Protection reflects higher than anticipated lapses in the period.
3. P&A and Savings primarily reflects mortality assumption changes in retail protection.
4. Protection and Annuities non-covered business primarily reflects GI and other operating profit of £29m (H1 12: £9m; FY 12: £27m).
5. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland), Nationwide and our joint venture operation in India.
6. Investment management operating profit excludes £15m (H1 12: £13m; FY 12: £27m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Protection and Annuities, Savings and L&G Capital and group expenses covered business on an EEV basis.
7. US Protection non-covered business includes business unit costs of £nil (H1 12: £2m; FY 12: £4m) allocated to the US Protection segment.
8. L&G Capital and group expenses non-covered business primarily reflects the shareholder interest expense and Investment projects (predominantly Economic Capital Programme and other strategic investments).
9. The P&A and Savings positive variance has resulted from a number of factors including equity market outperformance, favourable default experience, actions to improve the yield on annuity assets and a lower risk margin offset by a higher risk free rate. The higher risk free rate has contributed to a negative variance in US Protection.
10. Primarily reflects the implementation of the UK planned future reductions in corporation tax to 20% on 1 April 2015.

 

 

 

 

European Embedded Value                                                                                                                                         Page 93

 

5.05 Profit/(loss) for the period (continued)
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
For the six months ended 30 June 2012 1			Note	£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital			5.06	125		42		167
Contribution from in-force business:
- expected return2				184		39		223
- experience variances 3				4		(33)		(29)
- operating assumption changes4				(9)		-		(9)
Development costs				(9)		-		(9)
Contribution from shareholder net worth				3		2	67	72
Operating profit on covered business				298	-	50	67	415
Business reported on an IFRS basis5,6,7,8,9				17	106	(3)	(79)	41
Total operating profit/(loss)				315	106	47	(12)	456
Economic variances10				(93)	(2)	(29)	(16)	(140)
Gain attributable to non-controlling interests				-	-	-	1	1
Profit/(loss) before tax				222	104	18	(27)	317
Tax (expense)/credit on profit from ordinary activities				(50)	(19)	(6)	25	(50)
Effect of tax rate changes and other taxation
impacts11				48	-	-	-	48
Profit/(loss) for the period				220	85	12	(2)	315
Operating profit attributable to:
Protection and Annuities				275
Savings				40
								p1
Earnings per share
Based on profit attributable to equity holders of the Company								5.38
Diluted earnings per share
Based on profit attributable to equity holders of the Company								5.30
1. The Profit for the period has been restated to reflect an amendment to IAS 19 'Employee Benefits'. Details of this restatement are outlined in Note 5.08.
2. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK Protection and Annuities and Savings business was £4,247m. This is adjusted for the effects of opening model changes of £45m to give an adjusted opening base VIF of £4,292m. This is then multiplied by the opening risk discount rate of 6.2% and the result grossed up at the notional attributed tax rate of 22% to give a return of £169m.
3. P&A and Savings reflects UK cost of capital unwind and bulk purchase annuity data loading, partially offset by model changes, adverse mortality experience in group protection and higher lapses on existing term business in the Netherlands.  US Protection reflects a higher number of term assurance claims and higher lapses in existing term business in the period.
4. P&A and Savings reflect higher investment expenses during the period driven by a change in the investment mix in the underlying funds.
5. Protection and Annuities non-covered business primarily reflects GI and other operating profit of £9m.
6. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland) and Nationwide.
7. Investment management operating profit excludes £13m of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Protection and Annuities, Savings and L&G Capital and group expenses covered business on an EEV basis.
8. US Protection non-covered business includes business unit costs of £2m allocated to the US Protection segment.
9. L&G Capital and group expenses non-covered business primarily reflects the shareholder interest expense and Investment projects (predominantly Economic Capital Programme and other strategic investments).
10. P&A and Savings primarily reflects the impact of changes in LIBOR on reinvestment and disinvestment rates and lower future expected investment returns which are partially offset by a lower risk discount rate.
11. Primarily reflects the implementation of the UK planned future reductions in corporation tax to 22% on 1 April 2014.

 

 

 

 

European Embedded Value                                                                                                                                         Page 94

 

5.05 Profit/(loss) for the period (continued)
					Invest-		L&G
					ment		Capital
				P&A and	manage-	US	and group
				Savings	ment	Protection	expenses	Total
For the year ended 31 December 2012 1			Note	£m	£m	£m	£m	£m
Business reported on an EEV basis:
Contribution from new business after cost of capital			5.06	377		98		475
Contribution from in-force business:
- expected return2				372		76		448
- experience variances 3				12		(59)		(47)
- operating assumption changes4				(11)		(18)		(29)
Development costs				(37)		-		(37)
Contribution from shareholder net worth				6		5	134	145
Operating profit on covered business				719	-	102	134	955
Business reported on an IFRS basis5,6,7,8,9				38	216	(4)	(164)	86
Total operating profit/(loss)				757	216	98	(30)	1,041
Economic variances10				(157)	(5)	8	(41)	(195)
Losses attributable to non-controlling interests				-	-	-	(12)	(12)
Profit/(loss) before tax				600	211	106	(83)	834
Tax (expense)/credit on profit from ordinary activities				(128)	(39)	(28)	27	(168)
Effect of tax rate changes and other taxation impacts11				89	-	(22)	-	67
Profit/(loss) for the year				561	172	56	(56)	733
Operating profit attributable to:
Protection and Annuities				668
Savings				89
								p1
Earnings per share
Based on profit attributable to equity holders of the Company								12.75
Diluted earnings per share
Based on profit attributable to equity holders of the Company								12.54
1. The Profit for the period has been restated to reflect an amendment to IAS 19 'Employee Benefits'. Details of this restatement are outlined in Note 5.08.
2. The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK Protection and Annuities and Savings business was £4,247m. This is adjusted for the effects of opening model changes of £86m to give an adjusted opening base VIF of £4,333m. This is then multiplied by the opening risk discount rate of 6.2% and the result grossed up at the notional attributed tax rate of 21% to give a return of £340m. The same approach has been applied for the overseas Protection and Annuities businesses.
3. P&A and Savings primarily reflects UK cost of capital unwind and bulk purchase annuity data loading, partially offset by model changes and negative persistency experience as a result of higher than expected lapses in unit linked bonds.  US Protection modelling and other experience variances mostly relate to additional reserving associated with the introduction of AG38 regulatory requirements.
4. Operating assumption changes in P&A and Savings have been driven by negative mortality and demographic assumption changes in the annuity business and higher investment expense assumptions, largely offset by positive impacts reflecting changes in UK tax legislation.  US Protection operating assumption changes mostly relate to higher mortality assumptions on unit linked secondary guarantee business.
5. Protection and Annuities non-covered business primarily reflects GI and other operating profit of £29m.
6. Savings non-covered business mainly comprises Savings investments on an IFRS basis, adjusted for Suffolk Life, International (Ireland), Nationwide and our joint venture operation in India.
7. Investment management operating profit excludes £27m of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the Protection and Annuities, Savings and L&G Capital and group expenses covered business on an EEV basis.
8. US Protection non-covered business includes business unit costs of £4m allocated to the US Protection segment.
9. L&G Capital and group expenses non-covered business primarily reflects the shareholder interest expense and Investment projects (predominantly Economic Capital Programme and other strategic investments).
10. P&A and Savings primarily reflect the impact of changes in reinvestment and disinvestment rates, higher costs of capital on increasing reserves mainly due to narrowing credit spreads, and other consequential impacts within lower yielding environments, partially offset by a lower risk discount rate.
11. Primarily reflects the implementation of the UK planned future reductions in corporation tax to 21% on 1 April 2014.

 

 

European Embedded Value                                                                                                                                         Page 95

 

5.06 New business by product1
			Present				Contri-
			value of	Capital-			bution
		Annual	annual	isation	Single		from new
		premiums	premiums	factor2	premiums	PVNBP	business3	Margin
For the six months ended 30 June 2013		£m	£m		£m	£m	£m	%
Protection		105	528	5.0	-	528	35	6.7
Annuities4		n/a	692	n/a	1,424	2,116	177	8.4
P&A overseas business		30	230	7.7	183	413	3	0.8
Total Protection and Annuities		135	1,450	10.7	1,607	3,057	215	7.0
Total Savings		314	1,162	3.7	1,203	2,365	(2)	(0.1)
US Protection		45	440	9.7	-	440	44	10.0
Total new business		494	3,052	6.2	2,810	5,862	257	4.4
Cost of capital							30
Contribution from new business before cost of capital							287
			Present				Contri-
			value of	Capital-			bution
		Annual	annual	isation	Single		from new
		premiums	premiums	factor2	premiums	PVNBP	business3	Margin
For the six months ended 30 June 2012		£m	£m		£m	£m	£m	%
Protection		109	546	5.0	-	546	59	10.8
Annuities4		n/a	-	n/a	589	589	50	8.5
P&A overseas business		32	242	8	168	410	4	1.0
Total Protection and Annuities		141	788	5.6	757	1,545	113	7.3
Total Savings		174	622	3.6	1,460	2,082	12	0.6
US Protection		42	384	9.2	-	384	42	10.9
Total new business		357	1,794	5.0	2,217	4,011	167	4.2
Cost of capital							25
Contribution from new business before cost of capital							192

 

			Present				Contri-
			value of	Capital-			bution
		Annual	annual	isation	Single		from new
		premiums	premiums	factor2	premiums	PVNBP	business3	Margin
For the year ended 31 December 2012		£m	£m		£m	£m	£m	%
Protection		221	1,176	5.3	-	1,176	139	11.8
Annuities4		n/a	-	n/a	2,339	2,339	206	8.8
P&A overseas business		51	409	8	315	724	5	0.7
Total Protection and Annuities		272	1,585	5.8	2,654	4,239	350	8.3
Total Savings		577	2,117	3.7	3,002	5,119	27	0.5
US Protection		90	830	9.2	-	830	98	11.8
Total new business		939	4,532	4.8	5,656	10,188	475	4.7
Cost of capital							60
Contribution from new business before cost of capital							535
1. Covered business only.
2. The capitalisation factor is the present value of annual premiums divided by the amount of annual premiums.
3. The contribution from new business is defined as the present value at point of sale of assumed profits from new business written in the period and then rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.
4. Annuities includes present value of annual premiums for longevity insurance on a net of reinsurance basis to enable a more representative margin figure. The gross of reinsurance longevity insurance annual premium is £175m. The annuities PVNBP, contribution from new business and margin are also inclusive of longevity insurance.

 

 

European Embedded Value                                                                                                                                         Page 96

 

5.07 Assumptions

 

UK assumptions

 

The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to the portfolio yield on the relevant backing assets held at market value at the end of the reporting period.  The calculated return takes account of derivatives and other credit instruments in the investment portfolio. Indicative yields on the portfolio, excluding annuities within Legal & General Pensions Limited (LGPL), but after allowance for long term default risk, are shown below.

 

For LGPL annuities, separate returns are calculated for new and existing business. Indicative combined yields, after allowance for long term default risk and the following additional assumptions, are also shown below. These additional assumptions are:

 

i.     Where cash balances and debt securities are held at the reporting date in excess of, or below strategic investment guidelines, then it is assumed that these cash balances or debt securities are immediately invested or disinvested at current yields.

 

ii.    Where interest rate swaps are used to reduce risk, it is assumed that these swaps will be sold before expiry and the proceeds reinvested in corporate bonds with a redemption yield 0.70% p.a. (0.70% p. a. at 30 June 2012 ; 0.70% p.a. at 31 December 2012) greater than the swap rate at that time (i.e. the long term credit rate).

 

iii.   Where reinvestment or disinvestment is necessary to rebalance the asset portfolio in line with projected outgo, this is also assumed to take place at the long term credit rate above the swap rate at that time.

 

The returns on fixed and index-linked securities are calculated net of an allowance for default risk which takes account of the credit rating, outstanding term of the securities, and increase in the expectation of credit defaults over the economic cycle.  The allowance for corporate securities expressed as a level rate deduction from the expected returns for annuities was 26bps at 30 June 2013 (26bps at 30 June 2012; 26bps at 31 December 2012).

 

 

UK covered business

 

i.           Assets are valued at market value.

 

ii.          Future bonus rates have been set at levels which would fully utilise the assets supporting the policyholders' portion of the with-profits business in accordance with established practice. The proportion of profits derived from with-profits business allocated to shareholders amounts to almost 10% throughout the projection.

 

iii.          The value of in-force business reflects the cost, including administration expenses, of providing for benefit enhancement or compensation in relation to certain products.

 

iv.         Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses (excluding the development costs referred to below). These are normally reviewed annually.

 

An allowance is made for future mortality improvement, commencing 1 January 2009 as per CMIB's mortality improvement model (CMI 2011) with the following parameters:

Males: Long Term Rate of 1.5% p.a. for future experience and 2.0% p.a. for statutory reserving, up to age 85 tapering to 0% at 120;

Females: Long Term Rate of 1.0% p.a. for future experience and 1.5% p.a. for statutory reserving, up to age 85 tapering to 0% at 120.

Future improvements are generally assumed to converge to the long term rate in 2026.

 

On this basis, the best estimate of the expectation of life for a new 65 year old Male CPA annuitant is 24.2 years (30 June 2012: 24.2 years; 31 December 2012: 24.1 years). The expectation of life on the regulatory reserving basis is 25.7 years (30 June 2012: 25.9 years; 31 December 2012: 25.7 years).

 

v.          Development costs relate to investment in strategic systems and development capability that are charged to the covered business.  Projects charged to the non-covered business are included within Group Investment projects in L&G Capital and group expenses.

 

 

Overseas covered business

 

vi.         Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, morbidity, persistency and maintenance expenses.

 

 

 

 

European Embedded Value                                                                                                                                         Page 97

 

5.07 Assumptions (continued)

 

 

Economic assumptions

 

	As at	As at	As at	As at
	30.06.13	30.06.12	31.12.12	31.12.11
	% p.a.	% p.a.	% p.a.	% p.a.
Risk margin	3.5	3.8	3.7	3.7
Risk free rate1
- UK	3.0	2.3	2.3	2.5
- Europe	2.1	2.2	1.7	2.6
- US	2.6	1.7	1.8	1.9
Risk discount rate (net of tax)
- UK	6.5	6.1	6.0	6.2
- Europe	5.6	6.0	5.4	6.3
- US	6.1	5.5	5.5	5.6
Reinvestment rate (US)	5.1	4.0	4.3	4.2
Other UK business assumptions
Equity risk premium	3.3	3.3	3.3	3.3
Property risk premium	2.0	2.0	2.0	2.0
Investment return (excluding annuities in LGPL)
- Gilts:
- Fixed interest	2.5 - 3.0	1.6 - 2.3	1.9 - 2.3	1.8 - 2.5
- RPI linked	3.1	2.5	2.7	2.6
- Non gilts:
- Fixed interest	1.9 - 3.3	3.0 - 4.1	1.9 - 2.9	3.0 - 4.6
- Equities	6.3	5.6	5.6	5.8
- Property	5.0	4.3	4.3	4.5
Long-term rate of return on non profit annuities in LGPL	4.7	4.8	4.3	5.0
Inflation
- Expenses/earnings	3.8	3.3	3.4	3.5
- Indexation	3.3	2.8	2.9	3.0

 

1.  The risk free rate is the gross redemption yield on the 15 year gilt index. The Europe risk free rate is the 10 year ECB AAA-rated euro area central government bond par yield. The LGA risk free rate is the 10 year US Treasury effective yield.

 

 

Tax

 

vii.        The profits on the covered business, except for the profits on the Society shareholder capital held outside the long term fund, are calculated on an after tax basis and are grossed up by the notional attributed tax rate for presentation in the income statement. For the UK, the after tax basis assumes the annualised current tax rate of 23.25% and the subsequent planned future reductions in corporation tax to 21% from 1 April 2014, and 20% from 1 April 2015. The tax rate used for grossing up is the long term corporate tax rate in the territory concerned, which for the UK is 20% (30 June 2012: 22%; 31 December 2012: 21%) taking into account the expected further rate reductions to 20% by 1 April 2015. The profits on the Society shareholder capital held outside the long term fund are calculated before tax and therefore tax is calculated on an actual basis.

 

US, Netherlands and France covered business profits are also grossed up using the long term corporate tax rates of the respective territories i.e. US is 35% (30 June 2012: 35%; 31 December 2012: 35%), France is 34.3% (30 June 2012: 34.3%; 31 December 2012: 34.3%) and Netherlands is 25% (30 June 2012: 25%; 31 December 2012: 25%).

 

 

 

 

European Embedded Value                                                                                                                                         Page 98

 

5.07 Assumptions (continued)

 

Stochastic calculations

 

viii.        The time value of options and guarantees is calculated using economic and non-economic assumptions consistent with those used for the deterministic embedded value calculations.

 

A single model has been used for UK and international business, with different economic assumptions for each territory reflecting the significant asset classes in each territory.

 

Government nominal interest rates are generated using a LIBOR Market Model projecting full yield curves at annual intervals. The model provides a good fit to the initial yield curve.

 

The total annual returns on equities and property are calculated as the return on 1 year bonds plus an excess return. The excess return is assumed to have a lognormal distribution. Corporate bonds are modelled separately by credit rating using stochastic credit spreads over the risk free rates, transition matrices and default recovery rates. The real yield curve model assumes that the real short rate follows a mean-reverting process subject to two normally distributed random shocks.

 

The significant asset classes are:

-  UK with-profits business - equities, property and fixed rate bonds of various durations;

-  UK annuity business - fixed rate and index-linked bonds of various durations; and

-  International business - fixed rate bonds of various durations.

 

The risk discount rate is scenario dependent within the stochastic projection. It is calculated by applying the deterministic risk margin to the risk free rate in each stochastic projection.

 

 

European Embedded Value                                                                                                                                         Page 99

 

5.08 Methodology

 

Basis of preparation

 

The supplementary financial statements have been prepared in accordance with the European Embedded Value (EEV) Principles issued in May 2004 by the European Insurance CFO Forum. 

 

The supplementary financial statements have been reviewed by PricewaterhouseCoopers LLP and prepared with assistance from our consulting actuaries; Towers Watson in the UK and Milliman in the USA.

 

Changes to accounting policy- IAS 19 'Employee Benefits'

 

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

 

The impact of this change upon the 2012 interim and annual profit for the period and group embedded value - summary are shown below. As the impact of the change is shown within investment variances there is no impact upon group operating profit.

 

						30.06.12	31.12.12
						£m	£m
Profit for the period as previously reported						316	734
Economic variances
IAS 19 'Employee Benefits' amendment						(1)	(1)
Revised profit for the period (after tax)						315	733
Actuarial gain on defined benefit pension schemes						3	4
Actuarial gain on defined benefit pension schemes transferred to unallocated divisible surplus						(2)	(3)
Previously reported income						(34)	(40)
Total comprehensive income for the period						282	694
Earnings per share						p	p
Based on profit attributable to equity holders of the Company as previously reported						5.40	12.75
IAS 19 'Employee Benefits' amendment						(0.02)	-
Revised earnings per share based on profit attributable to equity holders of the Company						5.38	12.75
Diluted earnings per share
Based on profit attributable to equity holders of the Company as previously reported						5.31	12.54
IAS 19 'Employee Benefits' amendment						(0.01)	-
Revised diluted earnings per share based on profit attributable to equity holders of the Company						5.30	12.54

Covered business

 

The Group uses EEV methodology to value individual and group life assurance, pensions and annuity business written in the UK, Continental Europe and the US. The UK covered business also includes non-insured self invested personal pension (SIPP) business.

 

The managed pension funds business has been excluded from covered business and is reported on an IFRS basis.

 

All other businesses are accounted for on the IFRS basis adopted in the primary financial statements.

 

There is no distinction made between insurance and investment contracts in our covered business as there is under IFRS.

 

 

 

 

 

European Embedded Value                                                                                                                                       Page 100

 

5.08 Methodology (continued)

 

Description of methodology

 

The objective of EEV is to provide shareholders with realistic information on the financial position and current performance of the Group. 

 

The methodology requires assets of an insurance company, as reported in the primary financial statements, to be attributed between those supporting the covered business and the remainder. The method accounts for assets in the covered business on an EEV basis and the remainder of the Group's assets on the IFRS basis adopted in the primary financial statements.

 

The EEV methodology recognises profit from the covered business as the total of:

i.  cash transfers during the relevant period from the covered business to the remainder of the Group's assets; and

ii.  the movement in the present value of future distributable profits to shareholders arising from the covered business over the relevant reporting period.

 

Embedded value

 

Shareholders' equity on the EEV basis comprises the embedded value of the covered business plus the shareholders' equity of other businesses, less the value included for purchased interests in long term business. 

 

The embedded value is the sum of the shareholder net worth (SNW) and the value of the in-force business (VIF). SNW is defined as those amounts, within covered business (both within the long term fund and held outside the long term fund but used to support long term business), which are regarded either as required capital or which represent free surplus.

 

The VIF is the present value of future shareholder profits arising from the covered business, projected using best estimate assumptions, less an appropriate deduction for the cost of holding the required level of capital and the time value of financial options and guarantees (FOGs).

 

Service companies

 

All services relating to the UK covered business are charged on a cost recovery basis, with the exception of investment management services provided to Legal & General Pensions Limited (LGPL) and to Legal & General Assurance Society Limited (Society). Profits arising on the provision of these services are valued on a look through basis.

 

As the EEV methodology incorporates the future capitalised cost of these internal investment management services, the equivalent IFRS profits have been removed from the Investment management segment and are instead included in the results of the Protection and Annuities and Savings segments on an EEV basis.

 

The capitalised value of future profits emerging from internal investment management services are therefore included in the embedded value and new business contribution calculations for the Protection and Annuities and Savings segments. However, the historical profits which have emerged continue to be reported in the shareholders' equity of the Investment management segment on an IFRS basis. Since the look through into service companies includes only future profits and losses, current intra-group profits or losses must be eliminated from the closing embedded value and in order to reconcile the profits arising in the financial period within each segment with the net assets on the opening and closing balance sheet, a transfer of IFRS profits for the period from the UK SNW is deemed to occur.

 

New business

 

New business premiums reflect income arising from the sale of new contracts during the reporting period and any changes to existing contracts, which were not anticipated at the outset of the contract. 

 

In-force business comprises previously written single premium, regular premium, recurrent single premium contracts and payments in relation to existing longevity insurance. Department of Work and Pensions rebates have not been treated as recurring and are included in single premium new business when received.  Longevity insurance product comprises the exchange of a stream of fixed leg payments for a stream of floating payments, with the value of the income stream being the difference between the two legs. New business annual premiums have been excluded for longevity insurance due to the unpredictable deal flow from this type of business.

 

New business contribution arising from the new business premiums written during the reporting period has been calculated on the same economic and operating assumptions used in the embedded value at the end of the financial period. This has then been rolled forward to the end of the financial period using the risk discount rate applicable at the end of the reporting period.

 

The present value of future new business premiums (PVNBP) has been calculated and expressed at the point of sale. The PVNBP is equivalent to the total single premiums plus the discounted value of regular premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for the embedded value at the end of the financial period. The discounted value of longevity insurance regular premiums is calculated on a net of reinsurance basis to enable a more representative margin figure.

 

The new business margin is defined as new business contribution at the end of the reporting period divided by the PVNBP.  The premium volumes and projection assumptions used to calculate the PVNBP are the same as those used to calculate new business contribution.

 

Intra-group reinsurance arrangements are in place between the US and UK businesses, and it is expected that these arrangements will be periodically extended to cover recent new business. US new business premiums and contribution reflect the groupwide expected impact of US directly-written business.

 

 

 

 

European Embedded Value                                                                                                                                       Page 101

 

5.08 Methodology (continued)

 

Projection assumptions

 

Cash flow projections are determined using best estimate assumptions for each component of cash flow and for each policy group. Future economic and investment return assumptions are based on conditions at the end of the financial period. Future investment returns are projected by one of two methods. The first method is based on an assumed investment return attributed to assets at their market value. The second, which is used by US Protection, where the investments of that subsidiary are substantially all fixed interest, projects the cash flows from the current portfolio of assets and assumes an investment return on reinvestment of surplus cash flows. The assumed discount and inflation rates are consistent with the investment return assumptions.

 

Detailed projection assumptions including mortality, morbidity, persistency and expenses reflect recent operating experience and are normally reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed.

 

All costs relating to the covered business, whether incurred in the covered business or elsewhere in the Group, are allocated to that business. The expense assumptions used for the cash flow projections therefore include the full cost of servicing this business.

 

Tax

 

The projections take into account all tax which is expected to be paid, based on best estimate assumptions, applying current legislation and practice together with known future changes.

 

 

Allowance for risk

 

Aggregate risks within the covered business are allowed for through the following principal mechanisms:

i.  setting required capital levels with reference to both the Group's internal risk based capital models, and an assessment of the strength of regulatory reserves in the covered business;

ii.  allowing explicitly for the time value of financial options and guarantees within the Group's products; and

iii. setting risk discount rates by deriving a Group level risk margin to be applied consistently to local risk free rates.

 

Required capital and free surplus

 

Regulatory capital for the UK Protection and Annuities and Savings businesses is provided by assets backing the with-profits business or by the SNW. The SNW comprises all shareholders' capital within Society, including those funds retained within the long term fund and the excess assets in LGPL (collectively Society shareholder capital).

 

Society shareholder capital is either required to cover EU solvency margin or is free surplus as its distribution to shareholders is not restricted.

 

For UK with-profits business, the required capital is covered by the surplus within the with-profits part of the fund and no effect is attributed to shareholders except for the burn-through cost, which is described later. This treatment is consistent with the Principles and Practices of Financial Management for this part of the fund.

 

For UK non profit business, the required capital will be maintained at no less than the level of the EU minimum solvency requirement. This level, together with the margins for adverse deviation in the regulatory reserves, is, in aggregate, in excess of internal capital targets assessed in conjunction with the Individual Capital Assessment (ICA) and the with-profits support account. 

 

The initial strains relating to new non profit business, together with the related EU solvency margin, are supported by releases from existing non profit business and the Society shareholder capital. As a consequence, the writing of new business defers the release of capital to free surplus. The cost of holding required capital is defined as the difference between the value of the required capital and the present value of future releases of that capital. For new business, the cost of capital is taken as the difference in the value of that capital assuming it was available for release immediately and the present value of the future releases of that capital. As the investment return, net of tax, on that capital is less than the risk discount rate, there is a resulting cost of capital which is reflected in the value of new business. 

 

For US Protection, the Company Action Level (CAL) of capital has been treated as required capital for modelling purposes. The CAL is the regulatory capital level at which the company would have to take prescribed action, such as submission of plans to the State insurance regulator, but would be able to continue operating on the existing basis. The CAL is currently twice the level of capital at which the regulator is permitted to take control of the business.

 

For LGN, required capital has been set at 100% of EU minimum solvency margin for all products without FOGs.  For those products with FOGs, capital of between 100% and 338% of the EU minimum solvency margin has been used. The level of capital has been determined using risk based capital techniques.

 

For LGF, 100% of EU minimum solvency margin has been used for EV modelling purposes for all products both with and without FOGs. The level of capital has been determined using risk based capital techniques. 

 

The contribution from new business for our International businesses reflects an appropriate allowance for the cost of holding the required capital.

 

 

 

 

European Embedded Value                                                                                                                                       Page 102

 

5.08 Methodology (continued)

 

Financial options and guarantees

 

Under the EEV Principles an allowance for time value of FOGs is required where a financial option exists which is exercisable at the discretion of the policyholder. These types of option principally arise within the with-profits part of the fund and their time value is recognised within the with-profits burn-through cost described below. Additional financial options for non profit business exist only for a small amount of deferred annuity business where guaranteed early retirement and cash commutation terms apply when the policyholders choose their actual retirement date.

 

Further financial guarantees exist for non profit business, in relation to index-linked annuities where capped or collared restrictions apply. Due to the nature of these restrictions and the manner in which they vary depending on the prevailing inflation conditions, they are also treated as FOGs and a time value cost recognised accordingly.

 

The time value of FOGs has been calculated stochastically using a large number of real world economic scenarios derived from assumptions consistent with the deterministic EEV assumptions and allowing for appropriate management actions where applicable. The management action primarily relates to the setting of bonus rates. Future regular and terminal bonuses on participating business within the projections are set in a manner consistent with expected future returns available on assets deemed to back the policies within the stochastic scenarios.

 

In recognising the residual value of any projected surplus assets within the with-profits part of the fund in the deterministic projection, it is assumed that terminal bonuses are increased to exhaust all of the assets in the part of the fund over the future lifetime of the in-force with-profits policies. However, under stochastic modelling, there may be some extreme economic scenarios when the total projected assets within the with-profits part of the fund are insufficient to pay all projected policyholder claims and associated costs. The average additional shareholder cost arising from this shortfall has been included in the time value cost of financial options and guarantees and is referred to as the with-profits burn-through cost.

 

Economic scenarios have been used to assess the time value of the financial guarantees for non profit business by using the inflation rate generated in each scenario. The inflation rate used to project index-linked annuities will be constrained in certain real world scenarios, for example, where negative inflation occurs but the annuity payments do not reduce below pre-existing levels. The time value cost of FOGs allows for the projected average cost of these constrained payments for the index-linked annuities. It also allows for the small additional cost of the guaranteed early retirement and cash commutation terms for the minority of deferred annuity business where such guarantees have been written.

 

US Protection FOGs relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is based on the accumulated value of the contract including accrued interest. The crediting rates are discretionary but related to the accounting income for the amortising bond portfolio. The majority of the guaranteed minimum crediting rates are between 3% and 4%. The assets backing these contracts are invested in US Dollar denominated fixed interest securities.

 

LGN separately provides for two types of guarantees: interest rate guarantees and maturity guarantees. Certain contracts provide an interest rate guarantee where there is a minimum crediting rate based on the higher of 1-year Euribor and the policy guarantee rate. This guarantee applies on a monthly basis. Certain other linked contracts provide a guaranteed minimum value at maturity where the maturity amount is the higher of the fund value and a guarantee amount. The fund values for both these contracts are invested in Euro denominated fixed interest securities.

 

For LGF, FOGs which have been separately provided for relate to guaranteed minimum crediting rates and surrender values on a range of contracts. The guaranteed surrender value of the contract is the accumulated value of the contract including accrued bonuses. The bonuses are based on the accounting income for the amortising bond portfolios plus income and releases from realised gains on any equity type investments. Policy liabilities equal guaranteed surrender values. Local statutory accounting rules require the establishment of a specific liability when the accounting income for a company is less than 125% of the guaranteed minimum credited returns, although this has never been required. In general, the guaranteed annual bonus rates are between 0% and 4.5%.

 

Risk free rate

 

The risk free rate is set to reflect both the pattern of the emerging profits under EEV and the relevant duration of the liabilities where backing assets reflect this assumption (e.g. equity returns). For the UK, it is set by reference to the gross redemption yield on the 15 year gilt index. For LGA, the risk free rate is the 10 year US Treasury effective yield, while the 10 year ECB AAA-rated Euro area central government bond par yield is used for LGN and LGF.

 

 

 

 

European Embedded Value                                                                                                                                       Page 103

 

5.08 Methodology (continued)

 

Risk discount rate

 

The risk discount rate (RDR) is a combination of the risk free rate and a risk margin, which reflects the residual risks inherent in the Group's covered businesses, after taking account of prudential margins in the statutory provisions, the required capital and the specific allowance for FOGs.

 

The risk margin has been determined based on an assessment of the Group's weighted average cost of capital (WACC). This assessment incorporates a beta for the Group, which measures the correlation of movements in the Group's share price to movements in a relevant index. Beta values therefore allow for the market's assessment of the risks inherent in the business relative to other companies in the chosen index.

 

The WACC is derived from the Group's cost of equity and debt, and the proportion of equity to debt in the Group's capital structure measured using market values. Each of these three parameters is forward looking, although informed by historic information and appropriate judgements where necessary. The cost of equity is calculated as the risk free rate plus the equity risk premium for the chosen index multiplied by the Company's beta. Forward-looking or adjusted betas make allowance for the observed tendency for betas to revert to 1 and therefore a weighted average of the historic beta and 1 tends to be a better estimate of the Company's beta for the future period. We have computed the WACC using an arithmetical average of forward-looking betas against the FTSE 100 index.    

 

The cost of debt used in the WACC calculations takes account of the actual locked-in rates for our senior and subordinated long term debt. All debt interest attracts tax relief at a rate of 20.1%.

 

Whilst the WACC approach is a relatively simple and transparent calculation to apply, subjectivity remains within a number of the assumptions. Management believes that the chosen margin, together with the levels of required capital, the inherent strength of the Group's regulatory reserves and the explicit deduction for the cost of options and guarantees, is appropriate to reflect the risks within the covered business.

 

Analysis of profit

 

Operating profit is identified at a level which reflects an assumed longer term level of investment return.

 

The contribution to operating profit in a period is attributed to four sources:

i.  new business;

ii.  the management of in-force business;

iii. development costs; and

iv.    return on shareholder net worth.

 

Further profit contributions arise from actual investment return differing from the assumed long term investment return (investment return variances), and from the effect of economic assumption changes.

 

The contribution from new business represents the value recognised at the end of each period from new business written in that period, after allowing for the actual cost of acquiring the business and of establishing the required technical provisions and reserves and after making allowance for the cost of capital. New business contributions are calculated using closing assumptions.

 

The contribution from in-force business is calculated using opening assumptions and comprises:

i.  expected return - the discount earned from the value of business in-force at the start of the year;

ii.  experience variances - the variance in the actual experience over the reporting period from that assumed in the value of business in-force as at the start of the year; and

iii. operating assumption changes - the effects of changes in future assumptions, other than changes in economic assumptions from those used in valuing the business at the start of the year. These changes are made prospectively from the end of the year.

 

Development costs relate to investment in strategic systems and development capability.

 

The contribution from shareholder net worth comprises the increase in embedded value based on assumptions at the start of the year in respect of the expected investment return on the Society shareholder capital.

 

Further profit contributions arise from investment return variances and the effect of economic assumption changes.

 

Economic variances represent:

 

i.      the effect of actual investment performance and changes to investment policy on SNW and VIF business from that assumed at the beginning of the period ; and

 

ii.      the effect of changes in economic variables on SNW and VIF business from that assumed at the beginning of the period, which are beyond the control of management, including associated changes to valuation bases to the extent that they are reflected in revised assumptions.

 

 

European Embedded Value                                                                                                                                       Page 104

 

Independent review report to Legal & General Group Plc - EEV

 

 

Introduction

 

We have been engaged by the company to review the supplementary interim financial information in the half-year report for the six months ended 30 June 2013, which comprises the Group Embedded Value - Summary as at 30 June 2013 and related notes prepared on the European Embedded Value ("EEV") basis . We have read the other information contained in the half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the supplementary interim financial information. 

 

Directors' responsibilities

 

The half-year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the supplementary interim financial information in accordance with the EEV basis set out in Note 5.08.

 

Our responsibility

 

Our responsibility is to express to the company a conclusion on the supplementary interim financial information in the half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the supplementary interim financial information in the half-year report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with the EEV basis set out in Note 5.08.

 

 

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

5 August 2013

 

 

 

Notes:

(a) The interim financial information is published on the website of Legal & General Group Plc, legalandgeneralgroup.com.  The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

 

 

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

 

New Business                                                                                                                                                                 Page 105

 

6.01 Investment management new business
								Full year
						30.06.13	30.06.12	31.12.12
						£m	£m	£m
Index funds						15,927	8,165	22,400
Liability driven investments						5,684	3,300	5,678
Active
- Active fixed income						3,118	3,456	6,043
- Property						136	45	125
Total LGIM new funds						24,865	14,966	34,246
Institutional unit trust						91	111	424
Total new funds1						24,956	15,077	34,670
Attributable to:
LGIM UK customers						15,530	11,906	25,096
LGIM International customers						9,335	3,060	9,150
Legal & General Retail Investments						91	111	424
LGIM net flows						7,975	3,963	7,144
Attributable to:
- UK						537	1,629	(692)
- International						7,438	2,334	7,836
1. New monies from Legal & General Investment Management (LGIM) exclude £4.9bn (H1 12: £1.6bn; FY 12: £4.8bn) received during the year on a temporary basis, generally as part of portfolio reconstructions.

 

 

New Business                                                                                                                                                                 Page 106

 

6.02 Investment management new business quarterly progression
			3	3	3	3	3	3
			months to	months to	months to	months to	months to	months to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Index funds			5,397	10,530	7,762	6,473	3,979	4,186
Liability driven investments			4,628	1,056	1,946	432	1,620	1,680
Active
- Active fixed income			1,117	2,001	1,288	1,299	1,839	1,617
- Property			83	53	69	11	11	34
Total LGIM new funds			11,225	13,640	11,065	8,215	7,449	7,517
Institutional unit trust			67	24	47	266	48	63
Total new funds			11,292	13,664	11,112	8,481	7,497	7,580
Attributable to:
LGIM UK customers			8,974	6,556	8,562	4,628	5,859	6,047
LGIM International customers			2,251	7,084	2,503	3,587	1,590	1,470
Legal & General Retail Investments			67	24	47	266	48	63
LGIM net flows			2,474	5,501	2,563	618	1,376	2,587

 

 

 

 

6.03 Legal & General Investment Management new business by investment approach
						30.06.13	30.06.12	31.12.12
						%	%	%
Indexed equities						34	36	40
Indexed bonds (including index linked funds and cash)						30	19	26
Active bonds (including index linked funds and cash)						12	23	18
Liability driven investments						23	22	16
Property						1	-	-
Total						100	100	100

 

 

New Business                                                                                                                                                                 Page 107

 

6.04 Assets under management
						At	At	At
						30.06.13	30.06.12	31.12.12
						£bn	£bn	£bn
Legal & General Investment Management assets under management						433	381	406
Other assets under management1						7	7	7
Worldwide assets under management						440	388	413
1. Other assets under management comprises retail investments and additional funds managed overseas.
Legal & General Investment Management's assets under management are analysed below:
Represented by
Index tracking funds:
- UK equities						67	62	64
- Overseas equities						112	88	99
- Fixed interest						48	39	44
- Index linked						35	37	35
- Cash/deposits						-	1	1
Total index tracking funds						262	227	243
Actively managed funds						100	93	99
Liability driven investments						71	61	64
						433	381	406
By investment approach
Index equities						178	151	163
Index bonds (including index linked funds and cash)						84	76	80
Active bonds (including index linked funds and cash)						83	77	82
Liability driven investments						71	61	64
Active equities						8	7	8
Property						9	9	9
						433	381	406
By source of business
Institutional assets under management1
- Managed pension funds pooled						226	208	217
- Liability driven investments						70	61	64
- Other						37	21	27
- Managed pension funds segregated						9	5	8
Total institutional assets under management						342	295	316
UK businesses (life and general insurance funds)						75	71	75
UK businesses (unit trusts - excluding life fund investment)						16	15	15
						433	381	406
1. Excludes institutional investments in unit trust funds.

 

 

New Business                                                                                                                                                                 Page 108

 

6.05 Savings net flows
						30.06.13	30.06.12	31.12.12
						£m	£m	£m
Investments1						283	555	916
Insured2						181	154	601
With-profits						(1,268)	(829)	(2,163)
Cofunds3						899
Total Savings net flows						95	(120)	(646)
1. Savings investments products include collective investments, Suffolk Life SIPPs and structured products.
2. Insured savings products include bonds, retail and workplace non profit pensions and insured SIPPs.
3. Includes retail and institutional flows, excludes Investor Portfolio Services (IPS) and other Group sales through the Cofunds platform.

 

 

6.06 Savings net flows quarterly progression
			3	3	3	3	3	3
			months	months	months	months	months	months
			to	to	to	to	to	to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Investments1			363	(80)	257	104	571	(16)
Insured2			135	46	287	160	56	98
With-profits			(729)	(539)	(690)	(644)	(358)	(471)
Cofunds3			899
Total Savings net flows			668	(573)	(146)	(380)	269	(389)
1. Savings investments products include collective investments, Suffolk Life SIPPs and structured products.
2. Insured savings products include bonds, retail and workplace non profit pensions and insured SIPPs.
3. Includes retail and institutional flows, excludes Investor Portfolio Services (IPS) and other Group sales through the Cofunds platform.

 

 

New Business                                                                                                                                                                 Page 109

 

6.07 Worldwide new business
		Annual	Single		Annual	Single
		premiums	premiums	APE	premiums	premiums	APE	APE
		30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12	31.12.12
		£m	£m	£m	£m	£m	£m	£m
Protection
- Retail1		65	-	65	72	-	72	151
- Group		40	-	40	37	-	37	70
Total Protection		105	-	105	109	-	109	221
Annuities
- Individual (non profit)		-	752	75	-	514	51	131
- Individual (with-profits)		-	2	-	-	8	1	1
- Bulk purchase		-	670	67	-	67	7	102
Total Annuities		-	1,424	142	-	589	59	234
Netherlands (LGN)		5	62	11	6	45	11	21
France (LGF)		25	121	37	26	123	38	61
France (LGF) retail investment business		-	27	3	-	3	-	11
Total Protection and Annuities2		135	1,634	298	141	760	217	548
Investments3		16	2,708	287	38	2,756	314	598
Insured business		288	853	373	139	1,034	242	757
With-profits		26	49	31	35	227	58	92
India (26% share)		4	28	7	4	17	6	9
Cofunds4		4	317	36
Total Savings		338	3,955	734	216	4,034	620	1,456
US Protection		45	-	45	42	-	42	90
Egypt (55% share)		7	-	7	8	-	8	14
Gulf (50% share)		1	2	1	2	2	2	5
Total Other worldwide new business		8	2	8	10	2	10	19
Total worldwide new business		526	5,591	1,085	409	4,796	889	2,113
1. In previous periods, Retail Protection was named Individual Protection. This is purely a change in name rather than any change to classification.
2. Total Protection and Annuities new business excludes £175m (H1 2012: £nil; FY 2012: £nil) of APE in relation to longevity insurance transactions. It is not included in the table due to the unpredictable deal flow from this type of business.
3. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
4. Excludes Cofunds institutional business.

 

 

New Business                                                                                                                                                                 Page 110

 

6.08 Worldwide new business APE quarterly progression
			3	3	3	3	3	3
			months	months	months	months	months	months
			to	to	to	to	to	to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Protection
- Retail			38	27	43	36	36	36
- Group			20	20	13	20	25	12
Total Protection			58	47	56	56	61	48
Annuities
- Individual (non profit)			35	40	45	35	25	26
- Individual (with-profits)			-	-	-	-	1	-
- Bulk purchase			31	36	54	41	3	4
Total Annuities			66	76	99	76	29	30
Netherlands (LGN)			4	7	5	5	5	6
France (LGF)			6	31	19	4	18	20
France (LGF) retail investment business			2	1	11	-	-	-
Total Protection and Annuities			136	162	190	141	113	104
Investments1			167	120	137	147	174	140
Insured business			150	223	318	197	110	132
With-profits			14	17	16	18	30	28
India (26% share)			1	6	2	1	1	5
Cofunds2			36
Total Savings			368	366	473	363	315	305
US Protection			23	22	24	24	22	20
Egypt (55% share)			3	4	3	3	4	4
Gulf (50% share)			-	1	1	2	1	1
Total Other worldwide new business			3	5	4	5	5	5
Total worldwide new business			530	555	691	533	455	434
1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
2. Excludes Cofunds institutional business.

 

 

New Business                                                                                                                                                                 Page 111

 

6.09 Worldwide new business annual premium quarterly progression
			3	3	3	3	3	3
			months	months	months	months	months	months
			to	to	to	to	to	to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Protection
- Retail			38	27	43	36	36	36
- Group			20	20	13	20	25	12
Total Protection			58	47	56	56	61	48
Annuities
- Individual (non profit)			-	-	-	-	-	-
- Individual (with-profits)			-	-	-	-	-	-
- Bulk purchase			-	-	-	-	-	-
Total Annuities			-	-	-	-	-	-
Netherlands (LGN)			2	3	4	3	3	3
France (LGF)			-	25	12	-	11	15
France (LGF) retail investment business			-	-	-	-	-	-
Total Protection and Annuities			60	75	72	59	75	66
Investments1			8	8	13	18	25	13
Insured business			109	179	248	132	64	75
With-profits			12	14	12	11	17	18
India (26% share)			-	4	2	1	1	3
Cofunds2			4
Total Savings			133	205	275	162	107	109
US Protection			23	22	24	24	22	20
Egypt (55% share)			3	4	3	3	4	4
Gulf (50% share)			-	1	1	1	1	1
Total Other worldwide new business			3	5	4	4	5	5
Total worldwide new business			219	307	375	249	209	200
1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
2. Excludes Cofunds institutional business.

 

 

New Business                                                                                                                                                                 Page 112

 

6.10 Worldwide new business single premium quarterly progression
			3	3	3	3	3	3
			months	months	months	months	months	months
			to	to	to	to	to	to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Protection
- Retail			-	-	-	-	-	-
- Group			-	-	-	-	-	-
Total Protection			-	-	-	-	-	-
Annuities
- Individual (non profit)			347	405	446	348	250	264
- Individual (with-profits)			1	1	2	2	4	4
- Bulk purchase			313	357	544	408	31	36
Total Annuities			661	763	992	758	285	304
Netherlands (LGN)			27	35	15	22	16	29
France (LGF)			60	61	69	41	71	52
France (LGF) retail investment business			16	11	102	-	2	1
Total Protection and Annuities			764	870	1,178	821	374	386
Investments1			1,586	1,122	1,235	1,294	1,487	1,269
Insured business			411	442	699	650	461	573
With-profits			22	27	42	73	129	98
India (26% share)			7	21	5	2	2	15
Cofunds2			317
Total Savings			2,343	1,612	1,981	2,019	2,079	1,955
US Protection			-	-	-	-	-	-
Egypt (55% share)			-	-	-	-	-	-
Gulf (50% share)			1	1	-	4	1	1
Total Other worldwide new business			1	1	-	4	1	1
Total worldwide new business			3,108	2,483	3,159	2,844	2,454	2,342
1. Investments excludes institutional investments in unit trust funds which are disclosed as part of institutional fund management new business (see Note 6.01).
2. Excludes Cofunds institutional business.

 

 

New Business                                                                                                                                                                 Page 113

 

6.11 Overseas new business in local currency
		Annual	Single		Annual	Single
		premiums	premiums	APE	premiums	premiums	APE	APE
		30.06.13	30.06.13	30.06.13	30.06.12	30.06.12	30.06.12	31.12.12
US Protection ($m)		70	-	70	66	-	66	142
Netherlands (LGN) (€m)		6	74	13	8	54	13	27
France (LGF) (€m)		30	142	44	32	150	47	75
France (LGF) retail investment business (€m)		-	32	3	-	3	-	13
India (Rs m) - Group's 26% interest		374	2,348	609	353	1,381	491	790
Egypt (Pounds m) - Group's 55% interest		78	-	78	73	1	73	134
Gulf (US$m) - Group's 50% interest		2	3	2	3	7	4	7

 

 

6.12 Worldwide APE by channel
					Annual	Single
					premiums	premiums	APE	% of
For the six months ended 30 June 2013					£m	£m	£m	total
Retail IFA					98	3,434	441	41
Employee benefit consultants					370	1,171	487	44
Tied agents					11	30	14	1
Bancassurance					35	691	104	10
Direct					12	265	39	4
Total					526	5,591	1,085	100
					Annual	Single
					premiums	premiums	APE	% of
For the six months ended 30 June 2012					£m	£m	£m	total
Retail IFA					94	2,507	345	39
Employee benefit consultants					222	547	277	31
Tied agents					14	54	19	2
Bancassurance					68	1,455	214	24
Direct					11	233	34	4
Total					409	4,796	889	100
					Annual	Single
					premiums	premiums	APE	% of
For the year ended 31 December 2012					£m	£m	£m	total
Retail IFA					198	5,010	699	33
Employee benefit consultants					662	2,242	886	42
Tied agents					27	109	38	2
Bancassurance					126	2,895	416	20
Direct					20	543	74	3
Total					1,033	10,799	2,113	100

 

 

New Business                                                                                                                                                                 Page 114

 

6.13 Worldwide APE by channel quarterly progression
			3	3	3	3	3	3
			months	months	months	months	months	months
			to	to	to	to	to	to
			30.06.13	31.03.13	31.12.12	30.09.12	30.06.12	31.03.12
			£m	£m	£m	£m	£m	£m
Retail IFA			259	182	188	166	176	169
Employee benefit consultants			191	296	377	232	131	146
Tied agents			7	7	9	10	11	8
Bancassurance			52	52	94	108	119	95
Direct			21	18	23	17	18	16
Total			530	555	691	533	455	434