Legal & General Group Plc · LSE:LGEN
Legal & General — H1 2023 Earnings Presentation
43 slides from Legal & General's earnings presentation, 2023
Slide 1: On track to achieve our five year ambitions
On track to achieve our five year ambitions 2023 Half year results £1,139m £947m Operating profit from divisions SII operational surplus generation H1 2022: £1,153m H1 2022: £946m 230% 5.71p Solvency ratio Interim dividend H1 2022: 212% H1 2022: 5.44p, +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: On track to achieve our five year ambitions
On track to achieve our five year ambitions
Slide 4: We are on track to achieve our five-year (2020-2024) ambitions
We are on track to achieve our five-year (2020-2024) ambitions The Board’s confidence in the Group achieving its 5 year ambitions is unchanged. The Board’s aim is to continue to grow the dividend at 5% per annum to FY24 2020-2024 Ambition Status As at HY23, we had generated cumulative capital of £5.
Slide 5: Key messages
Key messages • L&G has delivered a resilient H1 performance against a volatile macro-economic backdrop • We are on track to achieve our 5-year ambitions. To date: ‒ Capital generation of £5.9bn (£8.0-9.0bn by 2024)1 ‒ Dividends of £3.6bn growing at 5% per annum (£5.6-5.9bn by 2024) ‒ Net surplus gen
Slide 6: UK productivity and investment has lagged that of the US since the GFC
UK productivity and investment has lagged that of the US since the GFC. UK real wages have flat-lined since the GFC UK productivity improvements were equal to UK real wages grew in line with productivity those of the US until 2007 but have lagged since between 1980–2007 but have declined since 6 Sou
Slide 7: The UK stock market has underperformed the US but valuation screens similar
The UK stock market has underperformed the US but valuation screens similar to Japan and Europe on a sector-neutral basis 15 year Total Shareholder Returns MSCI Valuations 850 750 Sector Neutral NASDAQ MSCI Forward P/E +624% Forward P/E 650 World 17.3 17.7 550 S&P 500 +390% UK 10.6 13.8 450 Japan 14
Slide 8: The UK has a lot in its favour and a solvable investment issue
The UK has a lot in its favour and a solvable investment issue OECD regulation indicators (lower is better) 2.5 2.3 COS TUR 2.1 COL Product market regulation 1.9 CAN 1.7 USA KOR BEL LUX MEX FRA 1.5 SWI SLKGRE AUT JPNICE POL ISR CHL IRE FIN POR ITA 1.3 HUN SLOLAT EST CZE NZ AUS LIT NOR 1.1 SWE GER NE
Slide 9: L&G is driving investment-led growth
L&G is driving investment-led growth 1 5 9 13 17 19 23 Sky Elstree Helix, West Bar Square, Canning Town, Innovation Science Park, Studios, ID Manchester Borehamwood Newcastle Sheffield London Birmingham Liverpool 2 6 10 14 18 20 24 24 21 Central Square, Thorpe Park, Riverside Project, Circle Square,
Slide 10: We partner with leading universities, local councils and strategic co-investors
We partner with leading universities, local councils and strategic co-investors Providing access to Partnering with Investing with specialist capability in • Oxford • Growth equity • Bruntwood • Manchester • Clean energy infra • Manchester University Leading • Newcastle – Wind Strategic • NatWest Gr
Slide 11: Our businesses have collectively delivered robust operating profits
Our businesses have collectively delivered robust operating profits, demonstrating resilience in volatile markets £m H1 2023 % Institutional 471 41 Retirement (LGRI) Insurance (61%) Retail 230 20 Investment 142* 13 Management (LGIM) Investments (39%) Alternatives (LGC) 296 26 Operating profit from d
Slide 12: Our earnings are more diversified under IFRS and we are growing our CSM
Our earnings are more diversified under IFRS 17 and we are growing our CSM – a discounted stock of deferred profits HY23 Operating Profit from Divisions CSM Stock1 (£bn) 7% 12.4 26% 12.2 41% 11.5 13% 20% 2 HY22 FY22 HY23 LGRI Retail LGIM LGC c7% p.a. released into operating profit Implied release in
Slide 13: The CSM represents a discounted stock of deferred profits
The CSM represents a discounted stock of deferred profits that can be added to IFRS 17 equity from a valuation perspective HY23 £14.5bn • We believe it is important to consider CSM alongside equity, given the large stock of deferred profits it represents • This approach highlights the in-force CSM1
Slide 14: UK PRT capital deployment is highly efficient
UK PRT capital deployment is highly efficient Solvency II capital deployment • Capital deployed in any one year £m H1-22 FY22 H1-23 depends on volume, business mix and duration UK PRT volumes 3,715 7,319 4,866 • We are able to reduce strain through: Capital deployed 70 204 106 – High quality asset o
Slide 15: We expect to achieve self-sustainability on the UK annuity portfolio again in 2023
We expect to achieve self-sustainability on the UK annuity portfolio again in 2023 UK annuity portfolio: self-sustainability UK annuity portfolio Group £bn 2021 2022 2023 2021 2022 2023 UK PRT and Retail Annuity Volumes 7.2 8.3 8.0 - 12.0 Operational Surplus Generation (OSG) 1.1 1.2 1.1 1.6 1.8 1.8
Slide 16: The Group's balance sheet is very strong
The Group’s balance sheet is very strong £bn 2016 H1-23 • We have developed a sustainable and capital-lite PRT model Own funds 13.6 16.2 • We have written a substantial amount of Solvency capital requirement (7.9) (7.0) annuity new business since 2016 – £68bn – at attractive margins Surplus 5.7 9.2
Slide 17: Our four divisions are diversified and collectively resilient
Our four divisions are diversified and collectively resilient • Developed a sustainable, capital-light PRT growth model where OSG and NSG > dividends LGRI • Very strong balance sheet (230% solvency ratio) and diversified asset exposure (54% of assets international 1) • Well positioned to capitalise
Slide 18: Our dividend intentions are clear and we have a sharp focus on shareholder value creation
Our dividend intentions are clear and we have a sharp focus on shareholder value creation Our dividend policy Our dividend policy Our approach Our approach to capital allocation to capital allocation We are a long-term business and set our dividend The Board believes it has numerous opportunities an
Slide 19: Financial highlights
Financial highlights Jeff Davies Chief Financial Officer
Slide 20: Resilient financial performance
Resilient financial performance £m H1 2022 H1 2023 % Operating profit from divisions 1,153 1,139 (1) Group debt costs (108) (106) Group investment projects & expenses (87) (92) Operating profit 958 941 (2) New business deferred profits (NB CSM + NB RA) 549 603 CSM 11,546 12,352 7 Stock of deferred p
Slide 21: The CSM represents a key driver of future insurance profit growth
The CSM represents a key driver of future insurance profit growth Movements in the CSM balance over H1 2023 (£bn) • The CSM balance is expected to release into profit over time Retail • Interest will be added to the CSM each year based on the LGRI 5% 0.2 (0.2) average weighted locked-in rate from in
Slide 22: LGRI: Consistently delivering strong profits
LGRI: Consistently delivering strong profits Financial Highlights (£m) H1 2022 H1 2023 • Operating profit growth of 19% to £471m reflecting: • The CSM release reflects the provision of insurance CSM release 239 266 service. 3.3% of the closing CSM pre-release (£8.1bn) Risk Adjustment (RA) release 68
Slide 23: LGRI: Disciplined approach for value
LGRI: Disciplined approach for value Total Sales (£m) H1 2022 H1 2023 • Strong H1 2023 volumes: £5.0bn of PRT across 20 transactions UK PRT 3,715 4,866 • In the UK, continued momentum and financial discipline: US PRT 593 126 – LGRI achieved consistent SII new business margin demonstrating our pricin
Slide 24: Direct property exposure in annuity portfolio is limited
Direct property exposure in annuity portfolio is limited Annuity Property Annuity property exposure comprises: • c£2bn of RVNs. This is the present value estimate of the future vacant possession value of the property (i.e. the value at the 37% Residual Value Note (RVN) end of the lease term) and rep
Slide 25: Retail: Strong profit releases from large books of business
Retail: Strong profit releases from large books of business • Whilst Insurance operating profit is up 4%, driven by resilient on- Financial Highlights (£m) H1 2022 H1 2023 going profit releases in the UK and US, total operating profit is down given the lower contribution from Fintech (reflected in C
Slide 26: Retail: Maintaining price discipline in a competitive market
Retail: Maintaining price discipline in a competitive market Total Sales H1 2022 H1 2023 • Insurance gross written premium up 5% to £1.7bn, reflecting robust new business volumes across all businesses, with US Protection Annual premium (£m) 196 199 volumes continuing to benefit from our technologica
Slide 27: LGC: Resilient performance, on track to achieve ambition
LGC: Resilient performance, on track to achieve ambition Financial Highlights H1 2022 H1 2023 • Operating profit of £296m, up 13%, principally reflecting profits from our alternative asset portfolio Operating profit (£m) 263 296 • Alternative asset operating profit of £230m driven by the - Alternati
Slide 28: LGIM: Rising interest rates have impacted profitability
LGIM: Rising interest rates have impacted profitability Financial Highlights H1 2022 H1 2023 • Operating profit down to £142m reflecting the challenging market environment, with higher interest rates impacting AUM and revenue Asset management revenue1 (£m) 494 440 • Despite significant inflationary
Slide 29: Strong Solvency II Balance sheet
Strong Solvency II Balance sheet Solvency II Balance Sheet (£bn) Solvency II surplus analysis of change (£bn) 212% 230% 17.4 9.2 16.2 9.2 0.9 (0.8) 0.0 (0.5) (0.2) 8.2 (0.2) 7.0 9.9 10.031 H1 2022 H1 2023 9.356 9.2 Own Funds Capital Requirement Surplus • Coverage ratio of 230% • Solvency II surplus
Slide 30: In summary
In summary £941m £13.8bn • We have delivered a resilient set of results. We remain confident in Operating profit Stock of deferred profits achieving our five year ambitions H1 2022: £958m H1 2022: £13.4bn • Our balance sheet is strong. Our diversified business model shields us from volatile economic
Slide 31: On track to achieve our five year ambitions
On track to achieve our five year ambitions
Slide 32: 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 under IFRS 4. Under IFRS 17 1 we have a large stock of deferred profits £13.8bn and are demonstrating growth in CSM A highly synergistic and increasingly
Slide 33: On track to achieve our five year ambitions
On track to achieve our five year ambitions 2023 Half year results £1,139m £947m Operating profit from divisions SII operational surplus generation H1 2022: £1,153m H1 2022: £946m 230% 5.71p Solvency ratio Interim dividend H1 2022: 212% H1 2022: 5.44p, +5%
Slide 34: 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 35: Low growth and no recession are forecast by the IMF, OECD and Central Bank
Low growth and no recession are forecast by the IMF, OECD and Central Bank IMF OECD Central Bank 2023 2024 2025 2023 2024 2025 2023 2024 2025 • IMF expects above trend growth globally heading into 2025 UK 0.4 1.0 2.2 0.3 1.0 0.5 0.5 0.3 France 0.8 1.3 1.9 0.8 1.3 0.7 1.0 1.5 • BoE more cautious than
Slide 36: 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 37: 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 38: Annuity assets: Diversified bond portfolio complemented by high quality direct investments
Annuity assets: Diversified bond portfolio complemented by high quality direct investments Annuity Bond Portfolio: £69.4bn (out of £72.6bn) Annuity DI portfolio: £23.4bn, 32% of total assets 8% H1 2023 Property Vacant Possession Value • Defensively positioned, high quality portfolio. 14% Long-Term R
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 £69.4bn £69.4bn £69.4bn £69.4bn AAA 9% UK 46% Traded credit 67% Infrastructure 16% AA 20% USA 35% Direct investments 26% Utilities 15%
Slide 40: Our UK exposure is more diversified than might be expected
Our UK exposure is more diversified than might be expected… Annuity Bond portfolio by UK Annuity Bond portfolio UK Traded Credit portfolio geography by asset type by sector £27.3bn1 £9.4bn £69.4bn UK Annuity UK Traded Credit assets (excl. FTSE 100) UK 46% FTSE 100 exposure 14% Utilities 44% USA 35%
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 328 2 E.ON SE Utilities Germany 308 3 FGP TopCo Ltd Economic Infrastructure UK 283 4 Severn Trent PLC Utilities UK 268 5 CK Hutc
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 1,208 2 UK Govt Government 2011-2019 685 3 Amazon Communications & Technology 2018-2020 639 4
Slide 43: On track to achieve our five year ambitions
On track to achieve our five year ambitions 2023 Half year results £1,139m £947m Operating profit from divisions SII operational surplus generation H1 2022: £1,153m H1 2022: £946m 230% 5.71p Solvency ratio Interim dividend H1 2022: 212% H1 2022: 5.44p, +5%