Legal & General Group Plc · LSE:LGEN

Legal & General — Investor Presentation (June 2017)

41 slides from Legal & General's investor presentation, June 2017

  1. Slide 1: Credit Risk Management

    Credit Risk Management Pe rr LEGAL & GENERAL GROUP PLC | JUNE 2017 MAP JOHK —— i ! ia SPEEDO = j J Sf «pie = Legal & i —s | — General

  2. Slide 2: Jeff Davies, Group Chief Financial Officer

    Jeff Davies Group Chief Financial Officer

  3. Slide 3: Forward looking statements

    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 uncertainty

  4. Slide 4: Aim: demonstrate earnings and balance sheet are resilient to credit stress

    AIM: DEMONSTRATE THAT LEGAL & GENERAL’S EARNINGS AND BALANCE SHEET ARE RESILIENT TO CREDIT STRESS EVENTS

  5. Slide 5: Agenda: Financial results

    1. Financial 2. Legal & General Retirement 3. Risk results Credit Risk Management (Jeff Davies) (Kerrigan Procter) (Simon Gadd) Investment Credit Reserves Scenario approach analysis 4. Wrap-Up (Jeff Davies)

  6. Slide 6: Financial Results

    FINANCIAL RESULTS Jeff Davies Group Chief Financial Officer

  7. Slide 7: Agenda: Financial results

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 1. Financial 2. Legal & General Retirement 3. Risk results Credit Risk Management (Jeff Davies) (Kerrigan Procter) (Simon Gadd) Investment Credit Reserves Scenario approach analysis 4. Wrap-Up (Jeff Davies)

  8. Slide 8: Assets & Premiums, Cash & Earnings, Capital

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 2016 2015 YoY (%) 894.2 746.1 20 ASSETS & 54.4 43.4 25 PREMIUMS 10.0 7.2 39 1,838 1,779 3 1,411 1,256 12 CASH & 1,582 1,355 17 EARNINGS 21.22 18.16 17 5.7 5.5 CAPITAL 171 176 19.6 17.7

  9. Slide 9: Legal & General Retirement (LGR)

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP Legal & General • Retirement • (LGR) • Legal & General Investment • Management • (LGIM) Legal & General • Capital (LGC) • Legal & General • Insurance • (LGI)

  10. Slide 10: Solvency II capital position

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP CAPITAL POSITION Coverage Ratio 176% 171% 188%* • £12.8bn £13.6bn £14.9bn £16bn • £14bn £7.0bn £5.7bn • £12bn £5.5bn £10bn • £8bn £7.9bn £7.9bn • £7.3bn £6bn £4bn £2bn £0bn YE 2015 YE 2016 15 May 2017* Solvency II

  11. Slide 11: Financial highlights

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP FINANCIAL HIGHLIGHTS 2016 2015 YoY (%) •  RECORD PROFITS IN 2017   £54.4BN ANNUITY ASSETS  DOUBLE DIGIT GROWTH IN • CORE KPIs

  12. Slide 12: Capital efficient business model delivering significant growth

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP LONGEVITY RISK NEW BUSINESS 2016 2015 RETENTION 2,945 - 3,338 1,977 347 295 - 145 378 327 7,008 2,744 900 - 620 201 8,528 2,945 •    CAPITAL EFFICIENT BUSINESS MODEL DELIVERING SIGNIFICANT GROWTH

  13. Slide 13: LGR Credit Risk

    LGR CREDIT RISK Kerrigan Procter LGR Chief Executive Officer

  14. Slide 14: Agenda: LGR credit risk

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 1. Financial 2. Legal & General Retirement 3. Risk results Credit Risk Management (Jeff Davies) (Kerrigan Procter) (Simon Gadd) Investment Credit Reserves Scenario approach analysis 4. Wrap-Up (Jeff Davies)

  15. Slide 15: Investment approach: liability driven investment for LGR portfolio

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP INVESTMENT APPROACH: LIABILITY DRIVEN INVESTMENT FOR LGR PORTFOLIO • Asset vs Liability Cashflows 4000 • 3500 Asset Cashflows 3000 Liability Cashflows (IFRS View)  2500  Cashflow (£m) 2000   1500 Swaps are used to hedge remain

  16. Slide 16: Prudent approach to calculating IFRS credit default reserve

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP A PRUDENT APPROACH TO CALCULATING THE IFRS CREDIT DEFAULT RESERVE • 4000 3500 • Asset Cashflow Default Loss Haircut 3000 Asset Cashflows (IFRS View) • 2500 Liability Cashflows (IFRS View) Cashflow (£m) 2000 Sum of present value of

  17. Slide 17: IFRS default reserve progression from YE15 to YE16

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP IFRS DEFAULT RESERVE PROGRESSION FROM YE15 TO YE16 • • YE 15 YE 16

  18. Slide 18: Defensive diversified portfolio

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP DEFENSIVE DIVERSIFIED PORTFOLIO BB or below • • 2016 by Credit Rating • 3%2%2% 3% 23% • 3% 4% 5% 2016 by • 5% Sector 6% 16% • 14% 14% •

  19. Slide 19: Primary mandate objective: manage downgrade and default experience

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP PRIMARY MANDATE OBJECTIVE: MANAGE DOWNGRADE & DEFAULT EXPERIENCE • •   • •

  20. Slide 20: Global Fixed Income - £135bn AUM

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP DRAW ON RESOURCES ACROSS PUBLIC AND SPLIT OF AUM BY MANDATE PRIVATE CREDIT Global Fixed Income - £135bn AUM1 • Euro Credit Other Global Credit • • US Credit Global Buy & Maintain and Annuity • • Sterling Credit • •

  21. Slide 21: Delivering broad direct investment capability for LGR

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP DELIVERING BROAD DIRECT INVESTMENT CAPABILITY FOR LGR Real Assets - £24bn AUM1 Real Estate • £19.0bn • • • Private Credit • £5.0bn   

  22. Slide 22: Bottom-up credit research

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP Bottom-up credit Global fixed income AUM £125bn Long term themes research Macro-thematic investment process provides guidance for top-down positioning and bottom-up stock selection Long-term strategic themes Risk allocated by sect

  23. Slide 23: Actual default losses in LGR portfolio

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP Actual Default Losses in LGR Portfolio 50 40 Default Losses (£m) Switch to 30 mandate to minimise downgrades & defaults 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year

  24. Slide 24: Default losses can be absorbed by releasing credit default reserve

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP DEFAULT LOSSES CAN BE ABSORBED BY RELEASING CREDIT DEFAULT RESERVE Default Loss Scenario Scenario YE 2016 1 2 Impact of Default Results No £10m • default defaults Net Release from £592m £0m £0m • Operations Profit Before Tax £847m

  25. Slide 25: Reserve sufficient to absorb an extreme default event

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP THE CREDIT DEFAULT RESERVE IS SUFFICIENT TO ABSORB AN EXTREME DEFAULT EVENT Default Loss Scenario Scenario Scenario YE 2016 3 4 5 Impact of Default Results  £100m £300m £700m Net Release from £592m £0m £0m £0m Operations (£m)  P

  26. Slide 26: 2001/02 credit event: worst period in 30 years

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 2001/02 CREDIT EVENT – THE WORST PERIOD IN 30 YEARS FOR DOWNGRADES AND DEFAULTS Transition and Default Experience (1998 - 2015) • 14% 1.2% 12% 1.0% 10% Downgrade % (Annual) Default % (Annual) 0.8% 8% • 0.6% 6% 0.4% 4% • 2% 0.2% 0%

  27. Slide 27: 2001/2002 moderate spread stress but significant downgrades and defaults

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 2001/2002 – MODERATE SPREAD STRESS BUT SIGNIFICANT DOWNGRADES & DEFAULTS DEFAULTS SPREADS WIDEN Rating Before Recovery After 40% Recovery A and above +50 bps AAA 0% 0% BBB and BB +100 bps AA 0.03% 0.02% B and below +500 bps A 0.7%

  28. Slide 28: Reserve sufficient to absorb scenario replicating 2001/02

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP THE CREDIT DEFAULT RESERVE IS SUFFICIENT TO ABSORB A SCENARIO REPLICATING 2001/02 • Impact of Default 2016 Actual Scenario 6 • • Net Release from Operations (£m) £592m £0m • Profit Before Tax (£m) £847m £0m Credit Default Reserve

  29. Slide 29: Business remains sufficiently capitalised in each scenario

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP THE BUSINESS REMAINS SUFFICIENTLY CAPITALISED IN EACH OF THE SCENARIOS SII Coverage Ratio* (%) • 200% 180% 179% 176% 180% 171% • 160% 150%** 140% 120% • 100% 80% 60% • 40% 20% • 0% Start Scenario 3 Scenario 4 Scenario 5 Scenario 6

  30. Slide 30: Risk Management

    RISK MANAGEMENT Simon Gadd Group Chief Risk Officer

  31. Slide 31: Agenda: Risk management

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 1. Financial 2. Legal & General Retirement 3. Risk results Credit Risk Management (Jeff Davies) (Kerrigan Procter) (Simon Gadd) Investment Credit Reserves Scenario approach analysis 4. Wrap-Up (Jeff Davies)

  32. Slide 32: Risk types, categories and appetite

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP RISK TYPES CATEGORIES APPETITE DIVISION LGR Equity, spread and Appetite within annuities and with-profits businesses, and LGC property shareholder funds, where rewarded for taking exposure Savings MARKET Interest rates and Limited

  33. Slide 33: Three lines of defence operating model

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP Three Lines of Defence Operating Model Senior Management and Board Level Engagement 1st line Risk Taking 2nd line Risk Control & Oversight 3rd line Independent Assurance 1st line Group Board 2nd line 3rd line Group CEO Group Risk

  34. Slide 34: 1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP • • • • • • •

  35. Slide 35: Credit risk policy and oversight

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP • Credit risk CRO risk policy oversight • Independent Credit Assessment    Investment Investment Proposals Approval • Performance Monitoring • Group Credit Risk limits Risk Committee and tolerances •

  36. Slide 36: 1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP • •    • • •

  37. Slide 37: Wrap-Up

    WRAP-UP Jeff Davies Group Chief Financial Officer

  38. Slide 38: Agenda: Wrap-up

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP 1. Financial 2. Legal & General Retirement 3. Risk results Credit Risk Management (Jeff Davies) (Kerrigan Procter) (Simon Gadd) Investment Credit Reserves Scenario approach analysis 4. Wrap-Up (Jeff Davies)

  39. Slide 39: Legal & General has a resilient business, well placed to respond to market events

    1. FINANCIAL RESULTS 2. LGR CREDIT RISK 3. RISK MANAGEMENT 4. WRAP-UP      LEGAL & GENERAL HAS A RESILIENT BUSINESS, WELL PLACED TO RESPOND TO SIGNIFICANT MARKET EVENTS

  40. Slide 40: LEGAL & GENERAL GROUP PLC | CAPITAL MARKETS EVENT| JUNE 2017

    LEGAL & GENERAL GROUP PLC | CAPITAL MARKETS EVENT| JUNE 2017

  41. Slide 41: Credit Risk Management

    Credit Risk Management Pe rr LEGAL & GENERAL GROUP PLC | JUNE 2017 MAP JOHK —— i ! ia SPEEDO = j J Sf «pie = Legal & i —s | — General

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