LEGAL & GENERAL: STRONG CAPITAL AND CASH GENERATION, RESILIENT ASSET PORTFOLIO
In light of the significant market volatility following the outcome of the EU Referendum, Legal & General Group plc ("Legal & General" or "the Company") is updating the market on its balance sheet strength: specifically its Solvency II ratio, credit portfolio, derisking actions and providing cash generation guidance for the half year.
Our Solvency II surplus is c.£4.9bn1, we expect our net cash for half year 2016 to be up 15% and we run an 'A minus' rated credit portfolio of £44.8bn2.
Legal & General's central planning scenario, ahead of the Referendum, was for a 50-50 probability of a vote for the UK to leave. We positioned our balance sheet accordingly to reduce risk for our customers and shareholders. We undertook a number of derisking actions in respect of our asset portfolios, including the traded equities held within our shareholder funds, before the Referendum to mitigate our balance sheet against the downside risk of a "leave" vote.
Surplus Solvency II capital of around £5bn:
We have a strong regulatory capital balance sheet.
We estimate, based on market conditions at 4:30pm on 27 June 2016, the Group's Solvency II coverage ratio (PRA basis) was c.156%1 with Eligible Own Funds of c.£13.7bn, SCR of c.£8.8bn and hence a surplus of c.£4.9bn.
The year-end 2015 Solvency II balance sheet (PRA basis) had a coverage ratio of 169%3 with Eligible Own Funds of £13.5bn and a Solvency Capital Requirement ("SCR") of £8.0bn resulting in a surplus of £5.5bn.
Changes in the first half of 2016 include the payment of the 2015 final dividend of £592m reduced the coverage ratio by c.7% points and the acquisition of the £2.9bn UK annuity portfolio from Aegon reduced surplus by c.£50m and the coverage ratio by c.3% points. The increase in the SCR from year-end 2015 has largely been driven by the fall in risk free rates.
Overall, our Solvency II balance sheet has demonstrated its resilience to market volatility, including that caused to date by the EU Referendum outcome.
well-diversified ASSET PORTFOLIO:
Our global credit team keeps our portfolios under continuous review and in recent months has actively de-risked the credit component of Eligible Own Funds as well as Legal & General Retirement's ("LGR's") £44.8bn2 'A minus' rated bond portfolio. This has included selling sub-investment grade credit and reducing our exposure to European banks' subordinated debt. The portfolio is well diversified by sector and by geography.
Bank holdings represented 4.9% of the LGR bond portfolio as at 31 May 2016, with very limited exposure to either Tier 1 or sub-investment grade. Further detail on the assets backing the annuity portfolio are available in the appendix to this release.
We have not taken any action as a result of the downgrade of UK Sovereign debt by Moody's, Standard & Poor's and Fitch because we had already treated UK Sovereign debt as AA rated in our internal model.
Additionally, we hold a £2.3bn IFRS provision for defaults on LGR's portfolio, of which less than £10m has been used in the last five years.
We currently hold c.£3.3bn of cash and cash equivalents within our Eligible Own Funds excluding cash held within our With-profits funds.
strong OPERATIONAL AND NET Cash GENERATION:
The Company remains strongly cash-generative. In the first half of 2016, we expect the Group's operational cash generation to be up c.5% to c.£655m and net cash generation to be up c.15% to c.£720m.
CONSISTENT AND SUCESSFUL STRATEGY:
We are executing our clear and focused strategy based on five key long term growth drivers: Ageing populations, Globalisation of asset markets, Creation of new real assets, Welfare reform and Digital. This strategy is resilient and we see these trends as substantially unaffected by the EU Referendum result.
1. Assumes that Transitional Measures for Technical Provisions are recalculated. The Solvency II ratio adjusting for the Own Funds and SCR of the With-profits fund was c.160% at 4:30pm on 27 June 2016
2. As at 31 May 2016
3. The Solvency II ratio adjusting for the Own Funds and SCR of the With-profits fund was c.175% at year-end 2015
APPENDICES:
Details of the rating and sector diversification split of that portfolio are shown in the tables below.
Legal & General Retirement ("LGR") annuity bond portfolio analysed by credit rating (unaudited):
As at 31 May 2016 £m |
Externally rated bonds |
Internally rated bonds, direct investments and CDOs |
Total LGR bond portfolio |
% of LGR bond portfolio |
AAA |
1,521.9 |
6.8 |
1,528.7 |
3% |
AA |
11,272.8 |
1,647.7 |
12,920.5 |
29% |
A |
13,120.7 |
2,534.4 |
15,655.1 |
35% |
BBB |
11,480.5 |
1,770.0 |
13,250.5 |
30% |
BB or below |
1,108.2 |
351.3 |
1,459.5 |
3% |
Total |
38,504.1 |
6,310.2 |
44,814.3 |
100% |
% |
86% |
14% |
100% |
|
LGR annuity bond portfolio analysed by sector (unaudited):
£m |
As at 31 May 2016 |
% of LGR bond portfolio |
Sovereigns |
6,197.1 |
14% |
Supras, Sub-Sovereigns |
1,310.2 |
3% |
Banks |
2,182.1 |
5% |
Financial Services |
1,092.8 |
2% |
Insurance |
790.8 |
2% |
Utilities |
4,785.6 |
11% |
Consumer Services and Goods & Healthcare |
5,026.4 |
11% |
Technology & Telecoms |
2,749.1 |
6% |
Industrials & Oil and Gas |
4,012.9 |
9% |
Property |
1,753.7 |
4% |
Securitisations & Debentures and Asset Backed Securities |
13,583.8 |
30% |
CDOs |
1,329.8 |
3% |
|
44,814.3 |
100% |
- ENDS -
For further information, please contact:
Investors:
Laura Doyle Head of Investor Relations 020 3124 2088
Stephen Thomas Investor Relations Manager 020 3124 2047
Media:
John Godfrey Corporate Affairs Director 020 3124 2090
Richard King Head of Group Corporate Communications 020 3124 2095
Notes to editors:
Legal & General Group Plc
Established in 1836, Legal & General is a leading provider of insurance, savings and investment management products in the UK. The Group has a market capitalisation of £10.2bn (as at 27 June 2016) and is responsible for investing £746bn worldwide (as at 31 December 2015) on behalf of investors, policyholders and shareholders. Legal & General has over seven million customers in the UK for life assurance, pensions, investments and general insurance plans and over one million customers in the US who rely on us for life assurance. In 2015, Legal & General's operating profit (on the IFRS basis) was £1,455m and adjusted earnings per share were 18.58p for the period, an increase of 14% and 11% respectively.
For more information on Legal & General, please see http://www.legalandgeneralgroup.com/
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.
