Q3 IMS - Part 1

 

LEGAL & GENERAL GROUP PLC: QUARTER 3 2013 INTERIM MANAGEMENT STATEMENT

 

NET CASH UP 20%. STRONG PERFORMANCE ACROSS ALL DIVISIONS.

 

GROUP HIGHLIGHTS: 

 

•           OPERATIONAL CASH GENERATION Q3 YTD UP 11% TO £780M (Q3 2012: £702M)

•           NET CASH GENERATION Q3 YTD UP 20% TO £740M (Q3 2012: £616M)

 

BUSINESS HIGHLIGHTS: 

 

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

 

•         Q3 GROSS INFLOWS UP 71% TO £15.4BN (Q3 2012: £9.0BN)

YTD GROSS INFLOWS UP 65% TO £42.1BN (Q3 YTD 2012: £25.5BN)

 

•           TOTAL AUM UP TO £443BN (H1 2013: £433BN)

INTERNATIONAL AUM UP TO £57BN (H1 2013: £52BN)

 

legal & general retirement (lgr)

·         Q3 annuity premiums UP 199% TO £2.3BN (q3 2012: £0.8BN)

·         YTD annuity premiums up 174% to £3.7bn (q3 ytd 2012: £1.3bn)

legal & general assurance society (lgas)

·         RETAIL Protection Q3 sales up 11% to £40m (Q3 2012: £36m)

·         cofunds aua increased to £58bn (h1 2013: £54bn)

legal & general america (lga)

·         US Protection Q3 sales up 13% to $43m (Q3 2012: $38m)

legal & general capital (lgc)

·          direct investments increased to £2.1bn (H1 2013: £1.7bn)

 

Nigel Wilson, Group Chief Executive, said:

"Another strong quarter for Legal & General with gross inflows and premiums well ahead of 2012. All divisions contributed to our broad-based growth. We are executing well and at pace; four acquisitions have been successfully completed and net cash is up 20%.

 

We are known for providing value for our 8 million customers and are working closely with government and regulators to help customers get the best possible deal. LGIM, whose fees average just over 0.1% and Cofunds, whose platform fees are less than 0.3%, offer outstanding value to both institutional and retail customers. We have capped auto enrolment charges at 50bps - and we believe nobody saving for a workplace pension in standard default funds should have to pay more than this.  The government's proposed 75bps cap needs to be strengthened in our opinion: reducing it to 50bps could benefit pension savers by tens of thousands of pounds over a working lifetime."

 

 

GROUP CASH GENERATION

£m	Q3 YTD 2013	Q3 YTD 2012	Growth %
9 months to 30 September
Operational cash generation	780	702	11
New business strain	(40)	(86)	53
Net cash generation	740	616	20

 

legal & general investment management (LGIM)

 

£bn	Q3 2013	Q3 2012	Growth %
3 months to 30 September
Gross inflows1	15.4	9.0	71
Net inflows1	3.1	(0.2)	n/a
9 months to 30 September	Q3 YTD 2013	Q3 YTD 2012	Growth %
Gross inflows1	42.1	25.5	65
Net inflows1	10.9	3.0	263
	Q3 2013	H1 2013	Growth %
LGIM AUM	443	433	2

 

legal & general retirement (LGr)

 

£bn	Q3 2013	Q3 2012	Growth %
3 months to 30 September
Annuity sales	2.3	0.8	199
Annuity net inflows	1.8	0.4	350
9 months to 30 September	Q3 YTD 2013	Q3 YTD 2012	Growth %
Annuity sales2	3.7	1.3	174
Annuity net inflows	2.2	0.2	1,000
	Q3 2013	H1 2013	Growth %
Annuity AUM	34	32	7

 

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

 

£m	Q3 2013	Q3 2012	Growth %
3 months to 30 September
UK Protection new business sales	57	56	2
Savings net flows (£bn)1	3.0	(0.1)	n/a
9 months to 30 September	Q3 YTD 2013	Q3 YTD 2012	Growth %
UK Protection new business sales	162	165	(2)
)UK Protection gross premiums	1,016	968	5
General Insurance gross premiums	280	252	11
Savings net flows (£bn)1	3.3	0.1	n/a
	Q3 2013	H1 2013	Growth %
Savings AUA (£bn)1	102	96	6

 

LEGAL & GENERAL AMERICA (LGA)

 

$m	Q3 2013	Q3 2012	Growth %
3 months to 30 September
New business sales	43	38	13
9 months to 30 September	Q3 YTD 2013	Q3 YTD 2012	Growth %
New business sales	113	104	9
Gross premiums	746	677	10
1. In July 2013 the Retail investment business was transferred from Savings to LGIM.  Savings assets under administration and LGIM and Savings flows now reflect the new structure.  Comparatives have been reclassified accordingly.
2. Annuity premiums exclude £175m of annual premiums from the longevity insurance transaction with BAE Systems covering £3.2bn of associated liabilities.

Financial PERFORMANCE - operational Cash up 11%, Net cash up 20%

Operational cash generation for the Group is up 11% to £780m in the first nine months of the year (Q3 YTD 2012: £702m). This reflects improved cash generation from each of the Annuities, UK Protection, Insured Savings and With-profits businesses, which in aggregate remain on-track to deliver £675m of operational cash at the full year. In addition LGIM and General Insurance both made a strong contribution to operational cash generation.

New business strain of £40m (Q3 YTD 2012: £86m) reflects each of our divisions writing new business more efficiently.  As a result net cash generation was up 20% to £740m (Q3 YTD 2012: £616m).

TRADING PERFORMANCE - LGIM GROSS INFLOWS UP 71% AND LGR PREMIUMS UP 199%

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

Gross inflows from International clients were £6.9bn in Q3 (Q3 2012: £3.6bn) and net inflows were £6.4bn (Q3 2012: £3.2bn).  We have seen strong inflows from the Gulf, US and Europe, including adding £2.9bn of assets from Legal & General France (LGF). International assets now total £57bn, up 10% on HY 2013 (£52bn) and an increase of £14bn in the first nine months of the year.  In LGIM America we now have assets under management (AUM) of $35bn at Q3 2013 (H1 2013: $33bn).

The retail business continued to benefit from the growth in retail passive funds, due to greater pricing transparency following the implementation of the Retail Distribution Review (RDR) and pricing action taken earlier in the year.  Q3 gross inflows of Retail mutual funds were up 80% to £0.9bn with net inflows of £0.3bn (Q3 2012: £(0.1)bn). Including institutional unit trusts net flows were £0.1bn.

In total LGIM achieved net inflows of £3.1bn in Q3 (Q3 2012: £(0.2)bn), which coupled with positive market movements, increased LGIM AUM to £443bn (H1 2013: £433bn).  Total gross inflows in Q3 were up 71% to £15.4bn (Q3 2012: £9.0bn).

legal & general retirement (LGR)

In LGR, our annuity and longevity insurance business, Q3 new business premiums were up 199% to £2,266m (Q3 2012: £758m).  Premiums in the nine months to 30 September are now up 174% to £3,690m (Q3 YTD 2012: £1,347m). In addition we completed the largest longevity insurance contract in the UK in February, covering £3.2bn of associated liabilities.

In Bulk Annuities in Q3, we completed 23 policies with premiums of £1,941m (Q3 2012: 27 policies worth £408m).  These bulk annuity premiums are a record for any quarter and include the four bulk purchase policies within Lucida. 

Individual Annuities Q3 premiums reduced by 8% to £323m (Q3 2012: £350m) as the comparator numbers became tougher both for our own business and the market in general. The implementation of gender neutral pricing in late 2012 accelerated business into 2012 that would otherwise have been written in 2013. We continue to maintain strong pricing discipline, deploying our capital only for business that meets our target return on economic capital. YTD premiums are up 24% to £1,077m (Q3 YTD 2012: £872m). 

Total annuity assets under management increased to £34.4bn (H1 2013: £32.1bn), reflecting net inflows (premiums received less annuity payments) of £1.8bn for Q3 2013.

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

Retail Protection sales of £40m in the quarter are up 11% on Q3 2012 helped by a strengthening housing market.  Our market leading business benefits from a highly efficient automated underwriting model and broad distribution reach. We now underwrite in excess of 80% of applications at point of sale and have sole tie distribution which already includes Building Societies representing 85% of customers and our own Mortgage Network, which facilitated £19bn of mortgages in the first nine months of this year.

Group Protection achieved Q3 sales of £17m (Q3 2012: £20m).  Momentum has been strong with sales year to date of £57m (Q3 YTD 2012: £57m) matching the excellent level of 2012.  Group protection continued to benefit from auto enrolment and employers attracted to the benefits of Legal & General's leading practice in employee rehabilitation. 

Total UK Protection gross premiums are up 5% to £1,016m (Q3 2012: £968m). 

General Insurance gross premiums increased 11% to £280m (Q3 YTD 2012: £252m).  The growth in premiums reflects continuing growth in direct sales which increased 40%. 

Workplace platform AUA increased to £7.9bn (H1 2013: £7.3bn), reflecting net inflows of £0.4bn in Q3, in-line with the prior year (Q3 2012: £0.4bn). Opt out rates remain low at less than 10% on average and our platform now has over 720,000 customers (H1 2013: 605,000).

Cofunds achieved net inflows of £3.3bn in Q3, and as a result AUA on the platform increased to £58.3bn (H1 2013: £53.7bn). Volumes from our Banks and Building Society partners continue to be challenged following the implementation of the RDR. As a result net flows on the Investor Portfolio Service (IPS) platform, included within Cofunds, were £0.1bn in Q3 (Q3 2012: £0.2bn). 

Our SIPP business, Suffolk Life, now has AUA of £6.1bn (H1 2013: £5.7bn) with net flows of £0.3bn in Q3 (Q3 2012: £0.2bn). 

Maturities from With-profit endowment policies sold in the 1980s were in-line with our expectations contributing to net flows in Q3 from our Mature Retail Savings business of £(1.1)bn (Q3 2012: £(0.9)bn).

In September we acquired a further 45% equity stake in Investment Discounts Online Limited (theidol.com) for £6m, adding to our existing 49% holding. Theidol.com provides online comparison and panel solutions for some of the UK's largest and best known price comparison websites and will further enhance our digital capability.

In total the LGAS Savings business increased AUA to £102bn (H1 2013: £96bn) reflecting net inflows of £3.0bn and the benefit of positive market movements.  Including the Retail Savings business now transferred to LGIM, AUA increased to £117bn (H1 2013: £111bn).

 

LEGAL & GENERAL AMERICA (LGA)

LGA delivered 13% growth in sales with Q3 APE up to $43m (Q3 2012: $38m). Gross premiums are up 10% to $746m (Q3 YTD 2012: $677m).  LGA continues to grow its market share through its broker distribution channels and remains a top five provider of term assurance in the US market.

LEGAL & GENERAL CAPITAL (LGC)

Legal & General Capital implements the Group's investment strategy across the balance sheet, manages the Group's shareholder funds, debt and liquidity and is responsible for the Group's Direct Investments.

Within Direct Investments, the key aim for the Shareholder funds is to accelerate the growth of the Group through strategic direct investments.  To date we have utilised shareholder funds for acquisitions of CALA, the house builder, Lucida, the closed UK annuity buy-out company, Cofunds, the UK's largest investment platform and theidol.com.

For assets backing policyholder liabilities, the key aim of Direct Investments is to provide assets with long dated cash flows that match our liabilities well and offer greater risk-adjusted returns than corporate bonds.  These assets include a range of UK infrastructure and housing propositions and have grown to £2.1bn (H1 2013: £1.7bn).  

LGAS RESTRUCTURE

In July we restructured our business divisions, which included bringing together our Retail and Group Protection, General Insurance and the majority of our Savings businesses, into one new division, LGAS. These businesses have largely common customers, common target markets and often common distributors.

We also need to ensure the new division has an appropriate cost base for the opportunities presented for our growth businesses in LGAS and that our Mature Retail Savings business maintains attractive returns. 

The first stage of this multi-phase restructuring is focused on cost savings from the integration by removing the duplication of functions. We are currently consulting with the affected teams and their representatives and expect this first-phase to result in a headcount reduction of around 600 out of a total LGAS headcount of approximately 7,000.

Additional stages of the review to identify on-going benefits and further cost efficiencies are currently underway. We will provide an update on these further initiatives at our FY 2013 Preliminary results announcement

Trading Outlook

LGIM continues to see strong demand for its Index, Liability Driven Investment and Active Fixed capabilities. We expect this demand to continue into 2014 and beyond.  We have recently received approval for the launch of our first Luxembourg-based SICAV as well as three underlying funds. The initial focus will be on specific European markets, providing exposure to our flagship Active Fixed capabilities, through wholesale and institutional channels.

In LGR we continue to quote on a large number of bulk annuities, and pension scheme trustees are increasingly seeing the economic environment as a more favourable one in which to transact. We see a strong quote pipeline developing for 2014.  Demand for individual annuities will grow as more people contribute to defined contribution pension schemes.  We will continue to exercise strong pricing discipline across all areas of our annuity and longevity insurance propositions.

In LGAS, our market leading Retail Protection business continues to trade well with applications in October ahead of the levels seen in Q3. In Group Protection we continue to see a strong pipeline due to auto enrolment and the trend for both the private and the public sector to move from self insured to insured. We have a strong position in the new world, capital light product set through broad distribution channels. This includes Cofunds, where AUA during October exceeded £60bn, and Workplace Savings where we expect to see further growth.

LGA now has over one million customers and has continued to trade well during October.

In LGC, CALA continues to build on its record results and aims to double the size of its business by 2017. In Direct Investments there is an active pipeline of further investments under consideration, including in the healthcare, transport and energy sectors.

We see growing momentum in the business, driven by our strategic responses to five growth macro trends: homogenous asset markets and international investment management; ageing populations and retirement solutions; digital lifestyles requiring digital solutions; welfare reform which creates opportunities for pensions and protection; and bank retrenchment which is creating direct investment opportunities.

 

ENQUIRIES

Investors:
Bernie Hickman	Group Financial Controller	020 3124 2043
Ian Baker	Investor Relations Manager	020 3124 2047

Media:

John Godfrey	Group Communications Director	020 3124 2090
Richard King	Head of Media Relations	020 3124 2095
Michelle Clarke	Tulchan Communications	020 7353 4200
Katharine Wynne	Tulchan communications	020 7353 4200

Notes

ANALYST CALL DETAILS:

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

There will be a teleconference at 10.00 GMT.  Investors should dial +44 (0)20 3059 8125. A replay of the teleconference can be accessed by dialling +44 (0)121 260 4861 (PIN code: 8062800#).

FINANCIAL CALENDAR:

	Date
Preliminary Results 2013	05-Mar-14
Q1 2014 Interim Management Statement	07-May-14
Half-year Results 2014	06-Aug-14
Q3 2014 Interim Management Statement	04-Nov-14

DEFINITIONS:

Operational cash generation represents the expected surplus from in-force business for the UK non profit Protection, Legal & General Retirement and Savings businesses, the shareholders' share of bonuses on with-profits business, the post-tax IFRS operating profit on other UK businesses, including an expected investment return on Legal & General Capital invested assets, and dividends remitted from our international businesses from sustainable cash generation.

Net cash generation is defined as operational cash generation less new business strain for the UK non profit Protection, Legal & General Retirement and Savings businesses.

FORWARD LOOKING STATEMENTS:

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