Legal & General Group Plc · LSE:LGEN
Legal & General — FY2022 Earnings Presentation
43 slides from Legal & General's earnings presentation, March 2023
Slide 1: Record earnings and solvency: 2022 Full year results
Record earnings and solvency 2022 Full year results £2,931m 20.7% 236% Operating profit from divisions Return on equity Solvency ratio 2021: £2,657m, +10% 2021: 20.5% 2021: 187% 38.33p 19.37p Earnings per share Full year dividend 2021: 34.19p, +12% 2021: 18.45p, +5%
Slide 2: Forward looking statements
Forward looking statements This document 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 becau
Slide 3: Record earnings and solvency
Record earnings and solvency
Slide 4: Record earnings & solvency in 2022
Record earnings & solvency in 2022 Growing Supported by a strong Driving attractive profits… balance sheet… returns £2,931m 236% 20.7% Operating profit from divisions Solvency II coverage ratio Return on equity 2021: £2,657m, +10% 2021: 187% 2021: 20.5% 38.33p £1.8bn 19.37p Earnings per share SII op
Slide 5: We have created a profitable and sustainable growth model which we are internationalising
We have created a profitable and sustainable growth model which we are internationalising • Developed a sustainable, capital-light PRT growth model where OSG and NSG > dividends LGRI • Balance sheet is stronger than ever (record surplus and ratio) and diversified (54% of assets international1) • Wel
Slide 6: We have delivered very strong performance over time
We have delivered very strong performance over time Operating profit from divisions1 (£m) Earnings per share2 (p) 9% CAGR 2,931 11% CAGR 38.33 2,657 2,496 2,456 34.19 2,231 2,034 28.66 1,902 1,702 23.10 24.74 1,483 21.22 19.84 1,277 1,329 18.16 1,109 13.84 15.20 16.70 12.42 2011 2012 2013 2014 2015
Slide 7: Our industry leading model is being replicated by US alternative asset peers
Our industry leading model is being replicated by US alternative asset peers Investment Management Compounding Annual Returns Insurance Asset for L&G Pension & Creation Shareholders Climate Liabilities 7
Slide 8: We have achieved self-sustainability on the UK annuity portfolio
We have achieved self-sustainability on the UK annuity portfolio in 2020, 2021 and 2022 UK annuity portfolio: self-sustainability We have developed a UK annuity portfolio Group sustainable and capital-light £bn PRT model 2020 2021 2022 2020 2021 2022 At Group level in the last UK PRT and Retail Annu
Slide 9: The Group's balance sheet is stronger than ever
The Group’s balance sheet is stronger than ever Unrestricted Tier 1 SCR (£bn) Surplus (£bn) Ratio (%) Own Funds (£bn) 236 13.4 11.0 171 9.9 7.9 7.3 5.7 2016 2022 2016 2022 2016 2022 2016 2022 • SCR in 2022 is lower than 2016 • Our Solvency II surplus and ratio are at all time highs • Solvency II ref
Slide 10: Rising interest rates are accelerating the PRT market opportunity
Rising interest rates are accelerating the PRT market opportunity LCP Projections for the UK PRT market There is a huge PRT market opportunity in the UK and US £bn 100 90 UK US 80 70 Pension liabilities £1.4tn $3.0tn 60 50 % of liabilities transferred c14 c9 to insurance companies 40 Value of liabil
Slide 11: Opportunity to write more than £8-10bn per annum of UK PRT
There may well be an opportunity to write more than £8-10bn per annum of UK PRT over the next few years Potential L&G volumes based on indicative 25% market share (£bn) • We increasingly regard our ambition 25.0 of writing c£8-10bn per annum as “business as usual”. We have demonstrated that this lev
Slide 12: Every £10bn of PRT creates over £1.5bn of cumulative Solvency II OSG
Every £10bn of PRT that we write creates over £1.5bn of cumulative Solvency II OSG for the Group Indicative cumulative Solvency II OSG from £10bn of new UK PRT business (£m) 2,100 1,600 1,100 Payback 600 c.4 years 100 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35… Year -400 LGRI LGIM & LGC 12 Bas
Slide 13: Group synergies provide a competitive advantage in PRT
Group synergies provide a competitive advantage in PRT LGIM • 77% of PRT transactions are from existing LGIM clients (over last three years) • Deep-rooted expertise in providing DB de-risking journeys for DB clients • Relevant and established DB pensions investment expertise LGIM • Direct Investment
Slide 14: LGC: On track to achieve ambitious targets
LGC: On track to achieve ambitious targets LGC Alternative asset AUM (£bn) • LGC continues to strengthen its capabilities across 24% FY16-FY22 CAGR a diversified range of alternative assets that are c. 5.0 underpinned by structural growth drivers 4.2 • We have successfully built and scaled three ini
Slide 15: We have successfully scaled several LGC businesses
We have successfully scaled several LGC businesses CALA Pemberton Bruntwood SciTech Homes Revenue Op. Profit Committed Deployed Revenue Property Portfolio Job AUM AUM Value Size (sq.ft) Creation2 FY13 850 £240m £11m 2016 £1.1bn £0.3bn £9.5m Sep-18 £329m 1.5m 10,000 2022 3,027 £1.4bn £169m1 2022 £14.
Slide 16: We have built a scaled asset manager in the UK with international presence
We have built a scaled asset manager in the UK and have established a large and growing international presence LGIM AUM FY22 (£1.2tn) • We have built a scaled asset Real management business in the UK in Assets Internal Solutions (LDI), Index, Active Strategies Multi-asset Active (Fixed Income), Mult
Slide 17: Integrated UK Retail businesses and scaled US Life insurance
We have successfully integrated our market leading UK Retail businesses and scaled US Life insurance • We have successfully integrated our United Kingdom United States market leading UK Retail businesses across multiple customer platforms (life Market Market Business Business insurance, group protec
Slide 18: Gearing up in the US to replicate our synergistic business model
Gearing up in the US to replicate our synergistic business model Provides patient capital Creates to invest high Provides yielding captive assets assets Retail Business and surplus Washington D.C. Metro capital LGRI Acquired 1981 Stamford $1.5bn GWP Launched 2015 LGC across all 50 states $8.4bn writ
Slide 19: Another strong set of results, scaling and internationalising our businesses
We have delivered another strong set of results and are successfully scaling and internationalising our businesses 1. Delivered a strong set of results in 2022. Operating profit up 12%, cash generation up 14%, capital generation up 10%, EPS up 12% to 38.33p, ROE of 20.7% and DPS up 5% to 19.37p 2. S
Slide 20: Financial highlights
Financial highlights Jeff Davies Chief Financial Officer
Slide 21: Continued strong financial performance in 2022
Continued strong financial performance in 2022 Metric 2021 2022 % Operating profit from divisions (£m) 2,657 2,931 10 Group debt costs (£m) (230) (214) Group investment projects & expenses (£m) (165) (194) Operating profit (£m) 2,262 2,523 12 Investment & other variances (incl. minority interests) (
Slide 22: LGRI: Consistently delivering strong profits
LGRI: Consistently delivering strong profits Financial Highlights 2021 2022 • Operating profit of £1,257m, up 9%, reflecting: ‒ The scale of the business as prudential Operating profit (£m) 1,154 1,257 margins unwind from the back book Investment and other variances (£m) 193 (21) ‒ £9.5bn of PRT new
Slide 23: LGRI: Disciplined approach for value
LGRI: Disciplined approach for value Total Sales (£m) 2021 2022 • Strong 2022 volumes: £9.5bn of PRT across 61 transactions UK PRT1 6,240 7,319 • In the UK, continued momentum and financial discipline: US PRT 789 1,763 – LGRI achieved consistent SII new business margin demonstrating our pricing disc
Slide 24: LGC: Double digit headline growth vs a strong FY21 result
LGC: Double digit headline growth vs a strong FY21 result Financial Highlights 2021 2022 • Operating profit of £509m, up 10%, principally reflecting profits from our alternative asset portfolio Operating profit (£m) 461 509 • Alternative asset profits of £400m were driven by the strong - Alternative
Slide 25: LGIM: Adverse markets have impacted profitability
LGIM: Adverse markets have impacted profitability Financial Highlights 2021 2022 • Operating profit down to £340m reflecting the challenging market environment, with higher interest rates and volatile equity markets Asset management revenue1 (£m) 1,012 970 impacting AUM and revenue Asset management
Slide 26: LGIM: Resilient flows in challenging operating environment
LGIM: Resilient flows in challenging operating environment • Net flows of £49.6bn driven by: AUM progression from FY21 to FY22 (£bn) – International flows of £21.4bn, representing 43% of the 0.1 total, reflecting our deepening global client relationships 49.6 – UK DC external net flows of £11.6bn wi
Slide 27: Retail: Strong profit rebound, robust trading performance
Retail: Strong profit rebound, robust trading performance Financial Highlights 2021 2022 • Operating Profit of £825m, up 33%, driven by the return to profit of the US insurance business, routine retirement longevity Operating profit (£m) 620 825 assumption changes and valuation uplifts in two of our
Slide 28: Strong Solvency II Balance sheet
Strong Solvency II Balance sheet Solvency II Balance Sheet (£bn) Solvency II surplus analysis of change (£bn) 236% 17.2 9.9 (0.3) (0.4) Own Funds 1.7 Capital Requirement (1.1) 7.3 Surplus 1.8 Rates: £2.1bn Other: £(0.4)bn 9.9 YE 2022 8.889 8.2 • Coverage ratio of 236% • Solvency II surplus of £9.9bn
Slide 29: In summary
In summary £2,523m 20.7% • We have delivered a strong set of results, and are confident in achieving our five year ambitions Operating profit Return on equity 2021: £2,262m, +12% 2021: 20.5% • Our balance sheet is strong and resilient to market events. Our diversified business model shields us from
Slide 30: Record earnings and solvency
Record earnings and solvency Sir Nigel Wilson Chief Executive Officer
Slide 31: A compelling investment case: A track record of profitable and sustainable growth
A compelling investment case: A track record of profitable and sustainable growth An established track record of consistent and profitable growth: between 2011-2022 we 1 delivered 11% CAGR in EPS, 11% CAGR in DPS and 8% CAGR in Book Value per Share A highly synergistic and increasingly international
Slide 32: Record earnings and solvency: 2022 Full year results
Record earnings and solvency 2022 Full year results £2,931m 20.7% 236% Operating profit from divisions Return on equity Solvency ratio 2021: £2,657m, +10% 2021: 20.5% 2021: 187% 38.33p 19.37p Earnings per share Full year dividend 2021: 34.19p, +12% 2021: 18.45p, +5%
Slide 33: Our business is aligned to six long-term growth drivers
Our business is aligned to six long-term growth drivers, providing immunity to a low / no economic growth environment Market Primary Growth drivers Strategic priorities opportunity divisions Ageing Be global leaders in pensions de-risking and retirement income solutions, LGRI, Retail, $57tn demograp
Slide 34: We have scaled our PRT business as the market has grown
We have scaled our PRT business as the market has grown, writing £67bn of UK and £8bn of International PRT since 2008 L&G PRT (£bn) 12 50 £bn UK Int 10 40 2008-2012 6.2 - 8 30 2013-2017 20.5 1.3 6 20 2018-2022 39.8 6.3 4 Total 66.5 7.6 10 2 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 35: IFRS 17 does not change strategy, capital generation, solvency or dividends
IFRS 17 does not change strategy, capital generation, solvency or dividends IFRS 17: • Is an accounting change, which does not change the underlying economics of our insurance contracts • Will change the timing of recognition of insurance earnings, not the quantum • Will result in more stable and pr
Slide 36: Investment grade credit rarely defaults
Investment grade credit rarely defaults S&P Market Default Rates (%) Investment Grade Sub-IG Year AAA AA A BBB BB 2000 - - 0.3 0.4 1.2 2001 - - 0.3 0.3 3.0 2002 - - - 1.0 2.9 2003 - - - 0.2 0.6 2004 - - 0.1 - 0.4 2005 - - - 0.1 0.3 2006 - - - - 0.3 2007 - - - - 0.2 2008 - 0.4 0.4 0.5 0.8 2009 - - 0.
Slide 37: We have improved the quality of our portfolio as it has grown
We have improved the quality of our portfolio as it has grown. Our default experience is low and investment variances net positive Annuity bond portfolio ratings, credit default reserve and investment variance 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Annuity bo
Slide 38: Annuity assets: Diversified bond portfolio complemented by direct investments
Annuity assets: Diversified bond portfolio complemented by high quality direct investments Annuity Bond Portfolio: £66.8bn (out of £72.4bn) Annuity DI portfolio: £21.1bn, 29% of total assets 11% Property Vacant Possession Value 2022 £66.8bn • Defensively positioned, high quality portfolio. 13% Long-
Slide 39: We have a high quality, diversified investment grade book
We have a high quality, diversified investment grade book Bond portfolio by rating Bond portfolio by geography Bond portfolio by asset type Bond portfolio by sector £66.8bn £66.8bn £66.8bn £66.8bn 92% of total 92% of total 92% of total 92% of total Annuity Annuity Annuity Annuity assets assets asset
Slide 40: Our UK exposure is more diversified than expected
Our UK exposure is more diversified than expected… Annuity Bond portfolio by UK Annuity Bond portfolio UK Traded Credit portfolio geography by asset type by sector £66.8bn £25.8bn1 £10.0bn 92% of total UK Annuity UK Traded Credit Annuity assets assets (excl. FTSE 100) UK 46% FTSE 100 exposure 16% Ut
Slide 41: Our BBB exposure is to high quality names
Our BBB exposure is to high quality names Annuity Portfolio: Top 10 BBB exposure Investment Counterparty Sector Country of Risk value (£m) 1 National Grid PLC Utilities UK / USA 314 2 FGP TopCo Ltd (Heathrow) Economic Infrastructure UK 272 3 Bayer AG Consumer, Non-cyclical Germany 218 4 Quadgas Hold
Slide 42: Our Direct Investments are with high quality counterparties
Our Direct Investments are with high quality counterparties Annuity Portfolio: Top 15 Direct Investments by exposure* Year of Investment value Counterparty Sector Investment (£m) 1 HMRC Government 2016-2019 980 2 UK Government Government 2011-2019 763 3 Amazon Communications & Technology 2018-2020 6
Slide 43: Performance relative to Blackrock not reflected in valuation
Whilst we have performed well relative to Blackrock (a respected competitor) our performance has not been reflected in valuation CAGR CAGR L&G 2011 2015 2021 2022 Blackrock 2011 2015 2021 2022 % % Operating profit (£m) 1,053 1,455 2,262 2,523 8 Operating profit ($m) 3,249 4,664 7,450 6,385 6 Profit