Legal & General Group Plc · LSE:LGEN
Legal & General — H1 2016 Earnings Presentation
40 slides from Legal & General's earnings presentation, Aug 9, 2016
Slide 1: Half Year results – 9 August 2016
2016 2016 Legal & General Group plc Legal Half Year&results General– Group plc2016 9 August Half Year results – 9 August 2016
Slide 2: Forward looking statements
2 Forward looking statements This document may contain certain forward-looking statements relating to Legal & General Group, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertain
Slide 3: Half Year Results 2016
3 Half Year Results 2016 Nigel Wilson Group Chief Executive Net cash generation Profit before tax Earnings per share1 £727m £826m 11.20p +16% +23% +14% IFRS return on equity2 Solvency II surplus Interim dividend £5.3bn 20.4% EC surplus 4.00p £8.1bn 1.Represents adjusted earnings per share (EPS) whic
Slide 4: Key financials: strong growth, attractive returns
NIGEL WILSON: GROUP CHIEF EXECUTIVE 4 Key financials: strong growth, attractive returns 2011 2012 2013 2014 2015 H1 2015 H1 2016 NET CASH GENERATION (£m) 846 865 1,002 1,104 1,256 629 727 DIVIDEND (£m) 375 452 550 668 797 205 238 NET CASH GENERATION RETAINED (£m) 471 413 452 436 459 424 489 DIVIDEND
Slide 5: Excellent execution around our five key growth drivers
NIGEL WILSON: GROUP CHIEF EXECUTIVE 5 Excellent execution around our five key growth drivers FIVE GROWTH DRIVERS 2016 ACHIEVEMENTS AGEING • Total LGR sales of £4bn in H1 2016, up 195%, including our second US pension risk transfer transaction • LGR back-book acquisition £2.9bn UK annuity portfolio (
Slide 6: Accelerating the evolution of our five key growth drivers
NIGEL WILSON: GROUP CHIEF EXECUTIVE 6 Accelerating the evolution of our five key growth drivers The ongoing and future success of our long term business model is built on the five key macro trends: ageing populations; globalisation of asset markets; creating real assets; welfare reforms and digital.
Slide 7: 2016 Half Year Financial Performance
7 7 2016 Half Year Financial Performance Mark Gregory Group Chief Financial Officer LEGAL & GENERAL GROUP PLC | HALF-YEAR HALF YEAR RESULTS | AUGUST 2016
Slide 8: Consistent delivery: strong results
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 8 Consistent delivery: strong results H1 2016 H1 2015 YOY (%) LGIM AUM (£bn) 842 715 18 Assets & Annuity assets (£bn) Direct investments (£m) 51.0 7,951 43.4 6,193 18 28 Premiums UK protection and GI gross premiums (£m) 971 938 4 Savings assets (£bn)1 102
Slide 9: Driving growth: increasing stock
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 9 Driving growth: increasing stock LGIM AUM GROWTH 13% L&G RETIREMENT ASSETS GROWTH 14% CAGR FY12-HY16 CAGR FY12-HY16 £842bn £51.0bn £746bn £694bn £44.2bn £43.4bn £612bn £543bn £32.2bn £34.4bn 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 INSURAN
Slide 10: Strong divisional performance
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 10 Strong divisional performance OPERATIONAL CASH GENERATION NET CASH GENERATION OPERATING PROFIT 8% 7% 5% 20% 6% 17% 5% 18% 7% 15% H1 2016: 21% H1 2016: H1 2016: 22% £734m* £806m* £942m* 14% 28% 35% 14% 43% 15% LGIM LGR LGC Insurance Savings LGA • Focused
Slide 11: LGR: Delivers record profit growth
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 11 LGR: Delivers record profit growth FINANCIAL HIGHLIGHTS H1 2016 H1 2015 • Net cash generation up 47% Operational cash generation (£m) 205 171 - increased scale of business - profitable new business New business surplus (£m) 79 22 Net cash generation (£m
Slide 12: LGIM: Resilient performance in challenging markets
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 12 LGIM: Resilient performance in challenging markets FINANCIAL HIGHLIGHTS H1 2016 H1 2015 • External net flows of £9.6bn in challenging Asset management operating profit (£m) 174 179 markets, positive flows across core product areas, distribution channels
Slide 13: LGC: Direct investments driving profit growth
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 13 LGC: Direct investments driving profit growth FINANCIAL H1 2016 H1 2015 • LGC operating profit up 17% at £135m INVESTMENT OPERATING INVESTMENT OPERATING HIGHLIGHTS (£m) PROFIT (£m) (£m) PROFIT (£m) • LGC delivers multiple drivers of value Equities 1,630
Slide 14: Insurance: Continued cash generation
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 14 Insurance: Continued cash generation FINANCIAL HIGHLIGHTS H1 2016 H1 2015 • Net cash generation up 3% INSURANCE • Operating profit down £48m in 2016 reflecting a lower Operational cash generation (£m) 159 161 back-book expected release and higher claims
Slide 15: Savings: Lower contribution from Mature Savings
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 15 Savings: Lower contribution from Mature Savings FINANCIAL HIGHLIGHTS H1 2016 H1 2015 Mature Savings • Declining book resulting in lower operational Operational cash generation (£m) 51 67 cash generation and operating profit New business strain (£m) (3)
Slide 16: LGA: Increased premiums and cash generation
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 16 LGA: Increased premiums and cash generation FINANCIAL HIGHLIGHTS H1 2016 H1 2015 • Net cash generation up 10% to $88m • Gross premiums up 2% to $601m, benefitting from Net cash generation ($m) 88 80 relationships with the brokerage general agents Operat
Slide 17: Resilient capital position
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 17 Resilient capital position CAPITAL POSITION • Solvency II coverage ratio of 158% Coverage • On a shareholder basis, adjusting for the Own Ratio 230% 235% 169% 158% Funds and SCR of the With-profits fund, the Group’s Solvency II coverage ratio was 163% w
Slide 18: Sensitivity analysis: Solvency II coverage ratio
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 18 Sensitivity analysis: Solvency II coverage ratio HY 2016 Solvency II Capital Coverage Ratio 158 Credit Spreads widen by 100bps (stepped) 152 15% downgrade stress 149 1% rise in risk-free rates 172 1% fall in risk-free rates 144 15% fall in property valu
Slide 19: Movement in the Solvency II surplus
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 19 Movement in the Solvency II surplus Coverage Ratio 169% 158% £8.0bn 0.5 (0.0) (0.6) 0.5 (0.6) £6.0bn £4.0bn 5.5 5.3 £2.0bn £0.0bn YE 2015 Operating Operating Market Other capital Dividends HY 2016 Solvency II experience experience new movements* movemen
Slide 20: Reconciliation of Economic Capital to Solvency II
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 20 Reconciliation of Economic Capital to Solvency II Coverage Ratio 235% 158% £8.0bn (2.2) 0.0 (0.6) £6.0bn 8.1 (0.1) 0.1 £4.0bn 5.3 £2.0bn £0.0bn H1 2016 Different Risk margin vs Longevity Eligibility of LGA on a D&A H1 2016 Economic matching Recapitalisa
Slide 21: Estimated Solvency II new business value metric
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 21 Estimated Solvency II new business value metric Contribution H1 2016 PVNBP from New Margin % Business LGR (£m) 3,743 382 10.2 UK Insurance Total (£m) 727 81 11.1 Individual protection 565 69 12.2 Workplace health and protection 162 12 7.4 LGA ($m) 435 5
Slide 22: Formulaic interim dividend: 30% of 2015 full year dividend
MARK GREGORY: GROUP CHIEF FINANCIAL OFFICER 22 Formulaic interim dividend: 30% of 2015 full year dividend DIVIDEND The Group has a Final progressive dividend Interim policy, reflecting its 13.40p medium term underlying business growth, including net 11.25p cash generation and operating earnings 9.30
Slide 23: Risk Management
23 Risk Management Simon Gadd Group Chief Risk Officer LEGAL & GENERAL GROUP PLC | HALF-YEAR HALF YEAR RESULTS | AUGUST 2016
Slide 24: Role of Risk Management
SIMON GADD: GROUP CHIEF RISK OFFICER 24 Role of Risk Management CRO Credit Market Insurance Operational Conduct Risk Risk Risk Risk Risk Strategic Risk Emerging Risk LEGAL & GENERAL GROUP PLC | HALF-YEAR RESULTS | AUGUST 2016
Slide 25: Brexit: Well placed for the referendum vote
SIMON GADD: GROUP CHIEF RISK OFFICER 25 Brexit: Well placed for the referendum vote Robust risk management Downside scenario Additional hedging of framework already testing analysis equities, With-profits in place 3 Additional risk taking Excess of liquidity put on hold and high for 1-in-200 shocks
Slide 26: Exposures: Long term investor with strong diversification
SIMON GADD: GROUP CHIEF RISK OFFICER 26 Exposures: Long term investor with strong diversification Our risk strategy ensures we continue to operate as normal in a stressed environment: Illiquid liabilities means NO forced selling required Interest rates ‘hedged’ on an IFRS and Diverse mostly in
Slide 27: Continuing to monitor the environment
SIMON GADD: GROUP CHIEF RISK OFFICER 27 Continuing to monitor the environment As the business, regulatory and political landscapes continue to change, we will be taking the following actions: SCR RISK EXPOSURE • Range of hedge strategies prepared • Reviewing specific credit exposures 4% 5% • Propert
Slide 28: Legal & General Retirement
28 28 Legal & General Retirement Kerrigan Procter LGR Managing Director LEGAL & GENERAL GROUP PLC | HALF-YEAR YEAR END RESULTS RESULTS| MARCH | AUGUST 2016 2016
Slide 29: Nine sources of profit
KERRIGAN PROCTER: LGR MANAGING DIRECTOR 29 Nine sources of profit • Existing £51bn annuity portfolio – generated £205m operational cash and £284m net cash in H1 BACKBOOKS 2016; expected to throw off £10bn of undiscounted cash generation over 60 years BACK BOOK FOR CASH • Asset strategy being optimis
Slide 30: Robust asset portfolio…
KERRIGAN PROCTER: LGR MANAGING DIRECTOR 30 Robust asset portfolio… £51BN LGR ASSET PORTFOLIO AS AT 30 JUNE 2016 Other • 63% of the £51.0bn is A-rated or better BB or assets below • 28% is BBB-rated AAA • 3% is sub-investment grade AA By • 6% is other assets being; cash, BBB Credit derivative market
Slide 31: …with high sectoral diversification
KERRIGAN PROCTER: LGR MANAGING DIRECTOR 31 …with high sectoral diversification SECTORAL ANALYSIS AS AT 30 JUNE 2016 • 4.4% of £51.0bn in Banks • 4.5% in Oil and Gas 11 1 10 • 3.7% in bonds in Property sector • £6.2bn in direct investments: 2 - Sale and leaseback 9 £51bn - Commercial Real Estate lend
Slide 32: Longevity risk management
KERRIGAN PROCTER: LGR MANAGING DIRECTOR 32 Longevity risk management BUILDING OUR BUSINESS LONGEVITY EXPOSURE AS AT 30 JUNE 2016 PRT ANSWERING CLIENT NEEDS Longevity £56.1bn £12.3bn Markets remain buoyant UK USA Netherlands £43.8bn DEPLOYING OUR SKILL SET Brand Strength Integrated Longevity Administ
Slide 33: GROWTH
Nigel Wilson Group Chief Executive GROWTH LEGAL & GENERAL GROUP PLC | HALF-YEAR RESULTS | AUGUST 2016
Slide 34: High performing Group aligned to growth drivers
NIGEL WILSON: GROUP CHIEF EXECUTIVE 34 High performing Group aligned to growth drivers ASSET MANAGEMENT INSURANCE Operating Profit (£m) Operating Profit (£m) H1 2016 H1 2015 H1 2016 H1 2015 Legal & General Investment Insurance Management 171 176 • Retail protection GWP £582m 138 186 • Over £853bn of
Slide 35: LGIM: Significant asset growth across the business
NIGEL WILSON: GROUP CHIEF EXECUTIVE 35 LGIM: Significant asset growth across the business UK DC SOLUTIONS: UK & US 60 500 £50bn 50 £389bn 400 40 £bn £29bn 300 £ bn 30 200 20 £91bn 10 100 0 0 H1 2013 H1 2014 H1 2015 H1 2016 2009 2010 2011 2012 2013 2014 2015 H1 2016 DC AUM WPS AUA Permanent Assets Te
Slide 36: LGC: Generating value from investing in new assets
NIGEL WILSON: GROUP CHIEF EXECUTIVE 36 LGC: Generating value from investing in new assets £377m £467m INFRASTRUCTURE: URBAN HOUSING REGENERATION £181m £39m SME DEBT FINANCE INFRASTRUCTURE: CLEAN ENERGY £1.1bn UK DIRECT INVESTMENTS IN THREE SECTORS LEGAL & GENERAL GROUP PLC | HALF-YEAR RESULTS | AUGU
Slide 37: Insurance: Maximise, Develop, Internationalise, Digitalise
NIGEL WILSON: GROUP CHIEF EXECUTIVE 37 Insurance: Maximise, Develop, Internationalise, Digitalise Retina recognition for KYC in India: Income Over 50s Protection Health- (funeral plan) care Long Term SERVICES Care Will Writing/ Whole of Probate/Power Funeral of Attorney Provision Warranty Life Suppo
Slide 38: Building Legal & General in the US
NIGEL WILSON: GROUP CHIEF EXECUTIVE 38 Building Legal & General in the US LGIM AMERICA L&G AMERICA • $133bn funds under management • 1.2m policyholders • 39% increase in US clients during • Provides admin and payment the year to 183 (H1 2015: 132) services for LGRA and back office • Market leading L
Slide 39: Creating significant new options for UK and global expansion
NIGEL WILSON: GROUP CHIEF EXECUTIVE 39 Creating significant new options for UK and global expansion FIVE GROWTH DRIVERS 2025 AMBITION NEW EXAMPLES • 900 million over 60s today, 2 billion by 2050 Expanded AGEING • Global pension liabilities in excess of c.$9 trillion Lifetime POPULATIONS Mortgages Am
Slide 40: Excellent execution around our five key growth drivers
EXCELLENT EXECUTION AROUND OUR FIVE KEY GROWTH DRIVERS
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