Legal & General Group Plc · LSE:LGEN
Legal & General — Goldman Sachs European Financials Conference 2016
26 slides from Legal & General's conference presentation, Jun 7, 2016
Slide 1: Goldman Sachs European Financials Conference
Goldman Sachs European Financials Conference Legal & General Group Plc Mark Gregory 7th June 2016 Group Chief Financial Officer
Slide 2: 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
Slide 3: Ageing populations: UK and worldwide demographics trends undeniable
Ageing populations: UK and worldwide demographics trends undeniable PROJECTED UK POPULATION GROWTH BY AGE FROM 2001 Working age population Source: ONS 28 March 2014 • In the 20th century the planet’s population doubled - twice. In this century it will not double even once as birth rates decline stee
Slide 4: Ageing Population: Four Opportunities, Matching Skillsets
Ageing Population: Four Opportunities, Matching Skillsets PENSION • SAVING • PENSION RISK • TRANSFER • • LIFETIME • MORTGAGES ASSET • CREATION •
Slide 5: Longevity Expertise and Customer Access
Longevity Expertise and Customer Access • • • • • • • •
Slide 6: Financial resilience for most families remains low
Financial resilience for most families remains low 9.61m (36%) 4.7% Of households have no The average proportion of their savings, whilst a further 3.47m post-tax income, UK (13%) have under £1,500. households save. 209 6,323 People a day are declared New debt problems dealt with insolvent or bankru
Slide 7: Auto-enrolment a huge success
Auto-enrolment a huge success Legal & General DC AUM UK DC savings industry projections Workplace Customers • • • • •
Slide 8: Typical cost of retirement
Typical cost of retirement £13,599 65 83.8 Basic cost of living in Current state retirement Current UK life retirement per annum1 age (male) expectancy2 18.8 years Post retirement life expectancy £250,000 £117,000 Cost of care3 Basic cost of retirement £367,000 Typical cost of retirement Sources: 1.
Slide 9: 2016 personal balance sheet at retirement
2016 personal balance sheet at retirement ASSETS (£’000) 190 200 50 30 15 20 c.505
Slide 10: Lifetime mortgages – an increasingly important source of retirement income
Lifetime mortgages – an increasingly important source of retirement income Forecast new equity release advances 2500 2000 1500 1000 500 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 • • • •
Slide 11: UK Pension reform key to reducing welfare spend
UK Pension reform key to reducing welfare spend 250 7% 200 • Pension costs to rise 18% 150 Other in next 7 years to £110bn Child benefit by 2021 Housing benefits 100 Tax credits • 48% of all welfare spend 18% Disability / incapacity benefits compared to 44% today 50 Pensions (including credits) 0 •
Slide 12: Further opportunities to 'privatise' UK welfare
Further opportunities to ‘privatise’ UK welfare PROTECTION THE SYSTEMS ARE • The product can ALREADY IN PLACE. be designed to provide sickness and/or unemployment Sickness Job loss benefits Use auto- Phase out of • Pays benefits in the event of enrolment contributory specified circumstances infrastr
Slide 13: Defined benefit pension schemes now a legacy issue hindering corporate growth
Defined benefit pension schemes now a legacy issue hindering corporate growth Distribution of buy-out funding levels by size of scheme UK Government net public service pension liability2 membership1 £1.3trn • •
Slide 14: Managing risk with Liability Driven Investments (LDI)
Managing risk with Liability Driven Investments (LDI) Notional amount of liabilities hedged for Notional amount of liabilities hedged by UK pension schemes manager 67% Of the UKs largest pension schemes have implemented LDI strategies with a further 10% expected to implement in the next 3 years Sour
Slide 15: LGR: Nine sources of profit
LGR: Nine sources of profit Capital characteristics • S1-like 1 BACK BOOK FOR CASH • release • BACK BOOK S1-like 2 ACQUISITIONS • • release UK CAPITAL-LITE FRONT • S2 capital- 3 BOOK • • lite • US PENSION RISK US RBC 4 TRANSFER • • S2 • 5 LONGEVITY INSURANCE facilitating risk transfer • S2 6 LIFETIM
Slide 16: Pension Risk Transfer (PRT)
Pension Risk Transfer (PRT) Estimated size of major defined benefit markets UK PRT volumes (£billion) 1.8 £trillion of private DB liabilities 1.7 0.6 Source: Towers Watson Settlement Watch • • •
Slide 17: UK pension risk transfer opportunity
UK pension risk transfer opportunity • Annuity transactions • • • • • • • Private sector defined benefit liabilities • • • £1.8trn • • •
Slide 18: US pension risk transfer opportunity
US pension risk transfer opportunity Annuity transactions • • • • • • Private sector defined benefit liabilities • $2.6trn •
Slide 19: Longevity reinsurance: our capital-lite strategy
Longevity reinsurance: our capital-lite strategy BUILDING OUR BUSINESS LONGEVITY EXPOSURE AS AT 31 DECEMBER 2015 ANSWERING CLIENT NEEDS UK USA Netherlands DEPLOYING OUR SKILL SET Brand Strength + Execution Capital Management / Reinsurance • • • • DEEP GLOBAL POOL OF CAPITAL •
Slide 20: Back book to deliver material profits for many years
Back book to deliver material profits for many years Projected future cashflow Undiscounted Discounted before backbook actions* 2015 2015 LGR c.£10bn c.£5bn • £m 2014 2015 2016 • - Direct investments Further upside - Lifetime mortgages - Default outperformance Estimated annual projected unwind of LG
Slide 21: UK housing policy creating generational unfairness
UK housing policy creating generational unfairness UK housing deficit • • • • Adults aged 20-34 living with their parents £5 billion Lent by the Bank of ‘Mum and Million people Dad’, providing deposits for over 300,000 mortgages, purchasing homes worth £77bn in 2016. Source: Legal & General: ‘Bank a
Slide 22: LGC creating new assets for long term investors
LGC creating new assets for long term investors LGC Profit Sector Investors Activities Housing Build-to-sell; Build-to-Rent, Modular Insurance Housing, Retirement, Affordable, Student Annuity Funds (LGR) With-Profits Urban Regeneration European Insurance Early stage development of Funds Commercial,
Slide 23: Legal & General Capital: Direct Investing Growth Opportunity
Legal & General Capital: Direct Investing Growth Opportunity Operating profit FINANCIAL HIGHLIGHTS 2015 2014 2015 (£m) 187 162 • 233 203 • 4.2 3.9 • 867 700 69 3,213 3,704 154 1,585 718 10 5,665 5,122 233 Operating Operating Investment ROCE Investment ROCE DIRECT INVESTMENTS (£m) profit (%) TRADED P
Slide 24: UK Regeneration case study: £1bn MediaCity UK
UK Regeneration case study: £1bn. MediaCity UK LGC TARGET URBAN INSURANCE & REGENERATION PENSION FUNDS BBC asset (£162.4m) Equity £228m LGR Other offices/hot SCHEME els/Studios etc. (£297.6m) Debt LGIM(RA) £277m Future Development land (inc. PRS) (£43m) SUMMARY Actual/Potential Revenues LGC LGR LGIM
Slide 25: Clean Energy Case Study: £700m NTR Joint Venture
Clean Energy Case Study: £700m NTR Joint Venture LGC €117m (47.5%) TARGET CLEAN ENERGY PENSION FUNDS Equity c.€250m LGC €5m (25%) Incl NTR, LGC + 2 institutional Investors. On-Shore SCHEME Wind Assets LGIM Debt -> syndication c.€460m opportunities (c.66% GBP) LGR up to €460m LGR Right of First Look
Slide 26: A world full of opportunities 2015-2025
A world full of opportunities 2015-2025 GROWTH DRIVERS 2025 AMBITION AGEING • POPULATIONS • GLOBALISATION • OF ASSET • MARKETS CREATING REAL • ASSETS • WELFARE • REFORMS • DIGITAL • •
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